YouSaid · the spoken record

Kevin Muir

lines on the record: 107
first: 2024-01-14
most recent: 2024-01-14
sittings or episodes: 1
sources: podcast

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“Well, surprise, surprise, Lori Logan from the Fed just came out and said, Well, looks like we're going to actually, you know, start talking about slowing down QT because we might be closer than we think. And to me, that's kind of stunning. One of the things that is being shocking is how quickly the Fed has become dovish. And this is just another example of how quickly the Fed has become dovish. And Jack when I stalked and I thought about it, I go, well, there's one of my big worries just taken off the table. And one of the things about the stock market is the stock market is going to top on the absolute best news where there's no more things to worry about. So I do worry, I don't know how to time it. But as all these kind of worries get kind of fixed, I'll be like, oh gosh, you know, like there's nothing else to worry about. And that'll be the point you have to sell it, you know, and I don't think we're there yet, but it does, it is interesting that all.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“To myself, one of the worries that I have is that as the Fed continues to do QT, we're actually going to eventually go to the point where we're going to bump up against a level of reserves that actually might withdraw liquidity from the system. And even though, you know, I've talked about QE and all these things and how I said I don't think they affect the economy as much as most people believe. I do believe it affects the pricing of securities a lot. And so if we had a situation where total liquidity was withdrawn to the point where we bumped up against stuff where we had problems in the repo market or problems, you know with other things, I suspect that we would have financial problems in the stock market. So one of the worries I had was that they were doing QT at a pretty big clip. RRP, which is a reverse repo program with falling at a stunning level.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“To decide if that's going to continue next year, you have to really think about the money that was spent and how quickly it gets out in the economy. And a lot of times you'll say, well, look, the federal government's got this big deficit. Therefore, it's already out in the economy. But one of the problems is that it goes to a state level. It goes, it sits there, and then they have to go approve the projects. And so there's a good chance that a lot of that money is still waiting to be spent. And so if I am going to be bullish, the reason I'm going to be bullish on the economy is because I expect that there's more money still out at the state level, but it is difficult to say. In terms of when I'm thinking about the markets, though, Jack, I've kind of been, I worry a little bit because one of the last kind of concerns I had as a, when I thought of when I put on my bear hat and I said, okay, what could derail the stock market? I thought.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Manufacturing And I think it's really people are kind of have to keep this in mind. This is the US construction on manufacturing. And the amount of fiscal stimulus that is occurring because of that inflation reduction act, which is kind of like jumbo shrimp, it's an oxymoron. Because in fact, it's anything but an inflation reduction act because it's spending its fiscal stimulus. And not only that, it's actually onshoring stuff, which is all going to make more inflation, but let's not argue about the name of it. I think we kind of need to understand how much of that is already through the system. And I think it's very, really, really difficult to know that. And although I'm confident over the next decade that we're going to continue to have fiscal stimulus and that we're going to be the surprises will be the government spend more, I'm not sure that whether that'll continue next year.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Of the time. Yeah, well, I actually think that the best trader in the world is Stanley Drake Miller. He always says that he's wrong. He's right 60% of the time. And so it makes him wrong 40% of the time. And I'm no Stanley Dreken Miller. So I know I'm going to be wrong at least 40 times of the time, much closer probably to 50. In terms of the economy, it is difficult because I do believe that the fiscal is really important. And I don't know if you could pull up this chart that I included, which was the...”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Financial instruments. And I was just thinking about it the other day. I was thinking about we've changed the way that we do central banking and yet we're assuming all of the other, all the playbooks we've been using for the past 40, 50 years are going to stay the same. And I don't even know the answer. All I'm saying is that I'm not sure that the playbook is the same and that maybe we're rewriting it a little bit here and that we'll find that there were differences now and that the yield curve doesn't matter as much.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Jack, just to show you how old I am, I actually remember when they used to go and they wouldn't even tell you they changed interest rates. They would go out and there would be, I think it was 1145, but I'm not exactly positive, but they would go and do operations in the money market. And that's how you know that they had changed rates. So they would go, they would meet and then they wouldn't say anything. And then the next day you'd be sitting around and you'd be like, oh, God, they just, you know, bought T-builds or whatever. It looks like they changed interest rates. And that's how they did it. And listen, I've gone in debates with economists about this. A lot of them tell me all these things are positive. This is all a much better way to run it. That's way above my pay grade. I don't know what the most optimum kind of way to run an economy is, nor do I really care. I just care about how this is affecting pricing of.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“And as you know, I'm saying for the audience, the Fed had to inject reserves into the system. So the old way they used to control it is by altering the level of reserves, as you said, so that if there's, I guess, a greater more reserves of the system, maybe reserves.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“There's so much there. Yeah, I mean, the yield curve inverted in two, and we're close to two years after that. We don't have a recession. So the track record was perfect up until then, but now it's looking like, well, you know, where's the recession, man? And so 2019, the yield curve inverted in 2019. Then we had the recession in 2020. But you could say COVID occurred that that was an accident. I mean, yeah, the fact that you bring that up, that is a such, I mean, you're not going to hear people talk about the move from corridors to floors. And yeah, the Federal Reserve, the composition of base money was like, you know, $60 billion of non-interest paying reserves before 2008. And they changed it to, it's now trillions of dollars and it does pay reserves. So, I mean, the monetary system, the Federal Reserve really, really changed it. So you can't, I mean, you can't just say, oh, like looking back at previous patterns, I had never connected those two about maybe that's why the yield curve reversion isn't working this time.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Amount of reserves in the system. Then in 2008, because we hit the zero bound, they could no longer do that. They had to introduce what they call a floor system. And so now all of a sudden they do interest on excess reserves. And eventually we have to do RRP reverse repost because of the, even that becomes not a good enough bound. But the whole way we do use the banking system has changed and it's changed in a way that there's now way too many reserves still in the system. And I think that we haven't really thought about whether that might have also changed all the signals that we've seen throughout the years. Like this is going to seem sacrilege to say, but this idea that the yield curve always works in terms of a signal for recession, first of all, it doesn't work throughout the world. It only works in the States. And next up, it worked in an environment when we...”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Underappreciating the fiscal side of things. So I think we're kind of in this perverse world where we're going to see the market continually expect lower rates and not get them. And the other thing, Jack, that I, you know, I haven't written about this yet, but it really perplexes me. And I've been thinking about it a lot. The central banking changed in 2008 for America. America used to go, and before that, they were in kind of a situation, they were in an environment that they called corridor system where they tried to get the perfect amount of reserves and banking reserves in the system. And when they wanted to change rates, they immediately went and either added liquidity by buying T-bills or removed liquidity by selling T-bills in the open market. And that's how they did it. There was always kind of, we were always at the kind of the optimum point of”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Than people think, and the down below two is priced in with everyone really worried about that. And I will go back to also the fact that if we've had a situation where since 1982, every single time the market has gone into trouble, the economy has gotten into trouble, the Fed has cut. It's cut hard and it's just continued to cut more and more. And that's with this reliance on monetary stimulus, right? And that's because that's how we deal with things. And if you look at that, look at that chart, you'll see that every, you know, high was lower and every low was lower. And it was just a series of lower and lower highs and lows. And so I think that what the market is doing now is they're still assuming that we're in a monetary driven world. And they're again.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Really quick kind of cuts from the Federal Reserve. Like I think that the 2008 was 300 odd basis points in the first year, which, you know, is a lot of cuts. And I think the 2000 was even more. It was 400 basis points in the first year. So the market is sitting there and saying, well, what if that happens again? So I need to price in the possibility that we have that sort of cut. So it's kind of a probability weighted distribution of returns. So it's actually not kind of what the market expects. It's how the market expects pricing to take into effect into account the different kind of possibilities out there. Okay. So I would say that the market probably for in reality the unchanged is probably much more likely.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Let's talk a little bit about the fact that the bond market seems to continually price in cuts. And I think that's a really interesting point. And there's a couple of different aspects of that that's interesting. First of all, everyone says that the Federal Reserve is priced in or the market is priced in five and a half cuts for this year. And that's not quite correct because what the market is doing is the market is looking at the kind of distribution of potential rates a year from now. And they're saying to themselves, okay, what is like the probability that it's going to be under two? And what is the probability it's going to be over six? And the reality is that if you look at throughout history, there's been a few times, and especially recently in 2002 and 2008, where you had”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Really don't even, they're not going to think about cutting. And then so that line had to be redrawn and yields move significantly higher. So, okay, so and then we have the two year two month incredible rally in stocks and bonds that everyone has witnessed. What are your views right now going forward?”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yes. And so what we're seeing here is on the white line, it's the one year inflation swap. And yeah, blue is the risky rate, 12-month T-bills. So as inflation has fallen 5.5% is more restrictive with inflation at 3% than when it was at 8% at 8%, maybe 5.5 is not even tight enough. And I remember Austin Goulsby hearing him say that in September. And that was the first time a light switch flicked on, hmm, actually, maybe they're serious about that, but I don't think I took it seriously enough. I mean, I know for a fact I didn't. And just going back to the point about relative expectations, my memory of the September meeting was not that it was terribly hawkish. I think it was, that is my perception. I think it was just that the market had priced in all of these cuts. If you draw a dotted line from the overnight rate to the 10 year and then what's the market said, oh, wow, the Fed.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“They said three, five and a half have been priced in. I would say that the Fed is still just as hawkish in terms of when you think about it in real terms as they have been kind of six months ago. There's been no real change. What has changed is forward inflation has come down.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Gone from three to two. So the real rate that we're using is actually unchanged. So even though it feels like the Fed is going in lowering rates, in real terms, they're not. And this is the one thing that I think a lot of people miss. They all use backward-looking inflation numbers to give the real rate. And you just have to go look at John Williams, John Williams, the head of the New York Fed. He had a meeting where he talked about in very clear terms. He talked about in very clear terms how they said policy and how they think about policy. They don't think about it in terms of the backward-looking inflation. They think about it in terms of the forward-looking inflation. So we have to think about what the rate is versus what the market expects inflation to be. So even though the Fed has implicitly tactically allowed”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Mystic about, or they expected too much hawkishness out of Powell, and when he didn't do that, they got very upset. But if you look at what they say and how they behave and what they signal, you'll realize that what they're doing isn't as illogical as everyone thinks it is. And one of the things that I like doing is if you pull up the chart of the one year inflation swaps versus the 12 month T-bill rate, you'll see that even though we've priced in like, as you say, there's five and a half or almost six cuts priced in over the year, which is implicit in that decline in the one-year T-bill rate, it's declined from five and a quarter down to 482 or whatever it is. But the thing is that what's occurred at the same time is the one-year inflation rate has”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“A lot. And next thing we know, we've had one of the great, like a huge monster rally in Bonds. But I think one of the things that people are missing in terms of all of this, in terms of the Fed, is that they're all kind of bitter. Like if you look at what their attitude, they feel like they've been dismayed or taken down the garden path by Powell. They were like listening to this thing about like he didn't want to be Arthur Burns. Like, how many times did we have to hear that? I'm not going to be Arthur Burns, blah, blah, blah. And they all thought he was going to just drive the economy off a cliff to make sure we got inflation down to 2%. And it doesn't make any sense. Like, why, like, why are we going to go and put our economy into a recession just so we can make sure that inflation is truly and utterly back under 2%? It didn't make sense. And they were way too past.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“People that didn't know about QRA were, you know, checking every auction and figuring out how it went. We were talking about Tales and the pessimism, like in the bond market was just so rampant. And we hit this point and I was like, I actually had covered my short. And then there hit a point where I actually got long. And for me, like that's just like, I don't know. It'd be like Hussman getting long S&P 500. It would just like it was so out of character. And I was getting lectured about this. And I was like, I don't like, yeah, I understand all the reasons why you're bearish. But the reality is that we have gone too far too fast. And this is just gotten brutal. And it was all about positioning. People would gotten so bearish and it sold it down. And then the Fed pivoted and they pivoted. And then we had the QRA change, which I think was minor, but I think the Fed pivoting.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Went up like 85 or 100 basis points over the next month and a bit. And it just went no bid. It was just a vicious, vicious bond bear market. Now people will claim that it was about the QRA and it was about Janet Yellen and stuff like that. I'm going to take the other side of that. I don't think that if you go look at their actual changes and how much they tweaked it and what Wall Street was expecting like if you go look at the actual strategists that are doing this like the bond things, it was very minor the differences. I think what occurred was everyone got all bared up and we had a situation where all of a sudden they realized they had been wrong about the economy. They'd been wrong about recession and now they were going to find a situation where the bond market was gone no bit and they sure were going to get bearish. And all of a sudden people that didn't know what term premium were export.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“And even last year, if you think about it, the majority of the year people kept thinking there was going to be a recession and the call was to be long bonds. Like everyone was a bear in terms of the economy, not in terms of bonds. So it was funny that we finally, we had that September FOMC where for whatever reason, it was just this point where the bond market kind of realized the Fed was more serious. At that point, I believe that they were on one hike every other meeting. So that was what they were doing. They didn't say it out loud, but if you looked at it, it was kind of implied, and that's how it worked out. And everyone was expecting them to pause and stop that to kind of guidance. And they stuck with it. And it was kind of like Jay Powell's hire for longer from 29 comment or late 2018. Sorry. Yeah. And it was very similar. And people, you go look at that day of the FOMC, like I think the Long Bond.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“There was a mild bear market in treasuries in 2021, and you and treasuries had sold off hard in the beginning of the year and then rallied giving the Bond Bulls some optimism. And then 2022 was one of the worst years in bond total return in history, especially, I mean, worse than in some regards, a lot of the years in the 1970s because then starting yields were so high. But when you're getting paid 2%, you know, you're not being paid. And even”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Isn't that hilarious? Like, I tell you, Jack, I've been a huge Bond bear for a long time just because I believe that inflation was coming. And I was like, I was probably early. And I wrote a couple of pieces for Bloomberg and I think it was the first year that we had the bond market down and I wrote something saying that, you know, at the beginning of the second year, watch out, you might actually have two years in a row of the bond market being down. At this point, I think over the last 25 years, we had had only three total years of the bond market ever giving negative kind of like returns. And this would have been I was calling for two in a row. Well, the lectures that I got were just unbelievable. People telling me I'm going to learn my lesson. The bond market always knows better. And this is like when bonds were like the long in was two or something and tens were one and a half and people were saying this is”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“That's right. The cigar butts or whatever it is, the joke and stuff like that. It's just awesome. Like there's so many cheap stocks. And the thing about it is that they've been cheap for a while. Like I remember Jim Grant got to love the guy. He's been talking about Japan small scaps for the past decade. Well, it looks like they're finally doing the changes that are required to actually realize some of that value”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, I never do diligence, do invest in these or even due diligence in them. But I see people on Twitter and I bookmark when I see it, people talk about Japanese microcap that's $60 million and they have 80 million in cash in the bank and they're trading it seven times like something that Warren Buffett would have bought in America in 1960.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“And you'll just be like, holy smokes, did I get like, did I miss a zero here because it's so cheap? Like I was there this summer and I was just flabbergasted. I literally went out and I thought, oh my God, I've just spent like two grand on dinner for my family of five. And it ended up being 200 bucks, right? And if you go to like the US, you go to Miami right now or somewhere that's really hot, like it's going to be a fortune to eat. And you see inflation everywhere. So you have a situation where the currencies start cheap. You have the government doing the right thing and they're still stimulating from a financial, sorry, from a deficit point of view and also from a monetary point of view. And so I think that Japanese stocks are a long-term terrific buy. I think if you want to go do something, you can go buy small caps because I think they're just dirty.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, listen, Japan is now in a different situation and they're finally waking up and realizing that they've kind of been sitting in this morass for two decades and it's not helping them. And in the meantime, their stock market's gone straight down. They have some governance issues in terms of their way that they run their companies. They have a whole host of other reasons, other problems. But now for the first time, we have a situation where they are stimulating both on the reform side of like corporate governance. They are stimulating in terms of not raising rates while everyone else is, and they are also making sure the currency is low. So we have, it's just, it's actually, I think Japan is one of the greatest like long stories out there right now. Like you go to Japan and you go and try to like buy a dinner.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Or they went and they raised taxes. They just didn't go for it. So, yes, you're right. Like, they can continue printing money or doing quantitative easing. That's not going to change anything. That affects financial asset prices. And you could argue that it has a slight effect on some parts of the economy, but I think it has very minimal effect. I don't think that that matters.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“So it was a political choice again. Like when you had Japan, when they started doing well, like they would actually, you know, go do something, they'd do some stimulus. The economy would start to pick up. And they'd be like, okay, we got to pay down the debt again. It was a continual choice. Like we've already, we have to agree that quantitative easing actually doesn't make inflation. That's not what causes inflation, right? Like that's when you get a situation where a country's in a balance sheet recession, you can lower rates. You can buy, you can stimulate, you can do whatever you want. The reality is that the private sector is not going to do it anymore. So you need to do the government. And every single time we had a situation where the economy started doing well in Japan, they got nervous.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“So you talking to your hedge fund buddies in 2019, 3Ds, you can never be inflation because of debt demographics and there will be deflation. Obviously, I think your call is aged better than their call, but they would probably look at Japan and say, okay, Kevin, but my outlook is that everything turns into Japan, a very, very popular call. What was it about Japan where quadrillions of yen were printed via quantitative easing and yet they did not produce inflation? They produced deflation and growth. Why was Japan so special and why don't you think the rest of the world? Because a lot of people say, you know, Japan is 40 years ahead of where Europe and the US is going to be.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, sure. But my point is that we are headed towards the government spending more and more. We've opened like the genie's out of the bottle. They're not going back. And one of my big arguments is that we're going to continue down this road. And therefore, all the surprises going forward over the next five, 10, 20 years will be higher inflation, not lower inflation. So yes, I understand the arguments why you might argue that we're in kind of just a cyclical downturn of inflation and that you might say, you know, the next blip or the next squiggle is going to be less inflation. But when I'm thinking about the big picture surprises that you're going to experience in the coming decades, I think that they're always going to be on the positive side of inflation. And ultimately, that's why I think bonds are actually a terrible long-term investment.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Demographics, debt, and disinflation from technology. And literally, I had really, really important hedge fund managers tell me there is no way we're ever going to make inflation again. No way. And I'm always like, that's like that doesn't make any sense. It's a political choice. And if we want, we can always create inflation. And in fact, one of my big arguments is, you know, you could sit there and a lot of people are going to be kind of disgusted about the fact that I actually said anything positive about MMT. I get it. And like, you know, a lot of people dislike it. But if you think about where the economy is headed and what we're doing, and you mentioned earlier the fact that MMT is a framework that you can use on the left and right. And I always argued that Trump was the most MMT president that we've ever had. And the reason that I said that was because he went and did tax cuts, not when the economy was doing badly. And when they asked him, why are you doing these tax cuts that the economy is doing bad?”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Like, yeah, you can. Now, the question is, what happens when you do that? I think one of the things that occurs is that people get nervous. They go, holy smokes, the government just flattened 125% of GDP. That means they can spend it again. And like if they spent that and flattened it, they can do that again. At which point I go, yes, the government can always spend it. They can always create inflation. And ultimately, Jack, this is one of the things that I think is funny when people start telling me about the inevitability of deflation or disinflation and the fact that they don't worry about long run inflation. I'm like, the... Inflation can always be created. And it's just, it's hilarious when you think back to the late 2010s, when you had a situation where people were telling me the 3Ds they said.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, they just zero. Like, listen, you can do it in a variety of different ways. If you wanted to, you could make it like a perpetual bond with 0.0001% interest rate. But if you just want to be intellectually honest, let's just flatten it. Okay. And then you're like, but you can't do that. And like, why not?”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Like it's not. And the exercise I always like to tell people that I kind of think is really kind of warps your mind or you start thinking, whoa, like this is money isn't what I think it is. Let's just take the Bank of Japan. Bank of Japan has 250% of their debt to GDP outstanding as debt, right? Like, or sorry, as GGBs. Of that, half of it is owned by the actually Bank of Japan. Now, what happens, and like, listen, like they're never going to be able to sell. Let's just be honest and say, you know, they're not. They're going to hold it forever. What happens if tomorrow the one side of the government just says, let's just flatten that? Like, don't worry about the stuff outstanding. Let's just talk about the stuff that the hundred and twenty-five percent that the Bank of Japan owns and the 125% of GDP that the government has issued. Let's just flatten those two.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“So, but you are correcting when you say it's legally, but that is a self-imposed constraint is what they would argue. Right? That there is nothing stopping them from going out, and if they wanted to, we could change the law and we could spend it the money into existence. We don't need to go borrow it like that, that is just something we've chosen to do. And in fact, if you think about it, if we have a situation where we are spending and then we spend it and then we go, well, by law, we need to borrow it so we go borrow it, but then the Federal Reserve buys it right back and then it sits on the Federal Reserve's balance sheet for years and years and years, which is kind of where we're at. How is that really different?”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“That's such a good point that MMT is a framework for describing the mechanics and the plumbing rather than an ideology. MMT can be used by politicians on the right or the left wing or anywhere in between. I would say one potential exception, I'm curious if you agree is that when folks argue that basically that the government funding itself does not fund itself via treasury issuance that's only like a giveaway to the private sector and it basically could just print money. I'm pretty sure in terms of the mechanics that like the US government is legally not allowed to do that like they have to get money from the bank deposits.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Done because it's not going to make you any money. Like you always have to trade the market that you have, not the market you want. And so I just think about what will be done and how will that work. And I think that MMT in terms of understanding the plumbing of it in terms of what went on and how markets behave has gotten way more right than they've gotten wrong.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“And there was no need for them to get money, and it's complicated. And the other problem with MMT is a lot of people think that it has to do with the prescriptive part about it, meaning that, oh, the government can spend all this, so they should therefore go do all these green initiatives and stuff. And if you listen to like Warren Mosler and the people that are talking about the theory, they don't say anything of the nature. They just say, listen, the idea that deficits matter is less than people think and the way that the plumbing works is much different. And I just go back to March of 2020 when everyone thought the world was ending, that there was no way that we would get the stock market or the economy through this. And MMT said, listen, we can spend our way through this. We can actually do this. And they were correct. And they did. And so I don't go and use MMT as something where I'm trying to decide what should be done because I don't care what should be done. People shouldn't care what I think should be done.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“So, I agree with you, Jack, when you're kind of criticism of MMT is the fact that they always said that the government doesn't have a financial constraint. They have a real resource constraint. They can spend up until the point that they create inflation. And at that point, then they have to cut back on the spending. Well, I understand the pandemic did have supply constraints, but there's just no doubt in my mind that when you're having 9, 10% inflation, you've spent too much. And I just look at the amount that the government spent and I say, you know, your theory was correct. You overshot it, and now you're not being honest about it. You're not being honest about the fact that you created this because of the government overshooting the kind of the amount of spending. And listen, it gets a lot more complicated than that because you could argue about where the money should go in terms of, yes, there was lots of people who needed it. And then there was some that just got money.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“I think one of the things you and I have in common is that we both, I would say, have respect for modern monetary theory and say, okay, there are things in monetary theory that we can learn from and that can inform our frameworks, but we definitely do not wholeheartedly embrace other doctrines, especially some of their more radical ones. I would say when we spoke a year ago, some people who were moderate, you know, subscribed to monetary theory were saying everything in inflationary is transitory. And they, I would say, had probably a little bit of egg on their face because it's like, well, we printed all this money and inflation went up. Sure, supply side had something to do with it. The bottlenecks that everyone talks about, but you don't think all this money printing did something. We need to raise rates. Maybe would you say that they're looking on monetary looking a little better given the pretty remarkable disinflation that we've had this year, number one, and that it's been on the supply side, that it hasn't been because the economy slowed down. Disinflation has occurred because suppose.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Environment where the government is the majority of the spending and the majority of the stimulus and where they do have these huge debts, it is more important and we should be focusing more on that side.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I actually think I'm a little more towards Warren's side. I actually think it's stimulative. And the reason it's stimulative is you pointed that out, is the fact that the deficits or the debt, I'm sorry, is so high. So if we had a situation where the debt was 20% of GDP and the Fed raised rates, then the deficit that is created from the raising of rates is a lot smaller than if you have a situation where it's 100% of GDP. So in essence, the fact that the debt is so large is actually creating an environment where the rate hikes are even more stimulative to the private sector in terms of that, just that one aspect. And listen, I agree. Sometimes the MMT folks, they forget about the privacy side credit creation too much. They just ignore it. They go, no, no, the only thing that matters is the government side. And I don't agree with that because I do believe that the private side credit creation does matter and it can affect it. And it is important at times. The thing is in this.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Right. Do you think that the reason that interest rates are can be stimulative is because we have more government debt this time around? In other words, so I think the classical conception is when interest rates rise that curbs demand for credit because people want to take out a 3% mortgage, not a 6% mortgage. So if everyone in the world is a private sector borrower, that is going to dominate things. But the government is also there. And if the governments are deficit, they're just paying it out more interest as they refinance their debt. And there's not a, I don't think the US government basically changes its discretionary budget based on, oh, man, we're rising rates are really, really hurting us. So I think you have these two frame of mind. And Warren is all the way over here. And on the, it's all about the government. And I think the classical conception is here. I don't know, you know, if we want to go like this far, but clearly, I mean, I would say they were less contractionary than mainstream economic.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yes, all of these things, the fiscal dominance is affecting the Fed's ability or the Fed's willingness to raise rates. We just had one of the steepest tightening periods that we've had since 1982. And like, just stop back and think about when they first hiked. I remember Goldman Sachs and other sell-side firms saying we're never going to get over two. We're never going to get over two. Yet here we are at five. And the reason that we've gotten over up to five and the economy hasn't collapsed and is in fact continuing to be stronger than everyone expects is because of fiscal. So I don't think that just because fiscal is there and it's mutual what the Fed does means that we can't ignore what the Fed does. It just means that we need to keep that in mind while we're thinking about the reaction function of the economy from the Fed's moves.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“And then on top of that, they're actually going out and having a deficit to fund. And then when they fund that, everyone kind of thinks, oh, the deficits are bad. But we have to remember that the government's deficit is the private sector's credit. And so when we're sitting here looking at the fact that we're having record profits in the stock market, we really shouldn't be that surprised because the record profits of the stock market is a direct reflection of the record deficits of the government. And so when you back to your question about like, how does this kind of change a fiscal dominance affect my forecasting of interest rates, we just have to kind of keep it in mind that what we're trying to do is forecast what the Fed will do. And that will definitely affect the rates that they choose, but it might not affect the economy like we thought. And that's kind of my main point is that.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“But the more I thought about it, and the more I kind of went about trying to disprove it, I realized that he is correct. Like the private sector money creation is affected by the rising of interest rates. But if that is limited, meaning that if we're not really counting on that as the actual engine of growth, and then we think about the other part of the economy, which is the actual government spending money into existence, when they raise rates, okay. and don't change their spending and that's the key part right when they raise rates like when the fed changes rates people have changed their spending they might not buy a house they might not buy a car they change it but the government doesn't change like you know maybe they should but they don't and so when the fed raises rates we actually have a situation where the government spends just as much in terms of whatever they've decided to spend”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“So, first of all, Jack, I've actually cut my teeth as an equity derivatives trader. So, the fact that I'm posing as a bond trader is actually makes me feel good. So thank you for that kind of compliment. In terms of the markets and in terms of rates, we still need to deal with how the Fed is moving it around. And I guess what I'm saying more so is that that Fed moving rates around, is it affecting the economy like we think it is? So yes, the Fed's still doing all these things is still moving them. We're all playing these games, but it's not doing what we think to the economy. And if I could take the opportunity to plug your show again, you had an absolute fabulous interview with Warren Mosler. And he talked about the fact that actually interest rates rising can be stimulative. And when I first heard that, he's been talking about that for a while. I was like, no, that's insane. Like, that's, that just doesn't make any sense. He's out to lunch.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT