Investing in a World of Permanent Stimulus | Vincent Deluard

In Episode 432 https://hiddenforces.io/podcasts/investing-in-a-world-of-permanent-stimulus-vincent-deluard of Hidden Forces, Demetri Kofinas speaks with Vincent Deluard, Director of Global Macro Strategy at StoneX Group, where he advises large institutional investors on asset allocation, economic forecasting, and quantitative modeling informed by historical patterns and structural economic analysis. Vincent Deluard and Demetri spend the first hour of their conversation exploring Deluard's macroeconomic framework and the key structural forces that he believes are shaping the emergence of a new macro regime of fiscal dominance, including shifting demographics, politically driven inflation, geopolitical fragmentation, and the decline of institutional trust. The two discuss his provocative thesis that recessions have been "canceled," examining the structural and technological forces that Vincent believes are reducing economic cyclicality and reshaping the role of monetary and fiscal policy. In the second hour, Vincent Deluard delves much deeper into his specific investment theses, including his call for an Asia "reverse currency crisis," his long-term outlook for the U. S. dollar, and an Asian-driven oil demand shock that could rile markets and challenge the ability of monetary authorities to balance their mandates of maintaining price stability while also supporting economic growth and maximum employment. Vincent also shares his suggestions on how to construct a "fiscal dominance" portfolio, including which asset classes he believes will outperform under the new macroeconomic conditions that they discuss in their conversation and how investors can best manage risk and reward in this new paradigm. Subscribe to our premium content—including our premium feed, episode transcripts, and Intelligence Reports—by visiting HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you'd like to join the conversation and become a member of the Hidden Forces Genius community—with benefits like Q&A calls with guests, exclusive research and analysis, in-person events, and dinners—you can also sign up on our subscriber page at HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you enjoyed today's episode of Hidden Forces, please support the show by: Subscribing on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334, YouTube https://www.youtube.com/channel/UC8URhgYos5fjHqFSO4RSIEg, Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP, Stitcher https://www.stitcher.com/podcast/demetri-kofinas/hidden-forces, SoundCloud https://soundcloud.com/hiddenforces, CastBox https://castbox.fm/channel/2629539, or via our RSS Feed http://hiddenforces.libsyn.com/rss Writing us a review on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334 & Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP Joining our mailing list at https://hiddenforces.io/newsletter/ Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Subscribe and support the podcast at https://hiddenforces.io https://hiddenforces.io/. Join the conversation on Facebook https://www.facebook.com/hiddenforcespod/, Instagram https://www.instagram.com/hiddenforcespod/, and Twitter https://twitter.com/hiddenforcespod at @hiddenforcespod Follow Demetri on Twitter at @Kofinas https://twitter.com/kofinas Episode Recorded on 07/29/2025

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Demetri Kofinas?

  What's up everybody? My name is Demetri Kofinas and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. My guest in this episode of Hidden Forces is Vincent Deloitte, Director of Global Macro Strategy at StoneX Group, where he advises large institutional investors on asset allocation, economic forecasting, and quantitative modeling informed by historical patterns and structural economic analysis. We spend the first hour of this conversation exploring Vincent's macroeconomic framework

• 0:44Demetri Kofinas?

  and the key structural forces that he believes are shaping the emergence of a new macro regime of fiscal dominance, including shifting demographics, politically driven inflation, geopolitical fragmentation, and the decline of institutional trust. We also discuss his provocative thesis that recessions have been "canceled," examining the structural and technological forces that he believes are reducing economic cyclicality and reshaping the role of monetary and fiscal policy. The second hour delves much deeper into Vincent's specific investment theses, including his insights on what he calls "Asia's reverse currency crisis," his long-term outlook for

• 1:26Demetri Kofinas?

  the US dollar, and an "Asian-driven oil demand shock" that could rile markets and challenge the ability of monetary authorities to balance their mandates of maintaining price stability while also supporting economic growth and maximum employment. Vincent also shares his suggestions on how to construct a fiscal dominance portfolio, including which asset classes he believes will outperform under the new macroeconomic conditions that we discuss in our conversation, and how investors can best manage risk and reward in this new paradigm. If you want access to all of this conversation, go to hiddenforces.io/subscribe and join our premium feed, which you can listen to on your mobile device using your favorite podcast app,

• 2:10Demetri Kofinas?

  just like you're listening to this episode right now. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, which includes Q and A calls with guests, access to special research and analysis, in-person events and dinners, you can also do that on our subscriber page. If you still have questions, feel free to send an email to [email protected] and I or someone from our team will get right back to you. Lastly, because this conversation deals with investing, nothing we say on this podcast can or should be viewed as financial advice. All opinions expressed by me and my guests are solely our own opinions

• 2:54Demetri Kofinas?

  and should not be relied upon as the basis for financial decisions. And with that, please enjoy this exceptionally timely and valuable conversation with my guest Vincent Deloitte.

• 3:09Demetri Kofinas?

  Vincent Deloitte, welcome to Hidden Forces.

• 3:13Speaker 01

  Happy to be here.

• 3:14Demetri Kofinas?

  It's great having you on the show, man. This was a long time coming, actually. You're a very popular guest. You've been recommended to me many times. And in fact, one of our listeners reached out to me recently about something. I don't know if he, he may have been recommending your work to me recently or something else, but I mentioned to him that you were coming on and he was super stoked about it. So I'm very excited to introduce you to our audience members who aren't familiar with your work. Before we start this conversation, just tell me a little bit about you. What's your background, what's your story? Like, how did you get into becoming an investor?

• 3:42Speaker 01

  Well, I guess everyone who works in finance says that, but I'm going to say it anyway. I was really not meant to work Wall Street. I'm French. I grew up in a little town in Burgundy. I was actually supposed to work for the French government, which led me to study economics. And I was really fascinated with economic history. I traveled a lot. I got lucky to get a scholarship to get my master's degree in the US. This was a few years before the GFC. At the time, if you could open an Excel spreadsheet, you could get a job in investment research. Then I thought, okay, I'm, you know, I'm going to do that initially.

• 4:25Speaker 01

  I think my idea was the same idea that a lot of guys who start on the sell side is, you know, I'm going to do a little bit of research and then George Soros is going to be so impressed with me that he's going to give me a couple of billions to manage. Well, that part hasn't happened, but I discovered that I truly enjoy research. I enjoy markets. I enjoy writing. And in a way, I mean, if you have a curious mind, what I do, which is advising a large pension fund on varying topic, asset allocation, economic forecasting, quant modeling. It's really the most interesting job in the world. I mean, you talk to very smart people. You have to be constantly curious. There's always something new hitting. So yeah, I mean, don't tell my employer, but I'd

• 5:09Speaker 01

  probably do this for free if they didn't pay me.

• 5:12Demetri Kofinas?

  That's the best kind of work. So you mentioned you got your master's degree in the US. That was at Columbia, right?

• 5:16Speaker 01

  Yeah.

• 5:17Demetri Kofinas?

  And you went to Sciences Po. How do you pronounce that? Is that?

• 5:20Speaker 01

  Yes, yes.

• 5:21Demetri Kofinas?

  That's where you got the equivalent of your bachelor's degree. What did you study during your time at university and how did that help to shape the way that you approach thinking about markets and investing?

• 5:33Speaker 01

  Well, so back in France, you know, this is very kind of almost Renaissance man focused. And now that's a big difference between, I think, the US and the French system. At least the US, very rapidly you specialize in something and you become very good at something very small. The French system was a bit differently for what I did. It's there was a mix of law, history, math, econ, and I think that helps kind of shape the way I view the world, especially the focus on history. I really think this is something that has been a bit forgotten in the US approach to econ, where it's really kind of quant math focused. I feel somewhat, you know, the econ discipline has a bit of an imposter syndrome that they try to compensate towards the hard

• 6:18Speaker 01

  science. But no, no, we, you know, we can build models too. And look, you know, and then if you write a paper, you got to have all these equations on top. At the end of the day, I'm convinced that, you know, I mean, of course, if you price derivatives, there is a right price and there's a wrong price. But if you think about financial markets holistically, it's a social science and it's driven by historical pattern. And if you ignore that, I think you make terrible mistakes. And one of the reasons I like your podcast is because you kind of bring that historical perspective, which I find quite unfortunately too rare on Wall Street. So.

• 6:52Demetri Kofinas?

  Well, I appreciate that. You know, your point about economics being heavily biased toward math and modeling is something that I've also found to be true, not only in the social sciences, but even in the case of how philosophy is taught at major universities, where analytical philosophy and logicism would often take precedence, at least in my experience at university, over things like studying the history of philosophy, or in my case, existentialism, and even the works of some of the great Hellenic or continental philosophers. So I couldn't agree more, and I think this opens us up to blind spots, because analytical models and formal systems of reasoning are compressed versions of reality. They're meant to simplify

• 7:37Demetri Kofinas?

  whatever problem you're trying to solve, or phenomenon that you're trying to understand, and therefore, by definition, inevitably leave things out. And if your only way of approaching a problem is to run it through your model, you're guaranteed to miss something, potentially something critical. And even more importantly, when the foundational underpinnings of your model begin to shift, when the underlying assumptions of that model cease to be valid, not only do you cease to be in touch with reality, but you aren't even aware of it, and will often keep using the model in the face of contravening evidence, because you've confused the map with the territory.

• 8:14Speaker 01

  That's absolutely right. And I think we are seeing one of these moments when it comes to market, where we had this era when things looked reasonably the same, and also just for availability of data. You know, if you do any sort of quant project, I mean, okay, you're gonna get good data for the past 20 years. I mean, the 90s already, it's kind of ancient history. But anything past the 80s, you know, getting pricing, getting good econ data, you're not gonna get that. So really, you know, you're looking at a period that, and you can say every period is exceptional, but I guess every period is exceptional in different ways, right? It's the Tolstoy quote about unhappy family being unhappy in unique ways. That period where we have most of the data is quite exceptional.

• 8:57Speaker 01

  I mean, since the late 70s, we had pretty much consistently falling interest We had falling inflation, we had globalization, we had by and large world peace. And these are not normal conditions in human history. They are the exception, not the rule. Yet, we train our models to think that this is the norm. So the models will have a tendency to pull you back towards what worked in the past forty years. And if I'm right about kind of a secular change towards inflation, towards fiscal dominance, towards populism, looking back at such a narrow span of history will actually get you in trouble.

• 9:36Speaker 01

  On the other hand, if you kind of broaden out the perspective and compare to other eras where we saw similar forces, you're probably better off, but it's gonna be, unfortunately, it's gonna have to be more on the qualitative side. Because, yeah, we don't have a lot of data on, you know, mid nineteenth century transition periods.

• 9:54Demetri Kofinas?

  So, speaking of forces, what are the most important structural forces shaping global markets today in your opinion?

• 10:01Speaker 01

  I think at the core, yeah, I would go with fiscal dominance. I mean, it's got a lot of, you know, different terms, and it encompasses more than one thing. But I think fiscal dominance is the operative word. I think we came from an era where we didn't have an inflation problem, basically. We had all these forces that conspired in a weird way to help central bankers. We had China opening up, the East Asian crisis that devalued all Asian currencies. So suddenly you have like almost three billion people working more or less for three. We had the fall of the Berlin Wall that opened up the natural resources of Russia and Eastern Europe to the rest of the world.

• 10:45Speaker 01

  We had a unique demographic moment in the West, really, when both boomers and millennials were working at the same time. So a very favorable supply of labor. We had a sequence of crises in Latin America that pushed labor in the US with the ticket crisis. And then finally, we had this kind of global savings glut where, because of currency repression, global savings were flowing into the US. So all that really created this.

• 11:15Speaker 01

  You know, set of wonderful circumstances in the US, which in the 90s, we called the Great Moderation. Of course, Greenspan being who he is, he took credit for it. There's probably more to that than that. But really, this era, I suspect, is ending. And in the new era, I think what we are seeing is a demographic shock across the Western world, but not just the Western world. I mean, many emerging markets are aging much faster than the US, where a lot of the forces that I described are turning around. And one thing that this demographic shock does is that it really changes the structural balance

• 12:00Speaker 01

  of governments. Remember, back in the late 90s, we had all this paper about, you know, the surplus and how to deal with the consequences of the surplus. And people worried about, you know, the disappearance of US Treasury debt. Well, obviously, this is a problem we didn't have. So you had this kind of structural degradation in the fiscal balance of Western governments, which then causes them to enter in a conflict with the monetary authority. And it challenges the, what I think was always a myth, the myth of central bank independence. Central banks were never independent. I mean, if you look back at the long history, you realize that the role of the central bank is to finance the government, period. But

• 12:43Speaker 01

  we were able to tell ourselves that tale because we had these unique circumstances, that it was. And I mean, you could see that clash just last week, right? I mean, it was down the clownish way with, you know, Trump visiting the Fed and kind of insulting Powell to his face. But that's maybe if I had a, you know, a summary for what we're seeing, that would be that picture.

• 13:05Demetri Kofinas?

  Yeah, you know, people, you know, future generations are going to be studying this period in their economic history classes or classes on monetary theory. I'm going to list out a few of the other forces that you've talked about, some of which you mentioned here. And then I want to dig deeper into fiscal dominance. So you mentioned demographics, that's something else you've written about. Geopolitical fragmentation, you mentioned, you didn't use that word, but you described the move from unipolarity to multipolarity. You've also talked about the decline of institutional trust, which is a huge one. Again, these are things that we've talked about on the show, which is really wonderful to read someone else's analysis on them. And then you also talk about, I think you might have mentioned this a little bit about technologically driven deflation, the 1990s and early 2000s, moving to a period of politically driven inflation. I want to get into these, but let's just dig a bit deeper into fiscal dominance.

• 13:50Demetri Kofinas?

  Can you define fiscal dominance for us in terms of how you use it? And how is it different for monetary dominance, which is this period that we lived in during, I think especially the post 2008 period where central banks were, quote, "the only game in town" and where they were experimenting with all sorts of new and unconventional monetary policy measures like QE, negative interest rates, and even new forms of forward guidance?

• 14:12Speaker 01

  Yeah. So fiscal versus monetary dominance is a question about who's the boss at the end? Who set the rules? And, you know, there can only be one king. This myth that, you know, the central bank can't ever be independent from the fiscal is not true because the central bank sets the interest rate, right? And the interest rate is, you know, a huge amount of the budget. So the actions of the central bank have a huge fiscal impact. And conversely, fiscal policy has a huge impact on the things that central bankers look at. So these two things are going to, at some point, clash. And the question is, what happens when they clash? Does the fiscal authority bend?

• 14:54Speaker 01

  So for example, if the central bank raises rates to slow the economy in an era of monetary dominance, what that does is that it means that a greater portion of the budget needs to go towards servicing the debt, and that means there's less money to spend on social services.

• 15:08Demetri Kofinas?

  Which is kind of what we've been seeing in the last few years, no? With the Fed raising interest rates?

• 15:13Speaker 01

  Well, the yes on the first part, no on the second part. We certainly have seen interest payments increase as a share of fiscal spending. You know, we're spending close to a trillion dollar now on interest payments, so that's almost as much as we spend on the Pentagon. And that's the problem, right? That's why Trump is screaming at Powell. That's why Trump is trying to get Europeans and Japanese to buy more treasury debt because, you know, suddenly... You go from, you know, paying zero or even negative rates as we had in Europe on your debt and then having a trillion dollar item in your budget. Now, what has not happened is the compression of the other parts of the of government spending.

• 15:53Speaker 01

  On the other hand, what we've seen is a rise, an extremely rapid rise in many of these items. I mean, if we look at social security spending. So I like to add social security, Medicare, Medicaid, basically the entitlement spending all together, because sometimes you see move from one to the other. So let's look at everything since 2020, so excluding the shock of COVID, it's been growing at 10% a year. So, and this is, you know, around 3.5 trillion dollar in spending between social security, Medicare, Medicaid. Okay, so you have a 3.5 trillion chunk of the economy growing by 10%.

• 16:37Speaker 01

  That's 1.5% of GDP growth right there. That's just happening because people, you know, turn 65 and they become eligible or they have, you know, they fracture, they hit and they are faced with a broken healthcare system that charges them insane amount of money. And that kind of leads me to this idea of permanent stimulus. And this is not something that, you know, it's very hard to get. I mean, we saw, again, we saw that earlier this year. We had a brief moment where it looked like it was gonna go like monetary dominance, right? Okay, the Fed at high rate, we had this, you know, blowing up the deficit and for about two months, we said, okay, let's look at what we can cut, if we can make the numbers work. And then after two months, we decided it was way too difficult to do.

• 17:21Speaker 01

  We fired Elon Musk and we had the one big beautiful bill that effectively made it the law that at best, the US deficit is going to be 7% of deficit in the best possible of economic conditions.

• 17:36Demetri Kofinas?

  So let's take into the demographics a bit more. I love that you brought up the role of entitlement spending because the way that we traditionally think about demographics is that they're deflationary. Like, look at Japan, for example. But I had Charles Goodhart and Manoj Pradhan, his co-author of a paper they'd written some years ago.

• 17:56Speaker 01

  The Great Universal.

• 17:57Demetri Kofinas?

  Which became a good book, exactly. And they make the argument that you're making, which is that demographic actually, in this type of a world, with all these political entitlements and obligations tied to aging populations, are inflationary. Can you explain why you feel so confident in that thesis?

• 18:16Speaker 01

  Yeah, first of all, I recommend people read the book. I mean, they present a lot of arguments. I'm gonna focus on just the simplest one, which is the production function and the supply of labor. At the end of the day, I mean, you know, an economy produces output, right? And to produce that output, you have capital and you have labor. If you reduce the supply of labor, especially if you're gonna pay that labor to do nothing, which is what retirement is, what do you think is gonna happen to output and what do you think is gonna happen to price? I mean, you're gonna have less output, or else equal, because you have less labor, or you're gonna have to replace labor with capital, in which case you're gonna need no capital that's gonna push up the interest rate.

• 19:00Speaker 01

  But all else equal, less labor is bad for output, let's agree with that. And then you're gonna maintain the same level of demand, if not increase it, right? Because a lot of people, when they're in pension, they can actually spend more money because they don't need to save anymore. So you constrain supply and then you increase demand. I mean, if we forgot the age part, right? If we just said, hey, we're gonna give basically universal basic income to 30, 35%. We're gonna be in a situation where we're gonna have 40% of the population retired in East Asia, for example. If we gave universal basic income with no work requirement to 40% of the population, most people would say, of course, that's inflationary.

• 19:39Speaker 01

  Yet, when they think about 40% of the population retiring, they think it's deflationary?

• 19:47Demetri Kofinas?

  Well, I'm really glad that you brought that up, because that was gonna be my next question, which is, can we apply those same insights and that same logic to thinking about how A very rapid displacement of a portion of the labor force, let's say a white collar younger demographics who are going to be most susceptible to losing their jobs to artificial intelligence. Can we apply that same logic to whether or not that would produce an inflationary result?

• 20:12Speaker 01

  Yeah, that's an interesting one. In general, I am not, and it's possible, right? I mean, no one, no one knows for sure, but I'm not in the camp that will have this kind of white collar apocalypse that AI is going to displace everybody. I mean, you can certainly see it in some areas like law. Well, let me take the example of law. For example, I would actually-

• 20:34Demetri Kofinas?

  Also podcast production. I was just telling you that I found the first great assistant I've ever been able to find. I've struggled to find a podcast assistant or assistant really in any, I've worked in TV, I've worked in radio, theater, best assistant I ever had and I don't pay him, I pay him $200 a month, which is ChatGPT Pro. And so, I mean, I'm seeing it firsthand.

• 20:55Speaker 01

  Yeah. I mean, taking the world of podcasting, I mean, it just makes your podcast better, right? And I think over time that will increase the demand for podcasts, it will free up resources. Going back to lawyer example, yeah, it's probably a good thing that we stop, you know, paying, you know, close to $1,000 an hour to have like someone who went to Brown just, you know, review documents. That was a huge waste of resources. And the question is, what will that person do? I think that person will do something else and the society will be better for it. I mean, every time we have these transitions, again, it's hard for me to think of an era where we had a soaring unemployment due to

• 21:37Speaker 01

  technological displacement. You know, that did not happen in the 19th century. That did not happen. The only time in my experience when we have like sustained unemployment is when we have a demand problem, when, you know, for whatever reason, the government is not spending money or there's a collapse in trade. Like you can always create aggregate demand. And that's my point. And that's why I go back to the fiscal stimulus idea. Do we think that the US government is going to shrink its size, is going to shrink the deficit, and is not going to respond to a rising unemployment rate? I don't think that. I mean, I think you can always create demand.

• 22:14Demetri Kofinas?

  Can I introduce a little bit of nuance into my previous question and see how you would respond differently to it? So rather than thinking about it in terms of there being a large wave of unemployment, What if we just think about it either as underemployment or people who experience cost wage pressures, downward wage pressures, like we saw in the 1990s, early 2000s, the sorts of people that ended up voting for Donald Trump in 2016? Could we see something similar happening, which is that, sure, of course, there'll be opportunities? And first of all, I totally agree with you. You know, like, there'll be so many great opportunities that will emerge out of this displacement, but also there will be people that won't be able to make that transition. I think many people will be able to transition to something that won't necessarily be as good, and it takes time to do all of that.

• 22:58Demetri Kofinas?

  And my specific concern that I've articulated on this show before, and this is how I want to contextualize it for you so you can respond. My specific concern is that what we saw in 2016 happen on the Republican side could and may likely happen to the Democrats in 2028, and that we could be entering an era where there aren't just, you know, systematic forms of stimulus that are already embedded into the system that we've talked about, but that we could be entering a period of populist-driven stimulus that isn't just happening on the right, but also happening on the left. So how would you respond to that context?

• 23:35Speaker 01

  100%. 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, so the populist shift of the Republican Party, I think, starts with the Tea Party movement, which is a revolt after the bait outs, 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, and that process was a civil war, at least internal Republican.

• 24:18Speaker 01

  Like, when Trump runs in 2016, I mean, remember the debate stage? I mean, he's one man against everybody, and, you know, at the beginning, it was clear that it was going to be the jabs and then the tech rules, and he completes a whole side.

• 24:35Demetri Kofinas?

  He lit that field on fire, and he had that really great moment, I think, that was so emblematic, was when he... He attacked Bush and his brother for the Iraq war.

• 24:42Speaker 01

  Yeah, yeah, yeah, yeah. And that was, I mean, I'm not a, I'm not a Trumpist, but I remember that moment. I was like, oh, the, the energy, the, the, the raw power that he unleashed was really something to, to witness. So on the right, it happened and we can, I think the personality of Trump kind of burrs the, 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's speech. But on the other hand, he's also a real estate billionaire. So I, and he's got this unique media personality that, that makes, I think he's more a transition figure, that the transition will be completed. Once we move to maybe someone like J D Vance in 2028.

• 25:24Speaker 01

  But at least the Republicans have started this process. Now, going back to my, my earlier point, on the left, we had the attempted war. And then the establishment won, right? I mean, Occupy Wall Street, you know, went cheap. 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. Uh, and, and, and the elite maintains control. But it seems to me that this ability to kind of control the, the base is eroding rapidly. I mean, partly it's demography. I mean, look at, you know, I mean, even Nancy Pelosi is gonna die someday, even Chuck Schumer. I mean, we, we literally live in, this, this gives me late Soviet Union vibes, you know, when you had all these generals,

• 26:07Speaker 01

  like eighty five 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, the New York election where, um, if that option in the ballot, if a populist left option is on the ballot, it, it's incredibly strong. And I think we have unleashed the beast. Uh, and probably by, by 2028, we'll consider very much a lifetime scenario where you, you're going populist right against populist left. I mean, I feel the, if the Democratic Party doesn't go this way, it's, it's going to go the way of, um, the, the weak party. You know, then the British politics, the liberals.

• 26:49Speaker 01

  Used to be the the the the party that dominated the 19th century and they kind of missed that transition lost to labor in the early 20th century. I mean, the yeah, the Democratic Party, if it doesn't listen to its base, it's gonna become like a husk, you know, just a party of, you know, civil servants and college educated women, which really doesn't get you the the votes that you need.

• 27:13Demetri Kofinas?

  Okay, so I just want to tie off two other forces that major structural forces that you've identified. I said one was the decline of institutional trust. Another one is geopolitical fragmentation. Let's take geopolitical fragmentation next. How significant is this move from unipolarity to multipolarity, as well as the 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?

• 28:14Speaker 01

  Yeah, I don't know if I use the term multipolarity. One of my prophets is Columbia, was Iain Bremmer, who ended up coming up with that G zero idea.

• 28:24Demetri Kofinas?

  Sure.

• 28:24Speaker 01

  It's 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 where the US really was like Icarus, you know, it flew too too close to the sun, but it could do anything. And I think the moment when, you know, the wing started to melt is the Iraq war, right? Where 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 entitlements. Really, the matrix of that is is this botched

• 29:00Demetri Kofinas?

  Yeah, and we lived for a long time, and not to interrupt, 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, you know, did so much to cause the decline in institutional trust that we're going to get into next, but please continue.

• 29:31Speaker 01

  Yeah, by the way, I think that process of decline in trust and then sense that you cannot trust what you hear, I mean, we're still in it. 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 so more than a shift to multipolarity, it's, 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.

• 30:15Speaker 01

  I mean, maintaining a global order when you just account for, what is it, about 10% of global GDP on a two-sink power basis, I 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 relative importance shrink and its ability to maintain the system break down. So I think there are, you know, two ways we can go from there.

• 30:58Speaker 01

  One is the grand redesign, you know, you get all the new emerging forces and we agree on a new world order and kind of split things. I 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?

• 31:16Speaker 01

  Exactly, and I think it's the nature of power. 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 hegemon have had the wisdom to, you know, realize the new world and proactively 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? So that's one path that I think is not going to happen. The more likely path, and which is not a bad path for the US, is we don't need that stuff, you know? And I think that's, that's a lot of the impulse behind Trumpisms. Like, listen, now we, especially with the energy, that's the big key, right?

• 31:58Speaker 01

  It's like, I think, you know, the US kind of needed to, why do we need to be in the straits of hormones? Why do we care about the Suez 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, wasn't it 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?

• 32:24Speaker 01

  Yeah, absolutely. The question is, the cost worth it?

• 32:28Demetri Kofinas?

  Well, to the Washington consensus, you know, 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 old order, the old elites and the new elites, right?

• 32:43Speaker 01

  Yeah, I mean, listen, it's still very powerful, right? If you look at institutions like the Atlantic Council, NATO, I 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, like, you know, when he has the Invasion Reduction Act, I mean, it was, you know, he kept the tariffs in place, pulled out of Afghanistan. So there is this continuity in policy.

• 33:27Speaker 01

  I mean, Trump just makes it obvious when he or JD Vance goes to Munich and insults Europeans to their face, but it's more difference in form than it is in substance.

• 33:37Demetri Kofinas?

  Yeah, I also, and not necessarily to go down the tribo, but I also wonder in what sense how different Trump really is, or how, so like 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, you know, 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." 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.

• 34:21Demetri Kofinas?

  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, 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 I, you know, I quite, there's some people out there that say Trump's, there really is a strategy here, and I don't see it. I really don't see it. I feel like what drives the public announcements of the Trump White House is his need to generate attention and his political instincts.

• 34:57Speaker 01

  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 in the EU deal, for example, I mean, by all standards, I mean, 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 you know, I would say he still got a deal. Now, it's no surprise we don't have a deal with China, right? So 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, to be our, our dominions. And eventually, yeah, at

• 35:41Speaker 01

  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 then extracts 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. And then we China, yeah, so you know, it's exactly the way you describe it. Why you have the my friend Xi 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

• 36:26Speaker 01

  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 Volodya Zelensky and yesterday. He wants the face and, you know, big number and 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 like giving them, you know, 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, you know, rub shit and mud all over his body so that no one wanted to touch him. You know, 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 even in his negotiations with Europe. You know, 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.

• 37:52Demetri Kofinas?

  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 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. So I just want to bring us back to the conversation we had 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

• 38:33Demetri Kofinas?

  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 1998?

• 38:57Speaker 01

  Yeah, no, it was the devaluation of the Thai bath.

• 38:58Demetri Kofinas?

  It was the Thai bath devaluation. 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?

• 39:24Speaker 01

  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. Pretty 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 monetarism over fiscal. And you remember, we had these fights between Nixon insulting the

• 40:02Demetri Kofinas?

  Arthur Burns.

• 40:03Speaker 01

  Arthur Burns, and then how does that end? I mean, that ends with With Volcker, you know, giving up, letting go 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 seventies with Brazil today. Where, you know, you have Lula that's, you know, spending like a madman and then the central bank that's hiking. And then the economy that's overheating and kind of stagflationary condition. But fiscal dominance is the exact opposite of that. It's what we had during World War Two. When I think after Pearl Harbor, basically the Treasury told the Fed, listen, you're gonna buy every single ten year Treasury above two point five percent.

• 40:46Speaker 01

  And you're gonna keep the Fed funds rate at, I think it was three eighth. And that's it. And I think that's clearly that world that we're going into now. Powell is, you know, seemingly putting up a fight, but you know, it's gonna 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 type of capital control. Exactly what like we had in the in the late forties. And it really matters because if we think in terms of asset allocation, you have two drastically different outcomes, right? Seventies, you know, horrible bear markets for stocks, you know, basically sell everything, buy gold was a trade or the Swiss franc. And there'd be some elements of that, but in the late forties, early fifties. Really what worked even better was was stocks.

• 41:30Speaker 01

  And if I look at market action, we certainly see gold and crypto do very well. But we also see stocks, you know, rising by about what? Since COVID, we'll probably at what twelve, thirteen percent 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 suppresses 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. So there's you compress the costs and then the government deficit is no longer constrained, right? You just spend as much as you want.

• 42:12Speaker 01

  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 and eventually I think it all unravels. But I would not rush to the end. I think a lot of people have this tendency, especially people who've studied emerging markets crisis. Like they recognize the sign and it's very easy if you look at Brazilian history to see a lot of parallels between, you know, the many crises that Brazil had and the US have today.

• 42:54Speaker 01

  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 still in 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?

• 43:25Speaker 01

  Well, one thing is just a, an empirical observation. I don't know, when was the last recession? Let's, COVID obviously doesn't count, right? I mean, we shut down the economy and as soon as we reopen it, we're growing at 10%. So that was not, it was like one month. I guess the N B are still calling it a recession, but for practical markets, no, you have to go back to 2009, right? That was about 16 years ago. And then before that, in the nineties, that was like, it's had the great moderation. No, 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, 91, it was a very shallow recession.

• 44:03Speaker 01

  Exactly, exactly. Same in the eighties, you know, we had the Reagan boom. So we only had one serious recession since I've been alive, which, you know, if you think in terms of portfolio construction, the idea of a traditional 6040s, 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 forty five 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. Now, we can ask why that is the case. I think one.

• 44:39Demetri Kofinas?

  And the types of recessions too, just the observation. The additional thing to observe is that the two thousand and eight 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, you know, a period of liquidations followed by pent up demand and a boom. And so like, we've also seen less of those as the economy's gone from heavy industry to services.

• 45:01Speaker 01

  Yeah.

• 45:01Demetri Kofinas?

  And technology and high margin.

• 45:04Speaker 01

  Yeah, I think you you point the the structural technological explanation for this. And I think there are two parts to my to my theory. One is the optimist, the beautiful part, which is what you point out. I 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 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.

• 45:49Speaker 01

  When you build railways, everything picks up, right? Steel demand, whatever. And then and then you do too much of it, everything collapses at the same time. Because the engine of wealth was hard assets, tangible assets, you know, steel, plants, manufacturing, so forth. Now we move to an economy, like you mentioned, that's eighty percent service. And also, I would point about thirty five percent government spending and twenty percent 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, you know, 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 stagflationary fear, right? Growth goes from three percent to one percent.

• 46:32Speaker 01

  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, right? 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, you know, just sell it, sell everything and then try to realize, you know, what you can get. So you'd sell the servers and then you'd get one cent on

• 47:13Speaker 01

  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? And 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, which 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,

• 48:37Demetri Kofinas?

  during the period of the 1990s and early 2000s?

• 48:42Demetri 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.

• 48:59Speaker 01

  Yeah, so that deflationary post 1980, 1990 era, we freed policymakers and especially the central banks, right? Because suddenly the inflation concern, which usually is really the binding constraint in monetary policy, was no longer binding. You didn't have to worry about inflation because we could get stuff from China for cheaper and cheaper. We had this, you know, free labor from Mexico, we had free capital, long-term rates, which usually was the plague, you know, the Fed as a, it's not a dual mandate, it's three mandates, right? Stable prices, not 2% of 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,

• 49:44Speaker 01

  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. So suddenly central bankers are kind of Icarus again, right? The gods, you know, they can do many, many more things. And that's where you start to see the mission creep, right? I think if I had to to pick up a date, it would probably be the LTCM debacle and Greenspan doing these insurance cuts and then baiting 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 and then.

• 50:27Demetri Kofinas?

  Because that also reinflated the dollar carry trade.

• 50:29Speaker 01

  Yeah.

• 50:30Demetri Kofinas?

  That kept it going, that kept the system going.

• 50:32Speaker 01

  Yes, this idea that, you know, it's kind of, you know, the Fed put, right? That's, that's when these things started to appear. That's almost like a fourth mandate. And it's, 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 and then, I mean. We've come back on it, but they were talking about putting climate change. I did the ECB, for example, is and the Bank of England are trying to keep the planet's temperatures from preventing it from rising by more than two degrees. I mean, how you do that with the overnight rate on bank reserves? I don't really know, but so you had this basically giant mission creep that was enabled by this low inflation era,

• 51:14Speaker 01

  which then creates the expectation that they should act. And I think that brings us to the current era where we had this policy activism, 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 that kind of Taoist version, trust that nature is healing, do nothings and things will get better. And 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.

• 51:58Speaker 01

  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, right? 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. The same thing with the Russian invasion and the shocks to commodity prices. I mean, we saw that in Europe, that Macron called that quoi qu'il en coûte, whatever the cost be. Oil 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 a policy by overreacting makes the problem worse

• 52:43Speaker 01

  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, 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 pressure on prices. 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.

• 53:31Demetri Kofinas?

  So the response function of policymakers and governments is one of the major changes that I think, you know, we have to really take into account when making projections about the future.

• 53:41Speaker 01

  And I, one thought that I had as you were talking is about that link between this hyperactive policymaking and aging, which doesn't seem, you know, that natural. You think old people are not going to be, you know, 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. You know, when you're in your twenties, you can compensate, right? There's a bad outcome, there's a recession. You have, you know, 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.

• 54:21Speaker 01

  They won't, you know, learn to code or whatever. So you need to preserve the system at all costs. You cannot allow the economy to form a recession, and more importantly, you can't allow asset prices to fall, because people are leaving off assets, because, you know, they no longer working. So I think that's one of the underlying drivers of these both. So on the fiscal side, it's 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 know, you're constantly, at the same time, being populist on the economic side of things to try to,

• 55:02Speaker 01

  almost like Iran in Argentina, where you try to like, 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.

• 55:18Demetri Kofinas?

  Right, 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.

• 55:27Speaker 01

  Which you can think is, I mean, I would think it's a crazy idea personally.

• 55:30Demetri Kofinas?

  And that becomes another political liability. Again, this is now a liability of the government.

• 55:34Speaker 01

  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 dropped by 50%, which is what the equity market will do, you know, if you let it to its own device, you know, every 10 years or so, you're gonna have a 50% drop. Imagine, you know, that if you told your 85-year-old grandmothers, "Oh, sorry, we're gonna have to cut your check by 50% because, you know, we adjusted the discount rate," and, 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 deal with the consequences.

• 56:18Speaker 01

  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.

• 56:26Demetri Kofinas?

  So Vincent, I'm gonna 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 in 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 gonna 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. For anyone new to the program, Hidden Forces is listener-supported.

• 57:10Demetri Kofinas?

  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/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, 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/subscribe and join our premium feed.

• 57:52Demetri Kofinas?

  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 @Kofinas and you can email me at [email protected]. As always, thanks for listening. We'll see you next time.