Comments
Transcript
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ZMQuestion for the wizards here...at about 39 minutes Kevin says "we can't create inflation for the life of us". How is inflation measured? It seems to me like the costs of everything rise dramatically. Is that not part of inflation?
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PGGreat stuff. Love this guy's blog.
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LJHonestly, when I hear people talk about MMT I just want to 1st puke and 2nd buy more bitcoin. If printing more and more money doesn't cause inflation than maybe we should think about the possibility that there is something wrong with the way we calculate inflation. In my mind pushing asset prices up by artificially printing more and more money (grossly oversimplifying) is just wrong and waiting for a disaster to eventually happen. It's literally socialism for the rich and diminishing the purchasing power of the middle class and it makes me sick.
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EQThe interview I was waiting for since long time ago... the Macro Tourist. The guy of the nice and insightful articles and funny pictures... I hope he´s coming back
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SWThe referenced article by Kevin at his site The Macro Tourist is a fantastic piece. There are at least two factors to ponder regarding MMT per Kevin: 1. Is MMT "good"? 2. Is it coming regardless? On factor 1, proponents argue it's good per se. I would disagree (oh the perils of unintended consequence) but would leave the convincing to the likes of Bob Murphy. From another (more "fair"?) perspective however, it's hard to argue that MMT isn't perhaps less bad than QE in total to date. Occupy Wall Street might have been largely collectivist whiners, but they sort of had a solid point irrespective of underlying ideology and advocated "solutions". To put it another way, the ivory tower is adverse to money printing, but they did it big and they did it long while calling it something else. If we're going to print money, why not do it in a more equitable fashion? On factor 2, there's an increasing chance. So adjust your investment plans accordingly.
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DSMr. Muir is a rare combination or practical and theoretical. All politicians, republicans and democrats, will embrace MMT in their own self-interest. How do you think that the $2 trillion dollars of infrastructure will be paid for as presented by congress and the president? There is, however, no free lunch as MMT advocates believe. It is a way to keep the economy going when the capitalistic private sector is not investing capital profitably. It is the FX markets that ultimately will show that there is no free lunch. It is a game of relative debt country by country. I am not smart enough to figure out how it will play out, but I do trust the FX market with skin in the game to make the market more efficient country by country. DLS
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JOQE has been pumped into massive asset price inflation. If we print under MMT to pump money into "free" college and universal basic income and green jobs, and a thousand other crazy government freebies, won't that cause the other standard type of inflation? I think with debt-based money that we are doomed anyway, but the idea we could do this new type of QE without something unraveling seems fanciful.
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JKFutures down 500 points - Dow
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VSMMT is a theory that paper has value unto itself? No -only as long as others will except it . Inflation follows printing but it can go into assets not consumer items... it depends who gets the fiat paper. In the case of 2008 to date the reason of no inflation is “the people” didn’t get the paper. The fed pays banks to NOT LOAN MONEY IN EXCHANGE FOR INTEREST ON RESERVES. If you give the paper to the people (MMT) see Venezuela for what happens.
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RKUnbelievable how otherwise intelligent people can think about going down the MMT route. Please read where all such roads end: https://en.wikipedia.org/wiki/The_Road_to_Serfdom . You cannot rely on a central government being an all informed entity that is able to regulate and stimulate the economy. Unless you live in Star Trek of course.
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KSCentral Banks make money out of nothing (MMT) and use it to make their rich friends richer --- by blowing asset bubbles. I like MMT, but question is how do you control corrupt politicians from pork barreling and using power to create money to buy votes to support their agendas?
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SBGreat interview. A relevant question for pro-MMT folk is this - Once MMT has been underway and inflation is over target then growth slips (for whatever reason), where will they make cuts to fiscal stimulus in order to lower inflation: education, health or welfare? How will that go down? That is we were giving everyone all this stuff paid for with the printing press, and now we need to take it away, most likely at a time when the economy is slowing through stagnation and lack of productivity.
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BDI'm not sure how MMT would work in the Eurozone common currency countries. Its hard to see the European populace standing by idly watching other countries potentially pursue this as they control their own currency and they can't.
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MSI asked an IT guy I knew 15 years ago when I was thinking about learning to programme, what language should I learn - he told me, "Python". I ignored him and didn't learn to code. Damn.
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PDLoved it. Two awesome, down-to-earth traders. Thanks
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MS"Learn to code?!" ;) haha
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SSKevin Muir knows 10,000 times more about MMT than I do, but I just can't see how it would work in the long run. All that spending means debt and interest on the debt. At some point - coming soon - paying interest becomes one of our biggest expenses
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JCThis was great stuff...really enjoyed it. The MMT part was eye opening and helped me understand how we're eventually going to get there (let's face it we are) and also how to look at it from the government/Fed's point of view. One bone to pick is re Powell and why he did a 180 & went dovish. I think Kevin puts too much emphasis on on the "Trump factor" when in my opinion it was more the markets crashing and him quickly realizing what he'd done re being too hawkish, along with the capital markets effectively shutting down. In late 2018 after all those hikes and hawkishness from the Fed “The credit markets froze solid" and “for 41 days there was no high yield bond issuance. That's the longest span ever, with data that goes back to 1995 or so.” as former Fed advisor Danielle DiMartino Booth said on Hedgeye. Ouch, that had to be in Powell's mind as well given how beholden some say he is to the private equity world (where we came from). So of all the reasons for Powell going dovish I'd say #1 is the market drop, #2 is the capital markets / HY world completely closing with #3 being the Trump noise. Anyway, great interview!
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SGLiked Kevin's contrary-to-many view that there will not be a bank meltdown in Canada even when and if the housing market breaks. And yes - Tony - you are a natural at interviewing!
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RULove both the Stones and Beatles but....Zeppelin....
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CRLooking forward to the music discussion.
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RPTwo guys that know their shit. Not from a text book. Not from watching fast money or reading twitter. They spent years honing skills that have humbled and transformed their approach completely. You can hear it in their delivery. For that, this is real talk, and should be weighted appropriately with the probability of outcomes you have on these topics. Not trying to pump tires. I heard about Kevin from following Tony on twitter and everything I have read is fantastic and practically presented. It’s hard to find well thought out think pieces that don’t overcomplicate things. After about 1000 videos on here and countless newsletters and subscriptions to macro research providers through trail and error- This is the stuff I look for. Thanks fellas.
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SHThis was a huuge one!! Great stuff RV. Points on MMT have reshaped my view - a lot to think about. Thanks
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dwGreat interview! One of my faves as of late. Its nice to hear a more serious side of Kevin, but I like the Bob and Doug McKenzie 3 beer version on the Mkt Huddle just as well. Kudos to TG for bringing him into the RV world.
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rrWell done Kevin & Tony - so many interesting nuggets and all done without the whisper of gold. Just a ‘tonne’ of food for good thought.
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RKGreat interview. Shouldn’t compare Stones and Beatles. Apples and oranges. Both great.
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srA question I have on MMT and Governments eliminating the debt. In our modern financial economy isn't much of the debt used as collateral. Would this prevent such a strategy and lead to a shortage of collateral ? Also given the yield curves are so flat in places such as Japan the time value of money has been destroyed. Therefore the BOJ buying the debt and creating new liabilities when yields are so low and flat curves is minimal. QE has distorted the time value of money aspect of debt. Points above are for discussion and in no means complete.
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KCOpen trade (cheapest goods win), low interest rates (baby boomers spending savings to maintain living standards), quality of job creation (wage growth isn't happening), technology (driving costs down)...there just isn't the fuel right now for inflation.
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AMI enjoyed this conversation and came away with many thoughts. The idea that the Fed cannot create "inflation" basically tells me the Fed doesn't know what inflation is. They are very good at creating it. Just not that good at gauging it or understanding the leads and lags of their crazy policies. If Trump actually caused Powell to change his mind, then the Fed isn't run by committee as suggested up front. This had me thinking of the longer term impact of having Government basically run a country's monetary policy. Which leads right into MMT which is a political move and not a monetary move as the name implies. Is this the path to high or hyper monetary inflation...because that's what has happened everywhere else I look when Government takes over monetary policy. Probably a really good way to turn a developed economy into a banana republic (without bananas) over the long-term.
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TJBrilliant discussion as always in this terrific series from Tony and his trading friends. Kevin is another top guy and some serious life lessons for young traders and dare I say it investors here. The only time I cringed was when I heard Kevin waxing lyrical about the possible benefits of MMT. I suspect he may already know more about it than I ever will, but what I do know scares the life out of me, and the future for my children's generation. The US is not Japan and has acquired its debt from the rest of the world and just from its own citizens like Japan. Time to get Dr Lacy hunt along with an opposing scholarly reality check on the dangers of destroying not just the economy of the US but the world by dint of the dollar being the reserve currency, if the MMT genie is ever unleashed. Also if the government is ever allowed to do MMT is will become the economy, as big as it already is sadly (the founding fathers would not believe it), and the private sector will be dead in my view. Notwithstanding it's always good to hear the opposite view. Thank you Kevin and Tony.
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AHI always wonderd why money has to be expensive or the gov should not spend when inflation is low! All that dept is either going to be forgiven (by the CBs buing it up and letting it disapear (we just need a good word for it... "liberated"?) or its going to be inflated away (and if ZIRP is not doing it, Spending will!).
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VKThere's so many good things I can say about this conversation, but probably the main thing is that Kevin is clearly a life long learner. This guy will outlast the kids. He was a trader, did the CFA, learning Python/ R, spends an insane time on MMT, willing to change his beliefs and is open minded.
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MTKevin is super cool guy and I really enjoy his stuff. Very reachable guy as well.
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TETrading your own dough for 20 years. Well done! My day job basically still funds my losses :(
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IOShocking amount of thumbs up. My case too
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DFAmazing interview. Australia is in the same position as Canada re Banks, Property, China, AUD.
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MSWould be super interested in hearing more about his journey as an independent trader working for himself Really good interview, I enjoyed it
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JFExcellent, enjoyable interview.
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SHGreat interview Tony. Confirmed that Kevin truly is one of the most self-effacing people in finance today. Excellent delivery re your MMT thoughts, especially when shaping your own trading construct. And the Cure always rocks.
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ZPThis was a really great interview. I love following Kevin on Macro Tourist.
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SSThis was great! Huge fan of Kevin and the Market Huddle with Patrick Ceresna. Fun and fascinating interview guys!
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KEBest interview od thr series. Great job guys
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KCStones and best Erasure song is Chains of Love. Always use what best sounds best while driving a convertible to determine that. Just subscribed to Macro Tourist, enjoyed the conversation.
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DSQE and tax cuts are not MMT. These are wealth redistribution tools. MMT is printing money and using it to put real money in the real economy. The $2 trillion dollar infrastructure is MMT that is supported by both parties. DLS
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JMI think that when Canadian (primarily metro Toronto/Vancouver) housing experiences a serious decline, it will happen in the context of a US/global recession. If people lose their jobs and can't make the mortgage payment they will want to sell. They won't care if BoC lowers rates even to zero! How helpful would that be, since rates in Canada are already very low , 1.75%, and assuming housing prices are dropping or expected to drop by 20-30%. Also consider that USMCA includes provisions forbidding member states from participating in currency manipulation.
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GHI think its a progression. Lower inflation driven by demographics and debt and then desperation sets in by the central planners and they destroy the dollar creating inflation
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AFvery interesting comment about gov bond purchases to pay for a war...maybe rv could get someone in to talk about the concept of money flow in war? maybe its a topic a bit close to the bone of certain portfolios :)..
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GTEvery scratch on my Sgt Peppers vinyl tells a story
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NFHappy to see more comfortable-looking chairs in the RV clubhouse
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DLRecently bought a very small call on the S&P and have been anxious about ever since. Glad to hear there is someone who thinks it might not have been a totally crazy idea! Good interview, thanks.
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HKGreat interview - covers so much breadth - and goes just deep enough into each area.
[TITLE MUSIC PLAYING]
KEVIN MUIR: So we had taken that stock, and it had gone from $210 down to $180, and then it had gone down to $160, and then we put it back into the index at, like, $220.
I like to divide MMT up into two things. One is the descriptive nature about how economies and how markets work, and one is the prescriptive kind of conclusion about what you should do based upon that.
If you look at the people who are really big MMT kind of proponents, like on the market side, they're often guys that come from the plumbing.
[THEME MUSIC PLAYING]
TONY GREER: Hi, this is Tony Greer of TG Macro. I'm here to talk to my good friend Kevin Muir, strategist at East West Investment Management and author of the infamous Macro Tourist blog. We're going to talk about how he got his start in the markets, how he became such a great Fed watcher, his opinion on modern monetary theory, and what's cooking in Canada. Let's get started.
So I'm excited for this conversation with my good friend, Kevin Muir. Kevin has been an equity derivatives trader at the Royal Bank of Canada, he is currently a market strategist at East West Investment Management in Canada, and he is the author of The Macro Tourist global economic blog. Kevin, thank you for coming down from Canada to do this interview with me.
KEVIN MUIR: It's great. I've been looking forward to it for a long time, Tony.
TONY GREER: Yeah, man. You know, right on your Macro Tourist blog, it says, "all I bring to the party is 25 years of my mistakes."
KEVIN MUIR: Yeah, 25 years of mistakes. That's all I bring to the party.
TONY GREER: And as a student of the market, I really, really appreciate that angle of opening up to the markets and showing people what you've learned from your mistakes, because those are the best lessons for traders, right?
KEVIN MUIR: For sure. Some of the greatest traders out there, like Stanley Druckenmiller, he talks often about his mistakes in the '99, how he went and got long the tech stocks into the dotcom crash and stuff. And if you're not honest with those mistakes, you'll never learn. And anybody who tells you they never made any mistakes, you shouldn't listen to them.
TONY GREER: Exactly, exactly. So where did you get started in the markets? Let's just start right at the beginning. What was your inspiration?
KEVIN MUIR: Well, so I grew up in a household where my father was a research director for kind of an equity shop in Canada. So I grew up listening to a lot of stock market talk at the table. And when you combine that with my love of games-- like, even from the time I was a little kid, I would come up and want to play games, and games, and games.
I kind of always knew that I wanted to be a trader. My mom wanted me to be a lawyer or a doctor, and so I was a disappointment because I went off and followed in my father's footsteps in the capital markets.
TONY GREER: That is amazing. It was the same exact thing with me, where, purely, my father was an over-the-counter trader in equities for 30 years. And it was just dinner table conversation that made its way into your blood.
KEVIN MUIR: Right.
TONY GREER: Right? And so when I got out of school, I was just determined to get a job on a trading desk. What was your first practical application in the markets?
KEVIN MUIR: So I actually got a job, just like you. I didn't even finish school to be truthful. I was at University of Toronto, and I started to get a job at a discount stockbrokers division. And next thing I knew, I was the manager of that, and I was rearranging my school so I'd go at night.
And then I actually had a brief stint where I tried Chicago. I went and I decided I wanted to be kind of an open outcry trader. And I realized that wasn't for me. And I came back to Canada and I kind of put together all my skills, and I realized that what I really wanted to do was work on an institutional equity desk.
So I applied, and I was lucky enough to get a job at RBC Dominion Securities on the institutional equity desk, even before I'd finished my degree. I eventually got it at night. So for anybody-- kids, if you're listening, make sure you finish your degree. But I did get it--
TONY GREER: He's an educated man, that's for sure.
KEVIN MUIR: That's right. I did get it at night. But I was lucky enough to get a job in the early '90s at RBC Dominion Securities. And RBC was just a magical place. It was terrific. I got to sit with some really smart traders that I got to learn from. And it was unbelievable-- great learning experience.
What was really good about RBC was that they let you go with it. They didn't care if you were young. They didn't care if you had new ideas. If they thought you could make money, they gave you responsibility. And so before long, even though I was young, I was handling all the risk for the equity derivative book.
And so I did that in the '90s. And then in late '99, my wife got pregnant, and then we had our first daughter. And she was born with a heart defect. And it was kind of-- it was fixed at birth. And it was a very emotional time for me.
And I realized-- I kind of had one of those moments where I realized what was important in life. And even though I loved RBC, it was kind of a-- I'd hit this point where I kind of question what I wanted to do. And I decided that I was going to take some time off and think about it. So I quit.
And I quit to spend some time with the family. And while I was thinking about what I was going to do, I decided I'd start trading my own account. And I figured, you know what, if I trade my own account for a year, I can always go get a job somewhere else. Well, 1 year turned into 2, and 2, years turned into 5. And then the next thing you know, I'd gone 20 years, basically, just trading my own account. And my daughter was off to university, and I realized that I hadn't had a real job in a long time.
So I reached out to one of my friends at East West Investment Management that was my competitor at CIBC. And he was kind enough to take me in. And it's been great kind of getting back into the swing of things there.
TONY GREER: What type of fund is East West Management?
KEVIN MUIR: So we're a portfolio manager. It's kind of a family office that's-- we also kind of advise high-net-worth individuals and families. And it's a lot of that. And it's been terrific in terms of expanding my-- kind of getting out there and listening to different pitches from different fund managers has been a wonderful experience and something that I really enjoy, actually, just listening to the different ideas. I've never kind of had any idea of all the different ways that you can make money in different kinds of funds out there. So it's been fascinating.
TONY GREER: Well, clearly, you found a couple of the ways if you were working for yourself for 20 years.
[KEVIN CHUCKLING]
I think it's really interesting that you said you didn't really like open outcry, and then you wound up evolving into having essentially the job of a local trader, where you're trading your own money on your own for a long time.
KEVIN MUIR: That's correct.
TONY GREER: Obviously you were very astute at that, and able to make it through and continue being successful. I feel like we both came from the early '90s, what I call the Renaissance age of interdealer banking trading, right?
And I'm open and honest with everybody, and I miss breaking phones. I really do. That's one part about the newsletter business that I don't get to do often. And that was like sort of the release, like a big play on a sports field or something like that. Have you got any good phone-breaking stories from those days?
KEVIN MUIR: Do you know what's interesting? You say that you like breaking phones. And that was actually the genesis of why I started writing The Macro Tourist letter, was because people used to ask me, what do you miss not sitting on an institutional desk? And to me, I didn't break any phones, but I miss the camaraderie, and the betting, and the gambling, and kind of being around and hearing the trading talk. And so I miss that.
And then people ask me, what else do you miss? And I said, well, when I was at RBC, and I was kind of trading for our book, we would trade size, and I would be setting prices. And so someone would say, we're going up on a couple million of something, do you want to buy something? And I'd say, yeah, I'll buy $250,000 or $500,000.
And then when I went and started trading for myself, people used to phone me up thinking I was a real shooter. And they'd be like, we're going up on a couple million, do you want to buy any? And I said, well, I'll take $10,000, but I understand if you don't want to write the ticket. You know, because I--
So I missed that. And that was one of the reasons that I kind of got out and started writing the letter, was to kind of talk to people and to kind of put something out there so that I could meet wonderful people like you. And it was terrific that way.
And so now, in terms of remembering back to a story, we were the market maker for what were known as tips. And tips are not Treasury inflation-protected securities in Canada. They were actually the Toronto 35 index participation units. And in being the market maker, we were obliged to always provide markets-- post bids and offers out on the exchange. But we were also obligated to fill the trust-- the trust that owned the underlying index with the index rebalances.
So that means if something was going into the index, we had to sell it to them and short it to them at the close. And then if something was coming out, we had to buy it at the close. And so anyways, so going to the index rebalance, we were obligated to go in, take in, like, five stocks that were coming out of the index. We were supposed to buy these millions of shares, and then short the stocks that were going out.
And this was in early 2000. And what happened was-- I don't know if you remember, but the market didn't top nicely. It didn't just go straight up and then go straight down. And this was in-- I believe it was March. And I went back and looked at the chart, and I realized that between the March, there was a two-week period where the NASDAQ went down 15% in a week.
So it was one of these days when I got up and we had to do this rebalance at this time. And one of the trades that I had to do was I was going to be long-- or short. We were putting the BlackBerry in Motion-- Research in Motion into the index. And I was going to be short like two or three million shares of BlackBerry at the closing price. And BlackBerry was trading at like $200, and it was a big-momentum stock, and it was lots of volatility.
And I woke up on the day of the rebalance, and what had happened was the market had gapped down. So it was like the first really bad day that we'd experienced in a while. And the market gapped down. And Research in Motion was down $35, like from $210 to whatever.
TONY GREER: Yeah, 15%.
KEVIN MUIR: Yeah. And all of a sudden, we're trading along, and I'm trying to buy some, and I hear, over the hoot-and-holler system, I hear a