The following linked podcast is quite lengthy (~90 min) and gets quite into the weeds at some points. It is an interview of Russell Napier in which he starts out with the factors that led the Asian markets into the ‘Asian Contagion’ in their currency markets in the 1990s. After giving that history from a Hong Kong based analyst’s viewpoint, he then turns toward the current Macroeconomics facing the Western economies.
His insights are too many and, for me, too complex to encapsulate but one of his lines struck me and it was something like: “History may or may not provide answers for today, but at least we learn which questions to ask”
His offered opinions include the possibility that the Fed will not be able to contain inflation. How he thinks about and then walks one through the scenarios has been thought provoking.
I believe we are traversing a period of pretty unusual changes. I really do not believe I have a solid grasp on either the complexities nor the potential opportunities these changes provide, as thus my continued search for paradigm-challenging interviews. Only the most remarkable-to-me of those interviews do I present here.
As before, I will be interested in reading any thoughts that those who have the time and inclination to listen and respond have to offer.
I’ve met Napier a couple of times and whilst I often don’t agree with where his lines of thought end up, they are useful to analyse.
He says the Fed will have to let inflation run hot in order that government debt can be managed (ie devalued) … and they are complicit in this even now. hence real rates will never go positive.
I have to say that in Powell’s shoes I’d also be very worried about the value of treasuries dropping, and the Fed going into negative equity … they have bought piles of bonds at minimal yield over the past 2 years. I don’t think they can win this one, either higher rates or inflation will sink treasury prices.
Maybe Napier is right that some financial repression is coming - he suggested forcing pension funds to own bonds (as in UK, for “actuarial” reasons) … and hence to sell equities though …
He says broad money in the past is always spent, whereas narrow money isn’t. Yes, the broad money ie everyone’s bank balances, are flush with government stimulus money, not much to do with the Fed.
So against the “inflation is everywhere a monetary phenomenon” the other view is that inflation is incipient with supply chain issues and cost push import price rises … and it takes the government to put money into peoples’ hands to enable it and have actual real demand exceed supply … loose monetary policy is a bit of a side show except that the Fed buying the extra treasuries issued was handy.
In the Fed’s meeting notes last week, there is an explanation of inflation, stating badly that “inflation is a monetary phenomenon”. Well I suppose they need to feel important but the big difference between now and before is the scale of government stimulus, not Fed QE.
He reckons a real cold war with China is approaching. There are signs of it. If trade between China and the rest of the world clams up, that’s inflationary for sure. iPhones will cost even more!! And kinda interesting for Germany whose car manufacturers in effect make all their profit in China, where all cars sold only cost marginal cost - R+D and other fixed costs were covered by ex-China sales.
Thank you for taking the time to have listened and thought through and responded.
I very fondly reminisce about the generosity and collegiality of the times we met and spent with you and your lovely wife.
When I do visit the Fool, yours are among the posts that I most want to read.
My Denise really enjoyed both your home and conversing with you wife. If Denise were still with us, one of the first things I’d share with her would be that we (you and I) had communicated today. Then she and I would smile as we reminisced…
I will give your thoughtful response much consideration. I have thought several times “I wonder what Mr. Plunger would say and think about” this or that. You have much respect on this side of the Pond, sir.
I do remember our meeting; you have a very lively and alert mind - we had a good discussion on all sorts of stuff and from many angles … it was hard work!
In the Fed’s meeting notes last week, there is an explanation of inflation, stating badly that “inflation is a monetary phenomenon”. Well I suppose they need to feel important but the big difference between now and before is the scale of government stimulus, not Fed QE.
Inflation (or deflation) is a change in the ratio of goods and services to money.
It’s usually a monetary phenomenon, but a change in the availability of goods and services - such as the current supply-chain kerfluffle - can also cause it. If that change is not permanent - if the previously-normal situation or a close equivalent will be established - that inflation will be temporary.
Thing is, monetary inflation and goods-and-services inflation CAN occur SIMULTANEOUSLY.
Yes, some of the current inflation is caused by the supply-chain issues. But I would be very surprised if the current monetary inflation rate is not above normal.
It’s usually a monetary phenomenon, but a change in the availability of goods and services - such as the current supply-chain kerfluffle - can also cause it. If that change is not permanent - if the previously-normal situation or a close equivalent will be established - that inflation will be temporary.
Thank you for responding.
I believe that the point Mr. Napier was making was that in addition to the supply side problems, and the rising cost for onshoring production, there is a perhaps underappreciated pent-up demand aspect.
I know that I am eagerly awaiting going into restaurants with my friends (I’m no big fan of eating outdoors unless it’s at a campfire). I’m also wanting to plan a Trans-Canada rail trip (which I would have already booked if not for Covid).
I know some close friends that also are being Covid prudent who are also looking forward to resuming their regular pursuits.
Just this small anecdotal sample size is, of course, not statistically significant…but what if there are many who feel the same pent-up demand? What impact will the additional demand do to an already supply shortage price surge? How can one either avoid the worst of the fall-out and/or find ways to increase inflation-adjusted net worth?
making was that in addition to the supply side problems, and the rising cost for onshoring production, there is a perhaps underappreciated pent-up demand aspect.
Poz,
Backing up and looking at the Fed data on money supply, you can see that while M2 has sky rocketed, V2 has died. It has been as if a man was laying on the ground, nothing bleeding but all the blood pooled up in vital organs going no where.
Now the velocity of money is increasing, it has been the under appreciated factor in monetary driven inflation. It is also why I do not worry about the national debt and tax receipts. Wage earners pay taxes. With money flowing through wage earners hands, you will see inflation. National debt gets monetized, and tax receipts increase.
Of course anyone living on a fixed income or on cash pile will get liquidated in pretty short order. Personally, I do not see a way around this and this is why I have considered remaining in the labor pool even as late as age 72.