WEBVTT - Komal Sri-Kumar on the Markets (Radio)

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<v Speaker 1>Let's get to our guests. It is commal three Kumar

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<v Speaker 1>president at three Khmar Global Strategies three. It's almost never.

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<v Speaker 1>In fact, it is never that you see a sitting

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<v Speaker 1>president in Brazil lose. So this is quite a big

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<v Speaker 1>deal and it's a huge victory for the left with

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<v Speaker 1>Lula getting back in. What do you think it means

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<v Speaker 1>for the economy going forward? Um? I think Brian I

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<v Speaker 1>was quite a sanguine about either candidate winning because both

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<v Speaker 1>Snaro in the last few years has been good for

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<v Speaker 1>business and Lula during his two terms was unexpectedly positive

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<v Speaker 1>for private business. They thought that as a Worker's Party leader,

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<v Speaker 1>he would lead to more of socialist policies and that

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<v Speaker 1>you the economy would go down instead. It was a

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<v Speaker 1>golden period for the Brazilian economy during the Lula presidency

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<v Speaker 1>for two terms. Keep in mind that it was only

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<v Speaker 1>during his successor Dilma russof who was hand chosen by him,

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<v Speaker 1>by the way, that everything went downhill. So I here

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<v Speaker 1>is the real crux. It doesn't matter who wins, but

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<v Speaker 1>the loser has to accept his defeat. And a question

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<v Speaker 1>now is is Bolsonaro going to accept it? Is military

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<v Speaker 1>going to accept it, and do we have a peaceful

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<v Speaker 1>transfer of power? That to me is much more important

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<v Speaker 1>than which candidate wins. And I'm very happy with the

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<v Speaker 1>Lula victory, just as I would have been with the

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<v Speaker 1>Boldsonaro victory. Absolutely, And you know that that's smarks smacks

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<v Speaker 1>of some other country as well, where perhaps other getting

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<v Speaker 1>presidents don't like to accept the verdict of the people.

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<v Speaker 1>But in this case it would be getting to the

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<v Speaker 1>old Quentin Hogs saying of if democracy change anything, they

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<v Speaker 1>abolish it. Does it have market implications? Though it may

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<v Speaker 1>have market implications tomorrow rich in the sense that markets

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<v Speaker 1>I think had a marginal preference for Boldsonaro over Lula,

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<v Speaker 1>so you may see Monday perhaps Tuesday. Uh, the developments

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<v Speaker 1>lead to a drop in the market value. But if

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<v Speaker 1>you give three months or six months, and when again,

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<v Speaker 1>when Lula takes off is at the beginning of the

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<v Speaker 1>new year, assuming the transfer is smooth, things are going

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<v Speaker 1>to be much better off after all. Okay, so it

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<v Speaker 1>hasn't been much of the big macros stories, So let's

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<v Speaker 1>get to that. We got the FED meeting this week

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<v Speaker 1>in the b o E, so it's going to be

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<v Speaker 1>pretty interesting week. The latest data doesn't seem to be

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<v Speaker 1>showing that inflation is cooperating. Inflation is not cooperating at all, Brian.

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<v Speaker 1>And you see that core inflation is at forty year highs,

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<v Speaker 1>and the Federal Reserve's favorite price measure, the PC deflator

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<v Speaker 1>core is also accelerated in the most recent months in

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<v Speaker 1>the data released a few days ago. So there is

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<v Speaker 1>no reason to pivot. The only reason to pivot is

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<v Speaker 1>because they want to help the stock market all they

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<v Speaker 1>are worried about a systemic failure. Sure it, give us,

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<v Speaker 1>you know, a sense of this market or should I

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<v Speaker 1>say market participants almost trying to force the Federal Reserve

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<v Speaker 1>to pivot. Give us your sense, because I think you

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<v Speaker 1>just wrote a paper essentially saying pivot. Just lose that thought, right,

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<v Speaker 1>That's what I put out this Saturday race, And I

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<v Speaker 1>believe that it would be wrong to pivot at this stage.

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<v Speaker 1>The story about a pivot started out with the Wall

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<v Speaker 1>Street Journal article about nine days ago suggesting a few

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<v Speaker 1>members of the Federal Reserve were actively looking to either

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<v Speaker 1>slow down the rate of increase in the interest rate

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<v Speaker 1>or even to end it in early twenty twenty three.

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<v Speaker 1>But here is the problem. Inflation rate has not come

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<v Speaker 1>down the code, inflation rate has accelerated, some measures are

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<v Speaker 1>at their forty year high. What is the basis for

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<v Speaker 1>pivoting when the Chairman has said repeatedly that he is

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<v Speaker 1>using inflation to be his principal objective. The problem I

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<v Speaker 1>see is that they are worried about a systemic failure.

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<v Speaker 1>They look at what happened in London with the pension funds.

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<v Speaker 1>They're afraid there might be a repeat of that, and

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<v Speaker 1>they simply don't want to go ahead with it. My

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<v Speaker 1>answer is, yes, it may happen. The problem is they

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<v Speaker 1>were so wrong in forecasting inflation in one again and

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<v Speaker 1>again calling it transitory, and at the same time boosting

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<v Speaker 1>the balance sheet, keeping the interest rate near zero. That

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<v Speaker 1>is what has increased the risk. It is not what

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<v Speaker 1>they're doing right now. But let's talk about how much

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<v Speaker 1>damage is being done, because it seems the US economy

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<v Speaker 1>is pretty resilient, the labor market is hanging in, their

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<v Speaker 1>growth is not falling off a table. Inflation is bad

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<v Speaker 1>if it causes harm. If it doesn't cause harm, is

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<v Speaker 1>it so bad? That's a great question, Brian. But let

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<v Speaker 1>me put it to you this way. Inflation is causing

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<v Speaker 1>a lot of harm. May not be for equity holders,

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<v Speaker 1>may not even be for bond holders. But if you

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<v Speaker 1>are a wage earner, your wages are increasing significantly slower

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<v Speaker 1>than overall inflation. And some components, especially for people who

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<v Speaker 1>are low and middle income, the food at home category,

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<v Speaker 1>the rent category, which are much more important than other factors,

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<v Speaker 1>they have increased more than the overall index. So is

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<v Speaker 1>inflation causing a lot of harm. Yes. The reason why

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<v Speaker 1>you see the Democrats are on are on the defensive

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<v Speaker 1>before the November eight term elections is that inflation matters.

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<v Speaker 1>And it used to be that said that inflation is

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<v Speaker 1>something only wealthy people worry about. Not really, it actually

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<v Speaker 1>affects the poor. And that is what you're seeing reflected

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<v Speaker 1>in political terms. Brian. Yeah, it might be why we

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<v Speaker 1>saw Lula get elected. Rish absolutely gives a sense of

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<v Speaker 1>you know, uh, this final sales to domestic private entities

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<v Speaker 1>going down here as well, that's what you've been looking at.

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<v Speaker 1>And this is coming from the Bureau of Economic Analysis here.

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<v Speaker 1>You know, this is something where we had It's not

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<v Speaker 1>I'm gonna quote here, it's but it is not what

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<v Speaker 1>Jerrem Powell meant in recent press Conspan he admitted there

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<v Speaker 1>would be some pain as the FED titaned. Uh. He

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<v Speaker 1>did say, though at his press conferences, I think twice,

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<v Speaker 1>at least twice in his press conferences, that there will

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<v Speaker 1>be pain in terms of the FED tightening and the

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<v Speaker 1>impact that has felt on the economy. The pain he

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<v Speaker 1>talked about was probably more oriented towards higher unemployment rate,

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<v Speaker 1>which hasn't happened yet, but it is starting to happen.

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<v Speaker 1>Rich in terms of a private spending by companies and

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<v Speaker 1>private spending by households, that's the number you're referring to,

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<v Speaker 1>which slowed down to a crawl in the latest number,

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<v Speaker 1>latest figures which were published for the third quarter. Now,

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<v Speaker 1>the issue is when you have done that and the

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<v Speaker 1>the part is slowing down, they should not be surprised.

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<v Speaker 1>After all, that's what higher and higher interest rates are

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<v Speaker 1>going to do, and that's the way, by destroying demand

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<v Speaker 1>is how they're going to bring down the inflation rate. Now,

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<v Speaker 1>if on the middle they switch over and say, hey,

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<v Speaker 1>we did too much, we're not going to worry about

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<v Speaker 1>inflation anymore, he's going to repeat the errors of the

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<v Speaker 1>nineteen seventies which perpetuated inflation. Alright, final question, is at

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<v Speaker 1>the end of the pro growth reform period in China.

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<v Speaker 1>I think it is at least for the next year

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<v Speaker 1>to two years. Brian I would say yes, it is

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<v Speaker 1>much more a consolidation of political power by the president

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<v Speaker 1>rather than support the private markets. Alright, Comal Shrie come

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<v Speaker 1>out that joining is just going through the Federal Reserve.

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<v Speaker 1>What happens the next and of course commercially come out

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<v Speaker 1>is President come out both strategies and getting his take

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<v Speaker 1>on the markets and more.