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Cullen Roche

Cullen Roche

Former mail delivery boy turned multi-asset investment manager, author, Ironman & chicken farmer. Probably should have stayed with mail delivery....

Articles by Cullen Roche

Everything Investors Need to Know About the Federal Reserve

7 days ago

Here’s a good podcast I did earlier this month about Monetary Policy and the Federal Reserve. Jack and Justin are great friends of mine and run an excellent podcast called Excess Returns. Please check it out if you haven’t already.

There has been a lot of debate about Federal Reserve policy in the wake of the pandemic. But many of those involved in that debate want to promote a specific position and interpret the facts in a way to accomplish that goal. In this episode, we wanted to take a step back cover the facts about the Federal Reserve and how it operates. And we couldn’t think of a better person to do that with than our friend Cullen Roche. We discuss the history of the Fed, what its mandates are, the tools it can use to achieve its goals, and how all of that applies to the

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Will the Surging Dollar Crash the Global Economy?

16 days ago

Here’s a new 3 Minute Money. In this video I discuss the implications of the surging US Dollar:

Why is the USD surging despite rising inflation? What does this signal about the global economy? What does this mean for Federal Reserve policy? I hope you learn something and enjoy the video.

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Debunking Common Investment Myths

18 days ago

I joined Dr. Daniel Crosby on the Standard Deviations podcast for a wide ranging discussion about portfolio management and navigating the conspiracy theories of the financial markets.

This one’s short and sweet at just over 30 minutes. We covered a lot of ground and Daniel is a great host. Check out his podcast here.

Tune in to hear:

– What is “all duration investing” and what behavioral upside might this approach have for investors?

– How can you better organize a bucketing approach to reflect those investments’ time horizons?

– What about the tendency for all time horizons to become today in the face of behavioral pressure – how can we protect ourselves from this?

– Why is the myth that “China owns the USA” constantly perpetuated?

– A lot of people think

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TD Ameritrade Interview – My Outlook on Housing

19 days ago

I joined Oliver Renick on TD Ameritrade Network last Friday to discuss the housing market and some of my recent comments from the newest Three Minute Money video. In short:

Interest rates over 6% creates an unaffordability problem that is likely to put downward pressure on prices as demand dries up and supply increases. This isn’t a 2008 repeat, however, because you won’t have the low quality adjustable rate borrower being forced to panic sell.We’re also unlikely to see a financial panic because banks are much healthier and the Fed is much more involved in shoring up the financial markets at the first whiff of contagion. Housing is likely to be fragile for several years until the supply/demand imbalance in the interest rate market corrects. My estimate is that prices could fall

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The Investors Podcast – Masterclass on Inflation Continued

24 days ago

I joined The Investor’s Podcast for the 9th time! I am officially the Alec Baldwin of the show, but far less handsome. We continued our talk about inflation and how to navigate these difficult times. If you missed the first Masterclass on Inflation please check it out here.

I hope you learn something new from this:


Why inflation will be moderate in the coming years.Why deflation is more likely than hyperinflation.Whether velocity of money is important for inflation.Whether a negative budget balance leads to inflation.How do you include inflation expectations in your retirement portfolio.What the optimal inflation or deflationary target is.What would a deflationary world look like?Whether we are entering a period of a “Fed call”.What the 2Y

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Is the Housing Market Going to Crash?

24 days ago

Here’s a new 3 Minute Money on housing. In this video I cover:

The dynamics of the boom Why housing is so important to the broader economyThe risk that surging rates poseWhy this boom was different from the Housing Bubble boomwhat a potential bust might look like. I hope you enjoy it.

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Three Things I Think I Think – Bad Ideas

August 25, 2022

1) ESG – Still a Convoluted Mess.

My long standing position on ESG (Environmental, Social & Governance) investing is that secondary markets are a not a great place to try to enact change. In short, it’s another form of active stock picking except now you’re letting your emotions get in the way. For instance, I might hate Exxon Mobil because they pollute the environment, but XOM also invests huge amounts of money into renewables. In fact, the only way they’ll survive in the future is if they adapt to the changing world and more renewable energies. You wouldn’t want to remove XOM from your portfolio because that’s making a bet that XOM won’t adapt or survive. Worse, it is an explicit prediction that the world will change to renewables faster than you or XOM might think. And that’s

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New 3 Minute Money – How Interest Rates are Set

August 23, 2022

Interest rates are one of the most important prices in the economy, but how are they determined and what is the mechanism by which they change? In this video we touch on the operational dynamics behind interest rate changes and how they filter through the economy.

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New 3 Minute Money – Why Do Banks Need Deposits?

August 19, 2022

I often talk about the importance of understanding banking and the relationship between inside money and outside money. And a common theme in this topic is that the money multiplier concept isn’t quite right. In fact, the textbook treatment of this direct causal relationship is completely wrong. But if the money multiplier is a myth and banks don’t multiply their reserves and deposits then why do banks even need deposits? This new video answers one of the most common questions when learning that the money multiplier is a myth. In short, banks “multiply” deposits by earning a profit from them in various ways. But yhey don’t take in reserves or deposits and lend them out $ for $ in a textbook multiplier manner.

If you like this series please leave a comment and let me know what you’d

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*New* White Paper – All Duration Investing

August 16, 2022

I’m excited to share a new research paper with you all. It’s the first one I’ve published in 6 years and it’s one of the few things I’ve written that I believe deserves the formalities of a paper. It’s called “All Duration Investing” and what I’ve done in this paper is quantified the actual “durations” of all asset classes. What’s nice about this approach is that you can now structure different asset classes in specific time horizons using a financial planning foundation. This allows us to use an asset-liability matching framework and help investors understand how specific assets fit into a specific financial plan.

Everyone has short, medium and long-term liabilities. The problem with investing is that these time horizons involve uncertainty because we do not know the time

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Inflation Debates – YoY vs MoM

August 11, 2022

A surprisingly controversial debate broke out in recent days when Joe Biden said there was no inflation. He was referring to the month over month reading which showed a slight decline in prices. The BLS measures inflation on a monthly basis and while the 12 month year over year comparison showed a 8.5% increase the monthly price was flat on a month over month basis.

Twitter seemed especially argumentative about this point. I know, I know – it’s shocking to hear that people on Twitter argue. But it seemed politically motivated to me and so here’s a dollop of apolitical perspective on this debate.

There are a bunch of problems with this focus on monthly inflation. First, we adjust inflation data specifically because short-term data is very noisy. For instance, the BLS prefers to

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Three Things I Think I Think

August 10, 2022

Here are some things I think I am thinking about:

1) Inflation has peaked.

This morning’s CPI report is more evidence that disinflation is going to become a more prolonged and entrenched trend in the coming years. I said back in January that I thought inflation had peaked and so far we’ve had falling rates of core CPI and PCE inflation since then. It’s still early and it’s not necessarily going to be a quick process because we have a good amount of upward pressure from some important items like rents, but the year over year comps become very high going forward and unless we have some sort of crazy outlier event (like WW3 raging in Taiwan) then I don’t see how the trend can continue anywhere but down.

In fact, I’ve recently argued that the more likely outcome in the

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Is the USA in a Recession?

August 2, 2022

New episode of Three Minute Money here.
Is the USA in a recession?
While the media has traditionally referred to a recession as 2 quarters of negative GDP the White House and NBER disagree that the recent 2 quarter decline is consistent with a recession. In this video we explore the technical definition of a recession and the primary indicators that the NBER uses to define a recession. We also explore why this feels like a recession even if it might not technically be a recession.
Useful links:
1) Business Cycle Dating, NBER
2) How do economists determine recessions? 
3) Here’s What the Six Key Official Indicators of US Recession Show
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Three Things I Think I Think – What is a Recession?

July 28, 2022

Here are some things I think I am thinking about:
1) Are we in a recession? 
Today’s GDP reading officially shows two quarters of negative GDP. This has been a traditional media measure of “recession”, but the NBER has always been pretty vague about what a recession is. But one thing they’re clear about is that they they do not consider two quarters of negative GDP to be a recession. Instead, they say a recession is when there’s been a significant decline in economic activity.
What to make of this whole debate?
Defining “recessions” is a lot like defining bull and bear markets. It’s nice for creating some binary clarity around an idea, but it’s necessarily subjective and doesn’t always tell the full story. And that’s where this gets really messy because inflation has been so high that

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Three Things I Think I Think – Some Things Never Die

July 22, 2022

Here are some things I think I am thinking about:
1) The Money Multiplier Lives!
Longtime readers are probably very tired of watching me try (unsuccessfully) to kill the money multiplier. I’ve written countless articles about it, a book with an entire section on it and I’ve also started posting short videos for people with no attention span (I know, that’s all of us now). So I was really sad to see it crop up again today in an article in the Financial Times by Sheila Bair who wrote:

Gahhh. This is classic money multiplier thinking and it starts with the myth that banks aren’t lending their reserves because the Fed is paying them not to. No, no, no. To reiterate:
Banks do not and cannot lend out their reserves to non-banks.
Banks leverage their capital. Reserves are an asset for banks.

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New 3 Minute Money Episode – The Money Multiplier Myth

July 19, 2022

Here’s a new Three Minute Money episode. We’re still cranking through some basics, but this one needs reiterating because the money multiplier seems to be immortal. Ideas like “fractional reserve banking” and the Fed controlling the money supply through reserve creation still run rampant in economic and financial circles. This video goes into some detail on the mechanics and why it’s incorrect to think of money creation as starting with the Federal Reserve and being “multiplied” across the economy. I hope you enjoy it. If you have topics you’d like me to cover in the future videos please let me know.
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The Risk of Deflation is now Greater than the Risk of Prolonged High Inflation

July 13, 2022

The most recent headline CPI came in at 9.1% so it might seem odd to think that the risk of disinflation and deflation is rising. But while the CPI is a rear-view looking indicator many forward looking indicators are starting to tell a very different story – a story of falling demand and falling prices.
The economic and inflation story of the last 36 months is simple:
We had a global pandemic that we responded to by printing $7 trillion while we also shutdown huge portions of the global economy.
This created a mix of demand side inflation and supply side inflation.
While many people thought the inflation would be “transitory” it has persisted longer than many expected because of the waves of COVID, shutdowns and then the surprising war in the Ukraine.
I am on record having predicted the

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Second Edition of Pragmatic Capitalism Now Available!

July 11, 2022

It’s been 8 years since I first published my book Pragmatic Capitalism and I finally got around to updating the book with a Second Edition. It had become very hard to acquire and copies were selling for hundreds of dollars. I even saw hyperinflationary prices of $43,000. And no, you should never pay $43,000 for a book. Not even one that has millions of dollars of monetary knowledge in it. Just kidding of course. You should definitely pay $43,000 for my book. Unless of course you can find it on Amazon for $9.99. Which, I am happy to announce, you can now do. We also published new updated paperback and hardcopies for $21.99 and $28.99.
The updated second edition adds some of my work on Discipline Based Investing and why I’ve become such a big advocate of Indexing and specifically

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Macro Outlook Update – This Too Shall Pass

July 5, 2022

I joined Matt McCall on the Making Money show for an update on my macro outlook for the rest of the year and the coming years. It was a wide ranging interview and we covered a lot of ground. I am not super optimistic about the global economy in the coming 18 months and I think investors are going to have to continue to remain somewhat patient. But this doesn’t mean you should abandon your plan. As John Bogle liked to say, stay the course and be patient. I hope you enjoy the interview:
00:00 Cullen Roche intro
3:27 How to pick stocks that go against the trend
5:43 Are we near peak inflation?
10:39 Financial ramifications of a China/Taiwan war
11:38 Will you adjust your portfolio?
14:32 Repercussions of increased mortgage rates
16:59 When can investors start investing during a

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The Economic Problem with LIV Golf

July 1, 2022

* This is a bit off topic, but as a casual golfer/watcher and economic nerd I think it’s an interesting topic.  
The creation of the LIV Golf tour has shaken the world of golf to its core. LIV is the Saudi Arabia backed league designed to “compete” with the PGA Tour and other world tours. As a pragmatic capitalist, I obviously love competition, but this isn’t competition. In fact, I think it’s likely to hurt golf because it is anti-competitive.
This situation is a really interesting one from the perspective of market based competition because the PGA, like many other sports leagues, essentially has a monopoly. But can a private monopolist compete with a government funded entity? In this case, the real monopolist is LIV because LIV is being funded by a very wealthy national government.

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Three Things I Think I Think – Flation, Flation, Flation

June 30, 2022

Here are some things I think I am thinking about:
1) Inflation has peaked. 
Back in January I said inflation had peaked. This morning’s Core PCE data seals the deal for me – it looks like inflation peaked in February. So, I missed it by a month. Still, this one looks very clear to me from here on out. The year over year comparisons become much flatter as the year goes on. By the end of the year a lot of the underlying inflation components are going to be negative.  Given all the broad economic weakness and potential downside in housing, my baseline is that inflation is still going to be well above the Fed’s 2% target by year-end, but I think the odds of a runaway 1970s style inflation are very, very low now. There is no chance of hyperinflation. I would actually argue that the risk of

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Three Things I Think I Think – The Fed Lost some Money

June 27, 2022

Here are some things I think I am thinking about:
1) Who Owns the Fed’s Losses? 
Here’s an interesting article about the Fed’s losses. Since they started raising rates late last year the Fed has $540B of unrealized losses. How problematic is this?
First, the Fed earned over $1.2T in interest over the last 12 years. But they distribute all this income to the US Treasury at the end of every year. They don’t keep this income as retained earnings or a capital buffer because the Fed doesn’t have a capital requirement like a normal bank. But it’s interesting to note that if they did retain their earnings there’s no reason to think that a loss like this would be a net negative. In fact, they’ve been massively profitable over the last 12 years even with this unrealized loss.
Second, these are

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Your Balanced Index Still Isn’t Balanced

June 17, 2022

As a general rule I like simple indexing strategies like a 60/40 stock/bond portfolio, for the right person. It’s perfectly consistent with what I would call a “discipline based investing” strategy in that it’s evidence based, low cost, tax efficient, systematic and helps to self regulate behavior by rebalancing back to a less procyclical stock weighting over time. In other words, if you didn’t rebalance your 60/40 then it would grow to 70/30 (or more stocks) over time and this would create an imbalance between your risk profile and your allocation. Rebalancing back to 60% stocks helps regulate that skew and reduces the downside variance if the stock market falls a lot. We call a portfolio like 60/40 a “balanced” index, but is it actually balanced? I don’t think so and I think this is a

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The Fed’s Policy Mistake has Been Made

June 15, 2022

Last April I said the Fed was on the verge of a policy mistake. My basic thinking on this was as follows:
Excesses in the financial markets and economy were obvious last May when I hinted that the Fed should be raising rates.
Inflation kept rising at an uncomfortable rate which warranted some Fed offset, but they remained behind the curve well into late 2021.
By the time the war in Ukraine was in motion the economy was already showing worrisome signs of slowing, but energy prices were surging.
All of this put upward pressure on inflation that forced the Fed’s hand to play “catch up” with the risk of overtightening.
They had to save face to maintain “credibility” and moved very aggressively, too aggressively, but now they’ve risked exacerbating the slowdown in the other direction.

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Is This the Return of the 1970s?

June 10, 2022

Another hot inflation reading this morning with CPI coming in at 6% on the headline. The good news (if there is any) is that it does look like year over year inflation peaked back in February, but the outlook going forward is more and more muddled as time goes on. On the one hand, you have broadening services inflation and surging commodities. The war in Ukraine and potential for a conflict in Taiwan are strong arguments for continued high inflation. And on the other hand, you have rising recession risk, slowing house prices, crashing shipping costs and the potential for an overly aggressive Fed who could crash credit markets and actually cause deflation.
As I describe in the attached video, I think the higher probability is that we’ll continue to see a falling rate of inflation in the

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Three Things I Think I Think – Government Bankruptcy, Misery & the Return of the 70s

June 8, 2022

Here are some things I think I am thinking about:
1) The US Government Still isn’t Bankrupt. 
Kim Dot Com, a New Zealand based technologist wrote a viral thread on Twitter claiming that the US government is bankrupt. A lot of it is based on basic errors and fallacies of composition so I made another Three Minute Money video on this topic to help provide some clarity. This will be old material for regular readers, but the 3 minute format is a nice succinct refresher.
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2) Are we already in a recession? 
There was an interesting poll going around showing that many people already believe we’re in a recession. We’re obviously not in a technical recession, but my theory for this poll, aside from political bias, is that a lot of people actually feel like this is a recession

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Is the Dollar Losing Reserve Currency Status?

June 2, 2022

Here’s a special Myth Busting edition of Three Minute Money. In this video I cover the topic of reserve currencies and whether the US Dollar is losing its status as “King Dollar”. I hope you enjoy it.
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Three Minute Money – Understanding Banking & Inside Money

May 25, 2022

New video out today!
In this video we cover the basics of banking and inside money. We describe how banks work and how they make loans which create deposits. We also begin to uncover the relationship between outside money and inside money.
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Useful links:
1) The Basics of Banking
2) Money Creation in the Modern Economy 
3) Understanding the Modern Monetary System 

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Three Things I Think I Think – Bonds, Bear Markets & ESG

May 21, 2022

Here are some things I think I am thinking about:
1) Is The Bond Bear REALLY Over Now? 
JP Morgan issued a bottom call in bonds yesterday. The basic thesis is that the Fed has shocked financial markets with its aggressive position on rates and the needed effect will filter through the economy and inflation data in the coming year. I largely agree with this. In February I said that rates would likely peak out around 2.5% on the 10 year and they’re currently at 2.85% so we’ve gone a little further than I expected. I’ve actually been shocked by the Fed’s aggressive rhetoric and to be honest I find it a little reckless and so far behind the curve that they’re creating very serious recession risk. My general thinking there is that we’re nearing the level where the relative 30 year mortgage

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Three Things I Think I Think – When Things Break

May 11, 2022

Here are some things I think I am thinking about:
As a housekeeping note – check out my new YouTube channel. It’s short hits on money and finance so people who like the long form reading might not enjoy it as much, but I am giving it a try. Constructive criticism is extremely valuable as I want this to be valuable to people. 
1) Will interest rate risk transform to credit risk? 
One of the things I’ve been hammering on lately is that I think that Fed made a policy mistake by not being more proactive and then overreacting and raising rates very rapidly by essentially pricing in 12 rate hikes in a matter of months. I think all this stuff going on in financial markets is disinflationary at best and deflationary at worst. We’ve lost $35 TRILLION of total market value in the last 3 months.

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