Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Halloway. Tracy, you see
Speaker 1: that inflation print that we just got, that cp I print?
Speaker 1: I did. I logged on the terminal, especially at eight
Speaker 1: thirty UM in the evening here in Hong Kong to
Speaker 1: watch it, and it looks like we're seeing um moderation
Speaker 1: in the price increases. Yeah. So we are recording this
Speaker 1: on August eleven, and we just had the latest CPI report,
Speaker 1: and indeed it did show some moderation, particularly on a
Speaker 1: sequential basis. Inflation readings the cp I have been quite
Speaker 1: elevated lately by historical standards, and there's this whole debate
Speaker 1: about whether it's transitory or some sort of new regime
Speaker 1: and what's causing it and so forth. We'll get into
Speaker 1: all that, but at least for this one month, and
Speaker 1: at least like on a sequential basis, we definitely saw
Speaker 1: a bit of a deceleration used car prices, which had
Speaker 1: been absolutely soaring. It finally looks like that whole thing
Speaker 1: is topped out a little bit. Yeah, And we've had
Speaker 1: such a heated debate over whether or not inflation is
Speaker 1: transitory or something more permanent. And I think the vociferous
Speaker 1: nous of that debate kind of hints at something wider
Speaker 1: and more fundamental about the economic situation right now, which
Speaker 1: is that we're in a really unusual time. The recession
Speaker 1: that we saw during COVID was basically unlike any others.
Speaker 1: It only lasted for a couple of months. In the
Speaker 1: end um we had record stimulus, and so that kind
Speaker 1: of means that no one's really sure exactly what the
Speaker 1: recovery is going to look like, and it's hard to
Speaker 1: look at previous recoveries in order to make an analogy
Speaker 1: to today. Yeah, and inflation in particular, Like you know,
Speaker 1: we get economic data points literally every day, are virtually
Speaker 1: almost every day, but inflation is one of those that
Speaker 1: really gets people going in a way that other data
Speaker 1: points don't people. You know, we had that recent episode
Speaker 1: with Rico MoManI A. People feel that they feel it
Speaker 1: at the grocery store. They attribute it to policies. When
Speaker 1: it's up, they attributed to policies that they don't like.
Speaker 1: They attribute it to FED, they attributed to spending and
Speaker 1: so forth. Inflation just it gets people going. It does indeed,
Speaker 1: and it's very easy for people to sort of overlay
Speaker 1: their own thoughts and feelings and biases on inflation, so
Speaker 1: people kind of see what they want to see. Um,
Speaker 1: you know, cherry picking the data is something that goes
Speaker 1: on quite a lot. And and again, like in the
Speaker 1: current environment, there is a reason that you would strip
Speaker 1: out some unusual activity and things like used car prices.
Speaker 1: But then you get into the dangerous terror tory of
Speaker 1: are you basically stripping everything out that's actually rising um
Speaker 1: and obscuring what's happening in the market inflation ex inflation.
Speaker 1: All right, Well, I am very excited, you know, I said, Uh,
Speaker 1: you know, inflation always gets people going. I'm very excited
Speaker 1: because we have a guest today who almost never needs
Speaker 1: any uh anything to get him going. Very one. He's
Speaker 1: long been one of my favorite people to interview. Talked
Speaker 1: to him several times on TV, but we've never had
Speaker 1: him on the podcast before. We're gonna be speaking with
Speaker 1: David wu. He was formerly the head of Global Rates,
Speaker 1: Global Effects, Global em fixed income and Economic Research at
Speaker 1: Bank of America. He's a veteran there of ten years
Speaker 1: and recently left and now he's he's a blogger. He's
Speaker 1: like us. Uh, he's a blogger. He has uh David
Speaker 1: wu unbound where he talks about all this stuff, macro things,
Speaker 1: things going on in society, the data and so forth,
Speaker 1: and always one of my favorite people to talk to you,
Speaker 1: so sort of a perfect person to uh kick off
Speaker 1: a sort of like let's take stock of the macros
Speaker 1: suation right now. David, thank you so much for coming
Speaker 1: on odd lots. It's my total pleasure. Thank you for inviting.
Speaker 1: Absolutely it's always a treat to talk to you. David.
Speaker 1: Let's start with that inslation print. I'm sure you have
Speaker 1: been looking at it for the last half hour, as
Speaker 1: have me and Tracy. How would you put it into context?
Speaker 1: What's your take on it? And how does it fit
Speaker 1: more broadly in where you see, uh, the overall inflation
Speaker 1: situation right now in the US. I think, you know,
Speaker 1: I think you know we have to first but put
Speaker 1: things in perspective. I don't think anybody in the right
Speaker 1: mind thought that the sort of six percent seven percent
Speaker 1: inflation was sustainable. Everybody knew, you know, that it had
Speaker 1: to do with these one off factors like use cars, computers,
Speaker 1: you know, things that have been affected by supply chain
Speaker 1: basically breakdown. So therefore the spiking price all to be temporary.
Speaker 1: I supply chain basically came back on track. So the
Speaker 1: question really is, you know, so if it's not six
Speaker 1: or seventh percent, what is it now? The fact is,
Speaker 1: notwithstanding you know, basically the sharp drop in basic inflation
Speaker 1: for use car prices, you know, this month, if you
Speaker 1: look at the core inflation, we're still up zero point three.
Speaker 1: I mean that is an annualized rate of close to
Speaker 1: four percent. I mean that's like higher than anything we've
Speaker 1: ever seen, you know, basically, you know, basically in the
Speaker 1: run up to COVID and more recently. So I would
Speaker 1: say that forget about, like you know, basically, whether it
Speaker 1: is whatever, six or seven, the fact that it is
Speaker 1: even running at three percent, four percent, that's a problem
Speaker 1: because the point here is that the whole world economy
Speaker 1: is currently calibrated on the assumption that the FED phones
Speaker 1: rate is going to remain very very low for a
Speaker 1: very among time. The only way that's going to be
Speaker 1: possible is that the inflation doesn't become a problem. You
Speaker 1: don't need inflation of five or six percent to become
Speaker 1: a problem. All you need inflation at three percent, and
Speaker 1: the FED has got a huge headache ahead of them
Speaker 1: and so with the market. So so let's not beat
Speaker 1: around the bush. I don't read I'm not I'm one
Speaker 1: of these people balding tables saying we're going to see
Speaker 1: your double dis you the inflation any time soon. Given
Speaker 1: that the whole entire market has been gotten used to
Speaker 1: the idea that the inflation was always going to remain
Speaker 1: somewhere belottle two percent, allowing the FED to basically carry
Speaker 1: on with this very commentative stance. If inflation just goes
Speaker 1: above two percent, even just goes to three percent, the
Speaker 1: world is gonna have a huge problem. Um. We've been
Speaker 1: talking a lot about the Fed's new framework on the
Speaker 1: show and the idea of average inflation targeting, and I'm wondering,
Speaker 1: you know, is that something that you buy into in
Speaker 1: the sense that you think the FED is actually going
Speaker 1: to be more flexible um when it comes to inflation.
Speaker 1: Is that something that could maybe buy it a bit
Speaker 1: more time and um put off a rate rise? Tracy, No, Honestly,
Speaker 1: I think the whole averaging inflation was a gimmick. And
Speaker 1: I'll tell you what the gimmick was. The gimmick was
Speaker 1: to baseically help them convince the market to drive interest rates.
Speaker 1: Love right, because they're gonna tell you what, even when
Speaker 1: the inflation goes about two percent, we're not going to
Speaker 1: hike rates anytime soon. Therefore, you know the market. So
Speaker 1: in some sense it was stronger for guidance than what
Speaker 1: y'allin introduced what about five six years ago. The point
Speaker 1: here is the inflation really starts to go up from
Speaker 1: two to three percent, three to four percent, you think
Speaker 1: the Fed is going to be sitting there putting their
Speaker 1: thumbs because they're going to be very nervous about the
Speaker 1: return of inflation expectations. You know, it took just think
Speaker 1: about what Volker had to do to crush inflation expectation
Speaker 1: early in the eighties. It had to basically bring the
Speaker 1: engineer a recession u as economy to crush inflation expectation.
Speaker 1: Inflation expectation, I mean, you know anything, you know, economists
Speaker 1: don't know that much. Honestly, the truth is economists no
Speaker 1: much less than anybody give them credit for. If there's
Speaker 1: one thing they know and they're afraid of is basically
Speaker 1: inflation expectation is like a Pandora's box. Once you open it,
Speaker 1: it's gonna be difficul to close it. So this is
Speaker 1: why if inflation starts to edge higher, forget about the
Speaker 1: whole idea of inflation averaging, inflation target effect will go.
Speaker 1: They will have no choice but to go because they
Speaker 1: realize what will be at that stake, because if they
Speaker 1: don't go, an inflation expectation goes up, and then having
Speaker 1: to bring it down down the road, it's going to
Speaker 1: be that much more costly. This is why I think,
Speaker 1: you know, the whole inflation averaging business was nothing more
Speaker 1: than just empty talk at the end of the day. Well, okay,
Speaker 1: so you can, as we point out, even if you
Speaker 1: strip out used cars, there's sort of this underlying inflationary
Speaker 1: pace right now, that's uh, well above that's enough above
Speaker 1: in your view, enough above two to create a problem.
Speaker 1: How come look, what's the explanation for it? So, I mean,
Speaker 1: you know, we can all look at the data, but
Speaker 1: we need a theory to explain it or to understand
Speaker 1: where it's going. Why is it? Yeah, I mean, Joe,
Speaker 1: you asked that's the right question. That's exactly the right question,
Speaker 1: and I'm going to tell you the answer. I mean,
Speaker 1: for it was worth, you know, I write about it
Speaker 1: actually my big my own blog, which is does right.
Speaker 1: The last twenty years, I don't tell you kaynzie In
Speaker 1: School of Economics has been on the ascendency. I can
Speaker 1: tell you this wasn't always the case because twenty years
Speaker 1: ago when I got my PhD at Columbia and Economics,
Speaker 1: you know, at the time, it was the New Classical
Speaker 1: School of economics that was invoked. And these have been
Speaker 1: the main schools of economics that have been, you know,
Speaker 1: in rivalry for much of the last fifty years. You
Speaker 1: could argue, now, what is the essential difference between the
Speaker 1: Kaynesian school versus the New Classical school New Classical School,
Speaker 1: by the way, it's that you're called Chicago, so we
Speaker 1: can think about it that way. The main difference is
Speaker 1: the kaynzie In school emphasizes negative demand shocks, whereas the
Speaker 1: New Classical School emphasized as negative supply shock. Now, what
Speaker 1: is the negative demand shock. Neither demanding shock is like oh,
Speaker 1: the outcome bubble bursting in two thousands, okay, which unleashed
Speaker 1: this massive negative wealth effect. Negative demand shock is like
Speaker 1: oh September, you know, basically eleven, that crush confidence and
Speaker 1: cause people to pull back their spending. Negative demand shock
Speaker 1: is like what happened in two thousand and eight following
Speaker 1: the collapse eleven Brothers, which basically caused all the banks
Speaker 1: to pull back in terms of their credit lending, which
Speaker 1: basically forced negative demand shock. And then the Kynsians argue
Speaker 1: and right, and so when you have a negative demand shock,
Speaker 1: the right thing to do is to basically engage in
Speaker 1: proactive okay, fiscal and monetary expansion to offset the negative
Speaker 1: demand shock in whe did to bring the coming back
Speaker 1: to for you for employmentquilibrium. This is why the last
Speaker 1: twenty years, the reason why Kynzie in economics is so
Speaker 1: well was because one after another oldie shocks. As I said,
Speaker 1: the dot com bubble bursting September eleven, two thou eight,
Speaker 1: will all negative demand shocks. Now, guess what what is COVID,
Speaker 1: you might ask. I can tell you if if COVID
Speaker 1: is anything at all, is not a negative demand shock
Speaker 1: in my view, is a negative supply shock. And by
Speaker 1: the way, just think about this, I mean, how is
Speaker 1: it affecting supply? I don't tell you right now. For example,
Speaker 1: you look at you know, global freight prices, global freight
Speaker 1: rates for containers going through the roof right now, and
Speaker 1: so it went basically double last year and double already
Speaker 1: this year, showing no signs of moderation. You know why
Speaker 1: because right now in Asia where basically the pandemic is
Speaker 1: basically breaking out once again, and then countries are not
Speaker 1: allowing okay, these containman ships to upload their cargoes. So
Speaker 1: are there results? Thousands of ships right now around the
Speaker 1: world are being stranded at their ports, not being able
Speaker 1: to offload their cargo's information, the sailors, the crew. Now
Speaker 1: that's a negative supply shock to the extent that COVID's actually,
Speaker 1: you know, has basically reduced ability of the economy to
Speaker 1: basically to respond to increase demand. Now, what else is
Speaker 1: basically a negative supply shock? Think about this, all these women.
Speaker 1: We have seen a massive drop in labor participation rate
Speaker 1: of women in the United States in the last basic
Speaker 1: gating months. Why is that they're not even looking for
Speaker 1: a job, these women who just simply left the labor force.
Speaker 1: Because it's very simple because as long as COVID right
Speaker 1: now it's about, there's no vaccine for children. As a result,
Speaker 1: women are now having to stay home to look after
Speaker 1: their young children who cannot go to school. Now, if
Speaker 1: COVID is gonna be here to stay, you know what,
Speaker 1: or that for that matter, if we don't have vaccine
Speaker 1: anytime soon for children, guess what you're gonna see a
Speaker 1: large part of labor force basically disappeared. That's a negative
Speaker 1: supply shock. Let me tell you this. If you look
Speaker 1: at a very basic economics supply and demand shock, which
Speaker 1: all your viewers have heart about, that's why they're listening
Speaker 1: to this program, a negative demand shock is deflation, ay,
Speaker 1: But guess what a negative supply e shock is inflationary.
Speaker 1: Your supply curse moves to the left and push down
Speaker 1: employment and push our prices. So when you are basically
Speaker 1: when the FED and the US government unleashed massive fistical
Speaker 1: stimulus to try to offset a negative supply shock, all
Speaker 1: it's gonna do is basically push up inflation. That is,
Speaker 1: by the way, and I'm telling you this, this is
Speaker 1: why the neo classical school framework thinking about recession about
Speaker 1: prices is the more relevant framework in this particular point
Speaker 1: in time because of COVID. I would say, I'm not
Speaker 1: saying that COVID only is negative supply shock, because maybe
Speaker 1: there's a little bit of negative demand shock at least
Speaker 1: in the beginning when it first hit, when her confidence
Speaker 1: is once so forth. But I think the longerest thing
Speaker 1: drags out, is becoming more of a negative supply shock.
Speaker 1: And then yet the FED and the Biden administration continue
Speaker 1: to respond to COVID as though it were a negative
Speaker 1: demand shock, and that, in my view, is going to
Speaker 1: be a very a very dangerous game to play. Can
Speaker 1: we dive into um the demand side a little bit
Speaker 1: more so? I remember, you know, early last year, people
Speaker 1: were talking about how this would permanently scar consumers, particularly
Speaker 1: in America. You know, this huge global crisis, people losing
Speaker 1: their jobs, having to stay inside, a really sort of
Speaker 1: unique and terrible experience for a lot of people during
Speaker 1: a global pandemic. How would you classify us consumers now?
Speaker 1: Because of anything, it seems like they've emerged on the
Speaker 1: other side of this much more prepared to spend. It
Speaker 1: looks like exactly because the the honest true is crazy.
Speaker 1: The the I mean, the one thing I wouldn't have forecasted.
Speaker 1: I mean, you know, like you have like a Martian
Speaker 1: who just landed on kind of earth looking at what's
Speaker 1: happened last year? I guarantee you nobody, no genius, Okay,
Speaker 1: nobody all price the comments could have predicted what which
Speaker 1: is that somehow, after the biggest basically crisis they hit
Speaker 1: the world in a hundred years, that somehow US household
Speaker 1: balance sheet has improved and their cash flow is improved.
Speaker 1: I don't want to tell you US household net worth
Speaker 1: as a shop disposted income is not all time high
Speaker 1: because we've seen a massive rallying the stock market unbelievably,
Speaker 1: we've seen a massive appreciation in home prices. So as
Speaker 1: a result, Americans who owned stocks and houses are far
Speaker 1: richer today than they worked a year ago. Ironically, at
Speaker 1: the same time, COVID has driven down interest rate as
Speaker 1: a result, debt payment as a sharp disppost, income for
Speaker 1: American is basically at all time look at the same time. Meanwhile,
Speaker 1: if you don't have any money, guess what you know
Speaker 1: what for one thing, the banks are begging you to borrow.
Speaker 1: If you look at answer the Senior Loan office and Sturday,
Speaker 1: the willingness of your field let your money. Credit card
Speaker 1: for people who have no money is at all time
Speaker 1: high right now. On top of that, you know what,
Speaker 1: if you really do have any money, you know what
Speaker 1: Biden has promised to basically make sure you do not
Speaker 1: miss the party right now. You know, I don't have
Speaker 1: to tell you. The big news the last two weeks
Speaker 1: was the fact that, you know what, Biden has decided
Speaker 1: to suspend the moratorium. You basically extend the moratoriament on
Speaker 1: eviction again. If you cannot pay rent, no problem, you
Speaker 1: can stay on and go on a vacation. Meanwhile, okay,
Speaker 1: and worry about paying rent down the road, because we're
Speaker 1: gonna make sure you don't get evicted. Meanwhile, last week,
Speaker 1: of course, they also came under pressure from the liberal
Speaker 1: weight of the Democratic Party. Now you cannot pay your
Speaker 1: student loans. They've also extended the student loans moratorium until
Speaker 1: basically October. So and then now they're talking about maybe
Speaker 1: possibly extending the the enhanced benefits federal basically unemployment trans
Speaker 1: benefit to make sure I mean, think about this, I mean,
Speaker 1: the the amount of benefits that people were getting, including
Speaker 1: the enhanced benefit. Most of the people who lost your
Speaker 1: jobs were actually getting more money from the benefits than
Speaker 1: what they were earning before. So you're telling me which
Speaker 1: American has actually been lost out. Sure, some people have
Speaker 1: lost your family, that kind of thing is all very sad.
Speaker 1: But economically, yeah, basically because of policy which I think
Speaker 1: we're gonna have to pay for dearly down the road,
Speaker 1: has made sure that everybody is better at all. So
Speaker 1: against this factor of yeah, I'm not surprised Americans are
Speaker 1: basically are about to basically spend some serious money. What
Speaker 1: do you what do you mean? So people say that
Speaker 1: a lot we're gonna have to pay for these policies
Speaker 1: down the road, And that's always you know, I've heard
Speaker 1: that all my life, long before COVID or any of these.
Speaker 1: You know, I heard it about TARP, and I heard
Speaker 1: it about all this. What is it means specifically to you?
Speaker 1: Because although it's true that there has been this massive,
Speaker 1: by historical standards physical expansion, some of it is coming
Speaker 1: to an end. We've seen a reduction in the unemployment
Speaker 1: insurance expansion most likely, I think most people do not
Speaker 1: expect that to be continued. I guess there is some debate.
Speaker 1: We still do have a significant employment whole, although that
Speaker 1: does seem, you know, by some estimates, are still eight
Speaker 1: million jobs short of where we would be had it
Speaker 1: not been for the crisis. So what do you actually
Speaker 1: see as the what is paying for it? Look like,
Speaker 1: let's look at the numbers here, so I mean, forget
Speaker 1: about anything else. This's look at two thousand and twenty,
Speaker 1: right two, the global clarmy contracted by three point six percent. Okay,
Speaker 1: the economy was growing about six percent before that. So
Speaker 1: the foregone output last year was about ten percent of
Speaker 1: global GDP, which comes to about nine trail million dollars. Right,
Speaker 1: that was how much global GDP foregone basically loss if
Speaker 1: you like. On top of that, based on the land
Speaker 1: if number, fifteen trillion dollars of fiscal spending has now
Speaker 1: been taken out by governments around the world to finance
Speaker 1: whatever they're firefighting. So fifteen billion, fifteen trillion plus nine trillion,
Speaker 1: four trillion dollars not just for two thousand twenty. You said, well,
Speaker 1: what's what's twenty four trillion dollars? These days we talked
Speaker 1: about trillions as though there were nothing. Let's put that
Speaker 1: in perspective. Okay, let's put that in perspective. I don't
Speaker 1: know people realize this, but you know what, if you
Speaker 1: look at the combined wealth of the two thousand seven
Speaker 1: hundred and fifty five billion years in the world. So
Speaker 1: if you take all the billionaires in the world, you
Speaker 1: add up all their money, it's only thirteen trillion dollars.
Speaker 1: By the way, okay, so even if we were to
Speaker 1: confiscate all the money from all the richest billionaires in
Speaker 1: the world, time enough to basically even fill the whole. Now,
Speaker 1: another way to look at this. You said, well, what
Speaker 1: can you buy with twenty four trillion dollars? You might
Speaker 1: that way. Now think about this. You know you could
Speaker 1: argue today the most you know, the ultimate symbol of
Speaker 1: wealthy days is to buy sports teams and luxury real estate.
Speaker 1: But you know you could buy the fifty most valuable
Speaker 1: teams in the world. I'm talking about like from the
Speaker 1: l A Lakers to I don't know United, you know,
Speaker 1: basically a Manchester United. You can buy the fifty most
Speaker 1: valuable teams in the world for just one and seventy
Speaker 1: billion dollars compared with the twenty four trillion dollars just
Speaker 1: told you. Is the something that you know that costs
Speaker 1: the world? Basically from COVID just in two thousand twenty,
Speaker 1: do you know you can buy all of Manhattan's land
Speaker 1: for one point seven trillion dollars. Again, COVID causes twenty
Speaker 1: four trillion dollars. Do you know what you know what
Speaker 1: it is? I figured it out, you know, you know,
Speaker 1: you know what twenty trillion dollars really mean. With twenty
Speaker 1: four trillion dollars, we can basically feed the seven hundred
Speaker 1: million people in the world who suffer from chronic nourishment.
Speaker 1: We can prove mind clean water and basic sanitation for
Speaker 1: everyone in the world. We can provide education for all
Speaker 1: the children in the world who are not able to
Speaker 1: attend school. On top of that, we can protect all
Speaker 1: the endangerous species from extinction, okay, which only cost is
Speaker 1: about some seventy six billion dollars a year. In other words,
Speaker 1: just the cost of last year is basically forgotten GDP,
Speaker 1: and the fiscal costs is enough to make the world
Speaker 1: a much better place. In other words, the way I
Speaker 1: think about this is, okay, is that now we as
Speaker 1: though that before the crisis, there was nobody went hungry
Speaker 1: at night, nobody went without clean water, all the children
Speaker 1: went to school, animals live in total peace. And now
Speaker 1: guess what after COVID just one year, seven million people
Speaker 1: are going hungry every night based more than a billion
Speaker 1: people don't have these safe water basically about five and
Speaker 1: people are not going to school when they should. And
Speaker 1: then guess what animals are dying left and right. That
Speaker 1: is the cost just in two thousand twenty. Not to
Speaker 1: mention beyond. Now I can tell you something else. You
Speaker 1: might say, well, when are we gonna pay this price?
Speaker 1: That obviously you know is immediately tied to the whole
Speaker 1: inflation story. The reason why yelling, and this is why
Speaker 1: I have no respect for people like yelling. She keeps
Speaker 1: talking about why if interest rates are zero, then there's
Speaker 1: no cast, let's just take on more debt if the
Speaker 1: interest rates zero, But she's assuming that inflation is never
Speaker 1: gonna go back up. I just told you. If COVID
Speaker 1: turns out to be a negative supplying shock, then everything
Speaker 1: they're doing right now is going to be pushing up
Speaker 1: inflation and pushing up the inflation unless they want inflation
Speaker 1: to go out of control, which I don't think they do.
Speaker 1: The fact web no choice, but the race interest rate.
Speaker 1: When they starts to rates an interest rate, that's when
Speaker 1: that's the day we start paying for basically the cost,
Speaker 1: and it's gonna be a big cost. I want to
Speaker 1: ask a slightly different question based on that yell in comment.
Speaker 1: But you know you were at BAMIL for a very
Speaker 1: long time. I think about ten years, and your new
Speaker 1: blog is called David Woo Unbound. Is the suggestion that
Speaker 1: I don't know that you were sort of bound um
Speaker 1: in terms of what you could say when you were
Speaker 1: at Bank of America Maryland, Tracy. You know, let me
Speaker 1: tell you something, you know, you know, you know what
Speaker 1: really basically sort of like the day of reckoning for
Speaker 1: me at Bank a marking, you know, by the way
Speaker 1: you know I mean, I I don't want to say
Speaker 1: I have only good things to say about Bank America.
Speaker 1: I was there for ten years. I did great, The
Speaker 1: bank treated me great. I couldn't be any happier that.
Speaker 1: That's the honest truth. So my leading Bank America has
Speaker 1: nothing to do with how the bank treated me or
Speaker 1: anything like that. I've always thought that they paid me
Speaker 1: much more than actually I was worth. But nevertheless, you
Speaker 1: know what, I'm not going to complain now. I'll tell
Speaker 1: you what really got to me. It's a sort of
Speaker 1: sequence of events, one of which was what been in
Speaker 1: January Febrary, this year now, I don't have to remind you, right,
Speaker 1: you know, the one point whatever six trillion dollar fiscal
Speaker 1: stimulus package that got through very quickly in January, as
Speaker 1: soon as the new administration was warning. Now that one
Speaker 1: point six trillion, I can tell you any reasonable economists
Speaker 1: will tell you it was not just excessive, it was
Speaker 1: probably unnecessary. Now, it's very interesting to me how many
Speaker 1: economists came out speaking up against it. Obviously not a
Speaker 1: single one on All Street, but literally, you know, the
Speaker 1: people who spoke up against it are like Olivia Blanchard,
Speaker 1: who's the former chief economist at the I m F,
Speaker 1: who's not retired, who doesn't guart anymore. I mean, he
Speaker 1: has no he doesn't have to pay the political price
Speaker 1: for saying things that may not be politically correct. I
Speaker 1: can hear you. Who other person can John Cochrane, who
Speaker 1: used to be at Berkeley, who's now whoever institute, who
Speaker 1: has been banished already to the North Pole, if you like,
Speaker 1: who basically wrote about it. In other words, to me,
Speaker 1: what we're shocking in January and February was that we
Speaker 1: just decided to write this massive check that was completely unnecessary,
Speaker 1: and yet not a single academic economists, okay, really spoke
Speaker 1: up with the exception of a few honest and courageous people,
Speaker 1: they didn't mind to be canceled because either they were
Speaker 1: already in the retirement what they were already basically in
Speaker 1: North Pole, they've already been canceled. So from that point
Speaker 1: of view, this is what we was a wake up
Speaker 1: call for me because then I realized that the whole
Speaker 1: canceled culture has gone much too far. I can tell
Speaker 1: you so many of my professor friends, you know, classmates
Speaker 1: at Columbia who are now basically teaching a major university
Speaker 1: IVY league, who tell me they do not there to
Speaker 1: speak up today because they might lose their job, they
Speaker 1: might lose your tenure, they might have students basically complaining
Speaker 1: about them. That is the climate today in America, and
Speaker 1: it is starting, and it was getting onto Wall Street.
Speaker 1: And I said, you know what, I gotta do something
Speaker 1: about this because I benefited from Wall Street. I mean
Speaker 1: I've I've spent twenty years on Wall Street. One thing
Speaker 1: I learned what anything else on Wall Street is the
Speaker 1: Wall Street is about the celebration of differences. Just think
Speaker 1: about this. Every day people are going on your show
Speaker 1: you know, debating about A and B is inclusion going up,
Speaker 1: inclustion going down. You know what Wall Street is about
Speaker 1: the celebration differences. If somebody today is buying Tesla stock
Speaker 1: is because somebody else is selling it. So I wanted basically,
Speaker 1: I decided to set out my own in order to
Speaker 1: basically bring this very important lesson from Wall Street that
Speaker 1: I become. It's been a very big part of my
Speaker 1: success to basically the general public. That's what I want
Speaker 1: to do on this question of like who gets to
Speaker 1: criticize I mean the stimulus. I mean also Larry Summers
Speaker 1: was a critic of some of the size of the spending,
Speaker 1: and of course he continues to have a significant media platform.
Speaker 1: Jason Furman, former official within the Obama administration, critic, also
Speaker 1: listened to I mean, I think that there really are
Speaker 1: economists who, to use your term, they're not banished to
Speaker 1: the North Pole, who have been criticized. But I want to, uh,
Speaker 1: can we just basically answer that question if you read
Speaker 1: for me, Larry Summers has no credibility whatsoever when it
Speaker 1: comes to this, because he has been If you I
Speaker 1: don't tell you, I don't do remind you Joe. You
Speaker 1: remember this is for the last ten years he's been
Speaker 1: advocating mass epistical stimulus. Remember he was the one was
Speaker 1: talking about stagnation does in theory. Why doesn't that give
Speaker 1: him more credibility as someone who No, I don't think so,
Speaker 1: because I would say that they were following his blueprint.
Speaker 1: In fact, if you actually read his Washington Post article,
Speaker 1: it was pussy footing around. It was like it was nothing.
Speaker 1: It was not like, you know, he really came out forcefully.
Speaker 1: He felt that he had to basically say something. That's
Speaker 1: that's the feeling I got, certainly. I you know, again,
Speaker 1: go back to read the article and see if you
Speaker 1: actually Larry summer is it's not someone who puss the
Speaker 1: foot around. He basically make sure that you hear him
Speaker 1: when he speaks. And in the way he wrote that article,
Speaker 1: I thought there were too many ifs. Just going back
Speaker 1: to this question, you say, Okay, they are all these
Speaker 1: critics of the stimulus who had secret felt like they
Speaker 1: couldn't say anything and because of yeah, whatever in your
Speaker 1: in your in your characterization, cancel culture that big said, Okay,
Speaker 1: let's look at what's actually happened. Well, it is true
Speaker 1: that we have had some elevated inflation prints and there's
Speaker 1: probably reason to think, you know that even if there's
Speaker 1: a cool down, UM, we are going to get the UH,
Speaker 1: they may remain as such for a while. We also
Speaker 1: see an extremely robust labor market recovery nearly two million
Speaker 1: jobs in the last two months. We did see a
Speaker 1: massive hit two incomes. And I know that we've focused
Speaker 1: a lot, say on this show, UM about a lot
Speaker 1: of the supply chain disruptions, and we've talked a lot
Speaker 1: about containing ers as well as you have. But on
Speaker 1: the other hand, small business incomes, service sector incomes absolutely
Speaker 1: decimated for several months, and we don't really have the
Speaker 1: counter factual of what it would have looked like without
Speaker 1: the p PP program and the expanded UI, but huge
Speaker 1: swaths of the economy their incomes, at least for the
Speaker 1: for several months after the virus hit would have basically
Speaker 1: gone to zero, and that would have crushed their spending,
Speaker 1: and that would have crushed rents. And you know, you
Speaker 1: talked about some of the UH the eviction moratorium. On
Speaker 1: the other hand, there are millions of landlords who probably
Speaker 1: wouldn't have been able to collect any rent had it
Speaker 1: not been for the UI and some of these programs.
Speaker 1: So why is it not reasonable to say, I mean
Speaker 1: that there were really truly shocks to both the demand
Speaker 1: and supply and whiles, and that the supply side is
Speaker 1: absolutely not sorted out, that the demand side has more
Speaker 1: or less remained uh smooth, thanks to the ongoing fiscal expansion. Right,
Speaker 1: you asked a very good question. And again I don't
Speaker 1: want to sound overly political, I would argue I, in
Speaker 1: my humble opinion, I think Secretary niche was probably the
Speaker 1: best Secretary of US charging we've had very very long time. Okay.
Speaker 1: One of the reasons, I mean that he did a
Speaker 1: lot of great things. He just someone who was just
Speaker 1: obviously a bit of an introverse so he didn't know
Speaker 1: how to basically, you know, do his own pr now.
Speaker 1: And because his association with you know, with Trump, you know,
Speaker 1: people didn't want to give him any credit for anything
Speaker 1: he did. But he was the one who came up
Speaker 1: with p PP. If you think about p p P, Okay,
Speaker 1: p p P was basically a supply side response by
Speaker 1: the last administration, right, because the whole idea was, well,
Speaker 1: these business is gonna go bankrupt, you know, and there's
Speaker 1: a cost two companies going bankrupt because like you know,
Speaker 1: it's easy for companies to go bankrupt, but it would
Speaker 1: be difficult for these companies to come back. Okay. Therefore,
Speaker 1: the whole p VP okay, the payroll BA sickally a
Speaker 1: program was to help small business survive the shock and
Speaker 1: the Minchill also understood that you know what, there will
Speaker 1: be some money that was going to be stolen in
Speaker 1: that process, right because as we know, like a lot
Speaker 1: of companies basically faked there whatever you know, payrolls and
Speaker 1: basically got the money that they shouldn't have. It doesn't
Speaker 1: meanly matter, but that was a good example of a
Speaker 1: supply response to help basically mitigate the real, basically the
Speaker 1: long term cost of the crisis by preventing a large
Speaker 1: number of businesses from simply going bankrupt. That was the
Speaker 1: right policy. But what happened earlier this year when Biden
Speaker 1: and with he basically endorsement of Gallon sentate check to
Speaker 1: everybody again four thousand, two hundred dollars. That is not
Speaker 1: the supply side policy. Especially at the time already US
Speaker 1: household savings was like eight percent, nine percent, ten percent.
Speaker 1: You know, if people had that kind of we're sitting.
Speaker 1: If you look at average saving rings never been higher,
Speaker 1: so a ma kins were sending on so many savings.
Speaker 1: If they were not spending, it was not because they
Speaker 1: didn't have the money, presumably because you know what, there
Speaker 1: was no place to spend it, because you know what,
Speaker 1: they wanted to go out the restaurant. The restaurants were closed.
Speaker 1: Maybe they bought all the computers they have. And you
Speaker 1: can see what's happening right now, by the way, this
Speaker 1: last month, you know, you saw the nonvomparent number last week.
Speaker 1: This is the fourth month in a row the hospitality
Speaker 1: and leisure created more jobs than all the other private
Speaker 1: sectors combined, my friend, because Americans are rushing out to
Speaker 1: basically eat out, to basically hit the road on vacations,
Speaker 1: on and so forth. So from not pointing view again,
Speaker 1: but what I'm saying is this, I'm not saying that
Speaker 1: any fiscal response is wrong. I have no doubt that
Speaker 1: last year the aggressive fiscal response was correct. It was calibrated,
Speaker 1: and I love the PPP program because that made a
Speaker 1: lot of sense to me. And on top of that,
Speaker 1: there was also more assuasion placed on the banks not
Speaker 1: to foreclose. Okay on basically businesses warfa, I'm outter mortgages.
Speaker 1: These was the point side response that was basically pushed
Speaker 1: by the last administration. This administration came in. The first
Speaker 1: thing you want to do is spend more, to give
Speaker 1: people who didn't need the money to spend more. That's
Speaker 1: what I've a problem with. I'd like to widen out
Speaker 1: the conversation a little bit more because we've been focusing
Speaker 1: a lot on the US, But you know, I'm over
Speaker 1: here in Asia and one thing that's been happening here
Speaker 1: is we've seen a resurgence in COVID cases. UM the
Speaker 1: delta variant is spreading in Malaysia, Indonesia, Vietnam, places like that.
Speaker 1: We have some cases in China again, and I'm watching
Speaker 1: the p M I s and they seem to be
Speaker 1: rolling over For are some very important economies in terms
Speaker 1: of the global supply chain, but also potentially demand. And
Speaker 1: even China is getting close to UM that fifty mark
Speaker 1: that is the difference between expansion and contraction. So how
Speaker 1: much does China and broader Asia matter when it comes
Speaker 1: to the global recovery And how much does I guess
Speaker 1: the variations in the economic recovery um complicate the global picture.
Speaker 1: The difference between Asia and the rest of the world
Speaker 1: is very simple. Asia was fighting a different matter in
Speaker 1: the rest of the world. During the entire COVID pandemic.
Speaker 1: You know, an Asia was successful, you know, in terms
Speaker 1: of their strategy coping with COVID by simply, you know,
Speaker 1: pursuing an elimination strategy. Right, don't to tell you great
Speaker 1: examples Taiwan, right and now Australia. I mean, they would
Speaker 1: just they basically shut down the whole countries so that
Speaker 1: it was impossible for anybody to even get in. I
Speaker 1: should know this. My parents live in Taiwan. I can
Speaker 1: tell you it's impossible. So as a result, Asia became
Speaker 1: too complacent. They were able to contain basically keep them
Speaker 1: basically COVID at bay by keeping it outside basically their countries.
Speaker 1: They didn't aggressively trying to get vaccines, and that's of
Speaker 1: course the big story. Right. So and then what it's
Speaker 1: really I've always said, China got super lucky. I don't
Speaker 1: know if China, if you know, if if the virus
Speaker 1: was bio biolologically engineered or now I don't really care.
Speaker 1: What I think is China got really insanely lucky last
Speaker 1: year because we all knew the virus okay, once they
Speaker 1: got out of China on its way to Europe became
Speaker 1: literally a percent more contagious. By the time they started
Speaker 1: to spread in Europe, it had already mutated. It was
Speaker 1: a much more infectious. Basically, virus did anything that Chinese
Speaker 1: had to deal with in last January and Febrary in China.
Speaker 1: And ironically, you know the mutation that has been happening now,
Speaker 1: you know, from basically in Europe, and then you know,
Speaker 1: but you know, the alpha, the beta, the gamma in
Speaker 1: South Africa, Brazil. Now the delta is now finally reaching Asia,
Speaker 1: and all of a sudden, you know, the Asian basic
Speaker 1: elimination strategy doesn't work, and rightly so doesn't work. I
Speaker 1: never thought was gonna work, because now you've got, you know,
Speaker 1: basically the delta, which is fifty more basic contagious than
Speaker 1: the altpha. The alpha was basically add percent more contagious
Speaker 1: in the Chinese. This is what's really going on. But
Speaker 1: I'm not terribly worried about this, and I'll tell you
Speaker 1: why I'm not terribly worried about this. If you look
Speaker 1: at the experience of alpha, gamma, beta, and the delta.
Speaker 1: They all follow a very similar pattern. And you have
Speaker 1: to look at the country's of origin for each of
Speaker 1: these basically variants, okay, and basically in the UK, South Africa,
Speaker 1: and Brazil. Following the outbreak of alpha, beta and gamma.
Speaker 1: In India, which is the home of origin of delta,
Speaker 1: the number of new cases collapsed. And it's pretty fascinating
Speaker 1: because even India, well you've got something like twenty vaccination Okay,
Speaker 1: so that's pretty impressive. The numbers have completely collapsed in India.
Speaker 1: Let's look at the UK. UK is another good example. UK,
Speaker 1: you know, because of the close ties with India, was
Speaker 1: the first western country to get hit by delta. And
Speaker 1: the number of cases basically when flying and guess what,
Speaker 1: it's been coming down a lot more than seventy is
Speaker 1: now stabilizing, Okay. This is also the reason why I
Speaker 1: think the US story is gonna follow very safe similar pattern,
Speaker 1: which is that I think probably the next few weeks
Speaker 1: we all to see basically delta cases also starting to peak.
Speaker 1: In Asia. I think the reason why the economy has
Speaker 1: been hit is because once again, these economies are still
Speaker 1: trying to deal with basically Delta using yesterday's medicine, which
Speaker 1: is by trying to shut down the economy, trying to
Speaker 1: basically limited That is not a winning strategy. The only
Speaker 1: strateogy that works now is to basically And this is
Speaker 1: why I think the UK approach it's going to be
Speaker 1: really really important because I don't tell you UK saw
Speaker 1: massive increase in cases and they decided to basically reopen economy,
Speaker 1: relax all restrictions because they decided, you know what, let's
Speaker 1: elimination strategy doesn't work. Let's just basically pursue a strategy
Speaker 1: of coexistence. Okay, if you get everybody vaccinated, you know what,
Speaker 1: maybe we don't have to close if not many people
Speaker 1: are dying. And in fact, if you look at the
Speaker 1: mortality rate in the UK, it's about point two percent,
Speaker 1: which is about double that of a flu okay for
Speaker 1: vaccinated people. I think that's what it is. So I
Speaker 1: think it's basically ASIA strategy worked in the beginning, it
Speaker 1: stop working once Delta became much more con pages, and
Speaker 1: yet Asia continues to try to basically control it as
Speaker 1: though we were fighting the original virus. I think, just
Speaker 1: like everybody else, there's gonna be a learning curve. I
Speaker 1: think even Asia is gonna get there, and when they
Speaker 1: get there, we're gonna we're gonna decide that maybe we
Speaker 1: can live with this. Now, of course, I want to
Speaker 1: say this one big of course, which is I have
Speaker 1: no idea what's gonna happen later later this year, I
Speaker 1: mean during winter, because I don't tell you Alpha, gamma,
Speaker 1: Delta and basically a gamma all developed during late fall
Speaker 1: and early winter and early spring. The fact that Delta
Speaker 1: became more infectious now that you could basically in a
Speaker 1: defined basically vaccination, I can tell you I'm in Israel
Speaker 1: right now, and then you know the you know, the
Speaker 1: immunity rate is now less than among people who receive
Speaker 1: two shots. Okay, So from that point of who knows
Speaker 1: what's going to be the next mutation is not going
Speaker 1: to basically, you know, basically become not only more contagious
Speaker 1: but also more virulent. That is a different story. But
Speaker 1: right now, given if we're just talking about delta right now,
Speaker 1: I wouldn't want to be basically overly concerned about this.
Speaker 1: Is this being enough to derail the global recovery? Well,
Speaker 1: what let's go back to what does this mean then
Speaker 1: for the supply side, and your view is that by
Speaker 1: and large, the disrupt the disruption COVID is a supply
Speaker 1: side story. And and look, you know, I think if
Speaker 1: any listener to odd lots would to some extent degree
Speaker 1: because we do a lot of episodes on supply side disruption,
Speaker 1: shipping containers, all of that. So to some extent there
Speaker 1: is a large agreement. If you know, we have these
Speaker 1: sort of ongoing waves. We don't know for the mutations
Speaker 1: we you as you say, these sort of like completely
Speaker 1: stamp it out strategy is a failure against a mutation
Speaker 1: is violent as uh that spreads as easily as delta.
Speaker 1: What is the prospect for supply side normalization? Like when
Speaker 1: do we see container rates normalized or what would it
Speaker 1: take for container rates to normalize? Things like at I
Speaker 1: think I think it's gonna depends on different sectors, right,
Speaker 1: you know, obviously, like for example, we all know that
Speaker 1: you know, the supply crunch in semit conductors, Right, that
Speaker 1: was one of the reason why like computer prices went
Speaker 1: through the room. But computer prices starting to come back
Speaker 1: down a bit, Right, That's one of the reasons why
Speaker 1: like use car prices went through the rout because there
Speaker 1: were new no new cars because like certain chips that
Speaker 1: were not available, so that certain new models were not available.
Speaker 1: And then actually what happened this week this month is
Speaker 1: the reason why use car prices started to basically moderate
Speaker 1: prices is because new models are being wrote out. That's why,
Speaker 1: like new car price has been going up. But I
Speaker 1: do think so these these these are temporary shocks. By
Speaker 1: the way, these are temporary supply shows. I'm not too
Speaker 1: worried about them. I'm much more concerned about potential permanent
Speaker 1: supply shock, negative supply shock. What are those. Let's think
Speaker 1: about this number one. As I said before, you know,
Speaker 1: you know, if COVID is gonna be here to stay, Okay,
Speaker 1: if it becomes the new normal, you know what, I
Speaker 1: do think many of women are going to end up
Speaker 1: staying home simply because I do think that starts to
Speaker 1: for younger children. This is going to be a major issue. Okay.
Speaker 1: And then especially not certainly not before the vaccine becomes
Speaker 1: widely available, which may not be the case for many years,
Speaker 1: by the way, who knows. Okay, I can tell you
Speaker 1: that from experience, because my both of my basically had
Speaker 1: daughters in Israel, have very young children, my grand my grandsons,
Speaker 1: you know, they have not been going to kindergarten for
Speaker 1: for a long time. As a result, my both of
Speaker 1: my basically daughters having to quit their job or certainly
Speaker 1: kept back on their work in order to basically look
Speaker 1: after the children. That's one major issue. I think another
Speaker 1: major issue is that COVID, if it's going to be
Speaker 1: here to stay, is also changing the skills that are
Speaker 1: required by employers. Okay, you can see very clearly in
Speaker 1: the data, you know, unemployment rate for basically people with
Speaker 1: college education has pretty much gone back to it's almost
Speaker 1: not exactly, but very close to getting back to what
Speaker 1: we wore before the crisis. Wise, people with only a
Speaker 1: high school degree, that is much less the case, which
Speaker 1: tells you that there's no doubt that it makes a
Speaker 1: big difference whether you can work from home. Well, you
Speaker 1: cannot work from home if you can now, if COVID
Speaker 1: is transforming the economy in terms of the skill requirement,
Speaker 1: a very big part of our labor force may simply
Speaker 1: become unemployable. That's a negative basically supply shock, other supply shocks.
Speaker 1: Think about this, I think you know, there's no doubt
Speaker 1: my mind. You know, one of the things that you know, Joe,
Speaker 1: like I really care a lot about is the US
Speaker 1: trying to trade wark Okay, there is no doubt. Nobody
Speaker 1: wants to say this, but I ain't. In the U
Speaker 1: S China relationship has gotten ten times worse under Biden
Speaker 1: than under Trump, by the way, and there is no doubt.
Speaker 1: I mean, this is why it's actually interesting, Like you
Speaker 1: were thinking, the US county is on fire, the Chinese
Speaker 1: basically is actually struggling the export now in the past,
Speaker 1: including doing two thousand and ten, the two thousand and
Speaker 1: ten two thousand fifting recovery. It's like, well, US was
Speaker 1: growing and then they were sucking all these cheap imports
Speaker 1: from China, therefore kepting basically prices very low. Now there's
Speaker 1: not longly the case, Okay. So basically what worries me
Speaker 1: much more is basically this kind of thing is a
Speaker 1: permanent supply shock that basically shifts the labor supply curve
Speaker 1: basically in and then because of the disruption in global trade,
Speaker 1: a lot of which has become so politicized that I
Speaker 1: don't see we're gonna be able to overcome them anytime soon.
Speaker 1: That is also going to reduce the aggregate supply okay
Speaker 1: for the global economy. So from that point of view,
Speaker 1: a lot of the advantages that were previously associated with
Speaker 1: globalization and so on and so forth, it's just not
Speaker 1: going to help us that much to storm around on
Speaker 1: the inflation front. So I have a dumb question on
Speaker 1: this point. But it's something that, um, I've been thinking
Speaker 1: about because Joe and I have been talking so much
Speaker 1: about the supply issues. So there's this idea of the
Speaker 1: bullwhip effect and that you know, UM, a shortage in
Speaker 1: supplies means that company is going to overorder in the
Speaker 1: next round, and then that leads to sort of over
Speaker 1: capacity and things like that. But I'm wondering, is the
Speaker 1: response to supply issues can that be good for the
Speaker 1: wider economy. For instance, if people decide that China is
Speaker 1: too risky UM for whatever reason, whether it's COVID or
Speaker 1: something like the trade war, and they start building UM
Speaker 1: manufacturing capacity closer to home, like in the US, that
Speaker 1: would seem to potentially be a good thing. You're right,
Speaker 1: I mean, depends for who. But just just just let's
Speaker 1: be very specific. Right, Let's just say right now, you know,
Speaker 1: the US determined to basically shut down the entire semiconductor
Speaker 1: basically production. Okay, trying right, I mean the US decided
Speaker 1: that we don't want to China to be in this
Speaker 1: business all because it's going it threatens the US hegemony
Speaker 1: too much, right, I mean, it's not even at this point,
Speaker 1: it's not even about whether they steal from us, they
Speaker 1: don't steal from us, or they spite from us. Is
Speaker 1: now it's like, well, we don't want them to basically
Speaker 1: threaten our competitive basically our technology gradual morning in the
Speaker 1: space different. We don't want them to be in that
Speaker 1: space period, which means basically, you know what, you have
Speaker 1: to basically build these points somewhere else, right, which means
Speaker 1: some companies that will have to pour a lot of
Speaker 1: money into that, which means, can you imagine in the
Speaker 1: extreme case where everything that we're currently buying from China
Speaker 1: we now have to basically build production capacity somewhere else
Speaker 1: to build the same thing. You don't think that's going
Speaker 1: to be very expensive? I mean sure, I mean you
Speaker 1: know what, you know, you've gotta basically think about that
Speaker 1: from that point of view, which is relative to where
Speaker 1: we are. Because again this comes back to the whole
Speaker 1: inflation story. Okay. The only reason why the stock market
Speaker 1: is trading where is trading right now, the only reason
Speaker 1: why house price has gone up so much when I
Speaker 1: hes talking about today, yesterday, what we're talking about the
Speaker 1: last twenty years, we've seen that massive, okay, rally in
Speaker 1: the stock market, in basically home prices, in wealth in general,
Speaker 1: and that's all because of disinflation as a result of
Speaker 1: globalization that allows center banks around the world to really
Speaker 1: cut interest rates to unbelievably low level. And by cutting
Speaker 1: interest rate the very low level, you are reducing the
Speaker 1: discount rate. Okay, That prices all risk the ass because
Speaker 1: by reducing the future discounted cash flows due to that,
Speaker 1: that's why you've seen this massive as surprise appreciation. Okay.
Speaker 1: So now you're telling me, who cares about that? Who
Speaker 1: cares about the disinflation. Let's embrace a little bit of inflation.
Speaker 1: Then what happens to a surprises you tell me? Okay,
Speaker 1: So from that point of view, you know, the debt,
Speaker 1: the wealth basic explosion of the last twenty years was
Speaker 1: all thanks to you know, globalization, which is about the
Speaker 1: integration of the Chinese economy and the global economy that
Speaker 1: kept global prices low, that allow interest race to globe,
Speaker 1: They allow the kind of you know, you could argue
Speaker 1: with the globalist the elite basically benefits with that because
Speaker 1: they're the ones who's sitting on They almost of the
Speaker 1: wealth that benefits on the price appreciation of these assets.
Speaker 1: But nevertheless, we gotta be very very careful to think
Speaker 1: of That's why Trump, even though he started to trade
Speaker 1: over China, he had a very defined objective. He wanted
Speaker 1: China to play fair. He wanted China to respect US
Speaker 1: intellectual property and right. He wanted you know, all these
Speaker 1: concessions Chinese. And from that point of view, that's why
Speaker 1: I always saw that the first agreement, the Face one Agreement,
Speaker 1: was a very significant agreement. Yeah, I was probably the
Speaker 1: only person on Wall Street to have read the entire
Speaker 1: hundred page document. To me, is still a spectacular agreement.
Speaker 1: I think it should go down to history as one
Speaker 1: of the most important milestones. Unfortunately, Trump lost the election
Speaker 1: and that agreement is not worth nothing, Okay, But the
Speaker 1: point here is that that had a very defined objective
Speaker 1: which could potential should you still put the US in
Speaker 1: China into win win position because of each other. I
Speaker 1: can tell you for the last all throughout two thousand
Speaker 1: and eight nineteen, when I was going to China in
Speaker 1: big corporate offices and government office, people will come up
Speaker 1: to me whispering my ears and no, David Trump is
Speaker 1: a great man. These are Chinese people telling Trumps because
Speaker 1: they're saying that, you know what, reforms had been stalling
Speaker 1: in China for the last ten years under shooting pain
Speaker 1: and thanks to China, thanks to Trump, the pressure is
Speaker 1: on China to once again accelerate reform. And that's what
Speaker 1: Trump did. And this is what people don't realize. Indian
Speaker 1: China agreed to the Phase one agreement because ultimately the
Speaker 1: reformers got back into the driversy because of pressure from Trump.
Speaker 1: And I thought that this was going to lead to
Speaker 1: a basically a happy ending for both sides because the
Speaker 1: name of the day, you know what, that's when we
Speaker 1: that's what we all want me, Tracy, you'll send me
Speaker 1: in Asian. But now with Biden, it's like, wow, gloves
Speaker 1: are off. So from not when we're now moving from
Speaker 1: an economic conflict that was ultimately well defined under the administration,
Speaker 1: that that we were getting close to basically resolving to
Speaker 1: now ideological contests which can never be resolved at this point.
Speaker 1: And that is if you're telling me, if that's you
Speaker 1: want to basically start building all these expensive plans you
Speaker 1: outside China and hire people that got Yeah, you're can
Speaker 1: increase some jobs, but you're gonna create a lot of implation. Well, David,
Speaker 1: like I said at the beginning, it's always interesting speaking
Speaker 1: to you, always provocative and really really appreciate your insight.
Speaker 1: Thanks for coming out an outlot. No, not at all,
Speaker 1: I mean thanks for putting up with me. And you know,
Speaker 1: I love coming on the Bloomberg because I know that
Speaker 1: you guys are willingly to contemplate. You know, there are
Speaker 1: other alternative views out there than the main streams, and
Speaker 1: it's great. Thank you, thank you so much, thank you
Speaker 1: so much. As you know, obviously, uh where to start.
Speaker 1: David has um pretty some you know, out of consensus
Speaker 1: as you you asked a good question, did he feel
Speaker 1: bound previously a sort of out of consensus perspectives on
Speaker 1: a lot of stuff, but you know, on a lot
Speaker 1: of things, like I think his his views are worth taking,
Speaker 1: are worth taking seriously, at least at least several of
Speaker 1: the points are like you know, this is this is
Speaker 1: worth thinking about in debating. I like David wu unbound. Um.
Speaker 1: You know, he was always sort of outspoken um while
Speaker 1: he was a Bank of America Mary Lynch and um.
Speaker 1: He seems to have taken that to a new level
Speaker 1: just then. But so, for instance, his points about China
Speaker 1: kind of decoupling from the global economy, I would totally
Speaker 1: agree that that is an underappreciated um risk or thing
Speaker 1: that is actually happening now in the global market. And
Speaker 1: it reminds me a lot of in early two thousand
Speaker 1: twenty when the COVID outbreak first happened and China basically
Speaker 1: shut down its entire economy, and the US, or at
Speaker 1: least the US markets just ignored it completely and it
Speaker 1: was like, well, we spent the past two or four
Speaker 1: years worrying about the trade war with China, and you know,
Speaker 1: that was all anyone could talk about. And now China
Speaker 1: has basically closed off and US markets are doing absolutely nothing, um,
Speaker 1: not responding to it at all. And eventually they did
Speaker 1: in March, of course, But like I kind of feel
Speaker 1: a similarity with the current situation. It's not going to
Speaker 1: be like as sharp as it was in March but
Speaker 1: I do think at some point people are going to
Speaker 1: wake up to this dynamic. Yeah, no, I I agree,
Speaker 1: And I think your assessment that it has not been
Speaker 1: fully appreciated. I think I saw a tweet from you
Speaker 1: and last night or this morning about some of this
Speaker 1: rolling over in the p M. I s that like,
Speaker 1: just like the sort of like the absolute effect of
Speaker 1: the slowdown and then the ongoing supply chain disruption is
Speaker 1: that that's going to cause. And you know, we joke
Speaker 1: about this, it's not really a joke, but our very
Speaker 1: first episodes we're talking about um COVID as a as
Speaker 1: it supplies shock story. Like the first one we did
Speaker 1: with Dan Wong back in early March or maybe February
Speaker 1: probably February twenty was like, well, what's it gonna mean
Speaker 1: for Apple and so forth? And it's interesting the degree
Speaker 1: to which we just like, oh, it's gonna normalize, and
Speaker 1: you know, container prices are gonna crest and so forth,
Speaker 1: and this idea that well maybe there is like this
Speaker 1: sort of like deeper thing going on that's not about
Speaker 1: the crest. And David's point about how the approaches that
Speaker 1: Asian countries took to completely stamp out the virus in
Speaker 1: the beginning may not be is effective with the UH
Speaker 1: the more transmittable delta variant. Extremely interesting. Yeah. The other
Speaker 1: thing I found interesting was his contrasting of you know,
Speaker 1: a demand side shock or recession versus the supply side,
Speaker 1: and the idea that a lot of the thing that
Speaker 1: policymakers are doing right now end up boosting demand and
Speaker 1: not really solving the supply issues, and so that accelerates inflation.
Speaker 1: That seems like a reasonable risk to me. Yeah, I mean, look,
Speaker 1: I think that I guess the question is, all right,
Speaker 1: we you know, people in all different camps, you know,
Speaker 1: the supply side camp, the more demand focused Kansian camp,
Speaker 1: we all like sort of like point to the same things, right,
Speaker 1: It's like, okay, there's the semiconductors and the containers and
Speaker 1: so forth. The question, I guess is the degree to which,
Speaker 1: I guess we didn't really get into it, but it's
Speaker 1: the degree to which the demand side policies have exacerbated
Speaker 1: the problem. So it's like, Okay, everyone can accept the
Speaker 1: theory supply side shocks and we can see it in
Speaker 1: the data in which categories, but like, you know, alright,
Speaker 1: used cars, was that really because of like stimulus or
Speaker 1: expanded you Y or the chip shortage, etcetera. So there's
Speaker 1: still a question of like waiting of the different factors.
Speaker 1: And look, millions of people did lose their jobs. That
Speaker 1: is a fact. Yeah, yeah, that is very very true.
Speaker 1: Um well, I'm sure this isn't going to be the
Speaker 1: last time we talked about this topic. And of course,
Speaker 1: as you noted in the intro, inflation does tend to
Speaker 1: get people going, especially David Wou. Should we leave it there?
Speaker 1: Let's leave it there. Okay, this has been another episode
Speaker 1: of the Off Thoughts podcast. I'm Tracy Alloway. You can
Speaker 1: follow me on Twitter at Tracy Alloway and I'm Joe
Speaker 1: Why Isn't All? You can follow me on Twitter at
Speaker 1: the Stalwart. Follow our guest David Wu on Twitter. He's
Speaker 1: at David Wu Unbound, although it doesn't look like he's
Speaker 1: ever tweeted, but maybe he'll start. Follow our producer Laura Carlson,
Speaker 1: She's at Laura M. Carlson. Followed the Bloomberg head of
Speaker 1: podcast Francesca Levi at Francesca Today, and check out all
Speaker 1: of our podcasts at Bloomberg under the handle at podcasts.
Speaker 1: Thanks for listening to