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 mosqueaccidentally, 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 outwhat 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 andPorsche 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 somethingthat’s been perplexing me, and I don’t wanna just dumb it down to explain it, but sometimes dumbing itdown does explain it. On the one hand, when we look at sentiment measures of the US populationnever been more negative, worse than nine 11. Worse than the financial crisis. Yeah. Worse than thepandemic. People are super negative. And yet at the same time, we have record boat sales pleasurecraft. I don’t mean like carnival cruise line. Yeah. I mean, 20, 25, 30, 40 foot boats, if you’re gonna go outand 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 somany people are saying they’re negative, and yet so many people are going out and buying boats. Or arethese just two different demographic cohorts?00:19:40 [Speaker Changed] So I think there are multiple demographic cohorts. And I, and I wouldn’tdiscount that today.00:19:45 [Speaker Changed] I bet there’s a big overlap, though. That’s my sense when I see the, like themaga armadas, everything is terrible with the MAGA signs on their boats. I can’t be that bad if you’re ina 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 awhile.00:20:14 [Speaker Changed] Yeah. But it’s gotten much, much worse. It00:20:16 [Speaker Changed] Has gotten far worse. You know, the last time the parties felt the same wasreally the great financial crisis coming out of that. You saw recovery on the part of Democrats, but norecovery whatsoever among Republicans. Which in00:20:31 [Speaker Changed] Terms of sentiment. In00:20:32 [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 sameway 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 justdon’t get it. When Lehman collapsed, and I, I’m not a believer that Lehman caused the financial crisis. Itwas merely the first trailer in the trailer park that the tornado took. But everybody had eaten the samebad food at the buffet to mix metaphors. There were genuine moments of terror like I was in New YorkCity. Yeah. People were very frightened. I remember the, the head of my firm saying, you, you gotta stopspiking the football because there’s blood in the streets and everybody’s really not doing well. And thatwas a moment of like just genuine financial panic, which by the way, kept going for another six monthsuntil the market made their lows in March of 2009. That was September of 2008. And then you lookaround today and listen, nobody is thrilled with the state of, nobody likes either of the two leadingcandidates, 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 unemploymentto unemployment? Over 10% people are concerned. Yeah. The ATM isn’t gonna work. How is thatcomparable 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 confidenceis about vulnerability. Sure. Relative vulnerability. And I think that there are a lot of Americans who feelespecially vulnerable. They feel culturally vulnerable. They feel religiously vulnerable. They feel, youknow, in terms of issues of gender. And, and so I, I think that what a lot of our, huh, quote unquoteeconomic confidence indicators are picking up is vulnerability that is far more fundamental to people’slives. And I think one of the mistakes that economists have been making is they’re attributing too muchof these indicators to economic connections rather than to the social and political connections thatwe’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 andnervousness about changes in society. When I look around at the sociological and demographic changesthat have been taking place recently, they’re the end of product of trends that have been around fordecades. So, so the US has becoming increasingly diverse, right? You and I are a bunch of old whitemales. We used to be the dominant majority, then now we’re a plurality and eventually we’re gonna bea large minority. That, that trend has been in place for decades. The country kind of swings back andforth between the left and the right. I think what what’s happened is the younger generations havealways been more progressive, but now the younger generations are, you know, the sixties andseventies generations from those decades are in their forties, fifties, sixties, seventies, and very oftenare in charge of organizations. Isn’t a lot of what’s going on, just the culmination of things that are a longtime 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, early00:24:46 [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 inthe 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’s00:25:04 [Speaker Changed] Rights, so00:25:05 [Speaker Changed] Straight down the list.00:25:05 [Speaker Changed] And so you have those who have felt vulnerable for a prolonged period oftime 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’mcollege educated, I went to grad school. I live in a major east coast city. I make a decent living. So I don’tthink of myself as the typical middle American. And so I will own up to, hey, that’s my, you know, I lovethe 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 whoseem most upset about what’s going on, none of this is new. If you’re in West Virginia and used to workin the coal mine, hey, is it a surprise that coal is going away? Am I, am I too glib when I say that? Or00:25:59 [Speaker Changed] YY Yes. I think, I think you are. Because if I think about those that are feelingvulnerable, 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 past50 years, they now see as having come at their expense. And this is something that we see a lot whenconfidence is low. We acquire what I call zero sum thinking, where I now attribute my misfortune toyour 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 alot of manufacturing jobs went overseas. And at the same time, the finance world, the banks, theprivate equity, the venture firms that were essentially financing these changes did exceedingly well. Andso if you were, if you worked in a, in a clothing factory or a furniture factory or even a, a steel or autoplant in the seventies, eighties, nineties, a lot of those jobs were, were shipped to cheaper laboroverseas. 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 Russiannesting 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 isnot 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 leftversus right. It’s who owns the means of production and what your role is. Are you a are you a capitalistowner or are you a wage slave? And I mean, not, not to, again, not to be too glib, but that’s what’sdetermined the winners and losers in in our economy. Yeah.00:28:20 [Speaker Changed] And, and the pandemic only heightened that, you know, you, youmentioned, you know, the, the kha recovery, because I, that phrase is a evolution of something that Istarted writing about in March of 2020, which was the work from home confidence divide. Talk about anawkward mouthful. But you could see even before the month was out, that those who could work in anoffice and migrate to home,00:28:47 [Speaker Changed] Meaning you had a computer at home, you had access to high-speedinternet. 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. Ifyou’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 extraordinarilyenabling 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, restaurantworkers, food service,00:29:36 [Speaker Changed] Supermarket staffers,00:29:37 [Speaker Changed] Transportation, food00:29:39 [Speaker Changed] Prep, you know, all, you know, the factory, you know, the chicken factoriesin Delaware, they didn’t close. And so it’s, to me, it’s not a surprise at all that where we’re seeing workstoppages and strikes and protest are highly rated in people who felt intensely vulnerable during thepandemic and saw the rest of the world living a, a life that was unattainable to them. And so whatconcerns 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 ashort period of time. But eventually you gotta breathe. And so all of the focus and sentiment is missingthe compounding effect of duration. And I, and I talk a lot about this, this notion of stackedvulnerabilities where it’s not one thing. Those at the bottom are struggling with. It’s multiple things. Oneon top of the next, on top of the next, on top of the next. And so when you look at the socialmovements like Black Lives Matter that occurred when confidence was terribly low, you had this, thistriggering event that on the surface was relatively minor. I mean, we, we’d seen so many instances ofpeople being was,00:31:05 [Speaker Changed] But how many young black men were murdered over by cops over thepast? The difference is everyone has iPhones now. And so there was video of a lot00:31:12 [Speaker Changed] Of these and everybody was already feeling stacked vulnerabilities one ontop of the next.00:31:19 [Speaker Changed] So let me push back a little bit economically on this. And I, I just want totake 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 tozero. 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 thedata, mediocre recovery from oh nine to, let’s call it 1415 weak GDP Subpart job creation, little wagegains. Consumer spending was mediocre. And, and by the way, the bulk of the government action wasmonetary. 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 ofWorld War ii.00:32:27 2.2 trillion under Trump, then another 800 billion under Trump, then another 900 billion underBiden. And then all the Biden programs, the semiconductors, the infrastructure, the inflation act. Sosuddenly we go from all monetary, no fiscal to all fiscal and some monetary. And as it turns out, thefiscal stimulus falls into the hands of the middle class and the lower class, their savings rates go up, theirspending 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 thinkunemployment during the lockdown peaked in June of 21 at $1.6 trillion a crazy number. Whereas theaverage American had a fend for themselves post-financial crisis. Why are people more upset now thanthey were? I mean, what was Occupy Wall Street? What was that? Six months a year and it wasforgotten about. Yeah.00:33:31 [Speaker Changed] But again, it was, it occurred at a major low in confidence. Again, thesespontaneous social movements are, are wonderful pinpoint moments that highlight when consumerconfidence 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 anecessary oxygen mask. Right? But think about where that money went. It went to rent, it went to carpayments.00:34:10 [Speaker Changed] Basic sub basic survival things, right? But food, medicine, rent. But that wasit.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 Iget to the book, I gotta ask a political question, which is, what was the impact of the January 6th attackon the capitol, on the confidence of the nation? ’cause everybody kind of forgets the first days afterthat. 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 whena large group sees a sense of powerlessness and uncertainty and feels defeated and needs to00:35:17 [Speaker Changed] Act. Well, let me let, let’s address that because a large group is defeatedevery four years. And normally they go back to their jobs and say, we’ll get ’em next time. Yeah. Thisgroup did not feel that way. And if you watch the video, it’s pretty clear they’re hell bent on stopping thetransition 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 oneshould 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 thosemoments. Flight and flight we’re familiar with for sure. The other follow, and there was a lot of thatgoing on for sure. Freeze. And there was a little bit of that. And then the last one, if you’ll pardon myFrench, is the F word where we just say f it. Huh. And so we should have been expecting all of that tomanifest in that moment. The groups had been primed for it. I mean, you, you go back and look at themessaging, the message00:36:26 [Speaker Changed] Boards were on fire. The, the FBI has subsequently revealed. Yeah, no, the,there was a lot of chatter00:36:33 [Speaker Changed] Stories, feelings, actions exist in equilibrium Barry. And that was absolutelya 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’re00:36:57 [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 spectrumyou were on, because at that moment you had confidence among Republicans being impacted by thefailed attempt. At the same time you had Democrats feeling vulnerable because of this underlying senseof 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 prettysentiment 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 confidencemap. Essentially, your argument is a hidden factor driving both human decision making and broadeconomic 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 accuratedefinition 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 the00:38:24 [Speaker Changed] Meaning how confident we are about our ability to survive, thrive, etcetera, in the world around00:38:32 [Speaker Changed] Us. Yeah. To, to navigate what’s ahead. So if we think about that, then itbecomes what does that really mean? And to be successful in that, I need to feel that things arepredictable, that I, that there is a sense of certainty to what will happen next. And that could be, ’cause Ican 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 humanhistory, 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 yourhead 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 meansthat 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 allthe time and, and you know, COVID is a great example where the visibility that people had was, wasnegligible. And so, so knowing what’s coming next, or at least thinking we do is vital. The second piece ofthat is a sense of control that I have, the skills, the resources, the preparation, the training, whatever Ineed to be able to succeed. So having a clear road is great if I’m behind the wheel, but knowing how todrive 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 ofconfidence.00:40:24 [Speaker Changed] So, so I, I’m not necessarily disagreeing with you, but I want to point outmaybe the exceptions in my world, people are confident about things they shouldn’t be. They see certcertitude in things that are random. They claim to understand what’s coming next when reality is theyhave the slightest idea. How do you transfer studying societal confidence to a field like investing, whenmy definition is investing is a probabilistic exercise using unreliable information about an inherentlyunknowable 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 thefirst day of class. What, what is it about finance that makes its difference? It’s, you know, it’s decisionmaking where the outcome is to be determined. So whether I’m lending, borrowing, investing. And soanytime I’m doing that, I am deluding myself if I do feel confident, because all investment decisions aremade in an environment where I have control, but no certainty in my book, I call that the launchpad. It’s00:41:44 [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 theirbelief that they should be confident in the first place. So what’s the story you’re telling yourself, Barry? Ifyou’re buying something, well, now you’re imagining the future. Now you’re creating this vivid picture ofwhat the future looks like. And to the extent that you’re really certain, what that’s saying to me is you’rerisking being delusional. Both if you’re certain it’s going to be, you know, unicorns and rainbows, or if it’sgonna be the depths of hell. Right? So, so when you’re making an investment decision, it’s okay to planfor the future that you imagine, but you need to be prepared for the future that you can’t imagine. Butto 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 usethe general lack of certainty? How can we evaluate what, at least what people say about theirconfidence 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 Ilook 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 catchesmy breath. You know, when, when Time magazine put unstoppable, you know, can Hillary Clinton bestopped? 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 actionthat reflects this unbridled, you know, disregard for any kind of risk management. Because I’m, I knowit’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 themarketplace. But when there is, I I always like to point out it, it’s right before a major reversal. Yeah. Soearly 2000, hey, it was pretty clear that trees grow to the sky. Go to March oh nine, it’s clear themarket’s going to zero. Right? Who’s ever gonna be on the other side of your trade? The consensuswhen 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 idiotif you don’t agree.00:44:27 [Speaker Changed] That comes a little earlier though. But there’s, there’s, there’s like, thinkabout the FOMO trade in crypto that have fun being poor. Poor, yeah. Right. That was 40 50, not quite60,000, 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 andover and over. And in my book, what makes them so wonderful is I can put a pin in it. I can, I canidentify, 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 thebook, you have like a six year chart of the corporate mentions of the word unprecedented. Andessentially it’s the bottom of the chart. It’s just scooping along the bottom for years. And then by thetime 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 hada 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 ourresponse, 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 tomean for executives. It became this universal get out of jail free card because00:46:10 [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 thesame terminology was used during 2008 during the financial crisis. Suddenly, you know, once again, wehave this unprecedented catastrophe. And, and we accept that because it mirrors the way we feel. Atthe 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. Butif 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 oreuphoria may change. But the, the actions and the, the underlying nature of the behaviors, thepreferences are all the same.00:47:13 [Speaker Changed] Quite, quite, quite amazing. So let’s talk a little bit about launchpad. Youmentioned 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, thatrelate to our mix of certainty and control. The comfort zone where we have both of them, the stresscenter, 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 lowcontrol control, and then one or00:47:47 [Speaker Changed] The other. And so most people, when they think about confidence, thinkabout 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 thereality is that our lives give us moments where we have one but not the other. If you’ve taught your kidsto drive, right, that’s an environment where you have certainty but no control, and then suddenly it cango from feeling really good in the passenger seat to feeling terrifying. Right? It’s the same thing on anairplane. I call it the passenger seat for that reason. The, the launch pad is an environment where wehave control, but no certainty. You could think about this as a rock climber rising up a, a cliff side. And sothat the issue is do I plummet to my death back into the stress center, or do I safely navigate it into thecomfort 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 decisionmaking is there. Anytime we set off on a journey, anytime we’re investing, we’re, we’re making choiceswithout knowing what’s ahead. And, and organizations go back and forth between liking thoseenvironments and not entrepreneurs love that environment, you know, give them a steering wheel andthey’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 economiccycles and see how confidence waxes and wanes, and can we use that to extrapolate forward fromwhere 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 theupper 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 itin this sort of00:49:46 [Speaker Changed] Veer, if it’s moving, it’s a sine wave. And if it’s the quadrant, you’re backand forth.00:49:49 [Speaker Changed] Yeah. Just back and forth and you can see it. And, and one of the easiestways to see at Barry is in our preferences because00:49:58 [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 ifthere’s a problem, if I’m feeling vulnerable, if there’s a bear outside my tent, the only thing that nowmatters is me in this moment right here. And that has a big bearing on the choices that I make. I’m notso, so00:50:24 [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 notstrategic. 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 fortomorrow, 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 I00:50:47 [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 isI 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 hoardphysical cash. We, we get the, the water from Costco, we, you know, we want00:51:14 [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 thebank 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-installed00:51:41 [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, we00:51:49 [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. Now00:52:05 [Speaker Changed] I, I can’t wait for instant gratification. Yeah. I need it sooner. Right.00:52:09 [Speaker Changed] And so00:52:10 [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 ofdecision making, you00:52:19 [Speaker Changed] Know, it it, it’s called X now, so excuse me. But it’s the same thing. It’s thatinstant 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’sa incredibly me here now environment. And if I look at its impact, take pre and post pandemic, we gofrom just in time supply chain delivery to just in case to near shoring, right? So suddenly I want mywarehouses, my manufacturing, you know, you look at Europe, you know, during the energy crisis lastsummer, 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 tobe 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 timeinventory clearly proved itself to be problematic. And nearshoring or even building plants here in the USis 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 tothere C00:53:57 [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 ittaller and taller. We’re also taking pieces out because we think we can create even greater and greaterefficiency. 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 wethere later? What, what is the00:54:34 [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 useverywhere for was that a late two thousands thing? Because confidence was so, so in the late 20002020s also.00:54:50 [Speaker Changed] Yeah, so, so a lot of futuristic investing and I, and I would say early 2021, wesaw 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 verylong distance confidence sort of thing? It, it00:55:10 [Speaker Changed] Is, but what’s so interesting to me, Barry, is are picks of the companies thatwe 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 as00:55:35 [Speaker Changed] People call that. Yeah. And to me, that’s a real telling indicator that we’renot as confident today as we were because it’s00:55:43 [Speaker Changed] That’s very interesting. You know, in other words, the, the focusing on thebiggest, best, most well established companies is a sign of a lack of self-confidence. Whereas theremaining 493 companies in the s and p 500 we are ignoring. And, and that’s a sign of that, that lack offuture 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, as00:56:09 [Speaker Changed] Large as it’s ever00:56:09 [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 thoseproducts, huh. And so00:56:23 [Speaker Changed] That’s fascinating. So I had recalled during the, the pandemic lockdown thefirst few months, I went back and looked at some history because when you see the pandemic and the34% market drop, you know, you go back and look at history for non-market related, non-economicissues, terrorist attacks and wars and presidential assassinations and, you know, tsunamis and justsomething that comes from outside the financial system. You know, I jokingly said the asteroid thatdestroyed the dinosaurs had had the same impact historically. You could look at about a four dozen ofthese. What happens is markets wobble and then they continue doing what they were doing before. Sowhen 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 veryrapidly. So, so I, I wrote a column for Bloomberg that unfortunately has published April 1st April Fool’sday of 2020.00:57:34 Don’t assume the pandemic has ended the bull market. I have never gotten more hate mail foranything I’ve written since before or since. And, and the irony is I wasn’t saying go buy ’em, I was justsaying don’t assume it’s over, because here’s what history came before. And by the way, that turned outto be correct. And we got a lot of pushback from clients. I don’t understand. My dry cleaners closing thelocal movie theaters shut. The local retailers shut. Yeah. But those guys aren’t in the s and p 500. Look atwhat’s in the s and p 500. Microsoft Apple, Hey, you could work from home. Netflix and DocuSign andPeloton and all of those companies did really well. And the ones that survived were the ones thatcontinued 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 ofthis is just, they’re addressing the market versus concern about uncertainty. So we’re gonna stick withthe tried and true.00:58:50 [Speaker Changed] I I think that we saw a major peak in early 2021 in terms of enthusiasm, allthe, the speculative bubble, right? We’re seeing a less robust peak00:59:07 [Speaker Changed] Earlier this, this year. People are running outta savings. All the pandemiclarge 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 thethings that was so interesting to me about early 2021 is we had a reasonably coincident peak in bondprices 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. Youknow, you had that, that I blame fiscal, but there are a lot of other theories for why inflation spiked andstarted that. Yeah. That tightening round by the fed. But there’s no doubt bond market ended aroundthe same bull market ended. Yeah. Around the same time the post pandemic bull market01:00:02 [Speaker Changed] Slowed. And so we have this declining confidence in stocks and bonds atthe same time. And which01:00:09 [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 differentasset 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 andwhite. There’s a lot of subtlety and nuance, a spectrum of, of choices, but we all tend to reduceeverything to yes, no up, down black or white choices. How, how can you look at confidence? How canyou 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 sentimentrather than your own. We’re not always good judges of our own behavior. And we can be more honestjudges of others sometimes, you know, painfully honest. But market crowds tend to be almost like amiddle school environment where it’s, it’s very social. I, I joke that, you know, financial markets aresocial networks with money instead of likes. We, we put money in and take it01:01:30 [Speaker Changed] Out. It’s a popularity contest. It’s01:01:32 [Speaker Changed] A01:01:32 [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’sthe crowd putting money? Where’s the crowd excited? Where’s the crowd? You know, Ooh, you worethat. You, you’re a, you know, you can’t sit with us. And so that, that sort of middle school arrangementin the markets becomes a pretty honest sense of where the crowd broadly is. Are there managers whoare, 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. Itcannot 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 highschool student thinking about this. So01:02:32 [Speaker Changed] You’re reminding me of the famous Benjamin Graham quote. In the shortrun, the market is a voting machine, but in the long run it’s a weighing machine. So you get sentiment inthe 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 whenconfidence is low, we’re likely to be much more impulsive, much more emotional than we mightotherwise be. I think that was one of the lessons that people missed with meme stocks that01:03:06 [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. Youknow, nothing attracts a crowd like a crowd in the markets. And, and so we should not be surprised ifwhat 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 recentmarket moods. We, we were talking about meme stocks, you know, the old timers like myself looked atthe, the various meme stocks and kind of snickered to ourselves and said, I’ve seen this movie before. Iknow 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 memestocks, GameStop also way off its highs. When you see this starting during the lockdown, what are yourthoughts 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 bothextremes and mood, because you have the nihilism that naturally comes with low confidence. And soyou 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 liketo follow because they’re always the last to the party. Right. And, and they’re a great tell. In fact, morerecently we had a little flurry of meme stock behavior in, in the summer of 2023. It’s a great indicatorthat we are reaching a climax in mood when the, when it’s amateur hour01:04:54 [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 justbrutally 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 likePeloton 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 watchingTeladoc and DocuSign and Peloton, all the work from home stocks, and I remember specifically saying, Iknow these are gonna be moonshots and I know they’re gonna be disasters. I’m not sure I’m confidentenough 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 waydown.01:06:01 [Speaker Changed] And it may be the same people. I mean, I sadly, I think those that wrote itup 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 comeback. 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. Andfinally you just stop buying the dips that that just goes away. So let’s now roll this into the, the 2023fourth quarter environment. Politics generally has become darker and negative, but I don’t ever recall aperiod in American history where the leading candidates for the two major parties are both widelydisliked, not only by the population at large, but their own parties aren’t biggest fans. The Democratssay Biden’s too old. The Republicans say Trump who’s only what, two and a half years younger thanBiden isn’t fit. You, you have both parties wishing for alternatives. When was the last time thathappened?01:07:06 [Speaker Changed] So you can go back to, you know, the early 1980s, I think it was JohnAnderson,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 theballot a year from now.01:07:21 [Speaker Changed] Really? Yeah, because the, you go to the betting sites, they seem to thinkit’s a head to head.01:07:27 [Speaker Changed] Absolutely. But watch how we use the term old, you know, the old canmean wives experience. Sure. Resilient. It can also mean decrepit. It can mean out of touch. And if youthink about Joe Biden’s career, he came into office as the young buck against an aging group ofpoliticians 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 that01:08:04 [Speaker Changed] Both parties, house, Senate. Yeah. Even the Supreme Court. We have a lotof 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 grassrootspolitical leader who rises from within. And, and I think that that is a real possibility. What’s what’sinteresting 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, thatleaders 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, just01:09:10 [Speaker Changed] All quick on his feet. Quick01:09:11 [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 ofcomedians suffer from depression and, and, you know, if you’re in a crisis, you know, uncertainty andpowerlessness is called Tuesday. My, my friend Nass has written a, a wonderful book on leader crises inthe 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 socialmedia. Let, let’s talk about media generally and social media on a related basis. There’s been so muchmisinformation, there’s been so much problems being able to have trustworthy sources. How can welook 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 threenetworks, you know, A, B, C, C, B, SNBC01:10:25 [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 thousandchannels. Yeah.01:10:39 [Speaker Changed] And, and the balkanization that takes place today can be instantaneous. Soas your mood changes, Barry, if I create a more resonant deliverer, and you could watch this on the rightwith Fox, the news mix than OAN as as Republican confidence change. Right. You will find the providerof 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 usthan the truth.01:11:26 [Speaker Changed] We’re, we’re all confirmation bias and less fact checking than, than wewanna admit to, particularly01:11:32 [Speaker Changed] When confidence is low.01:11:33 [Speaker Changed] But let, let’s stick with Oh really? Particularly when confidence01:11:36 [Speaker Changed] Is low. Yeah. ’cause ’cause if I’ve, if I’ve got all these other things to focuson, 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 witheconomics before, and it’s more up down than left. Right? When I look at both social media and, andmainstream media, I often find people who are arguing left right are missing the point. It’s usually morewhat’s more sensationalistic? What’s more clickbait? What’s more hair on fire and what’s morestructurally, here’s the horse race. So let’s not talk about policy. Who’s ahead right now? It, it’s alwayswhat’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 itsaudience. The media also has to create even greater excitement. So I, I joke often that we’ve gone fromthe circus Barkers promoting a two-headed lady. You know, the lady now has to have about 15 heads tocapture attention and that becomes unsustainable. One of the things, if you think about our culture offollowership, the goal is dependence. And so whether I’m a politician, a member of the media, a punditat large, right? The goal is permanent dependence. You have to keep coming back to me. And what I’mlooking for Barry, are leaders who are talking about empowerment that, that send a message. Andagain, this could be, this is where I think up down may matter, is if I send a message of empowerment tothose at the bottom, you could easily draw together a cohort from both the left and the right thatgenerates this grassroots movement.01:13:44 [Speaker Changed] Pardon me for personalizing this, but you seem fairly optimistic that in thistime of uncertainty and partisanship and negative sentiment and just general disarray, you seem fairlyoptimistic 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’lltire of the powerlessness and groups will seek to regain or gain and depending on the situation certaintyand control in their lives, how that struggle plays out, I don’t know. But there is no question in my mindthat the uncertainty will end. It may be chaotic, you know, it could be civil war as groups fight for whatis, what does certainty mean for you versus what it means for me. But we don’t endure this. Well01:14:40 [Speaker Changed] The, the hundred Years war doesn’t, the reason we haven’t had one since iswho wants to be at war for a hundred years. Yeah. Huh. Really quite interesting. And let’s jump to ourfavorite questions, starting with what are you streaming these days? Tell us what you’re either watchingor listening to.01:14:55 [Speaker Changed] So we are streaming murders in the building. My wife assesses and trainsautistic adults. And so we’ve been watching Love on the Spectrum, which is a really warming how thatheart that, that’s really interesting. You know, I, I watch what my wife’s organization does to transformautistic adults’ lives and even more their parents’ lives. And so it’s really heartwarming to see thatthere’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 mentorswho, 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 guynamed Dave Wakefield. You know, going into an organization like JP Morgan, when I did, it was anorganization that was about to undergo mammoth transformation. And what I so value was the wisdomof 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 oforganizations 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 yourfavorites? What are you reading now?01:16:26 [Speaker Changed] Yeah, so interestingly Barry, one, reading is very difficult for me, but I spendso much of my day reading.01:16:33 [Speaker Changed] I know the feeling01:16:34 [Speaker Changed] Because I’m trying to capture what’s going on in politics and economics andfinance all at the same time. That by the end of the day, I want to go pull weeds in a vegetable garden. Iwant to, you know, reading is, I, I, I’m embarrassed to say it, but it just, I, it takes me a couple of days onvacation before I can crack a01:16:54 [Speaker Changed] Book. That’s my favorite place to read is on vacation, read a book onvacation or when I’m prepping for a podcast. So let’s go to our final two questions. What advice wouldyou 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 NewYork. I think there’s a lot of folks who come out of college with that. You know, if I don’t make it NewYork, I, you know, and what I love so much about finance today is that there are opportunities in somany different angles of it, in so many different places.01:17:35 [Speaker Changed] Boston, Charlotte, Chicago, San Francisco, the number of Atlanta, thenumber 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 andfinance professionals focus a lot of energy on what we do poorly, what we do wrong. And I think weneed more attention on what do we just do. You know, if our, if our objective is to change people’sbehavior, we need to understand what do we do that’s unscripted. And, and I feel like the reason Iwrote this book is to say, this is what we just do. And, and if I understand that better, then I can start tomake better decisions.01:18:30 [Speaker Changed] And our final question, what do you know about the world of financeinvesting sentiment confidence today? You wish you knew 30 or so years ago when you were firstgetting started,01:18:43 [Speaker Changed] That what I think doesn’t matter to be successful, I need to understand howothers 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 crowddetermines 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 yourtime. We have been speaking with Peter Atwater, author of The Confidence Map, charting A Path FromChaos to Clarity. If you enjoy this conversation, well be sure to check out any of the previous 500 suchdiscussions 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 onTwitter at ritholtz or on x at Barry underscore ritholtz. Follow all of the Bloomberg family of podcasts atpodcast. I would be remiss if I did not thank our crack team that helps put these conversations togethereach week. Sarah Livesey is my audio engineer. Anna Luke is my producer. Atika ValBrown is our projectmanager. Sean Russo is my researcher. I’m Barry Riol. You’ve been listening to Masters in Business onBloomberg Radio.
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