20VC: Bill Gurley and Howard Marks: What Happened In 2020? What Can We Expect Looking Forward to 2021?

Welcome to the first 20VC of 2021 with me, Harry Stebbings, and my word, what a start to the year we have for you with this episode. Two of my all-time investing idols on the show today to discuss what happened in 2020 and what does that mean looking forward to 2021. So first, I'm very honored to welcome back Howard Marks, co-chairman and co-founder of Oaktree Capital Management, a leading investment firm with more than $120 billion in assets. Prior to founding Oaktree, Howard spent 10 years at the TCW Group, where he was responsible for investments in distressed debt, high-yield bonds, and convertible securities. And joining Howard, who better to have than the one and only Bill Gurley, general partner at Benchmark, one of the most successful funds of the last decade with a portfolio including the likes of Uber, Twitter, Dropbox, WeWork, Snapchat, Stitch Fix, eBay, and many, many more.

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You have now arrived at your destination.

Howard and Bill, it is such a joy to do this. My word, a very special one here. But given all we've been through this year, which we were just touching on before the show there, I wanted to start by taking stock a little bit. So I spoke to Ray Dalio this year in March, and he said we'd be entering not a recession, but a global depression. I'm not sure that's the most cheery way to start a podcast episode. But how do you feel about this statement when doing an analysis on the year that's been for the economy? Howard, why don't we start with you?

Well, I know you're going to ask a lot of macro questions. And before I start answering, I'm going to say for myself, but I think probably also for Bill, that macro predictions are very hard to make. And I don't think either of us bases our investment decisions on macro forecasts. That's not a way to have a good batting average. With that disclaimer out of the way, first of all, nine months ago, a global depression was absolutely a possibility. With most of the developed countries, certainly outside of Asia, shutting down their whole economies in order to limit contacts and bend the curve, you know, demand would have gone to zero. Incomes would have gone to zero for many people and many businesses.

And, you know, global trade would have, could have gone very, very badly. You know, I remember around, let's say, March 18th, absolutely considering the possibility of a global depression. But thank God the Fed and the Treasury did what they did in this country, central banks elsewhere. And clearly, we've had a very painful and precipitous but brief recession.

Bill, how do you feel being on the slightly earlier stage of the spectrum and on that end of the market? How do you feel with that quote in mind?

Well, Harry, when you told us you were going to ask macro questions, I was thrilled to know that Howard would be on the call because he obviously has way more expertise in these areas. Funny story, about two or three years ago, when interest rates were heading into unprecedented territory, I told my partners I needed to talk to some macro experts. And I did everything I could to find my way to Howard and Stan Druckenmiller, who I talked to for a while.

And I was thrilled to get to meet both of them.

I remember Howard asked me a lot about the venture industry for about 20 minutes. And then he said, "Oh, that's a really bad business." And I said, "Why?" And he said, "It'll be inherently cyclical due to the way the fund flows were." And it struck me; it really landed for me. And there's an old saying in venture capital that the way to protect yourself against the downside is to enjoy every last bit of the upside. And to Howard's point about adjusting your game, if you were an LP that had been exposed to venture capital for the past 30 years, it'd be interesting. You would notice that some of your biggest gains were the years right prior to the resets in, like, '01 and '09. And so there's no such thing as conservative venture.

You don't take your cards off the table and maximize return. It never works. And so you're forced to—you know, I've used this phrase before—but play the game on the field. We have interest rates at unprecedented lows. And, you know, macro is just so near impossible to talk about, but clearly the one thing that's different from the past 100, 200 years are near-zero interest rates, maybe below-zero real rates across the globe. And, you know, technically your DCF model just blows up. It doesn't work, right? It doesn't solve. And at the very least, it encourages massive speculation as people search for asset categories for yield. And I think we're seeing that. I think we're seeing quite a bit of speculation.

I mean, the thing that concerns me on the interest rate element, that is, like you said on the show before last time, one of your biggest challenges was the oversupply of capital. When I look at the interest rate environment today and for the next two to three, four years, I don't see it going anywhere. And so my question to you is, given that interest rate environment and the existing oversupply of capital, how do you think that industry shapes out in terms of capital supply?

I'll tell you how it affects the tech industry, and then I'd love to hear Howard's thoughts on what would cause rates to move in a different direction. But right now, you have remarkable access to capital, and then you have another thing, which is Wall Street is telling you they care way more about growth than profitability. And we're seeing, you know, not since 2001, we're seeing unprecedented valuations. You know, these SaaS companies, 20, 30, 40 times revenue, which hasn't happened since 1999, 2000. And so when Wall Street's telling you that and capital's quite available, you're going to see more venture capitalists and late-stage investors kind of force companies into a spend-to-win kind of mindset.

And I see it in our portfolio. Our best companies will be approached two months after we put money in with people trying to put more money in. The co-investors that we're investing with will try and do preemptive rounds like six months after they invest, half the time before. There's just—entrepreneurs are being told, 'Take the capital, take the capital, take the capital,' in a way that's, you know, it's pretty insane. Now, some people have figured out models where they can use capital to grow faster. And so you look at some of the SaaS companies, you look at like Snowflake and massive investment in sales growth, you know, delivering to the Street the type of metrics that make them believe you'll one day get to that end game, but with the foot fully on the pedal, right?

Just almost, you know, to the floor. And that's what's going on. And that'll keep going on until there's a change.

Before we discuss kind of the interest rate changes and what could lead to that, how do you advise founders when they're—I like this term—being foie gras'd in terms of capital supply? How do you advise founders? Because you have, you know, Reid Hoffman on the one hand, he says, when money's there, take it. And then you also have many, many cases where the oversupply has caused a huge amount of structural problems. How does one advise founders? I'm often struck and challenged by that.

Well, unfortunately, you are forced to play the game on the field. So if you act conservatively and your two competitors act aggressively, you will be left behind. And it's not fun necessarily if you're conservatively minded and you've been taught, 'Oh, we need to make every unit profitable,' and all this kind of stuff. Now, the flip side of it is we've seen companies like Amazon, who for 10 years were doubted as if they'd ever be profitable, and now they're spitting off massive cash. And the bigger you get, the network effects start to play. They added in advertising, right? That's a 100% gross margin business. And all of a sudden, cash flow is coming out of their ears. There is a rational reason to believe, 'Oh, if I can get to massive scale, then I'm going to be able to turn on the cash flow...

...cash flow engines. But certainly, when the world is rewarding aggressive growth, don't care about profitability, you're going to have a mix of end results. You're going to have some of the Snowflakes and Amazons, and you're going to end up with a lot of wrecks, some massive wrecks. You're going to have some of both.

With that in mind, and thinking about the interest rate changes, Howard, I'd love to hear your thoughts. What do you think would cause interest rate environments to change, given where they are today being rock bottom?

Yeah, Harry, the Fed says it's going to keep rates low until we get progress on its growth and inflation targets. And the purpose of low rates is to encourage economic activity. And the central banks only employ high rates when the economic activity is too hot, meaning that inflation is rising too much. It's assumed that there's a connection there. So until we get growth above 2.5% or 3%, and certainly until we get inflation above 2%, I don't think you'll be seeing any increases in the Fed funds rate coming from the central bank. Now, the other question is, can we get interest rate increases from another source? That is something called the economy or the market. And I think the best chance for an increase in inflation and interest rates would be an increase in inflation.

And whether the Fed wants to raise rates or not, if you get inflation at 3% a year, nobody wants to lend money out at 1% a year, because what they're doing is locking in a 2% a year loss of purchasing power. And the market would demand positive real rates. But inflation is extremely, the word I use is mysterious. Nobody knows where it comes from. We lived through a terrible decade in the '70s when the U.S. had a high rate of inflation, and nobody knew how to stop it until Volcker came along. But the point is, oh, and I should mention that Japan and Europe, for example, have been trying to accomplish 2% inflation for years, and they can't make it happen. So it's mysterious, and it has a big psychological component.

I'm not sure we fully understand where it came from in the '70s. I'm not sure we fully understand where it's going to come from next time if it does.

Can I ask, on the element of inflation, when we think about the government stimulus packages and the quantitative easing that we've seen, how do you think that plays into the theory of rising inflation rates?

The canon of economics says that if the government runs deficits and otherwise stimulates the economy, prints money, as we say, that will add to the economic vigor and eventually bring on inflation. But our government's been running deficits since the Global Financial Crisis, and this was the slowest recovery in post-war history, and it didn't kindle any inflation. And I'll add one other thing. For roughly 60 years, the creation of inflation was believed to be tied to something called the Phillips Curve, which was taken to mean that the lower the rate of unemployment, the higher the rate of inflation. That is to say, when more and more people got employed, that would take the slack out of the economy, allowing workers to negotiate higher wages and bringing on inflation.

As of January, the unemployment rate in this country was 3.5%, the lowest in 50 years, and still no inflation. So now I think the Phillips Curve is being disregarded. As I say, it's mysterious. And I wouldn't want to put a bet on what the inflation will be in 2024.

Totally with you there. On the employment element, I'm intrigued because we obviously saw huge, huge spikes in terms of unemployment as COVID progressed. How do you think about kind of employment and labor markets as we look forward to 2021? And I guess, do you feel that the Fed have done enough in terms of stimulating labor employment markets?

I think the Fed has done a lot. They cut the rates to zero, and they're buying $120 billion of bonds a month. And that's a lot. I think that Powell's recent protestations mean that they think they've done about all they can or should, and that they need fiscal stimulus, which it looks like we may be getting. But I think that, you know, a lot depends on the vaccine and the cases and the surge in cases. But, you know, most people believe that the vaccine will be available to the frontline workers in the first quarter and possibly to the elderly. And then it'll go wider scale and that we may have enough people vaccinated to reach herd immunity sometime in the third quarter. I personally believe that when we get to herd immunity and when the number of cases falls radically, by which I mean a few hundred a day or so, I think that we'll have a very good recovery in the economy and in employment.

Longer term, I'm worried about employment, mainly because of the stuff Bill does. His companies are replacing labor with computing power, to over-exaggerate. I worry about where people whose main asset is a strong back are going to get jobs in the longer-term future.

And what would you respond? Specifically about labor. I think as a tech investor, you've heard this argument over and over again, so you get drawn into it. And there certainly are data points. Someone published a year or two ago, there's more bank tellers today than there was before the ATM machine came. And the willingness to kind of, you know, think that jobs are just going to go away like that. 'Oh, autonomous driving is going to get rid of every Uber driver.' You know, if that happens within 30 years, I'll be shocked. And so I do think, you know, there is a real issue in the U.S. in particular that we aren't celebrating the job types that we know are going to be available in the future. And in fact, we may in fact be vilifying them.

Specifically around tech and programming and whatnot. We have in the U.S. for a long time had a societal bias around stereotypes like 'a nerd.' And when you consider that it is the job type that should be most sought after, it's pretty ridiculous. In China, if you live in a third-tier city and your mother's a rice farmer, she knows she wants you to be an engineer and she'll tell you that. And you'll spend everything you can do to try and get to that place. And they have like, what, 35 percent of the college graduates in China are engineers. The number in the U.S. is like five. And it's partially due to how we've grown our economic system. But it's really bizarre to me that we aren't screaming from the top of our lungs at every child:

"Learn to program, learn to program, learn to program," because you can make 50 to 100 grand coming out of undergrad for those job types. But we don't do a good job of that in the U.S. for reasons I don't fully understand.

Can I ask, what do you think we could do to change that? Is that like a societal, like psychological upbringing change? Or is it actually like a marketing and market positioning change?

I think part of it is a fascination with the education curriculum that we imagined, probably in your country, Harry, not here, that we just borrowed, that's still kind of the core thesis for how you educate a child. And, you know, it still exists here pretty religiously. The same people that will shout up and down, 'Oh, my God, tech's going to take away all the jobs,' are the ones that will pound the table for teaching Latin and history above programming. They're the same people who believe in that education process. So we can't all be Plato.

Before we kind of drill down into kind of the markets themselves, and while we're still on kind of the theme that we mentioned earlier of kind of excessive liquidity, Howard, that was a question that over 20 people emailed in. And it was, you know, with the lack of distressed debt and the massive liquidity that we just discussed, how does distressed debt investing change in a world of innovation and maybe more capital-light businesses?

Well, Harry, as you know, Oaktree has been a leader in distressed debt investing since 1988. We have a good average return over those 32 years. It was moderate other than in about six years. And in six years, we had financial crises: '90-'91, '01-'02, '08-'09. And the funds formed in those six years had very, very high rates of return and pulled up the average considerably. We didn't make money because we were buying distressed debt. We made money because we were able to buy things cheaper than we should have been able. And, you know, basically in many of the markets, not necessarily Bill's, but in many of the markets, you make the big money when you do the things that other people aren't willing to do.

And all you had to do was buy debt in the years I mentioned, and you would have made a lot of money. Now, if we did it skillfully, maybe we made a little more. But buying underpriced assets is one great way to make money. Where does the underpricing come from? If we want to buy things for less than their worth, that makes perfect sense. But the question is, who wants to sell things for less than their worth? What are the conditions that cause people to sell things for less than they're worth? Fear, panic, urgency, demands for capital that you can't meet, and that kind of thing. And we were heading that way in the current episode. In March, the middle two weeks of March, the 9th to the 23rd, were very productive for us in terms of producing bargains.

But then when the Fed amped up its response in the week of March 23rd, people took so much comfort from the Fed's activities. They became so optimistic about a recovery. They were convinced that the Fed was there as the lender of last resort, that the Greenspan and the Geithner put had been restored, and the Fed and the Treasury would keep businesses from going out of business and people from missing their paychecks. There stopped being any fear. There stopped being anybody who wanted out. People, FOMO, fear of missing out, took over from fear of losing money. And that's the way it's been since April. And that's one of the factors contributing to the massive cash flows that Bill's industry is experiencing.

Well, for us, what it means is there are no urgent sellers. There have been no significant margin calls or meltdowns like we've seen in past crises. The buying opportunity just hasn't been there. We're doing a decent job. We think we're putting together a good portfolio. We think our returns will be very attractive relative to the low overall level of interest rates, but nothing like in the past.

I do have to ask, speaking of that and speaking of the environment, one thing that just honestly, I struggle to get my head around is when you look at the public markets and you see Airbnb hitting 100 billion, you see DoorDash soaring at the rates that it has done. I just have to ask you, it often doesn't seem to correlate. How do you evaluate the state of the public markets today, companies IPOing, given what we've discussed in some ways in terms of the fragility of the macro economy and the situation that we're in? How do you think about and evaluate the public market performance today?

Well, number one, everybody wants to know, if we have all these problems with the disease, how can stock prices be at an all-time high? That's the main thing. And what I would say is, number one, for complex reasons, the prices of stocks and other assets are highly influenced by the level of interest rates. The lower the interest rates, the higher the asset price is justified. We have the lowest interest rates in history. That justifies, for example, the highest P-E ratios in history. So when you look and you see that the average P-E ratio in the post-war period has been 16, and today we're in the 26 or 7 region, you say, well, that's tremendously overpriced. But it makes perfect sense relative to the level of interest rates.

Now, we spent a lot of time before talking about inflation and interest rates. If interest rates go up, prices should be expected to go down. But today's stock prices for technology companies, for example, I think are not inconsistent with today's level of interest rates. And then the other thing is great tech companies like Amazon and Microsoft and so forth were icebreakers. They led the way by performing extremely well coming out of the pandemic. They're up substantially for the year, while non-tech is not. Their great relative performance kind of cleared the way for phenomena like you're seeing in the IPO market. The fact that I think that Amazon's valuation may be justified doesn't mean that an IPO that comes out and doubles on the first day and the day after that is necessarily justified.

But it's very hard if you're not an expert, which I'm certainly not, it's very hard to assess the fairness of these valuations.

I wanted to respond to that. It appeared that we could be headed into a very difficult situation. And then the Fed's action did do something that caused a fix to the market that didn't happen in '01 and '09, which is capital never got scarce. In '01 and '09, there was a run on the bank and everyone got afraid. And the money supply can shrink very quickly when people stop. Instead of lending it out, they start hoarding it and bringing it in. And people thought Morgan Stanley was going under in 2009. And because the Fed hit so quick this time, money never got pulled in. And as a result, you had plenty of speculators sitting there. Howard talked about their activity. We actually invested in three public stocks in those two weeks, which is something we don't even do normally for the same reason.

And I think everyone that had been around in '09 and '01 were like, 'Well, let's jump on the best opportunities.' There was so much of that that it just popped right back. And we've been there ever since. That happened, and they could call it a success. There are potential long-term consequences of just flooding the market with free money every time there's a negative ramification. And that's something we won't know for a very, very, very long time. Anyway, on to the market. Yeah, we've moved to a very glass-half-full world, especially around tech. I think one of the things that happens because of what Howard said about the success of whether it's Facebook or Google or Amazon, the winners in tech compound quite a bit.

The network effects are real. People are starting to figure that out. And so the best thing you could have possibly done in a portfolio 20 years ago is just to buy the leading tech players and never think about selling them, just put them away. And because people have seen that now, they think that they can be rather dismissive of valuation, which is real. If you run the math, things can grow for a long time. But I do think the speculation can go too far. As you know, Harry, I think we have a remarkably flawed IPO process here that creates scenarios that cause these pops. And what we're seeing this year is unprecedented on that front. And so I wouldn't put too much on an Airbnb or DoorDash valuation. I'd wait until you get three to six months past the lockup release when you have full liquidity.

Today's prices are quite speculative. And back in 2000, I did a speech at a conference where I said, your stock will eventually trade at or below 30 times earnings. And I went five years into the future and put a 30 PE on whatever you thought your long-term operating model was and backed into the CAGR. And maybe because of interest rates, that number is 50 times earnings or 30 times cash flow or whatever. But eventually, you will need to own up to one. And for some of these companies, that's going to be hard. You're going to have implied CAGRs of 100% for 10 years just to be able to earn your way into the valuation.

Totally with you in terms of earning your way into it. You mentioned the nature of compounding and the invincibility in some respects once you reach certain scales or appeared invincibility. I'm interested, Howard, I don't quite remember the nifty 50. It was a little bit before my time. But when you look back at the nifty 50 and the ensuing years there and then this crop of incumbent tech companies, are there any lessons or points that really stick out to you when you compare the two classes?

The first lesson comes as I winced when you use the word invincibility. Every once in a while, there's what we call a bubble. And a bubble is a point in time when psychology takes off and gets free of its moorings. And people look at a certain asset class, and usually there's a grain of truth beneath it, where people say, well, that's invincible. It can only go up. And the key four words, no price too high. And even when things have great potential, you still have to figure out, as Bill indicated in his last answer, what is it worth? Now, with a company that has the potential to grow at 20 or 30 percent for 20 or 30 years, it's hard to put a price on it. But you have to have some relation to reason if possible.

But when people start saying no price too high, then the world tends to get in trouble, as they have several times in the past. my life. In the nifty 50, which started in the 60s, people said that these are the greatest companies in the world. Nothing bad can ever happen to them. And as a consequence, there's no price too high. They got to very high prices, from which they had a vertiginous fall. One of the crucial elements in a bubble is a high degree of confidence. And when that confidence is withdrawn, then the prices can collapse. as they did in 1974. And then the other thing is, number one, prices were too high. Now, if you bought the winners and you held them for the next 50 years, you made a lot of money.

And a lot of them did very well. But the other thing is, when you say invincibility, a lot of those invincible companies in the nifty 50 proved to be invincible. Kodak and Polaroid lost their market. IBM and Xerox got killed by competitors. AIG went bankrupt in the global financial crisis. And My favorite, simplicity patterns. You know, you don't see that many women sewing their own clothes anymore. And simplicity went the way of the buggy whip. So it's very important to distinguish optimism from a total lack of discernment.

I do want to, before we move into the quickfire, slightly look forward. And, you know, as we look to the kind of next few years, you know, when we look with a more global mindset and think about the effects of coronavirus, you know, in a lot of ways, we're seeing the retreat from globalization. I guess my question to you, and I'll leave it open to whoever wants to take this one first, but it's like, what do you think are the core impacts of this retreat from globalization in your mind?

Well, I think, number one, that economic growth slows down. You have to realize that a good part of the benefit of globalization is that it permits each person in the economy to do the thing they're best at. You know, if you go back a few hundred years, people grew their own food and made their own clothes and made their own shoes and made their own tools, and so forth. But then we started to specialize, and I would make the food and you would make the tools, because you were better at tools and I was better at food. And then we would exchange. But the total welfare of society was improved by this specialization. Globalization kind of reverses that. Our country has benefited enormously by being able to buy, for example,

cheap T-shirts made in China. If we close our borders to China, then we have to have T-shirts made in the United States, which will probably cost twice as much. So I think that globalization has been incredible for the world, and I hate to see it decline.

Bill, how do you feel on this point?

Totally agree. It's all about comparative advantage. There is probably no chance we can make a $30 microwave in the U.S., but I'm 100% sure we shouldn't make a $30 microwave in the U.S. And that raises the standard of living for all the U.S. citizens because their purchasing power is so much more powerful. And, you know, we didn't make this up like Adam Smith did a long, long time ago. But it's bad, a lack of globalization. I would say one thing that flows more freely than goods is work. And so the fluidity at which jobs, especially these programming jobs that I've been talking about, can move around the globe is quite high. We're an investor in Upwork, which is a company that helps facilitate that type of thing.

And that's super powerful. Almost every company we back that gets over 100 employees is looking to move some of their engineering talent pools somewhere else. And so that's pretty powerful that that can happen. And good for the globe. Maybe not good for the U.S., but good for the globe.

We've mentioned China in terms of their production capabilities there, and we mentioned Asia in terms of the engineering roles. When we think about shifting powers themselves, how do we feel in terms of China being ready for leadership first?

I would say that China as a country doesn't have as much experience as we do in the modern world, but they're sure gaining fast. They sure are organized and purposeful.

You know, Harry, they've already started, right? They've already started being a lender of capital across the globe, heavy in South America. So it's not like they're just beginning the journey outside of their borders. The second thing I would say is, if you were to ask me what I worry about with regard to, say, American capital, a lot of it, and from my point of view, is regulatory capture, like the things that prevent more innovation and I think make income inequality worse is the stagnation caused by the red tape of Washington, our healthcare, for example, but our financial system as well. There's a benefit to China. If you have a benevolent dictatorship attached to capitalism, you can actually fix problems faster and cause capitalism to, I think, achieve what it's meant to achieve in a much more efficient way than where we are in the U.S.

I would love to move into a quick-fire round there. So as you both know, I say a short statement, you give me your immediate thoughts. If we start on everyone's had a lot more free time than maybe normal or time spent at home, so to speak. In terms of favorite books, yours is actually sitting right here. I was going to bring it up and show you, but I thought I'd probably be a bit too fanboyish of me. So I'll just ask instead, Howard, we can start with you. What book would you most recommend that people read while they have more time at home?

You know, in the middle of the pandemic, we had the George Floyd incident. And I think many of us have become more sensitive to considerations of race and inequality and so forth. I spent some time reading the autobiography of John Lewis. John Lewis was a congressman, a great leader in the civil rights movement, and passed away this year. So his passing, plus George Floyd, made it a great time to read that book. And I found it very instructive, inspirational.

What would yours be? You know, a book that I think touches on a number of the topics we hit on today is Matt Ridley's new book, How Innovation Works. And if you're going to read that one, you might read The Rational Optimist, which he wrote before. And in many ways, you know, one's a sequel of the other. But Matt has this uncanny ability to look across time; like, the book, you know, visualizes 100-year, 200-year time windows. I think that there is a real truth to the fact that capitalism, free trade, globalization unlocks, you know, massive increases in standard of living, you know, that happening in China the most over the past 30 years. And I fear that some of the policy reactions to some of the hardships of our time are people that want to take the exact opposite approach rather than enable innovation.

They want to lock it down and prevent it from happening, which I think will have catastrophic impact to the standard of living.

Yeah. I also recommend reading anything Howard's ever written. Bill, you know, when I was at boarding school, I used to be under the duvet at night with a torch, like a head torch, reading his memos. It's what inspired my love of finance. But Bill, I have to ask, how are SPACs going to change venture investing in a quick-fire round?

Yeah. For right now, it just makes things more risk-seeking. It's just more capital, more ways to get public. To date, a lot of the companies that have gone out via SPAC are more speculative than ones that would take a traditional IPO route. And you could measure that by their level of profitability or their level of immaturity from a revenue standpoint, some of which have not. in the EV space. No revenue that is when they've gone out. So it increases speculation. I believe a large part of why it's possible is because of the problems with the IPO market. They create just a massive umbrella for other things.

But it's more money, more money out there chasing more opportunity. There we go. Howard, in one of your memos you wrote, and I love this, "You can't predict, you can prepare." How do you think about that in today's context?

We never know what the future holds. Mark Twain said, "It ain't what you don't know that gets you into trouble. It's what you know for certain that just ain't true." Given the uncertainty that surrounds the future by definition, the big mistake is to assume you know what the future holds and bet heavily on it and be wrong. So no sentence that starts with "I don't know, but..." or "I could be wrong, but..." ever got anybody into big trouble. We don't know where we're going, but we should know where we are. And if where we are is elevated in the cycle and precarious, and if the economic recovery is elderly, then we should—that's what enables us to prepare. And I think that the market conditions in 2019 and the prior years made us vulnerable to an economic shock like the pandemic produced.

And when it came along, it took a toll. Fortunately, the Fed and Treasury responded as well as they did.

And then this is for both of you, and the ultimate one. And what's something that really keeps you up at night continuously these days?

I'll go first. If anything, I'll be consistent more than anything. In the US, I really worry about regulatory capture, Harry, on both sides of the aisle. So I think a lot of people see the corporate stuff, right? Citizens United, and you see it in our healthcare system. You see it in how the healthcare dollars are being distributed around COVID. You, you see it in the financial world, like the Fed's trying to push through FedNow, which would be an incredible alternative to ACH. We have three days before you can transfer money here. You guys have Faster Payments, which the government pushed through 15 years ago. But we can't get our shit together because if you're a senator or congressman with a big bank in your region, you're standing up in front of the Finance Committee trying to block FedNow every single time.

And Howard mentioned George Floyd—or, he's not a gentleman, the idiot that did that shouldn't have been on the force, but the police union protected them. The police unions all over the country have fought reform and protected the bad actors that are in the police force. And I think if you're a Democrat, you see the corporate regulatory capture clearly, but you don't see everything the California teachers' union's doing to ruin education in California. And then on the opposite side, if you're a conservative, you see all that stuff, but you don't see the corporate side. And the truth of the matter is Washington's for sale. And we massively need some kind of reform. I don't know if it's at all possible, but that's something I'm really worried about from the United States.

Harry, I have to agree with Bill that the real worries are social and political. The economy is going to be fine and the markets are going to be fine. But I worry about the schism in the country, that the two sides, you know, not only do they disagree, but they hate each other. And each side uses a totally different way of looking at life and talking about it. And right now they can't talk. I spend most of my political firepower on an organization called No Labels, the sole purpose of which is to encourage bipartisanship. You can't rely on veto-proof majorities. You have to work bipartisan cooperation and compromise in order to solve the problems of our society. Bill made a very telling comment when he talked about the efficiency of a benevolent despot.

China gets things done much better than we do. We have a hard time moving any important legislation.

By the way, it's one of the reasons why India has failed to live up to expectations from a population standpoint, because they've had a tribal democracy for a very long time that causes a lot of the same problems.

And then I want to finish today on that. I'm an optimistic chap. So I want to finish today on: when you look forward and thinking of kind of hope and positivity, what sources give you reason to be hopeful and optimistic looking forward?

Well, I think that eventually we find the solution in America, maybe after we've exhausted all the other possibilities. But we've always so-called muddled through. Hopefully, we always will. Hopefully, there'll be a swing back from this bipartisan divide. And hopefully, the future is upward. Of course, the other thing is the technology is making our lives much better all the time in many ways. Imagine if this pandemic had happened five years ago and we didn't have Zoom. Absolutely.

Yeah. So, Harry, this one's easy for me. We talked earlier about the power of comparative advantage and why free trade is good for everyone in society. The technology that's out there today is allowing for people to be matched with the very best opportunity for their skill set at that given moment in time. At a micro scale, that's things like Uber, where if I have three hours to kill and I need some supplementary income, all of a sudden I can just log into my app and all of a sudden I'm making money. Uber Eats as well. But as I look forward, you know, and, and what happened with the pandemic and Zoom, you know, a number of our startups had founders that were like, 'I got to have an office. I have to have people here.'

And while their engineering staff was working from home, they had that key hire as an iOS developer that they couldn't get, you know, they were struggling with. And someone said, 'Well, shit, let's just hire them remote.' All of a sudden now, I'm fishing from a pool of candidates for this job that just increased by what? 10,000x, you know, like insane all of a sudden. And so I think in the future, we're going to have this massive ability to match whatever your comparative advantage is as an individual with way more financial opportunities and way more ways and means of making money than you had in the past. It's almost like Tinder for your experience set or something like that. And I, I just think it's huge.

I think it's going to be massive for the world.

Listen, I want to say to both of you, I can't thank you enough for doing this. As I said, I've wanted to do this one for a very, very long time since I've both had you on the show independently. So thank you both so much for joining me, and I really appreciate it.

Thank you for putting us together, Harry.

Harry, I do think you're, you know, the most energetic, optimistic person in your field.

I mean, my word, that was just such a special show for me to do. I've wanted to do that one for a very long time with both Howard and Bill. If you'd like to see more from us behind the scenes, you can on Instagram @hstebbings1996 with two B's. I always love to see you there. But before we leave you today, in 2021, every business is a global business. But how do you pay your global team and comply with international labor laws? Remote handles payroll, benefits to help companies of all sizes to pay and manage full-time and contract workers all over the world, no matter where your team lives and works. Remote's global employment solutions keep your team, your finances, and your intellectual property secure.

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As always, I so appreciate your support, and I can't wait to bring you an incredible episode this coming Thursday.