The transcript from this week’s, MiB: Jawad Mian, Stray Reflections, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, Stitcher, Google, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
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ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest. Jawad Mian publishes a fascinating macro advisory letter that is read by many of the most well-known and influential investors on not just Wall Street but around the world. He brings a fascinating approach and a bit of an outlier, contrarian way of looking at the world that has allowed him to identify specific changes in what’s taking place in the economy, in the markets, and essentially provide a helpful sounding board to many of the world’s best investors.
I found our conversation to be absolutely fascinating and I think you will also.
So with no further ado, Stray Reflections’ Jawad Mian.
Welcome to Bloomberg.
JAWAD S. MIAN, FOUNDER AND MANAGING EDITOR, STRAY REFLECTIONS: Pleasure being here, Barry.
RITHOLTZ: So you and I exchanged emails a hundred years ago, a long time ago, and you just surprised me by telling me I published your first published piece, which was essentially your resignation letter. Let’s start with that. Tell us a little bit about that.
MIAN: So I’ve always had this ambition to do my own thing. And I’ve had a very unconventional background. I started my career as a bank teller, but fell in love with markets. And read all the right books to get inspired. And I had this goal that I wanted to do my own thing by the time I turned 30.
And if I have a few years of savings, I’ll quit and start writing. And so I started practicing writing online. And I looked up to you as “The Big Picture” blog. and I reached out to you with some of my work and you published. And then–
RITHOLTZ: And by the way, for a young writer with not a lot of experience, your stuff was very tight and strong. You have a good voice.
MIAN: So you effectively published my work before I launched “Stray Reflections” and the last thing you published was my resignation letter, which is really the sort of inspirational, glowing, flowing words about why I’m leaving my job to unfold my personal legend as I was thinking about that time inspired by “The Alchemist.”
RITHOLTZ: So let’s talk a little bit about what Stray Reflections is today and who your clients are. Tell us a little bit about your research.
MIAN: So Stray Reflections is a macro advisory and community that works with portfolio managers, CIOs around the world. They rely on me to challenge their beliefs, expand their knowledge to help them think about the world differently and I do that through different ways. First is just my research, my writing and I’m allowed to be reflective. I don’t publish daily or weekly. I’m not reacting to events. I can be deeply reflective about what’s going on.
So every two or three times a month, I’ll write about some topic or theme that’s interesting. We do that through online events. So I’ll interview someone from the community about a particular topic. I don’t claim to be an expert in everything, but if there’s something interesting happening in biotech or in China or Fed policy or AI, we’ll have a salon, an online salon that we sort of discuss ideas.
And I think core part is just year-round events. travel to New York and London and Miami and Hong Kong and Singapore, LA, San Francisco, Dubai every six weeks and we’ll do a dinner or breakfast somewhere and we’re all exchanging ideas. A core principle is all of us are smarter than any of us and I really lean into that and so I learn a lot from the community.
And then the fourth element would be like a slack group where everybody sort of exchanges ideas in real time.
And the fifth and the most important element is just one-on-one conversations. I’m a big believer in building strong relationships That’s kind of what develops the research idea of flywheel. Understanding from people what they’re thinking, what they’re concerned about. That inspires me to focus on what I need to write about.
And so, in a nutshell, that’s what we do.
RITHOLTZ: So, we’re going to get into specifics about secular bull and bear markets. What causes the zeitgeist that leads to bubbles. We’ll talk about a bunch of really interesting things. What is and isn’t reflected in market prices and where the hell is that pesky recession that we’ve been waiting for for so long?
But for now I want to stay with the fact that unlike traditional strategists or macroeconomists, you bring a very specific philosophical bend to the world of strategy and analysis, which is something that I very much relate to. What motivated that sort of approach to writing about dry technical topics like the economy or the Fed or AI?
MIAN: I mean, some of the greatest writers, Barry, have talents that are very odd with their experiences. If you think about Herman Melville, he couldn’t stand life aboard a ship. He wrote “Moby Dick.” Ernest Hemingway spent time away from the action in the wars but he became the greatest wartime writer ever. Jack Kerouac was famously nomadic that he wrote “On The Road” at the home of his mother. Jane Austen remained single, but she became the chronicled revered chronicle of courtship, love and marriage. Emily Bronte, you know, liked to keep in her own company, but when she wrote “Wuthering Heights” people thought that it’s written by a man because she painted such a viciously brutal world. And Emily Dickinson, you know, she liked being by herself and in her poetry, she unveiled the secrets of the universe.
And so when I asked myself the question, am I qualified to provide investment advice? What I realized was in all these instances, their distance from the subject not undermined their credibility. It only allowed them to be more curious and examine it in ways that perhaps others wouldn’t. And so for the longest time, I actually thought that my unconventional background, I wasn’t an Ivy League student, I didn’t train at an investment bank, I wasn’t working for a hedge fund, I started my career as a bank teller. For the longest time, I thought that unconventional background is a shortcoming. But what I realized over the years with the help and encouragement of the community, that’s actually a core strength because how can you view the world differently from the vast majority of Western born and trained analysts?
RITHOLTZ: It’s funny that you say the phrase view the world differently. There literally was just a “Wall Street Journal” article out recently that said 90% of the investment bank economists all went to the same six graduate schools. Which means that as much as we’d like to think there’s some variation of thought, essentially it’s the same factory cranking out the same widgets. We can’t be surprised that they all more or less say the same thing.
We’ll talk about the forever coming but never seem to get here recession. But that seems to correlate very strongly that the same group of people with the same background are going to yield the same investment results. Is that more or less fair?
MIAN: I can’t speak to others. I know–
RITHOLTZ: Well that’s very generous of you.
MIAN: But it certainly, look, when I launched the business, I realized I’m not unique in what I do because there are lots of other people out there who are writing opinions about the market, but I am unique in who I am. And so I’ve made it a point to always write from a personal space and really cultivate the craft of writing and really examining markets objectively, becoming very agnostic in my analysis as opposed to ideological and empirical as opposed to dogmatic.
So I don’t care to be consensus or contrarian, bullish or bearish. I just want to be independent and come to the truth.
RITHOLTZ: So in a lot of your writings, you cite Lao Tzu, Buddha, Confucius, Seneca. That’s a broad assortment of influences. What led you to that group of thinkers and how do the great philosophers affect how you think about market issues?
MIAN: Look, I think life and markets are intertwined. the biggest risk in markets is ego. I would say the biggest risk in life is ego. The biggest virtue in markets and life is humility. I often say successful investing is only possible with knowledge of oneself. So I think for me when I started writing it was as much a process of self-inquiry as it was examining markets. And you sort of see the overlap and similarities and the biases and the common mistakes that keep coming up. You just have to keep cultivating a better version of yourself and keep working in progress.
And I feel like there’s a lot to be said about ancient wisdom. It’s almost like everything’s been said before, but no one was listening, so it’s being reported again and said again.
So I benefit a lot from the virtues, the wisdom, from ancient sages, poets, philosophers. I think it helps me see the world clearly. You know, I believe the more clarity we have internally, the more clarity we have in seeing things. And so all those people that you cite are helping me in terms of being a better person, being aware of my biases and just, yeah, being a much clearer thinker.
RITHOLTZ: So let’s talk about that ego and humility. All the best investors recognize their own fallibility, the fact that nobody bats a thousand, that we all frequently make mistakes. Ray Dalio’s book “Principles” is essentially a treatise on Go try something, make a mistake, learn from that error incorporated into your process, try again.
But even saying it out loud, it still sounds fairly radical. Why can’t we accept the fact that investing is such a humbling art and requires humility of its practitioners?
MIAN: The way I think about it, Barry, is again from a spiritual angle, all the prophets made this particular prayer. “Oh God, show us things as they are.” And so for me, the objective is to see things as they are, not so much as how I want it to be. So I even watch myself when I use the words like “should.” The market should behave this way. I think that’s hypocrisy. The market shouldn’t behave one way or another. It is what it is, right? So I’ve got a particular view, you’ve got your view, and then there’s a divine view, or the market view. So how can you get close to that truth? Only by shedding yourself, shedding your ego, insisting that the market behave a particular way. And I’m okay to be curious, you know? And that’s a big difference.
RITHOLTZ: I always think of various strategists, economists, traders, whoever. It’s like the, I want to say, John Saxe poem about the six blind men describing the elephant. Everybody captures a small aspect of it. Oh, this ropey thing is the tail, and here are the tusks. But very few people manage to see the entirety of the market because of their vantage point.
MIAN: And I think that’s where the community comes in, right? Because I don’t claim to be a guru or a market expert. I’m just genuinely curious and I’m happy to know and admit that I don’t know everything. Frankly, that’s been one of the greatest liberalizations in my life is the fact I don’t need to know everything and I don’t know everything and I can rely and trust other people within the community.
So I don’t have a particular strong opinion about a particular topic. I’ll go look at the expert and have a conversation with him or her. And so I can lean on the community. Again, this idea that all of us are smarter than any of us. And I don’t have a particular ego that needs to be presented and, you know, articulate in a particular way. I’m happy to just say, I don’t know when I really don’t know.
RITHOLTZ: Huh, really interesting. Let’s talk about something you published last August, in the midst of the first double-digit downturn for both stocks and bonds in the same year, and in just about 40 years, you defined and discussed a secular bull market and that very much resonated with me. Before we go further, let’s just define it, what is a secular bull market?
MIAN: So a secular bull market would be a period of, a long period of above average equity returns where you have pullbacks but they’re shorter in duration and magnitude than otherwise expected and the recoveries are quick and you’ve got rising risk appetite and valuations climb or expand and the secular bear market will be vice versa, right? The fact that you’ve got declining risk appetite, declines are prolonged, deep and valuations mean revert.
RITHOLTZ: So let’s take a couple of examples.
Tell us about the post-World War II secular bull market. How would you define and characterize that period?
MIAN: So by 1950, the S&P 500 was stuck at the 20 level on the index for about 13, 14 years. And in the 1950s when you finally broke out. And between 1950 to 1968, which is the first secular bull period, you had a gain of about 450%. You had 1950s, which is the best decade for stocks ever, we forget. But that still, that whole period actually had three recessions. It had the Korean War, it had the Cuban Missile Crisis, it had the race riots, it had three corrections of over 20%. It had bond yields that went from 2.2% to nearly 6% and yet equities did well. That was a period of 1950 to 1968.
The second, and what’s interesting about that period, is the fact that valuations actually peaked in 1961. Yet the market peaked in 1968.
RITHOLTZ: So in other words, despite falling multiples, the prices continue to go higher.
MIAN: Yeah, so —
RITHOLTZ: Interesting.
MIAN: Valuations are ebb and flow. So the peak in valuation was in 1961, at 22 times multiple, but by 1968, even when the index made it stop, the PE was trading at 18 times. And the reason that’s important is because there’s a lot of talk about valuation now. And I feel like we may have seen the valuations peak for this cycle in 2021 at a 23 times forward PE. But that doesn’t mean necessarily the secular bear market is over. So this secular bear market that we’re in today began in 2013 when we finally broke above the 1,500 level that was capping the index since 2000.
RITHOLTZ: Right, so it was a 13 year secular bear market that had huge rallies, huge sell-offs, but you never got above that 2000 peak.
MIAN: And the second bull market began with a 4p of 13. We rose to 23. Last October we bottomed around 15 in a bit. And we’re at 18 now. So again, this is 13 to 23, down to 15. We will not get to 23 in my opinion, but can we get to 20, 21? Sure, I think so.
RITHOLTZ: So you mentioned the Korean War, you mentioned recessions. wrote about the JFK assassination, the Cuban Missile Crisis, a lot of things happen. How do we contextualize an extraneous event like the pandemic? Does it say to us, “Hey, this secular bull market is over” or does it just cause a wobble and we go back to the prior trend?
MIAN: So every secular bull market usually has like this mid-cycle crash.
RITHOLTZ: Right, ’73, ’74.
MIAN: Was a bear market actually.
RITHOLTZ: Was in the middle of the bear market. You’re saying bull markets have a secular market.
MIAN: Even a secular bull market has like a mid-cycle crash right so for example in the 1950 to 1968 bull market, the mid-cycle crash was the 1961 Kennedy bear market, the market fell down 30%. In the 1980 to 2000 market you had the mid-cycle crash and the 1987 crash.
RITHOLTZ: You had 1987, you had 1997, you had 1998 there were a number of really substantial.
MIAN: But do you have an event that really shocks investors right just like 1987 was very shocking and the decline in in the Kennedy bear market was very shocking, happened very quickly. And the pandemic was something like that. It was a mid-cycle crash in the way I perceive it. And so what’s more important, I think, apart from just the technical conversation we were having around the indices and the breakouts, the pandemic made a significant difference from a fundamental standpoint. Because obviously fundamental underpinning to the secular bull market, you know, number one is the fact that households are in better financial conditions than they have been since, you know, the GFC.
But number two is from a demographic standpoint.
RITHOLTZ: Right.
MIAN: The millennials are now the largest generation in America. And if you think about the 1980 secular bull market, 1981 is when you had the baby boomers begin to turn 35, entering their peak earning years. The millennials started doing that in 2016. And the pandemic was important because after the pandemic, household wealth for millennials increased.
So if you compare it in present dollars, So when the boomer turned 35 in 1981, his net worth was around $136,000. In comparable dollars today, the millennials at $128,000.
RITHOLTZ: So comparable on an inflation-adjusted basis.
MIAN: Absolutely. And what’s more interesting is that the pandemic, I think, created this psychological fear and anxiety about wanting financial safety and securing your financial future. So you’ve seen more home ownership interest and more stock participation because the pandemic was like this visceral death experience.
RITHOLTZ: Wake up call.
MIAN: Wakeup call and you want to — and money’s a proxy for safety. So you’ve seen this dynamic where millennials are increasingly taking participation in financial markets and home ownership. And like so home ownership has increased from 38% to 46% for millennials over the last seven years. And that’s going to continue to increase. So they’re entering the peak earning years and that I think that’s demographic impulse are still underappreciated.
RITHOLTZ: Interesting. Let’s talk about that 80 to 2000 bull market. Some people dated it 1982. It depends if you’re looking at the Dow or the S&P. How did the S&P do over that 20 year period?
MIAN: I think during that period, we’re probably up about 1700%, I believe.
RITHOLTZ: 1700%, because I know the Dow was about 1000%. The S&P did even better.
MIAN: Yeah, and I think what’s interesting about that period is again, you had the ’87 crash, you had the 1990 S&L crisis, You had the Gulf War, the LatAm crisis, the Asian crisis, the Russian default, the bloodbath in ’94. So you always have these events and you still had three corrections of over 20%. And so even the current secular bull market, when you put it in context, the reason the context is important is because we’ve been in the secular bull market where currently since 2013, the stocks are up 175%.
So we lack the upside, we haven’t reached the sort of upside in terms of price and not even in terms of duration. So the previous bull markets were 18 years long. We’re like nine years in. So it’s two thirds of the way through, I would probably say.
And so what’s interesting is we’ve risen 135% despite the US-China trade war, despite the pandemic, despite unacceptably high inflation, the energy crisis in Europe, bank failures again, despite all of that. And I think we’re going to continue to power ahead because of structurally changes in the economy that again, we’re not appreciating fully.
RITHOLTZ: So what do people misunderstand about cyclical versus secular bull markets. And as long as we’re talking about that, I have to ask, what’s the significance of the 20% measure that the media seems to love for starting and finishing bull and bear markets?
MIAN: Yeah, it’s interesting, right? So I think the 20% measure, there’s nothing significant about it, but it’s an interesting study that we can do around it. So what we looked was, let’s segment the 20% decline. between a secular bull market and a secular bear market, and what’s the difference? What you realize is when you have a 20% decline plus in a secular bull market, the average decline is 27%, and the recovery to the high is nine months.
In a secular bear market, the average decline is 43%, and the recovery to the high is 48 months.
RITHOLTZ: Huge difference in both depth and duration.
MIAN: So when people compare the current sort of bear cycle to 2001 and 2008, the reason I think that’s flawed is because that was in a secular bear market.
RITHOLTZ: And 19% and so in other words, you’re implying that the recovery to the pre-2022 highs is not that far off.
MIAN: Is not that far off.
RITHOLTZ: Huh, that’s really intriguing. Zoom out a little bit. What makes a secular bull market so strong, so pervasive, long lasting and resilient?
MIAN: I think I mentioned the demographic impulse. I think it’s a significantly important one. I think the second is the household finances, which is also related to why we’ve somehow skirted a recession so far and the consumer remains–
RITHOLTZ: Consumer spending’s at all-time highs. It’s really robust.
MIAN: You know, a question I like to ask is what is happening that shouldn’t be, or what is not happening that should be, right? And given the sort of Fed tightening and all the information we received, it’s surprising to see the markets hold up. Simple answer, second level market. It’s significant to see the housing market bounce back. Simple answer, demographics. And while we aren’t in a recession, simple answer, I would say that rate sensitivity in the US economy is historically low. And what I mean by that is, post GFC, we had this beautiful deleveraging that Bridgewater talked about.
RITHOLTZ: Right.
MIAN: But post-pandemic, it’s gotten even better because you had the boost to incomes.
RITHOLTZ: Right.
MIAN: and you had the further drop in interest costs.
So if you look at household debt service to disposable income ratio–
RITHOLTZ: That’s as good as it’s ever been.
MIAN: Below 1980 levels when the data series began. That’s pretty significant. So you can have a 5% fed funds rate and the consumer is not stopping. At the same time, if you look at corporates, they extended their maturities for their liabilities from five years to seven years. Their interest cost as a share of debt is 3.5%, the lowest since 1950.
And then you look at the mortgage market, that’s another phenomenal backdrop. So the rate sensitivity to the US economy is historically low. So the household’s in a much better position today than they ever were. The reason, despite global tightening, we haven’t seen a slowdown in sort of, in a major slowdown in consumer spending is partly because of the fact that we had significant, you know, gains in savings, not just excess savings, but total savings because of hours worked.
So checking deposits today are $4 trillion higher than they were pre-pandemic. We’re under appreciating the amount of money still in the system and what that means for demand.
The demand side of the economy, because of the pandemic, a massive upward shock that I still don’t think that we’re fully getting our heads around.
RITHOLTZ: Really quite intriguing. Let’s talk a little bit about how markets fool people. What is it that makes investors so susceptible to being fooled and why do investors seem to love the bearish argument, why is that so compelling?
What makes Mr. Market so able to convince us of one thing and then he goes off and does something else?
MIAN: It’s interesting. A question I’ve been asking is what if the greatest trick the market ever pulled was convincing investors that we’re still in a bear market?
RITHOLTZ: Right, a variation of the old devil quote from, I don’t know if that’s New Testament, Old Testament. So lots of people are negative. Lots of people are bearish. It’s not quite as bad as my recollection of 2010, ’11, ’12, but coming out of the financial crisis, people stayed bearish despite the 56% collapse in the S&P.
You would think that should be enough to say, “Okay, we got our bearish reset. Last year was pretty modest, down 19%. Yeah, bonds were down 15% but everybody seems to think that’s it, it’s over.”
MIAN: It is a difficult business though, Barry, right? If you think about it, it seems so obvious now that we should be owning Microsoft and Apple and Amazon and Google and Facebook. So obvious, but I would argue 10 years ago it wasn’t so obvious. 10 years ago you had the top economics, economists, investors in America writing a letter to the Fed in 2010 saying, “Hey, stop QE. “You’re going to create hyperinflation and debase the dollar.”
RITHOLTZ: Right.
MIAN: In 2011 you had the debt ceiling crisis, the credit rating got downgraded, the dollar was at a 50 year low. So you did not have policy or political leadership that was very inspiring. In 2012 Facebook went public, the IPO flopped.
RITHOLTZ: That’s right.
MIAN: From $32 to like I think 16 or $18.
RITHOLTZ: Yes.
MIAN: In 2015, Carl Icahn sold all his Netflix stake because it was too expensive. Netflix was the best performing stock last decade. He sold half his Apple stock in 2015. In 2015, Bill Gurley at Benchmark was saying Silicon Valley is in a bubble. So it’s interesting to do this exercise, the fact that it seems so obvious today, but it wasn’t obvious to hold on to these companies. It wasn’t so obvious that America will be the investment destination that’s going to matter. And so it’s curious that I think we need to just remind ourselves of this the fact that it isn’t always easy and what could we be missing you know right now in the present.
I always say my job is not to predict the future it’s to see the present clearly.
RITHOLTZ: Which is much harder than it sounds.
Let’s talk a little bit about something that people seem to have a hard time recognizing and that’s each decade a theme emerges and yet this tends to come with some problems.
MIAN: It’s an opportunity if you think about it because in 1970 like every decade something happens. So in 1970 it was the in the 1970s it was the 1971 breakdown of Bretton Woods and that led to inflation and the gold bull market. But 1980 onwards you wanted to avoid gold. The zeitgeist of the 1980s was Japan’s taking over the world. So you only be long Japanese equities and Japanese real estate. It was Japanese management techniques that were being passed around. Your children were learning Japanese, Japanese were the villains in American movies, Japanese were buying real estate in New York. But 1989 onwards, that was a disaster.
The zeitgeist of the 1990s was the internet. You want to be long NASDAQ. March 2000 onwards, stopped working. It’s really interesting how they’re literally a calendar decade, Barry.
RITHOLTZ: Right.
MIAN: The zeitgeist of the 2000s was China’s entrance into the World Trade Organization in June 2001. So suddenly you can have the build out of the world’s second largest economy, you’ll be long in EM and commodities.
The zeitgeist of the 2010s was best articulated by Marc Andreessen in 2011 in a “Wall Street Journal” article, “Software is Eating the World.” So what you’re seeing now is the unraveling of that zeitgeist. So 2021 was the peak of that zeitgeist. It was all about software and cloud. And the question is now, the software zeitgeist is over, what’s the zeitgeist for this decade? And what we’ve been writing about and discussing in the community is that we believe climate is a zeitgeist for this decade, not that climate change —
RITHOLTZ: Just starting now, not peaking now, starting in 2023.
MIAN: Starting now, so from the 2020 to 2030, just like software was from 2010 to 2020, from 2020 to 2030, the zeitgeist is climate.
RITHOLTZ: Is that an investable thesis? Is that something people can put money into? Because when, sure, you can look at the low carbon funds and things, but are there a way to say, I want to participate in EMs and lithium and wind power and battery technology and all the things that are going to drive the next decade. How does an investor participate in that?
MIAN: So the interesting thing with climate is there are multi-faceted ways to play it. Different sectors, different opportunities from a bottoms up standpoint as well. And again, now that it’s become a global economic and political priority, it’s become a solution for spending as opposed to a risk.
You can see higher CapEx this decade, so that benefits certain sectors. I think the simplest expression would be the EV revolution in many ways. I think the China EV, I think BYD would be a key asset to own this decade. I think that could be the simplest expression of what goes on. I think, I don’t believe we’re in a commodity super cycle, but I do believe certain commodities will win. And the way to think about commodities is naturally as it relates to the energy transition, but more specifically, it’s not related to China growth, it’s related to China climate.
What I mean by that is that most likely no Western government will meet their climate targets. The Chinese will meet their climate targets because for them it’s an existential issue. Air pollution is a crisis. What’s the point of common prosperity if you’re going to get sick?
RITHOLTZ: Right.
MIAN: And so China’s old growth model was one in which they increased production capacity in a lot of base metals because they wanted to create employment. That no longer makes sense.
So for example, China became two thirds of the global aluminum market. They’re going to start to reduce capacity within that to reduce emissions because they’re importing raw materials to produce that. So they’re probably emitting 16 to 17 ton per carbon per ton compared to what I’d say someone like Alcoa is doing, you know, two or three. And so you’re going to see China rationalize its industry, its capacity in certain key base metals, aluminum and steel are amongst them.
And I think you want to monitor what they’re doing on the climate front to understand which commodities to be long, not across the board. And so certain commodities will do well as part of the energy transition. I think China EV story works. You know, a lot of it is just retrofitting and, you know, like buildings. and you know the role ACs play in emissions and retrofitting that and there’s a lot of companies sitting in Japan and Korea and Taiwan that are mid-cap engineering names that sort of benefit from that.
You know higher CapEx like I mentioned, you know who benefits from that. And so what you’d realize as you look at deeper and deeper into this, it’s not so much a US centric story, it’s a much more global story. So you could argue you can see non-US markets begin to outperform.
RITHOLTZ: And that’s already happened the past 18 months. Developed x-US has done better than the US markets have done going back to let’s call at the end of 2021. So that’s following what a 10 or 14 year period of US outperformance. So not unexpected.
Let me throw a quote of yours at you and have you describe it. “It’s more valuable to consider why we aren’t in a US recession rather than nervously dreading one.” Explain.
MIAN: Again that’s the point of you know staying in the present and I think the reason why we’re not is the fact that I think rate sensitivity is historically low.
RITHOLTZ: Rate sensitivity.
MIAN: Rate, interest rate sensitivity for the US economy is historically low so you can actually have 5% interest rates and the consumer doesn’t stop because we are not fully adjusting for how strong the household finances are. But more important than that, based on I think more recent conversations, I would argue maybe you’ve already had a recession.
And the only indicator that hasn’t cracked yet is the labor market. And that’s what everybody is sort of focused on now. And my view there is also sort of contentious because I don’t expect the labor market to crack. I actually believe the labor market is in a secular tightness. Let me explain.
In the past, recessions have basically destroyed demand. You’ve seen job losses in goods producing sectors, manufacturing, auto, construction. Job openings take years to recover. The pandemic was different because the disruption happened in labor supply. And on the demand side, we actually created a huge positive demand shock. So it’s complete reverse of what we’ve ever experienced.
So we’ve seen a positive demand shock when labor supply got hit. And now you’ve seen a situation where you still have high job openings and the service sector, which comes up with 80% of jobs, is still looking to hire.
So how are you going to see the unemployment rate go from 3.5% to 5% in that dynamic? Let me give you specific examples. Last year, bad year for single family housing. Overall, you know, conditions were pretty poor for housing. Construction employment last year was a record. There’s still a shortage of construction workers. Job openings in the construction industry today are twice what they were during the mid-2000s boom.
If you think about construction specifically, since the construction activity peaked in mid-2006 it took 18 months for unemployment in the construction industry to go up. Today the order backlog is bigger, it’s going to take more time, the labor shortage is worse because you’ve got early retirements and lower immigration and so I would argue you can see the economy weaken even the housing market weaken without an increase in joblessness across the board.
The only sector of the economy that overhired was tech.
RITHOLTZ: Right.
MIAN: And that’s where you’re seeing layoffs. But if the construction of unemployment doesn’t pick up for the reasons that I’ve outlined, you’ve got auto demand that remains robust. They’re not letting go of people. Manufacturing seems to be bottoming with ISM where it is right now. So who’s actually going to let go of workers here?
RITHOLTZ: Nobody. So, let’s talk about some of the factors that are driving that labor scarcity. You mentioned immigration. Legal immigration has been trending lower since the Gulf War in 2003. We changed the rules as to who could stay in the country following coming here for college. We basically eliminated a lot of the most capable, most qualified immigrants. That’s 20 years in the making.
You mentioned COVID. A lot of people still suffering from long COVID. Disability has been on an upward trends for 20 years and on the male side of the labor force participation rate, that’s been trending down for decades also. Why would anyone imagine we’re going to have excess labor supply anytime soon in the United States?
MIAN: So I think you’re seeing improving immigration trends not just in the US but globally and I think that’s a structural theme that we should pay more attention to.
RITHOLTZ: Improving immigration trends, does that mean we’re going to see more legal immigrants in the United States by substantial numbers?
MIAN: I mean it’s very difficult to quantify, but I think it’s a trend, it’s a structural trend globally, not just in the US. Like even countries that were not historically very friendly to immigration realize from a demographic standpoint, they need to open up.
RITHOLTZ: Right.
MIAN: And so we’re going to see that. So again, for me it’s like on the margin, what can happen in the future that’ll positively surprise? I’m negatively surprise, but I think in a world right now where everybody’s asking, it’s so easy to think about what’s wrong with the world, Barry. It’s more difficult to think about what’s right with the world.
And usually when you ask that question, people shift in their seats because they’re not used to thinking about what’s right with the world. It’s more difficult to point out oftentimes, but I think immigration is one of those trends that’s what’s right with the world. Because if you look at just working as population growth in the US can be 60 basis points this decade. But the real upsides are going to come from productivity.
And so I still think immigration is going to sort of do some improve from here I should say, going forward on the labor side. And then we still have record employment in the US, right? Like you know….
RITHOLTZ: Right.
MIAN: We’ve had the prime age participation rate recover. We’re suddenly realizing that early retirements wasn’t a thing and you know, people are coming back to the labor force. So it’s very difficult given this, this is why I’m saying that I think we can actually have a secular tightness in the labor market.
The concern amongst investors is that they fear stagflation. I don’t see a future that’s stagflationary.
RITHOLTZ: Right.
MIAN: A stagflationary future would destroy your fixed income and equity portfolios, right? The future that I’m seeing is one of productivity-led growth. And this is a look-back period that’s important. Because when you think about debt ceiling, you think about 2011. When you think about the regional banking crisis, you think about 2008. You think about inflation, think about ’70s. But we don’t have memory of anything that remotely resembles a productivity led growth era. But that was the 1950s.
So you could have secular tightness in the labor market. The AI boom is coming at the right time where you could see wages, profits rising simultaneously where inflation is relatively contained. Because even if wages are growing at four, four and a half percent, if productivity grows at two percent, your overall inflation picture is not that bad. Labor costs aren’t going to crush your margins. So I think the real possibility is one that the future is not stagflationary, but one of productivity-led growth, which is extremely bullish for nominal growth and equities.
RITHOLTZ: Really quite fascinating. So let’s talk a little bit about some of the other ways you find interesting ideas and get a sense of what’s going on in the here and now.
Tell us a little bit about the one-on-ones you have and the dinner salons you have and what comes from those.
MIAN: So we do about 10 dinners a year in different cities and I travel according to what’s happening in the world. So that’s more timely and interesting from a conversational standpoint and benefits the whole community. Tongue in cheek, I call these dinners the most interesting dinner in the world. So I really set expectations very high. I found the best gathering is about 10 people. Everybody’s requested to bring a chart to discuss. It could be–
RITHOLTZ: A chart?
MIAN: A chart. It could be a stock, it could be–
RITHOLTZ: I like that idea.
MIAN: Something that they are interested in and they would like to share with the group. It could be a picture of your dog. I really don’t care, but you have to become prepared.
I feel like when people are thoughtful about what they want to come and share, it’s more interesting than just rambling conversation. I make sure that we’ve got certain rules, no egos, no business cards, no (EXPLETIVE DELETED).
RITHOLTZ: (LAUGHTER)
MIAN: Try to really set the tone.
RITHOLTZ: Well that really limits who can participate. You’ve cut it down radically.
MIAN: So really be very intimate. And it’s not me pitching something. I’m more curious and just facilitating conversation, learning from everybody. And the last rule is no one leaves without a hug.
So it’s 10 people, usually CIOs, portfolio managers, from different sort of hedge funds, long only funds, family offices, pension CIOs, so it really varies. Again, based on what I think is topical and interesting. So we do those eight to 10 times a year, and then we’ll do breakfasts, which are more easier to organize, and tongue in cheek, I call them the breakfast, the moderately interesting breakfast. Because again, it’s early in the morning, you haven’t had your coffee, lack sleep, so just moderately interesting ideas are enough to share with each other.
RITHOLTZ: That’s interesting. I’ll tell you the two — so we’ve been hosting these dinner salons for I don’t know the past going back to the financial crisis and the two interesting things I’ve kind of learned. The first is it’s a little bit like you’re right about the size eight to ten is as big as you get as you want and even there you still end up with these side conversations and you want everybody talking about the same subject in the middle of the table not three groups of two, three, four.
MIAN: So I have a rule, no side conversation.
RITHOLTZ: No side. We have the same rule and then we did something, I don’t remember when this was, it was a couple of years ago and I try and remember to do it every dinner but it’s really fascinating. At the end of the dinner I want everybody to recommend the most interesting book they’ve read over the past year and you get some fantastic eclectic, wildly unexpected book recommendations from people. Because I think that’s all people want is give me a really interesting book to read and I’m happy for 30-40 hours. You’ve just made me happy with that.
So you hold these. You mentioned after the China first quarter you did something in Singapore. If there’s a big Fed meeting coming up do you do that in DC? Do you do that in New York? Where would you hold something like that?
MIAN: I found New York is the best place for like Fed centric conversations.
RITHOLTZ: Why is that?
MIAN: I don’t know, it’s just part of the culture. You know, the macro guys are very obsessed with–
RITHOLTZ: They’re all here.
MIAN: Yeah, the one they’re all here, but also pay very close attention to what the Fed is saying, what the Fed is doing. You know, rates and effects matter, you know, it matters a lot.
And so every city actually has its own interesting, like Hong Kong dinners will be very China centric. Singapore is very pure macro because you’ve got a good Asian pulse, but you also have some funds there that are really plugged into what’s happening in the US and Europe.
The London dinners will be a mixture, still annoyed with Brexit and EU policy and other sort of interesting themes come up from there.
RITHOLTZ: Well, unforced errors get everybody upset, right? It’s just, why did you do that? That was silly.
Let me ask you about Singapore. On my list of places to go, never been, I have been told from a wide variety of people that it is absolutely the best food destination in Asia.
MIAN: I’m not a foodie, so I can’t say if it’s the best food destination. It’s certainly a city that I love.
It’s such a, especially from a macro community standpoint, like you’ve got everybody there, walking distance. It’s just fun. And I think what I’ve learned from my Singapore conversations again, because it’s East and West, good mixture is probably some of the best conversations I’ve had in, around the world.
RITHOLTZ: In Singapore. Really? What, where else besides London do you, do you like to host these in Europe?
MIAN: Just London so far.
RITHOLTZ: Really?
MIAN: I mean, so it’s London, New York, Miami, Hong Kong, Singapore.
RITHOLTZ: What do you think of Miami as a city? I’m always, I’m always, every time I go to Miami, I want to like it and Miami always manages to disappoint me somehow, including Michelin star rated restaurants that won’t serve decaf after dinner.
MIAN: I’m not that opinionated. You know what I mean? I don’t, I don’t, I mean, I don’t have a strong judgment on cities and people. And so I go, and usually again, I’ve got young children, so I’m usually going for like a day, three days, two days, four days.
RITHOLTZ: That’s a lot of travel for a day or two, right?
MIAN: So I’m just going, meeting clients who are also friends and doing the dinner and coming back. So I’m not usually spending a lot of time in Miami, checking out the city, the food scene. I love Wynwood Walls. One of my favorite people is in Miami, Peter Tunney, who I love to spend time with. So I feel like in every city I’ve got someone deep that I connect with or something about that place. A city that I’m dying to visit and host a dinner is actually Boston because of my love for Ralph Waldo Emerson. I haven’t visited, I just want to go and pay a tribute to him and Khalid Gibran actually as well, who was living in Boston for a very long time.
RITHOLTZ: I was going to recommend some restaurants in Boston, but you don’t —
MIAN: They must have a round table. That’s the other rule. I only do round tables in a private room.
RITHOLTZ: Well, the private room, otherwise you can’t hear, but there are a lot of places where you end up with a rectangle, but it’s hard. It’s hard, right? That lends itself to those side conversations.
MIAN: Exactly.
RITHOLTZ: So, without revealing any confidences, and I’m assuming everything is off the record, private, you’re not repeating.
The last salon you held, tell us about some of the conversations that took place. Who said what, and I mean this economist, this PM, without naming names, what sort of topics came up?
MIAN: I’ll tell you what surprised me, because the last dinner we did was in Singapore, and I was surprised at the amount of conversation, time spent discussing the US economy and the consensus about a recession.
RITHOLTZ: Which has been going on for 18 months now.
MIAN: Not something that I would expect in Singapore.
RITHOLTZ: Oh, really?
MIAN: So it almost felt as though news here was infecting there in terms of the fact that it’s inevitable or it’s ever present. It’s almost like a foregone conclusion.
RITHOLTZ: Right.
MIAN: So that was something that was unexpected. But again, because those views are also coming from people that I love and respect. And so that makes me think twice about my view and makes me go back and do more work on what am I missing and what are they getting right?
And so that was my lesson. It forced me to think deeper. And I’ve come back looking, so my focus on the labor market was partly as a function of me attending that dinner and hearing that from the community to make sure that what am I missing in the labor market? How can I get more robust in my analysis of the labor market? And I’ve come away thinking that actually, yeah, I still stand by my view that the labor market will remain tight, secular fashion won’t crack the way people expect. And now it’s my job to share that with the community and get feedback. And so that’s kind of how the process works, the research idea, discovery, flywheel works.
RITHOLTZ: So you mentioned something earlier I want to circle back to talking about the expectation of recession and you said that there is a tendency for people to ignore good news and focus on bad news. Let me throw this out there. From an evolutionary perspective, isn’t threats and security risks and bad news, an existential risk versus good news is just, Hey, we’re all doing a little better.
MIAN: From a spiritual perspective.
RITHOLTZ: Right?
MIAN: I would say I’m, I’m born to be grateful.
RITHOLTZ: Okay.
MIAN: And so I always see the bright side of things.
RITHOLTZ: I’m with you. I’m, I’m a glass half full guy. Also mathematically, half of zero is zero so there’s no such thing as a half empty glass. But you know the Morgan Housel wrote this really interesting piece that said following the first flight of Kitty Hawk it took newspapers 20 years to start talking about flight but the first instant there’s any sort of trouble, it’s headline news. My curiosity is how Darwinian is this? How much of the — your spirituality is not the traditional state of human psyche. We are — seem like we were built to over anticipate threats.
MIAN: Perhaps. My philosophy on that is simply the more we look at others the more neglectful we become looking at ourselves.
RITHOLTZ: So let’s talk about that because some of some of your thoughts on knowing yourself how could you be a good investor if you don’t understand yourself? Let’s delve into that. How important is self-awareness and self-enlightenment in managing capital and risk?
MIAN: I don’t know about enlightenment but self-awareness certainly is I think very important.
RITHOLTZ: Is there that much of a distinction or am I using overly broad terms?
Like I think of self-enlightenment and self-awareness as part of the same spectrum.
MIAN: Right. I think awareness is important, right? What’s the motivation? Why are you in this business? Like it’s just asking a simple question like why do you care so much about investing?
RITHOLTZ: You want to ask me or just generally?
MIAN: Yeah, just diving deeper into a person, right? Why do you care so much about investing, what is it doing for you? You know, like for example, you, I think I read somewhere recently or heard that you don’t know why you’re drinking until you stop drinking.
RITHOLTZ: Okay, that’s fair.
MIAN: You don’t know why you’re trading until you stop trading. It’s like what is our underlying motivators? You know, in the industry a lot of people struggle with ego and identity and you know, like so what are your underlying motivators? It’s just getting to know who you are, why you’re doing what you’re doing. You know, how do you become more flexible in your thinking, adaptable? I often say the biggest risk you need to manage is yourself. It’s not a position, it’s not what the Fed is saying, it’s not a political event, it’s yourself because you’re going to react to a particular news story or a particular event, right?
So the biggest risk you need to manage is yourself. So if you don’t know yourself, it’s pretty difficult.
RITHOLTZ: One of the comments you had written about was the obsession we have with things that we can’t control. We can’t control the economy, we can’t control inflation, we can’t control what the Fed does, We can’t control what Congress does, but to your points, you can control yourself and your own reaction, given that, are we spending too much time focusing on news when we really should be focusing more on things that are within our penumbra of being able to manage, modify and control?
MIAN: Perhaps, but again, it depends on what you’re doing, right? So I certainly do that. I can’t speak to other people. But I have the luxury of doing that because that’s partly why I get to do what I do is because I can zoom out, I can disconnect to come back with some reflective, deep, refreshing thoughts that will sort of help the community, the client base in a particular way.
But obviously if you’re macro PM, you can’t disconnect. You know, if you’re a CIO of a pension fund, you’re always thinking about your employees and your portfolio and the plan sponsors. So I have a luxury, I think, Barry, to design my lifestyle in a particular way that gives me an edge maybe, that I appreciate that not everybody does.
RITHOLTZ: All right, so let me throw you a curveball question. I got to ask, you write all the time. Why write a book? Tell us what motivated you to turn “Stray Reflections” into a bound printed book.
MIAN: So I didn’t write the book. What actually happened was, like I mentioned earlier, I wrote from the very beginning from a very personal space. So at the end of every issue, there’d be a personal reflection. It could be my daughter being born, my grandmother dying, meeting a friend, reading a book, some travel experience. So I’d always made sure I ended on a personal note. I realized when I started writing, there was a lot of reservations. Will I have something meaningful to say on a regular basis?
And something Rumi said struck with me and he said, “Words are just a pretext. connects one person to another is that inner bond, not words. So I realized I want to write from a very personal space, I want to write from the heart. There’s too much brain intelligence, you know, in our industry, like, let’s connect at a personal level. So the book is simply a collection of all those personal reflections that I’ve been writing since the beginning of the publication.
So I didn’t write a book separately. It was, you know, I held this conference in 2018 in the desert and I was trying to think of a way to give a thoughtful gift and this idea came about. So we just assembled all the reflections into a book that you can just order on Amazon. But back then we just printed it and gifted it to all our clients. And there’s a lot of people who would ask for it. And I’m glad that it’s just available for anybody to sort of pick it up or for me to keep gifting it. I’d much rather meet a client and instead of giving them a presentation about housing or this or that, just leave a copy of my book on their desk.
RITHOLTZ: Really interesting.
We only have you for a little while longer. Let me jump to my favorite questions that we ask all of our guests, starting with tell us what you’re paying attention to these days in terms of entertainment. What are you listening to in terms of podcasts or are there any Netflix or Amazon shows that have caught your attention? What’s entertaining the family?
MIAN: I actually don’t get bored to feel the need to be entertained so I actually don’t listen to music or watch movies. I’ve got three young daughters and I love spending time with them.
RITHOLTZ: Do they watch TV? Do they watch listen to music?
MIAN: They watch cartoons so we’ll have a movie time every weekend with them so they’ll watch some children’s movie and I’m just present with them.
RITHOLTZ: You’re along for the ride? Okay, so Pixar, Disney, all the usual suspects.
MIAN: What I find myself doing, you know, one of my goals last year, for example, Barry, was I want to work fewer hours and get more done. So that’s when I started cutting out distractions. Again, deep work is something that I really believe in. And so I would say if I have any downtime, I’m actually listening to a book as opposed to watching a movie or listening to music. And I’m a big “Audible” fan. Again, with young girls, it’s more difficult to sit and pick up a book because they’re jumping on you. So you’re driving, when you’re cleaning or just going for a walk, you can listen to a book. And something that I listened to recently was “Screwtape Letters” by C.S. Lewis, read by Jean Cleese, which is a masterpiece.
I don’t know if you’re familiar with the book, but it’s basically a senior devil writing a letter to a junior devil talking about how to corrupt the patient, which is humans, and keep him away from the enemy, which is God.
And even though people think that “The Fourth Turning” is the most important book of our time, I would say CS Lewis, “The Screwtape Letters” is the most important book of our time.
RITHOLTZ: “The Screwtape Letters.”
MIAN: It explains a lot with what’s going on.
RITHOLTZ: If you like that, have you ever read Mark Twain’s “Letters From Earth?”
MIAN: No.
RITHOLTZ: It’s literally that the devil comes to earth and or, or a demon comes to earth and is writing letters back to a devil, explaining what’s going on with the humans and why they’re so hard to corrupt because they’re already corrupted.
MIAN: (LAUGHTER)
RITHOLTZ: It’s really quite fascinating. I haven’t read it in a long time, but you’ve given me up. We’re going to circle back to books in a bit. Let’s talk about your mentors. Who helped shape your career and turn you into the person you are today?
MIAN: In the twenties I searched for a mentor and I couldn’t find one. So I spent my 20s learning and dreaming. And the book that got me to dream was “The Alchemist,” which I know you don’t like.
RITHOLTZ: It’s not that I don’t like it, it’s that the books that are parables that sort of rely on magic to reach their conclusion, I find annoying.
MIAN: The concept that resonated with me in the book was this idea of the personal legend. So I’ve spent my 20s dreaming that I’m going to unfold my personal legend. So for me, the 20s were spent learning and dreaming. I would say when I launched “Stray Reflections” the first five years, I was very lucky to meet someone called Steve Drobny out of Santa Monica who runs Clocktower Group. Every time I was thought of quitting in the first few years because I couldn’t figure out the business model, I wasn’t making enough money. He was on the other side of the phone saying, just hang in there, a path will open up.
And I remember his words, he said, “Jawad, this will be your only job for the rest of your life, be patient.” And wise words. And I realized, you know what, actually surviving is succeeding.
RITHOLTZ: Right.
MIAN: And the universe opened its path. And so he was influential and remains a very close friend. And I would say in the last five years, the most impact that I’ve had is from a coaching relationship. And I speak with my coach every week and she’s indispensable to me.
RITHOLTZ: That’s really, that’s really interesting. The idea that you’re not ready for this and the universe will open up to you when you are is frustrating prospectively but when you’re looking backwards, it’s like oh that turned out to be pretty uh you hate it in the advance but looking backwards it’s like maybe it’s a coincidence but that seemed to come along at the exact right time didn’t it?
MIAN: Absolutely that’s been my experience.
RITHOLTZ: So we’ve mentioned two books so far three books “Letters from Earth”, “The Alchemist” and the C.S. Lewis book. Tell us some other books you’re reading. What are some of your all-time favorites?
MIAN: I love everything written by Ralph Waldo Emerson, C.S. Lewis, as well as Rumi, who I’m a big fan of. What I’m reading more recently is actually something John Arthur has recommended. I was having a conversation with him and I was asking for advice on writing and the craft and he suggested that the most influential person in his life was Professor Freedman from Columbia and he’s written a bunch of books. So I went and looked through his books and the one that really appealed to me was “Letters To A Young Journalist” And I’m reading that and I’m fascinated.
Because again, I look at what I do as writing, and I want to really improve that craft to be a creative thinker and looking at the world and observing things differently.
RITHOLTZ: So Rumi, give me a book of Rumi that you think is–
MIAN: “The Masnavi.” “The Masnavi” is the big sort of collection of poems that he’s written. Will be the one. – Reynold Nicholson has the best translation in my opinion.
RITHOLTZ: Okay.
MIAN: So anything that Reynold Nicholson has translated of Rumi would be the best.
RITHOLTZ: Right, and by the way, you know there’s only two secrets to good writing, right? You’re aware of this.
MIAN: No, reveal.
RITHOLTZ: I’m not sharing anything that hasn’t been revealed many times. First, read really good writing. You’re already doing that. And second, write regularly and relentlessly. And the more you write, the better you get. It’s just a muscle that has to be exercised. I hate that metaphor but it’s true if you write regularly you’ll find you just get especially if you have access to a decent editor also you’ll just start to get better and better and better.
I’ve watched this arc with people over and over again and every now and then someone will say oh I hate my early stuff but now I’m pretty comfortable with it but that that’s the path ,you have to that route.
MIAN: As someone who has struggled with the imposter syndrome, I think what really helped me alongside was reading the book “The War of Art” by Steven Pressfield. He talks about turning pro. An amateur waits for inspiration and then he goes to the room and starts writing. The pro takes his craft seriously and shows up.
RITHOLTZ: Finds inspiration.
MIAN: Exactly. Just this concept of turning pro, professional, made a big difference mentally, psychologically that you know take it seriously. That made a huge difference.
RITHOLTZ: My buddy David Nadig and I have this ongoing debate about imposter syndrome which is a problem for him and I have just no understanding of it. My defense is that I’m oblivious. He says I’m a sociopath and therefore but I don’t really feel like a sociopath.
Although sociopaths probably don’t feel like sociopaths. But I think I have a pretty a pretty decent defense on that.
So our last two questions. A recent college grad came up to you and said I’m thinking about a career in finance writing a newsletter or a macro advisory paper for investors. What sort of advice would you give them?
MIAN: Rumi jumps to mind and he says “Let the beauty of what you love be what you do, there are a thousand ways to kneel and kiss the ground.” That’s the first thing. The other thing I’d say also comes from Rumi which is “Be with those who help your being.” So surround yourself with good people.
RITHOLTZ: To say to say the very least.
And our final question what do you know about the world of macro analysis investing, economic data, et cetera. today that you wish you knew 20 years or so ago when you were first getting started?
MIAN: The world is not the way they tell you it is. That’s a classic opening line from “The Money Game” and I wish I knew that. The world is not the way they tell you it is.
RITHOLTZ: Adam Smith, “The Money Game” another classic book that is absolutely worth reading.
Jawad, thank you so much for being so generous with your time. This was absolutely fascinating.
We have been speaking with Jawad Mian. He is the editor and publisher of Stray Reflections, a macro advisory research commentary.
I would be remiss if I did not thank the crack team that helps put these conversations together each week. Paris Wald is my producer. Sean Russo is my researcher. Rob Bragg is my audio engineer. Atika Valbrun is our project manager. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.
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