Podcast Summary
In this podcast, Julian Brigden, co-founder at MI2 Partners, discusses the current economic landscape, focusing on inflation, corporate profitability, and the Federal Reserve’s policy. Briden compares the current period to the late 60s, highlighting the risks of not achieving a soft landing. The conversation also covers the potential implications of a recession, the sustainability of the US fiscal system, and the future of cryptocurrencies.
Key Takeaways
Inflation and Corporate Profitability
- Inflation Expectations: Briden suggests that corporate pricing models are indicating a Consumer Price Index (CPI) increase from 3.2% to 5% in the first and second quarters of next year. He also mentions that service inflation, excluding shelter but including energy, is still above 5%.
- Corporate Profitability: Briden highlights that corporate profitability is currently driven by price increases, with many companies raising their prices by 5%.
Federal Reserve’s Policy and Market Expectations
- Fed’s Policy: Briden discusses the credibility of the Fed’s current policy and the risks of inflation expectations becoming unhinged. He expresses skepticism about the market’s expectation of a Goldilocks scenario with low inflation, rate cuts, and accelerated growth.
- Market Expectations: The podcast discusses the discrepancy between one and three-year inflation expectations and what the market is pricing in. The market is pricing in rate cuts on the short end of the curve, which creates a contradiction with the expectation of higher inflation.
Financial Conditions and Interest Rates
- Financial Conditions: The podcast discusses the relationship between monetary and fiscal policies, specifically regarding financial conditions and interest rates. The host expresses skepticism about the current narrative surrounding financial conditions and believes that Powell’s approach may be wrong.
- Interest Rates: The podcast discusses the potential impact of changes in monetary accommodation on housing, corporations, earnings, and unemployment. The host suggests that the economic cycle may have stalled halfway through and speculates that indicators are picking back up, indicating a potential reacceleration in GDP growth.
Bond Market and Global Yield Environment
- Bond Market: The podcast discusses the potential implications of a recession and the behavior of the bond market in such a scenario. The possibility of bond deals not falling during a recession is raised, highlighting the concern of increased debt and government spending on welfare programs.
- Global Yield Environment: The speaker suggests that if equities continue to rise, bond yields will likely increase, indicating a higher global yield environment.
Cryptocurrencies and Government Intervention
- Cryptocurrencies: The podcast discusses the potential scenarios of fiscal dominance and the impact on assets like gold and crypto. The guest discusses the potential risks of governments banning cryptocurrency transfers outside of the US economy, highlighting the ease with which crypto can circumvent the system compared to gold.
- Government Intervention: The podcast explores the idea of credit provisioning and the government’s role in choosing where to provide credit and ensure market safety. The belief in the crypto world that the system is set up to evade government control is challenged, with historical evidence suggesting that governments hold more power.
Sentiment Analysis
- Bullish: The podcast expresses a positive outlook for businesses built on the underlying technology of crypto, suggesting that there will be successful ventures in the long term. The guest also mentions the potential longevity of the current system, citing the Roman Empire’s continued existence despite periods of civil war and difficulty.
- Bearish: The podcast expresses concern about the current economic landscape, highlighting the risks of not achieving a soft landing and the potential implications of a recession. The guest expresses concern about the possibility of governments cracking down on crypto and individuals being forced to hand over their holdings.
- Neutral: The podcast acknowledges the inevitability of change and the current societal shifts, including the rise of populism and the potential for tumultuous periods ahead. The guest clarifies that being bearish on the US dollar does not mean advocating for investing in other currencies like the Chinese yuan, emphasizing that there will still be opportunities to make money in different ways.
