YouSaid · the spoken record

Juliette Declercq

lines on the record: 59
first: 2022-03-06
most recent: 2022-03-06
sittings or episodes: 1
sources: podcast

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“No, I mean, I've got a few family offices, a few high networks as clients, but really the bulk of my customers are institutionals, whether banks, real money, hedge funds. And I've got like two tier, which is basically one tier is basically getting everything right, which is like JDI comprehensive, and a second tier where you basically get to speak to me every day. And, you know, you like it, you don't. But that's basically the premium subscription, which is basically mostly institutional as well.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“That we're going to get massive opportunities in, but I do like buying commodities, and I think the last sort of obvious but again like quite risky trade that I like is basically to sell five-year bonds, so looking for higher nominal yields. And I think what's interesting here is that obviously the noise and the war can actually lower the front end, the number of hikes that are going to be delivered at the front end, but I don't think it will really mess up with where we're going to go eventually. And I think I can see like strong conviction in the fact that five years is going at least to 2.5%.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“I mean, at this point, be extremely careful. Again, this week it's not about trading macro. It's about trading dislocations. It's about trading forced selling or forced buying of assets. We could get into times where nothing makes any sense anymore. So I'd really emphasize the fact that if you want to trade your medium term, long-term view, don't go with leverage, which is what I'm currently doing. I do like to use the ongoing noise to basically trade assets that I really want to own in the sort of medium term, which is, you know, I like to pick up value in Europe. The rest is obviously not something.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“That's an interesting take. Juliet, it's been fantastic having you on forward guidance. If you had to sort of summarize your views for our audience before you leave or a parting word you want to leave our audience with, what would you have to say?”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“And gold, which is a large part of their reserve. So I'd be really worried this week about trading just macro. I think you could see like complete dislocations on the back of when gold, when it's the only assets you've got left to sell, you know, what can happen. Personally, I wouldn't touch gold deer. And I really hope that crypto catches a bit. Because if crypto doesn't catch a bid in the middle of like, you know, basically like capital controls and it's really the time where it's sort of like should be becoming useful than I think we have to worry.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, crypto, you know what? We have like capital controls in Russia. You know, I would be, if crypto doesn't pick up a bit this week, then I'm going to be really worried about the asset class in terms of gold. I've been looking for reason for gold to break higher recently was obviously like geopolitics, but also the fact that the Fed is sort of losing out on inflation and the inflation narrative, right? The fact that basically the Fed's losing control of inflation is a positive foregold. But at the moment, I would be really careful because obviously the CBR, the Central Bank of Russia's asset has been frozen. And the only assets they can still trade is basically like China's.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“My A rates really is just basically higher nominals, stronger commodities. And I want to start to pick some value in European equities. But obviously, bear in mind the massive uncertainty around not just macro, but also geopolitical. What I mean by massive uncertainty in macro is that obviously when you're relying on inflation and animal spirits, it can go all one way or all the other. And something like a walk can obviously destroy reflation as quickly as it's actually happened, which is basically the last three, four months. So, you know, we have to be cognizant of the fact that we are in very unstable equilibrium. And so I like to stay with what's more liquid as well. I wouldn't even talk about Russia.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“The current crisis continues. I don't think there is a chance that the Fed will go 50 base points in March, but it probably still will do 25 base point. Because I think the Fed is cognizant of the fact that US demand is extremely strong and spiraling via higher wages, which means that commodity prices can stay very strong globally. And obviously what's adding to that view as well is the fact that China, which is one of the main consumers of commodities, is also obviously pushing the accelerator as well. So you've got basically a world which is synchronized in terms of demand. And I really struggle to see in a world that is demand synchronized how you're actually going to get like a Commodities to turn down given all central banks are still very far behind the curve.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“I mean, long paid rates and long commodities has been like the central recommendations. Luckily, it's sort of like being emphasized by the crisis because you're basically adding to a strong demand backdrop and central banks that are still very much behind the curve. And obviously here I'm talking mainly about the Fed, which means that you don't kill demand enough to actually rein in commodity prices. So the supply side, the supply shock is really just adding to these trends. And I don't see the Fed really being too shy.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Kin to avoid this, and I don't see the ECB like normalizing in a shock, in a supply shock, an energy supply shock. And I think they've already been saying before, even before Russia decided to declare war on Ukraine, the CB was already keen to really allow the green transition to happen without basically standing in the middle and killing demand on the back of basically higher energy prices in the short to medium term that will allow a move to basically like self-block sufficient with clean energy.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Definitely will delay. I mean, I think that the ECB is very focused on the fact that inflation in Europe has been much more supply-driven than is the case in the US. If I had to give you like an estimate, I would say probably 80% inflation in the US is demand driven. I think in Europe you only have budding sort of reflationary cycle where wages are just starting to increase. So I think there's basically 80% of inflation is supply driven. So if you're starting to hike into inflationary cycle, which is supply driven, you run a very high risk of basically pushing the economy to stagflation. And in the end, you're going to get rid of inflation, but you're also going to get rid of growth. So I think that the ECB is very...”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“All the curve flattening is telling you is that your pricing hikes and not a lot more than that. And as long as the curve is not inverted, it means basically the economy is able to weather those hikes. So, I mean, for me, that's not an imminent fine. It's basically a sign of like going back to neutral.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Don't think anybody believes that the inflation reflation story is there to stay for the very long run. But you still need rates to become restrictive if you want to slow demand enough that you actually kill those wage price spiral, which is currently ongoing. So another thing on the curve is that I don't think a flattening is ominous in itself. Yes, inversion is basically when you're starting to price that the Fed will need to cut rates. And that tends to, you know, in fact, that almost always leads to recession. Recession is always preceded by an invasion on the curve, but the opposite is not necessarily true. But yeah, the thing is, as long as you don't have an inversion.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“The problem is in the short term, I think it's possible that the real equilibrium yields is a lot higher, you know, potentially 75 to 1%, which is telling you that you will not get to restrictive level before, say, like 3% at the front end. Now, the problem is if you actually hike to 3% into an economy which is in the long run, sort of like as a real yield of like two pairs and you will invert the curve. And I think that's really something that To get to the level that becomes actually restrictive to the economy, which basically means that they're behind the curve, they stay behind the curve a lot longer than what markets currently believe. Is that making sense?”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Flattening the bare flattening of the curve. And that really reverts to the first thing we were discussing, which is what is driving, what is the underlying macro trend? Is it just weak demographics or is there something that is telling us that our stars or the real equilibrium yield is going to be potentially much higher in the short to medium term? And that would be on the back of lower inequalities and basically stronger wages, especially at the lower end of the wage cohort. Well, I think that dichotomy between long end yields being really anchored by weak demographics. And let's say we go back to Pre-crisis level of real yields that takes us basically, which was basically zero to zero to like fifth base point, so tells you long end yields can't go a lot higher than 2.5%.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“And because they're more looking at five years, 10 years, which indeed has not broken up yet. But I think it's wrong. It's the wrong aggregate to look at because I think what really will be driving the wage price spiral is one year inflation expectations. And they are still moving up and actually trending higher. There is like a huge negative base effect that are coming in from in the next couple months. And I think that will buy the Fed times in terms of continuing with incremental 25 base point steps rather than sort of like going 50 and 50s. Another really important thing that we haven't touched base about is”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“So, firstly, I think we need to be a bit more precise because I do think that we can price in more hikes, just not up front. So I think my recommendation is to basically pay five years rather than just looking at a front-loading of hikes that would potentially mean that you basically kill the golden egg too early. So the reason why I think the Fed will be cautious this year and certainly a lot more cautious than when we basically were as far as went as far as pricing 175 base point this year. There's a lot of reason for that. I think firstly, I think the Fed wrongly believes that long-term inflation expectations are still anchored.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“And that really happened in like three months. We were still basically deeply negative in terms of the credit impulse in China. But obviously, you know, from December, there was really this move with Chinese monetary authority to really promote credit again. And that's basically how we turn from a deeply negative credit impulse to a quite strongly positive credit impulse, which is basically telling us that the risk of China being a major break, especially to the manufacturing world, has dramatically diminished. And in fact, the opposite could happen.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“So for me, that's like in terms of the macro paradigm shift between 2021 and 2022, there's first the fact that we are kicking in sort of like price price spiral and that's not only in the US, it's happening everywhere in the world and that's really important, the sort of like synchronized move means that basically the Fed will be able to hike without shooting itself in the foot by basically strengthening the dollar and in turn basically shrinking the global monetary base. The stronger dollar means like equally shrinking in the global monetary base. It's really interesting here that we've had such a pickup”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Is basically complementing the picture you're getting from the demand side by telling you a lot more about animal spirits and how much the consumer actually is prepared to leverage his income. It's a similar thing in China. So, what I've got on chart nine is basically the six months credit impulse in China. And obviously because China has been such a big part of global manufacturing, it's very strongly correlated with global PMI manufacturing. Obviously, it's better to take out China here. But basically, China is like the global manufacturing engine. And when you're seeing leverage up, you basically sort of know that China is going to turn from being a cyclical headwind in 2021 to basically become a very strong tailwind in 2021.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Demand is not only the income you're making, and so basically how do I define demand? We've been talking a lot about whether demand is deficient or whether we're in the reflationary curve. Demand is basically the increase in the workforce plus the real increase in wages, but also how much you're going to be leveraging that demand, right? If I give you 100 and I give you like a raise, so let's say you're getting 110 and you actually really strongly believe that inflation is going to be 15% this year, then nothing prevents you from leveraging your income and basically go and borrow whatever you might get according to whatever country you might manage to like borrow like 100 or like between 50 and 100. So the credit impulse”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“So, credit impulse in each region. So, you know, I look at it in Europe, in the US. The US one is great because you actually get it every Friday evening out of Fed data. The Chinese one is only updated monthly and the same for the ECB one. Yeah, I really like this aggregate here. And you can see in the US it's really interesting that I've got here like credit card and other revolving loans, which is basically as high as it's ever been. The overall credit impulse, and I'm looking always at like six months one, which is more of a leading indicator than goes obviously faster than the one year one. So what you're seeing in the US is, because obviously”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Well, firstly, I mean, Walkers always want more money, but they've never had such great arguments. On one side, there's obviously according to countries basically 5% to 7% inflation, which is here for everyone to see. And on the other side, there is pretty much full employment wherever you look, right? And whether you look in US, UK. I don't think we are at full employment, but we're nearer. And clearly labor market's very hot”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“On higher wages, but trust me, there is like strikes going on, whether you're looking at in UK there's like a tube strike. There is strikes in France to ask for higher wages. And I've got no question in my mind that we will see the same sort of like higher prices turning into higher wages in Europe as well. And again, obviously that assumes that the Ukraine versus Russia situation doesn't sort of like create a supply shock that basically just kills demands into recession and means that we're basically getting stagflation instead of the reflation trends that I'm looking at right now. Well, that I was looking at before the crisis anyway.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Well, I mean, for me, really, the one chart to look at is the inflation expectations chart. As long as we're not starting to deep lower on that, I don't see any reason why we're not going to skip spiraling higher in terms of nominal illusion is feeding nominal consumption. And you're basically getting higher rates on the back of that and higher inflation. What's really key here, and I know the reason why we have reached the paradigm shift, is because it's not only happening in the US. You can see on my chart on page 14 that it's also happening in the EU. It's happening in UK. And amazingly enough, it is also happening in Japan. We haven't really seen yet the effect.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“So, I mean, that's another way of saying exactly the same thing I was saying before, is basically, yes, there is on aggregate less real income. And you can see that in dark blue real income has started deeping below trend, but real spending is actually still keeping on trend because of these moves, which we could call internal moves, where basically if you're moving more of income and wealth towards the poorer cohort, then you're going to get much more spending out of the same income.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“number of workers which has basically allowed the lower end jobs to really explode in terms of real wages. Some will be saying, okay, they got a wage increase in nominal terms, but not in real terms. Actually, that's not true. If you're looking at US reality wage over the crisis, we're still growing on trend. But the lower end jobs in real term over the crisis, which is basically leisure and hospitality, that's actually gone up almost seven percent in real terms over the crisis. So we're not talking small numbers here. And we are potentially talking about a move that is not just happening over the crisis, but that will basically Keep sort of like a”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“So, I think there's really the increased bargaining power in the labor force is not just the fact that there is a supply squeeze due to people wanting to stay at home because of health concerns or whatever. I think there is really this realization that, yes, I still want to work, but not at any price. And obviously it's helping that when you've got really strong demand, there's a need for a much larger...”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Going anywhere at the high end. And that's got massive impact on basically aggregate demand. And I really believe that's a paradigm change, which is brought by the fact that I think in the past three years and certainly over the crisis, money has been coming so easily, whether it's with crypto or tech stocks or any stocks, to be honest, you could basically buy anything in the past two years.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. So the issue is like the second chart of my chart back, which is showing non-farm real compensation per hour in light blue and non-farm business productivity in dark blue. And what you can see here is basically that wages and compensation have diverged from productivity for the past 30 years. And that's really the main issue with demand. Now, why am I saying that? If you go back to the first page, you can see that it's unprecedented, but basically wages are exploding at the low income end and not really.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, they're not going to the store and buying chips. They're investing it in bonds or savings accounts that earned 1% or less. So it's inherently disinflationary. And those cohorts are the wealthier cohorts who their marginal propensity to spend, fancy way of saying how much money do they spend is quite low. For every thousand dollars they get, they may only, I'm just making numbers up, you know, they may only spend 400 of it and $600 of it goes in the bank. Whereas for folks who are on the lower income spectrum, they spend all of their money. In some cases, more than all of their money.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, our star is the equilibrium really yield. Yeah, so what is driving the very low R star like real equilibrium reals? Is it weak demographics or is it inequalities? And what the report actually showed is that inequalities explain a lot bigger part of why potential growth has come down in the past three decades. And if you're actually looking at Kansas City Fed estimate basically high income household save about like 3 to 3.5 percentage points more of the national income than before 1980. And that's really the key. If all the income, if basically a growing part of income is going to households that are not going to spend it, you've got a massive issue of deficient demand.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“COVID happened, and we're just going to go back to those kind of like a really detrimental trends of weak demographics and therefore law and potentially negative real yields. Now, what's really interesting is there was like a piece, a research piece that was actually presented in August last year at Jackson Hall, and the piece is called What Explains the Decline in R star, rising income inequality versus demographic shift.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“30 years, there's been really, you know, settling like a macro world, there's like a very entrenched belief that the reason for low yields and low growth potential, low real yields, equilibrium yields and growth potential is basically demographics. So, you know, we used to, for example, if you take the US, we used to be growing in the labor force above, say, like way above 2% in the 2000s. And we're basically going to be converging to just above zero in the mid-25s. And that there's a very strong belief that that's the reason why yields have collapsed. And so we haven't moved away from that macro shift.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Real growth, then you're talking about potentially 6% nominal growth per year. Your debt to GDP ratio will basically improve on its own. And that's true for countries. It's obviously true for corporates, but it's also true for you and me. If you can borrow at deeply negative real yields, you will be basically richer by design next year and the year after if you believe that whatever you're buying is going up.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Even it makes the debts disappear at the sovereign level. And I think everybody knows about that. You're talking about completely different game. And to go back to Europe, it's also the reason why I'm so positive on Europe is that pre-crisis you had, let's say you were looking at debt to GDP ratio in Italy or Greece and you had maybe like at best like one percent inflation and maybe like one percent real growth and that's basically like 2% nominal GDP growth which is you know with 2% nominal GDP growth it's really difficult for your debt to GDP ratio to actually improve if you've got sudden if suddenly you've got like 4% nominal growth and sorry like 4% inflation and say like 1.5 2%”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“So, top dark green line, you can see that in five year nominal yields, we're now back to updated that chart this morning. We were like a bit above 180, so that's about the same level as we were pre-crisis. But if you're looking in real terms, which is the green line at the bottom, you can see that we're still a lot more We're still a lot lower, like about 140 base points below like 2019 levels. And that, of course, is the effect that it will have on when you're borrowing. You're not borrowing at 185%, you're actually borrowing at minus 100 30 base points, and that's obviously the last reason why inflation is such a stimulant, because obviously”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“And it's the same thing for employees as well. If you're worried you're not going to be able to hire employees, firstly, you're not going to fire anyone. And secondly, you might hire a lot more people and maybe make them work a little bit less, but to basically have the luxury of being able to expand when you felt like you're going to need to expand. When you're in an inflationary and bombardment, you basically want to hoard everything. You want to hold commodities, you want to hold supply, you want to be hoarding employees. And also that's basically on the back of the flip side is basically that the consumer wants to basically front load consumption as well. But there's another side. So at the top in the dark green line,”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Well, because you buy your inventory at like a 10% discount to where it's going to be in 12 months, right? You buy your commodities, you buy all your supplies, all your supplies are going to be like, you know, if there's 10% inflation, you want to buy everything today, sell it later, but you obviously paid it a lot less today.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“For example, inventories, just if you're like a company, obviously you want to hoard as much inventory as possible, which we've never seen in the past 30 years. Everybody was like trying to cut inventories and basically go to just-in-time sort of supply cycle. But in an environment where prices are going to go up, you want much more inventories because it's actually going to make you money.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“And front load your consumption when you actually believe that inflation trends will continue. So that's one macro trend that we haven't really been talking much because the last time we had anywhere close to wage price parallel that we have right now was in the 70s and 80s.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“And everybody had a good giggle in the room. What I want to say here is really that inflation is a very strong economic stimulant when the everyman in the switch which is actually driving macro trends think that inflation will be persistent. So there's few reasons for that. Firstly is obviously you're getting nominal increase. You might only find out later that it buys you less of your normal goods purchase. The second thing is obviously when there is inflation inventories are actually higher inventories is actually a plus. It costs less it costs much less to have higher inventories when there is inflation. And the same thing for hiring as well. You basically want to hoard every”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“And that, even if prices went up just as much. And Yelen was like really proud and excited to report that 28% fully agreed and 21% partially agreed. And there was only 27% which completely disagreed. So what the survey is telling you is basically I give you 10% nominal increase in your wage and I increase price by like 10% as well and you're going to feel better. So you might as well basically have a little bit of inflation and that's degrees in the will argument. What's really funny is in a way is that the Fed at the time Yelen also added at the time that in that actual survey no economist went for being more satisfied.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Feel richer if your wage is higher. And that really interestingly goes back to the actual reason why the Fed is pursuing like a two-person inflation target. So what happened in 1996 is you had Yelen on the FOMC and at the time it was Greenspan that was the chairman. And there was like a whole argument about whether we should be, they should be pursuing a two-person target or one person target or why not basically zero inflation. And really interestingly Yelen actually argued that you need a little bit of inflation. Survey from Yale economist Robert Schiller who actually asked, surveyed every month, everybody and ask your pay went up, would you feel more satisfaction in your job, more sense of fulfillment?”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“The first effect of inflation is obviously higher price. It's contractionary. But when you actually have a labor force which has very strong bargaining power, what you can do about inflation is basically asking for a higher wage. And that's exactly what's happening. So the first bout of inflation is like a shock on your purchasing power. But then if you get used to it and workers actually have a bargaining power, what happens is basically that inflation expectations actually turn into higher wages. And that in turns basically feeds what I'll call the nominal illusion, which basically says that whatever happens to inflation, you still”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“So, what's happened post COVID is like as a reaction to higher prices, higher inflation, you actually have price expectations moving higher. And what's really interesting is that many Fed members have argued that long-term inflation expectations are actually anchored and therefore we don't have to worry about wage price parallel. What I'm arguing here is that it's really the one year outlook that matters. And what we've seen everywhere in the world is actually inflation expectations actually trending higher. And even in the US, where the trends are much more advanced than in the rest of the world, we continuing to make new high in one-year inflation expectation. Now, why does it matter? Well, because”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Basically, there's like two way inflation can affect consumption. In the end, what really matters is demand, right? So if you've got a shock of inflation, prices go up, you know, purchasing power go down. Everyone is feeling the squeeze and you basically end up with a demand squeeze. And that's what I'm calling a supply shock. What we had so far post-crisis wasn't as much of a supply shock. I mean, I think some argued it was in 2021, but with wages actually picking up as well, it looked less and less like a supply shock and more and more like a persistent inflation. So the first way inflation can work is basically you feeling much poorer. The second way, but the Second way, inflation can impact the macro outlook is by making you feeling a lot richer. And how does it work?”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Take here. Yeah, so Julia, just to illustrate a few points, what we're seeing here on this chart in black is the Bloomberg Commodity Index. And when the economy is running hot, there's demand for commodities because it's an input to economic production. So when the price of commodities goes up, that can be one of two causes. Number one, demand because the economy is running hot. And if that were the case, you would expect the ISM manufacturing new orders index, which is in blue, to also rise. But what I believe you've highlighted in this chart is when the commodity index goes up, but the ISM manufacturing index did not go up. And in other words, it's not reflation. It's not growth. It's not demand. She does a supply driven”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“Trigger recession, but I don't think that's clearly the risk right now. And in terms of whether it's likely to happen, well, the problem today is like, you know, Russia is still exporting the gas. Russia is still exporting the oil. If you're coming from, if you basically see the fact that assets, their assets are basically being frozen, then you might legitimately ask why you would keep basically selling energy if you actually can't access the assets on the back of that. So for me, that's really the key risk, whether it will happen, we'll see. I don't think any geopolitical expert will be able to tell you with any. Certainty, but that's really what's at stake here.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT
“And I think there is a paradigm shift, and we can discuss why I think that over the COVID crisis. But basically, what I believe was the case until January was that demand, global demand completely justified the new trend in commoditative crisis. What might happen going forward is that that demand shock, what actually started as a demand shock turns into a supply shock where basically commodity prices, energy prices are no longer in tune with global demand, in which case we'll move away from basically inflation as a reflation trend to basically stagflation with the risk that basically higher price.”
2022-03-06 · Forward Guidance · The "Money Illusion" Keeps the Economy Hot | Juliette Declercq · IDENTIFIED FROM THE TRANSCRIPT