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The Fed and ECB Playbooks: What are they thinking right now? (Part 2)

Part 2 of the Fed and ECB Playbooks discussion is here with Albert Marko and Nick Glinsman. In this second part, the housing and rent market in the US, UK, Australia, etc. was tackled. Also, do we really need a market collapse or correction right now? And discover the “sweet spot” for the Fed to “ping pong” the market. When can we see 95 again? What is the Fed trying to do with the dollar? And what currencies in the world will run pretty well in a time like this?

 

Go here for Part 1 of the discussion.

 

 

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This QuickHit episode was recorded on July 29, 2021.

 

The views and opinions expressed in this The Fed & ECB Playbooks: What are they thinking right now? (Part 2) QuickHit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: Now, with all of that in mind, Nick, you did a piece recently about the Fed and housing and some of the trade offs that they’re looking at with regard to the housing market.

 

Now, housing is an issue in Australia. It’s an issue in the UK. It’s an issue in the U.S. and other places. Can you walk us through a little bit of your kind of reasoning and what you’re thinking about with regard to the Fed and housing?

 

NG: Well, I actually think, it was, I was watching Bloomberg TV as they ask after the Fed comments from me, well, you know, maybe the Fed’s right because the lumber has collapsed. Right. Lumber’s in an illiquid market, takes one player and you can move that price 5 to 10 percent. But that was an irrelevance.

 

I think there’s a couple of things that lead the Fed in the wrong direction. First of all, the mortgage backed securities QE, that really isn’t necessary. That they could definitely tap and that would perhaps quell some of the criticism on you letting inflation on. Know this criticism, by the way, the Fed and the other central banks is all coming from some of the former highest members of those central banks. It seems that once you leave the central bank, you get back to a normal DNA to Mervyn King and the be governor of the Bank of England, hugely critical.

 

And you have that House of Lords touching on QE. Bill Dudley ran, said New York. That is the second most important position at the Fed. And in fact, my thought process there is the repo problems that we’ve had is because his two market lieutenants of many years experience were let go when Williams took over. Big mistake.

 

Anyway. So back to the federal housing. I think they focused on cost of new housing. My view is the slowdown that we will get on new homes is purely a function of supply of goods used to make homes, where essential supply. Then tell me is or if it’s not essential supply, it’s become incredibly expensive. Copper wire and so on and so forth. But my fear is that focused on this and the thing that’s going to come and hit them really hard at some point in the future, which is why I think inflation is not going to be transitory. It’s going to be persistent. Rent. Going one way is… I mean, New York rents have picked up dramatically. New York being an exceptional example, but.

 

TN: Remember a year ago you couldn’t give away an apartment in New York?

 

NG: So I think in that respect, everybody’s talking about mortgage backed securities and QE. Why are you doing it? Housing market doesn’t need it. Look at the price action. Fine. All valid points. I think the Fed should be more worried ultimately about rent. And the rent.

 

AM: Rent is a problem. You’re right, Nick. The other thing I want to point out is there’s a disconnect because it’s not just one housing market in the United States. Because of covid, the migration from north to southern states has really jumbled up some of the figures and how they’re going to tackle that is something that it’s above my pay grade right now, but it’s just something I wanted to point out.

 

NG: Albert’s absolutely right. People have been incentivized to be in real estate. People have been incentivized effectively to be in related markets to the collective real hard assets in this environment. Absolutely.

 

I mean, I would argue that part of Bitcoin’s rise is because, in fact, it’s a collectible. Limited supply. It’s such a collectible. It’s got no intrinsic value. But it’s a collectible. But I would, I think that’s. Albert’s right to point out the demographic moves in the US. I think there’s a huge pressure. One policy doesn’t fit every market. And I think the red pressure will be reflected in the similar fashion. It’s a huge problem.

 

TN: So what can the Fed do about it? Is there anything they can do about it?

 

NG: Become a commercial banker in terms of policy. You know, we’ve I mean, in the U.K., there was certain lending criteria for corporates that were imposed during the crisis that actually did help. But I think also the other thing that seems to be problematic for the commercial banks is Basel III. So, even if the Fed wants to help, how much can they help within that framework? Of course, the US Fed can just say thank you Basel.

 

TN: Doesn’t apply to us.

 

AM: They can also raise rates if they want to be cheeky.

 

TN: Yeah, but then it’s not just real estate that collapses. It’s everything, right?

 

AM: Maybe it needs to be collapsed, Tony. Maybe it needs to correct a little bit because, what are we buying here? We’re buying stuff, we’re buying equities that are 30, 40 percent above what they were pre-Covid.

 

It’s just silly at this point. I was talking to one of my clients and this is like we have to look through, we have to sift through US equities, which are probably going to go down to like twenty seven hundred of them right after this shenanigans ends and trying to find a gem in there to invest in. Whereas we can go overseas in emerging markets and look through thirty four thousand of them. Right. So you know, we need a correction.

 

TN: Famous last words.

 

The last thing we’d really like to talk about is currencies. So, you know, we’ve seen a lot of interesting things happening with the dollar, with the euro, with the Chinese yen. And so I’d really like to understand the interplay of how you see the Fed and the ECB with the value of the dollar and the euro. Albert, you said, you know, the ECB really has no control or very little control over the euro because of what the Fed does. So what is the Fed trying to do with the dollar?

 

AM: You know, Tony, Nick and I had wrote a two-page piece on the dollar’s range of ninety one to ninety three. And that seems to be the sweet spot for them, where they can ping pong the markets and drop the Russel a little bit, promote the Nasdaq and then vice versa and go back and forth like that. That is where they’ve been keeping this thing for… How long has that been, Nick? For like six months now, that we keep it in that range?

 

NG: We wrote eighty nine to ninety three, but really ninety one midpoint should start to be the, the solid support. That’s played out exactly.

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AM: They’re a bunch of comic jokesters where they go to ninety three point one and three point one five and then they scare people and then they come back down and drop it back to ninety two. I mean it almost with the ninety one today, I believe. You know, so it’s just we’re stuck in that range, Tony, until they want to correct the market after the market corrects, they’ll probably go to ninety five, ninety six.

 

NG: Our view on that is partly because that the dollar is the ultimate economic weapon of destruction. Not to the US. For other countries. First of foremost emerging markets, but because it’s included in emerging market indices and ETFs as a result, I include China there. And you know, to be honest with you, I not only the geopolitics suggestive and Albert and I tweeted on some of the things that we believe are going to happen. How can the US authorities allow China to wipe out investors the next day after an IPO?

 

The people forget, it astounds me. Not more is made of this and no more commentary. We’re dealing with a Stalinist bunch of communists led by Xi. They will do anything to retain power, and they certainly don’t care about American and international investors. We’ve just seen that. You seen that with DiDi. You seen that with the education companies that are created in the US. We’ve even seen Tencent down. Tencent is one of the worst performing stocks in the world. It’s a tech stock in China, and look at tech in the US.

 

AM: Yeah. Let’s not deviate too far into the Chinese thing because we can do a whole hour just on China. When it comes to the currencies, Tony, the dollar being at ninety one, ninety two. The only other currencies that I do love are the Canadian dollar and the Aussie dollar, simply for the fact that they’re a commodity rich nations. And in a time of inflation, there’s no better place to be right now.

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TN: Yeah, I think they’ll run pretty well.

 

NG: Yeah, I think as a macro trade in the next couple of years is commodities and it doesn’t necessitate economic reflation. You’ve got enough supply chain issues and supply issues and lack of capex and politics with regard to energy that restrict the supply. And the demand is there. Can you imagine, even if we don’t have a fully reflation story from the economy, if Jet Blue has a shortage of jet fuel in the in the US right now, imagine what happens to jet fuel when Europe starts to travel properly, which won’t happen this year, it will be next year.

 

In fact, the commodity minus the big ones? Have you seen their profits? Huge increase in dividends and share buybacks.

Categories
Podcasts

Microsoft Executive Backs Australian Government In Tech War

Tech war in Australia, Trump’s impeachment hearing, companies moving to cheaper areas, volatility in the market, and online dating — these are some of the topics in the recent guesting of Tony Nash at BBC’s Business Matters. From Texas, he joins Rahul Tandon in UK and Michelle Jamrisko in Singapore.

 

What will happen to Australian businesses if Google left? Will Biden be involved in China deals? How will Trump’s impeachment hearings will bring about? How will this move to rural places evolve overtime, for example Californian companies moving to Texas? How will the stocks market play out with too much volatility with increasing number of retail investors? And will online scrabble be the new way of dating?

 

This podcast was published on February 12, 2021 and the original source can be found at https://www.bbc.co.uk/sounds/play/w172x197h9pkh53

 

BBC Business Matters Description:

 

The President of Microsoft, Brad Smith, says Australia’s proposals that tech giants pay for news appearing on their services, strengthen democracy by supporting a free press. We hear more from Rebecca Klar, a tech journalist from The Hill. As the second cricket test match in this series between India and England starts this weekend, the BBC’s Rahul Tandon reports that more Indian players are now coming from smaller towns than bigger cities, and how that reflects a broader economic change taking place in the country. It’s an interesting time for dating services with the pandemic throwing the world of romance into disarray; our reporter Deborah Weitzmann has been to meet some people looking for love in the time of Covid. And we’re joined throughout the programme by Michelle Jamrisko, Blomberg’s senior Asia economy reporter who is based in Singapore and economist, Tony Nash from Complete Intelligence; he’s based in Houston.

 

 

Show Notes

 

RT: Will there be some sort of compromise? Because Australia, and many of the businesses in Australia, particularly small and medium sized ones, would struggle if Google suddenly left?

 

TN: They would. How much of a compromise there would be? I’m not sure, and I think about like GDP in Europe, that wasn’t a real huge compromise. We start to see these nation states starting to act like nation states again. We’ve seen India push back on Twitter over the past. Right? And we’re starting to see countries push back on tech giants because they’re sovereign nations.

 

RT: What will we see countries getting together in a unified way to push back on the tech giants because there are two very powerful sides there?

 

TN: I hope they do, because they rule their own countries. And it’s up to a company to learn how to operate within a geography rather than the other way around.

 

RT: Do you think President Biden will want to get involved in this particular issue?

 

TN: I don’t think so. It’s interesting when you look at, like China has their way with tech companies all day long. They cultivate their own giants and they do whatever they want with Western companies. I don’t really think Biden will get involved or want to get involved, to be honest. I think it has a lot to do with whoever is closer to the campaign and whoever is closest to the Oval Office. But I think he would want to stay out of it.

 

RT: Do you think minds will be changed amongst those Republicans, 17 of them are going to have to vote to impeach President Trump? That looks unlikely, doesn’t it?

 

TN: Well, like Joe Biden, I really don’t know of anybody who’s watched it.

 

RT: I read something that said this had more viewers than the first impeachment trial. But from what you’re saying, it’s not exactly something that’s bringing in the ratings figures.

 

TN: I’m a political nerd. I talk to people all the time. I honestly don’t know of anybody who’s watching it. So what you say is possible, but it’s just not what I see. Do I think they change minds? Look, Trump is out of office like somebody pining over like losing a football game or something. This guy is out of office. They need to just let him go. That’s the way most of the people who I speak to feel. Every politician is competitive. Every politician uses rhetoric to win. And what Trump said was no different from what many, many Republicans and Democrats have said over the last four, eight, 12, 16 years. So I think this is just a clown show and it’s not going to result in anything.

 

RT: Michelle raised an interesting question, that is this about preventing what happened, making sure it doesn’t happen again or is a little bit about this preventing from Donald Trump running again?

 

TN: It’s more the latter than the former. If we look at the Supreme Court justice discussions over the last two years, especially during the cabinet hearings, there were protests in government buildings in the capital all over the place, people being violent.

 

RT: But this was different and they’re very different.

 

TN: But I don’t understand how it was different because though this was different because there was so much ruckus made about it and people wanted to make an issue of it. But if you look at the protests and the violence around the Kavanaugh hearings and you set them side by side with what happened on January 6th, there is very, very little difference aside from the Capitol Police letting people into the Capitol building, which they did.

 

And it’s on footage. People also let protesters into various government buildings during the Capitol hearings. So, again, this is completely about Donald Trump. Democrats are obsessed with Donald Trump and they just need to let it go. The guy’s not even in office anymore, so they just need to let it go.

 

RT: It’s not going to be let go for a while. And it’s going to be a conversation that we will be continuing here on business matters over the next few days as that impeachment trial continues. And Tony, China says to the U.S. confrontation will be disastrous. President Biden says he will work with China when it benefits the American people and he will have to work with China on some issues when he particularly his ideas on climate change.

 

TN: We will live in an integrated world. I actually think Xi Jinping would talk a a tougher game on climate change than Biden would. He certainly has at the World Economic Forum for several years. The question is what they actually do about it.

 

I actually worked for the Chinese government for a couple of years and the Central Economic Planning Agency. So I understand in a very detailed matter how the Chinese government actually works. And this discussion is just preliminary. It doesn’t mean anything. OK, we’ll know in six or nine or 18 months what the real policies are.

 

My concerns are with, we really have to look at the people on the National Security Council in the US and their relationships with China.How many paid speeches have they had in China that those are the biggest issues that we need to look at with regard to China policy today from the U.S. perspective.

 

RT: That trend in India where we’re seeing the growth of what’s called Taiwan tier two, often, these much smaller towns. Is that something that you’re seeing in Texas at all or is it still very much focused around Houston, Dallas, Austin, economic growth?

 

TN: First on India. The tier two and three cities is something I would forecast when I was with The Economist back in those days. We did work on this 10, 15 years ago. And it’s amazing to see it happen. You go outside of cities like Chandigarh and you see what used to be fields. That is all some suburban cities. It’s really incredible to see that is in Texas.

 

What we’ve seen since COVID is more people are moving to semi-rural areas or buying bigger plots of land further out. And it’s some people from Texas, but it’s a lot of people from outside of Texas. Some of us, including myself, get a little bit defensive about Texas, if you can imagine.

 

RT: One interesting thing I think that we are seeing as well is maybe COVID will accelerate this. But this was always going to happen, that we will see businesses moving to cheaper areas. We see that in the States, don’t we? With some movement from California towards Texas?

 

TN: Yes, but you also see this in places like I was hearing about a technology company that in Taiwan, so the companies are based in Taipei, for example, and the workers wanted to move outside of the city since they couldn’t come into town, into the office. So they moved to small towns around Taiwan where their family was. The company actually indexed their pay based upon the cost of living to those country towns. Right. So and I think what you’ll start seeing as you see the diffusion of employment, companies will start looking at their costs and say, “look, these people aren’t paying for an apartment in Manhattan, they’re living in Iowa.” So we need to really understand where people are living. That company in Taiwan was using mobile phone records to understand where those individuals were so they can index their pay. I think you’ll see more and more of that. It’s not that people won’t be able to live. It’s just that they won’t make the salary from Manhattan while living in, say, rural Texas.

 

RT: I think we’re seeing that in many parts of the world with that sort of story you described. The taking place in and companies looking at and what’s happening with employees if they move to what you could describe as cheaper areas.

 

We had Carrie Lee here, there being a little bit cautious about what’s happening with many of these companies are going public. There is a lot of cash around from stimulus in the U.S. Interest rates are very low. Do you see this continuing?

 

TN: We’re very late in the investment cycle and we’ve moved from a company being valued on its earnings or future potential to a speculator’s market. And a lot of what we’re seeing in markets today are stocks that pop for one day by 50 percent and then they lose that 50 percent the next day. We just saw that with a big pot stock, a big marijuana stock over the past 24 hours here in the U.S. And people are trying to to squeeze out as much gain as they can in markets. So this this market is very long in the tooth. I just don’t see this lasting much longer because we are in such a speculative market right now.

 

RT: Do you not think that when stimulus begins to to slow down in many parts of the world, some of that frothiness in the markets may disappear?

 

TN: There’s a concept of stock, meaning how much money is in the market. And then there’s a concept of flow, meaning how much money is moving into the market. And because a lot of the investment climate right now is focused on flow. So how much money is coming in stimulus? How much money is coming in support from other mechanisms? Not necessarily a reallocation of the money that’s already in the market.

 

One of the big triggers potentially could be a possible disappointment with the the package coming out of the U.S. Congress. If it’s not what people have been promised, then there’s a possibility that those marginal investors who’ve been pumping stocks up by 50 percent per day could be squeezed out of the market. And then we see that flow start or grind to a trickle. And then the action really slows down and then we start to see a correction. No one wants to call a top. I don’t necessarily think this is it. I have no idea. But it is that stock and flow discussion that really worries me.

 

RT: The thought of dating is always absolutely petrified me. I was always happy my mom would have arranged my marriage and to Indian way somehow there were not many takers. Unfortunately, if you had to go back in the dating scene, would playing Scrabble online be your idea of romance?

 

TN: No. No, not at all, sorry, it just doesn’t cut it.

 

RT: No?

 

TN: We would find way. Look, I have two 19 year old kids. They get out, they’ve been social. Their friends are dating. I know it’s impacted some parts of the world in a very difficult way, but it hasn’t necessarily impacted my kids and their friends. I certainly wouldn’t settle for online scrabble. Who is the researcher at the university in London who snuck out for a hookup? I think we would sneak out outside a curfew to get things done if needed.

 

RT: OK. All right. Thank you, Tony. We’re getting a very different image of you now. Tony, stop sneaking out, please. No breaking curfew for you. That’s it for business matters.