Michael Green - Macro Contrarian
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Bill: This episode features Michael Green. Michael is a Portfolio Manager and Chief Strategist at Simplify Asset Management. You can find him on Real Vision, many, many discussions on YouTube. He interviews all kinds of really, really big names in finance, and Michael thinks thoughts that I couldn't even comprehend, but I tried to keep up in this conversation. Michael has been a student of markets and market structure for nearly 30 years. His proprietary research into the shift from actively managed portfolios, and investment funds to systematic passive investment strategies has been presented to the Federal Reserve, the BIS, the IMF and numerous other industry groups and associations. He has unique thoughts on market liquidity, inflation, and how COVID will ultimately impact economic growth. I hope you all enjoy the conversation.
As always, none of this is financial advice. All of the information contained in this program is for entertainment purposes only. Please consult your financial advisor before making investment decisions and do your own due diligence. Thrilled to be joined by Michael Green today. Michael, how you doing, man?
Michael: I'm doing well. Yourself, Bill?
Bill: I'm doing well. I'm excited to speak to you. I have watched you on Real Vision for a long time. Huge fan of the David Einhorn interview, liked your entire Simplify Asset Management Conference that you put on recently. So, thank you for all the content that I consume.
Michael: No, it was absolutely pleasure and the exciting part is that, that conference was a tremendous success. We ended up raising slightly more than $40,000 for Coney Island Prep, which is a charity that both Josh Wolf and I are very close with. We're really excited to do it again this year, and so, we're going to be hosting it hopefully in person at the New York Stock Exchange this time, and we'll be able to have people attend, and not only donate to watch online, which we hope to do all over again, because that was really quite successful, but to have people come in person and attend dinners afterwards. The slowly reopening part is exciting.
Bill: Yeah, that's cool, man. How has it been to launch Simplify?
Michael: It's been an incredible experience. We launched in September of 2020. We're now slightly over about billion two in assets under management, we've got about 12 ETFs that are active with a host of new products coming out. In fact, tomorrow is the end of the quiet period on a couple of them. So, I can't entirely talk about them. But the exciting part is to start bringing the innovations that we've introduced on hedging in the equity space to do similar stuff and credit, etc. We're working hard to bring novel exposures to the marketplace.
Bill: That's cool. Something that I think you're known for, for people that that don't know, maybe we can give them a little bit of background, but the idea of The Inelastic Market Hypothesis, I was curious to hear you articulate it for people that may not know, and then also how it informed what you're building at Simplify?
Michael: Sure. The traditional way of thinking about markets is through the efficient market hypothesis, the idea that effectively markets reflect all of the available information. In general, that idea is predicated on a simplifying assumption about market behavior, which is that any new entrant into the market or anyone trying to put money to work in the market has a very limited impact on the price behavior of the securities in the market. You can understand how that works for the very simple observation that every buyer has to be matched with the seller. If I put money in by definition, you're taking money out.
The problem with that is, it fails to consider effectively the intensity of that action. If I go into the market with the intent to buy, and there isn't somebody who has an active intent to sell effectively, they have to be induced to sell. The only way that that can play out is through an increase in the price of the security. Challenging that theoretical construct of very little impact of any one individual player is the first dynamic that I brought to it. Since, I introduced my thinking in 2016, 2017, and initially did this in the volatility space with the volatility ETFs, which had much greater penetration of systematic strategies in the market as a whole. We started to see the academic support for this including the name, The Inelastic Market Hypothesis has come out basically in 2020, and the academic literature is beginning to explode on this idea. The individual actors have an outsized impact in the market based on the rules by which they participate.
The paper in particular that I would refer people to is Gabaix and Koijen. Xavier Gabaix and Ralph Koijen. Gabaix is at Harvard, and Koijen is at the University of Chicago. They've somewhat exhaustively documented the impact as being dramatically greater than you would assume under the traditional view of the efficient market hypothesis. The efficient market hypothesis would assume that me putting money to work in the market, a dollar that I add to the market has significantly less than a one-dollar increase in market cap, for example. That's the underlying thesis in the efficient market hypothesis. Gabai and Koijen's work would suggest that that multiplier is about five. Each dollar that goes in creates about $5 worth of market cap.
My work, which is further supported by some academic work from Valentin Haddad at UCLA suggests that you need to further bifurcate or segment the market into active management versus passive management. The critical difference between an active manager and a passive manager is that, the active manager has cash as their base asset. If I give an active manager cash, they have discretion as to whether or not they want to put that money to work. If I give them money to a passive manager, they are functionally and Valentin's direct language for this is, they are perfectly inelastic.
Bill: Yeah. They just buy.
Michael: They have to put that money to work in the market. The algorithm for a passive vehicle is literally as simple as, "Did you give me cash? If so, then buy. Did you ask for cash? If so, then sell." At what price? Whatever price the market will give me. So, that's having a huge impact on the markets.
Bill: The thing that rings out in my head and I don't know, I'm worried about this for a while and I don't know if we're seeing some of it now. I don't know where it's going to go, but there's so much anger for lack of a better term at the system and the haves and the have nots. One of the things that's bothered me about the passive movement is, you give your money to Vanguard, Vanguard just buys regardless of price. Who does the voting? You're not voting on CEO comp. That's outsource to Vanguard's people. Those people are almost always voting yes. It's like there's no oversight. Well, I shouldn't say that. That's hyperbolic but it seems there's less oversight than active usually would have had.
If it all goes bad, is this going to be one more, "Hey, the system's out to get everyone, rather than we all abdicated all our responsibility and just kept buying regardless of price." There's no other thing in my life that I think that I would just say, "Yeah, I don't care about the price, just buy." But it's such a large component of the equity market. I don't know, it confounds me.
Michael: The concern that you're articulating is one that I think has been reasonably well accepted as an issue. It's part of the reason why I would see is that you're seeing Larry Fink at BlackRock increasingly talk about dynamics like ESG. They're trying to get in front of this idea that passive management effectively is an abdication of the governance function. I'm actually much less concerned about that, because the simple reality is that, most active managers really don't take a particularly active interest in proxy voting, etc.
Bill: Okay.
Michael: We've had this issue, this agency issue is what it's referred to, between the owners of publicly traded stocks and the management teams for years, and years, and years, literally decades. [unintelligible [00:10:08] of, I believe, it's the Shareholder Institute, but she has been one of the leading advocates of improved governance, etc. I'm not convinced that that is actually the single biggest issue. I think the much bigger issue is this dynamic of at what price do you allocate capital?
Bill: Yeah.
Michael: If your presumption is that you are going along with the crowd and you yourself have no underlying impact on the market behavior, then it can lead to very different conclusions about your influence on the market, then if you actually do have an impact on it. The entire regulatory apparatus that has emerged, the entire narrative that has emerged around the passive space is that it is beyond harmless, it's actually helpful, and it is the best solution for the vast majority of the public investors who don't want to take a particularly active stock selection bias within their portfolios. It's just presumed, again, because of the dynamics of the efficient market hypothesis that the underlying feature of the market is going to be that the active players continue to drive the bus and make the decisions when you have a "passive." The language is perfect. I'm a passive investor, I have no influence on the market. Well, that's just not true.
Bill: Yeah.
Michael: You actually have a compounding and exponential influence on the market as you become larger and larger in mass, and in particular, when you start to introduce vehicles, like, target-date funds, that systematically rebalance and systematically allocate simply based on your age or your expected retirement, you're increasingly creating conditions under which everybody ends up behaving in exactly the same way.
Bill: Yeah, the same time, right?
Michael: The same time. It drives really perverse. Conclusions on the market that go beyond simply, does Microsoft or Apple get a continuous bid from Vanguard. It also influences things like the information source, the flows to the market in the form of borrowing costs, because as Vanguard and BlackRock become larger and larger, the primary source of their revenues is the securities lending operation, when you're operating at the scale that they are, for example. It can give the perception that there's an unlimited number of shares that are available, and the sophistication with which they approach this, I would argue Vanguard is worse than BlackRock. But the sophistication with which they approach those issues is much lower than the Goldman Sachs and Wells Fargo instead of the world that used to dominate these types of markets. It creates conditions similar to what we saw with GameStop or what we saw with AMC, where once you've exhausted the short supply, the securities lending that's coming from a player like Vanguard or BlackRock, prices can change radically. Suddenly, there's an exponential feature, a truly convex financing relationship emerges in the market that causes the types of dynamics that we've seen.
Bill: In what way are they less sophisticated? I'm just not familiar with the dynamics of how Goldman and Wells used to run their lending operation versus you know what Vanguard's doing?
Michael: The scale of the operation is dramatically different among other things. If you're a Goldman Sachs and you have, let's say, 1% market share of the total asset base, you actually develop a skill in sourcing securities for lending operations, not just through your own activities, but also through other desks that you're in communication with around the street, right?
Bill: Yeah.
Michael: As a security starts to be borrowed, it becomes increasingly clear that it is becoming special in its characteristics. It's harder to find the marginal player to lend that to you, and the price of borrowing can begin to rise in a somewhat gradual fashion. But when you introduce a player like Vanguard or BlackRock, who has far fewer restrictions, and has almost no incentive to go out in source, because there isn't a broader client service relationship, particularly on the shorting side, like, there was really Goldman Sachs or Credit Suisse with the hedge fund environment, you actually create conditions in which they lend out the shares that they have available. But the minute those are lent out, then the system suddenly finds itself without additional sources of supply, certainly, not additional sources of supply in the scale at which Vanguard or BlackRock make it available. So, prices can rise very, very quickly.
Bill: Ah, if I'm understanding it correctly, is it almost as if they're at such scale that they're operating in silos, and the cost to borrow almost doesn't really move until it snaps, and then it goes straight up or whatever?
Michael: That's exactly the right way to think about it.
Bill: Ah, that's interesting. If you take The Inelastic Markets Hypothesis its logical conclusion, once people start withdrawing, what might that do to volatility and a follow up to that, if you can think about both at the same time, are we seeing some of that now, because some names are just like the volatility within the index does not match what's going on on the surface?
Michael: I think that's exactly what's happening. A market should be thought of almost like a Moroccan soup, where you go in and you decide, "Okay, I want to try and buy a tea set, or I want to buy a carpet, or I want to buy X, Y, and Z." If there's tons of individual vendors, each of whom have small supplies, it's relatively easy for you to negotiate against the vendors. To go into that market and say, "How much are you charging for a rug and how much are you charging for a rug?" If you go to many less developed regions around the world, you'll explicitly find that they set up markets like this. All the cell phones are sold in the same place, all the rugs are sold in the same place. Why? Because it actually facilitates that transaction activity of negotiation. I don't have to travel across the town to compare prices for cell phone plans or for rugs. I can do it right next people and it creates a competitive environment.
But if you think about that same dynamic and you go into Walmart-- if I go into Walmart and I'm not entirely sure what the right price is for a cell phone unless I have access to my phone, and I can check prices, and do all that. It certainly facilitates it but it creates conditions under which you can have things like loss leaders that draw people in for particular goods and then you charge premiums for everything else, right?
Bill: Yeah.
Michael: We're increasingly becoming that type of market in the stock market, where the vendors are becoming increasingly consolidated. The quantity of shares that are available from any one player becoming less and less. In the same way that you think about the impact that Walmart has had on the global purchasing and global sourcing environment, where they can make or break any one individual to having the same impact on the securities market, where inclusion in an index that Vanguard is buying can cause your stock to explode to the top side. The much less common environment is that Vanguard starts to sell. If that happens, we don't have a lot of examples of this. But I would highlight a few examples where we have seen this.
For example, in August of 2015, Vanguard changed the structure of their target-date funds, reduced the allocation to US equities, and increased allocation to international bonds. That's what we think that crash that was associated with that we think that was a function of China devaluing their currency. That's not what happened at all. China devalued its currency five days before that crash. The news traveled on the slowest boat I've ever seen like, it's just doesn't happen, right?
Bill: [laughs] Yeah.
Michael: So, we construct a narrative that says, "Oh, of course, this is why it happens." But the reality is that, that was a very specific event.
Bill: Yeah, it's interesting. As you're speaking, I'm thinking about, if you're a fish swimming in water and the tide is rising, we're all looking at securities, at some point, relative valuation, I think matters a little bit unless you're just going to be the guy who's screaming at the sky saying, "I need this." If Vanguard is pulling prices up and everybody's looking around like, "What else can we buy," you're almost in a way forced if you want to take risk and being undercompensated relative to maybe you would want to in a vacuum?
Michael: Well, and also, I would suggest if you're going to be a "value investor," you have one or two choices. You can either step out of that rising market and into cash that yields nothing. Under that scenario, if you happen to be right and you happen to get a market crash, well, then you'll attract assets and you may have an opportunity to promote your view for a while. I would broadly argue that's exactly what happened to hedge funds from 2000 to give or take 2011 was, they happen to be in the right place to capture the dynamics of the dotcom collapse that led to the perception that shorting was an incredibly important part of the market. That completely destroyed everyone from basically the end of the global financial crisis through March 2020. Anyone who tried to short underperformed dramatically.
The second thing that I would highlight about that dynamic is the other thing that it forces people to do is try to create relative value opportunities. That almost inevitably takes you down the quality chain to an extraordinary degree. I was on a Twitter Spaces yesterday, where I'm listening to people talk about cheap fertilizer companies and cheap energy companies trading at 10 times, EV/EBITDA. 10 times the EV/EBITDA for a cyclical commodity company, I don't care what the overall quality of the assets or the market position is, etc. It's my dog wandering around behind me. That is not cheap.
Bill: Yeah. Especially, when you're talking about cyclicals and commodities, that EBITDA can move around on you real quick.
Michael: Very quickly.
Bill: Yeah. I sometimes wonder if that's why we've seen the-- Look, I think fundamentally, when you look at some of the big names in the indexes, it's impossible to argue that earnings growth and cash flow growth is not driven a lot of the results. But I do wonder if some of the valuation disparity industry like within industries, I just wonder if some of the really ugly ones are the ones that are looking attractive, because there are no great options in people's minds or maybe the quality appears to be undercompensated, but at the same time the cheap is cheap for a reason and just completely-- I don't know where I'm going with this, but it seems to me-- [crosstalk]
Michael: I literally was just having exactly this conversation internally with individuals at Simplify. This broad narrative that says, "Microsoft is ridiculously expensive or Apple is ridiculously expensive." To be clear, I think they are ridiculously expensive. But if I'm comparing an Apple versus an unprofitable, levered cyclical commodity shipping company that is currently benefiting from the fact that all of the supply in the world basically needed to squeeze through the ports of Long Beach and Los Angeles, man, I just don't see it.
Bill: Yeah.
Michael: I just don't see it.
Bill: Yeah.
Michael: People tend not to appreciate this, but I pulled up Ford Motor Company the other day, which is one of the largest companies in the junk index. Yeah, it's had a success with the recent Mustang, and it's getting some progress in terms of electric vehicles. But the reality is that, we're facing a once in a generation switch in the auto space. Ford is trading at the highest valuations that it's traded at since the global financial crisis on the back of massive shortages that have inflated prices that are beginning to break.
Bill: Yeah.
Michael: It's not household formation has exploded, it's not demand for cars is off the charts. No, there're shortages of supply that are manifesting, it's often short-term spikes and profitability. But we're nowhere near the conditions that people would look at and say, "Oh, man, I just can't wait for the auto industry to really take off."
Bill: Yeah, well, it reminds me of your conversation with David Einhorn when you two were talking about the auto industry and I forget who made the comment, but it was just because a profit pool is being disrupted does not mean that the disrupter captures the profit pool. The profit pool can disappear.
Michael: That's the more common outcome, unfortunately, right?
Bill: Yeah.
Michael: The more common outcome is that you have, the dynamics that you had with an Amazon, for example, which has eviscerated the profitability of the retail sector, even as it's effectively camouflaged its own profitability with the dynamics of AWS. Are they really attractive aspects of Amazon? Absolutely. Did the disruption lead to all the retailers being better than they've ever been before? By the way, I actually just pointed out on Twitter, the dynamics of Dillard's Department stores, which is one of the names that David and I were talking about. The fundamentals of Dillard's are not good.
Bill: Yeah.
Michael: The fact that they're buying back their shares with being facilitated by an employee stock repurchasing program, one of the few that remains where 37% of the stock is now owned by the employee stock ownership plan. That just sounds like-- I want to be clear, I don't have any indication that there's malfeasance in the form of Conrad Black, but man, the internal management team and the founding family selling shares into an employee stock purchasing program, that's not a good look.
Bill: Yeah, it can be tough, especially at high prices, right?
Michael: Right.
Bill: Yeah. I thought some of the comments in the in your conversation with David were interesting, especially knowing your background as a value investor is how you came into the industry, right?
Michael: Yeah.
Bill: It's amazing to think about one, the disincentive to invest in a company when the shares are forgotten by the index, because the return on your buyback is so much higher than the return on invested capital that could be generated. Then two, when he was talking about Dillard's, he was just like, "The stock just didn't go anywhere," and then they just bought so much of it that there was none left, and then at 6x-ed. It's just interesting these orphaned assets, and how long they can remain orphaned. I think the comment that he said is, "If you do good work, the world should work in the way that you earn a reasonable rate of return, and then you get a rerating at the end." But that has not been the case for the last five years. It's been just constantly looking at holding saying they're not going anywhere. I think you guys referred to it as nihilism. Do you think that a lot of the indexation, is that driving a lot of this behavior that some value investors I think, as a class are noticing?
Michael: Yeah. I absolutely think that's the case. I actually was just doing an analysis and just want to emphasize. The guys at Horizon asset, Murray Stahl and his crew are fantastic analysts, and have caught any number of market trends over the years. They have also been proponents of the idea that passive is distorting market construction. One of the names they're best known for is TPG, Texas Land, right? I think that's what it's called.
Bill: Yeah, it's a land trust, that buys back shares all the time.
Michael: Right. That exploded in the post-COVID environment.
Bill: Yeah.
Michael: The irony is that, the reason it exploded was because it was finally included in a Vanguard Index.
Bill: Oh, I didn't realize that.
Michael: If look at who the buyer was, it's Vanguard.
Bill: Huh.
Michael: On the flip side of that, the point that I was making with Dillard's is actually what you're now seeing is the price was spiked upwards by the dynamics of people-- the Vanguard [unintelligible [00:27:38] of the world not selling. But once you cross a certain point in terms of insider ownership and the ESOP crossed over that level alongside the other insiders, it's now being ejected from the indices. Vanguard is actually selling into an environment in which all the hedge funds have suddenly rushed in and saying, "Oh, wow, look at the benefits of Effective Capital Management." I just think they're going to get trapped.
Bill: At the same time, that the employees are buying. That sucks or could suck.
Michael: It's tough to imagine something worse than being a retail employee in a dying business, where the primary asset in your retirement is the ownership of the corporation that employs you.
Bill: Yeah, and your bid just went away and turned into sell.
Michael: Turned into a sell.
Bill: It's wild to watch the C corp conversions because you see that too. It's the second that they can get index inclusion. The big asset managers are the prototypical example. But I've seen it now in a couple things. It's wild, man. It doesn't feel it should be this way, but maybe-- I think you would argue, it hasn't been that way. As someone who's not a historian, sometimes, I find myself saying, "Maybe it's the same as it ever was," but it feels different to me.
Michael: It definitely isn't and that's actually part of the reason why I highlight this so much is that, we have never experienced anything like this, we've never experienced this degree of concentration of ownership in public equities. Everyone is used to the nonsense line that you hear from the [unintelligible [00:29:17] type stuff, which is the top 1% owns 90% of the equity in the United States. That's just not true. The reason we're getting that data is because they're conflating public and private ownership. The data is being drawn from the Feds flow of funds in the balance accounts, and in there they're making an estimate of the value of privately held businesses. Well, I think the technical term is, "No shit, Sherlock. Business owners own businesses."
Bill: [laughs] Yeah.
Michael: The top 1% by definition, if they have a ton of business equity are going to own most of it. But the publicly held securities are increasingly diffused and spread out amongst the public ownership, whether that's Vanguard, which doesn't have anywhere near that that type of concentration of ownership, public pension plans that are mimicking the behavior of Vanguard through cheap beta indexing, etc. We're basically engaged in a giant offload, where the insiders are continually selling and issuing themselves options, they're then using cashflow to repurchase and support the share prices. I guess this is a crazy system that is set up to create distress if it breaks. My view is it's going to break.
Bill: I can hear people in my head and maybe I'm wrong, but I can hear people say, "See, this is all the Feds fault, because if rates were higher people wouldn't be so crowded into equities." How do you view rate normalization and the Feds role in all of whatever we see going on? Is that too broad of a question? It could be.
Michael: It's a really broad question at [crosstalk]
Bill: Feel free to redirect.
Michael: Yeah.
Bill: [laughs]
Michael: The reason why I'm pausing is because I'm not entirely sure I agree with the statement.
Bill: Yeah. I'm not sure I do either.
Michael: Yeah.
Bill: I'm more asking.
Michael: The first point that I would make is absolutely people would be shouting, "Yeah, this is all the Feds fault." The reality is no. It's not all the Feds fault. The Fed certainly plays a role in enabling and facilitating this, but in large part, I would argue that they're forced to, because the US pension system is now intimately tied up with the S&P 500 or the Vanguard Total Market Index. When asset prices fall, the potential future purchasing power for a sizeable fraction of the US population can get eviscerated, and that creates conditions of almost certain recession, which is against the Feds mandate. So, they're forced into a reactionary mode against this.
The second thing though that I'd highlight is is that, I think people broadly misunderstand the role that the Fed plays in driving this behavior. Most people would argue that the dynamic is that the Fed lowers interest rates that makes equities relatively more attractive than bonds, and therefore people go off and buy equities rather than bonds, right?
Bill: Yeah.
Michael: But that's actually not true. What we're seeing is, is that household ownership of bonds, institutional ownership of bonds, etc., is expanding a pace. We're seeing increased levels of fixed income investment as America ages. I would broadly argue that the dynamics of a financializing economy is actually a function of people wanting more debt as an asset to hold debt as an asset that facilitates their retirement through fixed income payments, then is actually warranted by the dynamics of the underlying economy.
Bill: Can you repeat that once more? I just want to make sure that I understand what you're saying.
Michael: The process of financialization in an economy, I would broadly argue, is a function of there being more demand for debt than there is actual demand to issue debt.
Bill: Because there's more demand for the debt, it enables the people in Wall Street and the buyers of those-- there can be more securitization than there may be otherwise would be if there just wasn't as much, I guess, demand for the paper.
Michael: We have an aging population and slowing population growth. When you have an aging population and you have relatively low inflation, and by relatively low, I don't care whether it's 1% or 6%, those are all relatively low levels of inflation. 6% may not feel that low right now, but it's relative to many periods in history, it's actually quite low. When we think about what is actually going on, the older generation is very much saying, "I need to own financial assets, make them available to me." My strong preference is for fixed income assets, because I don't want the volatility and risks associated with owning equities.
Bill: Sure. I want to be able to plan my retirement.
Michael: Right. As somebody who was involved in financial planning, you fully understand the benefit of a fixed income security that has a defined maturity, etc. It helps you to ladder a series of cashflows, it allows you to structure your retirement with a degree of certainty. Under those conditions, what we're seeing as corporations issue debt to retire equity. They have become the buyer from the baby boomers. Vanguard happens to be participating as well, private equity is doing the same thing. They're manufacturing debt that is being sold into fixed income indices, and the bigger you are as an issuer, the better your chance of representation within the index. [crosstalk] The fastest theory of growth in passive is actually fixed income.
Bill: Yeah. The crazy part of that dynamic, but for swoon in 2007 to 2010 or whatever is all that demand reduces all the covenants. There's so much covellite paper out there and there's this perception of security because it's a bond, but it's like, yeah, but for a payment default or a refinancing default, there's not really that much protection in a lot of the stuff.
Michael: In many situations, even with that, there's not that much protection. Many have [crosstalk] documents have very few restrictions against priming a technically secured piece of paper. You can transfer assets into another trust that allows you to issue additional paper that supports the salaries and wages that are being received by the management team as they zombify an asset. We're seeing an extraordinary rise in zombie assets.
Bill: Yeah. I think generally what worries me about passive generally and maybe this has just always been, but I just worry that there's not enough people watching what they own and we'll see how it all turns out. I don't know. One thing that I do want to circle back to because you're one of the few people and I tend to be in this camp, but that's not hammering the inflation bug right now. You referred to inflation is relatively low and I think certain people that listen, maybe screaming when they hear you say that.
Michael: Yeah.
Bill: How are you thinking about inflation these days?
Michael: The way I describe inflation is, inflation is effectively friction within an economy. We did something really unique in 2020. We decided as a global economy, let's just take a long nap and we shut the entire thing down, people basically climbed into their beds, and now we're slowly waking back up. When you wake up, even though you're "well rested," there's some stiffness and soreness in your joints. That's what inflation is. It also has a unique characteristic because of the way we chose to conduct our shut downs. We shut down much of the supply and the capability to service things in the United States, which tends to be the service component of it.
If you're consuming in the United States, you tend to consume domestic services in the form of, "I go to a restaurant, or I go get a nose job, or send my kid to school and consume the services associated with education." We took away almost all of the spending in the services sector and we shifted it towards the goods sector, which is being shipped to us, again, through basically the ports of Long Beach and Los Angeles. It's the equivalent of the crazy rush that happens when you try to open up the gates to the stadium for a concert. It's not that the stadium is over full. It's the process of filling the stadium is chaotic, and feels highly frictioned, and you're bumping against people, etc. That's what the inflation experience that we're going through today is.
The underlying demand is really not very high. We're not selling more cars. We're trying to build more houses, we're trying to build more multifamily units all of a sudden, but these are not extraordinary outcomes. In 2005, I believe we built 2.3 million new houses. I think this time around, it's 1.6, something like that, right?
Bill: Yeah, right around.
Michael: It's not actually that the economy is being stressed, it's that process of waking back up and that stiffness in the joints, that's the friction that we call inflation. We're already beginning to see fairly significant evidence that that inflation has done exactly what it's supposed to do, which is destroy purchasing power, and lead to significantly reduced real demand for goods and services.
Bill: Yeah.
Michael: When that happens, we're going to find that the process of getting things up, and going, and running, and moving smoothly, etc., we're going to be oversupplied and stuff. We will see downward pressure on the inflation rate. I also think that there's been a very substantive and I would argue almost willful misinterpretation of the term transitory. People's broad interpretation of the term transitory feels to me like they're saying the increase in price level itself is going to be transitory. I don't think anyone has been arguing that. What I think people have broadly been arguing is that the increase in the rate of price change towards that 6%, 7% level that we've seen recently that that will be transitory. We may be at a permanently higher plateau in many types of prices, and that tends to be the case because the menu effects, sticky prices, wages, and wage dynamics, etc., but the evidence for continued acceleration of those prices is just extraordinarily weak.
Bill: Huh. It makes sense to me because I was just looking at what we've been going through, coming through a decade of slow growth. I think about it and I say, "Okay, well, how can you go through that, come out with more leverage in the system and fewer bodies? How can inflation stick?" It's been something to me that is felt as though this is maybe-- I don't know how to handicap how long waking the system up will take. But look, two to three years may be really tough after that, back to the trend line, at least from a pressure standpoint, I think the deflationary pressure is-- [crosstalk]
Michael: Yeah. I would actually argue that the odds are very high that the pressure that has been experienced creates conditions under which there is lower aggregate demand than we would have otherwise had. The cure for high prices is high prices. Why? Because it forces two things. One is a rejiggering of supply. That's what the incentive for productivity improvements are, can I figure out how to make more with less?
Bill: Yeah.
Michael: I use less aluminum in the manufacture of an air conditioner. Can I use less copper wiring in a refrigerator or in an electric car? The incentive to use less is dramatically higher when you have high prices. You set loose your engineering team and they figure out how to rejigger and redesign products, so that you use significantly less of the raw material. Whatever you we're seeing that very explicitly with the changing characteristics of fuel efficiency in the same way that we saw in 2005, 2006. It takes a long time for that to work through, but now we're beginning to see an explosion of electric vehicles for example.
Bill: What did we see in 2005, 2006? Just because I don't know what you're talking about,
Michael: Oh, in 2005, 2006, when we had the dynamics of the hurricanes that impinged on the refining operations in the Gulf of Mexico, we saw gasoline prices spiked to a level that changed the calculus of the auto industry dramatically. It actually created a momentary interruption in the dynamics of America's love affair with SUVs, and trucks and V8 engines, etc. Remember the Ford EcoBoost engines and the new Toyota Priuses that came out and everything else. Those create a structurally different demand curve going forward once you introduce those innovations. Of course, then we had low oil prices, and suddenly, people started saying, "You know what, I really want a 600 horsepower in my Mustang."
Bill: [laughs] Biggest truck possible.
Michael: That's we've seen. As my kids suddenly confront the idea of $5 gasoline and $6 gasoline here in California, they're like, "Dad, thank God, you got us an electric car." They used to complain that the thing could only go 100 miles, and now they're like, "I'm just the luckiest kid in the world because I don't have to pay for gas like all my friends do."
Bill: Yeah, that makes sense and they don't have to pay for much maintenance.
Michael: Well, they're my kids. So, they're not paying for me.
Bill: [laughs] Oh, that's nice.
Michael: I get to pay for that. But yes, you're right. But that dynamic tends to be underappreciated. I would suggest that a lot of the people that are super bullish on oil prices because of the supply dynamics, I heard it described to me the other day is like, world oil demand is the world's most stable picture and now that's just not true. Yes, it has gone up, but that has been a function of declining demand in developed markets, increasing demand in emerging markets, and now, we're facing conditions where many emerging markets have seen their currencies depreciate, they've seen significantly negative terms of trade dynamic as they've lost tourism dollars or other development dollars associated with coronavirus in many situations because of onshoring that's happening in the United States or other areas around the world. You're creating conditions where you're seeing the same thing that happened with the oil price increases in the aftermath of the global financial crisis, the Arab Spring was really about rising energy prices, creating conditions of hopelessness. That's what Kazakhstan is about right now. That's what just happened in Uzbekistan, where they cancelled the removal of subsidies.
We're seeing all of this stuff play through in a fairly predictable and structural way that is likely to lead to structurally lower demand going forward. That's before we begin to address the terrible demographic implications of coronavirus, which has exploded the cost of raising children. The minute you decide to have kids in today's world, you're taking on the potential reality that that kid can mean you can't go to work. To a degree, you've never seen before. That is a very tangible increase in the cost of having and raising children with incredibly predictable effects on fertility rates.
Bill: Yeah. You think people actually are making decisions in that way?
Michael: 100%.
Bill: Wow. I'm surprised people are that rational. I can tell you somebody that has kids, quarantining with them for two weeks is not the most enjoyable experience, though I love my children. [crosstalk]
Michael: You are the one.
Bill: I've got three days in me of quarantine and then I start to lose my mind.
Michael: Honestly, if you remember the initial dynamics of two weeks to flatten the curve was like, "Oh, man, we're going to have a baby boom." But when two weeks, that's probably true. If we go back and we look at the dynamics, man those first two weeks, I would guess that Americans had an increase in sex, etc. But there is no better birth control than having to spend six months locked up with your partner.
Bill: [laughs] Oh, I don't mean to laugh, it's true. [laughs] Yeah. I hadn't thought of that aspect of it. I have thought of just how do you lose 700,000 people and come out with more aggregate demand. That's just tough for me to fathom.
Michael: That is actually very straightforward. I think that there's been some really interesting stuff around that. One, the population that we lost largely consumed and this sounds terrible, but 85 plus percent was grandma, right?
Bill: Yeah.
Michael: The reality is the grandma consumes a lot in terms of medical services and we've seen the demand for medical services fall outside of the immediate treatment of coronavirus, demand for medical services is significantly lower than it was before, so you're seeing an impact of that there.
Bill: But you're sending it to people that are spending more.
Michael: Yeah. Then the other thing that we saw is that there is a segment of the US population that was fundamentally very stressed in terms of their desired acquisition of goods, in particular leisure goods, things like RVs, and jet skis, etc., Clearly, there was unmet demand in terms of people had an inability to spend the money that they wanted to and that shouldn't be a surprise. We change the dynamics of financing, we increase the requirements in terms of credit quality and scores and limited a lot of people from accessing credit, who historically would have been able to in 2004, 2005, because they were able to buy into a house that then gave them access to a home equity line of credit that then allowed them to go out and buy various stuff that they wouldn't have been able to before.
Suddenly saw that there was significant untapped demand associated with that. We gave money to the lower income segments of the US population disproportionately in a very progressive manner this time around and it supported demand. That's what that's telling you. The stress that people are telling you that they're feeling at the lower end is very clearly matched up with reduced purchasing power versus what that reduced purchasing just to emphasize versus what they would have historically wanted to see. So, I'm not surprised by that dynamic, but I am surprised that people expect it's going to continue.
Bill: Yeah. I guess, what I'm trying to say is, once the snake swallows the pig or whatever on the other side of it, I do think that my brain was not connecting if the grandma then passes her money to a 40-year-old that's got kids or whatever that you could have more velocity of spend in the short term, I guess, but I don't know. I find it hard to believe that we're in a perpetual state of inflation worry. But you can't turn the news on without it.
Michael: Yeah. I think it's very easy for people to get extremely excited about the end of the world precisely because the end of the world is a once in a lifetime event, right?
Bill: Yeah.
Michael: If all hell starts breaking loose, do you expect us to talk about box scores? No. Let's talk about things that really matter, man. Let's have intense meaningful conversations. People are exhausted of that now. My guess is that when prices fade away, you're not going to hear the jubilation and the celebration of Powell and others on the Federal Reserve and I'm saying, "Oh, my God, they were right. It was transitory after all, it'll be." They were saved by x. Can't possibly be that they did a reasonable job.
Bill: Yeah. Along those lines, you had mentioned that you thought the market was maybe too excited about rate normalization. How would you articulate that?
Michael: Let's go back to the dynamics of the inelastic market. Part of what transpires is when people begin getting excited about the idea of much higher interest rates, they start expressing that in the market and the process of expressing that in the market actually causes those interest rates to rise, because if I'm shorting bonds, that's going to cause interest rates to go up. It's particularly true if I'm using derivatives to short them, because I've then introduced a profit margin associated with it in which a Delta hedge from the market maker is actually driving the dynamics exactly as we've seen with gamma squeezes, etc., in the equity markets.
I think a big chunk of what we've seen at the start of this year is effectively a re-initiation of many of the steepener-type trades and bond shorts that people had tried to put on last year and started to get forced out of starting in basically February, March of 2021. The disastrous year that people who bet on steepeners had that came to an end and now they're shooting again. That's then supported by the fact that the Federal Reserve feels backed into a corner. This is all well and good to say inflation is transitory until a 6% or 7% print comes along, and then the politicians say, "Fix this problem now, we've got midterm elections coming, what the hell is wrong with you?" I would point out that the flattening of the curve, the inversion of the Euro dollar surface in some areas is suggesting that the market is saying, "Yeah, the Fed is going to be forced to for political reasons engage in tightening activity, even as the economy is weakening both the fiscal impulse turning negative and the general exhaustion of increased purchasing power associated with the higher prices, we saw that play out" at Christmas time. We already know that it was a disappointing holiday season. Well, everybody thought it was going to be this off the wall, incredible picture. It just didn't happen.
Bill: Hmm. Yeah. What is somebody that's putting on a steepener? What are they thinking? They're thinking that long-term rates are going to go up because usually it's got to be real growth or this is we're getting into language that I'm not familiar with.
Michael: Yeah. Steepener is a bet that long-term interest rates are going to rise more than short-term interest rates,
Bill: Yeah, the curve gets steeper, right?
Michael: Right.
Bill: Yeah.
Michael: The spread between a 10-year bond and a two-year bond widens, for example or a 30-year bond and a 10-year, a 30-year, and a 5-year, those tend to be the pretty typical implementations, 10s, 2s, 30, 5, etc. They're effectively betting on something like bond vigilantism. They're saying people who in the world would buy a 10-year bond under conditions of 6% inflation. I believe that the structurally higher inflation that is-
Bill: Is here to stay.
Michael: -[crosstalk] just playing through is going to manifest itself in the Fed being forced to hike much more than they ultimately have indicated they're going to-
Bill: Okay,
Michael: -that will be perpetually behind the curve. Whether that's true or not, we can't know yet is, I guess, the easiest way to put it but it is very interesting that if you look at the implied volatility in the rate space, the bets on significantly higher interest rates and the Fed hiking, six, seven times, hiking 50 basis points, etc., the market is being forced to price the potential for that in, again in the same way that the market in equities was forced to price the idea that, "Hey, maybe AMC will become the dominant entertainment vehicle of our time." Complete insanity, but if somebody buys a deep out of the money call option and you're a market maker, it's not your job to make that decision. Your job is to capture a spread. So, fixed income markets work as well.
By the way just to be clear, there're some really smart people, guys like Chris Rokos and others, who are betting on higher interest rates, and they could be right. It's possible I'm wrong. I don't think I am. The most important thing that I would point out is that the system of financing, so we tend to operate in a world in which we still think banks are the source of financing. There's a loan that I take out at a fixed level of interest or potentially even a variable rate of interest, and that creates a deposit, and with that deposit, I then make purchases, and those purchases in turn create a circular dynamic, etc., Unfortunately, that's really not the way our financing system works anymore. Our financing system largely works on the basis of financing against collateral.
Bill: Yeah.
Michael: Repo systems, etc. If you have a repo system, the most important interest rate ceases to be the tenure, which is all about long lived assets like mortgages, and instead it becomes about the overnight rate or the three-month rate, which is all about how much does it cost me to borrow additional assets to gain levered exposure over very short periods of time. That's where we've seen no change yet. The overnight rate has not shifted. The three-month rate is still sitting, I believe at three or eight basis points. Even as the two-year has risen dramatically over the past year or so. If I'm a corporation looking to refinance its corporate debt, my cost of financing has gone up a lot. But if I'm a hedge fund looking to hold bonds, or to hold equities, or to buy structured products, or to engage in the process of synthetics, security creation, that's cheap.
Bill: Interesting.
Michael: You just don't know what's going to happen when that changes. This is a novel situation. We saw the same thing in 2019 with the repo crisis. We just don't know what happens.
Bill: On a scale of one to 10 maybe, this is a better way to frame this. How do you think about the fragility of the world that we're living in right now? Is this abnormally fragile, is it pretty standard? It's got to be more than not fragile at all it seems.
Michael: Well, we are still very much at risk of an asteroid striking the earth and everything else. That hasn't changed meaningfully. The primary dynamic of leverage, the reason why leverage creates issues is not-- leverage by definition, all debt is somebody else's asset. You don't hear anyone run around and say, "Oh, my God, the problem is the world has just too many assets." But that is the core of the issue.? What the real issue is associated with too much debt is that failure to deliver against that debt causes large scale reallocation of resources. Debt has a change of control feature. If you stop making payments on that debt, I now get to take your asset in most situations or I can create a series of waterfall financing events that causes you to lose control of those assets. It's really the societal stress associated with that change in ownership that everybody's talking about and the inability to be prepared for it.
I think we're very fragile, because that's a social construct, that's a social issue that we're dealing with. The last thing we want to hear is that Americans are being forced to sell their homes to BlackStone. But that's the situation that we're in. If we encounter a significant slowdown, people will lose their houses and Vanguard, which doesn't-- Not Vanguard, I'm sorry. BlackStone and its various divisions that don't have to apply for a mortgage on any individual property can very quickly go out and buy up those assets in a manner that's not dissimilar to Crassus running roughshod over Rome in the late Republican era.
Bill: Yeah. I watched your interview with Peter Schiff and I thought it was an interesting back and forth when he was advocating sound money, and you said like, "Who gets hurt by all this?" I know his position is ultimately on the backend, everybody would come out better, but I thought that you made a good point where you said like, "Look, you and I are going to be fine, but the average person is the one that's going to get really, really hurt in the interim."
Michael: Yeah. Same thing applies to you. We have access to resources that most people don't. The single best financial-- I understand this makes me sound like an asshole, so I just want to emphasize this is not me speaking as a gloating individual, but for many who are members of the relatively wealthy class, the single best event that transpired was the global financial crisis. It created conditions under which I was able to purchase real estate quite cheaply, it created conditions under which you could buy many forms of assets at extraordinarily low valuations if you had access to cash and financing. Access to cash and financing was largely determined by your financial status.
Bill: Yeah.
Michael: Those types of events that's what people are really talking about when they talk about the corruption of a monetary system that ceases to be about facilitating access to things like housing for individual households, and increasingly becomes a collateral-based system in which the access to financing is largely driven by your lack of need of that financing.
Bill: Yeah, that's right. The other point that you had is you said, "Ultimately, I'm going to need a good credit score to get the access to the financing and we've already said in this hypothetical, the person that needs the credit is bankrupt or has given their house back, so they can't even get it." People, that's one of those rich get richer scenarios.
Michael: Correct.
Bill: Now, I guess, if I wanted to argue the other side, I'd say, "Okay, well, is it the Fed's responsibility or the government's to prevent that?" I'd say probably, it is actually.
Michael: I think that's the great irony is that, there is an element of yes.
Bill: [laughs] Yeah.
Michael: Yeah. We all talk about greedy banksters and everything else. I'm as guilty of it. By the way, I just want to emphasize, I think they are as greedy and bad in many ways as everyone thinks. But it's a little bit like the scorpion and the frog story, right?
Bill: Yeah.
Michael: You can't blame them for being scorpions.
Bill: Yeah, that's right. It seems to me that, well maybe I don't know. I like Austrian stuff in theory, but we live in the system we live in. So, you got to play the cards as they lay not as maybe theoretically it would be nice to have them lay.
Michael: Well, so the issue with Austrian-ism is one, it's predicated on a fundamentally false assumption. The money itself has to have an intrinsic value behind it. That's where the MMT guys are, and girls, but I just to emphasize I'm not being sexist in that comment. The proponents of MMT are correct in their description of the system. The problem is that, it is not proscriptive in terms of here's how you should use that power. You get all sorts of ridiculous proposals and I'm good friends with Warren Mosler and we've had these very explicit conversations funny if you do a Google, YouTube search, you'll find me chiming in to a 2012 debate between Bob Murphy and Warren Mosler and highlighting exactly this point 10 years ago, and saying, "Look, this is how the system works." But that doesn't mean that Warren's proposals of job bank guarantee by the federal government is the right answer. But what we do have now is the worst of all possible worlds, where people look at it and say, mansion would be a perfect example of this.
We can't afford to do x. That's just silly. You can absolutely do almost anything you want but there are implications associated with it. If you spend the money badly, then you're going to have bad outcomes. Rich people, who choose to use heroin have bad outcomes just like poor people who choose to use heroin. It's not about the money per se. It's about the decisions of what you do with the money.
Bill: Yeah, and I do think that there's a valid pushback that says like, "Once government gets this big and there's corruption that gets involved." I think I get both sides of the story.
Michael: The solution to corruption is to address corruption.
Bill: Yes.
Michael: It's not to say, we're going to get rid of all credit cards because we don't want to have corruption.
Bill: Yeah, that's a good point.
Michael: That's silly.
Bill: Yeah, that's a good point. [laughs] How did you go from a bottom up value guy to thinking all these big thoughts? It's cool to watch you on Real Vision, you interview all kinds of people, and you've got just a wide range of knowledge.
Michael: Well, so the dirty little secret is, while I was running a small cap value fund and selecting on the basis of individual securities, it was ultimately still a macro framework, where ultimately my view continues to be the vast majority of the return is associated with a sector or industry under most conditions relative to the individual's security. If you enter into a commodity market, it is more important that you own oil companies than it is which oil company you own.
Bill: Yeah. Everything is beta at some point.
Michael: What’s that?
Bill: Everything is beta at some point. Yeah, that's what things like the arbitrage pricing model, etc., assume that you have exposures to particular factors. That has unfortunately become more true in an environment of passive and ETFs, etc., where increasingly factor exposure is the much more important dynamic. What I loved about being on the small cap stock selection side, there was the exposure to management. I worked at a firm called Royce & Associates, which was after fidelity, the second largest owner of small cap assets at the time. Today, they're both dwarfed by Vanguard. But we had hundreds, literally, thousands of management teams that would come through and present their story in any given year. I had the opportunity to sit there and effectively build the database of knowledge that I would point out that somebody like Chuck Royce, the founder of Royce & Associates just has in an encyclopedic forum, where he can look at a business and be like, "Okay, this business is x. It is a high-quality business with a franchise, it is a rapidly growing market, where they have optionality on becoming the dominant player, it is a management team that is really good at capital allocation." You start getting the experience base that you can very quickly put together a picture of what a business really is, which is much more important than the dynamics of like, "Where are they headquartered and what was the compensation package for the CEO?"
The Warren Buffett aphorism, a brilliant management team, meaning a bad business, the reputation of the business survives is 100% correct. That's much less important than the ability to very quickly figure out, is this a good business, a bad business? What are the actual key performance indicators etc.? I missed that a lot, I really missed that. But unfortunately, I think it's increasingly irrelevant. As long as the key determinant of the next marginal buyer becomes-- Did the center for the research on security prices included in an index or what are the mechanisms by which it gets included in an index and how popularly distributed is that index, as long as that remains the key determinant, I'm not sure how much value there is in sitting in meeting with management teams.
Bill: It's interesting. I'm not going to say the name. I think he said it publicly, but it goes along with one of my friends looking for businesses that appear cheap and could get included in an index because that can become the Holy Grail.
Michael: We talked early on that you and I both know, Dan McMurtrie.
Bill: Yeah.
Michael: Well, you've seen me speak with on Real Vision. I love watching this because it is the classic markets are complex adaptive systems. Dan is one of the young portfolio managers that's out there that has figured out that 75 plus percent of the game is understanding who owns something. My good friend, Mike Taylor, who runs the Simplify Healthcare Fund came to the same realization in 2014 2015. He's like, "Yeah, definitely it matters is it a good healthcare company?" But what I care much more about is, is it a good management team running a fund that happens to own that, because if it's not, they're going to be a forced seller at some point and I can take advantage of that. I would broadly suggest that, that is the simplest definition of an active manager today, is a loser who is going to get fired. It took longer for Cathie Woods to figure this out then and for us to identify these dynamics with Cathie Woods. But the simple reality is, the minute the money starts leaving, particularly if you have reached scale, you become a forced seller of your best ideas causing them to become among the worst ideas in the market.
Bill: Yeah. Well, it's Janus all over again, potentially.
Michael: Janus would be a perfect example of that, correct.
Bill: Yeah. It's interesting, I saw earlier in the year, let's call it June, I guess last year, but a lot of my stocks were trading just the same day after day. They weren't even related businesses and I was like, "Okay, this is just one factor off." Then, now you're seeing a lot of these growth companies come down and they come down in tandem.
Michael: Yep.
Bill: I am warming up to the idea that factor exposure is way more important than I used to appreciate. I always appreciated it, but seeing what happened from call it June to October and then October to now, it has just been two such clear examples of rotation that it's impossible for me to ignore.
Michael: Yeah. I think that's right. I think that's part of the reason why you hear people talking about my theories, etc., because it's becoming increasingly impossible to ignore these dynamics.
Bill: Yeah. Well, it's what made me ping you. I was like, "Mike, I think I'm finally ready to talk about with you this." I think I actually get it now.
Michael: It is interesting because it is one of these weird things where people tend to think that when I'm saying this that I'm showing disrespect for active managers, I actually think the process of capital allocation, the detailed work that is done try to understand a business, to try to understand the incentive structure of a management team, to understand how the underlying fundamentals of the business are behaving, that's super admirable, that's what we should be doing, that's the way I want the market to get to, but it is not the reality of the world that we inhabit today.
Bill: Yeah. Give me one more chance to plug how Simplify solves this or helps solve it for some people. I know you have a number of solutions, but what are the problems that you're trying to attack through the business and how's it been to start it up?
Michael: Well, so, it's been a phenomenal experience. As I said, we've been very fortunate to have had our products well received. I think people genuinely understand that what we're trying to do is address this fundamental issue of market timing in the classic sense of, "Hey, everything's too expensive. Therefore, I should sit on the sidelines." It doesn't work in an environment of passive flows. The single best thing that you can do, and again, this is my analysis, the work that we've done supports this, the academic community is increasingly coming on board, etc., But the single best thing that I can do is provide people with tools that allow them to continue to participate in the market, while cutting off elements of that left tail exposure that could be catastrophic. We can do that in a variety of ways.
If The Inelastic Market Hypothesis is correct and the efficient market hypothesis is incorrect and I'm very confident that that is the case. But I just want to emphasize that's my work and a growing body of academic work that suggests it's true. It means that there are exploitable opportunities in nonlinear components of the market, things like auctions. So, our primary vehicles are largely around giving base index type exposures to the S&P 500 or to the Russell 2000, or to international stocks. We've started to introduce to healthcare stocks. I mentioned Mike Taylor, and create option overlays that we believe can add significant value to those underlying exposures.
That's really hard for in particular the registered investment advisor space to do. They all want to keep their clients invested, they all want to provide them with less risk to the downside in particular, because if you've hired an RAA, you tend to have assets that you want to protect. But the challenge is that, if you adopt the traditional approaches and say, "Well, we're just going to go long short, we're going to remove the market exposure, or we're going to hold more bonds and less equities." You're actually signing yourself up for is to get fired and your clients are going to fire you. It's one of the hardest parts of what's going on in the market is that, it feels the Christian expression is 'the meek shall inherit the earth.' Well, we've actually seen as the insane shall inherit the earth.
Bill: [laughs]
Michael: If you're willing to do what everybody else is doing just slightly nuttier, it's paid off in spades.
Bill: I like it. I think that's a good way that the insane shall inherit the earth is a great way to end this one. I appreciate your time and thank you very much.
Michael: There we go. [crosstalk] title of the podcast. Yeah.
Bill: Well, I give you something better than that. But people can find you everywhere, Real Vision. The content you have helped create on YouTube, I am very thankful for and highly endorse what you do, and I have mad respect for you as an interviewer, man. It's very cool to watch. So, thank you.
Michael: Thank you very much. I really appreciate that. If people want to check out more on our products, our website is www.simplify.us. If you have a registered investment advisor, direct them to that website. If you are registered investment advisor, feel free to reach out and you can always follow me or many of my colleagues @simplify on Twitter. We tend to be found there, Real Vision, YouTube, etc. So, Bill, thank you so much. I really enjoyed the opportunity to chat with you.
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