Fed Up! Q & A
Interview with Colin Lancaster on Fed Up!
Q: Tell me about the book…
A: Well, a bit of a cliche but a labor of love. Something I have always wanted to accomplish and was motivated to do by my daughter who is the real writer in the family. I have always been an avid reader and have really admired people like Michael Lewis.
For me, I wanted to capture this extraordinary period of time that we have just lived through and I wanted to do it through the eyes of a macro trader, which is what I know best. For me, to be able to capture this moment in time - and to be able to do it through the frenetic life of a trader during a pandemic - was an incredible challenge. Markets are always alive, but to be able to capture the heartbeat of markets during a period of isolation, quarantine, and fear was really incredible.
Q: It seems to me that it is a bit more than a story about the pandemic. You raise and discuss a number of important topics.
A: I wanted to use the backdrop of the markets and the pandemic to also address some incredibly important issues:
I wanted to highlight the excesses in our current world and, what I would consider, to be a new era of greed. Or as the main character - Boss would say - "This is much more than Greed is Good. This is steal as much as you can and if you are wrong we will bail you out…."
We are in a world where fewer and fewer take more and more and millions tumbling out of middle class:
The role of current policies are magnifying these trends
All of this is just not sustainable
The wealth inequality issue is almost always framed as a political outcome. The book tries to make the case that, underneath it all, it's very much a monetary phenomenon. Since the GFC, the Fed has pulled every lever imaginable (and then some) to improve the plight of the average American...but the benefits have accrued overwhelmingly to the upper class - i.e. those who own assets.
There are no adults left in DC; all spending decisions are about appealing to voters vs. ROI. This has always been the case to a degree. But we're now adding the Fed as a willing enabler as they buy the debt being created in DC. It's a potentially toxic combination. This type of symbiosis is possible because the US continues to enjoy reserve currency status...but that is not guaranteed in perpetuity.
When the price of money is free/near-free, resources get misallocated. Bad ideas get funded due to a lack of options. So far, the price of money (i.e. interest rate) hasn't risen enough to expose most of these misallocations...but when there's an actual competition for capital, watch out.
Q: On that subject, you are able to talk about a number of complicated topics in a refreshing way, such as Quantitative Easing, or the role of Central Bank in the modern economy. Was this intentional?
A: Definitely. If I called the book “The History of Quantitative Easing” no one would read it except for geeks like me. I wanted to address these topics in a more user-friendly manner so that people could understand their significance while still enjoying the story.
Q: Do you disagree with current policy?
A: At the end of the day, low rates are essentially a tax on traditional savers for the benefit of borrowers. We are at a stage now where, in my opinion, QE only props up asset values. There is no credit expansion. No real benefit for real economy. The middle class gets gutted due to lower wages and a hit on savings.
Q: So you would say that this has fueled the wealth inequality that we have seen in recent years?
A: Yes, without a doubt. It has fueled wealth inequality, the rise in populism, and the decline in social mobility (i.e., the Death of the American Dream).
Q: What will we try next?
A: Well, I think that we are in the midst of a significant - and large - shift in policy. The Keynes school ruled from 1940s to 1970s (management of business cycle through deficit spending and money supply). However, the problems with high inflation and high unemployment in the 1980s caused us to shift to the "monetarist era" (since inflation could run wild there was a shift to focus on low inflation to improve living conditions). In the 1990s and 2000s we saw a combination of both. But, this is now over. In some ways, we are in a period like the 1970s but for a different reason, inflation and employment not behaving as expected (both too low). Interest rates needed to generate requisite demand need to be negative. Now, we are in a new era. Central banks have decided that they need to find new tools to manage the cycle. We are turning back to spending and money supply.
Q: How do we fix these things?
A: We need policy that doesn’t skew outcomes. Spending and debt accumulation that doesn’t lever our futures. Spending that has a ROI attached to it. Can’t pursue QE as a policy when it does not stimulate the economy. Taxes need to tax Labor and Capital in equal ways. We need to fix education. People can’t be left behind.
Q: You quote President Trump in the book. Is the book a political statement?
A: No. I consider it to be 100% politically neutral. At the end of the day the larger policies that I am concerned with have existed under both Republicans and Democrats. Trillion dollar deficits are the new norm. Budget deficits at 5% of GDP are expected. That is insane. How can it be that neither party discusses spending or ensuring that we are getting an adequate return on that spending?
Q: Are the characters real?
A: Two key characters - Lifecoach and the Rabbi - are based on close personal friends. Lifecoach really does like Hermès and she knows the bouncers at Drais!
Q: You mention a number of the “icons” of the macro and investing world in the book.
A: Yes, I would say that I wanted to pay tribute to many of the people who have influenced me over the course of my career. I guess you can call it a “tip of my hat” to some of the greats. The book tries to curate and sprinkle in some of their pearls of trading wisdom in hopes of being instructional to the aspiring macro trader.
Q: Is The Boss based on your life?
A: Well, he does share my background. I would hope that people that know me would not think that I am quite as despicable as The Boss. But, this was intentional. At the end of the day I wanted him to be a pretty despicable character in a lot of ways. He is cut-throat, hypocritical with his team, motivated by money…. He likes to talk about wealth inequality and social injustice but doesn’t really care about these things (particularly as soon as he starts making money). But, my guess is that some people will admire him. This is similar to Michael Lewis and Liar’s Poker or Gordon Gekko in the movie Wall Street (both thought that they were exposing the sins of Wall Street; instead people were attracted to these descriptions of the people involved and wanted to go work on Wall Street!).
Q: I love one line in your book in particular, "We are not paid to do anything productive for society. We are paid to turn a pile of money into a bigger pile of money.” Is that how you view your role?
A: In many respects, yes.
Q: Does your wife hate you in real life?
A: Well, I hope not. This part is fiction. My real wife is Tia (not Carolyn) and we have 3 daughters (not 2 in the story). And, importantly, she does like me!! But, this part of the fiction helped me show the “holes” in Boss’ life (i.e., some of the emptiness of his personal relationships). I see a lot of people like this in my business. It highlights that people who are driven to excel and have a focus on financial rewards have a huge propensity to underinvest in their families and over-invest in their careers and egos.
Q: What is next for you?
A: Well, a couple of things. I have another book that is nearly complete. It is a history of macro investing - much more hardcore macro! And, markets continue to keep me quite busy!!!
