Order vs. Chaos
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Hello and welcome to the TLDR podcast, a show about the culture, gossip, and business of money. And this week, martial law or bull markets? My name is Devin Friedman. I am here with some of my co-hosts. Matt Keres is the director of product for Wealthsimple, our sponsor. Matt, how are you? Are you getting ready for the holidays? I'm getting jazzed for getting my Christmas tree. It's a monument to consumerism, and my family loves that. So we've always had one every year. Lovely.

Sarah Rieger came down with a migraine and was a late scratch from the show. We hope her speedy recovery and she will join us again next week. But we also have a special guest host today, the inimitable, legendary Felix Salmon. Felix is, of course, the chief financial correspondent for Axios and the host of the Slate Money podcast.

Felix, thank you for joining us. You know, you've been a friend of Well Simple Media for quite some time. We're very happy to see your face here. I'm psyched about being here. It's fun. Can you tell people a little bit about how you came to be someone who knows about money? I have a highly vocational degree in history of art and philosophy. And I graduated into a mini recession.

in the UK, and the only person who would offer me a job was the editor of this trade mag called Euromoney. It is devoted to bonds, and basically, if you want to understand money, you should always understand bonds. So you did your bond prereq. Absolutely. Today, we're going to zoom out and talk about something probably pretty important, which is, is chaos or order the way we're living right now?

And we're going to talk about politics, and we're going to talk about money, and we're going to talk about markets, and we're going to talk about the pandemic.

All right, Felix, we're going to start with you. And usually we ask the question, who is making or losing money right now? But given that you are someone who just wrote a book that sort of speaks to the moment that we're living through, can you talk a little bit about how to make sense of what global economies are doing right now and how crazy the political system around the world seems?

Yeah, I did write a book about that. It's called The Phoenix Economy, Life, Work, and Money in the New Not Normal. And

The point is that things were relatively normal for a long time. You can think of that 70-year period from 1945 to 2015 as a period that people tried to keep things normal. And that global consensus has really fallen apart, and we are now seeing major fractures not only between countries but also within them. So give me some examples of how this is playing out, IRL.

Okay, so this week alone, we had the collapse of the French government, which is a big deal. We had the collapse of the German government not that long ago. We have an incoming government in the United States that is blowing up norms left, right, and center and is actively saying that it's just going to destroy large swathes of government. And in South Korea, they actually declared martial law for a hot second. And, you know, lest we forget, we also had

the open assassination on the streets of Manhattan of a major healthcare CEO. Things are really weird and crazy right now. As the internet says, the writer's room has really lost the thread on what's happening in the world, and none of the world events are believable anymore. How do those dots connect? Tell me some dots here, and tell me how you are connecting them in your mind anyway. So for roughly 70 years or so,

We had a world where the memory of World War II loomed large, the memory of the Holocaust and of nuclear weapons being used in Japan loomed large. We had the formation of the United Nations. We had this idea that we must never have another war like this again. It's unthinkable. The way you avoid that is for countries to come together and to...

try and keep volatility down basically as much as possible, where people could just sort of increase trade, increase wealth, increase global interconnectedness. And that was seen as this sort of like long secular arc of history thing that was a good thing that was happening. And we had certainly no shortage of little local skirmishes over the course of the Cold War. But

But broadly speaking, no one in sort of great powers was trying to sort of escalate too much. And then as those memories of the Second World War started to fade, a lot of stuff started spinning off its axis. We had the Brexit thing. We had the Trump thing in 2016. And then we had a global pandemic in 2020, which caused a whole bunch of borders to go up.

Turns out Brexit was kind of a canary in the coal mine. The walls are going up. They're getting higher. Nationalisms are getting more pronounced. Donald Trump got reelected with a majority of the vote on his nationalistic platform. And the fact that like these crazy flash crashes, these like little glitches in the machine are happening is

is worrying because flash crashes can have systemic effects. So given that markets are dependent on political conditions, among other things, how is this instability shifting dynamics sort of playing out in economies? One of the things I like to say is that when politics meets economics, politics always win. So where we have found ourselves, I think, is in a world where

Markets are having to deal with increased volatility and increased levels of completely unexpected things happening. And they need to be nimble enough to be able to react to that because they can wake up one morning and suddenly the richest man in the world is the best friend of the president-elect. And that whole nexus is driving the valuation of SpaceX to $350 billion, which is more than double the

the valuation of any other defense contractor, even though the defense contractors all have five times as much revenue as SpaceX does. There is a growing tendency across the world where different powerful people are testing whether or not institutions should exist or not. Absolutely. And that's something that matters for everybody. And also, obviously, it matters if you are someone who has or wants to have money. This is actually something I want to talk to Matthew about is like,

To what degree do markets prefer it if an economy is a democracy? And to what degree do they actually not care? It's hard to say for sure because, you know, we don't have that much sample size of countries that have been autocracies and had stock markets, particularly in the 20th century.

you know, the Chinese stock market has like been one of the worst investments ever. They've only underperformed. I think that the Chinese stock market is down at the level that it was in 2011 at a time when like U.S. stocks are up, you know, almost 4x and, you know, Canadian stocks are up, you know, over two, two and a half. I think it really comes back to a question of like,

Is your country set up with laws that are going to favor, you know, shareholders in companies, which require, like, consistent rule of law, usually shareholder-friendly policies? You know, I don't know if it's a autocracy versus democracy thing, but, like...

China is just really not shareholder and company friendly. So I would agree with that. But I would also say, you know, when it comes to the health of nations, what matters much more than the level of the stock market is economy.

the level of GDP. The big wealth creation in China has been and always was historically in the property market, not in the stock market. And, you know, it has like this crazy home ownership rate and people made a lot of money in property. And the economy broadly, you know, if you just look at things like GDP rather than the stock market, did extraordinarily well for many years while the country was nowhere near being a democracy.

So I think it is that maybe people are deciding that, hey, you know, autocracy is not such a bad idea, given how out of control things feel. Maybe we should think about that. And Felix, you're saying, well, up until recently, the data would be like, bad idea for economies, don't become an autocracy. But now there's a

You know, in the past 20, 30 years, there's been a shining example of, you know, the economic success of an autocracy in China. Right. But the point is that you can have a capitalist autocracy like, you know, Saudi Arabia and most of the Middle East. And so, you know, the fact that they are autocracies is not something that is disqualifying to investors. Right.

Yeah, I think that it's less of an autocracy versus democracy point. It's more of the is the government interest in pursuing policies that are, you know, pro-business, pro-productivity. And that can turn out really well for some autocracies. And there are others that it can very quickly turn into the government just stealing all of the wealth. And that obviously doesn't turn out all that well. So.

So, you know, the future feels very different right now than the past. Are we freaked out? So it is kind of scary. And one of the big changes, I think, is that we can no longer...

assume that the future is going to be like the past. If you look at Warren Buffett, he became the richest man in the world by basically just having one big idea and sticking with it for his entire career. He's like, America is great and I'm just going to bet on a few big companies and I'm going to buy and hold and I'm going to do nothing and I'm going to become unbelievably wealthy. That having...

one true thing through his entire investing career of many decades worked really well for him. I don't think that is ever going to happen again. I certainly don't think that's going to happen in my lifetime, that any one big idea is going to remain universally true. Oh my God, he's declaring the end of the Buffett era as a philosophy. I'm declaring the end of like Warren Buffett being able to come out and say like,

Here's an idea which is always true, and so long as you just stick to it, you'll always make money. Yeah, that's over. Beginning of the end of the end of the beginning has begun. All right, Matthew. So Felix is talking about lots of sort of proverbial bombs being dropped in the political world order. Lots of unexpected things happening, lots of instability, lots of volatility happening.

You know, you always say markets hate uncertainty. The markets must be having a terrible, terrible time right now. So who's making and losing money in markets right now that's interesting to you, Matt?

Yeah, you know, it's something that's sort of interesting and creates a lot of cognitive dissonance for me and I think for a lot of other people, which is that even though the world seems like it's gone mad in a lot of the ways that Felix has been talking about, stocks and markets in general have been really calm, like surprisingly so, and doing really, really well.

You can see this in a variety of different ways. So one of the ways is the VIX, the so-called Wall Street fear gauge, has hit its post-pandemic low. So it implies basically the smallest market moves or the smallest amount of risk in markets as any time since the pandemic. So if the VIX is low, it means that people aren't feeling uncertain. They are feeling that they know what's going to be happening.

Yeah. I mean, you can also see there's some visuals that are going around just visualizing the breadth of returns, either daily returns to the upside or downside. And it's not only that markets have been going up and people expect less risk in the future, but the experience of investing in the market has also been a much smoother ride this past year than prior years. You've seen fewer

2% up or down moves than basically any time since the pandemic? And do you've seen, you know, fewer, you know, greater than like 1% moves than any time in the last 10 to 15 years? Can you talk about like your favorite chart that you've seen in the last week or so that sort of explains what you're talking about?

My favorite chart actually is one that I made myself. I used the Wayback Machine, which is this website archive that allows you to go and see a prior version of a current website. So the question I asked is, who are the top 10 companies today in the world based on their value? And what did that list look like a month ago?

And, you know, even though, you know, we had this big U.S. presidential election and everyone's saying, oh, my God, there's so many different winners and losers. And, you know, it's the Trump kleptocracies that are going to ramble.

reign supreme in this new world. And then there's going to be these tariffs and a war with China or whatever. Like the top 10 companies are exactly the same as they were before the election. And actually, you know, as they've been for years before that, you know, you have your Apples, NVIDIAs, Microsoft, Amazon. Basically, like you have investors betting that, you

the mega cap tech story that's dominated markets in the world for the last 10 years or so is going to remain the same and, if anything, get more entrenched going forward. Felix, what do you make of that? One thing I will say is that these really big things like global trade going down rather than up or

you know, the rise and probable eventual fall of the mega caps tech stocks or something like that. Those are stories that play out over years. They don't play out intraday. And insofar as they are happening, you wouldn't expect them to show up in, oh, the entire stock market has fallen 7% today. You'd expect that to be a much longer term move that wouldn't necessarily show up in something like the

the VIX. The other thing is like, just because the VIX is low doesn't mean it's reflecting what's going to happen. People can be wrong. Which just goes to prove that markets are a bad mirror of the world.

Maybe they're a bad mirror of the world. I hear people in the newspapers and, you know, my family and feel like saying, wow, oh my God, like we live in this crazy world. It is turning ups and downs. And I think that like the way that I square that is twofold. Like one, newspapers make their money by being alarmist negative and getting people to talk about it. And then the other thing is that

you know, a lot of the stuff that people care about, you know, matters much more for society and for their values than their money. And I think that this is all just a really big lesson that like you really shouldn't mix your political views with your investing. At some point, like politics can get so extreme that, you know, when the tanks roll in, like that, that's a big deal for your money. But beyond that, like even stuff that is like, you know, as distasteful to a lot of people as Trump and his digital trade wars, like,

It doesn't really matter all that much. All right, Felix, wind up and just give Matthew a piece of your mind. I don't think we disagree that enormously, but I think Matthew is absolutely correct that the things that really matter in life are often not reflected in the level of the S&P 500.

When big, important changes happen to your country and to the planet, sometimes they're reflected in the markets, but more often they are not. Where I would disagree vehemently is in this idea that the...

News media in covering the things that actually matter to our lives and to our countries and to the planet is just trying to be sort of mercenary and follow some misguided profit-maximizing path. Matthew, I think that we have to disambiguate here. I do think that part of what you're saying is that the news media is alarmist, that they're stoking the fire and they're being alarmist, and that a lot of the stuff...

isn't really consequential. The thing that I mostly believe, and I actually believe this pretty strongly, is that there's been a very big disconnect between a lot of the traditional measures of how well people's lives and prosperity has been trending in the US and Canada, where they're the richest sets of people in the history of the world.

basically everyone's earning more money on a real basis than, you know, they had a couple of years ago. And so like a lot of that stuff, at least by those measures, would suggest not only great, but also stable, at least since the pandemic. I think the reason why a lot of the uncertainties that we've been talking about haven't really mattered for people's money nor overall like

economic conditions is just that like they're a small deal versus all of the other stuff that goes on and is impacted whether people have jobs and that kind of stuff and also i can admit to myself like when i read the news and stuff i like keep getting this feeling of oh my god how topsy-turvy the world is and those two things are very hard to square

Yeah, I would agree with that. Bad things that are happening in the world, and there are a lot of bad things that are happening in the world, and there are a lot of crazy things that are happening in the world, have not had significant effect on North American wealth, North American income, North American employment rates, or any of that. So what kind of world are we stepping into? I know it's hazardous to make guesses, but what does the future look like? Yeah.

The one thing I was very careful not to do in my book was to make predictions. I think that the meta prediction of like, expect the unexpected, expect things to come out of left field, expect norms to be broken. Most importantly, I,

Expect that you are going to have to change your mind on big things. We have to remain sort of epistemically nimble. We have to learn to adapt. So in a world, and especially in an economic world where most of our predictions come from looking at the past, it's your feeling that that is not necessarily going to be the way to figure out the direction of growth.

markets and economies in the future. Yeah, I think we should be looking at the present. And it's actually really hard to look at the present and see what's going on in the present and try and just work out what is true today, let alone what's going to be true tomorrow, is very, very difficult. Especially given all of the prior beliefs that we have about how things should be today, those color our ability to actually see clearly what is happening today.

Felix, this was very fun, and I'm glad you wrote this book because it makes for a very good podcast episode. And the stocking stuffer. Give it to all of your family members for the holidays. Matthew, you need something to put under your tree. You got one. As another Christmas tree, do I can co-sign?

So Devin, since Sarah's not here, can you tell us what we learned? I think we learned that the troubles in the government in South Korea and France and Germany might all be connected in some deeper way. We learned that the markets don't really care about troubles in those governments or other governments. And we also learned that Matthew and Felix may not agree on everything, but they do love a Christmas tree.

That is it for this week. This show is sponsored by Wealthsimple. It is made by me, Devin Friedman, Matt Keres, Sarah Rieger, with Mathilde Erfolino, Leah Fetter, Kat Angus, and Jared Sullivan. Help from Tom Johnson and Allison Hopkins, fact-checking by Brennan Doherty, theme music by Andy Huckdale, and engineering by Emma Munger. Special thanks this week to Felix Salmon.

The TLDR podcast is offered by Wealthsimple Media Incorporated and is for informational purposes only. The content in the TLDR podcast is not investment advice, a recommendation to buy or sell assets or securities, and does not represent the views of Wealthsimple Financial Corporation or any of its other subsidiaries or affiliates. Wealthsimple Media Incorporated does not endorse any third-party views referencing this content. More information at wealthsimple.com slash TLDR.