The full episode was posted at https://www.channelnewsasia.com. It may be removed after a few weeks. This video segment is owned by CNA. 

Investors reacted negatively to the Federal Reserve’s commitment to maintaining high interest rates, resulting in a sell-off of stocks and bonds. The S&P 500 experienced its worst session since March, and US Treasury yields rose to their highest levels in years. Additionally, the possibility of a US government shutdown added to market losses. However, the impact of a partial shutdown is expected to be temporary, as historically, such shutdowns have been resolved relatively quickly.

The high interest rate environment is anticipated to have varying effects on different sectors. The tech sector has been particularly sensitive to interest rates, and its decline is expected to continue. On the other hand, energy companies are likely to benefit from surging crude prices, leading to a positive outlook for the sector. Despite a small unexpected decline in job claims, negative sentiment is expected to persist as investors seek news indicating a potential easing of interest rates.

To alleviate negative sentiment and provide clarity, the Federal Reserve needs to communicate a more coherent strategy and demonstrate the effectiveness of its policies. Without this, interest rates may continue to rise, impacting stocks and increasing borrowing costs. In terms of investment strategy, focusing on energy and being cautious with tech stocks is recommended, considering the current market conditions.

Japanese Prime Minister Fumio Kishida has also announced reforms to revitalize Japan as a financial center, aiming to stimulate its development in this area.

Transcript

CNA: The business update. Now, investors dumped both stocks and bonds overnight as the Fed’s commitment to keeping interest rates high, damp in market sentiment. Us stocks took a tumble for a third straight day with the S&P 500, marking its worst session since March.

Now, the sell-off in bond markets pushed US Treasury yields higher across the curve, yields on the two-year and tenure notes both hit their highest readings in 16 years. A 30-year bond yields also rose to the highest level since 2011. While the moves were sparked by the Fed’s hawkish tone in its policy meeting, a possible US government shutdown also added to losses after House Republican leaders sent the chamber into recess, dashing hopes that they could pass a bill to temporarily fund the government by in September.

Let’s bring in Tony Nash now, Founder and CEO at Complete Intelligence. Tony, let’s talk about the possibility of a partial shutdown of the US government that’s also weighing on sentiment. And what does this high for longer interest rate environment mean for the US’s growing debt?

Tony Nash: Sure. Thank you for having me. The partial shutdown, really, I think we’re going to hear a lot over the next week or two about how it’s catastrophic. I think the reality is all of those contracts will be paid, all those employees will be paid. The impact on American citizens will be temporary. This is really largely political theater in the US. At least it has been for the last 15 years. The are trying to push back, as you said in your early segment, on some of the Ukraine funding and other funding. In the end, I think everyone thinks they’ll cave. They always cave. This will be a partial shutdown to win over some voters and then everything will be back on in a couple of weeks. So very little will likely change.

In terms of the hire for longer environment, we have to really look at what sectors will be affected. We’ve seen over the past month or so that the tech sector has really taken a hit and it’s a very interest rate sensitive sector. So we expect tech to continue falling into October, November. On the other side of that, we’ve seen crude prices surge and we expect energy companies to continue to surge for the next couple of months. So crypto will likely peak in October, but we’ll likely see energy companies continue with a little bit of a tail until November.

CNA: Well, at the same time, the labor market reinforcing the Fed’s higher for longer stance with a small unexpected decline in job claims. How long could this negative sentiment last? And now that there is certainty that the Fed intends to keep rates higher for longer.

Tony Nash: Yeah, I think now we really have momentum on the negative sentiment. So I think some things have to pop the other way for sentiment to become positive. And we’re also in an environment where good news means that the Fed will stay higher for longer. So while nobody really wants terrible news, they’re looking for some news to indicate that the Fed may ease a little bit earlier. So Goldman Sachs came out earlier today saying that they expect the Fed to cut rates in Q4, previously in Q2 of 2024. Now they’re saying Q4. So that prolongs these higher interest rates and the pain associated with them on mortgages, on credit cards, on borrowing costs generally. And so that will generally hurt a number of stocks and it’ll hit the margins of some companies that have benefited from higher margins over the past couple of years.

CNA: Tony, what are some of the risks as well as upsides you’re looking out for in the fourth quarter of the year?

Tony Nash: Yeah, I think the Fed really has to come out with some clear direction. I think when Chair Powell spoke yesterday, he was hawkish, but he honestly wasn’t really convincingly hawkish. I think the Fed has to have a more well-thought-out strategy. They have to have a more well-thought-out message. And we have to see some things change, whether it’s the momentum in services inflation or the momentum in the job market. Something has to change for investors to believe that Fed policies are having effect. If they don’t believe Fed policies are having effect, then you’ll see interest rates continue to creep up and the Fed continue to have to raise interest rates.

CNA: And, Tony, what is your investment strategy for this period?

Tony Nash: Yeah, again, we’re looking at things like energy right now. That’s where we’re seeing some have seen some interesting activity over the past month. We’re going to see it for the next couple of months. And so that’s really where we’re looking. Again, we’re looking at tech, but on the short side. So tech is not looking very healthy. Tech usually doesn’t do very well when interest rates rise and we’re seeing tech shares and tech valuations really collapse in the face of higher interest rates.

CNA: Tony, many thanks for your insights this morning. Tony Nash, the Founder and COO, Complete Intelligence.

This video was originally produced by the Steno Research channel on Youtube. The original video is linked above.

In a thought-provoking conversation on the “Steno Report” YouTube channel, Tony Nash, CEO of Complete Intelligence and former Director of The Economist Intelligence Unit in Asia, shared invaluable insights into the intricacies of China’s economy and its impact on global dynamics.

Nash began by emphasizing the central planning of the Chinese economy, highlighting the unique blend of open markets in major cities and centralized control by the government. He provided a detailed exploration of how President Xi Jinping’s tenure has seen a shift towards more centralized control, especially concerning statistical reporting and provincial activities.

The discussion further explored the critical role of real estate in China’s economic growth, as it was perceived as a tangible investment amid cycles of economic boom and bust. Nash provided a nuanced perspective on the challenges facing China’s real estate sector, emphasizing the government’s role in managing debt and potential shifts in patriotic duties.

Regarding investment opportunities, Nash believed that China’s future lies in more moderate leadership, anticipating a change from the current administration by the 2030s. He emphasized the need for investors to adapt to evolving dynamics, focusing on national or regional influences in China rather than a globalized approach.

Overall, this discussion offered a comprehensive examination of the complex interplay of politics, economics, and society in China, providing valuable insights for those navigating the ever-changing Chinese economic landscape.

Transcript

Andreas Steno

It is now our great pleasure to introduce Tony Nash to the Macro Sunday podcast. Tony is the CEO and Founder of Complete Intelligence and also the former Director of The Economist Intelligence Unit in Asia. Among other things you have many years of experience in Asia and in China, Tony. So great to see you. Thank you very much for joining our show.

Tony Nash

Thank you, Andre. It’s just a real honor to be here.

Andreas Steno

Tony, one of the things I’ve said many times in media appearances when I’ve discussed China, is that most people watching various financials in the U.S should be aware that many of the pundits discussing China have never been there. You’ve actually been there, you’ve worked there so I’d like to start with a discussion on the Chinese growth model and how the whole model with the politburo sort of trying to design an economic model works. So, Tony how centrally planned is this economy in practice in China?

Tony Nash

Sure. It’s a great question and thanks for having me. Look, the Chinese economy is a centrally planned economy. You have pockets of… And they’re not small pockets. You have pockets of real pretty open markets in Shanghai, Beijing, the places where a lot of the foreigners go. There’s a lot of open market activity there and what I’m saying isn’t to take away from that because there are some real entrepreneurs in China who are fantastic but the Chinese economy overall is a very centrally planned economy, under Xi Jinping that has become more so. I think that that had been a bit decentralized over time. But when Xi Jinping came in in 2012 one of the first things, he did with Lika Chong was dispatch people from the Central Audit Bureau out to the provinces. And that was intended to look at statistical reporting to the central authorities at the National Bureau of Statistics but really what I believe in hindsight is that was really to understand what was going on in those provinces, so they could better control the activities in those provinces. Because things had kind of gotten really decentralized over the previous two governments.

So, you have major organs of the government. I’m sure you guys have seen commanding heights, which is that was out what 30 years ago or something. And you do have these major organs from the transmission mechanisms in banks to export, import, say, the port facilities to steel manufacturers and on and on and on. There are all of these central government controlled organizations that are at key bottlenecks in the economy and that’s really how things are controlled.

You’ve also had these government finance facilities LGFVS, Local Government Finance Vehicles that sprung up over the last say, 15 years or something. And those are becoming increasingly centrally controlled because they can’t manage their debt. And so how is the central government regaining control over commerce? It’s through management of debt and so the central government which controls the banking system has a lot worked with the transmission mechanism in the banks to roll over debt continually since about 2007. And it’s only through that debt management that a lot of these organizations, will call them companies loosely but a lot of these organizations can survive. And so that is how a lot of that central planning and central control is really exercising.

Andreas Steno

So, Tony when a gross domestic target is set that, for example five percent as is the case for 2023. How’s that orchestrated? The target is centrally planned but what about the actual exercise of the plan and the economy?

Tony Nash

Well, you have to look at things like for this, here you have to look at things like how a foreign direct investment has just collapsed in China, right? I mean, these are some of the obvious things that you look at to say, “Is five plus percent even possible?”, it’s not, okay?

You also have to look at… so that’s kind of one of the obvious factors, you have to look at imports and exports which are really declining and that’s a major factor. You also have to look at things which… and this is not a China specific issue. This is every country you have to look at things like the total factor productivity variable within national income accounting.

TFP is a fiction in every country. There is no country on earth that has an actual total factor productivity value. In China it’s ratcheted up and ratcheted down based upon where they need the number to be, okay? And to be honest this happens everywhere TFP is a residual but it’s a major factor-ish within national income accounts. So, there are a number of ways that China can play. I think they’re… the economic authorities are in a very difficult position this year for a number of reasons. They have so much of an issue with debt that they’re having to devalue in a controlled way, devalue CNY in a controlled way. So, that they can raise their export income their CNY denominated export income meaning… sorry, that comes in dollars but then they convert it to CNY, right? And they can then use that CNY at a devalued rate to keep their debt alive, right? So, and all of this goes back to some basic principles in China, is there really isn’t kind of a western form of bankruptcy there.

In a centrally planned State, it’s a very different. It’s more insolvency, which is kind of the same but it’s different and so if there was a bankruptcy release mechanism within China you could have a lot of this debt kind of dissolve, like we do in the west, right? But it’s just not possible in China.

Andreas Steno

So, Tony when we look at the Chinese growth model, it’s been at least partially reliant on construction activity and the real estate sector. And we know that the Chinese demographics look out rid abysmal 20, 30 years ahead. So obviously they need to change the course somewhat, on this construction sector. How do you view this real estate conundrum in in China and the structural outlook for the debt related to that sector?

Tony Nash

I think, for real estate itself obviously it’s core, real estate is core in every country. And part of the problem with China is there’s this very, I wouldn’t say it’s explicit but it’s almost explicit social contract of “Hey! We’re in an autocratic state. So, if you behave people of China and there isn’t social unrest, we will continue to raise your standard of living.” and that’s basic and you would hope that’s the case in every country but I think in the west it’s a little bit looser. I mean, you have good years and bad years. And people go bankrupt and people have difficulties and this sort of thing in kind of Freer economies.

In China there is an expectation since things are centrally planned that the standard of living will continue to rise. And one way that was done has been through real estate investment because if you’re in China, where can you invest? you can invest in Chinese stocks, you can invest in wealth management vehicles, which are super sketchy, you can invest in real estate which is very very tangible. In Asia there is generally a connection to real estate because the economic cycles in Asia are way up and way down. So, if you invest in stocks, it’s kind of an intangible, so it’s nice when you can get it and it’s nice when it’s doing well but it evaporates.

And the perception is that real estate is at least tangible. It’s something that you can get something out of if everything goes belly up not necessarily true but that is a perception. And so, we’ve had real estate boom dramatically over the last what, 20, 30 years, of course. And so that’s accelerated and accelerated and accelerated, and it creates an expectation within the Chinese people that their house price will continue to rise, that these multiple locations that they probably own will continue to rise and then that helps fuel economic growth. Obviously, that’s not the case anymore. We saw in the July data I can’t remember how much house prices are down but it’s down, they’ve been down month after month, for a while. What will happen there? Well, you’ll see a lot of these marginal developments either kind of coincidentally catch fire or they’ll be destroyed, and that’ll be counted in GDP as some sort of economic activity. And then, they’ll be built up at a higher standard at some point and that’ll be GDP additive and so on and so forth.

So, the economic planning officials are incentivized on value add. So, they will find a way to count these destructive activities into the value add for GDP. Keep in mind Chinese officials are Chinese National statistics bureaus never revise previous data prints, never. So, that’s really convenient so you’re always have a short-term memory, you forget what happened last quarter and so if they had to go back to last year or two years ago or three years ago and revise things down, they can forget all about that. And then they can have some of these activities GDP additive for the current quarter or the current year. So, this is kind of the games that are played. And again, I want to make it clear, this is not just China this happens in every country gaming the GDP calculation is done in every single country on Earth.

But real estate is core to China you may have say merging of some of these companies these sorts of things because Country Garden and Evergrande have such massive debts. You may have to see some consolidation there and some real pain for those individual private sector companies which will likely become public sector entities at some point or ostensibly public sector, meaning the government will own you know a massive amount of the equity in that company but it’ll still operate like a private sector company, sort of almost like what Japan’s done with some of their companies.

Andreas Steno

Tony, to me this real estate crisis and especially the crisis within some of the big developers you’ve mentioned Evergrande and Country Gardens seems almost designed by the CCP in China via this three red lines policy implemented in August 2020. So, do you agree with me that it is a crisis designed by the Politburo by the end of the day and if so where does it leave us in terms of hopes for a big stimulus package for the real estate sector?

Tony Nash

I don’t think it’s designed by them because it makes them look like a fan… like economic planning failures. So, of course at the edges some things may be designed and certainly there’s definitely been a lot of thinking about, how to kind of deflate the real estate bubble and the real estate expectations. I can guarantee you that there have been tens of thousands of hours burned on trying to figure out how to steer this thing. But I don’t necessarily think that kind of the crash has been intentionally designed. I think, the reaction is probably what’s been more designed and how to kind of steer things down because it’s embarrassing for these high-level committees and mid-level bureaucrats and economic planners for this stuff to happen. So, nobody wants…

So, I’ll give an example in July of 2015 when we saw Chinese stock markets crash, it was literally a patriotic duty to buy shares even as markets were crashing. And we saw that in 2001 in the U.S when George Bush stood up and said, I’d invest in stock markets, all that stuff. So, but it’s more of a core issue and you had a lot of people who were bureaucrats and in state-owned companies who had lost 30 to 40 or 50 percent of their wealth in June of 2015, who felt obligated to continue to buy into markets because it was their patriotic duty to do that. And so again this is a very strange things that most westerners don’t understand that it is your patriotic duty to buy into falling markets, as a Chinese bureaucrat as a Chinese say party member, this sort of thing. And when I say party member, I don’t mean some kind of Minion.

The first time I spoke at the Central Communist party school in Beijing there were venture capitalists in the audience. So, party members are across the economic spectrum. So, it’s their patriotic duty to buy or was in June of 2015 to buy shares. It could at some point become a patriotic duty to buy properties to keep that market up. I’m sure there is pressure right now on people to do that indirectly but at some point, once kind of the winners are chosen by say the center committee or the NDRC or whoever, there will likely be a patriotic duty to buy real estate among certain groups okay to prop up the value in certain areas or whatever. This sounds strange but if you guys ever read this book called The Red Star it’s a history of Stalin and it talks about how Paramount paranoid and fearful everyone was uh in the Soviet system. There is almost zero comprehension from Western analysts among how terrified Chinese bureaucrats are when they come into the office every day.

So, when I was working in the NDRC and I always say this when I mention this, I was an advisor to the NDRC for a couple years. I never collected any money in terms of compensation or expense reimbursement from the NDRC. I’ve never been paid by the Chinese government but I’ve been in meetings where Chinese officials have literally started crying. And there is terror within the Chinese bureaucracy and this is not understood. So, Western analysts, Western economists have to understand this, there is no Think Tank writing about this, there’s no journalist talking about this has been the way for years, this is what I observed in 2015. XI Jinping’s power has Consolidated even more since then so I can’t imagine the pressure on those bureaucrats right now politically and bureaucratically to align with whatever they need to do. And sometimes those or many times those kinds of requirements are not verbally communicated, they’re informally communicated those expectations.

Emil Moller

Just to follow up on that, what do you think that means for the transportation of information and the validity from which decisions are made?

Tony Nash

Well, there’s always like in every political organization there’s always the official line and then there’s the unofficial communication and there is so much back-channel communication within the Chinese government that by the time someone gets to a mid-level bureaucrat they have to infer a lot from the communication, they really don’t know what that communication is saying.

Now imagine if you’re a Chinese citizen, what you’re getting is so many derivatives from what the original intended communication was, you’re having to try to figure out how you need to act. Of course, they’re the explicit messages sent out but there’s so much inferred and you can understand how things like the cultural revolution and other things happened when there’s so many degrees from power and that message may be amplified the further you get away from the center.

Emil Moller

Yeah. I’m also thinking about how the bureaucracy works internally and that is to say if, who wants to be the deliverer of bad news so to speak and…

Tony Nash

Oh, nobody

Emil Moller

Yeah.

Tony Nash

Nobody. And that’s a great point. Nobody. And when I say all of this I need to stress that the people I knew in the Chinese bureaucracy were some of the smartest people I’ve ever known. These are not stupid people.

Emil Moller

No.

Tony Nash

These are very very worldly very very intelligent people. So, the Chinese government is not stupid but the Chinese government also is not a monolith. So, we hear Beijing said this or German High said that or whatever, they can say that but that’s not exactly how the Chinese government is going to act. And so, these guys are very smart in terms of say emotional intelligence. They’re survivors, they’ve survived in the bureaucracy this long they know kind of what is expected of them. If they believe it’s time for them to cry in a meeting then they start to cry in a meeting. They’re also incredibly intelligent the level of education that I saw with my interactions in China is incredible. So, these are very smart people but the information we’re seeing, the economic data we’re seeing very highly articulated. And again, very key to remember those data are never revised. So, the information you’re seeing is information that you need to see right now but in a month it’s debt nobody cares.

Andreas Steno

So, Tony in times of crisis where does this leave Western hopes for Chinese stimulus? We saw a package from China after 2008. A pretty big one four trillion as far as I remember. Is something like that on the cards or what’s the most feasible outcome of all of this?

Tony Nash

Yeah, it’s a really good question we’ve all been waiting for. I think right now we’re in a position where these protests in December of 2022 were very embarrassing to the Central Committee, very embarrassing. And whether or not we believe there would be a major stimulus I think that the central government sees the economic need right now as an opportunity to exercise more power over the people and over the economy. So, is there a big stimulus coming? Well, I think it all depends on who’s going to align with what the central government wants more. So, there is a race among the provincial leaders, there is a race among those core industries, there is a race among business leaders, to show who can align with the central committee’s desires the quickest. And those are the people who are going to get stimulus, like this is not just an agnostic kind of, hey we want the Chinese people to succeed. This is very much political game to see who can actually get those stimulus crumbs and we’ve seen crumbs spread here and there.

I don’t believe we’re gonna see massive High-Speed Rail investment. all that stuff. I mean, that’s an old chestnut that’s been revived and revived since like 2005, so that’s all played out but there is a bias toward things like technology. But it’s not the Jack Ma type of Technology it’s more of a different era. So, it is core chipsets GPU’s. It is in say energy technology and so on and so forth. And so those guys are… and anything kind of technology related that’s export led like EV’s, that sort of thing. So, those guys are going to get the stimulus because it makes the leadership look innovative. It makes them feel good. There may be some kickbacks here and there, who knows. And so, these are the guys it’s a the stimulus process is a political process.

Andreas Steno

Yeah, I’d like to conclude with… I don’t know the million- or trillion-dollar question here. Tony. I think I’ve asked this exact question to at least 20 various portfolio managers based in either on U.S soil or European soil and I’ve received a “no” from all of them. So, with the 10 or maybe 20-year horizon, do you…

Tony Nash

Shouldn’t tell me that because it makes me want to say “yes”.

Andreas Steno

Yeah, but with the 10- or 20-year Horizon do you see any decent investment opportunities from a risk we wrote perspective in China?

Tony Nash

Oh, absolutely yes, I do. I do not believe that Xi Jinping will be in power by 2030. I believe that the next Chinese leader will be more of a moderate because China is wealthier. And wealthier nations want more moderate leaders, they don’t mind you know giving lip service to communism or whatever but they’re wealthier. And I do believe that we will have another leader either by 2030 or in the 2030s who will be a more moderate leader who wants to put this wolf warrior diplomacy nonsense aside and engage as a country among countries. And really want to grow China’s place in the world and grow China’s economy in a very advanced way. Of course, there are huge pockets of China that are still poor that person needs to come forward and really move China forward. So, yes. I believe there are and will be opportunities in China. They won’t be what we had from say the mid-90s until say 2015. That’s that that was too easy and that’s gone. It will be more of a national or regional influential investment rather than a globalized investment, I believe.

I think we’ve gone through that wave of globalization the kind of second wave of globalization from say 2001 to you know three years ago. I think that’s done and I think the investment opportunities in China in the 2030s will be more either national or regional.

Andreas Steno

Tony Nash, CEO and founder of Complete Intelligence and former director of The Economist intelligence unit in Asia. Thank you very much for being with us to discuss China it was a great pleasure to host you.

Tony Nash

Thank you.

This video is first and originally published by The RO Show on Youtube.

The world of business is constantly evolving, and with it comes the need for smarter, more informed decision-making. In this era of rapid change, one company stands out for its pioneering approach to data-driven decisions – Complete Intelligence. Founded in 2014 by Tony Nash, Complete Intelligence is an AI firm that utilizes machine learning to revolutionize the way businesses plan for finance, supply chain, procurement, and sales. In this video episode, The RO Show get into the mission and focus of Complete Intelligence, explore the benefits of automation and AI in decision-making, and highlight how this innovative approach is transforming the corporate landscape.

1. The Power of Data-Driven Decisions:

Complete Intelligence places great emphasis on data-driven decision-making. By removing emotion and bias from the equation, they enable businesses to make objective choices based on accurate and reliable information. Traditional forecasting models often suffer from human intervention, leading to adjustments and inconsistencies. Complete Intelligence’s 100% data-driven approach ensures that decisions are based on comprehensive and reliable data, minimizing errors and increasing accountability.

2. Augmenting Existing Capabilities:

Resistance to change is a common trait among humans, especially when faced with the rapid advancements of AI. However, Tony Nash emphasizes that AI is not meant to replace human capabilities but to augment them. Complete Intelligence’s AI technology complements and enhances existing company capabilities, bringing efficiency, accuracy, and innovation to decision-making processes. By automating routine tasks, employees can focus on higher-value activities such as strategy, operations, and creativity.

3. Complete Intelligence: Making Smarter Decisions:

Complete Intelligence’s suite of products, including CI Markets, offers comprehensive forecasting and planning for a wide range of industries.

By leveraging machine learning algorithms, they provide accurate predictions for global economics, currencies, commodities, equity markets, and more. This allows businesses to make smarter decisions based on up-to-date and reliable data. With Complete Intelligence’s AI technology, companies gain a competitive edge by staying ahead of market trends and making informed choices.

4. The Benefits of Automation and AI:

Automation and AI bring numerous benefits to decision-making processes. By analyzing vast amounts of data in real-time, AI algorithms can identify patterns and trends that humans may miss. This enables businesses to make proactive decisions and seize opportunities before their competitors. Automation also improves efficiency by reducing manual work and streamlining processes. With AI handling routine tasks, employees can focus on strategic thinking and value-added activities, driving innovation and growth.

5. Transforming the Corporate Landscape:

The adoption of AI and automation is transforming the corporate landscape. Companies that embrace these technologies gain a competitive advantage by making faster, more accurate decisions. They can optimize their operations, improve customer experiences, and drive business growth. Moreover, AI enables businesses to adapt to rapidly changing market conditions, navigate uncertainties, and identify emerging opportunities. With Complete Intelligence’s innovative approach, companies can navigate the complexities of today’s business environment with confidence.

6. Ethical Considerations in AI Decision-Making:

While AI offers tremendous benefits, it is important to address ethical considerations. Complete Intelligence prioritizes transparency, accountability, and fairness in its AI algorithms. The company ensures that decisions are based on unbiased and objective data, avoiding any potential biases or discriminatory practices. By adhering to ethical standards, Complete Intelligence ensures that AI decision-making is reliable, trustworthy, and aligned with societal values.

7. Embracing the Future of Decision-Making:

In conclusion, Complete Intelligence’s AI technology is revolutionizing decision-making by empowering businesses to make data-driven choices. By leveraging automation and machine learning, companies can gain valuable insights, make faster decisions, and drive innovation. With the power of Complete Intelligence, businesses can navigate the complex and ever-changing corporate landscape with confidence and achieve sustainable growth. Embracing AI and automation is the key to unlocking the full potential of data-driven decision-making in the future.

Transcript

Tony

I think humans don’t like change, right? And AI can be rapid change. And so in, say, companies, there can be resistance to AI and fear around AI. But I think it is really, at least with current technology, it’s an augmentation of existing capabilities that companies have today.

Rosanna

Welcome to the Ro Show podcast. Thank you so much for joining us today. I’m here with Tony Nash. He is founder and CEO of an AI firm, Complete Intelligence. But he started it back in 2014, so it’s been quite some time. We’re going to hear all about it. I’m very excited. You use machine learning for digitalization, automation, and planning for finance, supply chain, procurement, and sales. You have a revenue, a cost, you have something for the markets. You seem to cover it all. We’re so excited to talk about it. And you also have an amazing podcast. So that’s really awesome what you put out there. Appreciate all the value you contribute. How are you doing today, Tony?

Tony

Thanks, Rosanna. I’m good. I’m hot. I’m in Texas, so it’s a little warm here. So I keep telling myself, Only two more weeks left of summer in Texas. It’s not true, but it just helps me get through. But yeah, doing great. Thank you very much.

Rosanna

You’re welcome. It’s always about mindset. And so, yeah, by telling yourself that, it seems more bearable. We’re at 87 degrees today here in New York, so I feel your pain, and we have that humidity as well, which makes it more unbearable. Well, thank you so much for being here today. And Tony, I want to start talking about your complete intelligence. I looked through your website and your business seems fantastic. You started it back in 2014 before all this AI talk that we have nowadays. And it’s focused on making smarter, better decisions. And it’s data driven decisions, which is really important that people understand the importance of that. You’re a disrupter, in my opinion, a total disrupter for making smarter decisions, which is so important. We don’t realize all the biases and heuristics that we have. And so making more objective decisions is key. Could you share with us your focus and your mission with complete intelligence?

Tony

Sure. First of all, Rosanna, thanks for having me. I really appreciate the invitation. When I started Complete Intelligence, I had led research businesses, one for the economist and the other for a company called IHS, which is now part of Standard and Poor’s. And I observed in those businesses and in our clients and other information businesses that did forecasting, that it didn’t matter how complex someone’s forecasting model was, at the end of that process, there was always someone who changed the number. It always just felt a little bit too low or a little bit too high or whatever. At the time, my question was, why have a complex forecasting model if you’re just going to manually change it at the end? When I left to start Complete Intelligence, I wanted to start a company that was 100 % data driven. You take out the emotion and the friction and all that stuff with, say, market forecasting and, say, company forecasting, that thing, and really build up 100 % data driven forecast. I did not start Complete Intelligence to be an artificial intelligence company. I started it really with the idea that the world is a number problem, and we can figure out that number problem within tolerances.

Tony

And so how do we build from the ground up a way to take in as much data as we can process it and then put out a numerical answer that makes sense? So we initially started as a consulting firm. I started the company in Singapore. We really did consulting to keep us going for the first few years. And that was interesting. It really helped me better understandwhat companies and markets would want. And then we really put together our first productand launched in December of 2019, which was absolutely terrible timing. And so we came out with our first product, which is now called CI Markets for Complete Intelligence markets, where we forecast about 1,500 items weekly and monthly. That includes global economics, that includes currencies or forex, commodities, equity market indices, and individual stocks. So we do Nasdaq, S&P 500, FTSE, Nikkei, other stuff, right? Top 50 ETFs. It’s a 100 % machine driven approach, and we track our error rates. So from the time we download data to the time that we publish it, it’s 100 % machine driven. There is no special markets analysts that’s biasing up or down the numbers. And we’re accountable because we publish our error rates.

Tony

So if someone were to come in and subscribe to CI Markets, they would be able to tell our error rates for gold or the S&P 500 or 3M stock or whatever for the last, I don’t know, 24 months or 36 months or something. So we keep that on our website so people can tell. Why is that important? Because we want people to understand the risk associated with using our data to make a decision. So we don’t just, like a magician, pull out a number and say, Okay, stock X is going to be at Y dollars next month. We give you that number, but we also tell you the error rate for the last several years so that you can then make that decision on your own. We do the same in a corporate environment. So we take the budgeting process for a company and we can use use our machine learning platform to augment the corporate budgeting process, whether it’s revenue or cost, whether it’s supply chain cost, volumes, that thing. We take data directly out of corporate ERP systems or directly out of supply chain systems, and we use that to help people understand their ordering costs, their ordering volumes, their sales volumes, their total revenues.

Tony

We even do budget forecasts very deep within a general ledger. So we’ll do it, say, three to six layers deep within a general ledger. So that really gets down to, say, the team level within a company, very deep, much deeper than the way, say, corporate financial planning does budgeting within most companies today. So we’re helping corporate finance and business leaders understand much deeper within the organization what those revenues or costs should be at a very specific level. And again, we do this on an automated basis. Well, sorry, we do it on an Augmented basis. Multi nd basis, but it’s machine driven. And so here’s what that looks like. We have a customer with about $12 billion in revenue. They have about 400 people who work on their budgets every year for their annual budgeting process, and it takes them three months to do that. Not dedicated full-time, but they’re doing it off and on over that three months. So it cost them $5 to $6 million to do their annual budgeting process. So we take that budgeting process, it actually takes us about three days to process that, very detailed. And the first time we did it, our forecast was 0.3 % off of what those 400 people took three months to do.

Tony

Okay? And we were much more detailed than them. And then once we do that initial budget forecast, we transition a company to a continuous budget forecasting. So every month when accounting closes, we redo a 12 month horizon forecast or 18 months, whatever company wants. And so they don’t have to have that dramatic corporate budgeting process anymore. They’re then on this incremental monthly budgeting where leadership always has a 12 to 18 month view of their business. And so that’s what we’re trying to do with artificial intelligence is really reduce the stress, reduce the drama, and the uncertainty within companies. Again, give them our accuracy and error rates at every line that we do, so we’re accountable. And then let the people within those companies focus on their real jobs, which is strategy, operations, making decisions about the business. It’s not building Excel macros. It’s not maintaining Excel models. It’s taking our accountable forecast and letting them operate their own business.

Rosanna

Love that. Oh, my God. As you were talking, that’s what came to me right away was just that they don’t need to focus on these remedial repetitive road tasks. They should be focused on generating creativity, having vision, and elevating the company to new levels. And you’ve taken… It’s only through automation that this is possible. You’re reducing costs, you’re reducing the time. And we’re in an era of declining productivity across the board. And it’s been declining significantly, especially with COVID accelerated. We need new industries. And through these challenges that we’ve had, there are plenty of opportunities. And this is the opportunity. Automation is much needed across all business levels. And being in business myself, I see that. And we’re utilizing automation as key. Going deeper into the numbers, it’s only possible with this machine learning. I mean, like you said, for a human to go through, it’ll take a month and so many costs. And we need to lighten the load on these businesses, and their margins are being compressed as well. So we do need to reduce the cost, increase those margins, and we need efficiency and innovation. And that’s exactly what you’re providing. I love this.

Rosanna

And when you said something that was key, it started with demand. It’s always about what the customer wants and needs, and you’re fulfilling that. And you’ve evolved through the time, and now it seems that you’re utilizing the AI, and it’s just amazing. Having data, information is golden to make these decisions. We live in an era of information overload. And so at some point, there’s just too much information. And so we need the use of an AI to help sort this data and make sense of it. And so I see how you’re utilizing that, and it’s just amazing. Could you add to that? And that whole process?

Tony

Yeah. Rosanna, one of the key things that we try to really drive home with our prospects and our customers is a part of our forecasting process is automating the audit process for a company. So we talk to a lot of companies who say, Hey, we just need to get our data in order, and then we’ll engage you to do our stuff. And we say, Wait, that’s a little bit like making your bed in the hotel room before you leave for the day. You don’t let the Maid do it. You want to do it yourself. So we automate that auditing process. Then we go back back to our customers and say, Hey, these are some things you really need to look at. And so they don’t have to hire a big accounting firm to do it. They don’t have to do it internally. We’ll tell them exactly what needs attention, and we’ll work that out with them before we do our forecast. So we’ve taken that whole pipeline and really made it very straightforward for people. Whether we’re doing the audit or the forecast, we’re doing trillions of calculations every time we process data. So it’s not possible for a human finance team to do that in Excel.

Tony

It’s just not possible. And so, again, we want to take that… There’s always this drive to fudge the numbers a little bit to make them look right. And so what we do is we’re removed from that process. So if people don’t agree with it, they can say, I don’t agree with this because of X. Great. But if that’s implied to the budgeting process and it’s not communicated, then it’s really a risk for FPNA, for the CFO, and ultimately for the CEO. So these are the things that we’re doing on the auditing process and in terms of computation that really drive more accountability and ultimately better decisions for companies.

Rosanna

Love that. That’s awesome. You talked about reducing error, and then also this point that you’ve mentioned twice now about how we like to fudge the numbers. I mean, it’s in human nature to just do that. And then when you remove that element and you make it more objective, it’s because the numbers are the numbers and that’s the data and we can’t fudge that. That’s much, much needed. I think you’re a pioneer, and I think this is just the beginning of this whole movement. And Tony, I have to say you are really part of the revolution in technology that’s driving businesses and elevating humanity. And I’m so honored to be here with you today. This is awesome. I want to ask you because Herb Simon, he’s a Nobel prize winner in the behavioral economics field, and I’m sure you’ve heard of him. He says a wealth of information creates a poverty of attention. And so we know we have bandwidth constraints, we have opaqueness, we have all these issues with banded rationality. When you create these data models and this AI, this machine learning, how do you distinguish and decipher the signal from the noise? I’m sure you’re using feedback loops, but could you tell us about that process and how you decipher that difference?

Tony

Yeah, sure. So we’re using a lot of different approaches to understand what actually is the signal and what actually the noise, as you put it. And so part of it starts with anomaly detection early on because it doesn’t matter what corporate data we’re looking at, there is always some noise. We’ve had companies that have had to go back and restate their previous years of revenues because of, let’s say, they were double counting information, these sorts of things. Because if we hadn’t taken that company s data through our audit process, they would not have known that they were double counting that information. And so we would then think that that was actual historical data, and that would have been huge noise. So we’re going through as much as possible in taking that historical noise out of the process. That’s an important first step that is, I think, often underappreciated. Yes, I agree. Because, again, if we have problematic historical data, it’s going to be problematic forecast data. So we put a fair bit of attention on that and really pulling that out. Going forward, we’re doing multiple iterations of potential futures when we do a forecast.

Tony

And so we take our customers through the process. We have an onboarding process with all of our customers. The first phase is auditing their data. The second phase is doing what we call in samples or backcasting or something where we take an actual historical period and forecast in that actual historical period to understand how we would have performed. That is another phase of understanding where data could be problematic and noisy. So we’ll typically do a few different historical periods for a customer so they can, first of all, become accustomed to the error rates that they would see or the accuracy they would see from our output, but also so that we can see if a number is veering off somewhere, why is that happening? And then finally, we’re doing what are called out of sample or actual forecasts where the customer starts to see live in the wild forecasts. And from then on, we’re doing live in the wild forecasts unless they want to add, let’s say they want to add a different business or they want to add a different, say, vendor or something like that, then we take it through that same process and then add it into whatever we’re doing live for them.

Tony

I would say there are multiple layers and multiple processes to separate those two things to understand what is real information and what is just, as you say, noisy.

Rosanna

Absolutely. Wow. This is very exciting because this is much needed in businesses. I have to say, when I was reading about your company and and how you started, it said that you built the business from the ground up. And that’s so impressive, including the data science, the software development, with the operations sales market, all that. Tony, please tell us about your background and how you came to this.

Tony

Yeah, it’s interesting that you say that. We are not as a business, and this is not a knock on AWS or Azure or anything, but we are not using AWS data science tools or Azure Data Science tools. They’re all our own data science tools. Because if we’re using AWS or Azure data science tools, then basically they’re the business. And so we’re just the front end of that business. So we’ve developed all of this stuff, preprocess, the actual process, post process, all of this is our own. And what is that like? Well, it’s iterative. You have to have a period of time over which you learn what a good baseline of that process is. And then also, we had to spend some time understanding what the most important elements of that process are. And we continue to iterate that process, whether it’s on the… Just last week, I was working with our data science team on our post process to understand, okay, what is good data coming out of that process? And how do we continue to refine that process so it makes sense? And then we’ll go back into the prep process, and then we’ll go back into some of our forecasting methodology.

Tony

We regularly go back and review all of this stuff because data changes, the economy changes, the data science changes, customer awareness changes, all of this stuff. And so we have to understand, we can’t look at data as if it’s not a changing and nonresponsive element. Data always responds to the environment. And so if we don’t change, then the data will get away from us. And so we always have to be checking out new forecasting methodologies, looking at what’s efficacious, what isn’t efficacious, what’s not always additive, we’re not always adding things to our process. Pardon me. In some cases, we’re removing things from our process because maybe they’re no longer valid. And you’ll hear, for example, every so often people are very excited about a new, say, data science methodology. And we’ll try it out and we’ll look at it and we’ll run it alongside our existing methodology at times and find out, Yep, it’s efficacious, let’s fold it in, or No, it’s really not what all the buzz is about and we don’t fold it in. So I would say for people who are reading data science literature or data science media, there’s a lot of hype about different data science approaches at times.

Tony

I would caution people to look at whether the person writing about that is actually a practitioner, or whether there may be someone who does an occasional video, or maybe they’re a Python programmer who doesn’t really do it at scale or something like that. A lot of these things are really cool in theory, but they may not necessarily work in practice at scale.

Rosanna

Exactly right. We live in a state of flux, constantly moving, so many moving parts and all elements of business, macro economics, micro economics, and things are always changing in technology and everything. And that’s the state we’re in. Part of life is always moving. And they say you’re either growing or dying. And I had died up that with businesses as well. You’re either improving or you’re declining. And we always choose to improve and be our best. And at the same time, not everything works out and you got to keep modifying, tweaking, testing things out. And if they don’t work, you put them aside, you move on. And it’s about being humble. And I read your six company culture points, and I love that. I had to say that it reflects in everything you say, Tony, it’s about being the best you can be and being the best at what you do and not complaining and always pushing yourself. And that’s exactly what you said. You keep testing and you want to provide the best. And if something’s not working, you just say it’s not working and you move on. It’s about being humble. And I love that culture that you create at complete intelligence.

Rosanna

And you have to be that way in order to be successful because that’s how information is. And one thing one day could be the right way, and then next day you realize something new came in and you reserve the right to change your mind. And that’s very important. It’s not flip flopping. It’s about being the best and improving. So I’m all for that. I want to know about your background. I know you lived in Singapore and you have a strong macroeconomic background. And please tell us about all that and how it led you to starting this company.

Tony

Sure. Yeah, thank you. I started my career in global logistics. And starting there really helped me understand how world trade works, how systems work, how cost buildups work, and really how global data flows together in the international system. That, when I was 24, led me to my first overseas job opportunity. I lived in Amsterdam, then the company moved me to London, then they moved me to Florence, Italy. And so early on, I was involved in international discussions, global discussions, going to markets I never thought I would be in, and say, North Africa, the Middle East, Eastern Europe. This was back in the 90s. So early on, I was involved in these data heavy, customer centric global discussions where things like cost, things like workforce consideration, things like geopolitics had to do with what I was doing. So I’ve had to develop this multi tier view of the world from very early on. I then went into media. I worked in Silicon Valley for some media companies, and then I went to grad school. I studied diplomacy and International Relations. Again, that added more layers on to my global view of the world. I’m not trained as a…

Tony

I’m not formally trained as a coder or a programmer. I’m more formally trained as a, I guess, information and, I guess, power politics, power dynamics type of theory person. So in 2003, I was asked to move to Singapore to help turn around a telecom firm, a privately funded telecom firm. And after I was there for three years, I then was asked to get involved in a new telecom company in Sri Lanka. During the Civil War. That was a very complex problem to solve. We sold that company after two years. Then I joined The economist. All of this while I was living in Asia, I ended up overseeing global research for The economist. Again, all of this has to do with geopolitics, economics, company information, global trade, all of these different things. And that’s what ultimately led to complete intelligence. Singapore was a very interesting place to live. We moved there at the end of SARS. This was this big pandemic they had in 2002, 2003. And then we saw Singapore make its way through the financial crisis and then become this very expensive global city, very glitzy and that thing. And then we moved back here, back to the States.

Tony

But it was a very interesting time. Time to be in Singapore. It was a very interesting time to be in Asia. We saw China go through a lot of changes over that time period. We saw India go through a lot of changes in that time period. And so I feel like I had a front row seat to a lot of the changes in Asia. When I moved there, business process outsourcing, BPO’s were booming in India, and it was still a relatively new concept, a relatively new concept. And now that’s matured and we’re two generations beyond that. China was very much a low level cost arbitrage manufacturing location, and we’ve seen China really come up. I don’t know if your viewers remember, but when I moved to Asia, there was an issue where a Chinese telecom engineer was taking photos of a Cisco router so that they could potentially use those plans for their company. And so the technology in China had a long way to go to catch up with US technology at the time. And since then, they’ve really closed the gap. And it’s really been amazing to see a lot of that progress in China.

Tony

And so we saw a lot of that happen in Asia. And we just felt like we had seen enough and wanted to come back to Texas. And so we came back and I moved complete intelligence with me.

Rosanna

Awesome. Well, we’re so grateful that you did. And we’re speaking to today because I have to say you bring such a wealth of diverse background to this company and to all of our discussions. And this is the geopolitical, you mentioned that. And I have to add that’s another big one where anything is possible. And it just seems to be so much change going on. We have multiple players that are all interconnected. There’s no longer… We have transnational borders and with this all information and so social media. And we live in a very interesting age and we call it the age of rising disorder, randomness, entropy. And I recently spoke with an international relations scholar on this. It’s just mind blowing just how much is going on in the world. And you spoke about China and we’re going to talk about China. They’re geo economic competitors with the US. And like you said, you saw the transformation, how much they’ve advanced in technology. It’s just amazing how far they’ve come. And there’s so much change. So I’m so excited to talk more about that. And I know that you are a speaker and leader of closed door dialogs, and you talk about markets, economics, risk, and technology.

Rosanna

So I’d like to go into each of those areas and go behind closed doors and get what’s going on in those areas. But first, I want to say Tony N ash nerd. That’s how you’re known as on Twitter. What does that mean? Did you give yourself that name? Or are you calling a nerd?

Tony

I absolutely did. I mean, I might as well embrace it, right? So it’s who I am. It’s what I’ve been my whole life, so I might as well embrace it. And it’s good. I think that’s my Twitter handle, and it just helps me to on really talk about anything nerdy. So it could be tech, it could be geopolitics, it could be coffee, it could be really anything. I dig into a lot of different things there.

Rosanna

That’s great. I love that. I always tell my kids, if the nerds rule the world, they’re the ones driving technology and innovation and effectiveness and efficiency, and they’re the ones improving and changing the world. So we love that. We call ourselves a family of nerds as well, always learning and growing. And that’s what we’re lifelong learners. So let’s learn more about… Let’s see, let’s begin with technology. I think that’d be a great place to start. I say we talk AI, and I think it’s a much needed solution for humanity. Like I said before, challenges bring opportunities. We have declining productivity, we need automation. What do you foresee as challenges and drawbacks with AI? And what do you think about this fear that we have? A lot of people are very fearful of it. It’s the availability heuristic. They think of Terminator, or they think of some movie or something where AI takes over the world. Please tell us your thoughts in that.

Tony

Yeah, I think humans don’t like change, right? And AI can be rapid change. And so in, say, companies, there can be resistance to AI and fear around AI. But I think it is really, at least with current technology, it’s an augmentation of existing capabilities that companies have today. I don’t necessarily see it as a full substitution of what companies have today. And so it’s similar to… 50 years ago, companies had typing pools. Corporates had typing pools where a bunch of people would type up letters and memos and reports and all that stuff before we had PCs. But what happened to those guys when typing pools moved away? Well, those guys got different jobs. Those skills didn’t just disappear. They had different jobs. And so that’s what I see happening with artificial intelligence is AI is there to augment existing capabilities and enhance existing capabilities. And so when I talk to business leaders and companies about AI, my main point is, being afraid of AI is not going to be constructive to anybody. It’s not going to help anybody out. Now, having way too heavy expectations on AI is also not constructive. These technologies are relatively new.

Tony

They have to be introduced gradually, and there has to be change management around their introduction. And so I think when we think about it with that respect, I think all of those processes or all of those activities give workers today the opportunity to, first of all, understand how AI will impact their jobs. And if they think it’s going to impact their jobs negatively, then it gives them time to use their skills and apply them in a different way. So I don’t necessarily think we are in a fully disruptive AI environment because there’s a difference between artificial intelligence and artificial general intelligence. Artificial general intelligence is a, say, fully autonomous decision machine. We’re not there yet, and we’re a long way from being there. People look at something like chat GPT and say, Oh, it’s just like me talking to something, and it’s not. The way I describe chat GPT is it is a way to summarize Google searches and make it readable. So instead of a bag of links, you’re getting what appears to be some synthesized answer. But in fact, it’s the most frequent responses to that type of Google search within a readable narrative context.

Tony

That’s all it is. So it’s not magic. It’s not going to take huge number of jobs away. It’s going to make jobs easier, actually. And it is already making job easier. So when you look at what we’re doing, it’s not magic. It’s not going to take jobs away. It’s going to add to people’s jobs. So AI is simply math and code. That’s all it is. It’s statistics and code. And so, anything that can be done with statistics today can be done with AI now and over the next, say, 5 to 10 years. Things will get really sophisticated in probably 10 years’ time. But right now, AI generally is pattern recognition. That’s what it is. And you look at almost any AI application, and it’s simply pattern recognition and re presence presentation of patterns in a way that is understandable to the person who’s reading it. That’s a really boring way of saying what AI is, but in general, that’s what it is. When you look at a lot of, say, it administrative work today done by humans, some of that is pattern recognition. In the same way we had a typing pool 50 years ago, we need to take that pattern recognition activity and turn it over to the machines because they don’t get bored, they don’t get distracted, they don’t feel political pressure to change numbers in a certain way.

Tony

So we turn that pattern recognition over to machines so we can do our individual jobs better. Does that make sense?

Rosanna

Absolutely. I love that. Pattern recognition is key. And I talk about that with expertise based, intuitive decision making. And that’s something that experts have with vast experience. And they’re actually pattern matching and they’re recognizing… They’re basically comparing patterns against recognizable prototypes in their heads. And you do that with all of your vast experience that you have with all of this. And this is a computer. This is actually the AI is doing that with all these different fields and decisions. And I think that it automates, it makes things seamless, and it reduces error, like you say. And that’s the simple… I love that definition. Now I’m going to write about that. It’s pattern recognition at its core. And that’s when I like to use Bing, and I go on there and actually, our middle son, he’s in computer science, and he’s like, You know, B ing is better than chat DBT with a lot of these things. So I’ve been using B ing and I love it. It’s basically like, instead of me asking Google, I’m going to check to B ing and it’s faster. It summarizes everything for me. And as you said, it’s pattern matching, and it’s just amazing.

Rosanna

And I just love it. And it’s so efficient. It makes my time easier, faster, and it minimizes my time. I was writing something, I had to write something, I need some information about something. And usually it takes hours. You have to go through different sources. Imagine back in the 90s and the 80s, I had to go to the library and research things. Now I can just ask, for example, a question and I phrase it properly and I’m very specific and I get everything I could want. It’s just amazing. I think another point that you said to your point about change, yes, we have fear of change as humans, and that’s just a natural fear we have. But when we understand that life is change, we’re always changing. And whether we like it or not, change is constant. But just embrace the change. I think we should all embrace this AI, and I think it’s making our jobs easier and I think we need to think different. Even though maybe some jobs are being, they say, eliminated or something, it’s for the best because now we’re able to focus on greater things, creating, elevating our businesses and humanity to new levels instead of being bogged down with auditing and data and all kinds of compiling of data and information.

Rosanna

So Excellent points there. Thank you so much. Now, I want to ask you, are we just at the beginning of this AI revolution? I call it a revolution because I think it’s like an industrial revolution. This is just a new level. Are we just at the beginning? And you said 10 years before we see major changes. What do you foresee in this timeline of AI for, let’s say, the next 10, 20 years?

Tony

Yeah. I think, yes, we’re at the beginning. I would say advanced beginning, but we’re at the beginning. I think what we’re going to have is probably another 2-3 years of excitement over AI. I think inevitably, we’ll have some very high visibility projects that will fail, and it will cause corporate skepticism toward AI generally. This is probably 2-3 years out. And you’ll probably have a few years of real skepticism now. I think generally, a lot of that hype is done by consulting firms who are really looking to build out long term projects with big corporates. And so I think in 2-3 years, as you have some colossal flops with corporates, I think corporates will then realize that they shouldn’t necessarily go to consulting firms to develop their AI. They need to go to technology firms to develop their AI and have consulting firms manage the change management process. So there is a role for consulting firms. It’s just not in developing technology. So there will be, again, I think a series of colossal flops where companies have spent tens of millions of dollars on AI when it’s not really AI. And so there will be a pullback for a few years.

Tony

And then companies will recalibrate toward technology firms to deliver that. And then I think in the 2030s, we’ll see a rapid acceleration of the acceptance of AI across, say, enterprise activities. So but I think inevitably there’s always a hype cycle where there’s hype over acceptance, over expectations, pulling back, and then things come back in a more straightforward way where there’s no longer mystery behind what AI or whatever the technology is. It’s much better understood, and then it’s implemented much more, say, rationally.

Rosanna

I love that. You are brilliant. I have this down. I just didn’t tell you right now. I love this. This is amazing how you apply the cycles of human nature, human emotion. These are the same cycles that play out with the markets, with the crypto markets, equities, and just businesses. The way adoption occurs is that there’s that initial euphoria and hype. Everyone thinks it’s the greatest thing ever, and everyone just so excited. And they get a little ahead of themselves because it’s human emotion and they’re in that euphoria state. And then they get a little ahead of themselves, so they get some failures. And then all of a sudden they think, oh, this isn’t good. Oh, no. And then they start to realize, maybe we went too far. And then they get not exactly what you said. Those failures lead to negative sentiment. So you go through maybe of a darker period, or you could say a bear market, or some type of just negative cycle, and then you get that realism comes in and it’s like, we didn’t have to be so high, we didn’t have to be so low, and now we’re more neutral, and our risk perception versus risk reality is more of a neutral neutrality, and we’re basically where we need to be.

Rosanna

So I love that. That’s excellent.

Tony

This is where I think, Rosanna, where I think the guys who are looking at the low level, very discreet AI activities today are the ones who are ultimately going to be successful. The ones who are looking at the very high level, say, visionary AI projects at a corporate level, those are the ones that will inevitably get bogged down or underdeliver or something. And so if I had any advice for your viewers is look at the very specific, discreet AI projects right now. Be sure that you can carefully identify how you’ll measure their success and make sure that there are high frequency milestones as you deploy that. Please don’t look at the high level supervisionary AI stuff right now because we’re just not ready for that stuff right now. It’s a lot of promises and the delivery may be there, but it’s easier to get the discreet low level wins right now. It’s much better spent money than it is the high level visionary AI stuff.

Rosanna

Excellent points. That’s actually my next question was how can people go into AI, get more accustomed to it? And what’s this lower level that you’re speaking about? Could you please give us some examples?

Tony

Yeah, think of a discrete problem. What problem do you have? Is it my inventory levels are out of control, or I don’t know how to forecast sales, or we have bottlenecks in a certain part of our organization, or something like that. With AI, it has to be information that you use. Look at an information problem that you have where information isn’t really being used well, and then pursue that path. I’ll talk about something that we don’t do, so it doesn’t sound like I’m selling AI. I was talking to somebody last week, like I’m selling my company. I was talking to somebody last week who said, I need to use AI to monitor what my workers are doing in the warehouse because I want to make sure that they’re meeting the productivity that they need to be. So that’s more computer vision really than it is what we’re doing. And so there are companies out there who do that, and they can identify individual workers and see what they’re doing and make sure that they’re meeting productivity needs and so on and so forth. So I said, you may want to check out this company or that company to pursue that.

Tony

So this executive is not looking at a huge visionary AI deployment. He has a very discreet problem that he wants to solve. He knows what success looks like. He just needs to find the vehicle to bring him that success. So for us, with respect to complete intelligence, is… So for example, many of the manufacturing companies that we talk to, their error rates to forecast their materials for manufacturing are often 40 % or more.

Rosanna

Agreed.

Tony

Now, people who aren’t in manufacturing will hear that and go, That’s crazy.

Rosanna

But we are a manufacturing company.

Tony

I agree. Right. And so people who understand manufacturing know that that’s true. And we have a customer made major company in health care, hundreds of billions of dollars a year. Their average error rate for forecasting their materials is around 20 %. Now, again, this is a huge company. 20 % is better than average, but it’s still 20 %. When we applied our process to their problem, the average error was around 2 %. Wow. So using our process, it’s tens of billions of dollars of difference for them in using our process. So you take the average in manufacturing and say 40 % error, this company had 20 % error, and then they work with us and they have a 2 % error. And so it’s massive orders of magnitude difference when people look at… They had a problem with cost of their ordered goods. It was all over the place. They knew it was bad. And so we helped them solve that discrete problem, and it’s very successful.

Rosanna

Wow, I love that. I agree with you completely. In the manufacturing process with supply chain management, there are a lot of mismatches, a lot of inefficiencies which cause that higher error rate. I want to ask you two questions, but let’s start with what causes from what you’re seeing from CI, complete intelligence, what are you seeing causes these high error rates in manufacturing that exceed 40 %?

Tony

I think a lot of it is… Well, part of it is the approach they take to forecasting their cost expectations. So I think there are a lot of, say, legacy ways of doing that that are maybe a moving average or something fairly straightforward, which intuitively makes sense. Or oftentimes we have people who say the price of X is linked to a certain index. There is an assumption that the cost of that item is always linked to a certain index. So in that assumption, there are two points of potential failure. The first one is that X is somehow correlated to that index. The second is that their forecast for that index is correct. And so we pull all of that apart for people and help them better understand what is happening there. So that’s one point of failure is the oversimplification of those cost expectations. I think another potential factor is the political pressures for people to budget a certain way. Let’s say costs are going to go up 15 % this year, just hypothetically. But your boss only believes it should be 6 %. You’re going to put 6 %. There are multiple layers of political pressure on things.

Tony

Let’s say it gets up to the finance team and they say, Hey, look, we know it’s you feel strongly it’s going to be 2 %. So you go from a 50 % expectation that your person on the line level understands all the way to a 2 % expectation because that’s what finance needs to meet their budget. Okay? So there are multiple layers of political pressure to to define their forecasts in a certain way. And we can go into a lot of other things, but there are many layers and many causes of those numbers being 40 % or higher.

Rosanna

Absolutely. Thank you for mentioning those points. I agree, the oversimplification is key. With manufacturing, there’s just so many different elements vertically. And for one of our businesses, we start with the raw material and we go all the way to the end user. Sometimes we do the lifefo method, first in, first out, we do that as well. And it’s hard to attach those costs properly to each of the items. And we find that a challenge. And they’re changing. We always say, things are changing every day to attach it to an index that’s always changing. Let’s say you have a raw material that’s been hanging around in your warehouse for three, six months. Wow, what a difference in prices we’ve had this past year. So in order to have these margins margins match accurately to what the real margin is, forget about that. We’re at the point where we’re just ballparking things, and it’s just very challenging with this data management. So there has to be a better way, and I think you can provide that, Tony. So very exciting to see what else you do in manufacturing because we need that improvement significantly. Now, you mentioned the lower frequency, the baseline of the AI.

Rosanna

I want to talk about this high frequency AI that should be avoided so we don’t aim too high. Could you give us some examples of something that’s really ahead of where we should be with AI right now?

Tony

Oh, okay. So I’m sorry. Instead of high frequency, I should have said visionary high level.

Rosanna

Visionary high level. Okay, perfect.

Tony

So a lot of these are, let’s say, people want enterprise wide projects or something, huge high level. You see a lot of a lot of this stuff, say, come out at a board level, where someone saw a speaker, a TED speaker, or somebody at a conference or something where they’re saying companies should be able to do X with AI within their company. I’m not really thinking of an example right now, but often these things come from the board level down. And so then a consultant is hired and that plan is developed and then the methodology is developed after that. So the problem with those types of enterprise wide visionary AI deployments is the problem is not discreet enough and defineable enough to where the company can define success. So again, if I’m, say, on a board on, say, the technology team or the revenue team or something on a board, or if I’m a CFO or whatever, whenever an AI plan comes across my desk, I would always want to be careful to understand, first of all, how do you know when you’re done? What are the milestones for success? And what experience does this person have doing this stuff?

Tony

And how scalable will the result be? Meaning, if I hire that consultant and this is a long term contract for them to manage the AI, then it’s just a bespoke software project. So you have to really look behind what those high level projects are doing and say, Okay, what tools are they using? Are they open source tools? Are they tools that are being developed specifically for us? These sorts of things. Or have they been deployed many times before? This thing. So whoever is asking, whoever on the corporate team is looking into these projects, or if you’re on a board, you really have to look a couple of layers below to understand not just a global consultancy firm and whatever. You have to really understand layers beneath of how efficient will this and how effective will this deployment be? And again, what problem are we solving? That is a big question that people have to ask about AI for every decision they make.

Rosanna

Excellent points. The key to entrepreneurship is problem solving, and that’s what I find that I’m doing every day. It’s always solving new problems. And part of this expertise, intuitive decision making is being able to see patterns before those problems arise. And that’s exactly what this AI seems to be accomplishing is this pattern recognition, pattern matching. And it’s always about catching the signs of a problem emerging before it does, because you always want to get those problems before they get out of hand. So excellent points. Definable, I love that. I think that’s key. And it’s about scalability and repeatability. And those are very important points with using AI to maximize the benefits available to us today in 2023. So I want to talk about AGI. You mentioned that AI versus AGI. What is AGI? And please tell us about that. And when can we expect that to actually emerge as something that’s going to be more commonplace?

Tony

Agi is artificial general intelligence. So when a lot of people think of AI, they think of robots who can act on their own and replace people and all this stuff. I think that is probably at least 15 or 20 years away because, again, a lot of what we’re doing now is reactive, say, machine learning. It’s not necessarily independent. Even when people use methodologies that they say are independent, they’re not really independent. I think we’re probably 15 years away, and that is… Do you ever see that Will Smith movie? I robot, right? Yes. The robot is helping the old lady or whatever and making decisions and making suggestions and all that thing. That’s probably 15, 20 years away, maybe further. I’m not exactly sure, but that’s not right around the corner. And a lot of what we hear about… I saw something over the weekend saying that an AI wrote a computer program all on its own. Well, okay, yes, it did that, but it didn’t necessarily think of the idea to do that on its own. So So there is a prompt by an external actor to make that happen. We’re not there yet. We’re a ways away from it.

Tony

The idea that robots are going to rule the world, I don’t really think is going to happen in my lifetime, again, because we see what the capabilities are of AI today, and it’s not what many people fear. It’s good, successful AI is pretty mundane, actually, and it’s about productivity. It’s not necessarily about robots ruling the world.

Rosanna

Well said. It’s not about control and power. It’s about assisting us with these very important tasks and productivity. That sounds great to me.

Tony

One thing I’ll add here, though is, since we’ve had computers in the last 30, 40 years, widespread, we’ve always had viruses. Viruses are effectively bad actors and bad lines of code, malicious lines of code. When you hear stories about this AI did something bad, when I see that, I think that’s a virus. It’s the same thing as a virus. It’s not that the AI is doing something bad on its own. It’s effectively a virus that’s introduced into that code to make it do something bad. We need to be really careful as we read news about AI that when bad stuff happens, it’s not necessarily what was originally intended for that AI. And so, again, I consider that a virus.

Rosanna

Very nice. I like that intention versus the virus itself, and we need to not confuse that. Very important point there. Thank you so much for for for detailling that, Tony. I want to talk about risk because that’s another topic of interest here. We have AI, but now risk. Your cost flow, you have three parts to your amazing, complete intelligence. We’re going to talk about the CI market, but you have the cost flow and the revenue flow. So important because I always talk about margins are key. And it’s always about increasing those margins, we want to raise those revenues, decrease those costs to widen that margin. So you work on both sides of that, which is important you tackle each. And so with your cost flow, you talk about accurately assessing risk. Please tell us about that.

Tony

Risk is generally the probability of an unexpected outcome. When we work with customer data, part of what we’re trying to help them understand is the likelihood of a negative outcome for their business. One example, at the end of 2021, we have a customer that’s a mining company, and we were helping them understand what their calendar year 22 would look like. And we said, Hey, you need to be really careful because you’re likely to see a 30 % decline in revenues in Q2 of 22. And they said, No, we’re just coming off of a record year. It’s going to be fine. You guys don’t know what you’re talking about. And that’s fine. We see that on a regular basis where people doubt our outcome, and that’s okay. And so we kept working with them. And lo and behold, end of Q2, their revenue declined by 40 %. So we flagged that six months ahead of time for them. And that was a very transparent risk from our part, given what we were seeing in their market. And not what we as people were seeing, it’s what our machines were seeing in their market. And so that same customer in September received an acquisition offer, and they initially rebuffed it and said, No, not enough money.

Tony

We’ve got a growing business. It’s not going to work for us. As we were working with them and reiterating their forecast each month, we said, Hey guys, I’m not sure if you have seen this, but we expect 2023 to be a worse year for you than 2022 was. And they took it to their executive committee and their board, and then they accepted a second offer from that potential buyer because they realized that we were really accurate in terms of the risk associated with their business. And they were worried that 23 was going to be worse than 22. So they took that buyout offer based on partly, not fully, but partly based on things that we were telling them. So it’s possible to identify those risks. Although we didn’t predict a 40 % decline, we predicted a large magnitude of decline for their business, and they ignored it. And businesses can choose to ignore risks. That they do it every day, right? Some they escalate and they wrap into their plans. Some they ignore. And so this one they ignored and it bit them. And then ultimately they believed what we had said and they sold.

Tony

So that’s just one example of how people can identify risks with our process. We do cost, we do volumes, we do revenues and transactions, all that stuff. So there have been times where we worked with a chemical company, and through our work, we were forecasting the unit price for them. And we had discovered that they were undercharging by probably 80 % for the unit price of their good. They ended up raising their price by 50 %, and none of their clients complained at all. Their clients knew they were getting a heck of a deal. And so they raised their prices by 50 %, and the market completely absorbed it. This was three years ago. So this was before all of the inflation right now. And that company, partly because they successfully raised their company by 50 %, they sold as well. They were a publicly traded company as well, and they sold as well. Again, partly because of the things that we spot in their market, some of its risk and some of it’s opportunity.

Rosanna

Wow. Excellent examples there. Risk management is always number one, whether it’s in business, investing, in life. We’re always calculating our risks, and we’re trying to make the smart decisions based on properly calculating those risks. And we have that issue I mentioned earlier was there’s a disparity between the perceived risk and the actual risk. And we try to neutralize that and try to bring those together. So we need to properly calibrate. And has to do with framing as well. When we come from a position of fear or losses, we tend to take more risk. We’re risk seeking. While if we come from a position of strength, we tend to be more risk averse. So in order to make better, smarter decisions, it’s so important to have that proper calibration of risk. And so you pointed out some very important points there. We want to reduce that margin of error, that standard deviation, and just to I love how you explained risk. It’s about the other things that can happen. So what are some factors that you use to identify risk? Let’s say in that example you gave us, what are some signals that you receive that identify higher risk for that company?

Tony

Yeah, it’s interesting. Part of it is the volatility within the data itself. So how volatile are those numbers and how do they react with other factors within their market or even outside of their market? And then we look at the cyclical nature of those numbers. How do they act in the short term? How do they act in the long term? So again, we’re looking at, say, univariate activities, meaning the data on its own. We’re looking at multivariate activities, meaning how does it interact with other data? Okay. And then we’re looking at other types of long and short term overlaps and other things in that process. So there are multiple layers of, and I keep saying that word layers, but there are multiple phases and layers within what we’re looking at to understand how data should behave. And another example, one of our customers at the end of 2019, we were looking at some of their costs from goods that they bought in Asia. And at the end of December 2019, we told them that their cost for a certain good would rise by five times by May of 2019. Sorry, of 2020. By May of 2020, the price of those goods would rise by five times.

Tony

They saw it. They thought it was crazy. They ignored it. By April or May, I can’t remember which month, the price of those goods rose by seven times. That’s a very strange multiple rise for any number. But with the process that we have, we looked that over through numerous lenses to understand whether that was accurate or not. They chose not to prioritize that risk, and that’s fine. Again, back this up with a lot of different statistics and processes and that thing. We can say, Look, this is the likely outcome, and here’s the probability of it happening, that thing. When you’re predicting risk, you have to identify a time frame. You can’t just say, Hey, that price is going to go up at some point. You have to say, That price is going to go up within this time frame. It has to be something that’s actionable for the customer. And so I see a lot of people on social media and in, say, industry analysis and geopolitical analysis who say X is going to happen. Okay, fine. X is going to happen. But when is it going to happen? Next month or 10 years from now?

Tony

And there are so many people out there who will say X is going to happen without a time frame on it. But when we go to customers, we have a very precise time frame when we believe things are going to happen. And again, they can choose not to accept that, and that’s fine. They know their business better than we do. But they should at least be prepared when we warn them that something is going to happen. They may think it only is going to happen with, say, a 20 % likelihood, and that’s fine. But at least they should have a contingency plan in place if that’s going to happen.

Rosanna

Absolutely. It’s always having that backup plan. And I love your transparency and how you share that data with them. And they should listen more. But I guess everyone thinks they know their company best. And it’s always about risk adjusted returns. And I think as novice traders and investors, like 2020 brought a lot of new investors and they seem to not account for that. But I always tell people it’s always risk management first and knowing your risk. So we have to properly assess that risk. And it’s just amazing how you’re able to forecast these expenses. And like you said, time frame, time frame is key. Absolutely. It’s always about time frame and risk adjusted returns. So I think we can talk about another favorite topic here, economics, macro economics. And we talk about there’s so much change, and there’s so much change in the economic world globally, domest. And I sometimes think anything is possible. And we say inflation, with core inflation seems to be entrenched. It’s very sticky. It’s hanging around the 4 % to 5 % range. I haven’t looked recently, but it’s probably always changing. But it seems to be stuck in that range.

Rosanna

We know people are talking about stagflation. Then others are saying deflation. And there’s a credit crunch. We know that there’s a lower supply and demand of credit on both ends there. Then recession. And the recession is coming into 2024. What are your thoughts? I know that’s a very wide spectrum there. Tony, what are your thoughts going forward?

Tony

Yeah, it’s out of there. So we’re at a place right now where I could probably put together a plausible scenario for any one of those things happening. Because we’re in a place in economics and markets where really anything can happen. And the reason I say that is, through COVID and after COVID, we had so many stimulative government programs underway that I don’t think we’ve ever seen this magnitude of stimulus in markets. And I don’t think we’ve ever seen it withdrawn this quickly either. And by withdrawn, sorry, I don’t mean withdrawn, I mean halted. So of course, it’s still in the market, right? But the benefits of that stimulus have already largely been seen. So what are we going to see over the next, I think you said, in 2024? Well, we’re likely to see the Fed continue to raise rates at least a couple more times. That would put us around 6 % for a Fed funds rate, which would be pretty high given where we’ve been for the past, say, 15, 20 years. The cost of credit, you mentioned credit crunch, what we saw with regional banks, Silicon Valley Bank and the other banks, and what is happening with the credit crunch will impact small and medium sized businesses more than it will impact large businesses.

Tony

So that is a real danger for things like job creation, for company creation, for other factors that we just take for granted. So high interest rates, coupled with the credit crunch, I think we will not necessarily see the results of that for probably four or five months, something like that. But ultimately, it will have an impact on the US economy and other economies, of course. If credit is not available in the US, then transactions by US companies are not possible internationally, especially small and midsize companies. So as we see those regional banks, not all of them, of course, but some of them seize up and get more conservative about their loans, it will impact a large part of the US economy. And I find that really worrying. I do know that we are headed into an election year, so we will likely see immense pressure on the Fed to loosen monetary policy going into an election year. So we may see the Fed raise one or two more times, but I think the pressure on the Fed to loosen going into ’24 will be immense. And again, all that really does is prolong, say, some really bad habits we’ve had in place for about 15 years since the global financial crisis.

Tony

So we could see a sharp reaction in Q3 or Q4 of this year, a negative reaction. But I would say going into Q1 or Q2 of next year, we’ll see a huge pressure for the Fed to accommodate because of the election, both presidential and legislative and governor elections. And so I would say the Fed would probably be neutral from, say, June onward. They’re probably not going to talk Hawkish or Dovish. They’re probably going to try to make as many changes as they can before the election. All the election rumblies really start to hit. And then from, say, Q2 onward next year, they want to probably be a benign force unless something dramatic is happening in the economy. Well said.

Rosanna

I think we’re on the same page here. I love the way you outlined everything, Tony. I think you covered it all. We had the fastest money printing, very fast during COVID, this mass stimulus. And then at the same time now, we have the fastest shrinking of the money supply since I think the 1930s. So it’s like we had a whiplash. And then we have higher for longer, higher rates. I think it’s like the fastest in a very long time. How about that one? And maybe since the… I don’t know. Whatever the fastest raising in rates, we went from like… I think we went up 5 %, 50 %. I mean, insane. 500 basis points in what, a year or so? And it’s just crazy. And then you have the unrealized losses for banks and you have that banking crisis, which I don’t think it’s over yet. It’s about liquidity issues. We don’t have really the credit issues of 2008, but it could lead to that. Commercial real estate is a big challenge. The shorter term loans, we have vacancies, offices are way vacant because of COVID. It’s exponentially sped up that process. And I always talk about even if you’re locked in at low rates, if you don’t have that cash flow to meet that debt service, how are you going to hold on to those properties?

Rosanna

Then you have Airbnb homes that are becoming vacant now. How long can they sustain those homes until they start flooding the market as well? So even though people are locked in and they say the Fed trapped people in their homes, we have lower inventory, but that can change quickly. Data changes quickly.

Tony

Things kick in. It will refinance for cash flow issues, I think. So that 3, 4 % loan they have, that’s great as long as everything is stable. But I think for cash flow issues, people will refinance and they’ll have to refinance into higher rates. So whether they want to or not, I think that will become fairly common over the next, say, 2, 3, 4 years. The thing about commercial real estate that you mentioned that’s very important is, a lot of pension funds have a lot of commercial real estate holdings. So as we see commercial real estate funds and companies mark to market, you will see loss in pension funds in a way that we haven’t seen for a long time. The question is, what will happen there? What will that really impact people’s retirement? Or will the government just cover it? I think that’s, do we socialize that risk outcome? I hope we don’t because it’s the pension fund managers fault that they made that investment and didn’t sell earlier. The other part about commercial real estate is a lot of the risk with commercial real estate loans is held with regional banks. So not only did we see the issues that we saw in March with regional banks, we’re likely to see more regional bank issues associated with commercial real estate loans marking to market.

Tony

At the same time, we have a lot of commercial loans, not commercial real estate, but corporate loans that come due next year. I can’t remember the number. It’s trillions of dollars. They will reprice in new interest rates. If they don’t pay them off in the lower interest rates, then the carrying costs of those loans for companies rises dramatically. There are so many factors associated with higher interest rates. Oh, yes. T’s good to have the use of money cost money. That’s what interest rates are. So if using money is free or if interest rates are on a real basis negative, that’s really problematic. And we’ve seen that through economic history everywhere, largely everywhere where it happens, it inevitably becomes a problem. There have been some moments where it wasn’t, but they were brief. So having real interest rates be positive is a good thing for the economy. It will help raise savings rates because people will be incentivized to save rather than speculate. And so all of that is good. And the normalization of the economy with higher rates is a good thing in the long term. It’s just likely to be pretty painful in the short term.

Rosanna

Absolutely. It’s the digestion of all that. It’s going to be very painful and it will take time to work through. The Zerp, in my opinion, was not a good idea. We’re in the banking crisis is a symptom of all the negative rates and all that free money that was given out. Now, excellent point about pension funds. You don’t know what’s going to happen there, but it just shows the vast, widespread things that can occur. It’s not just centralized with commercial real estate. So people say, Oh, I’m not a commercial real estate investor, so it’s not a big deal. But it is a big deal because it’s widespread across many different funds and many different industries. Regional banks, excellent point. I think that the process continues with less banks, more branches. Smaller banks, they’re more sensitive, they have liquidity issues, and these commercial real estate loans are centered around these regional banks. I remember when I was in commercial real estate, I was a broker and owner of a firm. I used to always go to the regional banks for my customers loans. It was always the local banks. It wasn’t a Bank of America or Chase.

Rosanna

And so, yes, it’s always the regional banks that have those loans. So that’s another concern. And you also mentioned excellent point. And I talk about this often, small businesses are more sensitive to all these margins being compressed, higher cost of debt and capital, and it takes time to work through the system, and we’re getting new refis coming through. So I think these higher rates are probably going to last much longer. I’m not certain we’re going to go much higher, but I think we’re going to last longer. And like you said, I think it’s healthier. I mean, we want to have some return on savings. It’s important that we have some type of return. At that point where it was just growth, we had to keep investing the money in order to make some return. Now it’s a different mindset. So I hope people don’t fall for the recency bias. These are different times. I think this is a new regime that we’re in. We’re actually just returning back to a different time period because we live in cycles and these cycles repeat and it’s human emotion based. So I think we are in a different time than we’ve been the past 15 years.

Rosanna

And so we need to think differently. We also have mass government spending. It’s still continuing. So this contraction that we’re experiencing is really going to be felt mostly on the private sector and it’s going to be painful. So it’s going to be challenging times. And inflation works both ways. We had margins compressed. We had higher cost of goods sold, higher operating expenses, new fees. We have new fees here in New York, the IIS surcharge, and that’s something in the employment fee that we had. But the top number for corporate profitability was held up. The revenues were held up by inflation, by higher prices. But if we get a deflationary plan, like it appears we’re going to have prices coming down, then… And plus, if we go into this recession that everyone talks about because of this fast reduction in the money supply and 85 % of the money supply comes from commercial banks and there’s a credit crunch. So we get that that top number is going to come down as the demand rolls in and then we’re going to have serious problems. And it could be a severe recession because we have markets is still compressed and then we have higher cost of debt and capital.

Rosanna

And as you said, it’s going to work through the system. It’s going to take time. Top number coming down. So there’s a lot of scenarios that can play out here in the next year or two. So there’s a lot of issues and I’m by no means an expert in all this monetary system and economics. But from what I’m seeing as a business owner, it’s very challenging and it’s very challenging challenging for the small business, and we’re small business owners. So we’re noticing that, and it’s not letting up, and the demand has come down, and it seems that people are looking for better pricing. And it’s a different dynamic now. And we still have higher pricing with the parts and supplies, and we have inverted yield curves, and so we need to prepare accordingly. Regarding the markets, and I think we can go right into the markets. How are you preparing? What are you seeing with your CI Markets and going forward? Apparently, there’s a lot of scenarios which means there’s potential volatility coming up, a lot of different things coming up. How are you planning and what are you seeing with your CI Markets?

Tony

I think at least for the next couple of months, we’ll continue to see equity markets grind higher. It’s really hard to see the incremental benefit that investors will get given the risks with markets at this level and where interest rates are going. But we expect markets to continue to grind higher despite what many people are thinking about markets. Commodity prices, we expect to continue to decline. Generally, crude prices, there’s a is a belief that I see in markets where crude prices are bound to hit $90 any day. We’re just not necessarily seeing that. We don’t see a dramatic fall in crude prices. We see an ongoing, lumbering slow fall in crude prices for the next few months. The reason crude is so important is because there are so many secondary tertiary impacts of crude price that the crude price itself is very, very important. Again, we continue to see equity prices grind higher despite fears about things, a big rug pull. We don’t see them grinding a lot higher. We see them grinding marginally higher for the next couple of months. And then commodities we see falling. So a lot of the goods inflation that we saw in ’21 and early ’22, that’s largely played out.

Tony

Now, what we’re waiting to see fall is services prices because services prices track with wages and wages are up pretty dramatically. And so the really interesting part, I was looking at a chart earlier today and I tweeted this out. Actually, there’s a guy named Bob Elliott who initially tweeted it out and I recent his. Bob’s pretty amazing, smart guy. As wages have continued to rise, productivity has fallen dramatically, one, two % per year. So Americans now are actually contributing a lot less to make a lot more. And so as wages continue to rise, that hits services prices in a big way. So when you call that service person out to your house, or when you have some service done, those prices just are absolutely not going down, at least for now. And the productivity of those workers is actually declining. So why are the employment numbers so strong? Well, companies have to actually hire more people to get the same work done.

Rosanna

They.

Tony

Have to hire more people at higher prices to get the same work done. That’s the environment we’re in right now. And it’s a really strange environment. So until we start to see productivity kick up, we’re going to be in this cycle where the employment numbers themselves look good and wages continue to rise because nominal prices are continuing to rise, but productivity will continue to crater because we’re workers just are not incentivized to really do all that much or work all that hard. Their workers are incentivized to do just what they have to. What we have seen with the, I guess, permancy or semi permanently of work from home is, a lot of people are taking on two jobs. So they’ll have an official job with a company, and then they’ll have an unofficial job doing something else. And this is very, very widespread. And so that primary job that they have where, let’s say, they get their health benefits, they’re not necessarily putting in 100 %, which is what they would have done, say, four or five years ago before COVID. Now they’ve got their side hustle, which is not an insignificant amount of their time, where they’re doing their salary job at an inflated wage, and then they’re doing their side job, which is still pretty lucrative.

Tony

So this is a problem that we’re seeing that spurred from work from home where companies can’t really observe people because they’re not in the office and they feel awkward about observing them at home. And so workers, because of the opportunity, they’ve taken on more than one job.

Rosanna

I love this discussion. You expose the reality and the truth of what’s going on. And I’ve been talking about this for a while. There’s just a declining productivity across the board. There’s a mismatch between the employer and the employee and the expectations on both sides. And we’ve seen that for a while. Covid really changed the worker and their expectations. And I’m in the camp that because I have stay at home workers. I still have them. They don’t want to come back to the office. One of them is actually moved away from here. And I just have seen over time as they stay away from the office, their productivity declines. They’re out of touch and they’re just not producing the same. We’ve had to limit some of their hours. I hope they’re not watching right now, but it’s okay. They know. It’s just changed. And so our expectations have changed too. And we had to pay them higher. There were higher wages. And now, as prices come down, we want to lower the prices. But how do you lower their wages? It’s a very challenging dynamic. And I call it a dilution of value. And we just have less value across the board.

Rosanna

For our inputs, we’re getting less output. And it’s very concerning. And I often say, Is AI the solution? Is AI the solution? Is automation what’s going to save us at this point? And you mentioned Bob Elliott, and he was on the show recently. He actually was on twice. Excellent. I love his input. He’s a great guy. Excellent guy, so smart. And he said that we are in income driven growth cycle. And I agree completely. Services are a function of labor and employment. And as we have this wage growth and occurring, it keeps fueling that demand. And it’s not necessarily a spiral, a price spiral. It’s more of it maintains it. And so we have these services inflation maintained because of these wages. And people have multiple jobs now. And it’s just like I said, a dilution of value and something needs to change. And I’m hoping that automation is the answer. And I want to ask about blockchain. I want to talk about different asset classes and Bitcoin and crypto. What are your thoughts about that being a global reserve asset and helping with automation with the blockchain?

Tony

Yeah, it’s really hard for me to take, and I mean, knock on anybody, but because crypto specifically has been such a speculative asset, it’s really hard for me to take it seriously. Some of that is price discovery, which is normal, but a lot of that is opportunism. I don’t think we’re at a point with crypto yet to where it’s a currency. Crypto is an asset. It’s a speculative asset. So when we get to the point where the transaction costs are low enough to where we can use it every day, then it becomes a currency. But if people want to use an alternate currency, there are 80 other currencies in the world that people can use. You don’t have to make one up. So until we really start to see the transaction costs of that currency decline, then we won’t see it used as a currency, a analogy I use is the Euro area. The Euro was created because every country in Europe had its own currency, and it was created largely, at least at the time they said, because of the transaction costs of doing cross border commercial transactions within the Euro zone. It added, I don’t know, 5 % to the cost or something like that, of doing, say, a transaction between Germany and France, something like that.

Tony

So they created a single currency zone to reduce those transaction costs. And was it worthwhile? Probably. It seems like at least there were short term gains based on reducing those transaction costs. And it’s a long discussion as to whether or not the Euro is well governed. But with crypto itself, we have so many different cryptocurrencies out there. And I’d say currency is not necessarily seriously, but the transaction costs of those currencies are very high. So it’s really hard for me to take them seriously as a currency. It’s easy to see anything as an asset. Anything that can be traded is an asset. So do people see crypto as a store of value? Yeah, sure. That’s fine. So is Beanie Baby or whatever, right? And so people will put money there in hopes that it appreciates. And so that’s an asset. So I don’t know that we’re at a point where crypto is really all that usable. And I know people are probably going to hate me for saying that, but I just don’t think we’re there yet. We may be in five or 10 years. We may never be there. I don’t know. But I can’t really take that seriously until we have lower transaction costs and more predictability around what that current currency is valued at.

Tony

So if you look at currencies like the Turkish Lira, there’s almost no predictability around what the Turkish Lira is going to do. So who transacts in the Turkish Lira? Nobody who doesn’t have to. It’s just not a good store of value. And so I think looking at crypto, unless you want to go on a ride, a hugely volatile ride, it’s probably, at least from my perspective, it’s not something I would put money in. I did put money in Dogecoin. I made, I don’t know, 15 times my money in Dogecoin. It wasn’t a lot of money, but I got in and then I got out. And I think I still have $20 worth of Dogecoin or something like that. But I just wanted to see what that was all about. And I got in and I got out and I haven’t acquired it anymore and I have just a minimis amount in there just so that it makes me pay attention to where that price is. And what is a blockchain? It’s a register of stuff. I’m trying to see, and I don’t mean this to sound cynical, but I’m trying to see value in the blockchain.

Tony

Let’s say I buy a car and that car is governed on the blockchain, I really don’t care who owned that car two times before me. All I care about is does the car work. I can get information about that car, but who owned it doesn’t matter to me. What they did with it, as long as they didn’t damage it, I don’t care. And so I’m having a lot of trouble understanding value on the blockchain, but I’m sure there are plenty of people who have concerns. And I’ll be honest, Rosanna, I really don’t want to hear them. I’ve had a lot of people tell me about them over the years. And it’s interesting and novel, but I’m not sure it’s all that valuable right now.

Rosanna

I love your valuable input, Tony. That thank you so much for sharing that. It provides a great perspective. I love that. Do we really need all this information? It’s like they’re selling you the point that you can have all this info, you can know where the person lived, where the car was stored, and how it was stored. At some point, it’s information overload. And do I really need all that information? I think we’re going to have to use the complete intelligence system and decipher which is needed to help us solve that problem. Because I think that… I don’t need to know if the car was previously stored and who owned it and where it was and everything, but excellent points there. And you talk about the currency and the US dollar is the global reserve currency. And I don’t think it’s going to be dethroned anytime soon. That’s my opinion for stability and liquidity, I mean, the only contenders are the Yuan and the euro. And I don’t think that they’re presenting much competition for the US dollar. What are your thoughts on all that?

Tony

China can’t let their currency float. Anybody who understands the PBOC, the Central Bank in China, the People’s Bank of China, understands that it’s questionable at best the way they govern monetary policy in China. Monetary policy, occasionally in China, is still based on numerology. And so whenever I hear people say, oh, the Chinese CNY is definitely the next global currency, tells me they really don’t understand how the PBOC operates. The Euro, because they have centralized monetary policy, but they have decentralized fiscal policy, there’s too much of a risk with the Euro because every country decides their own fiscal policy, but monetary policy is decided centrally. It just is not workable for a global currency. So the people who transact in euros are either transacting with Europe or say European either actual or proxy colonies, or they’re just looking for an alternative currency besides, say, US dollar, Swiss franc, Japanese yen, or something like that. It’s not to say that there are not a lot of transactions done in euros. It’s a very large economy. But that divergence between monetary policy and fiscal policy is a risk for people who hold it.

Rosanna

Exactly right. There’s a lot of noise out there and a lot of different stories and people come up with their own theories. But you actually provide data driven opinions here. And I love that point that you made. I agree with you completely. I think that for the same scenarios that you mentioned, I think the US dollar remains king and I think it shall until further notice. I want to know your thoughts about different asset classes. When we talked about commodities, you touched upon the oil, crude, and all that. What are your thoughts on the metals, gold and silver, especially if we go into a stagflationary environment? Are you bullish on all those going into the end of this year, into next?

Tony

Not necessarily because when we look at other currencies, it’s all relative. So we could see, say, money printing in more supply of dollars, for example. But it doesn’t necessarily mean that there’s a perfect inverse correlation between the dollar and the gold price. So I would be really careful there. I know there are a lot of people who really want gold to rally, but we’re not not necessarily bullish on gold right now. Again, we’re very much in a short termist market. I would look at markets, say, three months at a time because Fed activity, US treasury activity, ECB activity, PBOC, BOJ activity, any of these could change the economic output globally at any time. So I I would be really careful with precious metals. Now, industrial metals, if we are really going to have fully electric vehicles by, say, 2035, something like that, it doesn’t really matter what’s going to happen over the next 2-3 years. But those metals, whether it’s cobalt or copper or whatever, any of those, say, green metals, there’s going to be more demand for them over the next decade. I think if you are horizon for investing is very near term, really in just about any asset class, you’ve got to be ready for volatility.

Tony

But if it’s over the longer term, you know things like battery metals are going to likely appreciate over the long term.

Rosanna

Agree, exactly. I played that. Lithium before. And I’m looking at that for long term as well as these other metals that you talk about. And I think aluminum is another one that is used for EVs. There’s quite a bit, and there’s so much more than just Lithium. So excellent points there. I want to talk about emerging markets. There’s a lot of talk about India being the next super growth story. And then we have Vietnam, Southeast Asia, and then they’re always talking about South America. What are your thoughts on diversifying with emerging markets?

Tony

The base of the enthusiasm about emerging markets generally is around developed economies diversifying out of China, I think. And so we really have to look at what can play a substitutional role to China’s supply chain. And a place like Vietnam, no brainer, easy, and it’s growing by leaps and bounds. Malaysia, Thailand, same. It’s slower growth, but still reliable growth in those places as they take off that substitutional manufacturing from China. India, we’ve seen some announcements in India. I love India. I’ve been going there for 20 plus years. I’m not convinced that India has the supply chain infrastructure in place yet to make it a reliable supply chain source. So I need to observe some successful transitions of manufacturing to India, and I need to see that again and again and again before I see India as a reliable location for global manufacturing. I want India to succeed. I think they have the workforce to succeed. I just worry about the physical infrastructure in India being able to take a large amount of, say, global manufacturing. So we have to observe India for the next couple of years to see if they can take some of that on and really see what’s happening.

Tony

Places like Indonesia who are very interesting and most of the people I talk to who are manufacturing in Indonesia are very happy. I think that’s one place that isn’t talked about much in this special in the US, but I think Indonesia has as much opportunity to take on manufacturing as India. If you look at the Americas, Mexico, I know that in terms of the automotive and electronics manufacturing supply chain, Mexico is taking a much larger share of that from China. It’s quietly doing that, especially because automotive and electronics, they don’t necessarily want to upset the supply chain they have in China right now. So they’re building that stuff in parallel, over time, ready to off take manufacturing from their Chinese locations to Mexico, at least for their North American markets. Mexico, very interesting. Brazil, of course, Brazil has been in manufacturing for a long time. And of course, say, ag goods and other things, raw materials, metals. Brazil, I think Brazil presents political risks and potentially some trade risks, depending on what they do around nationalization and, say, documentary requirements into and out of Brazil. But I think certainly they have the capacity and the know-how.

Tony

I think Brazil’s worst enemy is Brazil. So if they can get out of their own way, they can succeed in a big way.

Rosanna

Excellent points. Thank you so much. I like that Brazil’s worst enemy is themselves. I think I say that about myself sometimes, right? All of us can be our own worst enemy. When we see the risk free rate over 5 %, I always talk about T bills being a great return, unlike what we’ve had the past 15 years. What are your thoughts on that with the market? I know you said we’re going to have this run. Maybe it’s driven by the AI euphoria or whatever it is going on, but people seem to be overlooking that fear has subsided a little bit. But we have T bills, over 5 %. Why is it in their best interest to go in the markets with and take and invest in riskier assets when you have this return of a 5 %?

Tony

Honestly, Rosanna, I’m not sure. I think people have been so conditioned, especially over the last few years, to yolo and try to figure out how they can make 15 % in a day or something like that. And so I think that’s a great question and I really don’t know the answer to it. I think a short answer is investors may not necessarily be rational. That incremental investor may not be rational. So they’re going to put it in some tech stock or something instead of into treasuries because treasuries are boring. But a 5 % return, it’s not boring. It’s actually really interesting. So I think that’s a great question. And I think that’s one that people are going to look back on and go, I don’t understand why I didn’t do that.

Rosanna

I love your answer because I feel the same way. I think Warren Buffett is the one who said investing is supposed to be boring. And I think many people have said that. And so T bills seem to fit the bill. But it’s always about risk adjusted returns. And when I see a risk free rate over 5 %, to me, it just makes sense. But I think it’s a recency bias. People are like, Oh, I got to put my money in the market. I think they’re just conditioned.

Tony

Yeah. Well, if you look at the first half of the year, the returns on equities have been very good in the first half of this year. So there is a reason they haven’t transitioned, or many people haven’t transitioned to say treasuries yet. My real question is, what’s the return in the second half of the year? And will you be able to do better than treasuries in the second half of the year? That’s a real question. And again, I’m not necessarily seeing the incremental benefit of putting that extra dollar into the markets versus the risk of potential downsides given where we’ve come in the first half of this year.

Rosanna

Excellent points. Thank you so much for that. So I think you like coffee, right? Is that something you like? Tell us about your coffee passion.

Tony

I’ve liked coffee since I was about 4 feet tall, since I was really young. I had actually a Twitter follower at the end of 2020 sent me a direct message. I’d never met this guy. He said, Hey, what’s your address? I thought that was a little bit weird. I thought, I’m not sure. Why do you want to know my address? He said, I want to send you something. And so I thought, Okay, that’s weird. I asked him a few questions. Ultimately, I said, Sure, here’s my address. I decided to just take a risk. So he sent me an old 1980s style air popper with some small bags of green coffee. It was a very generous thing for him to do. And so I started posting coffee in December of 2020 with this dumb air popper on my back porch. And I quickly realized that I loved to roast my own coffee. And in August of 2020 or 2021, I was watching college football one Saturday and decided, I’m going to do it. I’m going to just… If I don’t have people pay me for what I’m doing, I’m just not going to improve my capability.

Tony

So I built a website over about two days and put a note out to my Twitter followers and said, Hey, I’m launching a coffee brand. If I can get 20 people to subscribe, I’ll do it. Within 48 hours, I had my 20 subscribers and I’ve been there ever since. So the name of the company is nerd roaster. I really do own the nerd.

Rosanna

You do. You’re the nerd.

Tony

So it’s nerd roaster. If you don’t mind, you can find it at nerdroaster. Co. And we do a monthly subscription model. I source beans from different individual farms every month and roast them. And I send my subscribers a note saying, here’s the farm that you got it from, here’s the process it went through, here’s how we roasted it, here are the tasting notes you should have. And so my subscribers really like that. Again, they’re nerdy about coffee and we’ll start at different… We’ll look at different locations. A few months ago, I did an African roast. Last month, I did a Hond roast. This month, we do a Mexican Chiapas roast. And so each month, I change locations and roast it and tell my customers what it should taste like. I don’t understand why coffee isn’t more appreciated like wine. You get your mass box wine drinkers in the same way you get your mass coffee drinkers. But there are so many people who drink wine and just really love the taste. With coffee, that’s how I appreciate coffee, and that’s how I taste coffee. I really want people to come to a point where they appreciate the origin of the coffee, how the coffee is roasted, what the tasting notes are, even things like how do you grind your coffee before you brew it?

Tony

How do you brew your coffee? So I talk with my subscribers about those sorts of things so that they can have the best experience with their coffee.

Rosanna

I love that. I mean, I love how you’re using that model of the wine for coffee because I love coffee. And my family is from Napa Lee and Naples, Italy is a big place for coffee, espresso. And you can go to the beach over there and they have the finest cup of espresso. And you get it right from a little h ut over there in the beach. And it’s like in a beautiful always give it to you in a beautiful porcelain little cup and you drink it. So it’s been part of my family and growing up. And my husband and I every morning have our espresso. And so we feel the same way as you that there’s so many different… It’s an experience and there’s different notes to it. And I love that you break it down that way. How do you drink your coffee? Do you vary it?

Tony

I vary it. I’ll have it black or I’ll have it with some heavy cream, just a little bit of heavy cream. But I don’t put any sugar in my coffee that destroys the flavor too much. But if people want to do that, that’s fine. But I don’t really do milk or half and a half. If I’m going to put some liquid in it, it’s going to be the good stuff. I’m going to put heavy cream in it.

Rosanna

I love that.

Tony

But whenever I do a new roast, the first time I drink it, I’ll drink it black because I want to make sure I fully understand the body and what those tasting notes are and how drinkable it is, how acidic it is, all that stuff. So it’s really, really important for me to experience the coffee that way. And then occasionally, I’ll throw some cream in there, depending on how I feel.

Rosanna

I love that. When you sample it and you first drink it, do you drink it with the four ounces or eight ounces, or do you drink it in a little shot like an espresso?

Tony

No, I drink it as a cup of coffee. I don’t drink it as a little shot because I want to enjoy it. It’s like holding a wine glass and seeing it sticks to the side and.

Rosanna

Smelling it. Oh, my gosh.

Tony

This is amazing.

Rosanna

Oh, my God. You’re a Renaissance man. You’re the nerd who roasts coffee. And I’m very passionate about coffee as well. I like that crema when I have my espresso and I never put sugar. And sometimes to make a cappuccino, I don’t know if you’ve heard of this, my husband, we travel and we went to Spain and they drink a tiger nut milk. It’s actually a plant based milk. And so we soak them. My husband actually does that. He soaks it and so he makes a plant based… It’s like a milk substitute, but it has a nice flavor. And so we put that in making a cappuccino with that. But yeah, so it just varies it a little bit. But I’m with you on that heavy cream. I’m licking my chops just thinking about that. I’m trying to limit it, though, by having the dairy, but it’s that’s so good. So yeah, so definitely going to put that in the notes to come visit you on your posting page. I think that’s awesome. I want to end with a very important note, social responsibility. And it’s about our causes and what we believe. And you truly strike me as a humanitarian.

Rosanna

I read on your LinkedIn, and I urge everyone to come to your LinkedIn, you were a foster parent and your causes are children, economic empowerment, education, human rights. Please tell us about all of that and what drives you.

Tony

When I was in Asia, I was asked to be on the board of a microfinance bank called CREDIT. Microfinancing can Cambodia. That brought me to Cambodia every three months to sit. The management team was fantastic. They knew how to run their business. But just to bring other ideas to them, to be a sounding board for them to help them understand things like, what does their leadership team look like? What’s the composition? What are some of their practices? How are they being fair to their borrowers? What security risks do they have? Those sorts of things. So even when we moved back to Texas, I was still going to Cambodia every three months to take part in those board meetings with credit. And so I through a lot of my career, not all of it, but through a lot of it, even back in the early 2000s, I was working in places like Sri Lanka. I think I told you when I went there to help set up a business while there was a civil war, we were there. We weren’t making huge money. We were there because it was very interesting. And we saw a market that really desperately needed some of the things we were building out.

Tony

And so you can find need everywhere. You can find disparity everywhere. I can find it in my town here in Houston. I can find it on the other side of the world. So I would encourage anybody who’s watching, you don’t have to take an exotic trip to do humanitarian work. You can find it in your neighborhood. You can find it in your town. So don’t look at people overseas as the only ones who are in need. You really have to look in your own backyard first. And if you can do it in your own backyard, then you can do it. Should be able to do it anywhere.

Rosanna

That’s so beautiful. It’s that you care and you’re so passionate and you provide a wealth of information. I think you should almost write an autobiography. You’ve experienced so much and you contribute and you add value. And this has been so amazing. I’m just wanting you to know, so many people told me, You got to meet Tony N ash. He’s amazing. Really? Yeah. Two people who recently been on the podcast but they’re like, Tony’s amazing. And I agree completely. I think you’re absolutely amazing, brilliant. And this has been amazing speaking with you. And thank you for sharing with all the listeners your brilliance. And I like to wrap up with you, please telling us about your website and where people can find you and visit you and read more about all the value you contribute.

Tony

Great. Thank you, Rosanna. And again, thank you for the opportunity. This has been fantastic. Our website for Complete Intelligence, our AI firm, is completeintel. Com. I can be found on Twitter @ Tony N ash nerd. The website for my coffee company Nerd Roaster is nerdroaster. Co. And if you can’t find me any of those places, just do a Google search and I’m sure you’ll find me.

Rosanna

Love that. It’s about doing the right thing. And it appears that you are. And we thank you so much for everything you do and for your coffee roasting. I’m going to have to try it out myself. So thank you so much, Tony.

Tony

Thank you.

Rosanna

Thank you for listening to the Roost Show podcast. Please visit RosannaPrestia. Com for more episodes. See you soon. All investment, real estate, financial, legal, and tax opinions expressed by Rosanna Prestia or on the Roast Show should not be relied upon as professional advice and are intended to be used for informational purposes only.

WallStForMainSt: What Can AI Actually Improve? New Bull Market in US Stocks From Mini Dollar Milkshake?

This episode of WallStForMainSt was first and originally published at https://youtu.be/kIfwEdm_QCU

Complete Intelligence CEO and Founder, and host of The Week Ahead, Tony Nash, recently shared his insights on various crucial topics during an engaging episode of WallStForMainSt. Covering market trends, the influence of artificial intelligence (AI), and potential risks, Nash’s discussion provides valuable information on the current market landscape, emphasizing the growing role of AI across different sectors.

Market Trends and Federal Reserve Influence

The interview took place amidst a market rally, which Nash believes signifies the beginning of a new bull market. Initially focused on large-cap tech stocks, the rally has extended to regional banks and S&P 500 companies. This positive market sentiment has been further reinforced by the Federal Reserve’s decision to pause interest rate increases, signaling their intention not to burst the equity bubble immediately. Investors have gained confidence in equities as a priority investment, given the Federal Reserve’s cautious approach.

Unique Market Conditions

Nash highlights that the current bull market differs from conventional ones due to certain distortions. The rapid rise in rates and valuations, coupled with the availability of extensive financial information, has created a distinct market environment. These factors contribute to the uniqueness of the current market conditions, setting it apart from previous periods.

AI and Its Future Implications

During the interview, the discussion delves into the transformative power of AI. Nash emphasizes the role of AI in improving existing products and capabilities, resulting in higher quality, lower errors, and increased reproducibility. This technology is expected to drive productivity gains and potentially replace or augment jobs, particularly those involving calculations and data manipulation. While AI misapplication is a concern, the market is continuously exploring the best ways to leverage this technology.

Impact of Inflation and Job Market Strength

Nash draws attention to the strong job market, characterized by job and wage growth. This robust job market positively impacts various sectors, such as housing, equity, and retail sales. However, concerns about inflation resurgence loom large. With base effects and potential waves of inflation in the future, there is a risk that rising prices could impact consumer behavior and potentially disrupt certain businesses.

Oil Market and Global Money Supply

The discussion also touches upon the oil market and global money supply dynamics. Various factors, such as production costs, rig counts, and supply shortfalls, influence oil prices. The market consensus suggests lower oil prices in the near term, but adjustments, including potential supply cuts from OPEC, could occur in the future. Additionally, the U.S. Federal Reserve’s aggressive interest rate hikes have led to a stronger dollar and weaker global currencies. This liquidity flow into U.S. stocks has created a phenomenon known as the “mini dollar milkshake” effect.

Risks and Concerns

Nash addresses potential risks and concerns in the market. The first pertains to regional banks, which face challenges due to issues in commercial real estate, such as low vacancies and decreased property valuations, particularly in cities like San Francisco. If these issues persist, regional banks may become cautious about lending, leading to a potential credit crunch for small and medium businesses.

Another concern is the impact of inflation on consumer spending. While consumer spending has remained relatively high, increased prices are starting to impact sales volume. Previously, companies could raise prices without significantly affecting consumer behavior, but now higher prices are becoming a deterrent, potentially causing challenges for businesses.

Tony Nash’s interview on WallStForMainSt provides valuable insights into market trends, the growing influence of AI, and potential risks. The discussion sheds light on the unique market conditions and the Federal Reserve’s role in shaping investor sentiment. As the market continues to evolve, keeping an eye on key trends and considering potential risks can help investors make informed decisions. The transformative power of AI and its impact on various sectors further emphasizes the need to adapt and embrace technology to stay competitive in a rapidly changing world.

Discussion Points

1. Market Trends: The interview took place on June 15, 2023, during a period of market rally. Initially, the rally focused on large-cap tech stocks, but there was also a recent rally in regional banks and S&P 500 companies. Tony Nash believes that this indicates the beginning of a new bull market.
2. Federal Reserve Influence: The Federal Reserve’s decision to pause and not increase interest rates further signaled to the market that they are not looking to burst the equity bubble immediately. This gave investors confidence in equities as a priority.
3. Unique Market Conditions: The current bull market is not a conventional one due to the presence of certain distortions. The rapid rise in rates and valuations, along with the availability of extensive financial information, creates a different market environment compared to previous periods.
4. Job Market and Inflation: The strong job market, characterized by job growth and wage growth, is a positive factor supporting the housing market, equity market, and retail sales. However, there is a potential risk of inflation resurgence, especially with base effects and potential waves of inflation in the future.
5. Oil Market: Oil prices are being influenced by various factors, including production costs, rig counts, and supply shortfall possibilities. The market consensus suggests lower oil prices for the near term, but there may be adjustments in the future, including potential supply cuts from OPEC.
6. Global Money Supply and Currency: The U.S. Federal Reserve has been more aggressive in hiking interest rates compared to other central banks, resulting in a stronger dollar and weaker currencies globally. This liquidity has been flowing into U.S. stocks, creating a “mini dollar milkshake” effect.
7. Artificial Intelligence (AI) and NVIDIA: NVIDIA, known for its GPUs used in AI processing, is considered one of the closest derivatives of a pure-play AI company. While many companies mention AI, few are true AI pure plays. Microsoft is mentioned as a company effectively capitalizing on AI capabilities with their use of ChatGPT.
8. AI and the Future of Work: AI is expected to improve existing products and capabilities, leading to higher quality, lower errors, and higher reproducibility. It may result in productivity gains and potential job replacements or augmentations, particularly in tasks that involve calculations and data manipulation.
9. AI Misapplication and Future Potential: There may be initial misapplication and misunderstandings about AI’s capabilities. Finding the right applications for AI is an ongoing experiment, and it requires specific prompts and proper algorithm programming. While artificial general intelligence (AGI) does not exist yet, the market is exploring how to best use AI.
10. Regional Banks and Commercial Real Estate: The discussion begins with the concern that regional banks are facing difficulties due to issues in commercial real estate, such as low vacancies and decreased property valuations, especially in places like San Francisco. Regional banks are exposed to commercial real estate risks, and if there are further problems in this sector, they may become stingy with lending, leading to a credit crunch for small and medium businesses.
11. Impact of Inflation on Consumer Spending: The conversation touches upon the impact of inflation on consumer spending. While consumer spending has remained relatively high, it is believed that increased prices are affecting volume. Previously, companies like Cracker Barrel could raise prices without significantly impacting consumer behavior, but now higher prices are starting to impact volume, potentially causing problems for businesses.
12. Signs of Economic Distortions: The discussion highlights signs of economic distortions, particularly in industries like department stores, men’s clothing, men’s shoe companies, electronics, and big-ticket items. These industries are facing challenges as consumers become more selective and cautious due to higher prices and potentially avoiding high-interest credit.
13. Cheaper Valuations and Safer Dividend Yields: When asked about industries with cheaper valuations and safer dividend yields, Tony Nash suggests looking into old tech companies, old manufacturing, old retail, and some energy companies. However, given the current bull market, many investors may be more focused on returns rather than dividends, particularly in the tech sector.
14. Shifting Investments from Treasuries to Tech Stocks: The conversation suggests that investors may be moving their money out of US Treasury bonds and money market funds, seeking better returns in tech stocks. This trend may be driven by short-term profit-seeking traders who are chasing higher returns.
15. Concerns about Market Valuations and Potential Crash: There are concerns about market valuations being stretched and the possibility of a market crash. Some investors are questioning the upside potential in the current market, and there may be individuals who decide to take profits and reallocate to treasuries or other investments due to valuation concerns. Additionally, the discussion mentions the potential for companies like Nvidia to experience a crash if short-term traders continue to drive up the stock price without considering the fundamentals.
16. Nvidia’s Dependence on China: Nvidia’s unique capability in the tech sector is discussed, but there are concerns about its heavy reliance on China for the supply chain. Any geopolitical issues with China could pose a significant risk to Nvidia’s operations, and diversifying the supply chain is advised to mitigate this risk.
17. Seeking Returns in Financial Markets: The conversation highlights that people are looking to the financial markets to generate returns, as wage gains have not kept up with inflation for most individuals. This creates a dilemma where people are taking on extra risks to seek higher returns but also face potential losses.
18. The Importance of Tackling Inflation: The discussion expresses hope that the Federal Reserve continues to raise interest rates to address inflation. While a crash in the markets is not desired, it is important for the Fed to tackle inflation seriously, as many people are being negatively affected by it. The focus on certain tech stocks, like Nvidia, is partly driven by the search for quick returns amid inflationary pressures.
19. Impact of Stagflation and Taxes: The conversation acknowledges the challenges of stagflation and taxes, emphasizing that even if inflation remains at around 4-5%, it can significantly erode people’s standard of living over time.
20. Apple’s Consumer Monopoly: Tony Nash discusses various topics during his appearance on the YouTube channel “WallStForMainSt” in an episode titled “Tony Nash: What Can AI Actually Improve? New Bull Market in US Stocks From Mini Dollar Milkshake?”
21. Concerns about digital bank runs: The discussion starts with concerns about the impact of AI and new technologies on the banking sector. The conversation revolves around the potential for rumors or higher interest rates to trigger a digital bank run, leading to the withdrawal of funds by private equity firms and venture capital firms.
22. Rally in regional banks: The host expresses skepticism about the recent rally in regional banks and suggests that it may be a “suckers rally.” They discuss the possibility of regional banks selling equity capital and the potential impact on the sector’s overall capital.
23. Exposure of regional banks to commercial real estate: Tony Nash highlights the exposure of regional banks to commercial real estate, particularly in areas like San Francisco. With issues such as low vacancies and property valuations declining by 30% or more, regional banks are at risk if commercial real estate experiences further difficulties.
24. Impact of commercial real estate on lending and credit crunch: The discussion focuses on the potential consequences of commercial real estate troubles on regional banks’ lending practices. If the commercial real estate sector experiences more challenges and loans are revisited, regional banks may tighten their lending, leading to a credit crunch for small and medium businesses.
25. Consumer discretionary spending and inflation: The conversation touches upon consumer discretionary spending and inflation. While consumer spending remains relatively high, Tony Nash suggests that it may be due to people paying more to maintain their standard of living. However, recent reports indicate that higher prices are starting to impact the volume of sales, potentially leading to further challenges for businesses.
26. Potential pain in the market and volume impact: Tony Nash discusses the possibility of experiencing pain in certain sectors if there is a second bout of inflation in September or October. He mentions the impact on companies like Cracker Barrel and suggests that volume may continue to be affected if prices rise further.
27. Challenges in the housing market: The conversation briefly touches upon the challenges in the housing market, mentioning the preference of people with low-interest mortgages to hold onto their homes rather than sell.
28. Cheaper valuations and safer dividend yields: Tony Nash suggests that old tech, old manufacturing, old retail, and some energy companies may offer cheaper valuations and safer dividend yields. However, he notes that during the current bull market, many investors are focused on returns rather than dividends.
29. Market movement and risk in tech stocks: The discussion explores the movement of money out of U.S. Treasury and money market funds into tech stocks. Tony Nash believes that such a shift is already happening, but he acknowledges that there are concerns about the market’s upside potential and valuations becoming stretched. The risk of a crash in tech stocks is discussed, particularly due to short-term profit-seeking traders and potential geopolitical issues, such as those involving China.
30. Consumer reliance on markets to combat inflation: Tony Nash highlights the dilemma faced by many individuals who are relying on markets to help them combat inflation and keep up with rising costs. He suggests that the seriousness of the inflation issue should be addressed by the Federal Reserve through continued rate hikes.
31. Hope for Federal Reserve’s response to inflation: Tony Nash expresses hope that the Federal Reserve will not stop raising rates prematurely but will instead tackle inflation to ease the burden on individuals. He suggests that inflation is hurting many people and that the pursuit of quick returns is leading some investors to chase after certain tech stocks, including Nvidia.
32. Concerns about inflation’s impact on people’s standard of living: The discussion emphasizes the negative effects of inflation, particularly on people’s standard of living.

CEO and founder of Complete Intelligence, Tony Nash, recently appeared as a guest on CNA’s Business Update segment. The focus of the discussion was on the ongoing negotiations regarding the US debt ceiling and its potential impact on the financial markets. President Joe Biden expressed confidence in reaching a deal to avoid a historic default, with negotiations now taking place between Biden and Republican House Speaker Kevin McCarthy. The goal is to secure an agreement before June 1, when the US government could run out of funds.

Nash highlighted that while progress has been made with both sides coming to the table, a deal is not expected to be reached immediately. He noted that the parties involved seem to be leveraging the situation to drive their policy agendas. Nash predicts that an agreement may not be reached until mid or late June, allowing for further negotiations.

In addition to the debt ceiling talks, the banking sector and market volatility were discussed. Regional banks, such as Western Lions, have shown improvement in deposit growth, injecting confidence back into the sector. However, regional bank stocks remain largely depressed. Nash emphasized that the troubled banks were poorly managed and not representative of the entire sector. Well-run regional banks are weathering the volatility and benefiting from borrowing facilities provided by the US Treasury to address liquidity concerns.

Regarding interest rates, Nash acknowledged that some failed banks blamed high rates for their demise. Central bank officials have indicated that rates will remain steady, with the possibility of future hikes. Nash believes that the well-managed regional banks can handle rate hikes, and the US economy, while slowing in Q2 and Q3, is positioned to defy recession expectations.

Overall, Nash expressed cautious optimism, acknowledging the challenges ahead but highlighting positive developments in the negotiations and the resilience of the banking sector. The markets are closely watching for progress in the debt ceiling talks and adjusting to the evolving economic landscape.

Transcript

CNA: Hello and welcome to the business update. President Joe Biden is confident that a deal on the US debt ceiling can be reached as the government faces the risk of running out of funds. Biden and Republican House Speaker Kevin McCarthy have agreed to negotiate directly to avoid a historic default after a prolonged standoff.

Biden: Let’s be clear, this negotiation is about determining the budget’s outline, not about whether we will pay our debts. All leaders have stated that we will not default.

McCarthy: Leader Schumer and I have finally agreed to negotiate. We have abandoned the insane idea of not raising the debt ceiling.

CNA: A negotiating team of White House officials and House Republican leaders will work on reaching an agreement, even while President Biden is in Japan for the G7 Summit. Their aim is to finalize a deal by Sunday, when Biden returns to Washington. The Treasury has warned that the US could run out of money to pay its bills as early as June 1 if the borrowing limit isn’t raised. Extraordinary measures are already depleting the available funds, with only $87 billion remaining as of May 15, well below the targeted year-end balance of $600 billion. Corporate America is growing concerned, with leaders from top banks like JPMorgan and Citigroup meeting Senate Majority Leader Chuck Schumer to discuss the debt limit. JPMorgan CEO Jamie Dimon believes the bank is prepared for any scenario but anticipates that the US will likely avoid a catastrophic default. In response to these developments, US stocks closed higher overnight, fueled by optimism that the debt ceiling impasse will be resolved and a historic default will be averted. All three major indices ended more than 1% up for the session, providing some relief from the debt crisis.

CNA: Sentiment on the street was also boosted by regional banks. Western Lions saw an increase of over 10% after reporting improved deposit growth. Other regional lenders also experienced gains, including Pet West and Zions Bangkok. Joining us now is Tony Nash, founder and CEO at Complete Intelligence. Tony, while a debt ceiling agreement may not be reached soon, there are positive signs from both sides. Do you expect the markets to continue fluctuating?

Tony: Absolutely. It’s progress that both sides are now at the table, but I don’t foresee a deal happening over the weekend or in the near term. It seems both parties want to create drama to drive their policy issues home to their base. We anticipate an agreement around mid or late June. However, the treasury recently announced that they found additional funds, which will extend the X date further into the coming weeks, allowing more time for negotiations. We’ll likely see a resolution around mid-June.

CNA: In the meantime, the banking crisis is also a concern for the markets. Although Western Lions injected some confidence with reports of deposit growth in Q2, regional bank stocks remain largely depressed. Is it too early to say the troubles are over? Is this something the markets should consider?

Tony: The troubles have subsided in recent weeks due to the US Treasury’s program allowing regional banks to borrow for up to twelve months, ensuring liquidity to support depositors. The market is catching up to this program, seeing that banks are borrowing from this facility and addressing their duration risk. Previously, these banks held bonds with low interest rates that couldn’t meet the demands of depositors seeking higher rates, resulting in a loss of deposits. The borrowing window provides a solution to this problem, and we’re witnessing traction and growing confidence.

CNA: However, leaders of failed banks in a Senate hearing blamed high interest rates for their downfall. Central bank officials have indicated they may maintain or even raise rates. How will this impact the sector?

Tony: The banks that failed had poor risk management, which is evident. They didn’t handle their risks well. On the other hand, many regional banks in states like South Carolina and Texas are managing well. While they experienced some volatility in recent months, there are numerous well-run regional banks that remain stable. Unfortunately, the banks that testified on Capitol Hill were poorly managed, although they happened to be prominent names. They paint a negative picture for well-managed regional banks.

CNA: So it’s safe to say their experience doesn’t represent the entire sector. In that case, can the markets handle further rate hikes? And can the US economy defy expectations of a recession this year?

Tony: Our view is that the US will experience a significant slowdown in Q2 and Q3. We still have an inflation issue, which justifies the possibility of a rate hike at the next meeting unless there are changes in the inflation readings. If the readings change, the Fed may decide to pause. However, if inflation continues as indicated by recent data, they may continue raising rates. With the treasury facility providing backstop support to banks, the strengthening of the dollar, and the rally in equity markets, people are becoming more comfortable with the prospect of higher rates for the next five to six months, followed by a pause and potential cuts in 2024.

CNA: Thank you for joining us this morning, Tony Nash, founder and CEO of Complete Intelligence. Stay tuned for more updates in the next hour. Remember, you can catch our business updates across all CNA platforms, including Asia for TV, Radio CNA 938, and digital CNA Asia Business. Adrian and Steve, back to you. Liz, thank you. Up next on Asia First, an update on the Black Sea grain deal set to expire today.

This is a video segment that was first and originally published on Asharq: The colors of the East. Find the video here: https://asharq.co/wzkfc

Tony Nash | Economist: The most important factor affecting the markets now is the rise in wages month after month in America.. the high participation rate in the labor force to unprecedented levels not seen in the United States since 2008.. the US Federal Reserve has stopped raising interest rates depends on the data that will be issued Before its July meeting, the US economy will slow slightly in the second and third quarters.

This “Futures Edge Ep 55 : The AI Episode with Tony Nash” video discussion is originally published on https://youtu.be/ugFUvz_DYEY

Transcript

Jim

Welcome to the Future Edge podcast. I’m Jim Iuorio, always the assistant to nobody, executive producer, brains behind the operation, and co-host Bob. Today we have our friend, Tony Nash, the founder of the AI firm Complete Intelligence, who also has a kick-ass podcast called The Week Ahead, on which I was fortunate enough to be a guest and really enjoyed the conversation. You generally host it with Tracy and Albert, correct?

Tony

Yeah, quite a lot. We do it with Tracy and Albert about two-thirds of the time. Thank you for that, by the way. I really appreciate it, Jim.

Jim

Oh, no, I loved it. First of all, let’s get the nonsense out of the way. What’s your favorite drink?

Tony

Oh, coffee.

Jim

No, you don’t drink?

Bob

Not what he meant.

Tony

No, coffee. Coffee is it. I write about coffee, post about coffee, and coffee is my favorite drink.

Bob

Well, you are a fucking nerd dude, by the way.

Jim

Coffee. I think if I had to quit either coffee or booze, I think booze would be harder, but I think coffee would be damn close. I think coffee is something that I rely on.

Bob

Coffee would be much harder for me.

Jim

Yeah. How many cups of coffee do you drink a day, Tony?

Tony

Only four.

Jim

Okay, I drink about four cups a day too. I was about to ask you what your favorite show that you have watched recently was. Have you guys seen the show Shrinking with Harrison Ford and Jason Siegel?

Tony

No.

Jim

That’s your assignment for the week. It’s pretty damn funny. Harrison Ford in a comedic role was really interesting, and he killed it, I thought.

Bob

Can I throw something out here before Tony tells us his favorite show? Is it a cliche that I love Sylvester Stallone and Tulsa King? Is that a cliche?

Jim

Yeah, it’s a dago cliche.

Bob

I’m stereotyping myself, right? Is that what I’m doing?

Jim

No doubt about it.

Bob

The mobster now in Tulsa, Oklahoma. I’m down here in Southwest Florida, pretty.

Jim

Tony, before you answer the question, speaking of mobsters, you should read the Bill O’Reilly book, Killing the Mob, particularly if you’re from Chicago. It was amazing. Did you read it, Tony?

Tony

No, I did not. But it sounds great. We should read it.

Bob

Shut up and let him answer questions.

Tony

Staying on The Mob, the best show that I’ve seen over the past year. It was on Paramount Plus, and it’s about the making of The Godfather. I can’t remember the…

Bob

Offer. It’s called The Offer.

Tony

The Offer. Yeah. It was fantastic. Really?

Jim

I want to watch that. Particularly because they talk in Bill O’Reilly’s book, they talk a lot about Sidney Korsak, who was basically the biggest guy in the Mob. He was in LA and he was the Mob accountant for all the outfits. So he was the fixer, they call them. And he’s the one who hired David Evans, who made the Godfather. Right. The Mafia hated it at first, and then they loved it after it was made, which is so funny, and started adopting some of the traditions that were brought back from the movie The Godfather.

Tony

They talked through some of that in this movie about how they negotiated with the mob to allow the movie to be made. It was really well done, actually, if…

Bob

You guys want to read something good called Family Secrets. Okay, Jimmy, since you’re a restaurateur and you’re both very familiar with the Chicagoland area, you will recognize 90% of the restaurants and places that they mentioned in that book because it’s all about the Chicago outfit and the Calabrese brothers and the Kid and all that. It’s fantastic.

Jim

What was the name of the mob joint in Norwich or Norwood Park? It was an Italian restaurant that was all like my buddy who worked for the state’s attorney, they had files on these mob guys and they had like, hangouts and there was all it was the same restaurant. I used to go there occasionally. You guys don’t remember the name of it?

Bob

Talking about Capri or Sicily Restaurant?

Jim

Neither of those sound familiar. If you said it, I’d know it. But it was so funny because now there’s a place in Arlington Heights now which I think is a bunch of mob wannabes. It’s like a bunch of 80-year-olds, maybe they were back in time. But it’s a pretty funny place called Palm Court. We go there, and they have like a guy singing Lou Rawls and Dean Martin and a bunch of old Dagos dancing. It’s fantastic. Okay, let’s get to Tony. By the way, remember Tony’s here we have his brain, his knowledge, and we could talk about mob stuff the whole time. So we had a series of numbers over the last week that are beginning to suggest some level of stagflation. My opinion is that until strength in the labor market is obviously not part of stagflation, is it too early to start worrying about it? Tony, what are your thoughts?

Tony

I think it is. I think you saw some really strong quarterly reports this past week. I think banking is not as bad as people had feared. There’s some strength in tech. You see some of the services company restaurants and even some of the consumer goods companies that are still reporting price hikes. So the price hikes would be inflation. But there is a very small slowdown in their volume, right? And so they’re still growing the top line. And so it’s not as if people can’t buy because they can’t afford it. You’re also seeing service wages, especially in the middle of the country, still be very strong. And so people in the middle of the country are making more money and they’re spending it, right?

And what’s also happening is you saw, I think, eight or 9% rise in Social Security earlier this year. And so you have a bunch of old people, they’re not saving the money, right? They got a 9% pay rise and they’re going out and spending it. So we do have more money coming in. I don’t necessarily see that we’re kind of entering a recession. I do think that we’re going to have a slower Q Two and a slower Q Three. Our forecast indicate that we’ll see kind of a 0.2.3 growth rate in those quarters, and then we’ll take back up in Q Four. So we have a lot of economists talk about, well, we’re going to have a recession in the back half. I don’t think it’s the back half. I think it’s the middle part of the year that we should really worry about. And when we get to the last quarter, I think we’re going to be in much better shape. Okay.

Jim

Now, the stock market seems to be relatively buoyant. I point to the fact $7 trillion was injected into the economy over a relatively short amount of time. But there’s something to me that looks kind of ominous. If you look at the Russell compared to the Nasdaq, or let’s just say if you did equal weighted in the SP, it be down for the year. But cap weighted is up for the year, meaning the big companies, people are buying their shares. To me, it almost kind of smacks a flight to quality. Do you think that I’m reading too much into it or no, no, I.

Tony

Don’t necessarily think you’re like flight to quality right now, as people are spooked, it’s a natural thing to do, right. And you have the Fed start to dial down on or start to increase the rate of QT up until the banking scare a month ago. And so some of that money was being taken off the table and other things. So I think as that money is taken off the table, people want to move to quality because the smaller companies they’re just not sure about. But I think what we’re seeing in some of these earnings that there are some companies that are actually doing okay. People have kind of figured some of this stuff out. They’re getting more efficient with staff, especially in tech. They’re getting more efficient with staff, and they’re really learning how to pass their costs on to their customers.

Bob

Bobby Gany yeah, so I want to push back a little bit on the stack inflation thing, which you might have guessed. Tony Tweeted today, jimmy, we tagged you in. I don’t know if you got a chance to see it, but Tony said with the strong earnings, are we still talking about stagflation? And I jumped in with a yup, and I said, okay, let’s talk about that. And then, Jimmy, I actually have a question for you because one of our members on the Path Trading partners, YouTube, asked a question and asked me to ask you. So when you give me an opportunity to do that, I will. So I maintain that stagflation is the worst possible economic situation. Some people, like Charles Payne from Fox News thinks deflation is worse than stagflation. I can understand that argument. It’s it’s kind of tougher to get out of. The stagflation argument to me, sort of plays out like this. We had GDP go from 2.6% to 1.1%. So there is a slowing economy, still growth, actually still respectable versus the last 20 years. Right, guys? But versus the last 20 years, I wouldn’t call it generally respectable. And then you had both PCE numbers surprised to the upside in some forms.

Now, I would argue, and Jimmy’s been correct about this, the supply chain part of the inflation has virtually gone away, but the wage part is still biting. And that’s where we saw in the ECI numbers, the employment cost index numbers, also surprised to the upside. So my fear is this. And one of the things I said to our members is, you guys stop spending because the economy is slowing down. I really don’t want stagflation to happen. Okay? Quit our service. Do whatever you have to do. Just stop spending.

Jim

Right?

Bob

Well, some of the things like wage salesman I know, I’m awful. I am awful at this shit. Anyway, some of the things in terms of the wage growth and the increased Social Security stuff, to me smack a little bit inflationary. And it bothers me because when you look at the labor numbers, which is what a lot of economists and analysts and guys we had on the show point to as a strong part of the economy, every Fed hike cycle has ended in a recession except 1994. And every single time after the recession started, the unemployment rate rose by a lot and fast. But it was after the recession started. So my fear is that I think where we get lost in the argument is are we in a recession now? No. Are we going into one?

Jim

I think yes.

Bob

So where am I crazy?

Tony

Well, I don’t think you’re necessarily crazy. I think there is not 0% chance of a recession. There is not 0% chance of stagulation. So everything I say is just kind of and we all have recency bias whenever we analyze generally. Right. I think what Jim said is we had $7 trillion or $8 trillion pushed into markets very quickly. Right, okay.

Tony

And so that’s the sugar high that we saw, particularly in 21. Right. And we kind of weaned off it a little bit in 22. And right now we’re facing those hard trade-offs. Right.

But with that much money pushed into the market and the supply chain constraints we saw from COVID we saw goods inflation just a rocket ship. Right, right.

And then what happened? People couldn’t necessarily buy all the stuff they wanted to buy, so they demanded higher wages. So there’s a delay between goods inflation and wage inflation. Right.

And so now that goods inflation has generally subsided, wage inflation, there’s going to be a lag because we saw Walmart give that big raise to all their staff in January and then that kind of cascaded to everyone else. And we saw Social Security and all these different wage rises come around. It’s going to take a while for that to cascade through. And then will we completely normalize? It depends on how we normalize is normalizing back to 2019 levels? Unfortunately, I don’t think we’re going to do that right now without serious economic damage. So I think all we’re looking for is some sort of balance point where we have this kind of sugar in the economy that has kind of diffused through the economy. Right.

It’s had all of its effects on the cost of goods and wages. And now that it’s diffused through the economy, we have to start figuring how to normalize how do we take it out? Right.

And we have to be really careful about that with higher wages. So will wages get high to a point where people start coming into the economy, people who haven’t been in the economy for a while? Right.

Because in 2020 we saw a lot of people check out of the economy, but we also have baby boomers who are retiring at an accelerating rate. So we may have a point where we have people who are out for either voluntary reasons or maybe they’re not necessarily don’t necessarily have the best skills or something like that. We may see people come back into the economy that might put wage downward pressure on wages, but I think it’s going to be maybe a year before we start to see that we’ve really got to see wages continue to rise.

Bob

I think you definitely make a compelling case that this could be different, that there could be a soft landing built in the year. I hadn’t thought of it from a perspective, even though Jimmy has said it over and over again, but I tune them out. I hadn’t thought of it from a perspective of, okay, so the sugar high is out now and there’s actually time to normalize the rate rises with the price rises where it can actually come down. And by the way, to your point, Tony, people who say there’s never been a soft landing are wrong. I mean, 1994, the Fed did engineer, quote, unquote, a soft landing.

Tony

It did happen, yeah. But I think it’s going to be a hard landing for some people. For those people who’ve been laid off from tech companies or whatever. Right. It’s already been a hard landing for them. Right. And so it just depends on how broad that hard landing is. Right.

And so can those guys get other jobs? Maybe. Is it going to be 300 grand a year checking in for 2 hours a day? Probably not. But will they be able to get other jobs that’ll soften their landing? So it depends on how broad that landing is.

I remember in the early 90s there was a recession that nobody else talks about anymore. Okay, my parents were both laid off from their job. Actually, they weren’t laid off from their job. They were at a company, they both worked for the same company, where every three months, they had to reinterview for their same job. Okay.

And so they had kind of this rolling rehiring within the company. It was terrifying for them, right, that you couldn’t make long-term plans. But at that point, in that recession, employment in places like New Jersey was 18%. Okay, so again, we talk about the 2000 recession, we talk about 2008, but 1991 was really bad, and they had to reinterview every three months, and that lasted, I think, two years or something like that.

That’s not there right now. Like, everyone is kind of complaining about having to end work from home or whatever, and complaining about not getting whatever kind of benefits with their job, rather than just having a job, period, right. So we still have so much workforce demand, so much lack of supply, that I don’t think we’re anywhere near how difficult things were in 1991. And until we get there, I really don’t think we see a really hard landing. And again, it’s a relative kind of perception. The smallest hiccup will be portrayed in media as a hard landing because somebody’s having a hard day, and it sucks. It sucks for them. And I’m really sorry that people have to go through this, but it’s all relative, and we really haven’t seen a hard landing for at least a decade. I mean, 2009 would be the last time.

Jim

So tell me this, Tony, because you look at and I like what you’re saying here. I’m not convinced of soft landing yet, but I like the word you’re saying. The money supply, m two money supply, there’s been four times in history, independent, this one, that the m two money supply contracted by more than 2%. Three of those times were a depression. 18, 70, 19, 20, 19, 29. The fourth time, I think it was a panic of some sort in like the 1890s. Right now, our m two money supply has come down two and a half percent, more than two and a half percent. Why is it different than them? Actually, I have an answer. I’m curious what your answer is, because I have an answer, too, that it is different. Why do you think it’s different?

Tony

I think it’s different because a lot of that was one-time government spending. And so people understood that PPP was one time. People understood a lot of these payouts were kind of one-time payouts. And so it’s like, okay, let’s back up the truck, take the handout. We took PPE in my company, and I’m not embarrassed about it at all, because not even more, we took the PPP, and we knew that it was one time. Right.

And so you take it, you survive, and then you live to continue the business or continue a household or whatever. So I think people are mentally prepared for the fact that this cut government spending was a one-time deal. Right.

Jim

That’s my opinion as well, by the way, too. I thought the fact that we inject the 7 trillion, 8 trillion, whatever we’re talking about here, to expect a little bit of a mean reversion, I think is relatively reasonable. So I do genuinely believe it’s different this time and again. I’m not saying I think it’s soft landing because I do think there’s a bifurcation in the economic condition. I think there was a big wealth transfer of that money we were talking about. A lot of it went to the higher end. I think people are struggling on the lower end. Tyson Foods just announced a 10% reduction of workforce. So this is different now than tech companies that were bloated and hired a shit ton of people over two years. Tyson Foods didn’t hire people. So I like what you’re saying about the soft landing. You can justify those things and still see those layoffs coming and think it’s going to be okay.

Tony

Yeah, I think, well, here’s where it’s going to be different, okay? It’s going to be different over the next two years with white-collar jobs. Okay?

And this is where kind of you roll your eyes and go, okay, he’s going to start talking about AI. But I think we will really start to see a reduction of white-collar jobs because of technology. It’s not going to happen immediately. It started a little bit, but I think we don’t really start to get traction on there for probably two years. Okay, so when we see Tyson Foods cut jobs, that’s different. Maybe part of that is automation, part of that is demand induced, but we’ll really start to see your finance people, your accounting people, your marketing people, people who say make really good money are educated, but let’s say they live their whole day or a good portion of their day in Excel. Anything that any of us do in Excel can be automated. Anything. And so these jobs where people went to school, say in the 90s or 2000s and got an MBA, got a corporate job, all that stuff, what we’re going to start seeing in two, three years time is initially there will be an augmentation of their jobs using AI, ML, whatever you want to call it. Over time, what management and boards will realize is that a lot of the time that these white-collar professionals are spending is on relatively mundane tasks, okay? And so they can’t necessarily be outsourced somewhere because it’s sensitive information. But they’re repeatable mundane tasks and ask anybody who’s white collar if they’re really honest with you, they’ll tell you a good portion of their job is kind of routine, boring stuff, right? Not just in meetings on the phone. It’s kind of reports they have to make or data they have to analyze or things that have to be written or whatever, right? And so we’ll start to see some of those structural adjustments in white-collar jobs in a couple of years’ time. That’s when we’ll hear a lot of screaming and a lot of pain from that class of worker that we haven’t really heard from in a couple of decades at least. Right.

But going back to kind of the softish landing, of course, there will be turbulence. Right.

But I think it’s possible that as long as that supercore inflation is persistent, the Fed doesn’t really have a choice. They have to continue pulling back because that supercore inflation is hitting everybody because these are services jobs, right? So everyone is hit by services jobs inflation. People who go to Walmart to shop, people who go to McDonald’s. McDonald’s pushed their price by almost 9%, I think, over the last quarter or last year. I mean, everyone’s hit by this stuff, and it’s largely on job costs and wages. Everyone is hit. And so the Fed has to move on it. So we’ll see more investment in productivity. We’ll see more focus on productivity because people just can’t continue to be pushed on price. We’re not there yet, but people just can’t continue to be pushed on price. It’s just unaffordable at some point.

Jim

Okay, you’ve mentioned AI before, too, and I like a lot of things you’re saying. Another that one company, that MCD company, I’m not allowed to talk about it. My daughter may or may not be an exec at that company, but whatever. Let’s not talk about that. Anyway, so how far are we from AI, where we could have seamlessly had one of us on this call be AI-generated and people won’t know? Are we years away from that, or no?

Tony

Oh, no, I don’t think we’re far from that. Let me give you a very tangible example of what we do. And for your watch. I don’t intend this to be a sales pitch, but this just can help you understand what’s possible. Okay?

So we do really boring stuff at Complete Intelligence. We’re an AI company. And so what we do is we help companies to augment and automate their budgeting process and their forecasting process. Okay?

So we have a customer. Their annual revenue is about $12 billion. They have, on an annual basis, about 400 people working on their annual budget. Okay?

It takes them three months, so that takes them three months to do. It cost them maybe six million dollars, five to six million dollars to go through that process. Okay?

When we worked with that company, the first time we did their budget, it took us 48 hours. We were 0.3% off of what those 400 people took three months to do. Okay?

Now, a year later, we circled back with the finance executive who we worked with, and he said, you guys absolutely nailed our budget number. At the beginning of the year, not only did you nail it. You did it for six layers deep within the general ledger. Okay.

The people that they have working on their budget do it three layers deep within their general ledger. Okay.

And these are relatively highly paid white-collar professionals who are doing this stuff. Okay.

There are 400 of them. I’m not saying we would replace them, but we certainly take a huge load off of their workload for three months of the year. Right.

And so can they do different activities? Can they do with fewer people, those sorts of things? Right.

And so these are the kind of things it’s not super sexy, it’s not Palantir doing CIA stuff or whatever. It’s really mundane stuff that really impacts the bottom line and headcount of a company. Right.

And so this is where I think the really interesting stuff in AI is, is ChatGPT interesting? Yeah, absolutely. I don’t have to hire an entry-level analyst anymore and have them take six months to come up to speed. Right.

I can actually go into ChatGPT and have something written up that it would take four to six months for an entry-level analyst to learn how to write. It takes me 15 minutes. Right.

So these things but just to let you know, kind of when I talk about white collar jobs and AI starting to be augmented or automated, I’m talking about the really boring stuff that, quite honestly, people really don’t like to do. Right.

And so we help those things to those roles to be much more productive, and we help those executives to get a much more accurate view on their business.

Bob

So, first of all, Tony, you’re a pretty ethical, honorable guy. I was on your podcast as well, and you couldn’t have been nicer or kinder. So I want you to tell people how they can get a hold of you. We have some pretty high net-worth listeners.

Tony

Okay.

Bob

You’re not on here to pitch your company. I want you to tell people in the middle of the podcast rather than the end where people might have kind of drifted off already since Jim and I are so freaking boring, where you can.

Jim

I’m excited as hell.

Bob

He never moves from that position in the chair. He literally sits like this.

Tony

He’s got a long day.

Bob

He’s actually AI. He’s not a real person. Tell me where they can reach you, Tony, before I ask you the question.

Tony

Sure. I’m on Twitter. @TonyNashnerd. T-O-N-Y-N-A-S-H nerd. My email tn@completeintel.com so I own the nerd thing. I’m not afraid of it. I get it. But, yeah, contact me. I’m happy to talk to any of your viewers.

Bob

Okay, so another thing, by the way, right now, being a nerd is cool, so don’t act like you’re admitting something that’s embarrassing right now.

Jim

It’s a flex. It’s not enough.

Bob

Yeah. All of a sudden it’s a flex these days where I don’t know who even made it a flex. I used to flex in front of nerds and try and scare them off.

Jim

It’s the Big bang theory.

Bob

That’s what it is. Big bang theory.

Jim

A long way in normalizing, which I think was very interesting. Yeah.

Jim

Big bang culture thing.

Bob

So here’s my question, Tony. Good. So I actually have very recently and I don’t think there’s any problem with me talking about this I used to have to call an attorney for every little thing, and it got so ungodly expensive that I started just kind of looking for templates online. And in simple agreements, I would just write my own and take my chances, because in a worst-case scenario with a client, like we do in Pat trading partners, we do like, boutique analysis for smaller firms. So I would just write simple documents and be like, what’s the worst that could happen? They don’t pay me for a month. It’s probably still less than I would add to pay a lawyer to write up this document. I recently used Chat GPT 4.0 to create an easement between myself and my neighbor so that our fences could connect. That goes into perpetuity. So number one, are certain white collar managers going to be slightly timid to hire you? Because obviously some of the mundane tasks they do make them valuable? And number two, do you think there’s a larger economic effect on white collar jobs? For example, my easement that I’m not going to be paying a lawyer for that comes with AI.

Tony

Yeah, absolutely. We see this all the time. When people realize what we can do. There’s kind of that holy crap moment where people realize, oh, my gosh, we have 400 people working on this stuff and these guys can process it in 48 hours. When people realize that, it’s impressive, but it’s kind of scary, right? When I think about how are you using a lawyer? You’re using a lawyer to manage risk, right? And so why do you call a lawyer? Because you want someone else you can call and say, hey, that guy told me that this was the right thing to do. So you’re basically outsourcing your risk to them, right, so that they can create a document for you. In what we do, when a CFO walks out of their office and they see 50 people or 100 people, those people are effectively managing risk for them, right? And so nobody really thinks of AI in terms of risk management, but actually those people are managing risk for a CFO. Okay?

And so when we do what we do, we’re automating that risk element and we’re making it much more consistent. Right.

How risky is it for you to forecast your budget for the next year? Right?

If you get it wrong and you give the street the wrong number or the wrong guidance or whatever, it can be really bad. Right.

But for everything we do and ChatGPT and other AI tools work the same way. We have a statistical basis for everything we do. So everything we do, we tell our customers our error rates for every single line item for every month. Okay?

And we actually have a publicly facing platform called CI Futures that people can subscribe to to see the S&P 500 stock forecasts. They can see equity markets, they can see currency forecasts, they can see commodity forecasts, and they can see global economics. It’s $20 a month. So really cheap, right? But we disclose our error rates on that platform so that people can understand the risk associated with what we do. Right?

And so I think we have a more educated society. You have more confidence in using GPT 4.0 because you’re confident in the underlying tech, the broad based adoption of it, and the kind of statistical, although you’re probably not too aware of it, the statistical underpinnings of it, right. Because all it’s doing is, all GPT is doing is going out and doing a bunch of, say, Google searches all at one time, looking at the incidence of a topic or a word, and then putting that together for you on an incidence basis. Right?

So you want a legal agreement for an easement, and it goes out and says, okay, legal agreement for easement. What are the words that are used in those agreements? How are they structured? And what’s the incidence of the order of that stuff? And it’s summarizing it up and it’s putting it together for you. Right?

And so that’s just a statistical analysis that is reducing your risk because it’s looking at what most people do, right? What do most of those agreements say? And so what we’re doing when we forecast, say, a supply chain cost or an expense budget or a revenue budget or something, is we’re looking at a lot of data. We do trillions of calculations to do this stuff. And we’re telling people, you know what, statistically this is likely what’s going to happen in that very deep line item within your budget in September of 2023, something like that. Right.

And so they have a higher degree of confidence in what we’re doing. It’s faster, higher degree of confidence, and it’s better. Right.

And your question about people who are nervous about it yes, they are. And you know what, I’m an investor in companies, in publicly traded companies. Do I want to know that they hire 5000 people in their finance team and it could be taken down to, I don’t know, 3500? I would want to know that. Right.

And so is there inefficiency, in these finance teams or marketing or other teams? Absolutely. Right. So that’s what this technology is doing. It’s allowing investors to look at the companies they invest in and go, hey, company A, why are you not looking at this technology to deploy in your company to actually make your workers more productive? That’s really what it’s all about.

Bob

You’re the boogeyman to a lot of middle managers, Tony. Go ahead, Jimmy.

Jim

Absolutely. Can we flip back to markets for a second? Because I do want to talk about the buoyancy in the stock market, particularly the last couple of days. I’m having a difficult time understanding it, particularly after we saw that the GDP number, which, like we said earlier, showed both slowing economy and inflation, that’s being persistent. What do you make of it? Why do you think the market is going higher?

Tony

We had nominal GDP at 7-8%. I don’t remember the exact number, but you have a nominal GDP number that is the same as it’s been for the past couple of years with all of the government stimulus. Okay. Real GDP is different, of course, because it factors in inflation. Right?

And so we have inflation at five to six or whatever. So that’s discounted to one point whatever percent it came out at. Right. You’re still growing nominally at the same rate you’ve been with all of the COVID stimulus. I think that’s part of the reason that people are looking at this economy and going, yeah, we really thought that pullback was coming. We really thought the economy was slowing. But in fact, statistically, on a nominal basis, it’s still running at the same rate. If we factor in inflation, then it pulls down, then it looks like it’s slowing. Right.

So as you deconstruct the data that come out, it’s not really bad. And if you look at that nominal run rate and you say, okay, if we could get inflation down, then that nominal rate actually looks really good. Right.

And so it’s possible I’m not saying this is probable, because it’s not in our outlook, but it’s possible that if the Fed can actually get inflation down while keeping nominal growth, maybe not at seven plus, but let’s say it’s at five plus, then we’re in amazing shape as an economy, right? Is that likely? Again, I don’t think it’s likely, but it’s possible. Again, here’s what I always say for people with economic data, okay? And if you see me on Twitter, I always say, Wait for the revision. Always wait for the revision. Because this first release that you see is really a bunch of government statisticians doing a best guess, with very little data, actually. Okay?

And so when we see retail sales, when we see CPI, when we see GDP, whatever, we see it’s government statisticians basically doing a sample of a sample of a sample and getting a quick number out to us to give us an indication of what’s actually happening in markets. But there’s three or four revisions to a bunch of these numbers, so we won’t know for two years what the GDP number really was.

Jim

That’s a good takeaway, by the way, from the show, because I think that’s interesting and something I don’t think about quite enough.

Tony

Nobody does.

Jim

Yeah, nobody does. Right. When you look at how gold, bitcoin, silver have performed so well over the last few months. Put a fine point on that. How do you explain it?

Tony

I think it’s just a function of the dollar coming down. I think it’s kind of the reverse of that. I think it’s people pushing a recession narrative and wanting to kind of look for a safe asset. And so that’s really, I think, all it is. I don’t hate gold. I don’t love gold. I’ve been in and out of gold over the past year or so. Not on a regular basis, but I’m not in it now. But I think it’s useful when it’s useful, but it’s not something that I’m looking at. I did have a crypto investment a couple of years ago. I was in doge for like, six weeks, and I got in at got out at $0.76. So I did okay on that. But it’s a bigger suckers market in crypto, I believe. It’s not money. It’s an asset. Okay?

Crypto is an asset. It’s not money. And so I saw it as an opportunistic asset. I got in and out. I didn’t make a huge amount of money. I just wanted to see what could happen. Did a lot better than I thought it would do. And I’m just not a huge crypto fan because I just don’t see where it’s going, especially when we’re talking about central bank digital currencies and other things. It’s just what are you going to do? If every investor in the US. Can’t fight the fed in their trading every day, then how is a cryptocurrency going to fight the fed with a central bank digital currency?

Jim

Bobby, do you agree with that? Do you think that there’s no use case scenario for crypto going forward?

Bob

What bothers me about crypto, I don’t think there’s no use case, but I agree when Tony says it’s not money. I think it could become money, but to me it’s very strange because nothing is technically money unless we get rid of income taxes, because the only thing that gives the fiat currency value is that it’s an acceptable form of payment for your taxes. Otherwise nobody would trade that paper. Why would anybody hold just pieces of paper that’s backed by nothing? Which is and Jimmy and I, you and I have talked about this both privately. And last week I did a WGN radio show where the guy said to me, bitcoin is favored by drug dealers. And I said to him, I was in studio down on Michigan avenue, and he said, favored by drug dealers? I said, pull out whatever you got in your pocket. He pulled out a bunch of cash. I go, so is that and so is that not backed by anything except that you can pay your taxes with it. You can’t pay your taxes with bitcoin. But I’ve had private arguments with people. I wish I could remember this woman’s name.

I watched this young woman who’s a Bitcoin fan, and she was arguing with Peter Schiff, right? And she said, Bitcoin is money. And he said, no, it’s not. And she said, yes, it is. No, it’s not. And she says, yes, it is. Because I pay people Bitcoin and they pay me in Bitcoin. And I said, okay, that’s fine, fair enough. But I just gave a 15 year old kid a pair of Jordans I don’t wear anymore to come and cut up a bunch of boxes for me and put them into my recycle bin. That doesn’t make Michael Jordan’s shoes money, just that he was willing to accept it to do the work. Right.

What makes it money is the ability for everyone. Or I shouldn’t say the ability the willingness for, let’s just call it the majority of the population to accept it in a transaction. We’re nowhere near that.

Tony

Yeah. I want to be clear. I don’t hate crypto. I don’t think it’s bad or anything. I’m not making a moral judgment call on it.

Bob

I didn’t take it that way, Tony.

Tony

And if people want to invest in it, I really don’t care. But it’s changing the topic just a little bit. I’ll make an analogy. It’s like Argentina using the CNY for trade settlement, right? All they’re going to do is two currency transactions when they pay in CNY, okay? Because everything in trade is either in dollars or euros, everything in international markets. So they may pay in CNY, but really they’re going to be checking what the dollar value of that trade transaction is, right? You can say the same thing for crypto. Does your brain work in I’m going to go buy a banana in crypto? No, you think of it in dollars, right. Or euros or whatever, right? And so, sure, you may transact in crypto, but it’s just circumvention of the dollar system because that’s what the ultimate nomination of that value is, right? And so until we start thinking about things valued in crypto, right, until I can go to the gas station and they say, oh, this is however many Bitcoin or whatever, I have no idea what their numbering scheme is. I just don’t see it as currency. I spent most of my life in Asia.

I worked with a lot of currencies like Sri Lankan Rupee and Vietnam dong and all that kind of stuff. Those are currencies. They’re nationally traded. They’re traded every day, all that stuff. So you don’t have to be the US dollar or the Euro or CNY to be a currency. There are minor currencies all around the world.

Jim

So why don’t we outline something real quick? Because I got a question to you about the de dollarization, but I want it to be known that I can hear the name of the Vietnam currency now and not snicker and laugh. This is growth.

Tony

Congratulations.

Jim

Okay, very good. So the de dollarization thing, I did think that it was a big mistake what the Russia freezing assets kind of weaponizing the financial system. I still am of the camp that I’m not particularly concerned of any sort of global de dollarization thing. I mean, the reserves are still there just does not seem to be a suitable substitution. Are you on the same camp or.

Tony

Are you concerned China still pegs the CNY to the dollar? Every day. They announce every day what their USD CNY conversion rate is. Every day. Okay, so does that tell you that there’s de dollarization? Whenever people talk about CNY, I would say you do realize that the PBOC literally uses numerology to decide their interest rate. They literally use numerology.

Jim

Okay, what does that mean?

Tony

It means it has to be a pleasing number that ends in an eight. Okay.

I’m not kidding. It’s not the only factor, but it is one of their considerations. And so you can’t have a central bank that is setting their rates, whether it’s a repo rate or an interest rate or whatever, using numerology. I mean, that’s just not credible. And if people would look into the inner workings of the PBOC, they would understand that CNY is just not a credible international currency. Regardless of what Xi Jinping wants you to believe, and regardless of what all of the kind of anti dollar people want you to believe, it’s just not practical. The other part is this Belt and Road initiative, which is kind of more of a joke than a reality. It’s all nominated in dollars. It’s all nominated in dollars. A Chinese national program now, okay, so the part outside of China I’ll say is all nominated in dollars. So if there really was a de dollarization underway, why would the Chinese government be funding trillions of dollars of infrastructure in US. Dollars and not in CNY. Those loan agreements, those equity agreements, they’re all in USD.

Jim

By the way, I agree with you 100%. I am not particularly concerned about de dollarization, but I will going to push back for a tiny bit on something. Six, seven years ago, I would have said the notion of a dollar collapsing was a .1 percentage. And I think that’s changed and I think now it’s a 1% possibility, which I think is ridiculous for us to be making these moves. Poor stewardship of the currency, what we did in Russia, it’s at least something to be concerned about. Or you have no concern over it.

Tony

What’s the alternative? Like we’re all going to trust in the ECB? I’m sorry, it’s not the currency we want, but it’s the currency we have. Right? Right.

So if you look at the Fed’s behavior, the central bank itself matters a lot. It matters more than the currency itself. Okay?

And so if you look at the Fed’s behavior, they have meetings, they have notes, they respond to media and so on and so forth. Are they as transparent as we want them to be? No. Do they do the things we want them to do? No. Do they have a bunch of bureaucrats working with them? Yes, but when you look at other central banks on a relative basis, it’s actually better. Right, right. Sorry. Go ahead.

Jim

I tweeted something about a week ago, and I said, we don’t have to have a good currency. We can even have a shitty currency. We just have to have the best currency. Right? That’s what you’re saying, right?

Tony

Right.

Bob

It’s that best house on a bad block thing.

Tony

And I don’t say this to be dismissive at all. I take the dollar as the kind of US holder of value very seriously, but I’m just not sure what that other vehicle would be. Look at the structure of the European economy. It can’t be the euro. Right?

Look at the UK and some of the policy decisions they’ve made. It can’t be the pound. Look at China. I was talking with Michael Ncolettos about a month ago, and he was saying M two in China, the amount of M two issued in China is something like three times the value of their GDP. Okay?

Now, M two in the US is something like 90% of the value of GDP. Right?

So China has three to four times the amount of money in circulation compared to GDP when we make it relative to the US. Right.

So how can that be seen as a credible currency? They just are not managing the number of fund tickets that’s in their economy. Right.

And then again, when you look at Japan, look at their central bank policies, look at their demographic structure, the Japanese yen is just not a credible currency. So I just want to understand, first of all, what is a real currency that we can use? Not crypto, which is an asset. Okay.

And what is a central bank that we can trust, that has sufficient money in circulation, that is usable? And I think I don’t know of another solution right now. Again, as an American, I don’t want the dollar debased. I don’t want it abused. I don’t want all that stuff. I want solid money policy. Right.

Have we had it for a while? Actually, we haven’t. Right.

And so things need to change, and we need a more responsible, certainly more responsible spending in DC. And we need a more responsible Fed. But I think on a relative basis, it’s kind of the best we got.

Bob

So, Tony, I want to say this correctly. We have a responsible Fed, relatively speaking. Is that correct?

Jim

You guys agree with me, by the way.

Bob

I know again, that’s the worst house. What is that? The best house in the bed? I don’t know. They saw, but they’re the best one out there. So from a perspective of that, you think a soft landing is possible? Stop me anywhere where I misrepresent you. Okay? You think a soft landing is possible? Am I wrong on that?

Tony

I’ll say uncomfortably soft landing because we’re going to have chop at points, right? So, yeah, we can have an uncomfortably soft landing.

Bob

So I have come around to the idea that the Fed might be cutting rates. I don’t think this year the CME Fed watch tool has the first rate cut pricing in September if things are okay. So if things are okay, why the hell would they do that? And this is why. There seems to be this sort of mismatch between what people are trading and I want to stress the equity markets is not GDP, the economy is not stocks. Right. There’s been several times in history well, not several, but there have been times in history, 73, 74 in the US. Where GDP was strong and stocks were negative. Same thing with Japan in the 90s. They had good GDP, but their stock market couldn’t recover. So these things are detached. They’re not as correlated as people think. But if we actually have good earnings, which no one can argue, we had good tech earnings. Right. We have terrible market breadth still, but we had good tech earnings. May continue next week. We have 709 companies reporting next week.

Tony

With market exxon Chevron reporting really well. There are some parts of the economy that are doing corporate green. Corporate green.

Jim

Go on, Bob.

Bob

Why would they cut rates? Why would they if things are going to be semi? Okay, and Jimmy, this leads me I want to ask Tony respond to that, and then I have to get this question out because it was asked of me. You said in the last podcast that you think we’re going to have a nontraditional recession. What does that mean? So go ahead, Tony.

Tony

Okay, so I’ll just parrot what somebody said to me earlier today. They said bond investors are the worst investors over the last three years. Okay.

Bob

Small data set.

Tony

Sure. What’s that?

Bob

Small data set, right? Relatively speaking, yeah.

Tony

But they haven’t performed very well at all over the last three years. Right. And it’s largely bond investors who are looking at that because it affects their bonds. There is this persistent desire among bond investors to have a recession that’s just baked into the pessimism of being a bond investor, I guess. Right. And I think if we look at earnings, certainly, especially those reported over last week, but also when we have the globally systemic banks report a week and a half ago, those were not bad earnings at all. Right.

And are they telling us that we’re entering a recession? I just don’t see it. So I think September, like, again, I don’t want a recession by September, but I actually don’t think there will be a recession by September. I actually think that things are persistently strong again, because we have that strong nominal GDP growth with relatively high inflation. So if we had stagflation, we would have high inflation and a smaller GDP number than inflation. Right.

Tony

But I think with where we are now. I don’t see us kind of on the precipice going into Q Two, going to Q Three and saying, oh gosh, we’re going to fall off a cliff, right. I just don’t see that. And again, I think part of it is because people saw those government payments as one time or limited time, right? And people have kind of buckled down and said, this is over. We have to figure something else out, and they’ve just continued to spend.

Jim

So, Bobby, to answer the question that the viewer asked, and it kind of relates to what Tony just said too, about the payments, I think that there’s a massive change in our economic condition. I think there was massive wealth transferred from the bottom 60% to the upper 20%. I think those two people still have a shit ton of money. I ride the L. I ride public transportation in Chicago. The amount of people who appear to be living on the fringes has exploded to me, even when it was going on, I was saying to people, no, you’re going to get two $400 checks, and I’m going to get massive appreciation in the four homes I own and the stock market portfolios I own. This is favoring me, not you. And I think that that’s happened in a big, big way, and I think we don’t have the tools to calibrate and figure out we can do Ginny coefficients to measure wealth inequality, but I think there’s this massive wealth inequality, and I think the government then gets involved and tries to support the lower end. Makes it even worse. It’s a yoke, it’s not a gift. And I think we’re in kind of a fucked up way right now in our economic condition. Do either of you guys agree with me on that?

Tony

Tony, I don’t disagree with you, but when we see things like supercore inflation rising, that tells me that those wages for service workers are rising in a persistent manner. And I don’t think that’s all bad. Right.

I think that’s helping the folks at Walmart, the folks in the service sector, get better wages. And they’re not getting it through government regulation. They’re getting it through the market working. Right.

And so employers have realized they have to pay more. It’s not some local city government saying you have to pay $20 an hour or whatever. It’s the market working. Does it take a long time? It does, and that sucks, but the market is working. People who work at the lower end are getting more money. People who work in the middle are getting more money, and people in the middle of the US. Who have typically lagged pay rises on the coasts are getting more money now. Okay. And so we’re seeing that makes me feel better.

Jim

Yeah.

Tony

So markets are working again. Markets sometimes take a long time to work. Right. When it comes to pay, I do.

Jim

Worry that the government is going to see what I have identified, like I’m coming in to fix it. And we all know what happens when they fix it. Bobby, do you got another question before we go?

Bob

Well, no, I just want to add on to what you guys are talking about here. What you just said, Jimmy, and what Tony explained just as clearly is why I fear Stagflation so much, why I actually said to the people who pay us, stop paying us for a little while. Because in my opinion, by the way, if you join, if you hire complete intelligence, we will not be getting paid for that. So don’t worry, there’s no discount code here that’s coming out after the show. No, but what the government will do to try and fix Stagflation is the Fed ill advisedly, so fears a recession more than inflation? I think they should fear inflation more because inflation hurts the poor and it’s a tax on the poor. And the government, because they’ll be in election close by, will send out checks to help people deal with the inflation that’s still there while the economy is slowing down, which will just spark an even worse situation. So my fear is that if we get Stagflation, not only is Stagflation bad in and of itself, but the government’s response, and including the Fed in, that will be awful for 2025 and 2026, and for the lower middle class and the poor, it will be hell on earth.

If they do that in the next five or six years, they’ll crush people. And that’s my biggest fear about Stagflation, why I hope I’m wrong about it coming?

Tony

Well, we see what’s happening in Europe with the payment for energy.

Jim

So here, both of you, lightning round real quick. I’m sorry, Tony, I didn’t mean to talk over you. I just have one quick question. I do it all the time. Yeah, it’s a shortcut thing. Can we have stagflation if we don’t have high energy prices? Tony?

Tony

Yeah, of course. We can have all kinds of we can have high food prices and have stagflation. So I think having high energy prices would certainly make it easier. But sure, high food prices or high rents or high housing, that sort of thing, I mean, major components. Yeah, absolutely. We could do that.

Bob

My answer is very similar. Yes. But it would be a hell of a lot harder with low energy. Yes.

Jim

I just think of the cost push and the energy embargoes made it a lot easier. Let’s wrap it. Unless anyone’s got something real pressing that’s going to set everyone on their ear. Guys. Good.

Tony

Thank you so much.

Jim

Yes, it’s a lot of fun. I love to do a deep dive, particularly get to know you a little bit better. This is awesome. And thanks for plugging your AI. I think that’s a really cool thing. Have a great weekend. What are you doing tonight?

Tony

Tonight I’m just resting. It has been a dramatic week. So I’m just going to shut it down tonight as a Nerd dragons. That’s right.

Jim

I’m going to a figure skating competition that’s going to be 3 hours long for my niece. She’s not even my daughter. She’s not even blood to me. She’s my wife’s niece. And I’m going to a three goddamn hour figure skating competition.

Bob

You saved yourself by saying you’re going for a relative, so that way take.

Tony

It for the team. Jim exactly. Dads and uncles everywhere. I appreciate you.

Jim

She’s one of my favorite nieces, even though she’s not blood to me. But I really like her, so I’m glad to support her.

Tony

Great.

Jim

I will see you guys. Have a great weekend.

Tony

Thank you so much. Thank you.

Bob

Thanks, Tony.

The full episode was posted at https://www.channelnewsasia.com. It may be removed after a few weeks. This video segment is owned by CNA. 

Show Notes

CNA: Welcome back to Asia First. Wall Street took a hit overnight amid concerns that a rise in Omicron cases would stall growth and add to inflationary pressures. Experts say supply chains and corporate profits could be dealt another blow as the possibility of increased restrictions is back on the table.

The Dow and the Nasdaq tumbled 1.2 percent. The S&P 500 closed 1.1 lower, with financials and materials among the biggest decliners. Also weighing on sentiment, Goldman Sachs has lowered its US growth forecast for next year. This after Senator Joe Manchin said over the weekend he would oppose President Biden’s 1.75 trillion dollar spending bill.

Let’s bring in Tony Nash. Now, he’s founder and CEO of Complete Intelligence, joining us from Houston, Texas. Lots to talk about today, Tony. So let’s start with Omicron. How much do you think potential measures are going to dent economic growth given the spread of the highly transmissible variant coinciding with the end of the era of cheap money?

TN: Yeah, it’s a good question. I think it really depends on where in the US you are. I’m in Texas and in in certain parts of the country you could barely tell that there’s a pandemic. There aren’t restrictions at all here, in Florida and other places. And also, we had our surge a couple months ago. So we’re on the downside of that surge now.

In the north, where you have kind of seasonal viruses, they’re on the up upward motion of the surge and so there’s a lot of sensitivity in northern states like New York, Boston, or Massachusetts, Washington DC, Michigan those sorts of places. So I think what you’re seeing is a kind of seasonal sensitivity because of Omicron and people getting nervous and so you know, again it really all depends where you are in the US.

For the upcoming Christmas break, flights are packed. Americans are traveling again. These sorts of things are happening. So, of course, there’s always a risk that people will do a hard lockdown like DC has put in some new measures today. But other places are seeing the virus as endemic and just kind of trying to move on with it. So, I think it could go either way but I don’t necessarily think we’ll have sustained negative impact. We could have short-term negative impact.

CNA: What about the risk from Fed moves and do you think the projected three rate hikes next year are going to be enough to contain inflation given the potential for Omicron to cause these price pressures to spike?

TN: Sure. You know, I do think that the Fed will pursue the tightening, meaning of its balance sheet pretty quickly. I think the rate hikes they’ll probably do one and wait and see and then they’ll proceed with the others later.

I think we can’t forget that 2022 is a midterm election year in the US and the Fed, you know, they they try to stay nonpartisan sometimes. But you know, there’s going to be a lot of pressure for them to make sure that the economy continues growing at an acceptable pace and kind of pushes down against inflation, So they’re in a tricky spot so they can’t just go out of the gate with three rises. They have to take one. See how the market digests it. Continue to build up expectations for the later rate rises then proceed based on how the expectations are set in.

CNA: What would that mean for the flows into markets given how Biden administrations Build Back Better Plan is also facing a setback? We could see a narrower bill than the 1.75 trillion on the social and climate front. What then do you think the market drivers are going to be if both the central bank and the government are curtailing that stimulus?

TN: Right. You know it is possible. Like I said earlier, kind of travel those sorts of things are coming back. I think Americans are just dying to get back to something that’s a little more regular, a little less constricted.

You know we do see things like food, entertainment, travel these sorts of things moving. Temporarily, we do see things like technology dialing back. But you know as we get into Q1 or Q2, we think that stuff will come back and be interesting again. So. But not necessarily as much of the work from home activities. People here are gradually getting back into the office.

So you know what we will see say for US equity markets is because tapering and interest rates we will likely see a stronger Dollar and that stronger Dollar will attract more money from the rest of the world as well. So both domestic growth, although it’ll be a bit tepid in ’22 will help to continue to push markets marginally.

We’re not going to see massive growth like we saw in ’21. But the the strengthening US dollar will draw up liquidity from other parts of the world, too.

CNA: Just very quickly if you can, Tony. What do you think the outlook for energy demand and oil prices is going to be like given how some countries are already reverting back to containment measures?

TN: Yeah. Oil is tricky. In the near term, I think oil is a little bit tricky for the next few months. I think the outlook is better as we get say to the end of Q1 and into Q2. But for now, we’re not expecting a dramatic upturn in crude prices like we’ve seen in gas prices in Europe and other places.

CNA: Okay, we’ll leave it there for today and keep an eye on those commodities. Thanks very much for sharing your insights with us. Tony Nash of Complete Intelligence.

 

This is the most recent guesting of our CEO and founder Tony Nash in CNA’s Asia First, where he shares his expertise on inflation and the US economy. Will consumers continue to spend to help the economy? What’s his view on Biden’s call to boost oil supply to ease prices? Where does he think the US dollar is headed and how will that impact Asian currencies?

 

The full episode was posted at https://www.channelnewsasia.com. It may be removed after a few weeks. This video segment is owned by CNA. 

 

 

 

Show Notes

 

CNA: What’s still ahead here in Asia First. We’ll check if US companies continue to charm investors with some big earnings in focus. Plus, to give us a stake on markets inflation and the US economy, we’ll be joined by Tony Nash from Complete Intelligence.

 

US stocks closed in the red overnight as lingering inflation concerns continue to dog investors. The Dow ended lower by six tenths of one percent, dragged down by a four point seven percent. Drop in visa the S&O 500 slipped 0.2 percent. And the NASDAQ fell by 0.3 percent.

 

Now after the bell, we also had some US tech earnings. NVIDIA shares rose after it beats on the top and bottom lines. The ship maker saw its revenue jump 50 percent on year on strong gaming and data center sales. Cisco shares tumbled and extended trade after missing on revenue expectations before the quarter. The computer networking company also issued a weaker than expected guidance.

 

For more on the broader markets and economy. We’re joined by Tony Nash is founder and CEO of Complete Intelligence speaking to us from Houston, Texas. So Tony as we heard their inflation fears seem to be back despite better expected earnings but CEO’s are starting to warn of more pain when it comes to supply chains. And that could put a damper on in that could lift inflation. Do you think the US consumers will continue to spend despite all this and will that help the recovery of the US in the next year?

 

TN: Yeah, I think the real issue here is that inflation is rising faster than wages. And what we’re seeing with oil prices. These oil prices are not terrible given kind of historical prices but it’s oil prices within the context of everything else. Obviously, the supply constraints really are pushing up prices of food and other activities as well as say goods that are imported for say the holiday purchases that Americans will make.

 

So Americans have absorbed a lot of those price rises to date. They’ll continue to absorb some but I think they’re almost at their limit in terms of what they can tolerate without getting upset.

 

CNA: Yeah, Do you think there’s a disconnect here when it comes to energy because Biden administration is hoping to boost supply to ease that oil price pressure but OPEC and its allies expect surplus into the next year. So, do you think they’re looking at it differently? And who has it right here and where oil prices headed?

 

TN: Yeah, I think part of the issue in the US with crude oil is the Biden administration restrictions on pipelines and on the supply side in the US. So, Joe Biden is asking other countries Russia, Saudi Arabia, other OPEC members to supply more oil yet he’s restricting the supply domestic supply in the US. So, I think what’s happening with those other suppliers they have customers who are buying their crude oil. They don’t necessarily want to have to produce more because they want slightly higher prices. They don’t want things too high but they want slightly higher prices and so they’re pushing back on on Joe Biden and saying look you really need to look at your own domestic supply. You really need to look at at those issues yourself before we start to open up our own market.

 

So you know, the current administration is trying to have it both ways. They’re trying to restrict supply within the US. They’re trying to bring in more supply from overseas. Americans see this and they understand kind of the incongruent nature of that argument from the administration.

 

CNA: I want to get your thoughts on the US dollar, Tony. Because that hit a 16-month high amid his expectations of more aggressive policy from the Federal Reserve. Where do you think the US dollar is headed and how will that impact us here in Asia, especially Asian currencies?

 

TN: Sure, it’s a great question. We saw a lot of action with the US dollar yesterday. The dollar index as you said reached highs for in the last say 18 months, two years. And that is on Fed action but one thing to consider is we’re looking at potentially changing the Fed chairman later this year.

 

So, if the current Fed chairman is exited. There is an expectation of a more dovish Fed chair coming in that’s one possibility. I think people are really trying to… While there is upward pressure on the dollar. People are trying not to get too far too much behind it because there could be a more double dovish Fed chair coming in. So, we think the dollar is overshot just a little bit in the short term.

 

We don’t expect it to continue rallying at its current pace. We expect say the Euro has fallen quite a bit and depreciated quite a bit in the last say three weeks. It’s going to appreciate just a bit a couple cents over the next month or so. Asian currencies, we think the CNY will stay strong. We think CNY will remain strong through say March, April as they start a devaluation cycle to help exporters. We think the Singapore dollar is going to stay in the same range that it’s in about now. We don’t see much policy change in Singapore and we think with a stable dollar at these levels. We think the same dollar will stay at about the same exchange rate of Scott now.

 

CNA: All right. We’ll keep our eyes on those currency exchanges and who becomes the next Federal Reserve Chairman. Tony Nash thanks for joining us. Tony Nash there founder and CEO of Complete Intelligence joining us from Houston, Texas.