Why Initial Jobless Claims Could Blow Up the Stock Market

27:00That's what the market is doing. I think it's right. The rolling four-week average, I think, on initial is more like 225, which is not bad. Nothing. That's okay still. All right. But you think one aberrant weekly print above 250 is going to get everyone's attention? If we have 255 next week, the yield curve is going to move a lot. Okay. And the equity mark is probably going to move a lot. How often does it happen? You get just like out of nowhere like, oh, that was high. We have high-frequency indicators that we use to forecast claims for exactly that reason. We want to be ahead of it. All right.

27:36Cover the mic. What's it look like next week? Yeah. No, have you been close this year on forecasts for claims? We don't get every single one right. No, nobody does. Yeah. But yeah, we want to get a—it doesn't matter whether we write every single one, but if there's a big spike, that's what we want to get it right. Okay. I want to back up a little bit. But for people who are familiar with you, for the most part, they probably know you. You had this position at Goldman Sachs where you had a currency strategy. And there were some pretty big events during your tenure there. And you made some pretty big calls.

28:08And I want to just kind of give people an idea of how you ended up in that post as the currency strategist at Goldman. And then we'll talk about some of those calls because I remember like trading equities through some of these events. And I remember reading, you know, headlines where your calls are in those headlines. That's impressive. I know zero. You have a good memory. I do. I know zero about currencies. Like if people ask me questions like, what do you think of the dollar? I don't know. What do you think? That's literally my answer. So this is but this is, I think, becoming more important for investors to understand, even if they're not acting on it.

28:46So you go to Goldman Sachs in 2004. Not a native New Yorker. I don't think you're from Jersey. originally. Tell us how you landed there. Yeah. So I was working at Goldman in London. I got a job there that I applied for in The Economist newspaper. And then a couple of years in, there was a guy called Jim O 'Neill. Yeah. Him we know. Yeah. He invented this bricks concept. So he's a pretty famous guy. Bricks. he actually invented a research concept that is a thing now. It's pretty rare. Turns out, terrible investing strategy. Politically, pretty amazing. So he came over and he tapped my shoulder one day in 2004, and he said, do you want to go to New York?

29:43He said, I have a job for you. And that was the, they call it death strategist. the strategies to separate together with the traders. And it's actually a job he used to have. It's a job that Jan Hatschus, who is still a goldman, used to have. And he said, why don't you think about it for a couple of weeks? And then I looked at him, I don't need to think about it. Let's just do it. You were ready to give it a shot. I was ready, yeah. I always loved New York, so it was like a dream come true. And that's 21 years ago. You're still here. Still here, yeah. It was supposed to be a couple of years, but it's been extended.

30:19So the desk strategist is the guy or girl who sits on the end of the trading desk. And when something is moving, the traders could say, yo, Jens, why is, I don't know, the German Bund doing what it's doing? And then you have to give them something that they can use. The world has changed a little bit. I understand. So in 2004, it used to be the case that we had the turret system, right? Yeah. And when you're the desk strategist, when there's important numbers coming out, You had to shout into the turret whether you thought it was good or bad. So you had to look at all the numbers as a human, right, and conclude whether it was good or bad.

31:00And the traders would just trade it, try to be like one millisecond quicker than anybody else. They would just take your reaction as gospel and trade? Most of the time, yeah. Wow. Okay. What was it like if you called one wrong? You say, just kidding. I remember there was a - You say they misheard you? One of the head of rates trading, she was very famous for, she would often ask a question on the turret that everybody on the trading floor would hear. And then you had to answer immediately. And it was often like a kind of math question. So if you got the math wrong, you were in trouble. But - That's very Goldman.

31:41It was, you have to be focused because if you couldn't get the math for her question, you'll be very disappointed. But we don't do that anymore, right? Because we have high-frequency traders that essentially do that. So that part of the job doesn't exist. I'm not on a trading floor anymore. It's a long time ago since we did that. It's only a high-frequency trader. Was it fun? That was fun, yeah. I love being on the trading floor there. Okay. Here are some of the things that I think were highlights of just the currency era that you were the strategist for. the euro crisis so this is i i think probably a lot of the people who are sitting in your seat were americans at the other firms you're european you think that gave you an added perspective that maybe the other uh strategists didn't uh necessarily have i think so i think so um it was funny that I was I was at a meeting a client meeting last week where a guy I have not seen for like more than a decade he said yeah still remember you a paper about the future of the euro right so sometimes when you write something people really yeah remember it forever if it's unique right so I wrote this paper like a kind of semi-academic paper about how you actually how would you go about breaking up the euro if you had to break it into pieces yeah and it's complicated you call that re-denomination risk so all of these european countries have to adopt their own currencies again yeah okay and that was a influential thing yeah like it was actually a little bit scary because um i'm kind of i'm supportive of the eu myself right so it got adopted by all these uh different political movements that wanted to break the eu apart as well, France, Italy, and so forth.

33:31Oh, they said, look, according to this guy, Jens, we could do it. Yeah, exactly. Okay, got it. But that's okay. It was, again, it was a analytical piece of work. It could be used different ways. It's better to be prepared analytically than just going into these things without any thought put into it. Are you surprised that the euro has managed to hold together? Not really. I wrote a book about it that was published in 2013. which I still stand by, right? So the euro is a political project. I agree a little bit with our president. The euro was created to avoid war in Europe, mostly. And if there's a political will to keep together, it will be together.

34:15You've been credited with giving the early warning to the investor community about the yuan and Chinese outflows. I think you were talking about the yuan depreciation risks and then that actually ended up being a really big moment for you. I know you referenced this a lot. That was you? You son of a bitch? No, he didn't do it. We had a 20 % S &P correction in six weeks over the yuan devaluation and I think you were early to that. I was at lunch with Jason Zweig and Barry and I couldn't get off my phone. I was like, guys, we're really eating electronic. I gotta go. Right. How are you able to see that coming?

34:59Or do you get too much credit for that? So I've always been very focused on like capital movement. So when there's something happening with capital movement, this is kind of what I've been doing through my career. And sometimes when there's capital moving in unusual new ways, the correlations in the market break. So if you analyze the capital flow and the correlation breaks together, that often gives you conviction. So I think that's what we started to see. In China, when we launched Exante data in 2016, literally the first quant tool we had was a daily intervention indicator for China, like told you how much was, how much were they spending on essentially propping up their currency.

35:43So we We had a nice daily estimates of that. And it was a fantastic business. We could just sell that model and we can sit on the couch and do nothing until China had imposed capital controls. And they didn't have to do anything. And the model was dead. And we had to get back to work again. Okay. And then you built a COVID mobility tracker in 2020. Yeah. And I think - That was yours too? This guy's everywhere. I remember that. He didn't start COVID, to be clear. He built the - that turned out to be a big thing. It was an incredible thing. I remember I got a call from one of our clients. Hedge fund client.

36:23Yeah, in the middle of January. Okay. And he asked me. Was it Bill Ackman? I'm not going to give names. Oh my God, it was. Okay, say more. But he said, like, how come these stocks are moving so much in China? Because hell is coming. Have you seen what's happening in Wuhan? and I had not. And Milan. That was, yeah, that was in the middle of, that was in the middle of January. Yeah. And then I remember we had a client call a couple of days later when we kind of figured out what was happening, where we said, okay, this is a big thing. It's probably going to be moving the market the whole year. And we had half of the team did COVID forecasting from, I think, January 20 was when the first time we did COVID forecasting.

37:06And we're not doctors or anything like that. Your data people. The amazing thing was it was actually extremely easy to forecast. Like compared to economics, it was very easy to forecast. The spread. The spread and the peaks. Okay. So tell us about that. What were the inputs for you to figure out the spread, the degree of the spread, speed, where it was going? Like how did you figure it out? So you mentioned Milan, right? I mentioned who? Milan, Italy, right? So they had a horrible outbreak in Milan, right? There's the first strain. The ski resorts, right? Yeah. Okay. And then, so we just got data down to each municipality in Italy from the government.

37:53And then you figured out, okay, what was the municipality where they had the first case? And then you can look at the trajectory in that specific little county, right? And you could see, okay, it's actually already over here. Yeah. It's going to be over in Milan and the rest of the country within a certain number of weeks. So if you just broke down the data into the little atoms, it was actually pretty easy. If you analyze that in a country, there was too many things going on. But at the micro level, it was very easy. It always moved in the same curve. And then you had news agencies calling you.

38:26I remember it becoming like a really big thing. I was pretty busy back in those days. But I don't think most people know that that was you that created that. I didn't know. So were health officials using it to try to get ahead of? There was a Imperial College in London published some academic papers where they used the data we had collected to look at the spread and then how the mobility, right? So they used it for advising whether you could safely reopen. So I was using Governor Cuomo data. So I didn't do as well as you did. He had a chalkboard. I don't know if you remember. And every day he would update the chalkboard on television at two o 'clock in the afternoon.

39:03All right. That was a really big deal, though. I'll tell you a secret. So we wrote a paper at the end of February where we analyzed how many hospital beds we had in New York. And it's one of the few papers written that we ended up not publishing. Why? Is this scary? I didn't want to scare people. Because you would have shown that we could never handle the amount of people. Without all the, you know, expanded capacity and so forth, there wasn't enough beds in New York. That actually could have caused, in that moment, that could have caused a hysteria. We didn't publish it. Okay. Thank you. You just like sat on it and said, nobody needs to hear this right now?

39:45Yeah. Okay. I like that you did that. All right. In less darkness. After the GFC, the global macro traders were like the kings of the world, right? If you could see that coming, you got that call right. and then they spent the next decade, they in general, it just became really difficult. Borderline impossible. Is it because, I mean, our conflicts, I'm sure it's a million different things. Do we have too much data? Is it the ZERP environment screwed everything up? Like what was it that made it impossible to accurately assess where markets were going? I think, to your point, I think global macro is the worst category of hedge fund over the last like 15 years since then.

40:28By the way, I think intuitively makes sense. How should anyone be able to, it's 19 dimensional, it just seems too hard. It seems ridiculous. I think it has a lot to do with what asset classes actually provide any opportunities. So exactly like you said, like we had many years, right, with effectively zero interest rates in most countries, like we got to two and a half in the US in the 1918 move, right? But we effectively had zero interest rates in the whole world, right? So the asset class that macro traders typically take the most risk in is interest rates. And they were gone. So I think from that perspective, it makes a lot of sense that there was no good macro returns.

41:09And guess what? When interest rates started to move, 22. They killed. There were a lot of funds that had 50%, 60%. Because they were short bonds on leverage? Short bonds in those years, right? And it was pretty easy. like we created this simple thing where we call it like, like a hiking pressure scorecard. Like where do the central banks need to do a lot? Right. And we was like, we're looking at all these places where like the hiking pressure was like something we never ever saw. And the central banks were still saying, Oh, we're going to be on hold for two years, three years. They were saying that.

41:47With 8 % CPIs. It was just nuts. So that must've been easy for you guys. Like you must've been licking your chops. That was one of the times where you could just, just put on the trades that were in the model because they were so asymmetric. The rates were already zero. How much lower are they going to go? Yeah, that was, that was incredible. So I, I think there are two other explanations for the, I'm a macro tourist. Okay. So I'm stating that now, but from, as an outsider looking at that world, it strikes me that when you make a huge call and you have, a huge windfall trade or a series of trades in a moment like the 2008 to 2012 period, of course you want that to happen again.

42:32But you don't always get a strike right down the middle. You have to wait for your pitch and you can become impatient because when you're the hero that was buying the credit default swaps and shorting stocks and shorting the banks, and you're the person that pulled off the quote unquote greatest trade ever, which a lot of these guys did, you want that feeling again two years later. You don't want to wait 20 years. So you start pivoting. You start saying, oh, for my next trick, I think the municipal bond market is about to collapse. And then that doesn't work. Okay, here's my new trick. Here's a bubble basket.

43:08I remember that one. Okay, here's the 50 best stocks in America. They're all a bubble. That's my next trick. I mean, we watched this play out. You had bond managers making stock market calls. So I think there's a restlessness when you've had a huge home run. Now you have endless money. So it's no longer about money. You want to have fun. There's a famous hedge fund quote that says that the hardest thing to do is to do nothing. I forgot who said it. I think it's a Buffett or a Munger. It's important. Yeah. Because if you feel like you have to do some big trade every month, it's not going to happen.

43:43And I think also there's a lot of the successful, and this goes back to the yield curve again. it's a lot easier to deliver 10 % plus returns if your T-bills are five and you just have to get 5 % extra as opposed to generating 10 % from nothing. A lot of these guys trade on leverage, right? And they can get the 5 % carry in the portfolio without doing anything. And then they just have to use the leverage to get the next five, right? So having some interest rates like really makes everything a lot easier for that. But what about also the idea of too much data, too much competition? This is a plug for you.

44:21I remember, I don't know what year it was. When did the, oh, they have satellites looking at foot traffic in the malls. Like that was like novel in 2014 or whatever. How granular, like how much forward looking data is available these days? And people are paying out the ass for it for obvious reasons. Yeah, to be honest, this is a part of, the challenge we have in our business. So we have like a data platform, right, that has, you know, 400 ,000 time series on it. I remember I was out in California and I met this old contact that I have as a PM now to Big Fun in California and said, yeah, like it's fantastic.

45:03We have all this data. I think we have like several hundred thousand data series on the platform. who said, Jens, I'm not interested at all when you have so much data. And it's, on the one hand, obviously I disagree, but on the other hand, it is really important in our business that when we generate value from the data, it comes from us having access to a lot of data. And insights. And knowing how to interpret it. And then like zooming in on what really matters. There's no way you can get insights from all 400 ,000 time series at the same time, you're just going to end up with nothing. Right. But if we can have a system where we use technology to really zoom in on when there's interesting things going on and then communicate that narrative, because most money is managed by humans still.

45:53Like how much is managed by AI quant? It's very small. So we need to essentially put the conclusions in front of people. And that's also what we see in our business. Right. We will send the conclusions to the CIO. Right. And there might be an analyst that crunches the numbers, double checks and so forth. But the CIO wants the conclusions. You made two fairly high profile tactical calls on the dollar in recent years. And we'll use this as a segue to get back to now. You were bullish on the dollar in 2022 based on the tightening that I guess seemed obvious to you for most of the market. That cycle was a shock.

46:33I don't think people thought we would have to get to 5.5 % Fed funds to see inflation finally break. Yeah, people were just continually surprised at how high we went. And you also saw like fragility just generally. I don't know if the wars played into that at all. But then you shifted neutral to bearish in 2023 on the dollar. And I think that's like played out well for you. Yeah, nailed both of those. It took a while, but like you got it. But what do you think – what are you telling people now who are trying to get a handle on, you know, does the dollar get significantly weaker going forward? Have we seen the worst of the drop there?

47:12I think for corporate earnings, a gradually declining dollar is really good. It might be the thing that saves us actually. But what do you think is happening? So I think the big picture is the following, right? If you look at how the dollar has been behaving over the last 20 years, you can capture a lot of what's happened with the dollar with two variables. I'm simplifying a little bit. I want 700 ,000. So the two variables that are most important is what's happening with kind of the cycle of global growth. Okay. When global growth is strong, tends to be the period where the dollar doesn't do so well because people push into kind of global growth assets.

47:56Most obvious example of that was before the global financial crisis when like global equities did very well. The BRICS era. BRICS era. Yeah, true. The reason I'm here. Investors wanted to invest anywhere but in the United States. Chinese stocks, Indian stocks, so forth. That's right. The other variable has to do with monetary policy. of the Fed, right? So if the Fed is very tight, dollars get support from that. That framework needs to be expanded this year, I think, because now there's something going on with portfolio flows, asset allocation, that is, I think, unprecedented. What is that? Right.

48:39So what we have seen happening in the last couple of months has questioned the safety of the long bond in the United States in a way that I don't believe we've seen before. Okay. And we can see in our data, we can start to see some new trends, which I think is separate from global growth, separate from what the Fed is doing. and really what's happening is that after essentially a 10-year bull run for the dollar, right, and people being loaded with US equities, loaded with US fixed income, international investors are scaling back. It doesn't mean that they are abandoning the dollar, doesn't want to have any exposure, but I think it is a structural theme that they want to get exposure reduced.

49:33And this is new, right? Because people were extremely comfortable with the dollar being the dominant currency. And it has many elements. So obviously the tariff situation has shocked people. And who has it shocked the most? People always say, oh, it's China selling treasuries. I don't think that's the key thing. The key thing is that the closest allies of the United States have been shocked by what's happening with tariffs. Canadians. Canadians and Europeans. UK, Europe. And by the way, the Canadians and the Europeans hold way more bonds than China does. That's right. Way more, right? So they're much more important.

50:11China hasn't really been buying any US bonds since 2014, the crisis we spoke about earlier. Yeah. And - Where is that money going? Like if it were to leave the US long bond, for example, they're selling 20-year treasuries. They buy a 20-equivalent yield or equivalent maturity in Germany? So what we saw in April was that bond fund flow in US instruments got very negative in the middle of April. And it stayed quite positive in European bond funds. There was a switch there. But this is something that's hard to see in data because the portfolios we're talking about are very big portfolios. and think about it.

50:55Somebody has a credit portfolio, right? Where they have, you know, a hundred billion in US credit. Can you get rid of a hundred billion in US credit? It's a slow leak. You can't sell it all. So what they do first is that they do some currency hedging because you can do 20 billion of currency hedge in a day if you wanted to, right? How would you currency hedge a portfolio with a lot of US treasuries? You buy the basket versus the dollar? So if you're a European investor, right? Yeah. You're just going to sell your dollars forward. FX forward is incredibly liquid, right? So maybe do 10 billion of that, 20 billion of that.

51:38If you're a Canadian investor, you will sell dollars forward, buy Canadian dollars forward. And I think we speak to a lot of chief investment officers from pension funds, insurance companies, and so forth around the world. our clients and our network, right? And we're getting a pretty consistent message that there's been a bunch of that FX hedging. That's very hard to see in the data, right? It doesn't really get reported very well. But I think it's also clear that the FX hedging comes first and then the underlying assets shifts later. So I think we're in that process now. So, but it's a long, Rebecca Patterson was here three weeks ago.

52:18Yeah, I know Rebecca. And she was saying much the same that you're saying. She said it's not a bang, a big bang. It's not an explosion. It looks more like a drought, but it's so slow that it's imperceptible. I'll give an example from last week. So what kind of stuff did I have in my calendar? So I was speaking to some executives from a private bank in Singapore. they're worried about their dollar exposure right i spoke to a central bank governor i'm not going to say from which country right they're worried about uh what's happening with the dollar could be relevant for their fx reserves as well and um it's just a very broad theme and different players move at different horizons it's very it's very tempting to say our citadel moved already and And they can shift their portfolio in a couple of days or quicker maybe, right?

53:15But there's this long tail of real-run investors that have investment committee meetings only quarterly and they don't like to change their asset location. Like there's the wealth managers, right? Where you're in that business, right? But you have different clients. You have to go through maybe different ones. I know your structure is a bit special, right? But for a lot of them, they have to go through. They're not used to taking. In the US, people are not used to taking any foreign currency risk at all. Yeah, why would they? Yeah, but like the dollar has been on a bull run for a long time, right?

53:46And yields have been higher. I'll give you one stat. There's 1.7 trillion of fixed income ETFs issued in the US. 95 % of them have only US securities in them. I would have guessed that. If you look at who actually has, you know, open currency exposure, actually have some non-dollar assets, it's less than 1%. Yeah. We effectively have, with rounding, 100 % home buyers in U.S. fixed income ETFs, right? Yeah. So there's no tradition for taking that risk. So in order for all those portfolios to actually have some other exposures, it's going to take a while. So what's the so what, though? I want to, before we move off this, this is so fascinating to me.

54:32So I want to ask you, so do you agree that international portfolio managers, once they decide to do something, they don't do it right away, but they don't change course two weeks later? And what are they more nervous about? Is it the spontaneity of the things Trump is doing on international trade and the chaos and the unpredictability? or is it just the overall level of indebtedness and deficit? Or is it some combination? Like if I ask you, why did the 30-year treasury yield break above 5 % last week for the first time in 17 years? Give me a percentage breakdown of what the reason for that was.

55:19Is it 60 % trade, 40 % debt? Or do I have that reversed? It's kind of like an accumulation of forces, right? Okay. The allies don't like to be - You can't disentangle them from each other. I think it's all in together. Like the allies don't like to be treated like non-allies. They feel, okay, the rules are out of the window. We have to prepare differently. They don't like that. They don't like there's a fight between the White House and the Supreme Court. Okay. They don't like that there's talk about taxing foreign capital. and it used to be a working paper that Steve Miran wrote that people were concerned about and don't believe it should have been written but now there's actually something in the budget called section 899 that talks about taxes on foreigners, right?

56:12So now it's getting pretty concrete. Investors don't like that. There's a lot of things that are happening that are kind of real break from history that global investors don't like and the natural response is to get a bit more cautious. Does Scott Besson understand this as well as you're laying it out? He must. I think Scott Besson is extremely well-positioned to take a balanced approach to these issues, but he's facing a tough situation. He has a lot of conflicting goals. He's not the president. And then the last bit of the accumulation has to do just with the budget constraints, right? we've been running.

56:52I think it's so interesting, right? We've been running for so long and operating in an environment where fiscal stimulus actually was bullish for risk assets, bullish for the dollar. And it feels like we've reached this turning point where more, if the Senate comes out and say, we want to have more stimulus in the budget than the House, the market is not going to be loving it. We don't want that. No. All right, I'm sorry. I'm sorry. I just wanted to make sure we nailed that on the last question. You covered it. Okay. What do you make of the reserve currency debate happening these days? And just for people that aren't fully aware, what's his tweet?

57:36This is an actual Besson quote or this is what he said? I mean, this is tough. He said, other countries' currencies are rising. The dollar isn't falling. That's a tautology, is it not? Maybe I won't comment on that one. But let me put it this way. Are you worried about the dollar losing its reserve currency status within our lifetime? I don't really think about it as a binary thing. Like it's not, oh, it's the reserve currency or it's not the reserve currency. It's a dial just like the tariffs. The question is whether it's getting any competition, right? So we had a long period of time where we had some yield in the United States.

58:19Not much. We had some yield, right? And we had nothing anywhere else. So that was the period, including before COVID, right? And the dollar just didn't have any competition, really. And China has capital controls, right? A lot of people are still very uncomfortable investing in China. You don't know whether you get your money out. You don't know where the equity market is controlled. You don't know whether you can pay yourself dividends and so forth, right? So China is not a real competition. The renminbi is not going to be a reserve currency for the Western In a traditional sense. Not in a traditional sense.

58:51Okay. Yeah, you speak to a lot of important people, policymakers and such. Is anybody even mentioning Bitcoin as an alternative? So I think from a US investor perspective, we just talked about this thing that for regulatory reasons, there's no tradition of currency trading in the United States. And the fixed income picture has no foreign currency element to it, right? So if people want to be anti-dollar in the United States, they really have two options, gold or crypto. Both of which are mooning. Yeah. Okay. It changes from week to week which one is mooning the most. But it's definitely on the move.

59:34But has it entered your conversations? I think if you look at all institutional clients that I have, the majority of them trade crypto now. in some form. It's a huge change. It's a huge change compared to just two years ago. Massive, massive change. Why do you think the administration is so pro-crypto if one of the singular stated goals from the outset, from the Satoshi paper, is to replace the dollar? What? Like, it seems like it's rhetorically crazy to be the president of the United States and be full-throated supporter of something that was invented to supplant the dollar and to almost accelerate the pace of that supplanting if it were to happen.

1:00:24It just seems so incongruous. Do we believe in a strong dollar and America having this benefit of being the reserve currency or do we want to destroy it? And if so, why? What's the prize? What do we get? We have a lot of examples of conflicting goals. We talked about it in connection with trade policy. And we have it in connection with crypto as well, right? So on the one hand, if you wanted to just protect the dollar, you wouldn't want to be supporting crypto. But we had different elements to the election campaign. And one of them was being pro-crypto as a one way to get support from a certain constituency.

1:01:04And I think it's just a matter of living up to that election promise. I don't think it's more complicated than that. So, okay. Okay, so they don't have a secret plan where, oh, no, wait, actually, this is good for 10 % of the transactions in the economy to run through Bitcoin. I don't think so. Okay. I mean, Bitcoin can be bigger and not an existential threat to the dollar. I mean, gold's not a threat to the dollar. Nobody's saying gold is a reserve currency. No, I think the main thing people look at globally is whether China's going to really be a threat. and China's doing interesting things right now in terms of being a new type of competition to the United States.

1:01:46For example, in terms of the exchanges they have. I thought you were going to say dumplings. They're wonderful. What do you mean by exchanges? So the Shanghai Gold Exchange is getting to be very important. It's brand new. they're putting a lot of effort into global financial market participants getting comfortable taking their risk. Who's listing in China? So this is literally about, think about the following. If China wants to do their trade in renminbi, which they want, and more and more countries are executing trade in China in Chinese currency, right? Then it's helpful if China offers a kind of financial market where, okay, once you've accumulated those CNY balances, you can maybe move some of them into gold that is held in China, right?

1:02:40So if China offers more and more alternatives to trading, engaging in financial market that doesn't touch the dollar at all, it becomes more and more of a competition, even if it doesn't have the typical capital mobility. Well, there are a couple of countries where there's an urgency to this. I think Russia and Iran would love the ability to hold their FX reserves in Chinese denominations and do financial market activities in Chinese yuan terms. Russia doesn't have any dollar reserves anymore, right? Right, right. So, okay. But you don't think that that's something that's like on the front burner for people to worry about.

1:03:20Like we're going to all of a sudden lose this overnight. We're going to wake up one day and they're going to announce, hey, it turns out the dollar - Stripe is going public in China. No, I don't think the dollar is going to lose its reserve currency - It's lessening. ... status instantly. Okay. But we can't be chilled out here, right? The debt dynamics in the United States are out of control. I believe the reason Scott Besson took the job as Treasurer's Secretary is that he wants to have a positive influence on the debt trajectory that is problematic. There's another dude called Elon Musk, right, that we've been talking about.

1:03:55No, he retired today. I know, but he tried for a couple of weeks. They're going to hang his jersey up, though, I'll tell you. He put up some big numbers. So the question marks around the dollar getting bigger doesn't mean it's going to collapse from one day to the other. But the question marks are real, have to be taken seriously. And that's another reason why this idea of not being all in on the dollar that a lot of global investors were increasingly over a decade, that's what's retracing. Would it surprise you if I told you foreign tourism to the United States has been dropping precipitously since the inauguration?

1:04:34Wouldn't be shocked. Here, this is that. spending from foreign visitors to the U.S. is poised to fall by 8.5 billion this year as negative perceptions tied to trade and immigration policy lead overseas tourists to look elsewhere. That's Oxford economics. They say international arrivals to the U.S. are expected to fall 9 % this year. And one more number. The World Travel and Tourism Council said this month it expects the U.S. economy to lose a staggering$12.5 billion in spending from international visitors in 2025. Quote, a direct blow to the U.S. economy overall, impacting communities, jobs, and businesses from coast to coast.

1:05:17When you hear that, doesn't it sound like it rhymes like what we're talking about with international capital flows? I think those numbers are too low. You think they're low? I was like, you know better than they do. What are the numbers? Yeah, I think tourism is a tricky thing because it's like what we normally think about tourists that are running down on Fifth Avenue, but it's also like tourists, the students that are spending in the US also in the stats often get recorded as sort of tourism spending. Yeah. And it's both. And they're trying to ban international students right now. Absolutely.

1:05:57So even if it's like a couple of tenths of GDP, which would be like$60 billion, that would be more in the ballpark, I think. Okay. So do you think that this ties into the lack of interest in owning U.S. assets amongst global portfolio managers? It's like, it's another symptom of the same thing. It's part of the same thing, right? Where there was a certain regime where students, tourists were always comfortable going to the United States. Never had any concerns. like a lot of countries, rightly or wrongly, have kind of travel warning. Yeah. Right. So there's stuff going on this year that we've never seen before, and it's changing behavior.

1:06:37And that's going to have an impact on the capital flow. We discussed that in detail. But it's also going to have a GDP impact, right? Because the tariffs are going to have an impact. The tourism is going to have an impact. The investment uncertainty that you started out was going to have an impact. So if you add up all those shocks. S &P down 3 % from the all-time high. Yeah. That sounds about right. Is that the craziest part of this whole thing? It is. It is. But let's say the S &P is flat this year, right? Yeah. Which would be a good outcome relative to what we looked at. It would be a great outcome.

1:07:09We'll take it. But even that would actually be less of a wealth effect boost than what it would have been used to in 23 and 24, where actually that wealth generated some extra consumption that we may not get this year. It's enough with the extra consumption. We're not getting that. Robert Frank at CNBC put out a report this morning about rentals in Nantucket and the Hamptons. And I know this affects 0.001 % of the population, but it's emblematic of not having that wealth effect from stocks. They said Hamptons rentals are down 30 % versus the same time last summer. And now they're all hoping for like a last minute wave of rentals.

1:07:47Otherwise, you're going to have a lot of properties just sitting there. And that's, I think, a direct effect of tariffs uncertainty in the stock market, not doing what it did over the last couple of years. Yeah, it makes sense. What haven't we – before we get into Exante, and we'll finish with asking you about Exante and Market Reader, what haven't we asked you about that you think is important for investors going into the second half of this year? Well, I think really it comes down to what we talked about in the labor market, right? We've had this debate where, okay, the confidence was bad, and then the real data was okay.

1:08:21So I think we have to be hyper-focused on what's happening with the real data in the next two months. Is that the most important economic data point to follow, anything related to employment? Yeah, anything that is giving a pulse on the underlying trend in the economy. It could be services consumption. It could be the labor market. Okay. Or maybe credit itself. Do any of your models incorporate sentiment analysis, or are you just done with it? Just so noisy. Yeah, we don't do a lot of sentiment analysis. Like sometimes we use that as a kind of complement to positioning indicators, right? It's just another way to kind of capture positioning.

1:08:56But we wouldn't use it as a fundamental read. If you did these days, you'd be trading every two days. I've never seen sentiment swing the way that it does from the absolute lows to the absolute highs. the report we got this week, highest jump in conference board future expectations component in four years. What the f***? I thought a week before everybody thought the world was about to end. I mean, from my perspective, not that I ever used sentiment well, I don't really know how to do that, but it just seems impossible now. Yeah, well, if you're using it as a tradable indicator, once a lot of people start to trade a certain indicator, it typically becomes useless, right?

1:09:40So we probably have that. But if you look at that consumer confidence level sentiment, right? We had an incredible drop once the tariff concern was the most intense. And now we had this incredible bounce. The level is still low, even after the incredible bounce, right? The overall consumer sentiment is low. It fell off a cliff in April, right? So even after the bounce we had in the latest reading, the level is not a good level. Okay. So, but in the end, it's going to depend on what the real activity is showing. And it will be strange if we don't have a substantially weaker year for consumption.

1:10:25It will be strange. That's my expectation. So I'm not looking at data, obviously, to the extent you are, but I'm paying a lot of attention to commentary from CEOs. Sure. That's kind of like the way I do sentiment, and it's totally anecdotal. I'm not collecting any data on it. but it's one company after another saying almost the same thing now. And it wasn't like that during the last earnings season. No. Now it seems more uniform. How do your clients work with you? Are you one-on-one with them or do you have reports that you put out dashboards? What is the experience like of an Exxonante client?

1:10:55So we have a global team. So we're about 20 people on my team, right? So a bunch of those people are writing research reports or we have a chat system, right, where we chat with our clients when there's something important going on. And then we have some people who code, right? So we have a data platform where we essentially put our forecasting tools on the data platform so people can access them. So it's sort of a holistic risk management service that we provide. I'm guessing not a lot of retail clients, given the specification of what you do. We don't have retail clients for this service. Are more of your institutional clients, are more of them looking to use your tools or are more of them saying, okay, skip all that, just give me the answer?

1:11:39Or is it kind of a mix of both? Yeah, kind of. When we service an institution, we want to make sure we have multiple touch points, right? And the chief investment officer wants something different from the first-year analyst, right? Oh, okay. That's interesting. So the chief investment officers typically get the sort of big-picture conclusions from our research. And if you have a strategist or an analyst that engages with our service, they would engage at the sort of number crunching level. Tell us about, you told me about, so tell Michael and the audience about Market Reader. Yeah. I was going to try to explain it, but you'll do it better than I can.

1:12:16I made a mistake to run two companies. I want you to check this thing out. It sounds awesome. So Market Reader is a piece of software that explains in real time what is happening in the market. Like why is Meta down? Why is Google up? Sounds like a desk analyst, actually. It kind of is. It's kind of trying to replicate what was happening with humans on a hedge fund desk and looking at flows, looking at the calendar, looking at the price action, all markets together, obviously news, and then synthesizing that using AI to give a brief, precise explanation of what's happening in real time. I love that.

1:12:58Yeah. That's very cool. You should be buying it. I strongly recommend that you buy it here at Ritz Hall. That would be my... So that's more of a retail slash wealth management driven product offering. Yeah. For people that it's, they're not running a hedge fund, but they have to be up to speed on what's going on. They go to like Yahoo Finance and you might get nothing or an AI generated bullshit article. That's right. Like even if you go to, a lot of people try to Google what's happening, right? And all the results are now contaminated by some low quality AI. I love this. When did you start it?

1:13:33So we launched this company three years ago and we've been sort of really delivering. It's quite difficult to build. So it took two years to build and we've been engaging customers for last year. So the customers that are using it, are they logging in each day for like a summary? Here's what's moving the markets this morning. Yeah. That's how I use it, right? So I can absorb more information by like looking at, so for example, when Silicon Valley Bank was cracking, right? Yeah. Then I just had a screen with all the regional banks and I'll get all the actual moving parts in the regional banks world that I don't know any of those names.

1:14:09Right. But it will tell me what is important. Like so. You don't even know which tickers to put into a Yahoo. It will tell you what is moving the most. So it will like tell you the epicenter of what's going on and tell you those stories. So I think for me, it allows me to absorb more information. But it could also be like if there's a portfolio manager that want to inform their clients about what's going on in their portfolio, it could be a very succinct way of doing that. I like it for that. Which LLM is it built on? It's mostly based on open AI structure. Okay. Yeah. And it's pretty lightweight for you to run and provide to people?

1:14:46It's going to look lightweight to the people who get the results, but there's quite a bit of compute going on. There's a lot happening there. All right. That's awesome. So we would encourage people, of course, check out Exante if you are a professional investor. And if you're not a professional investor, but you want to inform yourself, market reader is a pretty cool tool. So I'm going to start incorporating this into my day. We'll see the ways in which I use it. I appreciate that. Yeah, I'm using like generic chat GPT, like just the$20 a month thing. And I have it doing this custom thing for me each day when I log in.

1:15:22So it knows what I do for a living now. It knows how I use information. I've talked to it enough that it knows what to serve me. Still sort of dissatisfied because I could tell that it's not built to do this by market people. It's not real time. And then it shows me the sources. And I see the source and I'm like, oh, I don't go to that site. Sure. That's where you're getting data from. So anyway, that's the whole thing, but we'll check it out. Jens, did you have fun on the show today? Absolutely. The clapping and the funny noises are definitely different from Bloomberg, I seem to see. So good to do something new.

1:15:57So we always end the show by asking people what they're most excited for in the future or what they're most looking forward to. So we know for you, initial jobless claims is a big thing. What are you really in real life most looking forward to? I think when you are - Buying a dog. When you're involved with markets, it can be kind of all-consuming. So I think my goal for the future is to really have proper downtime. And that could be downtime for my family and so forth. But it could also be downtime in the sense that you have blocks in your week where you can meditate, really think about longer-term issues as opposed to dealing with this kind of tactical stream that's going on.

1:16:42So I think being more organized about actually inserting these meditative rocks. You're going to try to do that this summer? It should not be for a period. It should be a thing where you have a shift where it gets just a part of the normal way of operating your week that you have those periods. If you figure out how to do that without – because you run two companies now. I run one company. I can't figure if you figure out how to wait to put a block in and then not violate it. When somebody asks you to jump on a call or do a thing, like to actually be able to say, no, this is my block where I'm thinking and breathing.

1:17:22If you figure out how to do that, tell me because I need to do the same thing. I'll write you a letter about it because I don't want to interrupt you in meditation. Michael, what are you looking forward to? You got game five on tap? I have game five on tap. I'm looking forward to Chicago. We're going to Chicago next week. We have our second HQ grand opening. We're bringing 50 employees out there. Good. And we have 58 Red Holtz employees. It's the largest gathering of all of our people. We have more employees. We have 74 overall. 58 of them will be together for the first time since, like, we've never had that many of us.

1:17:57It's fun to see the growth, right? It's crazy, actually. But we've never had that many of us all in one place. Got to memorize the names before. I know everybody's name. Good. I don't know all the spouse names and all the pet names and the kid names. At this size, I don't even know if that's possible anymore. The dogs are probably going to be less offended than the humans. Yeah. Do you like Chicago? I think Chicago is a great city. That's one of my favorite cities in the country. So we're going to be out there next week. We're doing a live version of this podcast. Our guest is Kunal Kapoor, CEO of Morningstar.

1:18:31So you must have run into Morningstar and you're in the data game now. Yeah. Okay. Anyway, we're super excited about that. I want to say thank you so much for joining us today, Jens. We really appreciate it. I know you don't do a lot of podcasts. You don't do a ton of interviews. So this is really meaningful for us to have you here. And we hope to have you back again sometime. Sound good? Looking forward to it very much. You want to come back next week? No? All right. Ladies and gentlemen, Jens Nordvig. And check him out at Exante and Market Reader. Great job this week on the show. All the Compound crew.

1:19:04We appreciate you guys so much. too many of you to name. But you know we love you. Guys, thanks for listening. Please leave us a rating and review. We'll be back soon. Thanks again. Have a great weekend. Alright, so that was the warm up. I just wanted you to get a feel for it. How would you do that? No?