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Speaker 1: Let's get to our guest, Mikyo Kumada, financial economists at

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Speaker 1: LGT Capital Partners. So, Mikyo, as usual, great to have

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Speaker 1: you on the program, So don't disappoint. Um. We're hearing

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Speaker 1: more and more now, I think from smart money people,

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Speaker 1: no shock and awe from Powell. Um. Yes, the consensus

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Speaker 1: has been that he will be hawkish, but no shockun awe.

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Speaker 1: So I'm wondering whether that means that the actual pain

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Speaker 1: trade here will be down if he surprises was us

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Speaker 1: with a little bit more hawkishness them? Perhaps we thought, yeah,

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Speaker 1: I think the risk is there for a bit, you know,

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Speaker 1: for a surprise on the hawker's side. Um, yeah, well,

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Speaker 1: you know, you we've been talking for a while. In

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Speaker 1: the old days, I used to talk a lot about

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Speaker 1: nominal GDP and I'm going to do that again. Um.

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Speaker 1: If you look at nominal aggregates and the nominal the

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Speaker 1: best nominal handle on g d P when you don't

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Speaker 1: have the real life data is retail sales, and you

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Speaker 1: can see a huge gap between nominal retail sales, which

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Speaker 1: are you know, a forty five degree line pointing towards

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Speaker 1: the sky, whereas the real number is actually coming down.

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Speaker 1: But that gap, of course between the nominal growth, which

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Speaker 1: is very high uh still uh and the declining real

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Speaker 1: volume is what you see in inflation. Right, So that's

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Speaker 1: why we have excessive inflation. But the point I want

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Speaker 1: to make is that if you even look at the

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Speaker 1: real number, it's still above trend. So nominal demand in

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Speaker 1: the US is just still excessive, certainly relative to supply,

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Speaker 1: but also relative to its own track. And that means

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Speaker 1: the federal will have to tighten if it wants to

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Speaker 1: reduce inflation, because inflation is not good to put in

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Speaker 1: or energy prices. It's always and everywhere a monetary phenomenon.

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Speaker 1: So yeah, there is is there that there we will

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Speaker 1: get a hockey surprise. Maybe not at Jackson home because

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Speaker 1: that's kind of priced in, but you know over the

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Speaker 1: next few weeks or months, is it warranted, uh, the

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Speaker 1: hockey focushness? And indeed yes, absolutely, and the worries yeah absolutely,

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Speaker 1: Because again I'm going to go back to my favorite

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Speaker 1: topic of nominal GDP growth. For years, I have been

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Speaker 1: an easy money person because nominal GDP growth was law.

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Speaker 1: And now we have nominal GDP growth of eight percent

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Speaker 1: nine percent um. That's successive so you need to tighten

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Speaker 1: until you get down to four or five, which is

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Speaker 1: potential over the normal. It gives a sense of what

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Speaker 1: you really believe is good to happen. Looking ahead here,

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Speaker 1: you know, we do have, of course huge risk China

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Speaker 1: for instance of the continue zero COVID lockdowns. On top

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Speaker 1: of that, of course geopolitics. But what does this all

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Speaker 1: mean for let's say the dollar and also the different

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Speaker 1: equity classes around the world. Well, that's a very broad question.

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Speaker 1: So I'm gonna I'm gonna get back to you with

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Speaker 1: a broad answer. I mean, let's focus on on the

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Speaker 1: US first. My point about this whole nominal GDP talk

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Speaker 1: earlier is that at the end of the day, we're

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Speaker 1: gonna be fine in the US um and that's also

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Speaker 1: why we're always that market relative to the others um

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Speaker 1: as we have. I mean, right now, I check the

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Speaker 1: actual number. Actually it's nine point three. Nominal GDP growth

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Speaker 1: if you look at revenue growth on the SMP is

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Speaker 1: something like four. If you go down to the smaller

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Speaker 1: and mid sized cap, mid caps and small caps, it

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Speaker 1: goes up to twenty on aggregate for the for the

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Speaker 1: overall uh in disease. Now, you know, with these numbers,

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Speaker 1: it's very hard to imagine anything that you could classify

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Speaker 1: as an earnings recession um, even as nominal GDP growth

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Speaker 1: slows down, as the Fed keeps tightening to bring to

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Speaker 1: bring the inflation part of the norminal GDP down UM.

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Speaker 1: And so I think you know, a year from now,

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Speaker 1: we're gonna have full for a percent normal GDP growth,

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Speaker 1: which is going to be just fine. Now, that composition

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Speaker 1: may be tricky because it may be represent inflation or

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Speaker 1: three and a half percent inflation and just half a

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Speaker 1: percentage point of growth of real growth outright. But but

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Speaker 1: but it's not recession, is what you're saying. No, it's

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Speaker 1: it's getting through. You're getting through. And if you keep

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Speaker 1: if you keep that income growth at full four and

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Speaker 1: a half percent steady for a while, the rest is

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Speaker 1: going to sort itself out. And people, if people are employed,

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Speaker 1: you know they're they may trim spending, but they won't

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Speaker 1: stop spending. Listen, I wanted to ask you about Joseph

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Speaker 1: Stiglitt's comment. We don't have all that much time, but

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Speaker 1: he's basically saying that if you if you raise rates

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Speaker 1: too much, you may actually worsen inflation. What he's saying,

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Speaker 1: the reason about that is is because of the supply

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Speaker 1: chain bottlenecks, And he said, what you need now is

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Speaker 1: investment in fixing those bottleneckt but higher interest rates makes

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Speaker 1: it more difficult to make those investments. Any resonance with you, Mikiel,

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Speaker 1: I think that's micromanaging, trying to micro manage the structal

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Speaker 1: side of the economy a bit too much. I mean,

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Speaker 1: in theory, yes, but you know, these things take time.

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Speaker 1: So I think it's much more wiser to look at

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Speaker 1: aggregate norminal income growth and let the economy sort itself

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Speaker 1: out and bring that down to an average normal number,

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Speaker 1: reasonable number, uh, and then the economy will sort itself

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Speaker 1: out over the course of you know, a year or

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Speaker 1: two as people figure out what to do in that

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Speaker 1: kind of stable environment. Remember, we just distributed too much

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Speaker 1: money which is nominal income during the pandemic, and that's

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Speaker 1: the price we're paying out um. But you know, overall,

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Speaker 1: I think even though a lot of people criticize the FED,

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Speaker 1: it's it's actually doing a pretty decent job. Because you

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Speaker 1: could argue that they were a bit late in entightening,

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Speaker 1: but you know, again to three years from now, it's

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Speaker 1: gonna look, it's gonna look like a blip. Mikya. Okay,

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Speaker 1: this is the US is one thing. But Europe, I mean,

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Speaker 1: how does this figure in uh, your investment horizon? And

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Speaker 1: again I'm using broad brush exactly, so play there. I mean,

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Speaker 1: they've got this geopolitical overlay with energy in particular and

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Speaker 1: inflation which is pretty rampant. How do you look at it? Yeah,

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Speaker 1: so you know, you these are the shoes that are

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Speaker 1: out there and liable to drop. Um. Europe is a problem,

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Speaker 1: and also China is a problem in economic terms, and

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Speaker 1: you know that these days also mixed up with geo politics,

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Speaker 1: so you know. Mentioning inflation, I mean we do talk

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Speaker 1: a lot about the US inflation, but in the U

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Speaker 1: S it's a monitory phenomenon. Demand and supply mismatches too

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Speaker 1: much the band too little supply. In Europe it's a

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Speaker 1: different story because it's energy. If you look at the

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Speaker 1: composition of the inflation of the current headline inflation in

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Speaker 1: the US, about a third is food and energy driven, uh,

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Speaker 1: and that's also coming down, whereas in Europe it's two thirds. Um.

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Speaker 1: So there you see the price for not boosting not

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Speaker 1: not what they did during COVID, but what they did

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Speaker 1: over the past twenty years, which is Mikya kid, that's

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Speaker 1: how we got time for. Always a pleasure talking to you,

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Speaker 1: and he could come out with his analysis of Jackson

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Speaker 1: Hole and beyond. Financial economists at LGT Capital Partners