Speaker 1: Hello, this is COI Time, a podcast series on markets
Speaker 1: and economies from DBS Group Research. I'm Teri, chief economist,
Speaker 1: welcoming you to our 144th episode. This is the year's
Speaker 1: last podcast. Now, we have a tradition. We end the
Speaker 1: year with Dr. Komal Sri Kumar, president of Shri Kumar
Speaker 1: Global Strategies, based in Santa Monica, California. He's a senior
Speaker 1: fellow at the Milken Institute and previously spent over two
Speaker 1: decades with the Trust Company of the West, known as
Speaker 1: TCW in most Circle.
Speaker 1: Working on investment strategy and asset allocation, I find it
Speaker 1: delightful to review the year with Shri and then look
Speaker 1: forward to the next year. And if you have been
Speaker 1: to this podcast in the past, you know how a
Speaker 1: student insightful his views can be. Shri, welcome back to
Speaker 1: COVID time.
Speaker 2: Thank you very much, Jor. Good to be back with
Speaker 2: you again.
Speaker 1: I'm so glad to have you back and I'm glad
Speaker 1: that we now have this tradition of ending the year together. Sri,
Speaker 1: let's get right to it. Take stock of 2024, your
Speaker 1: views on the US economy, markets, fiscal position, and the Fed.
Speaker 1: And of course you may also want to comment on
Speaker 1: the elections.
Speaker 2: Sure. Let's see. Let's start with the overall US economy.
Speaker 2: The US economy was much stronger than I had anticipated.
Speaker 2: And I, along with a whole lot of others, had
Speaker 2: thought that, uh, the sky-high interest rates that we have
Speaker 2: had since 2022 would, um, result eventually in a recession.
Speaker 2: But what I think, not just I, what the majority
Speaker 2: of the analysts failed to take into account was the
Speaker 2: fact that the amount of stimulus that was created on
Speaker 2: the monetary and fiscal side in the United States was
Speaker 2: so immense.
Speaker 2: That even high interest rates, 40 year high levels were
Speaker 2: not sufficient to bring inflation down. We are seeing retail sales,
Speaker 2: for example, continuing to remain very strong. That's a reflection
Speaker 2: of US consumers. And Tuesday morning, Washington DC time will
Speaker 2: be the retail sales number will come out, the latest one.
Speaker 2: And the expectation is that it's going to be very
Speaker 2: strong as well. So the US economy has remained very strong,
Speaker 2: but you talked about fiscal deficit more. That is where
Speaker 2: you have the fiscal deficit, which continued to rise both
Speaker 2: in dollar terms as and as a percentage of GDP.
Speaker 2: Uh, I learned when I began my career in 1978, 1979.
Speaker 2: That the so-called safe maximum ratio for the debt to
Speaker 2: GDP was 50%.
Speaker 2: The United States is running at 120%. We have France,
Speaker 2: which is running at 110%.
Speaker 2: Even Germany, which used to be a great country known
Speaker 2: for its fiscal, um, uh, rectitude, now has again the
Speaker 2: situation is totally out of control. Uh, so the point
Speaker 2: here is, we have talked about that causing a problem
Speaker 2: for the United States, but the fiscal deficit is very large,
Speaker 2: dangerously high, but it has not caused a problem yet.
Speaker 2: And the reason I would say, and again, since I'm
Speaker 2: speaking to you in the heart of Asia, Timor, I
Speaker 2: would say the reason is we had thought the Chinese
Speaker 2: renminbi Yan would by now be an effective competitor.
Speaker 2: Or that the Europeans would get their act together and
Speaker 2: a common currency, the euro would be dominated. Neither has happened,
Speaker 2: and both of them are actually very weak in the
Speaker 2: in the last several months, and I don't expect that
Speaker 2: to change. So the dollar got a reprieve, the fiscal
Speaker 2: deficit could run at a high level because there was
Speaker 2: no alternative to the dollar. So in other words,
Speaker 2: You talk about teaching a class, and very many students
Speaker 2: are performing very poorly in terms of grade, but I
Speaker 2: can still turn out to be the best students because,
Speaker 2: not because I'm great, but because the others are much worse.
Speaker 2: So that's what we are going through. Now, I don't
Speaker 2: want to leave the topic of fiscal deficit yet. Go
Speaker 2: to 2025. Will this continue? I don't think it can.
Speaker 2: Because the, you're going to have enormous amount of borrowing
Speaker 2: requirement on the part of the treasury.
Speaker 2: And even though Janet Yellen will stop being the Treasury
Speaker 2: Secretary on January 20th, we have Scott Besant, a former hedge,
Speaker 2: fudge fund manager who's the designate to take over. There's
Speaker 2: nothing much that he can do immediately, other than try
Speaker 2: to infuse some confidence, but he cannot change the numbers.
Speaker 2: So it is going to be very difficult for that
Speaker 2: to happen, and my concern is if the tariffs are
Speaker 2: increased at the same time as the fiscal deficit is
Speaker 2: very large.
Speaker 2: The the tariffs are going to do two things. One,
Speaker 2: they are going to cause the prices to go up
Speaker 2: for US consumers and therefore, the US inflation rate will
Speaker 2: go higher up. I have repeatedly said that inflation is
Speaker 2: down only temporarily, it's going to pick up again and
Speaker 2: it's starting to happen. It's going to be pronounced in
Speaker 2: 2025 in my mind.
Speaker 2: And if that happens, the US Treasury 10 year yield
Speaker 2: will again start to go up. I'm worried about it's
Speaker 2: hitting 5% again on the 10 year.
Speaker 2: Uh, and if that happens and the tariffs are imposed,
Speaker 2: even if it is not, uh, 60% or higher on China,
Speaker 2: for example, if it has increased significantly, and I think
Speaker 2: Trump has to do that because after threatening all the countries,
Speaker 2: he can't just walk away and say, OK, now I'm president,
Speaker 2: I'm not going to do it. That's not going to happen.
Speaker 2: He has to impose something.
Speaker 2: And when he does that, not only is inflation going
Speaker 2: to pick up, the dollar is going to become very strong,
Speaker 2: the bond yields are going to rise, and that's going
Speaker 2: to be negative for the economy.
Speaker 2: And that in turn brings us to the Federal Reserve.
Speaker 2: Sorry to be long-winded, but you are, no, not at all,
Speaker 2: not at all to your question.
Speaker 2: Um, I think the Federal Reserve policy under Jerome Powell
Speaker 2: has been irresponsible.
Speaker 2: Uh, in 2020, we uh had the beginning of COVID in, uh, February,
Speaker 2: March of that year.
Speaker 2: And at that time, the Federal Reserve's balance sheet was
Speaker 2: about $4 trillion and it was already 5 times the
Speaker 2: level of what it was when I, when, on what
Speaker 2: I call Lehman Day, September 15, 2008.
Speaker 2: So it went from $800 billion to $4 trillion and
Speaker 2: by March of 2022, 2 years later, it was $9 trillion.
Speaker 2: That's what I call the height of irresponsibility. When you
Speaker 2: have COVID, to cure it, you need a vaccine. You
Speaker 2: cannot increase the money supply and hope that everybody will
Speaker 2: get well because the Federal Reserve's balance sheet has doubled.
Speaker 2: That's what he did at the same time, the interest
Speaker 2: rates were brought down to zero. There was $900 billion
Speaker 2: of fiscal stimulus in the final months of the Trump administration,
Speaker 2: and another $1.9 trillion in the first months of the
Speaker 2: Biden administration. So $2.8 trillion plus zero interest rates, plus doubling.
Speaker 2: Of the Fed balance sheet.
Speaker 2: So no wonder inflation hit a 40-year high, uh, because
Speaker 2: you would expect that all of that would happen. And
Speaker 2: that is what we are fighting. And when the interest
Speaker 2: rates started to come down, they said, oh, the Fed
Speaker 2: has brought the inflation rate down, but it should never
Speaker 2: have gone to that level.
Speaker 2: And now that he's easing up, he's ignoring the lessons
Speaker 2: of 1973 to 1979.
Speaker 2: When we had a very pliant Federal Reserve chairman under
Speaker 2: Arthur Burns, and who did what was required by Richard
Speaker 2: Nixon to, I, I say, I've written saying the monetary
Speaker 2: policy followed the dictates of the political cycle rather than
Speaker 2: the needs of the economy.
Speaker 2: And of course, we had sky-high inflation, and you had
Speaker 2: to have a very severe recession to bring it back.
Speaker 2: So those are my concerns for 2025. Uh, it appears
Speaker 2: as a Wednesday afternoon, uh, Washington DC time.
Speaker 2: You're going to have again another rate cut.
Speaker 2: The first rate cut, which happened in September, was expected
Speaker 2: to be 5025 basis points, turned out to be 50.
Speaker 2: Why is he doing that?
Speaker 2: I have a theory, and I feel very strongly about it.
Speaker 2: I think the Federal Reserve is very much a political entity,
Speaker 2: even though Trump, uh even though Powell keeps repeating that
Speaker 2: he's apolitical.
Speaker 2: And the reason why he keeps repeating it is because
Speaker 2: he just, that it's not true. So he has to
Speaker 2: keep repeating it because he probably doesn't believe it himself.
Speaker 2: So, 50 basis points without any reason, another 25, and
Speaker 2: he's going to do 25 more.
Speaker 2: And then there is a talk of passing in January.
Speaker 2: Is it because Trump is going to come into office
Speaker 2: and he doesn't want to oblige him?
Speaker 2: We're not clear what it's all about and why he's
Speaker 2: doing what he's doing.
Speaker 1: So let's talk about that intersection of Fed policy and politics,
Speaker 1: because if it was Jerome Powell's, you know,
Speaker 1: Explicit or implicit desire to help the political cycle, it
Speaker 1: didn't work, Sri. The point that you made that when
Speaker 1: policy should have been tighter, it was not as tight,
Speaker 1: basically caused the cost of living prices that afflicts Americans today.
Speaker 1: Actually, a week before the US elections, I traveled through
Speaker 1: San Francisco, DC, New York. I asked about 50 people
Speaker 1: who's going to win, and I was not exactly in
Speaker 1: the red state heartland, you know, these are liberal towns,
Speaker 1: and 46 out of 50 said Trump would win, and
Speaker 1: which was itself, you know, it was kind of shocking
Speaker 1: to me because looking at the polls, it seemed like
Speaker 1: a 50/50 outcome, but 46 out of 50 people that
Speaker 1: I asked said Trump would win and by and large
Speaker 1: they said it's because of cost of living.
Speaker 1: So, by having an accommodating policy, by trying to stretch
Speaker 1: out the cycle, if the Fed's desire was to keep
Speaker 1: the Democrats in power, that didn't work out.
Speaker 2: It did not, it did not help. Uh, that may
Speaker 2: well have been the reason why he did it, but, uh,
Speaker 2: now we are going into the political sphere, uh, which
Speaker 2: I'm not an expert to talk about, but there were
Speaker 2: various other areas such as talking about, uh, discrimination, equality,
Speaker 2: and whether it was coming from the Democrats or the Republicans.
Speaker 2: But what I think the elections missed is that the
Speaker 2: cost of living, as you said, very correctly so, uh, Tor.
Speaker 2: That turned out to be the single overwhelming topic. Even
Speaker 2: on the economic side, the Biden campaign and then the
Speaker 2: Kamala Harris campaign subsequently said, look, we have actually done
Speaker 2: a lot in terms of economic growth.
Speaker 2: But that did not match the fact that the inflation
Speaker 2: had also gone up substantially. That was the dominating issue
Speaker 2: in the voters' minds rather than what was happening in
Speaker 2: terms of uh economic growth. And the reason is the following.
Speaker 2: The economic growth and the unemployment rate being low benefits
Speaker 2: a whole lot of different people, but on the other hand,
Speaker 2: inflation is pernicious, and it affected people in the low
Speaker 2: and middle income groups. The higher income groups couldn't care
Speaker 2: less in high inflation, but I'm invested in the stock
Speaker 2: market and stocks went up even more. So I'm doing fine,
Speaker 2: thank you.
Speaker 2: But the lower income groups do not have it, and
Speaker 2: that is where I think the, uh, they made a
Speaker 2: serious mistake in terms of the judgment that they made
Speaker 2: on it.
Speaker 1: She also for me, one big takeaway has been when
Speaker 1: you and I talk about the rate of inflation, we're
Speaker 1: talking about a 12 month change in prices, but the
Speaker 1: people that I spoke with in the context of cost
Speaker 1: of living seem to be thinking about the cumulative inflation
Speaker 1: over the last 4 years, that they feel the prices
Speaker 1: are up 40%. They don't quite understand when I say, well,
Speaker 1: inflation is down a lot, they say, no, prices are
Speaker 1: up 40% in the last 4 years.
Speaker 2: Right.
Speaker 2: That that to me, it makes a lot of sense.
Speaker 2: And you and I are not low income earners. We
Speaker 2: are relatively well off. But even when I go to
Speaker 2: the grocery store, and then I say, buy just a
Speaker 2: gallon of milk and bring it home, or a dozen
Speaker 2: eggs and bring it home, and you see that suddenly
Speaker 2: the gallon of milk here is, we are talking about
Speaker 2: 6 $7 US dollars for half a gallon.
Speaker 2: And you gasp, saying, boy, this is not the way
Speaker 2: it used to be until about 2018, 2019. So it
Speaker 2: is clear that people do compare the price level today
Speaker 2: with the price level five years ago. And the reason is,
Speaker 2: for most people, that income levels have not increased by
Speaker 2: the same percentage. And that's why, uh, that, that, that
Speaker 2: is a very important comparison.
Speaker 1: 3, you touched upon the fiscal issue and I want
Speaker 1: to go back to that. I want to connect the
Speaker 1: fiscal issue with banks to some extent. The US has
Speaker 1: massive issuance needs going forward, and when they issue long
Speaker 1: duration bonds, banks are a big holder of that bond,
Speaker 1: those bonds, and we saw last year in the regional
Speaker 1: banking crisis episode that when you hold a lot of
Speaker 1: long duration assets in an inflationary tight monetary policy environment,
Speaker 1: the system can trip up a lot.
Speaker 1: Now we had that crisis in early 2023. Silicon Valley
Speaker 1: Bank and a few other banks. We saw the Fed
Speaker 1: come up with very robust response by creating more lending
Speaker 1: windows and treating those bonds and par value and averted
Speaker 1: that crisis to some extent other than a couple of
Speaker 1: banks going under and being forced to merge. Now when
Speaker 1: I look at the data stream, what I find strange
Speaker 1: is that since then,
Speaker 1: The US financial sector hasn't necessarily gone short duration. It
Speaker 1: still remains long duration, and we have all these large
Speaker 1: banks which are still saddled with a lot of large
Speaker 1: duration debt. So why haven't we seen the duration risk
Speaker 1: come down, because I would have thought that would have
Speaker 1: been the key response to the crisis. And going back
Speaker 1: to the fiscal issue, if indeed people should be worried
Speaker 1: about long duration exposure, then how will the US fund itself?
Speaker 1: Should it, would it only issue at the short end?
Speaker 2: Uh, here, let's first, you have 2 or 3 issues
Speaker 2: embedded in your question, so let me start out with
Speaker 2: the banking crisis first.
Speaker 2: Uh, they did again a study of it, um, under
Speaker 2: the vice chairman for regulation, he actually went through it
Speaker 2: and came up with the conclusion that the banks made
Speaker 2: a serious error.
Speaker 2: But my conclusion is very different. If I were, if
Speaker 2: I had been the chairman and CEO of Silicon Valley Bank,
Speaker 2: And I heard day in and day out the chairman
Speaker 2: of my Federal Reserve telling me that inflation is transitory.
Speaker 2: And I, and, and 2021, you're talking about 10-year treasury
Speaker 2: is going just about 2% or lower than 2%.
Speaker 2: As the CEO of Silicon Valley Bank, I should go
Speaker 2: and buy it.
Speaker 2: Because I believe my Fed chairman, and if he says
Speaker 2: that the 10 year yield is going to go down
Speaker 2: to 1% because inflation is transitory.
Speaker 2: And I buy during a period of transitory high inflation.
Speaker 2: And I'm going to get a huge capital gain when
Speaker 2: inflation and bond yields go down.
Speaker 2: Except that the Federal Reserve Chairman was wrong, inflation was
Speaker 2: not transitory, and the 10 year yield went as high
Speaker 2: as 5%. So they ran into huge losses. Now, what
Speaker 2: happened in response to that?
Speaker 2: The regulators essentially stepped in, as you pointed out, and
Speaker 2: prevented that from becoming an overall crisis for the economy.
Speaker 2: They stopped quantitative tightening that had been taking place.
Speaker 2: And took the balance sheet of the Federal Reserve overnight,
Speaker 2: took it back to where it was about six months earlier,
Speaker 2: till about September or October of 2022, uh, and they
Speaker 2: did that in March of 2023.
Speaker 2: So you lost some uh important and valuable time. What
Speaker 2: was the other thing that happened? People who had unlimited
Speaker 2: amount of deposits in the failing banks were made good
Speaker 2: by the federal government, by the taxpayer. Why? They should
Speaker 2: have borne the loss of anything over the insured amount
Speaker 2: of $250,000 US dollars. They did not because the Fed
Speaker 2: didn't want an overall crisis.
Speaker 2: But this is how they quote unquote solve the problem.
Speaker 2: You throw money at the whole issue.
Speaker 2: And therefore, the problem goes away only that it will
Speaker 2: come back again next time because you haven't learned any
Speaker 2: lesson from it.
Speaker 2: Lehman Brothers, 2008, we threw money into it. Ben Bernanke
Speaker 2: started quantitative easing, which he said was a temporary measure.
Speaker 2: You believe it's temporary when it was, it goes from
Speaker 2: 800 billion to several trillion under his watch, that's supposed
Speaker 2: to be temporary. We are never going to go back
Speaker 2: to that level. So that is what is happening with
Speaker 2: respect to the banking side. I'm very concerned for 2025.
Speaker 2: And the reason I'm concerned is you have a new issue,
Speaker 2: the commercial real estate issue, for where the major lenders
Speaker 2: are small and medium-sized banks are the big uh percentage
Speaker 2: of their portfolios go to commercial real estate.
Speaker 2: So, and there again, people still haven't gone back to offices.
Speaker 2: The demand for office space has gone down substantially, and
Speaker 2: that is going to be a problem for banks' portfolios. Now,
Speaker 2: what you had another, I said you had several questions embedded.
Speaker 2: I'm going to go to another one. Why did they
Speaker 2: not reduce the duration? And the reason is,
Speaker 2: We, I, I'm a failing bank. I was, and then
Speaker 2: what I do gradually is that instead of keeping those
Speaker 2: assets where I bought bonds at treasury, say, treasury bonds
Speaker 2: at low interest rate, I'm going to move them into
Speaker 2: a long-term investment portfolio away from a trading portfolio.
Speaker 2: And if I do that, I don't have to recognize
Speaker 2: the loss.
Speaker 2: In my mind, the loss is a, is a loss.
Speaker 2: Accounting doesn't, I don't care about accounting. You're holding an
Speaker 2: asset which has gone down in value, you better recognize it.
Speaker 2: Now, that's not what happened. They moved it in, so
Speaker 2: you have a lot of the assets which are sitting
Speaker 2: in long-term issues and they have a loss which they
Speaker 2: don't have to declare.
Speaker 2: And therefore, the incentive for the banks to reduce the
Speaker 2: duration simply goes away. So the regulations are such that
Speaker 2: they encourage the banks to take undue amount of risk
Speaker 2: and not to cut it down. That is what has happened.
Speaker 2: Now come over to the fiscal side. You said that
Speaker 2: was the last part of your question. The fiscal side again, is,
Speaker 2: as I said, is irresponsible?
Speaker 2: If they had followed the rules and they tried to
Speaker 2: issue the same amount of bonds, so in other words,
Speaker 2: if a 10-year bond is maturing, if you issue another
Speaker 2: 10-year bond, and you're paying a much higher interest rate
Speaker 2: to borrow for 10 years or 30 years, you will
Speaker 2: learn a lesson, and therefore, you will be cutting back
Speaker 2: on your fiscal deficit.
Speaker 2: On the other hand, uh, the Treasury and Janet Yellen,
Speaker 2: what they did was to finance it in short-dated issues.
Speaker 2: And we have a lot of short-dated these treasury issues
Speaker 2: coming due in 2025. And she says that there's nothing
Speaker 2: wrong in it. I was not manipulating the interest rate,
Speaker 2: and this is what we were doing in terms of
Speaker 2: reducing the amount of risk that we have to run.
Speaker 2: That again is a time bomb. It is just waiting.
Speaker 2: It's the same thing. I used to be critical of
Speaker 2: Turkey when they could not find a long-term capital flows
Speaker 2: or foreign direct investments coming in, they would borrow short
Speaker 2: term and 6 month, 9 month paper, and when there
Speaker 2: was a crisis, they would turn tail, go away, and
Speaker 2: cause a new devaluation of the Turkish lira. That is
Speaker 2: again the risk that we run on the US side.
Speaker 1: Um, so let's go a little further on that issue,
Speaker 1: since we are talking about the risk on the balance
Speaker 1: sheet of financial sector and the CRE issue you just
Speaker 1: brought up as well.
Speaker 1: So you're talking about a scenario in which the tenure
Speaker 1: heads above 5%. Given the existing facilities that the Fed has,
Speaker 1: as well as that little trick you talked about that
Speaker 1: if you keep it, take it away from your trading book,
Speaker 1: you don't have to mark the market. Isn't the system
Speaker 1: capable of handling tenure at 5%?
Speaker 2: Are you saying is, is the system capable of handling? Yeah, yeah,
Speaker 2: the system is capable of handling it, but the political
Speaker 2: consequences are what are not acceptable. Namely, if you have
Speaker 2: that go to 5%, the mortgage rate, which finally they
Speaker 2: are struggling to bring it down and people being able
Speaker 2: to buy houses.
Speaker 2: Because it's politically important for the administration to say more
Speaker 2: people are able to buy the home for the first time.
Speaker 2: They are now not able to. The housing affordability has
Speaker 2: gone down substantially. And if the mortgage rate once again
Speaker 2: goes to, say, 7.5%, because the 10-year yield goes to 5%, uh,
Speaker 2: you have a political issue on your hand.
Speaker 1: So related to that, Shri, there's a lot of talk
Speaker 1: about how since the global financial crisis, US households and
Speaker 1: corporates have been leveraged. Today, income growth is strong on
Speaker 1: the household side and earnings are strong on the corporate side,
Speaker 1: and therefore, debt service ratios are manageable even though interest
Speaker 1: rates are high. So what's your assessment of the balance
Speaker 1: sheet of US households and corporates?
Speaker 2: The balance sheet, um, the New York Fed recently had
Speaker 2: a study showing that they are not very concerned about
Speaker 2: the overall balance sheet, um, of the US households.
Speaker 2: And that is correct in the sense that if you
Speaker 2: look at the totality of US residents.
Speaker 2: They've all benefited from the run-up in equity prices, the
Speaker 2: run-up in house prices. When you put them both together,
Speaker 2: your debt did not increase as much and therefore, your
Speaker 2: numbers look pretty good in terms of the household, uh,
Speaker 2: network position.
Speaker 2: But the problem that I see is not in the aggregate,
Speaker 2: but I try to break it down and look underneath.
Speaker 2: The real issue comes with two, there are two problems. One,
Speaker 2: if you look at the Gini coefficient of income inequality,
Speaker 2: that has worsened in recent years. It started with the
Speaker 2: Bernanke decision to reduce interest rates to 0 or near
Speaker 2: 0 after 2008.
Speaker 2: And therefore, the low-income groups who could not afford to
Speaker 2: invest in equities, uh, found that they could not get
Speaker 2: enough uh interest income. Retired people were also hurt because
Speaker 2: retired people are taught that they should be in safer assets.
Speaker 2: They were hurt as well. So now what has happened
Speaker 2: is with the new situation, you again have the low
Speaker 2: income people being hurt by the high prices and the
Speaker 2: fact that the interest rates are being brought down and
Speaker 2: they cannot afford homes. So I think that is where
Speaker 2: I think the issue is going to continue to be
Speaker 2: something that the Trump administration will have to face.
Speaker 1: And the corporate balance sheet.
Speaker 2: Uh, 00, no, sorry, let me finish one more before
Speaker 2: coming to the corporate balance sheet.
Speaker 2: So on the household side, and this is again, then
Speaker 2: we make the transition to banks and corporations.
Speaker 2: On the household side, I said the aggregate is not worrisome. However,
Speaker 2: there are two problems. The one problem is
Speaker 2: That the income distribution, as I mentioned, has worsened.
Speaker 2: And the people at the lower level of income are
Speaker 2: incurring more debt. They don't have equities to support them.
Speaker 2: And so you have a situation where low and middle
Speaker 2: income groups, the household balance sheet has worsened.
Speaker 2: Not in the totality, but if you disaggregate the income
Speaker 2: groups that has worsened. That's one issue. The second problem
Speaker 2: is some components of the debt, particularly auto loans, credit
Speaker 2: card loans, they have increased and the delinquencies on credit
Speaker 2: card debt has increased substantially. And that is going to
Speaker 2: be a factor also for banks to take into account
Speaker 2: in 2025.
Speaker 2: The expectation was Fed would successfully lower interest rates so sharply,
Speaker 2: bring it down again, inflation will be down to 2%,
Speaker 2: and therefore, uh, you won't have a problem and you,
Speaker 2: you will be able to pay your credit card debt.
Speaker 2: What I think we are going to find is that
Speaker 2: the Fed's ability to cut rates is going to be diminished.
Speaker 2: Inflation is likely to pick up, which means credit cards,
Speaker 2: the average credit card interest rate I was looking at
Speaker 2: in the last two days is determined to be 24%
Speaker 2: per year. Wow. So why do you borrow 24% per year?
Speaker 2: Because you have a credit limit. Nobody asks you questions
Speaker 2: as long as you run up to that limit.
Speaker 2: And people are running up and when they run up
Speaker 2: to that limit, they are not able to make payments
Speaker 2: on a monthly basis. That's where the other issue is
Speaker 2: that 2025, it will become an important issue for the
Speaker 2: Trump administration to face.
Speaker 1: And uh on the duration exposure as far as the
Speaker 1: US corporations are concerned, I mean, I talk about both
Speaker 1: in terms of, you know, equity and credit that companies
Speaker 1: seem to have, uh, you know, ability to pay decent dividends,
Speaker 1: their earnings are good, and their leverage uh doesn't seem
Speaker 1: to be particularly high. So unlike say the 2007, 2008
Speaker 1: episode when we came into the crisis with high corporate leverage,
Speaker 1: this time, at least from that perspective, systemic risk seems
Speaker 1: to be more manageable.
Speaker 2: Systemic risk in the corporate side is very much manageable.
Speaker 2: I would agree with you completely. Uh, one key provision
Speaker 2: here is, it is based upon their equity valuations and
Speaker 2: equity markets remaining very high.
Speaker 2: If that, again, gets damaged in some way, and especially
Speaker 2: because high interest rates, high bond yields turn out to be,
Speaker 2: to be uh a headwind for equities and corporate balance sheets,
Speaker 2: then you have a new problem developing.
Speaker 1: Yeah, absolutely. I just want to take a little side
Speaker 1: through here because we're talking about corporate balance sheet. Uh
Speaker 1: you had earlier mentioned the CRE issue. The other thing
Speaker 1: that I would like you to talk about is the
Speaker 1: whole private market side.
Speaker 1: The debt, private credit leverage loans. There's a lot going
Speaker 1: on that is not part of the public market picture,
Speaker 1: and I sometimes wonder whether the regulators or even the
Speaker 1: market pricing mechanism is catching all the risks that is
Speaker 1: shaping up in the private side of the business.
Speaker 2: Uh, no, private side of the business is a completely
Speaker 2: new world. Uh, I, it is not picked up by
Speaker 2: the equity market.
Speaker 2: And as long as the public equity prices continue to
Speaker 2: remain high, that also supports the private equity side.
Speaker 2: Because anything, uh, any leverage seems to be manageable.
Speaker 2: Um, but the valuations on the public market, depending on
Speaker 2: how you measure it, uh, the S&P future, uh, earnings is, uh,
Speaker 2: multiple is about 27 or 28 times a historic high.
Speaker 2: And at that level, the private equity clearly is going
Speaker 2: to be damaged as well if there is a correction
Speaker 2: in the stock market.
Speaker 2: So I think the private equity issues are more hidden.
Speaker 2: That's why you don't talk about it. Second, I don't
Speaker 2: know that the regulators have the ability or astuteness to
Speaker 2: catch it, what's going on on the private equity side.
Speaker 1: I also see, you know, so many private debt deals
Speaker 1: which are extraordinarily large and also you see companies sort
Speaker 1: of deferring their IPOs more and more maybe because of
Speaker 1: regulatory stringency, but also because they can just go to,
Speaker 1: you know, a small club of private investors and everybody's
Speaker 1: raising funds together and the international investors get together.
Speaker 1: I mean, it's pretty extraordinary. I, you probably saw overnight
Speaker 1: Shri Masayushi's son and Trump jointly announcing $100 billion of investment.
Speaker 1: It is all privately funded. There is no public element funded,
Speaker 2: and he's going to do that over the next few years.
Speaker 2: It is good for Trump as he, as a as
Speaker 2: a something publicity point as he prepares to assume office.
Speaker 2: But you just have to wonder at those huge numbers
Speaker 2: and if you would actually be able to accomplish it.
Speaker 2: It's one thing to promise that it is quite another
Speaker 2: one to actually deliver.
Speaker 1: Given So's track record, I have my doubts as well. Um, Sri,
Speaker 1: at the beginning of this conversation, you were taking stock
Speaker 1: of 2024 and you were talking about inflation, but then
Speaker 1: you added that for 2025, you are worried that inflation
Speaker 1: has bottomed out and there are upside risk. Now those
Speaker 1: upside risks, in addition to what you have talked about tariff.
Speaker 1: Would you have been concerned regardless of the presidential election outcomes,
Speaker 1: even under a Harris presidency, would you have seen upside
Speaker 1: risk to inflation in 2025?
Speaker 2: I, um, let's take the campaign promises at face value.
Speaker 2: We don't know, of course, whether Kamala Harris would have
Speaker 2: done what she promised and if Trump is going to
Speaker 2: do what he promised, but I'm just, you have to
Speaker 2: make some assumption, and I'm going to say they are
Speaker 2: going to be close to 100% of what they promised.
Speaker 2: So, uh, on the Kamala Harriss side, there was going
Speaker 2: to be a lot more subsidies given for low income groups,
Speaker 2: people to buy their first home. It's all very noble,
Speaker 2: but the question is, where do you get the cash
Speaker 2: to make all those payments? And on the Trump side,
Speaker 2: he's again talking about a whole lot of, uh, tax cuts.
Speaker 2: And many of them are going to land at higher
Speaker 2: income levels and similar to what happened with the December
Speaker 2: 2017 tax cut, which again went to the higher income
Speaker 2: groups mostly.
Speaker 2: Uh, so in both cases, I think the deficit would
Speaker 2: have remained high, would go even higher, assuming they followed
Speaker 2: through on their campaign promises, but the Harris deficit would
Speaker 2: have been smaller than the Trump deficit.
Speaker 2: Uh, but both deficits would be higher than where they
Speaker 2: are today.
Speaker 2: So the issue then becomes, you have to say, perhaps
Speaker 2: Trump will not give all the fiscal goodies that people
Speaker 2: hope to get. Uh, if you don't assume that this
Speaker 2: is just a horrible situation on the deficit side, what
Speaker 2: can happen to bond yields, what can happen to the
Speaker 2: US dollar as a result?
Speaker 1: Right. Um, so should we, just to stay with that
Speaker 1: thread a little longer, uh, the thing that I've been
Speaker 1: tracking the last few months is that goods inflation, by
Speaker 1: and large, OK, supply chains have normalized.
Speaker 1: Energy prices are stable, but it's a services side where
Speaker 1: we see quite a bit of stickiness, if you will,
Speaker 1: from financial services to restaurants to recreation. Those prices seem
Speaker 1: to be sticky and then of course, you know, home
Speaker 1: renovation prices and so on. So while goods prices have
Speaker 1: come down, there is this other part of the economy,
Speaker 1: the services side, which seems to show a lot of stickiness.
Speaker 1: So with 2025 in mind, um, tariff, who knows, you know,
Speaker 1: whether he'll do 60% or not, but on immigration, I
Speaker 1: think it's pretty clear that there'll be a lot of
Speaker 1: crackdown and deportation. Do you see a strong link between
Speaker 1: undocumented worker crackdown and service inflation?
Speaker 2: Uh, I, I do. I think undocumented workers in particular
Speaker 2: parts of the country, California being one of them.
Speaker 2: Um, benefits immensely from undocumented workers being there.
Speaker 2: And the question is, uh, the deportation that is being threatened,
Speaker 2: how seriously would it be done? For instance, Trump said
Speaker 2: in a very recent interview, uh, the so-called dreamers, the
Speaker 2: kids who were brought as children, and they don't even
Speaker 2: know their home countries of their parents because they've never
Speaker 2: been there. They are all English speaking. They don't even
Speaker 2: speak to the extent they're Hispanic, they don't even speak Spanish.
Speaker 2: And those people are very much American in terms of
Speaker 2: their behavior and their attitude.
Speaker 2: And he has said more recently, they need to be protected.
Speaker 2: So clearly it is, if you look at the, so
Speaker 2: that part, um, and already there is a going back
Speaker 2: in terms of how much the deportation would be done.
Speaker 2: And secondly, uh, the case about birth citizenship by birth.
Speaker 2: And the idea is that you just because your mother
Speaker 2: came across the border, came into the United States, and
Speaker 2: delivered the baby on the US side of the border
Speaker 2: doesn't mean I'm going to allow you to be a
Speaker 2: US citizen.
Speaker 2: That again goes against constitutional provisions in the United States.
Speaker 2: It is going to be contested. It is going to
Speaker 2: be going up the level of courts. And even with
Speaker 2: the conservative majority in the Supreme Court that Trump has
Speaker 2: instituted from his first term, it's not clear that that
Speaker 2: kind of a situation can persist. In other words, it's
Speaker 2: not clear that the Supreme Court would support that.
Speaker 2: So there are uncertainties. I am guessing that to a
Speaker 2: large extent the deportation is going to be, it's a
Speaker 2: great campaign team, but it may lose when it comes
Speaker 2: to actual implementation. Similar to the border wall, and remember,
Speaker 2: Trump was going to have a wall from end of
Speaker 2: border to end of border along Mexico, and I think
Speaker 2: it's probably now a few feet.
Speaker 2: Is all that was, that was built uh during his
Speaker 2: term
Speaker 1: and then Mexico was going to pay for it.
Speaker 2: Mexico was going to pay for it and of course they,
Speaker 2: they used some very colorful terms in explaining that they
Speaker 2: were not going to pay for it.
Speaker 1: Absolutely. Uh, Shri, I um have been reading articles about
Speaker 1: where the undocumented workers um are mostly in the US
Speaker 1: in which sectors. So of course, you know, agriculture, construction, uh,
Speaker 1: basic services, we all know, but one of the most
Speaker 1: dynamic part of the US
Speaker 1: The economy in the last 5 years has been the
Speaker 1: delivery economy, you know, all these DoorDash and so on.
Speaker 1: And I'm reading that, you know, undocumented workers play a
Speaker 1: big role in supporting the delivery economy, and that is
Speaker 1: why extremely low cost of, you know, sending even the
Speaker 1: tiniest thing from one part of town to the other
Speaker 1: part of the town can be done. So if indeed
Speaker 1: there is a big crackdown, that is one more area
Speaker 1: which wasn't an issue in the past, could become an
Speaker 1: issue in terms of prices of delivery going up.
Speaker 1: Um, she, uh, just in general, um, financial market outlook,
Speaker 1: the last 4.5, 5 weeks since Trump's election, we've seen
Speaker 1: the financial markets go strength to strength. Uh, a lot
Speaker 1: of stocks are doing very well. The expectation is on
Speaker 1: the back of deregulation and tax cuts, you know, financial
Speaker 1: sector will continue to benefit.
Speaker 1: Uh, in the, in the coming years. Uh, so your
Speaker 1: take on financial markets, especially with the context, you had
Speaker 1: already mentioned this before, that the valuations are extremely high.
Speaker 2: Oh, my take on the market, um, clearly, um,
Speaker 2: If there are 21 positive and one negative, the positive
Speaker 2: is going to be coming from the deregulation move. There
Speaker 2: are regulations which are going to be um unraveled in
Speaker 2: the Trump administration. Some of them may happen even in
Speaker 2: his first month in office.
Speaker 2: And so we, you were talking about, uh, Tesla benefiting
Speaker 2: and uh Bitcoin benefiting. Again, it is all going to
Speaker 2: come from less regulation and then the ability for you
Speaker 2: to be able to pay with Bitcoin, which will increase
Speaker 2: its attractiveness for investors and so on.
Speaker 2: So to some extent, that is going to be a
Speaker 2: big positive overall. The negative side, I think, is going
Speaker 2: to come from interest rates. And my concern is that, uh,
Speaker 2: the basic, uh, industries, basic setup such as housing, um,
Speaker 2: prices of essentials may suffer if you have, uh, the,
Speaker 2: the 10-year treasury go to 5%.
Speaker 2: And if you have home prices continuing to increase and
Speaker 2: the mortgage rate remaining elevated.
Speaker 2: Um, home prices remaining high is not going to be
Speaker 2: solved by what the Democratic campaign suggested, namely giving money
Speaker 2: to the people to buy their first home. That will
Speaker 2: only cause home prices to go up even further.
Speaker 2: What you need is more supply of houses, and that is,
Speaker 2: that is not uh seem to be in the cards
Speaker 2: anytime soon. So my point is there are lots of
Speaker 2: headwinds as well in addition to the positives that are
Speaker 2: there with respect to deregulation that has been promised.
Speaker 2: Uh, so, but given the fact that you have such
Speaker 2: a high valuation for the overall market, I would look
Speaker 2: for some of, some stocks at least to be hit
Speaker 2: in the 1st 6 months of the Trump administration.
Speaker 1: I, I fully, fully concur. OK, so related to that scenario,
Speaker 1: your view on the dollar.
Speaker 2: Uh, we talked about the dollar not having any competition, uh,
Speaker 2: not the renminbi yuan, not the euro, not, not the
Speaker 2: UK pound sterling. Uh, so I think the dollar in
Speaker 2: the short term, short term, especially if the tariffs are imposed,
Speaker 2: I can see that going from 105, 106 on the
Speaker 2: euro to parity or even less than parity. Um.
Speaker 2: The issue here is, as we talk Tor, many of
Speaker 2: those other countries have severe political problems. Look at what happened.
Speaker 2: The Canadian dollar is at a long time low, and
Speaker 2: again on Monday, uh, in the, in North America, we
Speaker 2: had the Deputy Prime Minister and Finance minister resign, Christia Freeland.
Speaker 2: And she in turn said, criticized the Prime Minister pretty
Speaker 2: scathingly in her resignation letter.
Speaker 2: Germany is without a government. The government just fell, and
Speaker 2: it's not clear that they can form one. France is
Speaker 2: borrowing at interest rates comparable to Greece.
Speaker 2: And the 10 year yield uh for France has shot up.
Speaker 2: And while the government fell last week, I don't think
Speaker 2: France can have another government. So the euro is going
Speaker 2: to be weak because of its innate problems.
Speaker 2: The Chinese economy has issues which, as you know very
Speaker 2: well from your Asian base, uh, that is not going
Speaker 2: to go away anytime soon. I think the renminbi in
Speaker 2: term is likely to be weakening with respect to the
Speaker 2: US dollar.
Speaker 2: So I see a period of, and if, and again,
Speaker 2: if uh tariffs are imposed, that's going to be very
Speaker 2: positive for the dollar. Positive being defined as strengthening.
Speaker 2: And if that's the case, you're looking for a stronger
Speaker 2: dollar in 2025, I would say stronger at least for
Speaker 2: the first half of 2025.
Speaker 2: Then you just, I, I'm not going to make a
Speaker 2: forecast beyond the first half because it all depends on how, what,
Speaker 2: how the policies change. Now, does Trump then not impose
Speaker 2: the tariffs and then he goes back on them? And
Speaker 2: if Germany and France, do they get their act together
Speaker 2: in the second half of the year and push the
Speaker 2: euro from parity toward again 108 $109 US dollars per euro.
Speaker 2: Perhaps that would, those things would be very positive if
Speaker 2: that happened.
Speaker 1: Uh, we, you and I don't coordinate on work, but
Speaker 1: on this issue we are like 100% aligned. I also
Speaker 1: think that 2025 is a year of two halves, so
Speaker 1: to speak, you will see almost uninterrupted Trump trades manifesting
Speaker 1: in the first half or maybe the first quarter at least.
Speaker 1: And after that, all bets are off with respect to
Speaker 1: the dollar and then the US interest rates because
Speaker 1: There are certain internal inconsistencies in the Trump model, which
Speaker 1: right now nobody cares about, and he gets a free pass,
Speaker 1: but then as those internal inconsistencies come to the fore,
Speaker 1: then I think some of these trades would be far
Speaker 1: more challenging. But you're right, it's really hard to predict
Speaker 1: the next 6 months, let alone the next 12 months.
Speaker 1: Um we've spent a lot of time talking about the
Speaker 1: US and I'm glad that, you know, you brought the
Speaker 1: discussion to the international for with the respect to Canada.
Speaker 1: Ah, Germany and France. Let's talk a bit about Asia
Speaker 1: and then perhaps EM as an asset class. Ari, it's
Speaker 1: not been great. Ah, although Indian stocks have done pretty well,
Speaker 1: but by and large investors basically invest in DM these days.
Speaker 1: EM gets very little love. Any chance of that turning
Speaker 1: around in 2025?
Speaker 2: Uh, if the US dollar, uh, remains very strong, there are,
Speaker 2: of course, two issues here. On the positive side for
Speaker 2: emerging markets, uh, the US trade balance worsens.
Speaker 2: But the, the emerging markets are going to be able
Speaker 2: to export more to the United States.
Speaker 2: But Trump has also threatened that if that happens, he's
Speaker 2: going to impose a tariff on them, which again would
Speaker 2: cut back. So I would say that net net, it
Speaker 2: is going, looks like a negative year for emerging markets.
Speaker 2: Uh, especially Asian countries which are so dependent on exports
Speaker 2: rather than domestic consumption.
Speaker 2: Uh, so I think 2025 is going to be a
Speaker 2: year of countries with a significant domestic base benefiting at
Speaker 2: the expense of those who are exporters. So what are
Speaker 2: some of them? India again is a country with a
Speaker 2: huge domestic consumption base. Indonesia is a country with a
Speaker 2: large population, and it has, it can develop its domestic
Speaker 2: consumption demand.
Speaker 2: On the other hand, uh, Korea, Japan, China are all
Speaker 2: export dependent.
Speaker 2: And China has another problem, demographic, with the population getting
Speaker 2: older and therefore not demanding as much as young people do.
Speaker 2: You have an issue with how much they can depend
Speaker 2: on putting the uh products into foreign markets.
Speaker 2: And their, their key um trade partner, Germany is in trouble,
Speaker 2: and the United States is threatening tariffs on China. So
Speaker 2: I think overall, those areas look to be uh difficult
Speaker 2: ones on Asia because of their export dependence.
Speaker 2: There are a few countries, sorry, were you going to
Speaker 2: say something? No, no, go ahead, please. There are a
Speaker 2: few countries in Latin America which have special characteristics which
Speaker 2: help them shine. Mexico because of its location.
Speaker 2: And the fact that very often, um, Mexico is used
Speaker 2: as a base as a substitute for China that has
Speaker 2: been positive. On the other hand, Chinese products come through Mexico,
Speaker 2: and a lot of goods which are thought to be
Speaker 2: Mexican actually have Chinese components in them, which infuriates Trump
Speaker 2: that that is happening and that's why.
Speaker 2: He had this shouting match between Trump on the one
Speaker 2: hand and Claudia Scheinbaum, the new Mexican president on the other.
Speaker 2: Um, so that, despite that, if they reach an amicable settlement,
Speaker 2: Mexico can very well benefit from it.
Speaker 2: Uh, um, let's see, and then the other second country
Speaker 2: I would mention, uh, in a positive light is Brazil.
Speaker 2: This is a country I've been traveling to for the
Speaker 2: last almost 45 years.
Speaker 2: And you never write Brazil off. It's a country with
Speaker 2: a huge population, very sophisticated bureaucracy, as well as a
Speaker 2: business sector, very knowledgeable. And even when they go into crisis,
Speaker 2: they come out of it. And so they can adapt
Speaker 2: to global situation, so that they might do well. Brazil
Speaker 2: has developed uh actually links with China, and China uh
Speaker 2: into as an export market.
Speaker 2: And uh Brazil may be a beneficiary along with Mexico,
Speaker 2: but uh India because of population, Brazil, Mexico because of
Speaker 2: uh the special characteristics, but overall emerging markets, uh, doesn't
Speaker 2: look like a winning deal for 2025.
Speaker 1: Ah, Sri, what about Brazil's neighbor, which always goes from
Speaker 1: crisis to crisis, but right now seem to be having
Speaker 1: a pretty decent moment, Argentina.
Speaker 2: Yeah,
Speaker 2: no, when you, when you said the neighbor, I said
Speaker 2: Tur is obviously not talking about Uruguay. He has to
Speaker 2: be talking about. It has to be the bigger one.
Speaker 2: I, I'm both, I'm very impressed.
Speaker 2: And uh I was in Argentina about 2 months ago,
Speaker 2: very impressed by the changes that are taking place, um,
Speaker 2: and the policies instituted by instituted by Javier Mille, uh,
Speaker 2: the president.
Speaker 2: Those are the positives. Uh, the positives come from the
Speaker 2: fact that he has been very rigid in terms of not, uh,
Speaker 2: printing money to justify any expenditure. And the people, I think,
Speaker 2: genuinely think he's an honest guy, and there was a
Speaker 2: lot of corruption in prior administrations, which the people believe
Speaker 2: does not continue in the Malay side.
Speaker 2: So those are the positives and the International Monetary Fund,
Speaker 2: your former employer, uh, they are very supportive of the Malay, uh, thing.
Speaker 2: After all, it's a huge debtor to the IMF. They
Speaker 2: better be supportive, but, uh, rather than blindly supporting, which
Speaker 2: is what the IMF used to do before, they are
Speaker 2: currently in the process of supporting them.
Speaker 2: And essentially hoping that Malay wins, and I hope the
Speaker 2: same thing too.
Speaker 2: The negatives come from the fact that there are a
Speaker 2: whole lot of extraneous things that he uses which have
Speaker 2: nothing to do with the economy or monetary or fiscal policy,
Speaker 2: namely calling the president of Colombia names and calling the
Speaker 2: prime minister of Spain as a communist.
Speaker 2: and he started a fight with neighboring Brazil and then
Speaker 2: it had to be resolved very quickly.
Speaker 2: Uh, he does all of that, but the question is,
Speaker 2: I sometimes say, why do you do that? The people
Speaker 2: are not going to, your popularity is not going to
Speaker 2: go up because you call somebody a communist outside of
Speaker 2: your country.
Speaker 2: Uh, so I think it is a part of the
Speaker 2: personality that he's, again, full of energy and he has
Speaker 2: to say something on every, every different uh concept.
Speaker 2: But to the extent he sticks with the economics, and
Speaker 2: so far his popularity has risen. Inflation has come down
Speaker 2: very sharply, and even though people are finding that their
Speaker 2: wages did not increase as much as population as the inflation,
Speaker 2: they're willing to give him time. They say, here is
Speaker 2: an honest guy who's trying to improve the situation. We
Speaker 2: have had 70 years of a fiscal mess.
Speaker 2: And it's not going to be cured overnight, so let's
Speaker 2: give him more time. So that, all of that part
Speaker 2: is good. Uh, the issue then, then becomes, can you
Speaker 2: stick with it?
Speaker 2: And he did not get diverted by other extraneous issues
Speaker 2: and focus on the economy. That's what I'd like him
Speaker 2: to do,
Speaker 1: right? And also just to maintain that you're not just him,
Speaker 1: but the entire administration remains clean because that seems to
Speaker 1: be something that the Argentinians really are fed up with. Um, Sri,
Speaker 1: a final question on the flavors of the moment crypto, gold,
Speaker 1: and AI stocks. Where do these things sit in your
Speaker 1: asset allocation distribution?
Speaker 2: Um, I am very old fashioned, so I, I would
Speaker 2: explain my bias with respect to crypto. Even when the
Speaker 2: Federal Reserve policy is something that I do not like
Speaker 2: and I don't like the policy, I still think money
Speaker 2: should be created by a central authority. I need to
Speaker 2: be able to touch it. I need to be able
Speaker 2: to feel it.
Speaker 2: And so I'm not a believer in crypto that I'm not,
Speaker 2: I'm not going to talk in terms of what might do. Yes,
Speaker 2: they can get a jump up due to the Trump policies,
Speaker 2: but I'll be really watching to see how far the
Speaker 2: run-up goes.
Speaker 2: Uh, you mentioned gold. Uh, I'm a big fan of gold,
Speaker 2: and the reason is that as currencies are being debased
Speaker 2: right now.
Speaker 2: The dollar can appreciate, we talked about the dollar becoming
Speaker 2: very strong, but it becomes very strong with respect to
Speaker 2: other paper currencies.
Speaker 2: On the other hand, all paper currencies are losing value
Speaker 2: because everybody is, uh,
Speaker 2: Misusing the currency issuance, uh, ability.
Speaker 2: So I think gold has a, a significant upward move still,
Speaker 2: and rather than be between 2600 and 2700 an ounce,
Speaker 2: I can see it very quickly going up to the
Speaker 2: 3000 level, uh, and being sustained, uh, about that.
Speaker 2: Now, if the, if the markets believe, especially on the
Speaker 2: Fed's side, that interest rates are not going to be
Speaker 2: cut any, any further or that interest rates can even
Speaker 2: be increased, that's going to bring uh the gold price
Speaker 2: down somewhat.
Speaker 2: But the political side of it clearly is to be
Speaker 2: uh profligate on the monetary policy side. And that I
Speaker 2: think is going to be uh boosting the value of
Speaker 2: gold longer term.
Speaker 1: Um, profligacy on the monetary side, uh, are you suggesting
Speaker 1: that QT will end soon, even if the Fed can't
Speaker 1: bring inflation down to 2%?
Speaker 2: They have already talked about ending quantitative tightening.
Speaker 2: And um the person who the uh the president of
Speaker 2: the Dallas Fed, who used to be the person at
Speaker 2: the New York Fed managing that situation, she has clearly
Speaker 2: indicated that that may be coming. Powell has also suggested that.
Speaker 2: So I had, so in other words, it's now at
Speaker 2: about 7.2, 7.3 trillion.
Speaker 2: And they are, you would think that they should take
Speaker 2: it back to the pre-COVID level of 4 trillion, if
Speaker 2: not to the Lehman Brothers level of 800 billion, but
Speaker 2: no chance. It's not going to go anywhere there. I
Speaker 2: think you will be lucky if it goes to 6.5 trillion,
Speaker 2: and we are going to consider that a victory and
Speaker 2: we are not going to um do quantitative tightening anymore.
Speaker 2: That also militates against the dollar and it also creates
Speaker 2: more demand for gold.
Speaker 2: Because you know that there is going to be a
Speaker 2: lack of discipline on the side of uh the Fed policy.
Speaker 1: Right, so basically for our followers and listeners, don't fight
Speaker 1: the Trump trade in the near term, but be very
Speaker 1: careful uh once the sugar rush goes away because from
Speaker 1: the dollar to the interest rates, lots of volatility could
Speaker 1: be in the offing.
Speaker 2: That is very well put, I would agree with that.
Speaker 1: Shri, uh, this has been fantastic as always. Thank you
Speaker 1: so much for your time and insights, and I want
Speaker 1: to wish you and your family happy holidays and a
Speaker 1: happy new year.
Speaker 2: Thank you very much. I wish you a happy holidays
Speaker 2: as well and all the best to you and the
Speaker 2: family in 2025, Jamo.
Speaker 1: Thank you very much and thanks to our listeners and
Speaker 1: viewers as well. Kobe Time was produced by Ken Delbridge
Speaker 1: at Sly Studios. Violet Lee and Daisy Sharma provided additional assistance.
Speaker 1: It is for information only and does not represent any
Speaker 1: trade recommendations. All 144 episodes of the podcast are available
Speaker 1: on YouTube and on all major podcast platforms, including Apple
Speaker 1: and Google and Spotify. As for our research publications, webinars,
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Speaker 1: Devious Research Library. Have a great day.