1 00:00:09,000 --> 00:00:12,360 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:12,400 --> 00:00:17,680 Speaker 1: I'm Joe Wisenthal and I'm so tracy. Remember a few 3 00:00:17,920 --> 00:00:20,239 Speaker 1: weeks ago or a few months ago, when we had 4 00:00:20,280 --> 00:00:23,840 Speaker 1: that episode about how the bond bull market might come 5 00:00:23,880 --> 00:00:27,440 Speaker 1: to a disastrous halt and people might lose billions all 6 00:00:27,440 --> 00:00:31,360 Speaker 1: over the world a few months ago. I know, it's 7 00:00:31,400 --> 00:00:34,640 Speaker 1: been a long year so far. At least it feels 8 00:00:34,680 --> 00:00:38,000 Speaker 1: like a long time. But it was only just in January, right, 9 00:00:38,680 --> 00:00:41,000 Speaker 1: Oh man, has it really been that recently? It has 10 00:00:41,040 --> 00:00:44,360 Speaker 1: been a longer, That's my excuse. So we talked to 11 00:00:44,840 --> 00:00:48,480 Speaker 1: we talked on that episode to Paul Schmeltzing. He's a 12 00:00:48,479 --> 00:00:52,120 Speaker 1: at Harvard University and a researcher at the Bank of England, 13 00:00:52,560 --> 00:00:55,800 Speaker 1: and he had a very interesting sort of theory about 14 00:00:55,840 --> 00:01:00,480 Speaker 1: how this incredible bond bull market that we've seen come 15 00:01:00,560 --> 00:01:05,520 Speaker 1: to a disastrous halt via some combination of inflation and 16 00:01:05,600 --> 00:01:08,600 Speaker 1: banks having to liquidate their bond holdings, and was all 17 00:01:08,600 --> 00:01:12,280 Speaker 1: pretty gloomy. Yeah. Well, you know, I'm a sucker for 18 00:01:12,400 --> 00:01:15,240 Speaker 1: financial market history. So the thing I really liked about 19 00:01:15,319 --> 00:01:19,000 Speaker 1: that conversation was that he went back over eight hundred 20 00:01:19,160 --> 00:01:22,800 Speaker 1: years of bond market history, to draw an analogy with 21 00:01:22,880 --> 00:01:26,600 Speaker 1: the current situation today and basically made a big call 22 00:01:27,080 --> 00:01:30,400 Speaker 1: saying that we could have a bond market massacre. That's 23 00:01:30,480 --> 00:01:35,080 Speaker 1: probably one of the worst um we've ever seen. Right, absolutely, 24 00:01:35,120 --> 00:01:39,160 Speaker 1: So here's the good news, though, uh not everyone agrees 25 00:01:39,240 --> 00:01:42,080 Speaker 1: with Paul. And in fact, today we're going to do 26 00:01:42,240 --> 00:01:45,880 Speaker 1: a follow up episode and we're going to talk to 27 00:01:45,920 --> 00:01:49,320 Speaker 1: someone who takes the opposite view that there is no 28 00:01:50,360 --> 00:01:55,200 Speaker 1: bond market disaster in the in the offering, great, let 29 00:01:55,240 --> 00:01:57,880 Speaker 1: it never be said that we don't present both sides 30 00:01:57,920 --> 00:02:00,600 Speaker 1: of the story, right Joe, exactly, Even if someone has 31 00:02:00,640 --> 00:02:02,520 Speaker 1: to wait several months or maybe in this case just 32 00:02:02,560 --> 00:02:05,160 Speaker 1: a few weeks, even if you have to wait a while, 33 00:02:05,320 --> 00:02:08,440 Speaker 1: we always like to have the opposite argument on the 34 00:02:08,440 --> 00:02:12,280 Speaker 1: Odd Lots podcast. So with us today to discuss this 35 00:02:12,320 --> 00:02:15,080 Speaker 1: is Screeny vas to A Vedanta of the Jerome Levy 36 00:02:15,120 --> 00:02:20,320 Speaker 1: Forecasting Center, and recently he wrote a piece of research 37 00:02:20,480 --> 00:02:26,560 Speaker 1: arguing directly against Paul Schmeltzing's argument, and he explains why 38 00:02:26,639 --> 00:02:31,000 Speaker 1: the bond market is not in some massively precarious state 39 00:02:31,360 --> 00:02:32,960 Speaker 1: and ready for a sell off. So I say we 40 00:02:33,400 --> 00:02:36,360 Speaker 1: get to his argument. Yeah, I'm intrigued. Let's get him 41 00:02:36,360 --> 00:02:48,000 Speaker 1: on right. S three of us thank you very much 42 00:02:48,000 --> 00:02:51,760 Speaker 1: for joining us on the Odd Lots podcast. So, uh, 43 00:02:52,000 --> 00:02:55,519 Speaker 1: first of all, let's let's talk about the Paul's piece, 44 00:02:55,600 --> 00:02:58,679 Speaker 1: so he argued he in this blog post that got 45 00:02:58,680 --> 00:03:02,239 Speaker 1: shared quite widely from the Bank of England, he looked 46 00:03:02,240 --> 00:03:06,280 Speaker 1: at historical bond market sell offs and he noted that 47 00:03:06,280 --> 00:03:09,400 Speaker 1: there are a few different kinds of bond market sell offs. 48 00:03:09,560 --> 00:03:13,320 Speaker 1: Some have to do with the credit worthiness of the 49 00:03:13,400 --> 00:03:17,560 Speaker 1: issuer the sovereign, some have to do with inflation, some 50 00:03:17,600 --> 00:03:22,799 Speaker 1: are more technical, and he sort of zeroed in on 51 00:03:22,840 --> 00:03:26,120 Speaker 1: this idea that in the sixties we had this episode 52 00:03:26,160 --> 00:03:29,600 Speaker 1: of an intent bond market sell off due to inflation, 53 00:03:30,440 --> 00:03:33,160 Speaker 1: and that there are also similarities to the early two 54 00:03:33,200 --> 00:03:37,760 Speaker 1: thousand's in Japan what he called a value at risk shock. Um, 55 00:03:37,880 --> 00:03:41,960 Speaker 1: you don't really find the analogies helpful, so tell us 56 00:03:42,000 --> 00:03:45,960 Speaker 1: about your work. Uh. So, you know, I am also 57 00:03:46,000 --> 00:03:49,200 Speaker 1: a soccer for long history. But in the case of 58 00:03:49,200 --> 00:03:52,000 Speaker 1: the bond market. You know, the problem with long history 59 00:03:52,120 --> 00:03:55,160 Speaker 1: is that we are in a world of fiat currency, 60 00:03:55,600 --> 00:03:57,960 Speaker 1: which is really existed for forty years. And even if 61 00:03:58,000 --> 00:04:02,000 Speaker 1: you include the history and early from the gold standard 62 00:04:02,080 --> 00:04:04,280 Speaker 1: end of the gold Senate data and thirty four. You know, 63 00:04:04,320 --> 00:04:08,760 Speaker 1: you could say seventy years. But the problem with the 64 00:04:08,840 --> 00:04:12,200 Speaker 1: pre pre gold stepparent, the pre World War era is 65 00:04:12,240 --> 00:04:14,920 Speaker 1: that most of the time there was a credit risk 66 00:04:14,960 --> 00:04:17,000 Speaker 1: for sovereigns because they had to convert it into gold. 67 00:04:17,360 --> 00:04:19,279 Speaker 1: So so this is a really key point that I 68 00:04:19,320 --> 00:04:22,080 Speaker 1: just want to make sure people understand, which is that 69 00:04:23,000 --> 00:04:27,160 Speaker 1: when governments were on the gold standard, there was actually 70 00:04:27,240 --> 00:04:29,080 Speaker 1: a risk that they could just run out of money, 71 00:04:29,120 --> 00:04:31,080 Speaker 1: so that they were kind of like a company in 72 00:04:31,080 --> 00:04:33,479 Speaker 1: that regards that you lend money to a company, the 73 00:04:33,520 --> 00:04:38,680 Speaker 1: company might go bankrupt. Now, with governments mostly on fiat currency, 74 00:04:39,360 --> 00:04:41,880 Speaker 1: there are still risks, but they're not about running out 75 00:04:41,880 --> 00:04:43,960 Speaker 1: of money because fiat money can just be sort of 76 00:04:44,000 --> 00:04:47,640 Speaker 1: created massively. And so in other words, you look back 77 00:04:47,760 --> 00:04:51,640 Speaker 1: eight hundred years back when we were on the gold standard, 78 00:04:51,800 --> 00:04:55,039 Speaker 1: those just aren't really comparable there, they are not comparable. 79 00:04:55,360 --> 00:04:58,680 Speaker 1: Um So, so the real issue is we're we're looking 80 00:04:58,720 --> 00:05:00,719 Speaker 1: at the post World War two his three in terms 81 00:05:00,720 --> 00:05:03,600 Speaker 1: of trying to understand and understand the bond market, and 82 00:05:03,680 --> 00:05:07,680 Speaker 1: so he's the main comparison is to the late sixties. 83 00:05:07,680 --> 00:05:10,520 Speaker 1: People are worried mostly about a long term bond sell off. 84 00:05:10,560 --> 00:05:12,400 Speaker 1: They're not worried about a one time cell off like 85 00:05:12,440 --> 00:05:14,760 Speaker 1: we've had this year, I mean last year, and we 86 00:05:14,800 --> 00:05:17,400 Speaker 1: had in two thousand thirteen as well. UM. I mean 87 00:05:17,440 --> 00:05:19,719 Speaker 1: it is pretty stomach prenching because a bond investor is 88 00:05:19,760 --> 00:05:23,240 Speaker 1: not the one who's used to volatility, of course, But 89 00:05:24,680 --> 00:05:27,440 Speaker 1: so what is the difference key differences between the nineteen 90 00:05:27,480 --> 00:05:30,680 Speaker 1: sixties and today. So if you go back to the sixties, 91 00:05:30,720 --> 00:05:33,719 Speaker 1: and I was just looking at the data, the US 92 00:05:33,760 --> 00:05:37,400 Speaker 1: unemployment rate was I think less than four Now you 93 00:05:37,440 --> 00:05:39,360 Speaker 1: would say that we are pretty close to it. But 94 00:05:39,720 --> 00:05:45,119 Speaker 1: there's just no comparison between the late sixties labor market 95 00:05:45,160 --> 00:05:47,480 Speaker 1: in terms of tightness in today, just based on the 96 00:05:47,560 --> 00:05:49,560 Speaker 1: unemployment rate. And the reason is if you look at 97 00:05:49,600 --> 00:05:52,680 Speaker 1: the participation rate for prime age meals it was not 98 00:05:53,880 --> 00:05:55,919 Speaker 1: everybody who had who had a job and wanted a 99 00:05:56,000 --> 00:05:59,440 Speaker 1: job had a job pretty much. Um. That's not the 100 00:05:59,440 --> 00:06:04,440 Speaker 1: case today. UM. And the unemployment rate clearly understates the 101 00:06:04,520 --> 00:06:07,000 Speaker 1: level of slack that is there in the economy. Number two, 102 00:06:07,000 --> 00:06:11,000 Speaker 1: if you look at the global conditions, they were even tighter. Um. 103 00:06:11,160 --> 00:06:13,599 Speaker 1: Germany had a sub one on one person unemployment rate 104 00:06:13,640 --> 00:06:15,760 Speaker 1: at one point in Japan had less than two percent. 105 00:06:16,480 --> 00:06:19,320 Speaker 1: All over the developed world, you had the labor markets 106 00:06:19,320 --> 00:06:22,400 Speaker 1: were drum tight. They were in fact importing guest workers 107 00:06:22,440 --> 00:06:25,120 Speaker 1: in Germany at that time. Um, people, It might seem 108 00:06:25,200 --> 00:06:26,880 Speaker 1: really strange in this day where we want to shut 109 00:06:26,880 --> 00:06:30,160 Speaker 1: down immigration, but they were importing guest workers. And if 110 00:06:30,200 --> 00:06:32,280 Speaker 1: you look at the capacity utilization rates, they were all 111 00:06:32,360 --> 00:06:35,440 Speaker 1: not of I mean pretty much there was no spare capacity, 112 00:06:35,880 --> 00:06:39,040 Speaker 1: so so companies. I mean, the labor had bargaining power 113 00:06:39,320 --> 00:06:41,760 Speaker 1: and companies had pricing power, so there could be the 114 00:06:41,880 --> 00:06:44,920 Speaker 1: pass through and a wage price inflation, which you need 115 00:06:44,960 --> 00:06:47,680 Speaker 1: for inflation to pick up. All the conditions were there. 116 00:06:48,200 --> 00:06:52,039 Speaker 1: On top of that, you also had a situation where 117 00:06:52,080 --> 00:06:56,480 Speaker 1: the FED was accommodative. I mean, if the FED says no, 118 00:06:56,600 --> 00:06:58,640 Speaker 1: I'm not going to accommodate anything, and they're going to 119 00:06:59,320 --> 00:07:02,440 Speaker 1: raise rates moment I see some inflation pick up, then 120 00:07:02,480 --> 00:07:04,440 Speaker 1: you're not going to get the You're not going to 121 00:07:04,480 --> 00:07:06,000 Speaker 1: even if you have a wage price spiral, it's not 122 00:07:06,040 --> 00:07:10,320 Speaker 1: going to get started, right. Um. Somewhere around the sixties 123 00:07:10,400 --> 00:07:13,080 Speaker 1: late sixties, the FED started to change its don't for 124 00:07:13,240 --> 00:07:17,000 Speaker 1: whatever reasons, Maybe they didn't fully understand, but I don't 125 00:07:17,000 --> 00:07:19,200 Speaker 1: know that. It's not like they didn't fully understand. They 126 00:07:19,200 --> 00:07:21,920 Speaker 1: didn't understand. If you look at Arthur Burns, there was 127 00:07:21,960 --> 00:07:25,160 Speaker 1: a recent paper in one of the FEDS. He was 128 00:07:25,360 --> 00:07:28,320 Speaker 1: really sophisticated, not the caricature that's made out to be. 129 00:07:28,480 --> 00:07:33,080 Speaker 1: He was incredibly sophisticated. But he he thought that more 130 00:07:33,160 --> 00:07:35,480 Speaker 1: needed to be jar done and the cost of doing 131 00:07:35,520 --> 00:07:37,920 Speaker 1: it via monetary policy would be expensive in terms of 132 00:07:37,960 --> 00:07:42,280 Speaker 1: unemployment certain of us. Could you maybe just elaborate on 133 00:07:42,480 --> 00:07:48,120 Speaker 1: the link between UM, spare capacity and treasuries because I'm 134 00:07:48,160 --> 00:07:53,040 Speaker 1: not sure I entirely follow your your thinking on that point. Okay, 135 00:07:53,160 --> 00:07:56,480 Speaker 1: So to get a long term treasury sell off like 136 00:07:56,520 --> 00:08:00,080 Speaker 1: the sixties seven to seventy one cell off that that 137 00:08:00,080 --> 00:08:03,240 Speaker 1: that Paul was talking about, Um, you need inflation to 138 00:08:03,240 --> 00:08:05,800 Speaker 1: pick up. You need to have sustained pickup inflation. Otherwise 139 00:08:05,840 --> 00:08:07,360 Speaker 1: you're not going to get a treasury sell off. If 140 00:08:07,400 --> 00:08:10,800 Speaker 1: inflation hangs around two percent, there's no reason for treasuries 141 00:08:10,800 --> 00:08:13,920 Speaker 1: to sell off. Um, And what are the conditions that 142 00:08:14,080 --> 00:08:18,280 Speaker 1: lead to a sustained increase in inflation. You need tight 143 00:08:18,360 --> 00:08:22,400 Speaker 1: labor markets and labor bargaining power. You need tight capacity 144 00:08:22,480 --> 00:08:25,000 Speaker 1: so that the the labor costs can be passed on 145 00:08:25,480 --> 00:08:29,200 Speaker 1: into prices um and you know, of course that sets 146 00:08:29,200 --> 00:08:32,000 Speaker 1: off the wage price spiral. But if you that that 147 00:08:32,080 --> 00:08:33,880 Speaker 1: alone is not enough, I mean affect needs to be 148 00:08:33,880 --> 00:08:37,760 Speaker 1: accommodative of higher inflation for whatever other considerations they may have. 149 00:08:38,200 --> 00:08:40,839 Speaker 1: Another point that you bring up in your work are 150 00:08:40,880 --> 00:08:44,079 Speaker 1: the financial conditions you first, you talk about the real 151 00:08:44,160 --> 00:08:47,360 Speaker 1: conditions are being very different. There's a lot more spare capacity, 152 00:08:47,840 --> 00:08:50,640 Speaker 1: spare labor globally than there is now. You also say 153 00:08:50,720 --> 00:08:53,640 Speaker 1: that financial conditions today are much different than they were 154 00:08:53,640 --> 00:08:56,800 Speaker 1: in the nineties sixties. Explain how they're different and why 155 00:08:56,840 --> 00:08:59,800 Speaker 1: this two is important. Okay, So, if you look at 156 00:08:59,840 --> 00:09:02,640 Speaker 1: the private sector balance sheets, whether in the US or globally, 157 00:09:03,240 --> 00:09:05,839 Speaker 1: which is both the asset side and the debt side 158 00:09:06,200 --> 00:09:09,880 Speaker 1: scale to GDP UM, they're very big. You know, the 159 00:09:09,920 --> 00:09:12,920 Speaker 1: assets to GDPs at a record level. Debt to GDPs 160 00:09:12,920 --> 00:09:16,520 Speaker 1: private sector is not a record but close to it um. 161 00:09:16,600 --> 00:09:18,439 Speaker 1: So the other way to think about it is GDP 162 00:09:18,679 --> 00:09:21,680 Speaker 1: is a broad measure of income in the economy. Income 163 00:09:22,080 --> 00:09:25,480 Speaker 1: as a percentage of the assets as a base is low, 164 00:09:25,960 --> 00:09:31,200 Speaker 1: right um. Now, the income servicing the debt and the 165 00:09:31,240 --> 00:09:35,120 Speaker 1: assets is low. So if you're hiking the interest rates. 166 00:09:35,559 --> 00:09:39,040 Speaker 1: The interest rates are going up, then for the leverage players, 167 00:09:39,200 --> 00:09:42,360 Speaker 1: you know you're now makes it less and less viable. 168 00:09:42,480 --> 00:09:44,000 Speaker 1: The other way to think about it is, if interest 169 00:09:44,080 --> 00:09:47,400 Speaker 1: rates go up, valuations have to come down. Right. But 170 00:09:47,480 --> 00:09:49,959 Speaker 1: when the balance sheet is big, the economy is no 171 00:09:50,000 --> 00:09:53,640 Speaker 1: longer functioning like a normal economy, or the word normal 172 00:09:53,720 --> 00:09:56,120 Speaker 1: is very bad. Let's let's just there, like the economy 173 00:09:56,120 --> 00:09:58,320 Speaker 1: in the sixties, where you could focus on the real 174 00:09:58,320 --> 00:10:01,160 Speaker 1: sector and ignore the balance cheats because the balance sheets 175 00:10:01,160 --> 00:10:04,120 Speaker 1: are a function of the economy rather than the tail 176 00:10:04,160 --> 00:10:06,760 Speaker 1: wagging the dog. But when balance sheets are big, you're 177 00:10:06,800 --> 00:10:09,280 Speaker 1: getting a strong feedback loop from both sides. In fact, 178 00:10:09,320 --> 00:10:12,040 Speaker 1: the balance sheets areted are having a preponderant effect on 179 00:10:12,040 --> 00:10:15,440 Speaker 1: the economy, like wealth effects or like the housing bubble, right, 180 00:10:15,480 --> 00:10:19,080 Speaker 1: you know the Then then it starts affecting the real 181 00:10:19,120 --> 00:10:21,720 Speaker 1: economy in a meaningful way. Now you have to start 182 00:10:21,760 --> 00:10:24,880 Speaker 1: worrying about what the impact of If you have inflation 183 00:10:24,960 --> 00:10:27,079 Speaker 1: and the fear of inflation and interest rates go up, 184 00:10:27,360 --> 00:10:29,120 Speaker 1: what does it do to debt service, what does it 185 00:10:29,160 --> 00:10:31,920 Speaker 1: do to asset valuations? And then the feedback into wealth 186 00:10:31,960 --> 00:10:34,800 Speaker 1: effects and ability to borrow? I mean I was hoping 187 00:10:34,840 --> 00:10:38,200 Speaker 1: for a kind of cheery picture and a rebuttle of 188 00:10:38,240 --> 00:10:41,760 Speaker 1: the bond market massacre thesis, which this is. But it's 189 00:10:41,760 --> 00:10:46,599 Speaker 1: not exactly optimistic because you're arguing that essentially the economy 190 00:10:46,800 --> 00:10:50,360 Speaker 1: remains super fragile and we have lingering risks in the 191 00:10:50,440 --> 00:10:56,000 Speaker 1: financial system and um certainly sort of vulnerable borrowers who 192 00:10:56,040 --> 00:10:57,800 Speaker 1: would be in a lot of pain if we did 193 00:10:57,840 --> 00:11:00,800 Speaker 1: get a sharp rise in interest rate. It's it's not 194 00:11:00,960 --> 00:11:05,200 Speaker 1: it's not a happy scenario. Well, happy depends on who 195 00:11:05,240 --> 00:11:07,080 Speaker 1: you are, you know. I mean, I think if you 196 00:11:07,360 --> 00:11:10,439 Speaker 1: if you can remain in this so called goldilocks scenario 197 00:11:10,559 --> 00:11:13,000 Speaker 1: where inflation doesn't pick up a lot and interest rates 198 00:11:13,000 --> 00:11:14,560 Speaker 1: to mean a lot, you can sustain this. And we 199 00:11:14,600 --> 00:11:18,800 Speaker 1: have sustained this for five six years now, you know. So, Um, 200 00:11:18,840 --> 00:11:21,280 Speaker 1: I'm not saying that it's going to be sustained. I 201 00:11:21,280 --> 00:11:23,440 Speaker 1: would be tend to be on the more barish side 202 00:11:23,440 --> 00:11:28,720 Speaker 1: on that. That said, Um, I yes. Bottom line is, 203 00:11:28,800 --> 00:11:33,000 Speaker 1: if you look at the asset side of the economy 204 00:11:33,040 --> 00:11:34,679 Speaker 1: and the and the dead side of the economy, and 205 00:11:34,760 --> 00:11:36,680 Speaker 1: the US has actually had some made some progress on 206 00:11:36,679 --> 00:11:38,160 Speaker 1: the dead side, but if you look at it globally, 207 00:11:38,160 --> 00:11:40,800 Speaker 1: it is much worse than it was in two So 208 00:11:41,520 --> 00:11:44,479 Speaker 1: one way or the other you have to bring those down. Um, 209 00:11:44,520 --> 00:11:47,160 Speaker 1: what is the painless way to bring those down? And 210 00:11:47,240 --> 00:11:49,160 Speaker 1: I don't know. I don't think there's a painless way 211 00:11:49,200 --> 00:11:52,600 Speaker 1: to do it. So we it's still pretty break all right, 212 00:11:52,880 --> 00:11:56,199 Speaker 1: before we before I forget, we don't you work at 213 00:11:56,240 --> 00:12:00,960 Speaker 1: the Leaving for your own Leaving Forecasting center. My apologies, 214 00:12:01,360 --> 00:12:03,520 Speaker 1: it has the word forecasting in the name, So I'm 215 00:12:03,520 --> 00:12:06,440 Speaker 1: going to ask you for a forecast. Back in the 216 00:12:06,480 --> 00:12:09,080 Speaker 1: early eighties, the ten year yield it topped out around 217 00:12:09,120 --> 00:12:14,160 Speaker 1: sixteen percent. Today the ten yere yield as we're recording 218 00:12:14,160 --> 00:12:17,679 Speaker 1: this podcast two point for eight percent. People, you know. 219 00:12:17,840 --> 00:12:22,000 Speaker 1: So it's been this incredible over thirty year decline in 220 00:12:22,000 --> 00:12:25,360 Speaker 1: interest rates, which corresponds to a bond market rally for 221 00:12:25,400 --> 00:12:27,360 Speaker 1: the last ten years at least, you always hear it 222 00:12:27,760 --> 00:12:31,160 Speaker 1: can't go any lower, and then it invariably does go lower. 223 00:12:31,880 --> 00:12:34,880 Speaker 1: So what's your forecast? Where could we see long term 224 00:12:34,880 --> 00:12:39,040 Speaker 1: interest rates go before this cycle ends? Then the next 225 00:12:39,120 --> 00:12:42,400 Speaker 1: session will I think bring the ultimate lows in in 226 00:12:42,440 --> 00:12:44,959 Speaker 1: bond deals. I think the tenure will drop below one person, 227 00:12:45,040 --> 00:12:48,760 Speaker 1: probably half person, around half a percent so we're around 228 00:12:48,760 --> 00:12:50,440 Speaker 1: two and a half percent now, so there's still a 229 00:12:50,440 --> 00:12:53,240 Speaker 1: lot of capital games to be had, and the thirty years, 230 00:12:53,240 --> 00:12:54,640 Speaker 1: I think we'll we'll go to one and a half. 231 00:12:55,480 --> 00:12:57,240 Speaker 1: We have seen these kind of interest rates, you know 232 00:12:57,280 --> 00:12:59,760 Speaker 1: this in Europe, you have seen negative interest rates. So 233 00:12:59,800 --> 00:13:03,360 Speaker 1: it's not like and this is the safest asset in 234 00:13:03,360 --> 00:13:05,600 Speaker 1: the world. I mean in the next session there's going 235 00:13:05,640 --> 00:13:07,680 Speaker 1: to be a lot of political turmoil as well. You know, 236 00:13:07,800 --> 00:13:10,959 Speaker 1: we can imagine already with the kind of weak recovery, 237 00:13:11,040 --> 00:13:15,520 Speaker 1: we have all kinds of political pressures um globally, and 238 00:13:16,440 --> 00:13:20,320 Speaker 1: there won't be too many safe as it's left. Right. Yeah, 239 00:13:20,360 --> 00:13:22,800 Speaker 1: Can we talk more about the political pressures, because of 240 00:13:22,840 --> 00:13:27,400 Speaker 1: course we are seeing these expectations of physical stimulus out 241 00:13:27,400 --> 00:13:32,199 Speaker 1: of the Trump administration, driving inflation expectations to a certain 242 00:13:32,240 --> 00:13:38,600 Speaker 1: extent and also impacting treasury yields. Do you think that's warranted? Yeah? Sure, 243 00:13:38,600 --> 00:13:40,400 Speaker 1: I mean, if you're going to get a fiscal stimulus 244 00:13:40,440 --> 00:13:42,200 Speaker 1: of the order of I mean, if you go back 245 00:13:42,200 --> 00:13:46,719 Speaker 1: to candidate Trump's plan, Um, I think I'm going back 246 00:13:46,760 --> 00:13:49,320 Speaker 1: a year ago at least I looked at some of 247 00:13:49,320 --> 00:13:52,319 Speaker 1: the plans. If you take them at face value, you're 248 00:13:52,320 --> 00:13:56,640 Speaker 1: talking about a six hundred million dollars stimulus on the upside, 249 00:13:56,679 --> 00:14:00,120 Speaker 1: and maybe even something on the low side of to 250 00:14:00,160 --> 00:14:03,240 Speaker 1: four billion. And let's say some of it is tax 251 00:14:03,280 --> 00:14:06,480 Speaker 1: cuts for the for the very upper income, which is 252 00:14:06,480 --> 00:14:08,240 Speaker 1: most of it is going to be saved, so offset 253 00:14:08,360 --> 00:14:12,320 Speaker 1: by increase in saving. Even so, UM, you're talking about 254 00:14:12,840 --> 00:14:16,640 Speaker 1: hundred fifty two hundred billion dollars in corporate taxes, tax carts, 255 00:14:16,720 --> 00:14:20,680 Speaker 1: and four billion dollars in personal tax cards. Um, that's 256 00:14:20,680 --> 00:14:24,120 Speaker 1: a huge stimulus, even before we talked to start talking 257 00:14:24,120 --> 00:14:27,440 Speaker 1: about infrastructure spending. That's going to move the needle. That 258 00:14:27,840 --> 00:14:29,320 Speaker 1: one of the things I'll tell you. That's why in 259 00:14:29,360 --> 00:14:33,800 Speaker 1: the short term we have reduced our own bond positions because, um, 260 00:14:34,760 --> 00:14:38,200 Speaker 1: this is an unprecedented step. Usually we are long term 261 00:14:38,200 --> 00:14:40,800 Speaker 1: investors and bonds. We have written this thirty year bullmarket 262 00:14:41,160 --> 00:14:44,200 Speaker 1: being invested fully all the time, because you can't be 263 00:14:44,240 --> 00:14:47,560 Speaker 1: too smart about these we are not traders. UM. That said, 264 00:14:48,080 --> 00:14:52,840 Speaker 1: because of the potential for stimulus and for uh short 265 00:14:52,920 --> 00:14:56,680 Speaker 1: term reflation, UM, we have actually reduced our position bonds. 266 00:14:56,680 --> 00:15:00,760 Speaker 1: So your basic position is that the Trump's ualist, if 267 00:15:00,800 --> 00:15:04,440 Speaker 1: it does happen, could really move the dial on bond, 268 00:15:04,640 --> 00:15:07,440 Speaker 1: but not so much that it shakes the underlying trends 269 00:15:07,440 --> 00:15:11,280 Speaker 1: that we've seen over the last thirty plus, you know, 270 00:15:11,400 --> 00:15:14,320 Speaker 1: going back to the nineties sixties for a second, and 271 00:15:14,360 --> 00:15:18,160 Speaker 1: we you and I had an exchange on Twitter kind 272 00:15:18,160 --> 00:15:21,960 Speaker 1: of about inflation and what really drives it, and you 273 00:15:22,000 --> 00:15:25,240 Speaker 1: made an interesting point, which is that inflation is not 274 00:15:25,360 --> 00:15:27,760 Speaker 1: really you know, I think, who is that, Milton Friedman? 275 00:15:28,000 --> 00:15:31,800 Speaker 1: Inflation is always an everywhere a monetary phenomenon, and I 276 00:15:31,800 --> 00:15:35,440 Speaker 1: think you said inflation is always an everywhere a political phenomenon, 277 00:15:35,720 --> 00:15:38,960 Speaker 1: and that really we have this fantasy that there could 278 00:15:39,000 --> 00:15:41,680 Speaker 1: be a federal the Federal Reserve could just have this 279 00:15:41,800 --> 00:15:45,360 Speaker 1: dial and turn it to a two percent, three percent, 280 00:15:45,480 --> 00:15:48,040 Speaker 1: four percent inflation, and that it's just sort of this 281 00:15:48,520 --> 00:15:51,040 Speaker 1: technocratic thing that we just sort of set the level 282 00:15:51,120 --> 00:15:53,200 Speaker 1: and sort of aim for it. And will you say 283 00:15:53,240 --> 00:15:55,440 Speaker 1: it's never really like that, that it's a sort of 284 00:15:55,440 --> 00:15:59,640 Speaker 1: a myth or a fantasy that um that the Fed 285 00:15:59,680 --> 00:16:02,800 Speaker 1: could do explain this a little bit further, this misconception 286 00:16:02,840 --> 00:16:05,640 Speaker 1: that everyone has about what really drives inflation. In fact, 287 00:16:05,800 --> 00:16:07,920 Speaker 1: today I think the Wall Street Journal hadn't had an 288 00:16:08,000 --> 00:16:11,640 Speaker 1: article about people we don't understand inflation. And I think, um, 289 00:16:12,200 --> 00:16:15,600 Speaker 1: a week ago they had a paper by Checketty and 290 00:16:15,680 --> 00:16:19,720 Speaker 1: a bunch of others on what predicts inflation. It's inflation itself, 291 00:16:20,000 --> 00:16:22,840 Speaker 1: you know. So, I mean I think the here is 292 00:16:22,880 --> 00:16:25,880 Speaker 1: here is a basic issue with the monitor view of inflation. 293 00:16:26,120 --> 00:16:29,160 Speaker 1: If the monitor view of inflation were right, we would 294 00:16:30,000 --> 00:16:32,280 Speaker 1: we would have a pretty stable velocity. But we don't 295 00:16:32,280 --> 00:16:35,880 Speaker 1: have velocity of money keeps changing around a lot, you know, so, 296 00:16:36,640 --> 00:16:41,040 Speaker 1: which means the very basic the money um quantity of 297 00:16:41,080 --> 00:16:43,080 Speaker 1: money equation doesn't work. Now. You know. They have belts 298 00:16:43,080 --> 00:16:45,560 Speaker 1: and vessels, their sophisticated explanations now, but those are all 299 00:16:45,600 --> 00:16:51,520 Speaker 1: post facts, uh, the justification rationalizations, rather than and and 300 00:16:51,560 --> 00:16:54,600 Speaker 1: a basic understanding. But you know, I mean, inflation is 301 00:16:54,600 --> 00:16:58,160 Speaker 1: a very complicated process. But let's start with what what happened? 302 00:16:58,200 --> 00:17:01,280 Speaker 1: What what you need to get inflation? Now? The most 303 00:17:02,280 --> 00:17:05,160 Speaker 1: important component, of course is of course labor costs. Right, 304 00:17:05,520 --> 00:17:09,240 Speaker 1: So if you look at the economies, is a circular flow. Um, 305 00:17:09,600 --> 00:17:14,280 Speaker 1: so prices go up and they reflect in higher incomes. Okay, 306 00:17:14,359 --> 00:17:16,840 Speaker 1: then people have been up. Then those prices can be 307 00:17:16,880 --> 00:17:19,119 Speaker 1: justified by people having higher incomes because they can go 308 00:17:19,160 --> 00:17:23,439 Speaker 1: and again purchase those things right, which then bids up 309 00:17:23,440 --> 00:17:25,320 Speaker 1: the prices. That's how you get a wage price spider. 310 00:17:25,520 --> 00:17:27,440 Speaker 1: I'm keeping the fed out of the picture for now 311 00:17:28,080 --> 00:17:30,800 Speaker 1: in in our economy. So so the critical thing is 312 00:17:30,960 --> 00:17:33,199 Speaker 1: the way the labor should have some bargaining power to 313 00:17:33,240 --> 00:17:34,800 Speaker 1: be able to say, okay, prices have gone up, I 314 00:17:34,840 --> 00:17:36,639 Speaker 1: need to be able to get my way wage hikes. 315 00:17:37,400 --> 00:17:39,760 Speaker 1: But if you if you have a economy with a 316 00:17:39,800 --> 00:17:41,919 Speaker 1: tremendous amount of slack, which we have had over the 317 00:17:41,960 --> 00:17:44,680 Speaker 1: last six seven years. But generally speaking, if you look 318 00:17:44,720 --> 00:17:47,879 Speaker 1: at the last thirty years, most of the time we 319 00:17:47,960 --> 00:17:51,960 Speaker 1: have spent above nairo according to the CBOs definition of 320 00:17:52,040 --> 00:17:54,040 Speaker 1: nairo If you look at the unemployment rate, most of 321 00:17:54,040 --> 00:17:56,639 Speaker 1: the time it has been above niro um, whereas if 322 00:17:56,680 --> 00:17:59,720 Speaker 1: you go back to the fifties and sixties, we used 323 00:17:59,720 --> 00:18:04,000 Speaker 1: to spend most of the time under niro okay um. 324 00:18:04,119 --> 00:18:07,159 Speaker 1: So the labor doesn't have the bargaining power, and of 325 00:18:07,200 --> 00:18:09,960 Speaker 1: course unionization has declined. There are other factors as well. 326 00:18:10,000 --> 00:18:13,159 Speaker 1: There's global competition. It was not as there was no 327 00:18:13,359 --> 00:18:15,760 Speaker 1: not not much global competition in the fifties and sixties, 328 00:18:16,200 --> 00:18:19,639 Speaker 1: so we don't have inflation. The underlying dynamics for the 329 00:18:19,640 --> 00:18:22,879 Speaker 1: wage price final On top of that, now comes in 330 00:18:23,119 --> 00:18:25,159 Speaker 1: how does the FED policy change and what are the 331 00:18:25,160 --> 00:18:27,679 Speaker 1: reactions to it? Which there is some political element to it. 332 00:18:27,760 --> 00:18:30,439 Speaker 1: Clearly the FED is not completely immune to politics, much 333 00:18:30,480 --> 00:18:34,040 Speaker 1: as we would like to believe. Um. And if you 334 00:18:34,960 --> 00:18:37,240 Speaker 1: the FED has done some research. I think that the 335 00:18:37,320 --> 00:18:42,320 Speaker 1: Yashmera he has broken down the inflation into three separate 336 00:18:43,200 --> 00:18:46,280 Speaker 1: distinct episodes, the period up to six or six post 337 00:18:46,320 --> 00:18:48,040 Speaker 1: to period up to sixty six and six or six 338 00:18:48,080 --> 00:18:50,480 Speaker 1: to eighty two and eighty two onwards. So if you 339 00:18:50,520 --> 00:18:53,880 Speaker 1: look at the early period, um, there is not much 340 00:18:53,920 --> 00:18:57,960 Speaker 1: passed through from the wage price inflation dynamics never really 341 00:18:57,960 --> 00:18:59,840 Speaker 1: got started because the FED used to take the punch bowl, 342 00:18:59,840 --> 00:19:03,080 Speaker 1: you know, William Martin who has made the famous statement, 343 00:19:03,080 --> 00:19:07,280 Speaker 1: here's our job is to take the punch bowl away. Um. 344 00:19:07,320 --> 00:19:09,240 Speaker 1: And this broke down in the six six to eighty 345 00:19:09,240 --> 00:19:11,760 Speaker 1: two period where there was much more of the wage 346 00:19:11,760 --> 00:19:14,679 Speaker 1: price spiral dynamics, and then post eighty two it has not. 347 00:19:15,119 --> 00:19:17,320 Speaker 1: But there's more than just a FED taking away the 348 00:19:17,359 --> 00:19:20,920 Speaker 1: punch bowl. Um. Joan Robinson had a very perceptive essay. 349 00:19:20,960 --> 00:19:22,760 Speaker 1: You know, so much credit is given to felps and 350 00:19:22,800 --> 00:19:25,320 Speaker 1: treatment but all of these was presaged by John Robinson 351 00:19:25,480 --> 00:19:28,359 Speaker 1: and the the the the other cancience. You know, she 352 00:19:28,560 --> 00:19:30,600 Speaker 1: I think this wasn't sixty one. She was writing about 353 00:19:30,920 --> 00:19:36,560 Speaker 1: how we have such tight um employment high employment um 354 00:19:36,600 --> 00:19:39,040 Speaker 1: in the immediate post war EDA, but we haven't seen 355 00:19:39,080 --> 00:19:42,840 Speaker 1: the inflation pick up. And she said, part of this 356 00:19:42,920 --> 00:19:45,359 Speaker 1: is this is a solidarity and the sense of national 357 00:19:45,400 --> 00:19:48,240 Speaker 1: purpose of the war engineered and there was a sense 358 00:19:48,280 --> 00:19:52,200 Speaker 1: of restraint among labor especially and unions because there was 359 00:19:52,200 --> 00:19:55,359 Speaker 1: a lot a lot more unionization back then that we 360 00:19:55,400 --> 00:19:58,760 Speaker 1: should you know, we should not be greedy or you know, 361 00:19:59,040 --> 00:20:02,879 Speaker 1: we have to there is larger shared purpose. Um. And 362 00:20:03,240 --> 00:20:06,240 Speaker 1: you know I was talking to David and he my partner, 363 00:20:06,240 --> 00:20:08,240 Speaker 1: and he was telling me the other day, UM that 364 00:20:08,400 --> 00:20:11,720 Speaker 1: in that there was a general sense that you would 365 00:20:11,760 --> 00:20:14,600 Speaker 1: get wage hikes that would become in shaded with productivity. 366 00:20:14,680 --> 00:20:16,960 Speaker 1: That was a general sense in the fifties and the sixties. 367 00:20:17,400 --> 00:20:20,359 Speaker 1: What broke the trend was I think it was a 368 00:20:20,400 --> 00:20:23,640 Speaker 1: machinist union. I I'm not shoot it as a machinist 369 00:20:23,720 --> 00:20:25,960 Speaker 1: union in six to six who got a six percent 370 00:20:25,960 --> 00:20:29,080 Speaker 1: trace or something like that. That that broke that trend. 371 00:20:29,160 --> 00:20:31,320 Speaker 1: And then the other unions now obviously had to catch 372 00:20:31,400 --> 00:20:34,879 Speaker 1: up to that, and then you then you got started 373 00:20:34,920 --> 00:20:37,760 Speaker 1: with the with the wage price final Well, I mean, 374 00:20:38,000 --> 00:20:40,760 Speaker 1: on that note, is there any chance that we get 375 00:20:41,080 --> 00:20:45,359 Speaker 1: something that encourages some sort of wage increase in the 376 00:20:45,440 --> 00:20:48,760 Speaker 1: coming years, because you're painting again like a pretty bleak 377 00:20:48,840 --> 00:20:54,280 Speaker 1: picture that involves um, basically labor being on the back 378 00:20:54,359 --> 00:20:58,920 Speaker 1: foot for many, many more years to come, which is 379 00:20:58,960 --> 00:21:03,199 Speaker 1: kind of depressing. Yeah. Yes, and this is the this 380 00:21:03,280 --> 00:21:06,320 Speaker 1: is the problem, you know. I mean, generally speaking, if 381 00:21:06,359 --> 00:21:09,359 Speaker 1: you look at this, I'm going to now now I'm 382 00:21:09,400 --> 00:21:11,320 Speaker 1: going to talk about long history. If you look at 383 00:21:11,320 --> 00:21:15,840 Speaker 1: the history of capitalism generally speaking, UM, it has been 384 00:21:16,760 --> 00:21:20,200 Speaker 1: outside of wars, there have been very few periods of inflation. 385 00:21:21,359 --> 00:21:25,000 Speaker 1: And the only period of inflation that we've had significantly 386 00:21:25,040 --> 00:21:28,480 Speaker 1: outside of wars is the nineteen seventies, and that has 387 00:21:28,560 --> 00:21:34,080 Speaker 1: somehow colored the whole profession that, oh, inflation, control inflation, 388 00:21:34,080 --> 00:21:38,400 Speaker 1: targeting this and that. But really capitalism is characterized not 389 00:21:38,560 --> 00:21:42,040 Speaker 1: by scarcity, which is what inflation is a manifestation of. 390 00:21:42,080 --> 00:21:44,639 Speaker 1: In some sense, of course, there's other other things too. 391 00:21:45,080 --> 00:21:49,240 Speaker 1: It's not just scarcity as we just looked at. UM, 392 00:21:49,280 --> 00:21:53,840 Speaker 1: it's uh, it's also capitalism is generally characterized by blood. 393 00:21:53,920 --> 00:21:56,119 Speaker 1: You always are looking for markets, you know, that's the 394 00:21:56,160 --> 00:21:58,760 Speaker 1: whole thing. I mean, even Adam Smith understood that, right, 395 00:21:58,840 --> 00:22:02,040 Speaker 1: that's kind of that's the aim of capitalism, right, even 396 00:22:02,160 --> 00:22:05,280 Speaker 1: Adam Smith. Uh, he didn't completely say it's in so 397 00:22:05,320 --> 00:22:07,159 Speaker 1: many words, but he said that, you know, the extent 398 00:22:07,240 --> 00:22:11,840 Speaker 1: of specialization is constrained by the act the the extent 399 00:22:11,880 --> 00:22:15,119 Speaker 1: of the market, so that the real constraint has always 400 00:22:15,119 --> 00:22:18,280 Speaker 1: been the market demand in some sense. So we just 401 00:22:18,320 --> 00:22:20,520 Speaker 1: have a couple of minutes to wrap up here, and 402 00:22:20,520 --> 00:22:23,600 Speaker 1: I want to sort of get your take on ultimately. 403 00:22:24,119 --> 00:22:28,040 Speaker 1: You know, probably the bond bull market isn't gonna last forever, right, 404 00:22:28,160 --> 00:22:31,200 Speaker 1: I mean, some point it will turn around. You mentioned 405 00:22:31,320 --> 00:22:33,679 Speaker 1: the Trump stimulus as being a cause. I think that 406 00:22:33,720 --> 00:22:37,040 Speaker 1: in the shorter medium term rates could rise. But beyond 407 00:22:37,080 --> 00:22:40,359 Speaker 1: the stimulus, it strikes me that at least in theory, 408 00:22:40,720 --> 00:22:45,160 Speaker 1: Trump is um represents or could represent, a real ideological 409 00:22:45,200 --> 00:22:48,520 Speaker 1: break from the way the government and policy has been 410 00:22:48,600 --> 00:22:52,280 Speaker 1: runn It's not just the stimulus. It's a sort of 411 00:22:52,440 --> 00:22:56,919 Speaker 1: disdain or skepticism of free trade. It's a disdain for 412 00:22:57,119 --> 00:22:58,760 Speaker 1: I think a lot of like what we sort of 413 00:22:59,119 --> 00:23:05,080 Speaker 1: free free enterprise assumptions. So I'm curious a whether what 414 00:23:05,160 --> 00:23:08,280 Speaker 1: you think could ultimately be the thing that breaks the 415 00:23:08,320 --> 00:23:12,600 Speaker 1: bondball markets back and be whether a more muscular, fully 416 00:23:12,680 --> 00:23:15,480 Speaker 1: fleshed out trump is um beyond just okay, here's a 417 00:23:15,520 --> 00:23:18,399 Speaker 1: stimulus boost could be the kind of thing that really 418 00:23:18,720 --> 00:23:21,600 Speaker 1: turns things around. Oh yeah, I mean, something much more 419 00:23:21,680 --> 00:23:27,480 Speaker 1: muscular than just just as stimulus um could certainly. I mean, yeah, 420 00:23:27,600 --> 00:23:30,000 Speaker 1: nothing is set in stone, you know, you can things 421 00:23:30,000 --> 00:23:33,320 Speaker 1: are always always subject to change, and there's always uncertainty 422 00:23:33,880 --> 00:23:37,000 Speaker 1: about these things. And so yes, something could do that. 423 00:23:37,240 --> 00:23:39,800 Speaker 1: And I think the way the bond bull market typically ends, 424 00:23:39,840 --> 00:23:42,240 Speaker 1: and if you look back in the in the history 425 00:23:42,480 --> 00:23:44,480 Speaker 1: is when private balance sheets are lean, you go back 426 00:23:44,480 --> 00:23:47,600 Speaker 1: to which is then forty or forty nine is the 427 00:23:47,680 --> 00:23:49,760 Speaker 1: end of the bond ball market. The private balance sheets 428 00:23:49,760 --> 00:23:54,040 Speaker 1: there was no debt um and stock valuations were incredibly crazy. 429 00:23:54,080 --> 00:23:57,960 Speaker 1: I mean, you know, the diferend deal was several percentage 430 00:23:57,960 --> 00:24:01,320 Speaker 1: point higher than different deal on than the ten year yield. 431 00:24:01,400 --> 00:24:04,760 Speaker 1: You know, so you're talking about assets that are yielding 432 00:24:04,840 --> 00:24:08,040 Speaker 1: risk assets far far more than than cheap assets than 433 00:24:08,600 --> 00:24:12,840 Speaker 1: the risk free assets. And so you had a situation 434 00:24:12,920 --> 00:24:15,560 Speaker 1: there's no debt, tremendous amount of cash on the private 435 00:24:15,560 --> 00:24:18,480 Speaker 1: balance sheet, interested could go up a lot and nobody 436 00:24:18,520 --> 00:24:20,800 Speaker 1: would be understressed because they had no debt. They would 437 00:24:20,840 --> 00:24:24,280 Speaker 1: in fact be benefiting from higher interest rate on cash. Um. 438 00:24:24,320 --> 00:24:26,560 Speaker 1: That's the kind of we won't necessarily get to that 439 00:24:26,640 --> 00:24:30,040 Speaker 1: kind of situation. But let's say the next resession brought 440 00:24:30,119 --> 00:24:32,920 Speaker 1: down asset values and that we already had some correction, 441 00:24:32,960 --> 00:24:35,960 Speaker 1: we have further correction, and then we ease that process 442 00:24:36,000 --> 00:24:39,239 Speaker 1: with even bigger running, bigger deficits, and our debt goes 443 00:24:39,280 --> 00:24:43,200 Speaker 1: top or something like that. Then you have a situation 444 00:24:43,200 --> 00:24:45,880 Speaker 1: where government that is now a large part of the 445 00:24:45,920 --> 00:24:51,280 Speaker 1: private assets, right, so so they are the private balance 446 00:24:51,320 --> 00:24:55,080 Speaker 1: sheet is now much more heavily loaded on safe assets, 447 00:24:55,200 --> 00:24:59,800 Speaker 1: and the risk assets are cheaply prized relatively speaking. That 448 00:25:00,000 --> 00:25:02,240 Speaker 1: it's when you can you can withstand interest rate hikes, 449 00:25:02,400 --> 00:25:04,119 Speaker 1: It doesn't matter. I mean, interest rates can go up 450 00:25:04,160 --> 00:25:06,879 Speaker 1: a lot. I mean, look at what about the home 451 00:25:06,920 --> 00:25:10,280 Speaker 1: prices world interestrates were already so you know, they could 452 00:25:10,280 --> 00:25:12,680 Speaker 1: go to but people have already seen the worst of it, 453 00:25:12,840 --> 00:25:15,600 Speaker 1: you know. So that's the kind of situation which leads 454 00:25:15,640 --> 00:25:18,760 Speaker 1: to Bonn Bonn bat Markets. Thank you very much for 455 00:25:18,880 --> 00:25:21,640 Speaker 1: joining us, threniv Us to Vedanta of the Jerome Levy 456 00:25:21,680 --> 00:25:24,720 Speaker 1: Forecasting Center. I really appreciate you coming on. I learned 457 00:25:24,760 --> 00:25:27,359 Speaker 1: a ton in that discussion. Thank you, Joe, Thank you Tracy. 458 00:25:27,880 --> 00:25:42,680 Speaker 1: Thank you so Tracy. I really enjoyed that episode. I 459 00:25:42,840 --> 00:25:46,240 Speaker 1: love this. I love the fact that a another big 460 00:25:46,359 --> 00:25:50,720 Speaker 1: economic history lesson, but also having the chance to discuss 461 00:25:51,240 --> 00:25:55,000 Speaker 1: sort of economic theory and also how it applies to 462 00:25:55,800 --> 00:26:01,479 Speaker 1: UH to the market. Yeah, well, talking about financial history, um, 463 00:26:01,720 --> 00:26:04,880 Speaker 1: I thought he made a really excellent point about over 464 00:26:05,480 --> 00:26:10,800 Speaker 1: the extremely long run, capitalism is not characterized by scarcity. 465 00:26:10,920 --> 00:26:14,399 Speaker 1: It's kind of characterized by supply or abundance. That's the 466 00:26:14,600 --> 00:26:19,680 Speaker 1: entire goal, right, and that that's intrinsically a deflationary force. 467 00:26:19,840 --> 00:26:23,439 Speaker 1: I thought that was really interesting. Yeah, and this idea 468 00:26:23,560 --> 00:26:27,160 Speaker 1: that the inflation that we saw in the seventies has 469 00:26:27,240 --> 00:26:31,240 Speaker 1: because I'm so large in our economic thinking today, and 470 00:26:31,359 --> 00:26:33,320 Speaker 1: you have to you know, you have to realize that 471 00:26:33,760 --> 00:26:36,399 Speaker 1: probably a lot of the people who are in charge 472 00:26:36,440 --> 00:26:40,320 Speaker 1: of policy right now, or the people writing doing strategy, 473 00:26:40,400 --> 00:26:42,919 Speaker 1: and big funds and banks, probably a lot of them 474 00:26:43,000 --> 00:26:46,400 Speaker 1: cut their teeth during that inflation. In the period right 475 00:26:46,480 --> 00:26:50,040 Speaker 1: after and have sort of always been living in that 476 00:26:50,240 --> 00:26:54,120 Speaker 1: time by carriers or living in that time ever since. Then. Yeah, 477 00:26:54,200 --> 00:26:57,399 Speaker 1: that's a super interesting point that I think probably doesn't 478 00:26:57,440 --> 00:27:01,560 Speaker 1: get enough attention just to play Full's advocate, though. I mean, 479 00:27:01,640 --> 00:27:04,800 Speaker 1: there is a sense of, um, there's a tinge of 480 00:27:04,960 --> 00:27:08,399 Speaker 1: this time is different around this whole argument right at 481 00:27:08,480 --> 00:27:11,960 Speaker 1: the end that the the bowl market in bonds can 482 00:27:12,000 --> 00:27:15,040 Speaker 1: go on for substantially longer than it ever has in 483 00:27:15,160 --> 00:27:19,360 Speaker 1: all of history. And I understand his arguments. One thing 484 00:27:19,600 --> 00:27:23,040 Speaker 1: I wonder about, and I think Paul Schmeltzing got to 485 00:27:23,160 --> 00:27:27,560 Speaker 1: this idea, was the difference between the financial system now 486 00:27:27,960 --> 00:27:31,359 Speaker 1: versus uh, ancient history. Right Like now we have a 487 00:27:31,480 --> 00:27:35,920 Speaker 1: much more complex system, we have banks with sophisticated risk models, 488 00:27:36,440 --> 00:27:39,920 Speaker 1: and we have the potential for a negative feedback loop 489 00:27:40,240 --> 00:27:42,719 Speaker 1: if we did get a big sell off in bonds, 490 00:27:42,760 --> 00:27:45,800 Speaker 1: and we didn't really talk about that. Yeah, any time, 491 00:27:46,040 --> 00:27:47,960 Speaker 1: you know, as you say, there's always that this time 492 00:27:48,080 --> 00:27:50,480 Speaker 1: is different fear. And every time you have a bowl 493 00:27:50,560 --> 00:27:52,480 Speaker 1: market and you're saying, oh, it could go on forever, 494 00:27:52,600 --> 00:27:54,399 Speaker 1: it's sort of or a long time. That's sort of 495 00:27:54,440 --> 00:27:56,320 Speaker 1: a reason to be nervous on the other hand, there's 496 00:27:56,359 --> 00:27:59,919 Speaker 1: just been so much skepticism about this whole ball markets. 497 00:28:00,040 --> 00:28:03,879 Speaker 1: So usually when you have a long bull market, you 498 00:28:04,000 --> 00:28:07,720 Speaker 1: just have you just accumulates more and more believers over time, 499 00:28:08,320 --> 00:28:11,320 Speaker 1: but this bull market has really never had many believers 500 00:28:11,400 --> 00:28:13,120 Speaker 1: as far as I can tell, So sort of from 501 00:28:13,119 --> 00:28:18,480 Speaker 1: a psychological, uh standpoint, yeah, I mean, either way, someone 502 00:28:18,640 --> 00:28:21,160 Speaker 1: is going to be surprised here, right Either the bull 503 00:28:21,200 --> 00:28:23,520 Speaker 1: market it's going for a really long time or it 504 00:28:23,600 --> 00:28:26,600 Speaker 1: comes crashing down. Either way it's it's going to be 505 00:28:26,680 --> 00:28:29,639 Speaker 1: a big deal. On that note, this has been another 506 00:28:29,760 --> 00:28:33,120 Speaker 1: episode of the Odd Lots podcast. I'm Joe wi Isn't Thal. 507 00:28:33,160 --> 00:28:35,840 Speaker 1: You can follow me on Twitter at the Stalwart, and 508 00:28:35,880 --> 00:28:38,920 Speaker 1: I'm Tracy Alloway. I'm on Twitter at Tracy Alloway. And 509 00:28:39,000 --> 00:28:42,760 Speaker 1: you can follow Srinavas on Twitter at tease Ree t 510 00:28:43,040 --> 00:29:01,280 Speaker 1: e A s r i ow