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- [00:01]
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Support for the show comes from Fundrise. For the past seven years, there's been a room in finance most people couldn't enter. A room where you could have invested in some of the biggest names in tech companies like Airbnb and Uber before their multi billion dollar IPOs. I'm talking about venture capital. Fundrise recently took a sledgehammer to those closed doors by launching a venture capital product that's available to anyone. Their mission is to give everyone the chance to invest in the best tech and AI companies before they go public. You can visit funrise.com profg to check out Fundrise's venture portfolio and get in early today. All investments involve risk, including a potential loss of principal. Past performance is not indicative of future results. This is a paid advertisement.
- [00:45]
Ed (Host)
AI had the time of my life a I.
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Robert Armstrong
Never felt this way before.
- [00:55]
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- [01:07]
Ed (Host)
And I owe it all to you.
- [01:10]
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- [01:13]
Ed (Host)
Use on Monday.com this is pro linebacker.
- [01:16]
Robert Armstrong
TJ Watt and I'm back with YPB by Abercrombie for another activewear drop. My second co design collection has new shorts and tanks that keep up with all my in season workouts. And their new Restore collection is a game changer off the field too, because even pro athletes like me need rest days. Shop YPB by Abercrombie in the app, online and in stores because your personal best is greater than anything.
- [01:45]
Ed (Host)
Today's number 200. That is how many days of the year the weather is foggy in the Grand Banks in Newfoundland. This makes the Grand Banks the foggiest place on the planet, according to NASA. Scientists have also attempted to catch the fog, however, they missed. Welcome to property markets. Scott is still on vacation, but he will be back later this week. So today, the person you hear laughing very heavily on the other end of the line we have Robert Armstrong, US commentator for the Financial Times, favorite of the podcast, Rob, welcome back. Thank you for standing in.
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Robert Armstrong
I think you found such an excellent metaphor for our profession there, Ed. Catching the fog. We are fog catchers.
- [02:46]
Ed (Host)
It's true.
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Robert Armstrong
That's what we do.
- [02:47]
Ed (Host)
Fog catchers. And we do miss.
- [02:49]
Robert Armstrong
It just keeps slipping through the net, you know.
- [02:54]
Ed (Host)
That's exactly right, man.
- [02:56]
Robert Armstrong
It is. And it's not getting any less foggy out there, I notice. Not this week.
- [03:00]
Ed (Host)
That's right. We're gonna catch something today. I Know that. So we got a lot to talk about here, and we're gonna start with our first story, and this is going to be about what we've seen in Venezuela and Greenland. So President Trump opened the year with a dramatic show of Force, announcing U.S. troops captured Venezuela's President, Nicolas Maduro. Just a few days later, he revived his push to acquire Greenland and signaled that he would consider using military force if necessary. And Trump has framed these moves as part of a broader vision for American power, which he is calling the Donroe Doctrine. And this is a reference to the Monroe Doctrine, which was first articulated in 1823 when President James Monroe declared that the Western Hemisphere was America's sphere of influence. The idea of back then in the 1800s was to kind of fend off colonialism from Europeans. And it basically holds that any intervention in the Americas in the Western Hemisphere is potentially some hostile act against the U.S. so the administration has actually endorsed this publicly. The Monroe Doctrine specifically. They did that in November, and now we're seeing it play out in Venezuela, more recently, Greenland. And we're basically seeing the United States is being treated at this point as like an imperial regime. And now Trump is talking about maybe taking action against Cuba as well, maybe against Colombia also. We shouldn't forget what he said about Canada last year. He wanted to fold it into the US And MAGA supports this. This was a quote from Representative Andy Ogles, which we're going to play.
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Robert Armstrong
We have a greater vested interest in.
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Sponsor/Advertisement Voice
Greenland than, geographically speaking, than the Denmark the Danes have. And so when you look at the Monroe Doctrine when you look at the Western Hemisphere, we are the dominant predator, quite frankly, force in the Western Hemisphere.
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Ed (Host)
So all of this begs the question, and I know that we're not geopolitical experts, so we're going to try to tie this into markets as much as we can. But what would an imperial America look like? How would it change the world if we really went out there and decided we are the apex predator? And then how would it affect markets and perhaps the economy? Rob, over to you.
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Robert Armstrong
I have two diametrically opposed thoughts about this, which shows you that I'm intelligent. This is the. I guess it was the Fitzgerald quote. Genius is the ability to hold contradictory thoughts in your head at the same time. And my first thought is that people like me, and I think you too, Ed, who believe in free markets and commerce and letting economics and markets lead, how we structure our, at least the commercial part of our lives. We kind of want markets to punish all bad ideas, right? We want it to be a kind of final court of justice for the world. And I'm afraid that that is not true. You know, what do stocks do? They discount future cash flows of corporations. What do bonds do? They are a bet on the solvency of a nation. And that could connect to geopolitics a little more closely. But you can have an empire that's plenty solvent. There's been a lot of them in history where you'd to own their bonds. So we can't turn to markets to solve these kind of political and moral dilemmas for us. But, so that's the thought, number one, the contradictory thought. Is this where we see markets flourish in history, where markets are places where people can make good money over a long time and retire and be happy and compound wealth and all that. Those almost one to one turn out to be places that have rule of law. You can't over time make money in the Russian stock market. You haven't, you haven't consistently made money over time in the Chinese stock market. And importantly, in the case of China, you haven't made good money there, despite the fact that the economy has grown leaps and bounds. Right. So investors didn't grow with the economy in China, a place where rule of law is an open question. So if you think we're heading in a direction where the rule of law doesn't apply, where the imperial attitude extends not only to other countries, but to our own citizens, then you might see markets in the long run have a problem. But they're not discounting that right now. That's for sure.
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Ed (Host)
100%. Just to go look at what's actually happening in the markets right now. Because it's, I mean, it's true, we had this in Liberation Day where Trump does this incredibly stupid thing and the market punishes him severely for it, which is kind of what made Taco so great. And for those who don't remember, Robert Armstrong came up with the phrase taco, which took over the world.
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Robert Armstrong
Yeah. And now it's possibly obsolete, as my friends on the Internet like to remind me. You know, at least in the geopolitical realm, it doesn't look like a taco world anymore.
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Ed (Host)
Exactly. But what we're seeing right now is just exactly as you're saying, this administration, despite deciding that they want to go and invade the region of an ally in Denmark. No, they're not really being punished for it. In fact, we're not seeing that much movement overall. We've seen some big moves from some very specific individual names. So if we look at Venezuela, for example, the oil refinery stocks climbed a lot. So Philips 66, up 6% and have stayed high. Stayed high. Valero up 12%. The oil service stocks also climbing. Halliburton, Schlumberger, there are a few kind of specific names. By the way, the same thing's happening in Greenland where there are some publicly traded rare earth companies that operate in Greenland. They've sold so critical metals up 25%, energy transition minerals up more than 30%. I mean, big, big, big, big moves, but only in a very, very small handful of stocks. The market as a whole doesn't seem to care that much. The, the S and P is up a little bit. But overall, I mean, these very cataclysmic events in the world of geopolitics, Venezuela and Greenland, the market doesn't really care.
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Robert Armstrong
The most interesting one is that Chevron doesn't really care. Chevron, the only American Venezuela is back to where it started on Thursday. Right. People like, oh, this is exciting. And then you look at the, you know, we don't have to go into this, but the actual dynamics of oil extraction in, in Venezuela and you realize this is not a great look for the drillers themselves. The, you know, like the Chevrons and the Exron. You might make a joke that it's a lot easier to extract a president from Venezuela than, than it is to extract oil.
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Ed (Host)
Yeah, exactly.
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Robert Armstrong
So I think that's fascinating. But there is a kind of side plot that you haven't mentioned that takes us kind of from the macro to the micro that I'd like to mention in this context. Like, while all this stuff has been going on in Venezuela, we have seen the emergence of a character that I am calling Donald Trump with Elizabeth Warren characteristics. And this is someone who in the last few days, Donald Trump has come out and said he doesn't want defense companies to pay dividends or buy back shares or pay their CEOs a lot of money. Because now presidents apparently decide whether how private companies allocate capital and pay their employees. And those stocks are now up because he then went on to say, after those stocks tanked, we're gonna spend a lot more money on guns.
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Ed (Host)
Half a trillion. Half a trillion more.
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Robert Armstrong
Yeah. Who needs Congress to throw another half a trillion dollars at the military? We'll see if that happens or not. So the stocks recovered, but the point was the guy came out and said, we're taking control of these private companies capital allocation until they do what I say. And then he comes out and says, and this one's even Stupider. We're not going to let institutional investors buy houses anymore because it's making houses unaffordable. And Blackstone is in that business. And Invitation Homes, those stocks tank, right? And never mind that they own a tiny percentage of the houses out there. The idea here is, I mean, you can't make this stuff up. It's like we're going to discourage investment in housing as a way to make housing more affordable. This was the big plan, you know what I mean? But again, that sounds like the President being imperial towards Americans. Right, to me. So I don't. By the way, I don't think those things will happen. I think this is just big talk, which we're familiar with from this guy.
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Ed (Host)
Interesting that Wall street seems to disagree with that, that he says something that seems perhaps implausible. I mean, I remember as soon as he said, I'm not going to allow public defense companies to issue dividends. They're not allowed to do buybacks, the first message in our research group was, can he do that? And if you look at the stock, you think, I guess he can. Because the stocks, well, way, way down, they're down.
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Robert Armstrong
They have recovered a little, to be fair. And the first move, you can't always judge by, you know, but. No, but that's kind of what they're gonna put on Trump's gravestone, right? Can he do that, Question mark?
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Ed (Host)
You know, it's a really important question. And I think crucially, just to go back to the Monroe or the Donroe Doctrine that we're describing here, it seems as though in the last few weeks, he's gotten kind of an appetite for going in with guns and shooting people and blowing things up, taking things, winning. And it seems to have emboldened him to have that approach towards everything. And I guess that is sort of what you're saying here is it's not just in the world of geopolitics, it's kind of the. It's kind of everything. And it's almost as if Reverse Taco might be the defining feature of 2026, where he's decided, actually, you know what? I really don't give a fuck. I thought I did, but I don't.
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Robert Armstrong
I don't. And, you know, this is a historical pattern. You know, I don't know anything about politics, but everything I do know I learned from Thucydides, Peloponnesian War, you know, which in somewhere in my education, somebody forced me to read it. And the gag there is Athens decides It's the Hegemonic power. And I don't even know if I'm saying that word correctly, by the way, hegemonic power in the Mediterranean. And it's like they literally say we're the strongest. And you know, this is where the famous phrase the strong do what they will and the weak suffer what they must comes from that's attributed by Thucydides to the Athenians. And the whole gag of that book, the Peloponnesian War, is you start thinking that way and you get in trouble. Yes, right. Eventually you overstep. And I think, you know, again, as a non politics expert, I think that makes sense. You know, you do something, it works. You try the next thing, you try the next thing, the only thing that stops you is disaster.
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Ed (Host)
I like that framing because I like that it doesn't appeal to the ethics of it all, which we must recognize. Doesn't seem to be a huge part of the calculation for this administration. I'm sorry, it isn't. Yeah.
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Robert Armstrong
And we can say, and you can look at American history, you know, the kind of maga realists will say it's always been about force. We were just hypocrites before and where now we're just being less hypocritical. And you know, there's a perfectly plausible reading of history that that's true. You know, it's always been about a contest of force. You know, we just know it now. I'm not endorsing that, I'm just saying it's not stupid. Right.
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Ed (Host)
I think let's take that to its end. Like let's take ethics entirely off of the table. Let's go fully realpolitik. If our only goal is to make more money, let's assume that's all we care about. Should we invade nations and take their stuff? And I do think that if you're thinking in the short term and also if you're thinking in election cycles as he does, there is an argument to be made that yes, you should, because just put very simply, if I successfully rob a bank, I will be richer and the other guy will be poorer, and if I do it again, I will get doubly as rich. But to your point, I think the trouble arises over the long term. And this is, as you say, what historians have studied for years. And that is if you overplay your hand, if you start abusing other nations to a chronic degree, if you're abandoning treaties, if you're threatening populations, it can be really bad. And this is what this historian Paul Kennedy talks about. He calls it Imperial overstretch. And that is, we saw it with the Romans, we saw it with the Spanish, we even saw it with the British. You keep on trying to take, take, take, and then one by one, if you kind of overstep your boundaries, then suddenly you have a colony that's rebelling and then sure enough, the entire thing collapses. So from a pure wealth perspective, it doesn't seem a good idea. Over the long term.
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Robert Armstrong
Yeah, over the long term. But the problem with these kind of arguments is you don't know when the long term is. The investing horizon of the average investor. The time from when they have enough money that they have something to invest to the time that they retire and have to start spending the money or whatever. You got a 20 year horizon there. You're middle aged by the time you have anything to invest and then pretty soon you're retiring. So, you know, over a period of a hundred years, maybe you're right. But we're not playing a hundred year game. Nobody in the stock market is playing, nobody in the bond market is playing a hundred year game, you know what I mean? So you can understand why the market might not price these things in. Well, because nobody in all the people, when the comeuppance comes, everybody in the market today is going to be dead or in a retirement home.
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Ed (Host)
Yes, exactly.
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Robert Armstrong
So there we are.
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Ed (Host)
And it explains a lot. It explains a lot of the behaviors and it all almost makes me think that we are just doomed and kind of history would tell you or not, as I'm probably not doomed, you're probably not doomed, we're fine. But grandchildren, great grandchildren. I mean, I even think of this when we think about the debt cycle. It's like we just cannot think long term. All we care about is the next one, two, three or four years. And it doesn't seem like that is a good signal. I mean, I would like. I'm basically trying to come up with a reason as to why if you had no care in the world about morality or ethics, why it would still be a bad idea to go in and steal things. That's what I'm trying to do.
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Robert Armstrong
We had a pretty good thing going. I know a lot of people don't agree with that. And our system, by which I mean the American system or perhaps the, the developed world system, a lot of people sit in a lot of different places in that system and will have different experiences of it. But I think overall in terms of wealth and health and all the stuff that I want, you know, I, I listen to the complaints about that system that are made by Trump and his. His team, and they just seem wildly exaggerated. So, like the argument I would lean, if I had to make an argument, I'm like, whoa, whoa, whoa, things are pretty good. Are you sure you want to start rolling the iron dice here when we're all, you know, living. We're living long, you know what I mean? We have all this nice stuff, you know, Since World War II, all things considered, by the standards of history, you've been pretty peaceful.
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Ed (Host)
Richest country by a mile in the world.
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Robert Armstrong
And it's like, yeah, I understand things are tough in the Rust Belt, and I respect that and I respect the pain that, you know, inequality and unequal distribution causes. But I feel like we have a lot at stake here. You know, these are very general observations from a guy who sits around thinking about stocks, but there you go.
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Ed (Host)
That's what we're here to do. Just to sort of zero in on the natural resources question, because that has been interesting to watch that play out in the markets where it seems. It's so funny. Wall street seems to react almost in step with the way I react, or you would. It's sort of like, oh, my gosh, there's oil in Venezuela buy. Oh, but wait, it's going to take 10 years and cost $100 billion to get the oil out of the ground sell. And that is kind of what's happened here. And so the reason, I mean, I think a big question that people are trying to think about with this question is like, what are the main reasons that we are invading? Is it a geopolitical question? Is it about Maduro and is it about socialism? Or is it about the oil in the ground and the idea that we can take that? Or is it about China and trying to keep them out of the picture? Greenland, it's a similar thing happening. There's sort of a geopolitical strategic incentive to have that land. But then also, they've got all of these rare earth elements, and the numbers are quite staggering. Experts say that they might have 18% of all the world's metals. And if you compare it to the US we've got only 2%. And then you compare it to China, which has almost 50%. And this has been such a big piece of the US China fight the rare earth element conversation where we thought that we had leverage over China. And then we suddenly realized, oh, wait, they've got this thing called rare earth elements. And it's really important for electronics and for weaponry and for energy. All of these things that are strategically critical for the US and perhaps Greenland is a way to catch up with them. What do you make of all of that and also how, how Wall street has reacted to this?
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Robert Armstrong
I think the Wall street with, with a very limited number of exceptions, like the companies that have refineries on the Gulf coast, where if there's more very heavy oil flowing around, that's profits for them. That what the numbers on Wall, you know, coming out of stocks on Wall street are telling you is this is not a big economic event. Right, Right. I can't make as a proposition the removal of President Maduro in Venezuela. I can't make sense of that as a let's get the oil strategy. I just can't, given the oil market, how it works, where else there is oil in the world, how much the differential and extraction costs, the potential risks involved, it just doesn't work as an economic play. And similarly, I would say the same thing about Greenland. Now, it may be that people in the White House have a very different perspective than I do. People disagree. Maybe I'm an idiot, maybe they're idiots, but I can't make sense of it. So that just defaults me to. This is about politics, not economics. Which is not to say that Trump doesn't like to talk about everything like it's a business deal and he talks about, we get the oil and we're going to have this number to billions, and they're giving me that and we're going to be control and everybody's going to be rich. But that's just standard Trump rhetoric. He puts that on top of everything. Right. So, you know, just on the facts, because it doesn't make sense in any of the ways. I think it has to be in the political domain because it doesn't work for me.
- [24:01]
Ed (Host)
I think I'd take a slightly different view, which is, I think it justifies, it justifies the action to the president and to the administration. Like, I look at the way he has handled autocrats and murderous dictators in the past, and historically, he hasn't had that much of an issue with them. He doesn't even have an issue with, like, socialists. And we saw that in his interactions with Mamdani, where he was very playful and liked it. So I don't think it's. I mean, I think there's perhaps a piece of that in these invasions. But I think what gets him over the line is when someone says to him, hey, by the way, see this area? There's 300 million barrels of oil in it. And the same thing happens With Greenland, by the way. Look at this gigantic number. At which point it becomes no longer a question. Maybe it was a question before, maybe we were thinking about it. But now that I see how much money I can supply and also the story that I can tell to America and to Wall street, the idea that I can. And he's now beginning to tell that story, he now is actually talking about the oil and how rich we're gonna get from it. So I take your point, but I think, I think the resource part of this is larger than you do is what I would say.
- [25:32]
Robert Armstrong
I hear you and I think the general kind of explanation that you're reaching for, lot of different stars aligned. In the case of Venezuela, that is clearly right. Maduro made fun of him is one. There is a lot of oil. He just published a document saying we're not putting up with any nonsense in our hemisphere and et cetera. So all these things got into place at the same time. I would just put the emphasis on the kind of hemispheric dominance, wild machismo side rather than the economic side.
- [26:08]
Ed (Host)
Yeah, it's a good point. Just before we move on to our second story here, I love what you say about how markets, we want markets to tell us the right story here and we always want markets to tell us the right story here, but they just don't because the markets can only, they only care about so much. And it's really interesting. One of our research analysts on our team, Kristin o', Donoghue, was listening to the JP Morgan call and they're talking about what's happened in Venezuela and what's happened in Greenland and was pointing out that the way that they talk about it is so strikingly academic and uninterested in how cataclysmic the event really is. I mean, we're talking about guns, war, death. We're talking about very, very serious things, but in a very unsatisfying way. It's the market's job and it's the Wall street analyst's job to sort of treat it as if it's this, I don't know, an academic term or something that you write about in a research paper, which is so frustrating because it.
- [27:21]
Robert Armstrong
Isn'T that there is a very long thread, kind of intellectual thread that runs back to, I don't know, the 18th century, maybe even the 17th century. If people just stuck to business, if we all just worried about our material well being and our economic interests, everything would get better. Right? And people have been talking that way since Montesquieu. And you saw it, for example, in the view that we had 20 years ago, that no two countries that had a McDonald's would go to war, or that Russia, once the wall fell and communism ended and became a capitalist country, of course they're going to be our ally and they're going to join Europe and whatever. And so that kind of general school of thought that says economics will save us is really deeply ingrained in a lot of people. It's too bad that it's not true. It's just not right. And we have to be reminded of it, you know, every quarter of a century or so, you know, so there's, there's mortal life.
- [28:35]
Ed (Host)
We'll be right back after the break. And if you're enjoying the show so far, send it to a friend and please follow us if you haven't already.
- [28:50]
Sponsor/Advertisement Voice
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- [31:41]
Ed (Host)
We're back with ProfG Markets. Fourth Quarter Earnings Season kicks off later this week with all of the big banks reporting. And we'll break down the results on next Monday's episode. But today we want to zoom out and focus on the broader shift reshaping the industry. One of those shifts is deregulation. The Trump administration has made several moves to loosen banking rules. That includes rolling back parts of Dodd Frank, the post 2008 framework that was designed to limit risk taking. And the result is it is a really good time to be a bank. And we can just look back at the year 2025. The big bank stocks rose 30% over the course of the year. That's nearly double the gain of the market at large. The S and P. So, Rob, looking ahead to, well, let's I guess start with last year, which was the strongest year for banks since the pandemic. What do you make of what happened last year in the banking industry and what can it tell us about the year ahead?
- [32:47]
Robert Armstrong
A couple of stars aligned here in a really nice way. The first and most obvious one is that banks do as well as the economy, that they're sitting in a bank, you know, and the American economy was pretty good. And that's where you have to start. Anytime you want to talk about banks, when the economy is strong, people Borrow money. People pay back the money they borrowed from you before all of that stuff they deposit, they make deposits in your institution, et cetera. So that's good. Then you already hit the second important point, which is with the election of Donald Trump, the regulatory overhang lightened significantly. And you know, the most important for the big banks aspect of this is there were all these rules that hadn't arrived yet that they were kind of coming down the pike that were going to increase the capital requirements of the big banks even more than they already have been. Increased. They were of course, massively increased and hardened after the financial crisis. This is to say how many dollars of actual equity capital you have to have for every dollar of loans or assets or whatever you have out there. So we were worried that what they call Basel three end game was going to mean, you know, JP Morgan has to hold two more dollars in addition to the 11 or $13 they already hold for every $100 of assets. Looks less like that's going to happen. Acquisition. You know, mergers are getting easier, they're getting executed faster. All this good stuff. So regulatory good. That is good. Now for the tricky part where listeners should either pay attention or just tune me out altogether, one or the other, take your pick. So back when interest rates were really low before 2022 and there was inflation and rates got higher, any asset a bank bought then has a really low yield on it. If you bought a mortgage or even a business loan or the 20 year treasury, you bought it at a yield of just a couple of percent. When interest rates go up, the price of all those assets has to reprice to the new interest rate, which means the value of those assets goes down. Right. So if you buy a mortgage bond with a yield of 2% and rates go to 4%, the market value of that asset has to go down to make its yield 4% too. Okay, the sound of your listeners going to sleep, I, I can hear it now. So that this was a very bad occasion for certain banks. It hurt a lot of banks. This is, was at the root of what happened to Silicon Valley bank last year, et cetera. But what's happening now is that assets that were purchased back when rates were really low are rolling off of banks balance sheets. So you lose a loan you made in 2020, you replace it with a loan you're making in 2025, you're getting rid of something that yields 3% and replacing it with something that yields 7%. And that was going on last year. And it's going to go on Even more this year. So there's this natural lift under banks income just as the old world stuff rolls off and you replace it with higher yielding new stuff. And final point, and now readers, listeners who tuned out can tune back in for the very big banks. When you have very active capital markets as we had last year, that's very good for your investment banking and your trading desk.
- [36:24]
Ed (Host)
So I mean, if we were to look at what happened in 2025, all of those things that you describe leads to one of the strongest years we've ever seen for the banking industry. And by the way, just a side note, this is ironic because when Trump comes in, the whole message is the walk. The guys on Wall street have won for too long and we're going to hand it back to Main Street. It's not about getting them. And what do you know? I mean, everyone on Wall street is getting richer than basically ever before, than ever before. I mean, let's look at just the big bank stocks and their performance over the year. I mean, I mentioned the, the banks index, but that includes all of the smaller banks. Let's look at the big, big banks. JP Morgan gained 34%. Citigroup gained more than 60%, 63% over the year, which was kind of unbelievable. And for all of those reasons you describe, you have these regulatory conditions which are better. You have more M and A global M and A volume was up more than 40% for the year, which means that your investment banking business is crushing it. Also, one thing that I would add there that you didn't mention is the volatility that we saw in the stock market, which is so good if you're a trader. I mean, just the more it goes up and down, which it did, the more trading activity happens and the more money you make from facilitating those trades. So trading revenue was up 15% last year. So I think the question then is you'd think that because we had such a big year in 2025, we're probably not going to have that kind of year again in 2026. But I'm not so sure because I don't see any of these conditions changing. And then I would add one other thing, which is it seems that the IPO market is going to explode. Explode might be a strong word, but it seems like it's going to really come online this year. If you've got SpaceX in the pipeline, potentially OpenAI, potentially anthropic, that would be a great thing for the banks too. These would be some of the largest IPOs of all time. So my preliminary thought is 2026 is going to be a great year to be a bank as well. But I want to see what you think.
- [38:35]
Robert Armstrong
I think that's probably true. I mean, there will be more of this replacement of bad assets with good assets. That will still happen. I think, as you say, there's every reason to think, barring a crash or something awful, that the trading and investment banking business will be good. And I think as the economy is positioned right now, the economy seems pretty solid to me. So all the conditions are in place for good performance. But you have to remember, at the beginning of 25, bank stocks were cheap. They're not cheap anymore. Right. And so the reason people were excited about owning banks is that the stocks look like bargains. They don't anymore. I've been hearing a lot of chatter in the space where people are like, is JP Morgan a good buy at this price? I mean, you can understand why Citibank went up 60% because it's a troubled bank historically, and it went from being mediocre to being slightly less mediocre. And those kind of transitions is where you really make money in the stock market. Not from good to great. The big money is from trouble to slightly less trouble. You know what I mean? But you don't do, but you don't do that twice. Right. You know, and so it's going to be hard in terms of stock market performance. It's going to be hard, I think, for the banks to repeat what they did last year. But I think performance wise, your central case has to be that they're going to be just fine.
- [40:10]
Ed (Host)
Yes. Okay. I think that's a good, good way to frame it. The pressure on the stock will be the multiples. By the way, one thing that I find quite interesting, that Tom Lee, who's the head of Fundstrat, he says that he thinks that bank stocks are going to eventually and in the near future receive tech like multiples because he thinks that there's all of this.
- [40:41]
Robert Armstrong
I'm just going to get on my hand with my broker and sell everything. When Tom Lee says that banks are going to trade like tech stocks, I think it's time to hit the door. Like it?
- [40:51]
Ed (Host)
You don't like it?
- [40:51]
Robert Armstrong
Well, I just think they're banks, you know what I mean?
- [40:54]
Ed (Host)
His view is that there's so much power in AI, I mean, so much layoff potential, really, that these are extremely human capital intensive businesses.
- [41:02]
Robert Armstrong
Yeah, that's fair.
- [41:03]
Ed (Host)
Which could open up new opportunities for multiples. I mean, if JP Morgan decides to AI charge its business. Then suddenly you have a company that, that looks more. When the, when you look at the business, looks more like a software company than, say, a bank with a bunch of physical branches.
- [41:21]
Robert Armstrong
I got two things to say about that. One, yes, high fixed costs and human capital costs are part of the reason that bank stocks traditionally trade at something of a discount to the market. The other reason is that their earnings are very volatile because they're sensitive to the economy and to the stock market. And that's not going away in the AI world that's going on. So that's that. That factor will keep multiple. Two, this world in which AI gets a lot of people fired may be a world where we arrive at much more profitable companies in certain sectors, but it's going to be a hairy ride to get there. So, like I was just looking the other day at this bank, Truist, which your listeners may or may not know of, but it's a very large regional bank that was built out of a merger of two. Two quite big regional banks, BBT and SunTrust, five years ago. The stock's been a dog ever since the merger. And they did fire the people. They had something like 58,000 employees as two independent companies, and now they got 38,000 and they got more assets. So, like, mission accomplished on firing people, not by AI, but by doing a merger. Right, but you hear the war stories about what it was like getting from point A to point B, the culture clash, the people who leave because they're pissed off at everybody, the. The Sturm and Drang. Right. You know, if you, if the thesis is banks are going to fire a third of their people, like, is it going to be fun to be at those banks while that's happening? And if the people inside the institution are like, afraid for their lives, do you really want to own it while that is happening?
- [43:09]
Ed (Host)
Yeah, that's a great point. It's all a lot easier said than done.
- [43:14]
Robert Armstrong
I mean, we may get there.
- [43:15]
Ed (Host)
It'll take some time.
- [43:17]
Robert Armstrong
It'll take some time and some pain.
- [43:19]
Ed (Host)
Yes, this is a nice transition to something that you've been talking a lot about in your newsletter, which I want to get your thoughts on. You've been saying that. I mean, just for some context, we usually say on this podcast that consolidation is kind of a bad thing because it generally involves a monopolistic entity going in and buying up all of the smaller players, which reduces competition. It leads to potentially price gouging. We generally are not huge fans of when a big bank goes and Buys or a big company goes and buys another small company. Your view that you've been talking about, and I want to hear more about it, is that consolidation in the banking industry would actually be a good thing. Why do you say that?
- [44:08]
Robert Armstrong
Oh, yeah, I think it would be pro competitive. I think that what you look at, you know, I don't know what I should actually figure out this number, but what percentage of the profits in the banking industry are made by J.P. morgan? You know, and then if you put J.P. morgan, bank of America, Wells Fargo, Citigroup and US bank together, you know, they're just squeezing most of the profits out of the industry and there's your oligopoly.
- [44:36]
Ed (Host)
Right, right.
- [44:37]
Robert Armstrong
You know what I mean? And the fact that there is 1,970 other banks in America that are squeezing out tiny little drops of profit doing local banking doesn't mean the industry is really properly competitive. And from an investor point of view, the regional banking industry has been a terrible place to invest. And so I think consolidation of that issue would be good for investors. I think it would be pro competitive for the industry. The problem is the more that I read about it and the more bankers I talk to, integrating a bank merger is a nightmare.
- [45:19]
Ed (Host)
Why? Why is it a nightmare as opposed to anything else?
- [45:22]
Robert Armstrong
Okay, so one reason is because it's such a human capital industry. So the first thing that happens when BB&T and SunTrust get together is that everybody at the competing banks calls up the best banker at the merging banks and is like, you really want to put up with three years of bullshit while these guys screw around changing their name and re upping that, why don't you come work for me instead? And that banker, maybe it's a commercial banker who makes loans to banks or it's somebody, a trader, whatever, they just walk out and they take a lot of their clients with them. Right? As people used to say about Goldman Sachs, our assets go up and down in the elevators every day. And to a certain degree that is true of all banks, even a traditional branch banking bank. And you go through the disruption of a merger, all of that is at risk. So that's a big problem. Also, regulation in banking is so much stricter than every other industry. So you got the regulators on the less so now under Trump, but you have the regulators on the back while you're on your back while you're trying to do it. That's another issue. And culture is really important in banking vibes. It's a people business again. So you mess with that corporate Culture and you got an issue. So it's just really hard to do not say it. I just like, the more I talk to bankers about this process of consolidation, the harder it looks to me from the outside.
- [46:56]
Ed (Host)
Something you also mentioned in a previous conversation is that if you are the head of a regional bank, you are the man of your town, which you are. A really important point, and you don't want to give that up.
- [47:13]
Robert Armstrong
No, you're like, you're the. You're the national bank of wherever. Like, you know, whatever it is, you're. You're the head of Name the town you want. You know what I mean? Middletown, wherever. And you're ahead of the national bank of Middletown. You are the man at the country club, you're the head of the Rotary. You know, everybody loves you and you got this great job and this great life. And like, basically the deal, if you sell your bank, you're no longer the man anymore. And you're looking down at all the people who work for you and say, you say, look, it's been great. We just got bought out at a premium valuation. It's great for the shareholders. A third of you are going to get fired. Goodbye.
- [47:52]
Ed (Host)
Yes, exactly. Which is another example, I would add, of people don't think in terms of economics. There are moments where there are things outside of economics that are outside of money that trump money. And it happens in a lot of situations. This would be one of them. I'm the head of the Rotary Club and I'm the CEO of the regional bank here. Yes, technically speaking, this would be a better deal, but I don't want to give up these things that I enjoy in my life.
- [48:24]
Robert Armstrong
And, you know, I don't want to hurt the people around me. And, you know, the opposite mal incentive also applies. So they don't have. If you're the head of a small regional bank, you're CEO. You have a strong incentive not to sell. If you're the buying bank, you have a strong incentive to overpay. Barclays, the investment bank did a great chart of this. There's like an incredibly strong correlation between bank size in terms of assets and banker CEO pay. So, like, if you run a bigger bank, you just get paid more money. So, like, whether it's good or bad for the shareholders, you do an acquisition, maybe you overpay, it destroys value. Whatever you double the assets you're managing as a banker, you're going to double your income. So you have the. There's a conflict of interest between the CEO and the investor. And like you just don't want to be that involved in an industry where management and investors have different interests.
- [49:26]
Ed (Host)
Yes, exactly. And it's the same thing that we see in, say, venture capital, where, I mean, the whole industry seems to be getting overrun by the management fee. And that is you're not making money on the 20, you're making money on the two. And that basically incentivizes companies and firms to just buy up as much stuff as humanly possible.
- [49:50]
Robert Armstrong
Same thing is true in fund management, and that's why all funds tend to look the same. The important, the thing that's going to make you retire rich is retaining, you know, hopefully growing, but like retaining assets and earning that 2%.
- [50:04]
Ed (Host)
Yeah, you don't even need to invest well, you just need to invest long.
- [50:08]
Robert Armstrong
Yeah, yeah, you just so, so you, you have a stronger infinitive, like not to screw it up. Then you have to like, really, you know, go for it. You know, it's, it's a huge issue.
- [50:19]
Ed (Host)
We'll be right back. And for even more markets content, Sign up for our newsletter@profetymarkets.com subscribe.
- [50:35]
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- [51:40]
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For most of the history of television, if you missed a show, you just missed it. It was over, it was gone. But then this little company called TiVo came along and gave people superpowers you could pause live television, you could rewind it, you could save it, and watch it later. It was incredible. And the people who had it could not stop talking about it. This week on Version History, a new chat show about old technology, we talk about the history of TiVo and how it is that a company whose products actually no one ever really had or used became one of the most iconic stories in tech. All that on Version History. Wherever you get podcast podcasts this week.
- [52:18]
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- [53:03]
Ed (Host)
We're back with Prof. G Markets. So, Rob, you are one of our first guests of the year. So we want to get your take on what is in store for 2026. So we are going to go through some of the predictions that you shared in your unhedged newsletter, and I'm just gonna ask you questions and hear more about what you think is gonna happen.
- [53:24]
Robert Armstrong
Can I just say something as a by way of precious, Like, I don't think these predictions, I don't think my predictive powers are particularly strong. Right. You know, there's this guy, Dan Davies, who's a writer, and he says the reason to make predictions is that otherwise you don't know what to be surprised about. Do you know what I mean? Like, when events happen, the natural tendencies always be like, oh, yeah, I saw that coming. You know what I mean? And once you go on Ed's podcast and you say it out loud in front of everybody, at least people will call you up and tell you what an idiot you are when it turns out to be wrong. You know what I mean? That's literally the main reason to do predictions. It's a discipline.
- [54:04]
Ed (Host)
Yes, exactly.
- [54:05]
Robert Armstrong
So it's not because I have some crystal ball, because I think about markets all day. Nobody does. Right. But it's an accountability machine in some way, 100%.
- [54:15]
Ed (Host)
And also an important way to catalyze the conversation and frame what we should be thinking about and watching for as the year continues. I'll just say our listeners are very familiar with this because Scott makes many predictions. In fact, he makes a prediction every single week.
- [54:34]
Robert Armstrong
Good.
- [54:35]
Ed (Host)
Some of them are right, some of them are wrong. We try to keep track. But let's get into it. And let's start with this first question, which is are we in a bubble and will the bubble burst? And you say, yes, we are in a bubble, but no, it won't in 2026.
- [54:53]
Robert Armstrong
Well, that's just numbers, right? I mean this, as I said on my own show this morning, in finance, either you believe in valuations or you don't. I believe in them. We are in the top, not even decile. But what's after decile, like a hundredth or the 95th percentile? We're in the 95th percentile, the 97th percentile of how expensive risk assets are related to history and always before in history that predicts low returns over the long term over the next 10 years or so, as you might think, pay a lot for something, right? The profits aren't going to be as high. And in history, those low profits over the long term over the next 10 years don't come with a slow deflation. They come with a big step down. So history says, primarily for this reason, but also for others, we are in a bubble now, but the problem is that long term, do we have that big step down in 2026 or in 2031 or one year in between? I have no idea. And while I'm waiting around for it to happen, I'm giving up returns. So if it happens three years from now and I've been sitting on the sideline not owning stocks, what have I achieved? So this is just probability. The probability is we won't have a pop this year because most years we don't. It's that don't. Right.
- [56:29]
Ed (Host)
Is that really your reasoning? Because most years we don't.
- [56:32]
Robert Armstrong
Most years we don't. Even at these levels of a high valuation, these things can go on along for quite a long time. And I would add on top of that, the general setup is pretty benign right now. The economy is strong. We can talk about the somewhat wobbly labor market, which is a red flag. But in terms of growth and spending and activity and a lot, by a lot of measures, things are good and perhaps even getting better. We might have Fed cuts coming. We definitely have massive fiscal stimulus coming. It's an environment that is quite benign, which means there's less possible triggers for the deflation of the asset bubble that we're in right now.
- [57:20]
Ed (Host)
I would completely agree. I guess the way I was thinking about, I have been thinking about it is, I mean, if you believe that there is a bubble and you're trying to think about how to invest or how to bet on whether or not it pops, the idea of betting on it popping in a year where we are about to see this flood of fiscal spending that is going to prop up the market, where we are seeing interest rates coming down, it's just a bad bet. When you look at the reality of.
- [57:53]
Robert Armstrong
What else is happening, look, there's midterms coming, baby. You can't believe, you can't believe that Scott Bessant and Donald Trump are gonna throw the kitchen sink at this economy and 2027 be damned. You know, they're gonna do everything they can for 2020, 600%.
- [58:11]
Ed (Host)
Which is why my view on 2026, and we said it on a previous episode, I just think returns are going to be kind of eh. Like it's going to be. You have all of these downward forces which are related to what you're saying, that valuations are too high. You also have all of these expectations around AI and I don't think that people really understand how it's where the ROI is going to be and what the ROI is going to be. I think it will likely disappoint people as it has done throughout history. The one good thing that I would note is that we're not seeing huge amounts of leverage and huge amounts of debt.
- [58:50]
Robert Armstrong
Very good point.
- [58:51]
Ed (Host)
These companies are spending, you know, they're spending on data centers with money that they have for the most part. There are a few outliers. They might get crushed. But would that pop the entire thing? Would that cause a real correction, a real crash? Especially when you got those forces propping things back up? I think no. And then it all kind of goes in sort of a semi flat line.
- [59:12]
Robert Armstrong
I mean, one thing that is interesting about where we are now, now, as opposed to in 2008, say, is that, and this is the kind of sentence that gets you in trouble, but I'm going to say it anyway. Most or all of the leverage seems to be in the government. In 2008 there was leverage in households and also in companies. And since then households and companies have cleaned up their balance sheet with the assistance of, from governments which have this infinite appetite for debt.
- [59:40]
Ed (Host)
That's such a good Point.
- [59:41]
Robert Armstrong
So, yeah, that doesn't sound like a very good sustainable solution and way to live your life as a world to me. But it might make, at least in the short term a crash less likely because the crashes we know in developed countries at least they tend to happen. They started with households panicking or private institutions and somebody will write in and find an exception to me, but most of the debt is in the government and they've got a printing press. Which leads to the next important point. The big spoiler, the thing I'm worried about most is inflation. Right. When you have all this debt in the public realm and you're forcing all this stimulus into the economy fiscally and you're cutting rates and the economy's doing pretty well and you've reduced the labor supply by throwing all the immigrants out, I can't predict inflation, I don't understand it. But if there's inflation, all the nice things I just said are not true.
- [60:45]
Ed (Host)
Right?
- [60:47]
Robert Armstrong
Inflation goes up, the 10 year yield goes to 5.5%. It's a different game.
- [60:54]
Ed (Host)
Yeah, you said that. That was on my list here. The biggest risk in 2026 will be inflation. What do you make, just a quick side note, what do you make of the inflation report that we saw recently where it came down to 2.7, which shocked me and then I, I mean, I guess I'm sort of answering, but.
- [61:14]
Robert Armstrong
Give me your take first. Let me just ask you, what did you make of it? No, that's fair. You know it as well as I do.
- [61:21]
Ed (Host)
Well, I guess I don't believe it or I didn't believe it at first and I always hate being the guy who I don't believe the numbers. But then we talked with Mark Zandi and he basically took us through all the reasons why the data was completely flawed. And so in reality we're actually still at 3% based on the analysis that they did.
- [61:43]
Robert Armstrong
Yeah, I mean it looks to me and again, the data is flawed and we have this, we have this gap and it's surprising. We have this gap from the government's shutdown and it's surprising how that affects the data in months. To like all this stuff is kind of path dependent and all this stuff. But you know what it looks like is we're still above target goods, is maybe getting a little bit better services outside of housing is not. That was kind of my takeaway. And that's the bit that's like dependent on wages and et cetera, et cetera. So I think it's hard to say. You can't say we're at target, but I think it's hard to look at all the numbers all in and say things aren't getting a little bit better. Right. That's why I say I'm not predicting anything. I'm not saying, I'm not saying that I think inflation is going to happen for this X, Y or Z probability event. What I'm saying is it's the worst thing that could happen.
- [62:41]
Ed (Host)
Now within the realm of probability, all.
- [62:44]
Robert Armstrong
The things that are good going into next year depend on inflation staying under control. Right. And so if something should happen in that area, we got to reconsider all of our assumptions for all of the.
- [63:00]
Ed (Host)
Reasons that we're outlining here. I don't see it improving. That's really why I saw the 2.7%. I'm like, bullshit, no way. And I was very relieved to see the analysis which said I'm right.
- [63:16]
Robert Armstrong
Okay, well I'll give you two reasons. You can take these or leave. But these are two things why it might improve. The first reason is we laugh. At some point this spring we lap the April tariffs. So like, you know that if that turns out to be a one timer, right, we lap that. And so that falls out of the goods numbers.
- [63:39]
Ed (Host)
Yes, that would be huge if that happens. Yes, fair enough.
- [63:44]
Robert Armstrong
And on the kind of services side, we do have a bit of a mushy labor market which tells you maybe wage growth won't be that strong this year. And you know, although a lot of things surprise me. Surprise you? People do teach you back in school that inflation and wage growth are very intimately linked and it's hard to get hot inflation when wages aren't going up. So I'm not sure I buy those arguments either. But I guess those would be the standard ones that the inflation doves would roll out right now.
- [64:14]
Ed (Host)
Definitely most of, I mean the basis of my belief is really tied to tariffs and who knows what's going to happen with tariffs at this point. Especially we've got the Supreme Court ruling in the pipeline. So this is going to be an ongoing conversation. But in a tariff world it only goes up. I do want to keep us moving because you have more predictions. Will AI euphoria cool you say? Yes. Kind of linked to the bubble. But let's just get a quick why?
- [64:43]
Robert Armstrong
Because it's already happening.
- [64:47]
Ed (Host)
I love these predictions.
- [64:52]
Robert Armstrong
Nvidia has been going sideways. The stock's been going sideways for four months. Meta is struggling, Oracle is struggling. There is a sense visible in market prices that the market is being more CA becoming more cautious about this narrative. And of course, the dream scenario, what we should be all happening is that we have kind of incremental caution rather than a moment of freak out, that this kind of just cools down. And look, as somebody, as a really smart investor, Patrick Kayser at Brandywine Global put it to me this week, he was talking about the moment you're worried about is not that revenue, that AI data center spending just suddenly stops in the middle of 2026. That's not going to happen. The cranes are already there, the purchases are made, the cement is rolling. The moment you're waiting for, some moment in 2026 when people look out to 2027 or 2028 and they can see the end of the Runway out there. Right now, the road just goes on forever, right? But the moment we're waiting for, because the market discounts forward, the market doesn't care what's happening today, right? So at some point, the worry is that you see the end of the Runway sometime in 2026. And I, I just feel like, I don't know. My guess is no, it's not a high probability prediction. But I am reassured by the fact that the market is already exercising a little bit of discipline.
- [66:25]
Ed (Host)
It is interesting, the discipline that we're seeing in the markets. And I think one of my predictions for AI is that the winners in AI are going to be the ones that can signal a level of responsibility. I mean, if you look back at the previous couple of years in AI, you were rewarded for being unrealistic. You were rewarded for saying, we have this gigantic idea it's going to be artificial general intelligence, we're going to take over the world. And then people gave you money for saying that. I think that it's beginning to flip now where if you start talking with that sort of technobabble language, you begin to get punished. And it's the companies that are signaling the level of responsibility. And usually signaling that means you are actually being responsible. And so a company that I think would be rewarded, as an example, would be anthropic this year versus OpenAI.
- [67:17]
Robert Armstrong
Okay, so this is a question I would put to you that I was thinking about earlier today. So let's suppose, and I have no, I should emphasize at the outset, I have no grounds for thinking this is going to happen whatsoever. Let's suppose the wheels properly come off OpenAI this year, right? Like they try to raise some money and they can't. Or like they, the revenue stops growing and they have some horrible conference call. They try to sell the thing. You know, pick your scenario. Wheels come off badly at OpenAI. How big an event is that for the market at large?
- [67:49]
Ed (Host)
I think it's gigantic, personally. I mean, the, the amount of money. The good news is that the market is beginning to sort of understand that possibility. So that one and a half trillion dollars that they said they were going to spend over time, I mean, immediately you look at Oracle and the market says it's real, it's great, and you see Oracle shoot up, it goes crazy. Eventually they started to discount that one and a half trillion because they realized it's less realistic than we thought. But on top of that, I think that OpenAI has become such a symbol of the AI story. I mean, the gains. The biggest moment in the past five years is the launch of ChatGPT and that was the seminal moment where we kind of have to measure what has happened since then. And since then 75% of the gains in the stock market have been AI. It's all AI related. So I think because of the power of that story, if you have a blow up similar to what we saw with ftx, I think might be another good example. That was sort of the, what anchored the whole crypto story. If that just comes off the rails, I think that really shakes people's confidence.
- [69:01]
Robert Armstrong
Yeah, no, I don't know what to think about it. That's why I asked you is because I don't know what to think about that. I can imagine a scenario where the world's like, look, Google's still Google, Microsoft is still Microsoft. Nvidia probably takes a monstrous hit that.
- [69:13]
Ed (Host)
Day and eventually I think that would happen. I think you see the crash and then eventually people would realize, actually this doesn't mean it's over.
- [69:21]
Robert Armstrong
Yeah, yeah. It's just that this is a project that failed and onto the next path.
- [69:26]
Ed (Host)
Yeah, yeah, yeah, exactly. Moving on. Interesting prediction here. Will US stocks trail the rest of the developed world? You say, no, they won't. Which is the reason that's kind of relevant is because last year the S and P rose 16% and then the rest of the world ripped higher than that. So you say that's not going to happen.
- [69:52]
Robert Armstrong
And by the way, to further congratulate the rest of the world, they ripped higher in their local currencies. They didn't even need the weak dollar to beat the US A couple, I mean, earnings growth is just like comparing to Europe and Japan. I'll restrict the discussion to Europe and Japan just for simplicity's sake. Our economic growth is stronger and Our earnings growth is stronger, longer and at the beginning of last year, it's a bit like the banks. The lower earnings growth and the lower economic growth was very much priced in to European and Japanese indices. Now they have a higher hurdle to jump. And so I just feel like they had a great year next year. I'm a kind of politics aside American exceptionalism believer. Meaning I think there is a reason that US Markets get a premium that makes perfect sense. And we're now into the normal range for that premium. Better earnings growth, better economic growth.
- [70:54]
Ed (Host)
Okay, I think that makes sense. We also have here you say that cyclical high volatility stocks will outperform defensive low volatility stocks. Why do you say that? And then also, what are cyclical stocks?
- [71:09]
Robert Armstrong
So cyclical stocks, we talked about banks, which I think are good. These are just stocks that are, are very tightly, they respond very much to the underlying economic growth. So a classic example would be a construction company. If the economy's shrinking, put the cranes away, nobody's calling. And if it's growing, you can price any way you want. So you're going to be like the economy plus or the economy minus. So that's a cyclical stock. I mean, look, fiscal stimulus, cutting rates, we had a kind of sludgy fourth quarter that seems to be ending. And a lot of the cyclic stocks, as opposed to tech stocks, are still not bonkers in terms of what you're being asked to pay. So I think the economic background is good for them. And growth investors are probably looking for somewhere to go that isn't tech. Right. And again, this is one of these predictions that's easier because it's already happening over the last month or so. So banks, materials, industrials, they've gotten a nice lift. Again, this is a perfect example of the inflation problem. If inflation perks up, the rate cuts come off the table, the investors are going to run out of industrials, banks, cyclicals at top speed. So this is a perfect example of how inflation gets loose. All of these predictions change.
- [72:37]
Ed (Host)
All bets are off. Final prediction here. Will the Fed funds rate end the year below 3%? You say no. Why? And also, just what do you make of what's going to happen to the Fed in 2026? We've got a new Fed chair. Who will come in? We don't know yet, but someone's coming in in May. Jerome Powell's out.
- [73:02]
Robert Armstrong
A friend of mine, Ed Al Husseini, who is a fixed income guy at Columbia Threadneedle, is one of my best sources and a friend. He Put this in this way. He said, we're heading into situation where the chair of the Fed is going to be a dissenting vote. Right. Which is kind of new. And I looked this up and one of my colleagues came back to me and said, actually under Reagan Chair Volcker, even the great Chair Volcker, Paul Volcker, did get outvoted by the committee once or twice while he was. So it's not unprecedented for the chair, but it's like a weird and novel situation. How important is it that we seem likely to get a Trump patsy as chair of the Fed? And I guess I'm thinking maybe that's just another vote. Like the press conferences are a little weird, granted, if they keep having press conferences, but you know, the guy just gets outvoted. And there's a long history of people getting appointed by politicians who are then in safe jobs like their Supreme Court justices or they are Fed chairs, and then disappointing their former master because they're safe. So, you know that I'm. But I will admit that this one does keep me up awake a bit more than the other predictions. I was partly saying we're only going to one or two, one or two cuts because I wanted to be provocative, you know what I mean? Because everybody's out there saying it's going to be, whether it's Warshire or whoever it is, which Kevin, it is, they're going to come in there and it's going to be like suddenly the whole committee is going to be calling for 50, 100 points of cuts right off the bat. And I just wanted to push back against that narrative.
- [75:07]
Ed (Host)
I think it's a really important point and I think it's sort of an important reminder of how the Fed actually works. And, and for those who don't know, there is a committee and each person on the committee gets one vote, including the Fed chair. So the question is, what power does the Fed chair really have? And you know, there's power in the sense that they set the agenda for the committee. They decide which things are going to be talked about and how the conversation's gonna proceed. They're also the person who gets on the TV and talks to the country about what is happening. But it is a really great point. It's like. But also they just have one vote.
- [75:52]
Robert Armstrong
There's no doubt that the way central banking works is less through the actual impact of the interest rate and more through signaling and messaging. You know, the actual interest rate, we're talking about quarter point increments at a rate that very few people in the economy pay. Right. What's important. And so where the chair can have sway is everybody on that committee knows that they're sending a message as a group to the world. Right. So there is pressure for them to, you know, one or two dissents are okay. But the world does not need a split committee from the Fed and the committee is, the open market committee is aware of that. So, you know, we're going to have an interesting experiment in kind of group dynamics here that we haven't had in many decades.
- [76:45]
Ed (Host)
Such an interesting point. I really hadn't considered that and I love it because it's such an obvious point. Okay, let's take a look at the week ahead. We will see inflation data from the consumer price index for December. We will also see the Producer Price index for November. And of course we will see earnings from J.P. morgan, bank of America, Wells Fargo, Citigroup, Morgan Stanley and Goldman Sachs. Rob, this is the part of the show where we ask Scott for a prediction. But we've already kind of heard some predictions from you.
- [77:19]
Robert Armstrong
Yeah, yeah, you've already done it to me. You give me a prediction, I ask you for a prediction.
- [77:24]
Ed (Host)
I'm not going to give one. I'm not going to put myself in that position. Instead I will ask a more general question. Is there anything you are watching closely this year or anything that you're looking forward to this year or perhaps anything that maybe you're excited about this year and it doesn't have to be markets related?
- [77:45]
Robert Armstrong
Well, for the last two summers I, I've done each of the last two summers I did a triathlon.
- [77:55]
Ed (Host)
Wow.
- [77:56]
Robert Armstrong
And like this is the year at like a man. As a man in my mid-50s, I think this year I'm going to try to get really see what you can do with a 55 year old body. And the answer may be not very much. But that's my kind of thing. I mean it's sort of a trite New Year's resolution. But like I'll do a couple more of these races, gonna try to slim down a little bit and just see what sparks of youth I can recapture and we'll see how it goes.
- [78:26]
Ed (Host)
I love that. So these triathlons, how far are you running and swimming and what is it?
- [78:32]
Robert Armstrong
It's an Olympic distance. The two I did in the last two summers are Olympic. So you swim about a mile and you ride your bike for about 25 miles and you run for about six miles. And what that really turns out to be is two bullshit events and a run. The run is where you pay. That's where you pay. The rest is easy.
- [78:56]
Ed (Host)
I love it. So is it going to happen? Are we going to see you in a triathlon this year or you're mulling it over?
- [79:01]
Robert Armstrong
Yeah, again. I'm going to do it again. I've signed up. Up. You know, I put the money down so, you know, you know, the, the sunk cost fallacy may drag me into it.
- [79:11]
Ed (Host)
Well, I love that. And we're going to need to get a selfie and maybe, maybe we'll have you FaceTime in. Maybe we'll record an episode while you're running that will get clicks.
- [79:20]
Robert Armstrong
Please don't run. Running. Running, by the way, is a slight exaggeration in terms of what I do. It's not exactly walking, but it ain't running either.
- [79:29]
Ed (Host)
Robert Armstrong is the US Commentator for the Financial Times and he writes the Unhedged Newsletter. He also co hosts a podcast by the same name. Previously, he was the FT's US financial editor and chief editorial writer. Before becoming a journalist, he worked in finance and studied philosophy. Rob, thank you so much as always, and thank you for standing in for Scar.
- [79:51]
Robert Armstrong
Yeah, this was fun. It's great talking to you.
- [79:52]
Ed (Host)
Absolutely. This was fun. Thank you, Rob.
- [79:55]
Sponsor/Advertisement Voice
God.
- [79:59]
Ed (Host)
This episode was produced by Claire Miller and Allison Weiss. Mia Silverio is our research lead. Our research associates are Isabella Kinsel, Dan Shalon, and Kristen Odonue. Benjamin Spencer is our engineer, Drew Burrows is our technical director, and Catherine Dillon is our executive producer. Thank you for listening to Prof. G Markets from Prof. G Media. Tune in tomorrow for a fresh take on the market pockets.
- [80:49]
Robert Armstrong
And the.