Grant Williams (2:24)

Well, it's a great question and, and the good news, and the answer is you don't have to be a finance person for this to, for this to mean something. And the simple answer is, what is it? It's a feeling. It's a, it's, it's a moment in time, you know. Dimitri Kofinas has a terrific podcast, Hidden Forces, which if people aren't listening to, they really should. HiddenForces IO is his website, and there's an incredible body of work there. He's, he's a, the most prepared interviewer out there.

Matt Zigler (2:54)

Dimitri is a machine product, proves it.

Grant Williams (2:57)

Unbelievable. But, you know, we've been good friends for a long, long time now and we. Around the turn of the year, I, I was publishing my monthly letter and I reached out to five friends of mine to write essays for me, short essays, just about the world. Because I just had this kind of weird feeling that things were changing and shifting and I, I felt a little bit adrift in it all and I wasn't quite sure what I was feeling and I just wanted to get the temperature of some people that I, that I respect. And, and so these five essays came together and they were terrific. I didn't give the guys any, any outline, just to look right about whatever it is you're thinking, because we'd had conversations that we felt things were going on. And the one through line that everybody mentioned was the Fourth Turning and the Fourth Journey, for people that aren't aware of it, is a book written in the mid-90s by Neil Howe and Bill Strauss, who sadly passed away now. And it was about a study of generations through cyclicality. And Bill and Neil discovered that the world society moves in kind of hundred year cycles. And they split those cycles down into four 20 to 25 year turnings. And they characterized what each one meant. And when they published the book in the mid-90s, they said that we were in a third turning, which is a point where things start to begin to creak. We've had all the good stuff, it's kind of in the past and we're starting to see the decay set in. It was going to lead to a fourth turning, which we'll get onto in a second. But they said that the fourth turning will begin sometime around 2008 and it will probably begin with a financial crisis. And they wrote this 15 years, 14 years before the financial crisis. And Neil and I have become good friends through conversations we've had over the last number of years. And this Idea of fourth turning, that we were at a point in human history where things were changing, was the only connective tissue to those five essays. And so I was talking to Dimitri about it and he felt the same. And so we've been looking for something to collaborate on for many, many years. We've always enjoyed each other's work, enjoyed each other's company. And so we said, why don't we do a podcast about this with no agenda, no structure, but let's do them as and when we find different people to speak about. For all the aspects in the ways the world's changing. Some of them will be financial and some of them have been financial, but a lot of them aren't societal religion. We did a great one with our mutual friend Roger Mitchell about, about the return of religion to the world. We've just put out today, actually, a conversation with a terrific journalist called Brian Winter, who's been in Latin America for 25 years talking about Venezuela. And not. And not, as I said to Brian at the end of our conversation, I was so grateful to him because the, the line I used was that I'd been drowning in certainty since this thing happened. You know, everyone's so certain about what it's going to mean. Of course, none of us know anything about what's going to happen. So we had a great discussion with him. And it wasn't Venezuela specific, we talked about Venezuela. But that's part of this change. You know, you've got a wave of right wing politics sweeping through Latin America, which has obviously always been traditionally a hot bit of left wing politics. So these changes are everywhere. And so Dimitri and I have just been kind of chronicling them, chronicling them as. And when we have an idea or a feeling or a conversation with someone and we think, you know, that'd be a good subject to fall under this hundred year pivot. Just this sense that for the first time in a century, we're going into a period where institutions get torn down. You know, the, one of the, one of the tenets of the, of the fourth turning is that people lose trust in institutions. And we're seeing that whether it's the institution of politics, not just in America, but here in the UK and across Europe and everywhere, you know, trust in politics has gone. Trust in each other is kind of falling apart thanks to social media and trust in institutions. You look at something like NATO, perfect example. NATO is an institution that's been there our entire lives. And if you'd have asked 10 years ago, hey, what are the chances of NATO breaking up, you'd have said zero and you'd have been absolutely right. Now, it's not quite a coin toss, but we're heading in that direction. The United nations, the World bank, the imf, all these institutions that were put in place after the last fourth turning, a lot of people feel a longer fit for purpose. So it's just, it's just a sense that we're going through the kind of change that will be written about for many years to come. And it will be, it will be chaotic, it'll be tumultuous. And on the other side of it, which according to Neil and Bill's work will be sometime around the end of this decade, there will be a period of tremendous prosperity and growth and upward swings and things will get much, much better for, you know, 40 odd years. We just got to get from here to there, you know, and it's, it's going to be a rocky path.

Matt Zigler (7:52)

So thinking about this and also thinking about, been reading your stuff now for, I mean, north of 15 years, pushing 20 years, and there feels like a through line as you've been watching this unfold with the fourth turning language in your mind between the financial crisis Covid, the seizing of Russian assets and now Venezuela and those all kind of feel linked to me as like a continuation of this institutional breakdown, institutional decay. Can you sort of connect through and I really do want to laser in on the financial crisis to the seizing of the Russian assets. I think how you frame that's so useful to understand what this decay looks like as it actually happens.

Grant Williams (8:32)

Yeah, well, I think the financial crisis, as I say, if Bill and Neil are right, that's what kicked off the fourth turning. And I think that, that, that was the kind of apogee of trust in institutions. And it was the moment where it was revealed that institutions maybe can't be trusted. First it was the banks. You can't trust the banks. And, and for a while after the financial crisis in 08, bankers were, you know, bankers were wankers, as we say here in the uk. You know, everybody hated bankers and it became a punchline at dinner parties and you know, those bankers, those evil bankers. So trust in the bankers went first. Then we had, in the middle of that, we saw Barack Obama elected on a platform of hope and change and people trusted him to fix the financial crisis. And a big part of that, because of that loss of trust in bankers, was people have to be in jail. The people who were responsible for this need to be punished for it. And he broke that trust. He did nothing about it. It bailed out the banks. He had a great opportunity, and I think it was a terrible missed opportunity because he had such a. Such a huge level of support amongst Americans at the time. So he broke their trust. And from there on, we've just seen this trust erode. And it boils through in society and it boils through in politics, and it kind of permeates everywhere. But money, particularly in a purely fiat world, which is what we've been living in since 1971, just for those people who aren't of a financial background, by fiat, we mean money that's just issued by decree of the government. I. It's not backed by anything. The world used to. Money in the world used to be backed by gold. So there was something tangible behind it. And until 1971, at the state level at least, you could exchange US$35 for one ounce of gold with the US Treasury. And foreign countries could send their surpluses over and get gold back instead of dollars if they wanted to. So there was that trust that US Money was good because it was backed by gold. And so as the trust broke down, in a purely fiat world where everything is built on trust, you have to trust the money because there's nothing behind it whatsoever. It's the full faith and credit of the United States government. And of course, faith is trust, but credit is another thing. No one gives you credit without doing a credit check. No one just trusts you and gives you money. So this idea that the whole world has been functioning on faith and credit for such a long time and that's breaking down is really important to understand. You know, the word credit is from the Latin credere, which is the verb for to believe. You know, it's just a belief. So that was the beginning of this. I think that was the moment where trust started to go away. And everything since then has been a continuation of loss of trust in various things, ideas, people, institutions. And then we get to 2022, where when Russia crossed the border in Ukraine and started the war there, one of the first responses from the US treasury, it's important to say, to point out, was to freeze Russian assets within the Swift system. The Swift system is a. Is a payment system through which every dollar transaction in the world must pass. So it's the choke point the United States has for implementing sanctions. For example, when you hear them say, we're going to sanction so and so it means you cannot transact in US Dollars, it's physically impossible without access to the Swift system. So before, when the United States sanctioned people, they would freeze access. Russian banks, for example, were frozen out of the SWIFT system, which meant they couldn't transact in dollars, which is a massive problem because the dollar is the world's preeminent currency.

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Grant Williams (13:54)

But they went a step further in 2022 and they froze Russian state assets or the Russian central bank assets that were held in the SWIFT system. They they denied the Russians access to those which was unprecedented and the second they did that I wrote a piece at the time called the End of the Financial World as We Know It. I use the the REM like acronym TEOF to wacky whatever it is and if any of your listeners want to read this Matt, I'll happily send you a copy and you and by all means feel free to feel free to let them have it please because to me that that decision on the part of the treasury and And a good friend of mine who's far more connected to me in these circles, told me that he'd heard from very credible sources that the Fed were not made aware this was a Treasury decision. And the Fed weren't privy to the decision by sanctioning those assets, by freezing them. What America did was basically say, you can no longer trust in us as a partner for state level national sovereign reserves. And what that meant was that every single central bank in the world had a decision to make because they've all got holdings of dollars, because dollars are the currency that oil and energy is transacted in. So if you're an importer, you receive dollars and in exchange for your oil and you convert those into treasury bonds as a safe haven asset if you're an ex, if you're, sorry, that way around, if you're an exporter, you receive dollars for your oil. If you're an importer, you need dollars to pay for your oil. So everybody owns dollars. And now the Americans have shown the world that there are circumstances, no matter how extreme, but there are circumstances under which you could possibly be denied access to those dollars. And obviously, you know, with Trump in the White House, and this is not a judgment of the man, but he's certainly a lot more chaotic than previous presidents. It increases this, this sense that, well, how do we know what decision we're going to make that might put us against the Americans? I mean, who would have thought Greenland was, was in the firing lines until a few years ago, right? So by doing that, every central bank in the world said, okay, we can no longer absolutely trust in America to look after our money. It's not that we don't trust them, but we can't fully trust them because that would be a stupid thing to do at the state level. We have to have access to our sovereign reserves, we have to have access to our dollars to pay for our oil or the proceeds from our oil. So we have to find a way of lessening our dependence on the dollar system. And if you look at purchases of gold since then at the central bank level, central banks have been buying a thousand tons a year since then. It's the biggest purchase going back to the 1950s. And it's relentless and they keep doing it. This is why the gold price has gone from 2,000 to 4,500. This is the main reason there's been a lot of speculative activity lately. But the rise from 2000 to 4000 was very steady. And it was built on the back of relentless central bank buying because as sovereign assets, in terms of Treasuries roll off, instead of buying and replacing them with new ones, they're just taking the returns they get from those Treasuries and buying gold with it. They don't have to sell their Treasuries. They just don't have to buy anymore. And that's what's happening. And this is a problem for America at a time where obviously it has massive budget deficits it needs to fund, it needs buyers for Treasuries. And so that move, I called it the end of the financial world as we know it. And I don't think that was hyperbole. I think that has changed everything. Because if you can't trust the issuer of the reserve currency, you've got some very tricky decisions to make. And it doesn't mean the dollar's going away tomorrow. It doesn't mean the dollar's finished. But what it does mean is now every central bank in the world is incentivized to find alternatives to being completely captive within the dollar system. Even if you had 60%, your assets and dollars, and you want to go down to 40, just so you give yourself that little bit of a cushion, well, that's 20% of a country's reserves that the US has to find other buyers for for their debt and also keep rates as low as they can because the interest level on the debt in America is now through the roof. So it's a, it's a. It got far less attention than I had expected it to at the time. It's, it's, it's more understood now, I think, because of what's happened, because the actions that people have taken. And it's going to continue to be a story because that trust, it's not that America can't recapture it, but it's going to take time. And time is the one thing that neither America nor anybody else in the world really has right now. Things are moving so quickly. You don't really have time to build trust because, you know, one day everything's fine, the next day you're pulling ahead of state out of his bedroom in his pajamas and sticking him in a New York courtroom. And we can argue the wrongs and rights of that with regards Maduro as a character, but it's certainly not within the confines of international law. And Trump has basically said, I, I don't need international law. My own morality is going to make me do what's wrong. Which is, I mean, hey, fine, you're in the one chair in the world where you can probably say that, but it doesn't come without consequences. And so you've lost trust in the treasury as a safety, as a safe haven for your dollar assets. You've lost trust in the decisions of the President, which can be capricious and he can act on a whim in different directions. You've lost faith in the fact that if something is done against you, then international law is going to apply and there will be recourse for you through some sort of court action. And the solution to all these problems on a financial level, at a state level is gold. You own gold in a vault underneath your own central bank and you don't have to worry about any of these things unless you get invaded and someone takes it. But I mean, I guess that's a threat for most countries in the world every day of the week. So things have changed, Matt, and the world's changed with them. And the world is going to continue to change until we get this fourth turning climax. And that's, that's the problem with fourth turn. It's a climactic event. So we are going to travel from here. As kooky as things feel right now and as dangerous as they feel now, they're going to get worse until they go pop and then we can start rebuilding again.

Matt Zigler (20:22)

So I feel like we saw it in credit and rates post financial crisis.

Grant Williams (20:28)

Yep.

Matt Zigler (20:28)

I feel like we saw it in gold post the Russia seizure in 2022. Do we see it in the dollar next? Do we see it? What other areas are still here that this cascades into to keep pushing us towards the climax?

Grant Williams (20:45)

Well, the dollar's an interesting one and there's been a lot of talk about stable coins recently, which will be a good way to incentivize people to own dollars because it's a way to own them. And with kind of an off ramp for you, everything's keyed around the dollar. And I wrote a piece last month, the first part of a, of a two part piece, which I'll publish a second part in a week's time, talking about the sewage crisis in 1956, which is, which is an important history lesson for people to understand. And if we've got time, I'll just give you a quick recap of it.

Matt Zigler (21:21)

Give us the recap because this was hugely insightful to me.

Grant Williams (21:24)

Yeah. So after World War II when the Bretton woods conference happened and the Bretton woods system was put in place with, with the dollar fixed to gold at $35 an ounce and then every other currency revolving, orbiting around the dollar. When, when that happened at the time, 1943, the pound sterling had basically 70, was 75% of sovereign reserves, the dollar was 22%. And they were, you know, the French franc and the deutsche mark, which have obviously gone away, which is important to, to understand, basically had the rest, bit of Swiss francs, nothing really important. That was 1943. By 1953, even though the dollar was now de facto the world's currency, the pound sterling still had a larger share of sovereign reserves. It was up around 50%. The dollar was gone up from, you know, 22 to around 40, I think, and the rest was split. And then in 1956, the President of Egypt, Gamal Abdel Nasser, nationalized the Suez Canal, which had been built by the French and the British during the colonial days. He nationalized the Suez Canal, creating all kinds of chaos. And this was done after the US and the UK decided to pull funding to build the Aswan Dam. So that was a US led decision to pull funding and that was what led to this moment in time. And that's important to understand because what happened was the, the, the British, the French and the British basically started a, a war with Egypt. The pound was coming under pressure and the Prime Minister at the time, Anthony Eden, went to his friends in Washington, you know, the other side of the special relationship, and basically said, hey guys, look, I need some help here. Can you either lend us some dollars or at least put your enthusiastic support around the pound and you know, issue a proclamation about how strong the pound is, et cetera. And the US who had been part of the fomentation of this crisis by pulling that funding, saw an opportunity and they said, no, we're not going to do that. We are not going to support you unless you pull out of Egypt. And had Britain not pulled out of Egypt, there would have been a full blown sterling crisis. The country's finances were in a mess after the end of World War II, obviously, so Britain was forced to back down. And it became clear to the world that the UK was not a powerful country anymore. In fact, the United States held the upper hand. And from that point on, dollar supremacy began taking off. And by 1973, the dollar was, I think, 87% of foreign exchange reserves. And the reason I recap the story was a, to make people understand that no sovereign reserve currency in history has survived. They've all gone away. You know, at one time it was the Portuguese Escudo, the Dutch Guild or the French Franc, the Spanish Poseidon, all gone. The British pound largely irrelevant now. And the dollar will go that way too. It could be years in the making, but it's headed in that direction. The point about the Suez crisis that's so important is that Britain was struggling, it had a lot of debt after the war, it was in bad financial shape. And America saw an opportunity to advance its own cause at the expense of a once powerful nation. That was hegemonic and it took it. Special relationship or no special relationship. America plunged the knife in and it was the right thing to do from a political standpoint. I called it a Machiavellian masterstroke. It really was. And that paved the way for the dollar based system we see today, the Swift system, the payment system. 88, 60% of sovereign reserves are in dollars. 88% of transactions, FX transactions have a dollar cross in them. It's extraordinary. But through that period from 1956 when the US pulled that Machiavellian master stroke to now, they haven't really had any challenges. They haven't had anyone that really wanted to upset them. They haven't had anyone that the dollar system didn't work for. It kind of worked for everybody. And so now we have a point where the dollar system isn't necessarily working for anybody. It's certainly not working for the Russians and whatever they may be, they're still a G7 country even if they've been kicked out. For now, it's not really working for the Chinese because they recognize what American can do to them. And the Chinese have actually halved their treasury holdings since 2013 when they said they were going to stop accumulating foreign exchange reserves. So you've got a point in time where like 56 and sue is, the American system is not necessarily as trustworthy as it was. It doesn't work for everybody as well. And if you look at America's finances, with 38 or 34, I lose track. 34 trillion in debt I think we're at now. Could be 38. Who knows, maybe tomorrow it will be.

Matt Zigler (26:38)

It's a big number.

Grant Williams (26:39)

It's in the 30s, right? I, I mean it took, it took 190 years for the United States to accumulate the first trillion dollars of debt. And it's taken us, what, 50 to get to 35. It's extraordinary. But with budget deficits where they are, with interest, debt servicing costs where they are, with the debt levels where they are, the United States, while not potentially as vulnerable as the UK is certainly vulnerable now, certainly more vulnerable than it's ever been to the kind of challenge that Britain was faced with in Suez. And so you throw into the mix Donald Trump in the White House, who is an agent of change, chaos, depending on your political leanings. And you have every ingredient you need for an enormous amount of uncertainty and the potential for a complete reordering of the financial system. And again, it's important to understand that's not to say this happens, but this is a case of probabilities and possibilities. And this has gone from a 100% possibility but zero rate probability to a positive probability. I don't know what that is. But you know, if, if the weather changes, you make a calculation on whether you think you need to take an umbrella out with you when you go out. Right. If the situation changes, it will change calculations you make. If there is now a chance that the entire monetary system gets reordered around in the short term, probably gold, until they figure out just to stabilize it, you might need an umbrella. And people are making those decisions at the state level, they're making them at individual levels, they're making them at investment committee levels, because they should. And if you think the probability has gone from 0 to 1% and that's a risk you're willing to take, fine. If you think it's gone from 0 to 10%, maybe you've got some choices to make, I don't know. But that's where we are. That's what's happening. There is now a visible path to a reshaping of the monetary system. And there is also motive on the part of a lot of countries who this might no longer work for as well. The missing part is opportunity. And if you look that opportunity is definitely there because to save itself, the United States will have to print a ton of money if this goes the way it went for the Brits. And while they can do that, it will trash the dollar. It will send interest rates through the ceiling, it will send inflation, all the things that we know would be bad if the dollar was no longer reserve currency. So it's a big sweeping change. It's difficult to get your head around, but it's exactly the kind of change that happens in fourth turnings. Exactly the kind of big impossible to think about change until it's right up in front of you. New year, same extra value meals at McDonald's. So now get two snack wraps plus fries and a medium soft drink for.

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Grant Williams (30:00)

What do you have to lose?

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Give it a try@mintmobile.com Switch limited time 50% off regular price for new customers. Upfront payment required $45 for three months, $90 for six month or $180 for 12 month plan taxes and fees. Extra speeds may slow after 50 gigabytes per month when network is busy see terms. It feels, and I might get the exact part of this wrong, but it feels worth calling out to stay in history for a second. The last fourth turning is what, the crash of 29 to the end of World War II?

Grant Williams (30:27)

Exactly. Right, right, exactly.

Matt Zigler (30:29)

That's the last worth turning perfect window.

Grant Williams (30:31)

You, you had a financial crash which had just happened after a period of massive excess. And then you had the collapsing of institutions, you had a very slow rebuilding and you had a climax of, of a, of a global conflict. And again, it's not to say we're heading to World War iii, but I mean, I don't think anybody listening to you and I talking here feels that the possibility of any kind of conflict has lessened in the last three or four years.

Matt Zigler (30:59)

I go back too to the the age old business adage of you're always either bundling something or unbundling something, right? And as soon as you finish unbundling, you start bundling. And as soon as you get too much bundling, you start unbundling. And it feels like when I think about it, through that construct of the Great Depression era, all the way up through The World War II two piece, it was the unbundling of global structure and then the bundling piece that follows as we start to piece it back together. Which is part of why I love where the Suez example fits into the parts that come next and the decades that come next. I'm just curious, as we get towards that climax point, are there other like is the $1 of the things that we should actually be watching as a key metric for if the trade system is going to completely reorient, if the US is going to effectively continue to erode its sovereignty and reserve currency status, where else does that show up or what else do we track?

Grant Williams (31:57)

Well, it's probably, it'll certainly show up in the dollar, but the interesting stuff is always happening away from the dollar because obviously we're looking for an alternative to it. And so until You've created that alternative. There's nowhere to go. If people do want to dump the dollar, they've got to find a way of doing it. I don't just mean dump their physical dollars, but find a way. The most, the most important one is probably finding a way of paying for energy in your own currency, which every country would love to do. That way they can print their own currency to buy energy, which is bedrock of society at the moment. They have to go through dollars, but at the margin. We've seen little deals done here and there between the Saudis and the Iranians and the Saudis and the Chinese, just, you know, little quiet pilot programs and you know, enough to kind of make little headlines here and there. But they just get poo poo because people say, well yeah, but look at that. They've, they've agreed to do a billion dollars of oil or $100 million of oil. It's irrelevant. It's not about that. It's about creating the payment rails so that they can do that, creating a system parallel to the system with the dollar that at some point we can say, okay, we're moving to this platform now because we know it works, we've tested it, the flows work, everything works. So we're going to move over here. So you need to be looking at that kind of thing. You need to be looking at the bilateral trade agreements done between China particularly and the oil producing nations. The United States used to be the Gulf's biggest oil customer, but now not only are they no longer a customer, they're a competitor because they're the biggest exporter of oil in the world now. So suddenly Saudi Arabia, the emirate states, I mean China accounts for 25% of their oil exports. Now each, each of those regions and the rest of Asia brings that total up to kind of the high 60s, low 70s. United States is probably 2 to 5% of Middle Eastern oil demand now. So if push comes to shove and you are a Gulf country and you have decisions to make about where your allegiances lie and you have one product which is to export oil, that decision has become slightly trickier than it was because in the past America would supply the security guarantee to the Middle east. And that was a big reason why oil was priced in dollars. That was the quid pro quo. But suddenly you've got an America that is, that is overtly saying we are withdrawing. We're looking at the Western hemisphere, you know, the whole Don Row doctrine, we're going back to the Western hemisphere, we don't want Any outside interest in this hemisphere, we're going to police that. There was a story today on the wires. I don't know if it was true. It's the world of Twitter saying that Trump was quoted as saying Xi can do whatever he wants in Taiwan. I don't think that's a genuine headline, but it's the kind of thing Trump might say off the cuff. And again, comments like that, there's a reason diplomacy is diplomacy. You avoid saying things like that because you create imperatives for people by saying that as the United States president, you can't laugh it off. If you're in that part of the world, you have to take that, at least the possibility of him being serious, seriously. So if you're the Middle east, what do you do? If you, if you get in the middle of an argument between America and China, now, which way do you turn? Until 10 years ago, that was an easy question to answer. The Saudis would have decided with the Americans it may not be in their interest to do so. And, and again, don't forget, Saudis are also yoked to this dollar system as well. They haven't been allowed to sell oil for euros. They haven't been able to do that. So there's more opportunity there that, you know what, at the state level, US plus the Chinese plus the Russians, we're a pretty formidable block together. United States is weak. They want to stay in the Western Hemisphere. Let's push them back there by all getting together and taking control of the Eastern Hemisphere. And we'll save the infighting for later. Right? We'll figure out, well, you know, we'll do the Game of Thrones thing once we push the Americans back, back West. So there's so much going on, Matt, and it, and it's to try and boil it down to, you know, the, the DXY and understand what the price of dollar is, is to miss the, the forest for the trees. Which is an apt analogy because, you know, Luke Groman has probably done better work on this than most. And that's the name of his research project. If you don't follow Luke, either his research product or on Twitter, Luke Gromin. I'm pretty sure he is. And FFT llc.com you should be following Luke because he's been brilliant on this and he and I have been talking about this for 10 years, and he's just fantastic. So all these things, they're the kind of change that we as human beings are really uncomfortable with because it's big change. Big. It's change that we have no feeling of control over. And this is all feeds back into this hundred year pivot. There's this stuff going on and we can't do anything about it. We're having our world reshaped against our wishes because we like the status quo, we always do. And in ways that we can't quite understand and conceptualize. There's nothing we can do about it. These decisions are not getting made by us. They're getting made at different levels. And you look at Iran overnight, it's taken a long time for that decision making process to found its way into the people. I mean, 1979 was the revolution and here we are, what, almost 60 years later. So it's a long time before the people have their say once things get reshaped. So yeah, change is the theme and it's big change and it's going to be relentless change. And there's a great quote by Alan Wilson Watts where he said the only way is to. What's the word? Accept it, dance with it, move with it, and kind of throw yourself into the change. Because to fight against it is pretty futile.

Matt Zigler (38:14)

Well, if the Game of Thrones reference comes to pass and there's a red wedding in the new White House wing, I'm coming back to your questions.

Grant Williams (38:23)

The Game of Thrones will be in Asia. If the Russians and the Chinese, the Saudis decide, okay, why don't we all get together, we'll carve up the east later on. That'll be a Game of Thrones. That will be a real Game of Thrones.

Matt Zigler (38:37)

Take me back to the raw building blocks part of this, because you've been writing about, obviously you've been writing about gold quite a bit for a number of years in this. You're talking about silver, you're talking about uranium, you're talking about all sorts of other commodities in the complex. And as you're explaining this, this reorientating or reorganizing of global trade around a lot of raw building blocks. How are you thinking about that for what's moving in markets?

Grant Williams (39:04)

Well, again, this is all part of it. We've lived through the age of financialization where securitization and the creation of financial products was how people got rich. We outsourced the manufacturing, we outsourced entire industries from Western countries out to Asia. And that's great, right? It's great when things are going in a certain direction, when everything's becoming more global and supply chains are global supply chains are a great idea. It's easy to understand why people do this, it's never a good idea to do it. You know, we. There's the phrase Dutch disease is hollowing out of your manufacturing base, sending it overseas. It's what crushed Holland. It's what ended up with the guild and no longer being the world reserve currency. It's exactly the same thing.

Matt Zigler (39:56)

And yesterday's public sector shipping off of jobs turned into today's private sector private equity, you know, rolling up and consolidating of all the other industries. Like, just keeps playing out.

Grant Williams (40:09)

Exactly right. Yeah. This, this financialization of everything has been a massive tailwind for a long time. But, but I think in, in 2020, after Covid came through, all that changed. If you look back from 1980 to 2020, we had rising stock prices, rising bond prices, rising house prices, falling rates, falling inflation, globalization. We had the biggest tailwinds the world has ever seen. And so I gave a presentation on this last year. And if you go back through that period of time, you sit here today and say until 2020, it was actually quite difficult not to make money. You'd have to make a ton of consistently poor decisions over and over again to not make money. And if you just put your money into assets and stepped away and never bought a phone and never bought a newspaper and just came back 40 years later, you were a gajillionaire. That's changed. You know, we don't have rising bond prices, rising house prices, rising stock prices, or at least we do. The trajectory is shallowed massively. The volatility is coming back, and there's a very strong chance that some of these things are going to start to fall. We've certainly seen higher inflation, we've certainly seen rates go up and they tend to lead. So that environment has changed. And if that environment has changed, and not just changed, but reversed, what went down, went up, it stands to reason that if for 40 years the default has been to make money and all you had to do was be there and stay out the way. If everything's reversed, it stands to reason that the next 40 years can be really hard to make money. And you can't just have your money in the markets. You need to make decisions and be out at the right time and understand that markets can go sideways for 20 year periods in nominal terms. So the investment style that served you very, very well for 40 years, the one that has been ingrained in you over and over again, Buy the dip. Buy the dip. Buy the dip. Has worked, but I don't think that's going to work in the next 10 years and possibly not in the next 20, and who knows what happens after that. That's a long way out. To look doesn't mean to say you can't make money, but it means to say that to your point, when you asked this question about half an hour ago, and I've been waffling on ever since, these building blocks, these fundamental building blocks, the physical commodities that allow you to rebuild your industry, to rebuild your own country, when you have to onshore, all those supply chains you, you sent overseas become crucial. These become what you need now. You don't need another CDO, you don't need another set of ETFs, you need copper, you need uranium, and nor do.

Matt Zigler (42:56)

You have the investors to buy those things.

Grant Williams (42:58)

Right?

Matt Zigler (42:59)

There's, there's no end buyer for the cdo. There is an end buyer for copper.

Grant Williams (43:03)

Yeah, that's exactly right. Exactly right. And, and, and there's not just one. You know, every country in the world has done the same thing and outsourced everything. Every country in the world, every. Sorry, I, I, that's not correct. Every Western country who outsourced their supply chains to cheaper labor is in the same boat. The UK's done what the US has done, what, you know, Germany's slightly different, what France has done, what all these, Canada's done, a lot of these countries. Canada has the resources, the United States has the resources. Britain doesn't have the resources, France doesn't have the resources. We're in a competition. And already, because of what's happened in the last 20 years, China has very, very solid relationships with Brazil and Australia in terms of buying all their commodity offtake, that has enabled a country like Brazil or Australia to grow massively over these last 20, 30 years. Now, it's not to say that the, the Australians or the Brazilians can't be persuaded to stop doing business with the Chinese and doing, and do business with America, particularly Brazil, obviously on the same hemisphere. But they're in a position, a much stronger position if you're Brazil now, because you, you can say, well, we're not just going to do what you say, because we've got a pretty sweet deal with the Chinese here. What's in it for us? So Trump can bully the Venezuelans of the world, he can probably bully Cuba, maybe he can bully Bolivia, it's possible. Colombia, you know, he's got, he's got precedent there with, with all the cocaine that's being grown there. There are things he could do in those parts of the world. But when you get down to Trying to bully places like Brazil, it gets a little tricky. It's not to say it's not possible because there could be one big America's Kumbaya, but the formerly junior partners like Brazil in that are going to have a much stronger say in how things get carved up. And that's not to say it's bad for America, but it won't be as good for America as it would have been when they had the whip hand over everybody.

Matt Zigler (45:00)

So in the midst of all this, we find ourselves with this little invention called AI or I'll kick it back. If you haven't read any of the Jonathan Hickman stuff, I'm going to push comic books your direction at some point here. Jonathan Hickman frames AI as a discovery, not an invention. And in his X Men run, he actually has this whole thing about eventually you come to this awareness that you can do this with your tools. He compares a lot more to finding fire than it is to, you know, building the car or the wheel or the Internet or anything.

Grant Williams (45:30)

Yeah, it makes sense, actually.

Matt Zigler (45:32)

It's a beautiful metaphor.

Grant Williams (45:33)

Yeah.

Matt Zigler (45:34)

So we have this AI thing going on right now, and it's complete with some of the things that you just described. A hunt for resources. We got to power all these data centers and these things if we're going to use it. Then also the promise of all this growth, you've said it feels dangerous. Put AI in the context of what the US and the world is going through right now. Jamie Lee Curtis and Lindsay Lohan are back in Disney's Freakier Friday, now streaming on Disney. We switched bodies.

Grant Williams (46:03)

I am freaking out right now. I think I just peed a little.

Matt Zigler (46:06)

It's an absolute riot and the only movie that can be described as so much weirder than the last time. What last time? It's the Frequel.

Grant Williams (46:15)

You ready?

Matt Zigler (46:15)

We've been waiting for that. Absolutely slays Disney's Freakier Friday, now streaming on Disney. Rated pg. Oh, such a clutch off season pickup Dave.

Grant Williams (46:26)

I was worried we'd bring back the same team.

Matt Zigler (46:28)

I meant those Blackout motorized shades. Blinds.com made it crazy affordable to replace our old blinds. Hard to install.

Grant Williams (46:34)

No, it's easy. I installed these and then got some for my mom. She talked to a design consultant for free and scheduled a professional measure and.

Matt Zigler (46:41)

Install hall of fame son. They're the number one online retailer of.

Grant Williams (46:44)

Custom window coverings in the world.

Matt Zigler (46:46)

Blinds.com is the goat. Visit blinds.com now for up to 45% off site wide plus a free professional measure. Rules and restrictions apply.

Grant Williams (46:56)

Well, I think we have to start saying we don't know, we don't know. I mean, again, drowning in certainty over AI. I'm drowning in it, everybody. It's either the future or it's the biggest bubble of all time. And there doesn't seem to be anything in the middle and, and that's always a red flag to me. So I don't know. I, I, I find a lot to agree with in the case made very strongly that this is a huge misallocation of capital, a massive capex bubble like we saw with the Internet bubble in the 2000s where all this money was spent on fiber optic cabling and all the infrastructure was built, which is exactly what we're seeing again here with the data centers and everything. And of course it wasn't until we had the dot com bust when people could pick up these assets for pennies on the dollar that we were able to have 9.99amonth Internet. It was the dot com bust that really enabled us to have Internet, not the cable that was laid. Because if the cable laid, they weren't successful. It would have been too expensive for us to afford to buy to have Internet. And I think the same is happening with AI. I don't know for sure, but as I've looked at both arguments, that one makes the most sense to me because I have a frame of reference because I went through that dot com bubble. I saw all that happen and so I can see the similarities there. You I had a fascinating conversation lately yesterday actually when we, when we talk about, I don't know what's going with AI, I was, I was giving a presentation in London and I was chatting with the, the two guys who'd asked me to go and speak there over lunch and we were talking about AI and one of them had been worked for for a big bank and they've been doing some interviewing and what have you. And they said, first of all, our HR department has basically been completely eviscerated. Everything's AI now they don't really, they're trying to get rid of all the people in ar, in hr. He said for every job we advertise we get like a thousand applications. All of them, AI generated resumes. He said, we use AI to sift through them. And he said now we're conducting interviews with AI. You'll talk to a screen, the questions will come up, you'll talk into the screen and we'll use AI to map. But it's extraordinary. But the bit I hadn't thought about, he said, but what we found is happening is that we don't now really know anybody. We don't know who these people are. We can't get to know them because everything they've given us is created by a computer. So the weird thing that's been happening is, he said, the kind of the Nepo babies are coming back. Because what we're finding is people will say, look, you know, so and so's kid. I spent the summer with him. He's a really smart young kid. We should get him it. Because the reality is there are very few jobs that smart people can't pick up and do well. I mean, the ones you need massive, very specific qualifications for are an outlier. But you want to talk finance. You want to talk bringing people into the world of finance. You know, I started in the world of finance at 18 with no college degree. You didn't need one back then. You could get a job in finance straight out of school. You didn't need to go to university. And I had that choice and I chose to get a job instead of a degree. And it worked out beautifully. But I, I, I picked it up as I went along as, as a lot of people have. So the weird thing about AI is that it's almost spun the world back to a time where we go, you know what, let's just, let's just have, have Jim's son come in because he's a great kid. And so, and so said that one of the guys, one of their camp counselors is great. So we don't know where this is going to go. Because when I heard that, I was like, wow, I'd never thought of it that way, but it kind of makes sense to me. It kind of makes sense. So I don't know where AI is going to go. I know it's being used for everything. And as soon as it's used for everything, it feels like it's worth nothing to me. I don't know. I really, I'm confused by it. I feel like I've seen this movie before, even if this is slightly different, but not enough to stake my life on the fact that this is going to go exactly the same way, the dot com bubble. But I'm watching it very carefully for any more signs that give me more conviction that this is.com bubble 2.0.

Matt Zigler (51:16)

There's a great marketing expression, and I know you're a fan of these as well. It's the, if you create something for everyone, you've created something for no one.

Grant Williams (51:24)

Yeah.

Matt Zigler (51:25)

And that's kind of what this feels like. Brent Donnelly also had an exceptional piece within the last week. If it's not X, it's Y. Picking on the oppositional framing thing that AI writers seem to do, but also saying that means this puts a premium back on personally curated and built trust, which seems to be the thing in fastest decline right now.

Grant Williams (51:48)

Yeah, trust, it's. Look, it's, it's the last time we spoke, we spoke about this because I'd just been doing that presentation and we talked at the beginning of this conversation about how money is built on trust. But the reality is society is built on trust. You have to have trust for society to function. Without it, it just doesn't work. And so at any point when trust is in decline, you are going to see the kind of problems we're seeing. And like I said, there isn't an event that can restore trust. It's a process. And so we have to go through that process. And the same way these guys now don't trust any resumes, right? They don't trust them. They go, well, I'm not even gonna bother reading them. Let's put them through AI and get to pick the top 10 candidates because what do we know? They had another story about someone who was being interviewed and was kind of a face to face interview on a zoom and had every qualification in the world just so full of qualifications. And this friend of mine said, I'm always the good cop in these interviews. I just like putting people at their ease. I just said, where do you think you're going to be in 5 years time? Where do you see yourself being in 5 years time? And he said, excuse me. The candidate kind of looked off camera a bit and looked a bit unsure and he gave a very strange answer. And as the thing went through, he and the following person who was interviewing them realized that this person was talking to them, but had chatgpt up on two computers and was touch typing the questions in and then glancing at the answers. Literally couldn't answer the questions themselves. Not because they weren't smart, because they had, you know, degrees that I don't even know what they are or how difficult they are to get. But is AI going to make that problem go away? No, it's going to make it worse. If you don't know how to interact with people, AI is not going to help. So I don't know. Man, it's a strange time to be alive. I never thought I'd say I'm GLAD I'm almost 60 rather than I wish I was 20 again. But I think the entry level job market, the university leavers, the 22 year olds who are trying to get their first job, that is the place that's ground zero for what we need or how we need to figure out how this goes. Because if you're already in work, I think it's going to become much easier for you to hire someone who, in the old days, oh yeah, I used to work with that guy at such and such. He's a great guy, get him in here. And we don't need a graduate because we don't know these people are. Let's get someone with five years experience, we can outsource some of it to AI so we don't need, so we can afford to pay them more than we'd pay a graduate because we'll only hire one of him instead of two graduates. And the other thing that's happening is apparently on that particular point of the jobs market is companies saying, well, we'll have interns, but we're not going to hire anybody. We'll bring in a bunch of interns, we'll give them experience, but we're not going to pay them. We'll bring them in for three months in the summer. Maybe one of them sticks around, maybe not, but we just get some new interns in because there's always people looking for internships. So, you know, everything's shifting, but it, it seems to almost be going back. And that makes some sense to me because everything else is cyclical. Why wouldn't this be cyclical? You know, I, I, I, I, there's always change. The cycles just get more technological as they go around. But the, the cycles tend not to change too much.

Matt Zigler (55:32)

You make me think of how, you know, I'm an etymology nerd, credero and belief. And then it's those debt payments. The credit payments are what begets the trust. Yeah, that's a process. It takes time and we're seeing that in these smaller networks. And, and the idea, whether it's a nepo decision or not, just to say I have some direct tie to this person, therefore my faith in them has already been established. Well, let's see if we can build that relationship into something more.

Grant Williams (56:02)

Exactly. Right. I mean, you know, how many times have we seen mob movies where the, the store owner misses his first payment and the mob go, that's okay, you've been good so far, we'll let this one slide. No, no, it's all good. We trust you until you don't pay. And then, okay, we got a problem.

Matt Zigler (56:19)

And now we've got a problem. Now we've got a problem. Think through this from Somebody's watching this. They're an allocator. They're an investor taking care of their own family's money. What do you think of at the portfolio construction level and the stories you're telling the people that you've been charged with, the responsibility of these assets, how do you help them understand where we are at this point in time? And then what in the portfolio needs to reflect this moment?

Grant Williams (56:46)

The hardest thing, Matt, actually has been to, to convince people that the changes that are happening are significant enough that you really need to sit down and reexamine everything. This is not just maybe we rotate out of cyclicals into momentum. It's not that it may be in a part of your portfolio, but the kind of change we're talking about is the kind of change that happens once every 80 to 100 years. And if you get it right, if you, if you, if you completely reorient yourself for this next cycle, you have the advantage of the kind of period that we've just been through where it, it's, you've got these great tailors, but you have to be set up correctly. And, and, and for me, you know, that is commodities that all the, basically all the things that have been out of favor that have been unloved through this period, again, on some level, this is actually pretty easy because what's happening on most level is a reversal. It's interest rates are going up, they're not going down anymore. Trust is going down, trust is not getting up anymore. If things are reversing, it's almost like George Stan, because George Costanza, right. He's just going to do the opposite. You've just got to do the opposite. If you didn't own any commodities that's worked really, really well, you didn't need to own commodities. You probably do now. If you didn't own any gold, gold's done really well. You probably need to own some gold. If you were massively overweight on US Stocks, that's done extraordinarily well. Are you right to be overweight US Stocks in this environment? I suspect probably not. But it takes courage to be the first salmon to turn and swim upstream. Right. And that's the place where a lot of people are. They don't want to jump ship in case this change isn't happening because I might miss out. They might have to justify their allocations versus benchmarks. And that's going to be a tricky thing to do. If the benchmark's going down and you're, you're searching for your new benchmark at a point in time where it's kind of too late. So the conversations I've been having with people have all been about what we've talked about. Have you considered this? And if not, will you consider it? And I really don't mind if you come back, say, yeah, you know, we've thought about it. We either disagree with the thesis totally fine or we think it's not a big enough probability for us to worry about totally fine or perhaps the most dangerous or we think, yeah, if it does happen, it won't impact us, possibly fine. But if you are set up for how the world has been and these changes that we're talking about are real and they're happening, they continue to happen, there is no chance in hell that what worked in that previous environment works the same way going forward. Zero. So you know those conversations and on an individual level it really begins behaviorally because the, at the retail investor level everything has been about a compression of time. Preference is, let's trade for it started off this week, then it was today, then it was the next two hours that's worked. But it probably won't work because the volatility is going to be such. It's going to expose an awful lot of people who have come to believe they're really good traders, but they're kind of not because it's a really difficult thing to do. And, and I did it for 35 years in markets that was so much easier than this. And I would call myself an average trader at best I survived, I thrived. But I work with really good traders and over 35 years I could count on one hand the number of guys that I saw up close who I would say, man, they are, you know, this is matrix level stuff. They are just in the flow. It's a very, very, very rare skill and everybody wants to have it because with it comes great kudos and hopefully loads of money. But there's a lot of self delusion about being a good trader. And, and you know, that's the first thing I think you and I spoke about this last time. You have to understand who you are and right now you have to understand your tolerance for risk because that will drive how you perform. Because if you're putting on positions that are greater than your tolerance for risk, it will make you make a series of bad decisions. And that is the way to amplify the problems we're talking about. In terms of a system reorienting itself, you're going to amplify that. If you start to make poor decisions in that, in that, in that new.

Matt Zigler (61:44)

Paradigm, it's that age old what you trust, who you trust and why. And you can't borrow from someone else's lived experiences. I love referring to this as rules of thumb versus rules of big toe. Somebody else's case study, somebody else's empirical example. That's a great rule of thumb. But the rule of big toe is the Legos or the bedpost in the middle of the night. It's the anecdotal stuff that becomes core to your identity. We need those rules in our lives.

Grant Williams (62:13)

Yeah. So good, right? Look, you only have to step on Lego once in a night. When you, when you have your first child and you step on that Lego one time and you are looking out for it every single time you get up in the night to go to that bedroom. And there's a reason for that. And, and you know, getting punched on the nose by markets is, is important. And the sooner it happens to you in your investment career or trading career, whichever one you choose, the better, frankly.

Matt Zigler (62:38)

So there's one Costanza example besides doing the opposite that I was recently reminded of that I think is worth inserting here because there's also the counter example of where you do the opposite. It doesn't work. Do you remember what happens with the snub? Kramer does the snub and it works out, he gets the date. Do you remember what happens to George?

Grant Williams (62:56)

No, I don't.

Matt Zigler (62:57)

I credit my step.

Grant Williams (62:58)

Podmo is going to kill me. Stephen's going to kill me that I don't remember this.

Matt Zigler (63:01)

All right, tell Steph because I know she knows this too. My, my wife and my brother in law. Her brother can communicate exclusively in Seinfeld. Comments?

Grant Williams (63:09)

Oh yeah, Steph too.

Matt Zigler (63:10)

Took me a long time to catch up. Yeah, it's, it's an amazing skill. So in the snub, George goes, oh, you can't, you know, snub the woman walking down the street. Like he's like, I tried that for a whole year once. Nobody talked to me. Everyone was happier. There's always a risk it won't play out as you think.

Grant Williams (63:29)

Yeah, yeah, that's true, that's true, that's true.

Matt Zigler (63:33)

Grant, people want to read more. Follow along with what you're doing. I think every time I start to go, some of this story feels like it's the same thing or it's changed or it's, it's it's too grand of a proportion to feel granular. We get a course of events like we've been seeing in the last several months, and I go, yeah, Grant's been telling me this for 15 years. Where should people go if they want to find more? Tell them what they should. Look at what you're doing right now.

Grant Williams (63:58)

The easiest thing to do is send you to two places on Twitter. I'm @ttmygh, which is the acronym for things that make your home. But to be honest, I, I don't post a lot of grandiose opinions on there, but I, I share a lot of stuff that I think would be useful for people to read and, and, and, and interesting. And then the website grant-williams.com is where my writing and the podcast and the videos and all that stuff's on, on there. So that's nice and simple. Tying a nice bow on it for you.

Matt Zigler (64:25)

Put a bow on it. Make sure you track Grant down. He's around the country at various conferences. If you're in the U.S. he's around the world at various conferences. If you're outside of the U.S. read the writing. Check out the podcasts, especially the continued work with Demetri. I'm loving that entire feed. And if you need some sports, you need that Fulham reference from the beginning. That's what are you not entertained Is for Grant. Thanks so much for coming back on Excess Returns.

Grant Williams (64:48)

Matt, it's always a pleasure. I love our conversations. You ask such great questions and you're just so much fun to talk to. So thanks for having me on again. I really appreciate it.

Matt Zigler (64:54)

Learn from the best brother. Talk to you guys soon. Thank you for tuning in to this episode. If you found this discussion interesting and valuable, please subscribe on your favorite audio platform or on YouTube. You can also follow all the podcasts in the Excess Returns network@excessreturnspod.com if you have any feedback or questions, you can contact us at excess returns podmail.com no information on this podcast should be construed as investment advice. Securities discussed in the podcast may be holdings of the firms of the hosts or their clients. New Year, New Me. Cute, but how about New Year, New Money? With Experian, you can actually take control of your finances. Check your FICO score, find ways to save and get matched with credit card offers giving you time to power the through those New Year's goals you know you're gonna crush. Start the year off right. Download the Experian app based on FICO scoring model offers an approval not guaranteed, eligibility requirements and terms apply subject to credit check, which may impact your credit scores. Offers not available in all states. See experian.com for details. Experian Science.