1 00:00:13,440 --> 00:00:16,840 Speaker 1: Hello, and welcome to What Goes Up, a weekly market podcast. 2 00:00:17,320 --> 00:00:20,479 Speaker 1: I'm Mike Reagan, a senior editor at Bloomberg, and this 3 00:00:20,560 --> 00:00:23,640 Speaker 1: week on the show, the Federal Reserve just upgraded its 4 00:00:23,640 --> 00:00:26,920 Speaker 1: assessment of the US economy, but at the same time, 5 00:00:27,000 --> 00:00:30,160 Speaker 1: Jerome pal is not really giving the market many clues 6 00:00:30,200 --> 00:00:32,840 Speaker 1: about when the Central Bank will begin to scale back 7 00:00:32,920 --> 00:00:37,040 Speaker 1: the extraordinary monetary stimulus that's been providing. What does this 8 00:00:37,080 --> 00:00:40,440 Speaker 1: all mean for the outlook for inflation and financial markets. Well, 9 00:00:40,440 --> 00:00:42,879 Speaker 1: we'll get into it with the co chief investment officer 10 00:00:42,960 --> 00:00:46,440 Speaker 1: of the world's biggest hedge fund firm. But first, Charlie 11 00:00:46,520 --> 00:00:49,440 Speaker 1: Pellett let us know who this week's mystery co host is. 12 00:00:50,800 --> 00:00:54,640 Speaker 1: Liz Capo McCormick is a reporter for Bloomberg who began 13 00:00:54,760 --> 00:00:58,160 Speaker 1: her career on a wall screen trading desk before being 14 00:00:58,240 --> 00:01:01,560 Speaker 1: lured into media. She actually he has a degree in physics, 15 00:01:01,880 --> 00:01:05,440 Speaker 1: which means she can spot a Mike Reagan tangent from 16 00:01:05,480 --> 00:01:09,040 Speaker 1: a mile away. She's excited to do the podcast because 17 00:01:09,120 --> 00:01:12,839 Speaker 1: now when Reagan asks her dumb questions about the Fed, 18 00:01:13,240 --> 00:01:16,600 Speaker 1: she can just say, listen to the tape, Mike, Liz, 19 00:01:16,680 --> 00:01:18,720 Speaker 1: I'm not sure, Charlie is right about that. I think 20 00:01:18,720 --> 00:01:21,080 Speaker 1: I'm still gonna be asking you questions about the FED 21 00:01:21,120 --> 00:01:25,440 Speaker 1: on a daily basis, as as is our normal routine. So, uh, 22 00:01:25,680 --> 00:01:27,960 Speaker 1: we can't talk about physics, and God knows I have 23 00:01:28,080 --> 00:01:34,280 Speaker 1: to use my physics in a lifetime. We could, I 24 00:01:34,319 --> 00:01:36,520 Speaker 1: will not as if I know what you're talking about, 25 00:01:36,600 --> 00:01:40,080 Speaker 1: but we better not. But let's bring our guests in. 26 00:01:40,160 --> 00:01:41,840 Speaker 1: I don't know if he has any thoughts on physics, 27 00:01:41,840 --> 00:01:45,320 Speaker 1: but I know he's got some great thoughts on the market. Uh. 28 00:01:45,400 --> 00:01:48,520 Speaker 1: He is, as I said, he's the co chief investment 29 00:01:48,560 --> 00:01:52,920 Speaker 1: officer at Bridgewater Associates. His name is Greg Jetson. Greg, 30 00:01:52,960 --> 00:01:55,800 Speaker 1: welcome to the show. Well, thanks a lot, it's good 31 00:01:55,800 --> 00:01:58,160 Speaker 1: to talk to you guys. Greg. Let's get right into it, 32 00:01:58,360 --> 00:02:01,960 Speaker 1: uh and talk about the FED me eating on Wednesday. Um. 33 00:02:02,200 --> 00:02:05,520 Speaker 1: You know, my impression is the statement itself and the 34 00:02:05,560 --> 00:02:09,280 Speaker 1: press conference from Chairman Pal didn't really move the needle 35 00:02:09,440 --> 00:02:11,680 Speaker 1: much as far as I think what a lot of 36 00:02:11,720 --> 00:02:16,040 Speaker 1: market participants really crave. And that's some clarity on when 37 00:02:16,040 --> 00:02:19,440 Speaker 1: we can expect asset purchases to begin to be tapered 38 00:02:19,520 --> 00:02:23,320 Speaker 1: and eventually after that a normalization of interest rate policy. 39 00:02:23,400 --> 00:02:26,119 Speaker 1: But I'm just curious what your reaction is, UM, Did 40 00:02:26,120 --> 00:02:30,080 Speaker 1: you take away anything any new information from that UH 41 00:02:30,600 --> 00:02:35,040 Speaker 1: statement and discussion from Chairman Palu. Yeah, nothing new, particularly 42 00:02:35,160 --> 00:02:39,800 Speaker 1: in on Wednesday's message. But the basic picture is really 43 00:02:39,800 --> 00:02:42,320 Speaker 1: important and really necessarily to talk about it when you're 44 00:02:42,360 --> 00:02:46,200 Speaker 1: thinking about markets and macro economies, which is that we're 45 00:02:46,200 --> 00:02:48,520 Speaker 1: in a new paradigm of central banking. That if you 46 00:02:48,560 --> 00:02:50,799 Speaker 1: go back over the last fourty years, starting with Vulgar, 47 00:02:51,000 --> 00:02:54,560 Speaker 1: you had an inflation fighting what first phase was a 48 00:02:54,560 --> 00:02:56,880 Speaker 1: monetary policy one what we call kind of managing the 49 00:02:56,880 --> 00:03:00,160 Speaker 1: economy through interest rates and lower interest rates causing more 50 00:03:00,200 --> 00:03:03,480 Speaker 1: private sector debt, higher interest rates causing a debt cycle 51 00:03:03,480 --> 00:03:06,640 Speaker 1: in the opposite direction. You move past the financial crisis. 52 00:03:06,680 --> 00:03:08,600 Speaker 1: In two thousand eight, interest rates get all the way 53 00:03:08,600 --> 00:03:11,160 Speaker 1: to zero, private sector debt hits its peaks that even 54 00:03:11,200 --> 00:03:13,720 Speaker 1: at zero interest rates you can't stimulate, and you move 55 00:03:13,760 --> 00:03:17,640 Speaker 1: into money printing making up for the loss of credit. 56 00:03:17,800 --> 00:03:20,120 Speaker 1: And that's what we'd call monetary policy to where you 57 00:03:20,200 --> 00:03:23,880 Speaker 1: go quee by assets with it. It affects the economy, 58 00:03:23,919 --> 00:03:26,960 Speaker 1: but very indirectly and much more effects asset prices. And 59 00:03:27,000 --> 00:03:28,960 Speaker 1: here we are, and what we consider an MP three 60 00:03:29,000 --> 00:03:32,519 Speaker 1: world where in two thousand eighteen the FED kind of 61 00:03:32,600 --> 00:03:34,679 Speaker 1: learned the final lesson that they don't want to be 62 00:03:34,760 --> 00:03:38,320 Speaker 1: too preemptive. That they started raising interest rates before inflation came. 63 00:03:38,520 --> 00:03:41,720 Speaker 1: It had negative effects and unnecessary negative effects in their mind. 64 00:03:42,360 --> 00:03:45,520 Speaker 1: And so here we're in a world where monetary policies 65 00:03:45,600 --> 00:03:49,040 Speaker 1: mostly supporting fiscal policy. It's not as important as fiscal policy, 66 00:03:49,360 --> 00:03:53,400 Speaker 1: and it is not going to be preemptive that they 67 00:03:53,400 --> 00:03:57,800 Speaker 1: are gonna wait and wait and wait for inflation to rise, 68 00:03:58,320 --> 00:04:01,320 Speaker 1: for bubbles to form, but four than take any action, 69 00:04:01,440 --> 00:04:04,600 Speaker 1: and that that's the big deal here. And in a way, 70 00:04:04,760 --> 00:04:07,720 Speaker 1: this is a dangerous territory, but it's also necessary territory. 71 00:04:07,760 --> 00:04:10,600 Speaker 1: When you look at the conditions that we had coming 72 00:04:10,600 --> 00:04:13,920 Speaker 1: into the COVID pandemic. We thought this movement to MP 73 00:04:14,040 --> 00:04:17,159 Speaker 1: three would take five to ten years. But the reason 74 00:04:17,200 --> 00:04:20,719 Speaker 1: that it was inevitable was there. So was the essentially 75 00:04:20,720 --> 00:04:23,560 Speaker 1: the level of io used in the level of wealth 76 00:04:23,640 --> 00:04:26,599 Speaker 1: can't be paid back through income, so you have to 77 00:04:26,600 --> 00:04:30,800 Speaker 1: print money to support essentially the promises in the economy. 78 00:04:30,839 --> 00:04:34,880 Speaker 1: And there's so much division in the country that stimulative, 79 00:04:34,960 --> 00:04:38,040 Speaker 1: more inflationary policy makes more sense than this forty year 80 00:04:38,160 --> 00:04:42,279 Speaker 1: pro corporate lower and lower inflation environment. So you've gotten 81 00:04:42,279 --> 00:04:45,159 Speaker 1: this shift. The shift is necessary, but now we're in 82 00:04:45,160 --> 00:04:47,760 Speaker 1: a whole new set of risks that you know, most 83 00:04:47,839 --> 00:04:51,640 Speaker 1: market participants haven't really had to deal with because the 84 00:04:51,680 --> 00:04:54,160 Speaker 1: problems of of these types of policies haven't really been 85 00:04:54,160 --> 00:04:57,000 Speaker 1: around for forty years. And in the short term, the 86 00:04:57,040 --> 00:04:59,120 Speaker 1: more easy, the better. The countries that have done more 87 00:04:59,160 --> 00:05:01,080 Speaker 1: fiscal and more mod terry are better off in the 88 00:05:01,080 --> 00:05:05,719 Speaker 1: countries that didn't. That's evident, and and that that is 89 00:05:05,720 --> 00:05:11,239 Speaker 1: going to push itself inevitably until those policies cause problems. Greg. 90 00:05:11,240 --> 00:05:13,880 Speaker 1: I'll jump in something also about the FED, but touching 91 00:05:13,880 --> 00:05:17,120 Speaker 1: on what you were saying, this paradigm shift. I'm curious 92 00:05:17,560 --> 00:05:20,920 Speaker 1: you probably heard Jerome Pale in his press conference this 93 00:05:21,000 --> 00:05:24,400 Speaker 1: week that he was he was asked specifically about, oh, 94 00:05:24,600 --> 00:05:28,039 Speaker 1: the break even inflation rates have risen quite sharply, which 95 00:05:28,160 --> 00:05:30,839 Speaker 1: I know you've noted in your recent research, and but 96 00:05:30,960 --> 00:05:33,920 Speaker 1: he said, no, we're fine, They're about in line given 97 00:05:33,920 --> 00:05:37,760 Speaker 1: the difference between CPI and what they track with about 98 00:05:37,800 --> 00:05:41,240 Speaker 1: two percent, and we want inflation expectations to be really 99 00:05:41,279 --> 00:05:44,320 Speaker 1: anchored at two when they're not there yet. So he 100 00:05:44,440 --> 00:05:47,160 Speaker 1: seemed to really like, he didn't blink that he's at 101 00:05:47,200 --> 00:05:51,600 Speaker 1: all concerned. And when you say this paradigm shift is necessary, 102 00:05:51,640 --> 00:05:55,240 Speaker 1: but it creates risks. Do you think that he might 103 00:05:55,640 --> 00:05:58,000 Speaker 1: by the time he's concerned, they might not be able 104 00:05:58,040 --> 00:06:01,120 Speaker 1: to slow the inflation move or you know, how do 105 00:06:01,160 --> 00:06:02,960 Speaker 1: you read that or are he kind of trying to 106 00:06:03,000 --> 00:06:06,040 Speaker 1: convince that he could do it? Well? Yeah, I think 107 00:06:06,120 --> 00:06:09,280 Speaker 1: that they're the power of tightening monetary stolt policy will 108 00:06:09,279 --> 00:06:11,880 Speaker 1: still be pretty successful when they get to it, So 109 00:06:11,920 --> 00:06:14,080 Speaker 1: we'll see. I think the question is whether they're gonna 110 00:06:14,200 --> 00:06:17,839 Speaker 1: want to given the trade offs. So it's gonna be difficult, right, 111 00:06:17,800 --> 00:06:20,320 Speaker 1: And this is why studying like in retrospect, it looks 112 00:06:20,320 --> 00:06:22,800 Speaker 1: like monetary policy in nineteen seventies was totally foolish to 113 00:06:22,800 --> 00:06:24,479 Speaker 1: allow inflation yet as high as it was, but it 114 00:06:24,520 --> 00:06:27,120 Speaker 1: was dealing with problems, real problems at the time, well, 115 00:06:27,160 --> 00:06:30,080 Speaker 1: oil shortages, etcetera. There's a reason real interest rates were 116 00:06:30,160 --> 00:06:35,280 Speaker 1: kept low for extended period of time till inflation rose. Similarly, today, 117 00:06:35,320 --> 00:06:38,640 Speaker 1: with all the challenges we face socially, there's a chance 118 00:06:38,680 --> 00:06:41,480 Speaker 1: they're gonna purposely be behind the curve for an extended 119 00:06:41,520 --> 00:06:44,160 Speaker 1: period of time because inflation is better than the other 120 00:06:44,200 --> 00:06:47,479 Speaker 1: options UM, which the other options are difficult. If you 121 00:06:47,560 --> 00:06:51,000 Speaker 1: take where asset prices are today and you think about 122 00:06:51,000 --> 00:06:53,520 Speaker 1: how much income needs to be generated to support those 123 00:06:53,520 --> 00:06:56,279 Speaker 1: asset prices. In the end, assets can only be worth 124 00:06:56,320 --> 00:06:59,039 Speaker 1: the cash flows that they generate. To generate enough cash 125 00:06:59,040 --> 00:07:02,440 Speaker 1: flow to support this level of equity market, you need 126 00:07:02,520 --> 00:07:04,960 Speaker 1: either a lot of nominal GDP, which either comes from 127 00:07:05,000 --> 00:07:08,680 Speaker 1: a productivity miracle or inflation and you or a much 128 00:07:08,720 --> 00:07:10,360 Speaker 1: lower asset prices. So what do you want. Do you 129 00:07:10,360 --> 00:07:12,360 Speaker 1: want to collapse in asset prices or do you want 130 00:07:12,400 --> 00:07:15,360 Speaker 1: a general rising and nonled GDP. If you take today's 131 00:07:15,400 --> 00:07:18,080 Speaker 1: asset prices and look at how many years of income 132 00:07:19,080 --> 00:07:22,000 Speaker 1: are required to support those, it's about twenty four years 133 00:07:22,000 --> 00:07:24,640 Speaker 1: of income. The only comparable periods in history there four 134 00:07:24,680 --> 00:07:29,080 Speaker 1: of them. One was UM was right before the tech 135 00:07:29,080 --> 00:07:30,880 Speaker 1: bubble in two thousand two thousand. One. Of course, that 136 00:07:30,960 --> 00:07:34,560 Speaker 1: was resolved through a collapse in asset prices, again collapse 137 00:07:34,600 --> 00:07:37,200 Speaker 1: and asset prises. But on the other hand nine and 138 00:07:37,240 --> 00:07:41,200 Speaker 1: nine five were absorbed by inflation, which is the other 139 00:07:41,280 --> 00:07:44,160 Speaker 1: choice UM where nominal g to be caught up. Real 140 00:07:44,200 --> 00:07:47,360 Speaker 1: asset assetprises did bad in real terms, but did quite well, 141 00:07:47,520 --> 00:07:50,080 Speaker 1: quite fine in nominal terms, and nominal GDP caught up 142 00:07:50,120 --> 00:07:53,040 Speaker 1: to the assets through that process. So we think you're 143 00:07:53,040 --> 00:07:56,040 Speaker 1: gonna face that dilemma that if they withdraw liquidity, that's 144 00:07:56,040 --> 00:07:58,280 Speaker 1: gonna have a big impact on asset prices because asset 145 00:07:58,280 --> 00:08:01,120 Speaker 1: price has been so supported by the liquidity, and if 146 00:08:01,120 --> 00:08:03,960 Speaker 1: they don't withdraw the liquidity, they're gonna have inflation problems. 147 00:08:04,080 --> 00:08:07,480 Speaker 1: And so they'll go back and forth between that challenge 148 00:08:07,480 --> 00:08:09,200 Speaker 1: of how much you wanted to show up in lower 149 00:08:09,200 --> 00:08:11,120 Speaker 1: asset prices and how much you wanted to show up 150 00:08:11,400 --> 00:08:15,800 Speaker 1: that pressure physics put it that way UM to uh 151 00:08:15,800 --> 00:08:17,720 Speaker 1: show up in asset prices, and how much you wanted 152 00:08:17,760 --> 00:08:19,720 Speaker 1: to show up in inflation. But there is no easy 153 00:08:19,760 --> 00:08:22,840 Speaker 1: way out of the current dilemma. That's about all the 154 00:08:22,840 --> 00:08:26,360 Speaker 1: physics I can handle. I think Letzletz can get into 155 00:08:26,400 --> 00:08:30,160 Speaker 1: the co of the coefficients and whatnot. But know, to me, 156 00:08:30,280 --> 00:08:33,840 Speaker 1: I'm I'm sort of in awe and impressed of how 157 00:08:33,880 --> 00:08:37,040 Speaker 1: well pal kind of dodges the question of of are 158 00:08:37,080 --> 00:08:40,600 Speaker 1: you even thinking about talking about thinking about maybe whispering 159 00:08:40,640 --> 00:08:44,319 Speaker 1: about tapering UM? And I think that's very understandable given 160 00:08:44,600 --> 00:08:47,520 Speaker 1: you know the reaction we saw the taper tantrum a 161 00:08:47,559 --> 00:08:51,520 Speaker 1: few years ago that he wants to not sort of 162 00:08:51,559 --> 00:08:54,240 Speaker 1: tip his hand about when and if that might be. 163 00:08:54,320 --> 00:08:56,960 Speaker 1: But I wonder if that, as you're talking about, there 164 00:08:57,040 --> 00:09:00,800 Speaker 1: is gonna probably be a reaction in uset more markets. Um. 165 00:09:01,520 --> 00:09:03,880 Speaker 1: You know, the joke I've been saying is tapering ain't easy. 166 00:09:03,880 --> 00:09:07,040 Speaker 1: I don't I don't see any way to do it easily. Um. 167 00:09:07,080 --> 00:09:10,720 Speaker 1: And I wonder if if this um sort of posture 168 00:09:10,720 --> 00:09:14,480 Speaker 1: that he's taking with it now perhaps could condense the 169 00:09:14,520 --> 00:09:18,440 Speaker 1: time between when they finally signal that it's coming uh 170 00:09:18,440 --> 00:09:21,720 Speaker 1: and when they actually start doing it, and perhaps causes 171 00:09:21,760 --> 00:09:26,040 Speaker 1: the tapering to be more aggressive than what the market's expecting. 172 00:09:26,640 --> 00:09:28,680 Speaker 1: And I wonder, you know, how much does that matter 173 00:09:28,720 --> 00:09:30,760 Speaker 1: to markets? Is it all a matter of sort of 174 00:09:30,760 --> 00:09:34,160 Speaker 1: what the Fed fund futures traders and what the eurodollar 175 00:09:34,280 --> 00:09:37,920 Speaker 1: futures traders are pricing in. Is that basically the the 176 00:09:38,000 --> 00:09:41,800 Speaker 1: main metric that will determine how violent the reaction is 177 00:09:42,120 --> 00:09:44,920 Speaker 1: from the market when when it does finally come time 178 00:09:44,920 --> 00:09:48,880 Speaker 1: to say, yes, we're thinking about tapering, Yeah, well it's 179 00:09:48,920 --> 00:09:51,560 Speaker 1: gonna be a big deal. So I think UM, in 180 00:09:51,640 --> 00:09:55,239 Speaker 1: asset prices. Right, there's and I think there's this important 181 00:09:55,280 --> 00:09:58,200 Speaker 1: separation that's gonna matter and is actually the biggest risk 182 00:09:58,360 --> 00:10:02,080 Speaker 1: for asset prices is the separation between the real economy 183 00:10:02,200 --> 00:10:05,040 Speaker 1: and asset prices. The real economy is about to have 184 00:10:05,080 --> 00:10:07,400 Speaker 1: the biggest boom it's ever had. We're gonna go and 185 00:10:07,640 --> 00:10:10,080 Speaker 1: surging through the level. So if you look at where 186 00:10:10,120 --> 00:10:12,120 Speaker 1: we expect will be to a month from now, you're 187 00:10:12,160 --> 00:10:15,319 Speaker 1: gonna robably have four percent unemployment rate, really hard to 188 00:10:15,400 --> 00:10:21,079 Speaker 1: hire anyone, rising wages growth having been eight nine um. 189 00:10:21,240 --> 00:10:25,439 Speaker 1: And the Fed and what could the Fed mindset that 190 00:10:25,480 --> 00:10:28,200 Speaker 1: if you look out, you know, eighteen months there's only 191 00:10:28,240 --> 00:10:31,240 Speaker 1: twenty five basis points of tightening. Price did barely anything right. 192 00:10:31,600 --> 00:10:33,440 Speaker 1: Yet they're gonna be facing those conditions. So I do 193 00:10:33,480 --> 00:10:36,120 Speaker 1: think we're gonna force their hand. It's gonna force their hand. 194 00:10:36,160 --> 00:10:40,480 Speaker 1: The economic growth isn't going to be driven we're so 195 00:10:40,640 --> 00:10:42,920 Speaker 1: affected by the interest rates, at least in my view, 196 00:10:42,960 --> 00:10:45,720 Speaker 1: because it's so fiscally driven. The checks have been written, 197 00:10:45,800 --> 00:10:51,000 Speaker 1: the wealth is there, um, the the fiscal spending is 198 00:10:51,000 --> 00:10:53,640 Speaker 1: still in the pipeline, so it's not as interest rate 199 00:10:53,720 --> 00:10:56,959 Speaker 1: sensitive as let's say, a normal business cycle created by 200 00:10:57,320 --> 00:11:01,480 Speaker 1: um mainly private sector outcomes. So you have this possibility 201 00:11:01,520 --> 00:11:04,200 Speaker 1: that the economy is continue to surge ahead. The FED 202 00:11:04,280 --> 00:11:06,520 Speaker 1: still has these very low interest rates and they have 203 00:11:06,600 --> 00:11:09,520 Speaker 1: to start reeling back. At the same time, the Treasury 204 00:11:09,600 --> 00:11:12,599 Speaker 1: is going to be issuing for a long time of 205 00:11:12,679 --> 00:11:16,000 Speaker 1: GDP of bonds. Currently the Feds buying half of those, 206 00:11:16,640 --> 00:11:19,439 Speaker 1: and if they buy none of those, the private sector 207 00:11:19,440 --> 00:11:22,120 Speaker 1: has got to come up with the money to buy 208 00:11:22,920 --> 00:11:25,200 Speaker 1: GDP and bonds. Are they going to do that at 209 00:11:25,200 --> 00:11:26,840 Speaker 1: this rate? We don't find a lot of buyers in 210 00:11:26,840 --> 00:11:29,240 Speaker 1: the private sector likely to buy bonds at anywhere near 211 00:11:29,360 --> 00:11:32,600 Speaker 1: these rates to that quantity, right, And that's gonna be 212 00:11:32,640 --> 00:11:34,680 Speaker 1: the first thing that's gonna move, is who's gonna buy 213 00:11:34,760 --> 00:11:37,439 Speaker 1: the bonds when the Fed doesn't. When they face those conditions, 214 00:11:37,480 --> 00:11:40,240 Speaker 1: they are gonna taper, and then you're gonna need to 215 00:11:40,280 --> 00:11:42,920 Speaker 1: fill that gap, and you're gonna find out, hi, how hard, 216 00:11:43,000 --> 00:11:44,880 Speaker 1: how hard it is the FED will find out with us. 217 00:11:45,040 --> 00:11:46,880 Speaker 1: And then what are the implications. I actually think the 218 00:11:46,880 --> 00:11:50,719 Speaker 1: implications for markets will be pretty important. The implications for 219 00:11:50,760 --> 00:11:53,520 Speaker 1: the economy will be less set. At which point the 220 00:11:53,520 --> 00:11:55,480 Speaker 1: Fed's gonna face the second elements. Do they react the 221 00:11:55,520 --> 00:11:58,320 Speaker 1: asset prices. Everybody in asset markets is so used to 222 00:11:58,360 --> 00:12:01,400 Speaker 1: them reacting with a trigger finger to asset prices. But 223 00:12:01,440 --> 00:12:03,960 Speaker 1: the reason is that the market the economy has been 224 00:12:04,080 --> 00:12:07,760 Speaker 1: so tied to asset prices, where if the economy is 225 00:12:07,800 --> 00:12:10,480 Speaker 1: being reduced by fiscal policy, all of a sudden, you've 226 00:12:10,520 --> 00:12:12,680 Speaker 1: got two different worlds going on, and you've got the 227 00:12:12,679 --> 00:12:16,560 Speaker 1: possibility that FED won't backstop the liquidity coming out of 228 00:12:16,600 --> 00:12:19,640 Speaker 1: asset prices, and asset prices can fall while the economy rises. 229 00:12:19,679 --> 00:12:23,040 Speaker 1: That's actually a reasonable outcome, in a normal outcome in 230 00:12:23,080 --> 00:12:26,920 Speaker 1: a world where fiscal policies driving the economy rather than 231 00:12:26,960 --> 00:12:29,719 Speaker 1: the interest rate cycle. And so that's really where the 232 00:12:29,840 --> 00:12:32,520 Speaker 1: risks are getting to be really big. And then the 233 00:12:32,559 --> 00:12:35,480 Speaker 1: worst thing for the markets in a sense would be 234 00:12:35,520 --> 00:12:38,640 Speaker 1: a very strong economy that doesn't require this much of 235 00:12:38,640 --> 00:12:42,200 Speaker 1: liquidity while the asset prices required this much liquidity. And 236 00:12:42,200 --> 00:12:44,040 Speaker 1: that's the world I think we're heading too over the 237 00:12:44,080 --> 00:12:47,679 Speaker 1: next six months or so. In that world, it seems 238 00:12:47,720 --> 00:12:50,800 Speaker 1: like somewhere there's got And I'm not a stock girl, 239 00:12:51,400 --> 00:12:53,920 Speaker 1: Mike's the expert on that, but it just obviously I 240 00:12:54,040 --> 00:12:57,440 Speaker 1: watch it, and if if the markets less interest rate sensitive. 241 00:12:57,480 --> 00:12:59,080 Speaker 1: You know, for a while we were thinking, oh my god, 242 00:12:59,120 --> 00:13:01,360 Speaker 1: where the tenure was going, even though it wasn't too 243 00:13:01,440 --> 00:13:03,400 Speaker 1: high relative to history, was going to up end the 244 00:13:03,400 --> 00:13:06,679 Speaker 1: stock market and it hasn't. And with what you just 245 00:13:06,760 --> 00:13:09,400 Speaker 1: laid out, Greg, does that mean we have some more 246 00:13:09,440 --> 00:13:12,840 Speaker 1: glide paths for yields to go higher before the asset 247 00:13:12,880 --> 00:13:15,800 Speaker 1: prices really start going. But obviously there's a point, right, 248 00:13:15,920 --> 00:13:18,400 Speaker 1: And it makes it seem to me, is it harder 249 00:13:18,400 --> 00:13:20,960 Speaker 1: to know when that point is um and is that 250 00:13:21,080 --> 00:13:23,880 Speaker 1: global demand going to come in which it kind of 251 00:13:24,080 --> 00:13:26,840 Speaker 1: has over the last couple of years to kind of 252 00:13:26,880 --> 00:13:29,440 Speaker 1: tamp those yields down or you know, That's what I 253 00:13:29,480 --> 00:13:31,600 Speaker 1: think is tricky. It's a new paradigm. Like you said, 254 00:13:31,600 --> 00:13:35,200 Speaker 1: where where does the cracking point? Yeah, well, but you 255 00:13:35,240 --> 00:13:39,160 Speaker 1: can still look at the quantities, right, So the quantity 256 00:13:39,559 --> 00:13:41,760 Speaker 1: is much more than it has been in those past 257 00:13:41,800 --> 00:13:46,320 Speaker 1: episodes of foreign investors just are unlikely to feel that 258 00:13:46,360 --> 00:13:48,800 Speaker 1: type of hole. So the main question is will the 259 00:13:48,840 --> 00:13:51,640 Speaker 1: Fed continued to hold it for how long? But when 260 00:13:51,640 --> 00:13:53,360 Speaker 1: they don't, it's going to be very hard. But I 261 00:13:53,400 --> 00:13:55,320 Speaker 1: agree again I want to separate. I think there are 262 00:13:55,360 --> 00:13:57,400 Speaker 1: a lot of assets that will be quite vulnerable to 263 00:13:57,440 --> 00:14:00,000 Speaker 1: arise in rates, but the economy won't be as vulnerable, 264 00:14:00,559 --> 00:14:03,880 Speaker 1: and that difference is the difference just thinking. Oftentimes we're 265 00:14:04,000 --> 00:14:06,600 Speaker 1: thinking the economy and assets too much as a as 266 00:14:06,640 --> 00:14:09,559 Speaker 1: being tied together, where obviously COVID christ is a perfect 267 00:14:09,600 --> 00:14:12,160 Speaker 1: example of where the economy and the markets can go 268 00:14:12,240 --> 00:14:15,680 Speaker 1: radically different directions than they did, and the reverse the reverse, 269 00:14:15,679 --> 00:14:18,120 Speaker 1: where the liquidity comes out more money is spent in 270 00:14:18,160 --> 00:14:21,360 Speaker 1: the real economy rather than financial markets. The most extreme 271 00:14:21,400 --> 00:14:24,200 Speaker 1: example is the retail bubble stocks as an example where 272 00:14:24,840 --> 00:14:27,400 Speaker 1: people had nothing to do with COVID. Household savings reached 273 00:14:27,640 --> 00:14:30,960 Speaker 1: record levels, the money goes into certain types of stocks 274 00:14:30,960 --> 00:14:33,760 Speaker 1: and whatever. Now things are opening up, those savings rates 275 00:14:33,800 --> 00:14:36,960 Speaker 1: are declining, there's less liquidity there, and those assets come 276 00:14:37,000 --> 00:14:41,080 Speaker 1: down that we're so unhinged from the real economy anyway. 277 00:14:41,120 --> 00:14:44,040 Speaker 1: So differentiating what we think the real thing is going 278 00:14:44,080 --> 00:14:46,720 Speaker 1: to be in the future globally is differentiating between the 279 00:14:46,720 --> 00:14:49,560 Speaker 1: assets that require the liquidity in the very low real 280 00:14:49,600 --> 00:14:53,080 Speaker 1: interest rates to make sense economically, with those that can 281 00:14:53,120 --> 00:14:56,520 Speaker 1: benefit from the nominal GDP cash flows in the real economy, 282 00:14:56,640 --> 00:14:59,560 Speaker 1: and separating between those the things that really benefit from 283 00:14:59,640 --> 00:15:03,040 Speaker 1: higher dominal GDP will do well. The things that UM 284 00:15:03,200 --> 00:15:07,480 Speaker 1: get hurt by less liquidity that have high duration, those 285 00:15:07,560 --> 00:15:09,960 Speaker 1: assets are in in a lot more trouble. So that'll 286 00:15:10,000 --> 00:15:12,320 Speaker 1: be the kind of the differentiation that I think you'll 287 00:15:12,360 --> 00:15:23,480 Speaker 1: start seeing. Greg. I'm gonna get a little greedy here 288 00:15:23,600 --> 00:15:26,520 Speaker 1: and ask you a two part question. Uh, but you 289 00:15:26,560 --> 00:15:28,520 Speaker 1: should be grateful. I I've been known to ask like 290 00:15:28,600 --> 00:15:31,720 Speaker 1: twelve part questions. I'm gonna take it easy, just try 291 00:15:31,800 --> 00:15:34,040 Speaker 1: to try to keep it to two. But I wanted 292 00:15:34,040 --> 00:15:36,560 Speaker 1: to go back to something you said earlier, and I 293 00:15:36,640 --> 00:15:38,320 Speaker 1: know you've you've done some work on this and given 294 00:15:38,360 --> 00:15:40,600 Speaker 1: it a lot of thought, and that it's that idea 295 00:15:40,640 --> 00:15:44,840 Speaker 1: of the FED being behind the economy and how inevitably 296 00:15:45,000 --> 00:15:49,480 Speaker 1: that's likely to cause some excesses in markets or perhaps 297 00:15:49,720 --> 00:15:53,040 Speaker 1: an inflation. I'm just curious. So so the first part is, 298 00:15:53,120 --> 00:15:56,080 Speaker 1: I'm curious if you're seeing that anywhere. I mean, obviously 299 00:15:56,120 --> 00:15:58,720 Speaker 1: you mentioned the meme stocks. I think that's a clear example. 300 00:15:58,800 --> 00:16:02,640 Speaker 1: But are you ain't it anywhere else? Uh yet? And 301 00:16:03,040 --> 00:16:06,280 Speaker 1: if that where, where are the sort of corners of 302 00:16:06,400 --> 00:16:09,400 Speaker 1: the markets that you would look first? And then on 303 00:16:09,520 --> 00:16:13,040 Speaker 1: top of that, UM, to me, I think bubbles are 304 00:16:13,320 --> 00:16:18,680 Speaker 1: very strange phenomenon because the risk reward relationship is so interesting. 305 00:16:18,760 --> 00:16:21,320 Speaker 1: It almost seems that as an investor you have to 306 00:16:21,400 --> 00:16:25,200 Speaker 1: participate in bubbles because so many people will will call 307 00:16:25,320 --> 00:16:27,560 Speaker 1: the top early and think it's a bubble too early, 308 00:16:27,680 --> 00:16:29,800 Speaker 1: that that you really missed the best parts of them. 309 00:16:30,200 --> 00:16:31,640 Speaker 1: So I'm just wondering, you know, with all the brain 310 00:16:31,720 --> 00:16:35,080 Speaker 1: power at Bridgewater, uh, if you guys are any better 311 00:16:35,160 --> 00:16:37,960 Speaker 1: than us average mortals and trying to figure out sort 312 00:16:37,960 --> 00:16:40,040 Speaker 1: of when the music is about to stop, when to 313 00:16:40,320 --> 00:16:43,840 Speaker 1: once to get out of a clearly overvalued market, and 314 00:16:43,960 --> 00:16:46,520 Speaker 1: all along the bridge waters history we've been systematic, you know, 315 00:16:46,600 --> 00:16:49,320 Speaker 1: so we've taken very like the kind discussion we're having now, 316 00:16:49,400 --> 00:16:52,800 Speaker 1: very qualitative view of the world, but translated into ways 317 00:16:52,880 --> 00:16:54,640 Speaker 1: to measure. So you take something like a bubble, right, 318 00:16:54,680 --> 00:16:56,520 Speaker 1: bubbles a classic qualitative thing. How do you what do 319 00:16:56,600 --> 00:16:58,560 Speaker 1: you mean bubble? How do you measure that it's a bubble? 320 00:16:58,600 --> 00:17:01,040 Speaker 1: Is it enough to say prices are high relative to history? 321 00:17:01,120 --> 00:17:04,560 Speaker 1: Or what's the actual measure? And then how reliable is it? 322 00:17:04,880 --> 00:17:06,960 Speaker 1: And you know, we have six gages of a bubble 323 00:17:07,000 --> 00:17:08,639 Speaker 1: that we use all over the world, right that you 324 00:17:08,680 --> 00:17:10,879 Speaker 1: could apply it to cryptocurrency. You can apply it to 325 00:17:10,920 --> 00:17:13,359 Speaker 1: anything you wanted in the world, the stocks, two bonds, 326 00:17:13,400 --> 00:17:16,560 Speaker 1: and anything that. You know that our basic scoreboard is 327 00:17:16,960 --> 00:17:20,600 Speaker 1: our prices high relative to traditional measures, are prices discounting 328 00:17:20,760 --> 00:17:26,040 Speaker 1: unsustainable conditions. So as an example today, um, you know, 329 00:17:26,119 --> 00:17:29,480 Speaker 1: there's something like ten percent of stocks that are pricing 330 00:17:29,520 --> 00:17:32,560 Speaker 1: in more than revenue growth and margin expangeon. Right. If 331 00:17:32,600 --> 00:17:35,000 Speaker 1: you look at history, two percent of stocks actually achieve that. 332 00:17:35,080 --> 00:17:37,359 Speaker 1: That's an extremely hard thing to do. Everybody's going to 333 00:17:37,440 --> 00:17:40,240 Speaker 1: be the next Amazon. Right. If Amazon was priced today 334 00:17:41,160 --> 00:17:43,320 Speaker 1: as those ten percent of stocks are, if they I mean, 335 00:17:43,400 --> 00:17:45,880 Speaker 1: if it was priced ten years ago as those stocks were, 336 00:17:46,000 --> 00:17:48,399 Speaker 1: the the annual return on Amazon would have been like 337 00:17:48,480 --> 00:17:50,680 Speaker 1: eight percent a year because it would already have priced 338 00:17:50,720 --> 00:17:54,040 Speaker 1: in this incredible outcome that not every company does. Growing 339 00:17:54,119 --> 00:17:58,159 Speaker 1: revenue you're faster, Um, so very very hard. It's not 340 00:17:58,520 --> 00:18:01,280 Speaker 1: not counting the base effects from right, No, No, I'm 341 00:18:01,320 --> 00:18:04,919 Speaker 1: talking about right, ongoing growth rates. Without the base effect, 342 00:18:05,800 --> 00:18:08,720 Speaker 1: it doesn't happen. That's very very unlikely to happen. Right. 343 00:18:08,880 --> 00:18:11,480 Speaker 1: Potentially with inflation or something you might but but in 344 00:18:11,560 --> 00:18:14,119 Speaker 1: a normal kind of forward looking picture, you don't get 345 00:18:14,160 --> 00:18:17,440 Speaker 1: that two percent of stocks actually achieve them. So that's 346 00:18:17,880 --> 00:18:20,800 Speaker 1: an example of discounting unsustainable conditions and not they can't 347 00:18:20,840 --> 00:18:23,680 Speaker 1: as a group actually achieve that condition. The fact that 348 00:18:23,760 --> 00:18:25,879 Speaker 1: new another now I'm on the third thing is new 349 00:18:25,920 --> 00:18:28,080 Speaker 1: buyers entering the market. How many new buyers are there, 350 00:18:28,119 --> 00:18:30,760 Speaker 1: how big a part of the market they are. There's 351 00:18:31,440 --> 00:18:35,520 Speaker 1: the broad sentiment measures, there's purchases being financed by leverage, 352 00:18:36,080 --> 00:18:40,560 Speaker 1: and buyers and businesses sort of extending making extended forward purchases. 353 00:18:41,320 --> 00:18:43,920 Speaker 1: That's our checklist for a bubble. We measure all the 354 00:18:44,160 --> 00:18:47,040 Speaker 1: different things. And you see today a fair amount of 355 00:18:47,080 --> 00:18:50,399 Speaker 1: the equity market in the US in the bubble, but 356 00:18:50,520 --> 00:18:52,840 Speaker 1: not the aggregate. So the aggregate, we would say is, 357 00:18:52,960 --> 00:18:55,000 Speaker 1: you know, short of a bubble, but um, there are 358 00:18:55,040 --> 00:18:59,600 Speaker 1: definitely pockets that meet those standards and um, and that's dangerous. 359 00:18:59,640 --> 00:19:01,359 Speaker 1: And then you said, well, what do you want to 360 00:19:01,400 --> 00:19:03,040 Speaker 1: do buy or sell them? Well, that's a whole other 361 00:19:03,160 --> 00:19:06,560 Speaker 1: dangerous thing. And that's where when we survived surviving two thousand, 362 00:19:06,640 --> 00:19:08,320 Speaker 1: two thousand one, we had to draw down in two thousand, 363 00:19:08,400 --> 00:19:11,399 Speaker 1: two thous and one associated with the bubble, both the 364 00:19:11,520 --> 00:19:13,760 Speaker 1: dollar and the equity market and how that was playing 365 00:19:13,760 --> 00:19:16,399 Speaker 1: out at the time, and that really forced us to 366 00:19:16,520 --> 00:19:19,320 Speaker 1: get into flows, which is basically how we measure bubbles 367 00:19:19,359 --> 00:19:23,000 Speaker 1: today is well, how where's the money coming from? Who 368 00:19:23,040 --> 00:19:25,000 Speaker 1: are the buyers and sellers? What are their balance sheets? 369 00:19:25,000 --> 00:19:26,480 Speaker 1: Like how much more money can they put into this 370 00:19:26,560 --> 00:19:31,240 Speaker 1: bubble versus how much um income they're getting and when 371 00:19:31,280 --> 00:19:33,919 Speaker 1: does that start to flip? Right? And so for us, 372 00:19:34,400 --> 00:19:37,720 Speaker 1: that process of being able to look at the balance 373 00:19:37,760 --> 00:19:39,920 Speaker 1: sheets of the buyers and sellers think about when they've 374 00:19:39,960 --> 00:19:42,040 Speaker 1: been stretched to an extreme where they won't have the money, 375 00:19:42,080 --> 00:19:45,119 Speaker 1: where there's more supply coming than possible demand. So you 376 00:19:45,160 --> 00:19:46,879 Speaker 1: look at the I p O pipeline, you look at 377 00:19:46,960 --> 00:19:51,800 Speaker 1: the creation of of new instruments, those things relative to 378 00:19:51,880 --> 00:19:54,720 Speaker 1: that how fast those balance sheets are growing, And that's 379 00:19:54,720 --> 00:19:56,760 Speaker 1: how we try to measure that, cris Cross. And it's 380 00:19:56,760 --> 00:19:59,200 Speaker 1: still a very very dangerous game, like you're saying. So 381 00:19:59,320 --> 00:20:02,960 Speaker 1: the third part is be careful and be conservative in 382 00:20:03,080 --> 00:20:06,160 Speaker 1: your thinking around the ability to time those things, because, 383 00:20:06,240 --> 00:20:08,440 Speaker 1: like you said, that's kind of the easiest place to 384 00:20:08,520 --> 00:20:13,040 Speaker 1: die in asset prises is trying to be short a 385 00:20:13,119 --> 00:20:16,480 Speaker 1: bubble too early. Um. So I think that's the kind 386 00:20:16,480 --> 00:20:19,400 Speaker 1: of the way that we um we go about trying 387 00:20:19,440 --> 00:20:22,240 Speaker 1: to think about it and deal with it, and you're in. 388 00:20:22,920 --> 00:20:24,960 Speaker 1: What I would say is there's areas that look quite 389 00:20:25,000 --> 00:20:27,440 Speaker 1: bubble like, are quite dangerous, but you also have the 390 00:20:27,600 --> 00:20:30,399 Speaker 1: ingredients for bubbles that it's nowhere near as bigger bubble 391 00:20:31,440 --> 00:20:33,080 Speaker 1: yet as it was in ninety nine. So we know 392 00:20:33,200 --> 00:20:37,000 Speaker 1: bubbles can get bigger. And it's um and you have 393 00:20:37,119 --> 00:20:40,200 Speaker 1: the perfect storm for bubbles, access liquidity, a very easy 394 00:20:40,240 --> 00:20:42,880 Speaker 1: central bank at a pickup in growth and a pick 395 00:20:42,960 --> 00:20:46,760 Speaker 1: up in um new wealth. New Wealth tends to get 396 00:20:46,800 --> 00:20:50,879 Speaker 1: spent fast, tends to get over extrapolated, and and so 397 00:20:51,040 --> 00:20:54,439 Speaker 1: you have a lot of the conditions for an ongoing bubble. 398 00:20:54,480 --> 00:20:57,320 Speaker 1: Now I think the trigger will be man. There's so 399 00:20:57,440 --> 00:20:59,879 Speaker 1: much supply. The supply is coming at the market very 400 00:21:00,040 --> 00:21:03,040 Speaker 1: quickly in those areas, and when the liquidity starts to 401 00:21:03,119 --> 00:21:05,360 Speaker 1: get drained out, that's where you'll see that criss cross 402 00:21:06,040 --> 00:21:09,840 Speaker 1: of probably in more of those bubble areas. No, I 403 00:21:09,960 --> 00:21:11,760 Speaker 1: was what I was going to ask Greg, is that 404 00:21:12,240 --> 00:21:16,240 Speaker 1: one of the offshoots of the risks I've read that 405 00:21:16,359 --> 00:21:19,680 Speaker 1: you mentioned of this MP three policy is that could 406 00:21:19,720 --> 00:21:21,800 Speaker 1: be in the currency. I assume you're meeting a week 407 00:21:21,880 --> 00:21:23,760 Speaker 1: or dollar and I wondered if you could talk a 408 00:21:23,840 --> 00:21:27,160 Speaker 1: little bit about that. We haven't seen that too much yet, 409 00:21:27,600 --> 00:21:31,320 Speaker 1: but you know what's the likelihood of that? Well, I 410 00:21:31,359 --> 00:21:33,520 Speaker 1: think in the end, right, if you take the base, 411 00:21:33,720 --> 00:21:36,200 Speaker 1: there's the destiny of the path that we're on. Right, 412 00:21:36,240 --> 00:21:39,600 Speaker 1: that we have learned that you could spend a tremendous 413 00:21:39,600 --> 00:21:41,680 Speaker 1: amount of money every time the economy goes down, and 414 00:21:41,760 --> 00:21:44,200 Speaker 1: you can print the money to pay for that. That 415 00:21:44,320 --> 00:21:46,919 Speaker 1: the destiny here is that you'll keep doing that one 416 00:21:46,960 --> 00:21:49,840 Speaker 1: way or the other. The politics are go in that direction, 417 00:21:49,880 --> 00:21:53,199 Speaker 1: whether it's Republicans through tax cuts or Democrats through spending. 418 00:21:53,280 --> 00:21:59,560 Speaker 1: Either way, that is likely to continue and and until 419 00:21:59,640 --> 00:22:01,720 Speaker 1: you can't do it anymore. So what is the actual wall? 420 00:22:01,840 --> 00:22:04,240 Speaker 1: The wall is inflation. The wall is where a dollar 421 00:22:04,680 --> 00:22:08,320 Speaker 1: risk or bubbles that becomes so problematic. Right, those are 422 00:22:08,359 --> 00:22:11,159 Speaker 1: the walls that will prevent this from going on forever 423 00:22:11,880 --> 00:22:16,480 Speaker 1: and um and the dollar risk is particularly important to consider, 424 00:22:16,600 --> 00:22:18,760 Speaker 1: but it is worth focusing on the fact that it's 425 00:22:18,760 --> 00:22:22,080 Speaker 1: a differential. Um So it's relative. So the dollar, how 426 00:22:22,160 --> 00:22:24,520 Speaker 1: much of the dollar going to go down versus the Euro? Well, 427 00:22:24,760 --> 00:22:28,280 Speaker 1: Europe's printing money as well, So what's the what's the 428 00:22:28,359 --> 00:22:31,160 Speaker 1: relative risk. So for US, the courtesy thing is looking 429 00:22:31,200 --> 00:22:33,480 Speaker 1: at those differentials and the dollar. The US is on 430 00:22:33,600 --> 00:22:37,879 Speaker 1: a path so many countries have saved in dollars. They 431 00:22:38,000 --> 00:22:40,520 Speaker 1: recognize if you take China or others that you can 432 00:22:40,600 --> 00:22:42,960 Speaker 1: never get richer than the country that prints the money. 433 00:22:43,080 --> 00:22:45,920 Speaker 1: So if if they want to save in dollars, the 434 00:22:46,000 --> 00:22:49,000 Speaker 1: FED can tomorrow print more dollars than China could ever 435 00:22:49,040 --> 00:22:54,560 Speaker 1: accumulate by selling US um stuff. Right, So eventually you're seeing, 436 00:22:54,640 --> 00:22:57,359 Speaker 1: just from a geopolitical thing, that saving in dollars is 437 00:22:57,480 --> 00:23:01,760 Speaker 1: risky for anybody that's competitive with the US, and that 438 00:23:02,080 --> 00:23:04,080 Speaker 1: the fact that over time you're likely to see a 439 00:23:04,200 --> 00:23:06,720 Speaker 1: change and where money will be saved at the same 440 00:23:06,760 --> 00:23:09,560 Speaker 1: time you're likely to see more money printed. That's the 441 00:23:09,640 --> 00:23:12,480 Speaker 1: picture that eventually will lead to a decline in the dollar. 442 00:23:12,640 --> 00:23:15,159 Speaker 1: That could take a while as a reserve currency and 443 00:23:15,640 --> 00:23:18,040 Speaker 1: clide in the dollar, But in the short term, focusing 444 00:23:18,080 --> 00:23:21,359 Speaker 1: on those differentials and the most extreme differentials are not 445 00:23:21,520 --> 00:23:23,399 Speaker 1: within the developed currencies. It's really a lot of the 446 00:23:23,440 --> 00:23:26,080 Speaker 1: emerging world. Ironically, if you take a cuntry like Mexico, 447 00:23:26,560 --> 00:23:28,879 Speaker 1: you think of them as a kind of a monetary 448 00:23:28,960 --> 00:23:32,639 Speaker 1: basket case. Meanwhile, there's so much more conservative monetarily than 449 00:23:32,720 --> 00:23:36,000 Speaker 1: the than the US is running much lower budget deficits 450 00:23:36,080 --> 00:23:40,440 Speaker 1: and much less easy monetary policy into this. So you 451 00:23:40,520 --> 00:23:43,680 Speaker 1: have these emergent currencies that are actually the ones following 452 00:23:43,720 --> 00:23:47,280 Speaker 1: what would be traditional type monetary policy standards through a crisis, 453 00:23:47,560 --> 00:23:50,440 Speaker 1: and the developed world doing something very different. So I 454 00:23:50,560 --> 00:23:52,920 Speaker 1: think you'll likely, for a variety of reasons, have strengthened 455 00:23:52,920 --> 00:23:55,879 Speaker 1: some of those emerging currencies, particularly the ones that are 456 00:23:55,920 --> 00:23:57,800 Speaker 1: going to benefit from this growth surgeon in the US 457 00:23:57,920 --> 00:24:01,520 Speaker 1: that don't require very much you s dollar liquidity and 458 00:24:01,720 --> 00:24:04,080 Speaker 1: so um. So I think that's the place you'll see 459 00:24:04,080 --> 00:24:07,280 Speaker 1: the first really wave of strength, and more long term, 460 00:24:07,800 --> 00:24:13,240 Speaker 1: the issue you face is the is the fact that 461 00:24:13,400 --> 00:24:16,840 Speaker 1: the dollar reserve currency status is naturally changing, and the 462 00:24:16,920 --> 00:24:19,800 Speaker 1: printing of money and using the dollar as a weapon 463 00:24:20,160 --> 00:24:23,560 Speaker 1: geo politically is leading to a more rapid transition. So 464 00:24:23,680 --> 00:24:26,840 Speaker 1: those are the things certainly something that the FED will 465 00:24:26,880 --> 00:24:29,040 Speaker 1: be watching, but like you said, we're a long way 466 00:24:29,119 --> 00:24:30,800 Speaker 1: from the dollar being a problem with anything. The FED 467 00:24:30,840 --> 00:24:33,880 Speaker 1: would be happy to get a falling dollar from years. 468 00:24:33,880 --> 00:24:36,560 Speaker 1: So that's a longer term concern, not a shorter term concern, 469 00:24:36,800 --> 00:24:39,359 Speaker 1: but it will be a measure of whether we pushed 470 00:24:39,400 --> 00:24:43,040 Speaker 1: too hard. You know, Greg, I keep hearing a lot 471 00:24:43,119 --> 00:24:46,159 Speaker 1: of people talking about the notion of peak growth, that 472 00:24:46,800 --> 00:24:51,679 Speaker 1: this quarter may may possibly be the peak of GDP growth, 473 00:24:51,880 --> 00:24:54,720 Speaker 1: the peak of earnings growth, UM, if not this one 474 00:24:54,840 --> 00:24:58,160 Speaker 1: next quarter, UH, large part because of the base effects 475 00:24:58,640 --> 00:25:01,680 Speaker 1: from last year. And I guess for a lot of people, 476 00:25:01,720 --> 00:25:05,000 Speaker 1: the same thing applies to inflation, and the the notion 477 00:25:05,160 --> 00:25:08,840 Speaker 1: that UH any bump and inflation we see in the 478 00:25:08,920 --> 00:25:13,879 Speaker 1: middle of this year will be likely either UH caused 479 00:25:13,960 --> 00:25:16,720 Speaker 1: by the supply chain disruptions or the base effects from 480 00:25:16,800 --> 00:25:19,520 Speaker 1: last year. I think there's a little bit of recency 481 00:25:19,920 --> 00:25:23,080 Speaker 1: bias at work to UM. You know, everybody was so 482 00:25:23,240 --> 00:25:26,600 Speaker 1: worried about inflation during the first phase of chewey and 483 00:25:26,720 --> 00:25:29,600 Speaker 1: it didn't come to pass UH that people are kind 484 00:25:29,640 --> 00:25:32,040 Speaker 1: of assuming that's going to be the case UH this 485 00:25:32,200 --> 00:25:34,840 Speaker 1: time as well in the long run. I know you've 486 00:25:34,880 --> 00:25:37,320 Speaker 1: You've given a lot of thoughts to inflation, done a 487 00:25:37,359 --> 00:25:40,399 Speaker 1: lot of work on it, UH, specifically the role that 488 00:25:40,480 --> 00:25:46,960 Speaker 1: technology plays as a deflationary force, technology and automation and 489 00:25:47,280 --> 00:25:50,000 Speaker 1: that sort of thing. So I'm just kind of wondering 490 00:25:50,040 --> 00:25:53,080 Speaker 1: what your overall sense of inflation is this year. I mean, 491 00:25:53,200 --> 00:25:56,399 Speaker 1: is there a risk that that kind of consensus that 492 00:25:56,560 --> 00:26:00,359 Speaker 1: this is just a transitory hot period for inflation service 493 00:26:00,560 --> 00:26:03,440 Speaker 1: that that that's wrong, that this time is different from 494 00:26:03,480 --> 00:26:07,720 Speaker 1: the first phase of quity, and maybe that technology effect 495 00:26:07,880 --> 00:26:10,760 Speaker 1: on inflation will not be as strong as it used 496 00:26:10,760 --> 00:26:13,840 Speaker 1: to be. Well, there's a lot in there, so let 497 00:26:13,960 --> 00:26:16,480 Speaker 1: let me go backwards to the mechanics of That was 498 00:26:16,520 --> 00:26:19,280 Speaker 1: one of the twelve part questions. So let me go 499 00:26:19,359 --> 00:26:21,879 Speaker 1: backwards here for the the first part you said is, hey, 500 00:26:21,880 --> 00:26:23,879 Speaker 1: a lot of people thought that the first quit in 501 00:26:23,920 --> 00:26:26,320 Speaker 1: two thousand nine was going to be inflationary. To be clear, 502 00:26:26,359 --> 00:26:28,040 Speaker 1: we didn't. And let me talk about the mechanics of 503 00:26:28,119 --> 00:26:32,840 Speaker 1: why when you use quantitative easing to buy assets, and 504 00:26:32,960 --> 00:26:35,560 Speaker 1: you're doing that largely because there's a credit contraction, they 505 00:26:35,600 --> 00:26:38,119 Speaker 1: were off setting a correct credit contraction with money. The 506 00:26:38,160 --> 00:26:41,720 Speaker 1: credit contraction was massively deflationary, and the money off set that, 507 00:26:42,400 --> 00:26:45,240 Speaker 1: and when into asset prices, it only marginally went into 508 00:26:45,280 --> 00:26:47,679 Speaker 1: the real economy very different. So you saw a big 509 00:26:47,720 --> 00:26:49,600 Speaker 1: asset price move, but you didn't see a big move 510 00:26:49,640 --> 00:26:52,880 Speaker 1: in CPI. You come to this policy where you're writing 511 00:26:53,000 --> 00:26:56,879 Speaker 1: checks two people on the lower end of the income 512 00:26:56,920 --> 00:27:02,000 Speaker 1: spectrum um and you're doing a lot of infrastructure, and 513 00:27:02,160 --> 00:27:04,679 Speaker 1: you're printing the money to do those things. Totally different. 514 00:27:04,880 --> 00:27:07,200 Speaker 1: This is all of a sudden creating demand in the 515 00:27:07,320 --> 00:27:13,320 Speaker 1: real economy without creating supply. So there's no supply associated 516 00:27:13,359 --> 00:27:16,080 Speaker 1: with those checks, there's no new production, etcetera. It just 517 00:27:16,280 --> 00:27:18,639 Speaker 1: comes in. So you have this this mismatch. So the 518 00:27:19,119 --> 00:27:21,719 Speaker 1: belief that it's going to play out like post two 519 00:27:22,440 --> 00:27:24,920 Speaker 1: dozen tend I think is is wrong and that it 520 00:27:25,040 --> 00:27:27,560 Speaker 1: is being underestimated. How big a turning point we are 521 00:27:28,080 --> 00:27:30,280 Speaker 1: now if they pull back hard on fiscal and let's 522 00:27:30,280 --> 00:27:32,879 Speaker 1: say the Republicans win in two or whatever, and you 523 00:27:33,000 --> 00:27:35,000 Speaker 1: come back to the other direction on fiscal maybe that's 524 00:27:35,040 --> 00:27:37,040 Speaker 1: a different story. But if you go down this path 525 00:27:37,160 --> 00:27:39,480 Speaker 1: of printing money to spend in the real economy or 526 00:27:39,520 --> 00:27:41,640 Speaker 1: to get checks to people who have lower savings rates 527 00:27:41,680 --> 00:27:44,520 Speaker 1: in the highest end, there's very different than putting the 528 00:27:44,560 --> 00:27:47,399 Speaker 1: money into asset prices in terms of inflation in a 529 00:27:47,480 --> 00:27:49,639 Speaker 1: good way, like that's a good redistributed and there's a 530 00:27:49,680 --> 00:27:51,959 Speaker 1: lot of good in that, but it is different mechanically 531 00:27:52,480 --> 00:27:56,000 Speaker 1: from the effect on on prices. So that I make 532 00:27:56,080 --> 00:27:58,040 Speaker 1: that point first. So I do think there's a big 533 00:27:58,160 --> 00:28:01,240 Speaker 1: risk the market and the federal underestimating how fast this 534 00:28:01,359 --> 00:28:04,679 Speaker 1: will happen. And everything is happening in warp speed. If 535 00:28:04,720 --> 00:28:07,800 Speaker 1: you take the downturn in the Great Depression, right, it 536 00:28:07,880 --> 00:28:11,600 Speaker 1: took essentially um seven years to get to the bottom 537 00:28:11,600 --> 00:28:13,399 Speaker 1: of the economy and seven years to get back up. 538 00:28:13,760 --> 00:28:15,920 Speaker 1: That's how long it took for policy, etcetera. In the 539 00:28:15,960 --> 00:28:18,639 Speaker 1: financial crisis, you had eighteen months to the bottom, eighteen 540 00:28:18,680 --> 00:28:21,040 Speaker 1: months to come back up. In this crisis, you had, 541 00:28:21,359 --> 00:28:24,080 Speaker 1: you know, such an extreme policy response that within a 542 00:28:24,119 --> 00:28:26,320 Speaker 1: month and a half of the equity market collapse, you 543 00:28:26,400 --> 00:28:29,280 Speaker 1: were two months later. You're back essentially to the old highs. 544 00:28:29,680 --> 00:28:34,560 Speaker 1: Incredibly fast policy response, incredibly powerful, and the real economic 545 00:28:34,600 --> 00:28:37,160 Speaker 1: effect will be slower than that, but could be much 546 00:28:37,240 --> 00:28:39,600 Speaker 1: faster than what we're used to. And so I think 547 00:28:39,680 --> 00:28:41,760 Speaker 1: that there's a real risk that the inflation could be 548 00:28:41,800 --> 00:28:45,760 Speaker 1: stronger and more permanent, and that it's largely a big 549 00:28:45,840 --> 00:28:48,040 Speaker 1: part of the permanence will be the power of labor. 550 00:28:48,120 --> 00:28:51,240 Speaker 1: Here we're gonna be facing such a shortage of labor. 551 00:28:51,280 --> 00:28:53,400 Speaker 1: You're already seeing it all over the place, their shortages 552 00:28:53,480 --> 00:28:55,600 Speaker 1: of goods and stuff. But there'll be a shortage of 553 00:28:55,680 --> 00:28:58,720 Speaker 1: labor coming fast in the US and m that's a 554 00:28:58,760 --> 00:29:02,880 Speaker 1: big deal. And you've gotten now a big shift in 555 00:29:03,440 --> 00:29:05,760 Speaker 1: the philosophy of government, certainly for now in the US, 556 00:29:05,800 --> 00:29:08,000 Speaker 1: that you went forty years in a cycle of very 557 00:29:08,480 --> 00:29:12,400 Speaker 1: pro government policy, pro corporate policies and pretty much anti 558 00:29:12,520 --> 00:29:15,600 Speaker 1: labor policies for forty years, you have this turn, you know, 559 00:29:15,760 --> 00:29:19,640 Speaker 1: almost with the hilarious ending of like the president, the 560 00:29:19,720 --> 00:29:22,680 Speaker 1: last president checking stock prices and tweeting about them every 561 00:29:22,720 --> 00:29:26,240 Speaker 1: five minutes, um. As like the extreme of this very 562 00:29:26,400 --> 00:29:29,520 Speaker 1: pro corporate environment, all of a sudden shifting to a 563 00:29:29,600 --> 00:29:34,840 Speaker 1: different type of environment where regulation and taxes and um 564 00:29:35,000 --> 00:29:37,360 Speaker 1: likely eventually minimum wage and these things are going the 565 00:29:37,440 --> 00:29:41,160 Speaker 1: other direction from an extreme right and naturally will come 566 00:29:41,200 --> 00:29:44,600 Speaker 1: back to some degree in the other direction. So all 567 00:29:44,640 --> 00:29:46,480 Speaker 1: of those things are pointing in my mind to a 568 00:29:46,560 --> 00:29:51,680 Speaker 1: more inflationary and not just transitory, but a pretty big shift, um. 569 00:29:52,400 --> 00:29:55,240 Speaker 1: And then it will be it'll be hidden in the 570 00:29:55,320 --> 00:29:58,080 Speaker 1: transitory nature, much like inflation was in the seventies. When 571 00:29:58,120 --> 00:30:00,200 Speaker 1: the weal shot comes, is it going to go? Is 572 00:30:00,240 --> 00:30:02,080 Speaker 1: it going to stay? Of course, you don't want to 573 00:30:02,160 --> 00:30:03,800 Speaker 1: tighten into an oil shock if you don't have to 574 00:30:04,080 --> 00:30:07,240 Speaker 1: for good reasons. Similarly, the Fed's gonna look at this 575 00:30:07,400 --> 00:30:09,560 Speaker 1: year and say, do we really want to tighten into 576 00:30:09,600 --> 00:30:12,000 Speaker 1: a balance out of the virus, Like does that make sense? 577 00:30:12,280 --> 00:30:16,560 Speaker 1: But that's how inflation gets hardened, and and so I 578 00:30:16,640 --> 00:30:19,440 Speaker 1: do think you'll see that argument, the transitory versus not 579 00:30:19,640 --> 00:30:22,800 Speaker 1: argument be the big deal, as inflation is rising and 580 00:30:22,920 --> 00:30:25,200 Speaker 1: I do think we're stuck with more of it for 581 00:30:25,360 --> 00:30:29,160 Speaker 1: good reason. Now on the technology question that you ask, Yeah, 582 00:30:29,200 --> 00:30:31,960 Speaker 1: technology has been a major deflationary force. So if you 583 00:30:32,080 --> 00:30:34,840 Speaker 1: take the five major forces, the first most important turning 584 00:30:34,880 --> 00:30:38,240 Speaker 1: point force was central bank Pulsey high real yields drove 585 00:30:38,320 --> 00:30:41,640 Speaker 1: inflation down, vulcor driving real real high and letting the 586 00:30:41,720 --> 00:30:45,040 Speaker 1: economy go down until inflation came down. Big deal. So 587 00:30:45,400 --> 00:30:48,320 Speaker 1: first there was the change of monetary policy in starts 588 00:30:48,400 --> 00:30:52,040 Speaker 1: driving it. Then there's globalization so much taking advantage of 589 00:30:52,280 --> 00:30:55,800 Speaker 1: cheaper wages. There's also lower lower interest rates at tax 590 00:30:55,880 --> 00:30:59,520 Speaker 1: policy that allowed a pro corporate environment that constrained wages 591 00:30:59,560 --> 00:31:03,160 Speaker 1: so anti union um, and a very low regulatory environment 592 00:31:03,200 --> 00:31:06,760 Speaker 1: generally particularly in the US, but generally global um. Most 593 00:31:06,840 --> 00:31:10,200 Speaker 1: of those are changed, so you're left with technology as 594 00:31:10,240 --> 00:31:15,600 Speaker 1: the deflationary force, and two points about it. It's certainly 595 00:31:15,640 --> 00:31:21,920 Speaker 1: been significantly deflationary. The literal semiconductor impact of inflation is 596 00:31:21,960 --> 00:31:23,960 Speaker 1: starting to turn. It's getting harder and harder. We have 597 00:31:24,080 --> 00:31:27,040 Speaker 1: more concentrated semiconductor industry than ever in the world. It's 598 00:31:27,040 --> 00:31:29,200 Speaker 1: a big flashpoint in the world in terms of danger 599 00:31:29,320 --> 00:31:32,320 Speaker 1: that there's a risk to supplies from a geopolitical perspective. 600 00:31:32,680 --> 00:31:35,120 Speaker 1: So you went from let's say twenty years ago, where 601 00:31:35,160 --> 00:31:39,240 Speaker 1: you had you know, five firms competing to make the 602 00:31:39,320 --> 00:31:43,080 Speaker 1: cheapest semiconductors to now give three and it's not much 603 00:31:43,080 --> 00:31:45,920 Speaker 1: of a competition anymore. It's more of an oligopoly uh 604 00:31:46,520 --> 00:31:49,520 Speaker 1: and UM and a dangerous supply point where people are 605 00:31:49,560 --> 00:31:53,520 Speaker 1: turning to the sustainability rather than the cheapest possible supply chain. 606 00:31:53,880 --> 00:31:56,720 Speaker 1: So you've got a big deal thing there now. More generally, 607 00:31:56,800 --> 00:31:59,280 Speaker 1: I think tech will be deflationary. There's still great inventions 608 00:31:59,320 --> 00:32:02,280 Speaker 1: in AI and whatever they are coming, so there's deflationary forces, 609 00:32:03,120 --> 00:32:06,280 Speaker 1: and to some extent, policy wise, you want to take 610 00:32:06,440 --> 00:32:10,080 Speaker 1: technological deflation which goes to very few people the benefits 611 00:32:10,120 --> 00:32:12,520 Speaker 1: of it, and transfer it to all of society, or 612 00:32:12,560 --> 00:32:16,040 Speaker 1: else you're gonna end up in a dystopian kind of situation. 613 00:32:16,520 --> 00:32:18,320 Speaker 1: So that's sort of the best way to look at 614 00:32:18,320 --> 00:32:20,920 Speaker 1: the policy today as well. Let's take the technological deflation 615 00:32:21,320 --> 00:32:24,959 Speaker 1: and let's use it for society is good through um 616 00:32:25,240 --> 00:32:28,280 Speaker 1: monterary policy three, through essentially investing in the in the 617 00:32:28,560 --> 00:32:31,880 Speaker 1: economy and using printed money to do that to offset 618 00:32:31,920 --> 00:32:35,120 Speaker 1: the deflationary force. Now where we are on that, it 619 00:32:35,160 --> 00:32:37,840 Speaker 1: would look to me like we're pushing that to an extreme, 620 00:32:37,880 --> 00:32:39,400 Speaker 1: and you could do way too much of that. A 621 00:32:39,440 --> 00:32:41,280 Speaker 1: little bit of that is the right move, but you 622 00:32:41,320 --> 00:32:43,320 Speaker 1: get addicted on that, and too much of that more 623 00:32:43,400 --> 00:32:46,840 Speaker 1: than offset the technological deflation, which when I look at 624 00:32:46,840 --> 00:32:50,120 Speaker 1: the quantities, I would guess that's the case unless technological 625 00:32:50,200 --> 00:33:10,520 Speaker 1: deflation accelerates massively from here. Greg One follow up to 626 00:33:10,640 --> 00:33:13,120 Speaker 1: that is one of the things that a lot of 627 00:33:13,160 --> 00:33:14,920 Speaker 1: people have said to me is part of the reason 628 00:33:15,040 --> 00:33:18,520 Speaker 1: for the kind of secular low inflation environment was demographics 629 00:33:18,600 --> 00:33:21,320 Speaker 1: and low yields. Right, demographics. Somebody said to me the 630 00:33:21,400 --> 00:33:24,080 Speaker 1: other day, oh, ten thousand baby boomers are still retiring 631 00:33:24,640 --> 00:33:28,240 Speaker 1: all the time for the next decade. They needs to save. 632 00:33:28,480 --> 00:33:30,560 Speaker 1: And I think there are some folks who did like 633 00:33:30,680 --> 00:33:34,080 Speaker 1: theories that that that has kind of moved the the 634 00:33:34,640 --> 00:33:37,600 Speaker 1: bias towards future consumption over currently, I just want to 635 00:33:37,600 --> 00:33:40,360 Speaker 1: ask you about demographics. How do you think that weighs in? 636 00:33:40,600 --> 00:33:43,520 Speaker 1: Is that changing or how how will that affect kind 637 00:33:43,520 --> 00:33:47,400 Speaker 1: of the inflationary forces and yield. Well, I think it's 638 00:33:47,440 --> 00:33:52,920 Speaker 1: different for different um for different types of items. But 639 00:33:53,120 --> 00:33:57,160 Speaker 1: I agree, I agree demographics are part of the deflationary force. Now, 640 00:33:57,200 --> 00:34:00,440 Speaker 1: the demographics in different places are changing a different degrees, 641 00:34:00,520 --> 00:34:02,680 Speaker 1: and so if you take the emerging world in India, whatever, 642 00:34:02,720 --> 00:34:05,720 Speaker 1: you've got different things going on that an aggregate, I 643 00:34:05,760 --> 00:34:08,120 Speaker 1: don't think it's quite as deflationary as it was when 644 00:34:08,200 --> 00:34:10,160 Speaker 1: you see the shift in the demand towards the emerging 645 00:34:10,200 --> 00:34:14,640 Speaker 1: world from the developed world. But but um, you're right, 646 00:34:14,800 --> 00:34:19,200 Speaker 1: although that's shrinking the labor force relative to the consuming 647 00:34:19,840 --> 00:34:22,680 Speaker 1: bodies now to the extent of shrinks consumption more. That's 648 00:34:22,719 --> 00:34:25,479 Speaker 1: one thing. But as you age, you're shrinking the labor 649 00:34:25,560 --> 00:34:28,840 Speaker 1: force relative to everybody that has to be supported by 650 00:34:28,880 --> 00:34:31,920 Speaker 1: that labor force, and so it cuts both ways. The 651 00:34:32,000 --> 00:34:34,680 Speaker 1: thing it certainly doesn't real estate if you take the 652 00:34:34,760 --> 00:34:37,279 Speaker 1: Japan example, is like the classic is that you've got 653 00:34:37,320 --> 00:34:39,399 Speaker 1: a lot of real estate built up for one level 654 00:34:39,440 --> 00:34:42,600 Speaker 1: of population, you're shrinking that population, you have extra capacity. 655 00:34:43,239 --> 00:34:46,640 Speaker 1: Um So, so I think it's a mixed bag, and 656 00:34:46,920 --> 00:34:50,840 Speaker 1: it's a slow driving force of the disinflation pressures that 657 00:34:50,920 --> 00:34:54,359 Speaker 1: could easily be offset by these policies. And a lot 658 00:34:54,400 --> 00:34:56,640 Speaker 1: of times we get the question, the Japan question or whatever, 659 00:34:56,800 --> 00:34:59,239 Speaker 1: where well, then they run big deficits, and didn't they 660 00:34:59,440 --> 00:35:02,600 Speaker 1: print a lot money? They did nothing like this, Just 661 00:35:02,760 --> 00:35:05,319 Speaker 1: to be clear, while they ran somewhat big deficits, they 662 00:35:05,360 --> 00:35:07,719 Speaker 1: were largely due to low tax revenue, not due to 663 00:35:07,800 --> 00:35:10,680 Speaker 1: high standing huge difference in what the source of the 664 00:35:10,719 --> 00:35:13,080 Speaker 1: budget deficits it is. And then the second thing is 665 00:35:13,400 --> 00:35:16,000 Speaker 1: while they printed money, they didn't print anywhere the money 666 00:35:16,160 --> 00:35:18,759 Speaker 1: that were we printed recently until recently Japan starting to 667 00:35:18,800 --> 00:35:21,240 Speaker 1: print a fair amount of money. But so the actual 668 00:35:22,040 --> 00:35:25,799 Speaker 1: policies were muted relative to the inflationary forces and were 669 00:35:25,840 --> 00:35:31,120 Speaker 1: nowhere near as huge as these policies shifts on. So 670 00:35:31,160 --> 00:35:33,279 Speaker 1: it's easy to get lost in while it's a trillion dollars, 671 00:35:33,320 --> 00:35:35,680 Speaker 1: there are a trillion dollars there, the magnitude of what 672 00:35:35,880 --> 00:35:39,160 Speaker 1: is going on is you know, for the US is 673 00:35:39,280 --> 00:35:42,360 Speaker 1: nothing like this since World War Two. And similarly for 674 00:35:42,480 --> 00:35:44,640 Speaker 1: Japan and other countries, they didn't do anything like this. 675 00:35:45,080 --> 00:35:47,440 Speaker 1: While they had some of the same language, they weren't 676 00:35:47,480 --> 00:35:51,520 Speaker 1: doing the magnitude anywhere near these levels. You know, Greg, 677 00:35:51,760 --> 00:35:54,960 Speaker 1: this whole discussion, uh makes me think that it's it's 678 00:35:55,040 --> 00:35:59,560 Speaker 1: a very tricky time to allocate assets and decide where 679 00:35:59,600 --> 00:36:01,400 Speaker 1: you're gonna put your money to work. Listen and I 680 00:36:01,480 --> 00:36:04,080 Speaker 1: were joking earlier. She said she she feels like she 681 00:36:04,160 --> 00:36:06,400 Speaker 1: wants to put all her money under the mattress. I 682 00:36:06,480 --> 00:36:08,480 Speaker 1: can't do that because my kids will find it. Liz, 683 00:36:08,760 --> 00:36:11,880 Speaker 1: I'm afraid my kids will find it. But before we 684 00:36:11,920 --> 00:36:13,800 Speaker 1: got to the crazy things, I'm just wondering if quickly 685 00:36:13,880 --> 00:36:16,040 Speaker 1: you could give us sort of your big picture thoughts 686 00:36:16,200 --> 00:36:21,960 Speaker 1: on what proper asset class allocation looks like these days. Well, 687 00:36:21,960 --> 00:36:23,680 Speaker 1: maybe you should let your kids decide with to buy. 688 00:36:23,800 --> 00:36:26,960 Speaker 1: That says, that's been the right move for a while. 689 00:36:27,040 --> 00:36:32,200 Speaker 1: But but but the on the thing is, what we 690 00:36:32,239 --> 00:36:34,440 Speaker 1: certainly wouldn't do is put cash under the mattress. Like 691 00:36:34,520 --> 00:36:40,239 Speaker 1: the basic policy is to make cash be terrible, and 692 00:36:40,560 --> 00:36:43,000 Speaker 1: so cash is not safe. So the money under the 693 00:36:43,000 --> 00:36:45,680 Speaker 1: mattress is potentially the worst thing you could do, because 694 00:36:46,040 --> 00:36:50,520 Speaker 1: the policy is to make that money worthless or worth 695 00:36:50,600 --> 00:36:53,320 Speaker 1: less than it is today at least, And so what 696 00:36:53,400 --> 00:36:55,840 Speaker 1: do you do? I mean, this is an interesting world, right. 697 00:36:55,880 --> 00:36:57,480 Speaker 1: We have this conversation with our clients a lot, and 698 00:36:57,480 --> 00:37:00,600 Speaker 1: I'd say the big thing is realized. Not all the 699 00:37:00,680 --> 00:37:02,800 Speaker 1: world is the US. Not all the world is pursuing 700 00:37:02,840 --> 00:37:05,239 Speaker 1: these policies this way. So one of the things that's 701 00:37:05,280 --> 00:37:09,520 Speaker 1: missing in most portfolios is appropriate global diversification. Try is 702 00:37:09,560 --> 00:37:12,600 Speaker 1: facing other challenges, but very different than the US. Europe 703 00:37:12,600 --> 00:37:15,480 Speaker 1: is facing different challenges as well. So a globally diversified 704 00:37:15,520 --> 00:37:17,640 Speaker 1: portfolio that hasn't helped. In the last fifteen years, the 705 00:37:17,760 --> 00:37:21,239 Speaker 1: US has been dominant, and but if you look at 706 00:37:21,440 --> 00:37:24,560 Speaker 1: how those things rotate over time, almost always the best 707 00:37:24,680 --> 00:37:28,000 Speaker 1: country over the last decade is usually near the bottom 708 00:37:28,080 --> 00:37:31,040 Speaker 1: in the next decade. And so a that's first thing 709 00:37:31,239 --> 00:37:33,800 Speaker 1: is thinking about that. I think it's particularly important for 710 00:37:33,960 --> 00:37:37,319 Speaker 1: what who will benefit from a growth surge but less 711 00:37:37,360 --> 00:37:39,879 Speaker 1: liquidity The US has benefited. The assets in the US 712 00:37:40,120 --> 00:37:43,120 Speaker 1: particularly benefit from a high liquidity environment, and they benefit 713 00:37:43,239 --> 00:37:48,400 Speaker 1: less they have less essentially cyclical variability associated with the 714 00:37:48,480 --> 00:37:51,520 Speaker 1: nonl GDP. So look at who the marginal suppliers are. Anyway, 715 00:37:51,560 --> 00:37:53,680 Speaker 1: that all pushes you to a much more global allocation. 716 00:37:54,160 --> 00:37:58,520 Speaker 1: The second point would be environmental diversification. Are you prepared 717 00:37:59,000 --> 00:38:01,439 Speaker 1: for stagflation? It's the real risk, which is they push 718 00:38:01,440 --> 00:38:03,439 Speaker 1: hard to get the inflation and they can no longer 719 00:38:03,480 --> 00:38:06,239 Speaker 1: bail out asset prises. Do you have enough assets that 720 00:38:06,280 --> 00:38:09,479 Speaker 1: will be acceptable in that environment? And there's argument about 721 00:38:09,520 --> 00:38:12,000 Speaker 1: what those assets are, but but some mix of assets 722 00:38:12,080 --> 00:38:14,759 Speaker 1: that will do well in a stagflationary environment would be 723 00:38:14,840 --> 00:38:18,520 Speaker 1: really important. And generally nobody has those assets. Um So 724 00:38:18,719 --> 00:38:22,560 Speaker 1: those are um you know, those are the kind of 725 00:38:22,640 --> 00:38:24,680 Speaker 1: the big things that would come to mind in our 726 00:38:24,800 --> 00:38:27,200 Speaker 1: view of what that outset allocation should be. So more 727 00:38:27,239 --> 00:38:30,840 Speaker 1: global diversification and more assets that can protect you. And 728 00:38:31,000 --> 00:38:36,439 Speaker 1: probably the worst case is that stagflationary environment. Stand clear 729 00:38:36,560 --> 00:38:40,719 Speaker 1: of the craziest things we saw in markets this week, Well, 730 00:38:40,760 --> 00:38:44,000 Speaker 1: we're gonna diversify ourselves here into the craziest things we 731 00:38:44,080 --> 00:38:47,560 Speaker 1: saw in markets this week. Uh this is a offend 732 00:38:47,640 --> 00:38:50,600 Speaker 1: a listener favorite, Greg So uh So, no pressure, but 733 00:38:50,640 --> 00:38:52,000 Speaker 1: I hope, I hope you came with something good. But 734 00:38:52,120 --> 00:38:53,920 Speaker 1: let's let's start with you. What's the craziest thing you 735 00:38:54,000 --> 00:38:57,520 Speaker 1: saw this week in markets? Well? I think not that 736 00:38:57,600 --> 00:39:00,360 Speaker 1: we've never seen it before, but the Treasury Department today 737 00:39:00,560 --> 00:39:03,759 Speaker 1: sold four week bills at zero percent. So this kind 738 00:39:03,800 --> 00:39:05,719 Speaker 1: of speaks to all the liquidity in the market and 739 00:39:05,800 --> 00:39:08,080 Speaker 1: displite all the angst in the long end and whatever. 740 00:39:08,680 --> 00:39:11,759 Speaker 1: You know, the government is just selling treasuries at nothing. 741 00:39:12,000 --> 00:39:15,360 Speaker 1: So it's pretty mind bending to me. So do what 742 00:39:15,440 --> 00:39:18,000 Speaker 1: do you guys think? Where's the demand that's causing that? 743 00:39:18,480 --> 00:39:20,520 Speaker 1: I noticed a lot more money is going back into 744 00:39:20,760 --> 00:39:23,960 Speaker 1: money market funds. Do you think it's that Well? I 745 00:39:24,040 --> 00:39:26,319 Speaker 1: think yeah. I mean at that level, I think it's 746 00:39:26,400 --> 00:39:29,919 Speaker 1: known that the Fed's not tightening anytime soon, so there's 747 00:39:29,920 --> 00:39:32,760 Speaker 1: a bunch of buyers at that level for that period 748 00:39:32,800 --> 00:39:35,440 Speaker 1: of time. And so you see that, and you see 749 00:39:35,480 --> 00:39:38,400 Speaker 1: the need for different entities, banks and others to actually 750 00:39:38,480 --> 00:39:41,719 Speaker 1: hold those assets that way given the regulatory environment. So 751 00:39:41,840 --> 00:39:43,360 Speaker 1: you've got that it's gonna be a lot harder to 752 00:39:43,400 --> 00:39:45,880 Speaker 1: get the very long duration supply field, but at the 753 00:39:45,960 --> 00:39:47,760 Speaker 1: very short end, where you know you have the Feds 754 00:39:47,840 --> 00:39:52,239 Speaker 1: back um, is much easier to fill in. All right, Greig, 755 00:39:52,360 --> 00:39:58,680 Speaker 1: can you stop zero percent treasury bills for your crazy thing? Well, 756 00:39:58,800 --> 00:40:00,440 Speaker 1: just back to like buying the thing as your kids 757 00:40:00,480 --> 00:40:02,120 Speaker 1: would want to do with your money, I'd say the 758 00:40:02,520 --> 00:40:05,120 Speaker 1: you know, just an example. It's a little stretch from markets. 759 00:40:05,239 --> 00:40:08,440 Speaker 1: But one of the interesting phenomenons that is near and 760 00:40:08,480 --> 00:40:11,560 Speaker 1: dear to my youth is the bubble and baseball cards 761 00:40:11,600 --> 00:40:14,840 Speaker 1: it's going and so seeing a well this is how 762 00:40:14,880 --> 00:40:17,200 Speaker 1: football card is even more stretch. It's like the silver 763 00:40:17,320 --> 00:40:20,640 Speaker 1: to the gold here and uh Tom Brady carter that 764 00:40:20,719 --> 00:40:23,080 Speaker 1: sold for one point seven million dollars interesting enough, but 765 00:40:23,360 --> 00:40:27,920 Speaker 1: but sold in white coin. Um was a good example 766 00:40:27,960 --> 00:40:31,160 Speaker 1: of what's going on in terms of there's all this 767 00:40:31,280 --> 00:40:34,120 Speaker 1: new wealth, whether it's a cryptocurrency or new wealth created 768 00:40:34,160 --> 00:40:37,400 Speaker 1: by tech companies and such, and the money is pouring 769 00:40:37,760 --> 00:40:41,680 Speaker 1: from them, selling them selling those assets into the things 770 00:40:41,760 --> 00:40:43,480 Speaker 1: they want to buy. And so it's been a kind 771 00:40:43,520 --> 00:40:46,040 Speaker 1: of joke about it's like a bubble and everything nerdy. 772 00:40:46,239 --> 00:40:49,200 Speaker 1: So if you've got baseball cards, if you've got comic books, 773 00:40:49,200 --> 00:40:51,520 Speaker 1: if you've got old video games, I mean, it is 774 00:40:51,719 --> 00:40:54,759 Speaker 1: unbelievable what the market cap of those things are doing. 775 00:40:54,800 --> 00:40:56,640 Speaker 1: And that's part of what's happening. The new wealth gets 776 00:40:56,680 --> 00:40:59,400 Speaker 1: spent and it's where that money goes, and there's almost 777 00:40:59,480 --> 00:41:02,040 Speaker 1: no limit you have, you know, billions of dollars of 778 00:41:02,080 --> 00:41:05,160 Speaker 1: market captain dog going and like like they get buy 779 00:41:05,160 --> 00:41:08,280 Speaker 1: anything real in massive amounts. And that's what you're starting 780 00:41:08,320 --> 00:41:11,000 Speaker 1: to see is the people that held those assets starting 781 00:41:11,040 --> 00:41:13,040 Speaker 1: to cash out of those and buy something real. Where 782 00:41:13,080 --> 00:41:16,480 Speaker 1: there's the new phenomenon of recent buyers coming into those assets, 783 00:41:16,600 --> 00:41:20,279 Speaker 1: given cash to the people that are really originally produced them, 784 00:41:20,560 --> 00:41:24,920 Speaker 1: and that money is flooding everywhere, um and and realizing 785 00:41:25,480 --> 00:41:28,200 Speaker 1: what are those things that that money is gonna go by? 786 00:41:28,440 --> 00:41:31,839 Speaker 1: That's really been the the play recently. I I am. 787 00:41:32,000 --> 00:41:35,000 Speaker 1: I share your fascination with that. I love these crazy 788 00:41:35,080 --> 00:41:39,840 Speaker 1: collectibles that self for God knows what. I would love 789 00:41:39,920 --> 00:41:42,200 Speaker 1: to know from what city the person who bought the 790 00:41:42,280 --> 00:41:45,000 Speaker 1: Tom Brady card came from. I don't think it was Philadelphia, 791 00:41:45,080 --> 00:41:47,960 Speaker 1: New York list, but I probably probably Boston, I'm guessing. 792 00:41:48,440 --> 00:41:51,160 Speaker 1: But uh, but Greg, Mine's mine's in that same vein. 793 00:41:51,239 --> 00:41:55,320 Speaker 1: And one of my favorite things is, uh, collectible sneakers, 794 00:41:55,560 --> 00:41:57,560 Speaker 1: Not that I have any of myself. None of the 795 00:41:57,560 --> 00:41:59,880 Speaker 1: sneakers I've worn are collectible to trust me on that. 796 00:42:00,080 --> 00:42:03,399 Speaker 1: You you want to throw them away instantly. But two 797 00:42:03,640 --> 00:42:07,160 Speaker 1: pairs of Air Jordan's up for auction recently. One hasn't 798 00:42:07,280 --> 00:42:09,480 Speaker 1: gone auction yet, so we only know what the expected 799 00:42:09,600 --> 00:42:12,919 Speaker 1: value is. One has already gone to auction. The first 800 00:42:13,000 --> 00:42:18,360 Speaker 1: pair we're Air Jordan's, the very first pair of Air Jordan's, 801 00:42:18,440 --> 00:42:22,560 Speaker 1: or the first edition of them, weren't by Michael Jordan himself. Uh, 802 00:42:22,920 --> 00:42:26,440 Speaker 1: they're up for auction. The other pair was Kanye Wests 803 00:42:26,719 --> 00:42:30,480 Speaker 1: has a set of Air Jordan's out uh called I 804 00:42:30,560 --> 00:42:33,920 Speaker 1: believe they're called Yeasys. So the Air Jordan's ones and 805 00:42:34,000 --> 00:42:37,759 Speaker 1: the Air Easy ones. I want to make us a 806 00:42:37,840 --> 00:42:39,560 Speaker 1: quiz show for a little bit here. What do you guys, 807 00:42:39,680 --> 00:42:43,200 Speaker 1: which which pair do you think is more valuable? Kanye's 808 00:42:43,280 --> 00:42:49,560 Speaker 1: Jordan's were Jordan's, Jordan's Rookie Year, Jordan's Jordan's I think 809 00:42:49,560 --> 00:42:52,360 Speaker 1: you're asking because Kanye Is Jordan's are better. I'm just 810 00:42:52,440 --> 00:42:55,640 Speaker 1: going based on my judgment of you're asking the question. 811 00:42:56,640 --> 00:42:59,600 Speaker 1: It's the beha, it's the behavioral finance aspect that you 812 00:42:59,719 --> 00:43:01,480 Speaker 1: really have to get right, and and Greg got it 813 00:43:01,640 --> 00:43:06,040 Speaker 1: right that time. You're absolutely right. But the the spread 814 00:43:06,160 --> 00:43:08,680 Speaker 1: in prices is amazing. Granted, the Jordan the Air Jordan's 815 00:43:08,719 --> 00:43:11,200 Speaker 1: haven't gone on sale yet, but they're expected to get 816 00:43:11,239 --> 00:43:14,200 Speaker 1: as much as a hundred and sixty four thousand. The 817 00:43:14,480 --> 00:43:17,720 Speaker 1: air easies are already sold for one point eight million, 818 00:43:17,960 --> 00:43:21,920 Speaker 1: so ten times the price of Jordan's rookie sneakers. But 819 00:43:22,080 --> 00:43:23,800 Speaker 1: here's the crazy part. I haven't even gotten to the 820 00:43:23,880 --> 00:43:28,240 Speaker 1: real crazy part. The air easies weren't bought by a collector. 821 00:43:28,280 --> 00:43:32,359 Speaker 1: They're actually bought by a company called Rares and their 822 00:43:32,440 --> 00:43:36,080 Speaker 1: plan is to cut them up and sell fractional shares 823 00:43:36,360 --> 00:43:41,720 Speaker 1: of the air easies as investments to other people. So, uh, Greg, 824 00:43:41,719 --> 00:43:44,919 Speaker 1: I don't know if Bridgewaters in the market for say 825 00:43:44,960 --> 00:43:47,960 Speaker 1: the laces from from the air easies for for the portfolio. 826 00:43:48,520 --> 00:43:53,240 Speaker 1: My guess is no, Yeah, that's not quite our area 827 00:43:53,280 --> 00:43:55,719 Speaker 1: of expertise, but it is a good example of what's 828 00:43:55,760 --> 00:43:58,160 Speaker 1: going on. And when you have so much money in 829 00:43:58,320 --> 00:44:01,640 Speaker 1: financial assets, it will see go home in something and 830 00:44:01,960 --> 00:44:05,520 Speaker 1: um and that that shift is happening and that those 831 00:44:05,560 --> 00:44:07,800 Speaker 1: are those are good examples, and that's that's gonna be 832 00:44:07,880 --> 00:44:11,640 Speaker 1: the big phenomenon. And when there isn't enough money coming 833 00:44:11,680 --> 00:44:13,680 Speaker 1: into the financial assets, you're still going to have some 834 00:44:13,760 --> 00:44:16,040 Speaker 1: of that money coming out. And so that's gonna be 835 00:44:16,160 --> 00:44:18,040 Speaker 1: the kind of turning point because those people that have 836 00:44:18,120 --> 00:44:21,080 Speaker 1: accumulated wealth. What was the purpose of it other than 837 00:44:21,160 --> 00:44:23,440 Speaker 1: to do something with it at some point and so um, 838 00:44:23,880 --> 00:44:25,760 Speaker 1: So I think you'll see a lot more of crazy 839 00:44:25,800 --> 00:44:28,480 Speaker 1: stuff as people cash in this extreme amount of wealth 840 00:44:28,520 --> 00:44:31,600 Speaker 1: it's been accumulated recently. Absolutely reminds me of the old 841 00:44:31,680 --> 00:44:35,200 Speaker 1: movie Brewster's Million. Remember what h Richard Pryor was just 842 00:44:35,480 --> 00:44:38,440 Speaker 1: had to spend all the money. He bought a priceless 843 00:44:38,600 --> 00:44:41,320 Speaker 1: postage stamp and medal letter with it. You know, it 844 00:44:41,400 --> 00:44:43,320 Speaker 1: almost feels like that's what's going on when they're like, 845 00:44:43,400 --> 00:44:45,160 Speaker 1: if you can't keep it as an investment, so he 846 00:44:45,280 --> 00:44:49,120 Speaker 1: used it to mail you had to use. Um, maybe 847 00:44:49,160 --> 00:44:51,160 Speaker 1: I'll buy the easies and wearing arind. I can't afford 848 00:44:51,200 --> 00:44:53,280 Speaker 1: the easy the air easies, so I could. But anyway, 849 00:44:53,440 --> 00:44:57,040 Speaker 1: I think that is all our time. Liz McCormick, Greg Jensen, 850 00:44:57,480 --> 00:45:00,879 Speaker 1: such a great conversation. Thank you so much, fear time 851 00:45:00,920 --> 00:45:09,560 Speaker 1: and hopefully we can do it again. Thank you. What 852 00:45:09,680 --> 00:45:12,080 Speaker 1: goes up. We'll be back next week. Until then, you 853 00:45:12,120 --> 00:45:14,719 Speaker 1: can find us on the Bloomberg Terminal, website and app 854 00:45:14,880 --> 00:45:17,960 Speaker 1: wherever you get your podcasts. We'd love it if you 855 00:45:18,040 --> 00:45:20,000 Speaker 1: took the time to rate and review the show on 856 00:45:20,040 --> 00:45:23,640 Speaker 1: Apple Podcasts, so more listeners can find us, and you 857 00:45:23,680 --> 00:45:27,200 Speaker 1: can find us on Twitter follow me at Reaganonymous, and 858 00:45:27,280 --> 00:45:31,279 Speaker 1: Liz McCormick is at at McCormick Liz. You can also 859 00:45:31,360 --> 00:45:35,960 Speaker 1: follow Bloomberg Podcasts at podcasts I Think You To, Charlie Palette, 860 00:45:35,960 --> 00:45:37,839 Speaker 1: Bloomberg Radio, and the voice of the New York City 861 00:45:37,840 --> 00:45:41,480 Speaker 1: Subway System. What Goes Up is produced by Tofur Foreheads. 862 00:45:42,040 --> 00:45:45,800 Speaker 1: The head of Bloomberg Podcasts is Francesco Leviy. Thanks for listening, 863 00:45:45,920 --> 00:45:46,719 Speaker 1: See you next time.