Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe, wi Isn't Thal, and I'm Tracy Allaway. Tracy, So, obviously,
Speaker 1: UM markets continuing to have an extraordinary year at least
Speaker 1: risk assets. For the most part, stocks continue to power
Speaker 1: to new all time highs all around the world, optimism
Speaker 1: breaking out. But I'd say like the nature of the
Speaker 1: stock market rail or the nature of the market rally
Speaker 1: in general, is sort of taken on a different complexion lately.
Speaker 1: I think people have been nervous about valuations for some time,
Speaker 1: and the idea that even though we've had the biggest
Speaker 1: pandemic in over a hundred years, which is really eaten
Speaker 1: into economic activity, we still have stocks at a record
Speaker 1: people sort of naturally feel a little bit nervous about up.
Speaker 1: And then recently we had the sell off in U. S.
Speaker 1: Treasuries as well, and a little bit of a pickup
Speaker 1: in inflation expectations, which might be the beginning of UM Well,
Speaker 1: some people are talking about it being the beginning of
Speaker 1: a bigger change for the market, and this would be
Speaker 1: a good time actually to mention that we were recording
Speaker 1: this on Thursday, December three. Caveat yeah, that the whole
Speaker 1: world may have changed by the time anyone actually listens
Speaker 1: to this episode. But yeah, we have seen a little
Speaker 1: bit of an uptick in treasury yields, market based measures
Speaker 1: of inflation actually higher than they were pre crisis, some
Speaker 1: measures back to levels not seen since. And also if
Speaker 1: you look at some of the really hot stocks lately,
Speaker 1: it's some of the real like sort of back to normal,
Speaker 1: unsexy stuff out there. So it's like airlines and physical
Speaker 1: retail I think like shares of Macy's are up in November.
Speaker 1: US steel uh Steel Company, absolutely wild chart. If you
Speaker 1: take a look at that sore is it in the
Speaker 1: beginning of this rally, and it you know, thinking back
Speaker 1: to the spring, it was very much like tech and
Speaker 1: the stay at home trade we're starting to see broadened
Speaker 1: out and so people like buying energy. Another area oil
Speaker 1: doing very well. So these areas that did not participate
Speaker 1: in the first part of the recovery or for several
Speaker 1: months into this have been getting a lot of excitement
Speaker 1: later enthusiasm. Yeah, that's right. And of course we have
Speaker 1: talked about you know, another sort of great rotation coming up. Yeah, right,
Speaker 1: And of course every time we talk about these rotations,
Speaker 1: there's the question is like is this another head fake
Speaker 1: so we just get is everyone just gonna go back
Speaker 1: to buying Fang and Microsoft and you know, of course
Speaker 1: treasuries in a couple of weeks or is this something new?
Speaker 1: So lots to think about as we close out from
Speaker 1: a macro perspective, all kinds of different moving part going
Speaker 1: into Yeah, and I think, you know, there's clearly a
Speaker 1: lot going on. But UM is going to be an
Speaker 1: interesting year, right, Like if you just look at the
Speaker 1: market currently at all time highs, you have that broadening
Speaker 1: of the rally. The big question is whether or not
Speaker 1: it's going to keep going, and then you have all
Speaker 1: these idiosyncratic events like what happens with the vaccine and
Speaker 1: of course how do central banks respond to that. If
Speaker 1: we get a vaccine and the economy really starts to recover,
Speaker 1: then could you finally finally get inflation, which you know
Speaker 1: could unsettle the market in one way or another. So
Speaker 1: I think you're right, like there are these turning points
Speaker 1: that you can sort of see on the horizon, but
Speaker 1: the big question is whether or not, um, you know,
Speaker 1: we're just gonna be talking about them or actually experiencing them,
Speaker 1: whether or not it's another head fake. Yes, yeah, no, Yeah,
Speaker 1: it's gonna be a really interesting year. Let's hopefully it's
Speaker 1: not as interesting as but you know, for our sakes
Speaker 1: from a stuff to talk about the standpoint, we hope
Speaker 1: it's at least somewhat interesting anyway macro. So yeah, to
Speaker 1: talk about the outlook, I thought we'd bring on two
Speaker 1: of the smartest, uh people who know who discussed macro
Speaker 1: from both of pure econ perspective and the market's perspective.
Speaker 1: Both have previously been on the show. I wanna bring
Speaker 1: on Novel Sinala, he's a macro strategist and portfolio manager
Speaker 1: at e i A All Weather Alpha Partners. And John Turk.
Speaker 1: He's the author of the Cheap Convexity blog, which has
Speaker 1: been a must read all year for people in the
Speaker 1: know on macro and market, sort of tying together both
Speaker 1: the price action and the bigger economic themes of the year.
Speaker 1: So Novel and John, thank you so much for joining us.
Speaker 1: Thanks for having me, Yeah, thanks for having me absolutely,
Speaker 1: thanks for coming back. So sort of started off broad
Speaker 1: and uh, either one of you could pick up, but
Speaker 1: sort like, what's the number one thing on your mind
Speaker 1: right now in terms of this sort of the big
Speaker 1: questions are the big the big things to get right
Speaker 1: when you're thinking about the outlook for market. I think
Speaker 1: we would probably both agree that the dollars, you know,
Speaker 1: kind of at the focal point of our analyses. Um,
Speaker 1: you know, we we we are in a very new
Speaker 1: interesting regime with the FED. And if the FED is
Speaker 1: to follow through on this um you know, new regime
Speaker 1: and framework, then what that would suggest is that, um,
Speaker 1: you know, as we get positive outcomes in the macar economy,
Speaker 1: it should actually lead to feedback loops via a lower dollar.
Speaker 1: And so that's why we've been, you know, here at
Speaker 1: we've been really focused on expressing a lot of our
Speaker 1: bullish trades through short dollar expressions. UM So, I think,
Speaker 1: I think getting the dollar right, getting the FED right,
Speaker 1: and then fit figuring out the similarities and differences between
Speaker 1: what what is a vaccine type of reflation and what
Speaker 1: is a you know, typical stimulus type of reflation. And
Speaker 1: and John's written about all these things, um and and
Speaker 1: a lot of detail and and that some great frameworks.
Speaker 1: I'll let him jump in a little bit too. Yeah. No,
Speaker 1: I think I think as has been the case, you know,
Speaker 1: in the last few weeks. I think the dollar will
Speaker 1: probably continue to be like the folk grim instrument for
Speaker 1: kind of how the market digests and prices going forward
Speaker 1: to this recovery. UM, I think what's kind of interesting
Speaker 1: is and as not fools suggesting with the with the
Speaker 1: new FED reaction function, is that the FED has moved
Speaker 1: from like their primary objective of being able to cut
Speaker 1: off left tails right to suggest that, Okay, something's bad
Speaker 1: has happened. How do we respond, either through you know,
Speaker 1: financial markets or whatever. And now as there's a train
Speaker 1: in motion, the Fed's best move in terms of kind
Speaker 1: of accommodating this recovery will basically be pushing whatever the
Speaker 1: train is and giving it another nudge. So in the
Speaker 1: QT end of Q three, we thought this train was
Speaker 1: probably going to be fiscal, and in August we were
Speaker 1: kind of pricing this more MMT type world, and then
Speaker 1: fiscal negotiations kind of fell apart. We had an election
Speaker 1: where we're likely gonna have a divided government, so the
Speaker 1: market scope for fiscal kind of came down. And now
Speaker 1: post the vaccine news, we kind of begin to entertain
Speaker 1: a market that is like goes from a fiscal lead
Speaker 1: recovery to a private sector lead recovery and UM, and
Speaker 1: that maybe change the channel, but it still gets the
Speaker 1: train in motion. And now the FED can jump on
Speaker 1: and say okay, like there was you know, an awful
Speaker 1: pandemic last year and now we're in one with a
Speaker 1: vaccine and that doesn't really change anything for policy. And
Speaker 1: that's a really powerful, i think macro tool for them
Speaker 1: to basically push push forward this recovery. Now you mentioned
Speaker 1: the idea of a week or dollar and feedback loops,
Speaker 1: could you maybe go into some more detail about how
Speaker 1: exactly you see that working. Yeah, So with respect to
Speaker 1: the dollar more structurally, you know, if you if you
Speaker 1: think about the regime from say the financial crisis until COVID, UM,
Speaker 1: you know, the dollar was like the only game in
Speaker 1: town in terms of collecting yield and having positive growth
Speaker 1: prospects in the major economies and the major accessible markets. UM.
Speaker 1: COVID's really changed that dynamic. As you know, the FEDS
Speaker 1: uh kind of caught down to like Europe and Japan
Speaker 1: interest rates wise, as well as has changed its reaction
Speaker 1: function to be far more devish and far more accommodative
Speaker 1: to positive outcomes. At the same time, China has kind
Speaker 1: of taken the rule of you know, the yield premium
Speaker 1: uh and and they've made some changes to their to
Speaker 1: their markets. UM. You know, since especially since when they
Speaker 1: when they had their FX policy shift, and you know,
Speaker 1: the the Chinese government bond market has has really turned
Speaker 1: into this UM. You know. I think the way John
Speaker 1: put it once is just you know, it's like one
Speaker 1: big sucking sound of capital, just really big one way flows.
Speaker 1: And so what that what that kind of means to
Speaker 1: me is that um, you know, there's a structural, structural
Speaker 1: headwinds to the US dollar and those those um will
Speaker 1: not only be reflecting positive outcomes and reflationary outcomes, but
Speaker 1: will also likely be driving them UM in a feedback
Speaker 1: loop as well, UM through a variety of channels, both
Speaker 1: through you know what that means, UM to to create
Speaker 1: accounts as well as you know, just general credit creation.
Speaker 1: I'm curious about this idea, and John, You've talked about
Speaker 1: a lot, both of you, but the idea of there
Speaker 1: being a meaningful difference between a fiscal stimulus lead reflation
Speaker 1: and a vaccine lead reflation. So it's funny because you know,
Speaker 1: it's you discuss John, it's like going into uh Q
Speaker 1: three and beginna give Q four. That thought was like, Okay,
Speaker 1: maybe we're gonna get a fiscal deal, or maybe Biden
Speaker 1: is going to win with and get a Democratic Senate
Speaker 1: and then they're going to pass a massive bill next year.
Speaker 1: But then that didn't happen. We didn't get the unified government.
Speaker 1: There's no fiscal deal as if yet. And yet like
Speaker 1: a couple of days after the election, we got the
Speaker 1: really good news about from Fiser about their vaccine, and
Speaker 1: suddenly people realize that a vaccine is likely coming and
Speaker 1: it's going to be effective, and the renormalization of economic
Speaker 1: activity might truly begin in earnest sometime in the beginning
Speaker 1: of So from a sort of market standpoint, what are
Speaker 1: the meaningful distinctions between that recovery led by a vaccine
Speaker 1: and a return to normal verse or recovery led by
Speaker 1: a sort of Cares Act two point right? I think
Speaker 1: it's I think it's that it's such a key point, honestly,
Speaker 1: and it has been a big theme for the last
Speaker 1: few weeks. And I think it works through two channels.
Speaker 1: I think one is the fundamental economic channel, which is
Speaker 1: to say that a fiscal deal that has a very
Speaker 1: heavy composition towards transfer payments, has a much more immediate
Speaker 1: nominal impact, right, because it goes into people's pockets, people
Speaker 1: can spend. There's a consumption element, and it's it's much
Speaker 1: more nominal because it's not followed by there's no new productivity,
Speaker 1: there's no new investments that are it's very consumption focused,
Speaker 1: and that kind of that is you know, trickles out
Speaker 1: through the trade deficit. It's a weaker dollar, but it's
Speaker 1: you know, it's consumption lead, so it has a much
Speaker 1: more nominal impact. The vaccine, on the other hand, is
Speaker 1: different in the sense that it's much more on the
Speaker 1: corporate side in the sense that it gives business is
Speaker 1: kind of more clarity in terms of capex, inventory, restocking,
Speaker 1: more you know, business related decisions, and that has more
Speaker 1: of a real impact um in terms of, you know,
Speaker 1: leading to potentially like higher levels of real growth UM
Speaker 1: in the coming year. And I think basically what the
Speaker 1: mark it kind of did with this transition from a
Speaker 1: fiscal regime to e vac's regime, is it traded scope
Speaker 1: for certainty, right, the potential of like more of an
Speaker 1: mm T type fiscal approach was kind of like, oh,
Speaker 1: we could have like high levels of nominal GDP and
Speaker 1: that could be pretty cool. But what the vaccine regime
Speaker 1: brings is like we kind of know what the world's
Speaker 1: gonna look like end of Q two on next year,
Speaker 1: and that has a massive reduction in risk premium, and
Speaker 1: the market can levitate off that. And if I could
Speaker 1: add a little bit to that as well, you know, um,
Speaker 1: and you know, you definitely have seen this what what
Speaker 1: John's mentioning, You've definitely seen it in the markets, whether
Speaker 1: it's you know, some of the beating down cyclicles, um,
Speaker 1: whether it's you know, the trade sensitive places like you know,
Speaker 1: the kneek has been one of our our long stuff
Speaker 1: to play, this vaccine trade um, and even you know,
Speaker 1: these these dislocations between gold prices and real yields. I
Speaker 1: think all three of those things reflect exactly what John
Speaker 1: saying with respect to the reduction of risk premium. But
Speaker 1: in addition as well, I think one other distinction between
Speaker 1: the two types of you know, two types of reflation
Speaker 1: are that the consumption basket mixed should likely shift towards
Speaker 1: services as um. You know that we get this normalization
Speaker 1: type of dynamic, and that should be really interesting to
Speaker 1: me because for two reasons. One one tail wind to
Speaker 1: the short dollar and and and long room and b
Speaker 1: type of dynamic has been so far has been how
Speaker 1: much um, you know, the consumption basket mix has has
Speaker 1: flattered you know, the the goods exporters like China, um
Speaker 1: and and so it's you know, we may see some hiccups,
Speaker 1: UM you know, also retracements or this or that, uh
Speaker 1: sometimes you know early next year, but especially if you
Speaker 1: know the trends able to persist and and you know
Speaker 1: ultimately get through those, you know, those types of transitions
Speaker 1: that would really reinforce UM the case that this is
Speaker 1: a structural shift and has you know a lot of
Speaker 1: likes to go. And the second point with respect to this, uh,
Speaker 1: you know, the consumption basket mixed shifts to services is
Speaker 1: one thing I'm really interested on and to see is
Speaker 1: um if there's been if COVID ends up being a
Speaker 1: permanent downward truck to the labor intensity of services output
Speaker 1: as in, you know, the services output and services demand rebounds,
Speaker 1: but does the employment side of it under underperform the
Speaker 1: output side of it? Um And and that would be
Speaker 1: that be really interesting. You know, the idea of being
Speaker 1: you know what the w t O and and the
Speaker 1: Chinese entrance of w t O what it was too
Speaker 1: goods and and the labor intensity of goods. We could
Speaker 1: see a smaller version of that materialize and services. Um.
Speaker 1: I don't have a strong view yet about this. I
Speaker 1: think it's really gonna be just something to keep in
Speaker 1: the back of our minds and and see how it
Speaker 1: unfolds in real time. But if that were to materialize,
Speaker 1: that would um just give that much more of a
Speaker 1: of a tail wind for the FET to remain at
Speaker 1: commendative because you know, the the employment would not be
Speaker 1: the employment picture wouldn't be recovering, um, you know, necessarily
Speaker 1: as as as swiftly as expected on the services side.
Speaker 1: So just on that note, I mean, we are starting
Speaker 1: to see some commentators, including some former All Thoughts guests,
Speaker 1: but you know, people like Tim Dewey at the University
Speaker 1: of Oregon talking about the potential to have a supercharged
Speaker 1: economy next year, where um, you know, everything looks pretty good,
Speaker 1: you get a vaccination, people go back to spending, unemployment
Speaker 1: rebounds and isn't actually you know, as bad as maybe
Speaker 1: the FED was expecting, and perhaps it sparks a little
Speaker 1: bit of inflation that puts the FED in an awkward position.
Speaker 1: Is that a risk that you see for next year
Speaker 1: or do you think the structural changes that you just
Speaker 1: described you're going to be enough to avoid that scenario?
Speaker 1: I leave at me personally, I think the FED will
Speaker 1: likely an accommodative. What should be interesting is, you know,
Speaker 1: to the extent that we see these dynamics start to
Speaker 1: emerge in the conversations, it's it's likely to be reflected
Speaker 1: in internal divisions within the f OMC. And so what
Speaker 1: I'll be really interested to see is how chair Power
Speaker 1: kind of navigates those decisions, those divisions and you know,
Speaker 1: kind of put on a bit of like look at
Speaker 1: some of the statements to do more of a political
Speaker 1: lens along those lines. Um. But yeah, I I think that, Um,
Speaker 1: there's a there's a pretty high chance that we have
Speaker 1: a very strong economy next year. UM. You know, some
Speaker 1: some of these south side forecasts may actually be you know,
Speaker 1: a little bit lower than you know, what I would expect.
Speaker 1: And you know, we'll we'll we'll know more, um, you
Speaker 1: know later this month, but especially around the March f
Speaker 1: OMC meeting. Um. But the side so far suggests to
Speaker 1: me that, um, you know, this is a new regime
Speaker 1: shift and we were not really gonna, uh, they're not
Speaker 1: really going to get ahead of it. And and just
Speaker 1: to be clear with respect to what I was mentioning
Speaker 1: with with the labor intensity of output of services, that
Speaker 1: would be more of a question about on the back end,
Speaker 1: like not necessarily in the next few months, um, but
Speaker 1: more so about you know, what's the what's the long
Speaker 1: term run rate of you know, employment growth in the
Speaker 1: service aside um, and what does that mean for you know,
Speaker 1: fat forecasts where where are they're likely to have to
Speaker 1: mark up and down you know, the longer term forecast.
Speaker 1: But I know this is another question that I'm sure
Speaker 1: John has some some great thoughts about two, so I'll
Speaker 1: let him jump in. Yeah, no, I I think it's
Speaker 1: it's it's really interesting in the sense that the recovery
Speaker 1: next year is going to look very different than ones
Speaker 1: of at least the most recent past in terms of
Speaker 1: output shocks, in the sense that balance sheets are in
Speaker 1: a much better position, as people like you know, Tim
Speaker 1: doy have said that there's you know, there's this element
Speaker 1: of excess savings and that's kind of come from this
Speaker 1: combination of the cares act kind of having this huge multiplier,
Speaker 1: but also having the you know, with the virus, having
Speaker 1: these con strains in terms of people's ability to spend it. Um.
Speaker 1: And I think the other thing is we actually went
Speaker 1: into the crisis um with you know, household balance sheets
Speaker 1: in relatively good shape. Um, So coming out of it,
Speaker 1: it's not that Usually in a recession you kind of
Speaker 1: have this lethargic hystory sis kind of as people have
Speaker 1: to repair balance sheets and that's that's why it takes
Speaker 1: time for recoveries to get off the ground. Um. And
Speaker 1: I think that could be very different this time, given
Speaker 1: that it's just we had a we had a recession
Speaker 1: where disposable income went up, so um it could you know,
Speaker 1: very much change the scope of the recovery. And as
Speaker 1: it relates to the FED, I think and I think, um,
Speaker 1: this is this is something I'm fairly confident, I think,
Speaker 1: and people are underestimating. Is I don't think the FED
Speaker 1: reaction function or response so far is cyclical. I think
Speaker 1: it's structural. And what I mean by that is I
Speaker 1: think the FED is kind of is not saying like
Speaker 1: this was the right reaction to a COVID shot in
Speaker 1: the sense of their forward guidance, Balancie policy and there
Speaker 1: and and and etcetera. I think what they're saying is
Speaker 1: is like, we got things wrong a few years ago
Speaker 1: and that's not going to happen again. And the manifestation
Speaker 1: of that will be that, yes, things are going to
Speaker 1: be quote unquote back to normal in the middle of
Speaker 1: next year, but the FED won't because it's not a
Speaker 1: cyclical response, it's a structural response. So I I think
Speaker 1: the FED will be much more dubbish than I think
Speaker 1: a lot of people think. The recaliboration of their approach,
Speaker 1: especially with respect to the Phelps curve, pre Dace COVID. Right,
Speaker 1: So what what John saying makes a lot of sense
Speaker 1: to me, and conversations with John have actually kind of
Speaker 1: influenced my view here. One last point I'd like to
Speaker 1: add there is, you know, I think that one of
Speaker 1: the biggest things that um, you know, I had to
Speaker 1: adapt to in real time and it kind of change
Speaker 1: my mind on is exactly that Tim Dewey hypothesis of
Speaker 1: excess savings. And you know, John and I have talked
Speaker 1: a little bit about, you know, what would be cool
Speaker 1: ways to maybe think about the distributional aspects of this
Speaker 1: and if if the data you know exists for that,
Speaker 1: and that could be a key question to really gauge
Speaker 1: how far it can take us through next year. But
Speaker 1: it is really interesting, you know, the the initial conditions
Speaker 1: really do matter in terms of macro economic thinking, and
Speaker 1: the initial conditions the balantie wise on the household side especially,
Speaker 1: don't really suggest that we have to have very elevated
Speaker 1: savings rates for a long time, as as balanties have
Speaker 1: to have to get repaired and to the extent that
Speaker 1: we would need elevated the savings rates in response to
Speaker 1: the you know, virus uncertainty. It's kind of similar to
Speaker 1: what John was saying with respect of the risk premium
Speaker 1: compression on the back of the vaccine news. You trade
Speaker 1: scope for certainty, and that certainty ends up being a
Speaker 1: pretty big headwind. Tom, you know how high personal savings
Speaker 1: rates you know, end up being next year. So one
Speaker 1: of the questions that I think the off all I've
Speaker 1: asked you this before, but it's something I've been curious
Speaker 1: about a lot. Like or we talked about regime shift
Speaker 1: and the FEDS regime shift is fairly clear and you
Speaker 1: believe it. And they're going to be uh much less
Speaker 1: aggressive they claim in um hiking raids. They're not going
Speaker 1: to be trying to get ahead of inflation in the
Speaker 1: same way. And so that's potentially quite significant. Obviously, the
Speaker 1: post COVID economy could look different than the pre COVID
Speaker 1: economy in ways, and we'll talk about that more. But
Speaker 1: what does that mean for then sort of like normalized markets?
Speaker 1: And obviously right now, as we said in the intro
Speaker 1: or in this era or this not era, or in
Speaker 1: this like moment where people are buying like Macy's and
Speaker 1: airlines and steel companies, companies that were not sexy at
Speaker 1: all pre crisis um suddenly getting some sort of back
Speaker 1: to normal appeal. But in as we normalize and maybe
Speaker 1: in just sort of like Q three of next year,
Speaker 1: things start to look genuinely normal. Do uh, do people
Speaker 1: just go back to buying Microsoft and Netflix and Tesla
Speaker 1: as their leaders or do something fundamentally changed where like
Speaker 1: new winners can emerge on a more sustainable basis. That's
Speaker 1: a great question, UM. I wish I had a great
Speaker 1: answer to that. Um. You know, on one thing that
Speaker 1: should be interesting along these lines is Um, the results
Speaker 1: of the of the Georgia elections likely give some signal
Speaker 1: with respect to what we can expect on the fiscal
Speaker 1: front until the next batch of mid terms two and
Speaker 1: that should be kind of interesting to keep in the
Speaker 1: back back of our minds. But but yeah, you know,
Speaker 1: I think that at some point next year, I wouldn't
Speaker 1: be surprised if, you know, we kind of pivot back
Speaker 1: to you people are long and long the long end
Speaker 1: of the botto market and long you know, NAZAC and
Speaker 1: and and China tech um and And it's it's interesting
Speaker 1: actually seeing how we've already kind of we we despite
Speaker 1: the fact that we've had this huge cyclicles m rally.
Speaker 1: You know, the NAZZAC actually did kind of catch catch
Speaker 1: up a little bit in in in recent sessions. So
Speaker 1: I think there's still gonna likely be a structural demand
Speaker 1: for that type of stuff. UM. And you know, I
Speaker 1: would say though that like I'm I'm actually more interested
Speaker 1: in like in terms of normalization trades that have durability.
Speaker 1: I'm more interested in um, looking at things in the
Speaker 1: emerging markets and looking at stuff that's sensitive to global
Speaker 1: trade growth like th nik UM as opposed to you know,
Speaker 1: just buying you know, US energy stocks and and you
Speaker 1: know retail operators. I think, I think, I think, I
Speaker 1: think it's right. And I think one maybe of the
Speaker 1: more interesting transitions to come in, you know two could
Speaker 1: be in terms of like these narratives of like a
Speaker 1: fiscal reflation to a vaxx reflation, is that the vax
Speaker 1: reflation kind of morphs into this broadening of a risk
Speaker 1: premium compression. And I think like one of the I
Speaker 1: think a lot of the market action post the vaccine
Speaker 1: kind of felt like like the market was exhaling a
Speaker 1: little bit, right, Like it had all this built up
Speaker 1: risk premiums and like all these cyclicals had no idea
Speaker 1: um and you saw like across asset classes in terms
Speaker 1: of like trade sensitive currencies, etcetera. E. M. Bond markets
Speaker 1: where there's just this very high level of risk premium.
Speaker 1: And I think this kind of really dated back dates
Speaker 1: back a while. And why I think this could be
Speaker 1: maybe a bigger theme is that it's it could be
Speaker 1: another one of these regime shifts, because what we had
Speaker 1: in two thousand ten to two thousand twenty was basically
Speaker 1: post financial crisis was basically exhausion, a shock after exhaus
Speaker 1: A shock, and we had we went from the euro
Speaker 1: crisis to China devel concerns, to Brexit, to trade war
Speaker 1: and finally the mother of all shocks in terms of
Speaker 1: COVID and unfortunately passed away this year. But Emmanuel Farhi
Speaker 1: had Harvard actually did a lot of work on kind
Speaker 1: of why the market price so much risk premium when
Speaker 1: discount rates were so love and I think it has
Speaker 1: something to do with this, and it led to things like,
Speaker 1: you know, we'd have like the you know, swissy currency
Speaker 1: on a on a effective exchanger evaluation metric, be it
Speaker 1: like you know, just going a straight line from two
Speaker 1: thousand ten to two thousand twenty, when things that were
Speaker 1: like cyclically driven like the Swedish chrona or the AUSI
Speaker 1: doll or things like that would kind of just be
Speaker 1: in a decline lower. It was basically the market just
Speaker 1: saying I want safety at all costs, and I don't
Speaker 1: want I don't want anything to do with cyclicals. I
Speaker 1: don't need that. There's this embedded it is premium, and
Speaker 1: I think it's right for it to be there. And
Speaker 1: I wonder if kind of the vaccine and the combination
Speaker 1: of all these left tail measures we've taken with fiscal
Speaker 1: filling in for deflation with the European um with the
Speaker 1: European Deal, and and and things like that. UM, I
Speaker 1: wonder if the combination of of left tail changes and
Speaker 1: this catalyst to reduce risk premium kind of you know,
Speaker 1: can have a higher trajectory than people think. You know,
Speaker 1: I'm looking right down on the Bloomberg terminal of the
Speaker 1: IMANXI have the Emerging Market Index and on a large
Speaker 1: term scale, and so interesting because you know, we haven't
Speaker 1: gone anywhere since two thousand and seven. Um. You know,
Speaker 1: it's just been a bunch of zigs and zags along
Speaker 1: the way. So you know, a lot of altility long
Speaker 1: the way, but we're basically you know, haven't made any
Speaker 1: upward progress. UM. I think this is before carry albeit.
Speaker 1: But you know, if if if the framing that John
Speaker 1: and I are presents, especially with respects to the dollar,
Speaker 1: if those end up being right, then I wouldn't be surprised.
Speaker 1: If you know, some of these emerging markets are are
Speaker 1: really kind of coiled and and and could could be
Speaker 1: a really interesting and more durable trade. And as we
Speaker 1: as we kind of handoff, like like John said, from
Speaker 1: just a pure vaccine excellation to a broader based you know,
Speaker 1: reduction risk premia, and I would I would expect, you know,
Speaker 1: the emerging markets trade to probably have more durability along
Speaker 1: those lines than just you know, the US cyclicals and
Speaker 1: US small value. So this was actually going to beat
Speaker 1: into my next question. But we started this whole conversation
Speaker 1: talking about how the dollar is going to be really
Speaker 1: important to one and the more you talk about sort
Speaker 1: of your specific ideas, I can see why you're so
Speaker 1: focused on the dollar. So clearly, if you're long emerging markets,
Speaker 1: that matters quite a lot. Do you think, well, first
Speaker 1: of all, what would it take to get a higher
Speaker 1: dollar in this environment? And secondly, is the suggestion here
Speaker 1: that the Federal Reserve has sort of become comfortable with
Speaker 1: this idea that it's the world central bank and that
Speaker 1: it's actively looking at financial conditions and actively caring about
Speaker 1: a stronger US dollar and what it does to the
Speaker 1: rest of the world economy with respect to what it
Speaker 1: would take for a higher dollar. I mean, one one
Speaker 1: thing that I would obviously do that is if the
Speaker 1: Fed ended up being less debbish or less you know, authentic,
Speaker 1: and its reaction function shift than then we might be
Speaker 1: thinking in this conversation UM and and more more tactically
Speaker 1: in terms of like shorter term trading. I think that
Speaker 1: like I mentioned earlier, you know, the combination of of
Speaker 1: the consumption basket and make shifting towards services at the
Speaker 1: same time as potential for you know, maybe a little
Speaker 1: bit of uh comp of the of the yield spread
Speaker 1: between US and China. UM that could doubt that could
Speaker 1: give some pickups along the way, UM, although I think
Speaker 1: they would be opportunities to add or enter into these
Speaker 1: types of trades UM. And with respect to the FED, UM,
Speaker 1: I do think that you know, they've become more comfortable
Speaker 1: with this, this notion of being in the World Central Bank,
Speaker 1: you know, BRAINER has been really influential along the lines
Speaker 1: of how how the international conditions kind of UM, you know,
Speaker 1: are part of the analysis to f OMC has to make.
Speaker 1: But I think more generally, UM, you know, and even
Speaker 1: before COVID, it was just this notion that why were
Speaker 1: we hiking in the first place, Like why were we
Speaker 1: short circuiting these recoveries when you know, our Phillips curve
Speaker 1: kind of based models UM never really showed like UM
Speaker 1: and never materialized, the inflation never came, and um, you
Speaker 1: know what what are what are the costs benefit trade offs? Um?
Speaker 1: And I think they have come to the conclusion that
Speaker 1: it's time to letter rip. But again, you know, you know,
Speaker 1: I think John is a little bit more confident and
Speaker 1: I am about this, although you know, I wouldn't be
Speaker 1: surprised if I kind of converged to his views. But um,
Speaker 1: you know, the question there, I think is going to
Speaker 1: be about how how does Chair Powell navigate what are
Speaker 1: likely to be kind of emerging internal divisions, even if
Speaker 1: they're not super strong. Um. You know, as as these
Speaker 1: uh you know, as members of that form, you start
Speaker 1: thinking about the back end of of of this recovery
Speaker 1: more so than just to hear and now, um, that
Speaker 1: should probably become more more in play as a debate,
Speaker 1: and um, you know, it should be interesting to see
Speaker 1: how he navigates that. And I'll let I'll let John
Speaker 1: hoppin about about both questions as well. Yeah, I mean
Speaker 1: I think on the on the FED. On the FED part,
Speaker 1: I think it's I think the FED really nailed And
Speaker 1: there's a brain Arde speech in July that kind of
Speaker 1: really crystallized this when she talked about kind of stabilization
Speaker 1: to accommodation, and and I think that the FED is
Speaker 1: very now comfortable in the idea that a lot of
Speaker 1: their policy effects kind of happened in the second derivative.
Speaker 1: And it's not like the traditional Michael Woodford, Oh, we
Speaker 1: do que real interest rates, ball term premiere compresses and
Speaker 1: aggregate demand goes bonkers. It's not like that anymore. It's
Speaker 1: how do we, through financial markets, through financial conditions kind
Speaker 1: of create these feedback loops that basically allows our policy
Speaker 1: posture to expand for us. And it's actually much more
Speaker 1: durable because they because their feedback loops, they play off
Speaker 1: each other. Right, so the FED can say that Okay,
Speaker 1: things are going well, that changes nothing for us. That
Speaker 1: has an effect on the dollar, which has an effect
Speaker 1: on real yields, which has an effect on the dollar.
Speaker 1: So kind of setting these things in motion, um I think, well,
Speaker 1: kind of I will add power to the FEDS very
Speaker 1: procyclical ability to ease and in terms of the dollar,
Speaker 1: in in the sense of what could possibly be potential
Speaker 1: positive catalysts, I mean, I think number one is I
Speaker 1: think probably positioning um as like we kind of get
Speaker 1: into January and it becomes a very consensus view. Um,
Speaker 1: there's always these Q one shakeouts. Um, it seems in
Speaker 1: terms of the popular trades. Um. But I think what
Speaker 1: maybe actually kind of may be able to offset that
Speaker 1: is that a lot of people, I think want to
Speaker 1: play um, these trades in a catch up stence. Right,
Speaker 1: So you see these things like oh, copper gold ratio
Speaker 1: has gone vertical, and and and Russell versus SMP, etcetera.
Speaker 1: And the tenure bondild has done pretty much. I mean
Speaker 1: it's you know, marginally higher, but it's not really done anything.
Speaker 1: And I think a lot of macro is still kind
Speaker 1: of looking at like, Okay, how do I pay rates
Speaker 1: to play this catchup or how do I do? And
Speaker 1: I think that's really missing the point because the reason
Speaker 1: these things can go vertical is because they keep looking
Speaker 1: over there. Russell luson P ratio keeps looking over its
Speaker 1: shoulder at the bomb market and seeing nothing. So that's
Speaker 1: what allows it to go nuts. And saying with a
Speaker 1: lot of the cyclical data. And so I think that
Speaker 1: a lot of these things, Um, yes, there will be
Speaker 1: probably hiccups in terms of you know, in terms of
Speaker 1: the recovery, in terms of the vaccine rollout, etcetera. But
Speaker 1: in in bigger picture terms, I think the trades that
Speaker 1: are working now are still the bigger trades going. I
Speaker 1: want to actually, like, really have you spell out that
Speaker 1: last point, because it sounds pretty important. People look at
Speaker 1: the rebound and small caps value commodities copper to the commodity,
Speaker 1: and they're like, all right, but when are yields going
Speaker 1: to catch up? But it's not like that. There's no
Speaker 1: inherent with this new FED regime. There's no inherent reason
Speaker 1: for yields to catch up. And if anything, it's this
Speaker 1: ongoing compression of the long end of a curve that
Speaker 1: further accelerates the gap between the two. Just sort of
Speaker 1: explained that, or if if I'm if I'm summarizing your
Speaker 1: view correctly, and how much longer that that dynamic could
Speaker 1: potentially run. Yeah, I know, I think you actually summed
Speaker 1: it up perfectly. I think that it can run further
Speaker 1: in the sense that there will be these times when
Speaker 1: people are like, oh, maybe we can like price in
Speaker 1: hikes three And you've seen this recently a little bit
Speaker 1: on the backs on the back of the backs reflation narrative,
Speaker 1: where within the bond market, if you look at like
Speaker 1: a butterfly, you'll see that the belly is kind of
Speaker 1: cheapening at the same rate and the long end is
Speaker 1: and that's kind of saying like, okay, like maybe they'll
Speaker 1: be you know, because usually when the belly leads, like
Speaker 1: the belly lead the bond market lower, so that's like
Speaker 1: five seven tens, and when that happens, you kind of say, like, Okay,
Speaker 1: this could be a policy changes coming. But I think
Speaker 1: bigger picture is that all this stuff is kind of there.
Speaker 1: There used to be these cut off mechanisms to these moves,
Speaker 1: right as in cyclicals would get off the map, the
Speaker 1: dollar would start going lower, and then we'd say, oh,
Speaker 1: and to this means in two years that the FED
Speaker 1: can remove accommodation. And now we're saying that in two
Speaker 1: years the Fed's accommodation level is going to look really
Speaker 1: similar to what it is now. And I think that's
Speaker 1: a very powerful point going forward. You know, before we
Speaker 1: wrap up novel, i'd love to go back to your
Speaker 1: point about could the COVID nineteen crisis b two services
Speaker 1: productivity as China's entry into the w t O and
Speaker 1: two thousand was too uh goods productivity and the sort
Speaker 1: of deflation or disinflation that we start for the next
Speaker 1: couple of decades in goods. Walk through your thinking there.
Speaker 1: What do you see happening out in the real world,
Speaker 1: out in the economy that you think could cause this
Speaker 1: where we return to services pre crisis levels of services
Speaker 1: consumption but not pre crisis levels of services employment, and
Speaker 1: sort of a why do you think that's a possibility,
Speaker 1: And what do you see as some of the not
Speaker 1: gund effective that well, the you know, first of all,
Speaker 1: this is very speculative of a view. It's something that
Speaker 1: I'm just kind of you know, I just want to
Speaker 1: see how it materialized is more of a question than
Speaker 1: a view. But this this was a huge shock, and
Speaker 1: it was very very concentrated in the services sector. And
Speaker 1: so there's there's always this kind of you know, necessity
Speaker 1: is the mother of invention type of thing, type of dynamic.
Speaker 1: So that that's one thing I think that you know,
Speaker 1: service services oriented businesses have been likely focused a lot
Speaker 1: on the technological side um in terms of how they
Speaker 1: kind of restart um their businesses. And and secondly, you know,
Speaker 1: the COVID, the COVID shock kind of just digitize everything
Speaker 1: and um pulled forward a lot of this kind of
Speaker 1: technological um you know, implementation of a lot of things,
Speaker 1: and so you know, I wouldn't be I wouldn't be
Speaker 1: surprised if if, if that's how it materialized, what it
Speaker 1: would look like in terms of, like on the ground
Speaker 1: the real economy. It's a good question. I don't I
Speaker 1: don't know if I have a great answer, But in
Speaker 1: terms of knock on effects, what it would mean is
Speaker 1: that we would have another kind of wave of you know,
Speaker 1: positive output shocks that the FED doesn't necessarily need to
Speaker 1: a short circuit because it's not seeing the same um
Speaker 1: impulse on employment and inflation. And you know that's likely
Speaker 1: you know, if that were to materialize, that would likely
Speaker 1: be you know, another inequality widening dynamic, and you know
Speaker 1: it would it would lead to kind of like a
Speaker 1: Goldilocks type of environment for the markets. UM. So you know,
Speaker 1: that's that's one thing I'm interested to see as we
Speaker 1: restart the services sectors, what are we seeing in terms
Speaker 1: of the output res employment picture, especially like later in
Speaker 1: the year once we're kind of because and you know,
Speaker 1: on the front end of of reopening and we normalization,
Speaker 1: you know, the we should see a very robust hiring
Speaker 1: response in response to you know, a rebound and demand.
Speaker 1: But I'm interested to see if if that kind of
Speaker 1: tapers off a little bit relative to output, and if
Speaker 1: that does happened, that that probably has some implications for
Speaker 1: longer term bond yields until unless, and until we do
Speaker 1: see some sort of more structural um fiscal policy shift,
Speaker 1: because um, you know, I think that that's gonna be necessary,
Speaker 1: uh to offset some of these inequality widening forces. And
Speaker 1: and that's that's kind of when you know, you start
Speaker 1: looking at the two mid terms and stuff like that,
Speaker 1: to an extent, the Georgia elections too. But even with
Speaker 1: the Georgia elections, you know, even if both seats go
Speaker 1: Democrat fifty fifty with a Vice President Harris tiebreaker, the
Speaker 1: folks with the most leverage in that environment would be
Speaker 1: the centrist Democrats. Um, you know that you need Joe
Speaker 1: Banshon on board for a lot of a lot of stuff. Um,
Speaker 1: it's very different than you know, if you have like
Speaker 1: fifty three fifty four seats UM in the Senate, and
Speaker 1: you know, the progressives would have a lot more leverage.
Speaker 1: So that that's kind of a messy wave of me
Speaker 1: trying to lay out how I'm thinking about this. So
Speaker 1: I'm thinking back to the beginning of this year and
Speaker 1: when I think about all the crazy things that happened.
Speaker 1: I mean, just just in January, we had the beginning
Speaker 1: of the COVID outbreak in earnest in Luhan, we had UM,
Speaker 1: you know, the US and and Iran getting pretty close
Speaker 1: to an all out war. UM lots of things happening.
Speaker 1: I mean, Kobe Bryant dying in a helicopter crash like
Speaker 1: that was a big deal as well. I mean, I'm
Speaker 1: thinking about how to phrase this question, but like, what
Speaker 1: what is your tail risk that you're watching out for
Speaker 1: in UM one but not the obvious ones, Like we
Speaker 1: don't get a vaccine that works, what's your sort of
Speaker 1: out there, what's your left field tail risk for? Yeah,
Speaker 1: the the the the unknown unknown. I think that I'll
Speaker 1: I won't I won't try and predict that, but I'll
Speaker 1: go with I think that it will be very interesting
Speaker 1: in a policy sense, not only like kind of gauging
Speaker 1: new reaction functions in fiscal and central banks around the world,
Speaker 1: but kind of gauging UM, when when will when will
Speaker 1: the rate of change matter? In terms of policy easing, right,
Speaker 1: and it's like, will the end of one be kind
Speaker 1: of these rolling cliffs of either central bank accommodation and
Speaker 1: ending and fiscal accommodation ending, because we like to forget
Speaker 1: that even though that, you know, the US has had
Speaker 1: a messy kind of fiscal picture, even though the Cares
Speaker 1: Act was obviously such a success, the rest of the
Speaker 1: world is actually kind of doing it a lot more effectively.
Speaker 1: I mean, Europe has its issues with disbursements of the
Speaker 1: you know, this supernational project, but Germany and France both
Speaker 1: acted when mitigation measures went back into effect. Canada is,
Speaker 1: you know, promising more fiscal next year, Australia, New Zealand
Speaker 1: the same, even Korea surplus. Korea has an expansionary budget
Speaker 1: for next year. Japan's on their third or fourth supplementary budget.
Speaker 1: So a lot of these, you know, these changes in
Speaker 1: what was previously pretty dogmatic behavior from a lot of
Speaker 1: fiscal actors has happened. And the question is, I guess,
Speaker 1: kind of looking at it for more of a tail
Speaker 1: risk scenario is what if a lot of this goes
Speaker 1: off kind of cliffs off at the same time, and
Speaker 1: then the market kind of becomes uncomfortable with this fiscal transition,
Speaker 1: you know, into the private sector, because for the last
Speaker 1: ten years, the private sector hasn't exactly achieved escape philocoity
Speaker 1: on its own, or it doesn't have a good track
Speaker 1: record of it. So I think, in terms of risks,
Speaker 1: I guess that would be my risk. I think that
Speaker 1: makes a lot of sense to you know, um as
Speaker 1: John's mentioned, um a lot about how there's kind of
Speaker 1: a procyclcality element and dynamic with respect to this fat regime.
Speaker 1: So if we do see some rolling cliffs in terms
Speaker 1: of greater change of of of policy accommodation, at the
Speaker 1: same time as kind of the the big normalization boost
Speaker 1: kind of starts to taper off, um that that would
Speaker 1: be kind of a nasty cocktail, especially because you know,
Speaker 1: this is a question I'm really I'm really interested to
Speaker 1: see in the back half of next year. You know,
Speaker 1: what is what is the run rate that we kind
Speaker 1: of converge back to, like, you know, has nothing really
Speaker 1: changed in the underlying picture? You know, once we're past
Speaker 1: you know, the COVID shock and then the real the
Speaker 1: real the normalization shot upward shock, you are we in
Speaker 1: the same kind of nominal growth environment as before, because
Speaker 1: if so, you know, tapering off to that to that
Speaker 1: kind of run rate at the same time as as um,
Speaker 1: you know, if if, if, if we do see some
Speaker 1: sort of cliffs on the policy front, it will be
Speaker 1: approachately could go on the way down as well, the
Speaker 1: same way it's been really effective on the way up.
Speaker 1: And I guess the other other thing I would mention
Speaker 1: would be, you know, just a typical classic macro punter geopolitics, Right,
Speaker 1: anything can happen with respect to geopolitics. I I think
Speaker 1: it'll be interesting to see the approach that Presidental like
Speaker 1: Biden takes with respect of China. I I understand that
Speaker 1: you know that it's it's it's nice to have a
Speaker 1: lot of the uncertainty removed. But um, you know, as I,
Speaker 1: as I mentioned a couple of times on on Bloomberg
Speaker 1: with with You Joe, during the trade war, I I
Speaker 1: always kind of looked at it as it was a
Speaker 1: lot more bark bark than bite. Um. And ultimately, you know,
Speaker 1: the trade deal quote unquote was you know, it didn't
Speaker 1: really change anything structurally and and actually it's cemented financial
Speaker 1: entanglements between um, the the U S and China. President
Speaker 1: Elect Biden's approach may kind of depart from that, and
Speaker 1: so we could see some geopolitical hiccups along the way,
Speaker 1: especially because China is becoming a little bit more aggressive
Speaker 1: with respect to UM what it considers its clients. I'm
Speaker 1: sure that you know we're gonna see Alliance building UM
Speaker 1: start to emerge or Alliance rebuilding start to emerge. But
Speaker 1: you know, the transition has the potential to be a
Speaker 1: little bit messy. And in fact, I think that you know,
Speaker 1: the personnel decisions that the transition team is making is
Speaker 1: interesting because the Under Secretary of the for the for
Speaker 1: the U. S. Treasury of them UM, he actually was
Speaker 1: the lead negotiator for TPP. I think it signals that
Speaker 1: president like Biden wants to take a relatively active stance
Speaker 1: with respect to China. So you know, that's always that's
Speaker 1: always kind of in the cards, and it's probably a
Speaker 1: little bit less top of mind than it was under
Speaker 1: the Trump administration. So that could be something that catches
Speaker 1: us by surprise. Well, John and uh novel, So great
Speaker 1: to talk to both of your real treat tons to
Speaker 1: think about into Maybe we'll do like a mid year
Speaker 1: update like next June or July and sort of take
Speaker 1: stock of how things are going. I think that begin
Speaker 1: absolutely all right, Well, looking forward to it, and I
Speaker 1: appreciate both of you and all of the work you've
Speaker 1: done this year and helping us understand this. Thanks for
Speaker 1: coming out and out love. Thank you, Yeah, thank you,
Speaker 1: Look forwards the next time. Take here you guys. That
Speaker 1: was great. I really think it just in terms of
Speaker 1: understanding this year, I mean throughout following both of them
Speaker 1: on Twitter, following their writings, etcetera. I don't think there's
Speaker 1: any two people that I think have had a clearer
Speaker 1: sense of the moving parts of the macro picture than
Speaker 1: those two. So's uh great to talk to them about
Speaker 1: what they see happening next year. Yeah, it was a
Speaker 1: really nice framing of the big macro trends. Fore, I
Speaker 1: gotta say, you mentioned this idea of coming back and
Speaker 1: doing a midyear update. I really hope, I really hope
Speaker 1: that January is relatively boring and that it's not a
Speaker 1: repeat of what happened in January, and that we don't
Speaker 1: have to have them come back on in February or
Speaker 1: something because the world is following. I really hope that's
Speaker 1: the kind of um. But so like I wanted to be,
Speaker 1: like I said, it was at the beginning, a little
Speaker 1: less interesting, but you know that I don't want to
Speaker 1: boring year, but a little more boring. Well, I think
Speaker 1: even if even we get a vaccine, and even if
Speaker 1: we get a global economic recovery, which might normally be
Speaker 1: considered boring for financial journalists, I think it's still going
Speaker 1: to end up being an interesting year. As John and
Speaker 1: now we're saying, because of the policy implications and and
Speaker 1: this this handoff or the interaction between fiscal inflation and
Speaker 1: vaccine inflation, Like, even if everything goes as they were describing,
Speaker 1: there's still a big question mark over how the FED
Speaker 1: reacts to that combination. You know, the point that John
Speaker 1: made and both of them about the pro cych locality,
Speaker 1: the feedback loop of the current FED posture. I just
Speaker 1: think like cannot be sort of understated. This idea that like, okay,
Speaker 1: the FED has let's say the FED holds rates at
Speaker 1: zero and so um, you know, earlier the year we
Speaker 1: had unemployment at over ten percent, So zero raids unemploye
Speaker 1: and over a ten percent, you know, they have this
Speaker 1: accommodative level. If the FED is still holding rates at
Speaker 1: zero with no intention of hiking anytime soon. When the
Speaker 1: unemployment rate is blow seven percent, then that is implicitly
Speaker 1: more accommodative because the level of the economy has improved,
Speaker 1: but we haven't got any corresponding tightening. So implicitly we've
Speaker 1: been having this ongoing easing ever since the economy started
Speaker 1: rebounding in late March and early April. And I think
Speaker 1: that helped really helps explain some of the extremity of
Speaker 1: these moves. That it's like if you're sort of easing
Speaker 1: further implicitly as the economy recovers, we you know, you
Speaker 1: could see how you know, there's the feedback loop that's
Speaker 1: sort of like, uh, I think I remember someone put
Speaker 1: his like rocket fuel for the market. Yeah, I think
Speaker 1: Knof actually said that. Um no, that's exactly right. It's
Speaker 1: and I think they mentioned that Brainerd's speech about going
Speaker 1: from stabilization to accommodation, like there's a policy shift that
Speaker 1: is taking place. Um And so when you when you
Speaker 1: look at it through that framework, thann u s stocks
Speaker 1: at an all time record, like it doesn't seem as
Speaker 1: divorced from economic reality as as it would be otherwise.
Speaker 1: I do think like that like the big question mark, however,
Speaker 1: is still like in the post crisis landscape, whenever we
Speaker 1: could declare a post crisis, which is probably at some
Speaker 1: point when everyone a lot of people have had the
Speaker 1: vaccine and it's just not a big issue anymore and
Speaker 1: everything is totally reopened. Do we just go back to
Speaker 1: the pre crisis environment of people buying tenure bonds and
Speaker 1: Microsoft and calling it a day, or is their new leadership?
Speaker 1: And like, I'm kind of skeptical that anything meaningfully macro changes,
Speaker 1: And I'm thinking back to our conversation with Paul McCulley.
Speaker 1: It's like, in theory, want to see some new like
Speaker 1: fiscal lead permanent change to how we do macro management,
Speaker 1: and that could produce a shift, but in fact, like
Speaker 1: we can't even like get a minor extension to the
Speaker 1: Carres Act. And if you look at Biden and h nominees,
Speaker 1: you know, like a lot of them is sort of
Speaker 1: like progressive new thinkers, but also a lot of like
Speaker 1: you know, pretty mainstream conventional ideas, which means like it's
Speaker 1: still really hard to see like where the big long
Speaker 1: term macro shift comes from from. Sort of yeah, and
Speaker 1: then when we how do you get a big market
Speaker 1: ship without a big macro policy shift, hard to see
Speaker 1: much changing. Yeah, I think that's fair. That's fair. I
Speaker 1: mean people are so focused on how to get from
Speaker 1: the current situation from right now to this sort of
Speaker 1: endpoint um in one when things go back to normal
Speaker 1: that I think a lot of people like, we're so
Speaker 1: focused on the journey that we're not necessarily considering the
Speaker 1: destination of what that endpoint actually looks like. And I
Speaker 1: think you have a strong argument that maybe it just
Speaker 1: looks like, you know, what the earlier years actually looked like. Yeah. Absolutely, Well,
Speaker 1: I'm gonna be uh an interesting year and plenty of
Speaker 1: talk about and we'll have them back either way. And
Speaker 1: that's that. Should we leave it there? Too interesting? Hopefully?
Speaker 1: As you mentioned, all right, let's leave it there. This
Speaker 1: has been another episode of the All Thoughts Podcast. I'm
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy
Speaker 1: Alloway and I'm Joe wi Isn't though. You could follow
Speaker 1: me on Twitter at the Stalwart. Follow our guests on Twitter.
Speaker 1: Novel Sinala. He's locked, but maybe he'll let you follow
Speaker 1: him at novel Sinala. Follow our other guests, John Turrek
Speaker 1: he's at J Turrek eighteen. Follow our producer Laura Carlson.
Speaker 1: She's at Laura M. Carlson. Follow the Bloomberg head of podcast,
Speaker 1: Francesca Levie at Francesca Today, and check out all of
Speaker 1: our podcasts at Bloomberg under the handle at podcast. Thanks
Speaker 1: for listening to