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- [00:00]
A
Welcome back to the Rundown interview edition. Today we are talking to fan favorite Kyla Scanlan. Kyla has been on the show multiple times and she's joining us again at a very interesting time in the market. So in today's episode, we talk about macroeconomics, we talk about how the bond market is acting as the fourth branch of government, why gold prices keep going higher, why the Japanese bond market is freaking out, and why that matters. It was a wide ranging conversation. I think you guys will really enjoy it. All right, let's get into it. All right, Kyla, welcome back to the Rundown. Really happy to have you back on today. I feel like every time you come on, there's always something big happening.
- [00:41]
B
Yeah, it sure feels that way. It's good to see you.
- [00:44]
A
Yeah, you as well. Well, obviously I want to talk about this piece. I want to dive right into it. This, you wrote an awesome article on your substack, long detailed, highly recommend everyone checking it out. It's called the Great Entertainment. Okay. And, and the, the premise of the piece is that you talk about how it feels like the world is being run like a reality TV show. Right. That's like the premise of your piece. So I'm just going to kind of turn it over to you. How did you come up with this? And can you kind of dive into like, what do you mean by the world as being run like a reality TV show?
- [01:21]
B
Yeah. So I had the opportunity to interview Mary Daly and Tom Barkin. So the president of the San Francisco Federal Reserve and then the president of the Richmond Federal Reserve and President Daly started talking about the end of the Great Moderation, or what she felt like was maybe the exit of the Great Moderation, which is this period of the past 40 years where we've had relative macroeconomic stability because we've had independent central banks, we've had globalization, we've had technology that's enabled us to predict business cycles a little bit better. Central banks have gotten better at communicating, so the markets have more insight into what's going on. And so there's kind of this removal of all the volatility that preceded us from like the 1980s and before. And then President Barkin started talking about how he feels like the persistence of uncertainty is kind of the biggest issue that we could be facing in 2026. And so after that interview, I was like, wow. And I just became obsessed with this idea of the great moderation that I, you know, we study in school and we learn about economics, but I never had really thought about the fact that we might be exiting it. And a lot of people thought that we exited the Great moderation after 2008, when we had the great financial crisis. We perh this era called the great stability, where the 2000 and tens were almost like an ambient period, more or less, until Donald Trump came along and introduced a fair amount of volatility to markets, but nothing like we've experienced in the second term so far, just objectively. And the goal of this piece was to sort of look at the great moderation and then talk about what I think we might be headed into, which is a great entertainment. And so I tried to trace the beginning of the United States as an entertainment for country, of course, beginning with Ronald Reagan, who was the entertainer, president, the great communicator, and then tying it into what is now, you know, the second Trump presidency, where he is a reality TV star. And I think the way that he does social media, the way that the White House is doing social media, it just really all feels like we're a part of some version of the Apprentice, some version of, like a show that he's had, having a lot of fun, and not a lot of people are other than him. So the goal of the piece was just to illustrate that.
- [03:38]
A
So I want to touch on a follow up on a couple things that you mentioned. It was a great moderation. It really kind of started when Paul Volcker. So we actually covered some of this stuff in our deep dive that we did on the podcast last week, where we talked about the history of the Federal Reserve. And so the great moderation kind of started after Paul Volcker tamed inflation right in the late 80s where he kind of hiked up interest rates to 20% or something. Inflation kind of came in, came in, came down. And then after that, from the mid-80s to, I think 08 was generally kind of what I learned in school was like, the great moderation, where, like, things were kind of steady, decent, you know, decent growth, stock market started going up. And then we kind of have the period that we have today where there's a lot more volatility, a lot of unpredictability. So you mentioned, like, how Donald Trump is running the, you know, running things like a reality TV show. What do you think are, like, the consequences of that in the economy? And are we seeing some of that already?
- [04:38]
B
Yeah, I mean, I think the consequences are sort of the taco situation that we keep on ending up in, where, like, the bond market has to be the one arm of government. So the bond market, you know, responded to this talk of Greenland and what we were going to do with Greenland and stocks sold off, um, part of that was also what was happening with Japan. Japan's going through their own crisis. So we just saw the market start to go down. And then the next day, more or less, Trump kind of walks back some of this stuff with Greenland, says that he has the, what is it, the future concept of a deal. A future, a framework for a future deal, a concept of a plan, as was the previous thing that happened, I think with Liberation Day. So anyway, but yeah, so he's always talking and doing stuff and, and the consequences are that what we're seeing. Like Mark Carney, Prime Minister of Canada, gave a speech at Davos where he was like, listen, all of this is kind of over. Like the rules based order is probably gone. Nostalgia is not a strategy. Like US middle power countries have to move on from the United States because they're being really weird and aggressive. And that will come at great cost to the United States in the long term for sure. I mean, Europe, I think, is really questioning the US As a partner. Uh, nobody's joining the, the of peace that Trump has put together. And it just, you know, people are turning to China and investing with them, trading with them. It's a, you know, it comes at great cost. What, what, what this reality TV show is.
- [06:10]
A
So you mentioned how like the, the bond market, I think that's the key point there was like the bond market has kind of turned into like this fourth branch of government. The bond market and the stock market to some degree. It's like the fourth branch of government. It's like the only thing that's kind of putting a check on Trump's decisions in power, right? Like whenever he sees the bond market freak out or the stock market freak out, he kind of reversed courses. The taco trade, very famous. What kind of scares me about that though is like the taco trade is like kind of priced in now a little bit, right? So like when, you know, the DOJ launched an invested criminal investigation into the Fed and Jerome Powell had his famous video on Sunday night a couple weeks ago, markets didn't really freak out. They kind of bounced back relatively quickly. I think they finished green for that following day. The Venezuela stuff, the Iran stuff, there's previous stuff. I feel like the, the taco trade is priced in, so it really takes something even crazier. Kind of emboldens Trump to just go even crazier, right? Because like, everyone's like, oh, he's going to taco and all this stuff. But then, but then it takes him to, like, takes him to an even greater length until the markets freak out. And I feel like that's, I'm just trying to understand that dynamic of like, well, if the, if the taco trade is priced in, he can just go even crazier until the markets kind of freak out.
- [07:27]
B
Yeah, no, I think that's the worry is that in every time he has to go farther and farther, which is what you do on reality TV is you have to get like, crazier and crazier to keep the audience engaged. It's the same thing with social media. You see a lot of people experience audience capture where they start saying stuff that they normally wouldn't be saying because the audience kind of eggs you on some elements of the audience. And so I think for ye, For Trump, like, he's looking around, he's like, okay, fine, I can just keep pushing and pushing. I think the Greenland thing, like that was kind of nuts to threaten to invade a NATO ally, a country that is owned and partnered with somebody else that we do have a military agreement with. You know, really pushing the, pushing the envelope.
- [08:14]
A
Yeah, it's like the raid rage bait culture. But then, like, you turn that into like a, like a governing policy, it's like it becomes, it becomes kind of dangerous. And, and so, yeah, I just wonder, like, at what point are we just going to see this over the next three years, we're like, okay, we're kind of like, Trump's gonna post something on True Social. The market might react for like half a day. And then based on how the market reacts, Trump's gonna change his mind. And then we're just gonna do this again and again and again. And does at some point, does, does it break? Or is this, or is this just temporary? Because, like, you know, Trump's going to be in office for three more years, Right? You know, that's what, that's what the Constitution says. And so, like, it's just three more years. Kyla is like, is this just a phase? Is the great entertainment just. Well, you know, that's true. But like, I guess I'm just saying in the grand scheme of things, right? In this grand. If you zoom out, like the great, if the great entertainment period is only like four years, does that, is that enough to do permanent damage to the US's reputation, to markets, to foreign investors buying up US treasuries?
- [09:24]
B
I mean, people are certainly not happy. The big question, you know, the US is still the best place to invest. It still has the Biggest markets. It's still, you know, you can talk all you want about US Treasuries not being safe because of Trump, but there's kind of, you know, it's difficult to find where else you would park your money other than gold. And so I think what we're seeing in gold, it's up 75% year over year. You know, China is developing like a gold backed dollar alternative through their reserves of gold. So I do think we're seeing the start of a movement away from the United States. I think it's going to take a long time. I'm not sure if it'll actually shake out. And you know, the polling that he like the New York Times Sienna poll came out this morning on Thursday, January 22nd and his, you know, the polling data is really, people are turning against him in big numbers. And we have the midterms at the end of this year, 2026 that could really redefine some of the power lines and structures. So I, I think like there's still going to be stuff that happens like it's not going to be as reality TV esque forever. I just don't know if the rest of the world will be able to stomach that much less. The PO market of the American consumer is being hammered by, by tariffs and by these problems of affordability. But yeah, I'm not, I can't, I don't think anyone can predict like when it'll end.
- [10:49]
A
One of the things, well, one of the things that I've been reading about this week especially is, you know, there's not a lot of leverage some of these countries have against the U.S. the U.S. economy is the largest. They don't, they can't, the military is the most powerful. But one thing that they do have, a lot of foreign investors and governments own U.S. treasuries. Right. And there's like this, this concept of the Sell America trade or like these, these, these foreign governments can threaten to sell their US Treasuries, which increases the borrowing costs for the US Government and makes it harder for, you know, makes it harder for the government to borrow, more expensive for the government to borrow and increases the deficit here. How real of a, of a threat do you think that is?
- [11:28]
B
I think it's pretty real. You know, Europe owns 40% of all US treasuries. So if they decide to, you know, back out of the situation with the United States, go invest somewhere else, I think again the question is like, well, where do you go park all of that money? How do you do that? How do you unwind something that is so, you know, trillions and trillions of dollars? So I think that's kind of the main concern. But I do believe them when they threaten it. I think they kind of have to. Especially when another country is threatening you with invasion. You know, you do financial sanctions on them usually, and you say, we're not gonna do business with you. And so it makes sense if they do approach something like that.
- [12:16]
A
Yeah, I think that's gonna be the key story to watch. And I think, yeah, obviously gold is the benefit of that. We've already seen gold rally. It's gold. Silver. Silver, yeah, silver too. Silver's kind of become a meme stock though. But, yeah, gold for sure. And, you know, gold's up what, 70, 80% over the last year. And that might just be like the trade of the, of the decade, of the latter half of the decade because of all these, all this uncertainty. But yeah, like, where. I guess that's just the hard part for some of these smaller countries, though, is like, where do they park their money? Like, where, where is, where is Denmark going to park their money if not for US Treasuries? Even other, you know, even other, you know, other countries, like, there's no other alternative for them, alternative for them to like, park their money and earn a yield on, on, on their, on their cash. So that's going to be an interesting story to, to, to monitor. Now, speaking of, like, the US Bond market, I want to talk about Japan because you've talked about them recently in one of your, on your Instagram reels. It's. I feel like not many people understand what role Japan plays in all of this. Right. Like, there was a freak out earlier this week. The bond yields, the 40 year Japanese bond yield just like, started going crazy. Like if the yields were climbing. Everyone's starting to freak out. Is this like another Liz Truss situation?
- [13:28]
B
Yeah.
- [13:30]
A
Can you kind of walk through why Japan is so important? What's going on over there and how does it play into everything that's happening in the economy in the world right now?
- [13:40]
B
Yeah, Japan's really interesting. You know, they're the largest holder of U.S. debt. So what happens, like, when Japan. Well, the saying is when the US Catches a cold, the rest of the world sneezes. But truly, when the Japanese bond market catches a cold, the rest of the world sneezes. So they own a ton of US debt. And for a very long time, Japan has been stuck in this deflationary spiral. They've had really stagnant growth. It's been very difficult for their economy to grow. Interest rates have been kept at zero, and the bank of Japan has had to really intervene into the bond market to keep everything from collapsing. And over the past couple of months and years, Japan has been trying to exit that regime. So the bank of Japan has actually been hiking rates. They've let interest rates rise and have been trying to, like, you know, get the market to stand on its own legs. But they recently elected a new prime minister who is making the same mistake that Liz Truss did. Liz Truss, Prime Minister of the UK Made this announcement about a fiscal mini budget a couple years ago and, you know, doing these tax cuts. And the bond market totally kicked her out. It's something called a bond vigilante, where the bond market will make it very clear when they don't like a leader and essentially make that leader exit. And so it seems like the same thing could be happening to Japan, where their prime minister has announced unfunded tax cuts, snap elections. So there's a little bit of political risk. And the bond market is not so happy about all of that. It's not very fiscally responsible. It's also a good lesson for the United States. But there's also this question of the yen carry trade. So because Japan has provided such cheap liquidity to the world for such a long time, a lot of people borrowed a bunch of yen in Japan because it was really cheap. They converted those yens to dollars. They bought U.S. stocks or bonds or whatever, and then they pocketed the difference. So they were able to borrow at a really low rate, get a high yield at a much higher rate, and then pocket the difference between those two. But the thing is that that requires, is that it requires, you know, Japan rates to stay near zero, which hasn't been happening. And then it also requires the end to stay pretty weak relative to the dollar. And the yen has been going up a little bit too. So that's everything. That's like the pressure cooker that's happening in Japan. And because rates are going up, people are unwinding their trade, which requires them to sell US Assets, you know, and then convert it back into yen, pan off the loan. And there was a columnist named Albert Edwards that said this creates a great sucking sound in US Assets because everything's just, just being sucked out. And yeah, Japan bonds are really important to the functionality of the total US Bond market, stock market. And it's kind of getting really delicate at the exact moment that the US Needs it most to remain stable with all of the volatility that's happening from the administration.
- [16:43]
A
I feel like every time the word yen carry trade is a headline on an article for it's, it's bad news. Right. Because this happened like a year and a half ago or something where like the yen carry trade just caused a massive sell off at the stock market. So I guess the problem that, I guess the issue that's happening right now is that because of this prime minister in Japan who's you know, you know, who's pushing for all these tax cuts that's causing a budget deficit for the, for the government. Right. And then in order to fund that deficit, they have to borrow more money. Which I guess I'm trying to understand is that's kind of what's going on right here. Like the, the bond market in Japan doesn't like the fact that there's going to be a budget deficit. This budget proposal by the prime minister that's pushing their stuff, that's pushing their yields up, which is kind of having a ripple effect through all the markets in the world, including the U S Bond market, U. S Stock market because of, of its ties to, to, to everything.
- [17:39]
B
Yeah.
- [17:41]
A
So, so if the yen carry trade closes, that could put upward pressure on the U S US Bond market which we're already starting to see happen. And that could make borrowing more expensive not just for the US Government, but for everyday, everyday Americans like me and you is going to increase mortgage rates, credit card rates, all that stuff.
- [18:00]
B
Yeah, yeah. And you know, you imagine you have this situation where fewer people are seeking out U.S. assets, whether that be because they don't have the ability to do so because of the lack of the in carry trade or the want. And then other people like Europe are like, okay, we're not going to buy this and that when there's fewer people buying something you have, you command a higher price like you have to. The US Government would have to raise yields to entice people to come and buy US Treasuries. And higher yields mean higher debt service costs for the US Government. Higher debt service costs mean higher deficits. Larger deficits mean that you have to issue even more treasuries and then more issuance into a market where nobody really wants to buy anything means even higher yields. And so it ends up being like a really tough feedback loop to exit out of. And that's kind of the main concern with what's happening to Japan as well as the, the conversation around Europe. Perhaps not buying up U. S Treasuries.
- [18:59]
A
That's gonna be very interesting to Watch how that all plays out in the next year or two. Because, you know, I feel like we have these periods of freakouts, right. Happened with the tariffs. And yes, that story is still, you know, playing out, but in general, markets moved on relatively quickly. Now this is the next flare up. How quickly is the market going to move on? And so I'm gonna be watching that. But I think more importantly what is happening and this is real is like all this uncertainty in the US is definitely moving countries closer to China. You talked about this in your piece how Canada and China are forming an alliance. They. We talked about this on the show as well, where they did a deal for allowing the imports of Chinese evs into Canada. I think the, the French president Emmanuel Macron said the same thing. With the sunglasses on, looking all fly. Davos.
- [19:52]
B
Yeah. Did you see that clip? For sure, for sure.
- [19:56]
A
I mean the guy, the guy, the guy knows how to give a presentation. So he talked about investments from China. I want talk about that. Like, China must be loving this. How do they, how do they come in and, and start. Like, are they. I guess. Let me try to frame my question correctly. What I'm trying to say like is China is going to try to expand their soft power here and this is an opportunity probably sees as an opportunity here. Do you see what other moves do you see? Like, I'm trying to figure out what my question is here. I'm just like, this is happening, but like how do you see this all kind of playing out? Is China going to set up their.
- [20:34]
B
Own.
- [20:36]
A
Alternative to US Treasuries? Like how, what are some ways that this could play out to where China could do some damage to the U.S.
- [20:43]
B
Yeah, I mean, I think like in terms of soft power, there's already a tick tock trend where people are like, you've met me at a very Chinese time in my life. And so I think China has like, because they've been so stable and they have their own problems. Like, let's be clear, I got accused of being a Chinese agent on one of my recent videos because I was just talking about like the elements of soft power that they have and the strength that they have in terms of AI. And people are like, you're obviously getting paid. And I'm like, I'm, I'm not, I'm super not getting paid by China. But anyway, so that is like part of it is that they do have that rise in soft power and then they're also really good at AI. Like they have outpaced American models in terms of Artificial analysis, intelligence rankings. And then they have really focused on the real economy. So that's something that Mark Carney and President Xi in China have in common, is that they've, you know, they're both really focused on energy. Like China's built out 40 nuclear reactors over the past year or so, I believe, and the US has zero. So if you think about what has to power AI, it's energy. Everybody's banging their entire economy on AI. And China is winning the energy race and therefore they're gonna win the AI race. So I don't really know if they have to like do anything different other than what they've already done because they saw the future of the world in a much different way than the US did. The US is like, okay, our second fastest growing sector is going to be gambling or we're going to financialize everything. And China has just thought about it very differently. And for them, I mean, they could entice people with the investments. I think they're doing that with the gold reserves, they're doing that with trade deals. But China has their own problems. Like, you know, there was a somebody representative from China at Davos and he said he wanted to be the. China wants to be the trader with the world, but they also want to be the world's market, meaning that they want to buy stuff. However, China has had a tough time stirring domestic consumption. So their people don't actually buy as much as like Americans do. Americans love buying stuff. And so they would be a different partner to other countries just, just because they've had such a tough time stirring domestic consumption. But from a sector perspective, with AI and energy, they're far ahead.
- [23:06]
A
Well, I want to end on a positive note here. You know, you mentioned energy. You know, we're behind on that, but there has been a push, right? There's been a push from AI companies, also the administration. I think Trump mentioned this in his Davos speech. They're embracing nuclear. They're trying to, you know, I mean these, whether, whether it's coming from the administration or these private multi trillion dollar tech companies, there's a push for more power in the U.S. on top of that, the U.S. economy, despite all the, the craziness and the tariffs and the inflation and the headlines and the reality TV just continues to grind along, continues to grow, good GDP numbers, unemployment at historic lows. I want to be, I want to be, I want to be optimistic and I guess I'm asking for reasons to continue to be optimistic moving forward. And to me it's just the US Economy's resilience is that reason. And the markets continue to do their thing. Yes, it has problems, but the markets will hopefully find solutions for the energy issue like we're finding right now, whether AI is a bubble or not. We might get a ton of nuclear plants and power plants because of it. So I'm trying. I'm trying to take an optimistic approach here as I look towards the future.
- [24:20]
B
Yeah, I don't know if I think of it as like, optimism or I'm going to be very annoying. I don't know if I think of it as optimism or pessimism as much as realism. Like, this is just what we're. This is the cards that we've been dealt right now. And a lot of it is really unfortunate, the actions that the administration is taking. But when you look at people like leaders like Jerome Powell, you know, there's a lot of hope in people like that who are standing up for something like, as important as monetary policy stability. And I've been traveling the past year and a half with my book, and I wrote a piece on this a few months ago. But essentially the whole purpose of the piece was like, there's a lot of people doing really amazing stuff all over the country. And so I think if anybody ever gets like, bummed out or super sad, like, just go out into it sounds silly, but, like, go out into your local community and like, you know, there's people who are really making a big difference with how all of this works and how all of this operates outside of the more macro scale. So I think there is stuff to be optimistic about and really, you know, hopeful, and that is all you really can do. But you do have to kind of be like, all right, this is how it is to a certain extent, really.
- [25:30]
A
Realistic, but also optimistic. Yeah. I'm going to end with the two really quick questions. Number one, Fed. Fed next, Fed chair. Coming up, we've got the two Kevins and Rick Reader.
- [25:42]
B
He's.
- [25:42]
A
He's the new guy. Not. Not new guy, but he's like the. The relatively newcomer, newish. What does your gut say?
- [25:49]
B
I don't know. I mean, Rick is. If you look at the prediction markets, Rick is on the rise. I actually really like Rick's analysis and I think he's a. It'd be interesting to have somebody so market centric in Fed chair position. So, yeah, I kind of. I would root for him. He understands what the markets want, which I think is sort of what a good element of monetary policy.
- [26:10]
A
To a certain extent, you might have just moved the odds just now by saying that. Kyla, thank you so much for coming on. Where can people find your stuff?
- [26:19]
B
Oh yeah, I'm everywhere at Kyla Scan. I have a newsletter, Kyla substack.com and. Yeah, yeah, yeah. Oh the book.
- [26:32]
A
You guys pick one of these up Secret corner.
- [26:34]
B
Yes. In this economy, how many markets, it's really work. It'll be updated soonish as well with a new bonus chapter.
- [26:42]
A
Okay, awesome. Well definitely, definitely check out the book. I have it on my bookshelf. Highly recommend everyone checking it out. Check out your substack and your Instagram. I mean you're posting content almost every day, so I love it. Kyla, as always, thank you so much for coming on.
- [26:55]
B
Thank you.
- [26:58]
A
Well, all right guys, hope you enjoyed that conversation with Kyla. You know, I feel like every time she comes on I always learn something new from her. I just like getting her perspective on things. She studies this stuff very thoroughly. So highly recommend you guys read her latest piece on her sub stack and also follow her on Instagram. Kyla will probably come on again soon, so if you guys have any questions for her, leave it in the comments on Spotify or YouTube and I'll try to ask her the next time she's on. Thank you guys again for listening, watching and commenting. Shout out to Mike and Connor for all the work behind the scenes and we'll see you guys back here tomorrow.