WEBVTT - Nouriel Roubini's Vision for a New Safe Haven Asset 0:00:03.080 --> 0:00:21.680 Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to 0:00:21.720 --> 0:00:23.800 another episode of The Bots podcast. 0:00:23.880 --> 0:00:25.360 I'm Tracy Allaway. 0:00:25.040 --> 0:00:26.279 And I'm Joe Wisenthal. 0:00:26.720 --> 0:00:29.320 Joe, do you remember, I think it was in twenty 0:00:29.360 --> 0:00:32.920 twenty two everyone was talking about stagflation. 0:00:34.080 --> 0:00:38.080 Yes, of course, because we had it right, because we 0:00:38.120 --> 0:00:41.199 had markets were low, so people were talking about recession. 0:00:41.640 --> 0:00:46.159 The FED was hiking interest rates aggressively, and inflation in 0:00:46.200 --> 0:00:48.680 twenty twenty two was peaking. So it certainly seemed like 0:00:48.720 --> 0:00:52.640 we could have had the combo right then for essentially 0:00:53.159 --> 0:00:55.760 elevated inflation and some kind of recession. 0:00:56.000 --> 0:00:58.920 Yes, And in fact, before we recorded this episode, I 0:00:58.960 --> 0:01:01.520 went back and I looked at a Google trends chart 0:01:01.560 --> 0:01:04.720 for the word stagflation, and like, the peak in twenty 0:01:04.760 --> 0:01:06.840 twenty two is just amazing. And then it sort of 0:01:06.840 --> 0:01:11.200 fell off because we definitely had inflation, we didn't necessarily 0:01:11.319 --> 0:01:15.360 have lower economic growth. But I think now at the 0:01:15.480 --> 0:01:19.040 tail end of twenty twenty four, some of that stagflation 0:01:19.280 --> 0:01:22.840 talk is beginning to creep back into I guess the 0:01:23.360 --> 0:01:24.560 economic discourse. 0:01:25.160 --> 0:01:27.360 Yeah, a little bit. I mean what I would say 0:01:27.480 --> 0:01:29.760 is I would agree with you. There seems to be 0:01:29.800 --> 0:01:33.120 a couple things going on that are very confusing, to 0:01:33.160 --> 0:01:36.880 say the least. But one is the sort of I 0:01:36.880 --> 0:01:41.720 don't know if it's acceptance or reality that like inflation 0:01:42.080 --> 0:01:43.920 has come down quite a bit, but maybe it's going 0:01:43.959 --> 0:01:46.160 to keep bumping up against the ceiling, or maybe it's 0:01:46.200 --> 0:01:48.440 going to keep like bouncing off the floor, so to speak. 0:01:48.520 --> 0:01:51.040 Yeah, that last mile is going to be difficult still. 0:01:51.080 --> 0:01:54.520 And then on some measures, the economy still seems good, 0:01:54.560 --> 0:01:58.440 but you look at some of the pmiyes, issms, other 0:01:58.560 --> 0:02:02.840 industrial measures, labor market measures, some seem to be slowing down. 0:02:02.960 --> 0:02:06.800 So like, I still think this idea of like I 0:02:06.800 --> 0:02:09.760 don't know if it's called stagflation, but this sort of 0:02:10.280 --> 0:02:14.960 unpleasant combination of not great growth, not great real real growth, 0:02:15.000 --> 0:02:17.600 and inflation that's still like at the higher end of 0:02:17.600 --> 0:02:21.400 what people are comfortable with, feels like something that could 0:02:21.520 --> 0:02:23.240 very plausibly be the case for a while. 0:02:23.360 --> 0:02:27.000 It's definitely in the air. So we need to dig 0:02:27.040 --> 0:02:30.400 into this particular argument. And who better to speak to 0:02:30.720 --> 0:02:34.160 than Neuriel Rubini. He is, of course, the chief economist 0:02:34.160 --> 0:02:37.440 and portfolio manager of the Atlas America Fund, which is 0:02:37.520 --> 0:02:40.400 a new ETF that has just launched and He is 0:02:40.400 --> 0:02:44.240 also the chairman and CEO of Rubini Macro Associates. Really 0:02:44.280 --> 0:02:47.960 the perfect guest to do this type of macro with us. So, Nuriel, 0:02:48.360 --> 0:02:49.360 welcome back to the show. 0:02:49.639 --> 0:02:52.000 Good being with you today, see and Zoe. 0:02:51.880 --> 0:02:54.040 Do you get the same sense that the the risk 0:02:54.200 --> 0:02:56.880 of stagflation is starting to pick up again? 0:02:58.360 --> 0:03:01.280 Certainly is one of the risks that have to consider. 0:03:02.040 --> 0:03:04.400 And I think that the question and everybody is man 0:03:04.480 --> 0:03:07.920 of course, is what would be the economic policies of 0:03:08.080 --> 0:03:11.799 Trump and the impact on growth and inflation. If I 0:03:11.840 --> 0:03:13.680 have to look ahead, I would say that some of 0:03:13.720 --> 0:03:20.040 his policies actually could increase growth and reduce inflation, being 0:03:20.080 --> 0:03:25.040 pro business in general, making those tax cut permanent, having 0:03:26.480 --> 0:03:32.440 government efficiency, deregulating the economy, maybe even increasing the production 0:03:32.520 --> 0:03:35.960 of fossil fuel, reducing the price of energy. Those go 0:03:36.080 --> 0:03:40.840 in the direction of policies actually increase growth and reduce inflation. 0:03:40.960 --> 0:03:43.440 But on the other side, there's a long list of 0:03:43.480 --> 0:03:46.960 other policy that could be implemented. First of them, of course, 0:03:47.040 --> 0:03:53.520 tariff protectionism, an economic war with China. Secondly draconia, restriction 0:03:53.680 --> 0:03:59.920 to migration, if not mass deportation. Three unfunded tax cuts 0:04:00.120 --> 0:04:04.080 and run away fiscal deficits for potentially in attempt to 0:04:04.760 --> 0:04:08.720 weekend the dollar in a disorderly way. Five maybe trying 0:04:08.720 --> 0:04:11.920 to interfere with the independence of the FAD. Now, if 0:04:11.960 --> 0:04:15.120 the second set of policy were to be implemented, their 0:04:15.160 --> 0:04:18.839 impact will be higher inflation over the time and lower 0:04:18.880 --> 0:04:22.200 economic growth. So those sets of policy will be definitely 0:04:22.560 --> 0:04:24.839 in the stockflationary direction. 0:04:25.640 --> 0:04:28.080 There was an amazing summary by the way of the 0:04:28.120 --> 0:04:30.640 two ways of thinking about paths, And I guess what's 0:04:30.680 --> 0:04:33.520 striking listening to you sort of list off the two 0:04:33.560 --> 0:04:37.840 columns is within trump Ism or within the Trump administration. 0:04:38.040 --> 0:04:41.440 It feels like there are several competing camps so to speak, 0:04:41.839 --> 0:04:44.320 and we don't really know how it's going to resolve. 0:04:44.800 --> 0:04:47.479 But there are a lot of internal contradictions, whether on 0:04:47.520 --> 0:04:50.520 personnel or ideology, and to some extent you just laid 0:04:50.560 --> 0:04:53.160 out are sort of I don't know, maybe the fork 0:04:53.200 --> 0:04:55.240 in the road, so to speak, of how things could go. 0:04:55.760 --> 0:04:59.320 Yeah, you're absolutely right. There is a spectrum of positions 0:04:59.680 --> 0:05:04.279 on the variety of economic issues. Some are truly protectionist, 0:05:04.440 --> 0:05:08.080 Others like Scott bass And says we want to escalate 0:05:08.120 --> 0:05:10.680 as a way of de escalating, and we're not going 0:05:10.760 --> 0:05:15.160 to know until after, of course, inauguration, in which direction 0:05:15.200 --> 0:05:18.640 the economic policy will go. I would say, however, the 0:05:18.720 --> 0:05:24.520 following observation. I think that the potentially more stackflationary policy 0:05:24.560 --> 0:05:28.320 will be constrained by several factors. One, of course, is 0:05:28.320 --> 0:05:32.559 the choice of some of the economic advisors like Scot 0:05:32.600 --> 0:05:34.800 Bass and understand markets and in as that if you 0:05:34.839 --> 0:05:38.120 do things that are radically stackflationary, it will be bad 0:05:38.160 --> 0:05:40.280 for the economy and bad for the market, so you're 0:05:40.279 --> 0:05:44.080 going to try to push down against those. Secondly, I 0:05:44.120 --> 0:05:47.760 think there'll be also significant impact of market discipline. If 0:05:47.760 --> 0:05:51.960 you have run away budget deficits, migration restrictions, and tire 0:05:52.000 --> 0:05:56.560 if that increase inflation, then the bond market digilant is 0:05:56.560 --> 0:05:59.520 going to wake up expect that inflation will be higher, 0:06:00.200 --> 0:06:03.120 rates will be higher, and then rising in bond deal 0:06:03.200 --> 0:06:05.920 could lead to a correctional stock market. And if there's 0:06:05.960 --> 0:06:08.760 one thing that Trump cares about is one the stock market. 0:06:09.160 --> 0:06:12.040 We also cares about the bond market because high bond 0:06:12.040 --> 0:06:14.760 deals imply high cost of borrowing and that's going to 0:06:14.800 --> 0:06:18.640 be hurting the economy. I think the other constraint is 0:06:18.680 --> 0:06:21.239 going to be, of course, the fact that the Fed 0:06:21.320 --> 0:06:24.680 is still independent. If some of these policies were to 0:06:24.760 --> 0:06:30.800 be pursued, the FED will likely cut next week in December, 0:06:30.960 --> 0:06:33.200 may not cut again, or may cut much less than 0:06:33.240 --> 0:06:37.400 the market are expecting next year. In an extreme scenario 0:06:37.440 --> 0:06:40.400 in which inflation goes much higher, they could even increase 0:06:41.120 --> 0:06:43.400 interest rates. And that's going to be So there is 0:06:43.480 --> 0:06:47.360 both a market discipline and there's also FED discipline that 0:06:47.480 --> 0:06:52.320 my constraint to some extent those stock preationary. 0:06:51.880 --> 0:06:56.479 Policies, setting aside the Trump administration and what they might do, 0:06:56.560 --> 0:06:59.000 and I realized that that's a big thing to set 0:06:59.040 --> 0:07:02.000 aside right now. But the path of inflation, it has 0:07:02.160 --> 0:07:04.880 come down from the peaks that we saw in twenty 0:07:04.920 --> 0:07:08.680 twenty two. As Joe was talking about why did that happen? 0:07:08.920 --> 0:07:11.680 In your opinion, because one of the you were one 0:07:11.720 --> 0:07:14.800 of the few voices I remember in early twenty twenty 0:07:14.840 --> 0:07:19.800 when the pandemic was just unfolding, that predicted inflation, and 0:07:20.200 --> 0:07:24.120 you know it happened. But since then it has petered 0:07:24.160 --> 0:07:24.800 out a little bit. 0:07:25.000 --> 0:07:27.000 Yes, I mean, the reason why we had this burst 0:07:27.120 --> 0:07:32.200 of inflation during and after COVID were both bad policies. 0:07:32.520 --> 0:07:36.280 The amount of monetary, fiscal and credit zing exposts that 0:07:36.320 --> 0:07:40.040 turned out to be way excessive given the size of 0:07:40.040 --> 0:07:44.400 the economic shock, that was relatively temporary. But second there 0:07:44.480 --> 0:07:47.000 was so bad luck. There were three negative aggregate supply 0:07:47.080 --> 0:07:50.640 shocks that essentially reduced growth and increased inflation. One was 0:07:50.640 --> 0:07:53.520 the impact of course of COVID on the supply of 0:07:53.560 --> 0:07:56.840 labor and production of goods and on global supply chains. 0:07:57.320 --> 0:08:00.400 The second was the impact of the brutal rush invasion 0:08:00.400 --> 0:08:05.480 of Ukraine on commodity prices entry the kind of a 0:08:05.600 --> 0:08:09.680 zero COVID policy of China that further restricted global supply chain. 0:08:10.240 --> 0:08:13.520 So why inflation fell in part was, of course central 0:08:13.560 --> 0:08:18.400 bank gave up on quantity easy normalized policy rates. But 0:08:18.560 --> 0:08:21.520 if that was the case, we should have seen inflation 0:08:22.240 --> 0:08:26.280 falling dramatically, but probably a much stronger slow down of 0:08:26.320 --> 0:08:30.400 economic growth, maybe a recession the way most economist thought 0:08:30.400 --> 0:08:33.400 about it. And instead we got the reduction inflation. But growth, 0:08:33.720 --> 0:08:37.120 say in US as remain robust above potential twenty a 0:08:37.120 --> 0:08:39.959 half percent in the last couple of years. So I 0:08:40.000 --> 0:08:42.800 think in part we also got lucky, and lack was 0:08:42.800 --> 0:08:46.680 the distree negative aggregate suppli show got reversed. First, we 0:08:46.679 --> 0:08:49.120 had the end of COVID, so supply of libor increased, 0:08:49.280 --> 0:08:53.400 we started producing goods and services. Supply chains got at 0:08:53.480 --> 0:08:57.720 lays say, unstuck. The impact on commodity prices of the 0:08:57.760 --> 0:09:00.800 invasion of Ukraine became ready US because there were new 0:09:00.880 --> 0:09:04.480 sources of energy coming from Middle least US and so 0:09:04.520 --> 0:09:08.880 on that went to Europe. And finally China gave up 0:09:08.880 --> 0:09:12.040 on a zero COVID policy, so we got luck. And 0:09:12.120 --> 0:09:14.439 on top of it, there was another set of actors 0:09:14.440 --> 0:09:17.839 at least for the US that maintained growth strong. One 0:09:17.840 --> 0:09:21.439 was that we had significant amount of migration documented or 0:09:21.480 --> 0:09:25.600 otherwise people estimated maybe up to ten million people entered 0:09:25.640 --> 0:09:29.200 in the United States in the last four years. That 0:09:29.320 --> 0:09:33.840 increased the label supply, increase growth, and reduce some pressures 0:09:33.840 --> 0:09:37.560 on wage inflation. Definitely right now. Politically, of course, migration 0:09:38.360 --> 0:09:40.560 is a hot topic, but from economic point of view, 0:09:40.600 --> 0:09:44.520 it increased growth and reduced inflation. And we had also 0:09:44.559 --> 0:09:49.120 other physical stimulus that helped the growth from the Infrastructure Act, 0:09:49.200 --> 0:09:52.120 the IRA and the Chips Act, and then we had 0:09:52.120 --> 0:09:55.439 got Also of course AI revolution has led to significant 0:09:55.440 --> 0:09:58.199 increasing capecs. So least for the United States, that think 0:09:58.360 --> 0:10:02.320 was a combination of active factors that implied that inflation 0:10:02.480 --> 0:10:06.760 file and growth remained robust, not so in other parts 0:10:06.760 --> 0:10:07.240 of the world. 0:10:23.440 --> 0:10:25.720 I want to talk a little bit more about the dollar, 0:10:26.000 --> 0:10:29.000 and there are so many different ways that you can 0:10:29.440 --> 0:10:33.480 begin a conversation or about thinking about the role of 0:10:33.520 --> 0:10:36.400 the US dollar. You can think about the effects that 0:10:36.520 --> 0:10:39.240 tariffs will have on inflation or the strength of the 0:10:39.320 --> 0:10:42.520 US dollar relative to other currencies. You can think about 0:10:42.600 --> 0:10:44.920 the central role that the government that the US dollar 0:10:45.000 --> 0:10:48.839 plays in global trade and finance, and whether there are 0:10:49.080 --> 0:10:52.679 possible rivals that are emerging. One of the things that 0:10:52.760 --> 0:10:56.560 we saw recently from President Trump was a threat that 0:10:56.640 --> 0:11:00.000 he put on his Truth Social Account against any of terror, 0:11:00.240 --> 0:11:03.160 against any country that would attempt to form a rival 0:11:03.200 --> 0:11:08.040 currency block, and the specifically mentioned the Bricks. I don't 0:11:08.080 --> 0:11:10.400 know if the Bricks is a real thing or not. 0:11:10.520 --> 0:11:13.040 It sometimes seems like a meme to me, but there 0:11:13.080 --> 0:11:15.520 is an organization called the Bricks, and sometimes you see 0:11:15.520 --> 0:11:19.920 headlines about dollar alternatives in the short to medium term. 0:11:20.440 --> 0:11:24.840 Is there a real prospect of some other currency, the 0:11:24.920 --> 0:11:28.720 Chinese un perhaps taking sizeable market share and global trade 0:11:28.760 --> 0:11:29.600 from the US dollar. 0:11:29.800 --> 0:11:33.640 Well, I would say for now, not yet. But the 0:11:33.720 --> 0:11:38.600 dollarization process that could occur over time, and what could 0:11:38.640 --> 0:11:41.200 trigger it was, of course, that we have rightly or 0:11:41.200 --> 0:11:44.760 wrongly weaponized the dollar in the last few years for 0:11:45.559 --> 0:11:49.760 national and security and foreign policy purposes, imposing a variety 0:11:49.800 --> 0:11:53.960 of sanctions against a variety of strategic rivals of the 0:11:54.040 --> 0:11:59.160 United States and the West. This isue about finding an alternative. 0:11:59.160 --> 0:12:04.200 The dollar is complicated because you cannot essentially replace something 0:12:04.400 --> 0:12:07.800 with nothing, and the question is what's the alternative to 0:12:07.920 --> 0:12:12.840 US dollar for US actor treasure there Summers once jokingly said, 0:12:13.480 --> 0:12:17.040 people don't like the dollar, but you know, Europe is 0:12:17.040 --> 0:12:21.120 a museum, China as a prison, Japan is a nursing home, 0:12:21.679 --> 0:12:25.319 and bitcoin so for now is an experiment. So there 0:12:25.400 --> 0:12:29.680 is something of an happiness with the US dollar. But 0:12:29.800 --> 0:12:32.040 for the time being, I would say the US dollar 0:12:32.520 --> 0:12:35.680 is still dominant. And by the way, I would probably 0:12:35.800 --> 0:12:40.040 argue that the Trump police is regarding the dollar a 0:12:40.040 --> 0:12:42.920 little bit confused, because on one side, there is this 0:12:43.120 --> 0:12:47.440 concern that a strong dollar has led to the industrialization, 0:12:48.040 --> 0:12:52.360 loss of competitiveness, large trade, current account deficits people free 0:12:52.440 --> 0:12:54.920 riding on the US So there is a sense I 0:12:55.040 --> 0:12:57.840 would like a weaker dollar. But if you think about 0:12:58.320 --> 0:13:03.400 policy and economic fundamentalals, tariffs will strengthen the dollar, and 0:13:03.520 --> 0:13:06.280 threads of tariffs have led since selection to the dollar 0:13:06.360 --> 0:13:11.040 becoming stronger. Trump says, I don't want other country to 0:13:11.760 --> 0:13:14.360 unquote the dollar rise, and I'm going to impose tarif 0:13:14.400 --> 0:13:16.920 on them if they do so. He wants to maintain 0:13:17.480 --> 0:13:19.760 the role of the dollars a major global reserve currency. 0:13:19.760 --> 0:13:22.560 If that's the case, demand for dollar ass remain high, 0:13:22.800 --> 0:13:25.720 the dollar remains strong in terms of relative growth. The 0:13:25.800 --> 0:13:28.839 US is doing stronger than Europe and other advanced economies 0:13:29.120 --> 0:13:32.079 that just strengthen the dollar in terms of relative monetary 0:13:32.120 --> 0:13:35.800 Police is probably given these differentials in growth and inflation, 0:13:36.760 --> 0:13:39.679 the US or the FED is going to cut rate 0:13:39.800 --> 0:13:42.480 less than other countries. Well, in Europe, the colomies we 0:13:42.520 --> 0:13:47.160 can there'll be more cuts. And overall, given the productive 0:13:47.240 --> 0:13:49.680 growth of the US, the boom of new technologies, AI, 0:13:49.760 --> 0:13:53.559 you name it, capital flows are going into the United States. 0:13:53.920 --> 0:13:57.160 So I think there is this dilemma that fundamentals and 0:13:57.240 --> 0:14:00.640 police would suggest that the dollar is going to become stronger, 0:14:01.120 --> 0:14:05.200 but than that objective of trying to reduce the trade 0:14:05.200 --> 0:14:08.640 imbalance of the US to a weaker dollar unless you 0:14:08.640 --> 0:14:12.280 have a big agreement on currency, is hard to fathom 0:14:12.320 --> 0:14:14.240 how you're going to do it. There are some ideas 0:14:14.240 --> 0:14:17.760 along those lines. Is going to be, to say, challenging. 0:14:18.400 --> 0:14:20.480 This is something I completely agree with, and I think 0:14:20.520 --> 0:14:23.320 I've said on the podcast before that it feels like 0:14:23.360 --> 0:14:28.440 Trump doesn't know what type of dollar he wants because instinctively, 0:14:28.760 --> 0:14:30.800 I think there's a sense that he wants to say 0:14:30.840 --> 0:14:34.360 the dollar is strong. It sounds good when you can 0:14:34.400 --> 0:14:36.560 say those types of things, and generally it means that 0:14:36.600 --> 0:14:39.840 the US economy is doing well relative to others. But 0:14:40.320 --> 0:14:44.040 if he's serious about boosting manufacturing and exports, then he 0:14:44.080 --> 0:14:48.760 needs the weaker dollar. There's also that tension between decoupling 0:14:48.800 --> 0:14:52.080 the US economy from the rest of the world, maybe 0:14:52.120 --> 0:14:56.000 becoming more self reliant, and also wanting the dollar to 0:14:56.120 --> 0:15:01.120 be at the center of a globalized financial se Are 0:15:01.160 --> 0:15:04.800 there ways that the Trump administration could like kind of 0:15:04.960 --> 0:15:08.000 thread the needle between those two different objectives. 0:15:08.280 --> 0:15:12.240 No, it's not going to be easy because either you want, 0:15:13.360 --> 0:15:16.040 you know, a weeker dollar to try to improve competitiveness, 0:15:16.080 --> 0:15:21.680 reduce the trade balances and so on, but then the 0:15:21.720 --> 0:15:24.800 dollar will left weaken. Or instead, if you want to 0:15:24.840 --> 0:15:28.840 maintain the globals or currency roll of the dollar, then 0:15:29.120 --> 0:15:32.160 the dollar is going to remain strong. And by the way, 0:15:32.200 --> 0:15:34.520 the risk of doing an agreement to try to weaken 0:15:34.600 --> 0:15:38.200 the dollar is that that could occur in a disorderly 0:15:38.240 --> 0:15:41.160 way because if you do another people talking now about 0:15:41.200 --> 0:15:44.200 a Mara lagoa agreement, because in the past agreements to 0:15:44.800 --> 0:15:48.280 moved currencies were always in resorts like Breton Woods, Plaza, 0:15:48.360 --> 0:15:52.560 over Come, David, you name it. So people think about 0:15:52.640 --> 0:15:56.320 maybe getting together all major economies in mar Lago and 0:15:56.360 --> 0:16:01.000 finding an agreement where europe Asian allies and others let 0:16:01.000 --> 0:16:03.920 their currency appreciate the dollar weekend. But you know, if 0:16:03.960 --> 0:16:08.640 people expect that from happening, then capital is going to 0:16:08.720 --> 0:16:10.560 suddenly move out of the US because you're going to 0:16:10.600 --> 0:16:13.640 have a massive capital loss time fifteen to twenty percent 0:16:13.680 --> 0:16:15.760 on your dollar assets, and then you could have a 0:16:15.760 --> 0:16:17.720 spike in long rates or you could have a correction 0:16:18.120 --> 0:16:21.640 in US ecuity. So how do you engineer an orderly 0:16:21.760 --> 0:16:25.960 weakening of the dollar without causing significant tightening of financial 0:16:25.960 --> 0:16:29.800 condition that's also problematic. It's not going to be very 0:16:29.800 --> 0:16:32.280 easy to be done. The other trade off that I 0:16:32.320 --> 0:16:36.560 think it's complicated it's not just a weak or strong 0:16:36.640 --> 0:16:41.560 dollars a currency role, but also your tariff policies, because 0:16:41.560 --> 0:16:45.240 on one side, if you impose the tariffs, the dollar 0:16:45.320 --> 0:16:49.320 is going to strengthen. And on the other side, also 0:16:49.520 --> 0:16:52.080 if you're going to raise tariffs, you need revenues. But 0:16:52.240 --> 0:16:55.120 raising tariffs, if it's very significant, it's going to be 0:16:55.200 --> 0:17:00.080 highly inflationary. Now, some people within the Trump come say, well, 0:17:00.080 --> 0:17:03.480 in twenty eighteen nineteen, when we increase the tariffs on China, 0:17:04.240 --> 0:17:07.560 there was not significant increase in inflation because the RMB 0:17:07.840 --> 0:17:11.840 depreciated and therefore import prices did not increase very much. 0:17:12.359 --> 0:17:15.679 But suppose that you impose the tariffs and the currencies 0:17:15.720 --> 0:17:19.760 of all your trading partners weekend, then you might not 0:17:19.920 --> 0:17:23.679 get the inflationary burst of the tariff. That's correct, but 0:17:23.760 --> 0:17:26.560 then you're not going to have an improvement of the 0:17:26.600 --> 0:17:30.439 competitiveness of the United States, and therefore inflation is not 0:17:30.480 --> 0:17:32.879 going to rise, but your trade deficit is going to 0:17:32.960 --> 0:17:37.199 remain very large. Vice versa. If tarif are imposed and 0:17:37.240 --> 0:17:41.480 the dollar does not strength another currency weekend, you might 0:17:41.520 --> 0:17:44.719 get actually some improvement of your trade balance, but then 0:17:44.760 --> 0:17:48.800 you'll have some inflational impact of this, so in all 0:17:48.800 --> 0:17:51.000 these cases, there is not really a free lunch. 0:17:51.520 --> 0:17:51.720 Yeah. 0:17:51.760 --> 0:17:53.800 I want to actually dive further into this because a 0:17:53.800 --> 0:17:56.959 lot of times when tariffs come up, one thing people 0:17:57.080 --> 0:17:59.280 say is that, Okay, well it's a one off. 0:17:59.520 --> 0:18:00.480 It's a one right. 0:18:00.800 --> 0:18:02.919 The prices may go up at some point, but that 0:18:02.960 --> 0:18:06.399 doesn't necessarily represent a new inflationary trend that say, the 0:18:06.440 --> 0:18:08.560 FED would have to worry about. And perhaps that's true, 0:18:08.560 --> 0:18:11.000 But it also occurs to me that if part of 0:18:11.040 --> 0:18:14.120 the impulse here is to be less reliant on global 0:18:14.160 --> 0:18:18.879 trading partners for say, various manufactured goods, and to have 0:18:19.000 --> 0:18:22.479 more domestic building, et cetera of various things, this is 0:18:22.480 --> 0:18:27.000 happening at a time of still high resource utilization already, 0:18:27.040 --> 0:18:30.000 So the unemployment rate is at four point one percent, 0:18:30.520 --> 0:18:34.040 There are already a lot there are shortages of industrial parts. 0:18:34.200 --> 0:18:37.080 Yesterday we're recording this December third, by the way, yesterday 0:18:37.080 --> 0:18:40.960 we got the ISM Manufacturing and it showed that electrical 0:18:41.000 --> 0:18:44.520 components have now been in shortage for fifty straight months, 0:18:44.560 --> 0:18:47.119 so over four years. So it seems to me that 0:18:47.240 --> 0:18:51.639 regardless of you know, if you have this impulse to 0:18:51.720 --> 0:18:54.560 build more here, et cetera, you're coming at it at 0:18:54.600 --> 0:18:58.280 a time in which resources remain quite constrained. 0:18:58.480 --> 0:19:01.800 I think your point is very correct and valid in 0:19:01.840 --> 0:19:05.480 some sense. Actually, the US economy right now it's not 0:19:05.600 --> 0:19:08.840 in a soft landing, maybe in a no landing zone 0:19:08.880 --> 0:19:13.040 because growth has remained above potential and inflation has fallen. 0:19:13.119 --> 0:19:15.960 But you know, core PC this year probably going to 0:19:15.960 --> 0:19:18.879 be two point eightyve and two point nine percent, and 0:19:19.080 --> 0:19:23.840 next year may still remain elevated, especially next year if 0:19:23.880 --> 0:19:28.240 you impost tariff, if you do significant draconia restriction to migration, 0:19:28.880 --> 0:19:33.360 if you have run away physical deficits, that's stimulate further demand. 0:19:33.840 --> 0:19:36.520 And if you have, you know, a policy of trying 0:19:36.560 --> 0:19:39.359 to weekend the dollar. So yeah, we live in an 0:19:39.400 --> 0:19:44.680 economy is already no landing where resource constraints are significant. 0:19:45.160 --> 0:19:49.240 Libor market is significantly tight, Goods market are also tight. 0:19:49.880 --> 0:19:52.840 Imports can help you, But then if you're gonna restrict 0:19:53.400 --> 0:19:57.040 the libor supply to migration restriction, you're gonna weaken the dollars. 0:19:57.040 --> 0:20:00.320 You're going to impose tariff, You're gonna make those inflationtionary 0:20:00.320 --> 0:20:04.080 pressure going higher, and then make trigger the fad than 0:20:04.600 --> 0:20:08.080 having to act and stop cutting rates or maybe even 0:20:08.320 --> 0:20:09.480 increase them over time. 0:20:10.600 --> 0:20:13.840 I mean, the counter argument to the no landing idea 0:20:13.960 --> 0:20:16.879 is that we have seen some signs as Joe mentioned 0:20:16.880 --> 0:20:21.520 in the intro of the labor market softening, and even yesterday, 0:20:21.560 --> 0:20:24.200 you know we already mentioned the ism, but we had 0:20:24.240 --> 0:20:28.080 PMIS as well that also looked kind of sluggish. Is 0:20:28.119 --> 0:20:32.040 there a possibility that the economy weaken significantly into twenty 0:20:32.080 --> 0:20:32.760 twenty five? 0:20:34.240 --> 0:20:37.640 Well, I would say that the risk of economy weakening 0:20:37.720 --> 0:20:41.040 significant twenty twenty five will be one in which those 0:20:41.040 --> 0:20:45.480 sets of staculationary policy are followed. If you really impose 0:20:46.080 --> 0:20:49.480 massive tariffs, if you deport millions of people, if you 0:20:49.560 --> 0:20:53.080 try the weekend the dollar, if you have a massive 0:20:54.119 --> 0:20:57.520 physical deficit then lead to bond hills rising, crowding out 0:20:57.560 --> 0:21:00.679 economic growth. You could be in a situation which growth 0:21:01.040 --> 0:21:04.640 significantly slow downs and inflation goes higher. I think that's 0:21:04.720 --> 0:21:08.159 definitely a risk. As I pointed out at the beginning, However, 0:21:08.160 --> 0:21:11.680 there are sets of policies of trumpet are actually positive 0:21:11.680 --> 0:21:15.360 for economic growth, and some of those policies will be implemented. 0:21:15.400 --> 0:21:17.400 So if you had to. 0:21:17.359 --> 0:21:21.200 Choose from like column A or column B, what would 0:21:21.200 --> 0:21:22.720 be like the higher probability. 0:21:22.760 --> 0:21:26.119 As of now, I would say that the impact on 0:21:26.440 --> 0:21:29.520 growth for next year is going to be a wash 0:21:29.640 --> 0:21:33.280 because on one side, definitely is pro business is going 0:21:33.359 --> 0:21:38.520 to deregulate, There'll be some increase in capital spending, stock 0:21:38.600 --> 0:21:43.240 market is strong, financial conditioner easy, So those are positive 0:21:43.280 --> 0:21:46.080 for increasing growth. But then some of the other polices, 0:21:46.160 --> 0:21:50.760 especially on labor market and tariff and protection is when 0:21:50.800 --> 0:21:53.800 some increase in long rate are going to weaken economic growth. 0:21:53.840 --> 0:21:56.240 So I think that the impact for growth next year 0:21:56.320 --> 0:21:59.200 is that if this year we're growing, say two point 0:21:59.240 --> 0:22:02.119 eight percent, next year we're going to still grow about 0:22:02.119 --> 0:22:05.040 potential but less maybe two point four. But I don't 0:22:05.040 --> 0:22:07.840 think there's going to be a massive slowdown unless it 0:22:07.920 --> 0:22:11.880 goes really radical with the stackpreationary policies. However, on net 0:22:11.960 --> 0:22:15.840 in an economy is already in a sight resource constraint 0:22:16.160 --> 0:22:19.160 labor goods market otherwise that is more in a low 0:22:19.240 --> 0:22:23.400 landing zone, where even before Trump was elected, the FED 0:22:23.520 --> 0:22:27.000 was started to say, wait a moment, should we really 0:22:27.080 --> 0:22:30.159 cut right as much as we promise? Given that growth 0:22:30.320 --> 0:22:33.720 it seems to remain robust, that inflation remains more sticky 0:22:34.160 --> 0:22:37.000 that in that world. In my view, inflation is going 0:22:37.080 --> 0:22:40.920 to be on net staying high rather than going towards 0:22:41.160 --> 0:22:44.080 the two percent targets. So I would say the net 0:22:44.119 --> 0:22:47.120 impact on growth for the time being is a wash, 0:22:47.280 --> 0:22:49.800 but the impact on inflation will probably be the inflation 0:22:49.880 --> 0:22:53.280 is somehow higher, and that's going to impose something of 0:22:53.320 --> 0:22:56.000 a dilemma for the FAT. Of course, there is a 0:22:56.080 --> 0:23:00.360 tail risk that it goes fully stackflationary. But as I point, 0:23:00.520 --> 0:23:03.879 are two major constraint. One is really market discipline. The 0:23:03.920 --> 0:23:07.440 market would punish those policies and will have to reverse. 0:23:07.520 --> 0:23:10.199 I mean, take an example in the UK, because there 0:23:10.240 --> 0:23:14.680 was a physical STEAMUS was excessive. Then suddenly the pound collapse, 0:23:14.720 --> 0:23:18.119 bond deals when higher, the pension crisis, and least trusts 0:23:18.640 --> 0:23:21.720 Prime minister lost power in forty four days. Now that's 0:23:21.760 --> 0:23:23.359 not going to happen in the United States. But I 0:23:23.440 --> 0:23:27.679 think that people should not underestimate how market discipline can 0:23:27.720 --> 0:23:31.600 really punish even a country like the United States. So 0:23:31.640 --> 0:23:36.600 between the constrain of the FED being still independent and 0:23:36.640 --> 0:23:41.760 the market discipline probably excessively stack, treasury policy would be 0:23:41.800 --> 0:23:42.800 constrained next year. 0:23:58.680 --> 0:24:03.000 So a mirror all of the extraordinary uncertainty you recently 0:24:03.160 --> 0:24:06.400 at the end of November announced you have a new ETF, 0:24:06.480 --> 0:24:09.720 the Atlas America Fund, and it looks very interesting. You know, 0:24:09.760 --> 0:24:12.280 I think, like I want to get into what it is. 0:24:12.320 --> 0:24:15.040 But I think, you know, when people think about, say 0:24:15.119 --> 0:24:19.200 like a well diversified or all weather portfolio, and it 0:24:19.280 --> 0:24:21.920