n+1: The first thing is we need to catch people up on what HFM has been up to. The last time we talked was ten years ago—you had retired from investing and were just relaxing, although at our last interview1, you were still looking at all the sovereign bonds and spreads on them, just recreationally looking at those.
HFM: I did retire. And I was retired for a while, got married, moved. People would come to me from time to time and say, “Are you really retired?” And my answer sort of softened with each subsequent question, and I would say, “Well, yeah, I might unretire given certain conditions,” and I just figured those conditions would be unreasonable and nobody would meet them. “I don’t want to travel, I don’t want to employ anybody, I don’t want to manage more capital than I feel comfortable with, and I only want to focus on the stuff that was the core of my business when I started out, which was sovereign debt and interest rates. I don’t want to be overseeing farms in Argentina or salt mines in Djibouti or whatever.” But eventually somebody did say, that’s all fine, you can work remotely and not travel, and so I did. It was a weird experience, I never went to the office, and there were times where I felt like Milton from Office Space, that they had just forgotten that I was working for them. I was there seven years. But in the end their business model didn’t work out and they decided to shut.
n+1: How did you do?
HFM: My stuff did well, but it was like one of those video games where you can set it to expert or novice. I definitely had the dial set more toward novice in the sense that I said, “Well, I’m not going to manage a lot of capital and I’m not going to cover a huge scope of the investment universe.” And so it’s a very different game. You can pick your spots, you’re never in a position that’s so big that you might choose to unwind it but not be able to. It’s like one of those fighter jet games where all you do is up, down, left, right. So I’m not going to break my arm patting myself on the back, it wasn’t the most challenging task that I set for myself.
It just becomes exponentially more difficult to manage money and generate uncorrelated excess return when you’re managing tons of money. You become the market, in the markets that you’re trading. As opposed to when I’m trading a small amount of money. You can see that there’s a small distortion in a market, and if I tried to deploy a hundred million dollars in that trade, that distortion would be gone. But if I’m deploying ten million dollars into that trade, well there’s plenty of room for me to exploit that distortion. So it’s a lot easier. For the kinds of stuff that I do, it’s a lot easier when you’re managing less capital. I think for everybody, it’s easier if you’re managing less capital, unless you’re somebody who’s trying to push around the market or something. I guess there are ways in which when you’re truly giant, you get into the zone of reflexivity, you can lend so much money to a company that you keep it alive and give it time to turn around. Perhaps there are people who would say when you’re managing giant amounts of money, that gives you certain advantages, in terms of access, in terms of building great systems and analytics. But for the kinds of stuff that I do, which really was looking for those kinds of inefficiencies, truly looking for arbitrage-like opportunities, size is the enemy.
So anyway, then I was going to potentially join another place that was a similar model, but the firm that I used to be at were like, well you know, the model’s changed a little bit for us, we can accommodate remote work, we are OK with a role that doesn’t look drastically different from what you had at that other shop. I always liked the firm and the people—that was not why I retired!
n+1: So let’s talk about the pandemic and what it’s doing to the economy. What’s your understanding of it?
HFM: Obviously it’s bad. Let me compare it to the  crisis. That was a crisis that originated in the financial sector and ramified out to the real economy. But it had to do with the internal logic of the financial sector. We talked about how periodic banking crises are part of the structure of our financial sector, and this one happened to be centered in real estate, but it came from the financial sector and spread out. There was a certain circularity to it: what happened to the real economy then came back and intensified the problems in the financial sector. This crisis is different because it originates in a real shock. The thing that was very destructive to the real economy from the financial crisis last time around was the malinvestment before the crisis. There was capital deployed in ways that it turned out didn’t make sense. There was an illusion going on that more people could afford these big houses and they really couldn’t. And so a lot of capital was sunk in these houses, and then reality asserts itself and you realize that there’s capital that’s been deployed in a way where it’s not really worth anything anymore. And those losses have to be distributed, the process of loss distribution is very messy, it interacts with the inherent vulnerabilities of the banking system and that’s the story of the financial crisis.
This crisis, what’s interesting about it for the economy, is that you’re not really sure the degree to which the damage actually strands capital. Let’s do a thought experiment. If there’s a really bad snowstorm that covers the whole United States, and everything has to shut for a week, there’ll be losses because businesses aren’t operating, people can’t get paid, people miss a paycheck. But there’s nothing about the structure of the economy that’s changed when the snow melts. People still go to offices, factories that made sense before still make sense, houses that made sense before still make sense. But if something happened where there’s a terrible flood that covers part of the United States, and you realize some parts of the US shouldn’t be occupied because they could flood like this again, then you’re like gosh, there’s all these houses people can’t live in anymore, there are factories that don’t make sense—and then you have that issue of stranded capital. We don’t know which situation this crisis is. Is this just a snowstorm that shuts the economy, certain sectors of the economy, for a year? Yeah, you’ve got some debt that’s been accumulated because we had to help people who weren’t getting a paycheck and stuff like that, and that is not unimportant, but that’s a sort of easier problem because the government has taken that onto its balance sheet so that’s easily shared among everyone. Or do we have a situation where behaviors, preferences, patterns of life are permanently changed by this experience? Then it’s a different kind of crisis.
Think back even before the last crisis, September 11. I was in New York for September 11, and my thought was, Oh my god, everybody’s going to leave, right? And as it turns out, it didn’t really change people’s behavior that much. There was no stranded capital of New York City real estate on that basis. There was no way to know that ex ante. And I think in this crisis isn’t really a way to know that ex ante. I think the other thing is that, when we talk about how it might infect the financial system, because if you inflicted enough loss just by things not operating long enough, you can have another financial crisis, right? We don’t really have a good sense of that because the magnitude of fiscal support in the United States and in Europe is so much greater than it was in the 2008 crisis. Multiples greater.
n+1: This is the stimulus? The two stimuluses?
HFM: Yeah, the CARES Act, and on top of that the Fed’s actions—it’s just multiples bigger. I do think that the financial system is better set up in the sense that the areas that we think of as being in particular danger because of this crisis, like commercial real estate and securities backed by commercial mortgages, aren’t on banks’ balance sheets, so a lot of it has been placed into longer-term vehicles, pension funds. And banks are better capitalized and take less risk. But this crisis could still do some damage to the financial sector, even if you don’t have that stranded capital, just from the fact that people haven’t been paid. When the stimulus runs out you can start having people not paying their rent, not paying their mortgage, not paying their credit card bills, and that could cause some problems for the financial sector. But I don’t anticipate that that would be as intense.
You see big differences in emerging markets. There’s a weird dichotomy that if you think about the distributional effect in the United States, you would say this is a crisis where there are some people, particularly at the top of the professional pyramid or the income distribution, that are unaffected. But at the bottom of the income distribution, there are people who are forced to bear these terrible risks to do their job, or they lose their job, or their small business goes away. But if you look at the international context, some of the poorer countries, they’ve had less impact on their GDP from this. I think Egypt will grow this year, because they just didn’t shut down to anywhere near the extent we did. We talk about “essential workers”—some of these economies really pretty much do only essential things, right? So they were kind of less affected. Within a country, within the US, it’s tremendously inequality-intensifying, but if you look across countries, maybe less so.
n+1: Is the fact that the markets—the stock market is basically back to where it was, is that just crazy—?
HFM: One of the most interesting things to observe has been a return of behavior that those of us who were financial professionals in ’98, ’99, 2000 thought we might never see again, like retail-investor-led market behavior, like Robinhood. You have people talking about the Robinhood traders, right? People literally taking their stimulus checks and opening a Robinhood account, and then buying stocks that have an interesting story. Oh, I’m on Zoom, I should buy Zoom, you know? I’m buying everything on Amazon, let me buy Amazon. You look at how the US market is back where it was before the pandemic, back to its peak. But that’s not true of global markets at all. If I look at my world equities screen, the S&P’s up 7 percent and everything else is red. You look at the UK, the French, the German, the Spanish—all down, which makes sense. If I look at the emerging markets index—all these are down for the year. But the US is up! Maybe it’s all these Robinhood traders buying story stocks. And the recovery of US equity markets has been led by a narrow group of stocks: tech, NASDAQ’s up 30 percent. Which is another aspect of inequality in the sense that the recovery even of financial instruments has been very unequal with the leaders getting further ahead relative to the laggards.
n+1: And what are your thoughts about the effects on the international system? Like, one kind of plausible effect would be a kind of decrease of international movement of people and movement of goods—
HFM: Yeah, deglobalization. But it was happening before the pandemic, right? The Trump-driven disengagement from China, shortening of supply chains, retreat from multilateral trade agreements, pulling out of TPP—that was starting already, and in a way this sort of accelerates it. I think another interesting aspect of that is that we have a really long—decades almost, maybe going backwards to W. Edwards Deming or Toyota—“lean manufacturing.” Lean inventory management. “Just in time.” The productivity increases—it was not through massive innovation but rather running everything with leaner, thinner margins, right? And the thought was, if you look at that locally in time, this is just a win, right? We’re doing more with less. But then you realize that no, that’s actually not what’s going on. It was just that instead of paying your insurance bill, you were consuming your insurance. Because you have a crisis like this, and you’re like, “Oh my gosh, we don’t have PPE at our hospitals because we work with two days of inventory. The factory can’t run because we work with two days of inventory.” Nobody in their house has more than a can of beans because they figured they could just punch a button and somebody from Instacart is gonna show up. And in a sense, globalization thrives on that. You’re like, I can just press a button and something can come from across the ocean. But it’s really complicated and there are a lot of things that can go wrong, so in a way, you’re forgoing the insurance of having your supply chain close to you, of having a lot of inventory. And I think that people maybe realize the risk in that, so there was sort of an external cost to really intense, hyper-efficient globalization that you don’t see it every day, but in a situation like this, you see it and then people realize that cost and are maybe going forward willing to bear that cost because they’ve experienced it when the externality materializes.
n+1: And there’s a human cost to it too, right?
HFM: Yeah, when people are sick. You could’ve seen it more on the human side when the epidemic had taken out more people at once. If you had a situation where suddenly 10 percent of the workforce can’t show up because they’re sick, a lot of things would fall apart because we staff very lean. Having redundancy in the system is important for resiliency and dealing with unanticipated shocks.
You can sometimes extrapolate from your own behavior. Like, do you have more toilet paper in your house today than you did six months ago? Like maybe an extra shelf that previously I had cool knickknacks or whatever on instead of toilet paper. Which I don’t get pleasure from, right? There’s no benefit, nine years out of ten. But one year out of ten I’m really glad I have the toilet paper in the cubby. So perhaps our economy is going to have the extra shelf of toilet paper in a lot of places, if you know what I’m saying.
n+1: You mentioned the stimulus and some of the other support that’s come out to the real people and the financial sector. Do you think there should be more of it?
HFM: [sighs] It’s funny when you look at these debates, right, it’s like people shouting in an auction. 1.8 trillion, no 1.2 trillion! And it’s like, it just matters what you spend it on. If the government is telling people they have to shut down for public health reasons, and we believe that we’re just going to open up again and everything’s going to go back to more or less normal, then we should be very open-handed with paying people to stay home. Right?
You’re not perpetuating inefficiencies that needed to be purged from the system. You’re just saying, well, we had an interruption. And we need to share that cost across everybody and the way we do that is luckily in the United States we have the capacity to borrow, or the monetary authority to support that spending. And essentially we’ll all pay overtime, repaying that debt, and given that our tax system is relatively progressive that’ll be spread in a way that’s not just on the backs of people who can least afford it.
n+1: Earlier in the pandemic, I met a couple in Brooklyn. One of them was a sommelier at a fancy restaurant, who was on unemployment, and the other was working on setting up a new service for first-class passengers at one of the airlines. And they had received a fair amount of government money, right? And I was like, jeez, I don’t know if that’s being allocated wisely or fairly.
HFM: If you had infinitely powerful computers and full information about everyone’s situation, you probably wouldn’t just send everybody a $1,200 check. But this is a critical situation, right? People are not going to be able to pay their rent. And you say, OK, then we’ll stop evictions. But then the landlord can’t pay for the heating gas, right? And he can’t pay the tax, then you can’t pay—then you have civil servants who can’t get paid. And you wind up with like, chains of nonpayment. It’ll be like Russia 1998 or ’99. And we’ll be giving veksels to each other and stuff because everything will be frozen.
And, you know, there was a lot of debate about this with the six-hundred-dollar supplement to unemployment, that for some people, it meant they made more money not working than working. And people were like, this is terrible, these people are going to refuse to go back to work. And like, well, yeah maybe a few people would respond to that incentive that way, but you can’t figure this out in the time allotted, right? The economy just stopped.
And luckily, we’re in a world where interest rates are effectively like zero. And there’s slack capacity, and for the United States you can do that. Some countries can’t do that. But for the US and for like, core Europe, there is just no question. At least at the beginning, you should be fairly open-handed.
n+1: Last time we talked, one of the things that we talked about was the dollar as the reserve currency for the world, right? And that’s a huge advantage that the US has had.
n+1: At what point does the debt, plus political instability—you know, these crazies who don’t want to wear masks and they have guns—at what point does—
HFM: Well, wait—just to be fair and balanced politically, yeah there are crazies out there who don’t want to wear masks and guns, and then there are people throwing bricks through windows and burning stuff down, and you know, police who refuse to enforce order, so it’s just like a general breakdown of norms and institutions, rather than a particular ideology, I would say.
HFM: Look, when the shit hit the fan, people still fled to the dollar, even in this situation. So, you know, Adam Smith said that there’s a great deal of ruin in a nation, I guess there’s a great deal of ruin in a reserve currency too. We’re still able to do this. However, I would say, let’s be fair—people talk about the dollar’s exorbitant privilege, but in this case, you have quantitative easing or quasi-quantitative easing in a lot of countries, not just in the United States. And they’ve been able to do it. Countries that you thought would never be able to get away with it. South Africa, the South African Reserve Bank (SARB) was buying long-dated bonds in South Africa. Poland has done massive expansion—the national bank of Poland buying quasi-sovereign debt. Colombia—they were buying TES bonds.
So small emerging market countries with small floating currencies have been able to do quantitative easing. Now you have many countries running double-digit fiscal deficits, and it’s not because the IMF is giving them tons of money, it’s because they’ve been able to mobilize those resources or been able to get away with central bank balance sheet expansions, so it’s not just a story that the dollar’s exorbitant privilege continues. It’s that we’re in a local set of economic conditions of intense slack and intense liquidity preference, that MMT sort of holds locally. I’m not a believer that MMT can work for the long term, but there are certain conditions under which MMT will appear to work and it makes sense to do balance sheet expansions.
But we’re in a local set of conditions where, like I said, even in South Africa, the SARB can buy long-dated bonds and the rand doesn’t get completely pasted. And in fact, it’s like, what countries haven’t been able to do it successfully, it’s almost like you have to look for the worst basket cases, right? The countries with the lowest credibility, the countries that nobody but nobody believes that they will ever reverse fiscal profligacy, nobody wants to hold their currency. So the example I give is Argentina—Argentina has tried to print 7 percent of GDP—
n+1: You hate Argentina.
HFM: Argentina has tried to print 7 percent of GDP to cover a deficit—7 percent of GDP—and their currency has just absolutely fallen apart. Not that I have any special reason to dislike Argentina. [HFM has had some issues with un-repaid Argentinian debt over the years. —Ed.] But I want to point out to all of your readers the one country that couldn’t do it.
n+1: So, let’s talk a little bit more about more longer-term stuff. Another thing that’s happened recently is the west coast was on fire, right? At what point do these planetary problems—and I know there’s a guy named Larry Fink?
HFM: From BlackRock, yeah.
n+1: He started talking about getting out of fossil fuels, right? At what point do these kind of longer term trends begin to need to be addressed by investors?
HFM: Investors respond to incentives, right? If you think there are negative externalities related to the use of fossil fuels, should you say, “Well, now that Larry Fink’s a multibillionaire, out of the goodness of his heart, he should sacrifice returns on behalf of all the small investors who give him money, to achieve some good”? No, you need to put in the price, and then investors will say, “Gosh, it does make sense to invest in, I don’t know, a thorium nuclear reactor or developing more efficient solar panels, developing battery technologies.” Investors are very good at responding to price signals, valuing things. And that’s not, shouldn’t be based on the softness or hardness of Larry Fink’s heart. It should be based on somebody doing the analysis and putting a tax on things that have uninternalized externalities.
n+1: So a carbon tax?
HFM: Well maybe not even carbon, maybe you look at different fuels. Maybe coal is taxed this way and oil is taxed that way, and gas is taxed some other way, but the internalization of those externalities. That, to me, is the most efficient way to do it. You tax the things that you don’t want to get, and subsidize the things you do want to get. It’s not just energy—it’s just these forms of activity that create environmental damage and they’re not sustainable.
And then you lower the payroll tax. So people have more money in their pocket and hopefully they’ll say “Oh, you know what, some of that extra money that I got, why don’t I replace my windows, so that my house is more efficient.” People will respond to incentives and investors will respond to incentives and they’ll go, “Gosh, coal is going to be a lot more expensive, it’s not going to make sense, I’m not going to invest. Not because I saw an Al Gore documentary and I feel so bad, but because it makes sense and I am doing the right thing by my investors, and other forms of energy production are going to make economic sense. I am going to invest in them, and the technology will advance.”
So to me, that’s the right answer rather than ESG mandates. It’s a big new thing in investing, these funds that have ESG criteria—that’s environmental, social, and governance, E-S-G. And when you look at what the criteria are, it’s garbage. You look at some of these ESG funds and they own tons of energy companies, and you wonder what the heck these standards even are. But my email inbox fills up with all these invitations to webinars on ESG investing. And it’s like no, investing investing!
But maybe it’s easier to lobby Larry Fink or to change investment mandates than to pass the laws that need to be passed.
n+1: But the trouble is the politicians are responding to incentives in the form of payments—campaign contributions, from these energy companies. Or no? What do you think?
HFM: I mean yeah, there’s truth to that, but it seems like if you have a lot of campaign contributions from Tom Steyer—people who care about environmentalism, they can work through the political process too. The preferences of the voters and donors are there. I mean, the political system may be dysfunctional, but I don’t think that it’s because there’s no lobby or no constituency for environmental goals or sustainability goals. I mean, you’re for democracy, right? Do you think it should be that these sorts of value judgments should be because Larry Fink or some board that you’ve never heard of that does ESG certifications says this is good and this is bad? It seems profoundly anti-democratic to me. And gives way too much power to the investment community. You’re saying well, the investment community is going to decide what our energy mix is, on non-economic grounds—just because like we all get together at a conference and decide? It’s not democratic.
n+1: Mhmm. OK. How worried are you about the US as a political system right now?
HFM: Worried, but maybe I would say it’s broader than a political system. It’s like, there’s this famous—I don’t know, everybody who’s done political science reads this paper, Almond and Verba, “The Civic Culture.” It’s like, there are certain kinds of attitudes that are required to have a successful representative political system. And to me it’s not like we have problems of institutional design, it’s a civic culture problem. It worries me that people can’t seem to discuss issues, that people want to shut each other up. That it’s too central—that the political stuff is too central to people’s identities.
And to say that the political system should be able to mediate this—you’re maybe putting too much pressure on the institutions to ask them to cope with a civic culture that isn’t a civic culture—it doesn’t have those characteristics that are required. And why that’s broken down, I don’t know. I mean, there’s the way that our educational system works, there’s media, there’s demographic change, there’s all kinds of things. But to me, that’s the thing that’s worrisome.
To me, what’s dispiriting is that there’s not a shared information space. I would say that one of the great privileges of being an American relative to living in some of these other countries that I operated in is that politics was less central. Like, if you picked the wrong side in many of the other countries that I operated in, you could die.
And here it’s like, yeah, politics is important because we’re all in this shared enterprise and if we pick wrong things will be worse than if we pick right. But if you’re on the wrong side of it, or you don’t choose a side, it’s like I’m not paying much attention to it. That was a great privilege to have, right? To be able to be like yeah, I don’t know, I haven’t given it a lot of thought. I think that there’s an idea that the essence of a really totalitarian society is that you have to show that you’re on this side or else and you have to be involved or else. So I feel like that’s going away in America, which makes things even worse. That civic culture is falling apart and the stakes are higher at the same time. It’s bad.
HFM: I feel like the choice that we have right now—the joke that I make is like, we have a terrible case of the Berlusconis right now. Berlusconi disease. And someone is offering you like a homeopathic dose of Maoism. “There’s probably no Maoism in here. Maybe there’s a little—we don’t know, we diluted it a lot.” So these are your choices, and it’s like, These are not good choices, right?
n+1: What country are we coming to resemble from your emerging markets experience?
HFM: You know, I say we have a case of the Berlusconis, it’s a little bit like Italy, right?
n+1: OK, Italy is nice. I like Italy. It’s a nice country.
HFM: But that’s not a functional political culture. The party system is falling apart, there are big regional divisions, there’s a lot of corruption. There’s some very ugly, corrupt populism. There’s also some very crazy stuff on the left. And it’s just like non-functional. Maybe that’s not the best example, I don’t know. It’s hard, it’s like worse, it’s too generous.
n+1: Jeez, I mean that’s not very scary. We’re going to have this beautiful country where we sip espresso and there’s a dysfunctional political system.
HFM: But that place is falling apart. The demographics are graveyard demographics, and the economy just doesn’t grow. They have the EU to lean on. We don’t have anybody else.
n+1: So the election is soon—is there money that you need to put somewhere, as a hedge—
HFM: The most salient factors that we’re dealing with are really difficult to model because we’ve never had an election like this. We’ve never—I’ve never lived through a pandemic like this and so my degree of belief in any of the trades that I have on has to be lower than it would be under other circumstances, right? I can’t rely on looking at historical data to understand the magnitude of the moves that could happen, or the correlation between different assets, because the things that are happening are so unprecedented. When other people say, “What are the markets afraid of?”—the markets aren’t really afraid of more Trump, they’re not afraid of Biden. They are afraid, I think, of a prolonged period where you don’t know who the President is.
The bear case that people articulate is that you have a lacuna in authority and, getting back to civic culture, how we would deal, as a society, with an unprecedented situation. I think, twenty years ago, with Bush v. Gore, there wasn’t so much fear that there’d be like riots in the street or anything. People were dissatisfied or satisfied with the result. At various points, each side was dissatisfied with how things were going, but there wasn’t a sense that it was rending society. Now the issue is like, wow, people feel like there are not the soft institutions that can mediate the problem. So that’s the bear case.
As far as the election goes, the commonplace is, “OK, Trump wins, dollar bullish.” Because there’s less stimulus, less money printing—but I don’t know if that’s true! Like honestly, again, talking about degree of belief, with him? Who knows. He might be like, “I want a bigger stimulus.” With Biden, the sense is, “weaker dollar, more stimulus, more monetary laxity, steeper treasury curve.” Just more favorable, I guess, to globalization, which is helpful to currencies other than the dollar. So that’s why, in my world, people are like “the election trade is a big dollar trade.”
Someone outside the finance world might say, “Oh, all these plutocrats, they’d be terrified of a blue wave.” That’s not the case at all. I think that as the probability of victory of either side moves towards certainty, that’s bullish either way. Not for the dollar, but that’s bullish for risk. If it’s toward Biden, then yeah, there are certain industries that would do better and the dollar, probably, is weaker. With Trump it’s the other way around. But it’s low-risk probably either way. We don’t know.
n+1: I would think that investors would not want—I mean Trump is so unpredictable. Isn’t that very hard to . . .
HFM: Yes and no, but also, if taxes stay low, at least in the short term, there’s some mechanical effects that lift stock prices higher, because your claim is on the residual cash flow. I think, also, that people realize, maybe the financial market is less emotional about it, but he doesn’t really do anything. He says all this crazy stuff, but not that much has actually changed. When the election happened I talked with a lot of my friends who were more inconsolable about the whole thing. And I was like, “Nothing’s gonna happen, because no one is gonna work for this guy.” Literally, you go work for him, you just poisoned your resume forever. And the guy’s catchphrase is “You’re fired,” like, you’re going to burn every bridge to go work for a guy who’s catchphrase is “you’re fired”? He’s not going to have any arms and legs.
So I think people are just like, “Yeah, it’ll be four more years of Twitter tape bombs, which are annoying, but probably things are sort of on autopilot.”
n+1: But what about all the international stuff? Isn’t that worrisome? Like decoupling from China?
HFM: We’re in fewer wars. For all the braggadocio, he’s more like a coward and backs down. So we’re probably not going to be in wars. Yeah, it’s not good for trade so emerging markets could be challenging. But guess what, we have a new NAFTA, right? Absent some small issues, that seems to be business as usual. The way that the deglobalization theme has played out is that it’s really just turned more into a China containment theme, which I think the market is probably comfortable with. It’s not great, if he’s going to blunder into causing a war over Taiwan or something, there are those tail risks. That’s why I think the balance is, you go Blue, there’s more regulation, it means higher taxes and stuff, but probably more predictability and less volatility. You go Trump, it means less regulation, lower taxes, but more volatility. It kind of balances out.
n+1: You said the bear case is going to be the instability following a disputed election. How are people planning for that? Are there trades that they can make?
HFM: Oh, well one thing that people looked at is that you can look at the calendar of options on the equity market or on currencies, and you see, you can sort of price volatility around very narrow dates by looking at the whole calendar of options. There are a bunch of trades where you can just try to isolate the week or the month after the election and the spike of volatility around the election. The interesting thing is that always happens, but it used to be that that volatility spike would be right on a Tuesday. Tuesday into Wednesday. If we don’t know [who won], that’ll make it really intense days later. Where that volatility spike is, in days, it should be further out. It’s started to shift out, although interestingly, it’s all started to come down because I think there’s more comfort in the idea that there’ll be a clear Biden victory. But that’s the thing, “where in time is the volatility spike?” I mean this year there are people who are bullish on gold, like that’s always the thing. There are always doom and gloomers who buy gold.
n+1: Have you followed the Hunter Biden stuff?
HFM: Yeah, a little bit, yeah. Do you want my theory?
HFM: Let me back up. Henry Blodget, he made this call before he was famous Henry Blodget, when he was an equity analyst. He’s like, “Amazon’s going to 400”—that number sticks in my head. Everyone’s like “That’s crazy, that could never happen.” It was a brilliant idea for him to do that, because if it does go to 400 he’s a genius, and if it doesn’t then he’s just another guy who made some crazy prediction. [One share of Amazon stock is currently trading at $3,036. —Ed.] So I always say that was pretty clever. I always look for opportunities to do these Henry Blodget calls.
My Henry Blodget call is that when Trump loses, he’s going to Saudi Arabia. He’s going to get on a plane and he’s going to go to Saudi Arabia. He’s going to be like, “The Trump Organization is going to be working with the Saudis to build Neom”—do you know what Neom is? This five-hundred-billion-dollar city of the future that MBS wants to build—“I built the Wollman Rink in Central Park, I can help build Neom, it’s going to be amazing, it’s a huge opportunity.” That’s my theory. I mean they took Idi Amin, okay? They’ll take Donald Trump, it’s fine. His first visit overseas, remember 2017, is Saudi Arabia. He’s got to go to a place where he can have an understanding with one guy, not with a political system, with one guy, like, “You’re going to protect me.” A place that has a culture of hospitality, like if you give somebody hospitality you’re not going to just toss them out. It all kind of just fits, and then there’s the excuse, “I’m going to be building Neom.” So that’s my Henry Blodget call, what I mean by that is I think there’s a 1 percent probability that’s true, but if I say that and we put it down and it doesn’t happen, no one’s going to say, “Oh that guy was an idiot.” They just forget about it. But if it does happen . . . immortality.
n+1: [laughs] You think he’s going to stay there forever? It’s going to be to avoid prosecution and so on?
HFM: Or until he can work out a deal or it all cools off and people forget about him and they’re on to the next rage topic of the decade. I’ve been saying this probably for two or three months, and he did say something a couple of days ago like, “Well, if I lose I might leave the country.”
n+1: So you don’t think he’s going to go and start a Fox News?
HFM: A media thing? I think that’s what he’d love to do, but he’s in too much legal jeopardy, right? That’s my thought. Maybe he’s going to make a stink and cause chaos. Maybe he’ll cause as much chaos as he can if he loses. You know, in countries where they have authoritarians who are like, “I’m going to make it difficult for you to dislodge me, so let’s agree to give me an amnesty and then I’ll leave quietly.” But I don’t think anybody can guarantee him that. If you look—you see all those amnesties fold. Eventually people are like, “Nah . . . psych. You were pretty bad, we’re going to revisit this.”
n+1: So your advice to Trump is don’t take the amnesty deal?
HFM: Don’t take the deal. Go to Saudi, build Neom.
But the Hunter Biden thing? I think that laptop is real, I think the emails are real. It just a classic double grift. I think the suckers at the table are the people who thought they were buying influence by paying money to Hunter Biden. I think Hunter Biden is like “Oh yeah, I’m giving half the equity to my dad, and he’s totally on board,” and Joe Biden was just like, “I know he’s probably doing shady stuff but I’m not actually, like yeah I’ll shake somebody’s hand and I’m not going to ask too much about what he’s doing.” I don’t think it ever infected policy. I think there’s a lot of that in Washington, people who say they’re selling influence. I see it in the guy who tells me [about a foreign government], “Yeah I can totally get your idea in front of so-and-so.” But you’re never there. The guy tells you he’s going to get a letter in front of a guy. And maybe a letter got in front of the guy, maybe a letter didn’t get in front of that guy, maybe this idea was mooted, maybe lobbying was done maybe it wasn’t. You don’t really know. So you have essentially Borat, some Kazakh guy, believing like, “Yes, you are going to be my guy, you’re going to get me to Joe Biden.” Like, he’s fucking Borat, what does he know? He’s like “This is how it works in my country, if I were going to try and bribe me, I would go to my son, right?” It makes perfect sense. They just don’t understand that it doesn’t work that way everywhere. So that’s my theory of what’s going on.
n+1: Of course, it does work with the current administration, so they weren’t so far off, right?
HFM: Yeah, if you have access to Jared Kushner it might work. I think this has gone on, there are so many people who are relatives of politicians who play that game. In some cases they do influence policy, but I think in this case, given the people he was taking money from, that they’re not operators in the American system. They’re very distant from the American system, they’re very dirty so they don’t really have access to the normal lobbying channels. They’re the perfect people to grift. So that’s my guess. I don’t think it’s disinformation or something. I think it’s real, but the thing that tells you it’s real is that there really isn’t a smoking gun in it. There’s a lot of unsavory stuff about Hunter, and there’s a lot of stuff that’s very suggestive of the fact that they’re grifting a bunch of oligarchs. If I were in his shoes or Devon Archer’s shoes, I would not be so worried about necessarily going to jail, I’d be worried that Yelena Baturina’s going to send a hit squad to kill you when she realizes that you’re just taking her money and it was a big fucking joke.
n+1: Just to go back to the pandemic for a second, it does seem like some of these things were already happening, with internet replacing retail, and there’s kind of an acceleration of that.
HFM: Yeah, if you had to ask me where the pain’s going to be, it’s retail and it’s the related commercial mortgage-backed securities. I think people want tourism, like in the ancient world you read accounts of people doing tourism. People are going to do tourism again, tourist hotels, that’s coming back. Tourist travel is coming back. I think even a certain amount of business travel. The dirty little secret of business travel for a lot of people is that they complain about it, but they actually like it. I think a lot of that’s coming back too, maybe not all of it, but it’s mostly coming back. But the thing that is not, is how we shop. That’s changed a lot. We’ve gone through a lot of iterations of how you shop. The rise of the department store in the 19th century, that was this big innovation, the idea that you could touch goods, that’s changed a lot over fairly short historical spans. So to me it seems very plausible that what could not come back is malls. That was happening anyway, like you say, you’re just accelerating a trend. People who slowly would move into a new pattern of behavior are shocked into the new pattern of behavior.
n+1: What about a place like New York in terms of people leaving because you just don’t need to be in the office anymore?
HFM: Yeah, I mean, think about all the people who move to New York who don’t work in offices. And it may be that some percentage of the population was there against its will. Like me, I was there against my will for a while. So some portion of the population is there against its will, they’re hostages. So it’s maybe OK for New York, in the sense that property prices being so high in New York was unhealthy. You can’t have a city that’s based on only rich people, and then some far–outer borough class that has to serve them. So maybe it’s like a forest, for long-term health from time to time you need a fire. It’s just a question of how big that proportion of people is. But there are a lot of people who want to live in New York because of the things that it offers, so assuming those things are back on offer, which I think they will be, people will come back. I mean I think this disease will be done, one way or another I think it’s going to be done. Is it six months, is it a year? But I think it’s done. They say, like, “All the restaurants are destroyed.” Well, there are lots of people who want to open restaurants and the spaces are still there. So to me it’s like, there’s an emergent order, that stuff will get used the way it’s supposed to get used. I think all of that will probably come back, it’s not like the end of New York real estate. The bigger threat to New York is other stuff, like another Sandy washing it away or is the crime so high that it’s not a pleasant place to be. Or maybe in four more years of Trump when nobody can get a visa, that’s probably a bigger challenge for New York, in a way. There are other issues, but I don’t think the pandemic. So yeah, malls. Don’t be in malls. If you’re already in malls it’s already too late, I saw a CMBS where they were like, it was some deal where it was a portfolio of malls and they couldn’t pay their debt and they were like, “OK, we’re just going to sell it off,” and there literally were no bids. Like they couldn’t find anybody.
n+1: To buy the physical space?
HFM: Yeah, to buy a physical mall. Not for a dollar, there’s no price. I always love going to the grocery store, there’s something nice about going to the grocery store. You know, you talk to the cashiers, I do sort of like that one, nothing else though.
n+1: Well I have trouble buying clothes online because they don’t fit, you gotta kind of try them on.
HFM: Then you gotta send them back. There’s nothing I hate more than clothes shopping. I don’t like dealing with this salesperson who’s also like “I’m helping you.” Then it’s weird and awkward. Now we have a relationship and now I have to get out of this relationship. The relationship isn’t working for me.
Like, we moved [to a new state], right, I didn’t have anything. I was like, “I need a car,” and literally I went online and there was a car and I clicked on it and somebody called me and I was like, “I want this car but here’s the deal, I’m not going to your dealership, it’s Covid. The car needs to be in my driveway on Monday.” The guy came in a mask with a bunch of paperwork, not a salesman, just like a clerk. I wired him them the money the day before, signed some stuff, and the car was in my driveway. All these things that you used to do . . . you know.
n+1: But did you talk him down, did you negotiate?
HFM: No, it was one of those no-haggle places, it was actually very funny. Speaking of things that get destroyed, rental cars. When I was out at our vacation place I had this funny experience where I rented a car because we were out there for a week. We have our car but we rented another car. Then I was like, “Oh, we’re going to be out here longer, I want to extend it.” I’m sure I can get a deal, because who’s renting cars, right? I go online to see if I can extend it, and it’s like the same price that I paid for the week when everyone was going to go skiing. I’m like, “This can’t be right, let me see what a new rental would cost.” It was like one-seventh of the price. So I call them up and after a lot of back and forth with somebody on the line who could’ve been anywhere in the world, they’re like, “So your price will be seven hundred dollars.” But can’t I extend the car I have? No, you have to go back to the airport, in the middle of a pandemic.
So I drive back to the airport and I expect it to be empty. When I get there, there are cars everywhere. Every parking space is full, there’s cars on the grass in the snow in front of where the airport is. What the fuck is going on? Then I realize it’s all the rental cars that people gave back, they don’t have a place to put them, because they’re usually out being rented. Now like nobody’s renting a car. So I go in the airport, you could’ve fired a cannon down the concourse, there was nobody there. There was nobody at the desk, I was saying, “Hello, hello?” Finally a guy puts his mask on and comes out, I’m like “Here’s who I am.” He’s like, “Take any car you want.”
So I have this great idea, I’m not going to buy a new car when I come back. These guys are all going bankrupt, I’m going to buy a car from Hertz. They’re going to be selling all their cars. So I call up Hertz, but they’re not motivated like car salesmen. I’m like, “So here’s the deal, there’s a car you have, I want this car, and it’s got to be in my driveway in three weeks. I’ll send you the money in advance.” They’re like, “This is very confusing, don’t you want to test drive the car?” I’m like, “No, I don’t want to test drive the car, I want the car in my driveway on Monday the 15th.” They’re like, “But you have to test drive it.” But no, I don’t have to test drive it. It was like brand new, it had three hundred miles on it, it had never been rented. They’re like, “No, no, we don’t do business that way. We can’t sell it to you if you don’t test driven it.”
n+1: [laughs] What kind of car did you get?
HFM: A Mazda, just like a little Mazda. I only buy cheap cars, I’m not a car guy.
n+1: And you went to the airport in the middle of a pandemic to save money on a rental.
HFM: You’re not going to charge me seven hundred dollars a week when nobody’s renting a car! Are you kidding me!
Actually I wound up having to do it again. I got it for a month longer, and we ended up being there five months. But I did have to go back to the airport another time. This was so ironic because I was like, “I saw that you had a million cars, why do I have to bring this car back?” They’re like, “Actually, we sold that car, the one that you have. Somebody bought it.”
I’m like, “What are you talking about, I thought you have to test drive it?” Why does he get to not test drive it and buy the car? I had to go back to the airport again, again you could fire a cannon down the concourse . . . it was eerie.