Colin Lancaster: We’re Stuck With A Bastardised Version Of Capitalism

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ValueWalk’s Raul Panganiban interviews Colin Lancaster, a 25-year Wall Street Professional. In this part, they discuss his recent book Fed Up!, being stuck with a bastardised version of capitalism, monetary policy and bailouts, and the initial thoughts about the coronavirus.

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Q2 2021 hedge fund letters, conferences and more

We Broke Capitalism, And Now We're Stuck With A Bastardised Version Of It

Yeah, this is one of the important pieces of the book that is more than just Reek. recounting what was happening. But I do really worried that that some of the the devices that we have relied on for the better part of 20 years now have have really reached an end point and quantitative easing is probably the largest. Your quantitative easing to me is reached a point of diminishing returns where it only really props up passing values, it doesn't have a lot of benefits to the real economy. And that is one of the results that we've seen this great rise in wealth inequality and income inequality. And, you know, this is simply a period where fewer and fewer take more and more. And, and that to me is given rise to what we've seen to a more polarised world the rise of populism in, in, in politics. In You know, this is something that the Federal Reserve itself studies, you know, they call it the superstar economy, and to try to understand what this means long term. But to me that the long term impacts are, are very negative, because whenever wealth distribution is reaching these types of inflection points, which is very similar to the Gilded Age period, to take us back 100 years or so, it usually results in really bad things. And I do worry about that. And I worry about the rule that monetary policy devices such as quantitative easing, have continued to exacerbate these issues.

The Boss Losing His Cool When Talking About The Monetary Policy And Bailouts

Yeah, so two things on that. The first is, I very much agree with that quote, with which is I think where we've gotten to is a metastasized pile of good intentions, we, the central banks, you know, the the former chairs of the central banks and the Fed in particular, have always had very good intentions in terms of adopting these policies that they've wanted to, to, to widen wealth inequality. But we are now in a period where they've essentially gone all in there, there's no way for them to ever really pull back or, it's very hard to imagine now without, you know, a very, very significant recession without a very significant market crash. And so you'll like with any drug, you know, you start with a little and you feel pretty good. And then over years, it just ravishes you in, in your body. And I feel that QE has been, it's been almost as drug like substance in a very similar way.

And to the second point about, you know, seeing this, but also needing to play the game, the way the game is played, in that this is something that that I really admire, from you know, some of the real icons of the business, you know, some of the Great's of, you know, the macro investing world, and I'll throw it at a particular name to you. But you know, Stan Druckenmiller, who is one of my favourites of all time, you know, I love it when he's interviewed. And I just think he is this amazing style to him. But, you know, he himself has been critical of Fed policy for some time. But that hasn't stopped him from from, you know, really navigating these markets well, and I think it's a really important part for any investor, because you can't allow your own personal beliefs as to what's right or wrong. to cloud your judgement in the decisions you're making. From an investment process perspective, you have to put those aside. And you have to learn to play the game the way the hands are dealt, and to learn the best way to navigate markets. And you know, people like him are able to do that incredibly well. They don't get caught up in their own minds and say, Oh, well, the Fed is doing this. So it's a real disaster because I don't agree with their policies, and know that they're incredibly pragmatic. And they say, what does this mean for market performance? And how do I profit from how the game is being played?

Watching Issues Unfold And Then Making Money Off Of It

No, look, I, you know, for me, you know, having been within this hedge fund universe for 25 years and in the firms that I've always worked with, worked for, have had this unique mandate, which is, you know, to to, you know, produce absolute returns, which is, no matter what the markets are doing, you're going to provide a positive return for investors, you know, it, like in baseball, they say that hitting a baseball is the hardest thing to do in sports. And I think that providing absolute returns in every market environment is the hardest thing to do in investing. And, you know, people that that I've been able to work for, and, and people who have worked for me have all shared that mandate, and that that challenge, but but I think it's really important, because at the end of the day, you always have to be incredibly pragmatic about navigating markets and understand these trends and react to them, before they happen. In ideal to me, it all comes down to being you know, an exceptional decision maker always having this very crisp ability to make great decisions, and never get too caught up in your own views and being able to admit when you're wrong, and to cut bait very quickly.

What Was The Initial Thoughts About The Virus?

I think this period was was was really unique in that. At the end of the day, the markets had time to prepare for what we ended up seeing that the markets were complacent on this issue, you know, at the end of the day, the S&P 500 is, you know, very close to a 35% Peak to trough decline in the month of March, which is just extraordinary, you know, we, we've never seen the level of volatility that we've saw in that period, essentially, you had a period of like, the global financial crisis in 2008, which, you know, took eight or nine months to play out in it all played out in a period of three weeks, you know, it was just so incredibly condensed. But the information was out there, I think what the markets really didn't understand was this exponential growth of the virus, they really downplayed that thinking that it could be kept under control. But anything that has that exponential type of growth profile, you know, can be, you know, just the numbers, the magnitude of it, you know, it always can get so big so quickly, and people always underestimate that, and they certainly did this time around.