Inflation Pains: Will the Fed Stay the Course? (w/ Ash Bennington & Ed Harrison)

[Music] revision daily briefing live without a net on a very interesting day on wall street lots of news lots of market action inflation bond vigilantes and lo and behold we're getting the old band back together i couldn't be happier about being joined by ed harris and ed welcome thank you very much ash it's always a pleasure you know we're here on a rather interesting day let me just go through some of these numbers here just to bring people up to speed if you haven't been in front of a terminal today dow jones industrial average closes at 33 587 that's off down 1.99 basically off 2 on the day s p 500 down 2.14 final closing uh number 4063 and nasdaq closing at 13 031 off for the day 2.67 and the vix up uh 26 uh on the day settling final number on the vix 27 spot 59 ed i know you've been watching this i know you've been thinking about what happened with the inflation numbers how are you looking at these markets what are you thinking right now yeah i mean that vix that's something but you know but ash by the way let me just uh uh tell you i missed doing the rv db with you and you stole my line about getting the band back together again uh i'm sure that you know some people they also miss the pairing we never do rvdb together and uh i i'd love it if people in the comments were to say do you want us to do this more often well it all depends on whether or not you know you and i do a good job together so we'll see no pressure none whatsoever but yeah i would love to do these more often it's a lot of fun it takes us back to you know when we started real vision daily briefing at the depths of the pandemic the worst uh possible moment you know you and i and some folks at real vision thought we really need to get out there reach out and touch the subscribers talk about what's happening go through the numbers go through the data provide context and explain what's going on and it's just such a pleasure to be back doing it with you well said and you know that was exactly where i was going to go ash is that i look at rvdb as sort of a compliment to the interview series you know the interview series is the macro and like what we're going to talk about in a second is the stuff that's happening right now giving you a context in the map of the macro for what just happened in terms of the action for today and you know for me actually i guess over the last uh year periodically we asked people questions one of the questions i would ask some of the viewers today ash is you know how important is rvdb to their membership i'm not talking about people who are looking at it for free on youtube but i'm thinking about our subscribers our core base uh you know is rv db exactly how i'm thinking about as a compliment to the uh to the interview series yeah absolutely how does it fit in with the way you watch rvdb with the way you consume it with how you think about it anything uh that you'd like to tell us about that any context at all would be great and as you know uh we very much are interested in what you have to say and we respond to them and that's really what i think one of the things that makes this uh show different unlike the big networks we're basically here to provide information to our subscribers and to the viewers who are watching on youtube we'd love to hear what you think yeah and as so you were asking what i think uh dow jones down 681 points that is the low for the day pretty much nasdaq low for the day so the indices closed at their lows all three of them of the day so you had selling pressure into the clothes what that says to me is is that this is a fundamental move that has some legs and some momentum behind it uh i would say that the toggle i you know i wrote this actually on twitter earlier this morning um i said that the toggle is still interest rates ultimately the reason that we were able to have a reprieve in the markets for tech is because uh you know the bond vigilantes they were tamed we went to 177 on the 10-year u.s treasury and we backed off we backed off into the 150s now we're back to 169. so 169 makes a big difference compared to say 151. to me that is the crux of where we are right now uh in in the markets yeah we're just a hair's breath uh under one spot seven on the ust 10 yield uh and i should add to pick up on the points that you made the selling pressure into the clothes on the day looking at these uh major indices for the week the dow jones industrial average minus 3.4 on the week s p 500 minus 4.1 percent on the week nasdaq composite minus 5.2 on the week 5.2 percent yeah that's uh what people used to call mini correction 5 many correction 10 official correction 20 bear market so 5 down we haven't had that in in months so you could call that healthy but i would say that what you should take away from that is it it's the dcf stupid that's that's the that is a phrase that needs to make a comeback because ultimately what that phrase is telling you is valuation still matters discounted cash flows no matter how you do any valuation whether you have network effects or not what's happening is people are saying this is what we think the future is and as a result of this future we're looking at your cash flows and we're discounting them to present value and when interest rates go up those future cash flows become less valuable and they become much less valuable for those companies that are the most growth the growthiest companies are the ones that get hit when uh the discount rates go up and so that's what we're seeing now that's why when you see a big rise in interest rates we see a uh you know nasdaq going up going down the most we see the s p later and then the dow which is you know more the stalwarts where more of the cash flow is in the near term they're the ones that go down the the least yeah absolutely and let's talk to what's at the core of all that what's at the core of your analysis today in credit write downs which i would encourage anyone who is serious about thinking about the credit cycle what's happening in fixed income uh to subscribe to you say for now though it's inflation that has everyone mesmerized let's give the context for the news today obviously uh a blowout number the largest uh jump uh since i believe 2008 september of 2008 the beginning of the quantitative easing universe yes and you know our mutual colleague jack farley he had a good tweet i'm looking at now 324 retweets already he says that the inflation numbers were blowing past expectations leaving every single uh economist estimate in the dust 4.2 year-over-year change uh that's versus the estimate which was a 3.6 median change and the highest estimate of the 47 people that he found economists on bloomberg was 3.9 percent and this compares to a 2.6 number in uh march so let's forget about you know the fact that we had a deflation in a lockdown a year ago really what you have to focus on is one the level and two expectations so 4.2 is a huge number uh and expectations were much lower than that 4.2 percent right yeah and jack farley uh god bless him he tweeted out the frequency histogram now that is a serious analysis but talk a little bit about what your thoughts are on that number what it means in contrast look this is the most in any 12-month period since 2008 this is a substantial move in prices uh what does that mean uh who if for people who are relatively new to thinking about bond markets talk a little bit about the bond vigil antis and whether or not they may be back in play yeah i think that they are back in play you know they had to go at the fed uh and they made it up to 177 as i was saying but then they were stalled out and the way that i'm i think of the bond vigilantes and i think is a good way to think of it is that they're front runners what they're doing is they're saying that here is what here's the policy uh of the fed's reaction function here are the data and here's what we think is going to happen in the future based upon that and what the fed's been telling us is is that by the way inflation doesn't matter to us and in fact it's employment that matters the most we are not going anywhere with interest rates in the future what the bond vigilantes have been saying is is we don't believe you we think that uh the data are so good the inflation numbers are going to be so high that we um anticipate you will your reaction function will be more aggressive more tightened than you than you're telling us and so we are going to front run your policy decisions they had a go uh but then jay powell came out and a whole litany of different fed officials came out and said hang on guys we don't care what you think we're not going to do it we're not raising interest rates we're not tightening we're not tapering asset purchases but this number was so bad that the bond vigilantes are now at the margin thinking the fed you know they're going to have to do something and so that's why interest rates went up if i may and quote ed harrison so this is from today's credit write-downs because this is spot on and precisely to the point in a little bit more detail than you've just mentioned quote so it makes sense that at the margin investors have started to question the fed's resolve on holding firm on monetary accommodation given just how much inflation has jumped this means long-term rates because a large swath of bond investors now believe the fed will move up its timetable for tightening so large is the inflation wave and then you go on to say this is how the bond vigil antes work their role is to test the resolve of the fed test the fed's adherence to its own policy guidelines is the fed so wedded to the concept of flu full employment that it's willing to completely disregard its inflation mandate how much does inflation have to rise before the fed changes its tunes about inflation being and this is a key word transitory and if the fed changes tack what will they do those are the questions being asked by the bond vigilantes yes indeed that word transitory that that is the key word right because the fed has basically told us that they're going gonna look through the numbers uh you know so they get a free pass for the next two or three months but this number was so bad that suddenly people were like wait a minute maybe the fed isn't going to look through these numbers if we see prints like this which are even ahead of our expectations 2.6 moving up to 3.6 instead getting 4.2 what happens if we get a 5 number the next time right then the fed has to do something that's basically what the bond vigilantes are telling us yeah yeah exactly exactly that seems to be the whole fulcrum around which these markets are going to pivot this notion of transitory look there's an argument to be made and i'm not saying i agree with it but there's an argument to be made that's not crazy that says something like well what do you expect uh for a 12 month uh year-over-year transition look where we were uh in may uh of 2020 it was the depths of the impact that we were seeing from the covid crisis there is nowhere for things to go for growth to go and therefore potentially prices to go but up and so this question that you're hitting on is just so central to everything we're talking about which is is it transitory you know to be transitory or not to be transitory that is the question that's what everybody's thinking about and how do we know i mean obviously as you mentioned we're looking at the next number remember one number in isolation for people who are relatively new to this while it can be a really ugly number or a great number depending it really is the key is looking at what the moving averages look like how the trajectory begins to move over time how do you begin to think about that ed you've been looking at these kinds of numbers for decades what's your theory about what's happening and how will you know whether it's coming true yeah um i think that we're talking about the fed as a global central bank i.e they are doing things for the entire economy rather than just for the united states meaning that their impact is global let me give you an example western nakamura who's one of our colleagues he noticed that the taiwan index was down like nine percent one day loss uh on the day as a result of these jitters that we're talking about so you know these are the kinds of things that have a global impact the question then is is if the fed has a dual mandate what do they do about that dual mandate what are the targets that they're looking for they've told us that inflation is transitory therefore you can completely dismiss it over the short term though over the long term we're looking for a catch up to two percent before people thought maybe two percent was a ceiling we're telling you it's not that it's a central tendency and so if if we had like 1.2 then we're fine getting 2.8 percent for an equivalent amount of time when it comes to the employment side however we want to get back to where we were before we're at 3.5 unemployment we have seven or eight million jobs left to go plus any catch-up that we might have needed to do because the size of the economy is growing so the fed is saying those are our bogeys and they've implicitly said that the second bogey is the more important bogey so then the question is is you know how how how set in stone is that because that's not really how the fed's been talking in the past um if you think back to 2018 the fed was raising interest rates uh uh powell said that we're a long way from neutral in terms of the neutral interest rate uh that's a whole another uh can of worms that i don't want to open but the long and short is is that he raised interest rates more aggressively than people anticipated and then the bond vigilantes were working in reverse back then and so the question in terms of what i believe is the nexus of employment and of uh of interest sorry employment and inflation how they uh come out in terms of what the fed's reaction function is right now the last uh two reads that we have are like 200 and some thousand jobs on employment instead of a million and we have four point two percent year-on-year inflation instead of three point six percent most people would call that stagflation you know meaning uh bad on the employment side bad on the inflation side that's a recipe for high interest rates in the previous fed regime i don't think the fed is playing games i think that they actually do believe what they say and so i do think at the margin they will um continue on the same path but there's only so much that they're willing to put up with um on the inflation front so if we see bad numbers like this uh in june and in july then the free pass that we've been giving the fed uh it won't come to fruition we're going to see a steepening of the yield curve and that's going to be very negative for the growthiest of stocks yeah so so much there so interesting so many good points you've made you know the thing that i honed in on uh was this almost wrestling match that the fed is having with itself between the two different components of the dual mandate maximum employment and stable prices you know you were saying just to give a little bit of context and color because i know this is something you've been thinking about but to bring it back to sort of first principles here if you go up to the st louis fed fred database and you look at all employees uh total non-farm payrolls this is the pay m's series this is a series that goes back to like 1939 and it's basically a straight line that goes like this at like a 45 degree angle straight up and why well because that represents uh it represents the growth of population the growth of the economy women coming into the workforce all series of other factors that have been in play uh for the last uh call it 80 years or so and when you look at that number what happens is it drops off dramatically dramatically a steep 90 degree angle plummet uh when we get to the covid crisis now there's a very sharp v-shaped recovery so it drops down it shoots back up and then it kind of levels off and what you look at is if you project that line where it would have been uh it is significantly below that not only are we below the natural trend but we're actually significantly substantially below where we were when this crisis began enough in terms of the number of total people employed in the united states now you think about this against the backdrop of what you're talking about you've got a collision here this is the this is the unstoppable force meeting the immovable object two elements of the dual mandate very much in conflict yeah and you know that picture that you're painting yeah oh the thing that i have in my mind is is i have a picture of of of this slope line like this you know dropping and then us retaining a new the same slope again i mean what people are looking for they're not looking for this they're looking for that they're looking for you know us to meet that that previous line and then get back onto that previous path but to me it seems like that's not happening we did have the reverse radical recovery which is where you know we go down and then we come up and and then the question is is this radical line here how uh how elevated is that that that line slope if we get a slope of a line that's similar to what we had before then we're never going to get back to square one we're never going to get back to the to the line that we that we missed that's not good and that means that there's going to be an output gap and if the fed is is is correct saying that we're not going to raise interest rates until we get back then they're going to be on at zero forever and the bomb vigilantes are saying we don't believe you especially given the amount of inflation that we're already seeing in the system and that we believe is going to be built up over time so this is a a massive massive uh fight from a policy perspective i think that uh to me it's the most important thing rates and the fed's reaction function at this point yeah yeah extremely well said i'm also looking at something that i'm sure you looked at earlier today when the report came out from bls the bureau of labor statistics at the department of labor this is table a it's the percent change uh in cpi and it's the breakdown what we've been talking about here has been the you know the the big headline number but there's obviously underneath that all of the numbers that it's composed of and some of these are pretty striking in themselves and i was wondering if you give some commentary and i want to throw a few of them out to you so one of the interesting things is all items on an unadjusted 12-month basis uh up 4.2 percent that's the number that we've been talking about that's certainly the number that's been banded around on all the cable news networks but here's what you may not hear there uh which is uh obviously a huge percentage of this is coming from energy based commodities which are up 47.9 now the question about whether these are transitory factors uh or not is a really relevant one here um if you look at this all items less food and energy which is often thought of as a more reflective uh core number it's uh 4.4 i mean this is this is really shocking here's something that's interesting used cars and trucks uh in april of 2021 up 10 this is people wanting to get out of their house wanting to get back on the road uh used cars and trucks unadjusted 12 month 21 yeah i mean the the fed they can look through that data for a decent amount of time yes a hundred percent but there's only they only get a free pass for so long and overshoots of the magnitude that we saw this past month there you know they're so large that you know the fed won't be able to overlook it let me tell you uh a stat that i was looking at based on what you were saying a core cpi which is a stat that they measure as well which is you know you take away all the stuff that that doesn't really drive inflation over the longer term core cpi was up three percent yeah and the interesting bit is if you go back and you look at core cpi and you look for the last time that you know it was on that line it was 1995. so 26 years ago is the last time that we had 3.0 percent year-over-year increases in core cpi that's a long time uh you know that's when inflation was coming down from an incredibly high number i i think that again it does beg the question is the is the fed really going to stick to its guns um and and let me just add when i say the fed let's put an s in parentheses the feds because we also have massive amounts of fiscal stimulus happening at the same time so it's not just the fed it's also the fiscal stimulus and all of this is building up this inflationary pressure that people are concerned about yeah let me just restate just in case you did this and i'm literally doing this off the report here so it's hard to see uh all items less food and energy three percent commodities less food and energy 4.4 this is unadjusted 12 months ended april 2021 yes so uh here let's let's make the pivot then ash to the the fiscal side because the the real question for me basically is this um are we in a new era are we in a paradigm shift from a policy perspective because jay powell's making it seem like yes we are that now we have employment dominance if you will in terms of their dual mandate and then uh joe biden's making it seem like you have fiscal dominance in terms of monetary policy versus fiscal policy that's not what we had over the last say 30 or 40 years is this is this actually going to last especially if we start to see the whites of inflation's eyes uh i that's that's the the sixty four thousand dollar question and if you look at the yield curve uh the steepness of the yield curve is nothing close to what it was in the last two cycles we still have a decent amount of steepening to go both compared to the cycle that ended in 2000 and or that began in 2001 and the cycle that began in 2009. so we have a long way to go before the bond vigilantes are really you know you could say that they're out of the running i i think that uh the momentum is still toward higher rates uh at the long and the curve yeah talk to the your reasoning behind that why do you see that momentum looking that way at the longer end of the curve yeah when i look at uh you know the steepness of the curve in both 2001 and 2008 i think that uh it says that the bond vigilantes haven't given up uh i also think that the fed's policy functions uh the fed's reaction function is relatively novel in terms of its about face so the the bond market wants to test the fed whether or not they believe what they believe and then lastly we have evidence from how it works in japan you think about the widowmaker trade in in japan the widowmaker trade uh worked well for the bank of japan but it had to be tested over and over and over again uh the bond vigilantes in japan never gave up uh many people made widows going after that trade but they always had a run at the japanese authorities and the question when you're talking about the world's reserve currency is what kind of impact does that have reflexively on on markets especially markets that are priced for perfection on the equity side especially markets that are top heavy in terms of their tech balance it could be the sort of thing that is the straw that breaks the camel's back and it has sort of a reflexive uh impact on tightening of financial conditions yeah you know stan druckenmiller was out yesterday talking about this as well uh he obviously um himself a bond vigilante at least in the past uh and talking about whether or not he may be one in the future that was the sort of subtext of the conversation and he made precisely the point that you made which was look this tear that equity markets have been on uh you know since the uh accommodation was increased by the fed uh you know in uh in the depths of the crisis is incredibly top heavy for these big tech uh big cap tech names and why is that he wonders aloud and the answer is because that's fundamentally what's catching the bid because this is where the the economy goes when you can't physically go out in the world you're in front of your terminal you're in front of your screen you're using all of these uh virtualized services uh you're uh you're upping your uh entertainment consumption online you're going to work via zoom meetings and what happens when that rolls off yeah you know and what's interesting for me is is when i look at uh the losers of the day the market movers it is a combination of those companies and the reopening companies so we have two different uh things that are going on it's a bifurcated sell-off you know i'm looking at market movers uh you look and you see tripadvisor was one of the movers that was down gap was another of the big losers lennar was another of the big movers down applied materials so these are all companies that are benefiting uh from reopening or from uh you know the the high-tech part and then you have the teslas of the world the facebook the amazons so what basically you're seeing is is at the margin people saying they don't really know how well stuck on this particular um recovery is going to be given sort of the the the market tightening dynamics that are happening as a result of potentially you know a stagflationary environment i don't believe in the stagflation uh but i think that this is a narrative that could get legs and that's just enough to to create a tightening of conditions well you just anticipated my first question actually which is coming to us from don lasses and the question is can you explain how this inflation could be sticky and does that mean precisely as you were saying an increased risk of stagflation for q4 21 yeah i mean that's where the rubber hits the road how do you explain how uh you know trucks and cars that you said were going up at double-digit rates now continue to go up at double-digit rates at some point uh people are not going to be able to pay for that at some point you're not going to be able to pass through those costs to me the way that it continues to go up is that it somehow gets embedded via wages uh going up and continuing to go up and then prices going up and things of that nature but right i don't i don't see the mechanism for that yet so i'm i'm sort of uh a i look at this as a step level change in the inflation uh like the fed has said it's somewhat transitory but the love the step level change is high enough that especially in a world in which we're still short of jobs in which people are probably making three percent increase in their wages it's onerous you know if you have if you are making three percent more on average and inflation's going up 4.2 percent you just lost 1.2 percent you you are poorer now than you were a year ago that's not an economy that's doing well it's not stagnation but it's not a good thing right yeah very well said uh talking of which these questions which seem to often anticipate uh the direction that we're headed uh here's one that comes from steve and i think this is a really interesting one uh which is is it inflation or is it really the devaluing of the dollar yeah interesting uh you know i don't i don't have a ques i don't have an answer for that what ash are you looking at uh the dxy because dxy is at 90.7 it it doesn't seem like you know it definitely certainly the the the euro and uh the british pound have increased relative to the uh to the dollar but to me this is more fundamental uh especially when you look at taiwan selling off i don't really think of it as a dollar move i think of it more as a a move that is interest rate related yeah i think that's spot on and i think that to your broader point that these uh obviously looking at the dollar we hear this uh all the time uh from uh from folks who uh who believe uh that uh who've believed for a very long period of time that we're gonna see high from hyperinflation uh that never materialized i'm talking about in the wake of 2008 going back that far and the point is uh that the dollar uh and what's happening in the united states relative to the fed is always in the context of a broader global market for currencies and when you have uh when you have uh the ecb the boj uh you know boe all easing uh as well it becomes uh the phenomenon of the the cleanest shirt in the pile of dirty laundry uh and maybe that shirt has gotten a little bit of a tea stain on the collar but still to your point i think relative to the broader context yeah you know interesting uh though in terms of the price action across major indices today and also the backdrop now people are starting to talk about europe reopening uh and maybe uh some of the magic from the u.s has uh especially when you have this print for the inflation numbers is wearing off and now we're seeing other markets catch up to a little to a certain degree so for instance uh rather than thinking of it from a currency spec perspective think of it from a relative market perspective all of them the u.s indices were down uh the bavesta was down i'm looking at that but i look at some of these other indices you know the dax was up marginally the ftse was up almost one percent the cac 40 it was up uh uh marginally today the euro stocks was sideways up you know marginally so even though those markets all closed after this print uh europe did not sell off as much as the united states number one they're not as tech heavy uh so that's that's number one so the interest rate uh problem doesn't affect them quite as much and then number two uh they're reopening now uh and so they're there at the point that the united states was say two months ago and so i think that there's more bullishness about the pent-up demand story than there is in the u.s where there are some jitters about the level of demand that we're going to actually see in the us in q3 and q4 yeah speaking of jitters we apologize uh for any um anomalies you may be seeing in your video i think it might be our connection fluttering a little bit here uh but ed i really want to ask you about something you talk about the magic that's happening in the united states something we haven't talked about for a while i would really love to get your insight in if you go back if you rewind the clock to about a year from now or a little bit more when we were having this conversation talking about the pain that small businesses were feeling talking about the pain uh that restaurant owners bar owners uh even people who owned shops on main streets were feeling when the economy went into massive massive lockdown what's the flip side of that ed uh where do you see that type of activity going and are there significant improvements now in the lives of those folks who basically had to use a fiscal stimulus to get by yeah uh it's a really good question because at this point we're we're reopening uh and we're expecting a bounce but then i think uh there's gonna be a longer term and so when we talk about fiscal stimulus and we talk about emergency measures for small and medium-sized businesses those measures aren't going to be available to those companies over the longer term so then the question goes to consumer behavior after the pent-up demand period ends and what are the resources available both in terms of emergency resources and also in terms of the go forward top line revenue growth of these small medium-sized businesses i would say that at the margin uh you're going to see problems there that uh likely what you'll see is that things aren't going to come back 100 to where they were before everyone i'd talk to at a minimum says i'm going to do x i'm going to do y i'm going to do z but you know this other thing i'm not gonna do i'll give you an example uh someone was talking to me about inside or outside uh they were talking to me about moving or not moving and they were talking to me about people i know and people i don't know so that builds up a a decision tree of three or four different things that they were willing to do this is a friend of mine was talking to me about movie theaters so being outside and doing something while moving let's say like bicycling uh with people who i know yes i'm all in that now that i'm vaccinated he then said you know having people over to my house in a garden party yes even though we're not moving around we're all vaccinated i'm all in that i'm a little bit less excited about bringing them over uh you know inside when we're not moving around you know at the dinner table but it's friends of mine okay then when you move from friends inside in a stationary environment and you move to people who have never met before and i don't know inside and in a stationary environment then that's when he started to have trouble he said i'm dying to go see a movie but i don't know if i'm going to do that the muscle memory of the pandemic is so large that he's still hesitant to do that i think that you know that there are enough people like that and there are enough uh situations like that that you're gonna have a big problem both in these pandemic affected sectors and also for small medium-sized businesses uh which are the ones who are less able to withstand the cash flow problems yeah this is what i've missed talking about you uh these kinds of topics so much i think these are such great points you know where that line gets drawn an incredibly important point you talk about the muscle memory of being out and about i find that's been true with myself i've gone and dined indoors a few times at restaurants and one of the things that's really hard for me is having a conversation with someone who's sitting across the table for me when there are other people in the room it's something i haven't done there's all this weird echoing noise and it seems strange we're just totally out of practice at it this idea that just the muscle memory just feels weird it just feels a little bit wrong and how people draw that line where they cross it and where they don't the other thing that i think you said that was incredibly important is this idea of at the margin as we all know economic activity happens at the margin where the changes and for small businesses it's really hard to see uh for example obviously they're improving dramatically but it's really hard to understand uh why for example you know maybe in may maybe in june there's a rebound effect but when you get to uh october of 2021 it's really hard to see why activity would be better than it was in october of 2019 for example and that's really such an important point the change at the margin this is going to be something that we're going to need to follow very very closely there's going to be a lot of data the data is going to bounce around really dramatically it's going to be hard to interpret hard to understand and very hard to find a clear narrative on you know let me ask you this question okay especially given what's going on in india right now there is the possibility that come let's say october as you were saying that somewhere in the world there are a significant number of coronavirus cases they may not be you know dominating the uh discussion the way that they are in india right now but they'll still be there so in that environment uh it is now a fall it's somewhat chilly you can go indoors and you have the opportunity to go back to a restaurant you've never been to uh the question is how many people are going to think twice about doing that are they you know using your your your phrase again at the margin yeah are is it going to be 100 is it going to be 105 i think when you say that it's not going to be 105 it's hard to see how october 2021 is 105 of october 2019 right i think it's much more likely that it's a hundred percent or less so 95 and then for that business how much of a hit do you take it at five percent um so that's that's my question to you you know at the margin are you going to do those activities yeah it's exactly the right question and unfortunately i don't have the answer you know my feeling on this i had this like kind of step change i got a call from a friend of mine and she and her husband were having a party this is about 10 days ago and she called me up and she said listen you should come and i said yeah we'll see if i can and i thought no i'm not going to this party and after i hung up the phone it struck me and this is a personal decision and everyone has to reach it on their own but what struck me was look it's been 19 days since i've been vaccinated this is as immune to covet as i'm ever going to get this is as good as it gets right now if i don't go to this party tonight i might as well just lock myself in my apartment until i'm 58 right i'm never going anywhere so for me i made that decision and i was extremely strict as you guys know in lockdown i i didn't really leave my apartment but i was like this is it i'm done now that's a decision that everyone is going to have to reach on their own and it's going to have to do with a number of different factors probably your overall health how old you are if i were 25 years old man i'd be going nuts right now if i were vaccinated if i were 75 probably be a different story so all of these questions about the chronic health conditions and every person making that uh decision for themselves and also then these the weird feedback effects right because there's social proof effect here if my neighbor if my colleagues are all going out then i feel like well maybe i should be going out too or vice versa so it's a very complex kind of matrix of decision making uh and um and and it's it's kind of impossible to predict beforehand so it's really this question of where that threshold is where those tipping points are uh and what happens at the margin boy great questions don't have the answer to but i will throw out one other thing and i'm not trying to be pessimistic here but if we're being honest uh you know the question about mutations uh and vaccination to me that's the potential wild card that's out there that's lurking that could be a significant problem now obviously i'm not saying that that will happen uh so far the data has actually been incredibly favorable for the mutations for the main vaccines the three that we're getting here in the united states uh but it is an open question and we certainly hope and pray that that is not something that we have to deal with yes and you know i i hesitate to bring it in when i talk about india you know immediately that's what i'm thinking about it doesn't necessarily have to be a massive outbreak in october 2021 but who knows what's going to happen between then and now and and just going back to your decision-making i was just thinking about you know i have the grill i i've got the outdoor uh flame uh you know i have the bonfire pit at my house i have the chairs the adirondack chairs and so forth and and and the lawn chairs october 2021 i can definitely do that uh much more so than i did in october 2019 there's no reason for me to try to walk a mile or uh you know drive three miles to the local restaurant when i've paid you know thousands of dollars i'm it's not me that's paid the 5 000 but i'm giving you an example of people who paid thousands of dollars to upgrade their facilities those are permanent moves i'm sorry ash but you know some people are permanently changing their lifestyles and you know 30 percent of the time that they would have gone somewhere else they're gonna do it at home yes you of course are a happily married man living in the suburbs i can assure you that jack and max are not staying exactly yeah 100 yeah and those are these are very complex issues and and we're going to have to watch really and as as we said you know remaining sort of focused on what the data uh shows you know these are really the questions by the way uh to exactly the point that you made for it and to get back to some of the questions we have an interesting one that's coming to us from monis agarwal and the question is uh they're a viewer from india and they're curious to know about what your view is on india and emerging markets more generally yeah uh i think interestingly when i think about india and emerging markets i immediately go back to the conversation i was having with rao about the exponential age uh you know looking beyond you know what's going on right now uh which is horrible i think that there's lots of uh opportunity especially in a country like india where you have a billion people over a billion people and you do have infrastructure problems i think the potential in an exponential age type of situation to leapfrog technologically such that the infrastructure becomes overcome and therefore you benefit from the cost savings of the new technology is great and so if you think about facebook amazon you think about google are there not googles of the of india coming forward what about 10 cent alibaba and uh group that we have those in china you know that you're going to get those in a country like india so to me i look uh in a bullish way on that opportunity other emerging markets i think less so than what i just said about india but i certainly think the leapfrogging aspect is definitely there in terms of 5g uh and eventually 6g so i'm i think longer term i'm very optimistic yeah and of course the human toll of what we're seeing in india is just a horrific thing in our obviously our thoughts and our prayers are with people there's a story that came out yesterday that i thought was incredibly effective and just affecting and just really gut wrenching about about about bodies washing up along the ganges people who had presumably died of covet i mean this is an incredibly incredibly difficult difficult time yeah and the most difficult i think is the fact that in the united states in particular where vaccination is well advanced we're in a completely different mode we have to remember that the situation that we were in just months ago this is a situation that other countries india in particular brazil you know that they are going through have just recently gone through so yes uh it's hard to remember back when you're just thinking about going to the next restaurant and reopening but it is a difficult period globally for the for the pandemic yeah talking of globally here's one that comes to us a question from martin uh which markets are set to benefit the most ed uh from the cpi read and where does the cpi read fit into the fed's average inflation targeting yes that's two interesting questions i don't know which markets fit into uh benefiting the most from the cpi itself but i've already i've been saying for some time now that i'm i'm fading the uh reflation trade the uh the reopening trade and i'm thinking much more about uh that trade in europe a catch-up in europe in particular that when you look at market multiples there's a differential that hasn't been made up when you look at you know a trough-to-peak type of move from march 2020 the united states looks much better than europe uh so i think that there's some catch-up you can get out of that what i'd be interested in is what darius dale has to say about this situation because he's just started up with his own investment company i've talked to him briefly here and there traded some things with him on on twitter but when i look back to one of his his last appearance on real vision he was saying right now that's when he was thinking that we're going to pivot from a you know one regime to a different regime so right now we're in the midst of a pivot within the united states and globally from an investment perspective i think that your benefits i'd like to see what people like darius dale would say so that's the one thing that i'm thinking about and there was another question about average inflation targeting my view is is that you know the debate that we had years ago about the two percent target being a ceiling is no longer in play that two percent is no longer a ceiling it's a target and i'll say what this is all about remember when the fed uh was raising interest rates in 2018 they said you know and i mentioned you know jay powell saying that we're a long way from neutral we weren't at two percent so why was the fed raising interest rates when uh the inflation target is two percent that doesn't sound like two percent is symmetric it should be that the fed's doing nothing or only you know marginally uh reducing accommodation below two percent and then it's above two percent that they really start to get going i think that that is much more likely now than it was before so i do believe the fed has shifted its reaction function how much we will find out yeah darius dale now a 42 macro his new shop founder and ceo uh final question i know we're running out of time but i want to ask this just because i really want to hear your answer to it uh this comes to us from mark and the question is do you think we are in the early innings of a commodity super cycle and i would add to that a question of my own for people who aren't following this as closely as you are at please explain what a commodity super cycle is and what the significance is yeah a commodity super cycle is a cycle where commodity prices uh go higher over a longer period of time and i would say that the likelihood of that is greater when there's under investment in those uh commodities in terms of uh bringing those commodities to market i'm not enough of a expert on agricultural commodities to tell you whether or not uh there's an excess or a lack thereof but everything i've heard doesn't suggest that there is on the other hand when you look at markets that are like copper like lithium like oil when you look at the demand supply balance in terms of what's coming forward in terms of evs in terms of green energy really those are markets where i think there is there are some legs even though we're moving to green energy i still think that there's some legs in the fossil fuels market because uh you know of under investment but i'm i'm a little bit skeptical of the the super cycle i think that uh we'll just have to wait and see i i don't know enough and uh and so therefore i'm skeptical that we're in a new era for commodities but definitely something that we'll be taking a look at here on the daily briefing and also on the main platform at real vision uh when we'll be talking to people uh about that i'm sure uh in the coming months and i know they said that was the last question but as we wind down here i just saw one from james mulholland and the question is did we all just get an invitation to ed's fire pit that would be good yeah um you have to know where where i live first maybe when you see the fire going i live relatively close to a major road so you'll see that and you know since you opened that up that's good uh oh you know i know that you went out in new york with jack and you invited everyone along to people did you guys end up doing that and did everyone go nobody showed up ed nobody showed up what is going on that is that is bad maybe they didn't think we were serious we were really there we were literally there eating burgers drinking beer for like two hours yes and the cheese was dripping uh that's your new moniker internally we always talk about the dripping cheese you know that's that's how it was juicy burgers and dripping cheese a nick correa favorite so um but before we go i know you're gonna sign off let me just say that i spoke to azimazar who has a book called the exponential age that's coming out in september that video is going to go live tomorrow unbelievable interview let me just you know like pure advertising for for what uh what's coming i loved what he had to say i want everyone to see it check it out uh very deep thinker i think he meshes a lot with rao comes at it from a different perspective but i i'd be interested to see what you guys think when you take it check it out yeah we should also add welcome to the exponential age right now on real vision uh rao sat down with uh bill tai uh a terrific interview it was a great interview he was terrific uh with uh with rowell i guess uh last year and a great one uh this year and i recently sat down uh with uh james knows with john nosta uh to uh talk about what was happening in healthcare in med tech and an innovation which i thought was a really interesting conversation so we're continuing those interesting conversations on the platform at real vision uh and we'd love it if you joined us there and please again just to uh kind of build on what you said earlier uh ed jump in in the comments uh on the real vision page tell us what you think tell us more about what you'd like to see here on the real vision daily briefing yeah well said because i think there is a difference between what's going on in the interview series now what's going on the real vision daily briefing and for me it brings home the concept these are two separate vehicles i'd love to hear what people want to see on the one versus the other how integral they think it is to their experience as subscribers to real vision and uh you know maybe one day some of you guys will be at my bonfire uh in my back house we'll see hey let me ask you this before we go for people who may not be real vision subscribers how would you describe the difference you know for me real vision daily briefing is something that we're looking at the day-to-day events uh we're looking at what happened in the news cycle we're looking at markets we're looking at current data releases uh but by definition because we only have a relatively short period of time and we like to touch on a lot of topics of what's coming on with news flow we're not able to get quite as deep on the platform as i think about it we're doing these very deep dive conversations with true experts in their field lots of folks from the buy side lots of folks who run money who are talking about something in a great deal of depth uh typically an hour or longer interview so i think a very different experience but i'm curious to hear what your thoughts are yeah it's a good question because i think the the the what i would focus in on is this inflation uh number that we're talking about because to me this is a perfect example of the difference between the two and what happened today was dominated in the markets by uh the inflation number and the bond market's reaction to that and the equity markets reaction to that if you were in an interview uh on the rv platform you would never talk about any of that that would only be a generic context for the regime that we're in if i were to say that we're in a regime that is very much where interest rates are the toggle and this regime has been going since april and i expected to continue through at least this end of the summer and that's something i i i think uh makes sense that's you know i wouldn't necessarily point to a specific uh cpi number whereas in the daily briefing we do so the daily briefing is very much more focused on the data and about contextualizing that data from a macro perspective i don't know if that makes sense if that's how you look at it ash yeah that's that's i think that's very well said ed and i just see a prius omega i feel like summed it up better than i did he just said yeah the daily briefing just ties what happens in the day to the overarching themes meaning the overarching themes on real vision i think that's exactly it so i think we've been outdone by the uh subscribers on their on their on their description but i would also add you know one of the other things that if you've never seen the shows that we do on real vision daily briefing uh they're very deep dives often we'll go through like a dozen charts with a guest we'll let them walk through their thesis very frequently these are people who have thought a great deal in a very specific way about a very narrow topic and they'll come on and they'll almost give a presentation uh about how they think about it with you or with me and then we'll do a q a and we'll talk about it with them so it's just a different kind of thing and i think they're they're both incredibly valuable they're just very different in the way that we approach them yeah i mean that's exactly how i look at it i'd be just interested to know what our subscribers think about it so uh definitely please give us your view in the comments because i think that's invaluable information to have yeah perfectly said ed this is so much fun to get to do again with you yes make it every week ash let's do it let's do it i'm in

Channel: Real Vision

Views: 8,130

Keywords: real vision, real vision tv, real vision daily briefing, real vision finance, finance, economics, trading, daily briefing, daily briefing real vision, stocks, stock market, stock analysis, interview, live, infation, pains, the fed, fed, ed harrison, ash bennington, equity, market, inflation pains, federal reserve, equity market outlook, the fed today, inflation 2021, inflation stock market, inflation economics, inflation news

Id: PKG8vaqVyz4

Length: 65min 52sec (3952 seconds)

Published: Wed May 12 2021