WEBVTT - Roubini Macro Associates Chairman & CEO Nouriel Roubini Talks Stagflation Shock

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Joining US now portfolio manager Noiro Rubini of Atlas America

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<v Speaker 2>fund has been way too long, nor We've got to

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<v Speaker 2>get you in here more and more. You're traveling so

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<v Speaker 2>much we hardly see you. You've teamed up with Resubunda

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<v Speaker 2>at Atlas America. Are you running money now? What are

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<v Speaker 2>you learning running money Alice America?

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<v Speaker 1>We're not yet. Actually, what in quiet periodicity is now

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<v Speaker 1>approving our thing. So you launch, so your registration and.

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<v Speaker 2>Speak, this is going to be This is gonna be

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<v Speaker 2>something to see Noura Rabini run money in the world.

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<v Speaker 2>We're in the great post pandemic. Shock has been American exceptionalism,

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<v Speaker 2>American prosperity. Are you willing to say this gift that

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<v Speaker 2>we have is nothing but trillion dollar deficits.

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<v Speaker 1>No, I wouldn't say it's only trillion dollars deficits. I

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<v Speaker 1>think that a whole bunch of things have happened. We

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<v Speaker 1>had the Infrastructure Act, We had the IRA where the

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<v Speaker 1>Chips Act with actually loose migration policies that led to

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<v Speaker 1>an inflow of workers that increased the labor supply growth

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<v Speaker 1>and reduce the inflation. So certainly the physical stimulus has

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<v Speaker 1>helped the margin. But then also we consider these AI

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<v Speaker 1>revolution and significant increasing capects. But the private sector potential

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<v Speaker 1>growth of the US, given technological innovation, by the end

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<v Speaker 1>of this decade could be in a view higher than

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<v Speaker 1>three percent. That's a revolution, right. China might be growing

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<v Speaker 1>less than three percent by the end of this decade.

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<v Speaker 1>US might be growing faster than China. You know, it's

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<v Speaker 1>a bit of a bold prediction to make, but I

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<v Speaker 1>think that in spite of the dysfunctionality of our political

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<v Speaker 1>system we're totally partisan and you name it. The private

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<v Speaker 1>sector innovation is such in lots of the technologies in

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<v Speaker 1>the industry of the future. It's not just the eyes,

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<v Speaker 1>robotic automation, by medical research, space exploration, new weapons system

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<v Speaker 1>act tech, green tech, quantum computing. There's a flurry of

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<v Speaker 1>new technology can radically change the economy. And I think

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<v Speaker 1>part of the strength of the economy it has been

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<v Speaker 1>growing fast. The potential, in spite of the fact for

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<v Speaker 1>the last few is tightening, is there is a shift,

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<v Speaker 1>is a regime shift.

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<v Speaker 3>Noroe you mentioned before on the air, They're going to

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<v Speaker 3>be traveling pretty extensively over the coming weeks here. I

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<v Speaker 3>suspect internationally they're going to be asking you about your

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<v Speaker 3>thoughts on the US election coming up. How would you

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<v Speaker 3>frame a response to some of your national clients.

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<v Speaker 1>Well, I think that the major probable risk to the

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<v Speaker 1>US economy comes from the elections, and the economic policies

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<v Speaker 1>of a new Trump administration will be very different than

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<v Speaker 1>those of a Harris administration. If you take at face

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<v Speaker 1>value what Trump says. It says I'm going to impose

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<v Speaker 1>tariffs on all imports in the US of ten to

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<v Speaker 1>up to twenty percent, up to sixty percent on those

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<v Speaker 1>from China. He wants to dive value the dollar because

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<v Speaker 1>it thinks it's too strong and has led to the innstrialization.

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<v Speaker 1>It wants a more douvish FED, and you have a

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<v Speaker 1>chance to change some of the leaders with the FED

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<v Speaker 1>and the Center for Responsible Budgets. As the other day

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<v Speaker 1>said that his fiscal policy will increase the deficits and

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<v Speaker 1>the debt by seven point five three million dollars over

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<v Speaker 1>the next decade. That's well above what the harn Harriers

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<v Speaker 1>will have it, but unquot only three point five, and

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<v Speaker 1>it will have restriction to migrations, severe draconie restriction migration,

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<v Speaker 1>not it's going to deport millions of people, but even

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<v Speaker 1>not letting them in implies a significant reduction and the

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<v Speaker 1>labor supply. So all these things together, all these policy trade, currency, migration, monetary,

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<v Speaker 1>fiscal policy may view imply higher inflation, lower economic growth,

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<v Speaker 1>higher bond yields, and potential for a correction or equity.

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<v Speaker 2>You're not willing to give up unstack inflation. A lot

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<v Speaker 2>of people are saying, maybe it's over.

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<v Speaker 1>I don't think is over for the following reason. The

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<v Speaker 1>three negative aggregate supply shocks of COVID of course have

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<v Speaker 1>gone away. But as I pointed out, the economic policies

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<v Speaker 1>of a Trump administration my view, are stackflationary because whether

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<v Speaker 1>it's immigration, whether it's the currency, where there is trade,

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<v Speaker 1>where there's monitored and fiscal policy, they are increasing inflation

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<v Speaker 1>and they would reduce economic growth. So that call it

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<v Speaker 1>tackflation light or staculation, but they would be statulationary. And

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<v Speaker 1>as I pointed out in my Mega thread book, there

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<v Speaker 1>are other forces a more medium terms that are all stackflationary.

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<v Speaker 1>The coupling and protectionism, restriction to migration, aging of population,

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<v Speaker 1>reshoring and friends shoring, geopolitical riskily to fragmentation, climate change,

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<v Speaker 1>new pandemics, backlash against liberal democracy into fiscal policies that

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<v Speaker 1>are pro liber in union increase wage growth and potentially

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<v Speaker 1>even did organization gradual, but it will increase essentially keep reprisals.

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<v Speaker 2>Well, this is your wheels when you're President Clinton, Can

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<v Speaker 2>you model a week dollar?

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<v Speaker 1>Can I model it in which you predict a week dollar?

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<v Speaker 1>It depends. You know, if we have a very large

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<v Speaker 1>fiscal deficits and if we have very large current account deficit,

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<v Speaker 1>this twin definite are going to continue in spite of

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<v Speaker 1>the strengths of the private sector. I think at some

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<v Speaker 1>point the bond melt at vigilant is going to wake up.

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<v Speaker 1>And in the last few years, in spite of these

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<v Speaker 1>twin deficits, the dollar was strengthening because we had tight

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<v Speaker 1>monetary policy and therefore the capital account was essentially compensating

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<v Speaker 1>for a very large current account deficit. But if the

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<v Speaker 1>large current account deficits remains at the same time, interest

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<v Speaker 1>rate differential are implying that the capital inflant us are

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<v Speaker 1>going to be less. Let alone, the fact that we

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<v Speaker 1>are weaponizing the dollar in some country may be gradually

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<v Speaker 1>the dollarizing that would imply overtime a weeker dollar over time.

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<v Speaker 1>I'm not talking about the crash of the US dollar

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<v Speaker 1>will be. The counter argument is that there is so

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<v Speaker 1>much innovation in the US that the influence of capital

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<v Speaker 1>is not going to be into fixed income treasuries but

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<v Speaker 1>rather inequities. That has sustained, of course, the dollar for

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<v Speaker 1>the last few years. If that continues, then that might

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<v Speaker 1>be partially supportive of the dollar, leading to less of

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<v Speaker 1>a weakenings.

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<v Speaker 3>For most of us grew up with globalization as a

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<v Speaker 3>theme as something we learned and experienced, but that seems

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<v Speaker 3>to have reversed itself a little bit over the last

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<v Speaker 3>four or five six years. Eight. Do you agree with

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<v Speaker 3>that and be will that continue?

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<v Speaker 2>Yes?

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<v Speaker 1>I would say that both the trends of geopolitical fragmentation

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<v Speaker 1>are leading to some degree of call it either the

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<v Speaker 1>globalization or the coupling, or the risking or reshoring and

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<v Speaker 1>french shorting or changing in the global global supply chains

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<v Speaker 1>from just in time to just in case, from China

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<v Speaker 1>to challenge a plus one or plus two from emphasizing

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<v Speaker 1>in invents s mean economic security rather than economic efficiency.

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<v Speaker 1>So the question is not weather that the action is

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<v Speaker 1>one towards fragmentation is going to continue, giving geopolitics, given AI,

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<v Speaker 1>given other pressure that are on labor income. The question

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<v Speaker 1>is not weather, but only how much and how fast?

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<v Speaker 2>Norabini whether it's here folks, the down negative ninety two,

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<v Speaker 2>the vics twenty one point two three, a little bit

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<v Speaker 2>of wait to take this morning in noural. With all

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<v Speaker 2>that said, we're in a bullmarket tomorrow. JP Morgan earnings

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<v Speaker 2>for the last ten years annual return on JP Morgan's

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<v Speaker 2>twelve thirteen fourteen percent per year. How do you explain

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<v Speaker 2>the lift in asset valuations in America?

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<v Speaker 1>Well, I explained it by the fact that, one we

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<v Speaker 1>achieved a soft landing, and we achieved it not because

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<v Speaker 1>of what the FED did, but because we got lucky

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<v Speaker 1>those three negative aggregate supply shocks of COVID reverse.

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<v Speaker 2>The thing's a fact got lucky.

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<v Speaker 1>They got lucky because in any other situation, fat going

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<v Speaker 1>from zero and QE to five and a half in

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<v Speaker 1>QT would have led not only the lower inflation, but

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<v Speaker 1>also to significant lower growth and even a recession. Now

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<v Speaker 1>we had the lower inflation, but we did not have

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<v Speaker 1>the recession. Why my explanation is the tree in aggat,

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<v Speaker 1>we aggregate supply shocks of COVID, The impact of COVID

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<v Speaker 1>on supply goods and services and supply chains and labor

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<v Speaker 1>went away. The impact of the shock of Russia Ukraine

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<v Speaker 1>on commodity prices went away, and China fes done the

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<v Speaker 1>zero COVID policy. On top of those three, we got

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<v Speaker 1>other things that happened. One was immigration two point five

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<v Speaker 1>million people entering US for the last four years, documentary

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<v Speaker 1>or undocumented, that kept the lead on wage growth, increased growth.

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<v Speaker 1>We had the Ai revolution that also has led significant

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<v Speaker 1>increase in private capects. So all those factors explain why

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<v Speaker 1>we said stronger growth and inflation and lower was not

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<v Speaker 1>really the fat was just we got lucky, and we

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<v Speaker 1>got immigration, and we got the revolution.

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<v Speaker 3>Geopolitical risk as front and center for investors really over

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<v Speaker 3>the last several years, probably more so than it has

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<v Speaker 3>been in a while. Yet markets are seen the churn higher.

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<v Speaker 3>How do you factor whether it's coming out of Ukraine

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<v Speaker 3>or the Middle East had effectored that in well.

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<v Speaker 1>My explanation is that for the time being, market have

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<v Speaker 1>correctly estimated that all these conflicts are regional rather than global.

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<v Speaker 1>After all, Russia and Ukraine is very ugly. It has

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<v Speaker 1>damaged severely the Ukrainian economy. It's called some damage to Russia.

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<v Speaker 1>It's had initial impact on global commodity prices, but now

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<v Speaker 1>more oil and natural gas from the militia US has

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<v Speaker 1>led to even the European being able to phase out

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<v Speaker 1>the Russian oil for now. The conflict between Israel and

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<v Speaker 1>a mass was on Gaza. There is a risk of

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<v Speaker 1>regionalization so far has not occurred, and the Cold War

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<v Speaker 1>between US and China is a cold war, but it

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<v Speaker 1>is probably not escalating and the speeding is going to

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<v Speaker 1>become a hot war in the short run or having

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<v Speaker 1>global consequences. So then markets are correctly said these things

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<v Speaker 1>are terrible for specific countries and region, but they don't

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<v Speaker 1>have a global impact of all of them. I would

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<v Speaker 1>say the biggest risk today is that if if Israel

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<v Speaker 1>were to go and strike Iran, and there's a consensus

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<v Speaker 1>within Israel, not just on the right Nathania, but even

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<v Speaker 1>people that are on the opposition, like many Gans has

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<v Speaker 1>said we have to get rid of this regime in Iran,

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<v Speaker 1>then if Israel were to go to try to achieve

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<v Speaker 1>regime change in Iran, you could have really a conflagration

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<v Speaker 1>at the Gulf. You could have essentially the production and

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<v Speaker 1>expert of all from the Gulf being blocked for several months.

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<v Speaker 1>You could have a shock like nineteen seventy the Yom

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<v Speaker 1>Kippur or nineteen seventy nine. Islamic are in revolution. I

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<v Speaker 1>think that's the biggest risk. And by the way, if

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<v Speaker 1>Trump gets elected, the chance is going to give a

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<v Speaker 1>green light to Nathaniel to go and say bomb the

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<v Speaker 1>hell out of Iran, get rid of the regime will

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<v Speaker 1>be higher than Andre Harris Adminster.

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<v Speaker 2>We're just Turkey filming this. Your father moved rugs in

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<v Speaker 2>Turkey years ago on the next era one. What do

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<v Speaker 2>you expect to see there?

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<v Speaker 1>Well, the economy is still quite fragile. The good news

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<v Speaker 1>that he put in place as a finance minister I

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<v Speaker 1>met Simshek was actually very mainstream and orthodox, which yeah,

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<v Speaker 1>it's very good, and therefore inflation is gradually falling but

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<v Speaker 1>still too high. But they're going at least in direction

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<v Speaker 1>that are less a tertodox economic policy and gradually more

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<v Speaker 1>orthodox one. So I would say that actually Turkey is

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<v Speaker 1>a country that based on overall fundamentals strong manufacturing sector, innovation,

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<v Speaker 1>good financial sector could do well.

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<v Speaker 2>Okay, but in America we've heard this scenario. Are you

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<v Speaker 2>telling me I got thirty seconds? Yes? Are you telling

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<v Speaker 2>me your long turkishlera going to your first trade year? No?

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<v Speaker 1>No, I'm not long term lear because the inflation rate

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<v Speaker 1>is still too high and the amount of monetoring physical

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<v Speaker 1>and credit itaning is not yet sufficient. But I'm saying

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<v Speaker 1>at least they're moving in the right direction compared to

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<v Speaker 1>what it was the situation before the last presidential action.

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<v Speaker 1>So finally Loganez realized there was a risk of occurrence

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<v Speaker 1>and a financial crisis. He gave power to some orthodox

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<v Speaker 1>central bankers and finance ministers, and therefore the economic policies

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<v Speaker 1>are moving in the right direction.

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<v Speaker 2>Don't be a stranger, nor Rubin, It's been way too long.

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<v Speaker 2>Thank you so much for the Elis America fun, Rubini

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<v Speaker 2>Macro associates, and of course his affiliation with New York

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<v Speaker 2>University