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Speaker 1: Welcome to Copy Time, a podcast series on Markets and

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Speaker 1: Economies from DVS Group Research. I'm Tambe, chief economist. Welcoming

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Speaker 1: you to our 114th episode. Today, we will do a

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Speaker 1: year end wrap up and a look ahead to 2024

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Speaker 1: with our favorite market strategist. Ko Sh Kumar is president

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Speaker 1: of Shrier Global Strategies based in Santa Monica California. He's

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Speaker 1: also a senior fellow at the Milken Institute.

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Speaker 1: Earlier, she spent 22 years with the trust company of

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Speaker 1: the West that are known as TCW, where his last

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Speaker 1: position was Chief Global strategist and chairman of asset allocation Committee. SHS.

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Speaker 1: Views on asset allocation investment risk management are widely followed

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Speaker 1: in the financial industry as well as by numerous institutional investors. Shri.

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Speaker 1: A warm welcome back to C

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Speaker 2: Time. Thank you very great to be back with you, Timor.

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Speaker 2: It's always a pleasure to chat, talk with you about

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Speaker 2: the various issues and I look forward to today's discussion.

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Speaker 1: Absolutely. Shri and uh you know, year end wrap up,

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Speaker 1: I really could not think of a better person to

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Speaker 1: have a conversation with. So let's start by taking stock

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Speaker 1: of the markets uh for the year 2023. What surprised

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Speaker 1: you on the rates, FX equities and credit space? Big question.

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Speaker 2: Yeah, it's a big question but also in some ways, Timor,

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Speaker 2: an easy answer. I cannot say that anything with respect

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Speaker 2: to rates, with respect to equities, with respect to credits.

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Speaker 2: We maybe the credit spreads having remained so restrained is

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Speaker 2: probably somewhat of a surprise. The biggest surprise of them

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Speaker 2: all is the volatility that we have had in the markets.

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Speaker 2: Uh It has made, made it very difficult to guess

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Speaker 2: the path for interest rates, the path for equities. And

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Speaker 2: if you made a decision on what was going to happen,

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Speaker 2: you found analysts changing their views in 2 to 4 weeks,

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Speaker 2: they completely had to reverse themselves. That is, I think

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Speaker 2: the big surprise and to me, the big change happened

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Speaker 2: even within that, within what happened on the rate front

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Speaker 2: and think about October 22nd, 23rd, the 10 year treasury

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Speaker 2: yield peaking at 5.02% and a couple of minutes ago,

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Speaker 2: it just closed at 4.2%. So you've had an 80

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Speaker 2: basis point move which has taken place in just over

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Speaker 2: a month and what explains the 80 basis point move

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Speaker 2: absolutely nothing animal spirits. And that is what is surprising

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Speaker 2: to me

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Speaker 2: that markets will go up and go down, especially on

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Speaker 2: the fixed income side with very little to explain for it.

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Speaker 2: But I have my own reason. For it and I'm

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Speaker 2: happy to talk about it.

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Speaker 1: Well, let's, let's talk about that in a second. I

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Speaker 1: just want to ask you about the FX space, the

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Speaker 1: dollar strength through the year and now the quasi capsulation

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Speaker 1: we're seeing against the yen and also against some em currencies.

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Speaker 1: I mean, what do you make of that?

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Speaker 2: I think it all comes to what the expectation is

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Speaker 2: for the fed and the dollar weakness that has taken

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Speaker 2: place recently, as you said, with respect to the yen,

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Speaker 2: with respect to some Asian currencies is not matched by

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Speaker 2: the dollar Euro relationship. The dollar has actually appreciated from

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Speaker 2: about let's say dollar 10 to the euro a few

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Speaker 2: weeks ago to dollar and seven cents to the euro. Now,

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Speaker 2: what is the difference?

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Speaker 2: The difference is between the Euro and the US dollar?

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Speaker 2: The expectation is that the Euro European Central Bank is

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Speaker 2: probably going to do something very urgently with respect to

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Speaker 2: cutting interest rates perhaps much faster than the fed.

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Speaker 2: And that's, and as far as the relationship with the

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Speaker 2: Asian currencies is concerned,

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Speaker 2: there are two things I think at work. One from

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Speaker 2: the US side, the expectation that the fed may indeed

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Speaker 2: cut rates very quickly. Despite Jerome Powell's protestations that he's

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Speaker 2: not going to do so. And the second one is

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Speaker 2: again that Mr Ueda at the Bank of Japan may

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Speaker 2: be getting ready to get rid of the 1% peak

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Speaker 2: that they that they informally fall over the 10 year

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Speaker 2: J GB yield.

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Speaker 2: And if that's the case and it's allowed to go up, clearly,

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Speaker 2: it marks a further appreciation of the yen with respect

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Speaker 2: to the dollar.

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Speaker 1: So we uh every week have a tactical trades, uh

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Speaker 1: monitor that we do with our strategies, make them, make

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Speaker 1: the calls. The EU R US D call is the

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Speaker 1: one that we really have gotten it wrong in the

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Speaker 1: last couple of months. But again, to your point, these

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Speaker 1: things change in a very short duration.

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Speaker 1: The view on the market in the euro was very

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Speaker 1: different two months ago. And it's, it's evolved around the

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Speaker 1: European outlook and to your point about the E CBS

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Speaker 1: policy direction, which I mean, I have a feeling might

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Speaker 1: again change in the early part of 2024 if data

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Speaker 1: flows were to change. All right, going back to rates,

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Speaker 1: I am interested in a couple of things. So one

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Speaker 1: is the whole us fiscal picture and it

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Speaker 1: impact on rates. Second is the whole supply demand of bonds.

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Speaker 1: I mean, in 2024 or 2023 to your point, this

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Speaker 1: entire rally of the last couple of months or even

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Speaker 1: less than that has happened still against the back of

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Speaker 1: a really poor fiscal outlook. So how do we reconcile

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Speaker 1: the market structure by that interest as well as the

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Speaker 1: rather alarming supply side of the bonds?

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Speaker 2: Great questions and very timely let me start out in

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Speaker 2: this way. I share your concern about the fiscal mismanagement

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Speaker 2: that has gone on in the United States. It began

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Speaker 2: with the Trump administration. It has accelerated in the, in

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Speaker 2: the Biden administration. It's a bipartisan effort to ruin the

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Speaker 2: fiscal situation so nobody can especially take credit for that.

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Speaker 2: They are all responsible for it.

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Speaker 2: However, as you said, the, the auctions treasury auctions are

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Speaker 2: going well, the auctions are all the bonds are being

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Speaker 2: placed and without any difficulty so far. And that's what

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Speaker 2: brought the 10 year yield down to 420 this Tuesday

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Speaker 2: afternoon in the United States that this is, I would

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Speaker 2: give an analogy to explain what is happening. You're looking

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Speaker 2: to buy a home

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Speaker 2: and there is only one home available in that neighborhood.

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Speaker 2: It's not in great shape,

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Speaker 2: it's actually deteriorating, but you want a home

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Speaker 2: and that is a good place to put your money

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Speaker 2: and to try to improve it in the future or

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Speaker 2: you can go without a home, what are you going

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Speaker 2: to do about it?

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Speaker 2: So if you are a global investor,

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Speaker 2: if you do not like the US Treasury's policies and

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Speaker 2: I don't,

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Speaker 2: but where are you going to go? Are you going

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Speaker 2: to go into Chinese Renminbi? You're not going to go

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Speaker 2: into the Euros and the German market is too small

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Speaker 2: to take it. There is no other alternative. Five years ago,

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Speaker 2: the thought was China would be a competitor to the

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Speaker 2: United States in terms of where the US dollar is going.

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Speaker 2: And the Chinese Renminbi Yuan would surpass the US Dollar

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Speaker 2: in terms of supremacy.

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Speaker 2: It just hasn't happened and I don't think it is

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Speaker 2: going to happen in the foreseeable future.

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Speaker 2: So from if you were Janet Yellen and you were

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Speaker 2: looking at the situation, you don't have much to worry

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Speaker 2: about

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Speaker 2: the global demand is going to exist. And that's the

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Speaker 2: reason why the US fiscal mismanagement, the big important topic

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Speaker 2: though it is it is essentially in the background. It's

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Speaker 2: not very relevant to explain bond yields.

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Speaker 1: It is rather remarkable treat. I mean, I have been

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Speaker 1: looking at ownership data by investor T and of course,

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Speaker 1: you know, fed, we know to the QT its holding

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Speaker 1: of us situations have come down.

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Speaker 1: Uh when we look at Asia, which used to be

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Speaker 1: a very large buyer of us treasuries, that's not quite

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Speaker 1: there anymore. Uh Middle Eastern Central banks do buy a bit,

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Speaker 1: but they're clearly not offsetting all the lackluster demand in

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Speaker 1: most parts of Asia. So the uh the gap if

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Speaker 1: you will is being picked up by the private sector,

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Speaker 1: both us private sector and non us private sector have

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Speaker 1: bid very, very enthusiastically for us treasuries through the course

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Speaker 1: of this year.

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Speaker 1: Um So it goes back to your point that you

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Speaker 1: don't really like the Chinese home and the European home,

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Speaker 1: you may not like the US home that much, but

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Speaker 1: it's still AAA. So you used to buy the US home.

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Speaker 2: Exactly. That is what you're doing. And unless something changes

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Speaker 2: to the contrary and what could that change be? You

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Speaker 2: need to get a rapidly developed European capital market that's

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Speaker 2: not going to happen within the next 2 to 3 years.

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Speaker 2: And the Chinese completely take the change, their policies, attract

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Speaker 2: foreign direct investments become much more capitalistic than they have

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Speaker 2: and put down communism and push up the importance of

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Speaker 2: markets that's not going to happen.

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Speaker 2: So when all of that is the case, it's a

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Speaker 2: very easy bet that us dollar is where you're going

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Speaker 2: to be. There's one competition though, look at the price

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Speaker 2: of gold and I have to speak to a client

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Speaker 2: early next week. And I'm pointing out that first for

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Speaker 2: the first time in quite a while gold is getting

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Speaker 2: a life. And the reason that is the case is

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Speaker 2: because you're going to have a situation when rates are

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Speaker 2: going to come down

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Speaker 2: in the United States, we'll reserve to later as to

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Speaker 2: why rates may come down.

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Speaker 2: But when rates are going to come down, holding us dollars,

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Speaker 2: whether in the form of treasuries or in the form

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Speaker 2: of other assets becomes less attractive and the opportunity cost

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Speaker 2: of holding gold goes down,

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Speaker 2: which is I think what is going to happen? I

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Speaker 2: think the gold price is going to go up, but

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Speaker 2: it's not as if you can use gold as a

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Speaker 2: currency to physically move from one to the other. So

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Speaker 2: as long as that's not the case, it's very little

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Speaker 2: competition still for the, for the dollar supremacy in global markets.

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Speaker 1: Well, we've also seen a pretty spectacular reversion of value

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Speaker 1: in Bitcoin, but we'll keep that aside free. Um One

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Speaker 1: final question on that, as I said, I want to

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Speaker 1: go to the US economy after that and we will

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Speaker 1: talk about credit leaders. I just want to talk a

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Speaker 1: little bit about equities with you. Uh It's been a,

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Speaker 1: you know, remarkable year for equities in 2023. Initially,

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Speaker 1: poor outlook than the A I tail wind drove the

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Speaker 1: magnificent seven stocks up substantially. And now we're ending 2023

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Speaker 1: actually in a rather high. Despite the fact that S

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Speaker 1: and P 500 pe is extremely high. The yield gap

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Speaker 1: vis A vis the US Treasury is still substantial and

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Speaker 1: still people buy a lot of stocks,

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Speaker 2: right? Uh People buy a lot of stocks because I

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Speaker 2: think there are 22 reasons I would attribute to it

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Speaker 2: from a macro point of view. And first of all,

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Speaker 2: you have a situation

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Speaker 2: uh where despite the higher rates, the fed is also

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Speaker 2: at the being going very easy with respect to policy.

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Speaker 2: Despite 5.5% of interest rate increases, I still do not

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Speaker 2: think the situation is as tight as it should be.

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Speaker 2: You talked for instance, about the balance sheet being reduced

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Speaker 2: by quantitative tightening.

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Speaker 2: But I point out in a recent write up that

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Speaker 2: between March of 2020 March of 2021

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Speaker 2: one year,

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Speaker 2: the balance sheet of the fed

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Speaker 2: increased by 77%

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Speaker 2: to about $7.6 trillion in March of 2021.

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Speaker 2: And right now, it is standing at $7.7 trillion. If

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Speaker 2: you compare today with March of 2021 there has been

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Speaker 2: no quantitative tightening.

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Speaker 2: It's all a matter of your perspective. It's a matter

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Speaker 2: of where we are standing when you're viewing it.

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Speaker 2: The other point is that the interest rates were reduced

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Speaker 2: to zero and maintained when the economy was recovering and

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Speaker 2: that was highly irresponsible

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Speaker 2: and you cannot make up for eating an unlimited amount

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Speaker 2: of food and drinking a lot by saying that you're

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Speaker 2: going to go hungry and you're going to stop eating

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Speaker 2: for the next week. It doesn't, you do not get

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Speaker 2: back to good health as a result of what you

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Speaker 2: did before. So that's close to what the Fed is doing.

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Speaker 2: They made a huge mistake. They've never admitted it. By

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Speaker 2: the way, Jerome Powell called the increase in the inflation

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Speaker 2: rate as quote unexpected.

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Speaker 2: It has nothing to do with monetary policy. It has

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Speaker 2: nothing to do with zero interest rates or increase in

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Speaker 2: the balance sheet. So I think there is so one

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Speaker 2: reason why the equities have continued to do well

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Speaker 2: is because there is a lot of liquidity. Thanks to

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Speaker 2: the Federal Reserve. Second, you refer to the fiscal deficit.

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Speaker 2: You are, it is not your time to pay the piper.

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Speaker 2: You do not have to pay any penalty for the

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Speaker 2: fiscal deficit, but you can enjoy the benefit of the

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Speaker 2: deficit and that stimulus is also helping the equity market.

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Speaker 2: So that is the second reason why I think it's

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Speaker 2: persisting When does it come to an end?

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Speaker 2: And that's where I differ from the consensus. The consensus

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Speaker 2: believes

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Speaker 2: that there will be some form of a recession, maybe

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Speaker 2: a mild recession, a soft landing, but that still requires

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Speaker 2: the fed to cut interest rates because inflation will come

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Speaker 2: down to very low levels. I disagree. Janet Yellen said

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Speaker 2: earlier today that she believes that she disagrees that the

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Speaker 2: last one mile of inflation fight is the toughest

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Speaker 2: it is. I have followed markets for 50 years and

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Speaker 2: every time starting from the Richard Nixon author Burns Years,

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Speaker 2: they have been very difficult once you bring it down

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Speaker 2: to very low levels, it unless you show determination to

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Speaker 2: keep it there.

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Speaker 2: So that is again a reason why there is a

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Speaker 2: concern in the market about equities, something may break in

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Speaker 2: the system, you may have a credit even which will

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Speaker 2: bring the equities down. And then of course, you have

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Speaker 2: a period of equities and the pressure and before they

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Speaker 2: pick up again, so think about December 2008 to early

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Speaker 2: March of 2009,

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Speaker 2: December 2008. We were still suffering from the aftermath of

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Speaker 2: Lehman Brothers. The Federal Reserve had cut interest rates to zero.

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Speaker 2: They talked about quantitative easing in a, they basically increased

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Speaker 2: it in a massive manner after September of 2008. But

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Speaker 2: it took until March 9th of 2009 for the S

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Speaker 2: and P 500 to reach its bottom.

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Speaker 2: So you may have a situation like that where equities

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Speaker 2: go down, but that's going to be the time you

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Speaker 2: go and when this blood on the street you buy again.

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Speaker 2: So my outlook for equities is from the current level

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Speaker 2: go down perhaps in the next six months.

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Speaker 2: It then languishes for 3 to 4 months at that stage.

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Speaker 2: Then the fed once again introduces quantitative easing brings down

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Speaker 2: the uh brings down the interest rate. It doesn't matter

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Speaker 2: what the inflation rate is. As for the, for the

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Speaker 2: central bank, inflation is a consideration only when there is

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Speaker 2: no crisis.

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Speaker 2: When there is a crisis, you set aside your inflation

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Speaker 2: concerns and just inflate.

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Speaker 2: And that's I think what's going to happen that will

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Speaker 2: help equities and that is also going to be very

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Speaker 2: beneficial overall to risk assets.

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Speaker 1: Well, it will be consistent with the reaction function of

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Speaker 1: the fed that you have been writing about for many years.

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Speaker 1: Uh Shri and in the last two podcasts that you

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Speaker 1: and I have done over the last 34 years. Uh You,

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Speaker 1: you've gotten that perspective, you know, absolutely spot on that,

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Speaker 1: you know, market considerations, Trump inflation consideration whenever the markets are,

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Speaker 1: you know, convulsing.

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Speaker 1: Um If we, it's been a remarkable year for the

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Speaker 1: US economy at the beginning of this year, consensus forecast

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Speaker 1: was growth was going to slow substantially. It didn't at all.

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Speaker 1: I think US will probably end up with 2.5% growth

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Speaker 1: for 2023. So higher than 2022. Uh and it will

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Speaker 1: take that momentum to some extent into 24. So before

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Speaker 1: we talk about 24 just the performance of the first

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Speaker 1: three quarters including the spectacular third quarter that we saw.

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Speaker 2: Yeah, uh two or three points to answer to that.

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Speaker 2: First of all, once again, it is the extent of

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Speaker 2: stimulus that existed. And for instance, toward the end of

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Speaker 2: 2022 it was estimated that there was somewhere in the

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Speaker 2: range of 1.7 trillion worth of excess surplus in the

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Speaker 2: hands of consumers. And it is showing up in terms

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Speaker 2: of retail sales levels. It is showing up

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Speaker 2: in terms of for a while the low participation rate

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Speaker 2: that existed in the labor market.

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Speaker 2: So that is one reason why, why I think uh

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Speaker 2: you have the the vibrant US economy.

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Speaker 2: The second you mentioned is clearly the A I the revolution,

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Speaker 2: there is a productivity growth and that is showing up

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Speaker 2: in recent productivity numbers. Uh being healthy productivity again, is

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Speaker 2: a very volatile concept. You have it going up for

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Speaker 2: quite a few quarters and then it does you cannot

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Speaker 2: sustain it. So that's the second reason why I think

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Speaker 2: it is sustained. Uh But the question is when you

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Speaker 2: look at the overall us economy market and when you look,

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Speaker 2: by the way, when you compare it with what happened

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Speaker 2: to the what the treasury market is telling you

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Speaker 2: the eel curve, the 2 to 10 eel curve inverted

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Speaker 2: in early July of 2022. So that's about 17 months

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Speaker 2: ago

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Speaker 2: and invariably every time it has resulted in a recession.

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Speaker 2: And now you see that in terms of slower labor

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Speaker 2: market growth, wages are coming down to some extent,

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Speaker 2: the jolts report as we call it, the job openings

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Speaker 2: are not as strong as they used to be. The

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Speaker 2: quit rate has gone down from earlier levels. So all

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Speaker 2: of those are suggesting that it is slowly starting to

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Speaker 2: take shape. So the answer to your issue, which is

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Speaker 2: I think very relevant is you have not banished recession,

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Speaker 2: you have not gone into a state of Nirvana where

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Speaker 2: you have perennial rapid economic growth.

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Speaker 2: What you have is a situation where rapid growth was

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Speaker 2: promoted by technological changes as well as by the stimulus,

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Speaker 2: but eventually it is going to revert and you're going

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Speaker 2: to reach a situation where the recession is going to come.

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Speaker 2: It is delayed but not denied, denied,

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Speaker 1: delayed but not delighted. Uh One thing that did not get,

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Speaker 1: uh denied earlier this year was the regional banks. So

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Speaker 1: we had quite a few in your home state of California,

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Speaker 1: in particular, uh, regional bank failures. We saw a pretty strong, uh, uh,

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Speaker 1: you know, sort of intervention by the Fed and nothing

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Speaker 1: has happened since then. Uh But I, I worry that,

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Speaker 1: you know, there is, you know, duration mismatch all over

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Speaker 1: the economy. Uh, and the way interest rates went up

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Speaker 1: and then came down,

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Speaker 1: there's bound to be some financial accidents. So what's your sense?

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Speaker 1: I mean, are there risks lurking here and there?

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Speaker 2: I am looking for an accident as you call it

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Speaker 2: or more generally a credit event in euphemistic terms to

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Speaker 2: take place sometime within the next six months.

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Speaker 2: And I can give you a few candidates,

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Speaker 2: more banks are affected by what happened similar to March,

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Speaker 2: except that this time they are somewhat bigger, not just

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Speaker 2: small banks but medium sized banks.

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Speaker 2: Why does that happen recently? An estimate by a study

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Speaker 2: by the Federal Reserve Bank of Kansas suggested that $550

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Speaker 2: billion worth of assets of us banks are under water

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Speaker 2: and that is the equivalent of 30% of regulatory capital.

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Speaker 2: Now that is for the entire banking system. But clearly

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Speaker 2: there are some banks which are in much better shape

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Speaker 2: than that or they have other assets to offset the

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Speaker 2: losses they have taken in buying long dated treasuries or

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Speaker 2: long dated mortgage backed securities and see the yields go

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Speaker 2: up after that.

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Speaker 2: But then if you say that there are some smaller

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Speaker 2: banks which are accounting for $550 billion or most of it,

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Speaker 2: you're talking about them using up much more than 30%

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Speaker 2: of the regulatory capital. That is a national average.

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Speaker 2: That is one sign of trouble that I can see.

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Speaker 2: Second one is the fact that you have the commercial

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Speaker 2: real estate problem, which is essentially like a tsunami. I

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Speaker 2: mean tsunami doesn't happen one instant. It gathers force for

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Speaker 2: a while. And then by the time you see it,

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Speaker 2: it is too powerful

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Speaker 2: as of now hand where there are buildings in New

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Speaker 2: York and San Francisco, which are changing hands at much,

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Speaker 2: much lower prices than they did in 2019. Sometimes at

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Speaker 2: 60 to 70% discount from the price that was paid

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Speaker 2: four years ago.

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Speaker 2: And that's one. And secondly, the interest rate high interest

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Speaker 2: rates mean that very many of the landlords are now

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Speaker 2: able to go to the banks and say I'm not

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Speaker 2: going to pay you the higher interest rate you want

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Speaker 2: us to pay.

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Speaker 2: You have two options. You can either reduce the interest

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Speaker 2: rate for us

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Speaker 2: and I can pay you a lower interest rate or

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Speaker 2: second

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Speaker 2: here are the keys keys to the property, you can

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Speaker 2: take it. Goodbye. I'm leaving. In either case, the banks

393
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Speaker 2: are clearly at a disadvantage. This has not come out

394
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Speaker 2: in full and has not been discussed in public

395
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Speaker 2: when you look at the banking regulators, when they go

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Speaker 2: before Congress or when Janet Yellen repeatedly says the banking

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Speaker 2: system in the United States is very sound. That word

398
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Speaker 2: is hers, not mine.

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Speaker 2: And she has repeated it quite a few times. My

400
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Speaker 2: responses show me how it is sound but there is

401
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Speaker 2: no explanation. There's nothing that happens. So that's the second

402
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Speaker 2: one that I worry about. Third

403
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Speaker 2: regulations on the banking system are tightening

404
00:23:00,959 --> 00:23:04,060
Speaker 2: and the regulators are telling the banks not to make

405
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Speaker 2: so many quote unquote risky loans.

406
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Speaker 2: These were the same regulators who thought that buying long

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Speaker 2: dated us treasuries is risk free. Uh I learned from

408
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Speaker 2: my work at Drexel Burnham, working with Michael Milken,

409
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Speaker 2: that us treasuries can be among the most risky assets

410
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Speaker 2: because they carry an enormous amount of interest rate risk,

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Speaker 2: not the credit risk.

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Speaker 2: So when that happens and they have lost a lot

413
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Speaker 2: of money though they are that they are going to

414
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Speaker 2: be pushed to lend less money as the recession approaches.

415
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Speaker 2: So if there is a credit crunch that takes place,

416
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Speaker 2: that can add to the overall tsunami of a credit

417
00:23:49,560 --> 00:23:52,709
Speaker 2: event that is taking place, that's why I'm just sitting

418
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Speaker 2: by and watching and so I expect so I expect

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Speaker 2: the Federal Reserve to change its policy to have a

420
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Speaker 2: pivot in terms of interest rate policy,

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Speaker 2: but not because inflation comes down to 2% or goes

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Speaker 2: below it.

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Speaker 2: But more because of the fact that there is a

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Speaker 2: credit event which forces them to cut rates.

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Speaker 1: Shri I share your concern on the banking system and

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Speaker 1: I think that uh it will be remarkable if we

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Speaker 1: go through the entire cycle without any major events coming

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Speaker 1: out of banks beyond what we have seen in March.

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Speaker 1: But what about the role of the non bank financial sector?

430
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Speaker 1: I mean, from leveraged loan market where the ps private

431
00:24:33,530 --> 00:24:36,119
Speaker 1: equity companies are very active, we've seen asset managers get

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Speaker 1: into this private credit market, um much more opaque, very

433
00:24:39,849 --> 00:24:41,290
Speaker 1: hard to sort of get a sense of whether they

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Speaker 1: are risk lurking there or not. What's your sense

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00:24:44,890 --> 00:24:47,369
Speaker 2: there is, there is a lot of risk uh lurking

436
00:24:47,380 --> 00:24:50,170
Speaker 2: there as well and especially as you mentioned with private

437
00:24:50,180 --> 00:24:54,829
Speaker 2: equity firms. And I think uh listeners and watchers of

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00:24:54,839 --> 00:24:58,969
Speaker 2: your show, whether it is for their personal investment or

439
00:24:58,979 --> 00:25:02,310
Speaker 2: for institutional investment need to be very sensitive to that.

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Speaker 2: And the reason is that you are not going to

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Speaker 2: see the adverse impact of it before it's too late.

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Speaker 2: Um

443
00:25:12,250 --> 00:25:17,468
Speaker 2: The issue is that if it is a smaller p institution,

444
00:25:18,290 --> 00:25:19,829
Speaker 2: they will not get bailed out.

445
00:25:20,640 --> 00:25:24,229
Speaker 2: But if it is thought to have systemic implications because

446
00:25:24,239 --> 00:25:27,660
Speaker 2: of a failure, they will be bailed out. That is

447
00:25:27,670 --> 00:25:31,900
Speaker 2: the history of us monetary policy. Take a case of

448
00:25:31,910 --> 00:25:36,109
Speaker 2: the long term capital management. In 1998 we all thought

449
00:25:36,119 --> 00:25:39,939
Speaker 2: it was a small firm in Greenwich, Connecticut. We thought

450
00:25:39,949 --> 00:25:42,540
Speaker 2: it was doing risk free arbitrage,

451
00:25:43,430 --> 00:25:46,510
Speaker 2: but we didn't realize until it was too late that

452
00:25:46,520 --> 00:25:49,209
Speaker 2: they were levered 27 to 1.

453
00:25:50,449 --> 00:25:53,389
Speaker 2: So when the hit came to credit and the credit

454
00:25:53,400 --> 00:25:58,589
Speaker 2: crunch followed after the Russian debt default of 1998 the

455
00:25:58,599 --> 00:26:01,349
Speaker 2: Asian debt crisis of 1997

456
00:26:02,140 --> 00:26:05,458
Speaker 2: LTCM couldn't take it and they had to be bailed

457
00:26:05,469 --> 00:26:07,119
Speaker 2: out and the policy changed.

458
00:26:07,750 --> 00:26:11,250
Speaker 2: So while I agree with you that there is a

459
00:26:11,260 --> 00:26:16,109
Speaker 2: problem with private equity firms as to whether the firm

460
00:26:16,119 --> 00:26:20,489
Speaker 2: is systemic or not, will determine whether it will lead

461
00:26:20,500 --> 00:26:23,909
Speaker 2: to a change in policy or not change or not.

462
00:26:24,020 --> 00:26:25,770
Speaker 2: Refer to a change in policy.

463
00:26:27,109 --> 00:26:30,930
Speaker 1: You know, uh we look at the US housing market

464
00:26:30,939 --> 00:26:34,410
Speaker 1: which stands as a sort of residential property market, which

465
00:26:34,420 --> 00:26:37,339
Speaker 1: is a big contrast to the commercial property market. To

466
00:26:37,349 --> 00:26:40,159
Speaker 1: your point, huge supply demand, imbalance with lots of supply,

467
00:26:40,170 --> 00:26:42,969
Speaker 1: not enough demand. On the commercial side, on the housing side,

468
00:26:42,979 --> 00:26:46,209
Speaker 1: we see the opposite. But the strange thing is sitting

469
00:26:46,219 --> 00:26:48,520
Speaker 1: here in Singapore, there are a lot of real state

470
00:26:48,530 --> 00:26:50,770
Speaker 1: investment trusts which are structured around you

471
00:26:50,844 --> 00:26:54,435
Speaker 1: us properties uh and they've all done very poorly this year.

472
00:26:54,635 --> 00:26:57,563
Speaker 1: Uh In many meetings that I have with my colleagues,

473
00:26:57,574 --> 00:26:58,833
Speaker 1: I always say that, you know, we look at the

474
00:26:58,844 --> 00:27:01,994
Speaker 1: US economy doing so well, inflation is coming down. But

475
00:27:02,005 --> 00:27:06,104
Speaker 1: our clients who hold us reeds, they've had the really, really,

476
00:27:06,114 --> 00:27:10,305
Speaker 1: you know, terrible year minus 2030 40%. Uh why don't

477
00:27:10,314 --> 00:27:12,895
Speaker 1: we see it, you know, transmit to the financial system.

478
00:27:12,905 --> 00:27:14,484
Speaker 1: And the typical answer is that

479
00:27:14,800 --> 00:27:17,739
Speaker 1: it's sort of, you know, under wraps uh that, you know,

480
00:27:17,790 --> 00:27:21,680
Speaker 1: some evergreening here, some restructuring there, but sooner or later,

481
00:27:21,689 --> 00:27:23,349
Speaker 1: somebody will have to pay the bill right now. A

482
00:27:23,359 --> 00:27:24,780
Speaker 1: lot of private clients are paying the bill.

483
00:27:25,530 --> 00:27:28,020
Speaker 2: That's correct. I agree with you that it is under

484
00:27:28,030 --> 00:27:29,229
Speaker 2: the wraps at the moment.

485
00:27:30,089 --> 00:27:33,359
Speaker 2: And when that happens after a few months, you are

486
00:27:33,369 --> 00:27:37,229
Speaker 2: not able to hold it under control anymore and it explodes,

487
00:27:38,400 --> 00:27:41,709
Speaker 2: it's very difficult to time it. That's why I give

488
00:27:41,719 --> 00:27:45,188
Speaker 2: myself another six months before that happens. Maybe it happens

489
00:27:45,199 --> 00:27:48,030
Speaker 2: in two months, maybe it happens in a month, but

490
00:27:48,040 --> 00:27:51,020
Speaker 2: six months is a safe amount of time for you

491
00:27:51,030 --> 00:27:53,050
Speaker 2: to say something is going to get exposed in the

492
00:27:53,060 --> 00:27:53,819
Speaker 2: whole process.

493
00:27:54,750 --> 00:27:57,300
Speaker 1: Uh X even from the conversation that we've had so

494
00:27:57,310 --> 00:28:00,069
Speaker 1: far and from your recent writings that I've read, uh

495
00:28:00,079 --> 00:28:03,900
Speaker 1: you think that the scenario for 2024 is of a

496
00:28:03,910 --> 00:28:08,839
Speaker 1: slower economic growth and not so much lower inflation than

497
00:28:08,849 --> 00:28:12,319
Speaker 1: it is now uh after the sort of reduction in

498
00:28:12,329 --> 00:28:14,270
Speaker 1: inflation over the last year or so? So do you

499
00:28:14,280 --> 00:28:16,160
Speaker 1: want to put some numbers around that in terms of

500
00:28:16,170 --> 00:28:18,479
Speaker 1: growth forecasts and inflation forecast for 2024.

501
00:28:19,489 --> 00:28:22,790
Speaker 2: Good. I would do that, but it is clearly um

502
00:28:23,030 --> 00:28:26,709
Speaker 2: I would probably be going up a full set in

503
00:28:26,719 --> 00:28:30,530
Speaker 2: terms of trying to give any precision to the numbers

504
00:28:30,540 --> 00:28:33,790
Speaker 2: uh K more. But I will say if I were

505
00:28:33,800 --> 00:28:36,510
Speaker 2: to give you a figure of about 2% for the

506
00:28:36,520 --> 00:28:39,380
Speaker 2: entire calendar year, 2024

507
00:28:40,109 --> 00:28:44,160
Speaker 2: it would be made up of something like minus 2%

508
00:28:44,170 --> 00:28:48,260
Speaker 2: in the first half of the year and plus 4%

509
00:28:48,270 --> 00:28:51,630
Speaker 2: in the second half of the year as the monetary

510
00:28:51,640 --> 00:28:55,569
Speaker 2: and fiscal figures get turned on and the economy starts

511
00:28:55,579 --> 00:28:59,890
Speaker 2: to recover and crucial to my belief. Here also is

512
00:28:59,900 --> 00:29:04,750
Speaker 2: November 2024 is the presidential election month

513
00:29:05,510 --> 00:29:09,180
Speaker 2: and it is, the government is going to try as

514
00:29:09,189 --> 00:29:12,140
Speaker 2: much as it can to avoid the c A recession

515
00:29:12,150 --> 00:29:13,699
Speaker 2: as they go into the elections.

516
00:29:14,400 --> 00:29:18,369
Speaker 2: But as we found out from 2008 that is, they

517
00:29:18,380 --> 00:29:22,900
Speaker 2: don't always succeed. Uh George W Bush was the president.

518
00:29:23,439 --> 00:29:27,500
Speaker 2: We were going into the 2008 elections. You had Barack

519
00:29:27,510 --> 00:29:30,319
Speaker 2: Obama trying to become president for the first time. We

520
00:29:30,329 --> 00:29:34,270
Speaker 2: had John mccain who was his competitor. And John mccain

521
00:29:34,280 --> 00:29:39,069
Speaker 2: subsequently said as late as September 1st of 2008, he

522
00:29:39,079 --> 00:29:41,819
Speaker 2: thought he had a decent chance of winning in November,

523
00:29:42,469 --> 00:29:45,569
Speaker 2: then came September 15th and the failure of Lehman brothers

524
00:29:45,579 --> 00:29:49,209
Speaker 2: and the picture changed completely. So what this government is

525
00:29:49,219 --> 00:29:53,890
Speaker 2: going to do is they are probably going to uh watch, listen,

526
00:29:53,900 --> 00:29:57,770
Speaker 2: read history and try to stimulate in the second half

527
00:29:57,780 --> 00:29:58,369
Speaker 2: of the year.

528
00:29:59,060 --> 00:30:02,010
Speaker 2: So that's one reason why I think there will be faster,

529
00:30:02,020 --> 00:30:05,479
Speaker 2: faster growth in the second half compared with the first

530
00:30:05,489 --> 00:30:07,040
Speaker 2: half of 2024.

531
00:30:07,689 --> 00:30:11,839
Speaker 2: On the inflation side. Again, we are looking at core

532
00:30:11,849 --> 00:30:15,670
Speaker 2: inflation which came out today, Core inflation is still 4%

533
00:30:16,479 --> 00:30:19,469
Speaker 2: and the Fed's target is 2%. It is double the

534
00:30:19,479 --> 00:30:20,020
Speaker 2: target

535
00:30:21,060 --> 00:30:25,479
Speaker 2: and the headline is under is coming down. But then

536
00:30:25,510 --> 00:30:30,599
Speaker 2: a huge chunk of the headline inflation rate moderation is

537
00:30:30,609 --> 00:30:35,390
Speaker 2: because of a 9.5% fall month on month decline in

538
00:30:35,400 --> 00:30:39,160
Speaker 2: gasoline prices, not annual month on month decline.

539
00:30:40,130 --> 00:30:42,790
Speaker 2: So that's not going to be continued, it's not going

540
00:30:42,800 --> 00:30:47,060
Speaker 2: to persist. So I think you're stuck at somewhere between

541
00:30:47,069 --> 00:30:50,390
Speaker 2: 3.5 and 4% on the core inflation rate,

542
00:30:51,349 --> 00:30:53,699
Speaker 2: which is, which is not a killer. It is not

543
00:30:53,709 --> 00:30:58,910
Speaker 2: like what Richard Nixon had or uh the next president

544
00:30:58,920 --> 00:31:03,250
Speaker 2: J uh J Ford had with the with the um

545
00:31:03,260 --> 00:31:07,050
Speaker 2: chairmanship of Arthur Burns or G William Miller.

546
00:31:07,699 --> 00:31:10,849
Speaker 2: But what you do have today is just inflation still

547
00:31:10,859 --> 00:31:13,959
Speaker 2: above the fed's target and whether it will tolerate that

548
00:31:13,969 --> 00:31:14,520
Speaker 2: or not.

549
00:31:15,229 --> 00:31:18,650
Speaker 2: So if that is they can, they don't have the option.

550
00:31:18,660 --> 00:31:23,089
Speaker 2: I think of declaring victory and walking away because they

551
00:31:23,099 --> 00:31:27,209
Speaker 2: made one mistake about inflation being transitory and that was

552
00:31:27,219 --> 00:31:30,369
Speaker 2: wrong this time, they have to get it right.

553
00:31:31,150 --> 00:31:33,989
Speaker 2: Which is also another reason why I think a credit

554
00:31:34,000 --> 00:31:35,410
Speaker 2: even becomes more likely

555
00:31:36,270 --> 00:31:40,479
Speaker 1: correct. Three, let's unpack that inflation story a little bit.

556
00:31:40,489 --> 00:31:43,410
Speaker 1: Uh So we think about goods inflation, we think about

557
00:31:43,420 --> 00:31:47,160
Speaker 1: services inflation and then there's the whole rental owners equivalent

558
00:31:47,170 --> 00:31:50,040
Speaker 1: rent and so on. Uh the three major sources of

559
00:31:50,050 --> 00:31:52,030
Speaker 1: heading if you will over the last couple of years,

560
00:31:52,140 --> 00:31:53,959
Speaker 1: I think on goods inflation, you and I can agree

561
00:31:53,969 --> 00:31:56,510
Speaker 1: that not a lot of upside oil seems to be

562
00:31:56,520 --> 00:31:59,839
Speaker 1: well supplied. Food related fears existed for a little while

563
00:31:59,849 --> 00:32:01,589
Speaker 1: last year. It's not a very big part of the US.

564
00:32:01,599 --> 00:32:02,689
Speaker 1: CP I anyway,

565
00:32:02,959 --> 00:32:05,459
Speaker 1: uh and manufactured goods by and large, you know, are,

566
00:32:05,469 --> 00:32:08,589
Speaker 1: are not a big source of inflation as they were

567
00:32:08,709 --> 00:32:11,959
Speaker 1: during the bad years of the pandemic. But then when

568
00:32:11,969 --> 00:32:16,079
Speaker 1: we come down to rental accommodation as well as services,

569
00:32:16,250 --> 00:32:19,869
Speaker 1: I'm not quite as Sanguine. Uh I just came back

570
00:32:19,880 --> 00:32:22,560
Speaker 1: from the US, from your home state of California. Uh I,

571
00:32:22,569 --> 00:32:26,699
Speaker 1: I don't see uh you know, major easing of pressure

572
00:32:26,709 --> 00:32:29,619
Speaker 1: on those two fronts. Uh What's, what's your view?

573
00:32:30,709 --> 00:32:34,209
Speaker 2: I don't see a easing either. I completely agree with

574
00:32:34,219 --> 00:32:37,719
Speaker 2: the view that you expressed, Timor. I think what you

575
00:32:37,729 --> 00:32:40,859
Speaker 2: have with inflation and the Fed's fight for it. I

576
00:32:40,869 --> 00:32:44,380
Speaker 2: would call it as a whack a mole strategy you

577
00:32:44,390 --> 00:32:47,219
Speaker 2: hit at one side and it goes down and it

578
00:32:47,229 --> 00:32:49,849
Speaker 2: comes up again somewhere else in the horizon.

579
00:32:50,560 --> 00:32:52,780
Speaker 2: And the reason is again, we talked about it, the

580
00:32:52,790 --> 00:32:55,199
Speaker 2: extent of stimulus that you have overall

581
00:32:55,939 --> 00:32:59,439
Speaker 2: and you can cause you can cause some of them

582
00:32:59,449 --> 00:33:02,920
Speaker 2: to remain under control. You can get the benefit of

583
00:33:02,930 --> 00:33:07,579
Speaker 2: natural gas prices coming down, gasoline prices coming down. But

584
00:33:07,589 --> 00:33:10,489
Speaker 2: it doesn't mean all of the other products are going

585
00:33:10,500 --> 00:33:12,439
Speaker 2: to stay down. Second one

586
00:33:13,280 --> 00:33:17,750
Speaker 2: as the Biden administration likes to point out that the

587
00:33:17,760 --> 00:33:22,349
Speaker 2: wage increase is now staying ahead of inflation, real wages

588
00:33:22,359 --> 00:33:24,020
Speaker 2: are increasing for workers.

589
00:33:24,869 --> 00:33:27,209
Speaker 2: But when you look at the workers and how they

590
00:33:27,219 --> 00:33:30,550
Speaker 2: have experience going back to 20 in 2019,

591
00:33:31,229 --> 00:33:33,170
Speaker 2: that you have essentially a situation

592
00:33:33,939 --> 00:33:36,239
Speaker 2: when the real wages over the last 3 to 4

593
00:33:36,250 --> 00:33:37,880
Speaker 2: years has actually fallen.

594
00:33:39,150 --> 00:33:42,089
Speaker 2: And that is again, something that they will have to

595
00:33:42,099 --> 00:33:46,250
Speaker 2: correct going forward. And that is, I think another risk

596
00:33:46,260 --> 00:33:48,650
Speaker 2: as far as the US economy is concerned.

597
00:33:50,119 --> 00:33:54,260
Speaker 1: Right. Let's get to the juicy part. Now fed in 2024.

598
00:33:54,439 --> 00:33:56,939
Speaker 1: Now you've already told us that you expect growth to

599
00:33:56,949 --> 00:33:58,989
Speaker 1: shrink in the first half of the year and then

600
00:33:59,000 --> 00:34:01,949
Speaker 1: around that, uh, the fed will react and then we

601
00:34:01,959 --> 00:34:03,439
Speaker 1: will see growth pick up in the second half of

602
00:34:03,449 --> 00:34:04,900
Speaker 1: the year. Uh, but

603
00:34:05,520 --> 00:34:08,979
Speaker 1: can they calibrate it so perfectly? Uh, when do you

604
00:34:08,989 --> 00:34:12,810
Speaker 1: think they'll start talking about rate cuts in a serious manner?

605
00:34:13,110 --> 00:34:14,949
Speaker 1: The market think that they'll blink by the middle of

606
00:34:14,959 --> 00:34:17,678
Speaker 1: next year, if not earlier. And then you do your view,

607
00:34:17,689 --> 00:34:19,219
Speaker 1: I think I heard you earlier talk a little bit

608
00:34:19,229 --> 00:34:21,600
Speaker 1: about QT. So you elaborate on that as well, both

609
00:34:21,610 --> 00:34:24,299
Speaker 1: the rates and the QT pipeline for 2024.

610
00:34:25,620 --> 00:34:26,120
Speaker 2: Um

611
00:34:26,820 --> 00:34:30,658
Speaker 2: Let's go step by step. What happens to happen first,

612
00:34:30,669 --> 00:34:31,879
Speaker 2: you cannot have

613
00:34:32,639 --> 00:34:35,310
Speaker 2: QT continuing when they are cutting rates.

614
00:34:36,260 --> 00:34:39,429
Speaker 2: It's almost like one of them is easing and the

615
00:34:39,439 --> 00:34:45,780
Speaker 2: other is tightening and it creates an inconsistent statement, which

616
00:34:45,790 --> 00:34:48,529
Speaker 2: is what the European Central Bank is also going through

617
00:34:48,540 --> 00:34:49,199
Speaker 2: right now.

618
00:34:49,938 --> 00:34:53,618
Speaker 2: They have a quantitative easing program known as the PE

619
00:34:53,628 --> 00:34:58,138
Speaker 2: PP program. And at the same time, they're considering cutting rates.

620
00:34:58,148 --> 00:35:00,908
Speaker 2: But let's set that aside, let's stay with the United States,

621
00:35:01,489 --> 00:35:05,289
Speaker 2: with the United States. And you're right, they cannot finally

622
00:35:05,299 --> 00:35:07,598
Speaker 2: calibrate when they are going to cut rates.

623
00:35:08,270 --> 00:35:11,370
Speaker 2: That's why I say you, one of two things has

624
00:35:11,379 --> 00:35:15,290
Speaker 2: to happen. Either the inflation rate goes down to 2%.

625
00:35:15,300 --> 00:35:18,600
Speaker 2: The target is reached, Fred declares victory and then they

626
00:35:18,610 --> 00:35:22,780
Speaker 2: can cut rates massively from where they are today. Second,

627
00:35:23,250 --> 00:35:25,889
Speaker 2: you have a credit, even in which case, you do

628
00:35:25,899 --> 00:35:28,250
Speaker 2: not have to worry about inflation, you have to save

629
00:35:28,260 --> 00:35:32,540
Speaker 2: the system and they, they do it. Uh look at

630
00:35:32,550 --> 00:35:35,250
Speaker 2: the Ben Bernanke approach in 2008.

631
00:35:36,060 --> 00:35:39,959
Speaker 2: He thought the subprime crisis was a 50 to $100

632
00:35:40,050 --> 00:35:43,549
Speaker 2: billion problem. That's what he said to us. Congress in

633
00:35:43,560 --> 00:35:45,120
Speaker 2: July of 2007,

634
00:35:45,750 --> 00:35:49,199
Speaker 2: it turned out to be a massive crisis the following year.

635
00:35:50,090 --> 00:35:52,929
Speaker 2: So then he said, ok, he was going to start

636
00:35:52,939 --> 00:35:57,569
Speaker 2: quantitative easing, which he described as being a temporary process,

637
00:35:57,580 --> 00:36:01,389
Speaker 2: which is still in existence all these years later. Uh

638
00:36:01,399 --> 00:36:05,510
Speaker 2: But again, he was called the Savior of the system,

639
00:36:05,520 --> 00:36:09,399
Speaker 2: not the person who did not anticipate the crisis. He

640
00:36:09,409 --> 00:36:12,270
Speaker 2: even has a Nobel Prize to show for it after

641
00:36:12,280 --> 00:36:16,020
Speaker 2: all of these years. So the question is the risk

642
00:36:16,030 --> 00:36:19,820
Speaker 2: and reward that you have on the central backing side

643
00:36:20,219 --> 00:36:25,219
Speaker 2: are not consistent with what is required for good economic policy,

644
00:36:25,229 --> 00:36:28,959
Speaker 2: good monetary policy. So what is the fed going to do?

645
00:36:29,360 --> 00:36:31,979
Speaker 2: They are going to wait to see if the inflation

646
00:36:31,989 --> 00:36:35,139
Speaker 2: comes down and it doesn't come down to 2% stays

647
00:36:35,149 --> 00:36:40,649
Speaker 2: at 3.5. They will continue to pass. They'll pass tomorrow

648
00:36:40,659 --> 00:36:42,399
Speaker 2: for the third time in a row.

649
00:36:43,370 --> 00:36:46,159
Speaker 2: They can pause for six or seven months and at

650
00:36:46,169 --> 00:36:48,250
Speaker 2: the same time, say that we are not going to

651
00:36:48,260 --> 00:36:53,199
Speaker 2: increase interest rates. We are not going to decrease interest rates. So,

652
00:36:53,909 --> 00:36:57,469
Speaker 2: but actual cut would be such a big move that

653
00:36:57,479 --> 00:36:59,790
Speaker 2: I think they have to be careful when they do that.

654
00:37:00,030 --> 00:37:03,110
Speaker 2: And I think that will happen only with the credit event.

655
00:37:03,889 --> 00:37:06,590
Speaker 2: What about the quantitative tightening?

656
00:37:07,449 --> 00:37:10,629
Speaker 2: They have a problem because they have increased it so

657
00:37:10,639 --> 00:37:16,590
Speaker 2: much from pre pandemic days. They essentially doubled it from

658
00:37:16,600 --> 00:37:21,590
Speaker 2: the beginning of 2020 to March of 2022. When the

659
00:37:21,600 --> 00:37:23,469
Speaker 2: quantitative tightening began,

660
00:37:24,530 --> 00:37:29,389
Speaker 2: the balance sheet increased from about $4 trillion to almost

661
00:37:29,399 --> 00:37:33,149
Speaker 2: $9 trillion before it's come down now to 7.7.

662
00:37:33,989 --> 00:37:37,110
Speaker 2: So they have to cut a bit more. And I

663
00:37:37,120 --> 00:37:40,270
Speaker 2: think at that stage, they say we are not going

664
00:37:40,280 --> 00:37:41,729
Speaker 2: to do QT anymore,

665
00:37:42,399 --> 00:37:45,850
Speaker 2: but we'll be closely watching it and whenever that is possible,

666
00:37:45,860 --> 00:37:48,159
Speaker 2: we are going to reduce the fed's balance sheet.

667
00:37:49,090 --> 00:37:51,489
Speaker 2: In other words, we don't have a timetable

668
00:37:52,139 --> 00:37:56,530
Speaker 2: because between really because they are concerned about having a

669
00:37:56,540 --> 00:38:00,489
Speaker 2: timetable and how it would strangle the economy, but we

670
00:38:00,500 --> 00:38:03,909
Speaker 2: are ready to tighten again if necessary. So that's I

671
00:38:03,919 --> 00:38:07,158
Speaker 2: think what's going to happen that may happen by March

672
00:38:07,169 --> 00:38:11,399
Speaker 2: or April and you go on further uh with the,

673
00:38:11,409 --> 00:38:15,000
Speaker 2: with the interest rate remaining where they are and the

674
00:38:15,010 --> 00:38:18,560
Speaker 2: cut takes place when the credit even takes place.

675
00:38:20,320 --> 00:38:24,310
Speaker 1: I can imagine the skating observations you will have that

676
00:38:24,590 --> 00:38:30,479
Speaker 1: capitulates on the QT side. Um But uh re I

677
00:38:30,489 --> 00:38:32,080
Speaker 1: think I picked up from you earlier when we were

678
00:38:32,090 --> 00:38:36,100
Speaker 1: talking about your 2024 envelope, that second half of 2024

679
00:38:36,110 --> 00:38:39,649
Speaker 1: would be characterized both by monetary and fiscal easing. So

680
00:38:39,659 --> 00:38:41,770
Speaker 1: let's talk about the fiscal part for a second. Uh

681
00:38:41,780 --> 00:38:45,500
Speaker 1: We have a rather dysfunctional congress, we have these, you know,

682
00:38:45,540 --> 00:38:47,089
Speaker 1: uh rather

683
00:38:47,989 --> 00:38:51,590
Speaker 1: potentially severe events like a debt ceiling issue and then

684
00:38:51,600 --> 00:38:55,649
Speaker 1: some last moment engineering pushes the can down the road

685
00:38:55,659 --> 00:38:57,560
Speaker 1: by a few months. And then again, there is another

686
00:38:57,570 --> 00:39:00,949
Speaker 1: crisis but surely in a situation like that, the Democrats

687
00:39:00,959 --> 00:39:04,409
Speaker 1: really are not in a position to add more fiscal stimulus.

688
00:39:06,429 --> 00:39:09,370
Speaker 2: Uh They may not be able to do it through

689
00:39:09,379 --> 00:39:13,389
Speaker 2: the uh through the Congress. But the Biden administration time

690
00:39:13,399 --> 00:39:17,000
Speaker 2: and time again has found ways to provide stimulus. For example,

691
00:39:17,399 --> 00:39:22,560
Speaker 2: the student debt cancellation policy was again voided by the

692
00:39:22,570 --> 00:39:23,379
Speaker 2: Supreme Court.

693
00:39:24,280 --> 00:39:28,110
Speaker 2: But the Biden administration found loopholes so that they can

694
00:39:28,120 --> 00:39:32,530
Speaker 2: provide somewhere in the neighborhood of $100 billion of relief

695
00:39:33,280 --> 00:39:36,340
Speaker 2: and the 100 billion spending for that purpose. Right now,

696
00:39:37,129 --> 00:39:40,000
Speaker 2: it's a huge sum of money to be spending when

697
00:39:40,010 --> 00:39:45,270
Speaker 2: you're trying to improve your fiscal situation that it happened

698
00:39:45,280 --> 00:39:46,929
Speaker 2: in the last couple of months. Yes

699
00:39:48,189 --> 00:39:50,929
Speaker 2: and so I wouldn't put it beyond them

700
00:39:52,159 --> 00:39:56,699
Speaker 2: to find other ways to provide stimulus. If not, then

701
00:39:56,709 --> 00:40:00,169
Speaker 2: monetary policy will have to step in. And if you

702
00:40:00,179 --> 00:40:04,000
Speaker 2: remember once again, going back to history because I study

703
00:40:04,010 --> 00:40:06,899
Speaker 2: history to learn what we what may happen again.

704
00:40:07,709 --> 00:40:11,370
Speaker 2: Ben Bernanke made the statement that he was easing on

705
00:40:11,379 --> 00:40:13,209
Speaker 2: policy after 2008

706
00:40:13,870 --> 00:40:17,330
Speaker 2: because the Congress did not allow for increased spending

707
00:40:18,179 --> 00:40:19,770
Speaker 2: in the Obama administration.

708
00:40:21,270 --> 00:40:24,270
Speaker 2: And so as a result of that, they had to

709
00:40:24,280 --> 00:40:27,929
Speaker 2: use monetary policy as a substitute for fiscal policy.

710
00:40:28,899 --> 00:40:31,979
Speaker 2: And my response and I wrote it once saying it

711
00:40:31,989 --> 00:40:36,419
Speaker 2: is like saying I have tried different medications for my headache.

712
00:40:36,429 --> 00:40:39,689
Speaker 2: My headache will not go away. So I've decided to

713
00:40:39,699 --> 00:40:41,840
Speaker 2: take a gun and shoot myself in the head.

714
00:40:43,270 --> 00:40:47,429
Speaker 2: But guaranteed 100% there will not be any headache after that.

715
00:40:48,090 --> 00:40:50,969
Speaker 2: But is that the kind of cure you want to have?

716
00:40:51,729 --> 00:40:55,209
Speaker 2: But that, that is, again, it is clearly something that

717
00:40:55,219 --> 00:40:57,550
Speaker 2: will be open. I don't believe that the fed is

718
00:40:57,560 --> 00:40:59,189
Speaker 2: an independent institution

719
00:40:59,820 --> 00:41:04,169
Speaker 2: and if necessary, the fed will step in to substitute

720
00:41:04,179 --> 00:41:06,979
Speaker 2: for fiscal policy if, as you say, they are not

721
00:41:06,989 --> 00:41:08,439
Speaker 2: able to increase spending

722
00:41:09,280 --> 00:41:10,219
Speaker 2: in the new setup.

723
00:41:11,399 --> 00:41:13,600
Speaker 1: It's interesting you say that the Fed is not an

724
00:41:13,610 --> 00:41:15,799
Speaker 1: independent institution, but at the same time, you could argue

725
00:41:15,810 --> 00:41:20,219
Speaker 1: that Jerome Powell is a appointee from the previous administration

726
00:41:20,229 --> 00:41:22,860
Speaker 1: and is a Republican. So why would he want to

727
00:41:22,870 --> 00:41:25,320
Speaker 1: do the Democrats any favor if we're going with that

728
00:41:25,330 --> 00:41:26,620
Speaker 1: line of not being independent,

729
00:41:27,669 --> 00:41:29,850
Speaker 2: he has to be reappointed.

730
00:41:30,659 --> 00:41:35,719
Speaker 2: And as you know, the fed chairman's term ends is

731
00:41:35,729 --> 00:41:40,060
Speaker 2: not coterminous with the president of the United States. So

732
00:41:40,070 --> 00:41:44,870
Speaker 2: for instance, uh uh Powell began on February 1st of

733
00:41:44,879 --> 00:41:46,360
Speaker 2: 2018

734
00:41:47,340 --> 00:41:51,540
Speaker 2: and it was again two years after the 2016 elections

735
00:41:51,550 --> 00:41:55,159
Speaker 2: or 15 months after the elections. The idea is that

736
00:41:55,169 --> 00:41:59,600
Speaker 2: your renomination as fed chairman should not coincide with the

737
00:41:59,610 --> 00:42:03,659
Speaker 2: presidential election. It should be, you should have independence but

738
00:42:03,669 --> 00:42:06,229
Speaker 2: you have independence for only a year and four months

739
00:42:06,889 --> 00:42:11,110
Speaker 2: after that, your own nomination is in trouble and then

740
00:42:11,120 --> 00:42:12,959
Speaker 2: you have to figure out whether you're going to be

741
00:42:12,969 --> 00:42:14,149
Speaker 2: nominated or not.

742
00:42:14,840 --> 00:42:19,178
Speaker 2: And think about it when the Powell renomination came up,

743
00:42:19,899 --> 00:42:22,860
Speaker 2: I said publicly he should not be renominated

744
00:42:23,919 --> 00:42:27,570
Speaker 2: and, but he was renominated. If I remember my number

745
00:42:27,580 --> 00:42:32,800
Speaker 2: is correctly, the Senate approved him 80 to 19 with

746
00:42:32,810 --> 00:42:33,750
Speaker 2: one abstention.

747
00:42:34,949 --> 00:42:39,320
Speaker 2: So when the senators complain about its policy, my response

748
00:42:39,330 --> 00:42:43,280
Speaker 2: often is you guys confirmed him as chairman. Who are you,

749
00:42:43,290 --> 00:42:45,080
Speaker 2: who do you have to blame yourself?

750
00:42:45,760 --> 00:42:48,429
Speaker 2: And so I think what will happen is that there

751
00:42:48,439 --> 00:42:52,770
Speaker 2: is no independence in that sense because the fed chairman

752
00:42:52,780 --> 00:42:55,659
Speaker 2: doesn't have to be renominated by the new president

753
00:42:56,580 --> 00:43:00,520
Speaker 2: and he or she has still to be confirmed by

754
00:43:00,530 --> 00:43:03,219
Speaker 2: the Senate which may or may not happen. And that

755
00:43:03,229 --> 00:43:07,110
Speaker 2: those are the two holds that politics has on the

756
00:43:07,120 --> 00:43:07,800
Speaker 2: fed chairman.

757
00:43:09,090 --> 00:43:13,389
Speaker 2: What I have suggested in my weekly writings that you receive.

758
00:43:13,620 --> 00:43:17,550
Speaker 2: Kor is to say that the fed chairman should have

759
00:43:17,560 --> 00:43:19,909
Speaker 2: a single six year term

760
00:43:20,879 --> 00:43:25,060
Speaker 2: and he or she will not be eligible for renomination

761
00:43:25,510 --> 00:43:29,340
Speaker 2: that will give it some independence, not the present way

762
00:43:29,350 --> 00:43:32,449
Speaker 2: where we say he is independent. Oh, no, no, no,

763
00:43:32,459 --> 00:43:36,330
Speaker 2: he really is independent. I compared it to Jerome with

764
00:43:36,340 --> 00:43:40,138
Speaker 2: Janet Yellen saying the banking system is very sound and

765
00:43:40,149 --> 00:43:43,089
Speaker 2: she repeats it very often hoping that that means everybody

766
00:43:43,100 --> 00:43:43,859
Speaker 2: will believe it.

767
00:43:44,550 --> 00:43:47,679
Speaker 2: So you need to have a structure and if you

768
00:43:47,689 --> 00:43:51,189
Speaker 2: have a six year term for a chairman. That's a

769
00:43:51,199 --> 00:43:55,409
Speaker 2: long enough term. It's six years are a long term. It's,

770
00:43:55,419 --> 00:43:57,610
Speaker 2: it's two years longer than the president

771
00:43:58,520 --> 00:44:02,280
Speaker 2: and you can have it ending like today, but then

772
00:44:02,290 --> 00:44:05,340
Speaker 2: it will go on for six years so that you,

773
00:44:05,459 --> 00:44:07,739
Speaker 2: you do not have to act in a way that

774
00:44:07,750 --> 00:44:11,699
Speaker 2: you're looking, um, of studying favor for a re-election.

775
00:44:12,530 --> 00:44:17,189
Speaker 1: Right. Do you see any room for tension between the

776
00:44:17,199 --> 00:44:20,389
Speaker 1: fed and the treasury in 24? Or is the relationship

777
00:44:20,399 --> 00:44:23,120
Speaker 1: between Powell and Yellen is so good that it will

778
00:44:23,129 --> 00:44:25,469
Speaker 1: not be a big issue because you know, we've had

779
00:44:25,729 --> 00:44:29,770
Speaker 1: ratings agencies put us debt under scrutiny. Uh We do

780
00:44:29,780 --> 00:44:32,379
Speaker 1: have an unfavorable supply demand situation surely that makes the

781
00:44:32,389 --> 00:44:34,679
Speaker 1: Fed's life difficult. But is the Fed going to be

782
00:44:34,689 --> 00:44:36,560
Speaker 1: courageous enough to make a big deal out of that?

783
00:44:37,820 --> 00:44:41,658
Speaker 2: Uh Can the relationship be good? There are two things.

784
00:44:41,669 --> 00:44:46,179
Speaker 2: One is, as you said, um, the he that Powell

785
00:44:46,189 --> 00:44:49,669
Speaker 2: was nominated by a Republican president. Now he's serving with

786
00:44:49,679 --> 00:44:52,229
Speaker 2: a Democratic president and

787
00:44:53,479 --> 00:44:56,290
Speaker 2: you have also one other factor to keep in mind,

788
00:44:56,300 --> 00:45:00,459
Speaker 2: Lyle Brainard who is a vice chairman, she is now

789
00:45:00,469 --> 00:45:03,060
Speaker 2: the Director of National Economic Council,

790
00:45:04,120 --> 00:45:07,850
Speaker 2: but again, she's part of the administration. I think you

791
00:45:07,860 --> 00:45:11,540
Speaker 2: behave differently when you're part of the executive branch than

792
00:45:11,550 --> 00:45:13,290
Speaker 2: when you're part of the central bank.

793
00:45:13,949 --> 00:45:18,729
Speaker 2: So can conflicts de develop between the Fed and the Treasury? Absolutely,

794
00:45:18,739 --> 00:45:19,250
Speaker 2: they can,

795
00:45:19,899 --> 00:45:24,600
Speaker 2: uh for example, uh Yellen has said in her speech today,

796
00:45:24,929 --> 00:45:27,270
Speaker 2: I think she was speaking to the Wall Street Journal

797
00:45:27,280 --> 00:45:31,050
Speaker 2: at the conference and she mentioned that she thinks a

798
00:45:31,060 --> 00:45:35,020
Speaker 2: soft landing is possible in contrast to Powell who has

799
00:45:35,030 --> 00:45:39,080
Speaker 2: looked for pain as the as the inflation rate is

800
00:45:39,090 --> 00:45:43,020
Speaker 2: being brought down. So she is giving a very Biden,

801
00:45:43,550 --> 00:45:44,800
Speaker 2: please reelect

802
00:45:45,399 --> 00:45:49,609
Speaker 2: a Biden kind of a speech compared with Powell who

803
00:45:49,620 --> 00:45:52,800
Speaker 2: is at least staying objective even though I disagree with

804
00:45:52,810 --> 00:45:53,580
Speaker 2: his policies.

805
00:45:54,449 --> 00:45:58,669
Speaker 2: So yes, there can be more conflicts developing as the

806
00:45:58,679 --> 00:46:01,429
Speaker 2: election date comes closer,

807
00:46:02,270 --> 00:46:05,760
Speaker 1: right? So when I was lining up the questions for

808
00:46:05,770 --> 00:46:08,030
Speaker 1: this podcast, I had in mind that we'll talk a

809
00:46:08,040 --> 00:46:11,010
Speaker 1: little more about fiscal consolidation and us dollar and credit spreads.

810
00:46:11,030 --> 00:46:13,679
Speaker 1: I think we've covered those things. So actually, I want

811
00:46:13,689 --> 00:46:16,530
Speaker 1: to talk a little bit about politics beyond central bank politics.

812
00:46:16,540 --> 00:46:18,810
Speaker 1: I want to talk about presidential election politics.

813
00:46:19,110 --> 00:46:23,739
Speaker 1: Um markets uh were very nervous around the Trump election

814
00:46:23,750 --> 00:46:27,169
Speaker 1: initially and then they stopped worrying about it. And despite

815
00:46:27,179 --> 00:46:31,689
Speaker 1: Trump's various uh mercurial action had a pretty decent time

816
00:46:31,699 --> 00:46:36,049
Speaker 1: during his tenure. Uh and then uh under Biden, I

817
00:46:36,060 --> 00:46:38,689
Speaker 1: remember you actually pointing it out in the last podcast

818
00:46:38,699 --> 00:46:41,010
Speaker 1: that we had that the moment the Georgia election happened,

819
00:46:41,260 --> 00:46:43,770
Speaker 1: the market roared because the expectation was there will be

820
00:46:43,780 --> 00:46:46,009
Speaker 1: huge fiscal support for the economy going forward.

821
00:46:46,449 --> 00:46:50,138
Speaker 1: So walk us through the two scenarios. None of them

822
00:46:50,149 --> 00:46:52,790
Speaker 1: seem extremely appealing. But the two scenarios that we have

823
00:46:52,800 --> 00:46:54,709
Speaker 1: one is a Trump victory. The other is a Biden

824
00:46:54,719 --> 00:46:58,270
Speaker 1: re-election and how the markets will behave around that in 2024.

825
00:46:59,459 --> 00:47:04,229
Speaker 2: Yeah, you have the most likely candidates today, Trump on

826
00:47:04,239 --> 00:47:08,120
Speaker 2: the Republican side and Biden on the Democratic side or

827
00:47:08,129 --> 00:47:13,090
Speaker 2: both candidates who large group of voters do not want

828
00:47:13,100 --> 00:47:13,879
Speaker 2: either of them.

829
00:47:14,800 --> 00:47:18,989
Speaker 2: But it is an interesting twist of political fate that

830
00:47:19,000 --> 00:47:22,489
Speaker 2: we have two candidates, neither of whom is overwhelmingly very

831
00:47:22,500 --> 00:47:26,060
Speaker 2: powerful or popular who is dominating it?

832
00:47:26,820 --> 00:47:31,779
Speaker 2: Let's assume the question is, does Biden continue to decide

833
00:47:32,199 --> 00:47:32,840
Speaker 2: to run?

834
00:47:33,560 --> 00:47:39,620
Speaker 2: And Nikki Haley is considered the most likely competitor who can,

835
00:47:39,629 --> 00:47:43,709
Speaker 2: who's closest to Trump in terms of winning over, but

836
00:47:43,719 --> 00:47:47,229
Speaker 2: she's still very far behind, that doesn't seem to be

837
00:47:47,239 --> 00:47:50,179
Speaker 2: in prospect today. So I'm going to assume to answer

838
00:47:50,189 --> 00:47:53,489
Speaker 2: your question, Timor that it is going to be Biden

839
00:47:53,500 --> 00:47:54,419
Speaker 2: versus Trump.

840
00:47:55,600 --> 00:47:57,219
Speaker 2: And if that happens

841
00:47:58,439 --> 00:48:03,370
Speaker 2: also saying that the whatever you may think in a,

842
00:48:03,500 --> 00:48:06,500
Speaker 2: in a foreign country and think about the United States,

843
00:48:07,139 --> 00:48:09,909
Speaker 2: the people who vote are those of us who are

844
00:48:09,919 --> 00:48:13,350
Speaker 2: us citizens and who are voting for the candidate? We

845
00:48:13,360 --> 00:48:17,080
Speaker 2: care more about our wallet and what is there in

846
00:48:17,090 --> 00:48:20,699
Speaker 2: it than the prestige of the United States on the

847
00:48:20,709 --> 00:48:21,439
Speaker 2: world scene?

848
00:48:22,459 --> 00:48:23,840
Speaker 2: What does that mean to us?

849
00:48:24,520 --> 00:48:29,439
Speaker 2: Biden's economic rating in polls is low and going headed

850
00:48:29,449 --> 00:48:29,979
Speaker 2: lower

851
00:48:30,620 --> 00:48:33,969
Speaker 2: no matter how much the administration tries to point out

852
00:48:33,979 --> 00:48:38,659
Speaker 2: the pace of economic growth. Consumers are spending well, unemployment

853
00:48:38,669 --> 00:48:43,080
Speaker 2: is remaining low. The population is focusing on inflation and

854
00:48:43,090 --> 00:48:44,360
Speaker 2: how much they have lost.

855
00:48:45,139 --> 00:48:48,520
Speaker 2: Also, they go back and say during the Trump years,

856
00:48:48,530 --> 00:48:49,280
Speaker 2: we did fine

857
00:48:50,419 --> 00:48:55,259
Speaker 2: whether he was responsible or not. Uh Clearly, the market

858
00:48:55,270 --> 00:48:58,120
Speaker 2: is saying they were better off in the Trump years

859
00:48:58,129 --> 00:49:01,439
Speaker 2: than they are in the Biden years. So what does

860
00:49:01,449 --> 00:49:05,100
Speaker 2: that mean? It means to me that if it came

861
00:49:05,110 --> 00:49:07,580
Speaker 2: to a head on clash between the two and if

862
00:49:07,590 --> 00:49:09,590
Speaker 2: the elections were held today,

863
00:49:10,300 --> 00:49:13,000
Speaker 2: it is likely to be a Trump, a Trump victory

864
00:49:13,010 --> 00:49:13,790
Speaker 2: over Biden.

865
00:49:14,969 --> 00:49:19,669
Speaker 2: Something needs to change dramatically between now and next November

866
00:49:19,850 --> 00:49:21,239
Speaker 2: for that to be changed.

867
00:49:22,179 --> 00:49:24,929
Speaker 2: And as to, well, there are all kinds of other

868
00:49:24,939 --> 00:49:29,070
Speaker 2: political issues. Trump has said that he will be a

869
00:49:29,080 --> 00:49:32,909
Speaker 2: dictator for one day if elected. And what does that mean?

870
00:49:32,919 --> 00:49:34,850
Speaker 2: How do you become a dictator and then you're no

871
00:49:34,860 --> 00:49:39,158
Speaker 2: longer a dictator. Nobody is given a power in that manner.

872
00:49:39,600 --> 00:49:43,080
Speaker 2: So there are other issues which I think the electorate

873
00:49:43,090 --> 00:49:44,520
Speaker 2: is not focusing on yet,

874
00:49:47,459 --> 00:49:49,719
Speaker 1: right? And of course, let's not forget the various legal

875
00:49:49,729 --> 00:49:52,870
Speaker 1: troubles that Trump has and of course, that doesn't affect

876
00:49:52,879 --> 00:49:56,449
Speaker 1: his electability. You can apparently be even in jail and

877
00:49:56,459 --> 00:49:57,799
Speaker 1: still with the president of the United States.

878
00:49:58,070 --> 00:50:01,969
Speaker 1: Um So we will have no shortage of drama around that.

879
00:50:02,199 --> 00:50:06,330
Speaker 1: But between the other thing is that, I mean, these are,

880
00:50:06,590 --> 00:50:09,610
Speaker 1: you know, since we are talking about prognostication after all,

881
00:50:09,629 --> 00:50:13,209
Speaker 1: neither of them are exactly, you know, very fit candidates

882
00:50:13,219 --> 00:50:18,479
Speaker 1: going into, you know, 2024 you know, closing in on,

883
00:50:18,489 --> 00:50:19,449
Speaker 1: in their eighties,

884
00:50:19,870 --> 00:50:23,310
Speaker 1: the uh health issue, uh if it were to surface.

885
00:50:23,320 --> 00:50:25,760
Speaker 1: So you think that, you know, Nikki Haley would be

886
00:50:25,790 --> 00:50:29,888
Speaker 1: one plausible candidate on the Republican side. Do you see

887
00:50:29,899 --> 00:50:32,489
Speaker 1: anybody on the Democratic side other than Kamala Harris?

888
00:50:33,169 --> 00:50:39,870
Speaker 2: Uh Well, Kamala Harris benefits if Biden is disabled or

889
00:50:39,879 --> 00:50:44,379
Speaker 2: some other reason has to exit the presidency, then if

890
00:50:44,389 --> 00:50:47,909
Speaker 2: that happens between now and next November, she becomes president,

891
00:50:48,239 --> 00:50:53,049
Speaker 2: that's a, that's a succession that follows. Or if Biden

892
00:50:53,060 --> 00:50:56,209
Speaker 2: wins in November, he has said that he's going to

893
00:50:56,219 --> 00:50:57,350
Speaker 2: run with her

894
00:50:57,659 --> 00:51:00,360
Speaker 2: and if he does not finish his second term, she

895
00:51:00,370 --> 00:51:03,928
Speaker 2: becomes president sometime during that term, if he does not

896
00:51:03,939 --> 00:51:04,879
Speaker 2: finish his term.

897
00:51:05,689 --> 00:51:08,209
Speaker 2: So those are the two ways in which she can

898
00:51:08,219 --> 00:51:09,570
Speaker 2: become the president.

899
00:51:10,360 --> 00:51:14,820
Speaker 2: Her popularity continues to remain low rightly or wrongly. She's

900
00:51:14,830 --> 00:51:17,540
Speaker 2: not given a lot of credit for what has happened

901
00:51:17,550 --> 00:51:19,459
Speaker 2: in the, in the administration.

902
00:51:20,419 --> 00:51:24,120
Speaker 2: And if so if uh so you are talking about

903
00:51:24,129 --> 00:51:25,029
Speaker 2: essentially

904
00:51:26,429 --> 00:51:30,219
Speaker 2: the Republicans arguing that a vote for Biden is actually

905
00:51:30,229 --> 00:51:31,679
Speaker 2: a vote for Kamala Harris.

906
00:51:33,239 --> 00:51:37,260
Speaker 2: So you are actually trying to get her elected and

907
00:51:37,270 --> 00:51:39,290
Speaker 2: she will be there before the end of the next

908
00:51:39,300 --> 00:51:43,060
Speaker 2: four years. That's, that's the pitch in terms of saying

909
00:51:43,070 --> 00:51:46,299
Speaker 2: that you should give the vote for the Republicans, but it's,

910
00:51:46,310 --> 00:51:49,370
Speaker 2: as you said, it is so convoluted with so many

911
00:51:49,379 --> 00:51:53,199
Speaker 2: indictments and whether they go to the court for a

912
00:51:53,209 --> 00:51:56,620
Speaker 2: decision before next November or not,

913
00:51:57,270 --> 00:52:02,129
Speaker 2: or if they are, if he's convicted and elected as president,

914
00:52:02,379 --> 00:52:06,959
Speaker 2: what do you do after that? These are constitutional questions

915
00:52:06,969 --> 00:52:10,409
Speaker 2: which even lawyers are probably unable to answer at this stage.

916
00:52:11,709 --> 00:52:14,549
Speaker 1: Right. So coming back to the issue of markets, so

917
00:52:14,560 --> 00:52:17,449
Speaker 1: whether it's the US dollar or the US treasury demand,

918
00:52:17,679 --> 00:52:22,629
Speaker 1: do these things get affected by all these domestic uh developments?

919
00:52:22,639 --> 00:52:25,449
Speaker 1: Or you think that the for the rest of the

920
00:52:25,459 --> 00:52:29,360
Speaker 1: world or even for us, institutional investors, the faith in

921
00:52:29,879 --> 00:52:32,199
Speaker 1: the power of the Fed and the Treasury to keep

922
00:52:32,209 --> 00:52:35,669
Speaker 1: things at least under wraps is substantial. And therefore, we

923
00:52:35,679 --> 00:52:38,379
Speaker 1: don't have to worry about too much risk premium, having

924
00:52:38,389 --> 00:52:40,790
Speaker 1: to be priced into the dollar or the treasuries around

925
00:52:40,800 --> 00:52:42,290
Speaker 1: these uncertainties.

926
00:52:43,489 --> 00:52:43,989
Speaker 2: Um

927
00:52:45,260 --> 00:52:48,560
Speaker 2: look around the world and look at the history and

928
00:52:48,570 --> 00:52:51,909
Speaker 2: you say, let me look at an autocrat or a

929
00:52:51,919 --> 00:52:53,320
Speaker 2: dictatorial regime

930
00:52:54,239 --> 00:52:58,159
Speaker 2: and whether the currencies thrive or not, whether the economy

931
00:52:58,169 --> 00:52:59,139
Speaker 2: thrives or not,

932
00:53:00,389 --> 00:53:03,659
Speaker 2: you find time and time again. I've, I've looked at

933
00:53:03,689 --> 00:53:07,070
Speaker 2: it and I'm surprised by the fact that now you

934
00:53:07,080 --> 00:53:10,449
Speaker 2: have Xi Jinping who is President for life. You have

935
00:53:10,459 --> 00:53:13,520
Speaker 2: Vladimir Putin in Russia who says he's going to run

936
00:53:13,530 --> 00:53:16,810
Speaker 2: in early 2024. He is President for Life

937
00:53:17,770 --> 00:53:22,138
Speaker 2: Viktor Orban in Hungary is again there and he's going

938
00:53:22,149 --> 00:53:25,489
Speaker 2: to continue there. Do any of the people in these

939
00:53:25,500 --> 00:53:28,310
Speaker 2: countries say we don't like the person because we don't

940
00:53:28,320 --> 00:53:30,629
Speaker 2: have free democratic elections. No,

941
00:53:31,610 --> 00:53:34,449
Speaker 2: the thought is whether you're doing well in terms of

942
00:53:34,459 --> 00:53:38,810
Speaker 2: your income, your living standards and that also is going

943
00:53:38,820 --> 00:53:41,790
Speaker 2: to affect how the dollar trades with respect to the

944
00:53:41,800 --> 00:53:46,550
Speaker 2: other currencies and how the foreign countries deal with the

945
00:53:46,560 --> 00:53:49,750
Speaker 2: United States in terms of trade. Yes, you can have

946
00:53:49,760 --> 00:53:50,620
Speaker 2: side effects.

947
00:53:51,429 --> 00:53:56,409
Speaker 2: You can have Trump imposing tariffs more so than Biden

948
00:53:56,419 --> 00:53:57,050
Speaker 2: would have done.

949
00:53:57,719 --> 00:53:59,899
Speaker 2: But look at what Biden has been able to do.

950
00:53:59,909 --> 00:54:02,399
Speaker 2: He has not been able to remove the tariffs on

951
00:54:02,409 --> 00:54:05,799
Speaker 2: China that were, that were imposed by Trump, he had

952
00:54:05,810 --> 00:54:06,889
Speaker 2: to continue with it.

953
00:54:07,750 --> 00:54:10,709
Speaker 2: So the short answer for you, I gave you a

954
00:54:10,719 --> 00:54:15,770
Speaker 2: good long winded explanation. The short answer is politics probably

955
00:54:15,780 --> 00:54:19,330
Speaker 2: don't matter for the economy, markets or the dollar.

956
00:54:20,760 --> 00:54:22,879
Speaker 1: Hm. That's uh I'm going to use that as the

957
00:54:22,889 --> 00:54:27,389
Speaker 1: summary of our podcast at some point. Uh free uh

958
00:54:27,399 --> 00:54:31,080
Speaker 1: you know, very, very, uh you know, informative and insightful

959
00:54:31,090 --> 00:54:33,709
Speaker 1: as always. And I think right around the election time,

960
00:54:33,719 --> 00:54:35,550
Speaker 1: we need to get together again and have another chat

961
00:54:35,560 --> 00:54:39,649
Speaker 1: and see what 2025 holds for us. Uh Thank you

962
00:54:39,659 --> 00:54:41,189
Speaker 1: so much for your time and insights.

963
00:54:41,870 --> 00:54:44,529
Speaker 2: You're welcome. It's always a pleasure to talk with you,

964
00:54:44,540 --> 00:54:47,080
Speaker 2: Timor and I would be delighted to chat with you

965
00:54:47,090 --> 00:54:50,049
Speaker 2: again around the election time.

966
00:54:50,550 --> 00:54:52,790
Speaker 1: I wish you and your family all the very best

967
00:54:52,800 --> 00:54:54,350
Speaker 1: in the holidays and a Happy New Year.

968
00:54:55,159 --> 00:54:57,709
Speaker 2: Thank you. Happy holidays and Happy New Year to you

969
00:54:57,719 --> 00:54:59,090
Speaker 2: as well and your family.

970
00:54:59,510 --> 00:55:01,370
Speaker 1: Thank you and thanks to our listeners as well. Uh

971
00:55:01,379 --> 00:55:04,389
Speaker 1: Copy Time was produced by Ken Delbridge at Spy studios.

972
00:55:04,840 --> 00:55:08,389
Speaker 1: Valet Lee and Daisy Sherma provided additional assistance. It is

973
00:55:08,399 --> 00:55:12,159
Speaker 1: for information only and does not represent any trade recommendations.

974
00:55:12,399 --> 00:55:15,590
Speaker 1: All 114 episodes of copy time are available on youtube

975
00:55:15,860 --> 00:55:20,090
Speaker 1: and on all major podcast platforms including Apple, Google and Spotify.

976
00:55:20,229 --> 00:55:23,509
Speaker 1: As for our research publications, webinars and live streams, you

977
00:55:23,520 --> 00:55:26,370
Speaker 1: can find them all by Google and D BS research library.

978
00:55:26,379 --> 00:55:27,679
Speaker 1: Have a great day.