This podcast was first and originally published by Peter Lewis’ Money Talk. Find the Substack here:
https://peterlewismoneytalk.substack.com/p/peter-lewis-money-talk-friday-6-october
Topics discussed:
- The possibility of former President Trump becoming the Speaker of the House.
- Americans’ frustration with politics and the desire for a generational change.
- The impact of government debt, the recent volatility in bond markets, higher interest rates on the real estate market, a potential recession and disinflation, and the importance of the interest rate environment on equity markets.
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Transcript
Peter Lewis
I’m joined now by Tony Nash, Founder of Complete Intelligence over in the USA. Morning, Tony.
Tony Nash
Good morning, Peter.
Peter Lewis
Now it’s been an extraordinary week, hasn’t it? In the House of Representatives, the Republican Party have kicked out their own speaker for the first time ever, I think, in history that’s happened, isn’t it? So we’re really in pretty much on chartered territory now. What happens next?
Tony Nash
There’s a lot that can happen next. There are a number of people who are up for speaker. One is former President Trump. I think he’s taking all the air out of the room right now.
Peter Lewis
Is that serious? Is that serious? The idea that he could be the speaker?
Tony Nash
I think it’s possible. I don’t think it’s probable, but I think it’s possible. I think people are pushing it simply because it’s something unconventional. Look, Americans are really tired of politics right now. Really tired. And it looks like a circus from overseas. Here, it’s a shoulder shrug. It’s like, okay, now what are they doing? And so I think people are just tired of business as usual, and they’re tired of seeing a lot of money go to the federal government. They’re just tired of seeing the money that they send there. They’re tired of seeing people like Dianne Feinstein, who just passed away this week, have a job that pays $140,000 a year, yet she retires having $110 million net worth, okay? So Americans are tired of seeing this. And so I’m not in any way advocating Trump as Speaker of the House. I’m just trying to help people understand why Americans are even entertaining some of this stuff. Americans are tired of paying in, they’re tired of seeing their politicians retire as multi-millionaires after spending time in politics, this thing. And so they’re really looking for something different. They’re looking for a generational change. Is Trump that generational change?
He’s not, but he’s different. I think the people in the House of representatives right now who are really interested in some change are looking for… There was a motion today to set term limits, so people can’t serve longer than 12 years, to say that people while they’re in the House, they can’t trade stocks, these sorts of things. And we’ve had people like my own representative in Texas, his name is Dan Crenshaw. He was a regular guy when he became a representative. When he started in the House of representatives, he started miraculously trading stocks, and now he’s a multimillionaire. While… He’s in that… Again, there is a level of frustration that Americans have in politics, and that’s part of the reason some of these characters like Donald Trump come into the fold as possible nominees for the House. Can they do it legally? Yeah. I mean, you don’t necessarily have to be an elected official to become Speaker of the House.
Peter Lewis
Is there a worry, though, that in trying to get something different, people are also turning to extremists because some of these people are pretty extreme, aren’t they?
Tony Nash
Yeah, that’s why. I don’t think Trump will get it. Okay, people like Jim Jordan, who’s been in the House for a long time, he’s likely to get it, or Steve Scalise, who’s been in the for a long time. Steve Scalise is famous because he was actually shot by a Democrat partisan when he was playing softball in a park in DC 10 years ago or something. So he’s the majority leader in the House right now. And so I think it’s really between him and Jim Jordan as to who’s really going to get it. But I think when people at Overseas hear about this, they hear about Donald Trump and they hear about he might be speaker of the House, there has to be this understanding that Americans are just incredibly frustrated with politics in America, and the partisanship and the media blowing everything up into a huge scandal or a huge, or a clutching incident or something, and it’s just not. It’s politics as usual. It’s drama as usual in DC. Is the government going to shut down? Nobody really thought the government was going to shut down. Last week, right? This was just a story from last week.
Weeks of drama leading up to, Will the government shut down? At the end of the day, surprising no one, the government decided to fund itself. So nobody cares, right? I mean, these things come out and they’re hyped and they’re big stories, but at the end of the day, most Americans look at this stuff and just shrug their shoulders and go, Well, it’s those guys in DC. They’re doing what they do.
Peter Lewis
Has all of this, though, increased the chances now of a government shutdown? Because it seems that it’s going to be really hard for whoever leads the Republicans to be able to work under any circumstances with the Democrats in the House and get anything done, doesn’t it? It seems to increase the possibility that we can actually get a shutdown.
Tony Nash
I don’t think so. I think so. I think that the government, the representatives in government will find a way to make us think that there will be a shutdown and there may be a very short-term shutdown, but this is all theatrics. Again, as a political observer, all my life in the US, and for most of my life I was outside of the US observing US politics. I’m living in Asia for a long time, living in Europe for a few years, and this is theatrics. The government isn’t really going to shut down. There isn’t really going to be reform. These things that most Americans are shocked that we pay so much for, it’s not going to change. Will the government shut down? Maybe, but it’s not going to be for very long. Are there going to be dramatic changes in spending by the US government? Highly unlikely. So all of the suspension and government shutdown and good luck and all this other stuff, it’s drama. It’s made for TV drama. But these guys are friends and they golf together and they go to the club together, and they do all sorts of stuff together, regardless of partisan differences.
And so they’re going to get it done. So whoever is Speaker of the House is going to do it. If Trump has voted in as Speaker of the House, he will turn it into a presidential campaign post, and the House probably won’t get much done for the next year, which again, most Americans are probably okay with that. Because again, most Americans are very tired. It’s just the eye-rolling nature of what happens in DC. It’s craziness. And so do they want to see the drama of Donald Trump as speaker of the House? No. Very few people want to see that. But if it did bring people to really question and expose things that are happening in DC, overspending and corruption and all this other stuff, I think over time, people would probably be okay with it. But when you look back at Donald Trump’s presidency, what did he really do that was remarkable? He did a few things, but you can’t look back at it and say, Oh, wow, that was an amazing presidency. He didn’t do all the things he said he was going to do. It’s like looking back at the Biden presidency. Unremarkable.
Both of them are unremarkable. I don’t necessarily think Trump would get amazing things done in the Speaker of the House. I think it’ll be Jim Jordan or it’ll be Steve Scalise who ends up being Speaker.
Peter Lewis
Okay. Now, presumably one of the things that’s going to be very much in focus is debt, isn’t it? The amount of government debt. In particular with what’s going on in the bond markets recently, we’ve seen the 10-year yield jump 60 basis points in the space of about a week, which is a pretty extreme move for the bond markets. What’s causing these gyrations and these yields to shoot up to what are multi-year highs, 16-year highs in the case of the 10-year?
Tony Nash
Good news is bad news. We’re in a place where when people hear that we’re not going to have a recession and that job growth is strong and other things, that’s actually bad news, meaning interest rates jump on that because there is an expectation that if high hiring continues to be strong, if the job markets continue to be strong, then the Fed is going to have to continue to raise interest rates. And so if we have strong payroll numbers and let’s say we continue to have strong, say, real estate numbers and other things, when the bond markets look at that as the Fed not raising interest rates enough. And so we had a strong jobs report a couple of days ago, and that caused interest rates to spike because people looked at it and said, Oh, gosh, okay, the job market is still very, very strong. That means spending is going to continue and so that means the Fed is going to continue raising rates and they’re not going to just do 25. There’s going to be two or three or whatever more rate hikes, right? Again, that’s possible. But when you look at, say, consumer spending, it did dial down a little bit in September.
And some of these other indicators have dialed down a little bit in September. I think we’re in that part of the cycle where people are talking in both ways. Growth is tempering down. Oh, no, it’s strong growth. Oh, no, it’s not as bad as you think, or whatever. Depending on the day, the market is trying to find the levels that it should trade at, and that’s normal. In this part of the cycle, people trying to find, Are we in a new bull market, or is this a longer bear market? We’re at that part of the cycle where people are trying to figure it out. What we saw in bond markets on Thursday are not the end of that volatility. We’re going to have volatility for several months until we figure out what the direction is, until we have a clear idea from the Fed, until we have a clear idea from, say, the jobs market, what’s happening, until we have a clear idea in terms of wage is what’s happening. I think what we’ve seen, particularly in crude markets, over the past couple of days has really helped because when you look at crude, you’re not only looking at the crude prices, you’re looking at the expected primary and secondary impacts of inflation.
Not just crude, but what goes into, say, gasoline, what goes into plastic, even tertiary impacts of inflation. When crude prices fall, that helps a lot of the economy to have lower prices, hopefully. Go ahead
Peter Lewis
Are these yields at these types of levels? Have they now actually increased the chances of the US economy going into recession? Because at the beginning of the year, people were predicting a recession, but we’re simply wrong. The economy held up much better than people thought. The jobs market has held up much better than people thought. But now we have yields at interest rates at restrictive levels, yields moving higher. Are the chances of a recession, ironically, now increasing?
Tony Nash
Well, the recession is that interesting of economist dilemma. Last year people said it was going to be in the first half of ’23, then we got in the first half of ’23, then they said it’s in the back of ’23. Now people are saying there will be a recession in the first half of ’24. We’re always chasing our tails on that. With these types of things, I like to talk to people in the markets and on the street. I was talking to a mortgage broker here in the US yesterday, and I said, Hey, how much have things slowed down? Have things slowed down a lot? They said, Yes, things have slowed down a lot. The housing market in the US right now, according to this person, is mostly cash purchases. The homes that are being bought are largely not done through mortgages because mortgage rates are so high. That’s what the Fed wants. They want the number of transactions and the nominal rate of those transactions to slow down. They want the prices to slow down. If people are paying cash, then they’re probably buying a higher-end property or something like that. But the legs are coming out from underneath the mortgage market, and that’s exactly what the Fed has wanted to do.
These people who own two or three houses and have Airbnb’s and rental houses and stuff, they’re not able to rent those out as much. They won’t be able to afford the mortgages on multiple houses, so they’ll be foreclosed on, or they’ll sell at a lower price. What ultimately the Fed wants is they want those people who own three, four, five Airbnb’s and rent houses to have to sell at a lower price because it brings the froth out of the real estate market. Do these higher rates mean we will have a recession? Maybe. It really all depends on where people keep their wealth and where that employment is. But what’s more likely to happen? I know this isn’t really a mainstream view, but it’s actually possible that we have disinflation next year. What that means is the margins that companies get are smaller. If the margins are smaller, then the valuations for those companies will be smaller. If the valuations are smaller, then we’ll see a market pullback. Unless those valuation multiples go up for some reason, right? But those valuation multiples wouldn’t go up in a higher interest rate environment. Those valuation multiples would only go up if we saw a strong pullback in interest rates
Tony Nash
And so if we are truly in this higher for longer environment, which I believe we are, if we’re in that environment and we have pullback in margins and disinflation, then we’ll necessarily have to see a pullback in equity markets because valuations will pull back.
Peter Lewis
Okay, well, Tony, look, thank you very much. It’s always good to hear your thoughts. That’s Tony Nash, who is founder of Complete Intelligence over in Texas in the United States.