Speaker 1: Hello, this is Copy Time, a podcast series on Markets
Speaker 1: and Economies from D BS Group Research. I'm Tambe, chief economist.
Speaker 1: Welcoming you to our 143rd episode.
Speaker 1: Today we will dive into the markets lots going on there.
Speaker 1: Our return guest is Mustafa Choudhury, a seasoned global rates
Speaker 1: and Macro analyst. During a three decade career. He has
Speaker 1: held senior positions in Freddie Mac Bear Stearns Deutsche Bank
Speaker 1: where I had the pleasure of interacting with him, Bluecrest
Speaker 1: Voya and most recently Macro hive,
Speaker 1: we had him on copy time, mid last year when
Speaker 1: we discussed at length the US, fiscal and monetary policy outlook. Today,
Speaker 1: we will discuss the US, but then we will widen
Speaker 1: the discussion because Mustafa has very interesting insights on international macro,
Speaker 1: especially pockets of value in em assets, not just with
Speaker 1: short term but also medium term perspective. Mua choi. Welcome
Speaker 1: back to K Kobe Time.
Speaker 2: Thanks. It's nice to be back for the second time.
Speaker 2: Thanks for having me. A few,
Speaker 1: few, few things have happened since you and I last talked.
Speaker 1: Um but one of the things I remember from the
Speaker 1: copy time episode of summer of 2023 Mustafa is you
Speaker 1: had insisted that instead of looking at market based inflation
Speaker 1: expectation markers, which is sort of things that, you know,
Speaker 1: you and I do on a day to day basis,
Speaker 1: they're actually second best. And you asserted that we should
Speaker 1: look at survey based inflation expectation, that's a superior indicator.
Speaker 1: So now we're sitting at the end of 2024. Do
Speaker 1: you still maintain that view?
Speaker 2: Yes. Uh I I do and I think it's a
Speaker 2: fundamental long term issue for economists to address this uh
Speaker 2: me measurement problem in inflation. What really is inflation? Because
Speaker 2: in
Speaker 2: at the end, what matters is the inflation expectations and
Speaker 2: not the observed inflation itself. And we use observed inflation
Speaker 2: sort of as a proxy for uh inflation expectations. But
Speaker 2: inflation expectations could be determined by multiple other things. As
Speaker 2: we have often we cannot distinguish between the two.
Speaker 2: But this last few years in the US was a
Speaker 2: striking reminder that if uh the inflation that the consumers
Speaker 2: feel was quite different from what the data was showing
Speaker 2: and we saw uh the Michigan survey one year ahead,
Speaker 2: inflation persistent at a fairly high level. And while we
Speaker 2: saw the CP I
Speaker 2: pieces of the core P ce although stayed fairly elevated,
Speaker 2: uh uh uh uh would come down quite hard. So
Speaker 2: that sort of effect, you can tell that affecting the
Speaker 2: political outcome in the US in all of the survey results,
Speaker 2: people still feel inflation. And so
Speaker 2: it, I know that it's very hard
Speaker 2: uh for economists to have a clear concrete, they need
Speaker 2: a uh we, as economists need a concrete measurement of
Speaker 2: uh of inflation. So we do have to go through
Speaker 2: this very public approach, but we, we have to still
Speaker 2: figure out if there's few other estimates that reflect how
Speaker 2: people feel inflation. For example, the month before the election
Speaker 2: in uh in September, when the CP I came out
Speaker 2: just the everything was the inflation numbers, the headline numbers
Speaker 2: are good co uh co CP I was good. But
Speaker 2: if you just separated out the egg price inflation, it
Speaker 2: was 20% increase in egg prices. So anyone who are
Speaker 2: walking into a grocery store sees much higher inflation than
Speaker 2: um than the data that CP I data subsequently that
Speaker 2: came up. And so
Speaker 2: that disconnect we need to address as um as uh market,
Speaker 2: market players and as well as economists. Uh I think
Speaker 2: that's happening everywhere else as well that uh the, and the,
Speaker 2: and the this may be becoming even bigger as the
Speaker 2: uh the income and wealth disparity in around the world
Speaker 2: is going up.
Speaker 2: The consumption baskets of the overall aggregate consumption basket could
Speaker 2: be quite diff the one that's used in the measurement
Speaker 2: quite to be quite different from where the different percentile
Speaker 2: uh populations consumption basket is and it's going to be
Speaker 2: more and more different. And therefore the measurement has to
Speaker 2: address that consumption basket difference by different segments of the population.
Speaker 2: So I think it's important it needs to be addressed
Speaker 2: uh
Speaker 2: to be at least making the policy, right, also the
Speaker 2: communication right to uh to the um from the government
Speaker 2: to the people.
Speaker 1: What about the difference between a 12 month measure of
Speaker 1: inflation which you know, you and I would use to
Speaker 1: price bonds, we would use it to talk about in expectation.
Speaker 1: But the average person seems to be thinking in the
Speaker 1: last four years, my egg prices are up 30 40%
Speaker 1: and that's what I care about. Not this artificial 12
Speaker 1: month cookie cutter thing that economists do. So do you
Speaker 1: think there's something going on there as well?
Speaker 2: Huge? And I am trained and Time Series economic that
Speaker 2: turned into a bond portfolio manager. But a few things
Speaker 2: that I I have learned quite well as a time
Speaker 2: to this guy is that all this back history, 12
Speaker 2: month old history really doesn't matter. It's already embedded in
Speaker 2: expectations embedded in all the other relationships. What matters is,
Speaker 2: what's the new information is the just a month of
Speaker 2: a month?
Speaker 2: And if you really want to take a little bit
Speaker 2: of the noise out, maybe uh the number that I
Speaker 2: look at is the annually three month, last three months average.
Speaker 2: I almost never look at the year over year. Only
Speaker 2: reason I look at the year over year is because
Speaker 2: I want to know what Feds putting as an input
Speaker 2: because it's too stale the previous nine months. And so
Speaker 2: that needs to be also uh uh somehow addressed
Speaker 2: because uh year over year is a basically a state
Speaker 2: piece of information in, in my opinion. But it seems
Speaker 2: like because Fed puts that as an input to their
Speaker 2: models
Speaker 2: market then has to be aware of that and discuss that.
Speaker 2: And I, I find myself at a loss. Why do
Speaker 2: I need to know how far inflation has moved since
Speaker 2: the middle of last year or whatever, November last year,
Speaker 2: I need to know what happened in the last two
Speaker 2: or three months. And so yes, that is um that
Speaker 2: is from a pure information content point of view. Uh
Speaker 2: that needs to be also something uh revised and looked
Speaker 2: at more recent data. But there are most you can
Speaker 2: look at you can reduce noise without having to bring
Speaker 2: in so much stale data. If, if the objective is
Speaker 2: to reduce noise in the inflation and all data, you know,
Speaker 2: it just looks like a lot of noise, a lot
Speaker 2: of stale data in the process.
Speaker 2: So yes, I'm totally on that
Speaker 2: account.
Speaker 1: So, so Musa I have a slightly different take on
Speaker 1: this issue and hear me out for a second. So
Speaker 1: I think the three month over three months is a
Speaker 1: very good gauge of inflation momentum. And when we were
Speaker 1: sort of talking about the near term inflation outlook. The
Speaker 1: momentum is, I think a far better useful source of
Speaker 1: information than the stale data. I'm fully with you on that.
Speaker 1: But I think what I was alluding to kind of
Speaker 1: hit me during my trip to the US the week
Speaker 1: before the US elections that when I talked to taxi
Speaker 1: drivers or grocery store clerks, they were talking about ultra
Speaker 1: long memory. They were saying that my grocery bill is
Speaker 1: up 40 percent over the last four years. You and
Speaker 1: I would say, you know, they have gotten wage increases
Speaker 1: since then. So they're really suffering from some degree of
Speaker 1: illusion or they're getting a systemic error in their way
Speaker 1: of looking at the world. But it seems to me
Speaker 1: that long memory
Speaker 1: in this election played a role because the Feds or
Speaker 1: the treasuries or the Biden administration's communication to the public was,
Speaker 1: inflation was high in 2022 and it's come been coming
Speaker 1: down steadily uh to your point that some items have
Speaker 1: been volatile and they've gone up a lot. But generally speaking,
Speaker 1: you know, the goods inflation problem we had in 22
Speaker 1: and it's gone. Commodity prices are well under control, but
Speaker 1: people didn't seem to believe that narrative at all because
Speaker 1: they kept on demonstrating like a super long memory
Speaker 1: that prices are up a lot since 2020. Do you
Speaker 1: have any sympathy with that perspective?
Speaker 2: Yes. And there is this whole
Speaker 2: war between level versus change and it's not, it's an
Speaker 2: a perpetual uh perpetual question in time series Econometrics, not
Speaker 2: just in uh not just in the inflation measurement. Uh
Speaker 2: the level L level we tend to use change or
Speaker 2: percentage change as new information, whether it's a year over
Speaker 2: year or month, over month or three months is
Speaker 2: how much
Speaker 2: new information that you want to have. But
Speaker 2: one of the observations and it was striking uh after
Speaker 2: the GGFC is that level matters as well. Level matters.
Speaker 2: If you have marginal changes, month, over month, year, over year,
Speaker 2: which economists tends to think of, then change is enough
Speaker 2: or percentage change is enough. But if you have a
Speaker 2: large shift
Speaker 2: or like a banking crisis or a COVID um pandemic,
Speaker 2: then you have large shift we had during the pandemic,
Speaker 2: we had large shifts in
Speaker 2: uh participation rate, for example of um actually massive shifts
Speaker 2: in the uh labor force participation rate in the United States.
Speaker 2: So when you have large shifts like that, then level
Speaker 2: starts to matter more and uh you can't just have changes.
Speaker 2: And so you the the models, there are some
Speaker 2: approaches to that uh uh the whole concept. Uh I
Speaker 2: won't go into technicalities of this. The whole concept of
Speaker 2: co integration, et cetera has been developed to incorporate both
Speaker 2: levels and changes into um into this. But there are
Speaker 2: times after big shifts after GFC level started to matter
Speaker 2: a lot and and then start to, then it start
Speaker 2: to matter less eventually.
Speaker 2: Uh Now after the COVID, we have big shifts in
Speaker 2: certain numbers now level will matter for a while, like
Speaker 2: brand
Speaker 2: rents kind of starting to flatten out. But when I
Speaker 2: think of rent, I think of the it's 30 to 35%
Speaker 2: higher than pre COVID level. And so that's the only
Speaker 2: thing that matters to me. So after five years, then
Speaker 2: the month to month changes or three month to month
Speaker 2: change will be matter, will matter. So as policymakers, as
Speaker 2: well as investors, we need to take that into account
Speaker 2: after large shifts,
Speaker 2: take level into account. Now, fed had prior to COVID
Speaker 2: had a project to figure out what the whether they
Speaker 2: should do, do, do price level targeting or, or whether
Speaker 2: they should interest uh target interstate targeting. And in fact, Williams,
Speaker 2: uh when he was at the San Francisco Fed, he
Speaker 2: had a paper on that very detailed paper on that.
Speaker 2: Uh
Speaker 2: and there was some, some uh movement in that direction
Speaker 2: towards this alternative uh targeting, but that would also be
Speaker 2: wrong because not all the time that price level matters
Speaker 2: and and sometimes price level matters, sometimes the rate uh
Speaker 2: the rate of change matters. The important thing for the
Speaker 2: policymakers and investors is to know and know when to
Speaker 2: shift from one to the other. This and I'm going
Speaker 2: back to technical term again,
Speaker 2: this term, this whole concept of integrated process and co
Speaker 2: integration actually addresses some of this problem of incorporating level
Speaker 2: and change in the same model. And maybe that's where
Speaker 2: that's the direction it should go to catch a ball.
Speaker 1: Right? I I fully sort of, you know, that that
Speaker 1: point resonates with me heavily. I I remember the years
Speaker 1: when inflation target was undershot and you could argue that
Speaker 1: the price level, the gap between a 2% inflation R
Speaker 1: and the actual price level was widening. And then the
Speaker 1: argument I remember Ken Roo talking about it. So then
Speaker 1: if you have a transitory shock and you have higher
Speaker 1: than 2% inflation, you should not intervene because the price
Speaker 1: level is beginning to catch up, not necessarily go over
Speaker 1: the 2% line.
Speaker 1: I think that sort of consideration played into the transitory
Speaker 1: camp to not the most useful and helpful outcome. Because
Speaker 1: if you was, you know, if I look at on
Speaker 1: a 10 year I undershot now I should overshoot lo
Speaker 1: a little bit. And I think that that was a
Speaker 1: big problem in 2021 2022.
Speaker 2: That absolutely was uh the uh the I remember going
Speaker 2: to seminars in 2018, 19. Um
Speaker 2: uh that there was this, people started to believe that
Speaker 2: the level uh level matters. And so that's caused them
Speaker 2: to be too slow when the inflation spiked up in 2001.
Speaker 2: Because they were thinking on average, they're still kind of
Speaker 2: two hun 2% or haven't gone too far. About 2%. So,
Speaker 2: waited and waited and waited, work didn't work out very well, uh,
Speaker 2: at that time. And, uh,
Speaker 2: is that
Speaker 2: similarly? I think that I just to, uh, connect what's,
Speaker 2: what's going on now, same thing with the fed now,
Speaker 2: in the other direction, um, with rates, um,
Speaker 2: in the, in the whole, um, high easing cycle. So,
Speaker 2: the hiking is kind of over, there's too slow to hike.
Speaker 2: And that made us take big, take a long time
Speaker 2: to get the um inflation back,
Speaker 2: not even to 2% even. Right now, we're still running 3%
Speaker 2: in core inflation, whether it's in the core P CS annually,
Speaker 2: three months average annually is running at 3.3 right now
Speaker 2: in the most recent data. So we still have way
Speaker 2: about f uh
Speaker 2: uh feds desired level for that. So it's been how
Speaker 2: long it's two years and eight months that uh since
Speaker 2: we first started hiking and we haven't still got an
Speaker 2: inflation anywhere close to the desired level. Uh And so
Speaker 2: there is this, uh
Speaker 2: I think that this uh the, the, the clearly there
Speaker 2: was an error in beginning of the hiking.
Speaker 2: And now once you make an error, then there is
Speaker 2: more errors in the other direction in the beginning of
Speaker 2: the easing.
Speaker 2: And,
Speaker 2: and that's, yeah, go ahead.
Speaker 1: Now just saying that slow to hike, but then very
Speaker 1: quick to cut. And now looking back in September and
Speaker 1: October measures, I mean, the market is saying you guys
Speaker 1: probably overdid it
Speaker 2: is. Uh, absolutely, absolutely. And, um, so there, there are
Speaker 2: a lot of, uh, so there's a one is the
Speaker 2: level versus change confusion in the policy making world.
Speaker 2: Uh I think market is a little better in getting
Speaker 2: this than the FED does. And I don't understand why
Speaker 2: the FED also has some problem in understanding few things
Speaker 2: that has happened in the last 13 years in the
Speaker 2: US uh US economy and the bond market. And uh
Speaker 2: and that's the result of
Speaker 2: extremely long period of zero interest rate
Speaker 2: from 2008, late 2008 to 2015. And it a little
Speaker 2: bit of higher interest rate than zero again.
Speaker 2: And that the the that zero interest period for a
Speaker 2: long time
Speaker 2: cause some structural changes in the system. So you cannot
Speaker 2: dial down, dial up rate and then dial downgrade. Clearly,
Speaker 2: dialing up didn't work very well. In terms of bringing
Speaker 2: inflation down back to desired level, dialing down is also
Speaker 2: going to not work because it's
Speaker 2: change the structure of the economy. I'll tell you a
Speaker 2: few examples on the structure of the economy. Uh obvious
Speaker 2: one that manufacture, if you look at the manufacturing data
Speaker 2: US looks quite slow, slowing. If you look at ISM
Speaker 2: manufacturing
Speaker 2: for below 50 if you look services, it looks like perfect,
Speaker 2: there is nothing going on. There's no sign of recession
Speaker 2: statistically robust for month after month. So there's clearly the
Speaker 2: two sectors have clear dichotomy between the two subparts of
Speaker 2: the economy and manufacturing is a significantly smaller part than services.
Speaker 2: But we still our brain, we're programmed to look at
Speaker 2: manufacturing and think that this is going to um this
Speaker 2: is it, the economy is slowing down but it is not.
Speaker 2: So that one more simple problem that
Speaker 2: I think Fed understands that it's not clear how do
Speaker 2: you look at the aggregate uh because you wouldn't cut
Speaker 2: if you just looked at the services sector of the
Speaker 2: US economy. But the most
Speaker 2: difficult part is this bunch of path to dependencies that
Speaker 2: has been created. It's not the level of the interest
Speaker 2: rates or it's the path that the interest rate has taken.
Speaker 2: And we
Speaker 2: people, the people in the bond world that also spend
Speaker 2: a lot of time on options market and options market
Speaker 2: understand how important part is important. The, the part and
Speaker 2: the part of zero for this loan that may create
Speaker 2: some major structural changes in the economy. First. Um The,
Speaker 2: the the rates that people pay the mortgage rates.
Speaker 2: There are
Speaker 2: people, most homeowners are paying
Speaker 2: like 3 to 3.5% maximum 4% mortgage rate in the US.
Speaker 2: So all these rate hikes by zero from 0 to
Speaker 2: 45 and a quarter did not have any effect of
Speaker 2: majority of the more, uh, homeowners in the United States,
Speaker 2: only people that were affected were the newcomers, the, the
Speaker 2: new home buyers. And so their mortgage rate is a
Speaker 2: little high. So that, that part, I think Fed doesn't
Speaker 2: know how to incorporate that.
Speaker 2: The biggest credit market is untouched by rate hikes.
Speaker 2: So it doesn't slow down anything.
Speaker 2: And second, um, and there are some generational issue that the,
Speaker 2: all the young people are paying higher mortgage rate than
Speaker 2: a little older ones. So there is a th those
Speaker 2: are social issues that eventually will have to be addressed,
Speaker 2: but then corporations as well, corporations turned out to longer
Speaker 2: maturity funding. So they are not affected much. They didn't
Speaker 2: get affected by the rate hikes as well. Um So
Speaker 2: the biggest
Speaker 2: credit component of credit in the United States fairly untouched
Speaker 2: by this whole rate hiking cycle. Uh The uh then
Speaker 2: there is another interesting couple of more interesting things happened
Speaker 2: with this zero rate policy. One is that the mostly
Speaker 2: from QE that we supplied all these reserves to the
Speaker 2: banks
Speaker 2: and the banks took those reserves and when we look
Speaker 2: at econ 10 macro economics 101, you increase reserves and
Speaker 2: the bank's balance sheet goes up and you decrease reserves.
Speaker 2: Balance sheet should shrink.
Speaker 2: In reality, it doesn't
Speaker 2: because banks as they take the reserve, they deploy it
Speaker 2: in their risk assets on the balance sheet and they
Speaker 2: bought treasuries, mortgages, whatever it is and they got the
Speaker 2: deposits higher. So when you start to do QK,
Speaker 2: it can't reduce its balance sheet to reflect the QT
Speaker 2: as the reserves are going away. And so Feds just
Speaker 2: cannot continue QT. So that's why they slowed down QT
Speaker 2: now and eventually they'll have to stop QT fairly soon.
Speaker 2: So that's another thing that the bank assets, bank balance sheets,
Speaker 2: all of that had a ratchet effect that the hike
Speaker 2: didn't affect it that much. In fact, if you look
Speaker 2: at the net interest margins of the banking system, it
Speaker 2: is now higher than the beginning of the hiking cycle. So,
Speaker 2: and the stock prices are the actually bank index.
Speaker 2: If you look at the KBW, the bank index uh
Speaker 2: that doubled since the beginning of the fed hiking cycle.
Speaker 2: So you got another ratchet effect and the third one
Speaker 2: is homeowners balance sheets are like historic uh historic best situation.
Speaker 2: They the last time
Speaker 2: if you like the debt, uh the debt to uh
Speaker 2: the mortgage debt to the ho uh the value of homes,
Speaker 2: real estate ratio, it's now as low as it was
Speaker 2: at this low before 1960.
Speaker 2: So American households, most of them that put own homes
Speaker 2: are like untouchable by monetary policy, feels very rich.
Speaker 2: The and then their cash flows are still affected by
Speaker 2: mortgage rates. Same with the corporations huge wealth effect. That's
Speaker 2: why no matter you raise interest rate by five and
Speaker 2: a quarter percent, you the demand remains fairly robust service sector,
Speaker 2: working out quite well, employment in solid shape.
Speaker 2: So I think that change was not uh fully understood
Speaker 2: this part dependency. And I had myself personally had conversations
Speaker 2: with FED economists that actually made these kinds of analysis
Speaker 2: most of them because traditional economics doesn't cover this part
Speaker 2: dependency part, traditional macroeconomics
Speaker 2: doesn't cover it's more of a finance option pricing kind
Speaker 2: of story. I think R Ra Rajan has a good
Speaker 2: paper on this recently on the bank part of the
Speaker 2: aspect of the park dependency and then few and we
Speaker 2: I'm starting to see few fed working papers on the
Speaker 2: mortgage lock in effect as well.
Speaker 2: But this is kind of late already. Decision window is
Speaker 2: behind
Speaker 2: the banks have this uh at the peak they have
Speaker 2: minus 800 billion losses on their book when the, the,
Speaker 2: when the uh the Silicon Valley Bank was uh going down.
Speaker 2: And uh so you would expect after all these guarantees
Speaker 2: and everything that the banks would unwind some of that
Speaker 2: book of business and reduce that.
Speaker 2: But if you look at the bank balance sheet today,
Speaker 2: banks have done miniscule amount of reduction of the securities
Speaker 2: book on the balance sheet. And the reason that the
Speaker 2: a miniscule amount of unwind of the balance sheet is
Speaker 2: because the Federal Reserve has this multiple guarantee programs. And
Speaker 2: the big one was the uh the, the bank funding,
Speaker 2: uh the program uh that you can uh get loan
Speaker 2: from the Federal Reserve
Speaker 2: uh at bar when you put a underwater mortgage or treasury.
Speaker 2: Um and it's uh as a collateral,
Speaker 2: it's
Speaker 2: the, it's somewhere tap somewhere between 200 billion to 300
Speaker 2: billion lately because some banks do have need funding, but
Speaker 2: it's not a stress for the overall banking system. But
Speaker 2: what it does is that it provides an optionality for
Speaker 2: a regional bank out there or a major bank out
Speaker 2: there
Speaker 2: with this treasury books. Then what if we get into trouble,
Speaker 2: then we can always go to the fed and put
Speaker 2: this as collateral. So if we can do that, then
Speaker 2: duration is not really duration. Uh, so they hang on
Speaker 2: to it. And so if you look at the bank
Speaker 2: balance sheet, now, nothing changed. They still have that, uh,
Speaker 2: that exposure.
Speaker 2: So what would happen going forward? Clearly? They're betting that
Speaker 2: five and a quarter is really high and eventually interest
Speaker 2: rates will decline and low and behold fed, started cutting
Speaker 2: cutting rates that will be out of the woods anyway.
Speaker 2: But the reality is I wouldn't, uh, I, I know
Speaker 2: market enough that I, if I were a bank treasurer
Speaker 2: or bank board, I would not make that bet because
Speaker 2: you don't know which direction interest they goes. I have
Speaker 2: seen 15% mortgage rates in the eighties and, uh, that
Speaker 2: happens and that can happen again.
Speaker 2: Uh, so, uh, that's a mistake. That's a part dependency
Speaker 2: that plus the government guarantee all of that combined and
Speaker 2: created uh a banking system that keeps getting from the
Speaker 2: government keeps getting bigger but
Speaker 2: could have a much bigger systemic risk in the long run.
Speaker 2: But that may be a very long run. But that's
Speaker 2: kind of the distortion for the US economy because
Speaker 2: banks just can take unlimited interest rate risk without any
Speaker 2: and any worries and very different from what's happened in
Speaker 2: the Euro because you're right, you, you have to do
Speaker 2: a stress
Speaker 2: test.
Speaker 1: Mustafa, this reminds me of the series of essays Raghuram
Speaker 1: Rajan wrote about financial dominance. So we have fiscal dominance.
Speaker 1: When you have a lot of debt, the system sort
Speaker 1: of captures the policy setting monetary dominance when you have
Speaker 1: too much of a bloated balance sheet. And now the
Speaker 1: point that you're making that by repeated bailouts, you sort
Speaker 1: of embedded certain bad behaviors in the financial system that
Speaker 1: actually captures your subsequent moves
Speaker 2: in a very big way. And that's probably driving the
Speaker 2: uh increasing bank valuation in the United States is just
Speaker 2: a premium for bad behavior. And the government guaranteeing bad
Speaker 2: behavior is I think explains because if you look at
Speaker 2: the balance sheet size of the banking system, whether the
Speaker 2: assets or the deposits, it hasn't really increased meaningfully in
Speaker 2: the last two years,
Speaker 2: but they put it against the share prices, it's double.
Speaker 2: So that that must be all the bad behavior premium
Speaker 2: that government is handing out
Speaker 1: that's a very, very apt way of putting it. Um,
Speaker 1: let's move away from the financial sector related distortions to
Speaker 1: the core of fed policy making. We've had 75 basis
Speaker 1: points of rate cut in this cycle. It doesn't seem
Speaker 1: quite clear to me where the fed stands with December
Speaker 1: or the subsequent meetings. They're going to have pressure from
Speaker 1: Trump to cut, but the market is seeming to think
Speaker 1: that they will
Speaker 1: stand a little more forthright and not cut as much
Speaker 1: as they had even indicated a couple of months ago.
Speaker 1: So let's entertain a couple of scenarios. Mustafa number one,
Speaker 1: let's say the fed wants to keep Trump happy and
Speaker 1: they keep cutting even though you and I know it's
Speaker 1: not necessary. What will be the outcome from the bond
Speaker 1: vigilante side or from the curve side?
Speaker 2: I think that, um, well, if you look at the
Speaker 2: market pricing right now of, uh, it's now pricing a
Speaker 2: lot fewer cuts than it did even a few weeks ago.
Speaker 2: So the cuts have been taken out, we still have 50%
Speaker 2: chance of a
Speaker 2: December cut still price and maybe one more cut from
Speaker 2: January to sometime between January to September. Probably one more
Speaker 2: cut and that seems like done as far as the
Speaker 2: market is concerned. So the market is not expecting a
Speaker 2: lot of cuts anymore because market kind of realizes the,
Speaker 2: the mistake here in cutting too much. Probably it was
Speaker 2: a mistake already. To, uh, start, um, the 50 with
Speaker 2: the 50 point cut in September and replied
Speaker 2: by just interest rates going higher, we had like 6070
Speaker 2: base point increase in the 10 year rate with the
Speaker 2: mortgage rate up like 70 basis points after the cut
Speaker 2: on in September as a reply to the fed, like, hey,
Speaker 2: we don't agree with you.
Speaker 2: And so, uh, that's the on I I what as,
Speaker 2: as the rates were going up, especially mortgage rates were
Speaker 2: going up. I was looking at it as a, reminds
Speaker 2: me of those days that the, the long end just
Speaker 2: completely gives a different message and refuses to accept the
Speaker 2: Fed's policy.
Speaker 2: Uh I think uh we are back in that Fed got,
Speaker 2: I think misguided a little bit but because it believed
Speaker 2: in historical relationships, two historical relationships don't that don't apply.
Speaker 2: One is the so called sound rule, uh which I
Speaker 2: think is completely, um you know, anything that happened in
Speaker 2: the past doesn't necessarily mean it's gonna a relationship that
Speaker 2: happened in the first place. There is not as many
Speaker 2: observations to call it a rule.
Speaker 2: Uh and then uh start to believing it. And then,
Speaker 2: so
Speaker 2: that was uh that was a mistake using some rule
Speaker 2: or talking about or believing it. Um And the second
Speaker 2: one is uh even worse, the curve was inverted for
Speaker 2: a while. And historically, the U curve is inverted for
Speaker 2: so long, then uh it's preceded by a then uh
Speaker 2: the economy goes into a recession 12 month forward. And
Speaker 2: if you look at geometric analysis, yes, indeed, in the
Speaker 2: past that happened.
Speaker 2: So if you, the U curve was extremely inverted in
Speaker 2: like a hockey stick for two years and still was
Speaker 2: inverted until a few weeks ago. And so the common
Speaker 2: belief would be uh in the past it recession happened
Speaker 2: after that. So recession is coming
Speaker 2: so that those things, historical relationships kind of misguided the
Speaker 2: fed because we had inverted curve for 2.5 years and
Speaker 2: we still have a robust economy so that inversion may
Speaker 2: be not a reflection of the economy, but more of
Speaker 2: a reflection of the technicals in the um in the
Speaker 2: uh marketplace. And I, I won't go into that technical.
Speaker 2: There is a whole technical story that
Speaker 2: uh cause the Yoker to be such hockey stick inverted
Speaker 2: during this cycle than in any other cycle. Uh But
Speaker 2: that's a mistake that they did. But this one vigilante
Speaker 2: is gonna be big, big this time. And just thinking that,
Speaker 2: oh to first term he did um he did all
Speaker 2: these tax cuts and
Speaker 2: uh it wasn't that crazy inflationary. We, of course, uh
Speaker 2: COVID helped out um he could do uh extend this
Speaker 2: tax cut again and do all these uh the commitments
Speaker 2: that he made on his uh campaign uh stocks and
Speaker 2: he delivers all of that. There's a lot of dollars
Speaker 2: that we're talking about in terms of uh deficit.
Speaker 2: Uh If Trump goes through all of those commitments, but
Speaker 2: he doesn't have the same fiscal capacity in this term
Speaker 2: as he had in his first term. So if he
Speaker 2: thinks that he can repeat the, the saying this term
Speaker 2: is gonna be making a major mistake, uh They take
Speaker 2: the tax uh
Speaker 2: the extension of the 2017 tax cut.
Speaker 2: Uh Another extension for another 10 years, its cost is
Speaker 2: the estimate is a $5 trillion additional uh budgetary cost.
Speaker 2: Uh with all the uh fiscal capacity that was already
Speaker 2: expanded by the Biden administration with the Chips Act and
Speaker 2: uh all the other uh expenditures, the
Speaker 2: there's not a lot of uh capacity to just even
Speaker 2: to the extend the tax cut to 10 years. They
Speaker 2: might do a trick like do it only four years
Speaker 2: because Trump is going to be here for four more
Speaker 2: years and then let it uh hand it over to
Speaker 2: the next administration. So then still we're talking about $2
Speaker 2: trillion just that. Then all the little things add up
Speaker 2: a lot, the tips going to be tax free or
Speaker 2: um corporate tax exemption for companies that um the uh
Speaker 2: that bring manufacturing back to the US. Like that's lots
Speaker 2: of tons of stuff add up to a lot, a
Speaker 2: big number this time. Uh The moment they start doing
Speaker 2: some of those, we have a bigger reaction in the
Speaker 2: Yoker just because um the um
Speaker 2: the the the there's no, there's not as much capacity
Speaker 2: as uh as the um that they had of the
Speaker 2: first term. So I think that uh plus the inflation
Speaker 2: is not out of the radar, the housing in the
Speaker 2: US is really, really uh unknown factor. In my opinion,
Speaker 2: if I look at the vacancy rate for apartments
Speaker 2: still extremely low.
Speaker 2: So it's like a little change in the number of
Speaker 2: people looking for apartments could shoot the apartment rentals up
Speaker 2: back up again. But I have a feeling that we're
Speaker 2: not out of the Ws on some of the key
Speaker 2: parts of the inflation, um components of inflation that especially
Speaker 2: I'm worried about housing a lot, the housing affordability still
Speaker 2: at historic low.
Speaker 2: So all of those are are going to be um
Speaker 2: bring back the on vigilante. So we'll get Stener very
Speaker 2: fast in this time. Uh If the fed eases more.
Speaker 2: So they do. I my own bet is that they
Speaker 2: won't ease in December even if it's
Speaker 2: priced 5050 right now. Uh But the vibe from um
Speaker 2: Powell in his last conversation, it didn't feel like there
Speaker 2: is a uh some are saying that Gosbee and a
Speaker 2: few others are saying, oh yeah, you know, December is
Speaker 2: a play, but I don't think December is at play,
Speaker 1: right? And Mustafa that statement from Powell actually preceded the
Speaker 1: PC EU numbers which came out yesterday. We're recording this
Speaker 1: on the 29th of November and those PC numbers were
Speaker 1: also not particularly helpful going into December. So, which part
Speaker 1: of the duration would you touch? Like, not anything beyond
Speaker 1: two years? Is that, is that where you stand?
Speaker 2: Yes, I, um, yes. Uh, I, there is no, I
Speaker 2: wouldn't go beyond two years. I actually, uh,
Speaker 2: myself, I like a little bit short on some of these. Um,
Speaker 2: the so far is like 2026. So far, contracts are
Speaker 2: more uh like
Speaker 2: uh the uh Z five, for example, December 25 that
Speaker 2: sort of area is actually a decent short rather than
Speaker 2: a long because there's still a little bit of uh
Speaker 2: immersion there. And that would go, I think eventually go
Speaker 2: flatter and probably start to pick up some slope. And
Speaker 2: if you look at the nature of the slope movement
Speaker 2: for the last two years, it's basically between three months
Speaker 2: and two year and the 2 to 10 is been
Speaker 2: kind of flat and moved parallel with uh with little
Speaker 2: bit of variation around it. But uh we did
Speaker 2: most recently after the cut, we got the uh slope
Speaker 2: of the 2 to 10 slope come back uh positive,
Speaker 2: somewhat positive. Uh But most of the volatility will be
Speaker 2: in the two year sector, I think uh between one
Speaker 2: year forward, one year is the sweet spot. Uh sweet
Speaker 2: spot volatility is sweet spot short uh in my uh
Speaker 2: in my opinion,
Speaker 2: and um I like that. Uh, I like that myself. That,
Speaker 2: that's where it's going to be mortgage rate is, would
Speaker 2: be fascinating to watch. It's now back at where it was, uh,
Speaker 2: the fed started a fed, everyone expecting Fed to cut
Speaker 2: and mortgage rate came down and every, uh the feds
Speaker 2: congratulating itself that the 1% decline in mortgage rate now
Speaker 2: it's back up to where it was. So, uh mortgage
Speaker 2: rate is going to be uh something to watch because
Speaker 2: that's the most important interest rates in the US.
Speaker 1: So one technical question on the mortgage market. So when
Speaker 1: I bought my house in Washington DC, a long time ago,
Speaker 1: there were three year arms, five year, seven year arms,
Speaker 1: you can sort of lock in there and then it
Speaker 1: becomes variable, all sorts of mortgage products. I now realize
Speaker 1: that those products have disappeared. I mean, you can get
Speaker 1: a 15 year fix for a third year. Why has
Speaker 1: that been the case?
Speaker 2: It disappeared? Because, um,
Speaker 2: historically, if you go back prior to um, early two thousands,
Speaker 2: the 5th, 30 year mortgage was the thing. And I,
Speaker 2: when I bought, I bought home in DC also, uh
Speaker 2: I got a 30 year just classic 30 year mortgage.
Speaker 2: Uh This uh 5171 arm was coming up during the nineties.
Speaker 2: Then it became very popular when, uh, in just, uh
Speaker 2: heading up to the GFC for a couple of reasons.
Speaker 2: The government itself, the Greenspan. Uh I remember actually encourage
Speaker 2: people to take in a testimony in pancreas, take uh
Speaker 2: take arms. Uh And, but most importantly, the, those are
Speaker 2: the products that were secu through, mostly through the private sector,
Speaker 2: uh private sector channels. Um And uh was the especially
Speaker 2: with the lower credit like all day, et cetera. Uh
Speaker 2: And so though those are the ones that were invest,
Speaker 2: the investors were not the traditional M BS investors. And
Speaker 2: so they overpaid and eventually triggered all of these subprime
Speaker 2: prices because there's overproduction uh on the private channel of securitization.
Speaker 2: And so one after the GFC, that private channel was
Speaker 2: pretty much destroyed from the market making point of view
Speaker 2: uh as well as from the um the investor point
Speaker 2: of view, all these foreign
Speaker 2: European little uh I I, the pension fund in Iceland or,
Speaker 2: you know, places like that, they don't uh they are
Speaker 2: all gone in terms of buying those products. So now
Speaker 2: most of the mortgage production and origination is through Freddie
Speaker 2: Mac and Fannie Mae, mostly fully guaranteed. And third year
Speaker 2: is where the production is
Speaker 2: and that sector has died down. And unless the private
Speaker 2: sector securitization comes back up, you won't see that coming
Speaker 2: back up.
Speaker 1: So that house that I bought in 2003 with a
Speaker 1: 723 I don't know if I could have afforded that
Speaker 1: with a 30 year fixed mortgage at that time. So
Speaker 1: I'm glad that it was there at that time. But
Speaker 1: I and I have sympathy for young professionals today who
Speaker 1: basically have to lock into those very high rates. Um Mustafa,
Speaker 1: you have such a rich background on the US economy.
Speaker 1: We can spend a lot more time. But I promised
Speaker 1: our listeners today that we will not just talk about
Speaker 1: the US and we will tap into your perspective on em.
Speaker 1: There is a lot of pressure from the US fiscal side,
Speaker 1: monetary side and we just talked about financial dominance as
Speaker 1: well in the swirl of all these things coming out
Speaker 1: of the US. Where do emerging market economies like China
Speaker 1: and India Stand?
Speaker 2: China is a whole story by itself. And I think
Speaker 2: that um
Speaker 2: the I have a few puzzles. Uh one of them
Speaker 2: is the this whole housing, the housing crisis in uh
Speaker 2: in uh China. And that sector is still in a
Speaker 2: spot almost like a depression level. If you look at
Speaker 2: the construction sector growth for
Speaker 2: month after month negative and that sector unsold homes. Um I,
Speaker 2: I did specifically travel around a little bit in China
Speaker 2: last one year to just see on my own. These
Speaker 2: apartment big apartment complexes sitting there empty just to have
Speaker 2: a good feel for uh how they um how the
Speaker 2: market eventually clears.
Speaker 2: Uh
Speaker 2: So it's a kind of a one story from emerging markets,
Speaker 2: China and I'll come back to the housing one. The
Speaker 2: other story is non China. And that's the big vulnerability.
Speaker 2: There is um
Speaker 2: uncertainty of us monetary policy.
Speaker 2: It's clear monetary and fiscal policy. It's clear to me
Speaker 2: that the US monetary and fiscal policy has become more
Speaker 2: uncertain and more, um
Speaker 2: having a bigger swings in, in those positive 5.5% increase
Speaker 2: in interest rates. And I don't know myself whether there's
Speaker 2: going to be another five coming up and in terms
Speaker 2: of the dollar, uh the volt of dollar, do you
Speaker 2: know we have seen the dollar appreciate like crazy, but
Speaker 2: I there's no guarantee that it won't appreciate another, you know,
Speaker 2: yen goes to, I don't know, 1 71 80 that
Speaker 2: kind of level
Speaker 2: uh or it can go the other way around the
Speaker 2: prob the thing is that the
Speaker 2: emerging markets are becoming more vulnerable to these shifting policy
Speaker 2: changes in the US.
Speaker 2: And I kind of worry that I see some celebration
Speaker 2: in the sense that hey, we got a few countries
Speaker 2: in trouble in the last cycle in the dollar. In Greece,
Speaker 2: a few African countries, you know, Sri Lanka and not
Speaker 2: too many because ASEAN countries have been very protected against
Speaker 2: this dollar fluctuations because of their experience from 20 from 1997.
Speaker 2: And so they have protected themselves somewhat better in the ASEAN,
Speaker 2: but we saw the vulnerability
Speaker 2: and then what happens now if we get a situation
Speaker 2: where bond vigilantes uh really get aggressive and Trump keeps
Speaker 2: spending and tax cut and we get another big increase
Speaker 2: in the dollar, then who will, who is protected for that?
Speaker 2: Which is, if you about, if you looked at it
Speaker 2: about a year or two years ago, today's dollar is
Speaker 2: a tail scenario.
Speaker 2: And so another move 10 15% 20% in dollar could
Speaker 2: be a bigger t scenario. And who is, who is,
Speaker 2: has reserved enough built against that a dollar shift or
Speaker 2: a big fiscal shift in the US? I'm not sure.
Speaker 2: Um And the US runs at risk that most people
Speaker 2: are not thinking about is
Speaker 2: you, the reason US can spend like this uh is
Speaker 2: because they, and when borrow like this is because the
Speaker 2: uh the in interest rates have real interest rates, the
Speaker 2: growth rate hasn't been too far below the real interest rates.
Speaker 2: But if the real interest rates and the growth rate
Speaker 2: gap becomes bigger and bigger, then the, the whole
Speaker 2: the cycle of dollar change and um the interest rate
Speaker 2: change becomes faster.
Speaker 2: There are big increases in interest rate, big changes in
Speaker 2: dollar and have,
Speaker 2: if countries in the emerging markets that are not prepared
Speaker 2: for that big changes, uh could be affected whether they
Speaker 2: have enough reserve buffer, uh because it seems like your
Speaker 2: economy can do perfectly. But you, if you don't have
Speaker 2: enough reserve buffer, then you are in trouble or enough
Speaker 2: other protections like swap lines and et cetera that countries
Speaker 2: have been working on IMF as
Speaker 2: um also promoted some of the swap lines, the regional
Speaker 2: swap lines in Asia, for example, they have worked on
Speaker 2: the countries need to start protecting themselves because their scenario
Speaker 2: in dollar can easily happen
Speaker 2: going. So that's the, the, the the tail risk is
Speaker 2: very high from the next moves in the US policy
Speaker 2: into emerging markets.
Speaker 2: On the positive side, the some of the wars like
Speaker 2: Ukraine war may stop and that would bring some stability
Speaker 2: in the system could be positive as well.
Speaker 2: But in China, I am perplexed because it's I have
Speaker 2: been so deeply involved in the subprime prices in the US.
Speaker 2: I've seen all these park dependencies created as a price
Speaker 2: to pay to stabilize the housing market, stabilize the economy.
Speaker 2: But it had some very long term negative effects
Speaker 2: uh in terms of income, distribution, wealth, distribution age disparity,
Speaker 2: that's um probably not correctable in decades.
Speaker 2: So it's not for China, it's not just like hey
Speaker 2: fund the banks and they would uh they would just
Speaker 2: uh uh pump a lot of money into the homebuilder
Speaker 2: industry and and clear that market very fast through some
Speaker 2: sort of subprime option or something like that. As has happened,
Speaker 2: private equity bought up all the homes in the US,
Speaker 2: cleared that the prime market the that 5 million and
Speaker 2: massive number of homes, private equity bought during a post
Speaker 2: subprime prices to clear the supply demand imbalance in that market,
Speaker 2: the supply demand imbalance very large in China could be
Speaker 2: solved by something like that. But they are hesitant on
Speaker 2: doing that, doing small changes here and there. But letting
Speaker 2: those sectors just
Speaker 2: take time and resolve and there's a huge price to
Speaker 2: pay in terms of effect on the rest of the economy.
Speaker 2: And sometimes I feel that uh all this balance sheet
Speaker 2: recession is going to be much more costly for them.
Speaker 2: Um
Speaker 2: So they may as well solve this very quickly. Other
Speaker 2: side of me says that the solution that I have
Speaker 2: seen and they have only one data point for a
Speaker 2: major housing crisis and solution wasn't actually that great from
Speaker 2: a long term point of view. So that's gotta look
Speaker 2: for a new solution. And so, so I'm kind of
Speaker 2: torn and I feel that they may be looking for
Speaker 2: a new solution, you see some package that throw to
Speaker 2: stabilize the markets and then it doesn't go far enough
Speaker 2: and maybe they're looking for a new solution that's different
Speaker 2: from our solution in the US. So you have to
Speaker 2: be seen in China, but I'm fascinated by um by
Speaker 2: what's happening there.
Speaker 2: So
Speaker 1: on, on, on, on China before we go into India,
Speaker 1: it it seems to me that they certainly don't want
Speaker 1: to follow what Japan did or did not do for
Speaker 1: 20 years with their housing crisis.
Speaker 1: And I think many people tell them just follow what
Speaker 1: the US has done. But to your point, it's not
Speaker 1: like the legacy of those eight years under Obama when
Speaker 1: US had very lackluster growth and there was basically a
Speaker 1: balance sheet recession going on in the US. But the
Speaker 1: stock market was doing well because of QE and so
Speaker 1: on is probably not also something that the Chinese want
Speaker 1: to emulate. I mean, the PB OC is at pains
Speaker 1: when I meet with them that they are doing some
Speaker 1: QE that they're underwriting certain amount of bonds for regional governments, property,
Speaker 1: but very
Speaker 1: on the side. I'm kind of amazed that for a
Speaker 1: country that is sort of communist, they still seem to
Speaker 1: be very fixated on certain private sector principles like moral
Speaker 1: hazard and they definitely don't want that to come back
Speaker 1: the way it has come back in the US. So
Speaker 1: who knows? Maybe they are coming up with a middle point,
Speaker 1: not as stifling as Japan and completely stuck, not overly
Speaker 1: proactive like the US, but I like you are a patient.
Speaker 1: I think that they should get a handle on it
Speaker 1: a little faster.
Speaker 1: OK. And, and India, which is the darling of global
Speaker 1: em investor community. Uh Any view on that.
Speaker 2: I, I think it uh there is uh I, I
Speaker 2: think that there's, if you look at the three markets us, India,
Speaker 2: China and try to figure out where you want to
Speaker 2: be US. Definitely. Um Right now the stock market valuation
Speaker 2: is 230% or something astronomical to GDP. Uh And China
Speaker 2: is like something like tiny. Um
Speaker 2: So I less than 50% or something really low to GDP.
Speaker 2: So the valuation relative to GDP seems like outrageous in
Speaker 2: the US. But I would still stick to the US
Speaker 2: because I'm seeing more of these policies, um
Speaker 2: uh more of this uh expansionary policies ahead of us
Speaker 2: and government guarantees. So it's hard to be out of
Speaker 2: the US. But if you are in a very long term,
Speaker 2: China is not a bad place to be invested. Given
Speaker 2: the valuation is at unbelievably low. Uh But uh India
Speaker 2: is the most unknown to me. This expectation from the
Speaker 2: market is very high 7 8% growth
Speaker 2: to be sustained for decades to come in reality, whether
Speaker 2: they can pull it off or not is um is
Speaker 2: uh I don't, I'm not a big buyer into the
Speaker 2: India story because some of the key fundamentals are not
Speaker 2: there in India that requires that is required for really
Speaker 2: a persistent takeoff. Uh For example, education uh level literacy
Speaker 2: level
Speaker 2: is nowhere close to where China was at this level mortality,
Speaker 2: infant mortality, child stunt and every one of these human
Speaker 2: uh uh quality of life index, it's way behind. And
Speaker 2: how do you
Speaker 2: sustain a persistent 8% growth if your human resources are
Speaker 2: not ready for it? So, so I feel that there
Speaker 2: is a little bit of over investment in China just
Speaker 2: over investment in India just because of the enthusiasm to
Speaker 2: shift out. There's no other place to go out if
Speaker 2: you are getting out of China. Uh So India is
Speaker 2: the place, the few investments in Japan and Korea. But
Speaker 2: India was, but
Speaker 2: you, there is structural problems in India that uh in
Speaker 2: my opinion, it's not sustainable to attract that, that much investment.
Speaker 2: So we're seeing that's coming back down, whether it's a permanently,
Speaker 2: I believe it's a revaluation or, or a temporary reaction
Speaker 2: to um
Speaker 2: to, I don't know all the, I don't know what
Speaker 2: it is said if it is going down a little bit,
Speaker 2: but it's somewhat like 10% down the sun, not anywhere
Speaker 2: close to where it can go. So I'm fairly bearish
Speaker 2: on India. I think that China is great valuation but
Speaker 2: I don't. And then US is the US is like,
Speaker 2: it's outrageous valuation is just 230% of GDP the stock
Speaker 2: market valuation, but it's still going up, you know, every
Speaker 2: day it's going up,
Speaker 1: it is going up. But I think all the way
Speaker 1: to January 20 it's hard to see anything derailing that.
Speaker 1: But after January 20th, we might have a bit of
Speaker 1: a hangover.
Speaker 2: Yeah. So it could be that uh by the rumor,
Speaker 2: Zelda fact kind of uh story, then we might see
Speaker 2: a reversal by that time,
Speaker 1: you know, when you were talking about uh you know,
Speaker 1: there not being that many alternatives beyond India. And you
Speaker 1: mentioned Korea and Japan on the side, I was hoping
Speaker 1: you'd mention Malaysia because I know you spent a lot
Speaker 1: of time in Malaysia and there we have seen a
Speaker 1: big spike in investment in the last couple of years.
Speaker 2: I I that's, uh, puzzles me all. I spend a
Speaker 2: lot of time Malaysia in Malaysia and starting to spend
Speaker 2: elsewhere as well in Vietnam and elsewhere and ASEAN, not
Speaker 2: just Malaysia ASEAN is definitely undervalued in my opinion that
Speaker 2: the and very, and the, if you look at the
Speaker 2: PP on a PPP basis ASEAN is much bigger
Speaker 2: than, than what the reported numbers are. But generally the vibrancy,
Speaker 2: the um the investments like this, all the semiconductor industry
Speaker 2: moving into Malaysia, Vietnam, I was in Da Nang uh
Speaker 2: and Hoi an a couple of months ago and the
Speaker 2: number of resorts that are being built along the South
Speaker 2: China Sea, the you just boggled my mind like.
Speaker 2: So these are I uh why are the stock markets
Speaker 2: there not going higher? I am. What's the biggest puzzle
Speaker 2: puzzle of my life? I would be anytime. Uh and
Speaker 2: I will, I will be in, I, I'm actually invested
Speaker 2: in some of these ASEAN uh part of the market
Speaker 2: in the equity market. But uh why it doesn't go
Speaker 2: up more? And this puzzles me,
Speaker 1: right. And, and this region did have a golden run
Speaker 1: in the nineties uh the the Asian financial crisis sort
Speaker 1: of ruined it. But you would have thought that they
Speaker 1: cleaned up their banking system, their balance sheets through the
Speaker 1: two thousands that this decade over the last decade should
Speaker 1: have been their moment in the sun, but they've really underperformed.
Speaker 1: But most of as you know, we D BS did
Speaker 1: a joint report with Ben in consulting earlier this year
Speaker 1: looking at Southeast Asia over the next decade. We are,
Speaker 1: we are very optimistic. And when we began the report,
Speaker 1: Malaysia was not like at the top of our consideration,
Speaker 1: but as we wrote the report, looking at the tech
Speaker 1: investment flows, looking at domestic travel tourism industry, we've become
Speaker 1: quite constructive on the Malaysia outlook. But you know, I
Speaker 1: think we need to put ASEAN conversation aside for another day.
Speaker 1: You've shared such stuff with the US and, and some
Speaker 1: of the large GM maybe we'll end it right there.
Speaker 1: Uh Most of our Children, I can't thank you enough
Speaker 1: for your time and insights.
Speaker 2: Great time, great to talk to you. It's a real pleasure.
Speaker 2: Always fun to have this conversation.
Speaker 1: Yes. And I think our listeners should know that we,
Speaker 1: you and I have conversations like this all the time
Speaker 1: without the recorder.
Speaker 1: Um Thank you very much to our listeners and viewers
Speaker 1: as well. Uh Copy Time was produced by Ken Delbridge
Speaker 1: at spy studios, Violet Lee and Daisy Sharma provided additional assistance.
Speaker 1: It is for information, not only does not represent any
Speaker 1: trade recommendations, all 143 episodes of the podcast are available
Speaker 1: on Apple and Spotify. You can find our research publications
Speaker 1: by Googling DS Research Library. Have a great day.