Transcript

Stephan Shipe: Today we’re here with Dr. Deon Strickland, our in-house economist and financial advisor at Scholar Financial Advising, in front of our live studio audience. Tell me what’s been going on the last quarter. We have a lot of interest rate news that hit really recently, so I know that’s at the end of the quarter. But where are you seeing all this, and are you a big fan of Warsh right now with what happened?

Deon Strickland: Bigger fan than I thought I was going to be. I will say, what we have proof of now, though — I can’t remember, there are disputes about who coined the term about the bond market. Ed Yardeni, who’s a well-known commentator — but the notion is, you just can’t bully the bond market, right? You can try. I can’t remember who said it, but somebody said something like, I want to come back as the bond market. They were asked, you know, who do you want to come back as when you’re reincarnated? And they said the bond market, because everybody’s afraid of the bond market.

And I think that is nowhere more evident than it is right now, in the sense that we had our Treasury Secretary basically say, well, I dare you to try to push things around, because there’s asymmetric information — i.e., he knows things that the market doesn’t know. And I think they basically called his bluff in a really, really forceful way, so much so that Kevin Warsh got backed into a corner. I don’t know that you or I, as economists — we would be like, how likely is it that a Fed chair could lose a vote? He could have tried to do something different, but after his Jackson Hole speech and the like, he got backed into a corner so much so that this week we saw twenty-five basis points, i.e., the Fed funds rate went from 3.5, 3.75 to 3.75, 4. And if I were a betting person, which I am, I would say it’s going to go another quarter.

Stephan Shipe: So what does that mean? Because what was odd about it is the bond market moved in interesting ways with that. Because, as you’re saying, no one bullies the bond market. And for one of the first times — not the first time, but there have been questions of overall solvency of the United States, and decisions they’ve made and everything, which was at the risk of, if we’re going to keep rates low, then maybe it’s possible to game the system. But now it almost feels like we had a little bit more of — you have somebody come in who made a rational decision about the inflation problem, and the market rewarded it, both on the bond side and the equity side. Maybe not permanently. But at least in the short term, that seemed to be good news. Everyone kind of wants it, like the party’s getting out of control, somebody wants to do something, but they don’t want to be the person to do it.

Deon Strickland: Exactly.

Stephan Shipe: But you’re not disappointed when the police show up.

Deon Strickland: That’s true. We always want to say the equity market and the bond market tend to move at cross purposes — negative correlations. That’s simply untrue. If you look around over the last 40 or 50 years, there have been times where they move together, and there have been times where they move against one another. And it’s hard to necessarily know what regime we are currently in. Because I think we have this tremendous complexity in terms of the bond market. By that I mean, historically, the bond market responded to inflation expectations. This is what you and I both learned in our classes, right? What drives the bond market? Well, we have these inflation expectations. But now I think there’s more stuff going on. You really do have inflation expectations in there.

So I think that’s what the market responded to this time, in the sense that there was a lot of fear that things could get out of control. We’re at the party and things are getting out of control. And I think he signaled that, while he has made it clear he has not a lot to say about fiscal policy or politics — he’s going to stay in his lane — sometimes, even when you’re staying in your lane, you’re going to do things which are inconsistent with current fiscal policy reality. And I think the market was not necessarily convinced that he was willing to do that. He was willing to stand in the gap. And I think now the Fed sent a pretty clear signal that they are at least somewhat serious about their two percent target.

And I think that’s going to be tough. I really do. I think we both agree that’s going to be tough, because number one, on the fiscal side of things, while he’s not commenting on it, he’s going to have no choice. If we continue to run a deficit of six percent of GDP, that’s one or two trillion dollars a year. The United States is going to have to go into the bond market and finance that. Add on to that the build-out in AI — whether it’s going to destroy us or not, they’re going to build it out. And that’s another trillion dollars. So if you think about it, we’ve got three trillion dollars worth of capital trying to issue bonds. That’s something that Kevin Warsh of the Fed can’t do anything about. So you have inflation running above goals — i.e., above their goal for five years, something like that. You have tremendous need for capital. And you take all that together, and the bond market said, hey, we’re going to complain. It’s kind of like, we’re going to cry if you don’t do something. And as far as babies go, we cry really loud. And so you saw the ten-year — I heard Warsh say this when I watched his news conference. The ten-year, he basically says, and I think everybody agrees, is the single most important financial contract in the world. So that goes above five percent, and everybody’s like, yeah. Because that means mortgages are going to be above seven percent.

Stephan Shipe: Well, that’s my concern with it. The Fed doesn’t have many levers. By design, they don’t have many levers, for independence. They’re important levers, they’re big levers. But if we have all the fiscal issues and spending, that causes the inflation, and the Fed really has no other choice but to continue raising rates in a way that continues to make it more expensive. What other option do you have? So I guess, knowing Warsh’s position — if you have the economy keep running hot after this, and fiscal incentives to continue growth, especially around AI, and unemployment stays as low as it is, I mean, that’s a recipe for high inflation.

Deon Strickland: Yeah. I think if you go back and you look at the broad spectrum of people — everybody knew he was going to raise rates. Not everybody agreed, however, that he should raise rates. And I’m not just talking about economists who are allied on a political side — the five or six economists who are working in the administration. I saw a report from an economist at Goldman, and he’s basically saying the case for a rate increase is weak, is what they basically said. I think that’s because traditionally we tell a story about aggregate demand. And so we say, hey, if the economy is running hot, aggregate demand is high, and that’s causing inflation, we raise rates. It is the — as you said, I always want to say this word — cudgel. So they’re going to cudgel aggregate demand lower, which reduces inflation.

I don’t know what it looks like when it is what it is today. So it’s a complicated system we’re in. And it may be that there is a lot of instability in the relationship between bonds and stocks that we traditionally sell. You and I, when we advise our clients, we say sixty-forty, seventy-thirty, eighty-twenty, by and large. And we look at, say, that 20% that’s in bonds — say if you’re an 80-20 client, that’s like your shock absorber. That’s the language I use. It’s a lot less of a shock absorber now. It reduces risk, but if we don’t know whether the bond market and the stock market are working at cross purposes to one another, I don’t know if it’s a shock absorber. Now, it certainly reduces risk. But I don’t know what that does to my clients’ bond portfolios. I don’t have a good notion for, are we into a long cycle of rate increases — in which case I think I would be like, let’s maybe take some duration off the table. Or are we just all over the place? I don’t have a good answer for that question. And that’s why I think, in the real world, nobody knows what is going to happen. If you did,

Stephan Shipe: Yeah, of course.

Deon Strickland: we could go to Kalshi and we could make some money.

Stephan Shipe: And that’s the problem, right? If we’re at five percent on a ten-year, that’s still not that high of a cost of capital when you’re talking about it historically, and with the times now where you’re investing in a lot of these AI-type projects where IRRs are projected to be, you know, definitely double digits — poorly defined, but big. You’d argue it definitely has a long tail on it. But you have a lot of products that are exciting right now that are posting higher projected IRRs and returns. So throwing a five, 10% interest rate on that — not that they would get the ten-year at five — but I don’t think that slows down growth. I think it’s going to have to move a lot further, because we were just there. What was it, 2022, 2023, when we were at 6% inflation? And we still went up.

Why People Are Unhappy in a Good Economy

Deon Strickland: But people are really unhappy, right? One of the funniest things I’ve heard — back in 2024, at that point the administration then was telling people, things are better than you think they are. And that was a message that did not resonate. And what are we getting today? The exact same message. Things are better than you think they are. And I’m not even disagreeing with either one. At the time, the market — we saw job growth, you know, jobs at 162,000, the economy is churning along, as you said, in the face of these rates. And

Stephan Shipe: Savings accounts are higher.

Deon Strickland: Right. So we’re what, three percent maybe off of all-time highs in the market. So by almost any standard, you would say the economy is in relatively good shape.

Stephan Shipe: Then why are people upset? Is it because it’s aggregated?

Deon Strickland: It’s because they’re anchored to what it was, right? The first mortgage — okay, I don’t know if you can see this or not, but I’m not as young as Stephan. And so a friend of mine said that when you reach my age, just have a young person call you young-old. So for those people who are young-old, the first mortgage I got was at like seven and a half or eight percent. And that wasn’t weird. That was, you know, your parents counseling you when I got my first mortgage, like, yeah. That’s not today. If you have a seven and a half percent mortgage today, people are foaming at the mouth. They’re like, I cannot believe it, rates are so high. And I think it’s because the ZIRP era — the zero interest rate period era — was so long that people are anchored on inflation being really, really low, interest rates being really, really low, and they have not accepted this new inflation rate. So inflation was at nine percent, I think, was the high. And now it’s come down to, depending on which, core or non-core, say three percent. I think you and I would look at three percent inflation and go, it’s higher, it’s bigger than the target, but that’s not that weird. It’s within range.

Stephan Shipe: It’s within range. Well, it’s high, but it wouldn’t surprise me.

Deon Strickland: There’s a whole generation of investors out there who, one, did not see inflation like that before, and have never seen a true down market. I don’t know what’s going to happen when there’s a true down market, because there has to be one. I’ve seen 20%, 30% drawdowns that were there for multiple years. If that happens now, I shudder to think about the news reports that we’re going to read.

Stephan Shipe: Well, that’s where you’re already seeing that with anchoring around just investment returns. You go and throw a seven or eight percent market return on large cap as an average — maybe a slightly conservative average. It’s like, well, isn’t the average twelve percent, thirteen percent? Isn’t that what we should expect? That would be the absolute opposite of what we’d expect. Because if you’ve known that for half of your life, or over the past ten years, then you’d expect the next ten years to have to be much lower to be able to match that.

Deon Strickland: I believe you and I both would say, if somebody said, hey, Deon, will you accept seven percent on your portfolio, guaranteed, for the next 20 years? My response to that would be, sweet Lord, yes, I would take seven percent. Would you take seven?

At What Rate Would You Go Long on Bonds?

Stephan Shipe: Yeah, yeah. I have this as a question, so I’m going to skip to this question. At what bond rate, at what interest rate, would you move into long-term bonds? Because that’s related to what you’re saying. If interest rates now are at a ten-year at five percent, if they got up to seven, eight percent, would you shift into a full bond portfolio? A kind of inverted typical portfolio, and say, I’m just going to lock in eight percent for the next — because you have the inflation concern.

Deon Strickland: I would not, because there’s the risk there. But if I could build — one of the things that I tell clients is, if you tell me what cash flows you want, I can basically build a bond portfolio that generates those cash flows. And so if you told me that I could earn five, six, and seven percent over a five, ten, fifteen-year window, I would go into the market potentially and buy strips, treasury strips, so I don’t have reinvestment risk, that were going to throw off cash. Now, the only downside to that, Stephan, is, do you feel as sure about 15- and 20-year treasuries as you did ten years out?

Stephan Shipe: No, that’s the issue. I don’t know, if we saw an increase from where we’re at now to seven and eight percent, I’d be concerned about what factors were increasing that yield so quickly. Because if that’s the concern, the reason you would have the increased yield would be that there were concerns about whether or not you would get there — there’s added risk to match that return. There has to be. So the risk is coming from somewhere. And unless it’s huge inflation, which would have to be taken into account as well — so you’d still have to have some portfolio of stock to hedge against the risk that the portfolio has from inflation. But I don’t know if I’d be okay with it.

Deon Strickland: I think I could build a matrix of returns that would work for me in that case. I think I would have no mortgage. I would have real assets. So I’d have no debt. And I think I could build that portfolio. And I think over the long run I would be okay. And I think that’s a truly scary possibility that I would be willing —

Stephan Shipe: To do. That’s what I’m asking. We’re not too far from that being — and I’m starting to have these conversations more and more, which is what I was asking. We’re also getting out of — I always look back to, if you read older finance textbooks, the classic theory around portfolios, you would get into things like your age in bonds was a normal strategy, where that was a recommended move. Back in the eighties, nineties, if you went and said, you know, if somebody was sixty years old, sixty percent in bonds.

Deon Strickland: So wait, is that an age joke, Stephan? I don’t think that’s a nice joke.

Stephan Shipe: It’s not, of course not. I just — I agree. Yeah, we’re seeing that shift.

Deon Strickland: Yeah, that’s relatively high. But that’s a relatively high interest rate environment.

Stephan Shipe: Yeah. I think because interest rate risk is reduced anyways with a higher interest rate. But even what we’re seeing now — you go look at bond returns, it’s down three percent or four percent. Yes, down three or four percent, but your yield now is also significantly higher than that. So while you’re seeing some red in a bond fund, you’re getting coupons that are out there. I think this is going to potentially be a weird shift in the market, where bonds will start to become more enticing.

Deon Strickland: I always think about bond funds as, if my coupon effectively is larger than what I’ve lost on a price effect, I’m not happy, but I’m less than furious.

Stephan Shipe: Yes. But it’s the shock absorber. It’s acting as a shock absorber.

Deon Strickland: I think one of the things over the next three, six, nine months is going to be energy prices come down, and we don’t see inflation take hold a little bit because of the supply shocks. We have them now, but they could go away. So basically it comes down to, number one, does the war in the Gulf end? Number two, do we see any notion in Washington that we’re going to start to be serious about six percent deficits over the next decade? And if we start to see those two things, I think the bond market would return to something like what we would want it to do. But if the Gulf war doesn’t end, and we continue to see the six percent or worse — I’m not going to quote any names, but I saw a famous personality on TV say the other day, we should have more tax cuts. And

The Church of Restraint

Stephan Shipe: I’m thinking, let’s walk through that scenario. Because that’s more tax cuts, but with the justification — the justification for that is the economy is going to grow so much that you can grow yourself out of this debt. And that is a pretty strong opinion. I don’t know if it’s the right opinion, but that’s a pretty strong opinion out there, that you can just keep juicing the economy, and as long as we win the AI war and everything else, now you have all of this growth in the US, and it doesn’t matter how much debt you have when you have a ton of cash flow and growth. So at that point, then, would you, in that world, hedge the bond portfolio by taking out a mortgage, so that you had real assets on it?

Deon Strickland: There are two things there that are problematic together. Have you ever noticed, when it comes to cutting or doing these hard decisions, it’s always forward-looking. It’s the exact opposite of what we tell our clients. When I meet with a young client, I don’t call it this, but I think both you and I preach delayed gratification. You have a young client who’s in a very high-skilled profession, and what do they do? They graduate, or they finish a residency, or anything like that, they get a huge promotion at work, and all of a sudden their income jumps. And it’s very hard then for that person to be consistent about saving. They’re like, I can borrow the money, I can do it. And what do we preach? We preach discipline. We go to the church of restraint. And we say, yeah, but have you saved 25% of that? That’s the first question. I never do budgeting. I always say, I don’t do budgeting, it’s not what I do. But I will come up with a savings plan. Which, of course, is like one-minus-budgeting, in some sense.

Stephan Shipe: Yeah. I don’t need to know what you’re spending on the credit card. I’m just going to tell you what I need to hit the accounts. I don’t care what you do with the rest of it.

Deon Strickland: And so, the story you just told me has not one piece of delayed gratification in it. And so, until —

Stephan Shipe: It’s a risk hedge. It’s a risk hedge.

Deon Strickland: To go further back, if you look at the last two tax cuts, you had people preaching just what you’re saying. You always get the other side. People who want to cut taxes will say, growth will pay for that.

Stephan Shipe: Yeah.

Deon Strickland: And the other side of the coin is, people who want to spend will say, well, this level of spending will not retard growth, and so it’s okay. And I think we now know that to really cut the deficit from six percent of GDP to three percent of GDP — which I think should be the goal, or two percent of GDP should be a reasonable goal — it’s going to take, my goodness, I sound like an old young-old person, it’s going to take shared sacrifice and delayed gratification. And nobody —

Stephan Shipe: No one wants it.

Deon Strickland: No, we don’t use the A-word.

Stephan Shipe: Delayed gratification.

Deon Strickland: Right, because austerity sounds horrible. That’s what I’m telling people now. Delayed gratification. So you’re going to have fun eventually. Where austerity sounds like you’re never going to have any.

Stephan Shipe: It is not a fun word. But I think that is the weird spot we’re in. This is a perfect example of the Warsh situation, where I don’t think — if someone came in and started to put delayed-gratification strategies in place, everyone would hem and haw about it. But at the same time, everyone knows it’s probably a good idea.

Deon Strickland: Can you imagine — to bring it full circle back to Kevin Warsh — you remember irrational exuberance, right? So you had the head of the Fed basically say, equities are just way too frothy, this is completely irrational and we need to consider this. I think that person would be castigated roundly today for basically questioning the market. Because that would be viewed as you being a defeatist. And I think that if a client asked me and they said, Deon, what are the next 30 years going to look like? Well, if you talk to Scott Bessent, he’s going to tell you AI is going to be a massive gear for productivity. Fine. Tell me that story. But I’m not one of those people who believe that we’re going to grow at six percent over the long haul, and that’s how we’re going to fix this. I do think we can grow out of it, but I think we’re going to have to grow out of it with some delayed gratification, with increased productivity from AI — if the ninety percent outcome happens and it doesn’t destroy us. Isn’t that what the guy said, there’s a chance it destroys us?

Stephan Shipe: Yeah, yeah, there’s a ten percent chance.

Deon Strickland: Statistically I’d be happier, then. There’s a ninety percent chance.

Gold as Risk Management

Stephan Shipe: How does this change your opinion on gold in a portfolio? Since you won’t let me buy the house and leverage it up to take advantage of the inflation, would you add gold? Has your opinion changed on that over the past six months?

Deon Strickland: If you go back to my beginning, working here with you, if I saw a client who had gold in their portfolio, I’m like, hmm. I think Jamie Dimon has famously said the yield on gold is zero.

Stephan Shipe: Yeah. It is. It’s a huge problem.

Deon Strickland: The yield is zero. I do think, however, something is changing. Can I go through all of the changes of risk management? I think my perception of gold has changed, in the sense that for me it has become part of the risk management more than anything else. I think you might be willing to accept a small percentage of your portfolio that was zero yield, in the interest of very serious economic disruption. And that does not make me Doctor Doom.

Stephan Shipe: No. Well, I think it’s either personal economic disruption or market economic disruption. In the sense that, if somebody’s closer to needing cash flows from a portfolio, that becomes more of a hedge. That is an economic disruption for you personally.

Deon Strickland: But I would not hold a huge chunk. And I will say — I don’t know if I should say this — I would hold physical.

Stephan Shipe: Yeah, I agree with that.

Deon Strickland: I wouldn’t have GLD. I mean literal physical gold. That is a change. I think that really says pure rational expectations don’t apply to guys like myself. That was what I was told in my micro and macro theory. Rational expectations, this is what you do. To me, to worry about apocalyptic, serious disruption to the economic system risk — I’m shook. That’s where we are. The worst thing that I think can happen to a person who had delayed gratification for a very long time, in the interest of building a really successful portfolio, is to have economic disruption, even in the short run, preclude them from doing something. That would be sad. And gold might be one way to guard against that.

Stephan Shipe: Even with the lack of liquidity in the physical gold? Well, I guess the argument would be, you’re not selling it anyways. And you would always hold that — it would just become a larger position, but you wouldn’t be able to rebalance out of it.

Deon Strickland: No, you can’t do that.

Stephan Shipe: You see what I’m saying? Because if the market were to drop, then you could. So that’s where you start around three percent and go from there.

Deon Strickland: Three percent is small enough that —

Stephan Shipe: Do whatever you want with three percent.

Deon Strickland: Right. And I think that’s reasonable. It’s insurance, right? We tell you, diversify away idiosyncratic risk, and you buy insurance against catastrophic risk. And gold, to my mind now, has become — I’ll be burned at the stake for this, but I’ll run with it.

Stephan Shipe: I think, especially when you take it — you can hedge that comment with the fact that if you’re looking at it as personal economic disruption as well, that’s the bigger issue. If you’re stacking that up, then it does become a hedge against the catastrophe that is not having any of the delayed gratification that you’ve been planning for.

Deon Strickland: That’s right. That’s why it’s a challenge.

Stephan Shipe: No utils of happiness.

Deon Strickland: I like utils of happiness.

Real Estate, Refinancing Risk, and Who’s Holding the Starbucks

Stephan Shipe: Yeah. With that, and then the real estate market — and I know we’re wrapping up here — how do you think this plays into real estate, both on the personal and the commercial side? Because I’m a little concerned. Obviously, affordable housing’s been a concern. So now you throw a higher interest rate that precludes purchasing. But then on the commercial side, we still haven’t gotten past the ten years from when we had low interest rates, which was a big talk a few years ago. Everyone wanted to talk about it. No one wants to talk about that anymore. And I have no idea why.

Deon Strickland: Well, because — what are cap rates now on commercial real estate? Are you willing to —

Stephan Shipe: Six percent, five percent? That’s what I’m saying. I don’t know why no one’s talking about this anymore, because it didn’t go away. And usually the refinancing is ten years to fifteen years. So we still are in a window where people bought property — for an easy example, you go buy a two million dollar Starbucks paying you a five percent cap rate. That looked okay when you were financing it at two percent or three percent. But now you have to go refinance that debt, which has not been paid off yet, at seven or eight percent.

Deon Strickland: That’s bad.

Stephan Shipe: It is. Because now, for someone to break even, if you tried to sell it, you have to drop the price of that property significantly. And it’s leveraged.

Deon Strickland: I think this is why, for a long time, I would tell people — most people would say, well, I can get into that real estate, I can borrow four to one.

Stephan Shipe: Yeah, yeah.

Deon Strickland: That is a ZIRP-era issue. And so if you did not anticipate — I would have said, look, if things invert on you in terms of your mortgage rates, you better have the liquidity to either get out of that asset, or retire a bunch of that debt, so you’re not inverted. You really could be in a problem.

Stephan Shipe: We’re seeing it. Is that just me, or have you seen any of this? It used to be all over the place.

Deon Strickland: Mr. Negative, when it comes to real estate — I was always, no, no, no, don’t do that. And I’ll tell you what would be super interesting right now. What this suggests to me is that people with lots of cash — the old adage is, cash in times of disruption is super powerful. When the crisis was here, when we had the credit crisis in ’08, the rumor was, at least, that Warren Buffett made a ton of dough from the banks. Because the banks came to Warren apparently and said, hey, would you want to buy some equity? No, I don’t want any of your equity. Do you want to buy some of our debt? No, no, I don’t want any of your debt. But I will take some preferred shares

Stephan Shipe: For the first time.

Deon Strickland: earning eight percent. And you know what? They had no choice but to sell some to him. Now, my understanding is, when they did that, they included a clause, a repurchase agreement. But nonetheless, they

Stephan Shipe: So he locked in eight percent.

Deon Strickland: locked in eight for some period of time. So if it were me today and I had a lot of cash, I would at least start looking at deals like that.

Stephan Shipe: I’ll call you in six months.

Deon Strickland: And see what the world looks like. That would be a pretty cool result. And so what would be interesting to see is who’s holding those Starbucks today, and who’s holding those Starbucks a year from now. I don’t know what the answer to that question is, but I would simply like to read the book that is that story.

Stephan Shipe: Yeah, because you see it in new development too, today. It’s interesting — new development may actually be safer, because of the fact that they’re having to use interest rates that are at least where we’re at now, assuming we don’t see them increase again. Because you could run into the same problem.

Deon Strickland: And are they using less debt?

Stephan Shipe: Yeah, I think so. From what I’ve seen anecdotally on projects and pitches that clients have brought in, I think they are.

Deon Strickland: And that makes — I like it when economics actually works. When my discipline works, it makes me happy.

What to Watch Next Quarter: Tokenized Securities

Stephan Shipe: What do we got for the next quarter? What are you looking at going into the end of the year? What are the concerns out there? Give us the silver lining.

Deon Strickland: I think one of the things I’m really interested in — it’s kind of weird for me to be interested in it — we’re starting to see, the CLARITY Act failed this week. I don’t know if anybody’s paying attention, but the CLARITY Act failed, which was supposed to give crypto clarity about who was going to regulate them, how was that all going to work. It failed, and it failed on a cloture vote. But one of the things that I saw is that banks are starting to do tokenization of securities. So one of the things that I’m trying to learn about right now is just tokenized stocks. Because on some level, I’m not sure why I care. But it’s such a cool concept, that you could trade securities 24 hours a day, that I think I’m going to be interested to see. Apparently there’s — this is happening where they’re using actual shares to wrap tokens. In other words, they’re not just creating something. They’re

Stephan Shipe: So it’s not a derivative from it.

Deon Strickland: literally taking the shares and depositing them in a trust, and then writing the tokens off of those shares. So apparently that resolves some of the ownership questions, some of the voting questions.

Stephan Shipe: How would the votes be done? By whoever has the trust?

Deon Strickland: If you take a thousand dollar stock and I chop it into twenty pieces, each a token, then I’m not sure. But that’s the point.

Stephan Shipe: What’s the pitch for the advantage of this?

Deon Strickland: The pitch for the advantage of this is, you have twenty-four-hour trading.

Stephan Shipe: Do you think that’s good for the market?

Deon Strickland: I do, but I’m a big-time —

Stephan Shipe: Why do you think that’s good for the market? I think that would incentivize gambling on the market, to make it seem like the sportsbook.

Deon Strickland: That’s my gambling-and-investing question. That’s my question.

Stephan Shipe: I see what you’re saying. So you’re having the —

Deon Strickland: When it comes to markets, it’s price efficiency. Is the price we observe in the market representative of what we believe is the value?

Stephan Shipe: Yeah. But by definition, for it to be efficient, that means that there would be increased trading activity twenty-four-seven.

Deon Strickland: That’s correct. Yeah, absolutely. And where it would be super interesting is, where does that trade come from? I’m not sure it would benefit you and me that much. But in the long run, it would mean — for example, if you had tokenization not just of US equities, but of foreign equities as well, it would potentially add liquidity, price discovery, and things like that.

Stephan Shipe: So I could see price discovery. I want to see — how do you think volatility goes, though, up or down?

Deon Strickland: To my knowledge, there’s not super great evidence whether or not —

Stephan Shipe: But your hypothesis.

Deon Strickland: My hypothesis —

Stephan Shipe: I agree. Because it’s the four o’clock and the nine-thirty.

Deon Strickland: Yeah, yeah. That’s when you see it all. It’s hard — if we get a chance to get that price, that information pulled into the price.

Stephan Shipe: I could see it either way. My initial thought is you’d have decreased volatility, or at least at the spikes of nine-thirty and four. But you wonder if sometimes that’s a good thing, for people to digest information. Whether you have less of the overreaction — the overreaction test would be interesting.

Deon Strickland: There’s contradictory evidence.

Stephan Shipe: It wouldn’t surprise me — not there, but with currency markets, like foreign exchange markets.

Deon Strickland: So, we don’t really know what’s going on. So I’m going to try to be more positive next time, talk about innovation in markets, and not holding gold for apocalyptic reasons.

Stephan Shipe: All right, that sounds good. Well, thank you very much for another Scholar Big Picture, and we’ll see you all next time.

Deon Strickland: Thank you.

Outro

Stephan Shipe: That’s our show. Thanks for listening, and we’ll see you next week.

Disclaimer: The information provided in this podcast is for general informational and educational purposes only, and is not intended to constitute financial, investment, or other professional advice. The opinions expressed are those of the hosts and guests and do not necessarily reflect the views of any affiliated organizations. Investing in financial markets involves risk, including the potential loss of principal. Past performance is not indicative of future results. Before making any investment decisions, you should consult with a qualified financial advisor who can assess your individual financial situation, objectives, and risk tolerance.