The Economic Undercurrent of a Rallying Stock Market (w/ Raoul Pal and Keith McCullough)
RAOUL PAL: Hi, I'm Raoul Pal. Today, I'm going to sit down with Keith McCullough of Hedgeye and really, I've got Keith here for one particular thing because I want to ask him one pointed question. Keith, What the fuck's going on? KEITH MCCULLOUGH: Let me tell you, it's easy. RAOUL PAL: There is so much going on. I know that the market narrative is shifting, I see you guys are shifting around with which quantum and things are moving. I think people are struggling to make sense of it because they look at asset prices and equity markets, they see all-time highs, they're saying, well, everything's perfect. It is becoming a complicated situation, which is precisely why you're in business to do what you do and why you've got a framework. Talk us through a bit of how you see things and maybe we'll just kick it around from there and see where we get to. KEITH MCCULLOUGH: Yeah, for the last year, I think that it was a relatively easy environment to understand. You had basically both growth and inflation slowing at the same time. Everyone agreed to agree at the all-time lows and bond yields and I think it's pretty clear that growth was slowing in China, EM, Europe. Then of course, the US joined that. As we went through that path, you've had this Trump thing, like the tweets and the Trump and the deal and the non-deal and extended, it's so hard to keep track of it. You have so many people that have now entered the game, so to speak, saying well, as long as we have a resolution to that, then it could all be rainbows and puppy dogs. Our framework doesn't really solve for rainbows and puppy dogs, certainly doesn't solve for a man in a tower tweeting or men from anywhere for that matter, tweeting. What it does is it solves for these four quadrants. What we have, the only change we've made is that we're going to see a return of inflation, or the rate of change of inflation accelerating, and really only for six months. If you think it's confusing now, wait till we get six months from now and we start to make the turn again back into what we call Quad 4. Q2 of next year is where we have the US economy finally slowing towards the slowest point. You can go Quad 3, Quad 3, Quad 4 for the next nine months. Quad 3 is economic stagflation, which always is a precursor for the end of the economic cycle which is Quad 4 which is when you have both growth and inflation slowing in at the same time and we're going to be right on the screws ahead of the US election. It's going to be pretty intense. RAOUL PAL: With markets looking forward, so they started sniffing some of this out whether it's from the tweets or other things, during the what you would refer to as Quad 4, are we likely to see the markets looking towards the end of the Quad 3 phase earlier, let's say in Q1 as opposed to Q2? KEITH MCCULLOUGH: Well, the markets been very good at sniffing out every single move and front running the Fed, I might add, on every single move. Anytime the market saw a Quad 4 most intensely in the fourth quarter of 2018, and again in Q3 of 2019, the market was very quick to cut interest rates for the Fed. Don't forget that the yield curve steepened because the market basically said, if you don't cut rates at the next meeting, we're going to have another little meeting with you. I think that that's the interesting part, is that all of that fully loaded cowbell from the Fed, fully priced in Fed cuts into the most recent meeting, and the idea that we could see demand change and rate of change terms. Like give me another 10 cents for the next person that tells me the ISM has bottled. With 100% of those 10 cents coming from people that never called it topping to begin with are 100% sure this is it. It's a very dynamic point but we're going to get inflation accelerating anyway because the base effect of what happened last year, which was highly deflationary is an easy comparison. That's going to happen anyway. I think people are confusing that demand can accelerate at the same time that inflation could go up. It's quite the opposite actually, economic stagflation is when your cost of living goes up, and your real consumption slows. RAOUL PAL: I think that's the key point. This year on year effect from this point last year is enormous now. It's going to skew everything and you're going to have, as you said, some very hot looking prints and a number of things. Then as soon as you start getting into January, because the markets all completely rebounded, you're going to see it completely unwound almost immediately. It's going to be a fascinating period. Meanwhile, I look at the background of stuff, the rate of change of stuff, and I'm looking at the rate of change of the increase in price of copper is rolling over again. It looks like the increase of the rate of change in or even more so, emerging market currencies are now starting to fall in absolute terms again, quite sharply and we saw the Chilean peso today, stuff like that, just like okay, it feels that the weaker things in the background are starting to already transition. KEITH MCCULLOUGH: Yeah, the weakest thing is China. When I look at copper, I see China. When I look at the Shanghai Composite Index or Shenzhen and for that matter, I see copper. They're all the same thing. They are not the US formal. They're very different things but under the same assumptions, people are expecting Chinese acceleration and demand. Meanwhile, the Chinese themselves, the locals won't buy it. It's an amazing thing to watch now. At the same time, you can see I see big divergences in the softs, or on egg, on long cattle for God's sakes, Raoul, this is getting out there. I'm long cocoa, actually, to make it even worse, because we're actually seeing some of the supply shortages that we did see with commodities being so oversold with the dollar at a 20-year trade weighted high. That's actually just a simple pivot to reflate from anyway. It's not one that I think is going to be sustainable and I don't particularly care selfishly, I just want to make money trading the pivot, but in no way shape or form do I think that this is the signal broadly and macro to your point that we're going to see a Chinese acceleration in demand. That's the easily the ugliest thing that we've seen in rate of change data this week, which is the October Chinese data. You're either staring at Macro Tourist and somebody's unfortunately getting shot in Hong Kong and thinking markets are trading on that or you actually paid attention to the rate of change data, which was a new high in inflation in China, a new low in the producer price index at the same time and a 15-year low in loans in year over year demand. It's quite alarming to see an economy of that size, and of that order of magnitude in terms of expectations, slowing against easing comparisons, that is as damning as it gets for an economy and that's what's happening in China right now. RAOUL PAL: I think one of the hardest comparisons is actually what you're picking up as well is obviously the pork prices. It's coming through all the food chain. Hence why you're seeing beef prices pick up and a number of other things, along with tariffs is the Chinese have basically we don't know the size of the destruction of their herd, but its enormous. It looks like it's spread elsewhere around the world as well. That's a huge input price to the average Chinese person. Meanwhile, they can't borrow money to smooth out the effects of that, so that's a real consumption crimp. KEITH MCCULLOUGH: Yeah. Big, big problem. People sit there and they said, well, how could that matter? Well, it mattered big time. It's affected the entire US protein complex. 70%, I'm saying this increasingly at the dairies when we're looking at these numbers, I'm like, they're making up the numbers, they should make up a better number than that number, because that's a-- first of all, that's a really bad made-up a number in the Chinese demand terms. Now, the inflation numbers, it's easy to see pork prices are up 70% year over year. Again, that's happening. Chinese inflation is now running hot and that's just going to make Chinese growth slow even faster. Let's just imagine that we go through the most beautifully wonderful deal with all the adjectives fully loaded in tweets, and that happens. Let's just say it and by the way, it can happen next month, because it's always the month after that and demand continues to slow. Post your bounce, give me a bounce in ISM, actually, give me a bigger bounce. Give me PMIs, ISMs, the bounce is higher than where I think. You're going to wake up in January with-- our nowcast for US GDP growth has a zero in front of it. 0.58%- - RAOUL PAL: For Q4 or Q1? KEITH MCCULLOUGH: For Q4, which will be reported at the end of January. Post all of this happening, the Fed is now going to have to reduce their dot plod and probably go right to the wood for you on your Eurodollar position and finally get more incrementally dovish, because currently, they're nowhere near dovish enough relative to what that GDP headline number, I'm talking about the quarter over quarters [indiscernible]. RAOUL PAL: It's not unusual. I read tweets about this the other day, it's not unusual in the midtown cycle to see this part of reflation trade now, because whether it's the earlier comps that do it or whatever it may be, the start of the Fed cutting cycle and the psychology of oh, we're saved isn't that amazing, it's pretty common to see a pullback in fixed income, a slight increase in the inflation style data before the whole lot rolls over because everyone's backward looking. Always looking at the unemployment numbers and consumption numbers, which are the last things always to move. KEITH MCCULLOUGH: Right, and don't forget October of 2007, November of 2007, this is exactly the same setup. Now, when you mentioned those dates, or when I mentioned those dates, I first of all, remind myself that that's when I got fired, but people naturally say, oh, my God, like I literally just came out of a couple institutional hedge fund meetings, where there's a-- you said that this is like the consumption setup relative to commodity costs inflation in the fourth quarter of '07. I said, absolutely. It's called Quad 3. It's where your cost of living rises on a short term basis. Don't forget where oil went in the first part of 2008. That perpetuates your real consumption slowdown, and that really plays to the heart of the biggest consensus. You literally, even if you're watching it on mute, you're going to hear people at CNBC say that the consumer's in great shape. This is what we know. 100% of the time anyway, at the end of every economic cycle. That's not the point. It's when they slow for the first time and moreover, when jobless claims rise for the first time, which we haven't seen happen in a decade, that is actually the high probability bet that we have right now, is that year over year earnings go negative. People start to file jobless claims because they're getting fired and the consumption patterns slows at a faster rate. That, I can't calibrate until I see more data points but we're along the rate of change, the sine curve, we're at precisely the same point at the end of the fourth quarter of 2007, which is not a good reference point. RAOUL PAL: No, I was just writing an article today about car industry. The currency is screaming that this is a bigger deal going on here. We've got, obviously the slowdown in sales that's going on around the world, but we got pick up in inventories. There's a whole bunch of things. The collapse in price of used cars and you look at that thing, and this is exactly the thing that starts before jobs get lost. We're starting to see layoffs in fact and coming in some of these places, jobs start getting lost and people start losing faith because if your car starts losing its value very quickly as well and you're living in the margin anyway, that's an expensive thing to think about because you need to replace your car. You start worrying, oh my God, I've lost all that money in my car. It's these things at the margin that change consumer behavior and they take time, because consumers are listening to the President saying, isn't it great? Stocks are at alltime highs, which is not a million miles away from 2000 and 2007, but the reality is underneath, everything's going to shit. KEITH MCCULLOUGH: Well, if corporate earnings go to shit, your job prospects and how you think about buying these big ticket items is going to go to equally go to shit. There's actually a very good sentiment survey within-- there are plenty of consumer sentiment surveys you can look at but if you look at the University of Michigan Consumer Sentiment Survey on your propensity to buy a big ticket item, ex-auto at the 2008 lows. As you know, and I know, if you get zero percent financing, people might actually go do that, but you can't get zero percent financing for a washing machine. You can't do that for-- it's within the durable goods complex that people are saying, hey you know what, I'm actually not that confident and there are certain things that I can't quite put my finger on, but I'm pretty sure it has to do with the company that I'm working at. Starting to cut a little bit on the margin and starting to talk about the world changing a little bit. Don't forget that only a year ago, we hit the triple peak, GDP growth, inflation and corporate profit growth. Rainbows and puppy dogs as far as the eye could see. When you have corporate profits, you spend on capital mid-cap CapEx, you buy back stock, and you hire more people. That was the peak. A year later now, people understand that something's changed but they're probably a little lost here for words when you have somebody tweeting at you from the presidential office, like look at me, look at your all-time high spend away. It's like those tweets take me like, wow, those won't age well. RAOUL PAL: No. It's irresponsible as well, potentially, if we're writing the underlying trend of the global economy, the US economy is slowing still over time, then to be telling people to spend money and take out more credit or do whatever they're doing is irresponsible. KEITH MCCULLOUGH: I think that that'd be a kind way of putting it. It's negligent and you're misrepresenting simple and basic economic facts which Larry Kudlow, or anybody who's got anywhere with all on a sine curve could tell you that we're slowing. By the time-- that's the utility of the nowcast on GDP. We have not seen it zero, you can look as far back as you can go. To find a zero on headline GDP is hard to find. Moreover, we went from one to two to three, we had one headline that was north of four. This is a dramatically different version of the truth than what's been represented with some of these, like I said, they're negligent tweets if we got for better right on the number, then those are negligent tweets. RAOUL PAL: Yeah. I think, you and I talked about this in the past, this is almost precisely the reason we even got into business is to stop people being fooled at times like this. Because it's important, it's people's money. It's people's life savings. It's their pensions, all of that stuff. It's not right that the President is making the noise that he does. You don't have to be negative, sure, but don't cheerlead. Don't try and push people into doing things they shouldn't do. Sure, we could be wrong, but the probability is not that high. KEITH MCCULLOUGH: Now, this is not-- you don't do that with the man on the street. It's not cool. It's not right. It's not a political comment. It's just if you're against fake news, then don't perpetuate the ultimate of fake news, which is not acknowledging what's happened to the US economic data, which even the Fed itself, they're the last to figure it out, as obviously figured it out. It's not going to hit, like I said, these tweets will not age well. In fact, it might-- and in the institutional community, I think it's an also-- I don't think it's negligent. I think the word fiduciary comes to mind. Because everyone who does math, again, rate of change math, everybody knows that growth, inflation and profits have slowed. Yeah, they might be better than expected because S&P profits are down 1% to 2% year over year instead of down 10%. That's everybody knows. For you to buy stocks with people's 401k, again with other people's money, because you believe that he believes that there's a chance, that I think that there's a lack of fiduciary responsibility. RAOUL PAL: And I think the same thing is you look at every economists forecast always, they never will forecast a down cycle. Well, a small child can look at GDP growth for the last hundred years and go, well, it goes up now. It's a sine wave. It's obvious. Therefore, what you should be doing is thinking, well, let's say, we've just had a recession. Within 10 years, we're going to have another recession with a 90% probability. They won't, they'll just go, no, no, we'll extrapolate future growth forever. It's like, really? And you get the PhD. KEITH MCCULLOUGH: Yeah. It's pathetic. RAOUL PAL: It's ridiculous. KEITH MCCULLOUGH: First of all, the Fed's projections on their dots are wrong almost 70% of the time, which is pretty much horrendous. Even if you look at just the narrative of Wall Street better than expected, said by who? Tell me one house on Wall Street that told you a year ago today, and at least that a year ago today was in November, you had some time to watch the market go down for a couple months, or six weeks and the Russell's case since the end of August, you show me just one person that said that GDP was going to slow from its cycle peak, inflation was going to slow markedly, bond yields go to the lows, earnings would go negative year over year, and that was better than expected. Better than what you expected a year ago. Not even close, but constantly moving target, constantly floating target. Again, that's why we built the firms that we built because that just certainly is not the truth and the forward outlook is actually quite alarming to be depending on them for the next version of the truth. RAOUL PAL: Probably this is neither of us say that we're always right, far from it. Even the whole industry, we were just talking off-camera beforehand, the whole industry is screwed up in this way that nobody can stick their necks out anymore. People just can't take risk because everyone's trapped in a one-month time horizon, or in some cases, even less. If you think about it, economically, there comes out one piece of data a month, yes, you can find some high frequency stuff maybe, extrapolate it from market stuff, but really? The best you can probably get is a weekly data, but yeah, everybody so that's four data points in a month. You shouldn't really be trading a P&L around four data points a month. KEITH MCCULLOUGH: Or perpetuating like this performance chase. RAOUL PAL: No. That's they've got themselves in a huge mess. You can see industry returns going down and down and down. KEITH MCCULLOUGH: Yeah. Well, I mean today. You can talk all you want about the year to date. Again, let's just not talk about what happened for the three months of the fourth quarter of last year where you could have lost 25% to 30% of your capital in any US based stock index, it wasn't a bond proxy. Let's just ignore that for a second, park it there and say the year started with everyone's going to get paid. Now, we have this year to date number that's up a lot. A month ago, it was 41% of managers were beating the bogey. Now, it's 29 and falling. They're literally forced and compensated to chase the market for whatever remains of the year to try to get to an unreasonably high target. The S&P 500 is 27% more expensive today than where it was when it started the year. 27% higher, and that's only because the market's gone up and the earnings numbers have gotten down. The only time we've seen a divergence like that was back in 2000 to 2001. That's a very alarming picture because again, of course, 2001, we saw earnings not just go negative for the first time, but then went double digits negative. By that time, you didn't have to have a US recession. You had a corporate profit recession to lose well over half of your money. RAOUL PAL: Yeah, the recession was pretty mild back then, but the market recession based on the corporate profitability was obliterated. KEITH MCCULLOUGH: Yes. When you think about that relative to the corporate credit bubble that we're in, obviously-- RAOUL PAL: That's a bigger issue, though. KEITH MCCULLOUGH: Yeah. There's so many charts that I show institutional investors that I've walked through with you, and you show me yours. It's like, ever is a long time. There has never been the spread that we currently see between Triple C credit and the Bs. You take what is considered the higher quality credit and the stuff you're not allowed to own, they've not only diverged to their widest point, but now, they're heading in the opposite direction for the first time ever. You usually, or all of the other times, that's why we have the ever now. We have Cs take off, lower quality credit spreads widen, and then Bs follow. The Bs will follow. Where will the Bs meet the Cs? They will end up in the same place and it could be violently, it could be suddenly. To me, that really is the point about corporate profits. If corporate profits remain negative on a year over year basis, labor continues higher as it always does at the end of the cycle and companies continue to push out, guiding down because of a proposed Chinese bean deal. Yeah, that could be your eye opener, is not that getting the T-minus three to six months from now, this thing should look a lot different than where it looks today without the year to date dynamics of people chasing the spreads. RAOUL PAL: Yes, there's a couple of things observations on that. CCCs, there's obviously this shenanigans going on in the funding markets right now. There's basically a lack of domestic liquidity in the funding market, because the massive new issuance is coming the out of the Treasury, but that illiquidity, the Fed started printing more money again to do it to try and alleviate some of that strain. At the far end of the strain curve is the CCCs and they're going, no, no, no, there's a problem here. They're not getting the funding they need so they're blowing out. The BBBs, because they're supported still by the pension funds sector, are not feeling it. Meanwhile, there's the corporate profit slowdown. What's in that bunch of BBBs? Ford, GM, AT&T, General Electric, and Dell. Those five are enormous part of that market. Any one of those and Ford one got downgraded, one of the agencies downgraded to junk but one of those who actually falls becomes the fallen angel and falls into the CCC category. The whole thing's over. Because the markets will seize up because they can't-- the junk bond market doesn't have enough buyers already and it's widening. If one, God forbid, if one of these come through and get downgraded, the whole thing's going to seize up. KEITH MCCULLOUGH: What is the discussion in the boardroom to avoid that? For all of them, it's to fire people. RAOUL PAL: Or usually, General Electric, the other one is equally as bad, restructure the pensions. KEITH MCCULLOUGH: Yes. Somebody has to take a markdown. RAOUL PAL: Someone's going to get screwed. It's always the little guy, it won't be the CEO. It'll be everybody else, those who get fired will lose the benefits. KEITH MCCULLOUGH: Well, it's interesting like GM. If you look at GM, the last time they had their strike was in '07. Again, the dynamics are the same. After you hit the peak in profitability, the people say, I want a piece. Now, they're going to get their piece. If you get more and more of this into the election, the dynamics are real and labor's coming off basically a 15-year low relative to corporate profits, this is a period that no money manager, certainly the ones that are illiquid and levered which would include all of private equity, have had to deal with. Again, every other cycle, labor has been high and rising. That's what always perpetuates a recession because the Fed can't cut people's wages, and they certainly can't fire people. That's what labor is going to do, but it was always high and rising. 1980s, 1990s, that's why people like or at least they can, or at least a macro person should like the 1980s and 1990s, irrespective of your political party affiliation, because we had very good relatively low cost of living, we had really economic growth and labor was high and rising. Now, it's been blasted to 15-year lows, again, put off paying the people, corporate profits were big, fat and happy and labor's rising from the ashes. This is probably the most important secular turn in labor that certainly anybody our age or older has seen. You've never seen it before. What could possibly go wrong? Anyone who's levered long assets that have people facing businesses are going to have to face the reality of having to pay their people more and/or just getting lower quality higher and seeing reduced corporate profit margins and reduced corporate profit margins, negative year over year corporate profits is the catalyst to what you just year marked as a ring of fire, if you will, of companies that really aren't "secular growers", I can go off on that, but these are cyclical companies that have bloated cost structures to begin with. RAOUL PAL: Yeah, exactly right. Also interesting in the margin is you see delinquencies in cars. They come to new highs. You've got-- yeah, on 60 days, 60 days or more, delinquencies are at new all-time highs. It's like, okay, that's something, that's an interesting data point, the consumer's not quite as happy as people think they are. You look at the credit card borrowings, and then you look at the rates credit cards are charging, which is the highest all-time rates, considering interest rates, and that's the data that goes back to 1990 or something and credit card rates are high not at 17% than they were back then when interest rates are 8%. It's like, okay, there's something going on here for people-- the only reason they can do that is demand is high enough that people need the credit. It's the only source of credit they can get because they can't get any other credit. There's something telling you, there's bits creaking at the seams here, so how do you think it plays out-- and again, neither of us are interested in the politics of it but the election side of it, it sounds like you don't think that the administration can keep the economy floated into the election. I've got different view that I don't think they want to, I think they'd rather have a recession. I don't think it's as a shoo and that they really necessarily need to keep it in the way that it is. Because I thought today, Trump was very clearly again, blaming the Federal Reserve, it's nothing to do with me, look how they screwed you. How do you think from a nonpolitical standpoint, how you're seeing it play out? KEITH MCCULLOUGH: My political lens is always explicitly affected by my quad outlook. We are right on the screws. I'm not a believer that any politician central planner or otherwise can part the heavens and give us a new path underneath the seas of economic gravity. The economy is going to continue to slow and if it continues to slow into what we call Quad 4 which is the most damning of market conditions by Q2 of 2020, that's the worst place for Trump to be for a period of time. Because that's when Elizabeth Warren's chances or Bloomberg or whoever's are going to start to rise and again, it's more about the probabilities change. There are very few money managers on Wall Street who actually, even if they hate the guy like the Bourbonic Plague, they still believe in some way, shape or form, that Trump has a good chance to be reelected. RAOUL PAL: Almost everybody. KEITH MCCULLOUGH: Yeah, if you don't-- like I have raging Democrats telling me that I live in the state of Connecticut, I have plenty of exposure to them in non-money market, like nonmarket people won't have that view but if you're running a portfolio today, you can't tell me that you expect the tax rates and the truncation of tax reform, which is the biggest thing for corporate profits that the modern era has ever seen. Like you can't possibly say that that's in the market. I think that that is a big shift, too. You get your zero percent handle on GDP in late January, the economy continues to deteriorate. We take a look at Quad 4, the last two times the market's taken a peek at Quad 4, not good for Trump, not good for the stock market, which is one and the same thing. It's almost like I think that-- and I think now Ferguson said this, if the market starts to go down for real for once, God forbid, actually, it's done it multiple times, but again, if it goes down for real, her chances go up. It's the Soros reflectivity view, which is, again, the faster you go down, the higher her chances, and you could wake up one day where people are right scared of that, and Trump gets reelected just for that reason. Then you get the mother of all rallies from a much lower point again. Again, that's way out there but I'm using my quads to instruct what the political and reflexive human response would be to just negative economic conditions. RAOUL PAL: Now, my view is somewhat different. I think economically, we have the same view, but my view is on the Trump side, if you can anger the American, the middle American, because they can't be screwed over and if you can blame it on the Federal Reserve and the Chinese and the Europeans, then if you are going to a recession, first, you say I will save you with some MMC John Spinning package and secondly, it gets them mobilized because they hate everybody else. That's a typical thing and Elizabeth Warren will use the same tactics, will say well, it's all his fault and blah blah blah. It's going to be a very interesting election and I never trade markets on elections but it's just interesting. Talking about elections, what do you see in the UK? KEITH MCCULLOUGH: Well, we see Quad 4 in the UK. That's where we started and again, seeing the UK through the lens of the quads and what are the prevailing conditions of growth and inflation has been absolutely the way to trade the UK from a gilt perspective, long gilts Quad 4. RAOUL PAL: Yeah, you just ignore all of the noise and just look at the economics. KEITH MCCULLOUGH: Yes, exactly. Short the pound, Quad 4. Now, the pound is actually trying to have a breakout here relative to the dollar, which is interesting. However, it's based on a catalyst which is this expectation which I have zero edge on. Plenty of things I had zero edge on but one of the big ones I'm certain of is the political outcome in the UK and when this Brexit catalyst actually can be finalized, it's just not what I do, but the market is saying there's a chance, like there's-- as long as there's a catalyst, it's closer. That catalyst is also aligned in terms of the quad timing that I have for the US economy to slow at a faster pace, then that would be bearish for the dollar and bullish for the pound anyway. That's an interesting one, because I've not been long the pound for a long time. I'm long Canadian dollars against the US dollar for the first time in a while, but I've been willing to go there in the UK but broadly, UK data is Quad 4. RAOUL PAL: Talking about fiduciary responsibility. You've got a situation in the UK where the economics is relatively clear it's Quad 4, but you've got this huge overhang of something else, which of which you have no edge, is the right answer to the [indiscernible], just keep out of it? KEITH MCCULLOUGH: I just stay away. Yeah. RAOUL PAL: It makes no sense otherwise. KEITH MCCULLOUGH: Yes. I think that this is a point that you made earlier that's critical to understand. Wall Street isn't like the person that's watching this. They aren't like you and I. We, until somebody removes it from us, maybe the CCP governs us and we can no longer have any legal right to make our own decisions on our own free will, we can decide to buy whatever we want, whenever we damn well please. Wall Street is siloed into these are the people that trade the pound, these are the people that do the UK, these are the people that do the US consumer. These are the people to do US healthcare. They have to have a view. All of the time, think about how hard that must be. In fact, it's rendered itself useless. There's an oversupply of money managers, and you've basically made everybody a silo expert of nothing. What I intend to do is I'll wait and watch. I wouldn't been able to tell you a year ago that I'm going to be long cattle and cocoa today. Are you kidding me? We've seen negative supply dynamics, I see the volatility of the volatility of volatility, the signal changing within the commodity space. I see two dynamic situations that wow, this is perfect. The crowd's definitely not there and that's when I go. As opposed to feeling like I have to have a view that the crowd is having fumble on, or tweeting about, or God forbid, reading CNBC view of every day. RAOUL PAL: Spinning a bit more around the world and then we'll come back, we're going to come to the dollar later. There's two markets that we've all looked at and thought at some point, they're going to enter trouble; Canada and Australia. Where are we with those? Is everything in the same sink right now? Is everything in that Quad 3, moved into Quad 3? KEITH MCCULLOUGH: No. Well, in Canada, in particular, we have back to back Quad 2s coming. If there is a country that looks like inflation accelerating, it's Canada, and they are the recipient of it, like within the Toronto Stock Exchange Composite Index, the heavyweights are Quad 2 exposures, which include energy companies and the banks. Canada for the first time, if only for six months, and the Canadian currency for that matter, that's why I'm long it, because it's hard to find. First of all, Canada only has twos because they're comparing against borderline recessionary Quad 4s that they're coming out of. That's why you have that, but you also have the dynamics that they are hooked to headline US inflation's acceleration and the broader breakout in commodities. Canada to me, it looks like we've been long it since the beginning of October. It's a relatively new position, but it's the same position that I have across the board. I bought TIPS instead of being as long as I was of duration. I flipped the Dalio move and flipped into some of that. It's a cheater. He knows it, that's why he created it. If you want to outperform people that are permanently long duration, let's have a different thing to be long while they're still long duration and inflation accelerates. TIPS. It's like the old adage, just you don't have to outrun the bear, you just have to outrun your friend. Again, I'm just trying to isolate that view of inflation accelerating particularly North American inflation accelerating, so it's long energy, which is I think the most concerned position that we have in equities, long Canadian energy, long Canadian equities, broadly long the Canadian currency, and like I said, long the proteins, long lumber, which is another way to double up on our-- RAOUL PAL: You've got the full on reflation trade on? KEITH MCCULLOUGH: Yeah. Yeah. Well, there's no mincing words about that. I'm short the consumption curves and software, which are, it's a very-- I have a higher beta setup than I've had for a year. Because I'm long things that are classically what I call phase transition coming out of bearish trend, Quad 4, do not buy energy, do not buy commodities, short both to buying what I was short, which can be somewhat unnerving, but exciting. On the same token, consumer staples, which was a long, we're shorting though. RAOUL PAL: There's a psychology that's difficult here. Your prevalent view is that we're in the downside of the cycle, but what we've got is not faced within a down cycle. You have to trade against your view, which I don't ever do. It'll either the out or outsize it so I could just sit with the longer term view, just different way, different time horizon. I find it particularly difficult to trade against my own view, that personal view. If I know there's some confusion, I just bail it, but you're doing it. How do you do that? How do you find your plan still with that? KEITH MCCULLOUGH: Well, my model, the way that my model is set up is not A or B, there are four different economic outcomes. It's an explicit bet on what we call Quad 3. RAOUL PAL: No, I understand that. KEITH MCCULLOUGH: Yeah. That is a six -month view. That's not against my view. That's my view for six months. The hardest part will be to get back to the-- RAOUL PAL: You are in the down cycle of which, that goes on longer than that. It's based on your view and it's all about time horizon. KEITH MCCULLOUGH: Yeah. If I only go back and look at how could I have traded '08 better? Crushed it in '08 by just staying with the view that we're in the down cycle. How could I have done better? Well, I would have bought commodities in the early parts of Bernanke going dovish, and stayed long-- RAOUL PAL: That whole correction that we had, the reflation correction we had in the middle of 2008. It was brutal. KEITH MCCULLOUGH: It helped my consumer shorts, which is where I made all my money in '08. I just kept shorting every bounce in every story stock, every loved, broadly held story stock, consumption oriented shorts. That's where my, I guess, my formal training came as a hedge fund analyst and then a PM in the consumer space. If I could do it all over again, I would have been long crude futures on top of that, that the alpha is manifest when you have the cost curve piece on for that six-month period of time. It is an explicit view of stagflation. Every time-- like, again, for me, and God willing, I get to live through a couple more cycles. I might be 90 years old at this point if they keep [indiscernible], but it is classic late cycle, where labor and you get that final push of inflation. You can make money on the long side of that while you maintain your bearish view on the consumption curve or the proper, as you said, the down cycle. RAOUL PAL: From my perspective, I'm not so short as long term correction. I've looked at the history of, of these moves in the down cycle and there's two which makes it somewhat complicated. There's one and I look at it through the lens of Eurodollars you and I've talked about. That's been a big thing for me at the moment because for me, I find it's the best way of trading the down cycle as well as-- the up cycle tends to be equities and commodities better. The down cycle tends to be rates, which is why you're not short rates right now particularly, but you are long commodities because you're in the reflation. Anyway, so I look at this and both 2001 and 2007, both had 70 basis point pullbacks in Eurodollars, which were the gut check reflation trade. They didn't last that long, they lasted three months, which is where we are now. Then in 2008, and 2001, late 2001 going into 2002, before the 9/11 were these huge pullback in rates, which was the Fed have done enough, the cycle's over, oh no, it's not phase. I don't know which one of those we're in. I feel like it's too early for the bigger one, which will be the sixmonth, nine-month trade but I hear what you're saying and also can see that okay, maybe it's a hybrid. I don't know. It's very interesting for me but I'm staying in the short end and just hiding out there waiting because I was in a long time ago, and something we talked about before is if you're not doing monthly mark to market or even annual, then it doesn't really matter, you'd look at what price do I buy it, at what price do I sell it? KEITH MCCULLOUGH: 100%. RAOUL PAL: The entire world's gone mad because they don't even think about it. When I was running a hedge fund, literally, it didn't matter what price I bought anything or I sold it at. It was how much money I made that month. If I was going to lose money that month, had to change, get rid of the position even though I've made for x in it. It's crazy. KEITH MCCULLOUGH: Yeah, well, great example and you absolutely nailed that was obviously the Eurodollar trade, by the way, everybody a year later agrees with you because the net long position there is like one and a half million contracts. Net interest [indiscernible] just epic. RAOUL PAL: But all the other problems are short. That's a part of it. KEITH MCCULLOUGH: On that piece, that's actually the point I was going to make, which is on the short end of the curve, which is I like to think of, okay, we got into short term treasuries on October the 17th of 2018. That's good. We like that cost basis, but when do I go big again? When do I grow set position up again? That clock because I'm making a T-minus six months call on inflation accelerating, I'm not willing to run the clock up six months, because the GDP number is T-minus four months. That's the January number. I think that that's the beginning of the Fed, because again, the short end of the curve is what the Fed does, the long under the curve is what the market thinks the cycle's doing. If the Fed actually sees that and goes to where Fed Fund Futures are, their dot plot is as wide as it's ever been going back 12 years since the inception of the dots, and again, a highly inaccurate dots of process or whatever you want to call that forecasting process to do that, but they will have to acknowledge at some point that their dot's going up this way in terms of economic expectations have to come down. That's where I think I cannot, you cannot be big enough on the short end of the curve into that. RAOUL PAL: No, when that happens, it becomes the crisis trade. KEITH MCCULLOUGH: Because you can take the 2-Year Yield down 100 basis points from where it is today, which is a monster move relative to the long end of the curve. RAOUL PAL: Yeah, and the leverage you can take in something like that is enormous, too. KEITH MCCULLOUGH: Yes. I've spent a lot of time with clients, and we can talk about it later but clients are all asking, okay, what is it? Should I use swaptions? Should I do use this? Should I use that? Eurodollars, they do see it as having been a little bit more crowded than they would like, that's the discussion within this discussion but it's pretty simple. If we're right on the economic projections the Fed is going to have to at some point in early 2020, look like they are actually completely politicized relative to the Trumpia. RAOUL PAL: I just think that the yield curve is telling us something. Now, the yield curve goes negative into recession, we've seen. The swaps curve got to zero, which is the same as it did every single, actually went negative which was actually rare for the swaps curve 2s, 10s, and it seemed to steepen. The prerequisite for a recession is steepening curve. Everyone thinks it's the negative curve. It's not, it's the steepening curve. KEITH MCCULLOUGH: Post the inversion? RAOUL PAL: Post the inversion. Yes. Which it's now doing, which plays into, as we're both saying, somewhere within Q1, Q2, it's going to start getting ugly again. KEITH MCCULLOUGH: Yeah. Well, that steepening is just based on the Fed catching up to our view. They're the last one to figure it out. Once they do, they steepen the curve by cutting the short end out and I think that if they don't do that, then they perpetuate having to do more when they finally do do that. They are the catalysts for their own panic if they don't acknowledge it soon enough. That's why I do think that that GDP number if we're right on the headline, in conjunction with profits slowing and jobless claims rising, there is no case to be made for jobless claims rising for the first time in a decade for the Fed to not go incrementally dovish, and probably aggressively so if I'm right on that. Again, that would just be washing through Q4's earnings season into the Q1 of 2020 outlook, where the street is way outsized on earnings expectations. They're actually looking for earnings to be up 5%, 6%, 7% in the first quarter of 2020, which I think is mathematically impossible. RAOUL PAL: Yeah. They're just looking at, they just want a hockey stick up every time. They just don't want to believe the fact that things can trend lower. Where are you most excited about in the world? Is there anything you see different that's not in the same cycle? Because that's the key thing. Because most of the world, give or take is in the same cycle, some leads, some lags. Is there any way you would say a great thing about this is just entirely different. It's a breath of fresh air. KEITH MCCULLOUGH: Well, on the short side, yeah. I'm feeling it's not-- I shouldn't say feeling, if I ever say that again to you, Raoul, just take me off Real Vision. RAOUL PAL: Basically, there's nothing in it. KEITH MCCULLOUGH: There's no feelings, there are cycles. I think this software bubble that built within the cycle is potentially like this thing that can almost make you giggle, or things trade at 15 to 20 times revenues with these TAMS as far as the eye could see. They're seeing rate of change slowdowns in revenue growth, and massive, bloated cost structures. That's like, in short selling space, that is easily bee-- by the way, the software stocks are down depending on what day you're looking at them, they're down 8% to 10% already since July. I like it when the movie already starts and the index doesn't agree with that setup. Actually, consumer discretionary, broadly, is the other one that's down since the July highs. You have this concept of secular growers which has never happened before. It's only something Wall Street could make up, a secular grower is something that's never seen a cyclical slowdown. Great. To me, that like from a short seller's perspective, because let's be clear, you'll find them at Real Vision, but the art of short selling has been shot for dead. That, to me, is the most exciting thing. Having an independent research team with 40 different analysts. We're finding some really interesting shorts and very low short interests, which reflects the broad interest that people have in story stocks, or in these TAMS, these total addressable market stories. It's all about stories, and again, as they become cyclical, I think that that's probably the most exciting thing in terms of opening the envelope to the downside because we're already seeing that actually in this earning season in particular. RAOUL PAL: Just a side story to that, it does worry me, because obviously a bunch of hedge funds are more than skilled at short selling, but there's the short sellers, people like Marc Cohodes and stuff that we all know and love, are very skilled at this but it's a very, very skilled business, particularly if you're fraud hunting, as opposed to trading a directional view based economic views or whatever it is. We saw that the amount of tourists, short selling tourists, I think more than Macro Tourist, they all flooded into Tesla. Then people have lost fortunes in stuff like this. There's a whole bunch of these stocks that they were like, they're definitely going to zero, they're definitely going to zero. It's all a fraud, because they became market vigilantes. A lot of them came out of the gold crowd, the same vigilante stuff. It really concerns me that people have been pushed into stuff like that, because they don't really understand that short selling as you know is not easy. KEITH MCCULLOUGH: If you don't have, and I know that this is going to ruffle feathers, and maybe the first time I've ever done so, but if you don't have a macro process to overlay when the cycle is in your favor as a short seller, I think you need to really rethink that. If you think about-- RAOUL PAL: Well, unless you're an expert short seller who writes a whole thesis on the thing and everything else, because it's so difficult. KEITH MCCULLOUGH: Even that, when the cycles not on your side, and I don't need to name names, but they lost their hedge fund. Since the financial crisis in '09, I think 50% of hedge funds that launched on the Goldman system are gone, because people start with shorting valuation. Valuation is not a catalyst. The cycle slowing is the catalyst and expensive stocks within a slowing cycle is the ultimate short seller's dream. It made many short sellers famous, those that have ignored the economic cycle. 2017 is a great example. I was born a short seller. The first thing I learned how to do is short a stock because my first job on the buy side was in 2001. I come to my boss, John Dawson, I said, well, they're going to miss again. They're going to what? They're going to miss again. I just listened to what they said at the conference. I put it in the spreadsheet. Their margins are going to be down. The revenues are going to slow. He's like, short it. Like, okay, this is cool. Short it. I thought it was just like buying something. I thought that's what you did. Because it's when I was born into the business that mattered. Anyone who's done something well over time can tell you that. There is a significant amount of luck in terms of when you were put in that seat to do a certain thing. RAOUL PAL: You have a boss. KEITH MCCULLOUGH: Yes. Okay. Then the rate of change went bullish in 2002 of all the shorts, I come back to John and I say, well, they're going to beat it for the first time since I've worked for you. They're going to what? Cover that short, we're going to buy that stock and lo and behold, growth was accelerating from obviously late '02 all the way until 2007. I think most people that got blown up in the story socks high multiple. Again, there's some epic things that have gone on, we weren't fully loaded Tesla's Elon storytelling, but people were shorting them into the 2017 tax reform acceleration and top line growth that perpetuated these multiples. Software growth, software CapEx, for example accelerated all the way into the end of last year, into the end of-- and into actually the first quarter of this year, of 2019. There was no backdrop to short sell software stocks in rate of change terms until this year. RAOUL PAL: How did you guys get on with Tesla, because you guys were Tesla shorts in that period as well? KEITH MCCULLOUGH: Yeah. Well, we came into it literally, Jay Van Sciver came into it rate as it was topping. He was looking-- and I've taught all my analysts, if you can't show me the rate of change slowdown in their business within three to six months, this is not going to have a hedge on name on it. You can argue till you're blue in the face but the batting averages are very low. If you tell me you found a fraud, like our analysts, Kevin Kaiser did with multiple MLPs and by the way, those frauds weren't revealed until oil blew up. RAOUL PAL: Yeah, same reason, micro, macro changes. KEITH MCCULLOUGH: That's when it was easier to get loud on deflation Quad 4 type theme. I have an analyst who's super buried up on a bunch of frauds in the MLP space. Go. I think that timing part, I'd humbly submit that that's a part when I say the art of short selling has been shot for dead. It's because you haven't had the macro meets micro. The rate of change now, your timing's good. Now, your batting averages are going to go up. If you show me a software company, we found one that basically filed an S1 with two years lookback in terms of revenues when the revenues have only gone this way up. Post tax reform, through tax reform. It's a 20-year old IT services company. It's like hello, McFly, you slowed every single time we had a cycle but you're not showing the lookback. These are the kinds of things that Wall Street underwrote. This is why you know short selling now in a lot of these high multiple stocks is a much more appropriate time, high multiple stock prevailing condition is slowing as opposed to accelerating. RAOUL PAL: Right. You just been out seeing clients that's why you were in a suit and tie. KEITH MCCULLOUGH: It's the only time I wear it. RAOUL PAL: What are you hearing? What are people doing? What are they thinking? Where are the pain points? Where are they-- I don't think it's been a straightforward year for many. KEITH MCCULLOUGH: No, but if you're having a good year, the happiness factor is back. I do have clients that are macro aware. They've been on the right side of the cycle. Generally speaking, I'd say that the clients that if they're paying us, they're aware of the view that we've had, certainly the Quad 4 views, their batting averages on the short side have gone up tremendously if they are of that ilk. If they're long only they've been leaning on proxy, which they're quite happy about, but I'd say that, like, in particular, this last couple weeks of meeting, there's the markets punch to new highs throughout earnings season. There's an uneasiness to it. It's like-- RAOUL PAL: That's my opening question, uneasiness or uneasiness. KEITH MCCULLOUGH: Uneasiness. RAOUL PAL: Yeah, hence my opening question to you when we started this is nobody really knows quite what's going on. KEITH MCCULLOUGH: Happiness becomes uneasiness when you start to underperform the bench. That's what's happening. Peak happiness was coming out of the October lows in the S&P 500 or August and October, our clients would be doing fine because the things that they're long were going up and their shorts are going down. Now, everything's going up. In fact, the things that have gone down a lot are going up more., so you'll have that uneasiness. There's an absolute consensus to not be able to fade Trump's tweets. Therefore the value or the resurgence of these PMIs and ISMs a bottom trade. They'll wait to see the data point until they believe that the cycle is properly continuing to slow. There's an uneasiness about that. There's always an uneasiness about your compensation. A lot of people-- RAOUL PAL: It's always a difficult time of year because you've got six weeks to make a decision. Do I do anything else or do I not do anything else? KEITH MCCULLOUGH: Yes. There are plenty of money managers long only and long short that have set their yearend in September, October, November, those months for that reason because they didn't want to be beholden to chasing the ace into yearend markups. It's an interesting one, but again, don't forget that the S&P 500 stock going up in November of '07, it didn't wait till the end of December. There's an uneasiness associated with that as well. The more macro where you are, the more '07 questions I'm starting to get, which doesn't have to mean we're going to have an '08 but that'll certainly-- if it doesn't make you feel uneasy to some degree, I think it absolutely should. RAOUL PAL: The hedge funds themselves, what is the appetite for risk now? Are they gun shy? Because they've had, yeah, it's been a flip flop year. It's been one of those years where they came in short of equities, equities rallied, okay. Anybody who got the bond trade got it sorted out, then it flips again later in the year. It's been a complex year for many people. How are they feeling in this? KEITH MCCULLOUGH: The better the research teams and most specifically on the short side, the better they are doing right now. Don't forget, just like the high yield index or where high yield spreads are is not where the rest of the market is. You have multiple blow ups going on. Think of some epic story stocks imploding and for the valuation oriented short seller that got the timing right, I think that the batting average is going up their-- or building a confidence that wow, I have the benchmark index SPYs at the all-time high and I can make money on my shorts at the same time with the president trying to trump up the bench. Like it's almost like licking the chops times for this-- somebody who's had a successful career short selling across cycles, not somebody who's just getting lucky. RAOUL PAL: Final question, the dollar. You're, I think, majorly negative the dollar right now, do you think the dollar cycle is turned for good, or is this part of the reflation in Quad 3 theme? Where do you stand on the whole dollar view? It is crucial to a lot of things. KEITH MCCULLOUGH: Yep. If you take the trade weight of dollars at a 20-year high, again, back in 2001, same point, what could possibly go wrong? Sustainably strong dollar is also one of the many negatives to corporate earnings growth for the fourth quarter and the first quarter, so it's the same sixmonth outlook. No longer buying dollars-- RAOUL PAL: Okay. It's off the same-- it's not a separate construct for the dollar. KEITH MCCULLOUGH: No. Quad 4 is where the dollar goes up, so the next time I'll buy the dollar is when I think the market's setting up the price in another Quad 4, so I have a six-month window, might be four. RAOUL PAL: When do they start-- when did the clock starts here? KEITH MCCULLOUGH: October. That's when dollar-- RAOUL PAL: End of December, January, February, March. KEITH MCCULLOUGH: Yeah, our call was it's pretty straightforward, it's hashtag peak dollar. I don't mince words. The dollars peak, but again, the dollar-- RAOUL PAL: The peak dollar sounds to me secular, but you're saying cyclical? KEITH MCCULLOUGH: Yeah, it's just my six-month pivot. Again, I want to cancel-- RAOUL PAL: That's what I wanted to ask you about it. My thinking, I'm a much longer term person so I was thinking okay, if you're saying that you think the entire dollar construct has now changed for the world, okay, that's very different than the view I have which is like okay, and this has been trading accordingly to your view, it may had broken down or broken up but it's-- KEITH MCCULLOUGH: It made it-- it's been like literally right on the screws played out in our playbook and this doesn't happen all the time obviously. When it does, you like to know just like a good golfer makes a birdie putt, you expect to make the putt, you hit three good shots on a par four, well done. That's what the process say. When Quad 4 is you're in the thralls of Quad 4, the dollar should rally to new highs, which it did, Quad 4 ended in Q3. Now, we're not in Quad 4, the dollar should start to make lower highs for six months. That's pretty much it. I don't think that it's like some big bang call. I still do think that there's some asymmetry to the Fed waking up to that GDP number in February, and then cutting their dots. I think that that'll probably be wherever the dollar corrects to, that'd be the beginning of the end of the negative dollar view. Then I go back to being long the dollar in start of second quarter. RAOUL PAL: Final, final question, when you're looking at the rate of change to assess where you are in in your framework within the quads, you're looking at the rate of change, are you looking at the rate of change of asset prices, rate of change the economic data or a bunch of both? KEITH MCCULLOUGH: Both, and that's what I call my AB test. A is various in the research team constantly measuring and mapping the rate of change data across 50 different countries. RAOUL PAL: Economic data. KEITH MCCULLOUGH: Economic data, and then there's me, that is measuring and mapping the rate of change of price, volume and volatility, the relationship of all three, especially the volatility of volatility is what I really care on, and something like that. Like we just saw what I call phase transition in oil volatility for example. Oil volatility or the vol of vol has now gone from bullish volatility, very negative for the price to now bearish volatility, which is very short term bullish for the price. We're starting to see that too. It's classic. I think, Bridgewater, Dalio to a degree, assets flow towards falling volatility, assets low the rising volatility, and that's why I spend so much time on that. It's the most humbling of experiences as it was for Mandelbrot when you had Big Blue, the machine measuring and mapping cotton prices in all historical prices, because you have to wait for a moment where that signal becomes real, because there's lots of Brownian motion. If you're looking at it like I do, and measuring and mapping the volatility of volatility daily, Brownian motion 101, there is nothing to do until there's something to do, because volatility will cluster and then become a new trend. That's what I'm essentially on the lookout. RAOUL PAL: Because it's interesting. We've just interviewed John Bollinger. I haven't seen the interview yet, but Bollinger Bands, the technical analysis. It's basically based around the same concept. KEITH MCCULLOUGH: Really? RAOUL PAL: Yeah. It looks like it basically looks at the volatility of an asset and if the volatility is increasing, the band's increasing, if it's decreasing and usually when it decreases after a while and you get a breakout, you've got to change your volatility regime. KEITH MCCULLOUGH: Well, that's right. Bollinger Band would be a Gaussian standard deviation and when the volatility changes, the standard deviation of vol comps change. RAOUL PAL: Essentially, yes. KEITH MCCULLOUGH: Actually, that's a good example of what I call our risk range process. I published daily risk ranges and people are like, wow, I can't survive without it and I'm like, no shit. I couldn't do-- I couldn't trade without it. Again, when I see the volatility of volatility rising, what happens is my probable range widens. RAOUL PAL: Of course. KEITH MCCULLOUGH: Similarly, when the range is starting to tighten, what that means is that the volatility is starting to go away, or potentially undergo phase transition, plenty of head fakes. Again, when I take the AB test, this is critical. The signal is always raw, front running the quad, the market signal's going to get it before the quad does. If my quad outlook reflects what the market sees, and it's a change of face- - RAOUL PAL: The problem is that the market also does a lot of false signals, just keeps reading for something different, and it gets it wrong, and it reverts. KEITH MCCULLOUGH: 100%. RAOUL PAL: That's endlessly testing the narrative, the markets or indices, so yes, it's the test between the two is dead right. You can't do it without the other. KEITH MCCULLOUGH: Which is why my hair is grayer and I'm getting fatter because I have to do this. That's what I signed up for, like Hedgeye, I don't get to have days off from Brownian motion. I have to deal with that damn thing every day. Moreover, I have to try to explain it, which is unexplainable some days, but it certainly makes-- it's made the experience of what I do, and trying to teach what I do, if only I'm teaching myself actually, I'm sure people have realized that, wow, this guy's not as dumb as he used to be. It's a rate of change. If you have to teach yourself through your mistakes publicly, every day, you will get less dumb. God forbid, you get a little bit better at it and better and better at it, but you're quite right. The amount of head fakes, they're just manifest. RAOUL PAL: Yeah, that's a lot of filtering. Keith, super interesting. I think it's been-- you've had a great year so well done. Hands down to you. KEITH MCCULLOUGH: Thank you. RAOUL PAL: Let's see what next year brings because it's going to be another really interesting macro and the great thing for us, for both of us is it's a macro world and macro world is the most interesting of all, because that's what I find the big returns lie. This whole period of time, we have low volatility, choosy, well, the grinding high prices and that's never the easiest to make money. Well, you can't easily make money if it's never exciting. Let's see how it pans out. Thank you ever so much for coming and do this. KEITH MCCULLOUGH: Yes and congrats to you, you had a great year as well. I appreciate you having me on. RAOUL PAL: Yeah, and it's all good.