谁是 Scott Bessent？认识 Trump 的新任美国财政部长

Scott is a highly respected macro hedge fund manager who has taught financial history as an adjunct professor at Yale and is a recognized philanthropist. He worked with Stan Druckenmiller and George Soros and ended up as George Soros's CIO. His firm, Key Square Capital, has as its mantra, “We study history, we observe the present, and try to imagine the future.” That's what we hope this conversation does.

So, Scott, you're over from the U.S. We're recording here in London, and I have a list of macro and market topics I'm itching to ask about, which I think our listeners will be keen to hear. Welcome to The Money Maze Podcast.

Thanks, Simon. I think our compliance department wants to say that this is all my opinion, not investment advice, for your viewing and listening audience. I'm looking forward to this.

There's been a lot of press around Elon Musk's father's influence on his career, and you told me that your father had one of the largest collections of science-fiction books in your part of the U.S. You used to sit and discuss them when you were a child, so much so that you said you could point out the Alpha Centauri constellation before you knew where Chicago was. How did that make you perceive the world?

It was incredible. The largest science-fiction collection in South Carolina—not a high bar—but my dad loved to talk about it. We would sit, look at the stars, and try to imagine things: Are there people on other planets?

If you could believe it, one of our neighbors had a proper observatory telescope. It's just this imagination that there could be something different, and it could be on a different planet or, in macro investing, it could be regime change. That's, I think, why I gravitated to it. You need a good imagination.

We're going to talk about some of those skills required for your specific part of the business. You also said your father was a boom-and-bust real-estate investor, and his roller-coaster fortunes made you focus on risk management. Watching furniture being carried out of a house that your family had owned for 200 years will focus one's mind on not blowing up.

Of course, some folks would bet that, against such a mercurial backdrop, you would be a risk-averse academic or avoid investments. That hasn't been the case, and we're going to unpick that. How did you earn your first dollar?

I earned my first dollar putting out the chairs on the beach for lifeguards and hoping one day to be a lifeguard. I would say I'm a competitive backgammon player.

In backgammon, with the doubling dice, there's something called PRAT—P-R-A-T—and it stands for positioning, racing, and threat. So, do you double? If you have 2 out of the 3, you double. I tend to be more focused on the threat.

That is absolutely what we're going to talk about in detail. You chose Yale. I'm always intrigued; we've had lots of people from different backgrounds. Why Yale?

I think I wanted to get out of the South. It was a medium-sized city in New Haven, near New York but not New York, and it had a great reputation. Yale had a host of distinguished alumni from South Carolina.

Before the Civil War, Charleston had the second- or third-most students at Yale, so there's a big South Carolina tradition. I didn't know what I wanted to do. Did I want to be a journalist? Did I want to be a computer scientist?

Keep in mind, this was 1980. The computer-science department had just switched over from cards—which I think probably 80% of the people listening to this can't imagine—to mainframes. It was a back-and-forth between quantitative and qualitative, and Yale was a good mix.

I understand that you actually did get your first job as a securities analyst for the investment firm of a Saudi Arabian family.

My first job was actually with George Soros's old partner, Jim Rogers. It was a summer internship. When I look back at it, I'm not even sure you could put this on a bulletin board now: “Analysts wanted. Do spreadsheets, make lunch, and you can sleep on the sofa if you don't have a place to live.” I didn't have a place to live.

You can imagine that 107th and Broadway in 1982 in New York City was quite spicy. It was an incredible experience. Jim is one of the great researchers. I could see how he and George Soros were this incredible pair, with Jim's research and George's market instincts. It was an incredible combination.

Did you go and work as a securities analyst after that?

I did a training program at Brown Brothers Harriman, and then I went to work for this Saudi family. Again, counterintuitively, South Carolina and Saudi Arabia had a long history. The governor of South Carolina had been the U.S. ambassador to Saudi Arabia.

This family is incredible. They're one of the most prominent families still. The father came, I think, to the U.S. in the early 1960s, saw New York, and, unlike most Saudis of his day, he didn't want to meet movie stars or do any of that. He wanted to meet CEOs.

He was generating this incredible cash flow from servicing all the Aramco employees, and he just kept reinvesting it into U.S. companies. He got right in at the bottom in 1975 and had the ride of a lifetime.

They are the most understated, hardworking Middle Eastern family. I'm still very close to them. The next generation is taking over, and it's incredible to watch the work ethic.

When you went back to work with George Soros, you ended up running the London office for 8 years. You worked with Stan Druckenmiller, and we'll talk a little bit about mentors later on. You had some very high-profile successes, and then you set up your own firm, Key Square. That's when we're going to start talking about the markets.

Just as a point of reference for our listener community, some will be very familiar with global macro and some less so. If you were to describe global macro at its very essence, how would you describe it?

You are observing the world, observing markets, observing what you think should happen, and observing what is happening. The good thing and the bad thing is that you can look around the world and look for mispricings. You are looking for policy errors and political changes.

Basically, you are looking for change on the margin, and you want to see what the market is giving you. What is the market giving you? What's the opportunity set?

You might think you have a great idea; you might think you split an atom, and then it turns out everyone else believes it. A good example would be October 2016. I didn't think Donald Trump was going to win, but I thought he could win. No one else thought he could win.

I actually had a big bet with one of my neighbors in The Bahamas, who's quite a prominent currency speculator, on that.

You launched Key Square, and it was one of the largest hedge-fund launches ever. I think George Soros was a $2 billion anchor investor, and I think you had $4.5 billion within 6 months.

Key Square, I've learned from my research, comes from a chess sequence. I'm not a chess player or a backgammon player, but you say that it doesn't take long for a beginner at chess to learn that the endgame is the most difficult and complicated part of the game, despite there being fewer pieces on the board.

You would have given a lot of thought to that name. Why?

A lot of what we do, going back to your question about what global macro is, involves these big trends. You can either be part of the trend or ride the momentum. George Soros's theory of reflexivity is really a momentum strategy: If it's really going up, buy more.

At the turn is when you can really make a lot of money. With Key Square, it's when there are just 2 kings, several pawns, and 1 square you can move to, and you win.

If you think about the financial markets, many times there is 1 investment you can make, and you win. Whether it was John Paulson with the CDO/CDS trade in 2008 or Stan Druckenmiller shorting the pound, again and again you see these things.

We try to keep things very simple. We have few positions, and we ask where we're going and what the key square is.

You're continually looking for that position that will enable you to win with the least risk. We have information overload. How do you separate noise from signal?

I actually don't have a Bloomberg. The former mayor doesn't like me to say this in interviews, but I have an incredible trading desk. For me, there's no information value in watching things turn yellow or red constantly.

We have a lot of respect for the markets. I look at 270 charts every night. We're not a think tank. You're just looking for things that are changing, anomalies, what you think is clearly a mistake, or something that's maybe unsustainable, and then you identify why that unsustainability is going to break now.

As we think about the industry—our industry likes to talk about micro and macro—you have written, “We don't have an edge in predicting nonfarm payrolls, but you can learn a lot from what corporates are saying about wages, hiring, and CapEx.” The cynic would say, “Well, so can everyone.” So what is it that you think you do or use with that information that gives you an advantage?

I think what's different is that one of the few good things about being 61 is that I have a lot of data. I've been doing this a long time, and if I look back in terms of asset classes, foreign exchange has been our biggest dollar winner since I started doing macro in 1992, followed by equities.

I think that when we're talking to a company, we aren't necessarily trying to get an edge on the company; we're trying to get an edge on the economy. Everyone's trying to predict the Microsoft earnings, or everyone's trying to figure out the FedEx earnings. I'm trying to figure out what the FedEx wage round is, or what the UPS wage round is. If it bleeds into a FedEx wage round, then tell me about a wage-price spiral in the US. So it's the same information; we just have a different use case.

So this comes back to your earlier point about macro investors almost needing to have a flexible imagination.

We're on a podcast. These didn't exist three to five years ago. When you think about how many jobs there are that didn't exist, we were just talking about what our sons will do. His job probably doesn't exist, but you just have to train them well for what does exist.

I remember a great macro thinker, David Roche, Morgan Stanley's strategist, coming in after the Berlin Wall had fallen, and the consensus was, “Oh, rates rise; this is awful.” He was unequivocal: You just go and buy German equities. He saw the unification beyond the rising cost of capital, and, of course, it was, for a while, an absolute home-run trade. We might talk about Germany's more troubled situation later on.

Again, things are counterintuitive. You just said it was a home-run trade, and then it was a terrible trade because there was the impetus, or the demand shock, from rebuilding the East, and the Ostmark and the D-mark coming at parity, which no one could believe. So that's a shock, probably a policy mistake that led to a great deal of inflation, and then the Bundesbank pulled back the liquidity.

That set off a chain-reaction collapse in European equities, which is actually how I ended up in the Soros London office. The Bundesbank actually put me here. The then-manager had a very large position in what you would call a reunification play, which worked well for a bit. Then, when the Bundesbank decided, “We're the Bundesbank; we don't like inflation,” and started hiking rates aggressively, the shares collapsed. There was a management change in London.

Sequencing is very important in macro. Sequencing right now—and maybe we'll talk about it later—is that there is clearly a slow-motion de-dollarization going on. But could the initial stages be a dollar rally because companies and countries are paying back their dollar debt? So there's a dollar thirst before there's a dollar boycott.

You can't see my sheet of questions, but as we move to investment themes, number 1 is de-dollarization, so you've already jumped in there. How do you think about taking that idea, which I guess many people would say isn't controversial—that the dollar loses, if not its hegemony, its relative status? How do you think about the journey ahead, and how do you think about, as an investor, when the right time is to build your positions?

We'd look for stress in the system. We just did a 3-day off-site here in London, and I came away thinking we have these meta, long-arc ideas, and the real challenge here is, as you just said, where to implement them as actionable market ideas. There are things happening on the margin. The Shanghai Gold Exchange is very interesting.

We see India and China being able to pay for oil, which is the ultimate commodity, in rupees and RMB. So you've now moved the US out of the way. And I'll tell you, the real wake-up call for me was last December, when we were doing a call with one of our consultants, a much older fellow, a great thinker, and French.

He said, “I was used to, okay, the US has sanctioned Venezuela, the US has sanctioned Russia, the US has sanctioned Iran.” And he said, “It is untenable that the US can extend its foreign policy to the French government via the dollar, and this huge multibillion-dollar fine on BNP is going to make a US ally want to think of a new way of doing business.” This new term, the Global South—the ones out of the dollar system. It's very interesting if the French Republic wants out of the dollar system.

Yes, and the seizing of Russia's reserves has probably only accelerated that.

They haven't been seized. I'm told they're frozen. My inclination is that they will disappear.

With all of this debt swirling around the system, one question is whether, as an investor, one should be thinking about the preservation of purchasing power almost above all. Therefore, currencies have always been a relative game. I sometimes get criticism from my partner, Will Campin, about the fact that I'm a long-term believer in gold and a distruster of the central banks. You have written about gold and have painted a scenario if we get into this monetization of debt. Am I jumping ahead?

Gold is not a fiat currency. There's a limited amount. It is recognized as a store of value, and you're seeing that you can keep gold in your vault and move it back. I am adamantly anti-Russian, but the mistake the Russians made was getting onto a war footing in terms of their foreign-exchange reserves. They moved out of dollars into euros, and they never believed that the Europeans would have the wherewithal or the inclination to follow the Americans.

If the Russians had moved entirely into gold, the price would be higher, but they would have all their reserves in Moscow. So I think—who knows whether China is moving onto a war footing vis-à-vis Taiwan? The Chinese PBOC is the largest buyer of gold now. Again, back to imagination, could we imagine some kind of an RMB that is exchangeable into gold, maybe at a premium?

I don't disagree with any of that, which is probably why I find myself constantly rolling my eyes when people mention Bitcoin.

Gold can be a risk-off and a risk-on asset. Bitcoin is a risk-on asset.

If you plot Bitcoin against Tesla, up until recently the correlation was almost perfectly 1.

As someone who spends a lot of time in the Bahamas, one is skeptical about some aspects of crypto and getting it back.

Enough said. Let's talk about Japan. You've had rich pickings there in the past. You've been writing about it again. I'm going to quote you when you say, “The Bank of Japan will be the final central bank to exit from ultra-loose monetary policy, and the global ramifications will be profound.”

Now, as I follow these currencies, I did run the charts the other day. I think that Japan's purchasing power parity is at the most extreme ever witnessed. So either the elastic has been stretched, or it's the first of these collapsing currencies, courtesy of its debt. How are you thinking about Japan, number 1, and how are you planning and playing the 3 legs of that stool, which are FX, the bond market, and the equity market?

Little history. I went to Japan for the first time in 1990–91 and spent 90 days at the Okura Hotel. It was then an incredible price of $500 a night. The Okura Hotel—they just remodeled it, but it's still about $500 a night. We're sitting here in London. I'm not sure I can get a shed for $500 a night.

Japan, if we rewind to 2011—it's easy to remember, 3/11/11, the terrible Fukushima incident—looked completely hapless. The yen strengthened. They've been through a series of prime ministers, and they had this gigantic current account because, after the collapse of the bubble—I'll go back, 1991—the Nikkei peaked and then just kept dribbling down for 20 years.

And we were just the opposite then. So the yen was 78 to 82, and it was on PPP, which we use as a gauge. Trading currencies off PPP, you lose all your money because currencies can stay cheap or expensive longer than you can stay solvent.

But it was the most expensive currency in the world. We come back around summer 2012, and China was starting to rattle the saber over the Senkaku Islands. The Japanese were feeling set upon. The Obama administration had basically shown up and said, “Not so much. You’re not relevant anymore,” and the Japanese panicked.

One of our consultants called and said, “Oh, there’s this fellow named Abe. He used to be the prime minister. He’s going to come back. He’s got this program.” At the time, it was called 3, 3 and 3. Then he changed it to 2 and 2: 2% inflation in 2 years, and 2% growth. Again, no one believed he could do it.

So we had a theory, and then it turned out that there were all these seats opening up on the Bank of Japan, including the chairmanship. So you had a cheap currency and the potential political will to change that. Off the bottom in October, the yen was trading at 78 to 82. By the spring of 2013, what we call Abenomics had taken place.

The new governor of the Bank of Japan, Governor Kuroda, put in the big boom and went to ultra-loose monetary policy. I remember George Soros and I went up to Yale and visited one of the architects of Abenomics. We had lunch with him, and on the way back, George said, “Do you think this is going to work?” And I said, “I have no idea, but it’s going to be the market ride of a lifetime.”

And it has been. It’s been incredible. So we’ve gone to 78 on the yen. When I walked in this morning, it was approximately 148.20. I think it peaked at 152.70. And now they have the opposite problem.

They were in deflation. Now, no one could imagine that Japan could have an inflationary spiral. Since 1991—you call it the malaise—Japan has actually done an incredible smoothing operation, and they’ve just added more debt. In terms of statistically measured recessions, they’ve only had very few down quarters because they just spent so much government money.

They had a huge amount of real estate debt. The government then took it on. Now they’ve monetized the debt, and they’re seeing real inflation, both imported globally and, for the first time, wage inflation. I think they are running a high-pressure economy.

To get back to your question on the 3 asset classes, my guess is that the Nikkei and the TOPIX are going to break through the all-time high. Part of Abenomics was also loose monetary policy, but there’s this incredible sea change in Japanese corporate behavior. That’s back to observing companies: they used to keep a lot of cash on the balance sheet, and my friend Jim Grant actually had a Japan fund that was based on the old Ben Graham net cash position.

It’s a good idea, but, in a way, the most dangerous thing is a Japanese company with a lot of cash because they’ll do something crazy with it. They have this incredible manufacturing ability, and they are less good in financial transactions. So now we’re seeing the excellent return on capital. The Abe administration put in minimum returns, or you get delisted from the Tokyo Stock Exchange. I think over the next few years that Tokyo will probably do the best of any major market.

The other thing that’s happened, too, is you’re seeing this reshoring in Japan. In the semiconductor industry, I was talking to someone—there is a university down toward Okinawa, and TSMC is hiring every graduate this year, and they’re doubling their salaries. Again, with the U.S. changing supply chains and reshoring, Japan is a key component.

On the currency, there’s a new governor, Governor Ueda. I’ve met with him many times. I think he’s an incredible thinker for an academic. He loves markets. When I was at his office at the University of Tokyo, there was a Bloomberg, unlike my office, pulsing in the background. I think he’s realized that they’ve been successful in getting out of deflation, and I think we’ve got to have a lot of imagination.

Japan is in negative-interest-rate policy, or NIRP, right now. If you have this huge pile of savings and savers who have gotten nothing on them, and you raise rates to 1% to stop inflation and strengthen the currency, could you really end up with something that picks up a lot of strength? The Japanese are huge savers, so now you’re handing them extra cash. It’s almost like a helicopter drop into their bank accounts. I think no one’s imagining what that could look like in 6 or 9 months.

One of the things we think about a lot is that policymakers are people. Jerome Powell reads what The New York Times writes about him. Ben Bernanke wrote a book, The Courage to Act, and sounded like he was the head of SEAL Team Six or something. I think Governor Ueda will understand that Prime Minister Abe was assassinated. The legacy of Abenomics—they don’t want it to end up with a financial bust either in Japan or globally. So I think they will move to quell inflation early.

I remember working with Barton Biggs, and one of my most successful FX trades was buying the dollar against the yen when the yen was so strong. I’ve been itching to put that trade on, but right now the market has just played to the advantage of the higher U.S. interest rates and shorted the yen. What will be the trigger for you to get really long the yen?

Yeah, so it’ll be twofold. First, I would say that there is a position because I perceive we’ve had a change of personnel with Governor Ueda. He has started hinting that there is going to be a policy change, and we are observing, from Japanese corporates, a pattern of price increases. If you hadn’t raised prices for 20 years, you start out at 2% or 3%. Now they’re raising prices 8% to 12%.

It’ll be a one-two combination: Japan is coming out on this side, and, with the U.S., yesterday we just took out 2 interest-rate cuts for next year and priced in a hike for this year. My guess is you see some kind of return to currencies being relative. You see a big relative change in expectations that the Fed has maybe finally slowed the economy, which is difficult given the amount of government spending.

But the Bank of Japan is just beginning a cycle. So, the Fed—we’ll see. Have they gone a step too far? They are closer to the end than the beginning, and the Bank of Japan is just at the beginning of the cycle. Look, we want to see both legs to have a full position. Again, the market’s giving you a lot here. Very few people are interested in owning the yen. If you look at the CTA commitment to short yen, it’s quite large.

Back to the future. Here we are talking about Japan, and most people aren’t, and everyone’s been talking about China. Let’s just pause and look at China and what its fiscal and monetary options are. You’ve said that we’re seeing the end of a multidecade leverage cycle in China. How are you thinking about China as an investor?

It was Chinese New Year 2022, not 2023. I was invited to a very nice dinner in New York, and everyone had followed China for a long time. So you can imagine, in early 2022, people were still very constructive on China, and I had a long-term secular-down view based both on economics and gravity, because somehow everyone thought China was so big. It has this closed capital account; if it were any other country, it would already have exploded. But my view was that gravity would win.

I also had the view that when Party Chairman Xi came in, he was a different kind of cat. This very unusual capitalist-communist blend that had taken China out of the Dark Ages and into the modern world was over. Now we’ve seen that they’ve gone to more of a command-and-control economy.

At this dinner, I told everyone at the table, “You can have China. I will take India and Japan. Let’s reconvene in 5 years.” I think it’s this Leninist model versus the Japanese democratic model and then the Indian, very loud democratic model. I think you can avoid China, and I think they can have a cyclical bounce here within the secular downtrend.

They have some very difficult policy decisions to make. They’ve starved households in favor of manufacturing, and doing the rebalancing is very painful. You have a lot of vested interests, especially at the state and local level, and you’ve got to move it over to the households. Municipalities and states are not going to sell off assets willingly, but it’s got to be done. Then you have the whole Taiwan question.

We try not to play fortune-teller and predict these things, but I think we have to imagine. Our mutual friend Niall Ferguson wrote a very good piece last week, and it had 2 parts to it.

One was: Are the US and China in mutually assured financial destruction? In game theory, an escalating tit for tat is one of the worst patterns. The US kneecaps Chinese tech growth with a high-end semiconductor ban, and then the Chinese government starts getting a little squishy about Apple. Maybe government officials can't have them. Maybe there's been a security breach.

If we see that financial tit for tat, that's a market event. Taiwan has elections in January. The leading separatist candidate is doing quite well. He's pretty aggressive. We'll see what US policy is. I think we have until the election to see, but we'll see how President Xi responds. We're concerned China has been sucking in oil imports. If you were going to go on a war footing, you would need energy, you would need food, and then you would probably sell your Treasuries.

So before we leave China, I had this micro-macro question, which is: If you're a bottom-up investor, you'd look at Alibaba or Tencent and say, “World-class companies operating with great profitabilities and trajectories. I'm sort of drawn to them.” Does the macro investor go, “I don't care,” because the geopolitical risk and uncertainty are too profound?

I think there are two things here. One, are you a tactical investor? These things could be very interesting. Or are you an endowment, long-term investor? At that point, everyone always asks me, “What is risk?” And I say, “Probability and severity.”

If you think about those positions, what is the probability that you are going to have a 100% loss? It is not zero: that you walk in one day and you have just had a Russia-into-Ukraine event, and the stocks went to zero, or you're not allowed to own them anymore. So I see your point that we are getting to—if I just look at a chart, because I was looking at the chart of KWEB, which is the China Internet Index, it looks like you could go down 10% and maybe up 50%. But there's probably a 20% chance you can go down 100% when you think about it in terms of outcomes. So, for tactical investors, very interesting. For an endowment, a pension fund, or a sovereign wealth fund, probably less interesting.

Very well put. Now, as we talked about military conflict, here we have this Ukraine situation. It was General Petraeus who was on the show in January who said, “All wars end in a conversation.” The next step becomes a rebuild of Ukraine, potentially of a scale that we haven't seen. How are you thinking about exploring that theme?

For us, framing a problem is the most important thing, and if we're losing money, I usually think our framing is incorrect. In terms of framing the scenario you just outlined, I think I don't have to worry about that yet because there's an 80% probability Donald Trump is the Republican candidate. Is there a 40% probability that he wins the general election?

If you were Vladimir Putin and former President Trump had said, “I am going to end the war in 24 hours,” you're not settling. So November 5, 2024, is when the talking probably starts. Trump wins, comes in January 20, and there's a conversation. Biden or the Democratic candidate wins again, and I'm not in this for 24 more months. This is a meat grinder. I'm going to run out of prisoners from Vladivostok.

When you game out the potential paths, I think no conversation starts until November 5. We always focus on signposts. Again, I think that you don't have to have a conversation. You can have lots of observations, but I don't have to have a conversation on what China might do in Taiwan until—I'm cuffing it—but I think the Taiwanese election is January 17th. If the DPP, which is the anti-unification party, wins, then you have to start thinking: Could this turn kinetic? My guess is it's more of a blockade.

But the Ukraine tragedy—there will be an incredible rebuild. It will be something on the scale of the fall of the Berlin Wall.

I look back at my own investing career, starting in the mid-1980s, and if there's been a persistent mistake, it's trying to be too early. What you're saying is that you need maybe a convergence of the fundamentals and also the technicals.

I always tell everyone who works with me, we're not a think tank; we're a money management firm. And on the technicals, Bruce Kovner has this great saying: “An investor who doesn't look at technicals is like a doctor without a stethoscope.” Even Barton Biggs loved technicals—the mind of the market. I don't think I'm smarter than the market, and I certainly don't think I have more liquidity than the market, but there are a lot of signals.

Which, of course, leads me to talk about AI. Now, you've written about how AI can impact productivity. You've also talked about how regulation could help or hinder countries. I'm thinking about the US juxtaposed with Europe in that regard. How are you thinking about what AI does, and how do you think it will influence your positioning?

My guess is that it is 2 or 3 years out, but we're already starting to see it. I was on a Zoom with one of the most prominent tech overlords, and, for those of us on the Zoom, he had done a trip around the world. He said China will never let AI meaningfully into the private sector because they will be convinced that maybe Jack Ma with AI could take down the CCP. So you will not get this private-sector productivity enhancement in China.

He was of the view that Europe was already starting to regulate it away, and unfortunately, the UK seems to be following the European model. And the US, as we tend to do in the US, he said, was the Wild Wild West, and it could lead to incredible productivity gains for the US if we don't blow ourselves up.

You're starting to see the use case for this. My guess is the big winners, just like with the internet, are companies no one knew about. Google was founded in 1998 and appeared in the early 2000s, so there was a 3- to 5-year lag. Facebook and Amazon—those companies don't exist yet.

My guess is the hyperscalers who are trying to get on this—Microsoft, Google, Amazon, Oracle, Meta—are going to be spending a lot of capital expenditures. They may or may not be the big winners, and the big winners could actually be US corporates who are able to get these big productivity gains. You could imagine, 2 or 3 years out, a big cut in employment, maybe in white-collar, back-office employment. We had a 20-year-old summer intern, and he is a ChatGPT Plus native. It was incredible, the things he could do for $35 a month.

In short, would you say that AI has extraordinary possibilities, but huge dispersion in how governments respond around the world, and as an investor, you're watching closely?

That's a fantastic summary. If I think about what today's business with AI is, I would think of these hyperscalers. And we could come back to the sucking liquidity out of the system: The hyperscalers are the most cash-rich companies in the US, and I think Apple would probably be the biggest sovereign wealth fund after Norway. I think I left them off the hyperscaler list.

The hyperscalers are probably going to spend between $500 billion and $1 trillion on the data centers for AI. This is an arms race. And what happens when they start spending the cash rather than accumulating it? What happens when Apple is selling investment-grade credit to have bricks, mortar, and Nvidia chips near a power facility in Nebraska? This is just another model change in terms of the savings glut actually getting pushed into the real economy.

Which, of course, brings us to this question I have in front of me, summarizing today's climate. You've written a lot about this savings glut. We all know about these cumulative levels of debt. We all read the history books and know that inflating your way out is one of the routes. But, summarizing today, it's a paradigm shift. It's a changed order. Is that fair?

We've had 40 years of disinflation. Now we're going the other way. I started university in 1980, started the investment business in 1984. For my entire adult life, capital has gotten treated better to the detriment of labor. Thatcher came in in 1979, Reagan came in in 1980, and then life just kept getting better for owners of capital: NAFTA, WTO.

We can come back to this AI, because I would say for the US or for the developed world, my hope would be that if there is an AI employment displacement, we would handle it better than we did with the manufacturing displacement, that we don't end up with a Luddite revolution. It is a model change, so I believe you said you were born in 1963. I was born in 1962. The baby boom bulge is about 1954 to 1956.

So in the US, very good things happen to you when you turn 65 in terms of government benefits, Social Security, federal health care. My team thinks that one of the things that happened under the cover of COVID—and everyone's blaming it on COVID, and I think it did accelerate it, like COVID did everything—but I think under the cover of COVID, the baby boom bulge turned 65. So they were always going to leave, and that got accelerated during the pandemic.

So we've got this incredible labor shortage. I think someone in my office told me this week that there are 1,000 pilots at United Airlines who are going to make over $1 million this year. I was actually getting a UPS package when the UPS labor strike was settled, and I congratulated the fellow, and he said, “Oh, yeah, my wife has already spent it.”

You're seeing this UAW strike on autos, and my sense is that the American people are behind the strikers, which is the first time in my working career that the public is with them. So anyway, that was a long way of saying we're going to see a very natural shift back from an overshoot in the amount of the profits going to capital, and it's got to come back to labor.

And a reaction to executive hyper-pay and some bad behavior.

Terrible behavior.

And this leader of the UAW is quite charismatic, but he's making the point: We only want the same increase that the CEO of Ford got. We just want what you get. Why did you get it? Again, on the other hand, what's the future for those workers?

So when we think about the portfolio that you run—and we'll talk a little bit about your fund in a minute—you've got this sourcing of ideas and then the positioning. I think your former colleague, Jim Rogers, said about risk, “You gotta look down before you look up.”

Michael Mauboussin, whom I'm interviewing this afternoon at the London Quality Growth Conference, had this number—I don't know whether he's right—that when you were all at Soros, the success rate was only around 30%. But your position sizing must have been outstanding, because you made such great returns. Is that true? And how do you think about position sizing and managing that risk?

I'm glad you mentioned Michael, because he was chairman for many years of this incredible organization called the Santa Fe Institute. The way they think about systems—and when you said, “What is macro?”—macro is thinking about systems. Can the system accelerate? Could the system break down?

I think 30% is low. That might have been a number that George Soros said about himself one time. In American baseball, probably the most famous player in history is Babe Ruth: home run king, strikeout king. So in macro, it's: How much do you make when you're right? How much do you lose when you're wrong?

And I think I told you that even though our firm's name is based on a chess move, I actually think investing is much more like cards or backgammon. You don't know what the dealer's going to give you, or you don't know what the dice are going to give you. In chess, everything's on the board. Does your opponent make a mistake?

I remember being at the Santa Fe Institute conference, and one of the speakers was talking about what competence ratio you need to get to in order to increase your position. In theory, if you can get to 51%, then you should keep getting bigger and bigger.

I would say that my philosophy, and certainly Stan Druckenmiller's philosophy—he's incredible at thinking about asymmetry—is: What's the market giving me? What's my upside and downside, and how should I size that?

That's what most people missed on the sterling exit from the ERM. We could keep pushing the Bank of England up against the band. They would only push us back to the other side of the band, and there was a chance that maybe the band would break.

If I think about 2012, the yen was, as you said, the most overvalued currency in the world, and the Bank of Japan was doing the worst-kept secret of stealth intervention at about 78. If I was shorting the yen at 80, I could make 2 points, and if my imagination was right, I'd lose 2 big figures. But if my imagination was right, I could make 20 or 30. It's adding when you get information, adding when things break down.

Now, this may not be true, but I was told that when you and Stan Druckenmiller presented the case for shorting the pound to George Soros, his initial reaction was one of what appeared to be dismay, but it was only because you weren't suggesting doing enough.

Yeah. You have to remember, especially in the 1970s and even into the 1980s, markets trended much more. So if you read The Alchemy of Finance, the Plaza Accord happens. The currencies move 7%, but George is adding a 300% position because they're going to keep going.

If you have a great idea, it can never be big enough. I've found—I think his quote is—“It's like shooting fish in a barrel.” I think there is a change in market structure. Either the fish can shoot back, or the metal ties holding the barrel together have gotten bigger and the bullet can bounce back and hit you. You've got to be much more adept and much more attentive to the other players.

Let's just talk about Key Square, your fund. I believe you had a very good year last year. I think you were up 30% last year. You obviously have these high-conviction macro views that you express. You're open to new investors. Who are the sort of partners that you most like to welcome?

We like having a very iterative relationship. I do think, for whatever reason, you tend to get these paradigm shifts in investment every 10 years, and they center around the decade. I think we're in the midst of one now.

I don't know what the dominant theme is going to be for the rest of the 2020s, but I know it's not going to be what it was in the teens. It's also very helpful to hear people's incentives—what they're thinking and what they're leaning toward.

So you referred to Stan Druckenmiller very nicely as the greatest investor of our lifetime, and most of us have had mentors along the way who have been extremely important. It just so happens that we know you. We were talking about David Darst, who was important to me at Morgan Stanley, and David Roche, in fact, from a distance, and Barton Biggs. But what was it that Stan Druckenmiller—that you most valued?

There's something called superstar syndrome. Michael Jordan probably couldn't teach us how to play basketball. Roger Federer is probably not the greatest tennis coach.

But being able to sit next to Stan and watch him and have a dialogue with him—I'm not sure if Stan could explain why he always does what he does, but being able to sit next to him and watch him is incredible.

He's a great trader. I said earlier that the combination of George Soros and Jim Rogers was incredible because of Jim's analytics and then George's trading instincts. Stan's that in one person. And his risk management is incredible. He's never had a down year. It's humbling.

The bad part about sitting next to him is that I'm a basketball fan. I go back and look, and if I look at the Chicago Bulls, they were all better: Scottie Pippen, Horace Grant—they were all better for playing with Michael Jordan.

And I have to ask you, since we're on the subject of Soros, what was it then that George Soros gave you in that capacity as somebody who was junior initially?

I would say the best trade George ever did was hiring Stan. I would tell people that working with George was good at two different times: one on December 31, when the check came, and then the other because you always had to be ready.

Especially when I came back as CIO, I had to have my thoughts organized, and George would probe for the weak spot in my argument. “Okay, you believe this on the yen. What about this?” “Oh, I spoke to so-and-so. He says that.” “Good Lord, why do we own X billion dollars of Argentinian bonds? I just spoke to my friend Joe Stiglitz. He got back from meeting the new Macri government, and he thinks it'll never work.”

Again, I don't know if it's going to work 3 years out, but I think the bonds are going to go up 30%. I always had to have my thoughts organized, which a lot of people say to me: “Why don't you just manage your own money?”

I find the discipline of having other people's money and having to have my thoughts organized very helpful, as opposed to just, “I'm intuiting this. I believe this. It'll eventually work out.”

It's discipline, it's accountability, and it's putting yourself in front of an audience who will be rightly judgmental.

Moving toward some final closing questions, I'd like to touch on philanthropy. You've been extremely generous. I understand you donated the Bessent Library to Yale in honor of your father. You sponsor a number of students from less privileged backgrounds. You're a very analytical person. How do you think about prioritizing charitable gifts?

I'm a big believer that if we believe the system works, which I do, then we have to bring people into the system and convince them that it works, because when it stops working for everyone, it gets to be a problem.

When I lived in Miami, our church went and helped people with their tax returns, and it was incredible to be able to show someone that they were getting a refund.

I've been very active with these kids from Harlem Children's Zone. I taught at Yale, so I have that cohort of kids, and they're getting Rhodes Scholarships, they're getting PhDs at MIT, and they're working in the Council of Economic Advisers at the White House.

Then I have Harlem Children's Zone, and they have just as interesting paths. Can I help them go in as a commissioned officer in the Army? One of them just had a terrible semester, and no one in his family has ever gone to college. Can you help them reboot?

Again, it comes down to this: My worry in the U.S. is education. If you think about it, there may be 5 income quintiles. In the U.S., you used to be able to move up and down, and a lot of it was education. If you don't have the education, then the system's not going to work.

Staying with education, you and I had an exchange a few weeks back, and we've just interviewed Sir Anthony Seldon, who I think was as inspiring and enlightening on the subject of education as anybody we've spoken to.

I think when we had that conversation, you—and I may not be quoting you correctly—said you would be reluctant to hire an undergraduate from Harvard. Was that right?

Oh, it's 100% correct, and it's not a Yale bias. Look, I think in life it's probably good to have a little bit of a chip on your shoulder. Maybe you didn't get into Harvard, but you are number 1, number 2, or number 10 in your university, and people haven't told you you're special your whole life, or you've failed at something.

I'm finding that these Harvard kids are quite coddled. I'm going to make up the number, but I think I'm right in order of magnitude: I think 82% of the undergraduates graduate with some kind of honor. It's a participation medal, and it's very difficult for them to take constructive criticism.

Great. That is important, and we've noted it in the context of a lot of privately educated British students wanting to go to the US and the brain drain that's happening because of some of these other dynamics about rebalancing in the UK.

I think that is a huge mistake for the UK. Once you get some hyper-bright young person in Boston or Silicon Valley or Nashville—or Austin—and they don't come back, then the UK is in real trouble.

Agreed. So that's a different subject for another sub-podcast. But you mentioned setbacks. You've had some investment setbacks along the way. How have you responded, and how have you taken lessons from them?

You can't personalize it. You try to learn from it. And again, I think, having seen my father's up, down, up, down, you always try to manage the magnitude. You want to be able to come back. You want to be able to dust yourself off. Other than Stan Druckenmiller, people lose money. There are good times. There are bad times.

I use a lot of data. I had a fallow period. Again, the only good thing about being 61 is I have a lot of data, and I went back and I could see that I tend to have market-based investments and idiosyncratic investments. Maybe there weren't as many market-based opportunities, so the idiosyncratic investments had gotten too big. Then a couple of them went wrong. It wasn't catastrophic, but it was just a hit against the P&L.

Then I realized, okay, there's nothing to do over here. You're probably pushing out the sails a little too much here. It's better just to keep everything muted if there's nothing to do.

Okay, the final five. What's your most important daily habit?

Imagining the day. I was at Hong Kong Airport. I had nothing to read on the plane, so I picked up this book on Buddhism, and it had, I don't know, 50 meditations you were supposed to do every day, which I think added up to more than 24 hours. I felt the most important thing was to imagine the day you want to have, the day you're going to have, and what you have to deal with today.

Also, great money managers—I’m not necessarily putting myself in this, but my observation is that everyone has a plan: If this happens, I'll do that; if this happens... So it's, okay, here's what a good day would look like.

How do you seek refuge from the information overload and manage to relax?

Saturday is sacred. I try to put my devices away, try to spend it with family, exercise, and then, by Sunday afternoon, start up again. My secret weapon, even since university, has always been starting the week on Sunday afternoon—starting at 1:00, 2:00, maybe working till 8:00, 9:00, 10:00—and then you have a jump on the week. But that's because Saturday has been sacred.

A jump on the week, and you got a jump on the competition as well, one could argue, if you're doing it correctly.

Again, you've had this incredible regenerative thing on Saturdays. So Saturday's my secret weapon.

And how have you found navigating the world of finance being an openly gay man?

I think I was very fortunate. Maybe that's why I gravitated to money management—not sales, not investment banking, not management—because at the end of the day, the numbers are the numbers. Data is data. You can have narratives around the performance, around the data. In general, people don't care. Maybe they're pulling for you, maybe they're pulling against you, but it's performance.

Metaphorically, what is the peak that you still have to scale?

I think I've made a difference in philanthropy. I think I made a difference in education, and somewhat in the investment business. But in terms of policymakers listening to some of the advice that I have—in terms of we're running these incredible deficits in the US and debt's high everywhere—the artist Marcel Duchamp was also a philosopher. He said, “If there's no solution, there's no problem.”

I think we're going to have to acknowledge that there's a problem in the US, but globally, and I'd like to be part of that solution in terms of figuring out what is a fair, equitable, and best way to get to the other side of this.

And so, finally, they can be dead, they can be alive, but who's the person that you would most want to sit next to at dinner?

It would be Stephen Hawking.

So, Scott, my gosh, we could have gone on. I think I'm going to be asking you to have a reappearance next year because there is so much that is to be covered, and the world is moving rapidly. Some of these big themes, I think, might unfold in front of us and trouble investors who have been used to, shall we say, a more comfortable paradigm.

I'm going to take away 2 specific observations you've made today. One is that you define risk in a way I haven't heard it defined before, which is assessing both probability and severity. The other is what makes a good or better macro investor: focusing on those signposts, but understanding when and how they are evolving and coming along before they influence the position sizing.

I just want to say, Scott, fantastic for being here today. Thank you very much indeed.

Good. Thanks, Simon.