WEBVTT NOTE Navigating the Financial Markets with an Austrian Compass 1 00:00:00.000 --> 00:00:07.760 Our next speaker had a lot to do with making this thing happen today and I'm very, very grateful. 2 00:00:07.760 --> 00:00:17.360 He and I had more than a few conversations about this, both after our Houston event and then via the email. 3 00:00:17.360 --> 00:00:24.000 So he was really instrumental in making all of this happen today. 4 00:00:24.000 --> 00:00:41.000 He's co-founded Behring Asset Management in 2002 with his partner, Bill Lagner, and the Behring Fund has performed in the top 6% of global macro hedge funds. 5 00:00:41.000 --> 00:00:56.000 He's committed Austrian, attended Mises University in 1990, and has been a consistent critic of the credit bubble and all the players that were involved in that. 6 00:00:56.000 --> 00:01:03.000 And he's going to talk today about navigating the financial markets with an Austrian compass. 7 00:01:03.000 --> 00:01:06.000 Please help me welcome Kevin Duffy. 8 00:01:06.000 --> 00:01:23.000 Thank you, Doug. I'm really excited to be here and that we're actually able to pull this off and bring everybody together. 9 00:01:23.000 --> 00:01:29.000 I'm just thrilled. Bill and I started this hedge fund eight years ago 10 00:01:29.000 --> 00:01:42.000 And after navigating several bubbles, the housing bubble, the credit bubble, and now the sovereign debt bubble, and being a short seller through all that, I'm just excited to be able to afford a cup of coffee. 11 00:01:42.000 --> 00:01:49.000 But I didn't grow up wanting to be a short seller, an Austro-libertarian short seller. 12 00:01:49.000 --> 00:01:54.000 You know, I just wanted to make a good living, thought I wanted to be a doctor or a lawyer. 13 00:01:54.000 --> 00:01:59.000 When I think back on my career, I was really very fortunate. 14 00:01:59.000 --> 00:02:02.000 I had some very positive influences. 15 00:02:02.000 --> 00:02:10.000 My dad, who happens to be here today, is very entrepreneurial, always encouraged us to take risks, 16 00:02:10.000 --> 00:02:15.000 and even convinced me at the age of 13 to buy my first stock. 17 00:02:15.000 --> 00:02:19.000 I discovered contrarian investing after college, 18 00:02:19.000 --> 00:02:26.640 after learning a painful mistake in trying to buy technology stocks in the personal computer 19 00:02:26.640 --> 00:02:35.920 bubble of 1983 and I thought at the time I learned a very good lesson at an early age 20 00:02:35.920 --> 00:02:42.720 and maybe I could take that mistake and apply it and make sure others didn't make the same. 21 00:02:42.720 --> 00:02:48.400 I discovered Mark Faubour, who I'm thrilled is going to be here, the luncheon speaker 22 00:02:48.400 --> 00:02:49.400 today. 23 00:02:49.400 --> 00:02:55.320 And I discovered his interviews in Barron's in the late 1980s. 24 00:02:55.320 --> 00:03:00.480 And it was really a fascinating time because of the bubble, not only the bubble in Japan, 25 00:03:00.480 --> 00:03:06.920 but the mirror image of that, which was the idea that America was in decline and that 26 00:03:06.920 --> 00:03:12.680 at the end of the, by the end of the century, we'd all be working for the Japanese. 27 00:03:12.680 --> 00:03:18.280 But with all these influences, and really it was a stroke of luck that I had all these 28 00:03:18.280 --> 00:03:24.680 influences, probably the most important was discovering Austrian economics. 29 00:03:24.680 --> 00:03:31.120 And maybe the luckiest break I had was I didn't have any formal training in economics, and 30 00:03:31.120 --> 00:03:37.440 then so it was easier for me, I wasn't really hardwired towards Keynesianism or interventionism, 31 00:03:37.440 --> 00:03:41.920 I wasn't hardwired and I discovered Austrian economics in 1989. 32 00:03:41.920 --> 00:03:49.180 Lew Rockwell was on CNN's Crossfire with Pat Buchanan on the right and Michael Kinsley 33 00:03:49.180 --> 00:03:58.240 on the left. And this was the time of the Exxon Valdez oil spill. And I saw Lew actually 34 00:03:58.240 --> 00:04:03.720 defending Exxon with the common sense argument that they really didn't intend to dump all 35 00:04:03.720 --> 00:04:09.360 this oil off the coast of Alaska. And I thought, well, this is interesting. I really need to 36 00:04:09.360 --> 00:04:13.760 and you'll learn more about this von Mises Institute and Austrian Economics. 37 00:04:13.760 --> 00:04:22.460 So a friend of mine, Chris Scott, now Professor Scott and I, we attended Mises University in 1980. 38 00:04:22.460 --> 00:04:28.460 We went out to Stanford University and it was a week-long boot camp in Austrian Economics. 39 00:04:28.460 --> 00:04:38.860 And Joe Salerno was there, of course, Lew Rockwell, Murray Rothbard, Walter Block, Roger Garrison. 40 00:04:38.860 --> 00:04:43.660 and it was just an incredible eye-opening experience at the time. 41 00:04:43.660 --> 00:04:51.860 In the, let's see, to give you a sense of what we're going through in the late 1980s, 42 00:04:51.860 --> 00:04:59.860 it was really a fascinating time because of what was going on with Japan and the bubble in Japan. 43 00:04:59.860 --> 00:05:07.560 Austrian economics, I could sense as a contrarian that when you had housewives selling mutual funds door-to-door 44 00:05:07.560 --> 00:05:14.000 and you had million-dollar golf club memberships that there was something quite wrong with Japan. 45 00:05:14.000 --> 00:05:20.520 But the Austrian economics provided another way of viewing Japan, 46 00:05:20.520 --> 00:05:30.040 which was explaining the artificial, the bubble, the credit expansion that took place in the five years leading up to the bubble. 47 00:05:30.040 --> 00:05:35.640 But more importantly, it talked about the intervention, 48 00:05:35.640 --> 00:05:44.640 and the fact that the policies at the time were going to be very interventionist during the 1990s. 49 00:05:44.640 --> 00:05:53.640 As this bubble was bursting, the central bank, the Bank of Japan would intervene with lower interest rates. 50 00:05:53.640 --> 00:05:57.640 There would be Keynesian stimulus attempts. 51 00:05:57.640 --> 00:06:03.640 And so I started reading about America's Great Depression by Murray Rothbard 52 00:06:03.640 --> 00:06:17.640 and how this was essentially the difference between the 1920-1921 recession and the 1929-1930 recession was the first one was non-interventionist, the second one there was massive intervention. 53 00:06:17.640 --> 00:06:27.640 And what I thought it taught me was that Japan would just go through a couple of decades or decade or two of depression and stagnation. 54 00:06:27.640 --> 00:06:40.640 Another aspect of this was the idea of industrial policy, the idea that business and government could cooperate, that there was some kind of a third way between socialism and capitalism. 55 00:06:40.640 --> 00:06:49.640 And the Austrian School really showed that there was a fallacy with that logic. 56 00:06:49.640 --> 00:07:19.640 and I also came across at the time, there's a very interesting article by Jim Grant, it was called Bring Back the Bank Run, it was in 1990 and he talked about this system, the banking system, the fractional reserve banking system which was essentially socializing the risks and capitalizing the gains and that there was a 57 00:07:19.640 --> 00:07:26.520 change in the whole regulatory climate during the 1980s, and this really took place with 58 00:07:26.520 --> 00:07:35.960 the bailout of Continental Illinois in 1984. And so, as early as 1990, this too-big-to-fail 59 00:07:35.960 --> 00:07:43.440 doctrine was already in place, and people like Jim Grant and Murray Rothbard were predicting 60 00:07:43.440 --> 00:07:49.000 that this was an accident waiting to happen. So, when I discovered this, I thought this 61 00:07:49.000 --> 00:07:58.940 This was like discovering the Holy Grail, and I wanted to be able to apply this to investing, 62 00:07:58.940 --> 00:08:06.660 and I think Mises with this quote really sums up how to integrate the two. 63 00:08:06.660 --> 00:08:08.860 Entrepreneurial judgment cannot be bought on the market. 64 00:08:08.860 --> 00:08:14.360 The entrepreneurial idea that carries on and brings profit is precisely that idea, which 65 00:08:14.360 --> 00:08:20.040 did not occur to the majority, it is not correct foresight as such to yield profits, but foresight 66 00:08:20.040 --> 00:08:25.280 better than that of the rest, the prize goes only to the dissenters who did not let themselves 67 00:08:25.280 --> 00:08:29.120 be misled by the errors accepted by the multitude." 68 00:08:29.120 --> 00:08:31.440 And I think what he was saying was a couple of things. 69 00:08:31.440 --> 00:08:36.360 One is sort of like outrunning the bear. 70 00:08:36.360 --> 00:08:42.880 You don't have to outrun the bear, you just have to outrun the next person. 71 00:08:42.880 --> 00:08:48.240 And that it was avoiding the errors of the multitude. 72 00:08:48.240 --> 00:08:56.540 So if everybody else was following this incorrect roadmap, could we follow this Austrian roadmap 73 00:08:56.540 --> 00:08:59.440 and have an advantage in the marketplace? 74 00:08:59.440 --> 00:09:03.380 And I think it also says the prize goes only to the dissenters. 75 00:09:03.380 --> 00:09:09.240 It goes to, ultimately it goes to the nonconformists, it goes to the contrarians. 76 00:09:09.240 --> 00:09:15.960 So I was obviously very excited to discover this at a young age in my career, but there 77 00:09:15.960 --> 00:09:23.600 was a downside in all this. And it wasn't like discovering tomorrow's Wall Street Journal 78 00:09:23.600 --> 00:09:29.980 as Burt Blumer once said, it's okay to forecast the end of the world, but don't ever give 79 00:09:29.980 --> 00:09:35.560 a date. So this was like having the Wall Street, you know, not tomorrow's Wall Street Journal, 80 00:09:35.560 --> 00:09:39.560 A Wall Street Journal that really didn't have any date on it. 81 00:09:39.560 --> 00:09:41.960 So it didn't tell us about timing. 82 00:09:41.960 --> 00:09:45.760 This is a lesson that I learned and my partner Bill learned 83 00:09:45.760 --> 00:09:50.240 during the late 1990s in shorting the technology bubble 84 00:09:50.240 --> 00:09:54.760 is it just went on and on and it was absolutely brutal 85 00:09:54.760 --> 00:09:56.800 to be a short seller through all that. 86 00:09:56.800 --> 00:09:59.200 What are these two roadmaps? 87 00:10:00.320 --> 00:10:03.360 The lens of viewing the world. 88 00:10:03.360 --> 00:10:09.600 The way I see it is it's just an interventionist lens and a non-interventionist lens, okay? 89 00:10:09.600 --> 00:10:17.400 The interventionist, the non-interventionist believes that there is a natural order to 90 00:10:17.400 --> 00:10:25.640 the world, that there are correcting forces, that you have, the economy is a very, it's 91 00:10:25.640 --> 00:10:31.340 a healthy system, it's self-correcting, it's self-cleansing. 92 00:10:31.340 --> 00:10:39.100 The interventionist doesn't believe in that. He believes that the system is inherently 93 00:10:39.100 --> 00:10:48.740 unstable and it's prone to bouts of excess, of greed, of depression, and that it requires 94 00:10:48.740 --> 00:10:58.220 stabilizers. It requires punishing the greed, clamping down on the excesses when people 95 00:10:58.220 --> 00:11:04.700 Swing to the other extreme that we have to provide for aggregate demand. We have to have 96 00:11:04.700 --> 00:11:12.460 the government basically stimulate. So it's this constant trying to smooth out the ups 97 00:11:12.460 --> 00:11:24.140 and downs. The villains, if you are looking at the interventionist view of this, is the 98 00:11:24.140 --> 00:11:32.100 The villains are the short sellers. They're the critics. They're the non-conformists. 99 00:11:32.100 --> 00:11:37.500 If you're looking at the non-interventionist view, the good gut, the short sellers are 100 00:11:37.500 --> 00:11:42.940 actually the price discovery agents. They're actually checking. They provide a check on 101 00:11:42.940 --> 00:11:48.620 the boom because they are, they're selling first into the boom and they're trying to 102 00:11:48.620 --> 00:11:56.420 contain the boom. So it's really the Austrian view of this boom and bust cycle is that the 103 00:11:56.420 --> 00:12:06.700 sins are committed during the boom phase and the bust phase is the healthy cleansing part. 104 00:12:06.700 --> 00:12:13.420 The interventionist view is exactly the opposite. So empirically, there's a lot of anecdotal 105 00:12:13.420 --> 00:12:33.420 I think the first is probably the most obvious, that the system that we have that's been prone to all these accidents is a highly interventionist system, and that intervention was institutionalized back in 1913 with the creation of the Fed. 106 00:12:33.420 --> 00:12:57.420 Each crisis gets, this is not, if you bought into the interventionist view, that you have this unstable system just kind of bouncing around and it's somewhat predictable that we're going to have a downturn and then we come in with some new rules and regulations and we pave the way for the upturn, 107 00:12:57.420 --> 00:13:05.540 Then why is it that it's not happening in such a predictable manner that each crisis 108 00:13:05.540 --> 00:13:16.260 is getting greater, each response, each stimulus response is getting more massive, and even 109 00:13:16.260 --> 00:13:23.100 the frequency we're starting to get, these crises are coming closer and closer together. 110 00:13:23.100 --> 00:13:28.180 If you could look back at the tech bubble and of course at the end of every bubble bursting, 111 00:13:28.180 --> 00:13:32.860 we need to find scapegoats and of course the villains are always in the free market, they're 112 00:13:32.860 --> 00:13:35.340 always the short sellers. 113 00:13:35.340 --> 00:13:40.260 We just round up a few bad apples, blame it all on capitalism, pass a few regulations 114 00:13:40.260 --> 00:13:42.780 and go on down the road. 115 00:13:42.780 --> 00:13:46.980 That was somewhat easy to do during the tech bubble. 116 00:13:46.980 --> 00:13:52.940 It's becoming increasingly difficult as each of these bubbles burst and each crisis 117 00:13:52.940 --> 00:14:00.840 gets us closer and closer to the root of the problem, which is the Fed mispricing credit. 118 00:14:00.840 --> 00:14:08.140 It's the moral hazard of essentially mispricing risk. We keep getting closer. So in this case, 119 00:14:08.140 --> 00:14:14.940 the Fed has come under a lot more attack than it did, let's say, after the tech bubble burst 120 00:14:14.940 --> 00:14:24.060 in 2000. The regulation, the whole idea of regulation, if you were an interventionist, 121 00:14:24.060 --> 00:14:31.580 you predicted this crisis would have been, at the root of this crisis, hedge funds, relatively 122 00:14:31.580 --> 00:14:38.540 unregulated hedge funds. But in fact, at the root of this crisis were the heavily regulated 123 00:14:38.540 --> 00:14:44.620 investment banks and money center banks. In fact, the largest, the most politically connected 124 00:14:44.620 --> 00:14:49.680 Going back to what Grant predicted in Rothbard back in the late 80s and early 90s that this 125 00:14:49.680 --> 00:14:57.040 very unstable system in moving towards too big to fail, that those would be the institutions 126 00:14:57.040 --> 00:15:01.480 that would ultimately fail. 127 00:15:01.480 --> 00:15:05.860 The interventionists continually get it wrong. 128 00:15:05.860 --> 00:15:15.020 If, you know, an example of this was during the early part of 2007, the subprime, as this 129 00:15:15.020 --> 00:15:21.140 credit bubble built, the first cracks in that bubble were in the subprime area. 130 00:15:21.140 --> 00:15:27.260 And you had Ben Bernanke, Hank Paulson, you had all these interventionists coming out 131 00:15:27.260 --> 00:15:33.300 and saying, well, this problem is contained, we've got everything under control. 132 00:15:33.300 --> 00:15:37.380 And they kept on saying that, they kept saying that, don't worry, we've got everything under 133 00:15:37.380 --> 00:15:38.380 control. 134 00:15:38.380 --> 00:15:46.900 And then in the, and they keep coming in with bigger and bigger bailouts, bigger responses, 135 00:15:46.900 --> 00:15:53.900 Paulson coming in and threatening his bazooka, and he didn't think he would have to use it, 136 00:15:53.900 --> 00:15:57.340 but in fact he did have to use it. 137 00:15:57.340 --> 00:16:06.340 And the bailouts were basically sold as, if we don't do this, we're going to have an absolute disaster. 138 00:16:06.340 --> 00:16:11.340 Well, that was in the middle of September of 2008, and the market collapsed. 139 00:16:11.340 --> 00:16:19.340 Once they passed the bailouts, after the fact, the market collapsed in the fourth quarter of 2008. 140 00:16:19.340 --> 00:16:29.340 The interventionists continually lie about, not only, they lie, but they also lie about history. 141 00:16:29.340 --> 00:16:37.340 And here's an example of that. Jim Cramer, this laissez-faire has really killed us. 142 00:16:37.340 --> 00:16:46.340 And Hank Paulson, government intervention is not something I'm here to espouse, but it's better than the alternative. 143 00:16:46.340 --> 00:16:57.340 And then when they passed, when Paulson was asking for a $700 billion blank check from the taxpayer, I'm not looking for extraordinary power. 144 00:16:57.340 --> 00:17:13.340 And there's also the corruption of history, and I think this is one of the things that I learned from the Mises Institute was, you see this, Bernanke was the Time Person of the Year, which is probably a pretty good contrary indicator. 145 00:17:13.340 --> 00:17:43.340 and yet back in 2000 or 1999, Jeff Bezos of amazon.com was the person of the year. So it's a pretty good top indicator. But the language is always that Hoover was basically laissez-faire, that he didn't intervene, that he allowed, he allowed this to happen. It was basically FDR who came in and saved the day with the new deal. The reality is the Austrian 146 00:17:43.340 --> 00:17:50.900 Show is just completely the opposite that Hoover, and Hoover even wrote in his memoirs, 147 00:17:50.900 --> 00:18:02.060 he admitted that he was not laissez-faire, that he was very interventionist, and in fact 148 00:18:02.060 --> 00:18:07.820 his program, he was really the predecessor of the New Deal, and the corruption of history 149 00:18:07.820 --> 00:18:15.100 is taking place right now. I mean here we are and the Austrians I think have been somewhat 150 00:18:15.100 --> 00:18:20.980 vindicated by the events of the last several years and yet the interventionists who didn't 151 00:18:20.980 --> 00:18:27.340 see it coming are saying nobody saw it coming. The slide that I had up about the interventionist 152 00:18:27.340 --> 00:18:37.060 lens and the non-interventionist lens, part of the argument is regulation and I think 153 00:18:37.060 --> 00:18:43.060 I think we haven't really, our side has not articulated this quite as well as I think we should have. 154 00:18:43.060 --> 00:18:51.060 This mess that we had, this credit crisis, was this a failure of the market's ability to regulate? 155 00:18:51.060 --> 00:18:54.060 Well, how does the market regulate? 156 00:18:54.060 --> 00:18:58.060 The market regulates, it's like any healthy economic system. 157 00:18:58.060 --> 00:19:04.060 You have to have a way of removing waste and you have to have a way of correcting error. 158 00:19:04.060 --> 00:19:22.060 The human nature has it through extinction, the human body has it through digestion, and the free market, the economy has it through failure, and also through price discovery agents like short sellers. 159 00:19:22.060 --> 00:19:36.060 Failure was not allowed to happen, so it's hard to blame this whole mess on the free market and its lack of an ability to regulate when you've taken away the very means of regulating. 160 00:19:36.060 --> 00:19:42.060 Short sellers have also been very much under attack, as they always are. 161 00:19:42.060 --> 00:19:45.060 Short sellers are always vilified, they're always blamed. 162 00:19:45.060 --> 00:19:53.420 and Bear Stearns and the recent hearings now are trying to blame, they say that it was 163 00:19:53.420 --> 00:19:59.500 the rumors that created the reality and the spreading of these rumors and stock shortsellers 164 00:19:59.500 --> 00:20:06.700 piling on that created the run on the bank. 165 00:20:06.700 --> 00:20:11.860 The government regulates through essentially the opposite. 166 00:20:11.860 --> 00:20:19.420 It weakens the market's ability to regulate itself. So instead of failure, the government 167 00:20:19.420 --> 00:20:30.060 has bailouts. Instead of the price discovery agents like short sellers, we try to muzzle 168 00:20:30.060 --> 00:20:37.200 short sellers and we play this confidence game. I'll give you an example of this. Bill 169 00:20:37.200 --> 00:20:44.840 Michael Ackman, a short seller and a hedge fund, did a report on MBIA and MBIA was given 170 00:20:44.840 --> 00:20:50.400 its investment grade credit rating by the rating agencies. 171 00:20:50.400 --> 00:20:59.440 The rating agencies, well I'll get into that in a minute, but he published his research 172 00:20:59.440 --> 00:21:01.760 online for the whole world to see. 173 00:21:01.760 --> 00:21:09.800 Eliot Spitzer at the time wanted to go after hedge funds and instead of looking at, instead 174 00:21:09.800 --> 00:21:16.480 of going after MBIA and going after the rating agencies for their investment grade rating 175 00:21:16.480 --> 00:21:24.720 on MBIA, instead they went after Bill Ackman. So this is, I mean not only are the regulators 176 00:21:24.720 --> 00:21:29.600 doing a horrible job, but what they're doing is they're attacking the critics and their 177 00:21:29.600 --> 00:21:37.240 It's kind of a little bit like public education. There's a crowding out that goes on here. 178 00:21:37.240 --> 00:21:44.500 I think the rating agencies are a huge part of this. You've had a huge failure of the 179 00:21:44.500 --> 00:21:50.520 rating agencies, the so-called gatekeepers. Well, is this a failure of the free market? 180 00:21:50.520 --> 00:21:57.940 It's not a failure of the free market because the rating agencies were cartelized and politicized 181 00:21:57.940 --> 00:22:05.940 Back in the early 1970s, they are very much a part of the fabric, the regulatory fabric. 182 00:22:05.940 --> 00:22:10.180 This is not a system that was created by the free market, this was a system that was created 183 00:22:10.180 --> 00:22:12.180 by government intervention. 184 00:22:12.180 --> 00:22:17.260 So the failure of the rating agencies really is a failure of regulation. 185 00:22:17.260 --> 00:22:25.060 These are just a couple of quotes vilifying the short seller and let's see, okay, pretty 186 00:22:25.060 --> 00:22:26.860 close to wrapping it up here. 187 00:22:26.860 --> 00:22:33.600 As Jeff Scott mentioned to me the other day, we go through these recrimination cycles. 188 00:22:33.600 --> 00:22:41.640 So the interventionists who fail to see the crisis coming then need to go in and blame 189 00:22:41.640 --> 00:22:44.940 the very crisis that was caused by intervention. 190 00:22:44.940 --> 00:22:50.740 They have to blame it on capitalism and they have to round up some scapegoats and essentially 191 00:22:50.740 --> 00:22:56.300 make the waters pass a bunch of rules, pass a bunch of regulations, make the waters safe 192 00:22:56.300 --> 00:22:59.580 for the kitties to go out and swim in again. 193 00:22:59.580 --> 00:23:01.540 And this happens over and over again. 194 00:23:01.540 --> 00:23:06.420 Of course, after the Enron, after the collapse of Enron, 195 00:23:06.420 --> 00:23:09.380 the beauty of Enron was that it failed. 196 00:23:09.380 --> 00:23:12.900 That's the difference between that cycle and this cycle. 197 00:23:12.900 --> 00:23:15.420 The Goldman Sachs's and these companies 198 00:23:15.420 --> 00:23:17.260 were not allowed to fail this time. 199 00:23:17.260 --> 00:23:20.220 So they've just lived, gone on to live another day 200 00:23:20.220 --> 00:23:23.260 and who knows what else they've created, 201 00:23:23.260 --> 00:23:25.220 what other mess they've created. 202 00:23:25.220 --> 00:23:55.220 But with this recrimination cycle, back after the trial, so we passed Sarbanes-Oxley, and of course the SEC's budget then doubles in the next three years, I think it took ten years for it to double before that, and we haven't had this financial deregulation that everybody talks about, we haven't had this take place, we've had more rules, we've had the SEC 203 00:23:55.220 --> 00:24:02.220 Their budget, I believe, grew by 76% in real terms from 2000 to 2008. 204 00:24:02.220 --> 00:24:06.220 So we haven't really had deregulation take place. 205 00:24:06.220 --> 00:24:14.220 But in 2006, I remember the kind of closing the book on Enron was the Enron trial 206 00:24:14.220 --> 00:24:17.220 and sentencing, skilling and lay. 207 00:24:17.220 --> 00:24:23.220 And the commentary at the time was, this was some of it that I got down, 208 00:24:23.220 --> 00:24:28.220 This is good. It restores confidence. So it's always a confidence game. 209 00:24:28.220 --> 00:24:33.220 This was the biggest bubble in history. I don't think that's going to happen for a long time. 210 00:24:33.220 --> 00:24:40.220 And Sarbanes-Oxley was a good idea. We needed to prevent the end runs of the future. 211 00:24:40.220 --> 00:24:47.220 Well, the regulators are always fighting the last war and the bubbles are happening closer and closer. 212 00:24:47.220 --> 00:24:52.220 So the housing bubble had already taken place by this time. 213 00:24:52.220 --> 00:25:22.220 It really peaked in the fourth quarter, the first quarter of 2006 and we still had this credit bubble, the credit spigot was wide open and we were setting ourselves up for the subprime disaster in February, March of 2007 and I think Businessweek captured the zeitgeist of the time with this cover, it's a low, low, low rate world and how credit was just going, cheap credit was going to flow 214 00:25:22.220 --> 00:25:28.300 Indefinitely. So the cake had already been baked. We're fighting the last war and we're 215 00:25:28.300 --> 00:25:33.460 telling everybody, we're telling investors, it's safe to go out and swim again when the 216 00:25:33.460 --> 00:25:40.620 waters were infested with sharks. So where are we in the recrimination cycle? Well, I 217 00:25:40.620 --> 00:25:46.580 think we're probably at the top. We're going through the exact same experience today that 218 00:25:46.580 --> 00:25:53.940 This was all, the credit bubble was caused by a little bit too much testosterone and 219 00:25:53.940 --> 00:25:57.940 the three women in charge are now going to clean up the mess. 220 00:25:57.940 --> 00:26:04.080 Again, we're passing financial regulation, we're making the water safe for the kids to 221 00:26:04.080 --> 00:26:10.160 swim in again and we're telling everybody that America is back and that this massive 222 00:26:10.160 --> 00:26:13.280 stimulus is going to work. 223 00:26:13.280 --> 00:26:20.380 So the interventionists have really kind of made their bed and this debate is going to 224 00:26:20.380 --> 00:26:25.200 be resolved I think in fairly short order in the next several years. 225 00:26:25.200 --> 00:26:30.480 And I love this, Obama-nomics is working better than you think. 226 00:26:30.480 --> 00:26:37.240 Who says Wall Street? 227 00:26:37.240 --> 00:26:41.960 So we're a little bit skeptical right now. 228 00:26:41.960 --> 00:26:48.760 And I also love the quote on the right by Mark Zandi. Notice that he now works for Moody's 229 00:26:48.760 --> 00:26:55.280 and the rating agencies have been a part of all of these problems. This was a quote recently 230 00:26:55.280 --> 00:27:02.920 in Barron's, last week's Barron's, about the EU bailouts, a trillion dollars. It was 231 00:27:02.920 --> 00:27:08.880 meant to remove any potential for contagion, problem solved, and that lasted for about 232 00:27:08.880 --> 00:27:12.080 about a week before that drug wore off. 233 00:27:12.080 --> 00:27:18.680 Jason Trennert, who Bill and I saw the other day when we were eating lunch, walked by us. 234 00:27:18.680 --> 00:27:20.960 We're bullish until the bills come due. 235 00:27:20.960 --> 00:27:28.120 Well, we think the bills are coming due at this point, and the timing of this conference 236 00:27:28.120 --> 00:27:35.440 couldn't be any better. 237 00:27:35.440 --> 00:27:45.360 So my dad, when we were growing up, my dad always said, told us to find the parade and 238 00:27:45.360 --> 00:27:46.360 get out in front of it. 239 00:27:46.360 --> 00:27:48.480 Always find the parade and get out in front of it. 240 00:27:48.480 --> 00:27:52.800 And I think the parade is Austrian economics and I think it's time to get out in front 241 00:27:52.800 --> 00:27:53.800 of it. 242 00:27:53.800 --> 00:27:54.800 Thank you very much. 243 00:27:54.800 --> 00:27:56.800 Thank you very much.