1
00:00:10,520 --> 00:00:14,360
Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.

2
00:00:14,400 --> 00:00:19,759
Speaker 1: I'm Joe, wi Isn't Thal, and I'm Tracy Allaway. Tracy, So, obviously,

3
00:00:20,040 --> 00:00:23,320
Speaker 1: UM markets continuing to have an extraordinary year at least

4
00:00:23,400 --> 00:00:28,160
Speaker 1: risk assets. For the most part, stocks continue to power

5
00:00:28,240 --> 00:00:31,800
Speaker 1: to new all time highs all around the world, optimism

6
00:00:31,800 --> 00:00:36,400
Speaker 1: breaking out. But I'd say like the nature of the

7
00:00:36,440 --> 00:00:38,760
Speaker 1: stock market rail or the nature of the market rally

8
00:00:38,800 --> 00:00:42,440
Speaker 1: in general, is sort of taken on a different complexion lately.

9
00:00:42,760 --> 00:00:46,920
Speaker 1: I think people have been nervous about valuations for some time,

10
00:00:47,000 --> 00:00:50,199
Speaker 1: and the idea that even though we've had the biggest

11
00:00:50,200 --> 00:00:53,160
Speaker 1: pandemic in over a hundred years, which is really eaten

12
00:00:53,200 --> 00:00:56,920
Speaker 1: into economic activity, we still have stocks at a record

13
00:00:57,280 --> 00:01:00,520
Speaker 1: people sort of naturally feel a little bit nervous about up.

14
00:01:00,600 --> 00:01:04,080
Speaker 1: And then recently we had the sell off in U. S.

15
00:01:04,120 --> 00:01:06,560
Speaker 1: Treasuries as well, and a little bit of a pickup

16
00:01:06,600 --> 00:01:11,360
Speaker 1: in inflation expectations, which might be the beginning of UM Well,

17
00:01:11,480 --> 00:01:13,600
Speaker 1: some people are talking about it being the beginning of

18
00:01:13,640 --> 00:01:18,080
Speaker 1: a bigger change for the market, and this would be

19
00:01:18,080 --> 00:01:20,480
Speaker 1: a good time actually to mention that we were recording

20
00:01:20,600 --> 00:01:27,080
Speaker 1: this on Thursday, December three. Caveat yeah, that the whole

21
00:01:27,080 --> 00:01:30,360
Speaker 1: world may have changed by the time anyone actually listens

22
00:01:30,400 --> 00:01:33,120
Speaker 1: to this episode. But yeah, we have seen a little

23
00:01:33,160 --> 00:01:37,600
Speaker 1: bit of an uptick in treasury yields, market based measures

24
00:01:37,640 --> 00:01:42,280
Speaker 1: of inflation actually higher than they were pre crisis, some

25
00:01:42,360 --> 00:01:47,960
Speaker 1: measures back to levels not seen since. And also if

26
00:01:48,000 --> 00:01:50,040
Speaker 1: you look at some of the really hot stocks lately,

27
00:01:50,160 --> 00:01:52,480
Speaker 1: it's some of the real like sort of back to normal,

28
00:01:52,680 --> 00:01:57,240
Speaker 1: unsexy stuff out there. So it's like airlines and physical

29
00:01:57,320 --> 00:02:02,000
Speaker 1: retail I think like shares of Macy's are up in November.

30
00:02:02,800 --> 00:02:07,800
Speaker 1: US steel uh Steel Company, absolutely wild chart. If you

31
00:02:07,840 --> 00:02:09,680
Speaker 1: take a look at that sore is it in the

32
00:02:09,720 --> 00:02:13,079
Speaker 1: beginning of this rally, and it you know, thinking back

33
00:02:13,080 --> 00:02:14,840
Speaker 1: to the spring, it was very much like tech and

34
00:02:14,919 --> 00:02:17,840
Speaker 1: the stay at home trade we're starting to see broadened

35
00:02:17,840 --> 00:02:22,080
Speaker 1: out and so people like buying energy. Another area oil

36
00:02:22,160 --> 00:02:25,040
Speaker 1: doing very well. So these areas that did not participate

37
00:02:25,080 --> 00:02:27,000
Speaker 1: in the first part of the recovery or for several

38
00:02:27,040 --> 00:02:30,239
Speaker 1: months into this have been getting a lot of excitement

39
00:02:30,320 --> 00:02:33,160
Speaker 1: later enthusiasm. Yeah, that's right. And of course we have

40
00:02:33,240 --> 00:02:38,240
Speaker 1: talked about you know, another sort of great rotation coming up. Yeah, right,

41
00:02:38,280 --> 00:02:40,720
Speaker 1: And of course every time we talk about these rotations,

42
00:02:40,760 --> 00:02:42,800
Speaker 1: there's the question is like is this another head fake

43
00:02:43,240 --> 00:02:45,160
Speaker 1: so we just get is everyone just gonna go back

44
00:02:45,200 --> 00:02:48,440
Speaker 1: to buying Fang and Microsoft and you know, of course

45
00:02:48,520 --> 00:02:52,280
Speaker 1: treasuries in a couple of weeks or is this something new?

46
00:02:52,400 --> 00:02:57,200
Speaker 1: So lots to think about as we close out from

47
00:02:57,200 --> 00:03:00,280
Speaker 1: a macro perspective, all kinds of different moving part going

48
00:03:00,280 --> 00:03:05,080
Speaker 1: into Yeah, and I think, you know, there's clearly a

49
00:03:05,080 --> 00:03:08,639
Speaker 1: lot going on. But UM is going to be an

50
00:03:08,680 --> 00:03:11,120
Speaker 1: interesting year, right, Like if you just look at the

51
00:03:11,160 --> 00:03:14,200
Speaker 1: market currently at all time highs, you have that broadening

52
00:03:14,320 --> 00:03:16,320
Speaker 1: of the rally. The big question is whether or not

53
00:03:16,400 --> 00:03:18,720
Speaker 1: it's going to keep going, and then you have all

54
00:03:18,720 --> 00:03:23,240
Speaker 1: these idiosyncratic events like what happens with the vaccine and

55
00:03:23,280 --> 00:03:27,359
Speaker 1: of course how do central banks respond to that. If

56
00:03:27,400 --> 00:03:30,680
Speaker 1: we get a vaccine and the economy really starts to recover,

57
00:03:31,160 --> 00:03:35,120
Speaker 1: then could you finally finally get inflation, which you know

58
00:03:35,960 --> 00:03:38,280
Speaker 1: could unsettle the market in one way or another. So

59
00:03:38,600 --> 00:03:42,080
Speaker 1: I think you're right, like there are these turning points

60
00:03:42,120 --> 00:03:44,320
Speaker 1: that you can sort of see on the horizon, but

61
00:03:44,440 --> 00:03:47,040
Speaker 1: the big question is whether or not, um, you know,

62
00:03:47,160 --> 00:03:50,119
Speaker 1: we're just gonna be talking about them or actually experiencing them,

63
00:03:50,320 --> 00:03:54,120
Speaker 1: whether or not it's another head fake. Yes, yeah, no, Yeah,

64
00:03:54,200 --> 00:03:56,320
Speaker 1: it's gonna be a really interesting year. Let's hopefully it's

65
00:03:56,360 --> 00:04:00,360
Speaker 1: not as interesting as but you know, for our sakes

66
00:04:00,480 --> 00:04:02,600
Speaker 1: from a stuff to talk about the standpoint, we hope

67
00:04:02,640 --> 00:04:06,200
Speaker 1: it's at least somewhat interesting anyway macro. So yeah, to

68
00:04:06,280 --> 00:04:09,760
Speaker 1: talk about the outlook, I thought we'd bring on two

69
00:04:09,800 --> 00:04:14,320
Speaker 1: of the smartest, uh people who know who discussed macro

70
00:04:14,440 --> 00:04:17,800
Speaker 1: from both of pure econ perspective and the market's perspective.

71
00:04:18,160 --> 00:04:21,280
Speaker 1: Both have previously been on the show. I wanna bring

72
00:04:21,360 --> 00:04:26,080
Speaker 1: on Novel Sinala, he's a macro strategist and portfolio manager

73
00:04:26,240 --> 00:04:31,240
Speaker 1: at e i A All Weather Alpha Partners. And John Turk.

74
00:04:31,240 --> 00:04:34,120
Speaker 1: He's the author of the Cheap Convexity blog, which has

75
00:04:34,120 --> 00:04:37,440
Speaker 1: been a must read all year for people in the

76
00:04:37,520 --> 00:04:41,560
Speaker 1: know on macro and market, sort of tying together both

77
00:04:41,600 --> 00:04:45,920
Speaker 1: the price action and the bigger economic themes of the year.

78
00:04:46,040 --> 00:04:49,480
Speaker 1: So Novel and John, thank you so much for joining us.

79
00:04:49,960 --> 00:04:53,440
Speaker 1: Thanks for having me, Yeah, thanks for having me absolutely,

80
00:04:53,440 --> 00:04:56,200
Speaker 1: thanks for coming back. So sort of started off broad

81
00:04:56,480 --> 00:04:59,600
Speaker 1: and uh, either one of you could pick up, but

82
00:04:59,760 --> 00:05:03,400
Speaker 1: sort like, what's the number one thing on your mind

83
00:05:03,560 --> 00:05:05,800
Speaker 1: right now in terms of this sort of the big

84
00:05:05,920 --> 00:05:09,080
Speaker 1: questions are the big the big things to get right

85
00:05:09,400 --> 00:05:14,479
Speaker 1: when you're thinking about the outlook for market. I think

86
00:05:14,760 --> 00:05:17,320
Speaker 1: we would probably both agree that the dollars, you know,

87
00:05:17,600 --> 00:05:21,640
Speaker 1: kind of at the focal point of our analyses. Um,

88
00:05:21,680 --> 00:05:24,760
Speaker 1: you know, we we we are in a very new

89
00:05:24,839 --> 00:05:27,440
Speaker 1: interesting regime with the FED. And if the FED is

90
00:05:27,520 --> 00:05:30,719
Speaker 1: to follow through on this um you know, new regime

91
00:05:30,920 --> 00:05:34,520
Speaker 1: and framework, then what that would suggest is that, um,

92
00:05:34,560 --> 00:05:37,800
Speaker 1: you know, as we get positive outcomes in the macar economy,

93
00:05:38,200 --> 00:05:42,479
Speaker 1: it should actually lead to feedback loops via a lower dollar.

94
00:05:42,839 --> 00:05:44,960
Speaker 1: And so that's why we've been, you know, here at

95
00:05:45,360 --> 00:05:47,880
Speaker 1: we've been really focused on expressing a lot of our

96
00:05:47,920 --> 00:05:52,800
Speaker 1: bullish trades through short dollar expressions. UM So, I think,

97
00:05:52,839 --> 00:05:55,360
Speaker 1: I think getting the dollar right, getting the FED right,

98
00:05:55,440 --> 00:05:59,840
Speaker 1: and then fit figuring out the similarities and differences between

99
00:06:00,360 --> 00:06:03,240
Speaker 1: what what is a vaccine type of reflation and what

100
00:06:03,400 --> 00:06:07,080
Speaker 1: is a you know, typical stimulus type of reflation. And

101
00:06:07,080 --> 00:06:09,280
Speaker 1: and John's written about all these things, um and and

102
00:06:09,320 --> 00:06:11,480
Speaker 1: a lot of detail and and that some great frameworks.

103
00:06:11,480 --> 00:06:14,960
Speaker 1: I'll let him jump in a little bit too. Yeah. No,

104
00:06:15,160 --> 00:06:17,919
Speaker 1: I think I think as has been the case, you know,

105
00:06:17,960 --> 00:06:19,840
Speaker 1: in the last few weeks. I think the dollar will

106
00:06:19,880 --> 00:06:22,640
Speaker 1: probably continue to be like the folk grim instrument for

107
00:06:23,080 --> 00:06:25,839
Speaker 1: kind of how the market digests and prices going forward

108
00:06:25,839 --> 00:06:29,880
Speaker 1: to this recovery. UM, I think what's kind of interesting

109
00:06:30,040 --> 00:06:33,440
Speaker 1: is and as not fools suggesting with the with the

110
00:06:33,440 --> 00:06:36,760
Speaker 1: new FED reaction function, is that the FED has moved

111
00:06:37,400 --> 00:06:42,320
Speaker 1: from like their primary objective of being able to cut

112
00:06:42,360 --> 00:06:44,880
Speaker 1: off left tails right to suggest that, Okay, something's bad

113
00:06:44,880 --> 00:06:47,279
Speaker 1: has happened. How do we respond, either through you know,

114
00:06:47,360 --> 00:06:51,440
Speaker 1: financial markets or whatever. And now as there's a train

115
00:06:51,520 --> 00:06:54,839
Speaker 1: in motion, the Fed's best move in terms of kind

116
00:06:54,880 --> 00:06:59,599
Speaker 1: of accommodating this recovery will basically be pushing whatever the

117
00:06:59,640 --> 00:07:02,000
Speaker 1: train is and giving it another nudge. So in the

118
00:07:02,160 --> 00:07:04,360
Speaker 1: QT end of Q three, we thought this train was

119
00:07:04,400 --> 00:07:06,920
Speaker 1: probably going to be fiscal, and in August we were

120
00:07:07,000 --> 00:07:10,800
Speaker 1: kind of pricing this more MMT type world, and then

121
00:07:10,840 --> 00:07:13,880
Speaker 1: fiscal negotiations kind of fell apart. We had an election

122
00:07:13,880 --> 00:07:16,120
Speaker 1: where we're likely gonna have a divided government, so the

123
00:07:16,160 --> 00:07:19,240
Speaker 1: market scope for fiscal kind of came down. And now

124
00:07:19,920 --> 00:07:23,080
Speaker 1: post the vaccine news, we kind of begin to entertain

125
00:07:23,400 --> 00:07:26,320
Speaker 1: a market that is like goes from a fiscal lead

126
00:07:26,360 --> 00:07:30,520
Speaker 1: recovery to a private sector lead recovery and UM, and

127
00:07:30,560 --> 00:07:32,800
Speaker 1: that maybe change the channel, but it still gets the

128
00:07:32,840 --> 00:07:34,800
Speaker 1: train in motion. And now the FED can jump on

129
00:07:34,880 --> 00:07:38,000
Speaker 1: and say okay, like there was you know, an awful

130
00:07:38,280 --> 00:07:41,200
Speaker 1: pandemic last year and now we're in one with a

131
00:07:41,280 --> 00:07:44,520
Speaker 1: vaccine and that doesn't really change anything for policy. And

132
00:07:44,560 --> 00:07:48,760
Speaker 1: that's a really powerful, i think macro tool for them

133
00:07:48,800 --> 00:07:54,600
Speaker 1: to basically push push forward this recovery. Now you mentioned

134
00:07:55,080 --> 00:07:57,960
Speaker 1: the idea of a week or dollar and feedback loops,

135
00:07:58,040 --> 00:08:01,880
Speaker 1: could you maybe go into some more detail about how

136
00:08:01,880 --> 00:08:05,040
Speaker 1: exactly you see that working. Yeah, So with respect to

137
00:08:05,080 --> 00:08:08,640
Speaker 1: the dollar more structurally, you know, if you if you

138
00:08:08,680 --> 00:08:14,440
Speaker 1: think about the regime from say the financial crisis until COVID, UM,

139
00:08:14,480 --> 00:08:17,000
Speaker 1: you know, the dollar was like the only game in

140
00:08:17,040 --> 00:08:20,920
Speaker 1: town in terms of collecting yield and having positive growth

141
00:08:20,960 --> 00:08:25,360
Speaker 1: prospects in the major economies and the major accessible markets. UM.

142
00:08:25,480 --> 00:08:28,840
Speaker 1: COVID's really changed that dynamic. As you know, the FEDS

143
00:08:29,360 --> 00:08:31,880
Speaker 1: uh kind of caught down to like Europe and Japan

144
00:08:32,000 --> 00:08:35,120
Speaker 1: interest rates wise, as well as has changed its reaction

145
00:08:35,160 --> 00:08:38,839
Speaker 1: function to be far more devish and far more accommodative

146
00:08:38,960 --> 00:08:42,800
Speaker 1: to positive outcomes. At the same time, China has kind

147
00:08:42,800 --> 00:08:47,000
Speaker 1: of taken the rule of you know, the yield premium

148
00:08:47,400 --> 00:08:50,080
Speaker 1: uh and and they've made some changes to their to

149
00:08:50,120 --> 00:08:54,439
Speaker 1: their markets. UM. You know, since especially since when they

150
00:08:54,440 --> 00:08:56,880
Speaker 1: when they had their FX policy shift, and you know,

151
00:08:57,000 --> 00:09:00,320
Speaker 1: the the Chinese government bond market has has really turned

152
00:09:00,360 --> 00:09:03,080
Speaker 1: into this UM. You know. I think the way John

153
00:09:03,080 --> 00:09:05,240
Speaker 1: put it once is just you know, it's like one

154
00:09:05,240 --> 00:09:08,680
Speaker 1: big sucking sound of capital, just really big one way flows.

155
00:09:09,000 --> 00:09:11,040
Speaker 1: And so what that what that kind of means to

156
00:09:11,120 --> 00:09:15,280
Speaker 1: me is that um, you know, there's a structural, structural

157
00:09:15,280 --> 00:09:19,360
Speaker 1: headwinds to the US dollar and those those um will

158
00:09:19,400 --> 00:09:23,840
Speaker 1: not only be reflecting positive outcomes and reflationary outcomes, but

159
00:09:23,880 --> 00:09:26,920
Speaker 1: will also likely be driving them UM in a feedback

160
00:09:26,960 --> 00:09:29,880
Speaker 1: loop as well, UM through a variety of channels, both

161
00:09:30,160 --> 00:09:33,080
Speaker 1: through you know what that means, UM to to create

162
00:09:33,120 --> 00:09:36,520
Speaker 1: accounts as well as you know, just general credit creation.

163
00:09:37,160 --> 00:09:40,920
Speaker 1: I'm curious about this idea, and John, You've talked about

164
00:09:40,960 --> 00:09:44,280
Speaker 1: a lot, both of you, but the idea of there

165
00:09:44,320 --> 00:09:49,520
Speaker 1: being a meaningful difference between a fiscal stimulus lead reflation

166
00:09:49,880 --> 00:09:54,400
Speaker 1: and a vaccine lead reflation. So it's funny because you know,

167
00:09:54,520 --> 00:09:58,199
Speaker 1: it's you discuss John, it's like going into uh Q

168
00:09:58,400 --> 00:10:00,400
Speaker 1: three and beginna give Q four. That thought was like, Okay,

169
00:10:00,400 --> 00:10:03,560
Speaker 1: maybe we're gonna get a fiscal deal, or maybe Biden

170
00:10:03,679 --> 00:10:06,040
Speaker 1: is going to win with and get a Democratic Senate

171
00:10:06,080 --> 00:10:09,440
Speaker 1: and then they're going to pass a massive bill next year.

172
00:10:10,040 --> 00:10:12,760
Speaker 1: But then that didn't happen. We didn't get the unified government.

173
00:10:12,800 --> 00:10:16,680
Speaker 1: There's no fiscal deal as if yet. And yet like

174
00:10:16,720 --> 00:10:18,360
Speaker 1: a couple of days after the election, we got the

175
00:10:18,400 --> 00:10:21,480
Speaker 1: really good news about from Fiser about their vaccine, and

176
00:10:21,520 --> 00:10:25,080
Speaker 1: suddenly people realize that a vaccine is likely coming and

177
00:10:25,080 --> 00:10:29,120
Speaker 1: it's going to be effective, and the renormalization of economic

178
00:10:29,200 --> 00:10:33,000
Speaker 1: activity might truly begin in earnest sometime in the beginning

179
00:10:33,040 --> 00:10:38,000
Speaker 1: of So from a sort of market standpoint, what are

180
00:10:38,040 --> 00:10:43,280
Speaker 1: the meaningful distinctions between that recovery led by a vaccine

181
00:10:43,280 --> 00:10:46,080
Speaker 1: and a return to normal verse or recovery led by

182
00:10:46,280 --> 00:10:49,400
Speaker 1: a sort of Cares Act two point right? I think

183
00:10:49,400 --> 00:10:51,720
Speaker 1: it's I think it's that it's such a key point, honestly,

184
00:10:51,760 --> 00:10:53,680
Speaker 1: and it has been a big theme for the last

185
00:10:53,760 --> 00:10:56,880
Speaker 1: few weeks. And I think it works through two channels.

186
00:10:56,920 --> 00:11:01,280
Speaker 1: I think one is the fundamental economic channel, which is

187
00:11:01,320 --> 00:11:04,360
Speaker 1: to say that a fiscal deal that has a very

188
00:11:04,400 --> 00:11:08,080
Speaker 1: heavy composition towards transfer payments, has a much more immediate

189
00:11:08,120 --> 00:11:11,319
Speaker 1: nominal impact, right, because it goes into people's pockets, people

190
00:11:11,360 --> 00:11:14,360
Speaker 1: can spend. There's a consumption element, and it's it's much

191
00:11:14,400 --> 00:11:17,720
Speaker 1: more nominal because it's not followed by there's no new productivity,

192
00:11:17,760 --> 00:11:20,600
Speaker 1: there's no new investments that are it's very consumption focused,

193
00:11:21,200 --> 00:11:24,440
Speaker 1: and that kind of that is you know, trickles out

194
00:11:24,480 --> 00:11:27,240
Speaker 1: through the trade deficit. It's a weaker dollar, but it's

195
00:11:27,240 --> 00:11:29,160
Speaker 1: you know, it's consumption lead, so it has a much

196
00:11:29,200 --> 00:11:32,640
Speaker 1: more nominal impact. The vaccine, on the other hand, is

197
00:11:32,679 --> 00:11:36,080
Speaker 1: different in the sense that it's much more on the

198
00:11:36,120 --> 00:11:39,760
Speaker 1: corporate side in the sense that it gives business is

199
00:11:39,920 --> 00:11:44,400
Speaker 1: kind of more clarity in terms of capex, inventory, restocking,

200
00:11:45,040 --> 00:11:48,800
Speaker 1: more you know, business related decisions, and that has more

201
00:11:48,840 --> 00:11:52,200
Speaker 1: of a real impact um in terms of, you know,

202
00:11:52,960 --> 00:11:57,040
Speaker 1: leading to potentially like higher levels of real growth UM

203
00:11:57,080 --> 00:11:59,680
Speaker 1: in the coming year. And I think basically what the

204
00:11:59,720 --> 00:12:03,000
Speaker 1: mark it kind of did with this transition from a

205
00:12:03,000 --> 00:12:07,040
Speaker 1: fiscal regime to e vac's regime, is it traded scope

206
00:12:07,080 --> 00:12:11,000
Speaker 1: for certainty, right, the potential of like more of an

207
00:12:11,080 --> 00:12:14,000
Speaker 1: mm T type fiscal approach was kind of like, oh,

208
00:12:14,040 --> 00:12:16,400
Speaker 1: we could have like high levels of nominal GDP and

209
00:12:16,440 --> 00:12:20,960
Speaker 1: that could be pretty cool. But what the vaccine regime

210
00:12:21,040 --> 00:12:23,160
Speaker 1: brings is like we kind of know what the world's

211
00:12:23,160 --> 00:12:26,960
Speaker 1: gonna look like end of Q two on next year,

212
00:12:27,240 --> 00:12:31,000
Speaker 1: and that has a massive reduction in risk premium, and

213
00:12:31,120 --> 00:12:34,440
Speaker 1: the market can levitate off that. And if I could

214
00:12:34,440 --> 00:12:37,200
Speaker 1: add a little bit to that as well, you know, um,

215
00:12:37,280 --> 00:12:40,480
Speaker 1: and you know, you definitely have seen this what what

216
00:12:40,559 --> 00:12:42,920
Speaker 1: John's mentioning, You've definitely seen it in the markets, whether

217
00:12:42,960 --> 00:12:45,760
Speaker 1: it's you know, some of the beating down cyclicles, um,

218
00:12:45,760 --> 00:12:48,880
Speaker 1: whether it's you know, the trade sensitive places like you know,

219
00:12:48,880 --> 00:12:51,120
Speaker 1: the kneek has been one of our our long stuff

220
00:12:51,160 --> 00:12:54,080
Speaker 1: to play, this vaccine trade um, and even you know,

221
00:12:54,640 --> 00:12:57,720
Speaker 1: these these dislocations between gold prices and real yields. I

222
00:12:57,760 --> 00:13:00,000
Speaker 1: think all three of those things reflect exactly what John

223
00:13:00,040 --> 00:13:02,600
Speaker 1: saying with respect to the reduction of risk premium. But

224
00:13:02,720 --> 00:13:05,480
Speaker 1: in addition as well, I think one other distinction between

225
00:13:05,800 --> 00:13:08,880
Speaker 1: the two types of you know, two types of reflation

226
00:13:09,080 --> 00:13:13,040
Speaker 1: are that the consumption basket mixed should likely shift towards

227
00:13:13,040 --> 00:13:16,319
Speaker 1: services as um. You know that we get this normalization

228
00:13:16,440 --> 00:13:19,200
Speaker 1: type of dynamic, and that should be really interesting to

229
00:13:19,280 --> 00:13:23,120
Speaker 1: me because for two reasons. One one tail wind to

230
00:13:23,200 --> 00:13:25,520
Speaker 1: the short dollar and and and long room and b

231
00:13:25,640 --> 00:13:29,160
Speaker 1: type of dynamic has been so far has been how

232
00:13:29,240 --> 00:13:32,880
Speaker 1: much um, you know, the consumption basket mix has has

233
00:13:32,880 --> 00:13:36,720
Speaker 1: flattered you know, the the goods exporters like China, um

234
00:13:36,840 --> 00:13:40,800
Speaker 1: and and so it's you know, we may see some hiccups,

235
00:13:40,920 --> 00:13:44,240
Speaker 1: UM you know, also retracements or this or that, uh

236
00:13:44,320 --> 00:13:47,320
Speaker 1: sometimes you know early next year, but especially if you

237
00:13:47,320 --> 00:13:50,000
Speaker 1: know the trends able to persist and and you know

238
00:13:50,120 --> 00:13:54,160
Speaker 1: ultimately get through those, you know, those types of transitions

239
00:13:54,200 --> 00:13:57,080
Speaker 1: that would really reinforce UM the case that this is

240
00:13:57,080 --> 00:13:59,559
Speaker 1: a structural shift and has you know a lot of

241
00:13:59,640 --> 00:14:03,200
Speaker 1: likes to go. And the second point with respect to this, uh,

242
00:14:03,200 --> 00:14:06,760
Speaker 1: you know, the consumption basket mixed shifts to services is

243
00:14:06,800 --> 00:14:09,720
Speaker 1: one thing I'm really interested on and to see is

244
00:14:09,920 --> 00:14:13,840
Speaker 1: um if there's been if COVID ends up being a

245
00:14:13,920 --> 00:14:18,400
Speaker 1: permanent downward truck to the labor intensity of services output

246
00:14:19,000 --> 00:14:22,920
Speaker 1: as in, you know, the services output and services demand rebounds,

247
00:14:22,960 --> 00:14:27,320
Speaker 1: but does the employment side of it under underperform the

248
00:14:27,320 --> 00:14:30,200
Speaker 1: output side of it? Um And and that would be

249
00:14:30,240 --> 00:14:33,160
Speaker 1: that be really interesting. You know, the idea of being

250
00:14:33,200 --> 00:14:35,200
Speaker 1: you know what the w t O and and the

251
00:14:35,280 --> 00:14:37,760
Speaker 1: Chinese entrance of w t O what it was too

252
00:14:38,000 --> 00:14:41,120
Speaker 1: goods and and the labor intensity of goods. We could

253
00:14:41,120 --> 00:14:44,440
Speaker 1: see a smaller version of that materialize and services. Um.

254
00:14:44,520 --> 00:14:47,280
Speaker 1: I don't have a strong view yet about this. I

255
00:14:47,320 --> 00:14:49,440
Speaker 1: think it's really gonna be just something to keep in

256
00:14:49,480 --> 00:14:51,280
Speaker 1: the back of our minds and and see how it

257
00:14:51,360 --> 00:14:54,160
Speaker 1: unfolds in real time. But if that were to materialize,

258
00:14:54,520 --> 00:14:57,400
Speaker 1: that would um just give that much more of a

259
00:14:57,520 --> 00:14:59,960
Speaker 1: of a tail wind for the FET to remain at

260
00:15:00,000 --> 00:15:03,040
Speaker 1: commendative because you know, the the employment would not be

261
00:15:03,120 --> 00:15:06,560
Speaker 1: the employment picture wouldn't be recovering, um, you know, necessarily

262
00:15:06,720 --> 00:15:09,640
Speaker 1: as as as swiftly as expected on the services side.

263
00:15:10,480 --> 00:15:12,680
Speaker 1: So just on that note, I mean, we are starting

264
00:15:12,720 --> 00:15:17,120
Speaker 1: to see some commentators, including some former All Thoughts guests,

265
00:15:17,160 --> 00:15:20,400
Speaker 1: but you know, people like Tim Dewey at the University

266
00:15:20,440 --> 00:15:24,240
Speaker 1: of Oregon talking about the potential to have a supercharged

267
00:15:24,480 --> 00:15:29,800
Speaker 1: economy next year, where um, you know, everything looks pretty good,

268
00:15:29,880 --> 00:15:34,320
Speaker 1: you get a vaccination, people go back to spending, unemployment

269
00:15:34,720 --> 00:15:38,320
Speaker 1: rebounds and isn't actually you know, as bad as maybe

270
00:15:38,360 --> 00:15:41,440
Speaker 1: the FED was expecting, and perhaps it sparks a little

271
00:15:41,440 --> 00:15:45,880
Speaker 1: bit of inflation that puts the FED in an awkward position.

272
00:15:46,680 --> 00:15:50,040
Speaker 1: Is that a risk that you see for next year

273
00:15:50,280 --> 00:15:52,880
Speaker 1: or do you think the structural changes that you just

274
00:15:52,960 --> 00:15:55,680
Speaker 1: described you're going to be enough to avoid that scenario?

275
00:15:56,400 --> 00:15:59,280
Speaker 1: I leave at me personally, I think the FED will

276
00:15:59,320 --> 00:16:02,760
Speaker 1: likely an accommodative. What should be interesting is, you know,

277
00:16:03,080 --> 00:16:05,440
Speaker 1: to the extent that we see these dynamics start to

278
00:16:05,680 --> 00:16:08,840
Speaker 1: emerge in the conversations, it's it's likely to be reflected

279
00:16:09,000 --> 00:16:13,040
Speaker 1: in internal divisions within the f OMC. And so what

280
00:16:13,200 --> 00:16:15,200
Speaker 1: I'll be really interested to see is how chair Power

281
00:16:15,400 --> 00:16:18,640
Speaker 1: kind of navigates those decisions, those divisions and you know,

282
00:16:18,800 --> 00:16:20,960
Speaker 1: kind of put on a bit of like look at

283
00:16:21,000 --> 00:16:22,760
Speaker 1: some of the statements to do more of a political

284
00:16:22,840 --> 00:16:26,760
Speaker 1: lens along those lines. Um. But yeah, I I think that, Um,

285
00:16:26,800 --> 00:16:29,280
Speaker 1: there's a there's a pretty high chance that we have

286
00:16:29,320 --> 00:16:32,160
Speaker 1: a very strong economy next year. UM. You know, some

287
00:16:32,160 --> 00:16:34,600
Speaker 1: some of these south side forecasts may actually be you know,

288
00:16:34,680 --> 00:16:37,040
Speaker 1: a little bit lower than you know, what I would expect.

289
00:16:37,400 --> 00:16:40,600
Speaker 1: And you know, we'll we'll we'll know more, um, you

290
00:16:40,640 --> 00:16:43,520
Speaker 1: know later this month, but especially around the March f

291
00:16:43,560 --> 00:16:46,960
Speaker 1: OMC meeting. Um. But the side so far suggests to

292
00:16:47,000 --> 00:16:49,400
Speaker 1: me that, um, you know, this is a new regime

293
00:16:49,440 --> 00:16:52,440
Speaker 1: shift and we were not really gonna, uh, they're not

294
00:16:52,480 --> 00:16:54,240
Speaker 1: really going to get ahead of it. And and just

295
00:16:54,320 --> 00:16:56,280
Speaker 1: to be clear with respect to what I was mentioning

296
00:16:56,720 --> 00:17:00,480
Speaker 1: with with the labor intensity of output of services, that

297
00:17:00,560 --> 00:17:03,000
Speaker 1: would be more of a question about on the back end,

298
00:17:03,120 --> 00:17:06,119
Speaker 1: like not necessarily in the next few months, um, but

299
00:17:06,200 --> 00:17:09,520
Speaker 1: more so about you know, what's the what's the long

300
00:17:09,640 --> 00:17:12,240
Speaker 1: term run rate of you know, employment growth in the

301
00:17:12,280 --> 00:17:15,040
Speaker 1: service aside um, and what does that mean for you know,

302
00:17:15,080 --> 00:17:18,119
Speaker 1: fat forecasts where where are they're likely to have to

303
00:17:18,200 --> 00:17:21,040
Speaker 1: mark up and down you know, the longer term forecast.

304
00:17:21,160 --> 00:17:23,960
Speaker 1: But I know this is another question that I'm sure

305
00:17:24,040 --> 00:17:27,360
Speaker 1: John has some some great thoughts about two, so I'll

306
00:17:27,400 --> 00:17:31,640
Speaker 1: let him jump in. Yeah, no, I I think it's

307
00:17:31,640 --> 00:17:35,440
Speaker 1: it's it's really interesting in the sense that the recovery

308
00:17:35,960 --> 00:17:39,879
Speaker 1: next year is going to look very different than ones

309
00:17:39,960 --> 00:17:42,159
Speaker 1: of at least the most recent past in terms of

310
00:17:42,240 --> 00:17:44,679
Speaker 1: output shocks, in the sense that balance sheets are in

311
00:17:44,680 --> 00:17:47,400
Speaker 1: a much better position, as people like you know, Tim

312
00:17:47,440 --> 00:17:50,000
Speaker 1: doy have said that there's you know, there's this element

313
00:17:50,000 --> 00:17:52,399
Speaker 1: of excess savings and that's kind of come from this

314
00:17:52,440 --> 00:17:56,760
Speaker 1: combination of the cares act kind of having this huge multiplier,

315
00:17:57,080 --> 00:17:59,560
Speaker 1: but also having the you know, with the virus, having

316
00:17:59,560 --> 00:18:02,840
Speaker 1: these con strains in terms of people's ability to spend it. Um.

317
00:18:02,920 --> 00:18:04,640
Speaker 1: And I think the other thing is we actually went

318
00:18:04,720 --> 00:18:08,200
Speaker 1: into the crisis um with you know, household balance sheets

319
00:18:08,240 --> 00:18:11,760
Speaker 1: in relatively good shape. Um, So coming out of it,

320
00:18:11,760 --> 00:18:14,520
Speaker 1: it's not that Usually in a recession you kind of

321
00:18:14,560 --> 00:18:18,320
Speaker 1: have this lethargic hystory sis kind of as people have

322
00:18:18,480 --> 00:18:21,720
Speaker 1: to repair balance sheets and that's that's why it takes

323
00:18:21,760 --> 00:18:24,439
Speaker 1: time for recoveries to get off the ground. Um. And

324
00:18:24,440 --> 00:18:26,600
Speaker 1: I think that could be very different this time, given

325
00:18:26,640 --> 00:18:29,320
Speaker 1: that it's just we had a we had a recession

326
00:18:29,320 --> 00:18:33,159
Speaker 1: where disposable income went up, so um it could you know,

327
00:18:33,280 --> 00:18:35,600
Speaker 1: very much change the scope of the recovery. And as

328
00:18:35,640 --> 00:18:38,960
Speaker 1: it relates to the FED, I think and I think, um,

329
00:18:39,000 --> 00:18:42,480
Speaker 1: this is this is something I'm fairly confident, I think,

330
00:18:42,480 --> 00:18:45,600
Speaker 1: and people are underestimating. Is I don't think the FED

331
00:18:46,359 --> 00:18:50,720
Speaker 1: reaction function or response so far is cyclical. I think

332
00:18:50,760 --> 00:18:53,639
Speaker 1: it's structural. And what I mean by that is I

333
00:18:53,680 --> 00:18:56,840
Speaker 1: think the FED is kind of is not saying like

334
00:18:56,920 --> 00:19:00,560
Speaker 1: this was the right reaction to a COVID shot in

335
00:19:00,600 --> 00:19:04,080
Speaker 1: the sense of their forward guidance, Balancie policy and there

336
00:19:04,200 --> 00:19:07,320
Speaker 1: and and and etcetera. I think what they're saying is

337
00:19:07,440 --> 00:19:10,520
Speaker 1: is like, we got things wrong a few years ago

338
00:19:10,880 --> 00:19:14,160
Speaker 1: and that's not going to happen again. And the manifestation

339
00:19:14,200 --> 00:19:16,560
Speaker 1: of that will be that, yes, things are going to

340
00:19:16,600 --> 00:19:18,520
Speaker 1: be quote unquote back to normal in the middle of

341
00:19:18,600 --> 00:19:21,080
Speaker 1: next year, but the FED won't because it's not a

342
00:19:21,080 --> 00:19:24,560
Speaker 1: cyclical response, it's a structural response. So I I think

343
00:19:24,560 --> 00:19:26,960
Speaker 1: the FED will be much more dubbish than I think

344
00:19:27,000 --> 00:19:31,720
Speaker 1: a lot of people think. The recaliboration of their approach,

345
00:19:31,960 --> 00:19:35,680
Speaker 1: especially with respect to the Phelps curve, pre Dace COVID. Right,

346
00:19:35,960 --> 00:19:38,280
Speaker 1: So what what John saying makes a lot of sense

347
00:19:38,320 --> 00:19:40,639
Speaker 1: to me, and conversations with John have actually kind of

348
00:19:40,640 --> 00:19:43,000
Speaker 1: influenced my view here. One last point I'd like to

349
00:19:43,040 --> 00:19:45,639
Speaker 1: add there is, you know, I think that one of

350
00:19:45,680 --> 00:19:48,520
Speaker 1: the biggest things that um, you know, I had to

351
00:19:48,640 --> 00:19:50,920
Speaker 1: adapt to in real time and it kind of change

352
00:19:50,960 --> 00:19:54,119
Speaker 1: my mind on is exactly that Tim Dewey hypothesis of

353
00:19:54,160 --> 00:19:56,840
Speaker 1: excess savings. And you know, John and I have talked

354
00:19:56,840 --> 00:19:58,480
Speaker 1: a little bit about, you know, what would be cool

355
00:19:58,520 --> 00:20:02,560
Speaker 1: ways to maybe think about the distributional aspects of this

356
00:20:02,640 --> 00:20:04,680
Speaker 1: and if if the data you know exists for that,

357
00:20:04,880 --> 00:20:06,800
Speaker 1: and that could be a key question to really gauge

358
00:20:07,280 --> 00:20:10,000
Speaker 1: how far it can take us through next year. But

359
00:20:10,960 --> 00:20:13,760
Speaker 1: it is really interesting, you know, the the initial conditions

360
00:20:14,080 --> 00:20:17,600
Speaker 1: really do matter in terms of macro economic thinking, and

361
00:20:17,600 --> 00:20:21,000
Speaker 1: the initial conditions the balantie wise on the household side especially,

362
00:20:21,400 --> 00:20:24,560
Speaker 1: don't really suggest that we have to have very elevated

363
00:20:24,560 --> 00:20:27,520
Speaker 1: savings rates for a long time, as as balanties have

364
00:20:27,560 --> 00:20:29,960
Speaker 1: to have to get repaired and to the extent that

365
00:20:30,880 --> 00:20:33,920
Speaker 1: we would need elevated the savings rates in response to

366
00:20:33,960 --> 00:20:36,680
Speaker 1: the you know, virus uncertainty. It's kind of similar to

367
00:20:36,760 --> 00:20:38,879
Speaker 1: what John was saying with respect of the risk premium

368
00:20:38,880 --> 00:20:41,600
Speaker 1: compression on the back of the vaccine news. You trade

369
00:20:41,680 --> 00:20:44,399
Speaker 1: scope for certainty, and that certainty ends up being a

370
00:20:44,440 --> 00:20:48,800
Speaker 1: pretty big headwind. Tom, you know how high personal savings

371
00:20:48,920 --> 00:21:08,480
Speaker 1: rates you know, end up being next year. So one

372
00:21:08,480 --> 00:21:10,240
Speaker 1: of the questions that I think the off all I've

373
00:21:10,240 --> 00:21:13,560
Speaker 1: asked you this before, but it's something I've been curious

374
00:21:13,560 --> 00:21:17,040
Speaker 1: about a lot. Like or we talked about regime shift

375
00:21:17,119 --> 00:21:20,399
Speaker 1: and the FEDS regime shift is fairly clear and you

376
00:21:20,480 --> 00:21:23,359
Speaker 1: believe it. And they're going to be uh much less

377
00:21:23,440 --> 00:21:26,960
Speaker 1: aggressive they claim in um hiking raids. They're not going

378
00:21:27,000 --> 00:21:30,520
Speaker 1: to be trying to get ahead of inflation in the

379
00:21:30,600 --> 00:21:36,200
Speaker 1: same way. And so that's potentially quite significant. Obviously, the

380
00:21:36,240 --> 00:21:39,720
Speaker 1: post COVID economy could look different than the pre COVID

381
00:21:39,760 --> 00:21:42,720
Speaker 1: economy in ways, and we'll talk about that more. But

382
00:21:42,800 --> 00:21:46,280
Speaker 1: what does that mean for then sort of like normalized markets?

383
00:21:46,359 --> 00:21:48,960
Speaker 1: And obviously right now, as we said in the intro

384
00:21:49,080 --> 00:21:52,080
Speaker 1: or in this era or this not era, or in

385
00:21:52,119 --> 00:21:55,960
Speaker 1: this like moment where people are buying like Macy's and

386
00:21:56,040 --> 00:21:59,920
Speaker 1: airlines and steel companies, companies that were not sexy at

387
00:22:00,040 --> 00:22:03,840
Speaker 1: all pre crisis um suddenly getting some sort of back

388
00:22:03,840 --> 00:22:08,200
Speaker 1: to normal appeal. But in as we normalize and maybe

389
00:22:08,200 --> 00:22:10,320
Speaker 1: in just sort of like Q three of next year,

390
00:22:10,400 --> 00:22:14,240
Speaker 1: things start to look genuinely normal. Do uh, do people

391
00:22:14,320 --> 00:22:19,240
Speaker 1: just go back to buying Microsoft and Netflix and Tesla

392
00:22:19,440 --> 00:22:23,320
Speaker 1: as their leaders or do something fundamentally changed where like

393
00:22:23,440 --> 00:22:28,440
Speaker 1: new winners can emerge on a more sustainable basis. That's

394
00:22:28,440 --> 00:22:31,040
Speaker 1: a great question, UM. I wish I had a great

395
00:22:31,080 --> 00:22:34,520
Speaker 1: answer to that. Um. You know, on one thing that

396
00:22:34,520 --> 00:22:38,200
Speaker 1: should be interesting along these lines is Um, the results

397
00:22:38,240 --> 00:22:41,440
Speaker 1: of the of the Georgia elections likely give some signal

398
00:22:41,560 --> 00:22:44,040
Speaker 1: with respect to what we can expect on the fiscal

399
00:22:44,080 --> 00:22:48,040
Speaker 1: front until the next batch of mid terms two and

400
00:22:48,080 --> 00:22:49,840
Speaker 1: that should be kind of interesting to keep in the

401
00:22:49,880 --> 00:22:52,520
Speaker 1: back back of our minds. But but yeah, you know,

402
00:22:52,760 --> 00:22:56,720
Speaker 1: I think that at some point next year, I wouldn't

403
00:22:56,720 --> 00:22:58,960
Speaker 1: be surprised if, you know, we kind of pivot back

404
00:22:59,000 --> 00:23:02,359
Speaker 1: to you people are long and long the long end

405
00:23:02,400 --> 00:23:05,359
Speaker 1: of the botto market and long you know, NAZAC and

406
00:23:05,359 --> 00:23:08,840
Speaker 1: and and China tech um and And it's it's interesting

407
00:23:08,880 --> 00:23:12,880
Speaker 1: actually seeing how we've already kind of we we despite

408
00:23:12,920 --> 00:23:16,159
Speaker 1: the fact that we've had this huge cyclicles m rally.

409
00:23:16,560 --> 00:23:19,160
Speaker 1: You know, the NAZZAC actually did kind of catch catch

410
00:23:19,280 --> 00:23:21,960
Speaker 1: up a little bit in in in recent sessions. So

411
00:23:22,000 --> 00:23:24,360
Speaker 1: I think there's still gonna likely be a structural demand

412
00:23:24,840 --> 00:23:28,879
Speaker 1: for that type of stuff. UM. And you know, I

413
00:23:29,080 --> 00:23:32,080
Speaker 1: would say though that like I'm I'm actually more interested

414
00:23:32,160 --> 00:23:36,040
Speaker 1: in like in terms of normalization trades that have durability.

415
00:23:36,240 --> 00:23:39,560
Speaker 1: I'm more interested in um, looking at things in the

416
00:23:39,560 --> 00:23:43,399
Speaker 1: emerging markets and looking at stuff that's sensitive to global

417
00:23:43,400 --> 00:23:47,240
Speaker 1: trade growth like th nik UM as opposed to you know,

418
00:23:48,160 --> 00:23:52,119
Speaker 1: just buying you know, US energy stocks and and you

419
00:23:52,160 --> 00:23:55,480
Speaker 1: know retail operators. I think, I think, I think, I

420
00:23:55,480 --> 00:23:58,480
Speaker 1: think it's right. And I think one maybe of the

421
00:23:58,520 --> 00:24:05,040
Speaker 1: more interesting transitions to come in, you know two could

422
00:24:05,080 --> 00:24:07,639
Speaker 1: be in terms of like these narratives of like a

423
00:24:07,640 --> 00:24:11,719
Speaker 1: fiscal reflation to a vaxx reflation, is that the vax

424
00:24:11,840 --> 00:24:15,800
Speaker 1: reflation kind of morphs into this broadening of a risk

425
00:24:15,880 --> 00:24:20,720
Speaker 1: premium compression. And I think like one of the I

426
00:24:20,760 --> 00:24:24,440
Speaker 1: think a lot of the market action post the vaccine

427
00:24:24,800 --> 00:24:27,000
Speaker 1: kind of felt like like the market was exhaling a

428
00:24:27,040 --> 00:24:29,120
Speaker 1: little bit, right, Like it had all this built up

429
00:24:29,640 --> 00:24:32,399
Speaker 1: risk premiums and like all these cyclicals had no idea

430
00:24:33,080 --> 00:24:35,840
Speaker 1: um and you saw like across asset classes in terms

431
00:24:35,920 --> 00:24:39,920
Speaker 1: of like trade sensitive currencies, etcetera. E. M. Bond markets

432
00:24:40,160 --> 00:24:43,840
Speaker 1: where there's just this very high level of risk premium.

433
00:24:43,920 --> 00:24:47,119
Speaker 1: And I think this kind of really dated back dates

434
00:24:47,160 --> 00:24:50,200
Speaker 1: back a while. And why I think this could be

435
00:24:50,440 --> 00:24:53,720
Speaker 1: maybe a bigger theme is that it's it could be

436
00:24:53,880 --> 00:24:56,760
Speaker 1: another one of these regime shifts, because what we had

437
00:24:56,800 --> 00:24:59,879
Speaker 1: in two thousand ten to two thousand twenty was basically

438
00:25:00,040 --> 00:25:04,560
Speaker 1: post financial crisis was basically exhausion, a shock after exhaus

439
00:25:04,680 --> 00:25:07,240
Speaker 1: A shock, and we had we went from the euro

440
00:25:07,359 --> 00:25:11,840
Speaker 1: crisis to China devel concerns, to Brexit, to trade war

441
00:25:12,280 --> 00:25:15,359
Speaker 1: and finally the mother of all shocks in terms of

442
00:25:15,400 --> 00:25:18,920
Speaker 1: COVID and unfortunately passed away this year. But Emmanuel Farhi

443
00:25:19,000 --> 00:25:21,200
Speaker 1: had Harvard actually did a lot of work on kind

444
00:25:21,200 --> 00:25:25,120
Speaker 1: of why the market price so much risk premium when

445
00:25:25,200 --> 00:25:29,200
Speaker 1: discount rates were so love and I think it has

446
00:25:29,400 --> 00:25:31,560
Speaker 1: something to do with this, and it led to things like,

447
00:25:31,840 --> 00:25:35,640
Speaker 1: you know, we'd have like the you know, swissy currency

448
00:25:36,200 --> 00:25:39,359
Speaker 1: on a on a effective exchanger evaluation metric, be it

449
00:25:39,520 --> 00:25:41,280
Speaker 1: like you know, just going a straight line from two

450
00:25:41,320 --> 00:25:44,040
Speaker 1: thousand ten to two thousand twenty, when things that were

451
00:25:44,080 --> 00:25:47,119
Speaker 1: like cyclically driven like the Swedish chrona or the AUSI

452
00:25:47,200 --> 00:25:49,520
Speaker 1: doll or things like that would kind of just be

453
00:25:49,560 --> 00:25:52,679
Speaker 1: in a decline lower. It was basically the market just

454
00:25:52,720 --> 00:25:55,720
Speaker 1: saying I want safety at all costs, and I don't

455
00:25:55,760 --> 00:25:57,960
Speaker 1: want I don't want anything to do with cyclicals. I

456
00:25:58,000 --> 00:26:00,600
Speaker 1: don't need that. There's this embedded it is premium, and

457
00:26:00,600 --> 00:26:03,000
Speaker 1: I think it's right for it to be there. And

458
00:26:03,040 --> 00:26:06,560
Speaker 1: I wonder if kind of the vaccine and the combination

459
00:26:06,600 --> 00:26:09,480
Speaker 1: of all these left tail measures we've taken with fiscal

460
00:26:09,560 --> 00:26:12,919
Speaker 1: filling in for deflation with the European um with the

461
00:26:12,920 --> 00:26:17,520
Speaker 1: European Deal, and and and things like that. UM, I

462
00:26:17,560 --> 00:26:20,760
Speaker 1: wonder if the combination of of left tail changes and

463
00:26:20,920 --> 00:26:24,199
Speaker 1: this catalyst to reduce risk premium kind of you know,

464
00:26:24,280 --> 00:26:27,520
Speaker 1: can have a higher trajectory than people think. You know,

465
00:26:27,920 --> 00:26:31,200
Speaker 1: I'm looking right down on the Bloomberg terminal of the

466
00:26:31,400 --> 00:26:37,320
Speaker 1: IMANXI have the Emerging Market Index and on a large

467
00:26:37,400 --> 00:26:40,560
Speaker 1: term scale, and so interesting because you know, we haven't

468
00:26:40,600 --> 00:26:43,480
Speaker 1: gone anywhere since two thousand and seven. Um. You know,

469
00:26:43,560 --> 00:26:46,440
Speaker 1: it's just been a bunch of zigs and zags along

470
00:26:46,480 --> 00:26:49,000
Speaker 1: the way. So you know, a lot of altility long

471
00:26:49,040 --> 00:26:52,040
Speaker 1: the way, but we're basically you know, haven't made any

472
00:26:52,359 --> 00:26:55,880
Speaker 1: upward progress. UM. I think this is before carry albeit.

473
00:26:56,280 --> 00:26:59,320
Speaker 1: But you know, if if if the framing that John

474
00:26:59,320 --> 00:27:01,600
Speaker 1: and I are presents, especially with respects to the dollar,

475
00:27:02,119 --> 00:27:04,840
Speaker 1: if those end up being right, then I wouldn't be surprised.

476
00:27:04,880 --> 00:27:08,880
Speaker 1: If you know, some of these emerging markets are are

477
00:27:08,960 --> 00:27:12,240
Speaker 1: really kind of coiled and and and could could be

478
00:27:12,560 --> 00:27:16,680
Speaker 1: a really interesting and more durable trade. And as we

479
00:27:16,880 --> 00:27:19,560
Speaker 1: as we kind of handoff, like like John said, from

480
00:27:19,640 --> 00:27:24,359
Speaker 1: just a pure vaccine excellation to a broader based you know,

481
00:27:24,480 --> 00:27:27,520
Speaker 1: reduction risk premia, and I would I would expect, you know,

482
00:27:27,600 --> 00:27:30,600
Speaker 1: the emerging markets trade to probably have more durability along

483
00:27:30,640 --> 00:27:35,760
Speaker 1: those lines than just you know, the US cyclicals and

484
00:27:35,920 --> 00:27:40,360
Speaker 1: US small value. So this was actually going to beat

485
00:27:40,440 --> 00:27:43,359
Speaker 1: into my next question. But we started this whole conversation

486
00:27:43,560 --> 00:27:45,560
Speaker 1: talking about how the dollar is going to be really

487
00:27:45,640 --> 00:27:50,720
Speaker 1: important to one and the more you talk about sort

488
00:27:50,760 --> 00:27:54,159
Speaker 1: of your specific ideas, I can see why you're so

489
00:27:54,280 --> 00:27:56,879
Speaker 1: focused on the dollar. So clearly, if you're long emerging markets,

490
00:27:56,960 --> 00:27:59,960
Speaker 1: that matters quite a lot. Do you think, well, first

491
00:28:00,040 --> 00:28:03,000
Speaker 1: of all, what would it take to get a higher

492
00:28:03,119 --> 00:28:08,280
Speaker 1: dollar in this environment? And secondly, is the suggestion here

493
00:28:08,920 --> 00:28:13,119
Speaker 1: that the Federal Reserve has sort of become comfortable with

494
00:28:13,280 --> 00:28:16,800
Speaker 1: this idea that it's the world central bank and that

495
00:28:17,119 --> 00:28:22,119
Speaker 1: it's actively looking at financial conditions and actively caring about

496
00:28:22,480 --> 00:28:25,000
Speaker 1: a stronger US dollar and what it does to the

497
00:28:25,119 --> 00:28:27,960
Speaker 1: rest of the world economy with respect to what it

498
00:28:28,000 --> 00:28:31,000
Speaker 1: would take for a higher dollar. I mean, one one

499
00:28:31,040 --> 00:28:33,440
Speaker 1: thing that I would obviously do that is if the

500
00:28:33,520 --> 00:28:37,440
Speaker 1: Fed ended up being less debbish or less you know, authentic,

501
00:28:37,560 --> 00:28:40,320
Speaker 1: and its reaction function shift than then we might be

502
00:28:40,400 --> 00:28:44,280
Speaker 1: thinking in this conversation UM and and more more tactically

503
00:28:44,360 --> 00:28:46,800
Speaker 1: in terms of like shorter term trading. I think that

504
00:28:47,120 --> 00:28:51,120
Speaker 1: like I mentioned earlier, you know, the combination of of

505
00:28:51,880 --> 00:28:55,840
Speaker 1: the consumption basket and make shifting towards services at the

506
00:28:55,920 --> 00:28:58,240
Speaker 1: same time as potential for you know, maybe a little

507
00:28:58,240 --> 00:29:01,200
Speaker 1: bit of uh comp of the of the yield spread

508
00:29:01,280 --> 00:29:04,480
Speaker 1: between US and China. UM that could doubt that could

509
00:29:04,520 --> 00:29:07,200
Speaker 1: give some pickups along the way, UM, although I think

510
00:29:07,240 --> 00:29:09,959
Speaker 1: they would be opportunities to add or enter into these

511
00:29:10,000 --> 00:29:13,200
Speaker 1: types of trades UM. And with respect to the FED, UM,

512
00:29:13,280 --> 00:29:15,560
Speaker 1: I do think that you know, they've become more comfortable

513
00:29:15,640 --> 00:29:17,920
Speaker 1: with this, this notion of being in the World Central Bank,

514
00:29:18,120 --> 00:29:21,160
Speaker 1: you know, BRAINER has been really influential along the lines

515
00:29:21,200 --> 00:29:25,040
Speaker 1: of how how the international conditions kind of UM, you know,

516
00:29:25,200 --> 00:29:28,320
Speaker 1: are part of the analysis to f OMC has to make.

517
00:29:28,680 --> 00:29:30,880
Speaker 1: But I think more generally, UM, you know, and even

518
00:29:30,920 --> 00:29:34,560
Speaker 1: before COVID, it was just this notion that why were

519
00:29:34,600 --> 00:29:36,320
Speaker 1: we hiking in the first place, Like why were we

520
00:29:36,400 --> 00:29:40,400
Speaker 1: short circuiting these recoveries when you know, our Phillips curve

521
00:29:40,600 --> 00:29:44,760
Speaker 1: kind of based models UM never really showed like UM

522
00:29:45,200 --> 00:29:48,880
Speaker 1: and never materialized, the inflation never came, and um, you

523
00:29:48,960 --> 00:29:52,640
Speaker 1: know what what are what are the costs benefit trade offs? Um?

524
00:29:52,760 --> 00:29:54,560
Speaker 1: And I think they have come to the conclusion that

525
00:29:55,280 --> 00:29:58,320
Speaker 1: it's time to letter rip. But again, you know, you know,

526
00:29:58,440 --> 00:30:00,040
Speaker 1: I think John is a little bit more confident and

527
00:30:00,040 --> 00:30:02,240
Speaker 1: I am about this, although you know, I wouldn't be

528
00:30:02,280 --> 00:30:04,920
Speaker 1: surprised if I kind of converged to his views. But um,

529
00:30:05,360 --> 00:30:07,320
Speaker 1: you know, the question there, I think is going to

530
00:30:07,400 --> 00:30:10,840
Speaker 1: be about how how does Chair Powell navigate what are

531
00:30:10,960 --> 00:30:14,360
Speaker 1: likely to be kind of emerging internal divisions, even if

532
00:30:14,400 --> 00:30:18,440
Speaker 1: they're not super strong. Um. You know, as as these

533
00:30:18,640 --> 00:30:20,640
Speaker 1: uh you know, as members of that form, you start

534
00:30:20,720 --> 00:30:24,720
Speaker 1: thinking about the back end of of of this recovery

535
00:30:24,920 --> 00:30:27,320
Speaker 1: more so than just to hear and now, um, that

536
00:30:27,400 --> 00:30:31,520
Speaker 1: should probably become more more in play as a debate,

537
00:30:32,000 --> 00:30:34,640
Speaker 1: and um, you know, it should be interesting to see

538
00:30:34,680 --> 00:30:37,240
Speaker 1: how he navigates that. And I'll let I'll let John

539
00:30:37,280 --> 00:30:40,800
Speaker 1: hoppin about about both questions as well. Yeah, I mean

540
00:30:41,680 --> 00:30:44,440
Speaker 1: I think on the on the FED. On the FED part,

541
00:30:44,560 --> 00:30:47,520
Speaker 1: I think it's I think the FED really nailed And

542
00:30:47,600 --> 00:30:50,320
Speaker 1: there's a brain Arde speech in July that kind of

543
00:30:50,480 --> 00:30:53,800
Speaker 1: really crystallized this when she talked about kind of stabilization

544
00:30:53,920 --> 00:30:58,560
Speaker 1: to accommodation, and and I think that the FED is

545
00:30:59,280 --> 00:31:02,800
Speaker 1: very now comfortable in the idea that a lot of

546
00:31:02,880 --> 00:31:05,560
Speaker 1: their policy effects kind of happened in the second derivative.

547
00:31:06,160 --> 00:31:09,200
Speaker 1: And it's not like the traditional Michael Woodford, Oh, we

548
00:31:09,280 --> 00:31:12,200
Speaker 1: do que real interest rates, ball term premiere compresses and

549
00:31:12,280 --> 00:31:15,560
Speaker 1: aggregate demand goes bonkers. It's not like that anymore. It's

550
00:31:15,880 --> 00:31:19,360
Speaker 1: how do we, through financial markets, through financial conditions kind

551
00:31:19,400 --> 00:31:22,640
Speaker 1: of create these feedback loops that basically allows our policy

552
00:31:22,760 --> 00:31:25,959
Speaker 1: posture to expand for us. And it's actually much more

553
00:31:26,080 --> 00:31:28,960
Speaker 1: durable because they because their feedback loops, they play off

554
00:31:28,960 --> 00:31:31,880
Speaker 1: each other. Right, so the FED can say that Okay,

555
00:31:31,960 --> 00:31:34,920
Speaker 1: things are going well, that changes nothing for us. That

556
00:31:35,080 --> 00:31:37,120
Speaker 1: has an effect on the dollar, which has an effect

557
00:31:37,160 --> 00:31:39,120
Speaker 1: on real yields, which has an effect on the dollar.

558
00:31:39,560 --> 00:31:43,520
Speaker 1: So kind of setting these things in motion, um I think, well,

559
00:31:43,760 --> 00:31:46,360
Speaker 1: kind of I will add power to the FEDS very

560
00:31:46,440 --> 00:31:50,960
Speaker 1: procyclical ability to ease and in terms of the dollar,

561
00:31:51,120 --> 00:31:54,080
Speaker 1: in in the sense of what could possibly be potential

562
00:31:54,160 --> 00:31:57,960
Speaker 1: positive catalysts, I mean, I think number one is I

563
00:31:58,080 --> 00:32:02,160
Speaker 1: think probably positioning um as like we kind of get

564
00:32:02,240 --> 00:32:06,200
Speaker 1: into January and it becomes a very consensus view. Um,

565
00:32:06,400 --> 00:32:09,720
Speaker 1: there's always these Q one shakeouts. Um, it seems in

566
00:32:09,880 --> 00:32:13,320
Speaker 1: terms of the popular trades. Um. But I think what

567
00:32:13,600 --> 00:32:16,240
Speaker 1: maybe actually kind of may be able to offset that

568
00:32:16,960 --> 00:32:19,560
Speaker 1: is that a lot of people, I think want to

569
00:32:19,640 --> 00:32:23,400
Speaker 1: play um, these trades in a catch up stence. Right,

570
00:32:23,520 --> 00:32:26,480
Speaker 1: So you see these things like oh, copper gold ratio

571
00:32:26,560 --> 00:32:31,120
Speaker 1: has gone vertical, and and and Russell versus SMP, etcetera.

572
00:32:31,600 --> 00:32:34,840
Speaker 1: And the tenure bondild has done pretty much. I mean

573
00:32:34,880 --> 00:32:38,200
Speaker 1: it's you know, marginally higher, but it's not really done anything.

574
00:32:38,800 --> 00:32:40,680
Speaker 1: And I think a lot of macro is still kind

575
00:32:40,760 --> 00:32:43,400
Speaker 1: of looking at like, Okay, how do I pay rates

576
00:32:43,480 --> 00:32:45,240
Speaker 1: to play this catchup or how do I do? And

577
00:32:45,320 --> 00:32:47,680
Speaker 1: I think that's really missing the point because the reason

578
00:32:47,800 --> 00:32:50,480
Speaker 1: these things can go vertical is because they keep looking

579
00:32:50,520 --> 00:32:53,080
Speaker 1: over there. Russell luson P ratio keeps looking over its

580
00:32:53,080 --> 00:32:55,800
Speaker 1: shoulder at the bomb market and seeing nothing. So that's

581
00:32:55,840 --> 00:32:58,160
Speaker 1: what allows it to go nuts. And saying with a

582
00:32:58,200 --> 00:33:01,760
Speaker 1: lot of the cyclical data. And so I think that

583
00:33:01,920 --> 00:33:05,200
Speaker 1: a lot of these things, Um, yes, there will be

584
00:33:05,360 --> 00:33:08,000
Speaker 1: probably hiccups in terms of you know, in terms of

585
00:33:08,040 --> 00:33:10,920
Speaker 1: the recovery, in terms of the vaccine rollout, etcetera. But

586
00:33:11,160 --> 00:33:14,120
Speaker 1: in in bigger picture terms, I think the trades that

587
00:33:14,160 --> 00:33:33,480
Speaker 1: are working now are still the bigger trades going. I

588
00:33:33,560 --> 00:33:36,040
Speaker 1: want to actually, like, really have you spell out that

589
00:33:36,160 --> 00:33:40,120
Speaker 1: last point, because it sounds pretty important. People look at

590
00:33:40,200 --> 00:33:45,560
Speaker 1: the rebound and small caps value commodities copper to the commodity,

591
00:33:46,080 --> 00:33:47,800
Speaker 1: and they're like, all right, but when are yields going

592
00:33:47,880 --> 00:33:51,040
Speaker 1: to catch up? But it's not like that. There's no

593
00:33:51,160 --> 00:33:54,640
Speaker 1: inherent with this new FED regime. There's no inherent reason

594
00:33:54,960 --> 00:33:58,240
Speaker 1: for yields to catch up. And if anything, it's this

595
00:33:58,400 --> 00:34:00,880
Speaker 1: ongoing compression of the long end of a curve that

596
00:34:01,040 --> 00:34:04,160
Speaker 1: further accelerates the gap between the two. Just sort of

597
00:34:04,280 --> 00:34:07,120
Speaker 1: explained that, or if if I'm if I'm summarizing your

598
00:34:07,160 --> 00:34:11,239
Speaker 1: view correctly, and how much longer that that dynamic could

599
00:34:11,239 --> 00:34:14,440
Speaker 1: potentially run. Yeah, I know, I think you actually summed

600
00:34:14,440 --> 00:34:18,120
Speaker 1: it up perfectly. I think that it can run further

601
00:34:18,520 --> 00:34:21,120
Speaker 1: in the sense that there will be these times when

602
00:34:21,160 --> 00:34:23,400
Speaker 1: people are like, oh, maybe we can like price in

603
00:34:23,560 --> 00:34:27,480
Speaker 1: hikes three And you've seen this recently a little bit

604
00:34:27,560 --> 00:34:30,800
Speaker 1: on the backs on the back of the backs reflation narrative,

605
00:34:30,840 --> 00:34:33,200
Speaker 1: where within the bond market, if you look at like

606
00:34:33,840 --> 00:34:36,000
Speaker 1: a butterfly, you'll see that the belly is kind of

607
00:34:36,200 --> 00:34:38,000
Speaker 1: cheapening at the same rate and the long end is

608
00:34:38,040 --> 00:34:40,719
Speaker 1: and that's kind of saying like, okay, like maybe they'll

609
00:34:40,760 --> 00:34:43,600
Speaker 1: be you know, because usually when the belly leads, like

610
00:34:43,719 --> 00:34:46,239
Speaker 1: the belly lead the bond market lower, so that's like

611
00:34:46,320 --> 00:34:49,879
Speaker 1: five seven tens, and when that happens, you kind of say, like, Okay,

612
00:34:49,920 --> 00:34:52,920
Speaker 1: this could be a policy changes coming. But I think

613
00:34:53,400 --> 00:34:57,000
Speaker 1: bigger picture is that all this stuff is kind of there.

614
00:34:57,080 --> 00:34:59,399
Speaker 1: There used to be these cut off mechanisms to these moves,

615
00:34:59,640 --> 00:35:02,320
Speaker 1: right as in cyclicals would get off the map, the

616
00:35:02,400 --> 00:35:05,279
Speaker 1: dollar would start going lower, and then we'd say, oh,

617
00:35:05,440 --> 00:35:07,319
Speaker 1: and to this means in two years that the FED

618
00:35:07,440 --> 00:35:12,120
Speaker 1: can remove accommodation. And now we're saying that in two

619
00:35:12,200 --> 00:35:14,360
Speaker 1: years the Fed's accommodation level is going to look really

620
00:35:14,400 --> 00:35:16,560
Speaker 1: similar to what it is now. And I think that's

621
00:35:16,560 --> 00:35:19,440
Speaker 1: a very powerful point going forward. You know, before we

622
00:35:19,960 --> 00:35:22,719
Speaker 1: wrap up novel, i'd love to go back to your

623
00:35:22,880 --> 00:35:29,600
Speaker 1: point about could the COVID nineteen crisis b two services

624
00:35:29,840 --> 00:35:34,400
Speaker 1: productivity as China's entry into the w t O and

625
00:35:34,480 --> 00:35:38,279
Speaker 1: two thousand was too uh goods productivity and the sort

626
00:35:38,320 --> 00:35:40,560
Speaker 1: of deflation or disinflation that we start for the next

627
00:35:40,600 --> 00:35:43,960
Speaker 1: couple of decades in goods. Walk through your thinking there.

628
00:35:44,000 --> 00:35:46,240
Speaker 1: What do you see happening out in the real world,

629
00:35:46,680 --> 00:35:49,040
Speaker 1: out in the economy that you think could cause this

630
00:35:49,160 --> 00:35:52,560
Speaker 1: where we return to services pre crisis levels of services

631
00:35:52,600 --> 00:35:56,560
Speaker 1: consumption but not pre crisis levels of services employment, and

632
00:35:56,640 --> 00:35:59,000
Speaker 1: sort of a why do you think that's a possibility,

633
00:35:59,040 --> 00:36:00,279
Speaker 1: And what do you see as some of the not

634
00:36:00,360 --> 00:36:04,279
Speaker 1: gund effective that well, the you know, first of all,

635
00:36:04,360 --> 00:36:06,759
Speaker 1: this is very speculative of a view. It's something that

636
00:36:06,880 --> 00:36:08,880
Speaker 1: I'm just kind of you know, I just want to

637
00:36:08,880 --> 00:36:10,799
Speaker 1: see how it materialized is more of a question than

638
00:36:10,880 --> 00:36:14,360
Speaker 1: a view. But this this was a huge shock, and

639
00:36:14,440 --> 00:36:17,640
Speaker 1: it was very very concentrated in the services sector. And

640
00:36:17,719 --> 00:36:20,440
Speaker 1: so there's there's always this kind of you know, necessity

641
00:36:20,880 --> 00:36:23,480
Speaker 1: is the mother of invention type of thing, type of dynamic.

642
00:36:23,640 --> 00:36:25,759
Speaker 1: So that that's one thing I think that you know,

643
00:36:26,040 --> 00:36:30,759
Speaker 1: service services oriented businesses have been likely focused a lot

644
00:36:30,880 --> 00:36:34,239
Speaker 1: on the technological side um in terms of how they

645
00:36:34,719 --> 00:36:38,759
Speaker 1: kind of restart um their businesses. And and secondly, you know,

646
00:36:39,040 --> 00:36:43,360
Speaker 1: the COVID, the COVID shock kind of just digitize everything

647
00:36:43,640 --> 00:36:45,920
Speaker 1: and um pulled forward a lot of this kind of

648
00:36:46,200 --> 00:36:49,879
Speaker 1: technological um you know, implementation of a lot of things,

649
00:36:50,239 --> 00:36:52,120
Speaker 1: and so you know, I wouldn't be I wouldn't be

650
00:36:52,160 --> 00:36:55,239
Speaker 1: surprised if if, if that's how it materialized, what it

651
00:36:55,480 --> 00:36:57,399
Speaker 1: would look like in terms of, like on the ground

652
00:36:57,440 --> 00:36:59,520
Speaker 1: the real economy. It's a good question. I don't I

653
00:36:59,520 --> 00:37:01,239
Speaker 1: don't know if I have a great answer, But in

654
00:37:01,400 --> 00:37:03,279
Speaker 1: terms of knock on effects, what it would mean is

655
00:37:03,360 --> 00:37:07,000
Speaker 1: that we would have another kind of wave of you know,

656
00:37:07,120 --> 00:37:09,960
Speaker 1: positive output shocks that the FED doesn't necessarily need to

657
00:37:10,000 --> 00:37:13,160
Speaker 1: a short circuit because it's not seeing the same um

658
00:37:13,320 --> 00:37:17,319
Speaker 1: impulse on employment and inflation. And you know that's likely

659
00:37:17,440 --> 00:37:19,080
Speaker 1: you know, if that were to materialize, that would likely

660
00:37:19,120 --> 00:37:22,759
Speaker 1: be you know, another inequality widening dynamic, and you know

661
00:37:22,960 --> 00:37:25,160
Speaker 1: it would it would lead to kind of like a

662
00:37:25,880 --> 00:37:29,640
Speaker 1: Goldilocks type of environment for the markets. UM. So you know,

663
00:37:29,760 --> 00:37:32,400
Speaker 1: that's that's one thing I'm interested to see as we

664
00:37:32,800 --> 00:37:35,680
Speaker 1: restart the services sectors, what are we seeing in terms

665
00:37:35,719 --> 00:37:39,239
Speaker 1: of the output res employment picture, especially like later in

666
00:37:39,280 --> 00:37:41,400
Speaker 1: the year once we're kind of because and you know,

667
00:37:42,640 --> 00:37:45,799
Speaker 1: on the front end of of reopening and we normalization,

668
00:37:46,239 --> 00:37:49,400
Speaker 1: you know, the we should see a very robust hiring

669
00:37:49,480 --> 00:37:52,800
Speaker 1: response in response to you know, a rebound and demand.

670
00:37:53,320 --> 00:37:56,279
Speaker 1: But I'm interested to see if if that kind of

671
00:37:56,360 --> 00:37:59,319
Speaker 1: tapers off a little bit relative to output, and if

672
00:37:59,360 --> 00:38:02,279
Speaker 1: that does happened, that that probably has some implications for

673
00:38:02,920 --> 00:38:06,440
Speaker 1: longer term bond yields until unless, and until we do

674
00:38:06,600 --> 00:38:10,760
Speaker 1: see some sort of more structural um fiscal policy shift,

675
00:38:11,120 --> 00:38:13,960
Speaker 1: because um, you know, I think that that's gonna be necessary,

676
00:38:14,480 --> 00:38:18,200
Speaker 1: uh to offset some of these inequality widening forces. And

677
00:38:18,400 --> 00:38:20,839
Speaker 1: and that's that's kind of when you know, you start

678
00:38:20,920 --> 00:38:24,080
Speaker 1: looking at the two mid terms and stuff like that,

679
00:38:24,480 --> 00:38:27,640
Speaker 1: to an extent, the Georgia elections too. But even with

680
00:38:27,680 --> 00:38:30,400
Speaker 1: the Georgia elections, you know, even if both seats go

681
00:38:31,000 --> 00:38:35,239
Speaker 1: Democrat fifty fifty with a Vice President Harris tiebreaker, the

682
00:38:35,280 --> 00:38:37,320
Speaker 1: folks with the most leverage in that environment would be

683
00:38:37,360 --> 00:38:39,920
Speaker 1: the centrist Democrats. Um, you know that you need Joe

684
00:38:39,960 --> 00:38:42,560
Speaker 1: Banshon on board for a lot of a lot of stuff. Um,

685
00:38:42,719 --> 00:38:44,440
Speaker 1: it's very different than you know, if you have like

686
00:38:44,480 --> 00:38:47,200
Speaker 1: fifty three fifty four seats UM in the Senate, and

687
00:38:47,520 --> 00:38:49,960
Speaker 1: you know, the progressives would have a lot more leverage.

688
00:38:50,000 --> 00:38:53,040
Speaker 1: So that that's kind of a messy wave of me

689
00:38:53,160 --> 00:38:56,600
Speaker 1: trying to lay out how I'm thinking about this. So

690
00:38:57,000 --> 00:39:01,520
Speaker 1: I'm thinking back to the beginning of this year and

691
00:39:02,120 --> 00:39:04,920
Speaker 1: when I think about all the crazy things that happened.

692
00:39:04,960 --> 00:39:08,600
Speaker 1: I mean, just just in January, we had the beginning

693
00:39:08,680 --> 00:39:13,400
Speaker 1: of the COVID outbreak in earnest in Luhan, we had UM,

694
00:39:14,000 --> 00:39:17,840
Speaker 1: you know, the US and and Iran getting pretty close

695
00:39:17,960 --> 00:39:21,160
Speaker 1: to an all out war. UM lots of things happening.

696
00:39:21,239 --> 00:39:23,719
Speaker 1: I mean, Kobe Bryant dying in a helicopter crash like

697
00:39:24,719 --> 00:39:26,640
Speaker 1: that was a big deal as well. I mean, I'm

698
00:39:26,800 --> 00:39:28,719
Speaker 1: thinking about how to phrase this question, but like, what

699
00:39:28,960 --> 00:39:32,160
Speaker 1: what is your tail risk that you're watching out for

700
00:39:32,760 --> 00:39:36,840
Speaker 1: in UM one but not the obvious ones, Like we

701
00:39:36,880 --> 00:39:38,920
Speaker 1: don't get a vaccine that works, what's your sort of

702
00:39:39,080 --> 00:39:43,839
Speaker 1: out there, what's your left field tail risk for? Yeah,

703
00:39:43,960 --> 00:39:50,080
Speaker 1: the the the the unknown unknown. I think that I'll

704
00:39:50,520 --> 00:39:52,879
Speaker 1: I won't I won't try and predict that, but I'll

705
00:39:52,960 --> 00:39:56,719
Speaker 1: go with I think that it will be very interesting

706
00:39:57,080 --> 00:40:01,640
Speaker 1: in a policy sense, not only like kind of gauging

707
00:40:02,120 --> 00:40:05,120
Speaker 1: new reaction functions in fiscal and central banks around the world,

708
00:40:05,760 --> 00:40:10,560
Speaker 1: but kind of gauging UM, when when will when will

709
00:40:10,600 --> 00:40:14,239
Speaker 1: the rate of change matter? In terms of policy easing, right,

710
00:40:14,280 --> 00:40:17,520
Speaker 1: and it's like, will the end of one be kind

711
00:40:17,560 --> 00:40:21,080
Speaker 1: of these rolling cliffs of either central bank accommodation and

712
00:40:21,200 --> 00:40:25,280
Speaker 1: ending and fiscal accommodation ending, because we like to forget

713
00:40:25,360 --> 00:40:28,120
Speaker 1: that even though that, you know, the US has had

714
00:40:28,160 --> 00:40:31,040
Speaker 1: a messy kind of fiscal picture, even though the Cares

715
00:40:31,040 --> 00:40:33,480
Speaker 1: Act was obviously such a success, the rest of the

716
00:40:33,520 --> 00:40:37,560
Speaker 1: world is actually kind of doing it a lot more effectively.

717
00:40:37,800 --> 00:40:40,239
Speaker 1: I mean, Europe has its issues with disbursements of the

718
00:40:40,640 --> 00:40:44,399
Speaker 1: you know, this supernational project, but Germany and France both

719
00:40:44,480 --> 00:40:47,880
Speaker 1: acted when mitigation measures went back into effect. Canada is,

720
00:40:48,160 --> 00:40:51,560
Speaker 1: you know, promising more fiscal next year, Australia, New Zealand

721
00:40:51,600 --> 00:40:55,040
Speaker 1: the same, even Korea surplus. Korea has an expansionary budget

722
00:40:55,080 --> 00:40:58,720
Speaker 1: for next year. Japan's on their third or fourth supplementary budget.

723
00:40:59,080 --> 00:41:02,200
Speaker 1: So a lot of these, you know, these changes in

724
00:41:02,640 --> 00:41:05,440
Speaker 1: what was previously pretty dogmatic behavior from a lot of

725
00:41:05,480 --> 00:41:08,799
Speaker 1: fiscal actors has happened. And the question is, I guess,

726
00:41:09,400 --> 00:41:11,839
Speaker 1: kind of looking at it for more of a tail

727
00:41:11,920 --> 00:41:14,120
Speaker 1: risk scenario is what if a lot of this goes

728
00:41:14,200 --> 00:41:17,600
Speaker 1: off kind of cliffs off at the same time, and

729
00:41:17,800 --> 00:41:21,920
Speaker 1: then the market kind of becomes uncomfortable with this fiscal transition,

730
00:41:22,320 --> 00:41:24,839
Speaker 1: you know, into the private sector, because for the last

731
00:41:24,880 --> 00:41:28,240
Speaker 1: ten years, the private sector hasn't exactly achieved escape philocoity

732
00:41:28,280 --> 00:41:29,680
Speaker 1: on its own, or it doesn't have a good track

733
00:41:29,719 --> 00:41:32,360
Speaker 1: record of it. So I think, in terms of risks,

734
00:41:32,400 --> 00:41:36,320
Speaker 1: I guess that would be my risk. I think that

735
00:41:36,360 --> 00:41:39,160
Speaker 1: makes a lot of sense to you know, um as

736
00:41:39,280 --> 00:41:42,680
Speaker 1: John's mentioned, um a lot about how there's kind of

737
00:41:42,680 --> 00:41:46,920
Speaker 1: a procyclcality element and dynamic with respect to this fat regime.

738
00:41:47,000 --> 00:41:49,640
Speaker 1: So if we do see some rolling cliffs in terms

739
00:41:49,680 --> 00:41:52,440
Speaker 1: of greater change of of of policy accommodation, at the

740
00:41:52,480 --> 00:41:56,600
Speaker 1: same time as kind of the the big normalization boost

741
00:41:56,719 --> 00:42:00,200
Speaker 1: kind of starts to taper off, um that that would

742
00:42:00,200 --> 00:42:02,840
Speaker 1: be kind of a nasty cocktail, especially because you know,

743
00:42:03,200 --> 00:42:05,640
Speaker 1: this is a question I'm really I'm really interested to

744
00:42:05,680 --> 00:42:08,440
Speaker 1: see in the back half of next year. You know,

745
00:42:08,560 --> 00:42:11,040
Speaker 1: what is what is the run rate that we kind

746
00:42:11,080 --> 00:42:14,319
Speaker 1: of converge back to, like, you know, has nothing really

747
00:42:14,400 --> 00:42:16,839
Speaker 1: changed in the underlying picture? You know, once we're past

748
00:42:16,960 --> 00:42:18,600
Speaker 1: you know, the COVID shock and then the real the

749
00:42:18,680 --> 00:42:22,080
Speaker 1: real the normalization shot upward shock, you are we in

750
00:42:22,160 --> 00:42:25,720
Speaker 1: the same kind of nominal growth environment as before, because

751
00:42:25,760 --> 00:42:28,759
Speaker 1: if so, you know, tapering off to that to that

752
00:42:28,960 --> 00:42:31,640
Speaker 1: kind of run rate at the same time as as um,

753
00:42:31,800 --> 00:42:33,960
Speaker 1: you know, if if, if, if we do see some

754
00:42:34,040 --> 00:42:36,120
Speaker 1: sort of cliffs on the policy front, it will be

755
00:42:36,120 --> 00:42:37,960
Speaker 1: approachately could go on the way down as well, the

756
00:42:38,040 --> 00:42:40,200
Speaker 1: same way it's been really effective on the way up.

757
00:42:40,360 --> 00:42:42,000
Speaker 1: And I guess the other other thing I would mention

758
00:42:42,120 --> 00:42:47,000
Speaker 1: would be, you know, just a typical classic macro punter geopolitics, Right,

759
00:42:47,080 --> 00:42:50,799
Speaker 1: anything can happen with respect to geopolitics. I I think

760
00:42:50,840 --> 00:42:53,880
Speaker 1: it'll be interesting to see the approach that Presidental like

761
00:42:54,000 --> 00:42:57,120
Speaker 1: Biden takes with respect of China. I I understand that

762
00:42:57,840 --> 00:43:00,040
Speaker 1: you know that it's it's it's nice to have a

763
00:43:00,040 --> 00:43:02,840
Speaker 1: lot of the uncertainty removed. But um, you know, as I,

764
00:43:03,000 --> 00:43:06,240
Speaker 1: as I mentioned a couple of times on on Bloomberg

765
00:43:06,320 --> 00:43:09,040
Speaker 1: with with You Joe, during the trade war, I I

766
00:43:09,160 --> 00:43:11,360
Speaker 1: always kind of looked at it as it was a

767
00:43:11,440 --> 00:43:14,759
Speaker 1: lot more bark bark than bite. Um. And ultimately, you know,

768
00:43:14,840 --> 00:43:18,439
Speaker 1: the trade deal quote unquote was you know, it didn't

769
00:43:18,480 --> 00:43:22,920
Speaker 1: really change anything structurally and and actually it's cemented financial

770
00:43:23,000 --> 00:43:26,280
Speaker 1: entanglements between um, the the U S and China. President

771
00:43:26,360 --> 00:43:29,160
Speaker 1: Elect Biden's approach may kind of depart from that, and

772
00:43:29,239 --> 00:43:31,399
Speaker 1: so we could see some geopolitical hiccups along the way,

773
00:43:31,760 --> 00:43:35,480
Speaker 1: especially because China is becoming a little bit more aggressive

774
00:43:35,560 --> 00:43:39,239
Speaker 1: with respect to UM what it considers its clients. I'm

775
00:43:39,280 --> 00:43:42,120
Speaker 1: sure that you know we're gonna see Alliance building UM

776
00:43:42,280 --> 00:43:46,239
Speaker 1: start to emerge or Alliance rebuilding start to emerge. But

777
00:43:46,840 --> 00:43:49,719
Speaker 1: you know, the transition has the potential to be a

778
00:43:49,760 --> 00:43:51,920
Speaker 1: little bit messy. And in fact, I think that you know,

779
00:43:52,040 --> 00:43:54,880
Speaker 1: the personnel decisions that the transition team is making is

780
00:43:55,000 --> 00:43:58,320
Speaker 1: interesting because the Under Secretary of the for the for

781
00:43:58,400 --> 00:44:01,800
Speaker 1: the U. S. Treasury of them UM, he actually was

782
00:44:02,080 --> 00:44:05,920
Speaker 1: the lead negotiator for TPP. I think it signals that

783
00:44:06,840 --> 00:44:09,560
Speaker 1: president like Biden wants to take a relatively active stance

784
00:44:10,000 --> 00:44:12,440
Speaker 1: with respect to China. So you know, that's always that's

785
00:44:12,440 --> 00:44:14,279
Speaker 1: always kind of in the cards, and it's probably a

786
00:44:14,320 --> 00:44:17,040
Speaker 1: little bit less top of mind than it was under

787
00:44:17,080 --> 00:44:19,520
Speaker 1: the Trump administration. So that could be something that catches

788
00:44:19,600 --> 00:44:23,239
Speaker 1: us by surprise. Well, John and uh novel, So great

789
00:44:23,320 --> 00:44:26,040
Speaker 1: to talk to both of your real treat tons to

790
00:44:26,080 --> 00:44:29,000
Speaker 1: think about into Maybe we'll do like a mid year

791
00:44:29,120 --> 00:44:32,480
Speaker 1: update like next June or July and sort of take

792
00:44:32,520 --> 00:44:34,560
Speaker 1: stock of how things are going. I think that begin

793
00:44:35,080 --> 00:44:37,480
Speaker 1: absolutely all right, Well, looking forward to it, and I

794
00:44:37,520 --> 00:44:39,440
Speaker 1: appreciate both of you and all of the work you've

795
00:44:39,480 --> 00:44:42,759
Speaker 1: done this year and helping us understand this. Thanks for

796
00:44:42,840 --> 00:44:44,640
Speaker 1: coming out and out love. Thank you, Yeah, thank you,

797
00:44:45,080 --> 00:45:01,360
Speaker 1: Look forwards the next time. Take here you guys. That

798
00:45:01,520 --> 00:45:03,920
Speaker 1: was great. I really think it just in terms of

799
00:45:04,719 --> 00:45:07,560
Speaker 1: understanding this year, I mean throughout following both of them

800
00:45:07,600 --> 00:45:10,759
Speaker 1: on Twitter, following their writings, etcetera. I don't think there's

801
00:45:10,800 --> 00:45:13,280
Speaker 1: any two people that I think have had a clearer

802
00:45:14,040 --> 00:45:16,759
Speaker 1: sense of the moving parts of the macro picture than

803
00:45:16,840 --> 00:45:19,920
Speaker 1: those two. So's uh great to talk to them about

804
00:45:20,160 --> 00:45:22,680
Speaker 1: what they see happening next year. Yeah, it was a

805
00:45:22,719 --> 00:45:27,640
Speaker 1: really nice framing of the big macro trends. Fore, I

806
00:45:27,680 --> 00:45:30,719
Speaker 1: gotta say, you mentioned this idea of coming back and

807
00:45:30,840 --> 00:45:34,680
Speaker 1: doing a midyear update. I really hope, I really hope

808
00:45:34,719 --> 00:45:40,360
Speaker 1: that January is relatively boring and that it's not a

809
00:45:40,480 --> 00:45:43,640
Speaker 1: repeat of what happened in January, and that we don't

810
00:45:43,640 --> 00:45:45,680
Speaker 1: have to have them come back on in February or

811
00:45:45,760 --> 00:45:49,040
Speaker 1: something because the world is following. I really hope that's

812
00:45:49,080 --> 00:45:51,000
Speaker 1: the kind of um. But so like I wanted to be,

813
00:45:51,160 --> 00:45:52,919
Speaker 1: like I said, it was at the beginning, a little

814
00:45:53,040 --> 00:45:55,120
Speaker 1: less interesting, but you know that I don't want to

815
00:45:55,160 --> 00:45:58,040
Speaker 1: boring year, but a little more boring. Well, I think

816
00:45:58,200 --> 00:46:01,719
Speaker 1: even if even we get a vaccine, and even if

817
00:46:01,800 --> 00:46:05,080
Speaker 1: we get a global economic recovery, which might normally be

818
00:46:05,239 --> 00:46:09,400
Speaker 1: considered boring for financial journalists, I think it's still going

819
00:46:09,480 --> 00:46:11,680
Speaker 1: to end up being an interesting year. As John and

820
00:46:12,000 --> 00:46:16,040
Speaker 1: now we're saying, because of the policy implications and and

821
00:46:16,320 --> 00:46:20,279
Speaker 1: this this handoff or the interaction between fiscal inflation and

822
00:46:20,719 --> 00:46:25,200
Speaker 1: vaccine inflation, Like, even if everything goes as they were describing,

823
00:46:25,239 --> 00:46:27,960
Speaker 1: there's still a big question mark over how the FED

824
00:46:28,440 --> 00:46:35,280
Speaker 1: reacts to that combination. You know, the point that John

825
00:46:35,360 --> 00:46:38,480
Speaker 1: made and both of them about the pro cych locality,

826
00:46:39,400 --> 00:46:42,600
Speaker 1: the feedback loop of the current FED posture. I just

827
00:46:42,680 --> 00:46:47,400
Speaker 1: think like cannot be sort of understated. This idea that like, okay,

828
00:46:47,920 --> 00:46:50,359
Speaker 1: the FED has let's say the FED holds rates at

829
00:46:50,680 --> 00:46:54,680
Speaker 1: zero and so um, you know, earlier the year we

830
00:46:54,800 --> 00:46:59,960
Speaker 1: had unemployment at over ten percent, So zero raids unemploye

831
00:47:00,040 --> 00:47:01,520
Speaker 1: and over a ten percent, you know, they have this

832
00:47:01,560 --> 00:47:04,480
Speaker 1: accommodative level. If the FED is still holding rates at

833
00:47:04,560 --> 00:47:07,920
Speaker 1: zero with no intention of hiking anytime soon. When the

834
00:47:08,040 --> 00:47:11,120
Speaker 1: unemployment rate is blow seven percent, then that is implicitly

835
00:47:11,600 --> 00:47:14,880
Speaker 1: more accommodative because the level of the economy has improved,

836
00:47:15,120 --> 00:47:20,319
Speaker 1: but we haven't got any corresponding tightening. So implicitly we've

837
00:47:20,360 --> 00:47:23,760
Speaker 1: been having this ongoing easing ever since the economy started

838
00:47:23,840 --> 00:47:26,920
Speaker 1: rebounding in late March and early April. And I think

839
00:47:26,960 --> 00:47:30,239
Speaker 1: that helped really helps explain some of the extremity of

840
00:47:30,360 --> 00:47:32,880
Speaker 1: these moves. That it's like if you're sort of easing

841
00:47:33,040 --> 00:47:37,080
Speaker 1: further implicitly as the economy recovers, we you know, you

842
00:47:37,160 --> 00:47:39,480
Speaker 1: could see how you know, there's the feedback loop that's

843
00:47:39,480 --> 00:47:41,279
Speaker 1: sort of like, uh, I think I remember someone put

844
00:47:41,400 --> 00:47:44,319
Speaker 1: his like rocket fuel for the market. Yeah, I think

845
00:47:44,360 --> 00:47:47,319
Speaker 1: Knof actually said that. Um no, that's exactly right. It's

846
00:47:47,640 --> 00:47:50,600
Speaker 1: and I think they mentioned that Brainerd's speech about going

847
00:47:50,680 --> 00:47:56,560
Speaker 1: from stabilization to accommodation, like there's a policy shift that

848
00:47:56,760 --> 00:47:59,480
Speaker 1: is taking place. Um And so when you when you

849
00:48:00,080 --> 00:48:03,680
Speaker 1: look at it through that framework, thann u s stocks

850
00:48:03,840 --> 00:48:06,919
Speaker 1: at an all time record, like it doesn't seem as

851
00:48:08,120 --> 00:48:11,880
Speaker 1: divorced from economic reality as as it would be otherwise.

852
00:48:12,160 --> 00:48:15,080
Speaker 1: I do think like that like the big question mark, however,

853
00:48:15,360 --> 00:48:18,800
Speaker 1: is still like in the post crisis landscape, whenever we

854
00:48:18,880 --> 00:48:21,400
Speaker 1: could declare a post crisis, which is probably at some

855
00:48:21,600 --> 00:48:24,880
Speaker 1: point when everyone a lot of people have had the

856
00:48:24,960 --> 00:48:27,120
Speaker 1: vaccine and it's just not a big issue anymore and

857
00:48:27,160 --> 00:48:29,960
Speaker 1: everything is totally reopened. Do we just go back to

858
00:48:30,080 --> 00:48:33,640
Speaker 1: the pre crisis environment of people buying tenure bonds and

859
00:48:33,719 --> 00:48:37,280
Speaker 1: Microsoft and calling it a day, or is their new leadership?

860
00:48:37,400 --> 00:48:42,600
Speaker 1: And like, I'm kind of skeptical that anything meaningfully macro changes,

861
00:48:42,680 --> 00:48:45,160
Speaker 1: And I'm thinking back to our conversation with Paul McCulley.

862
00:48:45,640 --> 00:48:48,040
Speaker 1: It's like, in theory, want to see some new like

863
00:48:48,239 --> 00:48:52,239
Speaker 1: fiscal lead permanent change to how we do macro management,

864
00:48:52,719 --> 00:48:54,759
Speaker 1: and that could produce a shift, but in fact, like

865
00:48:55,120 --> 00:48:57,840
Speaker 1: we can't even like get a minor extension to the

866
00:48:57,920 --> 00:49:01,359
Speaker 1: Carres Act. And if you look at Biden and h nominees,

867
00:49:01,800 --> 00:49:03,520
Speaker 1: you know, like a lot of them is sort of

868
00:49:03,600 --> 00:49:06,719
Speaker 1: like progressive new thinkers, but also a lot of like

869
00:49:06,840 --> 00:49:11,640
Speaker 1: you know, pretty mainstream conventional ideas, which means like it's

870
00:49:11,680 --> 00:49:14,239
Speaker 1: still really hard to see like where the big long

871
00:49:14,360 --> 00:49:17,960
Speaker 1: term macro shift comes from from. Sort of yeah, and

872
00:49:18,080 --> 00:49:20,040
Speaker 1: then when we how do you get a big market

873
00:49:20,120 --> 00:49:23,680
Speaker 1: ship without a big macro policy shift, hard to see

874
00:49:23,760 --> 00:49:28,160
Speaker 1: much changing. Yeah, I think that's fair. That's fair. I

875
00:49:28,200 --> 00:49:31,439
Speaker 1: mean people are so focused on how to get from

876
00:49:31,760 --> 00:49:35,680
Speaker 1: the current situation from right now to this sort of

877
00:49:36,000 --> 00:49:40,000
Speaker 1: endpoint um in one when things go back to normal

878
00:49:40,160 --> 00:49:41,920
Speaker 1: that I think a lot of people like, we're so

879
00:49:42,080 --> 00:49:45,239
Speaker 1: focused on the journey that we're not necessarily considering the

880
00:49:45,360 --> 00:49:51,000
Speaker 1: destination of what that endpoint actually looks like. And I

881
00:49:51,120 --> 00:49:53,040
Speaker 1: think you have a strong argument that maybe it just

882
00:49:53,200 --> 00:50:00,439
Speaker 1: looks like, you know, what the earlier years actually looked like. Yeah. Absolutely, Well,

883
00:50:00,719 --> 00:50:03,800
Speaker 1: I'm gonna be uh an interesting year and plenty of

884
00:50:03,840 --> 00:50:06,160
Speaker 1: talk about and we'll have them back either way. And

885
00:50:07,480 --> 00:50:10,520
Speaker 1: that's that. Should we leave it there? Too interesting? Hopefully?

886
00:50:10,600 --> 00:50:13,320
Speaker 1: As you mentioned, all right, let's leave it there. This

887
00:50:13,440 --> 00:50:16,279
Speaker 1: has been another episode of the All Thoughts Podcast. I'm

888
00:50:16,320 --> 00:50:19,080
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy

889
00:50:19,120 --> 00:50:21,960
Speaker 1: Alloway and I'm Joe wi Isn't though. You could follow

890
00:50:22,040 --> 00:50:25,640
Speaker 1: me on Twitter at the Stalwart. Follow our guests on Twitter.

891
00:50:25,800 --> 00:50:28,760
Speaker 1: Novel Sinala. He's locked, but maybe he'll let you follow

892
00:50:28,840 --> 00:50:33,120
Speaker 1: him at novel Sinala. Follow our other guests, John Turrek

893
00:50:33,200 --> 00:50:37,640
Speaker 1: he's at J Turrek eighteen. Follow our producer Laura Carlson.

894
00:50:37,760 --> 00:50:41,120
Speaker 1: She's at Laura M. Carlson. Follow the Bloomberg head of podcast,

895
00:50:41,200 --> 00:50:45,080
Speaker 1: Francesca Levie at Francesca Today, and check out all of

896
00:50:45,120 --> 00:50:49,279
Speaker 1: our podcasts at Bloomberg under the handle at podcast. Thanks

897
00:50:49,320 --> 00:51:03,560
Speaker 1: for listening to