1 00:00:01,240 --> 00:00:05,160 Speaker 1: Hello, Odd Lots listeners, It's Joe Wisenthal. Before we get 2 00:00:05,160 --> 00:00:08,119 Speaker 1: to today's show, I wanted to let you know that 3 00:00:08,160 --> 00:00:12,000 Speaker 1: odd Lots is hosting its first ever live event on 4 00:00:12,119 --> 00:00:16,680 Speaker 1: September here in New York City. Join me and Tracy 5 00:00:16,720 --> 00:00:19,200 Speaker 1: Ellaway as we host an all star lineup of guests 6 00:00:19,200 --> 00:00:23,000 Speaker 1: to talk about cryptocurrency, white color fraud, modern monetary theory, 7 00:00:23,400 --> 00:00:26,680 Speaker 1: and more. We'll even have some finance themed live music, 8 00:00:26,760 --> 00:00:30,720 Speaker 1: including some songs by yours truly. So keep listening to 9 00:00:30,800 --> 00:00:33,400 Speaker 1: odd Lots all this month to find out more details 10 00:00:33,440 --> 00:00:36,040 Speaker 1: about the live show, but for now, mark your calendars 11 00:00:36,080 --> 00:00:54,160 Speaker 1: for Thursday September for the first ever Odd Lots variety show. Hello, 12 00:00:54,240 --> 00:00:57,440 Speaker 1: and welcome to another episode of the Odd Lots Podcast. 13 00:00:57,560 --> 00:01:01,200 Speaker 1: I'm Tracy Alloway. My co host Joe Eisenthal is away. 14 00:01:01,880 --> 00:01:04,840 Speaker 1: But I was thinking the other day and I realized 15 00:01:04,880 --> 00:01:07,640 Speaker 1: that Joe and I have never really done an episode 16 00:01:07,800 --> 00:01:11,480 Speaker 1: on negative interest rates. And while we've had instances of 17 00:01:11,560 --> 00:01:15,520 Speaker 1: negative yielding bonds before, over the course of the summer 18 00:01:15,520 --> 00:01:19,880 Speaker 1: this has actually become a really big topic. By some estimates, 19 00:01:19,880 --> 00:01:23,240 Speaker 1: the world has I think seventeen trillion dollars worth of 20 00:01:23,280 --> 00:01:26,440 Speaker 1: negative yielding debt now, and that includes things that you 21 00:01:26,440 --> 00:01:32,000 Speaker 1: wouldn't really expect, like corporates, some emerging market governments. And 22 00:01:32,040 --> 00:01:35,560 Speaker 1: I think the reason this gets so much attention is 23 00:01:35,600 --> 00:01:40,920 Speaker 1: that there's something fundamentally kind of unsettling about negative rates. 24 00:01:41,160 --> 00:01:44,960 Speaker 1: It just doesn't really sit well with our idea of 25 00:01:45,000 --> 00:01:48,840 Speaker 1: how capitalism is supposed to function. I mean, if you 26 00:01:48,920 --> 00:01:51,840 Speaker 1: have money and you put it to work by investing 27 00:01:51,840 --> 00:01:54,640 Speaker 1: in a company or a government, then you are supposed 28 00:01:54,720 --> 00:01:58,200 Speaker 1: to be rewarded for that. And that's one reason I 29 00:01:58,200 --> 00:02:00,680 Speaker 1: think that we're really starting to see p question the 30 00:02:00,720 --> 00:02:03,720 Speaker 1: foundations of the global economy. And we're also starting to 31 00:02:03,720 --> 00:02:07,280 Speaker 1: see people look at new ideas for fixing it, such 32 00:02:07,320 --> 00:02:10,920 Speaker 1: as modern monetary theory or MMT, which is something that 33 00:02:10,960 --> 00:02:15,240 Speaker 1: we have discussed on odd lots before. Now, in any case, 34 00:02:15,280 --> 00:02:17,240 Speaker 1: it doesn't seem like negative rates are going to go 35 00:02:17,280 --> 00:02:20,840 Speaker 1: away anytime soon, given that central bankers around the world 36 00:02:20,880 --> 00:02:24,480 Speaker 1: are pushing benchmark rates even lower by embarking on another 37 00:02:24,520 --> 00:02:28,480 Speaker 1: easing cycle. So on today's all thoughts will be asking 38 00:02:28,720 --> 00:02:32,160 Speaker 1: why exactly is this happening. Why is it that more 39 00:02:32,200 --> 00:02:35,840 Speaker 1: than ten years after the financial crisis, yields are trending 40 00:02:36,400 --> 00:02:40,119 Speaker 1: even lower and what is this say about the economy 41 00:02:40,160 --> 00:02:42,520 Speaker 1: and how we think about it and how can we 42 00:02:42,560 --> 00:02:45,200 Speaker 1: actually fix it? And I'm really happy to say that 43 00:02:45,280 --> 00:02:48,520 Speaker 1: our guest for this episode is one of my favorite analysts. 44 00:02:48,520 --> 00:02:50,799 Speaker 1: I've been reading his research notes for many years now, 45 00:02:50,840 --> 00:02:53,040 Speaker 1: and I think he's really one of the few on 46 00:02:53,080 --> 00:02:56,040 Speaker 1: the cell side that thinks about these kind of issues 47 00:02:56,400 --> 00:02:59,560 Speaker 1: on a big picture basis. He's certainly the only analyst 48 00:03:00,040 --> 00:03:02,480 Speaker 1: I've read who seems to be taking M M T 49 00:03:02,760 --> 00:03:05,800 Speaker 1: very seriously. And you'll see what I mean in just 50 00:03:05,880 --> 00:03:09,440 Speaker 1: a minute. So, without further ado, I'd like to bring 51 00:03:09,480 --> 00:03:13,320 Speaker 1: on Victor Schutz. He is a Global markets head of 52 00:03:13,360 --> 00:03:17,200 Speaker 1: Asia strategy over at McQuary. Victor, so nice to have 53 00:03:17,280 --> 00:03:19,840 Speaker 1: you on the show. Thank you, thank you for having 54 00:03:19,840 --> 00:03:22,920 Speaker 1: me a Jersey. Let's start with that number that I 55 00:03:22,960 --> 00:03:27,400 Speaker 1: threw out earlier, seventeen trillion of corporate and sovereign debt 56 00:03:27,600 --> 00:03:32,880 Speaker 1: with negative yields. How exactly did we get here? Well, 57 00:03:33,000 --> 00:03:36,920 Speaker 1: that's uh, that's a great question. You're absolutely correct. The 58 00:03:37,000 --> 00:03:41,119 Speaker 1: question is why we cannot tolerate things like obility. Said 59 00:03:41,240 --> 00:03:44,920 Speaker 1: more when I was a younger man. Quite often spreads 60 00:03:44,960 --> 00:03:48,880 Speaker 1: will move fifty sixty bits very easily today when we 61 00:03:49,000 --> 00:03:53,240 Speaker 1: have thirty five spreads suddenly moving and you almost need 62 00:03:53,360 --> 00:03:58,520 Speaker 1: ambulances at the exits. Why can't we have prime discoveries. 63 00:03:59,080 --> 00:04:02,840 Speaker 1: Why can't we have time value of money? The answer 64 00:04:02,880 --> 00:04:07,200 Speaker 1: to me is leveraging. In other words, our solution to 65 00:04:07,440 --> 00:04:12,040 Speaker 1: low productivitory over the last twenties that years was the 66 00:04:12,160 --> 00:04:16,360 Speaker 1: brand future consumption. To the present, our solution was a 67 00:04:16,480 --> 00:04:20,680 Speaker 1: surprises and leveraging will don't but to you what wages 68 00:04:20,880 --> 00:04:24,479 Speaker 1: no longer capable of giving you. And therefore, yes, your 69 00:04:24,880 --> 00:04:27,719 Speaker 1: real incomes might not grow, but we will allow you 70 00:04:27,880 --> 00:04:32,840 Speaker 1: to grow well in different ways. And initially it's incredibly stimulating, 71 00:04:33,040 --> 00:04:38,120 Speaker 1: it improves wealth, It does also some wonderful things. It 72 00:04:38,240 --> 00:04:42,120 Speaker 1: also works together with globalization. You can't really have that 73 00:04:42,240 --> 00:04:45,440 Speaker 1: sort of leveraging unless you also globalize the product and 74 00:04:45,560 --> 00:04:49,560 Speaker 1: labor market. So it's really the next of triple package 75 00:04:49,600 --> 00:04:54,640 Speaker 1: of globalization, product market, labor market, and financial market, where 76 00:04:54,640 --> 00:05:00,080 Speaker 1: our well being, our pensions and everything else depends on enterprices. 77 00:05:00,080 --> 00:05:03,719 Speaker 1: But the challenge with that is that the more you financialize, 78 00:05:03,720 --> 00:05:07,679 Speaker 1: the less effective it becomes. You got twenty years ago, 79 00:05:08,080 --> 00:05:11,360 Speaker 1: you needed maybe a dollar dollar fifty of debt to 80 00:05:11,520 --> 00:05:15,560 Speaker 1: generate one dollar of GDP. In most countries today, you 81 00:05:15,640 --> 00:05:19,320 Speaker 1: need three to five dollars of debt for every dollar 82 00:05:19,360 --> 00:05:22,039 Speaker 1: of GDP. So the more you do it, the more 83 00:05:22,160 --> 00:05:26,479 Speaker 1: incremental impact diminish it. And that implies that you have 84 00:05:26,720 --> 00:05:30,600 Speaker 1: to spur or you have to motivate it to multiply 85 00:05:30,720 --> 00:05:33,600 Speaker 1: even higher. To do that, you need to issue more 86 00:05:33,600 --> 00:05:36,400 Speaker 1: and more of that debt. And the more capital you 87 00:05:36,520 --> 00:05:39,800 Speaker 1: create compared to what you need, the more cost of 88 00:05:39,839 --> 00:05:43,599 Speaker 1: apple has to go down. And that's why interest rates 89 00:05:43,880 --> 00:05:47,559 Speaker 1: have to continuously go down to a lower and lower level. 90 00:05:48,040 --> 00:05:51,919 Speaker 1: And the more you rely on assets and debt, the 91 00:05:52,040 --> 00:05:55,240 Speaker 1: less comfortable you are with volatility, the less you can 92 00:05:55,360 --> 00:05:59,880 Speaker 1: tolerate volatilities, particularly in asset classes. So where is the 93 00:06:00,040 --> 00:06:02,400 Speaker 1: stage that it's like a squirrel in the wheel. You 94 00:06:02,600 --> 00:06:06,559 Speaker 1: can't stop running because if you do, the whole house 95 00:06:06,640 --> 00:06:10,120 Speaker 1: of gods collapses theory very quickly. And so if you 96 00:06:10,279 --> 00:06:13,119 Speaker 1: if you sort of take that, you do that. Any 97 00:06:13,200 --> 00:06:17,200 Speaker 1: inoculation that central banks might want to do in terms 98 00:06:17,200 --> 00:06:20,000 Speaker 1: of lowering rates not to spur a little bit more 99 00:06:20,000 --> 00:06:23,320 Speaker 1: growth makes it worse, and interest rates have to go 100 00:06:23,560 --> 00:06:26,640 Speaker 1: even lower over the longer term. Of course, what it 101 00:06:26,720 --> 00:06:31,080 Speaker 1: means if you continue to use monetary levels, interest rates 102 00:06:31,120 --> 00:06:34,560 Speaker 1: will have to go with negative everywhere, not just in Europe, 103 00:06:34,680 --> 00:06:38,160 Speaker 1: not just in Japan, but also names of such countries 104 00:06:38,320 --> 00:06:41,640 Speaker 1: and eventually all across the world. A lot of people 105 00:06:41,640 --> 00:06:44,400 Speaker 1: will say what is wrong with that? But but traceday 106 00:06:44,400 --> 00:06:47,760 Speaker 1: as you correctly said, that's not the way capitalism is 107 00:06:47,839 --> 00:06:51,119 Speaker 1: supposed to function. That's not the way corporate finds theory 108 00:06:51,200 --> 00:06:55,240 Speaker 1: is supposed to function. So Victor, on that note, you 109 00:06:55,320 --> 00:06:58,840 Speaker 1: talked about central banks driving down the cost of capital 110 00:06:59,000 --> 00:07:02,320 Speaker 1: in order to boost growth, and this is where we 111 00:07:02,360 --> 00:07:05,800 Speaker 1: start to to see the impact on both our theory 112 00:07:05,800 --> 00:07:09,159 Speaker 1: of capitalism and also the value of money. You mentioned 113 00:07:09,160 --> 00:07:12,520 Speaker 1: this already, the time value of money, So this is 114 00:07:12,560 --> 00:07:16,160 Speaker 1: the idea that you know, money available right now is 115 00:07:16,240 --> 00:07:20,800 Speaker 1: worth more than that same money in the future due 116 00:07:20,880 --> 00:07:25,240 Speaker 1: to its earning capacity. So basically, you know, it's a 117 00:07:25,240 --> 00:07:30,280 Speaker 1: core principle of investing that your money can earn interest 118 00:07:30,520 --> 00:07:34,520 Speaker 1: or a return, and so it's it's worth something. And 119 00:07:34,880 --> 00:07:38,040 Speaker 1: that seems to be what makes people so uncomfortable about 120 00:07:38,040 --> 00:07:41,679 Speaker 1: the negative interest rate environment. So my question is what 121 00:07:42,080 --> 00:07:45,680 Speaker 1: is that going to do to the overall economy and 122 00:07:45,880 --> 00:07:49,840 Speaker 1: to investment. Central banks that what they're doing because they're 123 00:07:49,880 --> 00:07:54,000 Speaker 1: scared of deflation. Now why they're scared of deflation, Well, 124 00:07:54,040 --> 00:07:57,160 Speaker 1: because we've accumulated so much dead that nobody will ever 125 00:07:57,240 --> 00:08:00,080 Speaker 1: be able to repay it. I mean, globally, we have 126 00:08:00,320 --> 00:08:03,440 Speaker 1: two hundred trillion dollars of death. If you look at 127 00:08:03,480 --> 00:08:06,960 Speaker 1: all of the real instruments that we haven't told that 128 00:08:07,520 --> 00:08:10,120 Speaker 1: really the cloud of finances at least four or five 129 00:08:10,200 --> 00:08:15,520 Speaker 1: hundred trillion dollars. That's around five times nominal GDP. So 130 00:08:15,720 --> 00:08:18,880 Speaker 1: instead of repaying the death, society is built around the 131 00:08:18,960 --> 00:08:22,840 Speaker 1: concept of a very gradual and slow default. So we're 132 00:08:22,880 --> 00:08:26,200 Speaker 1: slowly defaulting on our death, and the way we're default 133 00:08:26,240 --> 00:08:29,440 Speaker 1: it is to inflation. That's why central banks are so 134 00:08:29,520 --> 00:08:34,000 Speaker 1: scared of deflation. The more you relign monitor delivers, the 135 00:08:34,080 --> 00:08:36,840 Speaker 1: more you drive the cost of capital down, the more 136 00:08:36,880 --> 00:08:40,320 Speaker 1: you create deflation. So you're trying to eliminate it, but 137 00:08:40,360 --> 00:08:43,640 Speaker 1: you're actually making it worse. Now why is it's a 138 00:08:43,679 --> 00:08:46,480 Speaker 1: well a couple of reasons. The reason number one is 139 00:08:46,520 --> 00:08:50,079 Speaker 1: that the low cost of capital means zombie companies survived, 140 00:08:50,240 --> 00:08:54,400 Speaker 1: so you don't actually have clearances which are normal capitalist 141 00:08:54,440 --> 00:08:58,560 Speaker 1: system or have. Now that's a highly deflationary element. The 142 00:08:58,600 --> 00:09:01,200 Speaker 1: other thing that is happening. The lower cost of capital 143 00:09:01,400 --> 00:09:06,079 Speaker 1: implies that any unicorn, any brand new idea can be funded, 144 00:09:06,760 --> 00:09:11,040 Speaker 1: and so technology is actually progressing much quicker than otherwise 145 00:09:11,080 --> 00:09:14,280 Speaker 1: it would be the case. We've actually pour in Harrison 146 00:09:14,520 --> 00:09:19,400 Speaker 1: on the fire, and as technology explodes, companies get decent 147 00:09:19,600 --> 00:09:24,880 Speaker 1: mediated from their products, their brands, labor gets disintermediated from 148 00:09:24,920 --> 00:09:29,079 Speaker 1: their wages, and that's also highly disinflationary. So the first 149 00:09:29,480 --> 00:09:33,280 Speaker 1: side effects of using sort of monetary levels that aggressively 150 00:09:33,679 --> 00:09:36,720 Speaker 1: is that you're trying to avoid deflation, but in fact 151 00:09:36,760 --> 00:09:41,079 Speaker 1: you're creating a stronger and stronger dec inflation. So, actually, Victor, 152 00:09:41,440 --> 00:09:45,720 Speaker 1: you just mentioned tech investment in particular, and I wanted 153 00:09:45,760 --> 00:09:48,040 Speaker 1: to press you on this topic because it does feel 154 00:09:48,080 --> 00:09:51,200 Speaker 1: like nowadays, with the cost of capital so low and 155 00:09:51,400 --> 00:09:57,320 Speaker 1: people chasing future asset price growth rather than value, right now, 156 00:09:57,679 --> 00:09:59,360 Speaker 1: it does feel like we've seen a lot of money 157 00:09:59,400 --> 00:10:02,200 Speaker 1: go into the sector, whether it's through the private market 158 00:10:02,360 --> 00:10:05,520 Speaker 1: and unicorns, or through the public markets through thingstocks like 159 00:10:05,559 --> 00:10:09,680 Speaker 1: Amazon and Apple. What is the tech investment in particular 160 00:10:09,760 --> 00:10:14,880 Speaker 1: do for global economies and for society? Tech investment actually 161 00:10:14,960 --> 00:10:19,000 Speaker 1: has clearly multifact de fact some of it is very 162 00:10:19,080 --> 00:10:22,880 Speaker 1: very good, but a lot of it is highly deflationary. 163 00:10:23,000 --> 00:10:26,480 Speaker 1: So in other words, tech has a tendency of eroding 164 00:10:26,720 --> 00:10:31,040 Speaker 1: cost of everything we consume and we produce. So when 165 00:10:31,080 --> 00:10:35,440 Speaker 1: marginal costs decline of a time, the prices also dropped. 166 00:10:35,679 --> 00:10:38,359 Speaker 1: That's part of the reason it's so hard to prosecute 167 00:10:38,480 --> 00:10:44,679 Speaker 1: technology company for antitrust violations because they're not actually gouging consumers. 168 00:10:45,200 --> 00:10:49,000 Speaker 1: On the contrary, they're reducing prices. It's not the depriving 169 00:10:49,080 --> 00:10:52,880 Speaker 1: consumers of a good product. Product is actually good. The 170 00:10:53,000 --> 00:10:58,319 Speaker 1: problem with tech is not so much gouging or depriving 171 00:10:58,480 --> 00:11:02,040 Speaker 1: people of value, but rather the fact that tax is 172 00:11:02,120 --> 00:11:06,480 Speaker 1: money tizing people than powers uh and the creating scale 173 00:11:06,520 --> 00:11:11,120 Speaker 1: of business that includes other businesses going into into this 174 00:11:11,160 --> 00:11:15,320 Speaker 1: particular area. But from a macro perspective, if you keep 175 00:11:15,360 --> 00:11:19,800 Speaker 1: the cost of capital too low, technology propagates much faster. 176 00:11:20,679 --> 00:11:25,000 Speaker 1: Technology is really human spirit, it's human ingenuity, but the 177 00:11:25,120 --> 00:11:28,880 Speaker 1: speed with which it progresses depends on the cost of capital. 178 00:11:29,080 --> 00:11:31,640 Speaker 1: The lower your cost of capital, the faster it goes. 179 00:11:31,920 --> 00:11:34,320 Speaker 1: As a set of setting that it's like pouring rising 180 00:11:34,640 --> 00:11:40,440 Speaker 1: on the fire. And when tech progresses, it basically disintermediates 181 00:11:41,120 --> 00:11:46,400 Speaker 1: companies from their products and their brand. It disintermediates employees 182 00:11:46,520 --> 00:11:52,120 Speaker 1: from their wages. So it contributes more disinflation to the system. 183 00:11:52,160 --> 00:11:55,480 Speaker 1: I mean, I'm curious you've alluded to this already, but 184 00:11:56,840 --> 00:12:04,760 Speaker 1: rampant disinflation. Uh, disintermediateation through technology, the financialization of assets, 185 00:12:04,800 --> 00:12:10,080 Speaker 1: and a bunch of investors basically pursuing speculative wealth. What 186 00:12:10,200 --> 00:12:15,720 Speaker 1: does that due to political society. One of the things 187 00:12:15,760 --> 00:12:21,080 Speaker 1: it does is that it increases income and wealth inequalities. Again, 188 00:12:21,160 --> 00:12:26,280 Speaker 1: income in weals inequalities, right, variety of reasons. But financialization, 189 00:12:26,480 --> 00:12:32,000 Speaker 1: relying on assets, relying on leverage, magnifies those income and 190 00:12:32,040 --> 00:12:37,640 Speaker 1: wealth inequalities significantly. Even the central banks increasingly starting to 191 00:12:37,760 --> 00:12:42,800 Speaker 1: realize that aggressive prolonged usage of money to relevers is 192 00:12:42,840 --> 00:12:47,120 Speaker 1: not good for inequalities. Now that by itself is starting 193 00:12:47,120 --> 00:12:51,199 Speaker 1: to create political friction. So but from a societal perspective, 194 00:12:51,880 --> 00:12:56,120 Speaker 1: couple of impacts. Number one, the marginal pricing power of 195 00:12:56,240 --> 00:13:01,559 Speaker 1: labor declines. In other words, technology and financial sization reduces 196 00:13:01,640 --> 00:13:05,800 Speaker 1: your marginal pricing power, reduces your wages effectively that you 197 00:13:05,920 --> 00:13:09,360 Speaker 1: otherwise would be able to command. And the second thing 198 00:13:09,440 --> 00:13:12,920 Speaker 1: it does if you're a person with a lot of assets, 199 00:13:13,000 --> 00:13:18,480 Speaker 1: particularly financial assets, your your wealth, your networks is growing 200 00:13:18,640 --> 00:13:23,040 Speaker 1: very fast. If you're relying on wages and household chapels 201 00:13:23,160 --> 00:13:28,840 Speaker 1: like houses or refrigerators, your relative wells actually goes down. 202 00:13:29,400 --> 00:13:35,000 Speaker 1: Um and financialization and dead increase the speed with which 203 00:13:35,080 --> 00:13:40,040 Speaker 1: those two parties go apart. That's your top one versus 204 00:13:40,080 --> 00:13:44,920 Speaker 1: the rest of the population. So if we continue to 205 00:13:45,000 --> 00:13:49,400 Speaker 1: rely on monetary levels, implications are At first of all, 206 00:13:49,480 --> 00:13:53,400 Speaker 1: disinflation is likely to get stronger. Number two, the pockets 207 00:13:53,480 --> 00:13:58,520 Speaker 1: of growth in economy will get smaller and narrower. Number three, 208 00:13:58,600 --> 00:14:03,040 Speaker 1: that will be less productive investment, a lot more speculation occurring. 209 00:14:03,640 --> 00:14:07,120 Speaker 1: Number four, income in wealth inequalities are going to increase. 210 00:14:07,400 --> 00:14:11,240 Speaker 1: But another thing it does because every time you use debt, 211 00:14:11,600 --> 00:14:14,760 Speaker 1: marginal utility of that debt goes down, and other words, 212 00:14:14,800 --> 00:14:17,120 Speaker 1: every time you need more and more of it. What 213 00:14:17,160 --> 00:14:21,120 Speaker 1: it does make countries want to do is to steal 214 00:14:21,240 --> 00:14:24,240 Speaker 1: from their neighbors. So, in other words, countries and start 215 00:14:24,320 --> 00:14:29,840 Speaker 1: competing very aggressively to start running current accounts surfluces, to 216 00:14:29,920 --> 00:14:33,960 Speaker 1: try to steal business from another country, and that's what 217 00:14:34,160 --> 00:14:39,120 Speaker 1: leads you into potential currency evaluations. That's what leads you 218 00:14:39,360 --> 00:14:43,400 Speaker 1: into trade wars. So if we continue using monitory levels 219 00:14:43,440 --> 00:14:45,960 Speaker 1: as we have done over the last thirty forty years, 220 00:14:46,000 --> 00:14:49,560 Speaker 1: if we continue over the next fiveteen years, societies could 221 00:14:49,640 --> 00:14:54,080 Speaker 1: just blow up. Okay, So here's my question. In two 222 00:14:54,120 --> 00:14:58,080 Speaker 1: thousand nineteen, we are about to embark on another round 223 00:14:58,160 --> 00:15:01,560 Speaker 1: of easing by tra banks around the world, and even 224 00:15:01,560 --> 00:15:04,720 Speaker 1: though we've had ten years of evidence to the contrary, 225 00:15:05,000 --> 00:15:07,480 Speaker 1: they think that doing the same thing over and over 226 00:15:07,520 --> 00:15:11,240 Speaker 1: and over again, which is lowering rates, is somehow going 227 00:15:11,280 --> 00:15:14,880 Speaker 1: to lead to a different outcome, which would be inflation. 228 00:15:15,240 --> 00:15:18,720 Speaker 1: So what exactly is going to be the point at 229 00:15:18,800 --> 00:15:26,760 Speaker 1: which policymakers realize that this monetary strategy is not working. Essentially, 230 00:15:26,960 --> 00:15:30,200 Speaker 1: the problem is you can throw away the system until 231 00:15:30,280 --> 00:15:33,320 Speaker 1: you build a new system. I do believe that, whether 232 00:15:33,360 --> 00:15:36,680 Speaker 1: it's central banks, whether it's treasury departments where most of 233 00:15:36,720 --> 00:15:39,960 Speaker 1: the banks they do understand that you can't just keep going. 234 00:15:40,280 --> 00:15:43,000 Speaker 1: But the problem is you kind of abandon the system 235 00:15:43,200 --> 00:15:47,600 Speaker 1: that you already have before you've decided what else you're 236 00:15:47,640 --> 00:15:51,480 Speaker 1: going to do. Now, there are alternative ideas, and the 237 00:15:51,640 --> 00:15:55,960 Speaker 1: interesting thing that I find how quickly they're becoming popular. 238 00:15:56,240 --> 00:15:59,240 Speaker 1: If you think of what monetary theory. It's not a 239 00:15:59,280 --> 00:16:02,120 Speaker 1: new idea. It's been around for a long long time, 240 00:16:02,400 --> 00:16:06,560 Speaker 1: and there were books published, articles published for decades. It's 241 00:16:06,600 --> 00:16:11,080 Speaker 1: amazing how popular there is suddenly becoming. I mean, Financial 242 00:16:11,120 --> 00:16:14,120 Speaker 1: Times only a couple of weeks ago devoted the entire 243 00:16:14,160 --> 00:16:19,480 Speaker 1: page discussing MMT. Only twelve months ago, I can't believe 244 00:16:19,560 --> 00:16:23,359 Speaker 1: that ever would have happened. The same applies to Neil Kinsians. 245 00:16:24,000 --> 00:16:27,520 Speaker 1: If you think of a growing popularity of people like 246 00:16:27,840 --> 00:16:33,520 Speaker 1: Paul Krugman, uh, what you're seeing that in massive intellectual 247 00:16:33,640 --> 00:16:39,560 Speaker 1: shift is already underway. Recognizing that fiscal neo Kinsian and 248 00:16:39,760 --> 00:16:44,120 Speaker 1: m m T solutions might have lower side effects. It's 249 00:16:44,120 --> 00:16:46,760 Speaker 1: still a drug, but it's a drug which will have 250 00:16:46,880 --> 00:16:51,360 Speaker 1: lower side effects than continue to use minetary levers. But 251 00:16:51,400 --> 00:16:53,920 Speaker 1: I'm not suggesting for a second we're going to abundant 252 00:16:54,080 --> 00:16:57,400 Speaker 1: monetary policies where no we're not. It's just what you 253 00:16:57,600 --> 00:17:02,760 Speaker 1: prioritize as you go forward. I personally think probably is 254 00:17:02,800 --> 00:17:06,199 Speaker 1: going to be the last year when monetary policy is 255 00:17:06,320 --> 00:17:09,960 Speaker 1: used as a primary instrument, and the breakpoint to me 256 00:17:10,040 --> 00:17:13,000 Speaker 1: will be when we have to do something every two 257 00:17:13,080 --> 00:17:16,440 Speaker 1: or three months. Every two or three months, think about it. 258 00:17:16,560 --> 00:17:20,560 Speaker 1: We had a small heart attack in December two thousand eighteen. 259 00:17:21,200 --> 00:17:23,480 Speaker 1: I don't know what January two thousand nineteen would have 260 00:17:23,520 --> 00:17:26,720 Speaker 1: looked like if Jerrem Powell did not surrender on a 261 00:17:26,800 --> 00:17:30,560 Speaker 1: third of January two thousand nineteen. Then we had another 262 00:17:30,600 --> 00:17:34,120 Speaker 1: mini heart attack in May two thousand nineteen. This time 263 00:17:34,160 --> 00:17:38,240 Speaker 1: around it was better reserve and ECB. So the windows 264 00:17:38,280 --> 00:17:42,240 Speaker 1: getting shorter and shorter, the period of stimulation or the 265 00:17:42,440 --> 00:17:46,520 Speaker 1: beneficial impact are getting shorter and shorter, and so so 266 00:17:46,600 --> 00:17:50,879 Speaker 1: to me, it's those mini heart attacks that will continue 267 00:17:51,000 --> 00:17:54,480 Speaker 1: rolling over the next twelve eighteen months that will have 268 00:17:54,560 --> 00:17:58,160 Speaker 1: to come to a stage that people will start shifting priorities. 269 00:17:58,600 --> 00:18:01,440 Speaker 1: I do not believe anybody will call it neo Kanzian 270 00:18:01,480 --> 00:18:05,320 Speaker 1: immediately or anybody will call it m MP immediately. Rather, 271 00:18:05,359 --> 00:18:09,119 Speaker 1: we're going to stumble around and gradually it will be 272 00:18:09,160 --> 00:18:12,840 Speaker 1: fiscal policy. It's going to be neo Keynsian policies that 273 00:18:13,359 --> 00:18:36,199 Speaker 1: that are going to drive them. So what about political 274 00:18:36,480 --> 00:18:42,520 Speaker 1: opposition to fiscal solutions, because it does seem that basically 275 00:18:42,560 --> 00:18:45,080 Speaker 1: what you're talking about is rethinking the way the financial 276 00:18:45,160 --> 00:18:48,919 Speaker 1: system has been working, and governments in the developed world 277 00:18:49,040 --> 00:18:53,080 Speaker 1: really have seemed reluctant to do that so far, and 278 00:18:53,440 --> 00:18:56,520 Speaker 1: certainly it feels like there are interest groups or politicians 279 00:18:56,560 --> 00:19:01,840 Speaker 1: out there who basically I can't see them and diving 280 00:19:01,920 --> 00:19:05,400 Speaker 1: head first into m m T for instance. So what 281 00:19:05,440 --> 00:19:10,280 Speaker 1: would allow it to happen? Now? You you argue that 282 00:19:10,720 --> 00:19:12,760 Speaker 1: in some of your research that Japan is actually the 283 00:19:12,800 --> 00:19:16,240 Speaker 1: closest example we have to a sort of m MT 284 00:19:16,440 --> 00:19:20,120 Speaker 1: or fiscally driven society. But you know, as someone who 285 00:19:20,119 --> 00:19:22,880 Speaker 1: grew up in Japan, I can argue that that society 286 00:19:23,000 --> 00:19:25,840 Speaker 1: is very, very different to the one in the US. 287 00:19:25,960 --> 00:19:30,240 Speaker 1: For instance, when we talk about using monetary levels, we're 288 00:19:30,240 --> 00:19:34,720 Speaker 1: predominantly talking about the rest of the world outside of Japan, 289 00:19:34,960 --> 00:19:39,680 Speaker 1: and outside of China. China is actually using all three instruments. 290 00:19:39,760 --> 00:19:43,680 Speaker 1: They're using monetary policy, they're using fiscal policy, they're using 291 00:19:43,720 --> 00:19:48,600 Speaker 1: neo kains in Ism, and they're using straight MMT Japan practices. 292 00:19:48,760 --> 00:19:51,879 Speaker 1: Elements of all of this, all of this societies are 293 00:19:52,040 --> 00:19:54,879 Speaker 1: are different. But one thing, Tracy, absolutely you're right to 294 00:19:54,920 --> 00:20:00,800 Speaker 1: say that a dogmark developed since I guess late ninety seventies, 295 00:20:01,160 --> 00:20:05,280 Speaker 1: which basically argued that private sector is always better at 296 00:20:05,359 --> 00:20:09,000 Speaker 1: allocating capital than a public sector. If you go back 297 00:20:09,000 --> 00:20:13,160 Speaker 1: to nineteen fifties. In nineteen sixties, that document didn't exist. 298 00:20:13,320 --> 00:20:17,440 Speaker 1: People didn't think at the time that public sector is 299 00:20:17,560 --> 00:20:22,200 Speaker 1: necessarily inferior to private sector investment. And the reason why 300 00:20:22,240 --> 00:20:26,200 Speaker 1: they didn't think public sector was inferior because in their 301 00:20:26,280 --> 00:20:30,240 Speaker 1: memory they remembered in nineteen twenties and nineteen thirties how 302 00:20:30,320 --> 00:20:36,320 Speaker 1: badly private sector a misallocated resources. It was, really, I said, 303 00:20:36,400 --> 00:20:39,199 Speaker 1: late in nineteen seventies. So the problem we have the 304 00:20:39,400 --> 00:20:44,080 Speaker 1: entire system is structured around the idea that private sector 305 00:20:44,119 --> 00:20:47,919 Speaker 1: is dominant, private sector is in a driving seat, and 306 00:20:48,000 --> 00:20:52,240 Speaker 1: around the idea that public sector is wasteful and private 307 00:20:52,280 --> 00:20:55,760 Speaker 1: sector is much better dellocating capital. Now, I think what 308 00:20:55,880 --> 00:20:57,840 Speaker 1: new King's in and M. M. T would argue that 309 00:20:58,000 --> 00:21:01,520 Speaker 1: is not strictly true always, and in fact, there has 310 00:21:01,560 --> 00:21:07,560 Speaker 1: been spectacular misallocation of capital occurring in the private sector itself. Now, 311 00:21:07,440 --> 00:21:12,239 Speaker 1: to surrender the dogma requires a very long time, So 312 00:21:12,480 --> 00:21:15,399 Speaker 1: from an academic point of view, you're looking at decades 313 00:21:15,520 --> 00:21:18,960 Speaker 1: before a new system will actually emerge. But from a 314 00:21:19,080 --> 00:21:23,679 Speaker 1: practical perspective, from a political perspective, I do not believe 315 00:21:23,680 --> 00:21:27,120 Speaker 1: for a second we're going straight into m MPT. What 316 00:21:27,160 --> 00:21:31,000 Speaker 1: we're going to do, We're going to de emphasize monetary 317 00:21:31,080 --> 00:21:35,920 Speaker 1: and emphasize more fiscal and Kinsian solutions. Eventually, we probably 318 00:21:35,960 --> 00:21:38,639 Speaker 1: will end up with a version of MT, but that 319 00:21:38,720 --> 00:21:41,960 Speaker 1: could be a decade away or longer. So it's not 320 00:21:42,000 --> 00:21:44,240 Speaker 1: going to be a one soft switch that we go 321 00:21:44,480 --> 00:21:47,640 Speaker 1: from one policy, one set of tools to another set 322 00:21:47,640 --> 00:21:50,439 Speaker 1: of tool. Instead, what we're going to do is just 323 00:21:50,520 --> 00:21:54,880 Speaker 1: gradually shift towards it. A classic example of that all 324 00:21:55,000 --> 00:21:58,600 Speaker 1: the antitrust and investigation that is starting right now in 325 00:21:58,720 --> 00:22:01,720 Speaker 1: various countries on techno oology. In many ways, that's a 326 00:22:01,800 --> 00:22:05,600 Speaker 1: Neil Kinziean answer. When we have management team has been 327 00:22:05,680 --> 00:22:10,280 Speaker 1: criticized for very high pension payments or salaries, that's a 328 00:22:10,359 --> 00:22:14,080 Speaker 1: Neil Kinziean answer. And so what you're seeing is that 329 00:22:14,400 --> 00:22:20,280 Speaker 1: neo kinson is, if actively, already intruding into the today's world. 330 00:22:20,600 --> 00:22:24,840 Speaker 1: It's already starting to impact, but its impact is still small. 331 00:22:24,920 --> 00:22:28,400 Speaker 1: We're predominantly in a monetary system. All I'm saying over 332 00:22:28,440 --> 00:22:32,120 Speaker 1: the next couple of years that impact will grow and 333 00:22:32,320 --> 00:22:35,879 Speaker 1: the state role, the role of the state is going 334 00:22:35,960 --> 00:22:40,720 Speaker 1: to increase, and that role will be welcomed, particularly by 335 00:22:40,840 --> 00:22:44,240 Speaker 1: millennium and Generation Z. And you have to remember one 336 00:22:44,320 --> 00:22:49,879 Speaker 1: third of the US electorate is already millenniums and Generation Z. Uh. 337 00:22:49,960 --> 00:22:52,960 Speaker 1: Within five years or six years, there will be the 338 00:22:53,040 --> 00:22:57,439 Speaker 1: majority electoral majority. The same way as Biby boomers brought 339 00:22:57,560 --> 00:23:02,400 Speaker 1: on their shoulders Ronald Reagan and Maggief. Millenniums Z generations 340 00:23:02,440 --> 00:23:07,280 Speaker 1: will change how the role of the status perceived. I said, 341 00:23:07,320 --> 00:23:11,000 Speaker 1: what we're going to see is increasing influence of those 342 00:23:11,080 --> 00:23:16,960 Speaker 1: ideas and those policies. Now that's a major problem for investment. Victor. 343 00:23:17,040 --> 00:23:18,800 Speaker 1: I take the point that this is going to be 344 00:23:19,080 --> 00:23:22,840 Speaker 1: a sort of long running transition. But whenever we talk 345 00:23:22,880 --> 00:23:24,840 Speaker 1: about m m T on the show, I always have 346 00:23:24,920 --> 00:23:29,680 Speaker 1: the question of whether or not MMT can work everywhere 347 00:23:29,760 --> 00:23:33,440 Speaker 1: because to me, it feels like it's basically the purview 348 00:23:33,640 --> 00:23:38,280 Speaker 1: of a few developed economies who you know, probably have 349 00:23:38,840 --> 00:23:41,960 Speaker 1: an advantage in the form of currencies that are either 350 00:23:42,200 --> 00:23:46,040 Speaker 1: you know, global reserve currencies or considered safe haven. So 351 00:23:46,400 --> 00:23:51,440 Speaker 1: can everyone around the world embark on significant fiscal stimulus 352 00:23:51,560 --> 00:23:56,359 Speaker 1: or MMT uh? No, absolutely not. It's going to be 353 00:23:56,400 --> 00:23:59,960 Speaker 1: a reserve of only some countries. I think both New 354 00:24:00,119 --> 00:24:02,760 Speaker 1: kangents and m m T. People who propagate these ideas 355 00:24:02,800 --> 00:24:05,919 Speaker 1: will agree on a couple of aspects. Number One, they 356 00:24:05,960 --> 00:24:10,000 Speaker 1: will all agree that if private sector doesn't multiply aggregate 357 00:24:10,040 --> 00:24:14,920 Speaker 1: demand and liquidity at a pace that society requires, a 358 00:24:15,040 --> 00:24:19,159 Speaker 1: society believes is appropriate, then it's responsibility of public sector 359 00:24:19,240 --> 00:24:22,880 Speaker 1: to do that. Secondly, they agree that it's not necessarily 360 00:24:22,960 --> 00:24:27,520 Speaker 1: proven that public sector necessarily worse at allocating capital than 361 00:24:27,560 --> 00:24:30,840 Speaker 1: private sector. But the other thing, they would argue that 362 00:24:31,160 --> 00:24:35,720 Speaker 1: under certain circumstances, government can do almost anything they want to, 363 00:24:36,160 --> 00:24:40,919 Speaker 1: and prerequisites are quite tight. Number one, you have to 364 00:24:40,960 --> 00:24:44,480 Speaker 1: have monetary sovereignty. So in other words, you have to 365 00:24:44,680 --> 00:24:47,600 Speaker 1: be issuing your own currency and you have to be 366 00:24:47,640 --> 00:24:52,479 Speaker 1: borrowing in your own currency. Now, that applies to United States, 367 00:24:52,480 --> 00:24:55,680 Speaker 1: that applies to Canada, to Australia, that applies the UK, 368 00:24:55,920 --> 00:24:59,880 Speaker 1: That applies to Japan, that applies to parts of euro 369 00:25:00,400 --> 00:25:03,040 Speaker 1: But it doesn't apply to a lot of emerging markets 370 00:25:03,080 --> 00:25:06,520 Speaker 1: in emerging market space. For example, it does apply to China, 371 00:25:07,320 --> 00:25:10,120 Speaker 1: it does apply to Korea, but a lot of weaker 372 00:25:10,119 --> 00:25:14,280 Speaker 1: emerging markets, um, they do not have monetary sovereignty. The 373 00:25:14,320 --> 00:25:17,520 Speaker 1: second argument, I think correctly they will They will say 374 00:25:17,560 --> 00:25:21,399 Speaker 1: that you need to have proper institutions of state, so 375 00:25:21,520 --> 00:25:26,160 Speaker 1: that the country borrowing and or using central bank cannot 376 00:25:26,240 --> 00:25:30,800 Speaker 1: be as Imbubwe or Democratic Republic of Congo Venezuela, that 377 00:25:30,880 --> 00:25:34,600 Speaker 1: that they have solid institutions of space. Again, that applies 378 00:25:34,680 --> 00:25:36,280 Speaker 1: to a lot of the world, but some of the 379 00:25:36,320 --> 00:25:39,840 Speaker 1: emerging markets it does not apply. And a third argument, 380 00:25:39,880 --> 00:25:42,199 Speaker 1: they will say that you need to live in a 381 00:25:42,240 --> 00:25:46,600 Speaker 1: relatively disinflation re climate. Again that applies to a lot 382 00:25:46,640 --> 00:25:50,760 Speaker 1: of developed countries. That applies to some emerging markets, but 383 00:25:50,840 --> 00:25:53,879 Speaker 1: it doesn't apply to others. So you're absolutely right, there 384 00:25:53,920 --> 00:25:56,439 Speaker 1: are some strict criteria. It's good to be of some 385 00:25:56,640 --> 00:26:00,600 Speaker 1: size as well, that there are greateria and not rebody 386 00:26:00,640 --> 00:26:03,680 Speaker 1: will be able to do this. But if you think 387 00:26:03,720 --> 00:26:08,040 Speaker 1: of the world, the countries we mentioned represent about of 388 00:26:08,040 --> 00:26:12,720 Speaker 1: global GDP, what happens to the countries or economies that 389 00:26:12,880 --> 00:26:17,520 Speaker 1: can't make the transition to fiscal spending? And on that note, 390 00:26:17,560 --> 00:26:21,400 Speaker 1: are are we basically going to be trading inequality within 391 00:26:21,640 --> 00:26:29,600 Speaker 1: countries or within societies for inequality between countries. That's exactly 392 00:26:29,640 --> 00:26:33,800 Speaker 1: what's going to happen. We're going to become much more localized. Effectively, 393 00:26:33,840 --> 00:26:38,000 Speaker 1: we're going to sort of nineteen fifties nineteen sixties. It's 394 00:26:38,000 --> 00:26:41,120 Speaker 1: not going to be, of course, as field countries as 395 00:26:41,119 --> 00:26:44,080 Speaker 1: they were back then, but nevertheless the shades of fifties 396 00:26:44,080 --> 00:26:47,440 Speaker 1: and sixties will be there. You know, there's much more localized, 397 00:26:47,720 --> 00:26:51,040 Speaker 1: much more protective. The freedom of movement of people will 398 00:26:51,080 --> 00:26:54,120 Speaker 1: be much more restricted, the freedom of moment of capital 399 00:26:54,160 --> 00:26:57,400 Speaker 1: will be much more restricted. You'll find the government will 400 00:26:57,520 --> 00:27:01,159 Speaker 1: be the major driver of a want to miss an investment. 401 00:27:01,680 --> 00:27:05,879 Speaker 1: Many people will welcome that also because in this system 402 00:27:06,000 --> 00:27:09,000 Speaker 1: you don't have a lot of access capital just looking 403 00:27:09,040 --> 00:27:11,560 Speaker 1: for something to do. You might end up with a 404 00:27:11,600 --> 00:27:14,320 Speaker 1: little bit less speculation. You will will end up with 405 00:27:14,359 --> 00:27:17,480 Speaker 1: a little bit more productivity growth rates, at least for 406 00:27:17,560 --> 00:27:20,359 Speaker 1: a period of time, and that in turn would lower 407 00:27:20,760 --> 00:27:25,800 Speaker 1: inequalities in your country. But what about iglobalization that it implies, 408 00:27:25,960 --> 00:27:30,400 Speaker 1: what about the vocanization that it implies, Well, you absolutely right, 409 00:27:30,480 --> 00:27:33,639 Speaker 1: a lot of emerging markets probably will go back to 410 00:27:33,720 --> 00:27:37,000 Speaker 1: being just under developed countries the way they were quality 411 00:27:37,080 --> 00:27:39,879 Speaker 1: classified not that long ago, when I just needs to 412 00:27:39,880 --> 00:27:42,480 Speaker 1: be young men that were called underdeveloped countries. So in 413 00:27:42,560 --> 00:27:46,359 Speaker 1: other way, some of the trade and capital flows that 414 00:27:46,640 --> 00:27:51,560 Speaker 1: really enable the emerging markets to prosper and develop will 415 00:27:51,600 --> 00:27:55,800 Speaker 1: become much scarcer, and some of those countries might not 416 00:27:56,040 --> 00:28:00,000 Speaker 1: be able to make it, so disparities between the country 417 00:28:00,160 --> 00:28:04,600 Speaker 1: is I think will will increase. Okay, and you touched 418 00:28:04,640 --> 00:28:08,439 Speaker 1: on this earlier, But if you're an investor in the 419 00:28:08,520 --> 00:28:12,600 Speaker 1: current climate, you are still living um, you know, in 420 00:28:12,760 --> 00:28:18,800 Speaker 1: the current construct of capitalism, and it's basically one where 421 00:28:19,119 --> 00:28:22,160 Speaker 1: markets are sort of driven by flows of money rather 422 00:28:22,240 --> 00:28:27,199 Speaker 1: than um sort of outright value or productivity. So what 423 00:28:27,400 --> 00:28:32,280 Speaker 1: are investors supposed to do as they still continue to 424 00:28:32,359 --> 00:28:35,320 Speaker 1: grapple with the current environment, which is one of you know, 425 00:28:35,440 --> 00:28:40,000 Speaker 1: lower rates and negative yields. It's interesting if we just 426 00:28:40,080 --> 00:28:43,920 Speaker 1: continue doing what we're doing. Let's assume no change in policies, 427 00:28:44,440 --> 00:28:46,680 Speaker 1: as you correctly said, it might take a long time 428 00:28:46,840 --> 00:28:50,160 Speaker 1: for politics to change. If we continue to rely on 429 00:28:50,240 --> 00:28:56,240 Speaker 1: monitory levels, then investment styles become quite clear. First, bombs 430 00:28:56,280 --> 00:28:59,560 Speaker 1: are always good investment. This idea that it's the end 431 00:28:59,560 --> 00:29:03,440 Speaker 1: of the tar bullmarket run and bonds is just absolute 432 00:29:03,640 --> 00:29:08,040 Speaker 1: nonsense because interest rates eventually will have to go negative everywhere. 433 00:29:08,320 --> 00:29:12,240 Speaker 1: The number one, bonds are always good. Number two financial 434 00:29:12,320 --> 00:29:16,480 Speaker 1: speculation always good. As you correctly set private equity unicorns 435 00:29:16,560 --> 00:29:21,440 Speaker 1: flatly thing any financial speculation is good. Number three because 436 00:29:21,560 --> 00:29:25,479 Speaker 1: this inflation is likely to get stronger and it grows 437 00:29:25,920 --> 00:29:30,719 Speaker 1: will become narrower. In the narrow pockets, Investing in companies 438 00:29:30,840 --> 00:29:34,160 Speaker 1: that are capable of growing despite the headwinds are going 439 00:29:34,200 --> 00:29:37,200 Speaker 1: to become even more popular as you go forward. That's 440 00:29:37,200 --> 00:29:40,400 Speaker 1: sort of the essence of your quality and grows portfolios 441 00:29:40,480 --> 00:29:43,760 Speaker 1: that a lot of people are really like. One investment 442 00:29:43,800 --> 00:29:46,520 Speaker 1: style that will never work in the system is a 443 00:29:46,600 --> 00:29:51,240 Speaker 1: traditional value investing occasionally valuable pick up, but essentially it 444 00:29:51,320 --> 00:29:54,480 Speaker 1: doesn't work in that system at all. If we switch 445 00:29:54,520 --> 00:29:58,520 Speaker 1: across the Neo Kansian world, the circumstances are somewhat different. 446 00:29:59,080 --> 00:30:01,680 Speaker 1: I don't believe interest streates can really go up that much, 447 00:30:02,040 --> 00:30:04,560 Speaker 1: but it will be an environment which will have a 448 00:30:04,640 --> 00:30:08,320 Speaker 1: bit more inflation and grows in it. So first, the 449 00:30:08,440 --> 00:30:11,200 Speaker 1: bonds are not going to be a one way street anymore. 450 00:30:11,760 --> 00:30:13,480 Speaker 1: I don't think people are going to lose necessarily a 451 00:30:13,560 --> 00:30:15,320 Speaker 1: lot of money because the interest rates cannot really go 452 00:30:15,480 --> 00:30:18,040 Speaker 1: up a lot. But nevertheless, it's not a one way street. 453 00:30:18,240 --> 00:30:21,120 Speaker 1: Number two, because there ought to be a little bit 454 00:30:21,200 --> 00:30:23,800 Speaker 1: more productivity, a little bit more inflation, at least for 455 00:30:23,840 --> 00:30:27,040 Speaker 1: a while. You're going to have more gross opportunities available 456 00:30:27,160 --> 00:30:30,480 Speaker 1: to you, So the excessive price you will place on 457 00:30:30,560 --> 00:30:33,960 Speaker 1: the companies that are capable of growing despite all the 458 00:30:34,080 --> 00:30:37,240 Speaker 1: headwinds will become less pronounced, and in fact some of 459 00:30:37,320 --> 00:30:40,880 Speaker 1: those companies might get somewhat derated. As you go a forward, 460 00:30:41,440 --> 00:30:44,000 Speaker 1: there will be times when the value will really run 461 00:30:44,120 --> 00:30:49,120 Speaker 1: up because the governments will be spending more money on infrastructure, 462 00:30:49,160 --> 00:30:52,680 Speaker 1: that will be spending more money on various facilities and 463 00:30:52,840 --> 00:30:56,080 Speaker 1: things to do capital investment, so some of the value 464 00:30:56,120 --> 00:30:59,600 Speaker 1: will really run up and could actually be a prime 465 00:30:59,680 --> 00:31:03,240 Speaker 1: in them for years rather than just for you know, 466 00:31:03,400 --> 00:31:06,200 Speaker 1: two or three months. But the thing that really will 467 00:31:06,280 --> 00:31:09,440 Speaker 1: work in that sort of environment is whatever the government 468 00:31:09,560 --> 00:31:12,120 Speaker 1: wants to do, which is not similar if you think 469 00:31:12,160 --> 00:31:15,760 Speaker 1: of China today, That's exactly what Chinese analysts are doing. 470 00:31:15,840 --> 00:31:19,200 Speaker 1: They're basically asking what would the government do and how 471 00:31:19,280 --> 00:31:22,000 Speaker 1: does it work through my system? And what do they buy? 472 00:31:22,480 --> 00:31:24,960 Speaker 1: That's pretty much the way in in sort of neo 473 00:31:25,040 --> 00:31:27,720 Speaker 1: king and fil world is going to work that you 474 00:31:27,800 --> 00:31:29,880 Speaker 1: would need to ask yourself a question, what does the 475 00:31:29,920 --> 00:31:32,880 Speaker 1: government wants to do? If it's infrastructure fine, and if 476 00:31:32,920 --> 00:31:36,240 Speaker 1: it's support of consumption through about a minimum in can 477 00:31:36,320 --> 00:31:38,480 Speaker 1: get in his find That's that's what you're going to do. 478 00:31:39,040 --> 00:31:42,680 Speaker 1: Investment styles are quite different. But because we're living between 479 00:31:42,720 --> 00:31:45,560 Speaker 1: the two worlds, a monetary world is still with us. 480 00:31:46,000 --> 00:31:49,520 Speaker 1: It's still the most powerful force that we have right now. 481 00:31:50,280 --> 00:31:54,640 Speaker 1: But now the world is gradually intruding, and as it intrudes, 482 00:31:54,840 --> 00:31:58,480 Speaker 1: it creates cross currents, and so investors right now have 483 00:31:58,720 --> 00:32:03,400 Speaker 1: difficulties seeing how they should be investing. That's why Aliot 484 00:32:03,560 --> 00:32:06,880 Speaker 1: just continue to get crushed by growths. That's why at 485 00:32:06,920 --> 00:32:11,960 Speaker 1: the times of uncertainties, declining interest rates, even sometimes they've 486 00:32:11,960 --> 00:32:14,360 Speaker 1: been in yielding stocks don't do well, and and and 487 00:32:14,480 --> 00:32:16,880 Speaker 1: so the reason for that is there a cross currents. 488 00:32:17,200 --> 00:32:19,520 Speaker 1: If we stay was one system, it's pretty clear what 489 00:32:19,680 --> 00:32:22,120 Speaker 1: to do. If we move to another system, it's pretty 490 00:32:22,160 --> 00:32:25,840 Speaker 1: clear what to do. If we staying in between, investors 491 00:32:26,040 --> 00:32:30,120 Speaker 1: are confused. What they're all hoping for, and central banks 492 00:32:30,160 --> 00:32:33,880 Speaker 1: also hoping for, is a private sector will returned back 493 00:32:33,960 --> 00:32:38,520 Speaker 1: to growth, and therefore central banks and fiscal authorities will 494 00:32:38,600 --> 00:32:42,400 Speaker 1: simply pull back and every single returns back to normal 495 00:32:42,840 --> 00:32:46,360 Speaker 1: to meet the probability of that occurring is close to zero. 496 00:32:47,360 --> 00:32:49,680 Speaker 1: So I have one more question for you, and it's 497 00:32:49,720 --> 00:32:52,760 Speaker 1: sort of a step back question on on everything we've 498 00:32:52,800 --> 00:32:56,440 Speaker 1: been discussing. But you know, if you read your research, 499 00:32:57,080 --> 00:33:00,040 Speaker 1: it feels like a lot of the problems that you 500 00:33:00,160 --> 00:33:04,280 Speaker 1: identify with the current system are that we are overindebted 501 00:33:04,480 --> 00:33:06,640 Speaker 1: and we're not going to be able to reflate our 502 00:33:06,720 --> 00:33:11,080 Speaker 1: way out of that debt using existing monetary methods. And 503 00:33:11,280 --> 00:33:14,960 Speaker 1: yet you're also advocating for fiscal stimulus in the form 504 00:33:15,040 --> 00:33:19,040 Speaker 1: of m M T or neo kanesiasm, and I think 505 00:33:19,440 --> 00:33:22,200 Speaker 1: you know that's the policy that basically says, don't worry 506 00:33:22,200 --> 00:33:25,680 Speaker 1: about the deficit um, So how do you square those 507 00:33:25,720 --> 00:33:30,840 Speaker 1: two ideas? Can Can indebtedness be both the problem and 508 00:33:31,040 --> 00:33:34,520 Speaker 1: the solution? That's exactly what it is. But but the 509 00:33:34,600 --> 00:33:40,080 Speaker 1: most I guess basic principle is returning back to normality 510 00:33:40,480 --> 00:33:43,040 Speaker 1: is not on the cause. So we need to choose 511 00:33:43,360 --> 00:33:48,320 Speaker 1: our poison for the lasts. The West was taking one poison. 512 00:33:48,720 --> 00:33:52,720 Speaker 1: It's called monetoring. It indirectly tries to influence the behavior 513 00:33:52,880 --> 00:33:57,160 Speaker 1: of private sector, and the facts of that policy for 514 00:33:57,240 --> 00:34:01,280 Speaker 1: the lost tent tift is is becoming so toxic that 515 00:34:01,480 --> 00:34:05,600 Speaker 1: neither people, nor political classes, nor anybody else has prepared 516 00:34:05,680 --> 00:34:08,880 Speaker 1: to just carry on with the other poison we have 517 00:34:09,200 --> 00:34:13,000 Speaker 1: is what we have discussed. It doesn't necessarily solve the problem. 518 00:34:13,080 --> 00:34:17,239 Speaker 1: We're not returning back to equilibrium, whatever that equilibrium is. 519 00:34:17,760 --> 00:34:21,080 Speaker 1: We're not returning back to our reality. But instead we're 520 00:34:21,160 --> 00:34:26,040 Speaker 1: thinking another poison that has less side effects right now. 521 00:34:26,640 --> 00:34:29,800 Speaker 1: Because remember, only China practice Ball three. They know the 522 00:34:29,840 --> 00:34:32,200 Speaker 1: side effects of the other two. We in the West 523 00:34:32,440 --> 00:34:36,160 Speaker 1: have not really used the other two poisons since nineteen 524 00:34:36,200 --> 00:34:40,200 Speaker 1: fifty six, so nobody really remembers. So from my point 525 00:34:40,200 --> 00:34:43,839 Speaker 1: of view, what new Kinson and m MT does. They 526 00:34:43,960 --> 00:34:48,720 Speaker 1: give us another way of keeping society is intact, keeping 527 00:34:48,800 --> 00:34:53,520 Speaker 1: economies intact with a lower degree of side effects, oring 528 00:34:53,600 --> 00:34:58,080 Speaker 1: the pressure, not the similar to what Iron Chancellor Bismarck 529 00:34:58,160 --> 00:35:01,280 Speaker 1: did in Germany in eighteen eighties when in producing welfare 530 00:35:01,360 --> 00:35:05,680 Speaker 1: benefits that reduced some of the pressure that arose out 531 00:35:05,760 --> 00:35:09,200 Speaker 1: of industrial revolutions. We need to do something similar to 532 00:35:09,280 --> 00:35:12,760 Speaker 1: reduce the pressure on societies. It doesn't solve the problem. 533 00:35:12,920 --> 00:35:15,400 Speaker 1: I mean not suggesting it solves a problem. All it 534 00:35:15,560 --> 00:35:19,880 Speaker 1: does it provides another draft to keep going with the 535 00:35:20,040 --> 00:35:23,759 Speaker 1: lower side effects and reducing some of the geopolitical and 536 00:35:23,880 --> 00:35:28,080 Speaker 1: social pressures that we are experiencing in the next several decades, 537 00:35:28,120 --> 00:35:30,920 Speaker 1: a different world will emerge. It's going to be something 538 00:35:31,000 --> 00:35:33,840 Speaker 1: completely different. I don't not believe it's going to be 539 00:35:33,920 --> 00:35:38,080 Speaker 1: a conventional capitalism, but we need to go through decades 540 00:35:38,280 --> 00:35:40,320 Speaker 1: to get there, and so I think we need to 541 00:35:40,400 --> 00:35:45,200 Speaker 1: switch the draft. That's Victor Schwetz, the only sell side 542 00:35:45,239 --> 00:35:48,520 Speaker 1: analyst I know who can reference Bismarck on a podcast 543 00:35:48,640 --> 00:35:52,239 Speaker 1: and quote marks in his research. Thank you so much 544 00:35:52,320 --> 00:36:00,360 Speaker 1: for being on our thoughts. Thank you, thank you. Drakey. Yeah, 545 00:36:06,400 --> 00:36:10,320 Speaker 1: so this has been another episode of the Odd Lots podcast. 546 00:36:10,520 --> 00:36:13,680 Speaker 1: You can follow me on Twitter at Tracy Alloway. You 547 00:36:13,800 --> 00:36:18,120 Speaker 1: can follow my Missing an Action co host Joe Wisenthal 548 00:36:18,560 --> 00:36:21,960 Speaker 1: at The Stalwart, and you should definitely follow our producer 549 00:36:22,200 --> 00:36:27,400 Speaker 1: Laura Carlson at Laura M. Carlson. You should follow the 550 00:36:27,480 --> 00:36:32,360 Speaker 1: Bloomberg podcast team at podcast. Thanks for listening.