PETER ATWATER: I can remember writing- shortly after Trump was elected, he has to placate his base. And he has to placate the markets. And their interests are mutually exclusive.

This is a time where small localized individuals have far greater power than those at the center.

My freshman class this spring- they do not see 2018 the same way investors see 2018. There is no question in their mind that the peak is behind us.

GRANT WILLIAMS: Now, the peak in what for them?

PETER ATWATER: The peak in confidence, their confidence, the confidence of America at large. They saw something 2014, 2015.

When somebody picks up the Wall Street Journal, the Financial Times, to step back and say, as you're reading these headlines, why are they here? Why are these on the front page? And they were on the front page always to confirm the bias of the reader. The front page is telling you this is the consensus view.

The nationalist Nissan leadership base said we are not going to become fully integrated into a global organization. That nationalistic opposition to globalism put Ghosn very vulnerable. The American Dream from for most Americans has become unachievable. And so, that which is not given will be taken.

GRANT WILLIAMS: I'm about to sit down for a long overdue chat with a man who probably makes me question things I read and think about more than just about anybody else. That's Peter Atwater. There's so much I want to talk to him about confidence, mood, left versus right. And of course, Tesla, I can't leave that one alone and the trade wars. So, let's go see what Peter has to say. Peter Atwater, welcome back to Real Vision.

PETER ATWATER: Thank you, Grant.

GRANT WILLIAMS: We've been trying to do this for a while. We finally got a diary synced. But now we're here. It just feels like there's nothing to talk about.

PETER ATWATER: There isn't. Either we just call it a day. And-

GRANT WILLIAMS: What the hell are we going to talk about? After our first conversation, which was over two years ago now was one of my favorite interviews I've done. It's just talking about mood and confidence and all the signals there. And since we had that conversation, I've recalled that over and over in my mind, and you've really helped me see what's going on through a completely different prism. So, I thank you for that first of all.

PETER ATWATER: No, thank you.

GRANT WILLIAMS: And then there's just so much of it. Once you're weighed to it, everything has an ulterior message and send signals. So, there's a ton of stuff I want to talk to you about. But I guess I'm going to start by throwing out with you, what do you think is the most important indicator that you're seeing right now?

PETER ATWATER: So, the things that I'm focused on right now are iconic people, images, characters. We've transcended reality to a point where levers that are being pulled all relate to very large oversized symbols. So, you've joked with me about the pandas. But China's decision to recall the pandas from the San Diego Zoo is an enormous powerful message that people are completely ignoring, because it seems cute and silly. It's like, no. They're saying, we're retrenching. And if you don't understand that symbol, then you are going to be completely trampled by what's coming after this. Because we're sending you billboard size messages that you're ignoring.

GRANT WILLIAMS: But people look at that. And they just see it as a, I guess, in panda poem, a Tit, Tit for Tat, Tat. I don't know if that's- I don't know what the pandas are called. But if everything that's happening feels like it's just well, you do that, we're going to do this. But if you look beneath the surface, it's steadily escalating. And it people, as you said, won't believe that the pandas is actually a major escalation of this. But it is.

PETER ATWATER: It is. And I think a lot of the reason we are missing all of this, is that it's very uncomfortable to take something that is as psychologically distant as a trade war. And believe that that could possibly be true. It's the difference between talking about cancer as a broad term, and then receiving a diagnosis that says, you have lung cancer. And so, it's going to take something- and I don't know what the precipitating event is to bring this foreign thing that's out there that crystallizes in our mind and we go, oh, shit, this is real.

GRANT WILLIAMS: Yeah. So, let's talk about that. Let's stay on the trade war for now. Because the signs that you're seeing from the Chinese side, the signs that very clearly and deliberately being sent by the Trump administration. The Huawei thing is perhaps the one to talk about first and foremost. But what do you see? How are you seeing this play out through the media, through those iconic images?

PETER ATWATER: So, Huawei is a wonderful, iconic example. So, it is to China what Apple is to us. So, I think it's only a matter of time before something is aimed at Apple. Because we're now going after the iconic American industry that has been at the center point of this recovery. And so, we, the Chinese government are going to do something to take a bite out of that Apple. The challenge as we're seeing with Huawei and others is, the egg is so scrambled that when you try to separate yolk and white to say, this Chinese symbol, this American symbol, you end up with ripples through this scrambled supply chain that has enormous unintended consequences.

And so, as much as leaders want to send these symbolic messages over the bow, they're ignoring either deliberately or just out of ignorance how deep the connections are and the odd pivot points that go along with that.

GRANT WILLIAMS: But it is ignorance because the Huawei thing, the day it happened, which is, as we record is just a couple of days ago. And I woke up, read that and I was like, wow, this is a major escalation. And in the very next day, I guess it walked back again. Is that ignorance which terrifies me or was that a deliberate strategy that we're going to do this and then we're going to walk back just to show you where we might go with it?

PETER ATWATER: But you can't keep walking things back.

GRANT WILLIAMS: No, exactly right.

PETER ATWATER: So, you may be able to do that once or twice. But eventually, you have a cascade. It begins to take on a momentum of its own. I think you've seen a lot of that in the agricultural space, where what felt like symbols have all of a sudden created real havoc. And so, you can't walk it back. The damage has been done.

GRANT WILLIAMS: So, when you try and game this trade war, what are you looking for? What are you looking for as a potential tipping point that means okay, we've gone too far, this is no longer posturing, this is now going to become a big problem for markets?

PETER ATWATER: So, what I'm looking for is the crowd to stop coming up with placating narratives that go along with each of these actions. And so, every day, I'm watching to see the causation arguments that are out there. The market fell because- the market rose because- and it's remarkable how we've been able on down days to come up with yes, but. And so, there comes a point where the crowd says, there is no but. And so, what I'm watching very closely is, how close have we come to the cliff where we just keep going? And I think we're getting precariously close.

GRANT WILLIAMS: Yeah. This narrative on the markets about Trump saying, we're going to stick another 25% on $200 billion. And in the next day, the tweet about things are going great. I've got a great relationship. I'm astounded by how long that seems to have worked and seems to have held the market together. Maybe it isn't that holding the market together. I don't know. Because it feels to me like we should have reached that point you're talking about long ago.

PETER ATWATER: So, I can remember writing- shortly after Trump was elected, that he is like a soccer player who wears one jersey, runs midfield to change the jersey to play for the other side. And what I mean by that is, he has to placate his base. And he has to placate the markets. And their interests are mutually exclusive. The Venn diagram doesn't overlap. And so, this has been going on for the entire term. It actually took place the night he was elected, and the futures cascaded, and then people are like, oh, no, he's not going to be as bad as that. And then you had to rally through the tax incentives.

And so, he is playing a very challenging game, where the two ends are in absolute opposition. Globalization and integrated supply chains is anathema to those who are looking for a wall, whether in physical or emotional form.

GRANT WILLIAMS: You write all the time about confidence and the importance of confidence in investor psychology, the markets themselves. Trump has been successful in many avenues that he's charged down. Does that confidence on a human level- boiling it down to him only- is that to our detriment, eventually, that he has been boiled with more and more confidence and so, he's becoming more and more- or using brinkmanship more and more, because he feels imbued with absolute confidence?

PETER ATWATER: Oh, absolutely. And you see that in the relationship between the decisions he makes when his approval ratings are high versus when they're low. And not uncommon that with leaders of that personality type, they become very emboldened by their approval ratings. What's interesting about Trump is that other leaders have chosen those high approval ratings to undertake efforts that are cross the aisle. So, we're going to do something that is going to stretch my base a little bit but is good going forward. Or I believe it to be good. There's a generous quality.

What you see with the President is the antithesis of that. This is when he is very vindictive, and tries very hard to truly press-

GRANT WILLIAMS: Settle scores. Yeah.

PETER ATWATER: Yeah. Settle the score. And that's something that you see based on personality by example. And then a terrible example and an extreme example, is what was going on when oil prices peaked last year, and the Khashoggi killing. That, to me is a classic revenge-filled moment of peak confidence.

GRANT WILLIAMS: Let's switch away from the President to the Fed, because there's another group which have a tremendous effect on the markets. I never associate the word confidence with the Fed, just it's more hubris to me, I don't know they're confident, I think they believe- they truly believe that they have all the answers. What did you make of Powell's flip flop? I asked as many people as I can this because I'm still trying to figure it out.

PETER ATWATER: I think that they, as a group, are extremely underconfident. I think that the Fed as an institution peaked, whether it was with Greenspan or slightly thereafter. And I say that because in the Greenspan era, no one knew the names of the regional Fed governors. There was one voice. And that singular voice speaks to the confidence inside and outside of the Fed. Today, you can name all of the regional districts, who they're headed by. And so, you have this Medusa-like organization that is trying to be all things to all people. And that's a terrible place for the Fed to be at this point.

GRANT WILLIAMS: But is it a coordinated attempt to spread as many- let's just throw a whole bunch of stuff at the wall and see what sticks, see what resonates? Or is it every man for himself, I'm going to get out and say what I think?

PETER ATWATER: It's every man for himself.

GRANT WILLIAMS: Really? That's interesting.

PETER ATWATER: Yeah, no, you have seen power shifts from the center to the region. And candidly, you're seeing that in lots of other ways, as well, today. If somebody said, I want to run for president or be governor or be city mayor- I've said to my students, this is a time where small localized individuals have far greater power than those at the center.

GRANT WILLIAMS: Or may have peaked as an example.

PETER ATWATER: Exactly. I was about to say. He embodies that. This is a time when grassroots leaders are going to come to the fore in good ways and bad ways. But yeah, I think that you're seeing the rise of local leadership today. And it's being mirrored at the Fed.

GRANT WILLIAMS: You mentioned your students- when you're trying to teach kids about this stuff. And realistically, the only knowledge they have of the world has been since we went through the looking glass. How do you try and teach them about how the world used to be and how it's always run when they live in this strange construct that we've built around ourselves?

PETER ATWATER: So, one of the fabulous parts about teaching college freshmen- it'd be even better with middle school students, is they feel it unconsciously. They sense all of the uncertainty. My freshman class this spring said the peak was really three years ago. And they could define it in terms of the music that they were listening to, what they believe to be true, that they do not see 2018 the same way investors see 2018. There is no question in their mind that the peak is behind us.

GRANT WILLIAMS: Now, the peak in what for them?

PETER ATWATER: The peak in confidence, their confidence, the confidence of America at large, they saw something 2014, 2015.

GRANT WILLIAMS: Oh, so prior to the election?

PETER ATWATER: Prior to the election.

GRANT WILLIAMS: That's interesting.

PETER ATWATER: And so, to talk about the election with them, it makes perfect sense to them that Americans who feel worse would be favorable towards Trump versus Clinton. So, it feels very right to them that we've evolved the way we have given that confidence peak some time before.

GRANT WILLIAMS: So, by immersing ourselves in markets as we've done, are we doing ourselves a massive disservice right now in trying to figure out what's going to happen next?

PETER ATWATER: Yeah, I think that the markets have been very late to the table here.

GRANT WILLIAMS: Yeah, seems to be.

PETER ATWATER: So, whether you look at auto sales, you look at unicorns, there are lots of indicators that suggests that the peak was behind us. And from my perspective, even vis a vis the markets, I would say that the financial market peak was January 2018 when Bitcoin- when asymptotic, what it is, what it embodies, talk about iconic institution. But Bitcoin, for me, the peak of that bubble was the peak in our willingness to embrace transformative change at such an extreme that this time was definitely going to be different. And grandma was in on it.

GRANT WILLIAMS: Yeah. When you talk to people about this. And I read every single piece you put out, because it always just makes me think about this stuff. And sometimes, I'll read a newspaper article, and I won't think twice about it, then it'll appear in your Friday article, and I'll go, damn, I haven't think about that. How do you try and frame this stuff? Because I know you see something behind every headline, and I'm trying to learn how to do that. And it's between you and Ben Hunt, it's an ongoing class that I'm taking. But can you help people understand how to read these things in the correct way, and how to open their mind to what their message really is behind it?

PETER ATWATER: So, I think when somebody picks up the Wall Street Journal, the Financial Times, whatever they do, and you can do it online, the online curating works in the same way, is to step back and say, as you're reading these headlines, why are they here? Why are these on the front page? And they were on the front page, always, to confirm the bias of the reader. It is very, very rare that you'll see on the cover of the Journal, the Financial Times, The New York Times something that is challenging, that's going to cause the crowd to step back.

What they want is for you to start reading and keep reading from there. So, the front page is telling you this is the consensus view. And so often, you will have seen a story that a week ago was on page B18 move to the front page of the B section to move finally to the front page of the front section. And so, that migration is telling you that the story has legs that it sticks, and the momentum is now peaking. I think it's important to recognize that front page acreage is incredibly expensive, so nothing can last there. It hits and goes. So, this is the editors capitalizing on the frenzy. And once it's there, it's done.

So, let me give you a real-life example from some of these New York Times. What is front and center on the top of the New York Times? A story about the financial distress of people who bought taxi Medallions at the top. And you dig in. And there's this beautiful picture of an asymptotic peak and Medallion prices that have collapsed. And so, you couple that, and you say, wow. So, here on the one hand, we have taxi drivers who are despondent, and you have Uber going public. What a wonderful contrast in mood, the bullions