Monday , October 18 2021
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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

Three Things I Think I Think – Myths that Never Die

13 days ago

Here are some things I think I am thinking about.
1) The government is running out of money – NOT. It’s hard to kill old myths. Really hard. I’ve spent countless hours trying to debunk the idea that the US government is “running out of money”. But here we are having another debate about the “debt ceiling” and this fake idea that a government with a literal printing press is somehow going to run out of money because we imposed a fake credit limit on it. I’ve explained the absurdity of the “debt ceiling” before so I won’t bore you with it again. But what really bothers me is that we’re now engaging in all these silly counterproposals to overcome the silliness of the “debt ceiling”. For instance, there has been endless chatter about this “trillion dollar coin”. An idea, which,

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The Zoom Climb Glide Path & Why the Age in Bonds Rule is Wrong

18 days ago

In aeronautics a “zoom climb” is when an aircraft accelerates at a very high rate of speed and then ascends sharply at a very steep rate. It’s often performed with the aircraft moving at a high rate of speed at a low altitude and then shooting higher in a nearly 90 degree angle. I know nothing about aeronautics, but I know some stuff about money and I am going to explain how this concept can be applied to retirement planning and potential future glide paths. I also think this is a useful concept for understanding why the idea of “your age in bonds” is often wrong. 

As I mentioned yesterday, Peter Mallouk sparked a big controversy on Twitter when he said that target date funds are “terrible”. I want to add some more detail here because Peter makes a good point, but I would narrow this

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Three Things I Think I Think – Dangerous & Terrible Stuff

19 days ago

Here are some things I think I am thinking about:
1) Are target date funds “terrible”? Here’s Peter Mallouk, CEO of Creative Planning, on Twitter saying that target date funds are “terrible”:

I asked him to elaborate:

Peter’s a great follow if you use Twitter. Just a super practical thinker and all around good guy. And I think he’s touching on something important here. Personally, I am a huge fan of any investment strategy that I would categorize as a Discipline Based Investing approach. Discipline Based Investing is any asset allocation strategy that sets clear goals and establishes a systematic process for managing behavioral risk in a manner that helps achieve superior returns through superior behavior. I’d place target date funds in that category as they’re structured to achieve a

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It’s Time to Break the Debt Ceiling

25 days ago

Another year, another debt ceiling debate. I think it’s been over 10 years since I first talked about how ridiculous this all is. For those of you who have been paying attention all that time – you know the story. The way this works is simple:
Congress establishes a “debt ceiling”, a fake limit on how much national debt we can issue.
Then Congress approves legislation that will require new debt in the future.
That new legislation causes a breach of the debt ceiling.
Congress pretends they’re going to default and grandstand about the national debt. They shutdown the government for a week or two.
Then the debt ceiling gets raised because past legislation forces Congress to raise the debt ceiling or default.
Rinse, wash, repeat.
This is obviously a ridiculous sequence of events. I’ve

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Three Things I Think I Think – Not So Grande Stuff

26 days ago

Here are some things I think I am thinking about:
1) So, not so grande, eh? China Evergrande, the Chinese real estate developer has everyone worried these days about the second coming of Lehman Bros. The company has shrunk by about 90% so they’re not so grande anymore. Get it? Did you catch that joke? Geez, I am hilarious. Maybe they should call themselves Nevergrande? Get it? Did you catch that joke? I’m here all day folks.
This sort of thing has happened a few times in the last 10 years with China. Here’s what I have to say about this:
If you think China won’t bailout every one of its state run banks to fend off a financial crisis then I don’t know what to say. The supposed “capitalists” in the global economy do that now. So what do we think the Communists will do? Lehman ain’t on the

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Introducing the Discipline Fund ETF

27 days ago

I am thrilled to announce the first day of trading of the Discipline Fund ETF on the New York Stock Exchange under the ticker DSCF. Discipline Funds is a new company that I’ve formed in 2021 to serve as the fund management arm of my investment advisory firm, Orcam Financial Group, LLC.
We’ve partnered with the NYSE and Wes Gray at Alpha Architect to make this happen. These are incredible partners. You have no idea. Well, maybe you do. Anyone who knows the NYSE knows, well, it’s the NYSE. And anyone who knows Wes Gray and his team at Alpha Architect know that they’re the best of the best. Wes bleeds integrity, knowledge, and trust. You won’t meet a better person in your life. I am so grateful to have him and his team on our side.
I’ve wanted to start a publicly traded fund for a long

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Yes, Dow 36,000 Was Very Wrong

September 9, 2021

Ken Rogoff took the WSJ yesterday to explain why the infamous Dow 36,000 prediction wasn’t wrong. He writes:
Their simple policy advice: Buy a diversified portfolio of stocks, and don’t put too much money in bonds. Over the long run, stocks offer a higher return without significantly greater risk.
He goes on to explain that this advice was somehow correct. The problem is, if you chose not to hold bonds in 1998 you generated far worse nominal AND risk adjusted returns than a simple 60/40 portfolio.  And not for a little bit – this outperformance of a 60/40 lasted for 18 years! It wasn’t until about 2017 that a 100% stock portfolio started to outperform meaningfully. And while you waited for that outperformance you endured a couple of whopping downturns including a -50% collapse.

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Three Things I Think I Think – It’s Crypto All The Way Down….

September 8, 2021

It’s all anyone can talk about these days so I guess it’s all I can think about….crypto, crypto, crypto.¹
1) El Salvador and Bitcoin. El Salvador officially adopted Bitcoin as a form of legal tender yesterday. We’ve discussed this before, and it is very, very, very strange, but maybe not so strange in the specific case of El Salvador (ES). So, long story short – ES is a small country that has an unusually high amount of dollar imports mainly because they’re an export based economy that has many foreign nationals sending USD back to ES every year. So they import this strong currency, it swamps the usage of the domestic currency and the federal government has a hard time maintaining price stability in the national currency because the better currency is in higher demand. So ES is in this

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Three Things I Think I Think – Everything Goes to Zero in the Long Run

September 1, 2021

Here are some things I think I am thinking about:
1) Crypto All Going To Zero?
John Paulson of subprime mortgage fame has some negative thoughts on cryptocurrencies:
“Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless. Once the exuberance wears off, or liquidity dries up, they will go to zero. I wouldn’t recommend anyone invest in cryptocurrencies,”
I’m not sure why people need to take such extreme views on so many things financially related. In the crypto space it seems like most people involved in these debates are either crypto maximalists or minimalists. There seem to be very few people in the middle. Paulson obviously is a minimalist. Now, I get his view to some degree. As of today the crypto space is still just 1% of all outstanding

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Three Things I Think I Think – I See Dead Mutual Funds

August 26, 2021

Here are some things I think I am thinking about.
1) I see dead people. I mean, dead mutual funds.
Back in 2012 I wrote an article about how horrible mutual funds are. I said:
Mutual funds are a dinosaur product.  The higher fees, reduced tax efficiency, lack of liquidity, and weak performance continues to hurt the industry.  And this is only just beginning.  There’s still $24 trillion in global mutual funds just waiting to find a new home.  This tidal wave of money will flow out of mutual funds and into ETFs and other more client friendly products and approaches in the coming decades.¹
In the last 6 months we’ve seen a tidal wave of fund companies converting old mutual funds to ETFs or starting new ETFs. Yesterday’s news that American Funds is starting ETFs was a total game changer.

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Should House Prices be in the CPI?

August 24, 2021

The rapid rise in house prices has stirred up the old debate debate about how the BLS calculates housing’s contribution to the CPI. This is no small debate since the US housing market is essentially the economy, mortgage debt comprises 75% of all household debt AND shelter is 33% of the CPI.
Some people claim that the existing methodology understates inflation and gives people a false impression of how much our living standards are being impacted. The BLS, on the other hand, argues that housing prices do not necessarily reflect the changes in consumer prices and living standards because they’re more reflective of “investment”. I am sympathetic to both sides of this discussion so let’s see if we can add some clarity to the debate.
The history of this debate is a rather long one. Here’s a

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Three Things I Think I Think – Some Weekend Reading

August 21, 2021

Here are some things I think I am thinking about:
1) Weimar Inflation!
I was back home last week to see my family in DC and boy was that nice. My daughter got to meet her 10 nieces and nephews and I got to drink beer with my 7 brothers, sisters and parents. It almost felt like life was normal again.
While I was there I was rummaging through my grandfather’s old stamp collection and I had to laugh at this little note he left on one page with a 50 million mark note from Weimar Germany. He wrote:
“…an historic example of the evils of inflation, and one our country should bear in mind!”
It’s fun to think about considering I’ve spent most of my adult life trying to understand and predict inflation.  I wonder what my grandfather would say today?
2) MMT and Non-Existent Inflation Theories. 

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The Investors Podcast – Masterclass in Inflation

August 17, 2021

I joined The Investor’s Podcast for a special Masterclass in Inflation. In this episode we covered the following topics:
00:00:00 – Intro
00:00:45 – What is inflation, and what is it not
00:05:51 – How much of inflation is due to base effects
00:09:53 – How can expected inflation drive inflation
00:14:21 – If the current inflation is temporary
00:21:37 – How is inflation reflected in the real estate prices
00:28:27 – Why do we have regional differences in inflation
00:36:40 – If investors can profit from the interest rate parity
00:44:02 – If investors should take on debt in an inflationary environment
00:49:26 – Whether value stocks are a good investment in times of inflation
00:57:59 – Whether paper assets can be inflation-proofed?
01:04:29 – How Cullen Roche has positioned

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Three Things I Think I Think – Deep Weekend Thoughts

August 7, 2021

1) How About That Jobs Report? Wowzers. That was something else. Yesterday’s Jobs Report was huge figure after huge figure. The unemployment rate collapsed to 5.4% and the US economy added almost a million jobs. Truly great numbers across the board. I said it in my recent interview – people are pouring back into the workforce. This momentum is really picking up now and that’s only going to continue as the stimulus winds down and the demand for labor picks up into year-end.
Now, the really interesting thing about this report is the unemployment rate because that’s the figure that the Fed is really honed in on at this point. Powell has been clear that he doesn’t care about the current inflation readings. He wants to make sure that the economy is back to full potential before raising rates

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Three Things I Think I Think – Macro Thoughts

August 3, 2021

Here are some things I think I am thinking about:
The most recent Howard Marks memo is a real rollercoaster of macro emotion. He starts off by declaring that macroeconomics is useless. But then spends 15 pages explaining some of his macro views and why they might be important. It’s easy to hate on macroeconomists. They didn’t predict the financial crisis and they pretty much don’t predict anything at all. But I think this is a misinterpretation of why macroeconomics is useful. Macro isn’t useful because it can provide you with very precise and timely predictions. Macro is useful because it gives you a general framework for navigating the world. 
I like to think of macroeconomics and macro finance like dieting. I am not a dieting guru. But I rely

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What’s Next for the Fed and Inflation

July 30, 2021

Here’s an interview I did on the TD Ameritrade Network explaining a few current hot topics:
Why the Fed should stop using the term “transitory”
What’s the likely future of inflation?
At what point will the Fed start worrying about inflation and potentially raise rates?
Why housing and the recovery could pose the biggest risks to inflation upside.
I hope you enjoy.
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Three Things I Think I Think – Learning From Bad Inflation Takes

July 21, 2021

The great thing about Twitter is that the instant you put a bad take into the universe you will get roasted for it. The bad part about Twitter is that the instant you put a bad take into the universe you will roasted for it. I kid, kind of. There’s actually a lot to learn in saying the wrong things and I’ve surely benefitted from putting my wrong opinions out into the universe only to have someone correct me. So I guess you could say that there’s no such thing as a stupid take, only stupid responses. Or something like that. Anyhow, here are some bad takes on inflation that I think are learning experiences. And don’t worry, bad inflation takes don’t have a political bias so you should be able to find something to confirm your preferred political bias in here:
1. AOC on inflation. AOC was

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The Fed Should Stop Using the Term “Transitory”

July 14, 2021

This website exists in large part because our government is extremely bad at communicating complex topics to the general public. I’ve tried to fill that void by explaining some of these more complex topics over the years. So I dedicate yet another post to our government, whose communication skills continue to leave something to be desired….

TRANSITORY – adjective 

The Fed keeps saying inflation will be “transitory” so they’re willing to keep rates low and keep pumping their balance sheet because they’re not worried about sustained high inflation. This has become a bit of a joke online because your Average Joe knows that none of this will actually be “transitory”. This is a significant communication

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How Does the Fed “Manipulate” Interest Rates?

July 8, 2021

Warning – hard money types are going to lose their minds over this article. I apologize in advance. 
It’s impossible to talk about interest rates without running into people who think the Fed has “manipulated” interest rates lower than they otherwise would be. As if the bond market has become nothing more than one huge completely manipulated Federal Reserve market. This is a really intuitively appealing argument and it’s not even completely wrong, but I want to add some important operational facts for context. Importantly, I am not here to say that the Fed doesn’t manipulate stuff. In fact, the Fed is an explicit manipulation of the regulatory structure of the overnight settlement market. But I am here to argue that the Fed doesn’t manipulate rates DOWN. In fact, they pretty much always

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What is “Fractional Reserve Banking”?

July 1, 2021

The term “fractional reserve banking” is commonly used in a confusing manner in both mainstream economics and within lay conversations about economics. I hope this article with clear up some of the common confusions. 
Fractional reserve banking is the idea that banks take their reserves and lend them into some fraction based on the quantity of reserves they hold. This idea has been largely debunked since the financial crisis. In reality, banks do not lend their reserves, except to one another inside of the reserve system (which is a closed system, ie, reserves don’t even leave the system). They don’t even lend based on the quantity of reserves they hold. In reality, banks make loans and find reserves after the fact if they must. And if the Central Bank has a reserve requirement in place

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Does a 100 Vol Asset Belong in Retirement Accounts?

June 24, 2021

The Washington Post reports that some 401K providers are considering cryptocurrencies in their portfolios. The idea that alternative assets should be more widely available has become a more and more common refrain due to the fact that many of the best performing asset classes in the last 10 years are crypto and venture capital, two asset classes that are closed off to most traditional investment accounts like 401Ks and IRAs. Should this change? Let’s explore. For the purposes of this exercise I’ll focus on cryptocurrencies as opposed to specific venture capital investments. 
As you enter or near retirement most people will need this portfolio to provide a certain level of stability to offset the unpredictability that comes with reduced income streams from working. This account is

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Three Things I Think I Think – Transitory Stuff

June 19, 2021

Here are some things I think I am thinking about:
1) “Transitory” inflation….Contrary to popular opinion, I am not the Director of Communications at the Federal Reserve. I don’t even work for the Federal Reserve. I’m just a lowly asset manager who happens to oversee a big chunk of fixed income so I worry incessantly about inflation and interest rates. That led me to obsess about how the Fed actually works and so here I am constantly writing about how the Fed works and how they think about things. If I am being honest, I think the Fed is generally terrible at communicating things to the outside world. So, they end up being an easy target for pretty much anyone who wants to dunk on them.
Anyhow, the Fed loves using the term “transitory” to describe blips in inflation. But I’ll be blunt, I

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Three Things I Think I Think – Bitcoin, Moar Bitcoin and Inflation

June 8, 2021

Here are some things I think I am thinking about:
1) Moar Bitcoin!  Back when I was a young adventurous person I used to have an exciting portfolio filled with interesting individual stock bets. But then I learned a bunch of economics/finance, got old/fat and turned into a pretty boring indexer. So I just love it when other people make wildly insane bets that I can write blog posts about. And I think that’s why I love the MicroStrategy story so much. In case you haven’t been following along, Michael Saylor, the firm’s founder has basically turned into a full blown laser eyed Bitcoin Maximalist. He’s convinced that the USD is going to blow up and that 15% annual inflation is coming. So he doesn’t want to hodl his firm’s cash in USD. But instead of going down the traditional finance route

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Three Things I Think I Think – The More Things Change the More They Stay the Same

June 2, 2021

Here are some things I think I am thinking about:
1) Markets are crazy, part 2,343,325. I like to say that markets don’t really “cycle” like a sine wave. They tend to trend up and to the right with temporary shocks along the way. Whatever causes the shock (up or down) will always be different. But the responses are more or less the same. That is, people get greedy, then they get really greedy, then they get fearful and then they get really fearful. Timing all of this is damn near impossible, but while the causal factors are always “different this time”, the one constant that’s never different this time is human emotion.
We’re obviously living through one of the “really greedy” phases. Case in point, AMC bonds, which have to be one of the charts of the year. These bonds were left for

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Everything Wrong with the “Money Printer Go Brrrr” Meme

May 26, 2021

You’ve probably seen some version of the following meme in the last few years. In case you haven’t it’s generally used to infer that Jerome Powell is printing money and hyperinflation is coming. I love a good meme and few things make me happier than hilarious nonsense on the internet. So I feel bad debunking this meme because it’s kind of funny and memes are mostly harmless, but this is one of those memes used by people who want you to believe something that isn’t right. Anyhow let’s get into it.
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Problem #1 – Jerome Powell Doesn’t actually Print Cash. 
Let’s start with a really basic problem in this meme – the Fed firing cash out of the money printer….
That cash that Jerome is firing out of the money printer isn’t really in his control. Technically, the cash in your

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Three Things I Think I Think – Crypto, Crypto, Crypto

May 24, 2021

Here are some things I think I am thinking about.
1) So. Much. Crypto. 
I am about to write a post entirely about crypto. But before I do that I want to make it clear that this space gets WAY too much attention. I mean, we’re talking about an asset class that is incredibly small relative to the scope of the global financial asset portfolio. At just 1% of global financial assets the entire crypto space is about the size of Amazon. Amazingly though, the crypto space dominates the airwaves. It’s virtually all anyone can talk about these days. So, here I am to pile on.
Of course, the reason it’s getting so much attention is because of the sharp increase in prices. Crypto is the get rich quick narrative of the year. Or, more recently, the get poor quickly narrative. I was looking at the

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Let’s Talk About Inflation

May 12, 2021

Whooboy. What a CPI print. Here are some highlights in case you have a life and don’t drool over BLS reports:
The all items index experienced its largest increase (4.2%) since Sept 2008.
The used car index was up 10% in April, its largest increase since 1953.
The core index (ex food and energy) was up 0.9% in April, its largest increase since April 1982.
Fun. There will be a tendency in many circles to assume that this is the return of the 1970s or something like that. I think we need to relax and try not to overreact. Here’s why:
1) These figures are exaggerated by base effects. The price index troughed in May of 2020 at 256. So the year over year comps start looking exaggerated because of the COVID effect. Basically, the economy was in crash mode last April and May so prices

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Three Things I Think I Think – Losing Reserve Currency Status

May 11, 2021

Here are some things I think I am thinking about.
1. Is the Fed “Playing with Fire”? 
Stan Druckenmiller had an op-ed in the WSJ about how Fed policy has been too loose for too long. I think there are some reasonable perspectives here. I’ve been pretty vocal about the risk of inflation overshooting the Fed’s target this year. I also think there’s an increasingly convincing argument that the Fed’s policies have contributed to a lot of financial market craziness in the last year. It would not surprise me at all to see the Fed backpedaling later this year or in 2022 as they unwind the balance sheet a bit and raise interest rates to try to contain inflation and the housing market.
At the same time, I think this was a risk worth taking. For instance, let’s say the Pandemic had turned out to

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The Scarcity of Money Myth

April 27, 2021

I’m here to ruin some long running narratives. I apologize in advance.
Money is not scarce. It never has been and it never will be. More importantly, scarcity of money is not a strength.¹ It is a weakness. Sound weird? Yeah, I bet. Let me explain.
Back in college I was kind of obsessed with commodities and commodity money. I’d been reading a lot of Austrian econ and all that stuff. But then I came across the endogenous money theories and I learned over time that money is not a physical thing or a rock in the ground or anything “natural” at all. Money is actually a very unnatural thing. We’re the only species that uses it because it is pretty much something we conjure up in our minds. More specifically, “money” is really just a bunch of contractual agreements. It’s “I’ll give you 25

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Credo Wealth Interview on the Macro Landscape

April 20, 2021

I recently joined Deon Guows of Credo Wealth, a $5B wealth management firm in London, to discuss the macro landscape in the years to come. We hit on a huge number of topics. Check out the chapter time stamps in the YouTube video to navigate to specific parts. I hope you enjoy!
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