WEBVTT - Perpetual Motion Stocks 0:00:03.720 --> 0:00:07.080 Scrap on your parachute. It's time for What Goes Up 0:00:07.360 --> 0:00:13.960 with Sarah Ponzick and Mike Reagan. Hello and welcome to 0:00:14.040 --> 0:00:17.720 What Goes Up, a Bloomberg weekly market podcast. I'm Sarah Post, 0:00:17.920 --> 0:00:20.880 a reporter on the Cross Asset team, and I'm Mike Reagan, 0:00:21.079 --> 0:00:26.040 a senior editor at Bloomberg and Sarah's faithful sidekick. So 0:00:26.079 --> 0:00:30.920 we're bringing that back now, new year, back to the old. 0:00:30.920 --> 0:00:33.879 We'll call it a game that's right, That's right this 0:00:33.920 --> 0:00:36.600 week on the show. It may seem cold, but in 0:00:36.600 --> 0:00:40.080 the COVID nineteen era, the stock market has rewarded companies 0:00:40.080 --> 0:00:42.880 that are labor light, that focused on intangible asset growth 0:00:43.200 --> 0:00:46.680 and digitization, at times at the expense of the human worker. 0:00:46.840 --> 0:00:49.480 In part, it's a fact that helps so the disconnect 0:00:49.520 --> 0:00:51.919 between the stock market and the economy of late a 0:00:51.960 --> 0:00:54.520 divide that was again on display this week as stocks 0:00:54.600 --> 0:00:57.960 rally to records while the US capital was being ambushed. 0:00:58.240 --> 0:01:00.120 Today we bring you a guest who really has been 0:01:00.160 --> 0:01:02.960 at the forefront of this type of analysis over the 0:01:03.040 --> 0:01:06.440 last year, and as always, will close out the episode 0:01:06.480 --> 0:01:10.000 with our tradition, the craziest thing I saw in markets 0:01:10.040 --> 0:01:12.800 this week, Um Sarah, I think we can all agree 0:01:12.959 --> 0:01:15.959 on what the craziest thing we all witnessed was this week. 0:01:16.800 --> 0:01:18.959 Whether or not the market reaction was crazy or not, 0:01:19.040 --> 0:01:21.840 I don't know. I don't know. This week was full 0:01:22.000 --> 0:01:26.600 of crazy things that is beginning in a very mike, 0:01:28.480 --> 0:01:31.200 God help us all, but anyway to help us make 0:01:31.240 --> 0:01:35.199 sense of it all. We're very happy to welcome back 0:01:35.200 --> 0:01:39.479 to the show. He's the director of Global macro Strategy 0:01:39.720 --> 0:01:44.199 at stone X Group. His name is Vincent de Luard. Vincent, 0:01:44.240 --> 0:01:47.520 welcome back to the show. Thanks hing me. It's always 0:01:47.520 --> 0:01:50.320 a pleasure to to see you and I love your podcast, 0:01:50.360 --> 0:01:54.520 so thank you, thank you, thank you. We're blushing, well 0:01:54.560 --> 0:01:58.680 you can't see we are, you can see ash. Whatever 0:01:58.720 --> 0:02:00.960 the sound of blushing is will We'll get the producer 0:02:00.960 --> 0:02:03.320 to add some sound effects. But uh, you know, if 0:02:03.320 --> 0:02:06.960 it's an UM yes, Sarah pointed out. Sarah and I 0:02:07.000 --> 0:02:10.239 are both sort of fascinated with this uh notion who 0:02:10.240 --> 0:02:11.880 came up with this year that how it's a it's 0:02:11.880 --> 0:02:16.000 a bear market for humans UM based basically on how 0:02:16.360 --> 0:02:19.840 the stocks of companies that do not really rely as 0:02:19.919 --> 0:02:23.280 much on their human employees did so well this year 0:02:23.360 --> 0:02:27.280 compared UM to the rest of the market, and you know, 0:02:27.320 --> 0:02:31.639 specifically companies that that are much more reliant on human capital. 0:02:32.639 --> 0:02:36.600 I I'm fascinated with this because I think it has 0:02:36.720 --> 0:02:41.560 ramifications well beyond the stock market. Um and Sarah will 0:02:41.560 --> 0:02:43.880 tell you. That means I'm I'm winding up here for 0:02:43.919 --> 0:02:48.240 like a twelve part question for you. But I know, yes, yes, 0:02:48.440 --> 0:02:50.440 actually I won't make it a question. I'm just gonna 0:02:50.480 --> 0:02:53.600 monologue like like a supervillain in a hero in a movie. 0:02:54.040 --> 0:02:56.760 And uh, and you tell me, yeah, even better, you 0:02:56.800 --> 0:02:58.639 tell me where I'm right and wrong about this. But 0:02:59.840 --> 0:03:02.600 I do think we can connect this back to the 0:03:02.639 --> 0:03:05.960 events of the week, um and and hear me out, 0:03:06.000 --> 0:03:11.200 because obviously, the whole history of economic progress is littered 0:03:11.240 --> 0:03:15.119 with examples of what appeared to be very barish elements 0:03:15.120 --> 0:03:17.320 for for labor in the short term, you know, whether 0:03:17.360 --> 0:03:20.800 it be the printing press back in the fourteen hundreds 0:03:20.919 --> 0:03:23.800 or the cotton gin in the eighteen hundreds, all of 0:03:23.840 --> 0:03:28.280 this stuff seemed to, you know, basically disrupt a big 0:03:28.320 --> 0:03:32.359 source of the way people work, you know, their jobs, 0:03:32.400 --> 0:03:36.640 their labor. Um the last twenty years, I gotta say, 0:03:36.800 --> 0:03:41.880 um feels like that issue. But on steroids. Um, just 0:03:41.960 --> 0:03:46.320 with the the continued automation of everything that continued, you know, uh, 0:03:46.960 --> 0:03:51.360 move to retail online, on and on and on. And 0:03:51.400 --> 0:03:52.960 I wonder, you know, and this might take you a 0:03:53.000 --> 0:03:56.320 little bit out of your your comfort zone, but um, 0:03:56.360 --> 0:03:58.600 I wonder if if the events of this week and 0:03:58.600 --> 0:04:00.800 even of the last four year, is this sort of 0:04:01.520 --> 0:04:05.960 this embrace of economic nationalism is part of that story. 0:04:06.240 --> 0:04:08.440 You know, I know it's not a market story itself, 0:04:08.480 --> 0:04:12.920 but uh, you know, people blame sort of the economic 0:04:13.000 --> 0:04:17.200 anxiety on what's created economic nationalism. You know, I don't 0:04:17.200 --> 0:04:20.479 want to mix that up with sort of the other 0:04:20.520 --> 0:04:26.839 motivations that are are you know, uh, sort of scarier, 0:04:26.880 --> 0:04:29.839 whether it be racism or xenophobia and that sort of thing. 0:04:29.880 --> 0:04:33.560 But I do think the you know, this notion that 0:04:33.640 --> 0:04:38.560 the the opportunity set for the sort of average American 0:04:38.640 --> 0:04:41.800 labor feels like it's gone down a lot in recent years. 0:04:43.120 --> 0:04:45.560 Am I crazy to sort of connect those two dots 0:04:45.600 --> 0:04:49.520 that this this sweeping nationalism we've seen um and the 0:04:49.560 --> 0:04:51.760 bear market for humans are are sort of joined at 0:04:51.800 --> 0:04:55.520 the hip, are sort of the same story in some way. No, absolutely, 0:04:55.760 --> 0:04:57.960 I'm actually glad you burned that out. And I mean 0:04:59.600 --> 0:05:01.960 a st from the day to day market, but I 0:05:02.000 --> 0:05:06.159 think it's externally important. I actually I remember writing that 0:05:06.200 --> 0:05:10.320 piece at the Trump election looking at the percentage of 0:05:10.400 --> 0:05:14.719 drivers truck drivers in the in the counties versus the 0:05:14.760 --> 0:05:18.320 Trump vote, and that was a you know, people had 0:05:18.320 --> 0:05:20.200 come up with like a bunch of indicators. I think 0:05:20.200 --> 0:05:24.560 one of them was like whole foods, whether the county 0:05:24.560 --> 0:05:28.840 at the whole foods versus a cracker barrel, as as 0:05:28.839 --> 0:05:31.680 a predictor of Democrat versus Republican. Another one that that 0:05:31.760 --> 0:05:34.440 showed really well was two of them which I think 0:05:34.440 --> 0:05:36.479 are relevant to a point, how many truck drivers you 0:05:36.520 --> 0:05:41.800 had and the percentage of Chinese imports from that county. Um. 0:05:42.760 --> 0:05:44.880 And I think, you know, looking at the Trump phenomenon 0:05:44.920 --> 0:05:48.560 for these lands of fear about automation, fear that you know, 0:05:48.640 --> 0:05:51.839 and I think that's you know, it's not expressed correctly, 0:05:52.320 --> 0:05:55.480 but a lot of the fears are we is there 0:05:55.520 --> 0:05:57.880 a place in this country for me? Is there something 0:05:57.920 --> 0:06:00.040 that I can do? And if we've been everything on 0:06:00.240 --> 0:06:02.240 to race and to being a soul loser. And I'm 0:06:02.240 --> 0:06:04.080 not saying these things are not there, because it definitely are. 0:06:04.560 --> 0:06:07.800 But we also need to not miss what I think 0:06:08.400 --> 0:06:10.400 trumps Um truly was about, which was, you know, the 0:06:10.400 --> 0:06:14.640 forgotten man and the prospects for for you know, I 0:06:14.680 --> 0:06:17.839 guess for them became as a as a light of hope. 0:06:18.360 --> 0:06:21.040 And four years in we had this pandemic which further 0:06:21.080 --> 0:06:25.360 accelerated these trends that we talked about, automation, artificial intelligence, 0:06:25.520 --> 0:06:28.600 demise of human bear market for humans. And I think 0:06:28.600 --> 0:06:32.560 this was some sort of a curious apathosis of this movement, 0:06:34.480 --> 0:06:38.640 the curious events that happened. Do you suppose there's any 0:06:38.720 --> 0:06:41.560 chance of this sort of rebounding ricocheting back into the 0:06:41.600 --> 0:06:44.919 markets itself. You know, it's kind of hard to identify 0:06:45.000 --> 0:06:48.800 tipping points in real time, but to me, this week 0:06:48.880 --> 0:06:52.479 kind of feels like a tipping point at least culturally, politically, 0:06:52.839 --> 0:06:55.159 um in a lot of other ways. And I wonder, 0:06:55.320 --> 0:06:58.240 you know, I wonder if there are if there is 0:06:58.279 --> 0:07:01.960 the potential for sort of a backlash UM, whether be 0:07:02.040 --> 0:07:07.040 amongst the E. S G. Prone type of investors, regulators 0:07:07.520 --> 0:07:10.080 looking at Amazon sort of running rough shot over over 0:07:10.640 --> 0:07:14.680 the retail industry. Right, Okay, I think the regulation is 0:07:14.760 --> 0:07:19.440 far far, you know, regulators is far does not understand 0:07:19.480 --> 0:07:22.400 these issues UH and and the SG movement I think 0:07:22.400 --> 0:07:27.240 contributes to that. I actually had a piece following the 0:07:27.440 --> 0:07:29.600 work with Donald Sarah on the on the Bare Market 0:07:29.640 --> 0:07:33.840 for Humans, on how E s G makes the problem worse. UH. 0:07:34.520 --> 0:07:36.720 So what I did is I looked at the I 0:07:36.760 --> 0:07:40.840 think the largest thirty E s D funds equity funds 0:07:40.840 --> 0:07:44.320 in the US, and I compare their holdings UH to 0:07:44.680 --> 0:07:46.720 the rest of free thousand. And I look at the 0:07:46.800 --> 0:07:51.040 number of employees UH and the the average eh D company, 0:07:51.440 --> 0:07:53.800 so that the one the highest eh ranking, he's about 0:07:53.840 --> 0:07:56.600 thirty percent smaller than the average restauran three thousand. In 0:07:56.680 --> 0:07:59.360 spite far the biggest difference. I mean there are other 0:07:59.440 --> 0:08:02.200 small different and is like they're more profitable. Uh. They 0:08:02.200 --> 0:08:04.880 generally have better balance sheet, so there's a quality tilt 0:08:04.920 --> 0:08:08.080 which has helped them in But by and large they 0:08:08.120 --> 0:08:10.520 are companies that trans human. And again, think about how 0:08:10.560 --> 0:08:12.920 E s G works, Right, I mean that the carbony, 0:08:13.040 --> 0:08:15.680 the corbon impact of these our master card is is zero. Right, 0:08:15.680 --> 0:08:18.280 it's a financial network or the same throw Microsoft. The 0:08:18.320 --> 0:08:20.560 whole which companies can afford to be good to their 0:08:20.560 --> 0:08:23.080 workers is going to be Again, things like Microsoft that 0:08:23.120 --> 0:08:26.840 are very profitable big tech monopolies. So structurally here she 0:08:27.120 --> 0:08:31.240 is actually biased against humans and rewards the company that 0:08:31.280 --> 0:08:33.920 are already benefiting from all the strengths. So as we 0:08:34.040 --> 0:08:36.360 she more capital towards e h G phone, I think 0:08:36.360 --> 0:08:39.080 we are making the problem a lot worse. And if 0:08:39.120 --> 0:08:40.960 I were, you know, running an E s G company, 0:08:41.000 --> 0:08:43.360 I would really focus on the S and s is. 0:08:43.480 --> 0:08:46.200 You know, before you can worry about how good your 0:08:46.240 --> 0:08:49.240 governance is and and you know labor issues. Do you 0:08:49.320 --> 0:08:51.400 have workers? I think the first good thing you can 0:08:51.440 --> 0:08:54.079 do for for humans is to give them jobs. Uh. 0:08:54.200 --> 0:08:57.600 And so far sc IS is actually challenging companies towards 0:08:58.400 --> 0:09:03.760 companies that either have future to join. Yeah, it's certainly 0:09:03.800 --> 0:09:06.760 a contrarian view right now in a way to view 0:09:06.800 --> 0:09:09.559 E s G at a time when so many are 0:09:09.600 --> 0:09:13.840 pushing behind it. So thanks to you, Vincent, I've written 0:09:13.880 --> 0:09:16.320 a lot about this topic over the last year, and 0:09:16.679 --> 0:09:19.600 you created this factor where you look at intangible assets 0:09:19.800 --> 0:09:23.360 versus the amount of employees that are hired at a company, 0:09:23.480 --> 0:09:25.599 and at the end of the year, uh, around the 0:09:25.640 --> 0:09:28.440 numbers for me and the spread between companies that rely 0:09:28.559 --> 0:09:33.040 more untangible assets versus human labor versus those that rely 0:09:33.200 --> 0:09:36.719 more on human capital was twenty seven percentage points. And 0:09:37.000 --> 0:09:40.439 I want to turn to how you're viewing where markets 0:09:40.440 --> 0:09:42.560 go from here. I'm looking at your outlook right now 0:09:42.559 --> 0:09:46.520 for one, and I'll read part of this for our listeners. Um, 0:09:46.640 --> 0:09:50.480 you expect demand for returns to real goods, so well 0:09:50.480 --> 0:09:53.000 that demand will return to real goods. And you say 0:09:53.040 --> 0:09:55.360 the great disinflation of the past decade was at least 0:09:55.360 --> 0:09:58.680 partially attributable to the rise of digital goods. Contrary to 0:09:58.720 --> 0:10:01.800 their real world counter parts, digital goods have almost no 0:10:01.880 --> 0:10:05.120 marginal cost and their consumption is non exclusive. And then 0:10:05.200 --> 0:10:06.959 you go on to say that the vaccine will surely 0:10:07.000 --> 0:10:12.079 invert this trend, at least temporarily. So I'm curious this 0:10:12.360 --> 0:10:15.640 reversion of the trend, what's it actually going to look like? 0:10:15.679 --> 0:10:17.920 And you say at least temporarily, how long does it 0:10:17.960 --> 0:10:20.200 actually last? Wait? Sorry, sorry, I got a butt in 0:10:20.240 --> 0:10:22.600 a minute here. You left out the funniest line in 0:10:22.720 --> 0:10:26.080 his report that that followed that I couldn't read it. 0:10:26.200 --> 0:10:30.680 You read it, he says. He says the money which 0:10:30.720 --> 0:10:35.000 was spent on Netflix subscriptions, premium accounts, on Headspace, and 0:10:35.080 --> 0:10:39.520 don't donations on only fans. We'll go back to bars, restaurants, 0:10:39.679 --> 0:10:42.800 strip clubs, and the other venues where humans can numb 0:10:43.160 --> 0:10:47.280 their ex exstential angst. Wow, Vincent, that's a that's a 0:10:47.400 --> 0:10:49.160 very French way of looking at things, I would have 0:10:49.200 --> 0:10:51.880 to say. I'll also point out the fact that every 0:10:51.880 --> 0:10:54.400 time I tried to forward your notes, Vincent to Mike, 0:10:54.840 --> 0:11:01.160 I got flagged on Bloomer and I kept clicking send anyway. Anyway, 0:11:02.720 --> 0:11:05.400 But but talk to us about that that this you know, 0:11:05.440 --> 0:11:10.000 you're expecting a obviously, this snap back into spending on 0:11:10.080 --> 0:11:14.400 real world stuff, you know, less on digital whatever, whatever, 0:11:14.440 --> 0:11:20.520 your favorite digital time waster of choices. But before we 0:11:20.559 --> 0:11:22.480 get to that, you're expecting a real SOFTS patch and 0:11:22.600 --> 0:11:25.480 the soft spot in the economy in the first quarter, 0:11:25.720 --> 0:11:28.480 possibly even a double dip recession. So talk us through 0:11:28.520 --> 0:11:30.800 that whole outlook. And sorry to button there, Sorry, but 0:11:30.840 --> 0:11:32.440 I had to get that. I had to get that 0:11:32.480 --> 0:11:37.120 part in you're forgetting. Yeah, yeah, So I'm I'm gonna 0:11:37.160 --> 0:11:39.599 do the the outlook and then then we got to 0:11:39.640 --> 0:11:43.000 go into the stars question. So on the outlook at 0:11:43.600 --> 0:11:45.599 I think what we're looking at today is kind of 0:11:45.640 --> 0:11:48.559 the mirror opposite of of the late seventies, early eighties 0:11:49.040 --> 0:11:50.880 where it's a it's a period of transition, so in 0:11:50.920 --> 0:11:54.640 the early late seventies, early eighties or transition from inflation 0:11:54.760 --> 0:11:58.600 to disinflation, um. And this year is a transipent from 0:11:58.640 --> 0:12:02.400 disinflation or even after a deflation to inflation secular inflation. 0:12:02.440 --> 0:12:04.880 So that's kind of like the seculdar. You Now, if 0:12:04.880 --> 0:12:08.640 you remember eight eight one eighty two, there were a 0:12:08.679 --> 0:12:10.600 couple of inflation scares, like if you look at the 0:12:10.600 --> 0:12:14.280 Fed funds rate, it really got jacked up almost needlessly 0:12:14.800 --> 0:12:18.200 to do I think close to eighteen percent uh in 0:12:18.360 --> 0:12:21.640 ain eighty one, and that triggered an economic recession. So 0:12:21.840 --> 0:12:25.040 it's not uncommon as as you reach the end of 0:12:25.080 --> 0:12:29.480 a cycle to one last year, So in the seventh 0:12:29.520 --> 0:12:32.320 and the early eighties it was inflation fears uh. And 0:12:32.360 --> 0:12:34.880 I think this year we're gonna have think could be 0:12:34.920 --> 0:12:36.920 I don't know, it's not looking that way right now, 0:12:36.960 --> 0:12:39.640 but we we could see maybe my expectation would would 0:12:39.679 --> 0:12:42.760 see some some deflation fears again in H one because 0:12:42.840 --> 0:12:46.560 the impact of the lockdowns is still going to be felt, 0:12:47.240 --> 0:12:50.640 especially if you look at at cernaal commodities market like oil. Yes, 0:12:50.679 --> 0:12:52.719 it's greatly. We're adding at fifty one. But I mean, 0:12:52.800 --> 0:12:55.480 if you have all of Europe under lockdown, if you 0:12:55.559 --> 0:12:57.720 have you know, we had a record record deaf Again, 0:12:57.760 --> 0:13:00.560 I think yesterday. It's going to take some time for 0:13:00.640 --> 0:13:03.200 the vaccines to be rolled out, and in that time 0:13:03.240 --> 0:13:06.199 the economic destruction to create the illusion that we are 0:13:06.240 --> 0:13:09.560 still in that own environment of more deflation, more constuption 0:13:09.600 --> 0:13:12.880 online and things like that. And then my guess is 0:13:12.920 --> 0:13:15.600 at by maybe q Q two already Q three, then 0:13:15.600 --> 0:13:18.559 acceleration really starts popping up, and then accelerats or second 0:13:18.600 --> 0:13:21.200 inflation in the second half and then towards and at 0:13:21.040 --> 0:13:24.560 the end of the decade. UM. Now, let me let 0:13:24.600 --> 0:13:27.560 me answer Sarah's question on on digital overs is really good. 0:13:27.920 --> 0:13:31.280 So one of the reasons why I look at it 0:13:31.440 --> 0:13:35.640 is um because I view the consumption of digital goods 0:13:35.679 --> 0:13:39.560 as deflationary. So when your marginal dollar goes to digital goods, 0:13:39.679 --> 0:13:42.160 which have no marginal costs, you can just you know, 0:13:42.200 --> 0:13:45.160 the normal laws of supplant demand on the plant, right, 0:13:45.160 --> 0:13:47.559 you can keep consuming. You know, it doesn't matter how 0:13:47.559 --> 0:13:49.720 many people are watching the same movie on Netflix at 0:13:49.760 --> 0:13:52.320 the same time that there is no cost. Now, if 0:13:52.320 --> 0:13:54.440 people go to the movie there. Instead, you need to 0:13:54.440 --> 0:13:57.360 be more theaters, you need to hire more workers, and 0:13:57.400 --> 0:14:02.440 that creates inflation because you you're consuming really real goods. Um. 0:14:02.600 --> 0:14:05.480 The reason why I expect that shift is just just 0:14:05.559 --> 0:14:08.800 what what we saw in Europe this summer. Europe was 0:14:08.840 --> 0:14:11.560 a really good, good death case in my opinion, because 0:14:11.559 --> 0:14:15.320 we had you know, very nasty uh lockdowns in in 0:14:15.400 --> 0:14:18.240 Q one twenty and then by Q two it was 0:14:18.320 --> 0:14:22.400 over and then most things opened. Uh. Europe was opened 0:14:22.400 --> 0:14:24.760 for vacation this summer. I mean the Americans couldn't get there, 0:14:24.800 --> 0:14:28.240 but everywhere everyone else at a great time. Uh. And 0:14:28.640 --> 0:14:31.800 you look at the restaurant's booking, for example, in Germany, 0:14:31.840 --> 0:14:34.920 they were twenty percent over the prior year, so we 0:14:34.960 --> 0:14:37.760 actually had a better tourism season. And who would have 0:14:37.760 --> 0:14:40.640 thought that? Uh? And I think that talks to that 0:14:40.640 --> 0:14:44.320 that desire somewhat natural right after being cooked up in 0:14:44.360 --> 0:14:47.360 your house, you want to experience thing again. No, you 0:14:47.400 --> 0:14:49.200 don't want to do another Netflix and shield, you want 0:14:49.200 --> 0:14:51.120 to go to the movie. You want to go to 0:14:51.280 --> 0:14:55.120 two two restaurants, um or you know other venue where 0:14:55.160 --> 0:14:57.840 you can numb the existent cell of tanks stuff of 0:14:57.920 --> 0:15:11.280 being a human. I love that line. So, like you said, 0:15:11.280 --> 0:15:13.000 I mean, there's plenty of pent up demand. We hear 0:15:13.040 --> 0:15:14.680 this all the time. The savings right in the US 0:15:14.800 --> 0:15:17.360 is extraordinarily high right now. But how long does this 0:15:17.400 --> 0:15:20.120 trend last? I asked, just because it's underpinning what seems 0:15:20.200 --> 0:15:23.160 like a consensus understanding of where the barkets are going 0:15:23.160 --> 0:15:24.880 to go from here, and that being the fact that 0:15:24.920 --> 0:15:27.760 we're going to see cyclical assets rally. We're going to 0:15:27.840 --> 0:15:31.760 see old economy, real world assets lead this market higher. 0:15:32.320 --> 0:15:35.040 But what I'm really curious about is how long does 0:15:35.080 --> 0:15:38.080 that last? For? I mean, eventually do we turn back 0:15:38.200 --> 0:15:40.880 to this world that we've been living in where people 0:15:40.920 --> 0:15:44.160 continue to pour into companies and assets that rely on 0:15:44.240 --> 0:15:48.280 digitization and automation. Uh. And just this this trend that 0:15:48.320 --> 0:15:51.360 we've seen for years now and was just accelerated this 0:15:51.440 --> 0:15:55.280 year during COVID, And that's the next question. And I 0:15:55.320 --> 0:15:57.840 think that kind of helps us um deal with what 0:15:57.880 --> 0:16:01.280 I called the Schrodinger's market. You know, Shroddinger's cat, right, 0:16:01.280 --> 0:16:04.360 it's both dead and life at the same time. UM. 0:16:04.400 --> 0:16:06.280 I feel that about the market today. We have a 0:16:06.280 --> 0:16:08.480 Shroddinger market where if you look at the work from 0:16:08.480 --> 0:16:11.880 home in DF since November it's up thirty percent. And 0:16:11.920 --> 0:16:14.640 if you look at the reopening stops there are fully percent. 0:16:14.960 --> 0:16:18.920 So both things seem to be going at the same time. Um, 0:16:19.640 --> 0:16:22.840 and I think that that's a timeframe matter, right. I mean, 0:16:22.880 --> 0:16:25.680 if you just look at the next year, I think, 0:16:25.800 --> 0:16:27.800 you know, reopen easy office one. But then you can 0:16:27.840 --> 0:16:29.840 make the case as you do that maybe it's just 0:16:29.920 --> 0:16:31.440 a blip, like a flash in the pan, and then 0:16:31.440 --> 0:16:33.960 everything will go back to normal. I'm not in that. 0:16:34.560 --> 0:16:37.080 I'm not in that camp. I think that once you 0:16:37.160 --> 0:16:41.200 start a political transformation or secular transformation, like we are 0:16:42.080 --> 0:16:44.720 a lot of the ideas that that came up during 0:16:44.720 --> 0:16:47.720 the pandemic, the overtoned window if you want, as as 0:16:47.800 --> 0:16:51.320 as opened universal basic income, I think this is going 0:16:51.360 --> 0:16:53.600 to be it's going to have to happen. I mean 0:16:53.640 --> 0:16:55.800 we see the Stamish check. You know it's six No 0:16:55.880 --> 0:16:58.360 two thousand and after that there's going to be need 0:16:58.360 --> 0:17:00.760 to be more a student non council a s, a 0:17:00.800 --> 0:17:02.640 start at home, like the idea to pay a thick 0:17:02.680 --> 0:17:04.879 in thousand people so people can buy home, so that 0:17:04.960 --> 0:17:07.960 the notion that the government should use the central bank 0:17:08.000 --> 0:17:12.440 in order to achieve social and economic objectives explicitly, which 0:17:12.520 --> 0:17:15.800 is basically m MT. I think this is happening UM, 0:17:16.520 --> 0:17:19.240 and that's what that will keep the trend going. I 0:17:19.280 --> 0:17:21.480 really doubt that a year from now will go back 0:17:21.480 --> 0:17:24.960 to austerity. I do not see, you know, a key 0:17:25.000 --> 0:17:28.520 party movement arise from the ashes in in UH for 0:17:28.640 --> 0:17:32.040 the next mid term. We are, I think at a 0:17:32.119 --> 0:17:36.760 secular transition in terms of monetory versus fistical, in terms 0:17:36.800 --> 0:17:40.560 of wealth concentration versus wealth distribution UH, and in terms 0:17:40.560 --> 0:17:45.119 of inflate inflation to inflation well universal basic in the 0:17:45.200 --> 0:17:48.359 Revenge of the Yang Gang, I haven't heard about that 0:17:48.359 --> 0:17:50.960 in a while, but it makes sense. Listen. I don't 0:17:51.000 --> 0:17:54.240 think Sarah has any existential angst. I think she's all 0:17:54.359 --> 0:17:59.480 existential joy Sarah's are right. My exist state central angst 0:17:59.560 --> 0:18:01.280 right now is I don't know if you can see 0:18:01.359 --> 0:18:04.800 what My puppy behind me is eating everything in sight 0:18:04.880 --> 0:18:06.560 and I'm just trying to make sure that my apartment 0:18:06.600 --> 0:18:10.959 doesn't cover. But we all have our own existential angst 0:18:10.960 --> 0:18:13.480 that we we struggle with. But if it's so, I 0:18:13.520 --> 0:18:16.200 want to get UH. Speaking of angst, I I feel 0:18:16.200 --> 0:18:20.040 like the word inflation UM is such a sort of 0:18:20.080 --> 0:18:24.199 red flag word for the markets. Obviously, it's spooks stock 0:18:24.280 --> 0:18:28.840 market investors to think about the prospect of secular inflation 0:18:28.880 --> 0:18:32.000 like you're describing. Um. You know, you wrote in one 0:18:32.000 --> 0:18:34.880 note that and how and and this has been observed 0:18:34.880 --> 0:18:37.359 by a lot of people obviously that valuations tend to 0:18:37.960 --> 0:18:40.480 compress in periods of high inflation. You know, I think 0:18:40.520 --> 0:18:43.680 back of the Peter Lynch roll a twenty thing, which 0:18:43.720 --> 0:18:47.520 is maybe an oversimplified idea, but basically that the the 0:18:47.600 --> 0:18:52.040 P plus the cp I rate should equal twenty in 0:18:52.119 --> 0:18:54.879 sort of a fair market. Obviously, we're way past that 0:18:54.920 --> 0:18:58.159 point now. I mean we're peas you know, in the 0:18:58.280 --> 0:19:02.480 in the thirties, uh on the indexes. UM. But I'm 0:19:02.520 --> 0:19:06.040 curious how you see it's shaping out with equities this 0:19:06.119 --> 0:19:09.760 year specifically, because UM, that is a tried and true 0:19:09.800 --> 0:19:15.200 relationship that that high inflationary regimes tend to compress multiples. UM. 0:19:15.840 --> 0:19:18.920 But I wonder is it inflation itself that compresses the 0:19:19.000 --> 0:19:21.680 multiple or is it the assumption that interest rates are 0:19:21.680 --> 0:19:23.960 going to rise and that the Fed is gonna sort 0:19:23.960 --> 0:19:27.200 of remove the punch bowl that that does it to 0:19:27.560 --> 0:19:31.080 two valuations? And and in the scenario this year where 0:19:31.119 --> 0:19:34.240 the FED has indicated it's it's willing to let inflation 0:19:34.320 --> 0:19:37.960 run a little bit hot. Um. Is it sort of 0:19:38.320 --> 0:19:43.160 a different regime this year, a change from that relationship? Um? 0:19:43.240 --> 0:19:45.040 And I suppose a lot of it will depend on 0:19:45.160 --> 0:19:47.920 how much clarity we get from the FED about exactly 0:19:47.960 --> 0:19:51.400 how hot they'll let inflation go and for how long. 0:19:51.760 --> 0:19:56.080 But but how are you sort of viewing that whole issue? 0:19:56.800 --> 0:20:00.560 I think here and that's the only way I can 0:20:00.600 --> 0:20:04.200 make sense of this rally is I think most people 0:20:04.240 --> 0:20:06.960 by now, I figured that inflasion. You know, I made 0:20:07.000 --> 0:20:09.720 that invasion call, you know, eight months ago, and I 0:20:09.760 --> 0:20:12.159 look crazy. Now It's it's everywhere, right, you see, you 0:20:12.240 --> 0:20:14.000 see in copper prices, you see a big corner with 0:20:14.160 --> 0:20:18.040 your gold even inflasion, expectation break events rightly rising about 0:20:18.080 --> 0:20:22.320 two percent dollar index breaking Biddle ninety or at fifty. 0:20:22.480 --> 0:20:25.280 I mean, there's so many, so many triggers, even though 0:20:25.320 --> 0:20:27.399 the tenure rising about one. I mean, in two thousand 0:20:27.400 --> 0:20:30.240 and twenty one, we had so many key level that broke, 0:20:31.080 --> 0:20:33.560 which kind of just you know, go go go towards 0:20:33.600 --> 0:20:36.840 my direction of a high inflasion. Um. Of course, you 0:20:36.880 --> 0:20:39.040 know the part that I would have expected is the 0:20:39.080 --> 0:20:41.600 multiple compression is not happening. And I think that's precisely 0:20:41.600 --> 0:20:44.040 what you're saying, is why do multiple compress when you 0:20:44.119 --> 0:20:46.640 have inflation? Because you know people expect the fat to titan. Well, 0:20:46.720 --> 0:20:48.679 what if we have inflasion and the fat does not 0:20:48.840 --> 0:20:53.200 tighten um and it's surprised. There's a shocking amount of 0:20:53.720 --> 0:20:56.479 if we follow through, if you really read the speech 0:20:56.560 --> 0:20:59.479 by by power, by events, what you see behind it 0:20:59.560 --> 0:21:02.840 is an ocean and GDP nominal GDP targeting. Uh, the 0:21:02.960 --> 0:21:05.080 idea that the facts you kind of dropped the inflation 0:21:05.119 --> 0:21:07.359 target and instead of focused on on on on the 0:21:07.440 --> 0:21:09.920 level of nominal GDP. Depending on how you said that, 0:21:10.320 --> 0:21:13.240 And I just ran an experiment. If you assume that 0:21:13.400 --> 0:21:17.640 trend growth for was nominal GP between seven and then 0:21:17.680 --> 0:21:19.800 you would have to you would have kept going linearly 0:21:19.880 --> 0:21:23.520 like that GDP today would be fifty percent higher. So 0:21:23.880 --> 0:21:26.040 they can actually, I mean, if you really want to 0:21:26.080 --> 0:21:29.240 push it like crazy, you could say, well, we need 0:21:29.320 --> 0:21:34.560 a decade of seven percent inflation to get back to 0:21:34.720 --> 0:21:37.479 where we should have been absent on the financial crisis, 0:21:37.560 --> 0:21:40.440 absent COVID. So if the FED is really serious about 0:21:40.480 --> 0:21:44.760 this um, it's possible that that that inflation ran much 0:21:44.800 --> 0:21:49.359 harder than people expect for much longer um. And then 0:21:49.400 --> 0:21:51.160 that really gives us an in person on the situation. 0:21:51.200 --> 0:21:53.000 I mean, the analysis that you refer to is based 0:21:53.000 --> 0:21:55.120 on the seventies. Went back in the seventies, I think 0:21:55.160 --> 0:21:57.920 Burns was the the Thatch chairman. He actually raised rates. 0:21:57.920 --> 0:22:00.399 I mean real rates were positive, the rates get up 0:22:00.400 --> 0:22:03.080 within flash. In the seventies, we may have something completely 0:22:03.080 --> 0:22:05.240 different where you see in fashion pick up and rate 0:22:05.320 --> 0:22:07.919 stay low. Now, my expectation is that what happens is 0:22:07.920 --> 0:22:10.879