Invest Like the Best with Patrick O'Shaughnessy
00:22:56 · Patrick O'Shaughnessy
[00:22:56] S0: How do you think the global financial system will change the most or needs to change the most in the next five years, totally away from your business? Like what are the exogenous changes that you're most carefully watching that you think matter?
00:23:08 · David Vélez
[00:23:08] S1: One of the most transformational technologies in the world in franchise is gonna be the first one is the end of cash. And this is happening really everywhere. There's a lot of big cash heavy economies like Mexico, for example, or Indonesia, or a lot of African countries. Brazil used to be like that, where that cash will go away and will digitalise mostly through real time payment systems. I think the implications of this, some of them are obvious. You don't need branches or you need less. Some of them are less obvious, which is what happens to the economy, for example. The efficiency of banks when they don't need banking branches. The speed at which money moves in the economy. The amount of data that gets created in an economy that then can be used, for example, to provide access to credit. So that's a big catalyst. The second one is open finance and open banking across the world. This is basically the concept that you as a consumer own all the data that you have across all institutions, and you're able to grab that data and share it with anybody else. So one of the biggest sources of inertia in financial services, but also let's call it telecom, for example, or utilities, is that you you have a history with a specific company and you cannot transfer that history with somebody else that comes new. And incumbents have benefited a lot from that inertia of data. The moment that you can connect all your history from all your services and pass it to somebody else, you're reducing that inertia and you're enabling more competition for your data. And you can monetize that data as a consumer. You can grab your historical information with a bank and offer it to somebody else that is willing to pay for that if you decide to do so. Right now, social media does that without you deciding to do that, increasing you're going to be able to do that as a decision. And the reason open banking is important is because then it will decrease that inertia globally and will increase significant competition in banking. Banking today globally really is still very much on a oligopoly structure. You have five, six banks in The US that own 6070% of all the assets. Same in Europe, same in Asia, same in Latin America. So that will mean a less concentrated banking industry, much more fragmented, much more competition. Obviously, that translates into less fees and less cost.
00:25:18 · David Vélez, Patrick O'Shaughnessy
A big trend that has a couple decades is the role of crypto and stablecoins around the world. What will eventually happen with increasingly people that are much more mobile in nature is that you operate in a combination of the fiat system in your country with a global offshore system. Your lives go in between without you even realizing this. For a lot of countries around the world, it's really important. You've seen with the usage of access to Bitcoin, for example, stablecoins. Increasingly, they want to bank in the offshore system. They don't trust their banking system. They don't trust their fiat currency. Today, there's about 190 currencies around the world. My view is that ten, twenty years from now, those 190 will be maybe 10. Because the fiscal situation in so many countries around the world is so dire that a lot of that fiat money is not real money. This is basically crypto tokens. So increasingly billions of people are going to be banking on the offshore world, US stablecoin, but also Bitcoin and other type of assets. You see these two parallel systems interrelating with each other across the world. [00:26:19] S0: If you had to think about the US dollar and its importance, if it goes from $1.90 to 10 or something, do you think the US dollar is the reserve currency ten years from now? Is it one of a few? What do you think its role will be in the world?
00:26:19 · Patrick O'Shaughnessy, David Vélez
[00:26:19] S0: If you had to think about the US dollar and its importance, if it goes from $1.90 to 10 or something, do you think the US dollar is the reserve currency ten years from now? Is it one of a few? What do you think its role will be in the world? [00:26:32] S1: There are two sides of that argument. You can make the case. US stablecoins ultimately will be the big savior or one of the biggest saviors of the US dollar because it democratizes access to the US dollar. And while the fiscal situation in The US is not great and it's deteriorating fast, it's still better than the fiscal situation for the other 100 and plus countries around the world. You look at the balance sheets of all of the central banks or countries in emerging markets in Latin America, it's way scarier. And you don't have the sovereign capabilities. At least there is a lot of demand for The US stablecoin. There's very little for the Brazilian stablecoin, unfortunately. So the fact that a stablecoin exists for US dollar will ultimately mean that the US dollar maintains its power as a reserve currency for a very long time. But it won't be unique. I think you'll have other five, six fiat currencies that people will be saving in, and a few crypto tokens where you'll also be diversifying. And I've always been a Bitcoin fan, it plays a role in a diversified investment portfolio. [00:27:32] S0: What's the most surprising thing do you think about the move away from cash? What would I not appreciate about the implications of that or how long it would take? What's surprising about going cashless?
00:27:42 · David Vélez
[00:27:42] S1: The main one is what this means for credit markets. For the majority of the world, and the majority of the world economy, still economies are very much offline. Just think about this situation where you have a taco stand in a corner in Mexico City and you're selling through cash. That transaction is not being recorded anywhere. That's a transaction that you're selling to somebody and it goes away. And that taco stand cannot get credit today. Now, that person has a history where every day they go and sell tacos and they get cash flow that's being recorded, But nobody can underwrite on top of that. The moment that that transaction goes into a digital ledger, that transaction happens digitally, then suddenly that taco seller can take that information to a bank and says, Hey, look at my cash flow. Give me access to credit. And if you give me access to credit, I can now have two taco stands, or I can have five taco stands. The utilization of the economy and what that enables for credit for a significant percentage of the world population is something that is not very well understood today and is a huge accelerant. Again, you look at economies like Brazil, for example, something like 70% of all the employment in the country is still in small businesses. It's not a big corporate small business. The same thing happens in India, for example, or Southeast Asia. A lot of these small businesses historically also dealt with cash. Now they're digitalizing. So this is trillions of dollars of credit being enabled for billions of people around the world. This could be a significant economic shift for economic mobility across the world. His eyes, a very exciting opportunity.
00:29:15 · Patrick O'Shaughnessy
[00:29:15] S0: Do you think that you can create creditworthiness versus just predict or measure it once you have all this data? Is that one of the goals to help people become more creditworthy somehow?