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Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.

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Speaker 1: My name is Mike Reagan. I'm a senior editor at Bloomberg,

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Speaker 1: and I'm Danna High Across asset reporter with Bloomberg. This

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Speaker 1: week on the show, Well, even before Russia invaded Ukraine

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Speaker 1: early this year, the world had already hit peak globalization.

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Speaker 1: That's according to this week's guest, who is the head

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Speaker 1: of institutional portfolio strategy in the asset management unit of

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Speaker 1: a major bank, and he says, well, we better get

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Speaker 1: used to it that there's more d globalization ahead. So

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Speaker 1: what does that mean for markets as we look ahead

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Speaker 1: to and beyond. We'll get into it with our guests

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Speaker 1: this week. But first of all, Donna, I've got to

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Speaker 1: talk to you about one thing. It's your football should

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Speaker 1: Why what's wrong with them? They're the best? No, well,

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Speaker 1: your fans, the fans of the Buffalo what did they do?

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Speaker 1: You know? Fifty some years ago, Philadelphia Eagles fans through

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Speaker 1: like one or two snowballs at Santa Claus that not

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Speaker 1: even the real Santa Claus, I will point out, and

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Speaker 1: we've been hearing about it every day since. What awful

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Speaker 1: fans we are here? Your fans. We're throwing the snowballs

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Speaker 1: at the actual players that the other team at the Dolphins. Yeah.

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Speaker 1: I loved it, Yeah you would. It was so funny

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Speaker 1: you would. I think this ends the debate over who

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Speaker 1: the worst fans are in this because these two teams

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Speaker 1: could face off in the Super Bowl this year. Well,

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Speaker 1: fingers crossed, okay, but the referees came out and they said,

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Speaker 1: if you continue these shenanigans, Buffalo is gonna We're gonna

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Speaker 1: give a penalty to Buffalo. But then don't you think

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Speaker 1: if you're a Miami Dolphins fan they're in the stadium,

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Speaker 1: that you would purposefully throw snowballs so that Buffalo can

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Speaker 1: get the penalty. Seriously, there's like to Miami Dolphins fans, Yeah,

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Speaker 1: they don't even know how to throw snowballs. They would

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Speaker 1: someone from Miami doesn't even know how to make a snowball.

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Speaker 1: You kid mean, yeah, we can learn fast snowballs. I'm

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Speaker 1: just saying that the thinking was very flawed. You better

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Speaker 1: not throwing the snowballs at this week's guest. Oh yeah,

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Speaker 1: our guest. He's waiting for us. I want to bring

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Speaker 1: him in. It's Jared gross Managing director and head of

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Speaker 1: institutional portfolio Strategy at JP Morgan Asset Management. Jared, thank

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Speaker 1: you so much for coming on the show. Thank you

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Speaker 1: Old Donna, and thank you Michael. And as a longtime

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Speaker 1: Philadelphia Eagles fan, I have to say that I am

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Speaker 1: more than happy to see the mantle past to Buffalo

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Speaker 1: for sort of trucking the fan behavior. And I'm a

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Speaker 1: secret Eagles fan and Mike actually is an Eagles fan,

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Speaker 1: trying to pass the blame to the one or two

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Speaker 1: Miami fans who might have made the trip in Sextmber

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Speaker 1: to see a game in Buffalo, a very thin reed

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Speaker 1: to to rest on. So I think, thank you, thank you,

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Speaker 1: Jared already my favorite new guests. Oh my god, come on,

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Speaker 1: we all talk about this offline. But Jared, I'm so

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Speaker 1: happy you're joining us on the podcast. I was actually

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Speaker 1: hoping you can just start out telling us about your

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Speaker 1: role at JP Morgan, because it sounds very interesting to

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Speaker 1: meet sort of a little bit different from like, um

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Speaker 1: the usual like institutional portfolio strategist. Yeah, I'm happy too. So,

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Speaker 1: you know a lot of firms JP Morgan included have uh,

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Speaker 1: you know, a very strong macroeconomic team who you know,

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Speaker 1: grinds through a lot of the data in both you know,

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Speaker 1: kind of real time as the economic statistics are released,

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Speaker 1: but also formulates kind of longer term expectations around the

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Speaker 1: economy and the markets. And so I I participate along

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Speaker 1: with a lot of our other professionals in that process. UM.

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Speaker 1: But where I tend to specialize is in providing advice

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Speaker 1: around asset allocation to institutional investors. You know, so sort

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Speaker 1: of starting from the strategic asset allocation where they you know,

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Speaker 1: allocate their capital across stocks, bonds, and various alternative asset

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Speaker 1: classes and trying to be you know, maybe a little

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Speaker 1: bit more tactical than just sort of a ten year

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Speaker 1: outlook and and think a little bit about what's going

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Speaker 1: on in the world and how that can shape their

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Speaker 1: investment outlooks. So that's that's what I spend most of

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Speaker 1: my time doing. And uh, you know, most of my career,

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Speaker 1: I've been around a lot of the the pension community,

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Speaker 1: the endowment foundation community, and sort of other large institutional investors. UM.

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Speaker 1: So that's that's more or less what I do. And

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Speaker 1: Jared your team had this really fascinating report out on

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Speaker 1: sort of that idea of globalization. Has it peaked. What's

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Speaker 1: it mean for for the markets going forward? Well, you

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Speaker 1: just walk us through some of the metrics that make

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Speaker 1: it look to you guys like globalization at peak even

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Speaker 1: before the Russia Ukraine War, and and maybe just bring

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Speaker 1: it home with what what does it mean for asset

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Speaker 1: allocation in the near future. First, you have to recognize that,

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Speaker 1: you know, we have been in an era of increasing

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Speaker 1: globalization for some period of time, and that has and

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Speaker 1: enormously powerful in terms of driving market returns. You know,

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Speaker 1: we saw declining inflation on a global level, and and

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Speaker 1: a lot of that declining inflation was the result of

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Speaker 1: the globalization of the economy and the trading system. So

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Speaker 1: you had lower wages, you had greater access to you know,

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Speaker 1: commodities and other inputs, free flow of technology and data

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Speaker 1: and and all of those things made the inflationary impulse

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Speaker 1: sort of diminished across time, and that then allowed central

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Speaker 1: banks globally to reduce interest rates. You know, and we've

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Speaker 1: been in a long term disinflationary cycle going all the

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Speaker 1: way back to the era of Paul Vulker. And while

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Speaker 1: that doesn't perfectly coincide with the sort of globalization era, um,

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Speaker 1: they did overlap for a number of years, and so

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Speaker 1: that created a very powerful tail winds to financial markets.

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Speaker 1: You had, you know, companies that enjoyed lower cost of

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Speaker 1: funding with lower interest rates, they you know, were able

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Speaker 1: to reduce their operating costs, particularly on the on the

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Speaker 1: labor side, and so that led to higher profits and

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Speaker 1: higher financial asset values. And so you know, we've been

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Speaker 1: enjoying this for a long time. And one of the

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Speaker 1: things we note in our paper was that although you know,

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Speaker 1: you really don't see much of a decline in globalization

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Speaker 1: until more recently, a number of the underlying trends had

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Speaker 1: kind of lost their steam a little bit. Um you can,

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Speaker 1: you can actually break down globalization. It's kind of a

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Speaker 1: fascinating subject into sort of different components. So in our

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Speaker 1: paper we highlight three. There's economic globalization, which is i

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Speaker 1: think what most people think about its trade flows and

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Speaker 1: things like that. There's also political globalization, you know, the

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Speaker 1: willingness of companies to sort of countries to join treaty organizations,

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Speaker 1: the role of non governmental organizations. And then you have

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Speaker 1: social globalization. Um, you know, migration, both for you know,

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Speaker 1: kind of relocation or refugee reasons, but also for educational

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Speaker 1: reasons and for economic reasons, data, traffic, travel, you know,

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Speaker 1: all of these things coincide and sort of this very

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Speaker 1: broad definition of globalization. And and what's interesting is that

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Speaker 1: across all three of those major categories, economic, political, and social,

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Speaker 1: you can see very clearly a plateau ng starting about

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Speaker 1: five five seven years ago, and much more recently a decline.

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Speaker 1: And so it's that decline that we really zeroed in

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Speaker 1: on and to try and figure out what caused it.

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Speaker 1: And you know, I think what is often the case

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Speaker 1: in sort of very high level discussions of the global

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Speaker 1: macroeconomy is that you have these equilibrium points where you know,

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Speaker 1: various trends become self reinforcing. And the and the trend

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Speaker 1: towards globalization for many years was self reinforcing. I mean

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Speaker 1: put simply, the incentives for countries and firms to participate

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Speaker 1: in that process, to become more open, to become more global,

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Speaker 1: to have longer supply chains in order to take advantage

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Speaker 1: of labor costs. That was a very self reinforcing process.

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Speaker 1: What it appears to us is happening now is that

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Speaker 1: we may have been sort of kicked out of that

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Speaker 1: virtuous eical and into a different equilibrium point where the

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Speaker 1: incentives have changed, and we're going to see a reversal

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Speaker 1: to some extent of those trends. Shorter supply chains, um,

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Speaker 1: you know, less willingness to participate in the global economy,

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Speaker 1: more focus on sort of national or sort of spheres

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Speaker 1: of influence across the global economy. You hear all these

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Speaker 1: terms today about you know, on shoring and near shoring

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Speaker 1: and friends shoring, etcetera, etcetera, UM, And they all kind

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Speaker 1: of point in the same direction, which is that you know,

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Speaker 1: this imperative to become as global as possible has to

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Speaker 1: a very material degree faded. Now we don't know for

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Speaker 1: sure how long this will last, and you know, will

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Speaker 1: it be permanent or or more of a a period

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Speaker 1: that we live through and then we resume that that

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Speaker 1: sort of upward march towards a more globalized economy. But

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Speaker 1: from where we stand right now, you can certainly see

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Speaker 1: very visible signs that globalization has receded somewhat. And that,

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Speaker 1: and to the question you asked, that has some very

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Speaker 1: profound impacts on the markets. And we'll come back to

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Speaker 1: this later, but I think one of the more profound

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Speaker 1: ones is on inflation. You know, as the FED wrestles

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Speaker 1: with inflation right now and the market tries to figure

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Speaker 1: out how persistent inflation will be and how they should

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Speaker 1: react to that, this deglobalizing impulse is inherently inflationary, and

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Speaker 1: so you know, that may raise the baseline level of

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Speaker 1: inflation across the global economy, and that has very profound

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Speaker 1: implications for monetary policy, bond markets, and other markets more broadly.

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Speaker 1: And and is the reason simply if you're no longer

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Speaker 1: shopping for materials and labor in the cheapest possible country

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Speaker 1: that you know, it's just naturally going to cause higher inflation,

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Speaker 1: and I would guess sort of dent corporate profit margins

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Speaker 1: at the same time, it should have an impact on

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Speaker 1: profit margins. I think, you know, the more profound implication,

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Speaker 1: and there may be several, but one that I certainly

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Speaker 1: like to talk about is we've become very accustomed to

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Speaker 1: looking past headline inflation, which is typically driven by you know,

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Speaker 1: food and or energy prices, because historically it has been

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Speaker 1: relatively mean reverting over a short horizon. Now why is that,

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Speaker 1: Why is you know, headline inflation meeting reverting because the

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Speaker 1: individual commodities or or sort of resources behind that tend

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Speaker 1: to be both substitute herbal and they are part of

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Speaker 1: a global market where supply and demand can equalize fairly quickly. Um.

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Speaker 1: If we are moving to a world where resources are

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Speaker 1: more constrained, people are more defensive around, you know, sort

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Speaker 1: of husbanding their national resources. Um, and the ability to

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Speaker 1: substitute across sort of the global supply is more limited.

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Speaker 1: Then you know, the the ability to look past headline

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Speaker 1: inflation may diminish as well. And so you know, central

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Speaker 1: banks may be forced to reckon with a greater level

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Speaker 1: of volatility in their monetary policy, not just a higher

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Speaker 1: level of inflation overall. And that, of course, you know

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Speaker 1: that that is essentially the risk free rate that we

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Speaker 1: apply to most asset classes, and that you know that

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Speaker 1: has some very profound implications. So first, um, the title

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Speaker 1: of of the report we're talking about is the Lifeboat Economy.

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Speaker 1: So I wanted to ask you to sort of describe

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Speaker 1: to us what the what do you mean by lifeboat?

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Speaker 1: And then the second part is just to ask you

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Speaker 1: to add on a bit more on this idea that

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Speaker 1: the globalizations trend started before we had COVID, or before

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Speaker 1: Russia invaded Ukraine and what some of those uh factors

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Speaker 1: were or how you were able to see that. So

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Speaker 1: the title, you know, is a sort of a metaphor

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Speaker 1: for security. You know, in that you are, you know,

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Speaker 1: in a lifeboat. You are sort of first concerned about

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Speaker 1: protecting yourself, you know, the and and I think the

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Speaker 1: idea that you have sort of sailed off from this

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Speaker 1: larger ship that was carrying everyone. You are now in

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Speaker 1: a smaller space thinking more about self preservation. To the

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Speaker 1: second part of your question, you know, what were some

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Speaker 1: of these trends? So when we think about the nature

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Speaker 1: of deglobalization, you know, trade had been to some extent

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Speaker 1: in decline for a while, and and you know, a

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Speaker 1: lot of this data is to some extent anecdotal, but

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Speaker 1: when you look at the whole sort of tapestry that

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Speaker 1: it creates, it's very clear that there's a trend here.

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Speaker 1: And so you think about, you know, the United States

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Speaker 1: tariffs with China, you know, which obviously were accelerated by

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Speaker 1: the Trump administration but certainly have not been reversed by

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Speaker 1: the Biden administration. If anything, the Biden administration is to

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Speaker 1: some extent doubling down. And you know that suggests that

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Speaker 1: this is going to be a more permanent part of

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Speaker 1: our sort of trade politics around the world. Another element

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Speaker 1: would be, um, the Committee on the Foreign Investment of

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Speaker 1: Asset SIPHIUS, which you know kind of governs, uh, you know,

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Speaker 1: sort of capital market flows around the world, UM, and

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Speaker 1: sort of various elements of the trade and the competition

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Speaker 1: in the Federal Trade Commission and how they look at

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Speaker 1: mergers both you know, kind of within the United States,

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Speaker 1: but also globally. You can look at the reaction to

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Speaker 1: you know, Huawei and the technology and the chips and

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Speaker 1: sort of how they've been effectively sort of banned from

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Speaker 1: the global uh, you know, sort of telecommunication system, at

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Speaker 1: least outside of China. So a lot of this stuff

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Speaker 1: was happening well before COVID and well before the Ukraine War,

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Speaker 1: and and certainly you could apply a similar description to

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Speaker 1: some of the Chen's and immigration you know, which which

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Speaker 1: we're trailing off, you know, well prior to UM some

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Speaker 1: of the more recent events. What is interesting though, is

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Speaker 1: how you know, both COVID, which you know, in theory

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Speaker 1: should have been a more temporary response to a pandemic,

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Speaker 1: but had much longer lived sort of echoes not just

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Speaker 1: from a medical and a sort of social standpoint, but

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Speaker 1: you think about the supply chain, the impact on trade,

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Speaker 1: and how long that's lasted. It's really only now that

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Speaker 1: we're getting out from under some of those supply chain

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Speaker 1: disruptions UM, and we're starting to get back to something

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Speaker 1: more like a normal balance of trade across major you know,

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Speaker 1: or trading partner relationships UM. And then you know, with

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Speaker 1: with the Ukraine War, what was interesting is most geopolitical

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Speaker 1: events historically have really been more of a blip in

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Speaker 1: the markets. You know, they tend to create a spike

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Speaker 1: in volatility, and within a few months you're really back

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Speaker 1: to where you were and you can look at, you know,

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Speaker 1: most of the major you know, either sort of conflicts

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Speaker 1: or or other sort of geopolitical fire storms that have

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Speaker 1: occurred to the last several decades, and they tend to

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Speaker 1: be fleeting in their impacts. What we went back to

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Speaker 1: in the paper, which is interesting is the nineteen seventy

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Speaker 1: three Arab Israeli War, which not so much the war itself,

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Speaker 1: which was relatively contained to Israel, Egypt and a few

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Speaker 1: of Israel's near neighbors, UM, but really impacted the oil

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Speaker 1: supply chain, you know, through the Saudi embargo and and

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Speaker 1: ultimately opex embargo on the United States and other European countries,

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Speaker 1: and and that led to some more prof ound sort

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Speaker 1: of reordering of the system. So um, you know, I

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Speaker 1: think what we saw was again the sort of pattern

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Speaker 1: of behavior leading into the sort of joint COVID and

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Speaker 1: Ukraine crises, um, which was only sort of accelerated by

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Speaker 1: what took place there. And so you know that may

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Speaker 1: ultimately be the impetus for this move to kind of

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Speaker 1: a new equilibrium where trade and globalization are you know,

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Speaker 1: just less significant a driver of behavior, both at the

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Speaker 1: national and not the corporate lane. You mentioned sort of

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Speaker 1: the three categories of globalization economic, social, and political, and

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Speaker 1: I can't help but think that that political spear is

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Speaker 1: really what drives it all right. You know, if if

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Speaker 1: I think of what, who are some of the main

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Speaker 1: influential figures in driving a deglobalization over recent years. While

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Speaker 1: we had President Trump with his America First policies and

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Speaker 1: the tariffs, as you pointed out, then you have in

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Speaker 1: Russia you have Vladimir Putin uh with the invasion of Ukraine,

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Speaker 1: and Shijung Ping in China although maybe not as actively

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Speaker 1: engaged in the globalization, certainly hit some of his choices

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Speaker 1: COVID zero and everything, perhaps compounding uh the the issue

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Speaker 1: or you know, you know, at least someone who has

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Speaker 1: some control over the whole topic. So I in a way,

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Speaker 1: I wonder and and you mentioned CIPHIUS, the Community for

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Speaker 1: Foreign Investment in the US. I'm fascinated that they're actually

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Speaker 1: looking at at TikTok. Did you realize that Aldana Siphius

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Speaker 1: is looking at TikTok and there's a big sort of

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Speaker 1: a ground swell to ban TikTok in the US. But

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Speaker 1: my point chart is that in a way to do

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Speaker 1: these could these influences be sort of self correcting in that,

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Speaker 1: if you know, factories start closing in low wage countries

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Speaker 1: like China, if inflation you know, becomes embedded in the

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Speaker 1: West because of the globalization UM, Vladimir Putin's popularity in

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Speaker 1: the country dwindles. You know, is there a way that

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Speaker 1: politics could sort of make this be a self correcting

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Speaker 1: phenomenon where the backlash against these global leaders who are

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Speaker 1: sort of pushing the issue um actually causes them either

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Speaker 1: to be voted out hous Did you know and that

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Speaker 1: you know, that gravity of globalization reasserts itself, if you

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Speaker 1: know what I mean. You know, look, there were many

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Speaker 1: winners and losers in globalization, and there will be the

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Speaker 1: same impact as it, you know, fades or or diminishes,

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Speaker 1: you know, to whatever extent that it does. In the

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Speaker 1: United States. You know, I think politically, deglobalization is a

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Speaker 1: relatively popular concept. I mean, I don't think you have

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Speaker 1: to be a particularly astute analyst of politics to know that,

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Speaker 1: you know, supporting kind of domestic manufacturing um, you know,

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Speaker 1: even if it's to some extent grandstanding, is a very

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Speaker 1: popular stance to take, and it and it crosses party

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Speaker 1: lines relatively easily. So I don't see that you know

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Speaker 1: that there would be a significant move against that, you know.

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Speaker 1: And one of the manifestations of that that that really

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Speaker 1: brings the politics into the real world is one of

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Speaker 1: the things we cite in the paper as well, is

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Speaker 1: an increase in industrial policy, you know, and you think

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Speaker 1: about the chip expansion, not just in Arizona, which is

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Speaker 1: geared towards Taiwan semiconductor UM, but also in upstate New York.

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Speaker 1: Micron is just building a huge plant with massive subsidies

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Speaker 1: now they were obviously already a US company, or at

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Speaker 1: least a US based company, But you know, that use

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Speaker 1: of industrial policy, and and it's not just chips. It's

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Speaker 1: on you know, solar technology, it's on energy, transportation and

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Speaker 1: delivery systems. There's a whole range of these things, um,

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Speaker 1: which are really designed to bring capital back and and

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Speaker 1: invested here. Um. It may not be you know, the

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Speaker 1: most economically productive place to invest capital if you you know,

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Speaker 1: if you leave and sort of the agnostic view of

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Speaker 1: free trade, UM, but I think it's politically popular. Now.

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Speaker 1: Other countries I think will clearly wind up on the

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Speaker 1: losing end of this. Now, I mean China, which has

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Speaker 1: benefited enormously from trade and globalization, UM, you know, certainly

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Speaker 1: stands to be at least, you know, be a little

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Speaker 1: more a little bit more vulnerable as a result. I mean,

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Speaker 1: I don't think it's a coincidence that in the same

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Speaker 1: week that Apple announced that it was looking to move

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Speaker 1: some of its manufacturing base out of China, they had

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Speaker 1: a very rapid sort of one eighty on the COVID

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Speaker 1: policies and started to loosen up. Now, you know, again,

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Speaker 1: I don't know that you can draw a direct line

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Speaker 1: of sight between the COVID policy and the you know,

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Speaker 1: Apple factory floor. But um, you know, it doesn't seem

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Speaker 1: to be totally coincidental. So you know, I think there

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Speaker 1: will be some give and take, you know, to sort

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Speaker 1: of the point of your question. And you know, countries

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Speaker 1: that have benefited and stand now to lose perhaps or

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Speaker 1: at least to become, you know, kind of more balanced

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Speaker 1: in terms of the benefits and costs that they face, UM,

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Speaker 1: are going to be in a tougher spot. You know.

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Speaker 1: I think I think the countries like the United States,

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Speaker 1: where you know, globalization has been great for corporate profitability,

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Speaker 1: but you know, more or less terrible for workers. Um,

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Speaker 1: you know, we're seeing a little bit of the reversal

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Speaker 1: of that. You know, we're seeing higher wages, We're seeing

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Speaker 1: companies bring jobs back on shore. Now that to the

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Speaker 1: point you raised earlier about margins, it may not be

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Speaker 1: a terrific thing for corporate profitability, at least in the

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Speaker 1: near term. If we're thinking about this less globalized world,

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Speaker 1: like what what happens in this less globalized world? Like

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Speaker 1: what are some of the trends that you expect will

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Speaker 1: be seeing. There's there's a couple phases to how this works.

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Speaker 1: So in the very short term you're going to have

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Speaker 1: a scramble to secure sort of national supplies of key resources. Now,

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Speaker 1: the most obvious example of that is Europe and natural gas.

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Speaker 1: You know, they have made an affirmative decision to you know,

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Speaker 1: basically seal off the pipes from Russia UH and move

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Speaker 1: to alternative natural gas supplies. And and that poses a

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Speaker 1: very profound challenge in the near term. I don't think

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Speaker 1: anyone doubts that over a longer horizon they will be

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Speaker 1: able to find substitute supplies, UM, but most certainly at

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Speaker 1: a higher price, and you know that's something that they'll

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Speaker 1: have to pay for. The other very near term impact

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Speaker 1: is defense spending and you know, maybe ancillary areas like

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Speaker 1: cybersecurity and other sort of protective almost you know, sort

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Speaker 1: of insurance like functions UM that the government's sort of

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Speaker 1: step up for UM. So we certainly expect those two

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Speaker 1: things to take place in the near term and they

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Speaker 1: will drive a lot of capital flows and investment as

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Speaker 1: we try to get around some of these issues today.

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Speaker 1: Over the medium term, you're looking more at the supply chains.

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Speaker 1: How do they get rewired, you know, One of the

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Speaker 1: things we're thinking about here in the United States is

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Speaker 1: a little bit of a transition from the coastal ports

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Speaker 1: to what we would call inland ports, you know, basically

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Speaker 1: logistic hubs, logistics hubs inside the United States, areas that

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Speaker 1: are you know, terrific at facilitating trade and which then

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Speaker 1: allow for sort of the congregation of manufacturing, distribution, logistics

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Speaker 1: and a lot of the technology and resources that go

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Speaker 1: along with that. You know, areas like Phoenix, like you know, Columbus, Ohio, Nashville.

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Speaker 1: These are places that are not thought of as you know,

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Speaker 1: sort of principal components in global trade flows. But within

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Speaker 1: the United States or within a more of a North

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Speaker 1: American sort of trade block, should that continue to develop, um,

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Speaker 1: you know, their importance should grow, So there should be

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Speaker 1: some very profound implications there. I bunge in industrial policy

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Speaker 1: and how you know, government is affirmatively putting a thumb

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Speaker 1: on the scale in favor of you know, certain areas

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Speaker 1: for increased capital investment. And you know there's a lot

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Speaker 1: of reason for that. This is this is not just

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Speaker 1: sort of blind um you know, sort of policy. One

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Speaker 1: of the things we learned with the with the decline

403
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Speaker 1: in the supply chain over the last couple of years

404
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Speaker 1: was the vulnerability on chips supplies. You know, that's a

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Speaker 1: very real thing manufacturers across the economy have to deal with.

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Speaker 1: And if the only place you can get chips is

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Speaker 1: from Taiwan or South Korea, then you are vulnerable. And

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Speaker 1: you know, even if you bring a portion of that

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Speaker 1: manufacturing back to the United States, it creates a resiliency

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Speaker 1: that has real value. So, you know, I think it's

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Speaker 1: it may not be again the most economically efficient policy

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Speaker 1: in a very abstract sense, but it's a very pragmatic

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Speaker 1: policy that I think will get a lot of support

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Speaker 1: infrastructure spending in a variety of ways, particularly around the

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Speaker 1: energy grid and distribution, you know, things that will allow

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Speaker 1: us to bring together the traditional generation facilities natural gas, nuclear,

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Speaker 1: even coal, although that is fading along with the renewable energies,

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Speaker 1: you know, and and when you look at solar and wind,

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Speaker 1: they're terrific and they're becoming more cost effective, but they

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Speaker 1: have an intermittency problem, and you need traditional you know,

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Speaker 1: sort of typically hydrocarbon based or nuclear based energy sources

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Speaker 1: to make up the gaps. And so how do you

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Speaker 1: how do you solve at least some of that problem.

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Speaker 1: You need better transmission, you need more uh robust grids.

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Speaker 1: You know, the way we built our energy grid in

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Speaker 1: this country is broken down into a lot of individual

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Speaker 1: sectors that don't necessarily transmit across those lines. So you

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Speaker 1: know we're gonna see a lot of changes there. Um

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Speaker 1: And then the very long term it really is, and

430
00:24:24,080 --> 00:24:26,480
Speaker 1: this is where it gets a little more speculative. Will

431
00:24:26,520 --> 00:24:30,240
Speaker 1: we continue to see this evolution towards sort of spheres

432
00:24:30,400 --> 00:24:33,320
Speaker 1: of trade. You can very easily in the wake of

433
00:24:33,359 --> 00:24:38,520
Speaker 1: the Ukraine War see a China Russia sphere that largely

434
00:24:39,080 --> 00:24:41,520
Speaker 1: makes Russia almost a you know, I don't want to

435
00:24:41,560 --> 00:24:45,560
Speaker 1: say subservient, but but a sort of minority partner in

436
00:24:45,680 --> 00:24:48,880
Speaker 1: transporting energy resources to China where they are turned into

437
00:24:48,920 --> 00:24:52,840
Speaker 1: manufactured goods and sold elsewhere. You certainly can see the

438
00:24:52,920 --> 00:24:57,080
Speaker 1: United States, Canada, Mexico, and maybe the western sort of

439
00:24:57,119 --> 00:25:00,240
Speaker 1: developed economies more broadly, including Europe and Japan and and

440
00:25:00,720 --> 00:25:04,000
Speaker 1: non China Asia forming a more of a parallel block

441
00:25:04,359 --> 00:25:06,840
Speaker 1: um that trades more freely within it, but less freely

442
00:25:07,440 --> 00:25:10,399
Speaker 1: outside of So so those are the real long term trends,

443
00:25:10,640 --> 00:25:15,000
Speaker 1: um and and I think you know, we do have

444
00:25:15,119 --> 00:25:18,720
Speaker 1: a lot of conviction that those will continue. UM. You know,

445
00:25:19,040 --> 00:25:21,240
Speaker 1: the the endpoint is still very unclear. I mean, we

446
00:25:21,280 --> 00:25:23,720
Speaker 1: write these papers with a bit of a speculative bent

447
00:25:23,840 --> 00:25:25,560
Speaker 1: because we want to try and get ahead of these trends.

448
00:25:25,560 --> 00:25:27,280
Speaker 1: And you know, we have to be humble enough to

449
00:25:27,280 --> 00:25:29,399
Speaker 1: know that we don't have a crystal ball when we

450
00:25:29,440 --> 00:25:32,440
Speaker 1: think of this idea of deglobalization. Obviously we've talked a

451
00:25:32,480 --> 00:25:35,959
Speaker 1: lot about the economic side of the trade political you know,

452
00:25:36,119 --> 00:25:40,280
Speaker 1: tensions growing back and forth. But I wonder if a

453
00:25:40,400 --> 00:25:46,119
Speaker 1: deglobalization of capital markets is guaranteed UH in this scenario,

454
00:25:46,240 --> 00:25:49,800
Speaker 1: you know, And the most sort of easiest example I

455
00:25:50,080 --> 00:25:53,320
Speaker 1: would give is the Chinese companies listed in the US,

456
00:25:53,800 --> 00:25:56,280
Speaker 1: and there's a sort of cloud hanging over them whether

457
00:25:56,359 --> 00:26:00,240
Speaker 1: they might be delisted from the US UH if you know,

458
00:26:00,320 --> 00:26:04,080
Speaker 1: the the agreement on their accounting standards is not um

459
00:26:04,119 --> 00:26:06,800
Speaker 1: fulfilled and and where the US is not allowed to

460
00:26:07,000 --> 00:26:10,480
Speaker 1: examine their books every year. UM, is that a risk

461
00:26:10,720 --> 00:26:15,160
Speaker 1: that you know, in this this environment that that you're

462
00:26:15,160 --> 00:26:20,159
Speaker 1: expecting of less globalization, that it becomes inherently more risky

463
00:26:20,200 --> 00:26:25,040
Speaker 1: to invest overseas um, whether it be equities or even

464
00:26:25,040 --> 00:26:27,920
Speaker 1: sovereign bonds, you know, and I'm thinking of China holding

465
00:26:28,160 --> 00:26:32,160
Speaker 1: a lot of US treasuries obviously UH as a potential

466
00:26:32,240 --> 00:26:34,359
Speaker 1: risk as well. But but do the capital markets have

467
00:26:34,520 --> 00:26:37,760
Speaker 1: to sort of disconnect as well? Do you think that's coming.

468
00:26:38,520 --> 00:26:41,800
Speaker 1: That's an interesting question. You know, there's there's definitely uh

469
00:26:42,320 --> 00:26:44,159
Speaker 1: a bit more sort of two way flow there, and

470
00:26:44,160 --> 00:26:47,199
Speaker 1: that you're you're absolutely correct in citing the example of

471
00:26:47,280 --> 00:26:51,680
Speaker 1: China bringing many of its companies sort of back from

472
00:26:51,960 --> 00:26:54,239
Speaker 1: what they would regard as the offshore markets, the U

473
00:26:54,320 --> 00:26:56,679
Speaker 1: S A d R market, even the Hong Kong market

474
00:26:57,200 --> 00:27:00,480
Speaker 1: back to Shanghai and Shenzen to trade and what we

475
00:27:00,640 --> 00:27:02,520
Speaker 1: sort of would generically referred to as the A shares

476
00:27:02,560 --> 00:27:06,199
Speaker 1: market um. And you know, some of that is a

477
00:27:06,240 --> 00:27:09,040
Speaker 1: reflection of the fact that the Chinese domestic equity markets

478
00:27:09,080 --> 00:27:12,760
Speaker 1: have developed to the point where they are much more

479
00:27:12,840 --> 00:27:16,560
Speaker 1: deeper and more liquid and more robust than they used

480
00:27:16,560 --> 00:27:18,800
Speaker 1: to be. And so there may be a little bit

481
00:27:18,800 --> 00:27:21,520
Speaker 1: of a natural evolution that you don't necessarily need to

482
00:27:21,880 --> 00:27:26,280
Speaker 1: sort of ascribe to deglobalization. It may just be the

483
00:27:26,359 --> 00:27:30,320
Speaker 1: maturing of some of these formerly emerging markets. And and

484
00:27:30,359 --> 00:27:32,119
Speaker 1: so that's a good thing. All at all. I mean,

485
00:27:32,160 --> 00:27:36,240
Speaker 1: I think, um, you know, we're not likely to ever

486
00:27:36,359 --> 00:27:39,919
Speaker 1: see a single global equity exchange on which all shares

487
00:27:40,000 --> 00:27:43,480
Speaker 1: trade UM and so absent that you know, you want

488
00:27:43,480 --> 00:27:47,080
Speaker 1: to basically, as an investor, think about the liquidity that

489
00:27:47,200 --> 00:27:51,560
Speaker 1: you have UM in any given market, the depths of

490
00:27:51,960 --> 00:27:54,680
Speaker 1: sort of supply and demand there um. You know, there

491
00:27:54,680 --> 00:27:58,199
Speaker 1: are ancillary features that really do matter, things like the

492
00:27:58,320 --> 00:28:02,000
Speaker 1: rule of law, the enforcement of contracts, and you know,

493
00:28:02,040 --> 00:28:05,680
Speaker 1: I think that is where markets like the United States

494
00:28:06,000 --> 00:28:09,880
Speaker 1: and Europe tend to have a very very big head

495
00:28:09,920 --> 00:28:13,280
Speaker 1: start on a lot of these other areas. And I

496
00:28:13,320 --> 00:28:15,480
Speaker 1: don't think investors, at the end of the day are

497
00:28:15,520 --> 00:28:20,600
Speaker 1: willing to give up on those benefits lightly. So you know,

498
00:28:20,640 --> 00:28:24,520
Speaker 1: the Chinese government you know, can sort of impose its

499
00:28:24,520 --> 00:28:27,720
Speaker 1: will by FIAT on some of these companies, UM, but

500
00:28:27,840 --> 00:28:31,520
Speaker 1: their authority does not extend beyond companies that are located

501
00:28:31,520 --> 00:28:33,120
Speaker 1: in China, And so you know, I don't I don't

502
00:28:33,119 --> 00:28:35,520
Speaker 1: know that ultimately that's going to lead to a particularly

503
00:28:35,520 --> 00:28:38,720
Speaker 1: good outcome. I think, um, you know, they may sort

504
00:28:38,720 --> 00:28:45,000
Speaker 1: of by you know, pushing capital back into their home markets. UM.

505
00:28:45,040 --> 00:28:48,640
Speaker 1: You know, almost signal to investors that that some of

506
00:28:48,680 --> 00:28:52,360
Speaker 1: those other attributes that they value are sort of less

507
00:28:52,360 --> 00:28:56,080
Speaker 1: well respected there, So you know, time will tell. Um.

508
00:28:56,120 --> 00:29:01,240
Speaker 1: You know, market liquidity globally still remains you know, pretty high. Um.

509
00:29:01,280 --> 00:29:03,560
Speaker 1: You know, I think that there's a lot of features

510
00:29:03,560 --> 00:29:07,080
Speaker 1: around liquidity that get back to sort of the global

511
00:29:07,120 --> 00:29:10,400
Speaker 1: bank balance sheets and how much capital stands behind trading

512
00:29:10,440 --> 00:29:13,480
Speaker 1: desks and and those who sort of provide liquidity, particularly

513
00:29:13,600 --> 00:29:16,640
Speaker 1: in uh down markets. And there's a lot of sort

514
00:29:16,640 --> 00:29:20,240
Speaker 1: of market structure questions that really fall kind of outside

515
00:29:20,240 --> 00:29:23,880
Speaker 1: the scope of this globalization conversation. But um, you know,

516
00:29:24,080 --> 00:29:29,520
Speaker 1: I think it is you know, if if the governments

517
00:29:29,600 --> 00:29:33,800
Speaker 1: are going to be playing a more direct role in

518
00:29:33,880 --> 00:29:38,280
Speaker 1: the allocation of capital um and and by definition that's

519
00:29:38,320 --> 00:29:41,400
Speaker 1: going to mean in a domestically focused way, because I

520
00:29:41,400 --> 00:29:44,120
Speaker 1: can't imagine that many governments will be you know, incenting

521
00:29:44,160 --> 00:29:48,600
Speaker 1: capital to move outside of their their sort of national borders. Um,

522
00:29:48,720 --> 00:29:50,240
Speaker 1: then yeah, it is going to lead to a more

523
00:29:50,280 --> 00:29:54,600
Speaker 1: fragmented market across time. And that's not a great thing. Um.

524
00:29:54,640 --> 00:29:57,080
Speaker 1: You know, obviously, the assumption is it will have other

525
00:29:57,120 --> 00:30:15,560
Speaker 1: benefits that offset those costs. And just to bring us

526
00:30:15,600 --> 00:30:18,840
Speaker 1: to what's going on with markets and the economy today,

527
00:30:18,880 --> 00:30:21,960
Speaker 1: I have these really great point from you. It's about

528
00:30:21,960 --> 00:30:24,360
Speaker 1: the three things that the FED will never say out loud,

529
00:30:24,840 --> 00:30:27,680
Speaker 1: but which are clearly true. So I'm wondering if you

530
00:30:27,720 --> 00:30:29,960
Speaker 1: can talk about this. So one is we made a mistake,

531
00:30:30,520 --> 00:30:33,920
Speaker 1: Second is we want a recession, and third is is

532
00:30:33,920 --> 00:30:37,080
Speaker 1: not a real target. And bitcoin fixes this. I doubt

533
00:30:37,120 --> 00:30:40,000
Speaker 1: all the bitcoin fixes of yeah everything, of course, ye,

534
00:30:40,800 --> 00:30:42,520
Speaker 1: well yeah, we can certainly, we can certainly take a

535
00:30:42,520 --> 00:30:46,280
Speaker 1: detour the crypto if you want. I think the doubters

536
00:30:46,320 --> 00:30:50,760
Speaker 1: have have been vindicated pretty decisively in that space. But no,

537
00:30:50,920 --> 00:30:52,760
Speaker 1: so you know what we think about FED policy. It's

538
00:30:52,800 --> 00:30:56,680
Speaker 1: obviously very much front of mind right now. And you know,

539
00:30:56,720 --> 00:31:00,240
Speaker 1: the market is trying to wrestle with this question tion

540
00:31:00,520 --> 00:31:05,160
Speaker 1: of you know, inflation versus recession, how hawkish the FED

541
00:31:05,240 --> 00:31:08,600
Speaker 1: is going to be, And you know right now monetary

542
00:31:08,720 --> 00:31:12,600
Speaker 1: policy is kind of leading the markets, and so it's

543
00:31:12,600 --> 00:31:15,160
Speaker 1: critical to kind of think through what that means. Now,

544
00:31:15,600 --> 00:31:17,880
Speaker 1: you cited these sort of three equips that I that

545
00:31:17,920 --> 00:31:21,160
Speaker 1: I was making in our in our prep. I think, um,

546
00:31:21,200 --> 00:31:23,120
Speaker 1: you know, as I said, these are sort of things

547
00:31:23,160 --> 00:31:25,320
Speaker 1: we know to be true about the FED, or at

548
00:31:25,360 --> 00:31:27,960
Speaker 1: least I believe to be true, and I'm I believe

549
00:31:28,040 --> 00:31:29,760
Speaker 1: many people share these views, but I don't want to

550
00:31:29,760 --> 00:31:32,560
Speaker 1: be presumptuous. Um. The first is that the FED clearly

551
00:31:32,600 --> 00:31:36,600
Speaker 1: made a mistake. You know, the the period leading up

552
00:31:36,640 --> 00:31:41,680
Speaker 1: too um, they were clearly behind the curve with respect

553
00:31:41,680 --> 00:31:44,800
Speaker 1: to the jobs market, with respect to building inflation pressures. Now,

554
00:31:45,080 --> 00:31:47,560
Speaker 1: I don't think anyone could have faulted them for not

555
00:31:47,600 --> 00:31:50,440
Speaker 1: having foreseen the Russian invasion of Ukraine and some of

556
00:31:50,440 --> 00:31:54,200
Speaker 1: the inflationary impulses that that created. But they also can't, uh,

557
00:31:54,440 --> 00:31:56,400
Speaker 1: you know, sort of fall back on that defense because

558
00:31:56,480 --> 00:32:00,200
Speaker 1: inflation was um well out of the bag, you know,

559
00:32:00,360 --> 00:32:04,200
Speaker 1: before that took place. And so you know, the FED

560
00:32:04,320 --> 00:32:06,640
Speaker 1: is never going to say, look, we we made a mistake.

561
00:32:06,680 --> 00:32:08,800
Speaker 1: They they will hem and haw about the meaning of

562
00:32:08,840 --> 00:32:11,640
Speaker 1: transit story and whether they were sort of gasolighting the

563
00:32:11,680 --> 00:32:15,200
Speaker 1: markets by constantly referring to supply chains and so forth

564
00:32:15,240 --> 00:32:18,280
Speaker 1: and not staring the fairly obvious situation in the face,

565
00:32:18,280 --> 00:32:21,360
Speaker 1: which was that the labor markets were incredibly tight, wages

566
00:32:21,400 --> 00:32:25,160
Speaker 1: were rising rapidly, and goods prices because of supply chain

567
00:32:25,200 --> 00:32:28,400
Speaker 1: problems were exacerbating what was a more fundamental problem with

568
00:32:28,400 --> 00:32:31,600
Speaker 1: core inflation. But be that as it may we are

569
00:32:31,600 --> 00:32:34,160
Speaker 1: where we are now. The FED, to be fair, has

570
00:32:34,240 --> 00:32:37,480
Speaker 1: now done a complete one eight and has really gotten

571
00:32:37,920 --> 00:32:42,920
Speaker 1: religion on fighting inflation. And that brings me to the

572
00:32:42,960 --> 00:32:44,880
Speaker 1: second point of sort of things the FED won't ever

573
00:32:44,920 --> 00:32:48,280
Speaker 1: say out loud but are probably true, which is they may,

574
00:32:48,440 --> 00:32:51,520
Speaker 1: you know, quite literally want to create a recession. And

575
00:32:51,840 --> 00:32:54,440
Speaker 1: I don't say that to be you know, kind of

576
00:32:54,760 --> 00:32:57,760
Speaker 1: critical of the FED when you have lost your credibility

577
00:32:57,800 --> 00:33:01,560
Speaker 1: as a central bank and you try to contemplate how

578
00:33:01,560 --> 00:33:04,080
Speaker 1: do you regain that credibility? What is it that we

579
00:33:04,920 --> 00:33:08,560
Speaker 1: point to? Well, for historical reasons, everyone points to Paul Volker.

580
00:33:08,640 --> 00:33:10,720
Speaker 1: We say, well, you know, the FED went through a

581
00:33:10,720 --> 00:33:13,280
Speaker 1: period with Arthur Burns in the nineteen seventies where inflation

582
00:33:13,320 --> 00:33:15,720
Speaker 1: got out of hand. How did we fix that? Well,

583
00:33:15,800 --> 00:33:20,040
Speaker 1: Paul Volker, you know who from many people is a hero.

584
00:33:21,520 --> 00:33:23,640
Speaker 1: That may be a strong statement, but you know he

585
00:33:23,760 --> 00:33:26,760
Speaker 1: did what needed to be done in order to bring

586
00:33:26,760 --> 00:33:30,480
Speaker 1: inflation back under control, which was raise interest rates until

587
00:33:30,480 --> 00:33:33,280
Speaker 1: we had a very severe recession. And I don't think

588
00:33:33,280 --> 00:33:35,840
Speaker 1: that lesson has been lost on jeral Powell and the

589
00:33:35,880 --> 00:33:38,720
Speaker 1: current you know, sort of structure of the FED now.

590
00:33:38,720 --> 00:33:42,680
Speaker 1: I don't think they're exactly reprising the vulgar model, which

591
00:33:42,720 --> 00:33:45,280
Speaker 1: was hike kike and then cut cut, cut, cut, cut,

592
00:33:45,280 --> 00:33:47,280
Speaker 1: cut cut. You know, they seem to be adopting a

593
00:33:47,280 --> 00:33:51,360
Speaker 1: slightly different stance, which is, you know, raise rates more quickly,

594
00:33:51,720 --> 00:33:53,880
Speaker 1: so there's almost sort of a shock and awe factor

595
00:33:54,920 --> 00:33:57,800
Speaker 1: plateau of them at a level that should be high

596
00:33:57,880 --> 00:34:02,200
Speaker 1: enough to bring inflation down them and turn real interest

597
00:34:02,280 --> 00:34:06,240
Speaker 1: rates positive, at which point they will have the flexibility

598
00:34:06,400 --> 00:34:10,360
Speaker 1: should it be necessary because of declining economic growth and

599
00:34:10,560 --> 00:34:14,319
Speaker 1: labor markets, to cut rights. But we're still early in

600
00:34:14,320 --> 00:34:17,160
Speaker 1: that process. We don't know exactly where we stand, um,

601
00:34:17,200 --> 00:34:19,880
Speaker 1: but I think it's just important to recognize that, you know,

602
00:34:19,920 --> 00:34:22,560
Speaker 1: from where the FED sits, if their number one objective

603
00:34:23,400 --> 00:34:28,160
Speaker 1: is restoring their credibility, a recession may really be the

604
00:34:28,239 --> 00:34:31,080
Speaker 1: only way to be sure that they've done that, and

605
00:34:31,080 --> 00:34:35,360
Speaker 1: and a soft landing where inflation fades, they may not

606
00:34:35,440 --> 00:34:37,640
Speaker 1: have really bought back much of their credibility, you know,

607
00:34:37,680 --> 00:34:39,960
Speaker 1: with that sort of an outcome, And so you know,

608
00:34:39,960 --> 00:34:41,720
Speaker 1: I wouldn't go so far as to say that they

609
00:34:41,840 --> 00:34:44,799
Speaker 1: absolutely want one, but I think they're they're probably far

610
00:34:44,840 --> 00:34:48,760
Speaker 1: more indifferent to that outcome, particularly given where the labor

611
00:34:48,800 --> 00:34:52,000
Speaker 1: markets are. You know, we are very early in this process,

612
00:34:52,040 --> 00:34:54,400
Speaker 1: and the economy is still doing quite well, so I

613
00:34:54,440 --> 00:34:56,920
Speaker 1: think it gives them a lot of air cover to

614
00:34:57,360 --> 00:35:01,120
Speaker 1: take on a hawkish stance. Um And and and there's very

615
00:35:01,160 --> 00:35:03,680
Speaker 1: little you can point to, maybe outside of the housing

616
00:35:03,760 --> 00:35:06,880
Speaker 1: market that has felt the brunt. So that was the

617
00:35:06,960 --> 00:35:08,160
Speaker 1: That was the second one. The third one is that

618
00:35:08,200 --> 00:35:10,640
Speaker 1: two percent is not a real target. I I make

619
00:35:10,719 --> 00:35:15,320
Speaker 1: this point only because you know, two percent is obviously arbitrary.

620
00:35:15,920 --> 00:35:19,319
Speaker 1: There is no historical, you know, proof that that is

621
00:35:19,360 --> 00:35:22,719
Speaker 1: the optimal level of inflation. I think we know that

622
00:35:22,840 --> 00:35:26,160
Speaker 1: zero inflation is too low. You know, it helps the

623
00:35:26,200 --> 00:35:31,440
Speaker 1: economy to function to have some level of inflation. Um It,

624
00:35:31,719 --> 00:35:34,239
Speaker 1: it is not clear that two is any better than

625
00:35:34,239 --> 00:35:36,200
Speaker 1: two and a half or one and a half or

626
00:35:36,239 --> 00:35:39,360
Speaker 1: three or some other number. You know. Obviously, if inflation

627
00:35:39,400 --> 00:35:41,480
Speaker 1: starts to spiral out of control, that's when it becomes

628
00:35:41,480 --> 00:35:45,640
Speaker 1: a problem. But but low single digit numbers are generically fine.

629
00:35:46,840 --> 00:35:48,560
Speaker 1: And I think, you know, we we also have to

630
00:35:48,680 --> 00:35:50,759
Speaker 1: just think that not very many years ago, when we

631
00:35:50,760 --> 00:35:53,480
Speaker 1: were approaching two percent from the bottom and the narrative

632
00:35:53,520 --> 00:35:56,640
Speaker 1: which was initially two is a hard cap and the

633
00:35:56,640 --> 00:35:58,279
Speaker 1: Fed will have to hike as soon as we get

634
00:35:58,320 --> 00:36:02,319
Speaker 1: anywhere near it became two percent was the signal to

635
00:36:02,480 --> 00:36:05,760
Speaker 1: begin hiking, and then it became forward average inflation targeting,

636
00:36:05,840 --> 00:36:08,520
Speaker 1: which was much softer. And you know the idea that

637
00:36:08,880 --> 00:36:11,400
Speaker 1: you know we're going to be on the down slope

638
00:36:11,400 --> 00:36:13,880
Speaker 1: in a year or two as we approach two percent

639
00:36:13,960 --> 00:36:18,120
Speaker 1: from the high end, and that somehow, in a recessionary environment,

640
00:36:18,160 --> 00:36:22,120
Speaker 1: the Fed is going to feel utterly compelled to continue

641
00:36:22,239 --> 00:36:26,359
Speaker 1: cranking down the level of monetary accommodation just to force

642
00:36:26,400 --> 00:36:29,200
Speaker 1: the economy into that sort of spot. I don't I

643
00:36:29,239 --> 00:36:31,680
Speaker 1: just don't think that's all that likely. Now. They're not

644
00:36:31,719 --> 00:36:34,479
Speaker 1: gonna they're not gonna give up that number too soon.

645
00:36:34,920 --> 00:36:36,880
Speaker 1: You know, the farther away from it you are, the

646
00:36:36,920 --> 00:36:38,440
Speaker 1: easier it is to just sort of point to it

647
00:36:38,480 --> 00:36:40,160
Speaker 1: as a target because you're nowhere near it. But my

648
00:36:40,239 --> 00:36:42,279
Speaker 1: guess is that as we start to approach inflation from

649
00:36:42,320 --> 00:36:44,359
Speaker 1: the upside, you know, there's gonna be a lot more

650
00:36:44,400 --> 00:36:47,200
Speaker 1: constructive and very specific discussion about what that two percent

651
00:36:47,200 --> 00:36:51,200
Speaker 1: target actually means. Jared gross Managing Director and head of

652
00:36:51,280 --> 00:36:55,719
Speaker 1: Institutional Portfolio Strategy at JP Morgan Asset Management. So great

653
00:36:55,760 --> 00:36:58,520
Speaker 1: to hear your thoughts. Can't let you go just yet, though,

654
00:36:58,880 --> 00:37:01,479
Speaker 1: because it's time for the craziest things we saw this week.

655
00:37:01,680 --> 00:37:04,959
Speaker 1: I'm gonna start for once. Really, I'm gonna start well, Dota.

656
00:37:05,080 --> 00:37:10,480
Speaker 1: You know, my favorite asset class is ridiculously overpriced collectibles

657
00:37:10,840 --> 00:37:14,919
Speaker 1: and artwork auctions. It happened to be the best year

658
00:37:15,040 --> 00:37:19,520
Speaker 1: ever for auction houses, at least for the big three. Christie's, Southebes,

659
00:37:19,640 --> 00:37:24,440
Speaker 1: and Phillips just had their best auction year ever as

660
00:37:24,480 --> 00:37:27,480
Speaker 1: far as total sales of items that were auctioned off.

661
00:37:27,600 --> 00:37:32,879
Speaker 1: I'm surprised it wasn't last year. Yeah, I know. Well,

662
00:37:32,880 --> 00:37:35,440
Speaker 1: there's some caveats in this stay South Bees is including

663
00:37:35,480 --> 00:37:38,520
Speaker 1: real estate, but whatever, We'll let them have their day

664
00:37:38,520 --> 00:37:41,760
Speaker 1: in this sun. This is courtesy of our own James

665
00:37:41,800 --> 00:37:45,920
Speaker 1: Tarmy at Bloomberg. So, Jared, uh, it's time to play

666
00:37:46,239 --> 00:37:49,600
Speaker 1: the prices precise. What do you think the dollar figure

667
00:37:49,880 --> 00:37:56,840
Speaker 1: was on total sales total uh revenue of auctions? Okay,

668
00:37:56,920 --> 00:38:00,720
Speaker 1: I'm gonna go with one point five trillion one? Okay?

669
00:38:00,760 --> 00:38:04,640
Speaker 1: Is that too much? I try to Jared, I try

670
00:38:04,680 --> 00:38:06,640
Speaker 1: to keep a poker face going. Are we are we

671
00:38:06,680 --> 00:38:09,360
Speaker 1: doing prices right? Rules like if I'm under but I

672
00:38:09,400 --> 00:38:11,920
Speaker 1: can just guess a dollar here, and I'll way anything

673
00:38:11,920 --> 00:38:13,680
Speaker 1: with a T handle feels a little high. I mean,

674
00:38:13,680 --> 00:38:16,239
Speaker 1: I will say, though, if you're including real estate, I mean,

675
00:38:16,280 --> 00:38:19,799
Speaker 1: obviously those three don't transact all of the real estate,

676
00:38:19,880 --> 00:38:21,399
Speaker 1: but they do a fair amount. And that's a that's

677
00:38:21,400 --> 00:38:25,920
Speaker 1: a big, big chunk. I will say, three hundred and

678
00:38:26,000 --> 00:38:31,480
Speaker 1: seventy five billion. Wow, I thought you guys are eighteen

679
00:38:31,560 --> 00:38:36,759
Speaker 1: billion for not not one point five trillions. That cannot be.

680
00:38:37,120 --> 00:38:39,439
Speaker 1: There's so many stories that are like so and so

681
00:38:39,440 --> 00:38:43,399
Speaker 1: sold to paintings for a hundred fifty million dollars or something. Yeah,

682
00:38:43,440 --> 00:38:45,160
Speaker 1: but they're the ones that make the headline. Then they

683
00:38:45,200 --> 00:38:48,480
Speaker 1: saw a lot for you know, for a few thousand.

684
00:38:48,520 --> 00:38:51,960
Speaker 1: I guess I don't know, all right, Well, Jared wins

685
00:38:51,960 --> 00:38:56,279
Speaker 1: to the closest to the I don't consider that much

686
00:38:56,280 --> 00:38:59,080
Speaker 1: of a win. That's uses and hand grenades right there.

687
00:38:59,280 --> 00:39:02,440
Speaker 1: You still one, okay. Mine is actually from one of

688
00:39:02,440 --> 00:39:07,279
Speaker 1: our listeners, Tweggy Sundays Tweggy So Tweggy points out that

689
00:39:07,360 --> 00:39:12,600
Speaker 1: the market value of coin base trails that of doge coin,

690
00:39:12,840 --> 00:39:17,120
Speaker 1: which is a joke cryptocurrency. So doge coin is worth

691
00:39:17,160 --> 00:39:20,120
Speaker 1: more than coin based by market value. So if we're

692
00:39:20,239 --> 00:39:23,360
Speaker 1: looking at coin base, it has an eight billion market

693
00:39:23,440 --> 00:39:28,439
Speaker 1: cap and dodge coin has a nine billion dollar that's crazy. Well, Jared,

694
00:39:28,440 --> 00:39:31,560
Speaker 1: how about you? You You see anything crazy this week? Well,

695
00:39:31,640 --> 00:39:34,320
Speaker 1: you know, I I if I can, if you'll indulge

696
00:39:34,320 --> 00:39:37,000
Speaker 1: me and let me go back a little further in time. Um,

697
00:39:37,040 --> 00:39:39,040
Speaker 1: you know, there was an event that just it got

698
00:39:39,080 --> 00:39:42,480
Speaker 1: a little pressed but maybe not you know, too much

699
00:39:42,520 --> 00:39:45,000
Speaker 1: here in the States, which was the near collapse of

700
00:39:45,040 --> 00:39:50,040
Speaker 1: the British or the UK pension system. Um. And it

701
00:39:50,120 --> 00:39:54,360
Speaker 1: was it was really a classic sort of derivatives liquidity squeeze,

702
00:39:54,400 --> 00:39:57,200
Speaker 1: which you know, I guess we we we encounter these

703
00:39:57,239 --> 00:39:59,719
Speaker 1: every couple of years because people seem intent on having

704
00:39:59,719 --> 00:40:02,040
Speaker 1: to learn, you know, lessons that should have been learned

705
00:40:02,040 --> 00:40:05,719
Speaker 1: a long time ago regarding leverage and risk. Um. There's

706
00:40:05,719 --> 00:40:08,080
Speaker 1: a phrase that I learned early on in my career

707
00:40:08,120 --> 00:40:10,960
Speaker 1: which I always found very evocative, which is what they

708
00:40:11,000 --> 00:40:13,520
Speaker 1: call the Texas hedge, which is, you know, it comes

709
00:40:13,560 --> 00:40:17,160
Speaker 1: from owning cattle and also being long cattle futures, and

710
00:40:17,239 --> 00:40:19,600
Speaker 1: when your collateral is the same thing as the futures,

711
00:40:19,640 --> 00:40:21,080
Speaker 1: you can get into a lot of trouble in the

712
00:40:21,120 --> 00:40:24,680
Speaker 1: derivatives markets, and that is the unfortunate position in which

713
00:40:24,719 --> 00:40:27,480
Speaker 1: a lot of UK pension investors found themselves and that

714
00:40:27,560 --> 00:40:29,279
Speaker 1: they were long a lot of guilts and a lot

715
00:40:29,280 --> 00:40:31,399
Speaker 1: of guilt futures and when the market sold off when

716
00:40:31,400 --> 00:40:35,080
Speaker 1: they released this you know, so called mini budget um,

717
00:40:35,160 --> 00:40:38,040
Speaker 1: these trades rapidly on wound and you know, it reminds

718
00:40:38,040 --> 00:40:39,759
Speaker 1: me of a lesson, which is, you know, if you

719
00:40:39,800 --> 00:40:43,400
Speaker 1: don't manage your collateral, your collateral will mantage you. And

720
00:40:43,440 --> 00:40:45,200
Speaker 1: I think you know a lot of these firms found

721
00:40:45,239 --> 00:40:50,000
Speaker 1: themselves in in a very short lived, thank goodness, but

722
00:40:50,160 --> 00:40:52,120
Speaker 1: very desperate moment. You know, you have to give a

723
00:40:52,160 --> 00:40:54,080
Speaker 1: lot of credit to the UK Treasury for stepping up

724
00:40:54,080 --> 00:40:57,440
Speaker 1: and fixing the problem. But it is a strong reminder

725
00:40:57,480 --> 00:41:00,319
Speaker 1: that you know, these pensions, you know, and and and

726
00:41:00,400 --> 00:41:03,680
Speaker 1: the use of derivatives, even by relatively sophisticate institutional investors,

727
00:41:03,719 --> 00:41:06,120
Speaker 1: you know something you have to be careful about. Great stuff,

728
00:41:06,360 --> 00:41:10,600
Speaker 1: Jared Gross, head of Institutional Portfolio Strategy at JP Morgan

729
00:41:11,040 --> 00:41:13,799
Speaker 1: Asset Management. Great to hear your thoughts shared. I hope

730
00:41:13,840 --> 00:41:15,800
Speaker 1: we can do it again sometime. I'd love to Michael

731
00:41:15,800 --> 00:41:18,080
Speaker 1: and Bildana, thank you so much. And co Bird's Fly

732
00:41:18,280 --> 00:41:30,279
Speaker 1: Eagle Fly What Goes Up. We'll be back next week

733
00:41:30,560 --> 00:41:32,520
Speaker 1: and so then you can find us on the Bloomberg Terminal,

734
00:41:32,600 --> 00:41:36,320
Speaker 1: website and app or wherever you get your podcasts. We

735
00:41:36,440 --> 00:41:38,040
Speaker 1: love it if you took the time to rate and

736
00:41:38,080 --> 00:41:41,040
Speaker 1: review the show on Apple Podcasts, so more listeners can

737
00:41:41,080 --> 00:41:43,960
Speaker 1: find us. And you can find us on Twitter. Follow

738
00:41:43,960 --> 00:41:47,960
Speaker 1: me at reak Anonymous. Bildanna Hirach is at Bildona Hirach.

739
00:41:48,640 --> 00:41:53,120
Speaker 1: You can also follow Bloomberg Podcasts at podcasts. What Goes

740
00:41:53,200 --> 00:41:56,239
Speaker 1: Up is produced by Stacy Wong. Thanks for listening, See

741
00:41:56,280 --> 00:42:04,400
Speaker 1: you next time. APT Not Wanting