Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at Bloomberg.
Speaker 2: And I'm all down a higher across asset reporter with Bloomberg.
Speaker 1: And this week on the show, well, what if we've
Speaker 1: all been bracing for a recession that never actually shows up.
Speaker 1: That's a question that's floating around more and more of
Speaker 1: these days as the economy just keeps hanging in there
Speaker 1: despite the rapid rise in interest rates, a few bank failures,
Speaker 1: and all the dire predictions that came along with both
Speaker 1: of those. We'll get into it with a well known
Speaker 1: economist at a major Wall Street bank. But first of all, Donna,
Speaker 1: I've got a very strange question for it. I'm shocked, shocked. Yeah,
Speaker 1: I've never asked you a strange question. Have you ever
Speaker 1: daydreamed about like being a princess or a queen? No
Speaker 1: you haven't. No, that's a healthy outlook.
Speaker 2: Yeah it's not real. And they like didn't have bathrooms.
Speaker 2: Well there are real princesses and oh that's true, like
Speaker 2: modern day.
Speaker 1: Do you think, uh, the current princesses and princes Prince
Speaker 1: Harry doesn't have a modern bathroom.
Speaker 2: He definitely does, but like, are they beloved by their people?
Speaker 2: You know, it comes with a lot of baggage.
Speaker 1: All right, well that's a healthy editor.
Speaker 3: Why are you asking?
Speaker 1: Well, it's my craziest thing this week has to do
Speaker 1: with there's actually a market for royal titles, if you
Speaker 1: believe it or not.
Speaker 2: Wow, So we'll get by one. You would, all right,
Speaker 2: I would be the highest bitro.
Speaker 1: You're going to find out how much?
Speaker 2: Okay, I don't want to keep our guests waiting because
Speaker 2: and I actually just told him this right before we
Speaker 2: started taping. I'm a huge fan of his. I've been
Speaker 2: a fan for years and I'm so excited.
Speaker 1: The posters on the walls, yeah.
Speaker 2: Kind of yeah, No, no, not to that extreme. It's
Speaker 2: Seth Carpenter. He's the global chief economist at Morgan's Stanley. Seth,
Speaker 2: thank you so much for joining us, Bill.
Speaker 4: Donna, thank you, Mike, thanks for having me. I am
Speaker 4: I'm glad that this is audio only because I would
Speaker 4: have blushed.
Speaker 3: You just I'm blushing, don't worry.
Speaker 1: He's also a former writer of The Princeton Dinky as well.
Speaker 2: I know, yes, yes, he got his PhD at Princeton
Speaker 2: with what's.
Speaker 1: A weird hobby is? I love the Princeton Dinky. I
Speaker 1: don't know why, but I find it fascinating that there's
Speaker 1: a one car train that goes what a mile back
Speaker 1: and forth every.
Speaker 2: Day and you can have your tall guy on it,
Speaker 2: or what's it called a tall guy, a tall tall boy.
Speaker 2: You couldn't even finish a tall boy at the time.
Speaker 2: It takes okay, But Seth, you have a very decorated resume,
Speaker 2: so I'm hoping you could.
Speaker 3: We can just start out.
Speaker 2: You can tell us about your background and then how
Speaker 2: you ended up at Morgan Stantley.
Speaker 4: How did I get to where I am? You started
Speaker 4: off noting that I have a PhD in economics, and
Speaker 4: I'm happy to say that my primary advisor was Ben Bernanke,
Speaker 4: who when I was at Princeton did not have a
Speaker 4: Nobel Prize and now he does, so I had something
Speaker 4: to do with that, I would say. So. No, that
Speaker 4: was actually a fantastic opportunity, and I actually thought I
Speaker 4: was going to be an academic. My research was on
Speaker 4: monetary policy, but I went to teach for a couple
Speaker 4: of years at the College of William and Mary, and
Speaker 4: then the FED called and said, are you interested in
Speaker 4: coming up to give a to do an interview? And
Speaker 4: the answer was yes, and they offered me a job
Speaker 4: and I took it. And shocking news for anybody who's
Speaker 4: in their late twenties, Washington, d C. Is a bit
Speaker 4: more interesting to live in than Williamsburg, Virginia. So I
Speaker 4: ended up staying in Washington, DC, and I was at
Speaker 4: the FED for fifteen years. By the time I left,
Speaker 4: I was the Deputy Director of the Division of Monetary Affairs.
Speaker 4: Got to work through the financial crisis, which was a
Speaker 4: terrible point in economic history, but now that it's in
Speaker 4: the rearview mirror, it sort of was fascinating part of
Speaker 4: my career to be at the FED in the trenches,
Speaker 4: trying to work on both strategy for policy and then
Speaker 4: the nitty gritty like all of the different lending programs
Speaker 4: the FED did, and thinking about the FED balance sheet.
Speaker 4: I was for a while the Fed's person in charge
Speaker 4: of the Fed's balance sheet, if you will, So it
Speaker 4: was fascinating. But at some point I needed a break.
Speaker 4: I went to the Treasury Department, ostensibly for just a
Speaker 4: one year visit, but while I was there, I had
Speaker 4: the very good fortune of having President Obama nominate me
Speaker 4: to be Assistant Secretary for Financial Markets. So I resigned
Speaker 4: from the FED and got to work at the Treasure Department,
Speaker 4: and I have to say that was a fantastic job.
Speaker 4: But I did that until twenty sixteen, and then I
Speaker 4: went to the private sector to financial markets, worked for
Speaker 4: a year at a hedge fund, worked for four years
Speaker 4: at a different bank, and now I'm happy to say
Speaker 4: I am the global chief economist here at Morgan Stanley,
Speaker 4: and I couldn't be happier.
Speaker 1: I guess you did have to buy a new wardrobe
Speaker 1: when you moved to Washington, though, Seth, you couldn't walk
Speaker 1: around in those colonial uniforms anymore.
Speaker 4: Ten striped suit with a tri corner.
Speaker 1: Had to get back to what I was saying in
Speaker 1: the introduction. You know, my impression is that you were
Speaker 1: sort of leading into the soft landing camp these days,
Speaker 1: thinking that perhaps fingers crossed, knock on wood and all,
Speaker 1: that we actually might be able to avoid a recession.
Speaker 1: Walk us through how you're thinking about that. You know
Speaker 1: what's changed to make you a little bit less worried
Speaker 1: about recession?
Speaker 4: Absolutely, we've we've actually been in the soft landing camp
Speaker 4: for a while, there were definitely times when everyone in
Speaker 4: markets was throwing rocks and sticks at us and saying
Speaker 4: that we're crazy, because it was clear we'd get a recession.
Speaker 4: And then the data for Januine and February came in
Speaker 4: that looked a lot better, and people were telling us
Speaker 4: that we were crazy, that we were still calling for
Speaker 4: a big slowdown. And now the world has shifted again.
Speaker 4: What is our thinking. The first thing is that seems
Speaker 4: hard to avoid the fact that the US economy is
Speaker 4: going to slow down. And part of the reason why
Speaker 4: that's hard to avoid is because that is absolutely, categorically
Speaker 4: the feds objective. Right The reason they will keep hiking
Speaker 4: industrates at least a bit more is because they want
Speaker 4: the economy to slow down a lot in order to
Speaker 4: have inflationary pressures of bait. So the slowdown part should
Speaker 4: be pretty easy to get on board with. So what
Speaker 4: about the missing the recession part? Well, partly because the
Speaker 4: slowdown is the Fed's choice, at least, having a chance
Speaker 4: to avoid a recession should also be the fed's choice,
Speaker 4: And we think they're looking carefully at the data and
Speaker 4: asking do we have enough evidence that things are slowing
Speaker 4: down a lot? But not yet crashing, because that's what
Speaker 4: they're looking for in order to stop the hiking cycle.
Speaker 4: So we think the last hike is in May, when
Speaker 4: there'll be more evidence of more of a slowdown, but
Speaker 4: not yet evidence that things have actually fallen off of
Speaker 4: a cliff. And then I think the last part of
Speaker 4: our thesis is usually what takes in the US to
Speaker 4: get a recession is some shock or something that causes
Speaker 4: the slowdown. So we've got that, but you also need
Speaker 4: an amplification mechanism. So the economy slows down and businesses
Speaker 4: lay off millions of workers and their lack of income
Speaker 4: causes a slump and stending, or you get a big
Speaker 4: credit crunch and everything seizes up. Both of those are
Speaker 4: clearly possible, but we don't think they are imminent. For
Speaker 4: the labor side of things, the job market still seems
Speaker 4: pretty healthy, the unemployment rates very low, and if you
Speaker 4: kind of look at how much employment do we have
Speaker 4: relative to the level of GDP, you'd come away with
Speaker 4: the conclusion that, boy, businesses are still a little shorthanded.
Speaker 4: But what that means is the economy can slow down
Speaker 4: and businesses don't have to do the same wave of
Speaker 4: firing that they've had to do in previous slowdown, So
Speaker 4: that makes us feel a little bit better. And even
Speaker 4: though there's clearly tighter funding conditions for banks and banks
Speaker 4: are pulling back on their lending, especially given what's happened
Speaker 4: in the wake of all of the banking turmoil, we
Speaker 4: kind of remember that things were already slowing down. Loan
Speaker 4: growth was already slowing before we got these new sensational
Speaker 4: headlines about the banking sector turmoil. And because we were
Speaker 4: sure the economy was going to be slowing down anyway,
Speaker 4: the demand for that borrowing is going to be following.
Speaker 4: And so we don't think any pullback by banks and
Speaker 4: their willingness to lend is going to be the thing
Speaker 4: that tips us over to recession. So not a super
Speaker 4: rosy outlook. We are looking for growth that's below a
Speaker 4: half a percent in real terms, so very very close
Speaker 4: to zero. But importantly, we are not looking for a
Speaker 4: full blown recession where we have several months in a
Speaker 4: row of contraction.
Speaker 2: Okay, so Seth, you mentioned tighter funding conditions, and I'm
Speaker 2: wondering where else you are looking to see signs of
Speaker 2: that now that we've obviously we've had the bank turmoil.
Speaker 2: Been a month since that happened. I know, I was
Speaker 2: reading some notes from some of the big banks, and
Speaker 2: a couple of them actually mentioned Fastenal some of the
Speaker 2: warnings from that company, and that company being such a
Speaker 2: bell weather. So where else are you looking maybe for
Speaker 2: signs of tighter funding conditions.
Speaker 4: So we're trying to look as broadly and as deeply
Speaker 4: as we possibly can. You can look at things like
Speaker 4: delinquency rates and deterioration of credit quality on credit cards
Speaker 4: and that kind of lending to customers. But I you know,
Speaker 4: close to home for big chunk of my career, the
Speaker 4: Federal Reserve has their Senior Loan Officer Opinion Survey. They
Speaker 4: have a survey in terms of business lending, and there
Speaker 4: they ask lots of banks, what's going on with your lending?
Speaker 4: And I think that's another really key, uh source of
Speaker 4: information about willingness to lend by creditors.
Speaker 1: Yes, I wonder everybody was kind of bracing for, if
Speaker 1: not a credit crunch, definitely some kind of credit slowdown.
Speaker 1: After Silicon Valley Bank and Signature Bank failed. Was the
Speaker 1: emergency term lending facility that was introduced, and the you know,
Speaker 1: the discount window at the FED opened wide. Was that
Speaker 1: enough to basically prevent that type of contagion from that
Speaker 1: that type of nervousness among banks to rein in lending,
Speaker 1: do you think, or is it something else?
Speaker 4: So that's a great question, and it's really hard to
Speaker 4: know what the counter factual would have been. But then
Speaker 4: when you start to look into the details, there wasn't,
Speaker 4: at least in the first week, that much that went
Speaker 4: through that nude term lending facilit about twelve billion dollars
Speaker 4: or so. A huge amount went to the FDIC's bridge banks.
Speaker 4: There's also a fair amount based on First republic z
Speaker 4: owned public disclosures that went directly there. And so, you know,
Speaker 4: my initial reading, perhaps through some slightly rose colored glasses,
Speaker 4: was that the situation based on that borrowing was more
Speaker 4: idiosyncratic than systemic. Now, there were still a lot of
Speaker 4: borrowing from many banks, and the amounts going through that
Speaker 4: term facility has actually edged up a bit over time,
Speaker 4: it has not fallen, So we don't want to be complacent,
Speaker 4: but my initial read was that it was more idiosyncratic
Speaker 4: than systemic, and so as a result, yeah, I suspect
Speaker 4: that the lending was there took care of some of
Speaker 4: the institutions that critically needed. Others, as we know, or
Speaker 4: have been resolved or being resolved, and so you know,
Speaker 4: my take really though, is that we had a largely
Speaker 4: idiosyncratic problem against the backdrop of the whole system have
Speaker 4: been facing a high funding costs. But that was very
Speaker 4: much the intent of the Fed by raising the Federal
Speaker 4: Funds rate five hundred basis points. I do think there
Speaker 4: was mostly an adies and credit situation going on.
Speaker 1: You know, the other issue that's coming up with banks
Speaker 1: a lot these days, seth And admittedly I'm kind of
Speaker 1: talking my book here a little bit. I've got a
Speaker 1: story in our BusinessWeek magazine about this this week. But
Speaker 1: it's basically the notion of deposit beta. When the Fed
Speaker 1: Funds rate goes up to five percent, how quickly do
Speaker 1: banks jack up their rates that they pay on savings deposits,
Speaker 1: demand deposits, especially in reflection to how much the Fed
Speaker 1: Fund's rate has gone up, Because it's a really fascinating,
Speaker 1: I think, almost a historical whiplash that we've seen. You
Speaker 1: saw bank deposits just swell tremendously during the pandemic, something
Speaker 1: like twenty percent in twenty twenty, I believe it was,
Speaker 1: and then another ten percent in twenty twenty one. Now
Speaker 1: there's start to shrink, albeit you know, not by a ton.
Speaker 1: I think it was like a percent and a half
Speaker 1: last year, but you know, on an aggregate basis, bank
Speaker 1: deposits are shrinking. There's more competition possibly for deposits. A
Speaker 1: lot of banks are now paying above four percent on
Speaker 1: their savings rates their deposit rates. To me, that that
Speaker 1: creates a lot of questions I think about the financial system,
Speaker 1: you know, And warning here I'm about to give you
Speaker 1: about a ten part question, so stand by. But you know,
Speaker 1: a does that sort of deposit competition, that worriiness about
Speaker 1: stickiness of deposits have any effect on the supply of
Speaker 1: credit you think? And secondly, does it have any macro
Speaker 1: follow up for the markets themselves? You know, I'm thinking,
Speaker 1: if I'm getting if I can get four to four
Speaker 1: and a half percent on my savings account at a bank,
Speaker 1: am I going to be less willing to take risk
Speaker 1: in the stock market? That sort of thing? So I'm
Speaker 1: curious how you see that whole situation playing out, both
Speaker 1: from the credit side and any other potential macro impact
Speaker 1: it might.
Speaker 4: Have absolutely so fascinating topic one that is absolutely critical.
Speaker 4: So let me take a step back and think about
Speaker 4: it in an historical sense. Every time we have an
Speaker 4: interest rate cycle, business cycle, and then the Fed's moving
Speaker 4: short term rates up and down, you see an interesting
Speaker 4: and fairly familiar pattern when when the FED cuts rates
Speaker 4: and market rates fall, deposit rates fall along with them,
Speaker 4: and then the Fed starts to raise interest rates and
Speaker 4: deposit rates kind of lag, and then over time that
Speaker 4: deposit beta, as you noted, starts to starts to pick
Speaker 4: up a big plug. To my colleague Betsy Graysek, who
Speaker 4: runs equity research at Morgan Stanley for financial institutions, she's
Speaker 4: been saying since the beginning of this hiking cycle that
Speaker 4: the deposit beta increased this time would be more dramatic
Speaker 4: than it has been in past cycles, and that's been
Speaker 4: born out. As you've said, I think there are a
Speaker 4: few things that are that are a little bit different
Speaker 4: this time than previous cycles, at least recent cycles. One
Speaker 4: is the speed with which the FED increased interest rates.
Speaker 4: We had four to seventy five basis point rate increases
Speaker 4: this time compared to the previous couple of hiking cycles.
Speaker 4: That's a really big departure in terms of speed, and
Speaker 4: banks are are having to follow up on it. Historically, though,
Speaker 4: what do you see. You see the growth rate of
Speaker 4: deposits fall, or even an outright decline in deposits, because
Speaker 4: as market rates start to go up and people can
Speaker 4: invest in treasury bills, deposits start to look a little
Speaker 4: bit less attractive, and you see that same pattern. So qualitatively,
Speaker 4: we're seeing the same thing. Quantitatively, the speed of the
Speaker 4: increase was much bigger. Key difference here is that the
Speaker 4: FED has this reverse repo facility where they take in
Speaker 4: cash from investors and primarily money marketing mutual funds, and
Speaker 4: they're using that tool to help keep all market interest
Speaker 4: rates higher. That tool existed in the last hiking cycle,
Speaker 4: but that was a much more gradual hiking cycle. It
Speaker 4: did not exist in any other previous hiking cycle. And
Speaker 4: so what you can see are investors who might have
Speaker 4: otherwise had their cash and deposited banks can now have
Speaker 4: their cash shifted over to a money market mutual fund.
Speaker 4: That money market mutual fund can put that cash at
Speaker 4: the FED, and it's facilitating that very historical pattern of
Speaker 4: higher interest rates leading to slower deposit growth or even
Speaker 4: negative deposit growth. It's helping that process move along, but
Speaker 4: it's doing it even more effectively than historically, and again
Speaker 4: against the backdrop of a much faster hiking cycle. So
Speaker 4: the first part of the question is absolutely, yes, this
Speaker 4: shift in deposit matters. It's part of a normal hiking cycle.
Speaker 4: But it's just happening much more quickly and perhaps much
Speaker 4: more effectively than it has historically. What does it mean
Speaker 4: for other asset prices? I mean again, usually when people
Speaker 4: talk about portfolio construction, sort of think about what can
Speaker 4: you get on a risk free asset, and then any
Speaker 4: other risky asset has to outperform and expand and expected value.
Speaker 4: And yeah, deposits are paying more this time around. Money
Speaker 4: funds are paying more than before. Tea bills are doing
Speaker 4: more than paying more than before. My colleagues and interest
Speaker 4: rates strategy here at Morgan Stanley had put out a
Speaker 4: piece as their outlook for twenty twenty three that was
Speaker 4: called the Year of Yield. Cash once again is an
Speaker 4: actual asset class. It's not just sort of where you
Speaker 4: have your wealth because you can't make up your mind yet.
Speaker 4: It's a legitimate asset class because t bills are paying
Speaker 4: five percent. So yeah, the second part of your question,
Speaker 4: I'll also answer yes too. I think this is absolutely
Speaker 4: an important development. It matters at a macro level, it
Speaker 4: matters at a financial market level, but it is ultimately
Speaker 4: at the end of the day and just part of
Speaker 4: how monetary policy works. But boy, the details are a
Speaker 4: little bit different this.
Speaker 3: Time around, Seth.
Speaker 2: I'm also wondering if maybe there's a disinflationary aspect to this,
Speaker 2: in that if I'm somebody who puts a bunch of
Speaker 2: money in a money market fund, I'd be less inclined
Speaker 2: to actually go and then spend it. I wouldn't have
Speaker 2: it at the ready if I wanted to buy a
Speaker 2: brand new TV, for instance.
Speaker 4: I mean, I think that is possible. I think there's
Speaker 4: definitely the possibility that easier savings means less spending, and
Speaker 4: that makes a lot of sense. There's not always a
Speaker 4: lot of evidence in the empirical research, and it all
Speaker 4: comes down to sort of how do households way spending
Speaker 4: versus savings. But one thing that it clearly does is
Speaker 4: for anybody who is going to be borrowing in order
Speaker 4: to spend, the cost of funding is just going up.
Speaker 4: So We see this clearly in banks. Their cost of
Speaker 4: funding is going up, making it harder for them to
Speaker 4: lend households that might want to borrow in order to
Speaker 4: buy a new car. Their cost of borrowing is going
Speaker 4: up because anyone who's borrowing at this point is going up.
Speaker 4: That for me is the traditionally stronger channel for monetary policy,
Speaker 4: but it could work through the savings mechanism the way
Speaker 4: you said it as well.
Speaker 1: You know, Seth, you had mentioned those flashbacks to your
Speaker 1: days in Washington when the debt sailing first sort of
Speaker 1: reared its ugly head and became an issue. I think
Speaker 1: as we you know, I guess we're in the extraordinary
Speaker 1: measures phase of the debt ceiling right now, and as
Speaker 1: we get closer and closer to sort of the drop
Speaker 1: dead date, you know, there's this assumption that it's brinkmanship,
Speaker 1: that some sort of deal will be cut at the
Speaker 1: eleventh hour. But I got to say, you know, politics
Speaker 1: is way more bare knuckles than I think it's ever
Speaker 1: been in my life, and I wonder if that is
Speaker 1: the wrong way to think about it this time. You
Speaker 1: think there is a bigger risk this time of some
Speaker 1: actual default and some serious you know, financial risks to
Speaker 1: the whole system because of that.
Speaker 4: This time, absolutely, I do think that the risks are
Speaker 4: bigger this time, and I think there are a few
Speaker 4: things that figure into that calculus. At the end of
Speaker 4: the day, this is a standoff game theoretic setting between
Speaker 4: two sides and a negotiation, and that's for me, part
Speaker 4: of how I think about it as an economist. But
Speaker 4: the things that are different now relative to say, twenty
Speaker 4: eleven and twenty thirteen, and let's not forget both of
Speaker 4: those episodes came basically down to the wire and we're
Speaker 4: a little bit for me at least nerve wracking. But
Speaker 4: now you've got different leadership in the House of Representatives
Speaker 4: where there were, you know, lots of rounds of voting
Speaker 4: to come up with the speakership, and I think that
Speaker 4: probably changes a little bit how the calculation goes on
Speaker 4: that side. I think the other point that's very different
Speaker 4: now relative to twenty eleven or twenty thirteen is that
Speaker 4: in the public domain on the fed's public website are
Speaker 4: the transcripts of two different conference calls, one in twenty
Speaker 4: thirteen one in twenty eleven, where the FMC discussed what
Speaker 4: would happen if we got to the point where the
Speaker 4: treasury ran out of cash. And if you read that,
Speaker 4: you might conclude, I think wrongly from my personal perspective,
Speaker 4: but it would be easy to conclude that the Fed's
Speaker 4: got a plan and there's a way to finesse not
Speaker 4: defaulting on treasury securities while avoiding paying on other government obligations.
Speaker 4: I'm not sure creating that potentially false sense of comfort
Speaker 4: is a good thing to get a quick and easy
Speaker 4: resolution to these sorts of things. So I do think
Speaker 4: the water has got more muddy because of the political circumstances,
Speaker 4: because of the extra information in the public domain, And
Speaker 4: you know, I worry. Maybe it's just because I'm always
Speaker 4: a congenital worrier, but we really do. In my opinion,
Speaker 4: you need to see, hopefully a timely resolution one way
Speaker 4: or the other.
Speaker 3: Zeth.
Speaker 2: I also want to take us abroad because you're bullish
Speaker 2: on China growth, and I'm wondering, first of all, what
Speaker 2: you're projecting in terms of China's economic growth, and then
Speaker 2: how that actually is helping hold up global growth numbers,
Speaker 2: which maybe would be looking a little bit more anemic
Speaker 2: without some of the numbers that China has been posting recently.
Speaker 4: Sure a great topic. We are here at Morgan Stanley
Speaker 4: very bullish on economic growth for Asia in general and
Speaker 4: China in particular. We've written down five point seven percent
Speaker 4: growth for China this year, which is above the official
Speaker 4: growth target from Beijing of about five percent. The data
Speaker 4: that are coming in now in terms of the rebound,
Speaker 4: first we got readings on things like mobility index is
Speaker 4: now more the data are coming in. My take is
Speaker 4: they're coming in in line with that very bullish outlook
Speaker 4: for what's going on with China, and so we are
Speaker 4: sticking with our view five point seven percent growth for
Speaker 4: this year, maybe even some risk to the upside. It will, however,
Speaker 4: require that as the year progresses, as spending continues to recover,
Speaker 4: that we get more and more people brought back into
Speaker 4: the labor force, more employment gains, especially among young people.
Speaker 4: But we think that's likely to happen, and in lots
Speaker 4: of ways. That's the thesis for our outlook is first
Speaker 4: reopening coming off of a really weak level, and then
Speaker 4: as economic activity continues, it has the standard virtuous cycle,
Speaker 4: if you will, of pulling people back to work. Now
Speaker 4: the spillover to the rest of the world, though, I
Speaker 4: think is very interesting this time. People are used to
Speaker 4: looking at past cycles where China accelerated and it helped
Speaker 4: pull the whole global economy along. This time, well, it's
Speaker 4: going to be good, presumably for the rest of Asia,
Speaker 4: especially the parts of Asia that will benefit from Chinese tourism.
Speaker 4: But we've got some research out there that suggests that
Speaker 4: the normal spillovers from Chinese economic growth to the rest
Speaker 4: of the world. If you were to say, okay, this
Speaker 4: year close to three percentage point acceleration, can we multiply
Speaker 4: that three percentage point acceleration by the same coefficient we
Speaker 4: would normally use in past cycles, And the answer I
Speaker 4: think is no, it's probably only about half as much,
Speaker 4: and that includes the spillover to commodities. And the reason
Speaker 4: for that is most of the growth that we're seeing
Speaker 4: in China this year is likely to be domestic spending
Speaker 4: as opposed to a lot of the growth being fueled
Speaker 4: by exports. So that's one difference, And second, a lot
Speaker 4: of it is going to be skewed towards services instead
Speaker 4: of towards physical goods. Now, to be clear, the housing
Speaker 4: market that had been imploding is not only stabilized. It's
Speaker 4: actually starting to recover, so there's it's not as though
Speaker 4: this is a binary one zero kind of outcome. So
Speaker 4: we are getting a recovery in housing. We do think
Speaker 4: part of the fiscal policy stimulus will be through infrastructure,
Speaker 4: but boy, relative to historical patterns, a heavy skew towards
Speaker 4: spending on services, and that just means you're going to
Speaker 4: get less of a pull into China from the rest
Speaker 4: of the world than you would have in previous cycles.
Speaker 4: So we are bullish China. We're Asia more generally. We
Speaker 4: think Asia outperforms, but we don't think that China is
Speaker 4: going to end up being the engine of growth for
Speaker 4: the global economy. We're looking at weak growth in the
Speaker 4: US and in Europe this year.
Speaker 1: Well Seth Carpenter, Global Chief Economist at Morgan Stanley. What
Speaker 1: a absolute pleasure to pick your brain like that. We
Speaker 1: really appreciate it. Can't let you go quite yet, though.
Speaker 1: We do have an attrition here on what goes up
Speaker 1: where we have to go over all the craziest.
Speaker 2: Things, where we torture our guests.
Speaker 1: We torture, where the torture, Let the torture commence, Yes, yes,
Speaker 1: all right, I'm going to start for once. I'm going
Speaker 1: to start as I said Veil Donna, I think you
Speaker 1: should buy a royal title from the Nation of Seaaland.
Speaker 1: Have you ever heard of Seiland? This is great. So
Speaker 1: this is courtesy of a story in The Athletic, which
Speaker 1: is actually a sports website.
Speaker 3: But one of the best stories doesn't sound like it.
Speaker 1: How do you ever figured one of the best future
Speaker 1: stories I've read about the while. It's about the sovereign
Speaker 1: nation of Sealand, which sits six nautical miles off the
Speaker 1: coast of Suffolk, England, and basically what it was In
Speaker 1: World War Two, the Brits built a ocean fort basically
Speaker 1: looks like a big oil platform. It was called h
Speaker 1: M Fort Ruffs and the idea was to have sort
Speaker 1: of defenses out in the sea to fight off the
Speaker 1: German warplanes as they came over. Some guy in nineteen
Speaker 1: sixty seven, a Ham radio operator of all people, named
Speaker 1: Patty Roy Bates, decided he was going to take over
Speaker 1: the fort and make it the sovereign nation of Sealand.
Speaker 1: And he pretty much got away with it. He's out
Speaker 1: in the international waters. There's not much Britain can do
Speaker 1: to get it back from him. So he and his
Speaker 1: family been living there ever since. They have a soccer team.
Speaker 1: Believe it or not, the whole sovereignation of Sealand is
Speaker 1: actually half the size of a soccer pitch. But the
Speaker 1: fascinating part is you can buy a royal title from
Speaker 1: Sealand Baron, Baroness, Sir, Dame, Count Count.
Speaker 2: Can I put it on my resume?
Speaker 1: I buy two duchess. Absolutely, you bought and paid for it.
Speaker 1: So the question is the lowest priced title royal title?
Speaker 1: Mind you from the island of Sealand is lord or lady.
Speaker 1: So you could be Lady Waldonna Hirich of Sealand for
Speaker 1: a certain price. Now the question is what do you
Speaker 1: think it costs to be Lady Vildonna of Sealand.
Speaker 2: I'm going to buy this and then on next week's episode,
Speaker 2: I'm going to introduce myself as Lady Wildonna Hirick. Okay,
Speaker 2: I'm only bidding a thousand bucks on this.
Speaker 1: A thousand bucks, so it's in British pounds, so that
Speaker 1: would be nine hundred probably British pound Seth, you're now
Speaker 1: contestant on the game show. We like to call the
Speaker 1: prices precise. What do you think the going rate for
Speaker 1: the title of Lady of Sealand is all thousand ones?
Speaker 1: You're going on the over huh? Oh my gosh, you guys.
Speaker 1: The King of Sealand is going to be reaching out
Speaker 1: to both of you guys, I think because he's willing
Speaker 1: to sell one for the lo lo price of twenty
Speaker 1: four pounds ninety nine.
Speaker 3: Oh shoot, so.
Speaker 1: You guys are cursed.
Speaker 2: I overpaid and I thought I was, But guess what.
Speaker 2: I beat Seth Carpenter in this game.
Speaker 1: Whoa, whoa.
Speaker 3: That's huge.
Speaker 1: She's never gonna let you hear the end of that set.
Speaker 3: I don't need to be a lady anymore.
Speaker 1: The highest priced is duper Duchess. So for one thousand pounds,
Speaker 1: you guys could be duke and duchess thirty duke Duchess
Speaker 1: lady one hundred ninety nine pounds. Wow, thirty nine pence.
Speaker 3: That's pretty good.
Speaker 2: I wish you hadn't gone first, because I actually can't compete.
Speaker 2: Mine is actually from my sister, who I mentioned last
Speaker 2: week has been sending me tons of crazy things now
Speaker 2: that she's a fan of the podcast. So again a
Speaker 2: shout out to Marilla and she sent me this article.
Speaker 2: It's about Apple having a savings account now and the
Speaker 2: interest rate is four point one five percent.
Speaker 1: It's amazing, right, yeah, all right. That's that made its
Speaker 1: way to my Business Week story along with they're partnering
Speaker 1: with Golden so yeah, and it sits on the wallet
Speaker 1: on your phone, which makes the I don't know if
Speaker 1: I want my entire savings sitting in my phone.
Speaker 2: Wallet, yeah, because the subway machines might steal it from
Speaker 2: you when you swept in, yeah, or something or something,
Speaker 2: because that's how it works, right, What.
Speaker 1: Do you think, Seth? Are you Are you willing to
Speaker 1: have your entire savings and your Apple wallet on your phone?
Speaker 5: I am not, precisely because of my fear of what
Speaker 5: the subway turns out.
Speaker 3: They're known for stealing money.
Speaker 1: The good news is you get to ride for free
Speaker 1: for the rest of your life. The bad news is
Speaker 1: you're broke. But you know, Seth, it does it does
Speaker 1: go to speak to this competition for deposits really heating up.
Speaker 1: I think it's you know, so many of us had
Speaker 1: sort of written off savings accounts for so long as
Speaker 1: just you know, a piggyback not really a place to
Speaker 1: earn a yield, and the times really have changed. It's
Speaker 1: it's pretty fascinating to watch.
Speaker 5: It is a huge change now relative to where things
Speaker 5: have been for a while. But I like to tell
Speaker 5: some of the younger folks in the bank that I'm
Speaker 5: old enough to remember that there were even recessions when
Speaker 5: the federal funds raised and go down to zero. So
Speaker 5: it hasn't hadn't always been the case that savings accounts
Speaker 5: were useless until we're going back to normal as far
Speaker 5: as I can tell.
Speaker 1: Yeah, yeah, fair point, fair point. Well how about you, Seth,
Speaker 1: do you see anything crazy?
Speaker 4: Uh?
Speaker 5: These days? You remember, I'm the global chief economist, So
Speaker 5: I look around the world and it looks like every
Speaker 5: corner of the world had something just a little bit
Speaker 5: crazy going on. So I don't think I can narrow
Speaker 5: it out fair enough.
Speaker 1: It's a crazy world all around. It's a mad, mad,
Speaker 1: mad mad world. Which you don't get that reference.
Speaker 3: To me, I do. It's a song? Is it a song?
Speaker 1: It might be, but it's a movie, a movie, great movie.
Speaker 1: But well, Seth Carpenter, such a relliant honor to talk
Speaker 1: to you and hear your thoughts about everything. I hope
Speaker 1: we can do it again someday soon.
Speaker 5: Oh my gosh, this is great. Thank you for having me.
Speaker 5: I appreciate it.
Speaker 3: Thank you so much for joining us What Goes Up.
Speaker 2: We'll be back next week. Until then, you can find
Speaker 2: us on the Bloomberg Terminal website and app, or wherever
Speaker 2: you get your podcasts.
Speaker 3: We'd love it if you.
Speaker 2: Took the time to rate and review the show so
Speaker 2: more listeners can find us. And you can find us
Speaker 2: on Twitter, follow me at Wildona Hirich. Mike Reagan is
Speaker 2: at Reaganonymous. You can also follow Bloomer Podcasts at podcasts.
Speaker 2: What Goes Up is produced by Stacey Wong and our
Speaker 2: head of podcasts is Sage Bauman. Thanks for listening and
Speaker 2: we'll see you next week.