The transcript from this week’s, MiB: Peter Atwater, Financial Insyghts, is below.
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This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
Barry Ritholtz: This week on the podcast, I have a special guest. His name is Peter Atwater, and he is the author of several books, most recently, the Confidence Map, charting A Path From Chaos to Clarity. Peter has had a fascinating career in finance, JP Morgan Bank, one, a few other large places where he got to see how people’s sentiment and confidence levels affected their decision making. And this is everything from securitized credit cards to investing and and beyond. I found this to be an absolutely fascinating conversation. We discussed everything from the Shape of Cars to January 6th and how each of the events that, that we talked about, or, or milestones in society reflect the confidence level and the degree of uncertainty that the population at large feels. These are things that can be measured, and from those measurements, you could get a sense of what’s likely to come next. I, I thought this discussion was absolutely fascinating, and I think you will also, with no further ado, my discussion with Financial Insights. Peter Atwater, welcome to Bloomberg.
Peter Atwater: Thanks so much, Barry.
Barry Ritholtz: So, so let’s talk a little bit about your, your background, which I find is, is kind of fascinating. You graduate William and Mary in 83. How did your career begin? Where did, where did you go from from college?
Peter Atwater: 00:01:37 Yeah, I have a very traditional finance background. It started at JP Morgan, right outta school. Went through their bank training program, wanted a foreign assignment. And the next thing I knew I was in Delaware. And what I was ended up doing though, was the beginning of what we call asset-backed securities today, pulling together credit card loans for Sears, for MBNA and first USA car loans. And if you remember, your history banks at that point were just beginning to compete with the big Wall Street firms. And, and commercial paper and asset-backed securities were the first securities that the Fed gave banks permission to underwrite. And so suddenly we were having to compete with Solomon, with bear, with, you know, CSFB in their territory. Right? And so my job basically became, how do we outthink them because there was no way we could, you know, out muscle Merrill. And so we had to, we had just had to be better at structuring, finding ways to make things less expensive, you know, bring something else to bear.
Barry Ritholtz: 00:02:51 So what years were this? When were you at JP Morgan?
Peter Atwater: 00:02:54 I was there from 83 to 96.
Barry Ritholtz: 00:02:57 Okay. And then what, ultimately, so you missed all the fund during the
Peter Atwater: 00:03:00 Financial crisis? I did, I did. I, I planted the seeds,
Barry Ritholtz: 00:03:04 Although back then, performing credit card debt wasn’t quite the same as Ninja Loans being fed into mortgage backed No CLL squared, or
Peter Atwater: 00:03:15 And, and, you know, I, I left JP Morgan to actually go work for first USA, one of the credit card companies. And, and you know, part of that was this clear view of the trajectory that securitization was gonna change the business. You know, little did I realize that a year later we’d get bought by Bank One because Bank One needed desperately to have a credit card business. And so my career made another pivot to go from the treasurer of a startup credit card company to being the treasurer of the eighth largest bank in the country.
Barry Ritholtz: 00:03:44 Eventually you rise to the role of CEO of private client services at Bank One. Tell us a little bit about that job.
Peter Atwater: 00:03:52 Yeah, so Bank One had merged with First Chicago. The merger was tumultuous. And so the board ultimately brought in Jamie Diamond. I, I, I talk about it merging with Jamie, you know, because this, this combination was a terrible cultural fit. It was almost viewed as a, a Tiffany by his Walmart combination. The, the egos were not, were not happy with it. And Jamie did a great job of sort of reminding people that the enemy was outside the business, but he quickly uncovered where the merger had not executed the way it meant to. One of those was in the client, the wealth management area, right? Where we had lots of great skills in terms of trust and private banking and all of these elements, but no general practitioner, right? It was like we were running a hospital with no folks who could, who could look at the patient holistically. And so one of the first things I did in that job was to identify who can be the point person so that you can, you know, cross-sell and deliver a, a much fuller array of products than just, you know, this, the single products we were
Barry Ritholtz: 00:05:06 Offering you, you know, it’s fascinating ’cause there’s the practice of investing and then there’s the business of investing. And they’re two very different things. I would imagine it’s very similar in banking. There’s the practice of banking and then the business of running a bank. You’re, what you’re describing were the folks at, at Bank One, were, were better at the former than the latter. Is that a fair way to say it?
Peter Atwater: 00:03:52 [Speaker Changed] Yeah, so Bank One had merged with First Chicago. The merger was tumultuous. And so the board ultimately brought in Jamie Diamond. I, I, I talk about it merging with Jamie, you know, because this, this combination was a terrible cultural fit. It was almost viewed as a, Tiffany by his Walmart combination. The, the egos were not, were not happy with it. And Jamie did a great job of sort of reminding people that the enemy was outside the business, but he quickly uncovered where the merger had not executed the way it meant to. One of those was in the client, the wealth management area, right? Where we had lots of great skills in terms of trust and private banking and all of these elements, but no general practitioner, right? It was like we were running a hospital with no folks who could, who could look at the patient holistically. And so one of the first things I did in that job was to identify who can be the point person so that you can, you know, cross-sell and deliver a, much fuller array of products than just, you know, this, the single products we were 00:05:06 [Speaker Changed] Offering you, you know, it’s fascinating ’cause there’s the practice of investing and then there’s the business of investing. And they’re two very different things. I would imagine it’s very similar in banking. There’s the practice of banking and then the business of running a bank. You’re, what you’re describing were the folks at, at Bank One, were, were better at the former than the latter. Is that a fair way to say it?
Peter Atwater: 00:05:28 [Speaker Changed] This was, this was an organization that had grown by acquisition. And so the mindset was always buy revenue, cut expense, buy revenue, cut expense. And so long as you can keep doing that, you, you leave some fundamentals undealt with, right? And when you stop the roll up, then you have to look at how do you, how do you integrate it? Or, or in some cases spin things off. But I, but I’ll tell you my timing couldn’t have been worse. Barry. I took that job in early 2000 and basically rode the market down, and I’ll tell you, nothing teaches you more about how things work than watching them not work on the way down. And so it was really eye-opening to see how overconfidence turns into, you know, panic as we went through the, the.com bubble.
Barry Ritholtz: 00:06:21 [Speaker Changed] So you’re anticipating my next question. It, it was your first book was Moods and Markets. The second book is all about confidence. What led to this interest in that aspect of behavioral finance? Was it the asset backed securities? Was it watching a rollup entity, or was it the.com collapse that sent asset prices depending on where you were invested? I, I like to remind people Nasdaq fell peak to trough 81%. That’s a big, big whack. That’s great. Depression level fall.
Peter Atwater: 00:06:56 [Speaker Changed] Yeah, I, I, I would say that, that my interest didn’t arise until the great financial crisis. You know, I had left the industry. My, my, I turned 45 and my son said halfway, you’re dad, you’re halfway to 90. And kind of a tough, you know, punch to the gut,
Barry Ritholtz: 00:07:11 [Speaker Changed] Of horrifying, right?
Peter Atwater: 00:07:14 [Speaker Changed] Right. The better other way to look at it is, all right, I made it this far. Yeah, so far so good.
Barry Ritholtz: 00:07:19 [Speaker Changed] This was 2006, for the first time in my adult life, I had the opportunity to move away from the trees and start to see the forest
Peter Atwater: 00:07:31 And to see what was happening in the mortgage space, to your point, ninja Loans, right? And the wildness there. And then to watch as sentiments started to fall, how things started to come apart. And I ended up advising some hedge funds because my background as a treasurer, bank treasurer, I dealt with rating agencies, I’d securitized stuff. I mean, I, I knew how things go bad having spent a lot of time in troubled banks at my time at JP Morgan. And so what interested me as Lehman collapsed and what was going on was this sense that the crisis isn’t done. We’re moving a lot of risk from the private sector to the public sector, but we have an eliminated risk. And at the same time, p everybody’s saying things are getting going to get worse, and now the market starts to turn up, right? And that combinationof the crowd saying things are only gonna get worse, and the market going up was a game changer for me. It’s like, well
Barry Ritholtz: 00:08:38 [Speaker Changed] The term capitulation means surrender. So when everybody throws in the towel, you know, I, I I love asking people, you know, if they’re bullish or bearish as the first question. And then the second question is, what was your last transaction in the market? And invariably, if they’re bullish, they just bought something. And if they’re bearish, they just sold something and it’s a chicken and egg issue, are they bullish because they bought something or did they buy something because they’re bullish? Sometimes it’s hard to tease the two apart.
Peter Atwater: 00:09:11 [Speaker Changed] It’s entirely reflexive. And so, I I say a lot, our confidence level, our stories and our actions exist in equilibrium at all times. That I, I don’t care, which is chicken or egg. I just know that if I talk to Barry Ritholtz and I know what you’re doing, I know what your story is, and I know how you feel, and I can pick one of the three and pretty well deduce what the other two are likely to be.
Barry Ritholtz: 00:09:38 [Speaker Changed] You know, the old trader’s aphorism is news follows price. Meaning when the price stocks are going up, the, the narratives are great. And when the prices are going down, the narratives are, are usually negative. Although I have a vivid recollection, in the beginning of the Iraq war, oil prices had spiked the same day the US accidentally bombed an important mosque. And that was a headline. You Air Force accidentally destroys mosque causing oil prices to spike. By the end of the day, oil prices had come back down and got negative. So the online headlines were, US bombs might mosque
accidentally, oil prices fall. It’s like, well, which was it? Or, or maybe are these just wholly unrelated things and we’re trying to create a story?
Peter Atwater: 00:10:34 [Speaker Changed] Yeah. I I always feel sorry for the, the daily news writers, when you see major market reverses, because to watch them contort themselves to create a comfortable narrative is, it’s, it’s, it’s humorous,
Barry Ritholtz: 00:10:47 [Speaker Changed] Right? It’s, it’s all hindsight bias and, and narrative fallacy and, and storytelling. So, so one of the things I was surprised to learn as I was reading your background, you say you build on the insights of Robert Proctor’s work in socioeconomics,
Peter Atwater: 00:11:04 [Speaker Changed] Socioeconomics,
Barry Ritholtz: 00:11:05 [Speaker Changed] Socioeconomics., I’ve always pronounced that wrong. Yep. So a long time ago I read Prector’s perspectives and was very influenced by his concept of the long cycle. You come out of World War ii, all these gis are returning to the us There’s the GI Bill sending ’em to college. We’re building out suburbia, the rise of car culture, the rise of just the middle class. And that cycle seems to go a long time. And last a while, how, how did Proctor’s work affect you?
Peter Atwater: 00:11:39 [Speaker Changed] So in 2010, he did an interview for an organization called Minyanville.
Barry Ritholtz: 00:11:45 [Speaker Changed] Oh, sure. Todd Harrison.
Peter Atwater: 00:11:47 [Speaker Changed]. Yep. Yep. And I had been writing for Minville, and I listened to Bob talk and he said something that I had not paid much attention to before, which was a reversal and causality, which is, we tend to look at events causing us to change our feelings. Bob’s recommendation. And, and the, the foundation for socioeconomics is look at the mood before things happen. And suddenly it made so much sense to me that, of course, we act as we feel. And if I could then figure out
what is consistent in those actions and connect them to feelings, then that might be something really useful as whether it was in consulting or trading, to be able to, to connect the preferences to the choices we make and how we feel.
Barry Ritholtz: 00:12:45 [Speaker Changed] So how does one go about measuring mood? How can you measure the sentiment of the public? It’s not a special uniform. It seems to fluctuate. And as we’ve learned, we can’t always trust what people say.
Peter Atwater: 00:12:59 [Speaker Changed] Yeah. So I, I look at it very qualitatively because mood is a feeling. And so the qualitative pieces matter more than the data. To us data, we always have to interpret data. And so our feelings determine how we interpret, you know, 65 degrees can feel both warm and cool. But what I try to do is to look at the stories. And stories are a great indicator of how we feel because our imagination of the future, the stories we tell perfectly mirror how we feel. Confidence is forward looking. And so my imagination of what’s coming is going to be a reflection on my, my mood right now. And the media does a great job of letting me know what those stories are. Twitter and social media does a spectacular job. So does Google. I mean, Google searches. I, I’m a big user of Google Trends. It helps me to see what’s the crowd interested, what are the stories we tell and, and the word choices. So, so recently, I see the word relentless being applied to the rise in interest rates as we’re, you know, coming to an end of the third quarter of 2023. Well, relentless is a word that doesn’t show up right. In stories until it’s beginning to feel like something significant is about to happen.
Barry Ritholtz: 00:14:20 [Speaker Changed] Right. And, and if we’re gonna be objective and put some numbers on it, as much as we all would prefer lower rates, we’ve had 18, 19 months of rising rates. And rates are now back to where they’ve averaged over the past 50 years. Yeah. So if you’re being bloodless about it, hey, rates have returned to normal fairly quickly. Yeah. And yet it doesn’t feel that way.
Peter Atwater: 00:14:45 [Speaker Changed] But I can also look at the behavior of bond investors and look at the stampede that took place two years ago into negative yielding bonds and the stories that went along that, and the confidence that investors had, and
Barry Ritholtz: 00:15:02 [Speaker Changed] Meaning at the very peak of the bond bull market just before the reversal took place. Yeah,
Peter Atwater: 00:15:07 [Speaker Changed] Yeah. I mean, you could, you could see this sense of permanence and power that, that, you know, nothing was going to be able to raise interest rates at that point. And so you had a story that perfectly aligned with negative interest, negative yielding interest rates that was overlooked because of the, the excitement that was happening in the markets and bond prices at record highs.
00:15:34 [Speaker Changed] So, so how do you tease out of these broad events in society, what, what the underlying nugget of important signal is? I I, you had a tweet that correct me up. I i I wanna share when confidence is low, cars are round. Yeah. So I started to think about that. And you have some of these ugly old citrons and the cute VW beetle and then later on the pacer. Yeah. There have been some pretty round and not necessarily beautiful cars over the years. What’s the correlation? So
00:16:12 [Speaker Changed] I, I have to give credit to Mark Chesky, who works with Bob Pretor in on So novice ’cause ’cause Mark did this fabulous study that shows that cars are soft, they’re round. Huh? Their colors are bland. Even the, the woody, you know, if you think about Sure. That, that’s another low confidence indicator. And then you, you go to the other extreme and you have Chrome, right? Very angular
00:16:41 [Speaker Changed] Jaguar E type, just long, beautiful,
00:16:45 [Speaker Changed] Wide, you know, big engines. You know, you look at the Hummer, that was a classic, you know, that would be an indicator of, of huge sentiment. Huh.
00:16:56 [Speaker Changed] Really interesting. You know what,
00:16:57 [Speaker Changed] The Mayback is one of my favorite indicators because it, it sort of comes and goes at these extraordinary moments in history.
00:17:06 [Speaker Changed] Is is that how you think about cars like the Hummer or the Maybach as just votes of confidence to, as to the near future? Yeah.
00:17:15 [Speaker Changed] You know, you, the, the Fatton from Volkswagen, again, I
00:17:18 [Speaker Changed] Recall that
00:17:19 [Speaker Changed] Terribly timed
00:17:20 [Speaker Changed] V 12 big long seven series competitor. Yeah. We,
00:17:23 [Speaker Changed] We, you know, the, the car companies want to deliver Uber luxury to everybody at the top. I mean, I, I spend a lot of time looking at LVMH because I think there’s no better real realtime indicator for the financial elite. And00:17:39 [Speaker Changed] People give me grief because I track Rolex and Patek prices and Ferrari and
Porsche prices. There are a bunch of services that track that. It’s like, why are you so obsessed on watches and cars? No, I’m obsessed with what the top one or 10% does. Yeah. ’cause what they do is gonna trickle down to the rest of the, I don’t mean trickle down in the Reagan sense, but their behavior has a huge impact on the rest of the economy. Absolutely. Talk about that a little bit.
00:18:07 [Speaker Changed] Yeah. So there are indicators to me, to all levels of the economy. So if I wanna look at the upper middle class, I’ll look at a carnival cruise line. Because travel requires us to plan to, to have, again, a strong imagination of the future. We’re going to foreign places to commit some money. We’re committing, it’s not, it’s not an insignificant amount of money. Right. And so that, that becomes a great bellwether for me in terms of how’s, how are those that are not, you know, the 1%, but those that are doing well, how are they faring?
00:18:42 [Speaker Changed] So I, I’m glad you mentioned carnival cruise lines. ’cause there’s something
that’s been perplexing me, and I don’t wanna just dumb it down to explain it, but sometimes dumbing it
down does explain it. On the one hand, when we look at sentiment measures of the US population
never been more negative, worse than nine 11. Worse than the financial crisis. Yeah. Worse than the
pandemic. People are super negative. And yet at the same time, we have record boat sales pleasure
craft. I don’t mean like carnival cruise line. Yeah. I mean, 20, 25, 30, 40 foot boats, if you’re gonna go out
and buy a boat, you’re spending a lot of money. The boat is the cheapest part of boating. Right. The slip,
the winter rising, the maintenance, they’re just boating is not a cheap hobby. I don’t understand why so
many people are saying they’re negative, and yet so many people are going out and buying boats. Or are
these just two different demographic cohorts?
00:19:40 [Speaker Changed] So I think there are multiple demographic cohorts. And I, and I wouldn’t
discount that today.
00:19:45 [Speaker Changed] I bet there’s a big overlap, though. That’s my sense when I see the, like the
maga armadas, everything is terrible with the MAGA signs on their boats. I can’t be that bad if you’re in
a 40 foot yacht on, on the lake.
00:19:58 [Speaker Changed] Yeah. And, and Gallup and, you know, the University of Michigan,
everybody’s looked at the, the political impact on, on sentiment surveys.
00:20:08 [Speaker Changed] A lot of it’s just partisan.
00:20:09 [Speaker Changed] It’s partisan. And, and in fairness that this has been the case for quite a
while.
00:20:14 [Speaker Changed] Yeah. But it’s gotten much, much worse. It
00:20:16 [Speaker Changed] Has gotten far worse. You know, the last time the parties felt the same was
really the great financial crisis coming out of that. You saw recovery on the part of Democrats, but no
recovery whatsoever among Republicans. Which in
00:20:31 [Speaker Changed] Terms of sentiment. In
00:20:32 [Speaker Changed] Terms of sentiment. And so, you know, when people talk about, well,
where did Donald Trump come from? When you look at consumer sentiment by political category, itbecomes very evident what was behind that. You know, eight years of, of Republicans feeling the same
way they felt the weekend Lehman Brothers collapsed.
00:20:52 [Speaker Changed] So, so let’s talk about that for a second. ’cause I’ve heard this, and I just
don’t get it. When Lehman collapsed, and I, I’m not a believer that Lehman caused the financial crisis. It
was merely the first trailer in the trailer park that the tornado took. But everybody had eaten the same
bad food at the buffet to mix metaphors. There were genuine moments of terror like I was in New York
City. Yeah. People were very frightened. I remember the, the head of my firm saying, you, you gotta stop
spiking the football because there’s blood in the streets and everybody’s really not doing well. And that
was a moment of like just genuine financial panic, which by the way, kept going for another six months
until the market made their lows in March of 2009. That was September of 2008. And then you look
around today and listen, nobody is thrilled with the state of, nobody likes either of the two leading
candidates, Biden nor Trump. Two record negatives. You, you have all sorts of problems in the country,
but can you really compare the state of the economy in three point something percent unemployment
to unemployment? Over 10% people are concerned. Yeah. The ATM isn’t gonna work. How is that
comparable to what’s going on today?
00:22:13 [Speaker Changed] It, it isn’t if you measure it in terms of economic conditions, but confidence
is about vulnerability. Sure. Relative vulnerability. And I think that there are a lot of Americans who feel
especially vulnerable. They feel culturally vulnerable. They feel religiously vulnerable. They feel, you
know, in terms of issues of gender. And, and so I, I think that what a lot of our, huh, quote unquote
economic confidence indicators are picking up is vulnerability that is far more fundamental to people’s
lives. And I think one of the mistakes that economists have been making is they’re attributing too much
of these indicators to economic connections rather than to the social and political connections that
we’re seeing that are, you know, quite profound.
00:23:15 [Speaker Changed] So let’s stay with that theme of political disenfranchisement and fear and
nervousness about changes in society. When I look around at the sociological and demographic changes
that have been taking place recently, they’re the end of product of trends that have been around for
decades. So, so the US has becoming increasingly diverse, right? You and I are a bunch of old white
males. We used to be the dominant majority, then now we’re a plurality and eventually we’re gonna be
a large minority. That, that trend has been in place for decades. The country kind of swings back and
forth between the left and the right. I think what what’s happened is the younger generations have
always been more progressive, but now the younger generations are, you know, the sixties and
seventies generations from those decades are in their forties, fifties, sixties, seventies, and very often
are in charge of organizations. Isn’t a lot of what’s going on, just the culmination of things that are a long
time coming. And I’m not saying people shouldn’t be unaware of it. It just seems funny that, you know,
post pandemic, okay, now it’s here and we all all need to freak out.
00:24:33 [Speaker Changed] Yeah. I, I, I look at the roots of this as having been sewn in a comparable,
tumultuous time in the late 1960s, early
00:24:46 [Speaker Changed] Seventies, half a century ago.
00:24:47 [Speaker Changed] Yeah. And so you had, I mean, think about the concerns that folks had in
the early 1960s. You, you have the issue of civil rights. You have, you know, stonewall, you know,00:25:02 [Speaker Changed] Gay rights, civil rights, women’s rights, women’s
00:25:04 [Speaker Changed] Rights, so
00:25:05 [Speaker Changed] Straight down the list.
00:25:05 [Speaker Changed] And so you have those who have felt vulnerable for a prolonged period of
time saying, I’ve had enough.
00:25:13 [Speaker Changed] But the groups that seem to be making, and maybe this is my, so I, I’m
college educated, I went to grad school. I live in a major east coast city. I make a decent living. So I don’t
think of myself as the typical middle American. And so I will own up to, hey, that’s my, you know, I love
the Woody Allen line from Annie Hall, elitist, New York Jewish socialist summer camp. Like that funny,
funny line. But I know I don’t see the world like a Middle American. But that said, a a lot of the folks who
seem most upset about what’s going on, none of this is new. If you’re in West Virginia and used to work
in the coal mine, hey, is it a surprise that coal is going away? Am I, am I too glib when I say that? Or
00:25:59 [Speaker Changed] YY Yes. I think, I think you are. Because if I think about those that are feeling
vulnerable, they have clear senses of scarcity. They have job scarcity, they have relative health scarcity,
they have mobility, scarcity. I mean, the, the, the abundance that those who have gained over the past
50 years, they now see as having come at their expense. And this is something that we see a lot when
confidence is low. We acquire what I call zero sum thinking, where I now attribute my misfortune to
your gain. That’s interesting that, that you somehow benefited at my expense.
00:26:47 [Speaker Changed] So we saw something very similar to this in the eighties and nineties, as a
lot of manufacturing jobs went overseas. And at the same time, the finance world, the banks, the
private equity, the venture firms that were essentially financing these changes did exceedingly well. And
so if you were, if you worked in a, in a clothing factory or a furniture factory or even a, a steel or auto
plant in the seventies, eighties, nineties, a lot of those jobs were, were shipped to cheaper labor
overseas. And entirely different group of people benefited. Is that some of the underlying animus?
Absolutely. Across political, although it’s hard to tell. ’cause a lot of, very often it’s almost like Russian
nesting dolls. Yeah. That it’s not a clear Venn diagram of this blue circle and, and that yellow circle.
There’s a lot of green overlap in the middle. Yeah.
00:27:47 [Speaker Changed] I, and I, and I say to my, my friends in politics that the, the biggest divide is
not left. Right. It’s up down. And I,
00:27:56 [Speaker Changed] I have said that for decades and felt like I was a lonely voice. It’s not left
versus right. It’s who owns the means of production and what your role is. Are you a are you a capitalist
owner or are you a wage slave? And I mean, not, not to, again, not to be too glib, but that’s what’s
determined the winners and losers in in our economy. Yeah.
00:28:20 [Speaker Changed] And, and the pandemic only heightened that, you know, you, you
mentioned, you know, the, the kha recovery, because I, that phrase is a evolution of something that I
started writing about in March of 2020, which was the work from home confidence divide. Talk about an
awkward mouthful. But you could see even before the month was out, that those who could work in an
office and migrate to home,00:28:47 [Speaker Changed] Meaning you had a computer at home, you had access to high-speed
internet. Yeah. And you had a space where you could physically work, work. That’s not everybody.
00:28:56 [Speaker Changed] It’s a very small population when you look at US employment. Right.
00:29:00 [Speaker Changed] If if you’re, if you’re in a rural area that doesn’t have broadband Yeah. If
you’re in an inter inner city where you might not have forget internet, you might not have a computer.
Yeah. Big swaths of the population did not have access to work from home.
00:29:13 [Speaker Changed] No. And, and we have a delivery system today that is extraordinarily
enabling of that from Amazon to Instacart. Those at the top, the pandemic became an inconvenience.
But let’s talk about those that were serving those at the top.
00:29:31 [Speaker Changed] Right. Meaning, meaning medical people, delivery people, restaurant
workers, food service,
00:29:36 [Speaker Changed] Supermarket staffers,
00:29:37 [Speaker Changed] Transportation, food
00:29:39 [Speaker Changed] Prep, you know, all, you know, the factory, you know, the chicken factories
in Delaware, they didn’t close. And so it’s, to me, it’s not a surprise at all that where we’re seeing work
stoppages and strikes and protest are highly rated in people who felt intensely vulnerable during the
pandemic and saw the rest of the world living a, a life that was unattainable to them. And so what
concerns me, Barry, is not the depth of consumer confidence falling. It’s the duration of it. You know,
you could, you can hold your breath underwater, whether it’s 10 feet or a hundred feet, you know, for a
short period of time. But eventually you gotta breathe. And so all of the focus and sentiment is missing
the compounding effect of duration. And I, and I talk a lot about this, this notion of stacked
vulnerabilities where it’s not one thing. Those at the bottom are struggling with. It’s multiple things. One
on top of the next, on top of the next, on top of the next. And so when you look at the social
movements like Black Lives Matter that occurred when confidence was terribly low, you had this, this
triggering event that on the surface was relatively minor. I mean, we, we’d seen so many instances of
people being was,
00:31:05 [Speaker Changed] But how many young black men were murdered over by cops over the
past? The difference is everyone has iPhones now. And so there was video of a lot
00:31:12 [Speaker Changed] Of these and everybody was already feeling stacked vulnerabilities one on
top of the next.
00:31:19 [Speaker Changed] So let me push back a little bit economically on this. And I, I just want to
take the other side of the argument to, to flesh this out. So we have the great financial crisis, oh 8, 0 9.
And essentially the banks were rescued the average American, not so much. Rates were taken down to
zero. And that helped anything priced in dollars or credit. So owners of capital and owners of stocks,
bonds in real estate, they did great. The average American, not so much. And you could see that in the
data, mediocre recovery from oh nine to, let’s call it 1415 weak GDP Subpart job creation, little wage
gains. Consumer spending was mediocre. And, and by the way, the bulk of the government action was
monetary. We’re gonna drive rates low fiscal stimulus, really mild. Then comes the pandemic. You havethe biggest fiscal stimulus in US history, over 10% of GDP bigger than on a relative basis than the start of
World War ii.
00:32:27 2.2 trillion under Trump, then another 800 billion under Trump, then another 900 billion under
Biden. And then all the Biden programs, the semiconductors, the infrastructure, the inflation act. So
suddenly we go from all monetary, no fiscal to all fiscal and some monetary. And as it turns out, the
fiscal stimulus falls into the hands of the middle class and the lower class, their savings rates go up, their
spending goes up, inflation goes up. Aren’t these two very different sets of circumstances, the post-
financial crisis and the post pandemic era, isn’t the middle and lower class better off? I think, I think
unemployment during the lockdown peaked in June of 21 at $1.6 trillion a crazy number. Whereas the
average American had a fend for themselves post-financial crisis. Why are people more upset now than
they were? I mean, what was Occupy Wall Street? What was that? Six months a year and it was
forgotten about. Yeah.
00:33:31 [Speaker Changed] But again, it was, it occurred at a major low in confidence. Again, these
spontaneous social movements are, are wonderful pinpoint moments that highlight when consumer
confidence is low.
00:33:46 [Speaker Changed] So I’m focusing on the economics. Yeah. But what you’re really saying is,
despite the rescue plan, it hasn’t really moved the needle on, on the confidence level.
00:33:56 [Speaker Changed] No. And, and part of that is to the, to those at the bottom, it was a
necessary oxygen mask. Right? But think about where that money went. It went to rent, it went to car
payments.
00:34:10 [Speaker Changed] Basic sub basic survival things, right? But food, medicine, rent. But that was
it.
00:34:15 [Speaker Changed] And it went through energy, it went through them. It didn’t stay with them.
It allowed them to catch their breath. Right.
00:34:24 [Speaker Changed] Survive allowed them to survive when everybody survive was out of a job.
00:34:28 [Speaker Changed] But those at the bottom were under no illusion that it was temporary.
00:34:34 [Speaker Changed] Yeah. No, that makes perfect sense. I wanna get to the book, but before I
get to the book, I gotta ask a political question, which is, what was the impact of the January 6th attack
on the capitol, on the confidence of the nation? ’cause everybody kind of forgets the first days after
that. I, I think everybody was really shaken up. And then the story kind of changed.
00:35:00 [Speaker Changed] I, I look at January 6th a little differently. January 6th is what happens when
a large group sees a sense of powerlessness and uncertainty and feels defeated and needs to
00:35:17 [Speaker Changed] Act. Well, let me let, let’s address that because a large group is defeated
every four years. And normally they go back to their jobs and say, we’ll get ’em next time. Yeah. This
group did not feel that way. And if you watch the video, it’s pretty clear they’re hell bent on stopping the
transition transition of power. Yeah. This was very unusual. So what led to that? Let’s,
00:35:42 [Speaker Changed] Let’s keep the politics out of it. I’m just looking at sentiment. To me, no one
should have been surprised by what happened.00:35:49 [Speaker Changed] Really? Yeah.
00:35:51 [Speaker Changed] And why? Because there are five natural reactions that we have in those
moments. Flight and flight we’re familiar with for sure. The other follow, and there was a lot of that
going on for sure. Freeze. And there was a little bit of that. And then the last one, if you’ll pardon my
French, is the F word where we just say f it. Huh. And so we should have been expecting all of that to
manifest in that moment. The groups had been primed for it. I mean, you, you go back and look at the
messaging, the message
00:36:26 [Speaker Changed] Boards were on fire. The, the FBI has subsequently revealed. Yeah, no, the,
there was a lot of chatter
00:36:33 [Speaker Changed] Stories, feelings, actions exist in equilibrium Barry. And that was absolutely
a situation where the stories and feelings naturally manifested in that behavior. I look at that moment,
not any different than I look at other spontaneous social events. You know, the Arab Spring, you know,
this is what happens.
00:36:57 [Speaker Changed] They’re
00:36:57 [Speaker Changed] Triggered by something that’s relatively insignificant, random, right. Yeah.
Yeah. And so your your point then, confidence fell. It depended on which side of the political spectrum
you were on, because at that moment you had confidence among Republicans being impacted by the
failed attempt. At the same time you had Democrats feeling vulnerable because of this underlying sense
of threat.
00:37:23 [Speaker Changed] Huh.
00:37:24 [Speaker Changed] And so you saw in the data, you know, January, 2021 is not a pretty
sentiment indicator of, of mood just given what was, what was happening.
00:37:35 [Speaker Changed] Quite, quite fascinating. So, so let’s talk a little bit about the confidence
map. Essentially, your argument is a hidden factor driving both human decision making and broad
economic decision making. I is confidence that thesis seems like a big lift. Explain it. Yeah.
00:37:56 [Speaker Changed] It is a big lift, but I think first of all, we have to come up with an accurate
definition of confidence. Okay. Because we, we end up getting caught up in a lot of confidence theater,
you know, the appearance of, you know, entertainers and sports figures, sort of the, the bravado of, of,
of culture. And we also mix it with self-esteem and self-confidence. That’s not what I’m talking about.
I’m talking about our, our feeling relationship with the world around us, and in the
00:38:24 [Speaker Changed] Meaning how confident we are about our ability to survive, thrive, et
cetera, in the world around
00:38:32 [Speaker Changed] Us. Yeah. To, to navigate what’s ahead. So if we think about that, then it
becomes what does that really mean? And to be successful in that, I need to feel that things are
predictable, that I, that there is a sense of certainty to what will happen next. And that could be, ’cause I
can extrapolate from the past, but I, I need to have a vision of a clear road ahead of me.
00:38:55 [Speaker Changed] Why is that so important? Because think about through most of human
history, everything has been uncertain. You know, you didn’t have local police or a military, you neverknew when the next tribe over was gonna come and take your food and your women and chop your
head off and go on with their lives. Why is certainty so important?
00:39:15 [Speaker Changed] Because we abhor randomness to not have a sense of predictability means
that everything is potentially random, which means that I have to be on alert. And that’s exhausting,
00:39:28 [Speaker Changed] Stressful, tiring. Just Yeah, I could see that.
00:39:31 [Speaker Changed] Yeah. So, so you, you are having to, you know, just survey the landscape all
the time and, and you know, COVID is a great example where the visibility that people had was, was
negligible. And so, so knowing what’s coming next, or at least thinking we do is vital. The second piece of
that is a sense of control that I have, the skills, the resources, the preparation, the training, whatever I
need to be able to succeed. So having a clear road is great if I’m behind the wheel, but knowing how to
drive is as important. Sure. And so the only way we are confident is when those two feelings coincide.
When I feel that I know what’s coming and I’ve got it. Those feelings are what give me a sense of
confidence.
00:40:24 [Speaker Changed] So, so I, I’m not necessarily disagreeing with you, but I want to point out
maybe the exceptions in my world, people are confident about things they shouldn’t be. They see cert
certitude in things that are random. They claim to understand what’s coming next when reality is they
have the slightest idea. How do you transfer studying societal confidence to a field like investing, when
my definition is investing is a probabilistic exercise using unreliable information about an inherently
unknowable future. Yeah. Meaning wherever you look, there’s no certitude, lack of, of predictability.
How do you apply confidence to the world of investing?
00:41:14 [Speaker Changed] Yeah. So I teach a class in financial economics at William and Mary and the
first day of class. What, what is it about finance that makes its difference? It’s, you know, it’s decision
making where the outcome is to be determined. So whether I’m lending, borrowing, investing. And so
anytime I’m doing that, I am deluding myself if I do feel confident, because all investment decisions are
made in an environment where I have control, but no certainty in my book, I call that the launchpad. It’s
00:41:44 [Speaker Changed] Control, but no certainty. Okay.
00:41:47 [Speaker Changed] And so if I’m talking to a group of investors, I’m challenging them with their
belief that they should be confident in the first place. So what’s the story you’re telling yourself, Barry? If
you’re buying something, well, now you’re imagining the future. Now you’re creating this vivid picture of
what the future looks like. And to the extent that you’re really certain, what that’s saying to me is you’re
risking being delusional. Both if you’re certain it’s going to be, you know, unicorns and rainbows, or if it’s
gonna be the depths of hell. Right? So, so when you’re making an investment decision, it’s okay to plan
for the future that you imagine, but you need to be prepared for the future that you can’t imagine. But
to appreciate that, that you’re making a decision in an environment that is not confidence.
00:42:40 [Speaker Changed] So I, I don’t disagree with any of the things you’re saying. How can we use
the general lack of certainty? How can we evaluate what, at least what people say about their
confidence level, their, their certitude to help us make investment decisions?
00:42:57 [Speaker Changed] Yeah. So the, the more certain the crowd, the less likely the outcome. If I
look at extremes in sentiment, there is not only a certainty of what’s coming, the expectation is it’sprolonged, it’s powerful, it’s unstoppable. You know, the word unstoppable is one that always catches
my breath. You know, when, when Time magazine put unstoppable, you know, can Hillary Clinton be
stopped? It was like, no, she’s done so appreciate that. These, these narratives, there’s force to them.
There’s, there’s a real strong energy to the narratives that is mirrored in, in decision making and action
that reflects this unbridled, you know, disregard for any kind of risk management. Because I’m, I know
it’s coming, the, the, the headlines around SPACs in early 2021 were, were extraordinary in terms of the,
this cornucopia of clear certainty of what was ahead.
00:43:55 [Speaker Changed] That, that, that’s pretty fair in fact that the, there’s rarely consensus in the
marketplace. But when there is, I I always like to point out it, it’s right before a major reversal. Yeah. So
early 2000, hey, it was pretty clear that trees grow to the sky. Go to March oh nine, it’s clear the
market’s going to zero. Right? Who’s ever gonna be on the other side of your trade? The consensus
when everybody agrees, is okay, who’s left to sell at that point,
00:44:23 [Speaker Changed] Right? Yeah. And there, there’s another angle to it, which is you’re an idiot
if you don’t agree.
00:44:27 [Speaker Changed] That comes a little earlier though. But there’s, there’s, there’s like, think
about the FOMO trade in crypto that have fun being poor. Poor, yeah. Right. That was 40 50, not quite
60,000, but it was close. Yeah, it was on the way up. Yeah.
00:44:42 [Speaker Changed] And so you, you see these same behavioral traits, same narratives over and
over and over. And in my book, what makes them so wonderful is I can put a pin in it. I can, I can
identify, oh, we’re, we’re around here just based on the stories, the actions.
00:45:00 [Speaker Changed] So, so let’s talk about something you mentioned the, the c pandemic. In the
book, you have like a six year chart of the corporate mentions of the word unprecedented. And
essentially it’s the bottom of the chart. It’s just scooping along the bottom for years. And then by the
time you get to June, July of 2020, it spikes and stays up for the better part of the next year or so. And,
and ironically, a as c Ovid 19 might’ve been unprecedented in the modern era, a century earlier we had
a national influenza pandemic, a respiratory illness. Covid wasn’t as unprecedented as people thought.
00:45:43 [Speaker Changed] No. And, and there’s nothing unprecedented about the nature of our
response, the nature of our stories, the nature of our feelings. It was history, rhyming in so many ways.
The beauty of the word unprecedented is it became shorthand for almost whatever we wanted it to
mean for executives. It became this universal get out of jail free card because
00:46:10 [Speaker Changed] Our earnings and revenues stink because of this unprecedented,
unprecedented,
00:46:14 [Speaker Changed] You know, how could I have been expected to be prepared for this? Right?
And, and we see this over and over and over. I and a few pages later, I put up the chart that shows the
same terminology was used during 2008 during the financial crisis. Suddenly, you know, once again, we
have this unprecedented catastrophe. And, and we accept that because it mirrors the way we feel. At
the same time,00:46:42 [Speaker Changed] RA Ray Dalio has this wonderful definition of unprecedented. He says,
unprecedented means you are too young to have remembered. It hasn’t happened in your lifetime. But
if you look at history, it’s certainly has happened before. Nothing new is under the sun.
00:46:58 [Speaker Changed] No. The, the means at which we express our level of vulnerability or
euphoria may change. But the, the actions and the, the underlying nature of the behaviors, the
preferences are all the same.
00:47:13 [Speaker Changed] Quite, quite, quite amazing. So let’s talk a little bit about launchpad. You
mentioned the launchpad environment. Explain what what that means.
00:47:24 [Speaker Changed] Yeah. So there are four environments that I highlight in my book that, that
relate to our mix of certainty and control. The comfort zone where we have both of them, the stress
center, where we have neither of them.
00:47:35 [Speaker Changed] And when you say certainty and control, one’s an x axis, one’s AY, yxi, axi,
you have four quadrants Yep. Of either high certainty and high control, low certainty and low low
control control, and then one or
00:47:47 [Speaker Changed] The other. And so most people, when they think about confidence, think
about those two boxes.
00:47:52 [Speaker Changed] High certainty, high control control,
00:47:53 [Speaker Changed] And, and low certainty, low control. It’s like a buy one, get one free. The the
reality is that our lives give us moments where we have one but not the other. If you’ve taught your kids
to drive, right, that’s an environment where you have certainty but no control, and then suddenly it can
go from feeling really good in the passenger seat to feeling terrifying. Right? It’s the same thing on an
airplane. I call it the passenger seat for that reason. The, the launch pad is an environment where we
have control, but no certainty. You could think about this as a rock climber rising up a, a cliff side. And so
that the issue is do I plummet to my death back into the stress center, or do I safely navigate it into the
comfort zone? It’s the, the classic hero’s journey is comfort zone, stress centers, launchpad, you know,
back into the, into the comfort zone, right? The launchpad is important because a lot of our decision
making is there. Anytime we set off on a journey, anytime we’re investing, we’re, we’re making choices
without knowing what’s ahead. And, and organizations go back and forth between liking those
environments and not entrepreneurs love that environment, you know, give them a steering wheel and
they’ll put the car in forward reverse, you know, whatever it takes. They, they love that, that area. So,
00:49:13 [Speaker Changed] So let’s take this to the 10,000 foot view. Can we look at historic economic
cycles and see how confidence waxes and wanes, and can we use that to extrapolate forward from
where we are currently?
00:49:27 [Speaker Changed] Yeah. So I, I think of us as going on this trolley car ride from the peak of the
upper right corner of the comfort zone to the bottom of the lower left side of the, of the stress center.
And that we just go back and forth in terms of, you know, economists think of that as cycles. I think of it
in this sort of
00:49:46 [Speaker Changed] Veer, if it’s moving, it’s a sine wave. And if it’s the quadrant, you’re back
and forth.00:49:49 [Speaker Changed] Yeah. Just back and forth and you can see it. And, and one of the easiest
ways to see at Barry is in our preferences because
00:49:58 [Speaker Changed] What, what, what sort of preferences? Give us examples.
00:50:01 [Speaker Changed] So what we want when confidence is low is all about me here now. So if
there’s a problem, if I’m feeling vulnerable, if there’s a bear outside my tent, the only thing that now
matters is me in this moment right here. And that has a big bearing on the choices that I make. I’m not
so, so
00:50:24 [Speaker Changed] Personal local and present and present right now. Yeah.
00:50:28 [Speaker Changed] So my decision making is impulsive, maybe tactical, but it’s sure not
strategic. It’s reactive. It is focused on what’s good for me. And if it’s bad for you, too bad. If it’s bad for
tomorrow, too bad.
00:50:44 [Speaker Changed] I’m right now I’m dealing with a bear.
00:50:45 [Speaker Changed] I’m, I’m dealing with what I
00:50:47 [Speaker Changed] Got. But whether it’s a real bear or a market bear, it doesn’t matter.
00:50:50 [Speaker Changed] It doesn’t matter. Right. And so, and there’s another element to it, which is
I need things to be concrete that, that psychologists use the term hypothetically, I hate that word. Right.
But everything I want when confidence is low, has to be really concrete. It’s why we, it’s why we hoard
physical cash. We, we get the, the water from Costco, we, you know, we want
00:51:14 [Speaker Changed] It You’re talking Maslow hierarchy of needs. Yeah. Like food, shelter. Yeah.
You know, heat, energy, just real basic stuff.
00:51:22 [Speaker Changed] Yeah. And, and it’s here, the, the, the cash in the bank isn’t close enough.
So to your point, you know, why are you going to the ATM on the, the Lehman collapse because the
bank that was around the corner is too far away from you. I want the cash in the mattress, in fact,
during the Greek.
00:51:36 [Speaker Changed] And who knows if the bank is even gonna work on that. Yeah.
00:51:38 [Speaker Changed] And in the Greek crisis, they were selling mattresses with pre-installed
00:51:41 [Speaker Changed] Safes. Come on. No, really? Yeah.
00:51:44 [Speaker Changed] But, but, but, so let’s think about our preferences today.
00:51:48 [Speaker Changed] That’s amazing. We, we
00:51:49 [Speaker Changed] Have a whole industry geared towards me here now, preferences, Netflix,
Keurig, all of the i phone, iPod, you know, everything is geared to deliver what I want when I want. Now
00:52:05 [Speaker Changed] I, I can’t wait for instant gratification. Yeah. I need it sooner. Right.
00:52:09 [Speaker Changed] And so
00:52:10 [Speaker Changed] Amazon, New York City, same hour delivery. Yeah.00:52:13 [Speaker Changed] Twitter is another, I mean, talk about me here now. Manifestations of
decision making, you
00:52:19 [Speaker Changed] Know, it it, it’s called X now, so excuse me. But it’s the same thing. It’s that
instant dopamine hit. I want it right now.
00:52:25 [Speaker Changed] I want it right now. Huh. And so we’re, you know, if I look at our culture, it’s
a incredibly me here now environment. And if I look at its impact, take pre and post pandemic, we go
from just in time supply chain delivery to just in case to near shoring, right? So suddenly I want my
warehouses, my manufacturing, you know, you look at Europe, you know, during the energy crisis last
summer, suddenly national energy policies, national manufacturing policies, national security policy,
huh? That the, the, our willingness to rely on complex global systems evaporates in a crisis. We want to
be sure that what we need is available within arm’s length.
00:53:16 [Speaker Changed] How much of this is just generals fighting the last war? Listen, just in time
inventory clearly proved itself to be problematic. And nearshoring or even building plants here in the US
is a solution to that. But it always feels like anybody who looked at this issue knew this was a problem.
Nobody believed it until after a crisis. Right?
00:53:38 [Speaker Changed] And that’s, that’s always the nature of it. So, so we build bigger, wider,
further distributing, you know, the, the change. We, we create this complexity. We, we saw this in the,
in the mortgage world where right. You know, we, we mortgage pieces, mortgage is going from here to
there C
00:53:57 [Speaker Changed] Squared and on and on.
00:53:59 [Speaker Changed] And at the same time it’s, it’s like a Jenga tower, whereas we’re building it
taller and taller. We’re also taking pieces out because we think we can create even greater and greater
efficiency. Right? And I joke a lot that our level of scrutiny and our confidence level are inversely related.
The more confident I am, the less I have to focus. So the less I do focus.
00:54:25 [Speaker Changed] So, so let’s address me here. Now, what’s the opposite of that? Is that we
there later? What, what is the
00:54:34 [Speaker Changed] Opposite? I I I say us everywhere forever.
00:54:36 [Speaker Changed] Us everywhere forever. Yeah. So, so when does confidence signal us
everywhere for was that a late two thousands thing? Because confidence was so, so in the late 2000
2020s also.
00:54:50 [Speaker Changed] Yeah, so, so a lot of futuristic investing and I, and I would say early 2021, we
saw a wonderful bubble of it in terms of EVs and space and SPACs and this,
00:55:03 [Speaker Changed] What, what about today with AI and large language models, I, is that a very
long distance confidence sort of thing? It, it
00:55:10 [Speaker Changed] Is, but what’s so interesting to me, Barry, is are picks of the companies that
we are interested in. So in 2021, our intrigue with futuristic technology led us to buy startups. You know,
companies that didn’t even exist at that point today we’re buying shares of Amazon and Google and,
and Apple. The, the, the thorough,00:55:34 [Speaker Changed] The magnificent seven as
00:55:35 [Speaker Changed] People call that. Yeah. And to me, that’s a real telling indicator that we’re
not as confident today as we were because it’s
00:55:43 [Speaker Changed] That’s very interesting. You know, in other words, the, the focusing on the
biggest, best, most well established companies is a sign of a lack of self-confidence. Whereas the
remaining 493 companies in the s and p 500 we are ignoring. And, and that’s a sign of that, that lack of
future expectations.
00:56:03 [Speaker Changed] Yeah, I mean, you, you look at the, the, the gap between, you know, the,
the small cap index and the, the mega cap, as
00:56:09 [Speaker Changed] Large as it’s ever
00:56:09 [Speaker Changed] Been, ever been, and that, that is us our natural preference for, you know,
certainty in, in cash flow and earnings. And, you know, it, it, we, we know those brands and those
products, huh. And so
00:56:23 [Speaker Changed] That’s fascinating. So I had recalled during the, the pandemic lockdown the
first few months, I went back and looked at some history because when you see the pandemic and the
34% market drop, you know, you go back and look at history for non-market related, non-economic
issues, terrorist attacks and wars and presidential assassinations and, you know, tsunamis and just
something that comes from outside the financial system. You know, I jokingly said the asteroid that
destroyed the dinosaurs had had the same impact historically. You could look at about a four dozen of
these. What happens is markets wobble and then they continue doing what they were doing before. So
when nine 11 happened, markets were falling beforehand, they wobble and then they continued to fall.
When the pandemic happened, markets were rising, they wobbled and then they really recovered very
rapidly. So, so I, I wrote a column for Bloomberg that unfortunately has published April 1st April Fool’s
day of 2020.
00:57:34 Don’t assume the pandemic has ended the bull market. I have never gotten more hate mail for
anything I’ve written since before or since. And, and the irony is I wasn’t saying go buy ’em, I was just
saying don’t assume it’s over, because here’s what history came before. And by the way, that turned out
to be correct. And we got a lot of pushback from clients. I don’t understand. My dry cleaners closing the
local movie theaters shut. The local retailers shut. Yeah. But those guys aren’t in the s and p 500. Look at
what’s in the s and p 500. Microsoft Apple, Hey, you could work from home. Netflix and DocuSign and
Peloton and all of those companies did really well. And the ones that survived were the ones that
continued to operate after the pandemic. So Teladoc and Pein and DocuSign and to some degree Netflix,
they all got shellacked after we reopened. But the big tech companies have held up. Well how much of
this is just, they’re addressing the market versus concern about uncertainty. So we’re gonna stick with
the tried and true.
00:58:50 [Speaker Changed] I I think that we saw a major peak in early 2021 in terms of enthusiasm, all
the, the speculative bubble, right? We’re seeing a less robust peak
00:59:07 [Speaker Changed] Earlier this, this year. People are running outta savings. All the pandemic
large gas is now fading that big is through the pa python. Yeah.00:59:16 [Speaker Changed] We’ve also connected mood between stocks and bonds. One, one of the
things that was so interesting to me about early 2021 is we had a reasonably coincident peak in bond
prices and stock enthusiasm at the same time. Right?
00:59:38 [Speaker Changed] You had a 40 year bull market and bonds that came to an end end. You
know, you had that, that I blame fiscal, but there are a lot of other theories for why inflation spiked and
started that. Yeah. That tightening round by the fed. But there’s no doubt bond market ended around
the same bull market ended. Yeah. Around the same time the post pandemic bull market
01:00:02 [Speaker Changed] Slowed. And so we have this declining confidence in stocks and bonds at
the same time. And which
01:00:09 [Speaker Changed] Is last time we had, that was 40 years ago. Yeah.
01:00:12 [Speaker Changed] And people look at their diversified pie charts and see all these different
asset classes. I look at those pie charts differently to say, how’s the sentiment aligning with all of these?
Because we have a lot of cooling sentiment in many, many pieces of the pie at the same time. Huh.
01:00:31 [Speaker Changed] Really, really? That’s quite fascinating. So, so the world isn’t black and
white. There’s a lot of subtlety and nuance, a spectrum of, of choices, but we all tend to reduce
everything to yes, no up, down black or white choices. How, how can you look at confidence? How can
you look at sentiment to help you make decisions when, when there’s so many shades of gray?
01:00:55 [Speaker Changed] Yeah, so if I’m an investor, I think it’s useful to look at the crowd sentiment
rather than your own. We’re not always good judges of our own behavior. And we can be more honest
judges of others sometimes, you know, painfully honest. But market crowds tend to be almost like a
middle school environment where it’s, it’s very social. I, I joke that, you know, financial markets are
social networks with money instead of likes. We, we put money in and take it
01:01:30 [Speaker Changed] Out. It’s a popularity contest. It’s
01:01:32 [Speaker Changed] A
01:01:32 [Speaker Changed] Popularity contest, but no thumbs up, it’s just cash. No,
01:01:34 [Speaker Changed] It’s just cash. And, and, and that becomes a useful way to look at where’s
the crowd putting money? Where’s the crowd excited? Where’s the crowd? You know, Ooh, you wore
that. You, you’re a, you know, you can’t sit with us. And so that, that sort of middle school arrangement
in the markets becomes a pretty honest sense of where the crowd broadly is. Are there managers who
are, you know, on the other side of those trades? Absolutely. When I think about the market’s mood,
the market is a pretty quick deciding homogeneous blob that is of average middle school intelligence. It
cannot do system two thinking to borrow from kahne and Right. It’s only capable of system one thinking.
So you shouldn’t try to, you know, don’t try to be too smart. Just try to think, you know, how is the high
school student thinking about this. So
01:02:32 [Speaker Changed] You’re reminding me of the famous Benjamin Graham quote. In the short
run, the market is a voting machine, but in the long run it’s a weighing machine. So you get sentiment in
the beginning, but later on things should return to what their actual values are.01:02:49 [Speaker Changed] Yeah, I mean, we’re, we’re going to overshoot and particularly when
confidence is low, we’re likely to be much more impulsive, much more emotional than we might
otherwise be. I think that was one of the lessons that people missed with meme stocks that
01:03:06 [Speaker Changed] Are, it wasn’t about the stocks, it was about the, the mood at the moment.
01:03:09 [Speaker Changed] The mood and, and the willingness of people to jump into the crowd. You
know, nothing attracts a crowd like a crowd in the markets. And, and so we should not be surprised if
what goes up like that also comes down like that. Huh.
01:03:21 [Speaker Changed] Really, really quite interesting. So, let’s talk a little bit about some recent
market moods. We, we were talking about meme stocks, you know, the old timers like myself looked at
the, the various meme stocks and kind of snickered to ourselves and said, I’ve seen this movie before. I
know how it’s gonna end. And yet still those meme stocks did their thing. They exploded higher before,
ultimately they crashed and burned. Where’s AMC now? Down 99%, 98%. A a, a lot of the big meme
stocks, GameStop also way off its highs. When you see this starting during the lockdown, what are your
thoughts about these meme stocks? What is that triggering you?
01:04:08 [Speaker Changed] Two things. It’s, it’s sort of an interesting com combination of both
extremes and mood, because you have the nihilism that naturally comes with low confidence. And so
you have folks who have cash to actually execute that nihilism and, and buy lottery tickets is, you know,
kind of what was going on. But you also have the novice and naive and they’re, they’re a crowd I, I’d like
to follow because they’re always the last to the party. Right. And, and they’re a great tell. In fact, more
recently we had a little flurry of meme stock behavior in, in the summer of 2023. It’s a great indicator
that we are reaching a climax in mood when the, when it’s amateur hour
01:04:54 [Speaker Changed] Meaning to the upside or to the downside?
01:04:57 [Speaker Changed] Both.
01:04:58 [Speaker Changed] Oh,
01:04:58 [Speaker Changed] Really? Yeah. Because sadly, the, the novice and naive are the last to buy.
They’re also the last to sell, the last to capitulate.
01:05:06 [Speaker Changed] Someone’s gotta be on the wrong side of the trade.
01:05:09 [Speaker Changed] And so they buy at the extreme and they sell at the low end and are just
brutally punished as a result. But it’s useful because bubbles unwind on a life o basis.
01:05:22 [Speaker Changed] Last in, first out,
01:05:23 [Speaker Changed] Last in first out. So no surprise that the meme stocks and companies like
Peloton have just been pummeled the shots at the top and then they leave via a high story window. You,
01:05:32 [Speaker Changed] You know, if, if you’ve lived through this before, and I remember watching
Teladoc and DocuSign and Peloton, all the work from home stocks, and I remember specifically saying, I
know these are gonna be moonshots and I know they’re gonna be disasters. I’m not sure I’m confident
enough that I’m gonna get the timing right. And, and I gotta think a lot of other people looked at itsimilarly. Someone made a ton of money on the way up and someone made a ton of money on the way
down.
01:06:01 [Speaker Changed] And it may be the same people. I mean, I sadly, I think those that wrote it
up also wrote it down,
01:06:06 [Speaker Changed] Got crushed on the way down. Yeah. And we’ve,
01:06:08 [Speaker Changed] We’ve seen the same thing in crypto, that sense that it, it’s gonna come
back. Right. It’s definitely gonna come back.
01:06:14 [Speaker Changed] That muscle memory fades after about a year of, of, of beating. Yep. And
finally you just stop buying the dips that that just goes away. So let’s now roll this into the, the 2023
fourth quarter environment. Politics generally has become darker and negative, but I don’t ever recall a
period in American history where the leading candidates for the two major parties are both widely
disliked, not only by the population at large, but their own parties aren’t biggest fans. The Democrats
say Biden’s too old. The Republicans say Trump who’s only what, two and a half years younger than
Biden isn’t fit. You, you have both parties wishing for alternatives. When was the last time that
happened?
01:07:06 [Speaker Changed] So you can go back to, you know, the early 1980s, I think it was John
Anderson,
01:07:11 [Speaker Changed] I recall helped Clinton get elected. Right.
01:07:13 [Speaker Changed] Yeah. It would not surprise me if both Biden and Trump are not on the
ballot a year from now.
01:07:21 [Speaker Changed] Really? Yeah, because the, you go to the betting sites, they seem to think
it’s a head to head.
01:07:27 [Speaker Changed] Absolutely. But watch how we use the term old, you know, the old can
mean wives experience. Sure. Resilient. It can also mean decrepit. It can mean out of touch. And if you
think about Joe Biden’s career, he came into office as the young buck against an aging group of
politicians on a national level.
01:08:00 [Speaker Changed] On a national level. We have once again,
01:08:02 [Speaker Changed] And we are back to that
01:08:04 [Speaker Changed] Both parties, house, Senate. Yeah. Even the Supreme Court. We have a lot
of people who are let’s just politely say AARP members.
01:08:14 [Speaker Changed] Yeah. And I don’t, I don’t think we have seen yet the kind of grassroots
political leader who rises from within. And, and I think that that is a real possibility. What’s what’s
interesting with both parties is that we have these figures who are seeking to control from above.
01:08:38 [Speaker Changed] Right.
01:08:40 [Speaker Changed] History suggests that in times of turmoil we choose from within that, that
leaders that come sort of unexpectedly from below and not the ones that we expect. I mean, I I look atsomebody like Zelensky who no one believed would be a credible leader. And yet from my perspective,
had all the traits of a great crisis leader, you know, can read the room is, you know, just
01:09:10 [Speaker Changed] All quick on his feet. Quick
01:09:11 [Speaker Changed] On his feet.
01:09:11 [Speaker Changed] Relatively intelligent. Yeah.
01:09:13 [Speaker Changed] And, and I don’t know if it’s the case for him, but you know, a lot of
comedians suffer from depression and, and, you know, if you’re in a crisis, you know, uncertainty and
powerlessness is called Tuesday. My, my friend Nass has written a, a wonderful book on leader crises in
the relationship to, to mental illness. But it would not surprise me, Barry, to see young, local politicians,
governors, mayors who upend the rhetoric and surprise on both sides of the party.
01:09:50 [Speaker Changed] Huh. That, that’s interesting. We, we’ve touched very briefly on social
media. Let, let’s talk about media generally and social media on a related basis. There’s been so much
misinformation, there’s been so much problems being able to have trustworthy sources. How can we
look at sentiment and confidence as a way to deal with these issues?
01:10:17 [Speaker Changed] Yeah. So when confidence is high, we go to the center. We watch three
networks, you know, A, B, C, C, B, SNBC
01:10:25 [Speaker Changed] Still. Is that still the case?
01:10:26 [Speaker Changed] No, but, but my my point is that in the 1960s as confidence was peaking,
we’re all watching the same news stories from the same.
01:10:35 [Speaker Changed] We’ve been totally balkanized since then. And it’s, there’s a thousand
channels. Yeah.
01:10:39 [Speaker Changed] And, and the balkanization that takes place today can be instantaneous. So
as your mood changes, Barry, if I create a more resonant deliverer, and you could watch this on the right
with Fox, the news mix than OAN as as Republican confidence change. Right. You will find the provider
of news that is most me here. Now you Right. And the internet and social media enables that. Like,
there’s no tomorrow And, and we forget that familiarity and truthiness are much more appealing to us
than the truth.
01:11:26 [Speaker Changed] We’re, we’re all confirmation bias and less fact checking than, than we
wanna admit to, particularly
01:11:32 [Speaker Changed] When confidence is low.
01:11:33 [Speaker Changed] But let, let’s stick with Oh really? Particularly when confidence
01:11:36 [Speaker Changed] Is low. Yeah. ’cause ’cause if I’ve, if I’ve got all these other things to focus
on, I don’t have the cognitive bandwidth.
01:11:42 [Speaker Changed] That’s fair.
01:11:43 [Speaker Changed] You know, to do the fact checking. So,01:11:45 [Speaker Changed] So let’s apply the same left right analysis that we were talking about with
economics before, and it’s more up down than left. Right? When I look at both social media and, and
mainstream media, I often find people who are arguing left right are missing the point. It’s usually more
what’s more sensationalistic? What’s more clickbait? What’s more hair on fire and what’s more
structurally, here’s the horse race. So let’s not talk about policy. Who’s ahead right now? It, it’s always
what’s the easiest way to generate eyeballs than it is to provide more, more heat than light, so to speak.
01:12:25 [Speaker Changed] Yeah. So our, so our media focus is intensely about resonance relevance.
And that creates several problems. One is the media has to follow its audience as opposed to lead its
audience. The media also has to create even greater excitement. So I, I joke often that we’ve gone from
the circus Barkers promoting a two-headed lady. You know, the lady now has to have about 15 heads to
capture attention and that becomes unsustainable. One of the things, if you think about our culture of
followership, the goal is dependence. And so whether I’m a politician, a member of the media, a pundit
at large, right? The goal is permanent dependence. You have to keep coming back to me. And what I’m
looking for Barry, are leaders who are talking about empowerment that, that send a message. And
again, this could be, this is where I think up down may matter, is if I send a message of empowerment to
those at the bottom, you could easily draw together a cohort from both the left and the right that
generates this grassroots movement.
01:13:44 [Speaker Changed] Pardon me for personalizing this, but you seem fairly optimistic that in this
time of uncertainty and partisanship and negative sentiment and just general disarray, you seem fairly
optimistic that we’re gonna come out of this. Okay.
01:14:03 [Speaker Changed] I guess I would say I am optimistic that we will tire of the uncertainty, we’ll
tire of the powerlessness and groups will seek to regain or gain and depending on the situation certainty
and control in their lives, how that struggle plays out, I don’t know. But there is no question in my mind
that the uncertainty will end. It may be chaotic, you know, it could be civil war as groups fight for what
is, what does certainty mean for you versus what it means for me. But we don’t endure this. Well
01:14:40 [Speaker Changed] The, the hundred Years war doesn’t, the reason we haven’t had one since is
who wants to be at war for a hundred years. Yeah. Huh. Really quite interesting. And let’s jump to our
favorite questions, starting with what are you streaming these days? Tell us what you’re either watching
or listening to.
01:14:55 [Speaker Changed] So we are streaming murders in the building. My wife assesses and trains
autistic adults. And so we’ve been watching Love on the Spectrum, which is a really warming how that
heart that, that’s really interesting. You know, I, I watch what my wife’s organization does to transform
autistic adults’ lives and even more their parents’ lives. And so it’s really heartwarming to see that
there’s, there are so many opportunities that we ignore otherwise.
01:15:26 [Speaker Changed] Huh. Really, really interesting. Tell us about some of your early mentors
who, who helped to shape your career.
01:15:33 [Speaker Changed] I think of some of the, the mentors I had at JP Morgan, particularly, a guy
named Dave Wakefield. You know, going into an organization like JP Morgan, when I did, it was an
organization that was about to undergo mammoth transformation. And what I so value was the wisdom
of what we might refer to now as old heads. You know, you know, the, the world of finance is typicallyfilled with young, aggressive, you had these folks who would like, yes. And, you know, to your point,
they’d seen it before. There was nothing new under the sun. And, and I really feel like a lot of
organizations miss that sense of judgment. And so I feel really blessed to have had that.
01:16:21 [Speaker Changed] Huh, very interesting. Let’s, let’s talk about books. What are some of your
favorites? What are you reading now?
01:16:26 [Speaker Changed] Yeah, so interestingly Barry, one, reading is very difficult for me, but I spend
so much of my day reading.
01:16:33 [Speaker Changed] I know the feeling
01:16:34 [Speaker Changed] Because I’m trying to capture what’s going on in politics and economics and
finance all at the same time. That by the end of the day, I want to go pull weeds in a vegetable garden. I
want to, you know, reading is, I, I, I’m embarrassed to say it, but it just, I, it takes me a couple of days on
vacation before I can crack a
01:16:54 [Speaker Changed] Book. That’s my favorite place to read is on vacation, read a book on
vacation or when I’m prepping for a podcast. So let’s go to our final two questions. What advice would
you give to a recent college grad who is interested in a career in either finance or studying sentiment?
01:17:12 [Speaker Changed] So, in the, in the world of finance, I would say don’t feel beholden to New
York. I think there’s a lot of folks who come out of college with that. You know, if I don’t make it New
York, I, you know, and what I love so much about finance today is that there are opportunities in so
many different angles of it, in so many different places.
01:17:35 [Speaker Changed] Boston, Charlotte, Chicago, San Francisco, the number of Atlanta, the
number of financial hubs have expanded dramatically. And, and there is pretty active, you know,
venture capital used to be just San Francisco. There are a number of venture hubs all over the country.
Yeah.
01:17:54 [Speaker Changed] And to your question about sentiment, I think a lot of economists and
finance professionals focus a lot of energy on what we do poorly, what we do wrong. And I think we
need more attention on what do we just do. You know, if our, if our objective is to change people’s
behavior, we need to understand what do we do that’s unscripted. And, and I feel like the reason I
wrote this book is to say, this is what we just do. And, and if I understand that better, then I can start to
make better decisions.
01:18:30 [Speaker Changed] And our final question, what do you know about the world of finance
investing sentiment confidence today? You wish you knew 30 or so years ago when you were first
getting started,
01:18:43 [Speaker Changed] That what I think doesn’t matter to be successful, I need to understand how
others think and feel because at the end of the day, my price is a function of their behavior.
01:18:58 [Speaker Changed] In other words, the the crowd determines market price. The crowd
determines sentiment. It’s all about the we, not the me. Yeah,
01:19:06 [Speaker Changed] Absolutely. Huh.01:19:07 [Speaker Changed] Real, really fascinating. Peter, thank you for being so generous with your
time. We have been speaking with Peter Atwater, author of The Confidence Map, charting A Path From
Chaos to Clarity. If you enjoy this conversation, well be sure to check out any of the previous 500 such
discussions we’ve had over the past nine years. You can find those at Apple Podcasts, Spotify, YouTube,
wherever you get your favorite podcasts. Sign up for my daily reading list@riol.com. Follow me on
Twitter at ritholtz or on x at Barry underscore ritholtz. Follow all of the Bloomberg family of podcasts at
podcast. I would be remiss if I did not thank our crack team that helps put these conversations together
each week. Sarah Livesey is my audio engineer. Anna Luke is my producer. Atika ValBrown is our project
manager. Sean Russo is my researcher. I’m Barry Riol. You’ve been listening to Masters in Business on
Bloomberg Radio.
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