Invest Like the Best with Patrick O'Shaughnessy
· William Hockey
[00:00:00] S1: What the dollar does, it connects countries in very interesting ways. I think in the US when you can pretty much just build an incredible company by the US alone, you lose that perspective. If you look at the official stats, most economies spend less than 10% of their GDP trading with their neighbors. And that's been a big focus point of the OECD over a while. But when you actually dig into it, the unofficial trade that's going not over government rails, it's actually closer to 90%. It just shows how trade and how money and how that stuff really connects these cultures and connects these societies. And I find that super fascinating. We can talk about how that's impactful in a lot of ways, but that is something that we don't really get in the US because the US has this very unique luxury – we can almost somewhat sustain ourselves, and you can sustain businesses, only building for yourself. The US market is just so fantastic. I am so long the US, as I'm sure anybody building – you can sustain yourself. You can become a billionaire by never truly ever leaving America, or never interacting with anybody outside of America. And that's what it makes America so fucking unique. I don't think we get like how much of a luxury that is. But outside of the world, it is not. And that comes down to trade. That comes down to financial connectivity. That is so impactful and it's so important. I think you also forget how reliant the world is on the US financial system. Let's take two insanely developed countries. Let's take Qatar and let's take Switzerland, okay. You're shipping gas from Qatar to Switzerland. I would argue right now, probably neither one of these countries like love America a ton. That trade is denominated in dollars. The money that's moving from Switzerland to Qatar, Glencore to Qatar, the Qatari gas company, crosses the US financial institutions. It's crazy to think about. Let's think about who are maybe our two "enemies". China, Russia. China's a big importer of Russian gas and oil. It's kind of crazy to think about it, that trade is still denominated, for a vast majority, in the US dollar. That's mind boggling. That's a luxury. And that's such an insane national security strategy that nobody else has. Russia doesn't want Chinese currency. China definitely doesn't want the ruble. They barely have access to it.
· William Hockey, Patrick O'Shaughnessy
They almost hate each other as much as they hate us. And the fact that they then choose the dollar is still so critical. Then you could argue that maybe the dollar's eroding over time and stuff like that, but still in the vast majority of, like 75% of global trade still is in the dollar. That's crazy. And we don't recognize that. The soft power that America has or even the hard power America has with that is so fundamental to our life, and the fact that we have such a strong economy. [00:00:00] S0: Do you talk to your team as though this is part of the mission? Almost like national security is part of the mission, because of the importance of the dollar?
· Patrick O'Shaughnessy, William Hockey
[00:00:00] S0: Do you talk to your team as though this is part of the mission? Almost like national security is part of the mission, because of the importance of the dollar? [00:00:00] S1: A hundred percent. One of the best kind of shifts I think Silicon Valley has done is we now are like – Silicon Valley, we take an active role in the national security of the country. We didn't six or seven years ago – even though American society, American GDP growth is, even more than ever, completely indexed on the success of Silicon Valley. Probably too much. It's way too levered in that regard. But now Silicon Valley, whether it be social media, whether it be defense, or whether it be software or whatever, we're starting to recognize our role in the world. And financial services is probably the most important component of that. You can ask any general. I have. They want to use a sanction before they use a missile. The great thing about a sanction, the great thing about the dollar, is you can enforce American dominance without putting boots on the ground, without putting anybody at risk. And sometimes, as we've shown in Venezuela, you kind of need both. The reason we were able to go to Venezuela is because we had fundamentally destroyed the economy before. [00:00:00] S0: How?
· William Hockey
[00:00:00] S1: Sanctions. We had completely collapsed their ability to export oil. We completely collapsed their ability to actually trade with other people. That friction is real. And so when we went in there, Venezuelan people were probably like – yeah okay, we good. We're maybe not going to try to shoot these helicopters from the sky. We're pretty happy here. That is fundamentally so amazing. If France wants to shut down another country in order to go enforce their will, they have an option, or they have like two options, which is don't drink our wine and here's some missiles. The missiles can enforce their will. They have a strong military, they have strong special forces, they can go do that. But their lives, the special forces on the ground, they're going to have a much harder time. because they haven't, in many ways, controlled that economy before. And that is so, so unique to the US. And I think China is obviously developing this with trade and exports. One of the things that China can do is they can start to enforce their will by shutting down a country from exports. That is real. And so I think China has definitely this increasing might, but the strength of the dollar is so fundamental for national security. And in many ways, we don't talk about it because it's a little bit of an uncomfortable truth. The global bank doesn't want to sit up and say, we're part of the national security strategy because if the government tells us to, we're going to collapse this economy. That's not a fun narrative that people want. But I think there's a way to tell that narrative that says, we are a weapon that can be used, like when our citizens come to harm. When we need to do something that is like super important for the US interest, and we are part of that strategy, just in the same way that Palantir is part of that strategy, Lockheed Martin's part of that strategy, Boeing's part of that strategy. And financial services is a key pillar. You can argue that financial services is the first act to war with a country. We start with sanctions. We start cutting them off from the US trade. We start with that before we put boots on the ground.
· Patrick O'Shaughnessy
[00:00:00] S0: What do you then hope is the future of global financial services? Obviously you're actively building the technology backbone for it, but if you think big picture, how do you hope the system changes? What would be best for it?
· William Hockey
[00:00:00] S1: I still hope it's very US bound. And I think we sometimes want to believe this world where there's a lot of people in Silicon Valley that I fundamentally disagree with, that want to put the power of financial services outside of the US. And the US has a lot of problems that we can spend hours talking about – I still think we're the greatest country in the world. And we have a change of power every four years. We change our mind on stuff. Yes, there are some problems, but we are still the best place to be. And I think we are the ones that, we should still have the nuclear weapons. We should still have the nuclear weapons of financial services, which is we control the world's trade. And I hope that continues to exist. And I think if we don't, I think if it just lands in the power of other people, I think that's a scary place. And I don't think people have really thought through the ramifications of that. If you look at most countries, financial services is still power, but it ends up just accumulating to government officials and ends up just accumulating in a very small elite. And say what you will about the US, and there's probably way too much power concentration in certain industries. Financial services is actually quite fragmented. JP Morgan's the largest financial services company in the US, but like, it's not that dominant. It's still pretty diversified. Take Canada. 95% of Canadians have four banks. Take Australia, it's even more concentrated. You go to most countries, it's even more concentrated than that. We do have, a little bit in financial services today, a relatively decentralized financial services system. It should still keep fragmenting, right? We should still disperse the financial power throughout multiple US corporations, multiple US people. We need to do a better job there, but we're actually starting from a pretty good baseline. The other thing I tell people is there's this narrative like, "Oh, financial services is fundamentally broken." Our institutions are actually pretty damn good. There's this narrative sometimes people talk about, it's like, "Oh, US financial services. It's like built on COBOL and stuff like this." It's just not, it's like a fun talking point. I rack my own hardware at the federal reserve and all these places. There's no COBOL in a lot of these places. It's actually pretty good.