And that causes me to wonder, what will the political fallout be? And which party will be in a position to channel the anxieties and the rage of the newly displaced knowledge sector workers? And how does that show up in terms of policies like higher taxes for certain companies or industries, new regulations that may be attempt to curb the speed and scale with which the disaffected sectors are being impacted? Is this something that you've given any thought to?

Yeah.

So I'm looking at...

the all employees manufacturing series on Fred.

And between 2000 and 2010 ish, that went from 16 million ish or 17 million to kind of 11 and a half million.

So 5 million jobs went away as a corollary to that.

Manufacturing output did not go down in America.

the monetizable

Is winter coming for stocks?

I think it's really important.

that the 10-year and the 30-year yield went up last week when stock markets were faltering.

Because if you remember, it was hardly a week ago.

when all bad things were being done by treasuries and treasuries were trash.

The US fiscal system is unsustainable.

Inflation is out of control.

Yeah,

[chuckles]

And, uh, I was lucky in that I was at the stage of life where I needed to buy a new bigger house in 2020 when mortgages were, like, 2%, 3% if you, you know, played your cards right.

And I ended up, you know, with a good size two and three-quarters mortgage on this house.

And now, uh, that looks brilliant.

You know, now that we're at 7.5%, I have, like, all this cheap financing, way below market financing, so I'm in this slightly weird position that w- one of or perhaps the biggest asset I have, that I have is a liability, meaning [chuckles] some really cheap debt, and that actually has implications for the larger economy because there are millions and millions of Americans like me who got mortgages in the, the zero rates era, the kind of 2010s through 2020, and who now, essentially barring something really great or really awful happening to them, are never gonna leave their home, right? Because if I get a great job offer in Cincinnati or London or Tokyo, I've gotta give up this mortgage.

And if I decide to downsize when my kids leave for college next year, same thing.

I'm not gonna, right? So I'm gonna stay in the house no matter what.

So I guess my question is, w- w- what, what would it take for things to change, and do you think things will change at, at any point in the near future?

[laughs]

And, uh, I was lucky in that I was at the stage of life where I needed to buy a new bigger house in 2020 when mortgages were, like, 2, 3% if you, you know, played your cards right.

And I ended up, you know, with a good size two and three-quarters mortgage on this house.

And now, uh, that looks brilliant.

You know, now that we're at 7.5%, I have, like, all this cheap financing, way below market financing.

So I'm in this slightly weird position that w- one of or perhaps the biggest asset I have, that I have is a liability, meaning [laughs] some really cheap debt.

And that actually has implications for the larger economy because there are millions and millions of Americans like me who got mortgages in the, the zero rates era, the kind of 2010s through 2020, and who now, essentially barring something really great or really awful happening to them, are never gonna leave their home, right? Because if I get a great job offer in Cincinnati or London or Tokyo, I've gotta give up this mortgage.

So I guess my question is, w- what, what would it take for things to change, and do you think things will change at, at any point in the near future?

Lots we could say, but I'll start with your initial reactions to the news.

We can put to bed the theory that Kevin Warsh is Donald Trump's sock puppet.

I had never bought that theory, particularly for the simple reason that I don't see what's in it for Warsh playing the part of the sock puppet.

He had nothing to gain by doing that.

He's in a good position to go his own way.

So that, I think that was becoming clearer as the weeks went on, but now it's very clear he has hiked despite the threats and protestations of the president.

So that is point number one.

What does that mean?

What's going on with interest rates? What's going on in the debt markets as well?

Let's start with Bessent's intervention.

I'm struggling to remember the exact date, but what he did was buy bonds, US Treasury bonds, in a somewhat unusual way.

There is a normal action that the Treasury takes called buybacks, which is an effort to keep the Treasury market operating smoothly, and they do this because as Treasuries get older, as they, uh, sit in the market longer, they become harder to trade.

It's like an old issue with a weird interest rate, and there's not that much of it around.

And so on a very regular basis, it's been normal for a couple of years for the Treasury to go into the market, buy the old ones, and replace them with new ones.

So taking out the stuff that's hard to trade and replacing it with brand-new liquid stuff that trades easily.

It's not a big deal." Uh, where does this land in the political landscape for you?

But what on earth is a board boy?

Well, before you get to board boy, you have to be familiar with the concept of a bucket shop.

which is a place where what we would now call retail investors or retail punters can speculate on stock prices during the day.

So it's an early form of what we now call day trading.

But what you have to understand about the bucket shops is you weren't actually investing in the stocks.

It was literally a betting shop where instead of betting on horses, you were betting on the fluctuation of stock prices.

And at the front of one of these shops, they would have a big chalkboard with the big names, you know, steel, anaconda, whatever, you know, all the big names.

I know.

But what on earth is a

board boy? Well, before you get to board boy, you have to be familiar with the concept of a bucket shop.

which is a place where what we would now call retail investors or retail punters can speculate on stock prices during the day.

So it's an early form of what we now call day trading.

But what you have to understand about the bucket shops is you weren't actually investing in the stocks.

it was literally a betting shop where instead of betting on horses, you were betting on the fluctuation of stock prices.

And at the front of one of these shops, they would have a big chalkboard with the big names, you know, whether, you know, a steel, anaconda, whatever, you know, all the big names.

I know.

little

bit about yourself? Sure.

My name is Robert Armstrong and I live now, I lived in San Diego for about 60 years and then five years ago, my wife and I moved to Knoxville, Tennessee.

So I'm now in the South and just loving it here.

So we traded a beautiful house in San Diego for 10 acres on a lake with a boat.

So it's like a whole new lifestyle and just loving it.

I had been practicing law since 1976, so it'll be 50 years next year.

Yeah.

So how do you view it at this point?

Huge amount of different stuff to unpack, but let's just start with the history.

Um, the history is that i- of the last, going back 25 years, whatever it is, when you have a rate hiking cycle, which if you have inflation, you will eventually get a rate hiking cycle.

The Fed, you know, probably is not gonna put up with this forever.

That has coincided or correlated with ugly market corrections.

If you look at the last three or four corrections in the last three or four rate hiking cycles, they do...

I'm not saying anything about...

What, what are your views on, on his, I guess, anti-Fed philosophy?

Was this a taco? And what do you think this means for the markets going forward?

Um, as much as I enjoy my pathetically small kind of fame I have for inventing this term, I don't think it applies very well in wartime.

This is a term that made a lot of sense when we were dealing with domestic policy, specifically tariffs, where Trump was really in charge, so he could make a grotesque threat and withdraw it, and th- the resulting kind of wave rolling through markets, you could trade.

Here, he's tangled up in a very complex multilateral situation, as we've just seen demonstrated today.

Like, n- nobody seemed to tell the Israelis that the ceasefire said that they shouldn't, uh, bomb Lebanon.

Uh, somebody, you know, somebody bombed that Saudi pipeline today, the, the Hormuz Strait alternative.

So, uh, it's not a situation where Trump can flip a switch anymore, and I think, uh, so I think it's very different.

Yeah

Did that happen like you'd expect it to?

Well, it happened, but not like I would expect it to.

So in the case of gold, it went, uh, absolutely, uh, bananas, to go from the yellow metal to the yellow fruit there.

Uh, I mean, I've, I've never seen anything, any commodity move the way that gold, until quite recently, was moving up.

And it started with central bank buying, central banks wanting to get away from the dollar a little bit, and that trade was quickly passed on to retail buyers, and it, it quickly became a momentum trade.

So that, that's kind of like, uh, a Frankenstein monster of a safety trade.

It started out as safety and became something else.

But anyway, what about global markets? Was there any particular market that stuck out to you?

And what can we attribute that rise in gold to, Rob?

I think in the astonishing run, which began about the start of twenty twenty-four, there was an evolution of who the key buyers were over that time.

The standard theory of the early days in twenty twenty-four is that central banks who were worried about being too dependent on the US dollar as a reserve asset started to accumulate more gold.

So that was a new source of demand that pushed the price up.

But after that, more retail investors were also interested.

So investments behave very differently depending on who their investor base is.

Do we have any prevailing theories on what might be knocking it down now?

It is part of a larger pattern we've seen since the beginning of the war in Iran, which is that it has not been so much that people are selling willy-nilly and getting rid of risk everywhere and anywhere.

I, I mean, if you look at the notorious dot plot, and I do wanna take on board Michael's comment

commentThat this is the, the Chair Powell and the Fed was obviously not very pleased at having to have give to, to give projections this time around, given that we've rolled the iron dice and there's so much war uncertainty.

But i- if you do look at that dot plot, which shows the projections for appropriate rate policy this year, there was kind of a bit of compression.

Now, nobody is looking for rates to be increased again this year, but the tale of people who think there should be several cuts pushed up as well.

So the, the plot for 2026 kind of compressed, and partly that's an expression of uncertainty, and partly it's saying, "We are stuck here with these," what Powell describes as modestly restrictive rates, "and we're stuck between the two ends of our mandate, and what are we gonna do? We're gonna sit and wait until something happens." [laughs] You know? And I don't know what else...

In their position, I don't know that there's anything smarter to do than that.

Mm.

Again, that should be a bit deflationary.

Um, did you ever think that that would sort of extend beyond tariffs and economic policy to military strategy?

strategy?I, I never thought that it would, and I think that it may not.

There's a huge difference between tariffs and wars and it's very simple the tariffs, at least until the Supreme Court spoke up were in Trump's control wars are not like that.

Uh, I wish I'd thought of this line but, uh, somebody else on Wall Street came up with it takes two to taco.

And in this case it may take three to taco.

Uh, the Israelis will have something to say, the Iranians will have something to say, and Chance will have something to say.

So I, I think it's true that Trump's inclination will to be cut, to cut his losses and move on but can he? If the Strait stays closed and we're looking at, at gasoline at 4.50 or five for an extended period he's gonna be in up to his neck and I don't know how he's gonna get out of the situation he's gotten himself into.

Right.

So last week, we got two unpleasant inflation prints in the form of pursu- uh, producer prices.

Prices paid was high, and then we had the ISM manufacturing report, and their prices paid reading was bad.

And so already you can sort of see the Federal Open Market Committee thinking, "Geez, maybe these, these we're...

Cutting rates might now not be so smart." And then you get another inflationary element into the picture, which is gas prices going up, which feed into food prices and have a big effect on sentiment, you know, inflation expectations.

Maybe those rate cuts come off the table.

And it, you know, it's a horrible thing when there is something as serious and mortal and morally important as a war going on-

Yeah.

Mm

... right? The last, you know-- private credit is now something that an institution say, you know, a respectable institution will have a private credit allocation in their portfolio, and that might not have been true three or four or five years ago.

And, you know, you have to go back 30 years before that, when kind of junk bonds became, uh, like this new asset class that people were getting into.

And I think the magic of the asset class has two parts.

One is that it is reputed to have fixed income-like returns, like the returns you might get from, uh, high-yield bonds, but with a little bump because you are lending to a special class of borrowers.

The, these funds are lending to borrowers who, for one reason or another, would like to avoid public markets.

Either they don't want...

Mm-hmm.

Mm.

You know? It's like...

I mean, I don't know what percentage of GDP the Great Pyramid of Giza was- [chuckles] ...

but, like, this is-- these, this is, like, titanic amounts of money.

And I think the, the anxiety we've seen building for a number of months here, what is the ROI on these sums? Hundreds of billions of dollars.

The amount of revenue you're gonna have to generate to make that a project comparable in profitability to the historical business of an Amazon or a Meta or a Google or a Microsoft are just staggering.

Mm-hmm

... you know, kind of, uh, solid, steady businesses that have been neglected and now are, are ...

And a few weeks later, Rob wrote about what had happened.

I ended up writing about this pattern of big talk, huffing and puffing, strong market reaction, Trump pulling back, the market recovering.

I just needed a short way to refer to this thing that just kept happening.

Taco was funny.

I wasn't aware that I was doing something wonderfully clever at the time.

It's a really simple claim underneath there, that the president doesn't really care about anything.

And so if he's forced to pay costs in popularity or power for a policy, he'll always change it.

What is lost if markets aren't providing the kind of guardrail that they have been in, in the past?

Right

... given the sheer amount of assets he manages at BlackRock.

So he knows the market as well as anyone you can possibly imagine.

Uh, and I think he's a very smart guy.

Does that mean he has the temperament to be the chair of the Fed, uh, or that Trump will pick him? I have no idea.

It is important to notice, to note, however, that on several occasions, quite consistently, Reeder has said he doesn't think rates at, you know, call them 5% now or [chuckles] whatever they are, or when rates were at 5%, now the base rate is a little lower, the, you know, whatever.

He's consistently said, "Actually, I don't think these high-ish rates are doing very much to control inflation."

Mm.

Into the ether.

So, uh, you know, the rhetoric is pretty strong.

There was the bizarre text to the leader of Norway.

It seems pretty serious, and markets are reacting.

But the hard first question you always have to ask is: Is this a case of real strategic boldness, a la Venezuela, or is this a bunch of talk-

Mm-hmm.

Uh, there's- you know, they have a very consensus-driven system, where a small number of defectors can prevent unified action.

Uh, so it makes it hard- they really ha- they really have to be pushed up to the edge.

Um, Robert, your take?

Well, I think the best way to think about this is having an independent Federal Reserve is like having a fire extinguisher in your kitchen.

Most of the time, you don't need it.

You might even forget where you put it, but when the smoke starts to billow, you're really glad it's there.

And basically, what Trump was offering to do was take the fire extinguisher out of the nation's kitchen, and that really struck some fear into people.

And we finally...

Well, first, we got some great leadership from the chair of the Fed himself, with a very plainspoken, concise, and firm video message to the president and the country, and then other people fell in line.

Um, I wonder if you have any insights into whether or not this opening of a criminal investigation into him personally rattled him?

Mm-hmm.

Running and hiding when the president says or does something that is, on the face of it, crazy and destructive, has not been a good investment strategy in the last year or so.

Point number two is, contrary to their reputation in some quarters, markets are quite myopic.

The economy is okay right now.

Corporate profits are strong right now, and so a threat like this, which is serious but a bit abstract, is kind of easy to ignore in the short term.

Somebody else used the metaphor for the Fed as a kind of parachute.

Give me more.

Yeah.

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[laughing] I love these predictions.

Sure, that- that- that is for sure.

(laughs) Um, I mean, where I get it as a person who follows finance and the stock market and other markets as much or more than I do the economy in general is I hear it from companies.

So, listening to what executives have had to say in the third quarter earnings report season, it's been a kind of who's who of major consumer-facing companies saying they see different kinds of consumer behavior from the more well-to-do and the less well-to-do.

We've heard this from Coca-Cola, we've heard it from Chipotle, we've heard it from McDonald's, and we heard it quite recently from Walmart.

And I think Walmart's a good sample.

It's such a big, important American company that serves so many Americans, I think it's worth repeating what their CEO said.

He said, "Spending with upper and middle income houses is driving our growth.

Lowercase Q-shaped economy.