Speaker 1: Welcome to Copy Time, a podcast series on Markets and
Speaker 1: Economies from DVS Group Research. I'm Tambe, chief economist. Welcoming
Speaker 1: you to our 114th episode. Today, we will do a
Speaker 1: year end wrap up and a look ahead to 2024
Speaker 1: with our favorite market strategist. Ko Sh Kumar is president
Speaker 1: of Shrier Global Strategies based in Santa Monica California. He's
Speaker 1: also a senior fellow at the Milken Institute.
Speaker 1: Earlier, she spent 22 years with the trust company of
Speaker 1: the West that are known as TCW, where his last
Speaker 1: position was Chief Global strategist and chairman of asset allocation Committee. SHS.
Speaker 1: Views on asset allocation investment risk management are widely followed
Speaker 1: in the financial industry as well as by numerous institutional investors. Shri.
Speaker 1: A warm welcome back to C
Speaker 2: Time. Thank you very great to be back with you, Timor.
Speaker 2: It's always a pleasure to chat, talk with you about
Speaker 2: the various issues and I look forward to today's discussion.
Speaker 1: Absolutely. Shri and uh you know, year end wrap up,
Speaker 1: I really could not think of a better person to
Speaker 1: have a conversation with. So let's start by taking stock
Speaker 1: of the markets uh for the year 2023. What surprised
Speaker 1: you on the rates, FX equities and credit space? Big question.
Speaker 2: Yeah, it's a big question but also in some ways, Timor,
Speaker 2: an easy answer. I cannot say that anything with respect
Speaker 2: to rates, with respect to equities, with respect to credits.
Speaker 2: We maybe the credit spreads having remained so restrained is
Speaker 2: probably somewhat of a surprise. The biggest surprise of them
Speaker 2: all is the volatility that we have had in the markets.
Speaker 2: Uh It has made, made it very difficult to guess
Speaker 2: the path for interest rates, the path for equities. And
Speaker 2: if you made a decision on what was going to happen,
Speaker 2: you found analysts changing their views in 2 to 4 weeks,
Speaker 2: they completely had to reverse themselves. That is, I think
Speaker 2: the big surprise and to me, the big change happened
Speaker 2: even within that, within what happened on the rate front
Speaker 2: and think about October 22nd, 23rd, the 10 year treasury
Speaker 2: yield peaking at 5.02% and a couple of minutes ago,
Speaker 2: it just closed at 4.2%. So you've had an 80
Speaker 2: basis point move which has taken place in just over
Speaker 2: a month and what explains the 80 basis point move
Speaker 2: absolutely nothing animal spirits. And that is what is surprising
Speaker 2: to me
Speaker 2: that markets will go up and go down, especially on
Speaker 2: the fixed income side with very little to explain for it.
Speaker 2: But I have my own reason. For it and I'm
Speaker 2: happy to talk about it.
Speaker 1: Well, let's, let's talk about that in a second. I
Speaker 1: just want to ask you about the FX space, the
Speaker 1: dollar strength through the year and now the quasi capsulation
Speaker 1: we're seeing against the yen and also against some em currencies.
Speaker 1: I mean, what do you make of that?
Speaker 2: I think it all comes to what the expectation is
Speaker 2: for the fed and the dollar weakness that has taken
Speaker 2: place recently, as you said, with respect to the yen,
Speaker 2: with respect to some Asian currencies is not matched by
Speaker 2: the dollar Euro relationship. The dollar has actually appreciated from
Speaker 2: about let's say dollar 10 to the euro a few
Speaker 2: weeks ago to dollar and seven cents to the euro. Now,
Speaker 2: what is the difference?
Speaker 2: The difference is between the Euro and the US dollar?
Speaker 2: The expectation is that the Euro European Central Bank is
Speaker 2: probably going to do something very urgently with respect to
Speaker 2: cutting interest rates perhaps much faster than the fed.
Speaker 2: And that's, and as far as the relationship with the
Speaker 2: Asian currencies is concerned,
Speaker 2: there are two things I think at work. One from
Speaker 2: the US side, the expectation that the fed may indeed
Speaker 2: cut rates very quickly. Despite Jerome Powell's protestations that he's
Speaker 2: not going to do so. And the second one is
Speaker 2: again that Mr Ueda at the Bank of Japan may
Speaker 2: be getting ready to get rid of the 1% peak
Speaker 2: that they that they informally fall over the 10 year
Speaker 2: J GB yield.
Speaker 2: And if that's the case and it's allowed to go up, clearly,
Speaker 2: it marks a further appreciation of the yen with respect
Speaker 2: to the dollar.
Speaker 1: So we uh every week have a tactical trades, uh
Speaker 1: monitor that we do with our strategies, make them, make
Speaker 1: the calls. The EU R US D call is the
Speaker 1: one that we really have gotten it wrong in the
Speaker 1: last couple of months. But again, to your point, these
Speaker 1: things change in a very short duration.
Speaker 1: The view on the market in the euro was very
Speaker 1: different two months ago. And it's, it's evolved around the
Speaker 1: European outlook and to your point about the E CBS
Speaker 1: policy direction, which I mean, I have a feeling might
Speaker 1: again change in the early part of 2024 if data
Speaker 1: flows were to change. All right, going back to rates,
Speaker 1: I am interested in a couple of things. So one
Speaker 1: is the whole us fiscal picture and it
Speaker 1: impact on rates. Second is the whole supply demand of bonds.
Speaker 1: I mean, in 2024 or 2023 to your point, this
Speaker 1: entire rally of the last couple of months or even
Speaker 1: less than that has happened still against the back of
Speaker 1: a really poor fiscal outlook. So how do we reconcile
Speaker 1: the market structure by that interest as well as the
Speaker 1: rather alarming supply side of the bonds?
Speaker 2: Great questions and very timely let me start out in
Speaker 2: this way. I share your concern about the fiscal mismanagement
Speaker 2: that has gone on in the United States. It began
Speaker 2: with the Trump administration. It has accelerated in the, in
Speaker 2: the Biden administration. It's a bipartisan effort to ruin the
Speaker 2: fiscal situation so nobody can especially take credit for that.
Speaker 2: They are all responsible for it.
Speaker 2: However, as you said, the, the auctions treasury auctions are
Speaker 2: going well, the auctions are all the bonds are being
Speaker 2: placed and without any difficulty so far. And that's what
Speaker 2: brought the 10 year yield down to 420 this Tuesday
Speaker 2: afternoon in the United States that this is, I would
Speaker 2: give an analogy to explain what is happening. You're looking
Speaker 2: to buy a home
Speaker 2: and there is only one home available in that neighborhood.
Speaker 2: It's not in great shape,
Speaker 2: it's actually deteriorating, but you want a home
Speaker 2: and that is a good place to put your money
Speaker 2: and to try to improve it in the future or
Speaker 2: you can go without a home, what are you going
Speaker 2: to do about it?
Speaker 2: So if you are a global investor,
Speaker 2: if you do not like the US Treasury's policies and
Speaker 2: I don't,
Speaker 2: but where are you going to go? Are you going
Speaker 2: to go into Chinese Renminbi? You're not going to go
Speaker 2: into the Euros and the German market is too small
Speaker 2: to take it. There is no other alternative. Five years ago,
Speaker 2: the thought was China would be a competitor to the
Speaker 2: United States in terms of where the US dollar is going.
Speaker 2: And the Chinese Renminbi Yuan would surpass the US Dollar
Speaker 2: in terms of supremacy.
Speaker 2: It just hasn't happened and I don't think it is
Speaker 2: going to happen in the foreseeable future.
Speaker 2: So from if you were Janet Yellen and you were
Speaker 2: looking at the situation, you don't have much to worry
Speaker 2: about
Speaker 2: the global demand is going to exist. And that's the
Speaker 2: reason why the US fiscal mismanagement, the big important topic
Speaker 2: though it is it is essentially in the background. It's
Speaker 2: not very relevant to explain bond yields.
Speaker 1: It is rather remarkable treat. I mean, I have been
Speaker 1: looking at ownership data by investor T and of course,
Speaker 1: you know, fed, we know to the QT its holding
Speaker 1: of us situations have come down.
Speaker 1: Uh when we look at Asia, which used to be
Speaker 1: a very large buyer of us treasuries, that's not quite
Speaker 1: there anymore. Uh Middle Eastern Central banks do buy a bit,
Speaker 1: but they're clearly not offsetting all the lackluster demand in
Speaker 1: most parts of Asia. So the uh the gap if
Speaker 1: you will is being picked up by the private sector,
Speaker 1: both us private sector and non us private sector have
Speaker 1: bid very, very enthusiastically for us treasuries through the course
Speaker 1: of this year.
Speaker 1: Um So it goes back to your point that you
Speaker 1: don't really like the Chinese home and the European home,
Speaker 1: you may not like the US home that much, but
Speaker 1: it's still AAA. So you used to buy the US home.
Speaker 2: Exactly. That is what you're doing. And unless something changes
Speaker 2: to the contrary and what could that change be? You
Speaker 2: need to get a rapidly developed European capital market that's
Speaker 2: not going to happen within the next 2 to 3 years.
Speaker 2: And the Chinese completely take the change, their policies, attract
Speaker 2: foreign direct investments become much more capitalistic than they have
Speaker 2: and put down communism and push up the importance of
Speaker 2: markets that's not going to happen.
Speaker 2: So when all of that is the case, it's a
Speaker 2: very easy bet that us dollar is where you're going
Speaker 2: to be. There's one competition though, look at the price
Speaker 2: of gold and I have to speak to a client
Speaker 2: early next week. And I'm pointing out that first for
Speaker 2: the first time in quite a while gold is getting
Speaker 2: a life. And the reason that is the case is
Speaker 2: because you're going to have a situation when rates are
Speaker 2: going to come down
Speaker 2: in the United States, we'll reserve to later as to
Speaker 2: why rates may come down.
Speaker 2: But when rates are going to come down, holding us dollars,
Speaker 2: whether in the form of treasuries or in the form
Speaker 2: of other assets becomes less attractive and the opportunity cost
Speaker 2: of holding gold goes down,
Speaker 2: which is I think what is going to happen? I
Speaker 2: think the gold price is going to go up, but
Speaker 2: it's not as if you can use gold as a
Speaker 2: currency to physically move from one to the other. So
Speaker 2: as long as that's not the case, it's very little
Speaker 2: competition still for the, for the dollar supremacy in global markets.
Speaker 1: Well, we've also seen a pretty spectacular reversion of value
Speaker 1: in Bitcoin, but we'll keep that aside free. Um One
Speaker 1: final question on that, as I said, I want to
Speaker 1: go to the US economy after that and we will
Speaker 1: talk about credit leaders. I just want to talk a
Speaker 1: little bit about equities with you. Uh It's been a,
Speaker 1: you know, remarkable year for equities in 2023. Initially,
Speaker 1: poor outlook than the A I tail wind drove the
Speaker 1: magnificent seven stocks up substantially. And now we're ending 2023
Speaker 1: actually in a rather high. Despite the fact that S
Speaker 1: and P 500 pe is extremely high. The yield gap
Speaker 1: vis A vis the US Treasury is still substantial and
Speaker 1: still people buy a lot of stocks,
Speaker 2: right? Uh People buy a lot of stocks because I
Speaker 2: think there are 22 reasons I would attribute to it
Speaker 2: from a macro point of view. And first of all,
Speaker 2: you have a situation
Speaker 2: uh where despite the higher rates, the fed is also
Speaker 2: at the being going very easy with respect to policy.
Speaker 2: Despite 5.5% of interest rate increases, I still do not
Speaker 2: think the situation is as tight as it should be.
Speaker 2: You talked for instance, about the balance sheet being reduced
Speaker 2: by quantitative tightening.
Speaker 2: But I point out in a recent write up that
Speaker 2: between March of 2020 March of 2021
Speaker 2: one year,
Speaker 2: the balance sheet of the fed
Speaker 2: increased by 77%
Speaker 2: to about $7.6 trillion in March of 2021.
Speaker 2: And right now, it is standing at $7.7 trillion. If
Speaker 2: you compare today with March of 2021 there has been
Speaker 2: no quantitative tightening.
Speaker 2: It's all a matter of your perspective. It's a matter
Speaker 2: of where we are standing when you're viewing it.
Speaker 2: The other point is that the interest rates were reduced
Speaker 2: to zero and maintained when the economy was recovering and
Speaker 2: that was highly irresponsible
Speaker 2: and you cannot make up for eating an unlimited amount
Speaker 2: of food and drinking a lot by saying that you're
Speaker 2: going to go hungry and you're going to stop eating
Speaker 2: for the next week. It doesn't, you do not get
Speaker 2: back to good health as a result of what you
Speaker 2: did before. So that's close to what the Fed is doing.
Speaker 2: They made a huge mistake. They've never admitted it. By
Speaker 2: the way, Jerome Powell called the increase in the inflation
Speaker 2: rate as quote unexpected.
Speaker 2: It has nothing to do with monetary policy. It has
Speaker 2: nothing to do with zero interest rates or increase in
Speaker 2: the balance sheet. So I think there is so one
Speaker 2: reason why the equities have continued to do well
Speaker 2: is because there is a lot of liquidity. Thanks to
Speaker 2: the Federal Reserve. Second, you refer to the fiscal deficit.
Speaker 2: You are, it is not your time to pay the piper.
Speaker 2: You do not have to pay any penalty for the
Speaker 2: fiscal deficit, but you can enjoy the benefit of the
Speaker 2: deficit and that stimulus is also helping the equity market.
Speaker 2: So that is the second reason why I think it's
Speaker 2: persisting When does it come to an end?
Speaker 2: And that's where I differ from the consensus. The consensus
Speaker 2: believes
Speaker 2: that there will be some form of a recession, maybe
Speaker 2: a mild recession, a soft landing, but that still requires
Speaker 2: the fed to cut interest rates because inflation will come
Speaker 2: down to very low levels. I disagree. Janet Yellen said
Speaker 2: earlier today that she believes that she disagrees that the
Speaker 2: last one mile of inflation fight is the toughest
Speaker 2: it is. I have followed markets for 50 years and
Speaker 2: every time starting from the Richard Nixon author Burns Years,
Speaker 2: they have been very difficult once you bring it down
Speaker 2: to very low levels, it unless you show determination to
Speaker 2: keep it there.
Speaker 2: So that is again a reason why there is a
Speaker 2: concern in the market about equities, something may break in
Speaker 2: the system, you may have a credit even which will
Speaker 2: bring the equities down. And then of course, you have
Speaker 2: a period of equities and the pressure and before they
Speaker 2: pick up again, so think about December 2008 to early
Speaker 2: March of 2009,
Speaker 2: December 2008. We were still suffering from the aftermath of
Speaker 2: Lehman Brothers. The Federal Reserve had cut interest rates to zero.
Speaker 2: They talked about quantitative easing in a, they basically increased
Speaker 2: it in a massive manner after September of 2008. But
Speaker 2: it took until March 9th of 2009 for the S
Speaker 2: and P 500 to reach its bottom.
Speaker 2: So you may have a situation like that where equities
Speaker 2: go down, but that's going to be the time you
Speaker 2: go and when this blood on the street you buy again.
Speaker 2: So my outlook for equities is from the current level
Speaker 2: go down perhaps in the next six months.
Speaker 2: It then languishes for 3 to 4 months at that stage.
Speaker 2: Then the fed once again introduces quantitative easing brings down
Speaker 2: the uh brings down the interest rate. It doesn't matter
Speaker 2: what the inflation rate is. As for the, for the
Speaker 2: central bank, inflation is a consideration only when there is
Speaker 2: no crisis.
Speaker 2: When there is a crisis, you set aside your inflation
Speaker 2: concerns and just inflate.
Speaker 2: And that's I think what's going to happen that will
Speaker 2: help equities and that is also going to be very
Speaker 2: beneficial overall to risk assets.
Speaker 1: Well, it will be consistent with the reaction function of
Speaker 1: the fed that you have been writing about for many years.
Speaker 1: Uh Shri and in the last two podcasts that you
Speaker 1: and I have done over the last 34 years. Uh You,
Speaker 1: you've gotten that perspective, you know, absolutely spot on that,
Speaker 1: you know, market considerations, Trump inflation consideration whenever the markets are,
Speaker 1: you know, convulsing.
Speaker 1: Um If we, it's been a remarkable year for the
Speaker 1: US economy at the beginning of this year, consensus forecast
Speaker 1: was growth was going to slow substantially. It didn't at all.
Speaker 1: I think US will probably end up with 2.5% growth
Speaker 1: for 2023. So higher than 2022. Uh and it will
Speaker 1: take that momentum to some extent into 24. So before
Speaker 1: we talk about 24 just the performance of the first
Speaker 1: three quarters including the spectacular third quarter that we saw.
Speaker 2: Yeah, uh two or three points to answer to that.
Speaker 2: First of all, once again, it is the extent of
Speaker 2: stimulus that existed. And for instance, toward the end of
Speaker 2: 2022 it was estimated that there was somewhere in the
Speaker 2: range of 1.7 trillion worth of excess surplus in the
Speaker 2: hands of consumers. And it is showing up in terms
Speaker 2: of retail sales levels. It is showing up
Speaker 2: in terms of for a while the low participation rate
Speaker 2: that existed in the labor market.
Speaker 2: So that is one reason why, why I think uh
Speaker 2: you have the the vibrant US economy.
Speaker 2: The second you mentioned is clearly the A I the revolution,
Speaker 2: there is a productivity growth and that is showing up
Speaker 2: in recent productivity numbers. Uh being healthy productivity again, is
Speaker 2: a very volatile concept. You have it going up for
Speaker 2: quite a few quarters and then it does you cannot
Speaker 2: sustain it. So that's the second reason why I think
Speaker 2: it is sustained. Uh But the question is when you
Speaker 2: look at the overall us economy market and when you look,
Speaker 2: by the way, when you compare it with what happened
Speaker 2: to the what the treasury market is telling you
Speaker 2: the eel curve, the 2 to 10 eel curve inverted
Speaker 2: in early July of 2022. So that's about 17 months
Speaker 2: ago
Speaker 2: and invariably every time it has resulted in a recession.
Speaker 2: And now you see that in terms of slower labor
Speaker 2: market growth, wages are coming down to some extent,
Speaker 2: the jolts report as we call it, the job openings
Speaker 2: are not as strong as they used to be. The
Speaker 2: quit rate has gone down from earlier levels. So all
Speaker 2: of those are suggesting that it is slowly starting to
Speaker 2: take shape. So the answer to your issue, which is
Speaker 2: I think very relevant is you have not banished recession,
Speaker 2: you have not gone into a state of Nirvana where
Speaker 2: you have perennial rapid economic growth.
Speaker 2: What you have is a situation where rapid growth was
Speaker 2: promoted by technological changes as well as by the stimulus,
Speaker 2: but eventually it is going to revert and you're going
Speaker 2: to reach a situation where the recession is going to come.
Speaker 2: It is delayed but not denied, denied,
Speaker 1: delayed but not delighted. Uh One thing that did not get,
Speaker 1: uh denied earlier this year was the regional banks. So
Speaker 1: we had quite a few in your home state of California,
Speaker 1: in particular, uh, regional bank failures. We saw a pretty strong, uh, uh,
Speaker 1: you know, sort of intervention by the Fed and nothing
Speaker 1: has happened since then. Uh But I, I worry that,
Speaker 1: you know, there is, you know, duration mismatch all over
Speaker 1: the economy. Uh, and the way interest rates went up
Speaker 1: and then came down,
Speaker 1: there's bound to be some financial accidents. So what's your sense?
Speaker 1: I mean, are there risks lurking here and there?
Speaker 2: I am looking for an accident as you call it
Speaker 2: or more generally a credit event in euphemistic terms to
Speaker 2: take place sometime within the next six months.
Speaker 2: And I can give you a few candidates,
Speaker 2: more banks are affected by what happened similar to March,
Speaker 2: except that this time they are somewhat bigger, not just
Speaker 2: small banks but medium sized banks.
Speaker 2: Why does that happen recently? An estimate by a study
Speaker 2: by the Federal Reserve Bank of Kansas suggested that $550
Speaker 2: billion worth of assets of us banks are under water
Speaker 2: and that is the equivalent of 30% of regulatory capital.
Speaker 2: Now that is for the entire banking system. But clearly
Speaker 2: there are some banks which are in much better shape
Speaker 2: than that or they have other assets to offset the
Speaker 2: losses they have taken in buying long dated treasuries or
Speaker 2: long dated mortgage backed securities and see the yields go
Speaker 2: up after that.
Speaker 2: But then if you say that there are some smaller
Speaker 2: banks which are accounting for $550 billion or most of it,
Speaker 2: you're talking about them using up much more than 30%
Speaker 2: of the regulatory capital. That is a national average.
Speaker 2: That is one sign of trouble that I can see.
Speaker 2: Second one is the fact that you have the commercial
Speaker 2: real estate problem, which is essentially like a tsunami. I
Speaker 2: mean tsunami doesn't happen one instant. It gathers force for
Speaker 2: a while. And then by the time you see it,
Speaker 2: it is too powerful
Speaker 2: as of now hand where there are buildings in New
Speaker 2: York and San Francisco, which are changing hands at much,
Speaker 2: much lower prices than they did in 2019. Sometimes at
Speaker 2: 60 to 70% discount from the price that was paid
Speaker 2: four years ago.
Speaker 2: And that's one. And secondly, the interest rate high interest
Speaker 2: rates mean that very many of the landlords are now
Speaker 2: able to go to the banks and say I'm not
Speaker 2: going to pay you the higher interest rate you want
Speaker 2: us to pay.
Speaker 2: You have two options. You can either reduce the interest
Speaker 2: rate for us
Speaker 2: and I can pay you a lower interest rate or
Speaker 2: second
Speaker 2: here are the keys keys to the property, you can
Speaker 2: take it. Goodbye. I'm leaving. In either case, the banks
Speaker 2: are clearly at a disadvantage. This has not come out
Speaker 2: in full and has not been discussed in public
Speaker 2: when you look at the banking regulators, when they go
Speaker 2: before Congress or when Janet Yellen repeatedly says the banking
Speaker 2: system in the United States is very sound. That word
Speaker 2: is hers, not mine.
Speaker 2: And she has repeated it quite a few times. My
Speaker 2: responses show me how it is sound but there is
Speaker 2: no explanation. There's nothing that happens. So that's the second
Speaker 2: one that I worry about. Third
Speaker 2: regulations on the banking system are tightening
Speaker 2: and the regulators are telling the banks not to make
Speaker 2: so many quote unquote risky loans.
Speaker 2: These were the same regulators who thought that buying long
Speaker 2: dated us treasuries is risk free. Uh I learned from
Speaker 2: my work at Drexel Burnham, working with Michael Milken,
Speaker 2: that us treasuries can be among the most risky assets
Speaker 2: because they carry an enormous amount of interest rate risk,
Speaker 2: not the credit risk.
Speaker 2: So when that happens and they have lost a lot
Speaker 2: of money though they are that they are going to
Speaker 2: be pushed to lend less money as the recession approaches.
Speaker 2: So if there is a credit crunch that takes place,
Speaker 2: that can add to the overall tsunami of a credit
Speaker 2: event that is taking place, that's why I'm just sitting
Speaker 2: by and watching and so I expect so I expect
Speaker 2: the Federal Reserve to change its policy to have a
Speaker 2: pivot in terms of interest rate policy,
Speaker 2: but not because inflation comes down to 2% or goes
Speaker 2: below it.
Speaker 2: But more because of the fact that there is a
Speaker 2: credit event which forces them to cut rates.
Speaker 1: Shri I share your concern on the banking system and
Speaker 1: I think that uh it will be remarkable if we
Speaker 1: go through the entire cycle without any major events coming
Speaker 1: out of banks beyond what we have seen in March.
Speaker 1: But what about the role of the non bank financial sector?
Speaker 1: I mean, from leveraged loan market where the ps private
Speaker 1: equity companies are very active, we've seen asset managers get
Speaker 1: into this private credit market, um much more opaque, very
Speaker 1: hard to sort of get a sense of whether they
Speaker 1: are risk lurking there or not. What's your sense
Speaker 2: there is, there is a lot of risk uh lurking
Speaker 2: there as well and especially as you mentioned with private
Speaker 2: equity firms. And I think uh listeners and watchers of
Speaker 2: your show, whether it is for their personal investment or
Speaker 2: for institutional investment need to be very sensitive to that.
Speaker 2: And the reason is that you are not going to
Speaker 2: see the adverse impact of it before it's too late.
Speaker 2: Um
Speaker 2: The issue is that if it is a smaller p institution,
Speaker 2: they will not get bailed out.
Speaker 2: But if it is thought to have systemic implications because
Speaker 2: of a failure, they will be bailed out. That is
Speaker 2: the history of us monetary policy. Take a case of
Speaker 2: the long term capital management. In 1998 we all thought
Speaker 2: it was a small firm in Greenwich, Connecticut. We thought
Speaker 2: it was doing risk free arbitrage,
Speaker 2: but we didn't realize until it was too late that
Speaker 2: they were levered 27 to 1.
Speaker 2: So when the hit came to credit and the credit
Speaker 2: crunch followed after the Russian debt default of 1998 the
Speaker 2: Asian debt crisis of 1997
Speaker 2: LTCM couldn't take it and they had to be bailed
Speaker 2: out and the policy changed.
Speaker 2: So while I agree with you that there is a
Speaker 2: problem with private equity firms as to whether the firm
Speaker 2: is systemic or not, will determine whether it will lead
Speaker 2: to a change in policy or not change or not.
Speaker 2: Refer to a change in policy.
Speaker 1: You know, uh we look at the US housing market
Speaker 1: which stands as a sort of residential property market, which
Speaker 1: is a big contrast to the commercial property market. To
Speaker 1: your point, huge supply demand, imbalance with lots of supply,
Speaker 1: not enough demand. On the commercial side, on the housing side,
Speaker 1: we see the opposite. But the strange thing is sitting
Speaker 1: here in Singapore, there are a lot of real state
Speaker 1: investment trusts which are structured around you
Speaker 1: us properties uh and they've all done very poorly this year.
Speaker 1: Uh In many meetings that I have with my colleagues,
Speaker 1: I always say that, you know, we look at the
Speaker 1: US economy doing so well, inflation is coming down. But
Speaker 1: our clients who hold us reeds, they've had the really, really,
Speaker 1: you know, terrible year minus 2030 40%. Uh why don't
Speaker 1: we see it, you know, transmit to the financial system.
Speaker 1: And the typical answer is that
Speaker 1: it's sort of, you know, under wraps uh that, you know,
Speaker 1: some evergreening here, some restructuring there, but sooner or later,
Speaker 1: somebody will have to pay the bill right now. A
Speaker 1: lot of private clients are paying the bill.
Speaker 2: That's correct. I agree with you that it is under
Speaker 2: the wraps at the moment.
Speaker 2: And when that happens after a few months, you are
Speaker 2: not able to hold it under control anymore and it explodes,
Speaker 2: it's very difficult to time it. That's why I give
Speaker 2: myself another six months before that happens. Maybe it happens
Speaker 2: in two months, maybe it happens in a month, but
Speaker 2: six months is a safe amount of time for you
Speaker 2: to say something is going to get exposed in the
Speaker 2: whole process.
Speaker 1: Uh X even from the conversation that we've had so
Speaker 1: far and from your recent writings that I've read, uh
Speaker 1: you think that the scenario for 2024 is of a
Speaker 1: slower economic growth and not so much lower inflation than
Speaker 1: it is now uh after the sort of reduction in
Speaker 1: inflation over the last year or so? So do you
Speaker 1: want to put some numbers around that in terms of
Speaker 1: growth forecasts and inflation forecast for 2024.
Speaker 2: Good. I would do that, but it is clearly um
Speaker 2: I would probably be going up a full set in
Speaker 2: terms of trying to give any precision to the numbers
Speaker 2: uh K more. But I will say if I were
Speaker 2: to give you a figure of about 2% for the
Speaker 2: entire calendar year, 2024
Speaker 2: it would be made up of something like minus 2%
Speaker 2: in the first half of the year and plus 4%
Speaker 2: in the second half of the year as the monetary
Speaker 2: and fiscal figures get turned on and the economy starts
Speaker 2: to recover and crucial to my belief. Here also is
Speaker 2: November 2024 is the presidential election month
Speaker 2: and it is, the government is going to try as
Speaker 2: much as it can to avoid the c A recession
Speaker 2: as they go into the elections.
Speaker 2: But as we found out from 2008 that is, they
Speaker 2: don't always succeed. Uh George W Bush was the president.
Speaker 2: We were going into the 2008 elections. You had Barack
Speaker 2: Obama trying to become president for the first time. We
Speaker 2: had John mccain who was his competitor. And John mccain
Speaker 2: subsequently said as late as September 1st of 2008, he
Speaker 2: thought he had a decent chance of winning in November,
Speaker 2: then came September 15th and the failure of Lehman brothers
Speaker 2: and the picture changed completely. So what this government is
Speaker 2: going to do is they are probably going to uh watch, listen,
Speaker 2: read history and try to stimulate in the second half
Speaker 2: of the year.
Speaker 2: So that's one reason why I think there will be faster,
Speaker 2: faster growth in the second half compared with the first
Speaker 2: half of 2024.
Speaker 2: On the inflation side. Again, we are looking at core
Speaker 2: inflation which came out today, Core inflation is still 4%
Speaker 2: and the Fed's target is 2%. It is double the
Speaker 2: target
Speaker 2: and the headline is under is coming down. But then
Speaker 2: a huge chunk of the headline inflation rate moderation is
Speaker 2: because of a 9.5% fall month on month decline in
Speaker 2: gasoline prices, not annual month on month decline.
Speaker 2: So that's not going to be continued, it's not going
Speaker 2: to persist. So I think you're stuck at somewhere between
Speaker 2: 3.5 and 4% on the core inflation rate,
Speaker 2: which is, which is not a killer. It is not
Speaker 2: like what Richard Nixon had or uh the next president
Speaker 2: J uh J Ford had with the with the um
Speaker 2: chairmanship of Arthur Burns or G William Miller.
Speaker 2: But what you do have today is just inflation still
Speaker 2: above the fed's target and whether it will tolerate that
Speaker 2: or not.
Speaker 2: So if that is they can, they don't have the option.
Speaker 2: I think of declaring victory and walking away because they
Speaker 2: made one mistake about inflation being transitory and that was
Speaker 2: wrong this time, they have to get it right.
Speaker 2: Which is also another reason why I think a credit
Speaker 2: even becomes more likely
Speaker 1: correct. Three, let's unpack that inflation story a little bit.
Speaker 1: Uh So we think about goods inflation, we think about
Speaker 1: services inflation and then there's the whole rental owners equivalent
Speaker 1: rent and so on. Uh the three major sources of
Speaker 1: heading if you will over the last couple of years,
Speaker 1: I think on goods inflation, you and I can agree
Speaker 1: that not a lot of upside oil seems to be
Speaker 1: well supplied. Food related fears existed for a little while
Speaker 1: last year. It's not a very big part of the US.
Speaker 1: CP I anyway,
Speaker 1: uh and manufactured goods by and large, you know, are,
Speaker 1: are not a big source of inflation as they were
Speaker 1: during the bad years of the pandemic. But then when
Speaker 1: we come down to rental accommodation as well as services,
Speaker 1: I'm not quite as Sanguine. Uh I just came back
Speaker 1: from the US, from your home state of California. Uh I,
Speaker 1: I don't see uh you know, major easing of pressure
Speaker 1: on those two fronts. Uh What's, what's your view?
Speaker 2: I don't see a easing either. I completely agree with
Speaker 2: the view that you expressed, Timor. I think what you
Speaker 2: have with inflation and the Fed's fight for it. I
Speaker 2: would call it as a whack a mole strategy you
Speaker 2: hit at one side and it goes down and it
Speaker 2: comes up again somewhere else in the horizon.
Speaker 2: And the reason is again, we talked about it, the
Speaker 2: extent of stimulus that you have overall
Speaker 2: and you can cause you can cause some of them
Speaker 2: to remain under control. You can get the benefit of
Speaker 2: natural gas prices coming down, gasoline prices coming down. But
Speaker 2: it doesn't mean all of the other products are going
Speaker 2: to stay down. Second one
Speaker 2: as the Biden administration likes to point out that the
Speaker 2: wage increase is now staying ahead of inflation, real wages
Speaker 2: are increasing for workers.
Speaker 2: But when you look at the workers and how they
Speaker 2: have experience going back to 20 in 2019,
Speaker 2: that you have essentially a situation
Speaker 2: when the real wages over the last 3 to 4
Speaker 2: years has actually fallen.
Speaker 2: And that is again, something that they will have to
Speaker 2: correct going forward. And that is, I think another risk
Speaker 2: as far as the US economy is concerned.
Speaker 1: Right. Let's get to the juicy part. Now fed in 2024.
Speaker 1: Now you've already told us that you expect growth to
Speaker 1: shrink in the first half of the year and then
Speaker 1: around that, uh, the fed will react and then we
Speaker 1: will see growth pick up in the second half of
Speaker 1: the year. Uh, but
Speaker 1: can they calibrate it so perfectly? Uh, when do you
Speaker 1: think they'll start talking about rate cuts in a serious manner?
Speaker 1: The market think that they'll blink by the middle of
Speaker 1: next year, if not earlier. And then you do your view,
Speaker 1: I think I heard you earlier talk a little bit
Speaker 1: about QT. So you elaborate on that as well, both
Speaker 1: the rates and the QT pipeline for 2024.
Speaker 2: Um
Speaker 2: Let's go step by step. What happens to happen first,
Speaker 2: you cannot have
Speaker 2: QT continuing when they are cutting rates.
Speaker 2: It's almost like one of them is easing and the
Speaker 2: other is tightening and it creates an inconsistent statement, which
Speaker 2: is what the European Central Bank is also going through
Speaker 2: right now.
Speaker 2: They have a quantitative easing program known as the PE
Speaker 2: PP program. And at the same time, they're considering cutting rates.
Speaker 2: But let's set that aside, let's stay with the United States,
Speaker 2: with the United States. And you're right, they cannot finally
Speaker 2: calibrate when they are going to cut rates.
Speaker 2: That's why I say you, one of two things has
Speaker 2: to happen. Either the inflation rate goes down to 2%.
Speaker 2: The target is reached, Fred declares victory and then they
Speaker 2: can cut rates massively from where they are today. Second,
Speaker 2: you have a credit, even in which case, you do
Speaker 2: not have to worry about inflation, you have to save
Speaker 2: the system and they, they do it. Uh look at
Speaker 2: the Ben Bernanke approach in 2008.
Speaker 2: He thought the subprime crisis was a 50 to $100
Speaker 2: billion problem. That's what he said to us. Congress in
Speaker 2: July of 2007,
Speaker 2: it turned out to be a massive crisis the following year.
Speaker 2: So then he said, ok, he was going to start
Speaker 2: quantitative easing, which he described as being a temporary process,
Speaker 2: which is still in existence all these years later. Uh
Speaker 2: But again, he was called the Savior of the system,
Speaker 2: not the person who did not anticipate the crisis. He
Speaker 2: even has a Nobel Prize to show for it after
Speaker 2: all of these years. So the question is the risk
Speaker 2: and reward that you have on the central backing side
Speaker 2: are not consistent with what is required for good economic policy,
Speaker 2: good monetary policy. So what is the fed going to do?
Speaker 2: They are going to wait to see if the inflation
Speaker 2: comes down and it doesn't come down to 2% stays
Speaker 2: at 3.5. They will continue to pass. They'll pass tomorrow
Speaker 2: for the third time in a row.
Speaker 2: They can pause for six or seven months and at
Speaker 2: the same time, say that we are not going to
Speaker 2: increase interest rates. We are not going to decrease interest rates. So,
Speaker 2: but actual cut would be such a big move that
Speaker 2: I think they have to be careful when they do that.
Speaker 2: And I think that will happen only with the credit event.
Speaker 2: What about the quantitative tightening?
Speaker 2: They have a problem because they have increased it so
Speaker 2: much from pre pandemic days. They essentially doubled it from
Speaker 2: the beginning of 2020 to March of 2022. When the
Speaker 2: quantitative tightening began,
Speaker 2: the balance sheet increased from about $4 trillion to almost
Speaker 2: $9 trillion before it's come down now to 7.7.
Speaker 2: So they have to cut a bit more. And I
Speaker 2: think at that stage, they say we are not going
Speaker 2: to do QT anymore,
Speaker 2: but we'll be closely watching it and whenever that is possible,
Speaker 2: we are going to reduce the fed's balance sheet.
Speaker 2: In other words, we don't have a timetable
Speaker 2: because between really because they are concerned about having a
Speaker 2: timetable and how it would strangle the economy, but we
Speaker 2: are ready to tighten again if necessary. So that's I
Speaker 2: think what's going to happen that may happen by March
Speaker 2: or April and you go on further uh with the,
Speaker 2: with the interest rate remaining where they are and the
Speaker 2: cut takes place when the credit even takes place.
Speaker 1: I can imagine the skating observations you will have that
Speaker 1: capitulates on the QT side. Um But uh re I
Speaker 1: think I picked up from you earlier when we were
Speaker 1: talking about your 2024 envelope, that second half of 2024
Speaker 1: would be characterized both by monetary and fiscal easing. So
Speaker 1: let's talk about the fiscal part for a second. Uh
Speaker 1: We have a rather dysfunctional congress, we have these, you know,
Speaker 1: uh rather
Speaker 1: potentially severe events like a debt ceiling issue and then
Speaker 1: some last moment engineering pushes the can down the road
Speaker 1: by a few months. And then again, there is another
Speaker 1: crisis but surely in a situation like that, the Democrats
Speaker 1: really are not in a position to add more fiscal stimulus.
Speaker 2: Uh They may not be able to do it through
Speaker 2: the uh through the Congress. But the Biden administration time
Speaker 2: and time again has found ways to provide stimulus. For example,
Speaker 2: the student debt cancellation policy was again voided by the
Speaker 2: Supreme Court.
Speaker 2: But the Biden administration found loopholes so that they can
Speaker 2: provide somewhere in the neighborhood of $100 billion of relief
Speaker 2: and the 100 billion spending for that purpose. Right now,
Speaker 2: it's a huge sum of money to be spending when
Speaker 2: you're trying to improve your fiscal situation that it happened
Speaker 2: in the last couple of months. Yes
Speaker 2: and so I wouldn't put it beyond them
Speaker 2: to find other ways to provide stimulus. If not, then
Speaker 2: monetary policy will have to step in. And if you
Speaker 2: remember once again, going back to history because I study
Speaker 2: history to learn what we what may happen again.
Speaker 2: Ben Bernanke made the statement that he was easing on
Speaker 2: policy after 2008
Speaker 2: because the Congress did not allow for increased spending
Speaker 2: in the Obama administration.
Speaker 2: And so as a result of that, they had to
Speaker 2: use monetary policy as a substitute for fiscal policy.
Speaker 2: And my response and I wrote it once saying it
Speaker 2: is like saying I have tried different medications for my headache.
Speaker 2: My headache will not go away. So I've decided to
Speaker 2: take a gun and shoot myself in the head.
Speaker 2: But guaranteed 100% there will not be any headache after that.
Speaker 2: But is that the kind of cure you want to have?
Speaker 2: But that, that is, again, it is clearly something that
Speaker 2: will be open. I don't believe that the fed is
Speaker 2: an independent institution
Speaker 2: and if necessary, the fed will step in to substitute
Speaker 2: for fiscal policy if, as you say, they are not
Speaker 2: able to increase spending
Speaker 2: in the new setup.
Speaker 1: It's interesting you say that the Fed is not an
Speaker 1: independent institution, but at the same time, you could argue
Speaker 1: that Jerome Powell is a appointee from the previous administration
Speaker 1: and is a Republican. So why would he want to
Speaker 1: do the Democrats any favor if we're going with that
Speaker 1: line of not being independent,
Speaker 2: he has to be reappointed.
Speaker 2: And as you know, the fed chairman's term ends is
Speaker 2: not coterminous with the president of the United States. So
Speaker 2: for instance, uh uh Powell began on February 1st of
Speaker 2: 2018
Speaker 2: and it was again two years after the 2016 elections
Speaker 2: or 15 months after the elections. The idea is that
Speaker 2: your renomination as fed chairman should not coincide with the
Speaker 2: presidential election. It should be, you should have independence but
Speaker 2: you have independence for only a year and four months
Speaker 2: after that, your own nomination is in trouble and then
Speaker 2: you have to figure out whether you're going to be
Speaker 2: nominated or not.
Speaker 2: And think about it when the Powell renomination came up,
Speaker 2: I said publicly he should not be renominated
Speaker 2: and, but he was renominated. If I remember my number
Speaker 2: is correctly, the Senate approved him 80 to 19 with
Speaker 2: one abstention.
Speaker 2: So when the senators complain about its policy, my response
Speaker 2: often is you guys confirmed him as chairman. Who are you,
Speaker 2: who do you have to blame yourself?
Speaker 2: And so I think what will happen is that there
Speaker 2: is no independence in that sense because the fed chairman
Speaker 2: doesn't have to be renominated by the new president
Speaker 2: and he or she has still to be confirmed by
Speaker 2: the Senate which may or may not happen. And that
Speaker 2: those are the two holds that politics has on the
Speaker 2: fed chairman.
Speaker 2: What I have suggested in my weekly writings that you receive.
Speaker 2: Kor is to say that the fed chairman should have
Speaker 2: a single six year term
Speaker 2: and he or she will not be eligible for renomination
Speaker 2: that will give it some independence, not the present way
Speaker 2: where we say he is independent. Oh, no, no, no,
Speaker 2: he really is independent. I compared it to Jerome with
Speaker 2: Janet Yellen saying the banking system is very sound and
Speaker 2: she repeats it very often hoping that that means everybody
Speaker 2: will believe it.
Speaker 2: So you need to have a structure and if you
Speaker 2: have a six year term for a chairman. That's a
Speaker 2: long enough term. It's six years are a long term. It's,
Speaker 2: it's two years longer than the president
Speaker 2: and you can have it ending like today, but then
Speaker 2: it will go on for six years so that you,
Speaker 2: you do not have to act in a way that
Speaker 2: you're looking, um, of studying favor for a re-election.
Speaker 1: Right. Do you see any room for tension between the
Speaker 1: fed and the treasury in 24? Or is the relationship
Speaker 1: between Powell and Yellen is so good that it will
Speaker 1: not be a big issue because you know, we've had
Speaker 1: ratings agencies put us debt under scrutiny. Uh We do
Speaker 1: have an unfavorable supply demand situation surely that makes the
Speaker 1: Fed's life difficult. But is the Fed going to be
Speaker 1: courageous enough to make a big deal out of that?
Speaker 2: Uh Can the relationship be good? There are two things.
Speaker 2: One is, as you said, um, the he that Powell
Speaker 2: was nominated by a Republican president. Now he's serving with
Speaker 2: a Democratic president and
Speaker 2: you have also one other factor to keep in mind,
Speaker 2: Lyle Brainard who is a vice chairman, she is now
Speaker 2: the Director of National Economic Council,
Speaker 2: but again, she's part of the administration. I think you
Speaker 2: behave differently when you're part of the executive branch than
Speaker 2: when you're part of the central bank.
Speaker 2: So can conflicts de develop between the Fed and the Treasury? Absolutely,
Speaker 2: they can,
Speaker 2: uh for example, uh Yellen has said in her speech today,
Speaker 2: I think she was speaking to the Wall Street Journal
Speaker 2: at the conference and she mentioned that she thinks a
Speaker 2: soft landing is possible in contrast to Powell who has
Speaker 2: looked for pain as the as the inflation rate is
Speaker 2: being brought down. So she is giving a very Biden,
Speaker 2: please reelect
Speaker 2: a Biden kind of a speech compared with Powell who
Speaker 2: is at least staying objective even though I disagree with
Speaker 2: his policies.
Speaker 2: So yes, there can be more conflicts developing as the
Speaker 2: election date comes closer,
Speaker 1: right? So when I was lining up the questions for
Speaker 1: this podcast, I had in mind that we'll talk a
Speaker 1: little more about fiscal consolidation and us dollar and credit spreads.
Speaker 1: I think we've covered those things. So actually, I want
Speaker 1: to talk a little bit about politics beyond central bank politics.
Speaker 1: I want to talk about presidential election politics.
Speaker 1: Um markets uh were very nervous around the Trump election
Speaker 1: initially and then they stopped worrying about it. And despite
Speaker 1: Trump's various uh mercurial action had a pretty decent time
Speaker 1: during his tenure. Uh and then uh under Biden, I
Speaker 1: remember you actually pointing it out in the last podcast
Speaker 1: that we had that the moment the Georgia election happened,
Speaker 1: the market roared because the expectation was there will be
Speaker 1: huge fiscal support for the economy going forward.
Speaker 1: So walk us through the two scenarios. None of them
Speaker 1: seem extremely appealing. But the two scenarios that we have
Speaker 1: one is a Trump victory. The other is a Biden
Speaker 1: re-election and how the markets will behave around that in 2024.
Speaker 2: Yeah, you have the most likely candidates today, Trump on
Speaker 2: the Republican side and Biden on the Democratic side or
Speaker 2: both candidates who large group of voters do not want
Speaker 2: either of them.
Speaker 2: But it is an interesting twist of political fate that
Speaker 2: we have two candidates, neither of whom is overwhelmingly very
Speaker 2: powerful or popular who is dominating it?
Speaker 2: Let's assume the question is, does Biden continue to decide
Speaker 2: to run?
Speaker 2: And Nikki Haley is considered the most likely competitor who can,
Speaker 2: who's closest to Trump in terms of winning over, but
Speaker 2: she's still very far behind, that doesn't seem to be
Speaker 2: in prospect today. So I'm going to assume to answer
Speaker 2: your question, Timor that it is going to be Biden
Speaker 2: versus Trump.
Speaker 2: And if that happens
Speaker 2: also saying that the whatever you may think in a,
Speaker 2: in a foreign country and think about the United States,
Speaker 2: the people who vote are those of us who are
Speaker 2: us citizens and who are voting for the candidate? We
Speaker 2: care more about our wallet and what is there in
Speaker 2: it than the prestige of the United States on the
Speaker 2: world scene?
Speaker 2: What does that mean to us?
Speaker 2: Biden's economic rating in polls is low and going headed
Speaker 2: lower
Speaker 2: no matter how much the administration tries to point out
Speaker 2: the pace of economic growth. Consumers are spending well, unemployment
Speaker 2: is remaining low. The population is focusing on inflation and
Speaker 2: how much they have lost.
Speaker 2: Also, they go back and say during the Trump years,
Speaker 2: we did fine
Speaker 2: whether he was responsible or not. Uh Clearly, the market
Speaker 2: is saying they were better off in the Trump years
Speaker 2: than they are in the Biden years. So what does
Speaker 2: that mean? It means to me that if it came
Speaker 2: to a head on clash between the two and if
Speaker 2: the elections were held today,
Speaker 2: it is likely to be a Trump, a Trump victory
Speaker 2: over Biden.
Speaker 2: Something needs to change dramatically between now and next November
Speaker 2: for that to be changed.
Speaker 2: And as to, well, there are all kinds of other
Speaker 2: political issues. Trump has said that he will be a
Speaker 2: dictator for one day if elected. And what does that mean?
Speaker 2: How do you become a dictator and then you're no
Speaker 2: longer a dictator. Nobody is given a power in that manner.
Speaker 2: So there are other issues which I think the electorate
Speaker 2: is not focusing on yet,
Speaker 1: right? And of course, let's not forget the various legal
Speaker 1: troubles that Trump has and of course, that doesn't affect
Speaker 1: his electability. You can apparently be even in jail and
Speaker 1: still with the president of the United States.
Speaker 1: Um So we will have no shortage of drama around that.
Speaker 1: But between the other thing is that, I mean, these are,
Speaker 1: you know, since we are talking about prognostication after all,
Speaker 1: neither of them are exactly, you know, very fit candidates
Speaker 1: going into, you know, 2024 you know, closing in on,
Speaker 1: in their eighties,
Speaker 1: the uh health issue, uh if it were to surface.
Speaker 1: So you think that, you know, Nikki Haley would be
Speaker 1: one plausible candidate on the Republican side. Do you see
Speaker 1: anybody on the Democratic side other than Kamala Harris?
Speaker 2: Uh Well, Kamala Harris benefits if Biden is disabled or
Speaker 2: some other reason has to exit the presidency, then if
Speaker 2: that happens between now and next November, she becomes president,
Speaker 2: that's a, that's a succession that follows. Or if Biden
Speaker 2: wins in November, he has said that he's going to
Speaker 2: run with her
Speaker 2: and if he does not finish his second term, she
Speaker 2: becomes president sometime during that term, if he does not
Speaker 2: finish his term.
Speaker 2: So those are the two ways in which she can
Speaker 2: become the president.
Speaker 2: Her popularity continues to remain low rightly or wrongly. She's
Speaker 2: not given a lot of credit for what has happened
Speaker 2: in the, in the administration.
Speaker 2: And if so if uh so you are talking about
Speaker 2: essentially
Speaker 2: the Republicans arguing that a vote for Biden is actually
Speaker 2: a vote for Kamala Harris.
Speaker 2: So you are actually trying to get her elected and
Speaker 2: she will be there before the end of the next
Speaker 2: four years. That's, that's the pitch in terms of saying
Speaker 2: that you should give the vote for the Republicans, but it's,
Speaker 2: as you said, it is so convoluted with so many
Speaker 2: indictments and whether they go to the court for a
Speaker 2: decision before next November or not,
Speaker 2: or if they are, if he's convicted and elected as president,
Speaker 2: what do you do after that? These are constitutional questions
Speaker 2: which even lawyers are probably unable to answer at this stage.
Speaker 1: Right. So coming back to the issue of markets, so
Speaker 1: whether it's the US dollar or the US treasury demand,
Speaker 1: do these things get affected by all these domestic uh developments?
Speaker 1: Or you think that the for the rest of the
Speaker 1: world or even for us, institutional investors, the faith in
Speaker 1: the power of the Fed and the Treasury to keep
Speaker 1: things at least under wraps is substantial. And therefore, we
Speaker 1: don't have to worry about too much risk premium, having
Speaker 1: to be priced into the dollar or the treasuries around
Speaker 1: these uncertainties.
Speaker 2: Um
Speaker 2: look around the world and look at the history and
Speaker 2: you say, let me look at an autocrat or a
Speaker 2: dictatorial regime
Speaker 2: and whether the currencies thrive or not, whether the economy
Speaker 2: thrives or not,
Speaker 2: you find time and time again. I've, I've looked at
Speaker 2: it and I'm surprised by the fact that now you
Speaker 2: have Xi Jinping who is President for life. You have
Speaker 2: Vladimir Putin in Russia who says he's going to run
Speaker 2: in early 2024. He is President for Life
Speaker 2: Viktor Orban in Hungary is again there and he's going
Speaker 2: to continue there. Do any of the people in these
Speaker 2: countries say we don't like the person because we don't
Speaker 2: have free democratic elections. No,
Speaker 2: the thought is whether you're doing well in terms of
Speaker 2: your income, your living standards and that also is going
Speaker 2: to affect how the dollar trades with respect to the
Speaker 2: other currencies and how the foreign countries deal with the
Speaker 2: United States in terms of trade. Yes, you can have
Speaker 2: side effects.
Speaker 2: You can have Trump imposing tariffs more so than Biden
Speaker 2: would have done.
Speaker 2: But look at what Biden has been able to do.
Speaker 2: He has not been able to remove the tariffs on
Speaker 2: China that were, that were imposed by Trump, he had
Speaker 2: to continue with it.
Speaker 2: So the short answer for you, I gave you a
Speaker 2: good long winded explanation. The short answer is politics probably
Speaker 2: don't matter for the economy, markets or the dollar.
Speaker 1: Hm. That's uh I'm going to use that as the
Speaker 1: summary of our podcast at some point. Uh free uh
Speaker 1: you know, very, very, uh you know, informative and insightful
Speaker 1: as always. And I think right around the election time,
Speaker 1: we need to get together again and have another chat
Speaker 1: and see what 2025 holds for us. Uh Thank you
Speaker 1: so much for your time and insights.
Speaker 2: You're welcome. It's always a pleasure to talk with you,
Speaker 2: Timor and I would be delighted to chat with you
Speaker 2: again around the election time.
Speaker 1: I wish you and your family all the very best
Speaker 1: in the holidays and a Happy New Year.
Speaker 2: Thank you. Happy holidays and Happy New Year to you
Speaker 2: as well and your family.
Speaker 1: Thank you and thanks to our listeners as well. Uh
Speaker 1: Copy Time was produced by Ken Delbridge at Spy studios.
Speaker 1: Valet Lee and Daisy Sherma provided additional assistance. It is
Speaker 1: for information only and does not represent any trade recommendations.
Speaker 1: All 114 episodes of copy time are available on youtube
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Speaker 1: As for our research publications, webinars and live streams, you
Speaker 1: can find them all by Google and D BS research library.
Speaker 1: Have a great day.