YouSaid · the spoken record

John Cochrane

lines on the record: 63
first: 2021-03-10
most recent: 2021-03-10
sittings or episodes: 1
sources: podcast

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“Love this. There is so you and I are now old enough to remember that every age thinks of the previous ages as the great golden era. I have a story, Bob Lucas told the story that in the late 60s and 70s when he and his buddies were developing rational expectations and getting all the stuff that got the Nobel Prizes at Chicago, they felt awful because all the hot attention was going to MIT at Harvard and what people were doing there and they felt like they were out in the wilderness. And they were, of course, looking back at this. This was in the 80s. They were looking back at that as a great golden age. And now the 80s, oh, it's so boring here now. Of course, now we look back at the 80s as a great golden age. There's always this golden age of the past. What's going on now in Finance I find fascinating. And as I look out, I'm the kid of a historian, so I have always a broad aspect. And I think of what our children will understand that we don't understand yet.”
2021-03-10 · Conversations with Tyler · John Cochrane on Economic Puzzles and Habits of Mind · IDENTIFIED FROM THE TRANSCRIPT · source
“Yet, if you take somebody who's earning $200,000 a year and make them earn fifty thousand dollars a year, this feels like a disaster to them as opposed to you taking an average person in a village in India and they get to earn $50,000 a year, they feel wonderful. So the fact that people's feelings about their consumption level and their actions, which is what counts in economics. Wanting to avoid a disaster depends on their experience of their recent past. So I still like that idea.”
2021-03-10 · Conversations with Tyler · John Cochrane on Economic Puzzles and Habits of Mind · IDENTIFIED FROM THE TRANSCRIPT · source
“to take risks on stocks coming forward, and so the stock market goes down much more than the economy goes down. Because recessions are kind of mild, and that's really puzzling. Even people keep saying, oh, this is the worst economy ever. No, we're back down to the level of 2017. So why do these temporary fluctuations make asset prices go so crazy? I think there's something deep in that. And when stocks went down in March, I think people were scared as heck, whether the mechanism is habits or whether the mechanism is something involving leverage and risk-bearing capacity and financial markets is less important. That was the deep point of the paper, which I, of course, I'm going to keep saying, I think, is right. I'm prejudiced in favor of it. People do, but I think it's a deep feature. I think there's something deep to it that when you are forced, even a person, a middle income person America is vastly better off than the average person in India.”
2021-03-10 · Conversations with Tyler · John Cochrane on Economic Puzzles and Habits of Mind · IDENTIFIED FROM THE TRANSCRIPT · source
“So let me clarify the essence of the habit thing. This is a paper that John Campbell and I wrote in the 1990s. What we're trying to get at was not so much the level of the equity premium. Why do stocks seem to pay reliably more than bonds so much for so long? It doesn't do a great job of that. What it does a great job of is capturing what I think the essence of recessions is. And that's a time when people get scared. It's variation in risk aversion. And when you think about what happens in a recession, what happened last March, what happened in 2008, what happens in every recession is not so much that people want to consume less today and consume more tomorrow savings. It's people get scared. They don't want to hold risky assets. They want to hold safe assets. They act as if their risk aversion has gotten higher. And that's what habits captures as consumption goes down relative to what you're used to. People get more risk averse or unwilling.”
2021-03-10 · Conversations with Tyler · John Cochrane on Economic Puzzles and Habits of Mind · IDENTIFIED FROM THE TRANSCRIPT · source
“So I'll highlight this if I get my list of the 10 great unsolved puzzles that I hope our grandchildren will have figured out. Why does getting the information into asset prices require that the stock be turned over a hundred times? That's clearly what's going on is this vast amount of trading which is based on information or opinion or so forth. I hate to discount it all just as human folly, but that's clearly what's going on, but we don't have a good model of it yet.”
2021-03-10 · Conversations with Tyler · John Cochrane on Economic Puzzles and Habits of Mind · IDENTIFIED FROM THE TRANSCRIPT · source
“Some good articles on it. Somebody has to be the puzzle efficient markets. If everybody index markets couldn't be efficient because no one's out there getting the information that makes markets efficient. And then your second question is about trading. Why is there this immense volume of trading? When was the last time you bought or sold a stock? You don't do it every 20 milliseconds, do you?”
2021-03-10 · Conversations with Tyler · John Cochrane on Economic Puzzles and Habits of Mind · IDENTIFIED FROM THE TRANSCRIPT · source
“So, you ask two questions here. One is active management and the other is trading. I'd like to distinguish them. And this is, it's kind of a puzzle in the Chicago free market. Let me ask you a question even more pointedly. If you believe in efficient markets and you believe in competition and things work out right, we've been saying we've scientifically proven since the 1960s that high fee active managers don't earn any more than that proverbial monkey throwing darts and a well-managed low index. So why do people keep paying for high fee active management? Chicago free markets we're not supposed to say, oh, people are dumb for forty years, 50 years now. There's a lot of it. It's one of those things. Active management is slowly falling away, the move towards passive indexed investment is getting stronger and stronger. There is also a strong new literature, which I'll point to. My colleague here, Jonathan Burke, has written.”
2021-03-10 · Conversations with Tyler · John Cochrane on Economic Puzzles and Habits of Mind · IDENTIFIED FROM THE TRANSCRIPT · source
“Have enough hard time figuring out what I think is right, let alone why other people get things wrong and looking into people's heads is another bad intellectual habit. There's basic principles that say law interests make sense. Low growth and for the moment that low inflation. I'm not quite sure why we have low inflation, but low in anchored inflation means there's much less inflation risk. And furthermore, especially for the dollar, bonds are very good. They're very safe investments because every time there's a recession, bonds go up. So there's every reason to hold bonds in particular for those lower than stocks. On top of that, you can put on your frictions and your demographics and so forth. So I think it sort of makes sense, but I also don't like, aren't you theorizing about things like this?”
2021-03-10 · Conversations with Tyler · John Cochrane on Economic Puzzles and Habits of Mind · IDENTIFIED FROM THE TRANSCRIPT · source
“Optimists. We think this is temporary and will reverse, but the fact is productivity growth has been slowing down, and we're now a low-growth economy. Well, a low growth economy has lower real interest rates. That's just sort of the first principle of macroeconomics. A low growth economy has less opportunities for investment, and therefore lower interest rates, lower returns on capital. So that's number one.”
2021-03-10 · Conversations with Tyler · John Cochrane on Economic Puzzles and Habits of Mind · IDENTIFIED FROM THE TRANSCRIPT · source
“So let's talk about there's nominal interest rate forecasts where people, for example, for the last entire 10 years, everyone said, well, we're going to exit quickly and we didn't. Then I don't think there's forecasts at the real rate, but there's this long trend since 1980 of real rates going down. And again, we're playing the game that Hayek told us not to play of trying to say what the, you know, sitting around on a coffee table, say what forces are moving prices around. There's all sorts of speculation about it. We can have fun. I can give you the five theories. I don't believe in any of them. There are fundamentals here. We have moved to a much lower growth economy. So everyone jumps to, let me back up, everyone jumps to the savings gluts in the Federal Reserves and this and that. There's fundamentals that say low interest rates make sense. The first one is we are moving to a lower growth economy. It's a stagnation. You and I are technical.”
2021-03-10 · Conversations with Tyler · John Cochrane on Economic Puzzles and Habits of Mind · IDENTIFIED FROM THE TRANSCRIPT · source
“One of those things that sort of bedevils us free marketers. We look at something that ought to happen more of. For years, people said, why isn't there more cross-border investment? Then there started being huge cross-border investment that has to go on container ships. Money doesn't just flow. Investment means you put stuff on container ships and send it around the world. And now all of a sudden, no, there's too many trade flows and too much hot money and we can't have all this cross-border. So there is more and more cross-border investment happening now to the extent that many of our colleagues call it a puzzle and a savings glut and sudden stops and so forth. I don't think judging the right price or the right market is what free market libertarians ought to be doing. And that's why I'm a little uncomfortable with your question.”
2021-03-10 · Conversations with Tyler · John Cochrane on Economic Puzzles and Habits of Mind · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, all sorts of apparent opportunities should equalize. I urge you to start a hedge fund. So there are, let's talk about what's documented here. There's the puzzle of uncovered interest parity. You do seem to be able to make more money investing in countries that have high interest rates now. As you mentioned, a high interest rate should go along with an expected depreciation of the currency. And that pattern doesn't seem to be very strong. On the other hand, when it goes wrong, it goes wrong big time and all at the same time so that our friends who have started hedge funds that do this sort of stuff make money for a little while and then they lose it all. So there hasn't been a gold mine in people trying to exploit this thing. It's one more hedge fund strategy that you're welcome to invest in like all the other hedge fund strategies. I also say, you know, Crust, there is an interesting, there's a larger question, why is China exporting capital not importing capital cross-border flows?”
2021-03-10 · Conversations with Tyler · John Cochrane on Economic Puzzles and Habits of Mind · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, that's not an arbitrage. An arbitrage is the opportunity to make a sure profit with no risk. So you've got to invest in Brazil and you got to take the risks of investing in Brazil, which include usually currency risk. So real interest rate is the interest rate you get after the expected appreciation or depreciation of the currency. Then there's the legal risk that they might expropriate your stuff. It looks like there's a profitable opportunity to invest in Brazil. That way now it starts to look like everything else in finance. There's what looks like a profitable opportunity. There's risk. Are people properly balancing the profitable opportunity of risk? So why is Tesla stock so high? Why are value stock so low? You know, why does it look there's opportunities that you and I as an economists can't quite suss out what the risks are keeping other people from investing in? But if you'd like to buy a Brazilian gold”
2021-03-10 · Conversations with Tyler · John Cochrane on Economic Puzzles and Habits of Mind · IDENTIFIED FROM THE TRANSCRIPT · source