ReSolve’s Riffs on Crouching Bull, Hidden Bear: Second Chance for Investors?

This is “ReSolve’s Riffs” – live on Youtube every Friday afternoon to debate the most relevant investment topics of the day.

On our second episode, we invited our good friend Corey Hoffstein (Newfound Research) to analyze the roller-coaster experienced by equity investors in the past 3 months and discussed:

  • the disconnect between the equity rally and the pain in the broader economy
  • the companies and sectors that have led the charge
  • how Trend signals in equities have evolved in the recent period
  • how investors might position themselves going forward

We also address the big question in most investors’ minds: should they jump back into the stock market and avoid additional FOMO or take this second chance to embrace a more diversified and adaptive approach?

Watch – or listen – below and join us live next Friday!

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Rod:                             00:00:06           Welcome to Gestalt University, hosted by the team of ReSolve Asset Management, where evidence inspires confidence. This podcast will dig deep to uncover investment truths and life hacks you won’t find in the mainstream media, covering topics that appeal to left-brained robots, right-brained poets, and everyone in between, all with the goal of helping you reach excellence. Welcome to the journey.

Speaker 1:                 00:00:28           Mike Philbrick, Adam Butler, Rodrigo Gordillo, and Jason Russell are principals of ReSolve Asset Management. Due to industry regulations, they will not discuss any of ReSolve’s funds on this podcast. All opinions expressed by the principals are solely their own opinion and do not express the opinion of ReSolve Asset Management. This podcast is for information purposes only and should not be relied upon as a basis for investment decisions. For more information, visit

Rod:                             00:00:55           Welcome to the second edition of happy hour drinks with ReSolve, ReSolve Riffs, and all that. Welcome, Corey Hoffstein from Newfound.

Corey Hoffstein:     00:01:02           Thanks for having me, gents.

Rod:                             00:01:03           Thank you for joining us today. What are you drinking today? What is your drink of choice?

Corey Hoffstein:     00:01:07           Oh, I didn’t know drinking is what we were going to do at 4 p.m., so this is a last-minute one for me, but the go-to, as always, is a little bit of rum. It’s a Santa Teresa 1796. It’s a Venezuelan rum. Some notes of bitter chocolate, a little nuttiness.

Rod:                             00:01:22           1796?

Corey Hoffstein:     00:01:23           Well, that’s what it’s called. I don’t think a lot of people are rum people. I guess I wanted to be a pirate in another life, or something like that.

Rod:                             00:01:29           So you’re a rum person? Generally, that’s your go-to?

Corey Hoffstein:     00:01:32           My go-to is rum. Yep.

Rod:                             00:01:33           Really.

Corey Hoffstein:     00:01:34           I’m the only guy going up to a bar and going, “Give me your top-shelf rum.”

Rod:                             00:01:39           A Bostonian drinking rum from Venezuela.

Mike:                          00:01:42           I think you need to come to the Caribbean, bro. That’s how it rolls down here.

Corey Hoffstein:     00:01:46           I’ll be on a plane as soon as I can.

Adam:                         00:01:48           I also don’t think it’s that unusual.

Mike:                          00:01:50           I got the whiskey sour going with the bourbon. It’s pretty spectacular.

Rod:                             00:01:54           You’re not in California anymore, right?

Corey Hoffstein:     00:01:56           I’m outside of Boston.

Rod:                             00:01:57           It’s not 1 p.m. for you. It’s 4 p.m.

Corey Hoffstein:     00:01:59           No, this is a little bit better on a Friday.

Rod:                             00:02:01           A little bit more reasonable for you.

Corey Hoffstein:     00:02:02           Yeah. Though I don’t think that stops people in L.A. The 1 p.m. Friday drinks was pretty common when the world was open.

Rod:                             00:02:09           Right. Jason, what do you got today?

Jason Russell:           00:02:11           I’ve got, once again, my Oakville water and coffee.

Rod:                             00:02:15           Dude.

Jason Russell:           00:02:16           Yeah. Yeah, I know.

Rod:                             00:02:17           Wow. Okay. Bucking the trend. That’s right, diversification.

Jason Russell:           00:02:22           You bet.

Rod:                             00:02:23           All right, gentlemen. We kind of riffed a little bit already about what the topic was going to be this week, and kind of feel it’s an interesting time, reaching the end of the month. We’re reaching the 200-day moving average, reaching some key inflection points for the S&P 500, and investors are now ready to rock. They’re turning bullish. People are giving up their bearish stance, and everybody’s having conversations with a wide variety of investors. What’s everybody thinking? I mean, Corey, what’s the major topic of conversation right now? Are most people bearish, bullish? What are they asking from you?

Corey Hoffstein:     00:02:57           I think there’s a lot of people that want to be bearish, but they can’t justify being bearish anymore. There is a certain amount of capitulation that seems to be happening, especially for non-systematic traders. They’re just going, “Look, the market’s going up. You have to be invested.” Most advisors I talk to, at the end of the day… We lost Rod. Wonderful. Most advisors I end up talking to, at the end of the day… Look, they’re running a naturally long book, so they just have that bias. They might run some systematic trend strategies or some other sort of hedging strategies within there for their clients or outsource that to other managers, but for the most part, they’re naturally long, so they’re pretty happy. But I think there’s a lot of confusion still, as to the seemingly disconnect between the market and the economy, though I think if you rewind and go back 12 months and ask people if the market and the economy were really tied at all anyway, they would have said no. So I don’t know.

Adam:                         00:03:50           If we needed confirmation, then look no further than the last six weeks, that’s for sure.

Corey Hoffstein:     00:03:55           Right, exactly. Exactly. So everyone’s surprised that they’re not going in tandem, but no one ever said they were going to go in tandem, so…

Adam:                         00:04:03           That’s true. What are some of the month-end models saying? I know you were on a variety of month-end tests, and they were in a certain state at the end of March and then April and then May. What are we seeing in terms of the evolution of some of these more simple trend models?

Corey Hoffstein:     00:04:19           Yeah, I think for a lot of the very simple ones… And by simple, I don’t mean they’re dumb and naive. I just mean you’re just using a single indicator, in or out. We are going to see a lot of them flip back on. You are now seeing 12-month trailing returns are positive in the S&P 500. And I’m talking about the S&P 500 here specifically. You’re going to see your 10-month moving average made popular by our friend Meb, is going to be likely positive. Your 200-day moving average is looking positive end of month.

Mike:                          00:04:45           I can confirm the positivity there in the 10-month. It was 3,000 on the S&P, and we closed 3,038.

Corey Hoffstein:     00:04:51           I mean we are just right above most of these.

Adam:                         00:04:54           It’s shocking how often that happens, though, that we close within half a percent or 1% or even tighter to some of these major indicator lines, these major thresholds. And so the market just gives the most people the hardest choices.

Jason Russell:           00:05:09           Everyone since finally getting back in to the long side, and maybe it’s time to go over. Yeah. The risk here of course, is making that bet one way or the other obviously, and maybe a volume button is better than a switch, as we all know or think.

Corey Hoffstein:     00:05:25           I would say for a lot of the indicators that we track and just like a very naive, diversified trend equity strategy, you have probably seen all of them from mid March till mid April, even mid May for the most part stay off. And around mid May, you saw about 40 to 50% of them jump on when you started to see some of those shorter term ones that rolled down the February, March hill so the back end of the trade started turning back on and then just the longer term trends looked positive as well. So it’s definitely an interesting… There’s a big jump, but you’re still only seeing about 50% of the signals depending on where you’re looking are positive right now.

Rod:                             00:06:02           Why don’t I show the… You have something. I’m going to try to share my screen for the first time so bear with me if we have any technical difficulties here.

Mike:                          00:06:09           Well, we’re literally at the happy hour at a pub here, so I can’t believe only Rod would bring a slide deck, but go ahead, Rod. Talk about our bias. I hear ya.

Rod:                             00:06:22           No, but this is something Cory put together. This is in the new found ReSolve Robust Equity Momentum Index website. Walk us through what this shows here, Corey.

Corey Hoffstein:     00:06:33           Yeah. So here, what we’re looking at is a cross section of trend following signals on the MSCI ACWI and on the Y axis there we have different trend model speeds. So very short term models at the top. Longer-term slower models at the bottom. And then we have along the X axis, different model definitions. So time series momentum, price minus moving average, moving average crossover. They’re all cousins, but they’re all going to be measuring prior returns in a slightly different manner. Those time series momentum strategies are going to more equally weight prior history, price minus moving average is going to tend to front weight, whereas moving average crossover tends to back weight and what you can see, and this is as of last Saturday, hasn’t been updated intra week, you can see it was mostly those very short term signals that had turned back on. Interestingly, the longer term time series momentum signals were also on, I would expect to see at the end of this week that those mid to long term horizons for price minus moving average will also likely be mixed if not predominantly on.

Adam:                         00:07:36           What’s amazing is everyone focuses entirely on stocks, but if you look at the trend on bonds, if you had a method to identify when it was a good time to emphasize bonds, then you whistle past the graveyard for this entire crisis and you really haven’t given back much… You haven’t given back any gains as equities have rallied here. So if you could really, it depends on how quickly you could identify that bonds were going to rip, but the ability to diversify… Diversity here was well rewarded and you’re not seeing any giveback in this rally.

Corey Hoffstein:     00:08:11           That is something we’ve noticed with the treasury futures that we trade as they ripped, and then have just been bouncing at the ceiling with very little volatility too, which is very interesting. It’s been very tight range bound for the last two months, maybe, which typically you would expect if they’re going to rally for a flight to safety reason, they’re also going to deflate for a flight to safety and you haven’t seen the deflation. Have you seen that in other assets, Adam, like gold and-

Adam:                         00:08:34           Not really? No. I mean-

Mike:                          00:08:36           Gold.

Adam:                         00:08:37           Yeah. Gold, I guess you’re right.

Rod:                             00:08:38           Gold and TLT are basically the same asset class. They have acted in the exact same way.

Mike:                          00:08:44           Well, gold acts like a zero coupon bond with no debt attached to it. In some cases it’s Jekyll and Hyde asset. And then when it needs to be a source of liquidity, it becomes an equity. And so it has that… Gold has this kind of… It’s developing this binary personality probably because of the regime shift that’s going on being more in an inflationary and growth shock type of regime will dictate to some degree structurally how assets act and I think you’re seeing that in gold. I mean we’ve had some fun sort of chatting back and forth on doing a sort of robust momentum-esque  gold securities thing that is… Turns out is a lot harder than it might… Theoretically, it sounds great. I mean, in my mind, we were just going to basically launch a uranium/ gold miners timing index, and we’re just off to the races, but.

Adam:                         00:09:34           But you do highlight an important point, right? Because gold does serve a role in portfolios that really can’t be served by any other asset and is often overlooked. I think in Canada, we are, for some reason, more acutely aware of gold and I guess resources in general, but in many places, gold is still considered this antiquated relic. As I don’t know if that’s exactly the words that Buffett used to describe gold, but something like that, but it really does serve a purpose as a hedge against the potential for via currency devaluation. And I think it’s playing that role today, as we see such a huge surge in the US monetary base and investors begin to pay attention to that. So good catch on gold.

Jason Russell:           00:10:19           What about other things in terms of recovering? I mean, we see equities bouncing, the S&P and NASDAQ in particular is really hot, but you look at Canada today, didn’t really participate as much. I see a Canadian bank cut its dividend, National Bank cut its dividend today, which is pretty crazy.

Mike:                          00:10:37           I think it was a Laurentian today. National couple of it. Yeah.

Jason Russell:           00:10:39           Laurentian, yeah sorry. Laurentian. Thank you. And copper too, which is an old school thing to watch. It looks a lot like equities, but a little duller.

Mike:                          00:10:47           Well, I think you make a great point, Jason, there’s a bifurcation in the market. There’s the economy of stuff which has been absolutely destroyed and is struggling to get back. If you want to sort of watch for signs of that, the small cap index in the US versus the NASDAQ are stark examples of this situation. And so you fast forwarded by a decade with the economy of bits ,with COVID, right? The idea of synchronous and asynchronous work in a distributed workforce, which we are all experiencing, probably we’re ahead of the curve, all of us on this with Corey at Newfound and ReSolve. And so you’re seeing sort of the mass adoption of this.

Zoom is worth the same market cap as the top seven airlines. So Zoom versus jets, right? That’s the kind of paradigm we’re in. And so you’ve had this fast forward. Now, of course, the question is, are we ahead in that? Because it’s not enough to observe that, it’s the secondary derivative thought of, is the market already priced all of that in, or is it not priced in? And so are you a mean reversion person where you’re thinking, no, I think airlines are oversold and Zoom is overbought, or are you a person who saying, “Hey, let’s just go with the trend here, stay short the jet and stay long the Zoom.” But it’s these two different economies that are… What’s interesting too, is the way in which the structural dynamics of sort of a regime shift, more towards assets that have less debt and more secure cash flows, cash flows based on zeros and ones, like software will tend to get more asset flow as well.

So you have this sort of several layers of dynamics that favor large tech over old economy. And this two directional way in the market where you have these very large stocks, dominating S&P and NASDAQ that are dominating that performance versus the stuff stocks I’ll call them, which are not participating. And I’ll just make one more comment and throw it back to you guys, is that if this was a market bottom, a true market bottom like a more secular bottom, like an ’08 bottom, you would expect the rally to have included the stuffs stocks, right? You would have thought that the value would have participated here rather than a continuation of the bits economy and the uptrend in the stuffs economy and the downtrend. Again, you only have a handful of observations so it’s really hard to draw a lot of conclusions, but I’ll just throw that back to the group.

Adam:                         00:13:15           It has been a multiple personality market though. I mean, clearly there’s been major massive winners that are actually up on the year. Some of them up quite substantially while the vast majority of stocks are still very close to… They’re sort of bouncing off the bottom here or have had a very light bounce. And so it’s a market that’s made a few heroes and a lot of zeros and that’s kind of a good segue. I think a lot of the conversations, I know that Rodrigo you’ve been having probably Corey, Mike, you’ve been having them too is with investors and advisors who they have some cash, whether the cash came from their own tactical overlays or just from retirement savings that continues to flow into accounts without consideration for the market environment. There’s cash built up and there’s a real question among advisors and investors about what to do with that.

I think a lot of advisors and investors who had been using kind of home cooked tactical models are getting kind of nervous, right? They’ve had over the last few years you had in 2018, you had several incidents where whether you were using a 12 month or an 11 month or a 13 month dictated whether you were in or out in the face of some really major declines or rallies. And really it’s just been a random coin toss for a lot of these guys as to which ones of them look smart versus which ones of them look really dumb and it’s not really anyone’s fault. It’s just kind of like people trying to keep it simple, trying to keep it explainable so that people that are investing it understand why the signals are what they are and that’s cost a lot of people. The explainability was nice, but now you’ve got to explain why you’re either a hero or a zero, and it’s really due to randomness.

Rod:                             00:15:01           Well, it’s explainability, it’s simplicity, right? Because you don’t… An advisor, you don’t have time to really do a lot of trading necessarily. And then it’s really the conversations I’m having of individuals who did the right thing. I mean it was gut wrenching to do the right thing, but if they’re following the 10 month or the 12 month or the 200 day, some of them pull the trigger a couple of days later than they should have. Most of them did the right thing.

Adam:                         00:15:25           Well, I just want to make sure we were clear on what you mean by did the right thing here.

Rod:                             00:15:28           As in, back in February, March, they got out.

Adam:                         00:15:31           They declared that they had a system and then they followed their system.

Rod:                             00:15:34           And they followed their system. Right.

Adam:                         00:15:36           Ex-ante did the right thing, looking at performance it may have not been the right thing, but the right thing was committed to a system and I’m going to follow it.

Rod:                             00:15:43           And the truth is that we had to nudge a couple of advisors to follow their system a couple of days after the fact, right? Because there’s just liability in not pulling the trigger on something you said you’d do. I always use this famous example of my old, old partner who would basically use the 10 week and the 40 week moving average. In August, 2008, for Canada, all his things started hitting the crossover and I called him to see if he was going to sell. And he said, I’m going to watch it for a couple of weeks. I actually think this is a bounce. This is a technical correction. And he never got out, right? It is a real thing to be able to… When you’re dealing with a system where you only have to pull the trigger a handful of times in your career, those moments of having to pull the trigger are nerve wracking.

And they come with a lot of career risk. Because like you said, Adam, it’s not whether you were right or wrong, it’s whether you follow the system. That’s the right thing. But sometimes doing the right thing gives you the wrong outcome. And so at that point it was nerve wracking to pull the trigger. You do, and they’ve been sitting in cash all this time. Now here comes the second round of it, right? We are now looking at the massive recovery. We’re hitting the 200 day, passing the 200 day. Some technicians see that as a resistance level. And it’s going to go down from here, right? Those that are following the price system above the 10 month moving average, they have to go long 100% and do the right thing with possibly the wrong outcome. And everything’s at risk. So the discussions are, I can’t do this anymore. How do I follow what I believe to be a real value, which is being tactical, without betting the farm on it?

Mike:                          00:17:17           It’s such a great sound. I’m sorry.

Rod:                             00:17:21           I’m sorry, am I boring you?

Mike:                          00:17:21           I want to set the stage for the happy hour. Sorry, keep going.

Rod:                             00:17:24           So at this point, we’re at an inflection point. So this is I think a timely conversation because it’s an inflection point. What advisors are feeling that are using these signals is that I’m sitting in cash. What do I do now? And the answer for us has always been for years because we’ve gone through these machinations in our careers, is to smooth in and out of things. There is no one answer. It’s not the 10 month or 12 month, the 13 month, the three month crossover with something else, it’s all them because you want to be broadly correct about your signals rather than specifically wrong. Anyway, that’s the conversation I’m having. And a lot of these tactical managers are saying, “Okay, take over some of this. I’m not going to give up fully because I still have to do this, but take over some of it just in case I get my one bet wrong.” And I know, Corey, you probably have similar conversations.

Mike:                          00:18:09           Yeah. I think you hit on two points there and I’ll throw it over to Corey, but there’s two points. One is, do I have an edge that I can harvest? Right. Is there some… So what we’re talking about here, largely speaking, is a trend edge. And so is the edge real? And so there’s a whole discussion there about I’m going through a period of low/ negative returns and is the edge gone? Has there been strategy decay, so how do I detect that? But two, in the absence of strategy decay, what I need to be is reliable in the execution of my strategy in order to harness and achieve the return that I’m supposed to get from taking those actions. And I think what we’re seeing is sometimes a lack of discipline in the ability to actually execute those strategies and harness the return that is there, but the edge is small.

The edge is two or three Xs percent over random. And so you have these two issues. One is, is my edge good? Yes, it is. I’m assuming it’s good. And I think you’ve got some great commentary on that, Cory, with respect to how many observations would we have to have from here on forward in order to invalidate the various edges that we might suggest exist or don’t exist. And then what you’re talking about, Rod, I think is the ability to behaviorally continually execute on that like Groundhog Day on Monday, not being away on holiday, not having a whole bunch of client accounts come in to say this, not having any doubt that you’re going to go 100% into the S&P because it’s 35 points over the 10 month moving average, just relentlessly executing. And so these are very complex dynamics and-

Rod:                             00:19:45           I want to hear Corey, but before you continue, Mike, are you chewing mint gum while having a very expensive liquor?

Mike:                          00:19:50           Yeah.

Rod:                             00:19:51           I honestly… Can we-

Mike:                          00:19:53           I got to chew gum man.

Rod:                             00:19:54           Whoever’s doing the production in the background, do not zoom in on him when he’s doing that. It’s appalling already with a small screen, don’t maximize it.

Adam:                         00:20:01           I agree. My skin got up and crawled away.

Rod:                             00:20:04           All right. You’re in the penalty box for five minutes. Okay, Corey, go ahead.

Corey Hoffstein:     00:20:07           I can understand it with a Mohito but the with sour, it’s just not working for me.

Mike:                          00:20:12           Otherwise I’ll fall asleep in the conversation. I mean it’s just kind of-

Corey Hoffstein:     00:20:17           I feel… Thank you. Maybe I can spice it up for you. I feel like a lot of the conversations I’m having are interestingly, the opposite side of the conversations I was having in March, which is a lot of advisors in March having the dialogue of them saying, “I’m out. I want to sell. It’s Sunday afternoon, on Monday morning I’m wiping out a bunch of client accounts.” And my conversation with them was always, “Why is this so black and white?” And so the opposite is happening today, which is we have cash. I need to get back in.

I’m taking all of and putting it to work Monday. And what’s interesting is when I press them, there’s always a feeling of discomfort. And I think a lot of the advisors inherently understand that what they’re doing probably doesn’t make sense. They can’t always know why and a lot of times I think it’s because they think they’re making a market call, but I think the reality is what they’re internalizing but maybe not intellectually recognizing is that they are making a huge one sided bet when they’re doing this, a huge timing bet that they don’t need to make.

And a lot of these conversations are framed that are you in or are you out? If you are sitting there saying, “I’m uncomfortable with how out I am, the decision doesn’t have to be I have to be 100% in.” I think a lot of advisors who run these type of tactical strategies, they are saying, “I’m internalizing the randomness of the month ending in us being potentially just slightly above my trigger and why is that any different than me being 10% above my trigger.” But I think they understand that feels a lot more fragile to them and a little bit more random. The choice doesn’t have to be you’re 100% in. You can say, “Hey, you want to know what my trigger says, go in, but I am so close and this was so arbitrary and by the way, the market’s moving 2% a day intraday every day, which probably isn’t healthy and a sign of some sort of uncertainty and.”

Cory:                           00:22:00           … healthy and a sign of some sort of uncertainty and lack of liquidity and drive, like, “All right, take a more hedged view, that’s okay. There’s nothing wrong with taking a hedged view.”

Jason:                         00:22:12           It’s Morgan Housel had a great piece this week on how people deal with probabilities versus certainty. I think one of the things that resonated with me was that people don’t want accuracy, they want certainty. One thing you get from these binary signals is I feel terrified in both directions, but I just want to make a decision. I’m going to be certain long or I’m going to be certain short, but ambiguity is uncomfortable. Meanwhile, we know Voltaire, uncertainty may be uncomfortable, but certainty is absurd. So are we 100% certain that stocks are going to go up if they close 0.001% above the 10-month moving average? Then are we 100% sure they’re going to go down if they close 0.001% below the moving average?

I think if you frame it this way, people begin to recognize how silly it is to have to make these kinds of choices. The challenge is how do you home cook a more nuanced or gradient approach and explain it and etc.

Mike:                          00:23:21           I like Jason’s framing on that. Like going through the process that you go through Jason on that item. And I don’t know if it’s triggering your brain. But that idea of, ” Well, what if I did 1%.” And you sort of iterate to where you-

Jason:                         00:23:35           Yeah.

Mike:                          00:23:36           Go ahead.

Jason:                         00:23:36           Yeah. Just imagine, take any measure of momentum and imagine we’ve got one day in 200 days and you look at a histogram and as the one day is up, that turns on two, three, four. You can imagine the histogram slowly showing what percentages is positive. Is that what you’re referring to Mike?

Mike:                          00:23:53           Well, in the decision making. Do I feel comfortable being 100% in? No. Well, what about 1%? Do I feel okay at 1%?

Jason:                         00:24:01           Right. And you can go back and forth too. Like right now, a number of these systems, if we’ve got, I’ll say 100 variations or 1000 variations, about 500 right now are kind of, which to me feels about right. And it shows any strategy that’s sort of doing something like what we’re exploring here or doing is kind of treading water. Didn’t suffer as bad in the second half of the drop and the equity market, the pure equity market bounce back starting to catch up. But where do you want to be right now? Do you want to be fully loaded equities or not? So I think for a lot of people, this is the type of conversation that more and more people need to recognize.

And the old brokerage thing about dollar cost averaging, it’s really a relative of that idea, which just makes it easy to make a small decision over time will become the decision.

Mike:                          00:24:52           How should they systematize that? I mean, I know how we do it. I know how Newfound does it a bit because we’ve worked together on some stuff, but how should that person in that position now try to systematize that given they’ve got this signal.

Jason:                         00:25:04           The challenge, the dollar cost averaging is an easy thing to do. You inherit some money, you’ve got some cash, you want to invest. Let’s invest one 12th of it every month for the next year and then year end. That’s easy, but what we’re doing is a little more advanced, a little harder to do at home because you are looking at the momentum or basically the momentum of bonds, the momentum of equities, etc. And you are breathing in and breathing out with the movements in the market. If the market begins to really roll and really grow for a longer period of time, our weight increases as it pulls back. We might decrease a bit and increase it again as it goes forward.

But there’s never a major decision made to dramatically call a top or call a bottom.

Rod:                             00:25:49           By the way, that’s a big obstacle, especially in the last couple of months, that idea, that nuance in and out. Like we can talk all the theory we want, but the last few months have clearly shown that triggering your signals at the end of the month, where something between 10 and 12 months or 200 day is better than anything else. I mean, it’s that hero’s journey. So far, it’s looking at the heroes of one. The idea that you can say, “Oh, I got out on March the 26th or whatever.”

Jason:                         00:26:18           We’re going to go there. I need another drink. Is there anyone else with the-

Rod:                             00:26:23           It’s the biggest obstacle, because the idea of using many signals and also deciding not to rebalance at month end, to rebalance every other week and do the Caterpillar approach. Which over long term period actually provides a more or less a result, in the recent period where it’s matter the most, that has hurt you more than being the hero.

Jason:                         00:26:45           For the audience do you want to… Sorry, Caterpillar approach for the audience, I don’t know if that’s been explained on this call. What do you mean by that?

Rod:                             00:26:53           Cory has it, he’d explained the Caterpillar approach better than anybody. Go ahead, Cory.

Cory:                           00:26:56           I explained the Caterpillar approach more technically than anybody. I don’t know if it’s better than anybody.

Rod:                             00:27:01           Robot Caterpillar.

Cory:                           00:27:02           In fact, I might be worse than anybody. Yeah. The Caterpillar approach is basically almost dollar cost averaging, applied to your signals. Instead of if your signal turns off today, instead of getting 100% out today, the idea is that you’re implementing that trade slowly over time, as long as that signal remains consistently off. So if the signal turns off, you could go as extreme as every single day, you’re going to trade one 20th of your portfolio. And then if halfway through the month, the signal turns back on, well, then with that part of your portfolio, you’re going in. So it creates a more nuanced sort of in and out dial through time, rather than an all in, all in light switch.

That might be very sensitive to when you’re sampling the signal. If you sampled mid month, this month, you would have been out until the mid next month. If you sample at the end of month, it’s looking like you’re going to go back in. So it’s trying to avoid that timing luck.

Mike:                          00:27:54           A temporal angle.

Rod:                             00:27:55           Let’s be honest. It’s been infuriating to spend so much time trying to get the education out there and to have this real life event that’s affecting real advisers and real people’s money. And the single parameter set working so much better so far. I want to stress this, so far-

Speaker 3:                 00:28:12           Well, I think there’s lots of single parameters sets. It also got the living bejesus knocked out of them. You don’t hear about them as much.

Cory:                           00:28:18           So for 10 month moving average worked great. Got you out right at the end of February. The 12 month total return, didn’t get you out. You took all of March and then got out at the end of March and you will be getting in providing that the market stays above. So I mean, again-

Jason:                         00:28:32           You guys aren’t using the 168 by 13 and a half day, then honestly I don’t even know what we’re talking about.

Rod:                             00:28:37           Current event. Didn’t you write a white paper on that one?

Cory:                           00:28:40           This is a bit of a different direction of the conversation, but this is something I think is really interesting, which is all right. So you have all these different tactical managers. You have a bunch of CTAs who are also running systems like this, systematic macro managers that in aggregate probably have a very balanced position. Those that are long short are probably neutral. Those that are long only are probably about 50% on average, if you dollar weight all their positions together. So the question becomes when I think about markets in day to day, and what’s going on, where the future goes, it’s who’s going to be the marginal buyer.

If the market keeps going up with lower volatility, CTAs are going to be buying in bigger and bigger size. So that can be some real pressure on the upside. You go the other way and say, “Let’s say the market starts to turn down.” Well, all those CTAs that the tactical managers have covered and they’ve gotten to about their halfway position. They still have plenty to sell. So there’s a bunch of marginal pressure downward. So where this interesting inflection point, at least to me and it’s not to say that these managers necessarily are going to be driving a ton of the market. But given that you’ve seen vol compress way down from where it was, I think, whatever direction you start to see the market go, you’re going to see marginal pressure in that direction.

You’ve almost reloaded at this point, which is interesting and should propel things further, whichever direction they go.

Rod:                             00:30:01           That’s a very interesting point actually. I had a discussion just before this call about just that and everybody’s neutral right now. But if something really breaks, if there’s a breakout on the upside or the downside, everybody is we’re not where we were in January. Where you had this massive… You were very far away from any sort of moving average. You had to go all the way down for weeks at a time before you hit it and crossed over, where everybody’s hovering around those points. So all we need is that plus volume to exacerbate whatever trend that is. I have this chart up of… I’m going to share my screen again, gentlemen.

Mike:                          00:30:39           Jason is drinking water, Rod is sharing slides.

Rod:                             00:30:42           This is September 11th. It goes to the point of the dislocation between the real economy and the market. So you have this massive correction here that led to… You kind of extrapolate what’s going to happen. We’re going to close down New York, we’re going to close down shops .people aren’t going to be afraid. They’re not going to go out and shop anymore. And that’s exactly what we saw. We saw a massive intervention, had this massive rally. And if you look at the 200 day moving average, it kind of hits it. And then we continue our way down all the way to the bottom in October, 2002.

So this is where we’re at right now. This has happened before. And by the way, the commentary back then was that the economy was going to suffer greatly because people were going to be afraid to go out. And they were, it took about a year and a half with ad campaigns, trying to get people to go back and go to coffee shops and restaurants again. So the economy did take a real hit, but the short term movements and markets do not have to match what we already know is going to affect the economy. So here’s where I think we are. We could be right now, where people think this is it. And we had the bear market, the bull market. Now we’re off.

This could be a prolonged period of 18 months up and down hitting new highs. And then people saying, “Is the market never going to die? Oh, here we go in the downturn. Oh, my God, the market hit new highs again. It’s never going to die.” And then we go back down. This is why you don’t want to make 100% decisions, because this is going to be a terrifying period in this inflection point.

Cory:                           00:32:04           I think to your point, Rod. I mean, I think there’s an interesting dispersion between a market sell off that’s driven by liquidity and panic and one that’s driven by economic forces. So when I look at, with the benefit of hindsight March, I think you had a market that was very much driven by sudden panic. But one that was ultimately fragile and broken from a liquidity perspective. You had market makers trying to work from home. You had banks would massively reducing risk levels because everyone was trading from home. You just had a fundamentally broken market that when the Fed stepped in, to provide liquidity, it was probably at a point that the market had overshot where it should have been.

It’s hard to say where the market should be at any given time, but it was very likely at the market was in this cascading sell off. Not because markets were pricing correctly, but because you couldn’t escape that position. There was forced margin calls.

Adam:                         00:32:55           But it’s so reflexive, right? Cory, like if the Fed hadn’t stepped in, if the government stimulus had been half trillion dollars instead of $6 trillion.

Cory:                           00:33:04           I know this is your trigger point. Let me just finish. I know this is like waving stakes in front of-

Adam:                         00:33:11           I’m going to explode with counterfactuals here.

Cory:                           00:33:13           Yeah. This is not about whether the Fed intervention was right or wrong.

Adam:                         00:33:18           We didn’t say that it was right or wrong. I didn’t say that.

Adam:                         00:33:22           Hey, hold on, I thought that… It’s clearly wrong.

Cory:                           00:33:24           Let’s say the market was it’s oversold from a pure like liquidity cascade issue, but not a solvency issue yet. Fed steps in the market corrects and now we get to the point where there is sufficient liquidity in the market that we can potentially watch solvency issues play out. That will take 12 to 18 months, that I think a lot of people are looking to buy put options and protection saying, “Okay, I need to protect for the next leg down, which might be March again.” I think the reality is the next leg down is something where it’s going to be less of a Vega event, more of a gamma event.

Rod:                             00:33:58           Stair step down.

Cory:                           00:33:59           If there is right or a trend might be a more effective means where trend isn’t going to help you in a one month, very sudden sell-off, fastest sell-off. That’s a Vega event. You need… I know Adam, last time I listened to you, we might disagree on this. I think out of the money options, deep out the money options can help reprice and hedge in those extreme sell offs. But for this, if there is another leg down, I think it’s going to be a calmer leg down.

Mike:                          00:34:24           Sort of the 2000 to 2003.

Cory:                           00:34:24           Yes.

Mike:                          00:34:26           Down 11%, down 11% per year, down 7%. So three years consecutive, double digit-ish, down turn, down returns. I think just a dovetail on your point, Cory, about this liquidity issue and instability. We have to, I think from a top down level and I welcome your feedback on this. The more leverage is in a system, the more efficiency is in the system, but the less stability. So as we layer on this massive amount of debt, you have a market that becomes very liquid. Like it was liquified. There was a liquidity crisis, that liquidity crisis was overcome by the intervention. So the liquidity provided the opportunity for the market to clear, but as you pile on more and more debt onto a system, that system also has breakpoints. Sort of the pile of sand analogy, where you drop that one grain of sand on and eventually a grain of sand causes a cascading number of events.

And what’s interesting there as well when instability rises, the event that actually causes the chain reaction of events becomes more and more unpredictable. It can be less and less of a major event that actually the final straw that breaks the camel’s back, so to speak. So I think that plays into what you’re saying in sort of this development of the market going forward. And maybe it’s a cascading event, that’s a shock, or maybe it’s just simply working through the solvency issues. Working through the issues of it was a credit problem, it’s now a solvency problem. So that’s going to be this more calm working through, where you have more sustained negative trends that are more, I guess, obvious to models and strategies that are set to extract that information.

Cory:                           00:36:11           Yeah. I mean, I know Adam, you want to jump into this. Just let me say one word here, but I think to your point, Mike, this whole situation has forced and I hate this word, but I’m going to use it, this tech celebration of the economy. Which has been very beneficial for the tech sector. But that can only be sustained so long as the rest of the world is able to continue spending.

Mike:                          00:36:29           Correct.

Cory:                           00:36:31           So if you believe that markets are ultimately fractal and you have these small cap companies that are going to face solvency issues, which are going to lay people off. Which means that we’re going to continue to see high unemployment, which means there’s going to be low future spending. I mean, smaller cap companies aren’t buying Google Ad Words. All this sort of stuff takes to play out.

Mike:                          00:36:31           Agreed.

Cory:                           00:36:52           So if there is going to be an issue and I’m not saying there is, if there’s going to be an issue, I think this is going to be more of a slower moving solvency, earnings, recession.

Mike:                          00:37:03           Balance sheet recession. It’s a balance sheet recession.

Rod:                             00:37:06           The thing that comes up often in these conversations is like, well, we talked about tactical strategies, not doing so well in V type recoveries. Because you kind of hit your trigger near the first 10, 15. We were talking in the last episode, Adam, not the premium, but the deductible. I got to remember that. The deductible that you pay before you start getting that protection to kick in. And like we think about 2011, 2014, 2015, 2018. There’s been a lot of deductibles being paid. And then big technical recovery is because there was never a real economic trigger that followed through.

Nor could you really see one. There was always debate, “Is it a bad pine for the economy? Is it not?” And it turns out it wasn’t. I think everything continued par for the course. The 2000, 2008, and this crisis have clear economic triggers that are going to, as you said it Cory, are going to take a long time to play out. And it could be that, that plays out at its own pace in the markets as well. I just see it differently than the view recoveries that didn’t work out for tactical managers and trend managers over the last 10 years. In a way that trend managers could be uniquely positioned over the next two years, if indeed we have this stair-step down approach.

Mike:                          00:38:21           Well, just to your point for Cory’s point too, is that the debt needs to be paid back. So if debt is going to actually increase GDP, which is the end effect for the growth of both tech companies and both the bits economy and the stuff’s economy. This debt to fill the hole is not a creative. It’s better than the other option of letting companies go bankrupt, potentially. I’m not sure that, that’s true, but the thought is its better than letting everyone go bankrupt. So now you have this debt that is not really a creative to the extent where it covers the cost of interest and the principal payments. Where debt is a creative long term to the economy, it’s because that, that creates benefits to the economy and GDP growth in excess of both the interest and principle.

So you have this bifurcation of the economy. So that feedback loop, Cory, that you point out, which is well, the stuff’s economy, all of these companies, they can’t buy these ad words. Definitionally, there’s a disconnect here between the sort of the short run and the longer term funding of the debt that pays this off as each company goes through that balance sheet issue of is this credit, is this solvency? Can I pay for these things? Usually it ends up being austerity. Austerity is not uncomfortable, and that’s the paradox of savings. And now we’re talking about something that’s a little bit longer term.

Adam:                         00:39:36           But does any of this matter when the Fed is buying credit outright? Like the Fed is clearly controlling the cost of capital. So just how concerned are we without bankruptcies, when the Fed is committed to managing the corporate credit spread and making sure that any company can access financing.

Mike:                          00:39:54           So the savings rate, in order to make sure that we have future investment for the economy is a combination of government savings and personal savings. So I think you’ll have, obviously there’s no government savings. They’re spending like crazy. The personal savings rate is going to increase dramatically. So you still need to create some sort of GDP growth. So what you’re saying is that the final buyer, the liquidity provider, the Fed is going to buy enough assets to buoy them infinitum.

Adam:                         00:40:20           Well, I mean the Bank of Japan is currently the largest owner of equity ETFs, and Japanese stocks.

Mike:                          00:40:27           True.

Adam:                         00:40:28           That seems like the most reasonable trajectory for global central banks.

Mike:                          00:40:31           And how’s that market done?

Adam:                         00:40:33           Well, we don’t have the counterfactual. Maybe it will be down 50% more than it is now if they hadn’t bought stocks.

Mike:                          00:40:39           I totally agree. But the factual is that they have pursued… I think the Japanification of everything is a very good point. We need to think about very thoughtfully about that. When we go through that thought process, there has not been returns to those equity products as real estate products, given the steps that Japan took in order to do that. They have not spurred the economic growth required to have those companies either have multiple expansion or grow. I mean, it’s not there. What I’m saying is… So that’s fine, Adam. So what I’m saying is, does your point suggest that we have higher equity prices? If we use Japan, as the example-

Adam:                         00:41:20           I’m suggesting that equity prices and credit are completely dislocated. They’re no longer a signaling mechanism for the economy and they no longer take their signal from the economy that, they are now a mechanism of political utility and of whatever the Fed decides levels need to be.

Mike:                          00:41:42           Oh, and by the way, I kind of agree. Let me paint a picture. Let me use my imagination and come up with an idea. So we have the lender of last resort, which is the central bank’s obligation in times of crisis. They have to pretend like they’re not the lender of last resort, but they have to be there when the system collapses upon itself, which creates a couple of moral hazards. One of those moral hazards is the risk taking moral hazard. The other moral hazard that I don’t think is talked enough about is the power grab moral hazard of the central banks grabbing more and more power as the ECB has done in their ability to execute and for people to actually want to give that up to them.

In the US you’ve had 15,000 banks 20 years ago. You now have 5,000 banks. The zero interest rate policy and negative interest rate policies are not good for banks. And you’ll continue to see less and less banks. You need more and more decentralized banks loaning money at the bottom, at the economy level to drive innovation and drive growth. If I’m going to imagine a way out of this, it’s something like the new green deal where now the source of growth, not the lender of last resort. But the actual buyer of last resort in order to spur the economy into growth and give everybody confidence in order that we can get animal spirits in the real economy, going again would be something like, “Let’s do the new green deal. Let’s take the extra employment we have slack in the economy. Let’s build the bridges.

Let’s build the windmills, the solar farms to take the United States to a level of renewable energy within the country that is unprecedented over the next 50 to 100 years.” So it’s some 50 to 100 year bonds to do that. That’s a fiscal policy. Boom. You put that into the economy. You have engineering firms, you have all of these firms that have a lower price of hydrocarbon cost in order to enable all of these plans that actually reduce hydrocarbon, that take global warming into consideration as we go forward over the next 100 years.

Rod:                             00:43:36           People are healthier. Productivity goes up, the world economy gets reinvented.

Mike:                          00:43:40           And you spur those animal spirits in order for that to happen, otherwise, there is no lending if there’s no investment. If the investment opportunity is the size of my fingernail, banks aren’t going to lend. So the money just is going to be trapped inside the banks from the central bank to the banks. It’s not going anywhere and then you end up in Japan.

Adam:                         00:44:01           Sir, a moment of silence.

PART 2 OF 4 ENDS [00:44:04]

Rod:                             00:44:00           You end up in Japan.

Mike:                          00:44:00           Sir, a moment of silence.

Corey:                         00:44:01           Can I take this is to completely opposite direction, back from big picture to minutia . I want to throw a question out to the crowd. I’m going to go the complete opposite direction of that big picture macroeconomic question and go day to day market. How much of the day to day market volatility do you think is being driven by pajama traders who are just really bored? Got their stimulus check put it in Robinhood, decided to do a little gambling.

Rod:                             00:44:27           I’ve seen some charts there. Some crazy charts actually in Robinhood versus… it’s in marginal buyer, right?

Corey:                         00:44:34           And that’s what’s really interesting to me in terms of taking signals from the market, right? People are saying, “The market’s going up, nature’s healing itself.” Or whatever it is. I always wonder how? When you start to think about this stuff the same way on the way down, the question I always say to advisors, I’m like, “Well, were you selling today? Were you hedging overnight in Japan driving all this overnight action? Were you the one being the marginal buyer or seller? Who do you think it is that’s doing this repricing right now? And do you think this is a very liquid functioning market or not?”

Mike:                          00:45:08           It’s Norway.

Corey:                         00:45:09           In theory should a basket of stocks that represent the 500 largest public companies in the United States, arguably the most powerful economy in the history of the world, be changing by intraday, 2% a day consistently for months on end, is that reasonable?

Rod:                             00:45:28           This is going back to… So people are asking us, “What do we do now?” Well, two, three weeks ago, we did a podcast on the pandemic portfolio. We said, “Well, the horse is out of the barn, you kind of should have been balanced to begin with and should have known the growth isn’t forever. And you should have some golds, bought in some real estate. Some bonds that would be in enough size to offset any crazy equity movement.” And if you had that, you did okay. But it was no use for people who were down 30%, right? To have that conversation. The wonderful thing about this now, is that it’s a do over. It’s a Groundhog Day.

Mike:                          00:46:04           It’s a mulligan.

Rod:                             00:46:05           It’s a mulligan. I use three different explain… But it’s a mulligan for advisors where we say, “Damn, I wish I would have been balanced then. Here we are again.” Do over, mulligan, let’s do it. Let’s revamp our portfolios and be balanced again.

Corey:                         00:46:19           It’s a mulligan but the cost of insurance is now way higher. Whether you’re measuring that in the cost of puts or you’re thinking about buying bonds today, right?

Rod:                             00:46:29           You could buy dedicated shorts, theirs…

Corey:                         00:46:31           Right, so you could buy CTAs. You could buy tactical but I think that, you can’t rewind the clock and say, “What I would have done in February, as my hedging process.” I think you’re now talking about the world’s changed, you need to re-evaluate.

Rod:                             00:46:44           I wouldn’t say… sorry, I didn’t say, “Back then, I got on a time machine and you should have just put some tail protection on.” What we were saying was, “You always need to start with a balanced portfolio, a do no harm portfolio.” That has, we talk about risk parity all the time because it is the do no harm portfolio to start and then you can start having your tilts. That was easier to do in January. It was impossible to do in March. We’re at a point where it becomes easier to rethink how you want to live your advisor life or your investor life over the next three to four years, right? Do you still want to be that passive investor? Again, I don’t think my takeaway is that the average investor has not learned a lesson. Anybody who is a passive investor has seen this round trip and said, “I told you.”

Adam:                         00:47:29           What lesson could they have learned? There was no risk.

Rod:                             00:47:32           Nothing.

Adam:                         00:47:33           You get reward with no risk.

Rod:                             00:47:34           Exactly.

Rod:                             00:47:36           This is exactly what we’re talking about, that active managers screwed up and the passive investors were right back up to even.

Mike:                          00:47:42           Now I feel like we’re at the bar. People are leaning in. Finally.

Rod:                             00:47:49           I’d like to push people towards, this is another opportunity for you to get back on track in a balanced way. And I think the feedback I’m getting is like, “You’re an idiot.” This is being that 60, 40 passive, was beautiful. It outperformed almost everybody and look where I am now. I think Vibanks is right back up there, right?

Corey:                         00:48:07           Especially if you were buying growth. So, Adam going back to the no risk, I mean one of the questions I often get is and this goes to your moral hazard question, Mike, if we know the Fed is going to step in, every time with accelerating speed and greater magnitude, what does that mean for equities going forward? The reality to me is, look, if you remove left tail risk, there’s zero reason why equity returns wouldn’t converge to a risk free rate unless-

Mike:                          00:48:32           Of course, precisely.

Corey:                         00:48:33           … you believe, there is such a massive left tail event, which is the world coming to an end, the Fed can’t step in, the Fed breaks, that that’s what you’re now getting compensated for. The equity risk premium now reflects, a Fed… a central bank tail risk.

Rod:                             00:48:53           How far do you look ahead to discount that.

Mike:                          00:48:55           It’s a game of chicken? Literally this is a game of chicken. So the best thing to do in a game of chicken is to take the steering wheel off of the car that you’re driving, wave it in front of the other guy and throw it out the window.

Rod:                             00:49:07           And hope that the direction you’re driving doesn’t have a cliff.

Mike:                          00:49:10           Just hope that he sees that. Just hope that he sees it or that he didn’t throw his steering wheel out sooner.

Corey:                         00:49:16           Right now everyone knows to throw the steering wheel out though. We’re in a weird situation.

Mike:                          00:49:24           Right? I think that is the Liar’s Poker that we’re faced with. And that’s the point that I was trying to make earlier. The central bank is the lender of last resort. But can’t be but is, but can’t be, but can’t perceive… So at some point there’s some amount of pain that must be endured in order to ensure that that lesson is learned longer term. If it’s not, then the moral hazard may not be on the risk taking side. It may be on the regulatory side and is exactly what’s happened to Japan where the central bank has seized more and more control over the entire system via window guidance and via the opportunity to take the whole fiscal side of the government out of play. And so it is a really good question. It’s all turtles.

Jason:                         00:50:11           The question is who can play that game? The US can play that game.

Mike:                          00:50:13           We all are.

Jason:                         00:50:14           Japan can play that game, you can play that game, and then Canada for the first time ever is starting to play that game. Printing money.

Mike:                          00:50:21           Well, anybody who has… in modern monetary theory, anyone who prints their own currency and has their own economy they realized that they can play that game to different degrees.

Jason:                         00:50:31           We know that. But they’ve chosen not to play the game ever in modern finance. And now we’re starting to get some large G8 countries, just because you’re in the G8 might not mean you can print money the way the US can.

Mike:                          00:50:43           The US is the default currency. So they have a different set of rules.

Jason:                         00:50:47           Of course.

Rod:                             00:50:48           Guys, look, I’m going to open up for questions. I’m going to try to do this.

Mike:                          00:50:52           Is there anybody watching us still? Is there anybody even watching?

Rod:                             00:50:55           We got 27-

Adam:                         00:50:56           Million?

Rod:                             00:50:56           … people, which apparently is… it’s 27, 000. It’s too big, so they reduced it to two digits. We’re going to see if anybody has any questions, but we should keep on talking, and if something comes up that does have an actual question, we’ll try to answer it. See how it goes.

Mike:                          00:51:11           You could probably poke us on Twitter too. I did get some feedback that your mic is hot, Rod.

Rod:                             00:51:15           I know I moved it down. Thank you.

Mike:                          00:51:17           Perfect.

Rod:                             00:51:18           I apologize-

Mike:                          00:51:19           No, no. Thank you for the feedback from the ether.

Rod:                             00:51:21           All right. So Ani, please open that up, open up for questions. I don’t see anything now, but if it does come up, we’ll do it. You guys okay to do an extra 10 minutes just to see what comes up.

Mike:                          00:51:31           I mean, I’m okay to do another hour. If I can get this sucker filled up.

Corey:                         00:51:35           Bartender, bartender.

Mike:                          00:51:37           Well, I did bring one half of the recipe with me. I didn’t bring the sour part.

Adam:                         00:51:43           The only part that matters really.

Rod:                             00:51:45           So I kind of tuned out a bit did we solve all the problems or where are we at now? What’s another issue that’s coming up with this whole, we’re getting this mulligan again. Is there any other key conversation pointing to key topics that are coming up for you, Corey in your conversations, that we haven’t touched upon?

Corey:                         00:51:58           I think one of the really interesting things that does come up for me, and Adam you sort of touched on this is, what is lesson learned? I mean, this happened so quickly. It was really interesting to me. A lot of the conversations that I was having with advisors were very… they’re bipolar in March. I mean, some advisors were telling me they had clients calling them demanding to buy stocks, saying, “This is 2018. I’ve learned my lesson over the last decade.” You buy the dip, you buy the dip, you buy the dip. And so you talk again about who’s the marginal buyer, who’s the marginal seller. What’s actually driving what’s going on. I didn’t see here it was advisors panicking. But when I asked them about what their clients were doing, none of the clients seemed to be panicking. The client’s were the exact opposite.

Adam:                         00:52:39           I agree. It was professional selling to retail. That’s exactly what was happening.

Mike:                          00:52:44           We had clients calling in wanting to buy bank stocks.

Adam:                         00:52:46           Absolutely. I was having conversations with people who are casual investors in the market. Every conversation was all my buddies are wondering what to buy here. And it’s late March. It’s March 23rd, March 22nd.

Corey:                         00:53:01           What’s on sale.

Adam:                         00:53:02           Look at all this stuff that’s on sale. Nobody believes there’s any risk anymore. The more naive you are, we’re all Sharazad. We know too much, right. The best possible strategy here is to know nothing and just have faith that everything’s going to work out. That has been the best strategy for 10 years.

Corey:                         00:53:18           I mean, I do think what’s interesting is you sit there and you say, “I’m going to buy the S&P 500.” Which is a strategy. And in theory, people are over the long run pricing the long term discounted cashflow. Can’t we just see over the next couple of years, right? Can’t we just see towards all that value. That’s 20, 30 years out there. And I think for the most part you can. I do think that is the way it should work except for knockout conditions. And I think that’s where you see real big issues. Either A, you get some liquidity issues in the market that drives market South or B, they start to price in some real knockout issues that affect growth.

Adam:                         00:53:56           But why can we take that view on US stocks, but not take that view on Japan? Japan has been at a bear market for 40 years, 30 years.

Corey:                         00:54:04           Have they had growth though? I mean, I guess the question is what’s the long term growth expectation of Japan? You’ve got a real population demographics issue. You’ve got a situation where the government will not or people will not allow banks to fail.

Adam:                         00:54:17           Sounds familiar

Corey:                         00:54:18           I mean, again, the US you’re buying a significant amount of turnover when you buy the S&P over time, at least historically you have been.

Adam:                         00:54:24           In terms of sector dynamics?

Rod:                             00:54:27           Yeah. You have a rebalance every year. There is a ton of turnover in the S&P. It’s a momentum strategy.

Adam:                         00:54:33           It’s the same thing with the Topex. And the Topex has gotten down 60% in 30 years. This unfailing faith in US equities is… I continue to be absolutely baffled.

Corey:                         00:54:45           But let’s talk about what does make the US unique. The US has a very unique position of power in the world.

Mike:                          00:54:51           Reserve currency, law, the rule of law, the rule of private property.

Corey:                         00:54:56           Our culture of entrepreneurship.

Mike:                          00:54:58           Culture. Absolutely.

Corey:                         00:55:00           As well as having military bases all around the globe.

Mike:                          00:55:03           That’s part of the reserve currency. But true. You’re right, they’re different, but sort of similar.

Adam:                         00:55:10           So therefore the risk for US equities is way lower than the risk for the rest of the world, right?

Mike:                          00:55:14           But now that handcuffs them, that handcuffs you, the US gets handcuffed by their reserve currency status though. So as the Euro and Japan can devalue their currency in comparison, that’s a very difficult thing for the reserve currency to do. So it’s an interesting, it’s really kind of an interesting feedback loop.

Corey:                         00:55:34           So, Adam, I think you were just about to bring up the second order point, which is, okay if the growth is certain, where’s the risk?

Adam:                         00:55:39           Exactly.

Corey:                         00:55:40           What are you getting an equity risk premium for?

Adam:                         00:55:43           I mean, should you pay a premium for owning the reserve currency?

Rod:                             00:55:47           The growth is not… just because everybody believes this unrelenting love for the S&P 500, and that’s all you’re going to buy, because it’s been the market to be in for the last 10 years. It doesn’t mean it hasn’t fallen flat on its face, the previous decade. I mean, this is a recency bias thing. It is not a forever existing thing, right? From 2000 to 2010, annualizing at 0% of the S&P 500 people have forgotten that. I mean, one of the key-

Adam:                         00:56:13           Well, no, I mean, it is true that if you look back to 1900, that the S&P has a 2% excess equity risk premium over the equity risk premium that was realized for the rest of the world. So it has been 120 years.

Corey:                         00:56:27           But it was an emerging economy. It happened to be the industrial winner in the beginning farms and then services-

Adam:                         00:56:34           Oh, no. I agree it won all the lotteries 100%.

Corey:                         00:56:36           What does it mean…

Rod:                             00:56:39           No, but this is why we’re talking about the US, it could have been China. It could have been anybody. It happens to be ex post the US economy, but over the last 30 years, 40 years, it’s been on and off for decades at a time. Even if it’s true, even if the US is going to continue to be the winner, it does not mean that in the timeframe that is important for investors, it’s going to be the winner for them. And that is demonstrated by the period of the 2000s, right? Where you had, what, 2003 to 2007 emerging markets annualizing at 25, 30%, something like that.

Emerging economies annualizing 20, 25%. US equites annualizing at 12. Everybody wanted the BRIC countries, right? But what are the products that are selling today? It’s S&P 500… first of all, it’s S&P 500 with the lowest fee. That’s number one seller right there. And then after that, it’s S& P with a tactical tilt, right? S&P this, S&P that because of the last 10 years. People are forgetting that this could change. I mean, I was just listening to an interview with Real Vision. One guy got deep into China and talked about the fact that China now has more net exports to the East Asian area than they do in the US. They are now a higher net exporter to them than to the US and they are a population of 2 billion.

Mike:                          00:57:56           One Belt One Road, baby.

Rod:                             00:57:58           One Belt One Road and all that, right? So there’s no guarantee that the US continues to be the winner here, especially with the nationalist policies and so on. I mean, we got to have eyes wide open as to, again, going back to what do we do now? You diversify, there is no guarantees here that the US is a winner long term. And even if it is, there’s no guarantees that it’s going to be over the next five years, right?

Adam:                         00:58:18           You’re going to get no greater cheerleader on that line of reasoning than me, as we all know. I just don’t know how you persuade the average person of that viewpoint when taking the perspective of diversification, whether it’s geographic diversification or factor diversification over the last decade has been just excruciatingly punative, right? This is the upward battle that the diversifiers and the factor investors face right now. And that frying pan just keeps smashing us in the face, right? The whole idea of diversification and factors and geographic and global and blah, blah, blah, makes such eminent sense, theoretically. And every chance that we’ve had to demonstrate the veracity of those desertions have made us all look foolish for the last 10 years. I mean, we all look forward to-

Mike:                          00:59:16           My face looks like a frying pan, doesn’t it?

Adam:                         00:59:20           Yours does more than most. I think part of that is genetic but part of it’s just repetitive smashing for sure.

Corey:                         00:59:27           Well, when I started as a broker in 1993, it was the same month that ETF called SPY came out. And I remember that 10 years as a broker portfolios began to get compared to the S&P 500 and SPY, and it was obviously very similar to the last 10 years. The middle 10 years of this 30 year adventure, it’s just interesting to note, and it’s a fact, I know we can find exceptions, but generally people didn’t bail on the SPY, didn’t bail on the S&P 500. There was a sense of comfort and apple pie that I don’t think is going to go… it’s going to need something more violent, perhaps, I don’t know what changes the behavior but I wouldn’t expect… the S&P may get outperformed, but I don’t know if you’re going to see massive outflow of people for a long time, unless something really dramatic happens. Especially looking… this is the mother of all Vs we had.

I just looked at a log chart of the S&P over the same time period. And since over the last 10 years, this V thing really began to grow. It started small and got bigger and bigger and then suddenly… Corey you’re talking about 2% vol days, those kind of used to be normal. 2017, that completely went away. I think we had four days greater than 2% over the whole year, which is pretty crazy. We’ve had multiples of that this year. But the V day… basically we kind of had our shakeout in 19 and then this one here in 20, but the V is like nothing we’ve seen before. Maybe it’s the last V and maybe things change again. We’ve kind of had the 2000 long rollover and we had the 2008 crisis, which was something in the middle. And now we’ve got this, is this just the beginning of the next correction or not? I think we started this call wondering where the market’s going. I can honestly say, I really don’t know. We just got to have a strategy. That’s going to prepare us to kind of have a long gamma like reaction.

Mike:                          01:01:21           Can I just refer those massive amounts of viewers out there,

Corey:                         01:01:24           27 million.

Mike:                          01:01:25           You have to actually refresh your browser in order to be able to ask a question. So if you’ve stayed in the same browser when you started, just hit the link again and you’ll be able to ask a question. Go ahead.

Rod:                             01:01:37           One of the things I think, how do you deal with this? I think both Newfound and ReSolve have put together ways that we could possibly deal with it, right? What has happened over the last 10 years? We’ve seen the S&P 500, which has historically had a Sharpe ratio of 0.3, have a Sharpe ratio of 0.8 over the last 10 years, right? And at the 60, 40 portfolio, a 99th percentile Sharpe ratio. It’s absolutely absurd. But it turns out that if you are diversified and you’re tactical where you’re able to go… if you need to be using trend or whatever the case, maybe we use trend, we use seasonality, we use a bunch of stuff, but whatever your tactical tool if you’re able to transition to that winner, if it ends up being the S&P 500, the problem is that if you’re too diversified, your absolute volatility goes way down.

Let’s say your Sharpe ratio is one, because you’re diversified. The problem has always been that by being diversified, your vol goes way down, your Sharpe ratio goes up, but if your vol goes to six and you’re delivering six, you’re underperforming, the S&P 500, who’s got a 0.8 Sharpe, 15 vol and delivering 12, right. Which is roughly what it did prior to this crash. And I think, Corey, and your tactical mandates at one point, you said, “Okay, … how do I get exposure to the S&P 500 while also providing diversification.” Right? And we came to the same conclusion five years ago or something. We said, “Well, how do we provide diversification while also doing that in a global way?” If it happens to be global markets that went out over the next 10 years, I want to be able to transition into them while being diversified and providing volatility to be able to compete against the best market, the FOMO market.

And we also did that. The problem is we did it late in the game. So the way to do it, Adam to answer your question, how do we beat this S&P 500 zeitgeist, we don’t try to convert people by saying, “It’s worth it to underperform an absolute basis.” We say, “We’re going to give you the same volatility, but we’re also going to provide some adaptability along the way, and to do that, we need to use leverage.” And I think that is how you do it. But of course the whole leverage discussion becomes a big issue, right? I’m really close to the mic, it’s probably been super hot. But Corey, so you’ve done… you kind of transitioned into that a couple of years ago, a year ago or something like that.

Corey:                         01:03:55           The leverage point?

Rod:                             01:03:57           Yeah.

Corey:                         01:03:57           I mean, I started on my journey 2008 and I remember post 2008, the line was no leverage, no shorting, no derivatives. Derivatives were a bad word. And somehow it was okay if you were sort of in the CTA space, but along retail advisors and retail investors who did not understand what derivatives were, they did not want derivatives or shorting or anything that could blow them up, because that was what they learned in 2008. And I think it was the wrong lesson to learn. Derivatives and leverage can be a great thing. It doesn’t mean you should take your S&P 500 exposure and lever it up four times, right? You need to be prudent, but if you can take a diversified portfolio and introduce some leverage and expect that diversification to be there.

But I think that’s an important aspect of how are things going to break down in a market look, especially in a liquidity crisis where you’re going to see margin calls and you’re going to see assets really misbehave than how you expect them to. But if you can expect some reasonable diversification and you’re not taking an improved amount of volatility, that can be something that allows you to take a more diversified, balanced approach without necessarily sacrificing the return expectation that might meet something like in equity market return.

Rod:                             01:05:16           Because prior to implementing that, the line was diversification always means having to say you’re sorry, Diversification always means having to say you’re sorry. And you got to educate your clients. You’ve got to be okay with massive under-performance for 10 years against the market. And back in 2000, it was commodities and gold and global equities in Canada. Diversification means you have to say you’re sorry. You’re going to thank me when another tech crisis happens. And then it happens and they thank you. I went through it, I got thanked in ’08, and I got spanked in ’09, right? Positive returns in ’08, negative returns… positive returns in ’09 but nowhere near what the S&P/TSX 60 did at the Canadian markets.

Mike:                          01:05:53           But never mind that, I like your Peruvian market example, even better.

Rod:                             01:05:56           My Peruvian clients fired me quicker than you can imagine because it happened to also be the best performing market on the planet in 2009.

PART 3 OF 4 ENDS [01:06:04]

Rod:                             01:06:00           It happened to also be the best performing market on the planet in 2009. 162%. I did 9%, I think on average,

Adam:                         01:06:08           But you know, there’s going to be periods where that’s not going to play out. Right. You can have a thousand times leverage on a zero mean strategy. You’re not going to keep up with the S&P. If the S&P is the only market that’s rocking.

Rod:                             01:06:20           Okay. So again, assuming that there’s a few parts here, I think what we’re talking about is tactical. That includes the S&P 500 market, right? And we are assuming that there’s going to be something that has enough diversification to have a higher Sharpe ratio in the S&P. And the truth is that yes, the correlation is not necessarily going to be there, that you’re not going to always every single year, every single month outperform the S&P, but over meaningful periods, you are going to at least have a fighting chance to provide diversification and stay in the game. You just can’t do it. You can’t be tactical and have a high Sharpe ratio, a lower volatility when you’re competing against the 15 vol asset class that is going to have a Sharpe of 0.8. You just can’t:

Adam:                         01:07:01           Well, it’s not just tactical either. It’s all of these alternatives that go to market with four, six, eight vol. And I mean, I don’t know who they’re competing with, but it’s a terrible use of capital. And you’ve got this item on the investment statement that’s going to lag year in, year out. Yet, this seems to be the preference for, not just so many advisors, but so many institutions that look for long short equity or market neutral equity or event driven. And these are four to six vol strategies, and they tie up a huge amount of capital and they underperform the vast majority of the time. And they’re procyclical, maybe not market neutral, but lots of long short. All of it seems like really strange decision-making and capital efficiency definitely needs to be a part of the conversation. And it is far too infrequently, which I think is where you’re going, Rodrigo.

Mike:                          01:07:52           There’s a couple of questions too. Here’s one. I can read it for you. Thoughts on forcing the world to work from home and how that could translate into increased productivity for sectors that were on the margin of being able to do so in the long run? So sort of a structural change question and interesting to speculate on. We certainly wouldn’t make any conclusions on investment processes, but I think it’s interesting. What are the impacts for commercial real estate? What are we seeing from our, I’m just going to sort of think about that. Yeah. Like commercial real estate, we’re hearing about other people in our sector, as well as other sectors. I’m going to throw this out to you guys to talk about and what we’re hearing and what the implications are. So over to you,

Cory:                           01:08:37           Sorry, I just had a conversation with someone yesterday who lives in New York City who runs a quantitative data firm related to markets and pays an astronomical price to live in New York City. And basically said, when you remove the opportunity to meet with all of these people on a daily basis, right. His ability to go and do a Credit Suisse and go downtown and meet with Goldman Sachs and actually try to sell that data. You can’t justify the cost of living there anymore, right? So I think what’s really interesting is it’s, you can think of these industries that are going to be the haves. Like if there is a work from home, are there going to be industries that where productivity goes up, but there’s also going to be industries that are have nots. Think about what this is going to do to the auto industry, if more people work from home. Play that through if toll roads are now getting less tolls, there’s less speeding tickets, police forces and collecting as much, right? There’s all these interesting-

Mike::                         01:09:32           The insurance on your car is cheaper because you’re driving less kilometers.

Cory:                           01:09:36           Right. There’s all these interesting knock on effects.


Jason:                         01:09:38           I’ve not filled my tank once this month. Maybe once I filled my tank. Yeah. But yeah. Commercial real estate, for sure. I think there’s a huge hit there. Everyone’s looking at their situation and almost everyone I talked to is seeing a bump in productivity, not so much a loss. Monitoring staff is arguably easier because everything is, there’s no paper anymore. You don’t have to go to a file cabinet. You don’t have to listen to someone on the phone. It’s massively powerful. So I think some of the companies that are already, like a technology company that spent a zillion dollars on a campus and has a real estate, there’ll be a surplus of foosball tables out there in the market in a while. And I think literally you’ll have office towers selling condos in five or ten years. This is a real possibility.

Rod:                             01:10:26           Well, I think that’s an interesting one because right now, another thing that needs to change is bylaws, right? In downtown areas, you have to have, you have your office buildings, you have your residential buildings and all of that will now need to be mixed up. There will be a younger area of the population and the elite few families that will want to live downtown and work downtown. But there’s going to be these empty office buildings because the vast majority of people want to just live wherever they want to live, given that we can communicate and sell and build our businesses from anywhere. But there’s going to be bylaw change. There’s going to need to be an adaptation of what an urban and rural area looks like. And I think Adam, you’re seeing people coming down to your area in Kingston because of this COVID thing, right? Already. So we’re starting to see those changes.

Jason:                         01:11:12           There will be a lag though. The one advantage we have right now, we kind of get the best of both worlds. We have groups of people that have worked closer together, know each other well, have had the time next to each other, elbow to elbow in the fight. And we can all still relate to each other. Four years from now, if everyone’s doing that, what happens to the young folks? Like I remember when I was in my early twenties, working in the finance business, I’ve learned a lot in the bars or restaurants at night, doing something like this. There’s a reason we’re doing this because we like doing this. And there’s all kinds of mentoring opportunities that aren’t going to be able to be expressed as much over time. So there could be, I don’t know what the effects of that are.

Mike:                          01:11:52           You know, Jason, I thought of that exact thing even for ourselves, right? So we have a team, we have rapport. How do we hire someone new? And I know Corey you’ve actually had real experience because you’ve had a bit of a mobile workforce. A synchronatic workforce and you’ve had some turnover. Maybe you can share, because that was prior to COVID. How did you kind of map that in there? How do you find the person? How do you make sure they adopt the culture? There’s a whole new set of problems that come along with this that are really interesting. I’d love to you to share your experiences.

Cory:                           01:12:24           Yeah. I think managing a remote team is very different than managing an in person team. And I’ve done both. I worked in an office for years and years and years, and then made the transition to fully remote. I had half my employees working in an office with me and half of them were fully remote. And I think for a remote team to work, you have to operate remote first, right? So if you’re doing half office, half remote, you can’t have dialogues that are going on in the office that aren’t shared with remote employees. You can’t have them be second class citizens. Remote has to be the first class citizen and getting by in there is really hard. And I think it’s very hard for people who have been playing the office political game, their whole life to move remote and then sit there and go, I’m not getting my water cooler talk. I’m not getting,

Jason:                         01:13:08           That’s not a loss. That’s a big win.

Mike:                          01:13:11           You mean I can’t wash the boss’s car,

Cory:                           01:13:14           But there are a lot of people who would say there are relationships that are tended, not necessarily proactively, but through reaction of experiences you have in an office, right? Where you happen to just walk by someone and you can ask about their kids and you can build these relationships over time naturally that aren’t going to occur in a remote setting, unless you foster the environment for them to occur somehow

Rod:                             01:13:38           You foster the environment for that. And we, I think, are talking more and more about that. We have our poker games with the organization, you know. We have, we already started, like you said, we started remote even when we were in the office, instead of going to a meeting room at the end, everybody like literally I had five employees in an open area and we all had our noise canceling headphones and would log into, Go to Meeting, to have a meeting with one other guy that was away because we were so used to that area. So we came at it from a, we were already remote from the get go that was buying already. One of the key things that we are working on is that the discussion that happens when you take two or three guys out for lunch and creativity comes to play, you implement something and you share it with the rest of the team.

And we’re going back to like Wiki forums or like the type of Reddit forums where, if you have a thought, if you want to share something, you put it in a certain thread for everybody to see. And if you want to participate, you can participate. If you don’t want to participate, you don’t participate. Right.

Mike:                          01:14:36           We’ve also thought of the remote lunches too. Like we’ve thought of the remote lunches where you have to actually structure the time to have, sort of, I’ll call them downtime conversations. Like you have to actually learn how to reintroduce that to your day as a person who is operating in this environment is that happening?  We’ve just sort of thought of this now as we’re entirely remote, but I’m wondering, Corey, did you guys do any of that prior to that? Where you’d like, I’m going to get a coffee at Starbucks in 10 minutes, let’s sit and shoot this shit for 15 minutes. Whoever’s there, go get a coffee, make a coffee, whatever is that-

Cory:                           01:15:12           We’ve done stand ups. And we do stand ups where they are casual. Right? It’s hard to do ad hoc, right? Cause if everyone’s process is now, asynchronous, it’s hard to just be like, right, do you want to grab a coffee? It’s a little harder. And I think this is, I mean, at least, when I talked to other people, folks who were in the research space and spend a lot of time researching, seem to love this. Seem to love remote work because they’re not getting interrupted anymore. They can turn off  Slack.

Rod:                             01:15:40           That’s right. Deep work of wins here.

Cory:                           01:15:42           Deep work absolutely wins. Other people are saying extroverts who are just naturally, they need that communicated process or they work in a group in a creative setting.

Rod:                             01:15:52           You and I are in trouble. No. Okay guys, you know, we’re going on an hour and 24 minutes. I want to ask one more question.

Mike:                          01:16:03           We got an hour and a half more to go.

Rod:                             01:16:06           [crosstalk 01:16:06] My wife is, my wife is yeah,

Mike:                          01:16:09           that’s fine. We’ll continue

Rod:                             01:16:10           I make promises and I keep on breaking every minute we’re here. So Chris Cain ask, what do we see first? 0% U.S ten year rates or a new all time SPY high? Bonus points. Who can deadlift more? Corey Hoffstein or Nassim Taleb.

Speaker 8:                 01:16:25           [crosstalk 01:16:25]

Rod:                             01:16:27           Why don’t we start with the latter?

Mike:                          01:16:29           …. I’ve seen Corey dead lift and I watched Nassim’s videos. Corey can deadlift more than Nassim.

                                                                  With one line. … If he were to lose a leg on the way to the competition and have half bled out, he would still deadlift more than Nassim Taleb.

Rod:                             01:16:50           Corey is extreme.

Mike:                          01:16:52           I’m sorry Nassim, but that’s the fact. And what a great question though. I love a horse race. I love horse race. I’m going to say zero rates. Put me down. Mark it down. What’s my vague? How much am I paying? What are my odds?

Rod:                             01:17:06           All right. So to the meat of the question. Zero U.S year rates, or S&P, SPY highs? Why did we, was it Chris? Why did Chris stop at zero? That’s absurd. It’s going to be negative. I mean, is he like,

Cory:                           01:17:21           well, if it goes negative, it hits zero. When I think it’s pointless.

Rod:                             01:17:25           All right. Fair enough. Fair enough. I definitely I’m on the campus zero floors. Sure. But you know, don’t take my advice. Either you’re muted Adam or you’re…

Mike:                          01:17:33           You’re muted, Adam. Okay. Those are gems of wisdom though.

Adam:                         01:17:38           I’ve been on the zero rates for like 10 years. So.

Rod:                             01:17:42           Absolutely.

Adam:                         01:17:42           Hundred percent, zero rates, but markets keep defying what I perceive as gravity so I have very low confidence in my forecast. I think we’re going to see zero rates. I think we’re going see negative rates. I have absolutely no fucking clue what we’re going to see on equities. Period. Full stop.

Cory:                           01:18:00           I will say this. I think, behaviorally, the market is going to be more accepting of S&P all time highs than the market is going to be of 10 year rates. So going back to who’s the marginal buyer or seller, what’s it going to take for that to give out? I think there’s still this belief that the U.S isn’t going to go negative. And so I think it’s going to be like the Turk. It’s going to be like negative oil, right? It’s not going to happen and then it happens.

Rod:                             01:18:27           And then it happens. Was it … , the …  guy that we talked about, the tail protection, he’s got a very solid point where he’s like, don’t think, once this happens, and he said this before the crash, there is a political agenda. Once we start printing money and having mass debt where you could see equity markets recover from here and rates stay at zero because they have no other choice and they can do that. So whatever you think the relationship, going back to the beginning of this call, like we’ve seen equities go down and bond rates stay high. Talk about market manipulation. Bond rates stay low, sorry, but the price does not go down on the treasury side. Not rebound. That may be a par for the course. Right? Continued, extreme overvaluation of both equities and bonds. What happens to gold?

Adam:                         01:19:17           Yeah. It’s a sad day for pensions.

Rod:                             01:19:19           The Chris has got it together. Now he’s bringing down the barrier to negative 0.5%. I like that.

Mike:                          01:19:25           It’s all good. It’s really kind of the same question. This comes back to the early comment I made on, what do negative rates do to the actual financial systems and the mechanisms? Remember that negative rates are not good for banks. We went from 15,000 banks to 5,000 banks. Negative rates are the moral hazard of this central bank stealing more and more power. And they’re not even stealing it. Everyone’s going to give it to them.

Adam:                         01:19:52           I’m not sure it’s negative rates so much as a flat interest rate term structure is unhelpful for banks.

Rod:                             01:19:58           Cause what happens if it’s negative CPI. You can’t lend the money out.

Mike:                          01:20:02           So what do negative rates connote?

Jason:                         01:20:04           This feels like next week’s topic. Cause we could go on for a long time on this.

Rod:                             01:20:10           We have two minutes, Mike, wrap it up. You got two minutes to get, make your point. Impossible.

Mike:                          01:20:15           So I’ll step away from that point cause I think we had another question about how do policy makers step away from their saver role, the markets, and how does that play out? How it plays out? I don’t know. Eventually they step away. There’s a perceived crisis that’s real. The perceived crisis of COVID at a 35% drawdown was not real enough. That’s what we know. So central banks must be the lender of last resort. This is going back to Minsky and Kindleberger, but they cannot be known as the lender of last resort. If they’re known, we get into Cory’s point of, well, then we’re just going to realize all equity risk premium becomes a rate of interest. There must be of an event that calls into question that fact enough that that is not fact anymore. And so I don’t know what that event is. I don’t know how it plays out, but that must occur systematically in order for the system to maintain its balance and safety. That would be my opinion on it.

Speaker 6:                 01:21:10           I don’t know what you’re complaining about. We had a bear market it lasted about the same duration as spring break. And if you were on spring break, you didn’t get a chance to participate then so suck it up. And if you’re a millennial or you’re a gen Z and you don’t get a shot, you don’t get a shot at a cheap home or buying equities or credit at a rate that’s going to support retirement and you know, why are you complaining?

Mike:                          01:21:35           Ooh, I love this topic, Adam. This is grandma and grandpa against the millennium. This is grandma and grandpa against their grandkids. This is a really good topic. The two biggest population bubbles. The boomers and the millennials going head to head. Oh, it’s going to be beautiful. Oh yeah. The fourth turn.


Adam:                         01:21:55           The generational financial war topic for next week’s cocktail party.

Rod:                             01:22:01           Next on ReSolve Riffs. All right. Awesome. I think that’s a perfect segue. Any last words from our guests? Corey, anything

Cory:                           01:22:08           As a millennial, I’m very glad I’m not showing up next week. Those are my last words.

Mike:                          01:22:15           Are you going to talk to your grandma and grandpa though? That’s what I want to know.

 Cory:                          01:22:18           Well, not without a seance.

Mike:                          01:22:21           Yeah. Well, fair enough. Fair enough. Mom and dad then.

Adam:                         01:22:24           Rodrigo, are you gen X or are you the front end of the millennial? Right? I’m tail end of gen X.

Rod:                             01:22:30           I’m a millennial. I’m 1980. I’m September, 1980.

Mike:                          01:22:33           He keeps trying to say that.

Rod:                             01:22:35           Mike brought me- Yeah. I keep complaining about millennials and he’s like, dude, you’re a millennial. And I didn’t believe it until a couple of weeks ago when I looked it up. I hope I buck the trend. God, I can’t stand those guys.

Mike:                          01:22:51           I don’t understand. Corey, can you help me, as a Canadian, understand how Biden and Trump are your choices for leader of the free world.

Cory:                           01:22:59           We’re not going here.

Jason:                         01:23:01           That’s, again, another week.

Rod:                             01:23:04           That’s the third drink.

Mike:                          01:23:05           One guy flagellates during the meetings and the other guy is like, I don’t, I don’t understand.

Rod:                             01:23:09           We’re not doing politics. I’m sorry.

Jason:                         01:23:12           We’ll carry on this conversation offline, I think

Rod:                             01:23:16           All right everyone.

Cory:                           01:23:17           It’s been fun boys. Thank you.

Adam:                         01:23:19           Thanks guys.

Jason:                         01:23:19           Thanks guys.

Rod:                             01:23:20           Thank you for joining us, Corey. Thanks everyone. We’ll see you guys next week.

Adam:                         01:23:23           Thanks Corey. Fun as always.

Cory:                           01:23:26           Cheers.

Rod:                             01:23:28           Thank you for listening to the Gestalt University podcast. You will find all the information we highlighted in this episode, in the show notes at You can also learn more about resolves approach to investing by going to our website and research blog at, where you will find over 200 articles that cover a wide array of important topics in the area of investing. We also encourage you to engage with the whole team on Twitter, by searching the handle @InvestReSolve and hitting the follow button. If you’re enjoying the series, please take the time to share us with your friends through email, social media. And if you really learn something new and believe that our podcasts will be helpful to others, we would be incredibly grateful if you could leave us a review on iTunes. Thanks again and see you next time.