Investing in a World of Permanent Stimulus | Vincent Deluard

23:33Demetri Kofinas:So how would you respond to that context? A hundred percent. I mean, I think you have the arc there. To be honest, I thought it would happen faster. I think it should have happened. If you think about the – so the poppy shift of the Republican Party, I think, starts with the Tea Party movement, which is a revolt after the bailouts, the Iraq war. Like, oh, these guys don't serve our interests. And you had a similar movement on the left. I mean, it was Occupy Wall Street, and then it was the Bernie movement. Now, the big difference is that on the right, the establishment, the barbarians stormed the gates and took over the party.

24:13And that process was a civil war, at least internal republic. When Trump runs in 2016, I mean, remember the debate stage. I mean, he's one man against everybody. And at the beginning, it was clear that it was going to be the Jebs and the tech crews. And he completes a whole side takeover.

24:34Demetri Kofinas:That field on fire. And he had that really great moment, I think that was so emblematic, was when he attacked Bush and his brother for the Iraq war. Yeah. Yeah. And that was... I mean, I'm not a Trumpist, but I remember that moment. I was like, the energy, the raw power that he unleashed was really something to witness. So on the right, it happened that we can, I think the personality of Trump kind of burrs the picture because he's on the one hand, you know, he's the mantle of the disgruntled worker. He's the, you know, that forgotten man speech, but on the other hand, he's also a real estate billionaire.

25:12So I, and he's got this unique media personality that makes, I think he's more of a transition figure that the transition will be completed once we move to maybe someone like JD Vance in 2028. But at least the Republicans have started this process. Now, going back to my earlier point, on the left, we had the attempt to achieve the war, and then the establishment won, right? I mean, Occupy Wall Street, you know, won cheat. And then eventually Bernie was, I mean, depending on how you want to qualify it, was either lost or cheated out of a victory twice. and the elite maintain its control. But it seems to me that this ability to kind of control the base is eroding rapidly.

25:56I mean, partly it's demography. I mean, look at, you know, I mean, even Nancy Pelosi is going to die someday. Even Chuck Schumer, I mean, we're literally living, this gives me late Soviet Union vibes, you know, when you had all these generals, like 85-year-old generals with like medals and then they were just like passing power from one to the next. until eventually the system went away. And then you see it with, I think, the New York election, where if that option in the ballot, if a populist left option is in the ballot, it's incredibly strong. And I think we have unleashed the beast. And probably by 2028, we'll consider very much a latim scenario where you're going populist right against populist left.

26:39I mean, I feel the Democratic Party doesn't go this way. it's going to go the way of the weak party, you know, than the British politics that the liberals used to be the party that dominated the 19th century and they kind of missed that transition and lost to labor in the early 20th century. I mean, that, yeah, the democratic party, if it doesn't listen to its base, it's going to become like a husk, you know, just the party of, you know, civil servants and college educated woman, which really doesn't get you the votes that you need.

27:13Demetri Kofinas:Okay. So I just want to tie off two other forces, major structural forces that you've identified. I said one was the decline of institutional trust and another one is geopolitical fragmentation. Let's take geopolitical fragmentation next. How significant is this move from unipolarity to multipolarity as well as not even just the move? It isn't just about the move to multipolarity, Vincent. I mean, what's happening in America is so profound. It's almost like a wholesale rejection of the entire American foreign policy consensus or transatlantic consensus without any clear replacement. It isn't as though Trump is following the recommendations of a cadre of think tanks that have proposed ways of reformulating American foreign policy.

27:56Demetri Kofinas:It's not clear at all what that reformulation is coming out of the White House. So how do you think about this? The fact that one, the world order has changed from unipolar to multipolar and that Washington's role in the world isn't even clear to itself and seems to be constantly changing. And it seems to be sort of chaotic. Yeah. I don't know if I used the term multipolarity. One of my professors at Columbia was Ian Bremmer, who ended up coming up with that G0 idea. Sure. Which I think is probably a more accurate description of where we are, where we just have... So we had this kind of hegemonic moment after the fall of the Berlin Wall, where the US really was like Icarus.

28:37It flew too close to the sun, but it could do anything. And I think the moment when the wings started to melt is the Iraq war, right? Where you see that kind of imperial hubris really backfiring and anything digs cars, right? And that's where I think a lot of that kind of America first, let's get away from foreign entanglements, really the matrix of that is this botched Iraq war. Yeah.

29:00Demetri Kofinas:And we lived for a long time. And not to interrupt you. I just want to throw this out there for listeners to just have this perspective in their head as well. I've talked about the Iraq war and then the 2008 crisis as being the, having laid the seeds for the nihilism that we've experienced in American foreign policy. Because I think that for a long time, Americans were seeing one thing on television, one thing in their regular lives, and another thing coming out of the mouths of their politicians. And that disconnect, I think is what did so much to cause the decline in institutional trust that we're get into next, but please continue.

29:31Yeah. By the way, I think that process of declining trust and sense that you cannot trust what you hear, I mean, we're still in it. I mean, I think with the Epstein case, I mean, we are certainly, you know, the pendulum is still swinging and seems that it's swinging faster and faster. But before we got into that, yeah, so we're talking about this. I think it's more than a shift to multipolarity. It's just the US realizing that it no longer needs or wants to or even can maintain the role that it undertook after World War II, which, you know, is probably correct. I mean, maintaining a global order when you just account for, what is it, about 10 % of global GDP on a producing power basis?

30:25I mean, it's going to break you, right? I mean, it's the same problem that England had maintaining an empire on which the sun never sets. I mean, at some point, it's ironical because the order that you create breeds the seed of its downfall. The US, by maintaining global order, by enforcing free trade and ensuring that there was no major war allowed for global peace and prosperity that eventually made its relatively important shrink and its ability to maintain the system break down. So I think there are two ways we can go from there. One is the grand redesign. You get all the new emerging forces and we agree on a new world order and kind of spit things.

31:06I doubt that is going to happen, especially with someone like Donald Trump.

31:09Demetri Kofinas:We'd have to lay waste to the world or do something to radically transform the power balance in order to get a meeting of the minds like that, wouldn't we? Exactly. And I think it's the nature of that. I mean, power does not naturally concede, right? I mean, the instinct of power, regardless of the person who holds it, is to consolidate. It's very rare that hegemen have had the wisdom to, you know, realize the new world and actively adjust. I mean, in empires, you know, you think about the Spanish Empire, you think about the French Empire, Dutch, the British. I mean, they never kind of negotiated their demise with their replacement, right?

31:44So that's one part that I think is not going to happen. The more likely path, which is not a bad path for the U.S., is we don't need that stuff, you know? And I think that's a lot of the impulse behind Trumpism. It's like, listen, now we, especially with the energy, that's the big key, right? It's like, I think the US kind of needed to, why do we need to be in the Straits of Hormuz? Why do we care about this West Canal? It's because we imported our hydrocarbons from the Middle East. Now, if we can be more or less energy independent, at least as a continent, including Canada, we don't really need that.

32:16Demetri Kofinas:Well, it wasn't also to exert influence and have leverage over the rest of the countries in the world, in particular Europe. Wasn't that also a big part of our presence in the Middle East? Yeah, absolutely. The question is the cost worth it? Well, to the Washington consensus, beltway consensus people, it most certainly was. I think this is where we get into this internecine conflict on the Republican side, but also on the Democratic side increasingly between the old order and the new order, the old elites and the new elites, right? Yeah. I mean, listen, it's still very powerful, right? If you look at institutions like the Atlantic Council, the NATO.

32:50I mean, you know, generations of elites have been training that mindset. So it's not just going to go gently into the good night, but you really see the cracks getting stronger and stronger. And even on the European side, I mean, and it's not an administration story. I mean, the thing about Trump is that he makes it more obvious, but there's this continuity between even, yeah, Obama, I would say, you know, pivot to Asia. Biden was incredibly mean to Europe. When he has the Inflation Reduction Act, he kept the tariffs in place, pulled out of Afghanistan. So there is this continuity in policy. I mean, Trump just makes it obvious when he or J.D.

33:30Vance goes to Munich and insults Europeans to their face, but it's more different in form than is in substance. Yeah.

33:38Demetri Kofinas:Also, and not necessarily to go down the rabbit hole, but I also wonder in what sense how different Trump really is or how... So Trump says a lot of things. He's very good at making certain statements that you think, oh my God, everything's falling apart. But we're still, I believe, we've doubled down on our commitments on Ukraine. And this is after him excoriating Zelensky and dressing him down in the White House, which I think was part of his strategy to try and get concessions from Putin, but Putin knows better. Putin's already been on this rodeo many times. He knows the power of the, quote, deep state.

34:10Demetri Kofinas:He He knows the power of the consensus. And he, I don't think, has been surprised by this. And he certainly wasn't lulled to sleep by Trump's performance. And I think I saw something on my Twitter feed this morning about him denying the Taiwanese president the ability to land the plane in the US or something like that. Again, this is me just trying to remember it, but this is again another example of, I think, him trying to win points, score points with his counterpart, in this case, Xi Jinping during negotiations. But there's some people out there that say there really is a strategy here, and I don't see it.

34:49Demetri Kofinas:I really don't see it. I feel like what drives the public announcements of the Trump White House is his need to generate tension and his political instincts. Yeah. Again, I agree with you. I think maybe a kind of way to put it for Trump is that his strategy works with the weak. He's strong with the weak and then weak with the strong, right? So you see it in the EU deal, for example. I mean, by all standards, just looking at the reaction, how pissed off the Europeans were, yeah, he probably got a good deal with the EU. With Japan, more balanced, but I would say he still got a deal. Now, it's no surprise we don't have a deal with China, right?

35:26So in a way, it's kind of like taking your sister to prom. You know, like, yeah, we can force the European and the Japanese to be our dominions. And eventually, yeah, at the end of the day, we pay you bills. You know, we can force. But again, it's no great achievement to bully your allies and extract better terms from the relation with people who are already under your dominion. It would be more impressive if we had the same thing with countries that are adversaries. And then so far, I agree with your assessment. I mean, on Ukraine, you know, it was supposed to be solved in a day. It's been many, many days.

36:10And then with China, yeah, so, you know, it's exactly the way you describe it, why you have the my friend, she, and then you offer some kind of token symbolic gesture, hoping that he takes it. But again, I think that the problem here is that, you know, common problem in human negotiations, we project that the other people want what we want. And Trump, as you mentioned, wants attention. He wants symbolic victories. He wants almost his ritual humiliations or, you know, like we had with Zelensky, like we had with Powell, like we had with Ursula von der Leyen yesterday. He wants the face and, you know, big number.

36:48And then the outcome doesn't matter so much. Now, for someone like Xi or Putin, who are basically president for life and who do not need to be redacted, these things don't matter too much. They actually care about the substance much more. So that's why I think the strategy of giving them optical wins doesn't work.

37:08Demetri Kofinas:I think also, and then we'll move on from this. I'm sure we've exhausted people by talking about Trump. But I think also Trump's negotiation style, I think works very well when his counterparts have a vested interest in maintaining whatever system it is that he's operating in. Even during the 2016 elections, if you remember the way he ran, he was willing to sort of like, rub shit and mud all over his body so that no one wanted to touch him. No one wanted to participate in the form of debate that he was willing to pursue. And so people sort of just made concessions. And I think the same is true, for example, perhaps in his negotiations with Europe.

37:45Demetri Kofinas:Europe doesn't have a lot of leverage. Europe is desperate to maintain the system as it is. But the Chinese are very happy to tear it all up. I mean, obviously they don't want to tear up the international trade and access to US markets, but they certainly don't want to perpetuate US unipolarity or a US led international liberal rules-based order. Same is true for the Russians. And so I think Trump's art of the deal politically has gone from, I think he's very good at tearing up the deal, but he's not very good at sealing the deal. And that's where he finds himself. He It comes in, guns blazing, and then it's kind of like everything peters out and it's just a mess on the floor and there's no one there to pick it up.

38:22Demetri Kofinas:So I just want to bring us back to the conversation we were having before. We talked about these different structural forces. The very first one was fiscal dominance. Fiscal dominance, as far as I've been able to tell, is also one of three key theses that I've extracted from your work. The other two are this notion that recessions have been canceled, which I love and which I'd like to talk about, as well as this thing that you've described as Asia's reverse currency crisis, which is a reference to the currency crisis of 1998, of the late 90s that started in Thailand. No, it was not Thailand. Where did the crisis begin in 1997?

38:57Yeah, no, it was the evaluation of the Thai bath. It was the Thai bath evaluation.

39:00Demetri Kofinas:So one more question about fiscal dominance before we go into some of these other theses, and that has to do with historical parallels. Now, there are two eras that people point to as being potentially similar to the era that we're going to move into. One is the period of stagflation in the 1970s, and another is the period of the Fed Treasury Accord post-World War II. Which one do you think bears most resemblance to the world of fiscal dominance that we're entering? There are elements in both, but if we focus on fiscal dominance, and I think that's the correct way to think about it because it is the, like I said, it is the engine at the end of the day.

39:32Pretty much every problem we have, it comes from the fact that we have to pay a trillion interest every year and we didn't have to. So if we use fiscal dominance as the operative engine, it's the late 40s, early 50s, not the 70s. The 70s is actually the exact opposite of fiscal dominance. It's a conflict between fiscal and monetary that is won by monetary. It's the triumph of monetarianism over fiscal. And you remember we had these fights between Nixon insulting

40:01Demetri Kofinas:Arthur Burns. And then how does that end? I mean, that ends with Volcker giving up, letting go of the interest rate, let it go as high as it goes. I want to control money supply. And then that really is a triumph of Friedman. It was in a way, like if you think about a scenario, current scenario, the analog of the 70s with Brazil today, where you have Lula that's spending like a madman, and then the central bank that's hiking, and then the economy that's overheating and kind of stagnation recondition, but fiscal dominance is the exact opposite of that. It's what we had during World War II when I think after Pearl Harbor, basically the treasury told the Fed, listen, you're going to buy every single 10-year treasury above 2.5 % and you're going to keep the Fed funds rate at, I think it was 3.8th and that's it.

40:50And I think that's clearly that world that we're going into. Now Powell is seemingly putting up a fight, but it's going to end fairly soon, May, if not earlier. And eventually, I think we'll end up in a world where we do have some sort of yield curve control, some sort of capital control, exactly like we had in the late 40s. And it really matters because if we think in terms of asset allocation, you have two drastically different outcomes, right? 70s, horrible bear markets for stocks, basically set everything by gold was a trade or the Swiss franc. And there'd be some elements of that. But in the late 40s, early 50s, really what worked even better was stocks.

41:30And if I look at market action, we certainly see gold and crypto do very well, but we also see stocks rising by about what? Since COVID, we're probably at what? 12%, 13 % a year. I mean, we had these sharp bear markets and I think we'll keep having them, but they don't last very long. Why they don't last very long? Because fiscal dominance is very good for stocks. What's fiscal dominance effectively? It means that the government supersedes interest rate, keeps negative real interest rate, which is great for companies, right? Because companies borrow money. So if you can borrow money for less than inflation, you know, your bottom line naturally expands.

42:05So there's, you compress the costs and then the government deficit is no longer constrained, right? You just spend as much as you want. Well, when the public sector has a deficit, the private sector has a surplus. So that means you're giving money either to civil servants or to private contractor, and eventually that money gets into corporate profits. So you boost demand and you reduce costs. You also keep interest rates low, which means that multiples, equity multiples are much higher. So it's extremely bullish for stocks, at least the first couple of years of fiscal dominance. Now, if you get into a scenario of hyperinflation, eventually I think it all unravels, but I would not rush to the end.

42:42I think a lot of people have this tendency, especially people who've studied emerging markets crisis, like they recognize the sign. I mean, it's very easy if you look at Brazilian history to see a lot of parallels between the many crises that Brazil had and the US have today. But again, the US is not Brazil. And we have a lot of levels we can press before we get to that end game. And for now, we are seeing that process where fiscal dominance is boosting nominal growth and is helping stocks. So, stocks should remain a core part of the portfolio. What becomes the victim of this is treasuries, especially long-term treasuries, as we have seen for the past five years.

43:18Demetri Kofinas:So how do these insights relate to your proclamations that recessions have been, quote, canceled? And what do you mean when you say that? Well, one thing is just an empirical observation. When was the last recession? COVID obviously doesn't count, right? I mean, we shut down the economy and as soon as we open it, we're growing at 10 % nominal. That was not, it's like one month. I guess the NBER still calls it a recession, but for practical matters, no, you have to go back to 2009, right? That was about 16 years ago. And then before that, in the 90s, that was, like I said, the great moderation.

43:53No, no, maybe like a blip here and there. You can say maybe 2001, there was a recession, but it depends what definition you use.

44:00Demetri Kofinas:Same thing with 1990, 1991, it was a very shallow recession. Exactly. Exactly. Same in the 80s, we had the Reagan boom. So we only had one serious recession since I've been alive, which if you think in terms of portfolio construction, the idea of a traditional 60-40 is your stocks are here for the growth, basically, your bonds are here for the recessions. Like, okay, are you going to put 40 % of your portfolio to hedge against something that happens once every 45 years? That seems a bit excessive. So part of it is, like I said, an observation that the frequency of recession has dramatically dropped over time.

44:37Now, we can ask why that is the case.

44:39Demetri Kofinas:I think one - And the types of recessions too, just the observation, the additional thing to observe is that the 2008 financial crisis was a credit crisis, was a credit driven recession. It wasn't your typical sort of business cycle driven recession where you have a period of liquidations followed by pent up demand and a boom. And so we've also seen less of those as the economy has gone from heavy industry to services and technology and high margin. Yeah, I think you point the structural technological explanation for this. I think there are two parts to my theory. One is the optimist, the beautiful part, which is what you point out.

45:16I think the economies are getting structurally more resilient. And then there is a possibly darker side, which is policymaking becoming this kind of constant stimulus era and rise of populism and lower tolerance for recession. But yeah, the first part is what you said. I mean, it's, you know, we moved, you know, in the colonial era, we had an agricultural economy. So like a bad harvest and here you go, you have a recession, right? And then as we moved to industrial economy, we had different causes of cyclicality. It was the inventory cycle. It was the CapEx cycle. You know, when you build a bunch of railways, when you build railways, everything picks up, right?

45:52Steel demand, whatever. And then you do too much of it, everything collapses at the same time because the engine of wealth was hard assets, tangible assets, It's steel, plants, manufacturing, so forth. Now we move to an economy, like you mentioned, that's 80 % service. And also, I would point about 35 % government spending and 20 % healthcare, which is extremely resilient. So there's still a cyclical component in the economy, of course. And we see weakness in that cyclical component. Housing is terrible. Auto sales are terrible. But they are not big enough to till the economy in recession. At best, what we get is kind of stagnation risk here, right?

46:30growth goes from 3 % to 1 % and inflation doesn't come down, but we no longer have this recession. The last thing I would mention about this is the rise of intangible assets, which I think really matters, is how we produce value. Are we producing value from coal mines and steel plants, which require financing, which assets that need to be depreciated over time, or are we producing value from a network effect, intellectual property, trademark, most of the value today, like if you were to buy the NASDAQ 100 today and you were to just sell it, sell everything, and then try to realize what you can get.

47:10So you'd sell the servers and you'd get one cent on the dollar. So tangible book value is almost nothing. And again, intangible assets behave very differently. You don't need to finance them. Most of them, they just grow naturally, right? I mean, you have more people go to your network, you didn't take a loan for that. It just kind of happened organically. You don't need to depreciate them. So again, that takes away the cyclicality of the economy. And that is a process that's most advanced to the US. And in a way, I think we've kind of outsourced a lot of the things that are cyclical, like manufacturing, like mining, like agriculture, to other countries.

47:43We should experience a cycle and we kind of kept the intangible things. So that's the technological part, which I think is the more important driver over long periods of time.

47:53Demetri Kofinas:Well, so I'm very excited to dig into this more, specifically to dig into what the changing global security environment and the professed need by governments to build resiliency in their supply chains and redundancy in their domestic manufacturing bases mean for the types of companies and equities that will perform better in this new paradigm and how those differ from what did well in the previous paradigm. But we're going to have to leave that for the second hour. I have one last question to ask you before we get there, which is about policymakers. How did the structural changes that overtook the American and to a lesser degree, some of the European economies transform the role of policymakers, in particular central bankers during the period of the 1990s and early 2000s?

48:41Demetri Kofinas:And how did their own self-conception of that role change when they became, quote, the only game in town? And we began to see an increasing amount of mission creep by central bankers who were increasingly taking on the roles previously assigned to elected officials. Yeah. So that deflationary post 1980, 1990 era really freed policymakers and especially the central banks, right? Because suddenly the inflation concern, which usually is really the binding constraint in marginal policy, was no longer binding. You didn't have to worry about inflation because we could get stuff from China for cheaper and cheaper.

49:20We had this free labor from Mexico. We had free capital, long-term rates, which usually was the plague. The Fed, it's not a dual mandate, it's three mandates, right? Stable prices, not 2%, but stable prices, low unemployment and long-term interest rate. But two of these problems were solved. You know, oh, the prices, you know, if you look at the CPI, basically the cost of service, college, healthcare kept, you know, was way above target. What allowed the target to remain at 2 % was the cost of toys, electronics, clothing, falling, like nothing to do with monetary policy. But anyway, and then because of the great recycling of capital through the Chinese current account surplus being reinvested in treasuries, the cost of long-term capital falls.

50:02So suddenly central bankers are kind of Icarus again, right? the gods. They can do many, many more things. And that's where you start to see the emission creep. I think if I had to pick up a date, it would probably be the LTCM debacle and Greenspan doing these insurance cuts and then bailing out the market. Why? Because it could. And then you do it once, well, you have to do it again. And it happens again in 2007.

50:27Demetri Kofinas:Because that also reinflated the dollar carry trade. Yeah. Yeah, yeah, yeah. That kept it going. That kept the system going. Yes, this idea that it's kind of the Fed put, right? That's when these things started to appear. That's almost like a fourth mandate. And I think you used the word mission creep. That's what any bureaucracy, its natural tendency is to grow and find more things to do. And you can see that in the staff at the Fed. I mean, now we've come back on it, but they would talk about putting climate change. The ECB, for example, and the Bank of England are trying to keep the planet's temperature from preventing it from rising by more than two degrees.

51:03I mean, how you do that with the overnight rate on bank reserves, I don't really know. So you had this basically giant mission creep that was enabled by this low inflation era, which then creates the expectation that they should act. And I think that brings us to the current era where we have these policy activities in both monetary and fiscal, that if something bad happens, you need to fix it. And the fix invariably is going to be, I think, inflationary. I think every time you have a shock, you basically have two options of the policymaker. One is a kind of Taoist version, trust that nature is healing, do nothings and things will get better.

51:45And then quite often it works like that. I mean, there are recessions that cure themselves. But that means that for a little while you accept that output is going to be a bit of potential, that maybe the unemployment rate is going to go up. But that eventually humans being intelligent, they'll figure it out. And then you have the other instinct, which is to compensate. And I think we're moving from an era of letting things happen to not just compensate, but overcompensate. We certainly saw that with COVID. I mean, COVID was not inflationary. For example, in China, it was deflationary. What was inflationary was a response to COVID and the overreaction to COVID.

52:23Same thing with the Russian invasion and the shocks to commodity prices. I mean, we saw that in Europe that Macron called that, whatever the cost be. All prices are up. What am I going to do? I'm going to send people checks so they can buy more. So you can see how policy by overreacting makes the problem worse and creates this era of permanent stimulus.

52:46Demetri Kofinas:So that's brilliant. I want to try to encapsulate what you said in a way that maybe can help even more people understand it, or at least this is my insight, which is that the response is what's key here. We talked about early on in this conversation about the danger of being wedded to certain frameworks and models when the underlying assumptions that undergird those models change. And here is, I think, one of the keys, which is that we talked a little... And let's just take demographics as a great example. We traditionally think of demographics as deflationary because older people are not consuming as much and therefore that's going to cause downward press around prices.

53:22Demetri Kofinas:But in this case, if the government is there to help them consume and they're leaving the workforce, it's a double whammy of being an inflationary impulse. So the response function of policymakers and governments is one of the major changes that I think we have to really take into account when making projections about the future. And one thought that I had as you were talking is about that link between this hyperactive policymaking and aging, which doesn't seem that natural. You think old people are not going to be, they're going to be conservative. Actually, that's not true. I think if you think in terms of human capital, that explains the reaction.

53:59When you're in your 20s, you can compensate, right? There's a bad outcome. There's a recession. You have 60 years to make up for the losses. So you have a higher tolerance for pain. When you are 80 or 75, you have a significant share of the population that's retired. You just cannot have a recession because people are not going to be like, they don't have a job to come back to. They won't learn to code or whatever. So you need to preserve the system at all costs. you cannot allow the economy to fall in recession. And more importantly, you can't allow asset prices to fall because people are living off assets because they're no longer working.

54:36So I think that's one of the underlying drivers of this, both on the fiscal side, prevent the economy from going into recession at all costs because we can't afford it. And then on the monetary side, it's prevent asset prices from falling because you have the most politically active cohort that relies on stronger asset prices. So you put these two things together and you have something like Trumpism where you're constantly, at the same time, being populist on the economic side of things to try to almost like Perron in Argentina, where you try to keep the economy running hot. And at the same time, you bully the central bank to prevent interest rates from rising because you want asset prices to remain high because you know that your base of aging boomers need these high asset prices.

55:19Right.

55:19Demetri Kofinas:And that's also a unique feature today, which is that people's retirement accounts are wrapped up in the stock market. This wasn't the case 80 years ago. Which you can think is, I mean, I would think it's a crazy idea personally. And that becomes another political liability. Again, this is now a liability of the government. Yeah, absolutely. Now the government has to be in charge of, because socially we cannot, like there's no government, no democratically elected government that can accept that the present value of future pension benefits drop by 50%, which is what the equity market will do. If you let it to its own device, every 10 years or so, you're going to have a 50 % drop.

55:53Imagine if you told your 85-year-old grandmothers, oh, sorry, we're going to have to cut your check by 50 % because we adjusted the discount rate. No. So that's the inherent contradiction of using the stock market as a way to fund the retirement of people. I mean, the stock market should be here to fund the operation of companies, not retirement. But we've crossed that bridge already. And now we are in that world and we have to do the consequences. and the consequences, we cannot tolerate the stock market to drop because it has much larger social implication than just raising the cost of capital for companies.

56:27Demetri Kofinas:So Vincent, I'm going to move into the second hour. I want to tie off one more thread related to the conversation about the cancellation of recessions, and that has to do with how creative destruction works today, because you have some really interesting insights about the role of venture capital and private equity in sort of replicating the liquidations that come from the Schumpeterian cycle of creative destruction that recessions generate. I want to talk about your framework on Asian reverse currency crisis, but again, we're going to have to sort of manage our time here because I also want to make sure that we talk about how to construct a fiscal dominance portfolio, what portfolio construction should look like, the key asset class that you think will perform well, and the larger implications for investors.

57:06Demetri Kofinas:For anyone new to the program, Hidden Forces is listener supportive. We don't accept advertisers or commercial sponsors. The entire show is funded from top to bottom by listeners like you. If you want access to the second hour of today's conversation with Vincent, head over to hiddenforces.io slash subscribe and sign up to one of our three content tiers. All subscribers get access to our premium feed, which you can use to listen to the rest of today's conversation on your mobile device using your favorite podcast app, just like you're listening to this episode right now. Vincent, stick around.

57:39Demetri Kofinas:We're going to move the rest of our conversation onto the premium feed. If you want to listen in on the rest of today's conversation, head over to hiddenforces.io slash subscribe and join our premium feed. If you want to join in on the conversation and become a member of the Hidden Forces Genius community, you can also do that through our subscriber page. Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter at Kofinas, and you can email me at info at hiddenforces.io. As always, thanks for listening.

58:20Demetri Kofinas:We'll see you next time.