← The Master Investor Podcast with Wilfred Frost
The Master Investor Podcast with Wilfred Frost
Scott Bessent: Inside Trump’s Treasury; War Costs; & Why Bond Market is King
00:53:08
Loading summary
Transcript146 lines
- [00:00]
Scott Besant
Markets go up and down. What's important is that they are continuous and functioning. In my 35, 40 year career, when people panic is when they're not able to have price discovery, when markets close, when there is the threat of gating, things like that. So we are just concerned that the market is continuously functioning, that there's a buyer selling, we can match them up.
- [00:28]
Wilfred Frost
Is it your belief that the volume of ships going through the Strait of Hormuz will be improving immediately from now?
- [00:36]
Scott Besant
It is my belief that as soon as it is militarily possible, the US Navy and perhaps with an international coalition will be escorting vessels through.
- [00:49]
Wilfred Frost
And that came up just now in the Situation Room.
- [00:52]
Scott Besant
Your words, not mine. In terms of investing, I tell everyone you have to know what level of risk you're willing to take. You have to do what you're comfortable with. And you just shouldn't get out over your skis like that's the main thing. You never want to have to sell at the bottom. You never want to find yourself chasing at the top.
- [01:15]
Wilfred Frost
Is America out over its skis in the Middle east right now?
- [01:18]
Scott Besant
Absolutely not.
- [01:22]
Podcast Host/Announcer
Welcome to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the
- [01:30]
Wilfred Frost
world, giving you, our listeners, the edge.
- [01:33]
Podcast Host/Announcer
The Master Investor Podcast is sponsored by BNY Investments, Elseg and Interactive Brokers. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show notes. My guest today is the single most
- [01:58]
Wilfred Frost
important person in the world of global finance, the US Treasury Secretary, Scott Besant. He's also one of the greatest investors around today. He was at Soros fund management for 20 years in the 90s and 2000s, rising to be CIO before founding his own hedge fund, Key Square in 2015, amongst many other roles before his current one. Mr. Secretary, it's an honor to be here in the treasury with you.
- [02:27]
Podcast Host/Announcer
Welcome to the Master Investor Podcast and thank you for having me.
- [02:29]
Scott Besant
Good. And welcome to the Cash Room.
- [02:31]
Wilfred Frost
It's a fantastic room. You're telling me the history used to host, in fact, inauguration balls for the President.
- [02:37]
Scott Besant
We did, we did. It was a much smaller affair there, but it's a grand room.
- [02:42]
Wilfred Frost
It's certainly very spacious for a one on one interview and it's, as I said, such a treat to be here. So much I want to get to, including your investment career and your current political role. Before diving into that, there was a quote in My preparation that you gave to the FT in October 2025, that really jumped out to me. You said, unlike most of my predecessors, I have a very healthy skepticism of elite institutions and elite opinion, whereas I think they didn't. But I have a healthy regard for the market. Is that a sort of guiding principle for you as you switched from investing to politics?
- [03:17]
Scott Besant
Well, I think in investing it was always a guiding principle that the Crowd is right 85 or 90% of the time, and that's the momentum. But it's really that when things turn or when you could imagine a different outcome, then the consensus is when you can really make a lot of money. If we think back to impossible for a country to leave the exchange rate mechanism, there's unlimited support there. If we go back to the US housing crisis in the 2000s, there was just this mantra, well, the US has never experienced a down national housing market, so nothing to worry about. So I think that to the extent I've had set success in my career, some of the really big successes have been taking the other side of elite opinion. Japan can never change. They are mired in deflation and disinflation. The lost decades are going to. I met this fellow called Abe and thought that he was a catalyst for change. So as a result, I'm always looking like, how could the consensus be wrong? How is the framing wrong? Where are we wrong here? Who would have believed, other than Ronald Reagan, that the Berlin Wall could come down?
- [04:41]
Wilfred Frost
And I guess with that healthy respect for the market that you have, you've brought that into your political role.
- [04:50]
Podcast Host/Announcer
Which market is the most important? Is it ultimately the bond market that
- [04:53]
Wilfred Frost
you have to respect?
- [04:54]
Scott Besant
It's ultimately the bond market. And the U.S. treasury market is the deepest, most liquid and most, most solid in the world. We manage it out of this, this building, and we are the guardians of the treasury market and we try to be very transparent and we also try to make sure that the market itself is very resilient on an operational and a settlement basis. Whether it was post Liberation Day last year, whether it's during this Iranian conflict now, the market is smoothly functioning, settling well. So we are very concerned about it at all times.
- [05:41]
Wilfred Frost
In your time as Treasury Secretary, how many times has the bond market given you pause for thought at least, or given you a little worry? Just in April last year, Was that a moment? January a bit this year?
- [05:51]
Scott Besant
No, no, no. What I was saying is that's when there could have been operational difficulties. I think about the bond market every day.
- [06:00]
Wilfred Frost
I've been quiet and there's no moments when it's scared you in your time as trader church of the movements.
- [06:05]
Scott Besant
No, no, no, no. Because again, markets go up and down. What's important is that they are continuous and functioning. In my 35, 40 year career, when people panic is when you're not able to have price discovery, when markets close, when there is the threat of gating, things like that. So we are just concerned that the market is continuously functioning, that there's a buyer, sellers, we can match them up.
- [06:37]
Wilfred Frost
Diving into the background of your career a bit more, I learned in my preparation, you thought about being a lifeguard, you thought about being a computer scientist and a journalist. Obviously you went into finance and started as a banks analyst at Brown Brothers, which I hadn't previously been aware of. I love that having been the lead banks reporter at cnbc, settled on global macro investing.
- [07:01]
Scott Besant
I will point out I was a lifeguard.
- [07:03]
Wilfred Frost
You were a lifeguard?
- [07:04]
Scott Besant
Sorry, I was a lifeguard.
- [07:05]
Wilfred Frost
But did you nearly do it long term?
- [07:07]
Scott Besant
No, no, no, no. That wasn't a long term career. You age out pretty quickly, both because of the physical and the sun.
- [07:15]
Wilfred Frost
Well, either way, I hadn't been aware of the fact that you were a lifeguard.
- [07:20]
Scott Besant
One thing you learn as a lifeguard, drowning people will try to pull you down.
- [07:24]
Wilfred Frost
Wow. And has that been a metaphor that has come into your investing life or your political life?
- [07:32]
Scott Besant
Sure, sure, both. Both.
- [07:34]
Podcast Host/Announcer
Where in politics is it?
- [07:36]
Scott Besant
Well, sometimes when a drowning person's trying to pull you down, sometimes you have to give them a little nudge to be able to save them.
- [07:45]
Wilfred Frost
But still ultimately always committed to saving
- [07:48]
Scott Besant
them, always committed to getting things to shore. And many drowning people can just be saved by things. Stand up. So a lot of times people are panicked in the water.
- [08:01]
Wilfred Frost
Well, I'm looking forward to getting in. Maybe coming back to that metaphor when we get into some of your views on different countries at the moment, dwelling on being a global macro investor, you alluded to this a tiny bit in your first answer, but I've heard you talk about it before where you need as a macro global, particularly investor, you have to be able to predict what's going to happen in the world. But really importantly, to make money, you have to identify when those predictions are also mispriced. Is that the key aspect to make money?
- [08:31]
Scott Besant
Exactly. I found everyone asks me, well, what do you think got you ready for your career? And I go all the way back to my childhood because I mentioned it in interviews before. My father was an incredible collector of science fiction novels and probably had the largest collection in South Carolina. Not a high bar, but he'd read those to me as a child. I always say I could point to Alpha Centauri on a map before I could Chicago. But with that, you have to be able to imagine different worlds. And with finance, could you imagine a different state of the world? The legendary macro investor Bruce Kobner is quoted many times as saying, I have the ability to imagine a different state of the world and believe it could happen. So I think the question you're asking is, can you imagine a different state of the world? And then you're also trying to predict the when, like when, why, how, and then how would you implement it? Foreign.
- [09:45]
Podcast Host/Announcer
This episode is sponsored by Interactive Brokers. Building wealth starts with the right broker, and Interactive Brokers helps you reach your goals with powerful tools, global market access, low costs and unmatched financial strength. That's why the best informed investors choose IBKR. Learn more at IBKR.com or Master Investor.
- [10:14]
Wilfred Frost
Let's dive into one of your famous trades, if we will. You mentioned, erm, but I kind of was more interested actually in your yen trade. 2010s to early 2020s, the yen was very strong. It was below 80. You rode it for a decade as it weakened to 150 or so. What did you see in the 2011 or 12, whenever it was you started the trade, what did you see then that others didn't see?
- [10:42]
Scott Besant
Well, and this goes back to timing that I think in psychology a big psychological bias is called endowment bias. So you've worked on something, so you want to implement it. And I think one of the strengths my team and I have always had is the ability to put something back on the shelf, do an immense amount of work and then just say, now, now's not the time. And it was that with the Japanese yen, I think. I went to Japan the first time in 1990, so I was there plus or minus six, nine months for the peak in the Nikkei. I lived at the Okura Hotel, I think for three months. Imagine 1990, the price was about $500 a night. In 2011, it was $350 a night. So that told you about the malaise there. So I'm very familiar with Japan. I'd seen the up, I saw the down. Then I saw the stasis for a long time. And in 2011, right after Fukushima and terrible tragedy, tsunami, tidal wave, near nuclear meltdown. Easy to remember, it's 3, 11, 11 when that happened. And I thought, well, maybe there's a catalyst here. Because the Japanese government demanded that the nuclear reactors be switched off. So if one was thinking of being short the yen, you were pushing against a very, very large current account surplus, about 3% of GDP. But when the Japanese switched off the nuclear reactors, they had to start importing more fossil fuels. And it took the current account to a deficit, but nothing really happened. The yen was kind of bouncing around between 78, 82 and 83. And then a contact in Japan, great fellow, Funabashi Son, Japanese journalist, thinker, policy person, called and said, there's this fellow called Abe. He had been the Prime Minister before. He's going to come back. I think he could be the Prime Minister. And he's going to campaign on restoring the Japanese economy, economic strength is national strength, and on a reflationary platform. And then kind of everything fell into line because I believe there were three board seats opening on the bank of Japan. Bank of Japan had been a group of deflationist or disinflationists. So Prime Minister was going to have the opportunity to reconstitute the board, including. Including the governor.
- [13:41]
Wilfred Frost
Yep.
- [13:41]
Scott Besant
So everything kind of fell. Fell into line. Sorry, the president wants you right away. Oh, okay. Okay.
- [13:52]
Wilfred Frost
Well, as you heard there, we were
- [13:53]
Podcast Host/Announcer
interrupted as the secretary was pulled away by the president to join him in the Situation Room in the White House.
- [14:01]
Wilfred Frost
We picked up our conversation again a
- [14:03]
Podcast Host/Announcer
little over an hour later.
- [14:05]
Wilfred Frost
Mr. Secretary, I have to say, it's a first, I'm sure a loss as well, that an interviewee has been pulled away to go to the Situation Room. How was the president? Was he. Was he stressed?
- [14:17]
Scott Besant
No, the president is in great spirits. The Iranian mission is proceeding well ahead of schedule. And I have to tell you, Wilf, that I'm a teenager who's considering military service, and I could give this team my highest compliment. From President Trump to the head of the Joint Chiefs to the Secretary of War, I would say that I would trust my child's life in their hands.
- [14:51]
Wilfred Frost
Well, your child sounds like a brave person, Mr. Secretary. And we want to come to all of those details in a couple moments. But if I may, I want to pick up to where we were, which you just explained, your successful trade on the yen and how you bought into the policies that Abe was going to deliver and what it would do to the market. I was really struck by something I heard you say on the Capital allocators podcast in November 2024. You said that your boss, then George Soros, asks you about whether Abenomics and the policies would work for Japan and the economy and you said this, you say, I have no idea, but it will be the market ride of a lifetime. Of course, you're right. You made a lot of money in that trade. I guess now you've switched from investor to policymaker. Judging actually whether a policy will deliver or not, as opposed to how things are priced, is all that matters.
- [15:47]
Scott Besant
Well, and to circle back with the Japanese, the Abenomics, all three arrows have been a fantastic success. So it started out as a market success, and then over time, like with all things Japanese, they were very deliberate and probably took a little more than Westerners, a little more time than Westerners would have liked. But the things that they've done to restructure the economy, restructure the investment environment in terms of the bringing up shareholders rights, return on capital, what they called womenomics, bringing women into the workforce, there's now mobility among labor in terms of people switching jobs. So they've done a fantastic job of restructuring the economy.
- [16:37]
Wilfred Frost
And now in your role as policymaker rather than as an investor, do you have to ignore what the market is pricing and focus on what will actually deliver?
- [16:49]
Scott Besant
No, I still find information, that there is information value in the market sometimes. But what I'm trying to do is for 30, 35 years, my job was to be have my ear up against the door where the policymakers were meeting, maybe trying to lift myself the transom, and figure out what they were going to do. Now that I'm in the room, we try to figure out what can be done, what should be done, what will be done, and then how will the economy and the market react. And whenever I'm out speaking during a policy time, whether Post Liberation Day or on the economy in general now with the Iranian conflict, what I try to do is think about if I were sitting in my old seat as a policy person, what guidance can I give to the market, to the US Population, to other policymakers around the world, to give good framing for what we're doing without giving away any material nonpublic information.
- [17:59]
Wilfred Frost
Was the transition hard from unbelievably successful wealthy investor, your own boss, to having a boss again?
- [18:08]
Scott Besant
Well, you got to remember, for most of my career, I worked with Stan Druckenmiller and he was really my mentor. We have a great group with a cabinet, and I think that especially in stress times like this, people have really come together. Just came from the Situation Room and we have a series of morning meetings and everyone, I thought the cabinet was performing at a very high level. Everyone has stepped up that level. Unbelievably so. I would say in a way, I was training for this job for a long time because before when I went to the G7 or the G20 meetings, I know the central bankers, I knew the finance ministers. Just before I was someone who they were trying to placate as an investor. Now I'm speaking to them as a peer and a colleague.
- [19:15]
Podcast Host/Announcer
This episode of the Master Investor Podcast is brought to you by lseg, the leading global financial markets infrastructure data and analytics provider. To learn more about how LSEG connects businesses, investors and markets worldwide, visit lseg.com. Hi guys, it's Wilf. I hope you're enjoying this episode. Just a quick reminder to please hit follow or subscribe on your podcast or
- [19:47]
Wilfred Frost
video app so that you never miss an episode.
- [19:50]
Podcast Host/Announcer
And if you've got time, please do give us a five star rating and leave us a comment. It really helps other people find the podcast too. Now back to the episode.
- [20:00]
Wilfred Frost
Let's touch about what I'm sure you were discussing in the Situation Room, details that I'm sure came up. WTI is obviously around $94.95 as we're recording. It started the year under 60, briefly peaked at 114, 115 earlier this week. What level is too much for the US Economy to take?
- [20:20]
Scott Besant
Well, I don't think it's the level. I think it's probably the duration. If you recall, even in 2008 we had the record spike up to I believe 140 something 147. So I think it's the duration. And I think that President Trump's energy policies have insulated the US Quite a bit. We're record liquids production with both crude and natural gas. Now, natural gas prices have been little affected and a lot of that goes into the the energy, the household bills. Again, the president is focused on his mission of wiping out the Iranian missile capabilities, their manufacturing capabilities, their air force, their navy, and their ability to project power beyond their borders and to cut off the head of the snake. As the leading architect of global terrorism,
- [21:31]
Wilfred Frost
you've obviously pledged to help in the insurance process for ships. With Lloyds of London pausing on that detail. Big announcements in the last 24 hours about releases from strategic reserves from both the IAEA and you as well. It hasn't worked in the short term on oil prices.
- [21:47]
Scott Besant
Well, no, no, no, let's back up. The market lives in the future. So we got the oil spike on Sunday night and I think maybe at one point we were up about $30 and then overnight the FT published that the IEA was considering a 300 to 400 million barrel release. And then we had the biggest single reversal in one day history that day, so it was already priced in. So we had a G7 finance ministers meeting on Monday where it was discussed, energy meeting, ministers meeting yesterday, and then, excuse me, Tuesday. And then yesterday I was in the Oval with the President for the leaders meeting and the leaders confirmed that it would in fact be a 400 million barrel release, which is the largest in history.
- [22:39]
Wilfred Frost
Yeah, I fully accept that the news of a potential release brought prices down from their peak. But clearly we're still up 50% or so from where we started the year. I guess my point is, are you starting to think if this does keep persisting as it is, that the Navy has to go into the Strait of Hormuz to help ships get through, which would have a big effect.
- [23:03]
Scott Besant
Look, that was always in our planning, that there's the chance that U.S. navy or perhaps an international coalition will be escorting oil tankers through. There are in fact tankers coming through now, Iranian tankers, I believe some Chinese flag tankers have come through, so we know that they have not mined the straits.
- [23:27]
Wilfred Frost
And was that what you were just discussing in the Situation Room?
- [23:30]
Scott Besant
We were discussing a plethora of things.
- [23:33]
Wilfred Frost
And is it your belief that the volume of ships going through the Strait of Hormuz will be improving immediately from now?
- [23:42]
Scott Besant
It is my belief that as soon as it is militarily possible, the US Navy and perhaps with an international coalition will be escorting vessels through.
- [23:55]
Wilfred Frost
And that came up just now in the Situation Room.
- [23:58]
Scott Besant
Your words, not mine. But again, we've been planning for this. We've done scenario analysis for months, for weeks leading into this.
- [24:12]
Wilfred Frost
But it's a prospect in, in the
- [24:14]
Scott Besant
coming days then it is a prospect as soon as we have complete control of the skies and are degrading their. They have no air force, the Navy is sunk, literally and figuratively. And the munitions factories, the rebuilding capabilities for the missiles, the completely degraded. So as soon as it is possible for safepatch to ensure safe passage, we will do it. And again, with the DFC insurance product, this was something that we had already anticipated and because Lloyd's does call force majeure and the policies drop away. So we think that 20 billion in insurance for tankers going into and out of the Gulf will be enough to ensure a circular insurance program.
- [25:20]
Wilfred Frost
Tons more to get to on your policy long term. A couple more in this area. If I may, what is the running cost at the moment of this War. A billion a day? 10 billion a day.
- [25:31]
Scott Besant
Again, I'm not keeping the running costs because in the US we separate treasury from omb. So that's why I'm the Treasury Secretary, not the Finance Minister. Well, a number of came out today in the public number that was released today was about 11 billion thus far.
- [25:50]
Wilfred Frost
Thus far? Thus far over a couple of weeks. And how long as you look long term at America's finances, how long are you planning for this conflict to continue forward?
- [26:04]
Scott Besant
Again, that 11 billion is a lot of money, but we have cushions built in and it's not something that we have to worry about over this horizon.
- [26:18]
Wilfred Frost
There's no chance you could be knocking on the President's door to say we have to pause on this, we can't afford it.
- [26:23]
Scott Besant
Oh, absolutely not. Absolutely not. What we've seen last year was continued and increasing foreign interest in US Treasuries. US Treasuries had their best year since 2022 and we were the only G7 bond market with lower yields last year on the 10 year.
- [26:48]
Wilfred Frost
Just finally on this, you issued a 30 day waiver on Indian refiners who had been prevented from buying Russian oil. They got a 30 day waiver on that. Is it a matter of regret to you that Russia is benefiting from this conflict?
- [27:05]
Scott Besant
Well, again, I think it's an inevitability and that's why we gave a 30 day waiver because the Russian barrels are on the water and it is a quick source for the Indian refineries. The other way to think about it is those barrels are going to end up in China anyway. So.
- [27:34]
Wilfred Frost
But is it a shame that Russia benefits?
- [27:36]
Scott Besant
Sorry again that it is unfortunate and we hope that it will be in a micro period that they will benefit.
- [27:49]
Wilfred Frost
Let's touch on China next then obviously you're due to travel to meet the Chinese in Paris in the coming days. A lot of people look at Some of the U.S. foreign policy actions and wonder how you connect the dots. Venezuela probably eased oil prices whereas Iran's done the opposite. But is one thing that links them that China suffers from US action both in Venezuela and in Iran. And was that part of the design of the action?
- [28:15]
Scott Besant
Well, nothing was done with China in mind. We're looking after U.S. interests with U.S. interest. We had a near failed narco state in the Western Hemisphere. President Trump has made it clear that we want to protect our neighborhood. We have a substantial movement that over the past few years of our Latin American neighbors from many from very far left, ala, Bolivia, Chile, back to center right Maybe far right governments who want to embrace market principles and want to be allies of the US So I went down to Argentina last spring and because I was in a US government aircraft, we had to fly around Bolivia because Bolivia had closed their airspace to US military aircraft. Now Bolivia's our ally. Chile had briefly gone far left. Now that they are right, the President elect has already said that he wants to be an ally of the US again. So I think this is a generational opportunity in the Western hemisphere to show the benefits of being allies with the US both militarily economically. And I would go back Iran that the military operation here was to keep them from being able to ring fence with with their missile capabilities the ability to create an atomic weapon inside of Iran because you know that what is being done now imagine if Iran had had two or three times these armaments in a year or 18 months.
- [30:10]
Podcast Host/Announcer
This episode of the Master Investor podcast with Wilfred Frost is sponsored by BMY Investments, a trusted partner for many deliver financial solutions to investors and institutions worldwide. This sponsorship does not constitute financial advice.
- [30:32]
Wilfred Frost
Let's touch on the Fed and what the domestic policy should be long term. But in the short term, does the situation with the oil price change your outlook of how soon they should be easing?
- [30:46]
Scott Besant
Again, there's a balance here. I think the Fed is worried about maybe the energy component triggering inflationary expectations. On the other hand, it'll be the duration here to see how much it slows the economy and is that slowdown permanent or is it just potential energy that can turn into kinetic energy within the economy and we will bounce back quickly after that. And the other thing that I think is important to know here is that if the oil price was below 60 at the beginning of the year, once this conflict is over and resolved in favor of the US I think there's a chance we can move to a substantially lower oil price regime over the medium term.
- [31:37]
Wilfred Frost
A different question as it relates to the Fed. I mean this is hypothetical, but if we were in a scenario, I mean I think if you look at the US long bond yields, you've done a remarkable job in light of a lot of challenges, medium and short term in keeping long yields down and your debt management has been down to that more short term issuance. If you were hypothetically in a situation
- [32:01]
Podcast Host/Announcer
where the Fed had to hike rates,
- [32:03]
Wilfred Frost
would you issue more long debt again instead?
- [32:07]
Scott Besant
Again we are collaborating with the Fed in terms of treasury handles debt management. I think what you're asking would the Fed maybe go back to qe? I don't know. That's their decision. But I think we're such a long way from that, it's not even worth talking about.
- [32:31]
Wilfred Frost
Let's talk more long term about the Fed. You are an Anglophile. We'll maybe come to that. You've spent a lot of time in the uk.
- [32:39]
Podcast Host/Announcer
Do you admire the bank of England
- [32:41]
Wilfred Frost
model more than the model you have here? And there's a couple of things to point to there. Well, you want to jump in?
- [32:46]
Scott Besant
Well, again, they're very different institutions. The Fed wears many hats and the Fed is a much bigger, much more sprawling organization with the regional banks, with the regional bank presidents. The board is much bigger. And then that gets constrained into voters. The bank of England has, you know, has separated. There's a monetary policy committee, then there's an operating committee, only the governor is on both that we call upon our Fed to do a lot in terms of monetary policy, in terms of regulatory policy, and then just the sprawling organization is.
- [33:34]
Wilfred Frost
I guess there's a couple things in mind that I was particularly pointing to. One is the bank of England directly reports to the Chancellor and to the government as opposed to the legislature, for extraordinary measures like qe. The Chancellor checker actually has to approve that even though it's assumed that they will automatically. And the inflation target is actually arranged 2% plus or minus 1. Are those factors, sort of factors you'd like to embrace?
- [34:03]
Scott Besant
Well, if we work backwards there, there is an inflation target and I don't know how many letters. All it requires is the Governor to write the Chancellor a letter and explain away why they haven't met the target. And look, I'm old enough to remember too when the Chancellor actually set the rate and I believe before.
- [34:26]
Wilfred Frost
Before'97.
- [34:27]
Scott Besant
Yep. And it was both and same with the bank of Japan. So bank of Japan and bank of England actually separated themselves from the government at the latest point.
- [34:41]
Wilfred Frost
And is those kind of things you'd like to move back towards here?
- [34:44]
Scott Besant
No, no, no, no, not at all. And in terms of qe, I actually believe that the bank of England's QE policy was better than the Fed's because I think extraordinary measures should only happen in extraordinary times. And the bank of England stepped in. I think they've stepped in twice in the past few years. Once during the early days of COVID I don't remember the exact timing, but let's say March, April, maybe May, and stabilized the smooth operation of the gilt market. And then they moved away. The Fed continued buying for years afterwards and I believe that that's one of the things that got us the great inflation 22 and 23.
- [35:32]
Wilfred Frost
I wanted to touch on gold. The US has a lot of gold, but it's valued at a price that is long since outdated. $42 an ounce and we're currently at 5,000 plus. I know you and Kevin Walsh have ideas around reducing the size of the Fed balance sheet, but you also don't want to create a liquidity crisis. Would revaluing the gold and at the same time sterilizing that provide an opportunity to sell off the assets you don't want without creating a liquidity crisis?
- [36:02]
Scott Besant
No, I think those are very, very independent. I think if you're thinking about changing the balance sheet, I think that, well, in the future the Fed would have to signal that well in advance. And if they move from one regime to another in terms of reserves, that's going to take time. And I think we're also going to have to step back and look at how has banking regulation since the GFC affected the size of the balance sheet in terms of the interbank market, in terms of the necessity for the Fed to hold reserves as opposed to the, you know, a skinnier reserve model where the banks got the reserves from one
- [36:48]
Wilfred Frost
another in terms of the Fed. You turned down the role of Fed Chair, wanted to stay as Treasury Secretary. Why is Treasury Secretary a better job?
- [36:59]
Scott Besant
Well, you have a musical that was written about the first Treasury Secretary. There's never been a musical about a Fed chair.
- [37:07]
Wilfred Frost
I'd like it. I'm not sure many people would.
- [37:11]
Scott Besant
Look, I enjoy the interaction with the Cabinet and Fed Chair is a different kind of public service. I've wanted to do public service since I was a young person because you're really in it. You get called to the situation room, you're part of the Cabinet, you're part of the policy making agenda. I think of the Federal Reserve really as guardians of the dollar. The reserve policy. Maybe I'd like to do it in the future, but I think now we're in an extraordinary moment. There's so many things that need to be done by the Treasury Secretary to ensure dollar dominance to one thing we haven't talked about is this building runs the sanctions regime. So in terms of maintaining that in a fulsome way, there's a big national security component and then in terms of managing the debt and how do we think about that interacting with the Congress for the future?
- [38:15]
Wilfred Frost
I want to come to all of that in a second. One final question on markets, which is private credit's getting a lot of focus at the moment, we've spoken about the importance of the bond market. We've spoken about stepping into the oil market with the release. If there's problems that unfold in private credit, is that on those people that have exposure there, if they enjoyed the upside when it was going well, do they have to take the downside?
- [38:39]
Scott Besant
Well, that's why it's called the shadow banking system. It's not the banking system. So my area of concern is how does, and I don't mean that I am concerned, but what I'm responsible for is how does this shadow banking system interact with the regulated banking system, with the regulated insurance industry. Again, we're seeing Britishism, some wobbles. As we see these wobbles here, there's nothing that tells me that shadow banking is having a systemic problem. But we are monitoring any relationships between the regulated entities.
- [39:24]
Wilfred Frost
Let's move on to the special relationship and developments there. We've touched on this already. You've lived in the UK before for many years, still go back there a lot. President Trump said last week he's not happy with the UK he said Keir Starmer is no Winston Churchill. You were speaking about that and what he said in the Oval Office about Spain and the UK Last week and you said that Spain had put American lives at risk. Did Keir Starmer do the same?
- [39:58]
Scott Besant
Again, that we delayed being able to fully implement the military plan. And I think that the main concern was the use of base Diego Garcia and the USB 2s had to do a 37 hour round trip rather than, I think it's about a three, three and a half hour round trip. So, you know, and you know, constantly refueling over. So, you know, I think any delay causes an increase in risk. And again, President Trump is the commander in chief of the US for and again being in the Situation Room with him, that he so solemnly takes that leadership role in terms of his commitment to maintaining the lives of our service people that anything that upsets that upsets him. And I think that's what got the very strong reaction.
- [41:08]
Wilfred Frost
But just to, to clarify, you said of the Spanish, anything that slows down our ability to engage puts American lives at risk. The Spanish put American lives at risk. So did the UK do that too?
- [41:19]
Scott Besant
Again, I think we have a great historical relationship and I think we'll get it back on track.
- [41:26]
Wilfred Frost
How unhappy is President Trump with Prime Minister Starmak right now?
- [41:30]
Scott Besant
Again, belatedly, the prime minister offered to put resources in the region. I believe that there are resources in the region and we have a Long term relationship. There will be some bumps in the road. I think we will eventually get back on track.
- [41:53]
Wilfred Frost
Have you heard any discussions of the King and Queen's visit due in the spring, being cancelled?
- [41:59]
Scott Besant
Not at all.
- [42:01]
Wilfred Frost
In terms of relations more broadly over the last year, year and a half and trade coming into that, you announced more tariff investigations yesterday under Section 301 of the 1974 Trade Act. Targeted countries like the EU, a group of the EU, Switzerland, Singapore, Korea, Norway, the list goes on. A lot of allies there. Interesting timing given that you're at war. Is now not a moment where you
- [42:29]
Podcast Host/Announcer
want to make sure all of your allies are onside?
- [42:32]
Scott Besant
Well, look, I think if going back to the tariff level that we previously had is going to take an ally offside, then they weren't allies. And we're operating now with a global 10% tariff. And I can tell you that the allies and all the countries that have done the trade deals with us have all come and said, we like our trade deal, we want to stick with that. So I think this is a good opportunity for me to explain any misperception about these investigations. These investigations are part of the normal course of business. The Supreme Court ruled that the President does not have the ability to use IA tariffs, the emergency power to apply tariffs. But the section 301 which President Trump used in his first term has used have been challenged more than 4,000 times in court. So all we're doing is reconstructing the tariffs under a different authority that I would expect that everyone just goes back to the deal they had within the 150 days that we're allowed to use the Section 122 tariff?
- [43:44]
Wilfred Frost
So, yes, there was Section 301, Section 122. Would that mean that the UK is going to go up from 10% to 15% again?
- [43:53]
Scott Besant
Section 122 right now is still at 10.
- [43:56]
Wilfred Frost
It's still at 10. I guess the broad point you're saying that it's putting tariffs back to where they were, but not to where they were a few years ago for allies and an interesting time in the middle of trying to get people on side. I guess when you've had these conversations with G7 finance ministers in the last week to coordinate policy on strategic reserves of oil and petroleum, did you approach that thinking it would have been more helpful to have a more friendly, conciliatory relationship with those people?
- [44:32]
Scott Besant
Again, everyone knew we had telegraphed well in advance that since the Supreme Court hearing that we believe that the Supreme Court will rule in our favor. But in case it doesn't be advised, this is how we are going to do it. So we'd had a substantial communications policy in advance. We told everyone this is how we will reconstruct the tariff wall. And I think everyone's well briefed and well aware of it.
- [45:01]
Wilfred Frost
I guess in the last week or two, we've been reminded of US Policy that might be taking a step forwards without allies necessarily all coming on board. We talked about the clashes with Keir Starmer. I've heard you say very and the President said too, that America first doesn't mean America alone. That is your intention and your aim. From all of your policies, do you ever have conversations with your counterparts that makes you worried that that choice won't be available to you, that America alone is starting to be how they see the actions that you're taking?
- [45:40]
Scott Besant
Well, I think you're seeing, as I said, I was in the Oval office for the G7 leaders call and the G7 leaders were all pretty much rallying around what the US is doing, congratulating us for taking out this Iranian cancer on the world. And they're more concerned about how does it proceed. We're seeing what may be an international coalition in terms of the Straits of Hormuz that many countries have offered their minesweepers should it be necessary for detection. And the other thing too, because I don't think in terms of our allies. There's anyone in the world who wanted the Iranian regime as it currently was constituted and the power it projected to continue. What we're also seeing too is the Arab nations that in the Gulf, they are shocked by the Iranian attack on them. And I think that they've gotten a rude awakening that imagine an IRAN that was two or three times stronger than they were 12 or 14 days ago on February 28th.
- [46:59]
Wilfred Frost
As we start to wrap up, Mr. Secretary, I know we're nearly out of time. You've described in the past your old boss, your old mentor, Stan Druckenmiller is the best investor you've ever worked with. And I think you've described Warren Buffett as the best stock picker you've ever worked with. You reflect, I think, on the past on his two rules of investing. Number one being don't lose money. Number two being don't forget rule number one and spoken about how you have to earn the right to be able to take risk. You have to stay in the game based on on how big your chip stack is. You'll make different decisions. Is it fair to say that the size of America's chip stack today is smaller than it was a decade or two ago.
- [47:45]
Scott Besant
No, I would think it's the opposite that I think we have this leadership, we have energy dominance that if we'd been where we were a few decades ago in terms of importing energy as opposed to exporting energy, we have this technological lead, we have this military lead. You know, our military before President Trump came in in the first term was substantially run down. And you were talking about China earlier. And if I think what are the three things that China envies the US For? It's our military. I think our military is more powerful and more lethal and more respected than it's ever been. I think that our technology, that the US Leads the world and we just keep pulling away that now with this AI boom, we're going to have over 70 or 80% of all the compute in the world, up from 40 or 50 a few years ago, is going to be in the US and then the economy, the Europeans celebrated 0.3% growth.
- [48:51]
Wilfred Frost
I don't think we celebrate that, but we have.
- [48:53]
Scott Besant
Well, I didn't say the UK the EU celebrated 0.3% growth. That was better than expected. And I think once things get back to normal after this conflict, that the US is going to grow at 3%. So 10x
- [49:10]
Wilfred Frost
I guess the debt is higher, the oil reserves suddenly lower, but
- [49:17]
Scott Besant
the debt to gdp, which is important, deficit to gdp, debt to GDP is higher everywhere in the world. And that's a post GFC fact. That is a post Covid fact. So in terms of relative strength, I
- [49:33]
Wilfred Frost
think we're much better shape as we do wrap up final Questions for you, Mr. Secretary. This is something we ask everyone on the Master Investor Podcast, which is, as you know from the intro, I like to try and give our listeners an edge. And to wrap up, what is the the overriding piece of investment advice you have for our listeners? We often ask for career advice too, and you're more than qualified to cover both topics for us.
- [49:58]
Scott Besant
Well, I'll do the career advice. First is career advice. You never know what's going to happen. You never know what's going to happen. I started out Yale, 1980. I didn't know journalists, computer scientists, computer. I think you're too young to remember. Computers used to have these cumbersome things called punch cards. And when I got to Yale, we just switched to screens. And so being a computer scientist was miserable. I didn't become editor of the Yale Daily News, which was the best thing I ever lost, but I did an internship in finance and realized that the quantitative side and the qualitative side, the quantitative side of the computing qualitative side of a narrative is actually what the investment business is all about. You think about scenarios and then can you prove it? And then in terms of investing, I tell everyone, you have to know what level of risk you're willing to take. You have to do what you're comfortable with. And you just shouldn't get out over your skis. That's the main thing. You never want to have to sell at the bottom. You never want to find yourself chasing at the top.
- [51:17]
Wilfred Frost
Is America out over its skis in the Middle east right now?
- [51:20]
Scott Besant
Absolutely not. As I said, every day we are moving ahead of plan and Iran is degraded. There was a message from the bunker from the new ayatollah. We haven't seen him, so let's see if we see him.
- [51:43]
Wilfred Frost
You suggesting he's no longer alive?
- [51:46]
Scott Besant
Is he compos menace? Is he injured? Is he, you know, is he under threat from the other members of the regime?
- [51:56]
Wilfred Frost
Do you think regime change is on the cards in the days ahead?
- [52:00]
Scott Besant
Then again, you know, our goals are the three that I talked about. But once these things go in motion, you never know what what's going to happen. They take on a life of their own beneath the surface.
- [52:12]
Wilfred Frost
I can see we're very much out of time. Mr. Secretary, I really do appreciate all of your time in Canada today, not least because, as you proved in the middle of the interview, we know how busy you are now more than ever. Mr. Secretary, thank you so much for joining us.
- [52:25]
Scott Besant
Good to see you.
- [52:27]
Podcast Host/Announcer
The Master Investor Podcast is sponsored by BNY Investments, Elseg and Interactive Brokers. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice, or a personal recommendation. More on that in the show. Notes this podcast is produced by Paradine Productions and Master Investor limited In association with Birdline Media. If you've enjoyed the show, please do subscribe on YouTube or click follow on your podcast platform and you'll be automatically notified each time a new episode drops.