WEBVTT - US Inflation Will Keep Falling, Intertemporal’s Pellegrini Predicts 0:00:00.400 --> 0:00:03.960 John Men. A few weeks ago, you and I had 0:00:03.960 --> 0:00:07.160 a really interesting conversation with an author, Peter Touchin, who 0:00:07.200 --> 0:00:10.000 took to us about elite overproduction and how that causes 0:00:10.080 --> 0:00:13.920 horrible instability in society. You've got too many over educated 0:00:13.920 --> 0:00:16.080 people the likes of you and me, and not enough 0:00:16.160 --> 0:00:19.200 high status jobs for us to have, and that causes 0:00:19.239 --> 0:00:21.800 no end of upset. And in the past we talked 0:00:21.800 --> 0:00:24.520 about this in the UK, we've managed to avoid the 0:00:24.560 --> 0:00:26.840 social unrests and some other countries we've seen when they've 0:00:26.880 --> 0:00:30.440 overproduced their elease by sending our elites abroad to the 0:00:30.440 --> 0:00:32.680 empire and got rid of them. Off they go and 0:00:32.720 --> 0:00:35.559 they can't stay here and cause trouble now here we 0:00:35.600 --> 0:00:38.880 are today and we have a similar problem, according to 0:00:39.000 --> 0:00:41.800 touch where we are over producing a lot of our 0:00:41.840 --> 0:00:45.000 elites and we have nowhere to export them to. But 0:00:45.080 --> 0:00:48.360 we got a really interesting email from one of our listeners. 0:00:48.400 --> 0:00:50.839 And listeners, by the way, we love getting emails from you. 0:00:50.920 --> 0:00:53.199 We want your input, we want your questions, We want 0:00:53.240 --> 0:00:55.480 to answer your questions and comment on your comments on 0:00:55.560 --> 0:00:57.600 our podcasts and in our writings, so keep sending them. 0:00:57.640 --> 0:01:01.200 In this one, this email is just that this time around. 0:01:01.200 --> 0:01:04.640 We haven't exported our elites abroad. We've just exported them 0:01:04.640 --> 0:01:08.680 into the third sector, all right, So one of them. 0:01:10.319 --> 0:01:14.280 So what this listener, thank you, Andy says. He says, 0:01:14.319 --> 0:01:16.960 this is not just about the wealth pumped the ultra wealthy. 0:01:17.240 --> 0:01:20.240 It's about the flow of funds to quangos, to NGOs, 0:01:20.280 --> 0:01:24.920 to bureaucrats, the civil service, retirees, godblated pensions, charity bosses, 0:01:25.120 --> 0:01:29.319 special interest groups and you know, I quote bloody lawyers. 0:01:31.760 --> 0:01:34.400 Agrease with Peter or in that Peter singleed it lawyers 0:01:34.400 --> 0:01:34.800 as well. 0:01:36.000 --> 0:01:38.760 Yeah, these are all part of the modern elite, and 0:01:38.880 --> 0:01:41.720 many are also the counter elites. Think about the current 0:01:41.760 --> 0:01:44.319 COVID inquiry and all these groups headed by QC's vying 0:01:44.360 --> 0:01:46.840 to get their special interest groups across. Who funds all 0:01:46.880 --> 0:01:50.240 these groups? Ultimately, very few of them have a productive 0:01:50.320 --> 0:01:54.880 role in society exiitn't increase wealth or increase its productive capital, 0:01:54.920 --> 0:01:58.040 but they have a disproportionate voice in society and their 0:01:58.040 --> 0:02:02.720 burden falls on the everyday work, the entrepreneur and the grafter. 0:02:03.360 --> 0:02:07.880 That's them, the modern elite. We've exported into the third sector, 0:02:07.920 --> 0:02:10.040 and they're acting as a drag on the rest of 0:02:10.120 --> 0:02:13.040 us on the entrepreneurs and the grafters. They have too 0:02:13.160 --> 0:02:17.040 much weight when it comes to policymaking and to voice 0:02:17.600 --> 0:02:20.960 got to get rid of them. 0:02:20.400 --> 0:02:24.440 I think almostly. I think that's really perceptive. I mean, 0:02:24.480 --> 0:02:29.120 you have consistently made the point about gift aid and 0:02:29.160 --> 0:02:32.160 the fact that you can essentially, as a wealthy person, 0:02:32.240 --> 0:02:35.560 hypothe kate, you know, a chunk of your tax revenue 0:02:35.919 --> 0:02:38.919 to the charity of your choice, as opposed to paying 0:02:39.040 --> 0:02:41.680 into the things that we've all democratically agreed are the 0:02:41.680 --> 0:02:44.840 priorities of the country. And I think obviously it's just 0:02:44.919 --> 0:02:48.680 an extension of this. It's a classic phenomenon that we've 0:02:48.680 --> 0:02:51.280 seen over the last kind of like ten to twenty years. 0:02:51.280 --> 0:02:53.959 I think, where if you hide behind the label charity, 0:02:54.240 --> 0:02:56.800 you can basically do what you want and you know, 0:02:57.240 --> 0:03:00.240 operate with a certain amount of a patness. And I 0:03:00.320 --> 0:03:03.720 do think that that whole sector kind of generally needs 0:03:03.760 --> 0:03:06.040 to be more accountable. And I think they're getting ready 0:03:06.080 --> 0:03:08.359 a lot of the tax breaks and making them much 0:03:08.400 --> 0:03:11.680 clearer of which kind of charities and endures, et cetera, 0:03:11.800 --> 0:03:14.880 get government funding, which is tax payer money, and making 0:03:14.880 --> 0:03:18.840 them more accountable for that is actually important and like 0:03:19.040 --> 0:03:21.639 a major thing that needs to be tackled. 0:03:22.440 --> 0:03:24.440 They all get tax payer money. There is no such 0:03:24.480 --> 0:03:27.079 thing as a charity that doesn't get tax payer money. 0:03:27.240 --> 0:03:30.359 Every single one is getting your money and my money. 0:03:31.960 --> 0:03:34.480 Toward that too much, you'll upset me. But that was 0:03:34.600 --> 0:03:37.600 in the newspaper this morning. A small charity being discussed, 0:03:37.760 --> 0:03:39.440 in fact, quite a big charity in the scheme of 0:03:39.440 --> 0:03:41.400 becuts so many a time, one hundred and thirty million 0:03:41.480 --> 0:03:43.000 pounds in it. I won't name it, you can go 0:03:43.040 --> 0:03:45.560 look it up. But the key point is this charity 0:03:45.600 --> 0:03:48.520 is one hundred and thirty million in It gives away 0:03:48.720 --> 0:03:51.040 thirteen million a year, which means it's going to mind 0:03:51.080 --> 0:03:53.440 itself down anyway unless it's getting a lot of new 0:03:53.440 --> 0:03:55.520 contributions in. I don't know how these people figure the 0:03:55.600 --> 0:03:57.720 numbers out. That they have no advice anyway, be that 0:03:57.920 --> 0:03:59.640 is it me. I looked at this and I thought, well, 0:03:59.640 --> 0:04:02.480 this was interesting. I'm going to look up and see 0:04:03.000 --> 0:04:06.440 what the guy who distributes the thirteen million could a year, 0:04:06.440 --> 0:04:08.400 because I wouldn't have any trouble doing that. By the way, 0:04:08.600 --> 0:04:11.200 what he gets paid, And the answer is that his 0:04:11.360 --> 0:04:13.920 total pay is one hundred and thirty grand and that 0:04:14.000 --> 0:04:18.360 includes and get this, John, get this, twenty thousand pounds 0:04:18.440 --> 0:04:22.240 a year in pension contributions. 0:04:24.480 --> 0:04:30.520 Oh, I know, this is what we're talking about here now. 0:04:30.680 --> 0:04:35.839 Anyway, moving on, moving on. We were talking about talking 0:04:35.839 --> 0:04:38.880 about these elites, and someone suggested to me that we 0:04:39.040 --> 0:04:41.560 have a look at the Hidalgos in Spain in the 0:04:41.600 --> 0:04:45.000 twelfth century, because there was a point when in someone 0:04:45.200 --> 0:04:47.919 who's better at twelfth century history can write in and 0:04:47.960 --> 0:04:49.760 tell us more detail on this, because I can't find 0:04:49.800 --> 0:04:52.599 any more detail on it. But the Dalgos were the 0:04:52.680 --> 0:04:54.760 lowest of the low when it came to the nobility. 0:04:55.080 --> 0:04:57.240 But the nobility of all types didn't have to pay 0:04:57.240 --> 0:05:00.360 any taxes, so and the Hidalgos were a fertile lot. 0:05:00.960 --> 0:05:03.640 So gradually we got to the point where practically nobody 0:05:03.760 --> 0:05:06.720 who had any money was paying any taxes, and that 0:05:06.800 --> 0:05:09.280 led to all sorts of difficulty and upset and India's 0:05:09.279 --> 0:05:11.680 social unrest, until eventually the head algoes were forced to 0:05:11.680 --> 0:05:14.320 start paying taxes. And that was a rather interesting example. 0:05:14.320 --> 0:05:16.720 I thought of the over production of elite, because these 0:05:16.760 --> 0:05:20.400 elites weren't necessarily over educated or anything like that. They're 0:05:20.440 --> 0:05:21.880 just looking for the status. 0:05:21.480 --> 0:05:24.040 Anyway, associal Yeah, they kind oft bought them wrong with 0:05:24.160 --> 0:05:28.480 the Spanish elite. Yeah, we just producing too many of themselves. 0:05:28.920 --> 0:05:33.120 That's interesting being an elite by luck, Yeah, which is 0:05:33.160 --> 0:05:35.240 what happens if you, you know, maybe you have a 0:05:35.279 --> 0:05:38.240 family charity, for example, a family foundation and you can 0:05:38.279 --> 0:05:41.040 all work for it. Kind of similar thing, right. 0:05:41.640 --> 0:05:44.680 It is similar, I mean, but getting kind of dangerously 0:05:44.720 --> 0:05:49.080 close to the whole inheritance tax argiven as well. 0:05:49.120 --> 0:05:49.200 But. 0:05:50.800 --> 0:05:53.240 Make that a gift tax. I say, now that moves 0:05:53.320 --> 0:05:58.280 us on neatly, neatly, very neatly too. Today's elite, And 0:05:58.320 --> 0:06:00.640 we've talked about that today's e leader in terms of 0:06:00.920 --> 0:06:03.960 being the kind of people who have to find benefit pensions, 0:06:03.960 --> 0:06:06.479 who work in non productive industries, et cetera. But the 0:06:06.560 --> 0:06:08.919 other big signifier of being a member of the elite 0:06:08.920 --> 0:06:11.719 in the UK today is owning your home without a mortgage, right, 0:06:11.960 --> 0:06:15.360 and that's well over thirty percent of the population can 0:06:15.440 --> 0:06:18.320 kick back and not pay any attention to fast raising 0:06:18.400 --> 0:06:20.839 mortgage rates and fast raising interest rates. They don't have 0:06:20.880 --> 0:06:22.320 to worry about this, and they even don't have to 0:06:22.320 --> 0:06:24.680 worry about inflation if they have one of those nice 0:06:24.720 --> 0:06:28.240 indus link defined benefit pensions. That's what I call elite. 0:06:28.640 --> 0:06:31.720 Oh, I said, so I think andysixeen me you mentioned 0:06:31.760 --> 0:06:36.719 the gold plated coldplated pensions. But yes, I mean, I 0:06:36.720 --> 0:06:38.800 think the thing is the elite may have to they 0:06:38.839 --> 0:06:40.440 may have to worry attaining a little bit because it 0:06:40.440 --> 0:06:42.960 does look at it, if the ports of gold on 0:06:43.000 --> 0:06:46.360 which they are certain may not be as resilient, you 0:06:47.120 --> 0:06:50.640 may actually be able to go wrong with bricks and mortar. Yeah, 0:06:50.680 --> 0:06:51.040 you know. 0:06:51.320 --> 0:06:54.400 You can't go wrong with bricks and mortar. You know 0:06:54.520 --> 0:06:56.680 where you are with bricks and motor John, you know 0:06:56.720 --> 0:06:57.200 where you are. 0:06:58.080 --> 0:06:59.880 It's true, It's true. You do know where you are. 0:07:00.000 --> 0:07:01.440 It may not be where you want it to be, 0:07:01.440 --> 0:07:04.200 but you do know where you are. It's the latest 0:07:04.279 --> 0:07:07.200 the latest day of Rick's surveys, so the Royal Institution 0:07:07.400 --> 0:07:10.200 of Chartered Surveyors and the ages come out this morning 0:07:10.600 --> 0:07:13.760 as we're recording this, and with a kind of much 0:07:13.840 --> 0:07:18.240 much gloomier outlook and a major kind of sharp downturn 0:07:18.840 --> 0:07:21.560 compared to what has been going on in recent months. 0:07:21.760 --> 0:07:23.720 So basically this is basically asking a load of state 0:07:23.720 --> 0:07:25.120 agents what they think is going to happen to the 0:07:25.160 --> 0:07:30.720 housing market, and in recent months while they were gloomy. 0:07:30.800 --> 0:07:36.280 Following the whole strum ash in October, with interest rates spiking, 0:07:37.200 --> 0:07:39.640 the kind of market started to recover and kind of February, 0:07:39.640 --> 0:07:42.440 mortgage rates started going down a bit and everyone started 0:07:42.440 --> 0:07:45.440 feeling more relaxed about the housing market again. But of course, 0:07:45.920 --> 0:07:48.640 exactly because what's happened is mortgage rates have gone back 0:07:48.720 --> 0:07:52.200 up because it wasn't all liz Trust's fault. That was 0:07:52.280 --> 0:07:55.280 actually a fact that inflation was a problem. Interest rates 0:07:55.280 --> 0:07:57.520 did have to catch up. And so now that we're 0:07:57.560 --> 0:08:00.400 talking about mortgage rates averaged two year fire is now 0:08:00.480 --> 0:08:04.440 up to six point seven five percent, called the money facts, 0:08:05.040 --> 0:08:07.720 Suddenly it's not looking so good again. And so the 0:08:07.840 --> 0:08:11.120 one that caught my eye is where the kind of 0:08:11.240 --> 0:08:14.080 stagents expect house prices to be three months from now, 0:08:14.480 --> 0:08:16.920 And they'd almost got back up to the zero line, 0:08:16.920 --> 0:08:19.120 because basically it's how positive or negative you are, so 0:08:19.160 --> 0:08:22.160 a number between you know, plus fifty or plus one 0:08:22.240 --> 0:08:25.040 hundred and negative one hundred, and he'd always got back 0:08:25.120 --> 0:08:27.800 up to zero, and the latest one went all the 0:08:27.840 --> 0:08:30.920 way back down from like negative three to negative forty six, 0:08:31.720 --> 0:08:33.960 which is like a massive shift. And if you map 0:08:34.040 --> 0:08:37.920 that out, against what happens to nationwide house price growth. 0:08:38.600 --> 0:08:40.120 I want a chart and they'll be doing it in 0:08:40.200 --> 0:08:43.600 money distilled later on today. Then it's very clear that 0:08:43.760 --> 0:08:47.240 there's a very very strong correlation. So it basically says that, 0:08:47.800 --> 0:08:49.640 you know, if you thought the house price kind of 0:08:50.360 --> 0:08:53.439 correction was over, then you're wrong. It's we're going to 0:08:53.480 --> 0:08:56.320 see further house price falls this year. And that's just 0:08:56.360 --> 0:08:58.640 the nominal terms, let alone real terms. 0:08:59.040 --> 0:09:03.320 Okay, how close are we going to get? Do you 0:09:03.320 --> 0:09:06.600 think to Nail's prediction of a forty percent nomenal? Now 0:09:06.640 --> 0:09:07.920 hang on forty percent rail. 0:09:07.880 --> 0:09:15.440 For I think that's too perish. But the main thing 0:09:15.720 --> 0:09:18.120 that changes my mind on that one way or the 0:09:18.160 --> 0:09:22.240 other is whether the Bank of England basically over titans 0:09:22.240 --> 0:09:27.240 on interest rates. And I think that's perfectly possible because 0:09:27.240 --> 0:09:30.320 the other thing that I've noticed this last week, a 0:09:30.360 --> 0:09:32.560 lot of the recruitment agencies, like I think three of 0:09:32.559 --> 0:09:36.000 the listed recruitment agencies have reported this week, and they've 0:09:36.080 --> 0:09:40.360 all mentioned that the jobs markets getting harder the recruiting, 0:09:40.720 --> 0:09:42.959 the number of attempts that people want is going up, 0:09:43.280 --> 0:09:45.720 and the number of permanents they want is going down. 0:09:46.280 --> 0:09:48.959 In fact, I was reading yesterday, Anglish Page Group actually 0:09:49.080 --> 0:09:51.800 laid off some of its recruitment advisors in the UK 0:09:52.640 --> 0:09:55.559 because of, you know, a dipping activity, which is I mean, 0:09:55.559 --> 0:09:57.920 there's something, you know, there's a kind of ironic you know, 0:09:57.960 --> 0:09:59.920 I feel sorry for people were laid off, but you know, you' 0:10:00.080 --> 0:10:02.320 getting laid off because you're a head hunter and the 0:10:02.400 --> 0:10:05.840 job market is meant to be ragingly hot, and I mean, 0:10:05.840 --> 0:10:08.040 I think that kind of points to there's certainly a 0:10:08.120 --> 0:10:10.800 cooling off that just hasn't come through to the data yet. 0:10:10.920 --> 0:10:12.520 Yeah, and we have seen a fall in the number 0:10:12.520 --> 0:10:14.640 of vacancies, haven't We still above a million, but it's 0:10:15.000 --> 0:10:16.600 dance significantly. 0:10:17.320 --> 0:10:19.360 And people also point out that that's partly because in 0:10:19.400 --> 0:10:21.280 the Internet, you had a job's just hanging about for 0:10:21.360 --> 0:10:23.880 longer because you don't get deleted. You know, you don't 0:10:23.920 --> 0:10:26.199 have to pay the Guardian you advertise your job anymore. 0:10:26.240 --> 0:10:29.720 So it's sitting on LinkedIn for like weeks and months, 0:10:29.880 --> 0:10:33.719 we you know, sort of like junk mail kind of responses, 0:10:33.760 --> 0:10:37.000 but nobody's actually taking these down. So I think that 0:10:37.080 --> 0:10:42.600 the vacancy's number is probably distorted by that sort of thing. 0:10:43.360 --> 0:10:45.720 Is there no non dodgy data. 0:10:45.559 --> 0:10:48.000 John, can you trust any of it? 0:10:48.600 --> 0:10:51.280 Can't trust anybody that'll be the elites that will. 0:10:51.360 --> 0:10:54.199 Right exactly between that and the mainstream media. Thank god 0:10:54.200 --> 0:10:55.920 we are not the mainstream media, I know. 0:11:00.400 --> 0:11:02.840 Welcome to Maren Talks Money, the podcast in which people 0:11:02.880 --> 0:11:05.880 who know the markets explain the markets. I'm Maren Sunset Web. 0:11:06.040 --> 0:11:09.880 This week our guest is Brian Pellegrini, founder of Intertemporal Economics. 0:11:09.880 --> 0:11:12.760 We discussed the Bank of England's monetary policy versus the FEDS, 0:11:12.920 --> 0:11:14.600 and Brian's going to tell us why he thinks the 0:11:14.600 --> 0:11:18.000 Bank of England is doing a better job. John and 0:11:18.040 --> 0:11:20.880 I will discuss afterwards whether he is right on that 0:11:21.360 --> 0:11:26.120 or not. Hi, Brian, thank you so much for joining 0:11:26.200 --> 0:11:26.640 us today. 0:11:26.720 --> 0:11:27.800 Thanks for having me Maren. 0:11:27.960 --> 0:11:31.360 Great Now listen, I know that your particular area of 0:11:31.400 --> 0:11:33.640 interest at the moment and ours as well, by the way, 0:11:34.240 --> 0:11:37.319 is inflation. What's going on with it in the US, 0:11:37.400 --> 0:11:40.280 in the UK globally? Are we going to see inflation 0:11:40.320 --> 0:11:42.720 for towards the end of this year? If it does, 0:11:43.000 --> 0:11:45.720 is it all over a back to two percent forever? 0:11:46.080 --> 0:11:50.400 Or are things never that simple? So how about we 0:11:50.520 --> 0:11:53.840 just start with you giving me an overview of where 0:11:54.000 --> 0:11:56.240 you think we are with inflation. 0:11:56.880 --> 0:11:59.679 We're likely to see inflation come down pretty rapidly in 0:11:59.760 --> 0:12:02.400 this second half of twenty twenty three, and I think 0:12:02.400 --> 0:12:05.160 it's going to be so rapid that it actually frightens 0:12:05.200 --> 0:12:08.240 the central bankers a little. And people had focused very 0:12:08.280 --> 0:12:14.640 heavily on the supposedly hawkish aspects of Powell's statements the 0:12:14.640 --> 0:12:18.480 recent press conference and then the minutes that came out 0:12:18.600 --> 0:12:22.640 yesterday July fifth, and they've looked at the disclaimers that 0:12:22.679 --> 0:12:25.720 he said that basically that if inflation is higher than 0:12:25.760 --> 0:12:29.880 we expect, then we will continue raising What he's really saying, 0:12:29.960 --> 0:12:34.080 which is that if inflation reacts in a way that's 0:12:34.080 --> 0:12:36.200 better than we expect, we're going to react to that 0:12:36.320 --> 0:12:39.480 as well. And I think if you look at the minutes, 0:12:39.480 --> 0:12:44.240 there was a lot of discussion about fear of how 0:12:44.280 --> 0:12:47.959 big and how powerful the lag and the effects of 0:12:48.040 --> 0:12:51.560 monetary policy are for the tightening that took place over 0:12:51.600 --> 0:12:54.040 the last year and a half. Right, So they're saying, 0:12:54.520 --> 0:12:57.959 is there another shoe that's waiting to drop or are 0:12:57.960 --> 0:12:59.120 we passed all that? 0:12:59.120 --> 0:13:02.439 There's a feeling, you think, on the committee that they've 0:13:02.600 --> 0:13:05.640 done enough in the actual talk. The last comments at 0:13:05.679 --> 0:13:07.960 Pearl Gavee. He talked about the skip which you mentioned 0:13:08.160 --> 0:13:10.120 in your latest piece of work, the idea that it's 0:13:10.160 --> 0:13:13.040 really just appoors and there'll be more later. There's more 0:13:13.120 --> 0:13:16.120 rises to come, but if inflation does come down in 0:13:16.120 --> 0:13:19.319 the way that you expect, then there'll be normal rises. 0:13:19.400 --> 0:13:20.560 We might actually see. 0:13:20.360 --> 0:13:23.040 Cuts, definitely. I mean he outright promised that. One of 0:13:23.080 --> 0:13:26.160 the reporters brought the subject up and it kind of 0:13:26.440 --> 0:13:29.160 was addressed but didn't get followed through on was that 0:13:29.200 --> 0:13:33.680 the projections all show lower monetary policy rates in twenty 0:13:33.720 --> 0:13:36.000 twenty four and twenty twenty five. Then at the end 0:13:36.000 --> 0:13:38.320 of twenty twenty three, and a reporter asked why that 0:13:38.679 --> 0:13:42.480 was if Powell didn't see a recession occurring and neither 0:13:42.520 --> 0:13:44.600 do I in twenty twenty three at least, and his 0:13:44.679 --> 0:13:48.560 statement was, as inflation comes down, in order to maintain 0:13:48.720 --> 0:13:51.280 real interest rates at a constant level, the Fed would 0:13:51.320 --> 0:13:53.679 have to cut right. So by saying that, he's pretty 0:13:53.679 --> 0:13:58.240 maturely easing because he's sending everyone's expectations right, So he 0:13:58.360 --> 0:14:01.160 sort of undercut himself. But he outright said if inflation 0:14:01.280 --> 0:14:03.160 comes down, they're going to do what they need to do. 0:14:03.280 --> 0:14:06.920 To keep real interest rates at a stable level, which 0:14:07.040 --> 0:14:10.120 they see as a magic number. And I think that 0:14:10.440 --> 0:14:13.880 as the FED is proven wrong and it's ex inflation 0:14:14.000 --> 0:14:17.080 expectations right, that they're going to be put in a 0:14:17.160 --> 0:14:21.880 very difficult position where they need to justify their past actions. 0:14:22.120 --> 0:14:25.760 And in twenty twenty five, in the aftermath of an 0:14:25.760 --> 0:14:28.600 inflation area twenty twenty four, it's going to look pretty 0:14:28.640 --> 0:14:31.880 clear that this was done in reaction to the twenty 0:14:31.920 --> 0:14:36.000 twenty four presidential election. Right. The Biden administration has three 0:14:36.240 --> 0:14:38.880 and about to have a fourth nominee on the board. Right, 0:14:38.920 --> 0:14:41.760 so Biden has a majority of the board that are 0:14:41.800 --> 0:14:46.080 beholden to him, and he's picked by and large of 0:14:46.280 --> 0:14:50.040 PhD economists that are people who are tend to be 0:14:50.560 --> 0:14:53.800 politically beholden to the person that chooses them, as opposed 0:14:53.800 --> 0:14:57.920 to a career bureaucrat who is less likely to be partisan. 0:14:58.560 --> 0:15:01.240 That's just loose money to next year. But can I 0:15:01.320 --> 0:15:03.560 just go back a little bit, because this is a 0:15:03.560 --> 0:15:07.080 complicated business. This you expect inflation to come down in 0:15:07.160 --> 0:15:09.960 the US and the second half of this year significantly 0:15:10.080 --> 0:15:13.520 faster than it looks like the FED believe inflation will 0:15:13.560 --> 0:15:15.800 come down. So before we go any further, I want 0:15:15.920 --> 0:15:18.000 to ask you what it is that you think will 0:15:18.080 --> 0:15:21.320 drive that, why your expectations different to that. That seems 0:15:21.320 --> 0:15:23.200 like the key point before we move on to next year. 0:15:23.560 --> 0:15:27.160 That's a great question. Well, I think that the aftermath 0:15:27.200 --> 0:15:32.000 of the supply chain unwined has been more dramatic than 0:15:32.040 --> 0:15:35.560 people expected. And if you look at the Institute for 0:15:35.600 --> 0:15:40.080 Supply Management's Manufacturing report and you look at customer inventories, 0:15:40.280 --> 0:15:43.800 what's really interesting is that the number of firms reporting 0:15:43.840 --> 0:15:47.840 their inventories being too low is still relatively high, but 0:15:48.000 --> 0:15:51.640 not at crisis levels, right. So there's still disturbance in 0:15:51.800 --> 0:15:55.440 the supply chain, right, But the number of firms that 0:15:55.480 --> 0:15:59.960 are reporting inventories being too high is at crisis levels, right. 0:16:00.200 --> 0:16:02.600 And so if the number of firms that had inventory 0:16:02.640 --> 0:16:05.440 being too low wasn't elevated, then this would be all 0:16:05.480 --> 0:16:08.320 over the news that there's an inventory crisis. And so 0:16:08.760 --> 0:16:13.080 the inventory situation in the United States in the factory 0:16:13.120 --> 0:16:16.960 sector feeds just about a one month lag. So factory 0:16:16.960 --> 0:16:22.000 prices in the United States lead factory prices in China 0:16:22.040 --> 0:16:24.000 with about a one month lag. And it's a pretty 0:16:24.040 --> 0:16:29.280 close relationship with the factory prices in China being more volatile, 0:16:29.640 --> 0:16:32.280 and so right now, factory prices in China are in 0:16:32.360 --> 0:16:36.280 outright deflation and they are down at levels seen in 0:16:36.360 --> 0:16:40.080 prior recessions. So we should expect to see that feedback 0:16:40.080 --> 0:16:44.360 into US consumer prices with the appropriate lag, and that 0:16:44.440 --> 0:16:47.440 lag starts to show up in the latter half of 0:16:47.480 --> 0:16:50.680 this year, so we should in the next few months 0:16:50.720 --> 0:16:54.040 really start to see core inflation really start to come 0:16:54.080 --> 0:16:54.920 down appreciably. 0:16:55.280 --> 0:16:57.680 Okay, interesting, Now I keep an eye on the true 0:16:57.680 --> 0:17:00.200 inflation numbers, which will pretty seem pretty good on the 0:17:00.200 --> 0:17:02.520 way up, and that they've led their official inflation numbers 0:17:02.520 --> 0:17:04.560 on the way up and they're now only just over 0:17:04.600 --> 0:17:06.600 two percent, which kind of tells us that this is 0:17:06.600 --> 0:17:09.680 coming right, and that then gives the Fed and excuse 0:17:09.760 --> 0:17:13.040 to slash rates into next year to set biding up 0:17:13.040 --> 0:17:15.159 for the election. Is that what you're thinking? 0:17:15.560 --> 0:17:19.040 Definitely. The important factor to keep in mind is that 0:17:19.119 --> 0:17:24.320 Powell is not himself a partisan, right. He is a conciliatarian. Right. 0:17:24.440 --> 0:17:27.639 His job is to make a consensus on the committee 0:17:27.680 --> 0:17:30.600 so that it looks like the FED is doing things 0:17:31.000 --> 0:17:34.639 in a calm, collective and non partisan manner. Right. But 0:17:34.720 --> 0:17:37.880 if he has a majority of the board who are 0:17:38.200 --> 0:17:41.160 outright partisans. You know, I don't want to demean these people, 0:17:41.200 --> 0:17:44.880 but they have their agendas and it's pretty clear from 0:17:44.960 --> 0:17:48.879 the minutes that there's a substantial portion of the committee 0:17:49.240 --> 0:17:54.679 that wants to ease And based on Chairman Powell's statements 0:17:54.840 --> 0:17:58.760 and his proclivity for repeating things that people say to him, 0:17:59.080 --> 0:18:03.000 we can tell who is influencing him, and it's pretty 0:18:03.000 --> 0:18:06.600 clear that that is the Biden group who are influencing 0:18:06.680 --> 0:18:10.399 him and will drive the Chairman's vote, which is approximately 0:18:10.440 --> 0:18:13.399 fifty percent of the voting weight of the committee. In 0:18:13.440 --> 0:18:16.760 real terms, everybody has one vote, but in reality, the power, 0:18:16.840 --> 0:18:20.080 the consensus power of the Chairman is about fifty percent. 0:18:20.240 --> 0:18:23.800 So taking that as the direction for FED policy, it 0:18:23.880 --> 0:18:25.960 looks likely that we're going to get some easing and 0:18:26.040 --> 0:18:29.440 in the aftermath of all this, right, what's interesting is that, 0:18:29.880 --> 0:18:31.760 you know, the Bank of England and the FED have 0:18:31.880 --> 0:18:34.200 both taken a bit of a hit to their credibility 0:18:34.320 --> 0:18:39.520 a bed, so the Bank of England both having very 0:18:39.520 --> 0:18:44.040 similar events, right, so they tightened and a leveraged part 0:18:44.040 --> 0:18:48.280 of the financial structure that they really didn't understand blew up, right, 0:18:48.320 --> 0:18:52.040 in the UK it was liability driven investing. In the 0:18:52.160 --> 0:18:56.080 US it was treasury funding by regional banks that were 0:18:56.119 --> 0:18:59.520 acting like private equity funds. And they reacted to both 0:18:59.520 --> 0:19:01.639 of those of in roughly the same way, which was 0:19:01.640 --> 0:19:05.240 to paper it over and to act in an inflationary manner, right, 0:19:05.280 --> 0:19:07.399 and say, oh, well, this wasn't really our fault, you know, 0:19:07.520 --> 0:19:10.639 don't ask us to solve all your problems. But and 0:19:11.000 --> 0:19:13.440 they papered it over, right, and people realize that that's 0:19:13.480 --> 0:19:18.080 an inflationary mess, right, that that tightening was undone by 0:19:18.480 --> 0:19:21.719 the papering that took place to replace the money supply 0:19:21.800 --> 0:19:24.600 that had been shrunken. Right. But the major difference is 0:19:25.480 --> 0:19:28.760 that the FED has never been as open and honest 0:19:29.040 --> 0:19:33.200 as the Monetary Policy Committee is, right, So it's only 0:19:33.200 --> 0:19:35.520 happened once that the chairman has been out voted in 0:19:35.560 --> 0:19:40.000 the United States, whereas it's regular currents for the head 0:19:40.040 --> 0:19:41.880 of the Bank of England to be he's just another 0:19:41.920 --> 0:19:45.480 member of the committee. And so the Bank of England 0:19:45.600 --> 0:19:51.200 has I think a more intellectually honest and intellectually open 0:19:51.680 --> 0:19:55.359 committee driving it that is willing to say, and this 0:19:55.480 --> 0:19:58.240 is really important recently that they've been willing to say 0:19:58.440 --> 0:20:00.920 we're not sure what's going on, We're going to be 0:20:00.960 --> 0:20:03.520 really careful. And if you look at the FED, it's 0:20:03.560 --> 0:20:07.280 a completely cavalier attitude. We've got it, has covered no problem. 0:20:07.400 --> 0:20:10.399 Inflation's a problem, and we're on top of it. We 0:20:10.560 --> 0:20:14.360 got it, and you're welcome America. Is basically the Fed's message. 0:20:14.400 --> 0:20:17.960 That's going to have negative consequences for the FED and 0:20:18.400 --> 0:20:21.360 as a result, for investors. I think that if you're 0:20:21.359 --> 0:20:26.239 looking to bet on inflation expectations, the credibility that the 0:20:26.560 --> 0:20:30.400 Bank of England, the Monetary Policy Committee is able to 0:20:30.520 --> 0:20:33.840 nurture with its honesty and with its humility, it's going 0:20:33.920 --> 0:20:36.360 to be a lot more valuable than what's left over 0:20:36.440 --> 0:20:38.520 at the FED, which is going to look like a 0:20:38.560 --> 0:20:43.159 completely politicized institution. And in twenty twenty six, depending on 0:20:43.200 --> 0:20:46.199 who's president, you know, it's a very good possibility that 0:20:46.280 --> 0:20:49.600 you have a replay of what went on in the 0:20:49.680 --> 0:20:53.360 transition from Lyndon Johnson to Richard Nixon. And Lyndon Johnson 0:20:53.400 --> 0:20:55.720 had a FED chairman who he brought in as a 0:20:55.760 --> 0:20:59.000 team player. Right Chairman Martin would never just change the 0:20:59.040 --> 0:21:01.119 interest rate for the ben fit of the president, but 0:21:01.720 --> 0:21:05.959 for policies right that happened to benefit the president. He 0:21:06.000 --> 0:21:08.480 was willing to do it. When Richard Nixon came in, 0:21:08.560 --> 0:21:11.159 he fought constantly with Chairman Martin because he was a 0:21:11.160 --> 0:21:13.400 Democrat and wasn't going to do what Richard Nixon wanted 0:21:13.440 --> 0:21:15.800 him to do. Richard Nixon was a Republican. So Richard 0:21:15.840 --> 0:21:20.000 Nixon brought in a pH d. Economist, Arthur Burns, who was. 0:21:20.080 --> 0:21:23.040 Poor Arthur Burns, which has called him poor Arthur Burns. 0:21:23.280 --> 0:21:26.159