 Okay, so with that, let's plunge in. So the first question I wanna ask, and I'll say a little bit on why I'm asking this. So people have seen, I've assumed, the stock market plunging. They've seen other economic disruptions, certainly unemployment claims in the U.S. are starting to go up. And they're talking about stimulus, some have been passed. So people have seen, but I'm sure there's a lot of stuff they haven't seen. And like you guys as active in the field and in the markets that are seeing things. So I wanna get part of that perspective, but I wanna get how you were thinking about the markets prior to this, I mean, so in, we were in the U.S. at record highs in 2020, just before this pandemic is really hitting and disrupting everything. And were you thinking of it as the market is sort of right for some kind of thing that's gonna cause a fall or not? And the reason I'm asking this is how much does it condition the way you're looking at the present of what is happening that it was like it was getting too high. So there was gonna be some kind of event that's gonna, and then the steepness of the fall. So I wanna get from both of your perspectives, sort of how you, a little more widely how you were looking at the markets prior to this. Who ever wants to go for it? I mean, I guess I was definitely in the camp that we were ripe for a fall. You know, I think distortions over the last 10 years where we've had near zero interest rates for most of the last 10 years have caused an incredible amount of distortions. You know, going back to the 2000s, in 2003, the Fed reduced the interest rate to 1%, which at the time was an absurdly low interest rate that sparked the housing bubble. Because people could borrow cheaply short-term and get cheap mortgages, adjustable rate mortgages. Corporations could borrow cheaply short-term and so on. So that caused all kinds of distortions in the housing bubble era, which had to eventually get washed out, which they were. But then the response was the Fed lowered interest rates to zero, which is completely absurd. Fortunately, we have not gone negative interest rates, which is even beyond absurd, which Japan and Europe have done. So we had zero interest rates from 2008 until 2015. And I think, you know, initially things were slow, but in the last few years, there's been just a tremendous amount of debt piled up by corporations. I think corporations are at the most levered level ever. The stock market has really taken off and I think unmoored from the fundamentals. So last year, S&P 500, the earnings were actually down for the S&P 500 stocks. The stock market was up 30%. And we're starting to see some signs of late-stage bubbles like all of a sudden Tesla goes from $200 to $900 for no reason. All of a sudden SpaceX goes from $10 to $40 a share for no reason. So I think we're definitely right for a fall. I've, for a couple of years, I've been saying and thinking that I think the coming crash would be worse than 2008. So I was expecting definitely that there would be some big unraveling. I didn't know the timing. It's always hard to predict the timing of those things. Now, the coronavirus came along and I think that greatly exacerbated it. So that is a huge one-off negative thing, but I think would have been a lot less bad if the markets hadn't been so revalued. So I basically agree with all of that. My challenge has always been when, right? We all know that these distortions and provisions and I think the key here really is the Fed. That is the stock market in many respects is responding to what the Fed is doing. And if you've got interest rates at zero or the equivalent of zero and you're discounting future present, discounting future cashflow, future earnings, you get very big numbers if your interest rate is very little. So the interest rates really distorts and perverts economic decision-making on a grand scale. It makes projects that would seem unprofitable in a normal environment suddenly profitable and you get investments that shouldn't be made and investments should be made or not made. So you get a complete distortion of where the money actually flows and how that translates into stock prices to me has always been, I could always sense, yeah, it seems a little high but I'm usually early as I think Rob was there when I was buying put options on Amazon in 1999 and a year too early. Just say a word about what put options are, I'm not sure I don't know. Put options are basically a bet on and a relatively cheap way to bet if you will on prices going down, on the price of a stock going down. So you get paid if the stock goes down, you lose your initial investment if the stock stays flat or goes up. So you're captain how much you can lose but you can make a lot of money on the other side and I did it a year too early which is I've got a long history of doing that. So timing of course in investing is important but yes what the Fed has been doing and it's not just that they've kept interest rates low at the low end but what quantitative easing did if you remember QE one, two and three where the Fed was buying mortgage back securities it was buying government bonds. It was also then lowering interest rates on the long end. So it was artificially lowering interest rates not just on the short end which is bad enough but also on the long end. So think about different bonds have different maturities different bonds pay off over different time frames. And typically when we talk about interest rates or the Fed does, it talks about interest rates you know overnight interest rates or very short term interest rates but actually that interest is gonna be different than a 10 year or 30 year pay off but the Fed for the first time really on a scale was manipulating long-term rates not just short-term rates over the last 10 years. And that has again profound impacts on the way people invest on the way people think about risk. Not dumb, what's the term? It dulls people's sensitivity to risk and what we saw before 2008 and what we saw here is people weren't demanding a higher return for higher risk or not as much as seems rational. So the whole investment world was distorted and you also see and you saw different industries going different directions and some stocks were very, very cheap other stocks were I thought pretty cheap relative to what was going on but it's so hard to make long-term decisions because yes, something's gonna trigger it. And the thing about the coronavirus that triggers is it's not like, it's not like housing triggered OA where you knew where the crisis was gonna be it was, you know and then it would have spillover effects. Here the trigger and we'll talk about this some more is basically the entire economy. It's not in the mal-invested section it's everywhere is collapsing and then how do you estimate what's gonna hood more and what it's much more complicated I think because they're shutting down production. Yeah, so let's talk about. I was just gonna say the, well you know I think one thing to say is that for the housing bubble yes, the mal-investment was concentrated in the housing sector. I think there's a good argument in the latest episode it has been the whole economy. So I mean, I know what you're saying the coronavirus has shut down the whole economy but you know, I think the mal-investment has been the whole economy. Some people are calling it the everything bubble. You know, stocks that are at record valuations bonds are at record valuations, real estates at record valuations and so on. So I think there's a sense in which the whole economy was ripe for a fall. So if we separate out but if it's possible to separate out the coronavirus, so it's hitting the news December, there's already government action at least in China of locking down cities and so on. But the disruption that, oh, we might have this novel virus that's deadly and I mean, fairly deadly and contagious. And that is like that's a disruption to things and to life and to some extent at least. And what was, how is the market reacting to that? But then you get massive government reaction to it locking down a cities when it gets to Italy it's first it seems like they're not doing much but then they're locking down whole regions and then you get central bank action in regard to it from the Fed, but not just I think as you said earlier Rob, not just the Fed. So in terms of how the market was reaction to there's this new novel virus that might be a threat and then to all the government action in response to that, if you can at all separate those. Yeah, and actually let me throw a third thing on the pile too, it's just the crash and oil prices. Yeah, I have that on the list. Yeah, so there's three big things we're dealing with. So there's just the general overvaluation that was ripe for a fall, the coronavirus and then the oil collapse, which is Saudi Arabia and Russia basically letting loose and saying we're gonna let prices fall. I think a big part of the motivation is to clear out the shale oil producers. There's been a bane in their thorn in their side. But that's been a big part of the US economy over the last 10 years. One of the biggest sources of employment growth. So we're dealing with that collapsing now on top of everything else. And then as you say, Ankara, so then, so we've got three big economic issues, any one of which by themselves would have been a big deal. The oil one, the least of all, but it would still have been a big hurt to the economy. And then we have to deal with response. We've got, what are the policy makers likely to do both the Fed in terms of monetary and liquidity stimulus? What are the, what's Congress likely to do? And then we have to think based on what they are likely to do and might do, what are the likely effects of that of the things they do? And then the third thing is, well, long-term, what are the long-term effects? So the so-called unintended consequences or what's the hangover from all the stuff that they end up doing now? So how do I think about that? It's definitely a multi-dimensional test board, if I can use that word, trying to figure all that stuff out. So yeah, I think that's why a lot of market participants are just completely at a loss. So you hear everybody saying from the top memes of the top hedge fund guy saying they're just, they have absolutely no idea what's going on or how to play it, so. So say, so part of what you were asking is, how did the markets react early and how they're doing? So the S&P peaked in February when this was all known. And I think that two reasons for that, one is one of the things that the mixed economy does is again, it dulls the mind in terms of long-term thinking and estimating real risk. And I can't imagine in a free market, people would have looked at what was going on in China and said, eh, we're gonna go to all-time highs in the stock market and we're gonna continue buying as if nothing's going on because that's what they did. So even if you assume the government's not gonna respond at all and our government is gonna be as rational as imaginable, even then you have to assume some economic slowdown just because people are sick and they're staying home and stuff. So, and then you saw what the Chinese did and what hit, it took their own economy. By then, by the time the S&P was hitting all-time highs, the Chinese economy was already projected to be in a massive recession. So everybody knew that this, so you have to wonder what was, you know, why people were ignoring this. And again, I think this has to do with the sudden dulling of risk because the government will take care of it the federal Soviet, things will happen. And then starting in, I think it's around February 22nd, the market started declining and the market kind of the realization of what's happening starts hitting partially because of what's happening in Europe, partially what's happening in China, but also then it becomes clear that our government is now, you know, starting to really shut things down. And the real panic I think is set in, in the last two weeks, and it reminded me of 2008 because I've always thought that the market in 2008, the market really took a hit when investors came to the conclusion that the people they were counting on, Benanke and Paulson, had no idea what they were doing were completely clueless. And that happened around Lehman, right? It wasn't the Lehman bankruptcy. It was the complete randomness of the Lehman bankruptcy. The fact that they were not bailed out and the next 24 hours later, somebody else was, right? The insurance company, the names, social media. Yeah, and then the fact that Paulson goes to Congress and says, give me $700 billion and let me do whatever the hell I want with it because I don't have a plan. And if you don't, by the way, it's the end of the world, he tells the audience. So whether you think, make sure to be bailed out or not the way it was done was full of hysteria and panic on behalf of the politicians on the side of the politicians. And I think that's when the market basically decided, maybe it is the end of the world. And the people who supposedly know have no clue what is going on. They don't know what to do. And everything collapsed at that point in a much more dramatic fashion than had previously. So I think it's that. And I think the same thing has been felt the last two weeks. My sense of the market has been and talking to investors and people like that is, we don't know what these people are gonna do. I mean, every day the Fed comes out with a new program. We don't know what that's gonna be in this stimulus package. We can't price it. We can't quite figure out how to do with it. And then what does it mean that everybody has to stay at home? Wait a minute, that means nobody goes to work. Well, what's the implication of nobody going to work on the economy? I mean, you can't even really conceptualize that. What does that actually mean? It means no production. That's zero GDP, not zero GDP growth but just no economic activity. That is unthinkable. And I think most of us have a really hard time dealing with uncertainty anyway or dealing with risk anyway. Now you've taken it to another dimension by basically shutting everything down. How do we even think about that? How do you conceptualize that? And I think most people just gave up and you saw in the last two weeks and accelerating into the end of this week kind of people just saying, you know, we don't know what the hell is going on so we better be in cash because cash we know approximately what it's worth. We have no clue what this other stuff is worth. Yeah, I mean, there's definitely a sense of sell everything, liquidate everything. So just indiscriminate selling across every market. So not just stocks, there were massive dislocations in credit markets, massive dislocations in the treasury bond market which is supposed to be the safest and most liquid bond market. Massive dislocations in the currency market which is by far the largest dollar volume of trade. It's like 4 trillion of trading every day. You know, that was, you know, effectively shutting down and you're seeing huge moves. Like one day Norwegian Krone fell 13% in a single day. So yeah, so I think it was just this attitude of de-risk, de-leverage, sell everything indiscriminately, get out because we just, you know who the hell knows what's going on. And people are going to dollars. People view the dollar as a safe haven and the dollar is going through the roof against all the currency. I'm surprised gold isn't doing better but I think people are also pricing in the idea of what people call deflation of rather than of, you know sense the purchasing power increasing not for the right reasons maybe, but increasing. So it's hard to tell exactly what's going on there but also, oh, I did want to say something about oil. I'm a little bit less, it's a little bit less obvious to me the impact of what's going on with oil. And again, I think it's more uncertainty than anything else because the fact is that cheap oil is good for almost every other activity except fracking and the people who support fracking. Now yes, a chunk of the US economy particularly in Texas is dedicated to fracking but China, for example as it's ramping up production back up now that they've loosened up the restrictions is benefiting enormously from very cheap oil. They have cheap energy. They can now ramp up production at much lower cost of production which I think helps them. I think it helps us when we go back to work if we go back to work energy costs will be lower which is for the most of the US economy a good thing, not a bad thing. So I do think oil is a mixed bag. It's short-term consequences on the oil patch but it's long-term consequences of the general economy are pretty good. If it stays this low, but again, who knows? As Saudi Arabia, I mean the whole goal here the reason Saudi Arabia is one of the reasons it's keeping low prices is to destroy fracking and to basically gain a monopoly or gain greater market share as it does that it's not gonna keep prices low. How much of an issue for the oil do you think that it's and the disruptiveness is that these are political decisions. So in a, even a semi-free industry it's, you don't have a whole country saying, okay, we're changing how much oil we're gonna produce. So how much of it, it adds to the political uncertainty of what are they and are they gonna cut they're gonna change it dramatically in one month from now. So how much do you think it adds to the political uncertainty? Yeah, I mean, I think it does because politically what are people gonna do? Politically, I mean, just think about the idea bailouts. I mean, are people gonna bail out the fracking business and what is that gonna entail? It adds uncertainty to how people are gonna behave and what people are going to do. So it's, and then what is Russia gonna do? I mean, this is the thing that even more sensitive than our fracking industry. The fact is that Russia, the cost to produce oil in Russia is high. The reason Saudi Arabia can do this, I can't remember the exact number but it costs something like 38 cents a barrel to get oil out of the ground in Saudi Arabia. And they can sell it for, right now it's a 21, 22, something like that. So their profit margin is pretty healthy. Now, it's the only industry in Saudi Arabia so they subsidize everything else using this. So it's very questionable how long they can keep doing this. They probably can't. But Russia has a very high cost of production. They're in the North Sea and in Siberia and it's very expensive to produce oil. They cannot survive under this. What happens if the Russian economy collapses? What trickle effect does that have on Europe which relies on natural gas from Russia and all kinds of things that you start imagining. And I think part of your point on call is if Saudi Arabia had 20 companies and then nobody would be coordinating this. Like one company would increase one. Yeah, the fact that it's centralized, the fact that it's nationalized makes it so much worse which I don't know if it's a topic we're going to discuss but it's part of the, it's why our healthcare system and why Italy's healthcare system and all these healthcare systems are struggling so much is because they have the same structure, it's centralized. Yeah, and I mean, the political risk is very real. Tomorrow Saudi Arabia and Russia could reach an agreement and say, hey, actually we've come to an agreement to raise oil prices to $40, $50 a barrel or they may not, you know, there's been Russia, I think a lot of times they're talking big but Russia says we can last 10 years with oil prices at this level because of their sovereign wealth fund and so on and so forth. Saudi Arabia, as Ron says, they have very low cost of production but somebody calculated that they need $84 a barrel in order for their budget to be balanced in order to generate- They're well-fisted going. Yeah, exactly. They're actually well-fisted. Yeah, so how long can they last with low oil prices? You know, their motive in large part is to clear out the shale frackers because one thing that's happened is that oil used to be very inelastic, meaning that if you raised the price, if you restricted supply and raised the price, oil producers would still make more money even though they're selling less. But what the shale frackers have done is they flattened out, they made it very elastic. So as soon as oil goes up a little bit, they can flood the market with oil. As soon as oil goes down a little bit, you know, they cut off production substantially. So that has kind of stymied OPEC and Russia who, you know, they want to collude in order to cut supply and raise the price. So that's been the thorn in their side. So they want to clear those guys out has been the basic motive. But, you know, how long will they keep prices low? Will they announce something new tomorrow? That's like you said, that's just part of why markets are unable to deal with this. So I want to add one more, one point to the point we made earlier about the stock market being too high or whatever. Somebody reminded me in the super chat of it. Part of my struggles with getting, where it's overvalued, undervalued and so on, or where is the, is the fact that while all the distortions are there, I do think, you know, production is happening. We're getting products that enhance human life. Standard of living, I think, generally has increased over the last 10 years. How much of that is actually reflected in profit and valuations? How much is the profit and valuations bubble driven by interest rates? And that's what, and you see, that's what government intervention economy does. It makes it impossible to separate, to figure out what's real and what's not. What's true investment, what's true life enhancing production and what's bubble and wouldn't exist otherwise. And I've always had a hard time because I tend naturally to focus on all the good stuff, which is, oh, look at my iPhone, it's even better now. And so Apple should be worth more or whatever, right? That's pretty superficial, but you know, that kind of attitude. But at the same time, recognizing the no, some of this is clearly driven by government action and Fed action and low interest rates and artificiality that is created and lack of competition and a bunch of other things that the mixed economy produces. Yeah, I mean, one thing of artificiality is just because interest rates have been so low, corporations have been able to leverage up to an unprecedented extent. So corporate debt is at all time highs and they've been using a lot of that debt to do share buybacks, which in general, share buybacks are not a bad thing, but if they're doing them because they're able to issue a lot of debt because interest rates are low and then they have a lot of money to do share buybacks which elevates the stock market. One of the biggest sources of new money into the stock market has been corporate share buybacks. So how much of the elevated stock market level is just due to that. I think probably a substantial amount. And those are going away now. So I mean, corporations are not going to be able to do buybacks anymore. So another factor of low interest rates is that does jack up corporate earnings. If companies 10 years ago had to issue bonds at 8% and now they can issue them at 4%, well, that goes right to the bottom line. So if interest rates normalized and credit spreads normalized, all of a sudden the earnings are gonna take a hit. So there have been questions about, people are posting questions about, what does this remind you of? So I think you've both talked about 2008, but so both the crash, but the government and Fed or central bankers response to that. Going back through, may say the history of the 20th century, does it remind you of other episodes? And particularly, and you might not know about this, but so like during the Spanish flu pandemic, how did markets react to that? How did governments react to that? And was it quite different than what is going on now or are there similarities? Well, if I think, just my, I'm not an expert on that period, but I think back in 1918, there was nothing special going on. We actually hit a recession, I think in 1920. And that's a recession where famously the government did nothing and we came out of it really, really quickly. But I don't think there was any real market response in 18 and 19 that I can tell. Now, nothing dramatic enough to make the history books in a sense that I've read about in the United States even though a lot of people died. I mean, a lot of people died in the worldwide and the tens of millions of people died from the Spanish flu. And I'm sure it had some economic consequences, but it wasn't so concentrated and the economy didn't shut down. So the economy must have taken some hit, but not enough to generate a major economic downturn. Yeah, and I think 1918 is kind of hard, 1920 is kind of hard just because I think things are so different now. So the stock market was a much tinier part of the economy back then. Very few companies would go public at that time. And then also we were just coming out of World War I. So a lot of the economy is geared towards war production and then that was going to be shifted to non-war time production and so on. So it's hard to say exactly what the parallels would be. I do in some sense, I think it is like 2008 because I thought the unraveling of ultra low interest rates would cause some kind of crash and a quick unraveling. And markets became very fragile too. Another aspect is just there was a lot of illiquidity in the markets which made them more fragile and ripe to a crash. But the issue of the economy shutting down because of quarantines or because of social distancing and so on, that I can't really think of any parallels. And that's the new thing that I'm still trying to wrap my head around and I've got to think it's going to be really bad. I think people are just trying to figure that out right now. Okay, so let's talk about that in a minute but let's talk just a little bit about on the more monetary policy and this issue both explain the issue of illiquidity but also the Fed response and how much do you read it? So the Fed cut rates and cut it dramatically on a Sunday which many people interpreted as its patent we have to do it even before the markets open. So interpreted as the feds panicking about this how much do you view it as this was an economic decision versus a political because they also had pressure from President Trump to do something. And he was even talking about removing the pet they're supposed to be independent but removing that. So how much did you view it as this was essentially this was they're worried about illiquidity and they have to do this or it's a lot political that they're doing it to appease the whole policy. I would bet it wasn't that political. Like I think the Fed was due to meet on Wednesday anyways and it was widely expected they would cut by 1% on Wednesday. So in effect they just advanced it by three or four days. I mean it is unprecedented to do an emergency cuts on a Sunday. So I think there's only been something like three past occasions where they've done an emergency cut between meeting between meetings like that but they were going to do it on Wednesday anyways. You know the market you could you can see implied in the market what the fed's going to do and generally the Fed validates whatever the market's expected. So for a couple of weeks now the market's been saying the Fed's going to cut by 75 basis points or a full percentage point. So I think that was probably baked in the cake already. But the market could have anticipated political the political pressure which was happening all the time. So it's hard to tell from that but I agree. I think the Fed would have done it anyway. I think that's what the Fed does. What is it? It doesn't know how to do anything other than in the face of potential recession cut rates. That's kind of baked into everything that they do. But notice that they cut interest rates one time before two weeks ago they cut interest rates and they did it in the middle of the week normal time and the markets just collapsed as soon as the announcement was happening particularly bank stocks just plummeted. And I think what they thought was we'll do it on a Sunday. People will have time to think about it and see that it's the right thing to do and we'll get a positive response from the markets. Of course all that happened was instead of collapsing the day of the announcement the market was down the next day. But I think nothing really changed in terms of reaction but I think the reason for the Sunday was just hope that the markets would treat it with more calm. And I think instead the markets read it even though they were expecting it they read it as yeah it's as bad as we think it is. It's as bad as we thought it was and it's really really really bad. So the Fed is. Yeah I mean immediately after the announcement markets opened about an hour later the overnight electronic markets and they were limit down. Exactly, immediately. And then they opened in Monday morning and they were limit down and they shut down for 15 minutes. So it was the worst day I think since I can't remember since. Yeah so yeah Monday was down 12% that's the third worst day ever. Second worst day in the last 80 years. And 29 yeah. Yeah and so 1987 will never be beaten because now they shut down the market if it's down 20% or more. So that record will stand forever until they change the rules. I remember that day in 87 that was something. What we need today what I call the new intellectual would be any man or woman who is willing to think. Meaning any man or woman who knows that man's life must be guided by reason by the intellect not by feelings, wishes, whims or mystic revelations. Any man or woman who values his life and who does not want to give in to today's cult of the stare, cynicism and impotence and does not intend to give up the world to the dark ages and to the role of the collectivist brought. Using the super chat and I noticed yesterday when I appealed for support for the show many of you stepped forward and actually supported the show for the first time. So I'll do it again. Maybe we'll get some more today. If you like what you're hearing if you appreciate what I'm doing then I appreciate your support. Those of you who don't yet support the show please take this opportunity go to youronbrookshow.com slash support or go to subscribestart.com, your own book show and make a kind of a monthly contribution to keep this going. I'm not sure when the next...