May 12, 2023 • 43 mins
Are we getting to the point where central banks are starting to break economies?Dario Perkins, Managing Director on the Global Macro team at TS Lombard, asks that question in his conversation this week with Merryn Somerset Webb on Merryn Talks Money. He says central banks are losing control of their own tools, and that policymakers may drive their economies into recession.
Sign up to John Stepek's daily newsletter Money Distilled. https://www.bloomberg.com/account/newsletters/uk-wealth
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
John. You know, we've been doing this such a long
time that we see stuff come round and round and
round again. And we've just seen one of those things
that we've seen before. And last time we thought that's
a really bad idea. It turned out to be a
really bad idea. We thought we'd never see it again,
and here it is, the one hundred percent mortgage.
Speaker 2 (00:22):
Yeah, finance is the worst merry go round reid in
the world, I think. But yeah, I mean the one
that is a slight difference between this one hundred percent
mortgage and the ones that were getting launched the last
time the housing market crashed.
Speaker 1 (00:37):
Small mercies is a.
Speaker 2 (00:39):
Small mercy because I think the problem is that you
you see this happening, and it's a great bit of
publicity for the people who come out with it first.
And also this particular mortgage has got quite a lot
of restrictions on it, and that you can only have
it if you've been renting for a certain amount of time,
and you can only have it up to the monthly
(00:59):
pain on your rent. So the thesis is, obviously, if
you can afford to keep paying your rent, then you
may as well pay rent to the bank instead. But
it's just it's just a saying that whenever there is
basically basically just credit kind of finds a way, and
you know the bank that.
Speaker 1 (01:18):
It finds a way. It's like a song title, Yeah,
we're in the wrong business.
Speaker 2 (01:23):
Should that's chat gpt to put together a song based
on that. See what it comes up with.
Speaker 1 (01:29):
But listen, I this one hundred percent mortgage that sounds
perfectly reasonable. If you can afford to pay rent, then
you can afford to pay the mortgage. And it is
the building up of deposits that's so impossibly hard for
people you haven't got well of parents who can give
you a deposit. Why shouldn't you have this mortgage? Why
shouldn't you what's the problem here?
Speaker 2 (01:48):
The problem is that the fact that you need products
like this to be launched points to a deeper problem
with the housing market, which is that it is over valued.
And generally speaking, eventually over valued things come down. So
if you get one hundred percent mortgage, you buy a
house and then it loses money, then you're immediately in
negative equity. And also these things are the maximum and
(02:14):
in fact that sort of the implied standards matured. So
duration should take this out over, so it's like a
thirty five year mortgage rather than twenty five year one.
And this has been sort of quietly creeping up over
the last kind of two or three years, particularly the
length of time that people are having to take home
(02:36):
loans over, and I just don't think that's healthy. You know,
we keep on carping on about how we get a
pending pension crisis because young people don't say enough ink
of their pensions, But now we're sort of encouraging them
to take thirty five year mortgages as well. And I mean,
I know there's there's the theory that whenever as you
get older, you'll earn more and therefore you'll cut the
(03:00):
say is down, but that is almost certainly not going
to harmen given that people who are trading up but
also needn't extend the mortgage term as well to be
able to afford to the payments.
Speaker 1 (03:10):
So sure, John, but you know, at the moment we
have the gift of inflation, and so gradually these debts
will be eroded away, and if we have inflation running
at five percent for a decade, that mortgage will look
like small change by the time that people who bought
this stuff hit in their mid thirties.
Speaker 2 (03:27):
That's a very good argument. I hope you'll be encouraging
your youngins to take it mortgage when they come of age.
Speaker 1 (03:36):
Hmm, that'll be a while. I'll tell you that the
thing that worries me. I mean, I do see the
positives of this, I really do.
Speaker 3 (03:42):
But the thing that.
Speaker 1 (03:43):
Worries me is this idea of people being in negative equity.
I mean, what we remember from the early nineteen nineties
is that negative equity and from twenty seven eight nine
is that negative equity is the most awful feeling for people.
And it was resolved very quickly, as we know in
the two thousands, but in the early nineties it was
really hard and it's it's very debilitating. It imprisons you,
(04:04):
it can it can lead to really nasty, unpleasant life
outcomes of being in a position of negative with your house,
and that is something I would really really hate to
happen to another generation of house buyers. So that's my
big worry about it. I can totally see it in
cash flow terms, but in terms of the potential for
negative equity, I mean, anyone thinking of taking some of
(04:24):
the one of these up might go and talk to
some of the people stuck in help to buy homes
because that's nasty too.
Speaker 2 (04:30):
Yeah, that is a good point. They help to buy.
Speaker 3 (04:35):
Earth.
Speaker 2 (04:36):
It's gonna be interesting to see how that all pines
out over the next few years.
Speaker 1 (04:40):
No, I mean, I suppose one thing we can say, John,
one thing we can say is that so far property
prices are defying your gloomy outlook.
Speaker 2 (04:50):
Yeah, exactly, I think the mill I think that this
is where I guess one hundred percent mortgage thing comes
back in. Is that point about that? There are Whenever
I've been writing about this, I've been saying there's a
few ways that this could be wrong, and one is
that basically people either take out loans over a longer
(05:11):
period of time and that means that low it's the
interest rates are higher, you can still you get the
same the same monthly payment will buy you a larger
amount of capital, or the kind of lending conditions can loosen.
And although this isn't much of a loosening at the moment,
I think it's reasonable to expect that if it takes off,
(05:35):
then given that there's competition between the banks and at
the end of the day, they do want to write business,
and they would rather write business against property, get you know,
business that's asset backed, rather than non asset back business
to you know, small firms or something like that. So
I can certainly see a race to the bottom kicking
(05:58):
off again. And then you know, all that means is
that again you get the overall consumer will get overstretched.
House prices won't, affordability won't correct, and then you'll just
get a bigger correction further down the line, maybe in
line with the eighteen year property cycle that we've discussed
(06:18):
occasionally before here.
Speaker 1 (06:20):
Yeah, that sounds about. It sounds increasingly likely as the
week scout passed, doesn't it. One of the puzzant thing
that could happen is that wages in the UK catch
up with inflation. So we have inflation eroding depth wages
catching up with inflation, and we're all good, this is possible, right.
Speaker 2 (06:35):
I mean, I think that is possible, and that would
be good. But for that you need prices. You still
need prices to go up at a slower rate than
wage inflation, and to be fair, at the moment that
is happening, I think the risk is that if you
simultaneously get kind of credit being loosened, then you know,
(07:00):
you may end up losing the benefit because people will
still be chasing whose places a lot higher. And I
suppose this is partly where I start to have sympathy
with the people that say, so, we just do need
to build more and build better. I don't think that
that's the main driving force behind prices, but I do
think that, you know, I'll move towards can building more
(07:24):
and making planning restrictions less.
Speaker 1 (07:27):
Look at that, everybody. A bit of backtracking there from
John maybe heaving those compromise with the people, always says
he doesn't agree with We're getting there, but listen, before
we get started on building more and building better. As
a vague possibility we might build more, but Earth Kelly,
what I see absolutely no possibility that our house builders
will build better, and that is ever going to happen.
Speaker 2 (07:46):
I need more competition, They.
Speaker 1 (07:48):
Need more competition. Everybody needs more competition. Welcome to Maren
Brook's Money, the podcast in which people who know them
explain the markets. I'm mare zumzet Web this week of
conversation with Daria Perkins, managing director on the Global macro
team at TS Lombard. Daria thank you so much for
(08:11):
joining us today. I hugely appreciate it.
Speaker 3 (08:14):
Oh worry, it's always good to see you.
Speaker 1 (08:15):
Are now an expert on recessions, and we are going
to talk today about something you've recently written on the
extent to which the next recession is going to hurt
and what it might mean for markets. So I wondered
if we could start just by talking about what a
recession actually is, because it's a super scary word, but
(08:37):
it actually covers some vast range of things from A
recession can be almost nothing and it can be absolutely hideous.
So when you say a recession, what is it? You mean?
Speaker 3 (08:48):
Well, I mean that's the sort of debate right now,
isn't it. I mean we've been having this debate for
almost twelve months now, I mean twelve months ago we
had two quarters of negative GDP growth in the US
and was saying, oh my god, it's a technical recession
and arguing about that word technical, and I think you know,
what we're really talking about is a sort of broad
based and persistent decline in activity, and by persistent I
(09:12):
mean more than a few months, and a technical recession
that two quarters of negative GDP GRAF doesn't really capture
what a recession is about, because I think ultimately recession
is a process rather than an event, and so what's
really the key to it, I think is the labor market,
because the sort of classic recessionary process is that companies
(09:35):
start to fire workers and so then confidence goes down,
spending goes down, that leads back into lower corporate revenues,
and then you get more rounds of job cuts, and
that I think is the sort of classic reflexivity of
a recession, and that's why when this process starts to happen,
it becomes very nonlinear. And so if you look at
(09:55):
the history of recessions, you get this huge variation in
severity of recessions, both over time and across countries, because
you know how quickly that sort of dynamic of job
losses kicks in really varies in different countries. So if
you're you know, German or Japanese company, it's so expensive
to fire people and then higher them back that you
(10:17):
sort of delay that decision as long as you can,
whereas in the US you tend to get much quicker
decisions to fire people, so you get much more of
a sort of v shaped you know, a quick downturn,
and then you tend to get quicker recoveries too.
Speaker 1 (10:30):
And in the UK it's pretty easy to find people here,
isn't it if their job as redundant.
Speaker 3 (10:36):
Yeah, well it's harder than it is in the US. So,
as always, the UK sort of in between Europe and
the US. But if you think about someone like Italy,
you know you can end up paying people two years severance.
Now you don't get that in the UK, but you
do normally need a sort of good decision for firing,
(10:58):
a good reason for firing people. That's why you tend
to have these sort of complicated redundancy processes and all
of that stuff. So it's sort of in between.
Speaker 1 (11:06):
Got two years. You might think it was better just
not to hire people in the first place.
Speaker 3 (11:11):
Well, I mean that's exactly what happens, isn't That's why
you tend to get these sort of very slow recoveries,
because as the economy starts to improve, companies want to
be really sure that it's genuinely improving, and you know,
you just get this very different dynamic between Europe and
the US.
Speaker 1 (11:28):
I like the way you describe it as a process,
not an event. I think, don't we describe Brexit like
that as well, do we?
Speaker 3 (11:34):
Yeah. I mean it's sort of like it's that sort
of old joke about pornography. You know, you can't define it,
but you know it when you see it. And I
think with a recession, you know a recessionary process when
you're in one. And that was why that argument last
year about two quarters of technical GDP contraction in the
US was so silly because every month US companies were
(11:56):
hiring huge numbers of workers and that's not a recessionary dynamic.
And you know that's not what we're seeing now. You know,
every payroll report in the US is quite positive. Even
in Europe. You know, you're still seeing sort of positive
employment dynamics that is not a recession. So we're not
in a recession. That's possible that that process starts to
(12:17):
kick in, but I think it will be quite clear
when it is kicking in.
Speaker 1 (12:21):
Okay, so let's talk about the next recession. Then the
next recession is something that has been forecast for a
very very long time. And also Commis would have said
that we should be in a recession by now in
the US, in the UK, globally, this idea that there
will be a probably quite mild global recession at some
point in twenty twenty three. Is almost universal. We don't
(12:41):
give very many consensus on this type of thing, but
everybody thinks there'll be a recession this year. And of
course that doesn't really mean anything because economists are famously
bad at forecasting recession, right, But nonetheless, everyone expected something
and it hasn't yet happened. Is it going to happen
this year? And when it does, if it does, is
it to be the mild recession everybody thinks? Or are
(13:02):
they getting it completely wrong?
Speaker 3 (13:04):
Well, you're right that economists are hopeless of forecasting recessions.
I mean, there's an IMF paper on this from a
few years ago saying that economists had failed to predict
one hundred and forty eight of the last one hundred
and fifty three recessions. So that sort of tells you
when you look at sort of consensus forecast for recessions,
you know, we missed all of the sort of the
big ones of the eighties and nineties, the two thousand's
(13:28):
the one. The last time economists actually forecast a recession
correctly was back in the early eighties, and that was
because Volka raised interest rates to twenty percent, so even
economists could figure out that that level of interest rates
was going to kill the economy, and so that's exactly
what happened. So ultimately, I think the recession call for
this year is about are we getting to the point
(13:50):
where central banks are genuinely starting to break the economy?
And you know, I think what worries me more in
the sort of last couple of months than beforehand is
that central banks seem to be losing control of this process.
You know, they were they are these control freaks. You know,
they were raising interest rates quite quickly, but they were
(14:10):
doing it in a sort of measured and methodical way.
You know, they were trying to squeeze the economy and
reduce demand. But we've got to the point now, well
I don't think they're really in control of that process anymore.
And the reason for that is, you know, what's been
happening in the banking system. So suddenly, you know, we've
got this very severe tightening in bank lending standards, and
(14:31):
that is, you know, central bank's really losing control because
once you've got you know, banks making the decisions about lending,
that's happening in a way that you know, central banks
can't really measure. You know, they have no idea what
the sort of true effective and how effectively tight monetary
policy is anymore, and they have no way of sort
of calibrating it. So, you know, is this bank lending tightening,
(14:55):
Is that worth twenty five basis points on interest rates?
Is it worth one hundred and fifty basis points? They
don't know, They have no clue. So what worries me
is that I think there's been a lot of fake
recession signals over the past twelve months. You know, we've
had this big contraction in global manufacturing, this big deterioration
in leading indicators. I think that was always going to
(15:16):
happen on the other side of COVID. You know, I've
been saying for the last three years that we've been
in this sort of fake business cycle. You know, we
shut down the economy, we reopened the economy. There was
nothing organic about that, There was nothing you know that
that wasn't a normal business cycle. That was a policy
induced business cycle. We sent huge amounts of stimulus into
the economy, which was temporary, and we withdraw that. We
(15:39):
withdrew that stimulus, and so we were always going to
get a manufacturing recession. You know, we had sort of
eighteen months where we're all at home buying stuff off
the internet. How could you not have a manufacturing recession
on the other side of that. So I think that
misled people and made people think that this sort of
recession was inevitable. But to me, the genuine demand destruction
(16:01):
is coming from central banks, and I think we've just
got to the point now where that's becoming sort of intractable.
And so there is a worry here that I have that,
you know, central banks are just going too far and
they will drive this economy into recession. Is it inevitable?
I don't think so. You know, I don't think any
of this is inevitable. I don't think a genuine recession
(16:21):
was inevitable, but I think that we may just end
up with one anyway because of the way that central
banks have behaved. And the basic problem here is that
they've been sort of freaking out about this nineteen seventies dynamic.
You know, they were deeply concerned that the inflation was
turning into the nineteen seventies that was never happening. You know,
there was never really any genuine evidence that this was
the nineteen seventies repeated. But you know, central banks had
(16:45):
this sort of personal fear of repeating the mistakes of
the past, and so you know, if there is a recession,
I think it's going to look quite different to the
recessions that we've been in before, because what really happened
is central banks freaked out about inflation. They raised interest
rates too aggressively. They cause the sort of nonlinear problems
in the banking sector. They then, you know, they could
(17:06):
then get whip sword into the reverse and you know,
having caused the economy to deteriorate too far, they would
then ease policy quite quickly.
Speaker 1 (17:14):
I think I just want to ask about the extraordinaries
of unusualness of the situation that we're in. You know,
so if you look at interest rates in absolute terms,
you know, four five percent around the place, that doesn't
seem particularly high. In historical terms, you know, you'd think
that four percent is kind of perfectly normal interest rate
for the UK, right, But the extraordinary thing about what
(17:34):
we've seen recently is that, you know, eighteen months ago,
interest rates were more or less zero nothing, and that
had distortionary effects on the market. And now even though
we've come up to what is a perfectly normal interest rate,
we've done it at phenomenal speed. Eleven we're talking on
the day of the Embassy meetings, so presumably by the
time people listen to this, twelve interest rate rises in
(17:56):
a row. That's fairly unusual. And so the incentives inside
the world of interest rates have changed so absolutely and
so dramatically that it's hard for us to see exactly
what will happen. And one of the things that I've
been looking at this week and writing about is the
shift of money market funds and how you know, even
a year ago, most UK investors had never even heard
(18:18):
of a money market fund. There's been a need for
them for so long because rates have been so low,
people have been perfectly happy to take that you know,
twenty five basis of points or whatever. It is difference
between having money on deposit in a bank and having
money in a say money market vunder a guild or whatever.
But now that you're talking about a difference between deposit
rates at one percent tops and instant access and money
market funds at four percent, there's a huge shift of
(18:39):
money that as investor mindset changes you know, the point
being that it's also unusual and so quick that the
incentives inside it and the things that might or not
break might or might not break are very uncertain. So
it's hard to align what's happening now with any previous
historical time.
Speaker 3 (19:00):
Is that fair? I think so, But I think that
you know, basically, what we've had is that central banks
sort of lied to us. You know, they told us
that interest rates were going to be at zero forever,
and they did that on purpose because that was part
of the stimulus. And then in COVID that sort of
reached an extreme because central bank said, oh my god,
(19:21):
the economy may never recover from this. You know, we're
going to be at interest rates at zero forever. And
then we had the IMF writing about how the world
was in a global liquidity trap, which was an obvious
sort of red flag for anyone who was worrying about inflation.
And then you know, a lot of investors have been
totally caught out about this, and so in areas of
the market, like you know, the technology sector, particularly in
(19:45):
the US, but you know elsewhere, you had this sort
of long duration bet, this idea that interest rates would
be zero forever. And banks were part of this too.
You know, banks who had written mortgages, particularly fixed rate
mortgages over the past sort of five ten years, you know,
are now on the hook because you know, they assume
(20:07):
that interest rates would never go up. And weirdly, you know,
policymakers have been looking at mortgage markets and they've been
taking a lot of reassurance from the fact that, you know,
there's much more fixed rate mortgages than they were in
the past, because interest rates going up don't hurt you know,
mortgage holders as quickly as before. But they forgot about
(20:28):
the banks because the banks on the other side of this.
So suddenly, you know, all of these banks are making
losses and suddenly they're facing this multi year squeeze of
their profits. Now, I think, you know, the good thing
about this, the encouraging thing is that none of this
has really been leveraged in the same way. So you know,
if you look at the sort of really nasty recessions
(20:50):
of the past, you know, very simple story. You had
long periods where asset prices went up a lot and
debt went up a lot, and then the asset price
went down, but the debt was fixed and so you
had these massive strains on balance sheets that led to
these sort of very deep balance sheet recessions. You know,
Japan in the early nineties, Sweden in the early nineties,
(21:14):
bits of dot com. You know, there were certain companies
in the US that struggled with the same dynamic and
then subprime you know, periphery debt in Europe, it was
all that same story, you know, overinflated asset prices and
massive debt binges. And this time we haven't had the debt.
So you know, there's a lot of investors that have
been caught out by this, and banks have been caught
(21:36):
out by this, and profitability and returns are going to
be lower than people expected. But I don't think we
have that sort of deep underlying financial imbalance, particularly in
terms of debt that leads to the really nasty outcomes
that we had in the past. And so, you know,
to go back to your question about historical precedent, the
only one I can really find is US banks in
(21:57):
the sort of late eighties and nineties, which was the
savings and lowing crisis in the US. So you had
this period where you know, similar dynamic. You know, these
banks had written all of these mortgagees. Interest rates went
up a lot because central banks had to squeeze inflation,
and then suddenly the profitability of these banks massively deteriorated,
(22:18):
and then you had these sort of rolling bank failures
that went on for years, and it didn't cause the
sort of disruption destruction to the economy that subprime did
because it didn't have the same levels of leverage or
the same underlying problem.
Speaker 1 (22:35):
You said earlier that the central banks lied to us.
Do you think they lied or do you think they
just got it wrong? Because they're so used to very
low inflation as a result of the global dynamics of
saying things like China joining the global economy, low labor costs, etc.
They got so used to the idea that inflation was
going to stay low, and their models simply extrapolate that.
(22:55):
It was less lying than believing an inaccurate model.
Speaker 3 (23:00):
I mean, I was exaggerating a little bit. Well, it's
an element of that. You know, the central banks when
they say that interest rates are going to be zero
for a long time, they do that because they want
to sort of drive you know, faster growth that they
want it. They wanted to sort of almost be self defeating.
You know, you promise people interustrates are going to stay low,
(23:22):
and you try and create the conditions where they won't
stay low. And I don't think it's just central banks
that did that, you know, I think the whole sort
of period after the global financial crisis created this psychology
where you know, we thought inflation would never come back,
and and you see it on the fiscal side. You know,
(23:43):
we got to the point where people believe there was
absolutely no limit to what fiscal you know, what we
could do on the fiscal side, and so and then
COVID happens and we put all those lessons into effect.
You know, central banks do massive q E. They take
interest rates to zero, they promise that interest rates will
stay at zero, and then we have this massive fiscal
(24:06):
stimulus on the idea that you know, fiscal stimulus wasn't
inflationary because we just never get inflation anymore. So you
could argue that the whole of the economics profession and
the whole of policymaking made this sort of error that
sort of it's almost so the seeds of its own destruction.
You know, the idea that inflation would never return was
(24:27):
ironically the thing that made inflation return. It's this sort
of inherent, sort of Minsky moment in the way that
economics works. And you see this through history. You know,
we have these periods where when everybody believes something and
it turns out that thing is wrong, it totally transforms
the outlook.
Speaker 1 (24:47):
Interesting. But you think, or I think, you think that
this inflation is going away. You don't believe the nineteen
seventieth story, which by way, a lot of the guests
on this podcast do believe. I hear a lot from
people about how we're already in a nineteen seventies dynamic
and we're going to see, if not, you know, steadily
high inflation, extremely volatile inflation, which will hit high rates
(25:11):
along the way. So you know, there's a lot of
people who don't believe for a second that this is
over and that well, we may go back down towards
the end of the year, we'll almost definitely go back
up again after that. But I get the feeling that
that's not what you believe.
Speaker 3 (25:24):
I think that I have a more softle view on inflation.
So subtle is good.
Speaker 1 (25:29):
I like a sudden view, not so easy the headline,
but good.
Speaker 3 (25:32):
I think that a lot of the inflation we've had
over the last two years was transitory, a word that
is now massively out of fashion. I think that it
was very similar to what happened after the Second World War,
where you had this sort of one off increase in
the price level rather than this sort of spiraling of inflation.
(25:53):
But I think that when you look at the world
now compared to twenty nineteen, I think some things have
changed and they're not going back. So the obvious one
is supply chains, you know. I think that companies are
rethinking their supply chains, and that deglobalization, which was you know,
(26:14):
started way before this is now accelerating. I think geopolitics
has changed, you know. I think we have a cold
war between the US and China, which is just getting worse.
We have a hot war in Europe. We have these
big geopolitical shifts around that, you know, that change. We
have a different type of economy, a sort of wartime
(26:35):
economy where governments feel that they have to be more
interventionist and more involved. So things like industrial policy are
coming back and so and I think you have labor shortages.
You know, we didn't have these massive labor shortages back
in twenty nineteen, and part of that is lots of
people have dropped out of the labor market. But when
you put all that together, I think that you're looking
(26:56):
at a subtly different world. You know, over the next
sort of ten years is which is not that inflation
is going to be sort of spiraling like it did
the nineteen seventies, but for sure inflation is going to
be a lot more volatile than we've been used to.
You know, we're not going back to the Great Moderation.
You know, we can argue about whether inflation is going
to be four percent or two percent, but I'm not
(27:18):
sure that's really the story here. I think we're in
a world where we're going to have to live with
supply problems much more than we did in the past.
And so, you know, even though that's a subtly different
view on inflation, it's really important for financial markets because
I think, firstly, there's going to be more periods like
(27:39):
twenty twenty two where you have stagflation. You know, you
have sort of counter cyclical inflation. And what that means
is that you know, bonds and equities that correlation flips
from negative to positive, and that's profoundly important for you know,
where bonds should trade and how you construct a portfolio.
You know, sixty forty isn't going to work if you've
(28:00):
got sort of reoccurring supply problems, not sort of nineteen
seventies permanent inflation, not wage priced spirals, but periods of
very high inflation are going to kill returns in bonds,
and so you know, and I think the prevailing tendency
of inflation has changed. So instead of inflation always being
(28:21):
too low and central banks always trying to get inflation
back up to two percent, I think two percent becomes
a sort of flaw on inflation rather than a ceiling,
and so the whole basic task of monetary policy changes.
So instead of central banks always looking to QI, always
looking to zero interest rates, always trying to get inflation back,
(28:41):
this is going to be a world where central bank's
always trying to stop inflation going too high. And that's
just a totally different investment world. So, you know, it's
a secular bear market in bonds, not as extreme as
the nineteen seventies, but I think it's a secular bear market.
I think the term premium in bonds wildly too low
because that term premium reflects the great moderation and the
(29:06):
fact that you know, bonds had this perfect insurance property
for equity, so you almost paid a premium to own
bonds and put them in your portfolio. That world has gone,
and I think it changes the equity market because you know,
in the old world, you just put money into long
duration tech or US stocks. You didn't put it into
(29:27):
you know, Europe or the UK, and you got you know,
those those returns just you know, went through the roof.
You just it just got constantly re rated on the
basis that interest rates would be lower and lower and lower.
And that world has gone. So you need to be
as an investor. You need to think, well, how is
this world changing, What are the big themes for the
next five ten years. How do I get exposure to
(29:49):
those themes. It's not just about you know, a big
long duration punt, which is what the last decade was
all about.
Speaker 1 (29:55):
We're going to go back to the market in a minute,
but before we do that, I just want to ask
you about inflation in general. You know, there is a
view that consistently higher inflation than we've been used to
for a decade is not necessarily a bad thing because
it will help us deal with some of the public
debt problems we have, and also will it will help
with the housing market. You know, it'll help bring down
(30:17):
some of those real debt levels and the housing market,
and it'll it'll help well debt across the board, because
I know we were talking earlier about this not being
necessarily a problem of leverage as it has been in
the past, but nonetheless there is a big public debt
problem and private debt shot through the system. So you know,
a decade of reasonably high inflation will help get us
out of that. Mind it's not necessarily a bad thing.
Speaker 3 (30:40):
I sort of agree. It depends where you are with inflation.
You know, if you have inflation in the sort of
three to five percent range and it's consistently there, then
you know, that's going to make a huge difference to
the things that you said, you know, debt, deleavergime. You know,
I think history teaches us we basically have two ways
(31:00):
to deal with debt problems. One of them is what
economists called the conventional approach, which is probably wrongly named,
but that's austerity structural reform. That's what we tried after
the Global financial crisis. And the other way is what
economists called the unconventional approach, which is you inflate away
the debt. You use some form of financial repression, or
(31:21):
you write it off, or you send your currency down
so you don't put it back at sort of international terms.
Speaker 1 (31:27):
And that is much more the normal way, isn't it.
That's much more how we've got rid of debt over
the years. In fact, kind of the only way. Austerity
is a tricky way to try and do this.
Speaker 3 (31:36):
Every time we've tried austerity, it's been a disaster. So,
you know, UK in the sort of nineteen twenties, you know,
while the rest of the world was having the Roaring twenties,
we had a sort of depression, you know, with mass
unemployment and deflation because we were so desperate to get
back onto the gold standard. And after twenty ten, you know,
I would say that austerity was a disaster too. And
(31:57):
actually many of the problems that we face in the
UK right now are because people are just you know,
fundamentally pissed off after a decade of austerity. You know
the fact that public sector workers have seen their incomes
consistently squeezed for a decade they're now saying, right, that's enough.
We can't go back to that. And so, you know,
(32:18):
I think austerity was a disaster. I think that actually
this new world promises to be slightly better. You know,
I don't think it's the nineteen seventy So I don't
think we're going to be stuck with inflation that sort
of five, you know, ten percent. But I think if
it's in that slightly higher range, and it's about the
tendency of inflation that is changing. As I said, I
(32:39):
don't think that's a bad outcome, and I think central
banks would readily accept that, even though they will deny
it at every opportunity. So if you ask any of
these central bankers right now, you know, is three percent
inflation all right? They will say no, absolutely not. In reality,
if you offer them three percent inflation for the next
five years, they will bite your hand off at that.
(32:59):
They just can't say it, because you know, they should
have changed their inflation targets back in twenty nineteen. They didn't.
They can't do it now. You know, if you can't
hit your inflation target, you can't raise that inflation target
because it's an admission of defeat if you had changed
your target in twenty nineteen when inflation was below two percent,
(33:20):
it would have been sort of aspirational. You know, you
would had to try really hard to get inflation up. Now,
you know, you're basically saying, well, we don't have a
target anymore if you admit that. So I think, you know,
we're back to central banks telling lies again. And you know,
I think that they can't be honest about this. But
you know, the environment that they're scared of is not
(33:43):
persistent three percent inflation. You know, they're scared of that
nineteen seventies dynamic because none of these central bankers want
to go down in history as the idiots who let
it happen again. You know, we spent the last thirty
years talking about, you know, the policy mistakes of the
nineteen seventy and Arthur Burns and these guys that went
down history as complete clowns. So you can understand why
(34:06):
these central bags don't want to be talked about as
a sort of case study in monetary failure in forty
years time.
Speaker 1 (34:13):
Yeah, poor Arthur Burns, Poor Arthur Burns. Actually we should
do a whole podcast on the miseries of Arthur Burns.
I think he's being slightly misjudged by history. But we'll
come back to that. So let's go back to equity
markets then, So we can't do what we were doing before,
which is a great shame because it was super easy.
If it felt a little bit too easy, and it
clearly was a little bit too easy, what do we
(34:33):
do now? How do we approach investing?
Speaker 3 (34:35):
Well, I mean, it wasn't It was easy, but it
was something that you could replace with automation. I'm not
sure that long term it was really that great. You know,
it didn't take a great deal of thought to buy
us fangs, did it. I mean, no, it really didn't.
Speaker 1 (34:50):
Though of course it took an off a lot of
thought to not buy them, which was a mistake that
a lot of us made.
Speaker 3 (34:55):
That's true. So I think that, you know, I think
basically you need to think about themes. So what are
the themes for the next decade? De globalization, climate change,
carbonomics AI to some extent, although I think there's a
massive amount of hype around that right now. You know,
(35:17):
I think you're thinking about themes, you're thinking about an
economy that behaves differently, so you know, inflation that's slightly
higher periods where you know bonds won't help you, and
so you're almost you know, you're you're looking for different
sectors within the equity market. And so one of the
things I've talked about, you know, over the last eighteen months,
(35:38):
what I called the tangible twenties, which is this idea
that you know, the twenty ten is all about intangibles,
you know, about tech, about long duration. I think now
you want exposure to tangible things, and you know those
are typically the sorts of things that do better in
a higher inflation of regime. So I think you're looking
at things like commodities, materials, semiconductors, anything explode, exposed to decarbonomics,
(36:08):
anything exposed to friends sawing and reshwing and all of
that sort of stuff. You know, So you know, I
think you want a different I mean, you asked me
about equities, but in bonds, I think you just want
a smaller allocation to bonds, and you want to find
bits of the equity market that almost replace bonds in
those periods of stagflation. So you know, commodities is a
(36:31):
sort of obvious replacement if you're talking about not persistently
high inflation, but those periods where inflation is a problem
and bonds sell off because of the inflation. Okay, so in.
Speaker 1 (36:44):
Equities in particular, we want to be heading towards tangible things, industrials, etc. Now,
as I know my listeners quite well, I can tell
you exactly what they're thinking right now. And what they're
thinking is resharing industrial industrialization of say the Middlands of
the UK. That sounds interesting. I don't really know what
(37:07):
companies I would buy to make that theme part of
my portfolio. So I tell you what I'll do. I'll
go out and I'll buy some buy to let houses
in the Midlands.
Speaker 3 (37:17):
Should they do that?
Speaker 1 (37:18):
That's what they're thinking. I know they are right right
to me listeners if I'm wrong, But I know that's
what you're thinking, because everything ends up on should I
buy another house?
Speaker 3 (37:26):
Everything? Well, I mean, this is the point, isn't it.
It's going to be harder. You have to sort of
do a bit more research before you buy stocks. In
terms of housing, you know, I think that you know
clearly we're in a difficult period of housing right now,
just because the speed of the moves in interest rates.
You know, it's it's I think it's more about the
(37:46):
speed than the level of interest rates. Interest rates have
moved very very quickly, and so you know, people get
immediately squeezed because of that moving interest rates. I think
over time, I think the housing market can actually live
with higher levels of interest rates. And the reason for
that is that it's not just the interest rate that matters,
(38:07):
it's income. And so if we're in a world where
nominal wages and nominal profits are growing more quickly than
they were in the past because it's more inflation, then
actually you start to live with higher levels of high
levels of interest rates and you get used to it.
And so I think, you know, at the moment, I
wouldn't want to exposeure to anything related to housing over
(38:28):
the next sort of eighteen months on a five year horizon,
I think that the housing market copes with that sort
of environment. And if you look at sort of look
at commercial property and you look at how it responds
to inflation, you know, clearly very high levels of inflation
are bad. But this sort of moderate inflation that we're
(38:50):
talking about, I don't see that as a bad environment.
I just think right now I wouldn't touch any of
this stuff. It's you know, again, it's this conflict between
a recession risk, which is you know, fairly imminent and
the longer term. And I think they're demanding you to
do very different things as an investor.
Speaker 1 (39:11):
All Right, that's hosing sorted. That'll make everyone satisfied. Let
me ask you two quick questions before I before I
let you go, because I'm sure you have more sessions
to think about. If you had to hold something for
ten years starting now. You're at stockpickers, so I'm not
asking you for a specific stock recommendation, but if you
had to take one of your sectors, one particular area,
(39:33):
to invest in right now and hold for ten years,
what do you think it might be?
Speaker 3 (39:38):
Yeah? I mean I'm not a stockpicker. I tend to
do it in terms of themes. Yeah, so you've got
a lot of themes.
Speaker 1 (39:44):
What's your favorite?
Speaker 3 (39:45):
I think No, I think it's all about value stocks.
So if you think about growth versus value, and you
can get the data on this back to the nineteen twenties,
you see that the twenty tens period was just real,
really bizarre and weird. You know, that constant outperformance of
growth overvalue. There is no other period in history that
(40:08):
it behave like that. And it was it was an
artifact of zero interest rates and sort of endless QE
and the idea that interest rates would be at zero forever.
I think if we're looking at a different sort of world,
then we go back to sort of more historic norms,
which is where value starts to outperform. So I would,
you know, I'd be sort of very long value at
(40:30):
this point on that sort of horizon. You know, over
the next six months, value could get absolutely hosed just
because you know, central banks are cutting interest rates again
and we've got a recession fear, and you know, we've
seen the tendency of investors to jump back into all
of those sort of crappy tech stocks as soon as
they think interest rates are going down again. Yeah, we've
(40:51):
seen that this year already.
Speaker 1 (40:53):
Okay, that's exactly what the listeners like to hear as well,
very very value orientated listeners, I think we have on
this podcast. And final question, and this is a this
is not a trick question, but there is an answer
that I know we all expect gold or bitcoin.
Speaker 3 (41:09):
I think I know what the answers you expect.
Speaker 1 (41:12):
You don't have to give the expected answer. You can
answer however you like but we'll sneer if you give
the wrong one.
Speaker 3 (41:18):
Well, I mean, you know, bitcoin has basically been a
sort of digital tulip as far as I can see,
for the last sort of four or five years. And
I you know, I actually wrote about this and sort
of similarities between what was happening with cryptocurrencies during the
pandemic and tulip mania, because they both happened sort of
backdrop of a pandemic. If you look at this sort
(41:38):
of breakout of the plague in that period in Amsterdam,
you know, when all that stuff was kicking off, you
basically had these sort of bored traders sitting around in
taverns bidding up the price of the price of tulips.
And I think we had a sort of, you know,
an element of that. You know, to me, bitcoin has
behaved like a sort of long duration, extremely speculative asset,
(42:02):
and I don't think that's how gold behaves. And I
think if we're in a world where you've got more
sort of secular inflation than I think, you know, gold
does better in that environment. I don't know how bitcoin
page in that environment because we've never had that environment
before with bitcoin.
Speaker 1 (42:19):
That'll be the interesting bit but I think we can
probably guess how it might behave Daria, that was the
correct answer. Thank you very much for being with us today.
We hugely appreciated, no worries.
Speaker 3 (42:32):
Good to be on the show.
Speaker 1 (42:42):
Thanks for listening to this week's Marin Talks Money. We'll
be back next week in the meantime. If you like
our show, rate review, and subscribe wherever you listen to
podcasts positively if you can. This episode was hosted by
me Marey's Unset Web. It was produced by Someasadi. Additional
editing by Blake Maple's special thanks Sadaria Perkins and of
course to John Steppe. And finally, your weekly reminder, your
(43:06):
important reminder to sign up to John's daily newsletter, Money Distilleder.
The link is in the show notes.
John. You know, we've been doing this such a long
time that we see stuff come round and round and
round again. And we've just seen one of those things
that we've seen before. And last time we thought that's
a really bad idea. It turned out to be a
really bad idea. We thought we'd never see it again,
and here it is, the one hundred percent mortgage.
Speaker 2 (00:22):
Yeah, finance is the worst merry go round reid in
the world, I think. But yeah, I mean the one
that is a slight difference between this one hundred percent
mortgage and the ones that were getting launched the last
time the housing market crashed.
Speaker 1 (00:37):
Small mercies is a.
Speaker 2 (00:39):
Small mercy because I think the problem is that you
you see this happening, and it's a great bit of
publicity for the people who come out with it first.
And also this particular mortgage has got quite a lot
of restrictions on it, and that you can only have
it if you've been renting for a certain amount of time,
and you can only have it up to the monthly
(00:59):
pain on your rent. So the thesis is, obviously, if
you can afford to keep paying your rent, then you
may as well pay rent to the bank instead. But
it's just it's just a saying that whenever there is
basically basically just credit kind of finds a way, and
you know the bank that.
Speaker 1 (01:18):
It finds a way. It's like a song title, Yeah,
we're in the wrong business.
Speaker 2 (01:23):
Should that's chat gpt to put together a song based
on that. See what it comes up with.
Speaker 1 (01:29):
But listen, I this one hundred percent mortgage that sounds
perfectly reasonable. If you can afford to pay rent, then
you can afford to pay the mortgage. And it is
the building up of deposits that's so impossibly hard for
people you haven't got well of parents who can give
you a deposit. Why shouldn't you have this mortgage? Why
shouldn't you what's the problem here?
Speaker 2 (01:48):
The problem is that the fact that you need products
like this to be launched points to a deeper problem
with the housing market, which is that it is over valued.
And generally speaking, eventually over valued things come down. So
if you get one hundred percent mortgage, you buy a
house and then it loses money, then you're immediately in
negative equity. And also these things are the maximum and
(02:14):
in fact that sort of the implied standards matured. So
duration should take this out over, so it's like a
thirty five year mortgage rather than twenty five year one.
And this has been sort of quietly creeping up over
the last kind of two or three years, particularly the
length of time that people are having to take home
(02:36):
loans over, and I just don't think that's healthy. You know,
we keep on carping on about how we get a
pending pension crisis because young people don't say enough ink
of their pensions, But now we're sort of encouraging them
to take thirty five year mortgages as well. And I mean,
I know there's there's the theory that whenever as you
get older, you'll earn more and therefore you'll cut the
(03:00):
say is down, but that is almost certainly not going
to harmen given that people who are trading up but
also needn't extend the mortgage term as well to be
able to afford to the payments.
Speaker 1 (03:10):
So sure, John, but you know, at the moment we
have the gift of inflation, and so gradually these debts
will be eroded away, and if we have inflation running
at five percent for a decade, that mortgage will look
like small change by the time that people who bought
this stuff hit in their mid thirties.
Speaker 2 (03:27):
That's a very good argument. I hope you'll be encouraging
your youngins to take it mortgage when they come of age.
Speaker 1 (03:36):
Hmm, that'll be a while. I'll tell you that the
thing that worries me. I mean, I do see the
positives of this, I really do.
Speaker 3 (03:42):
But the thing that.
Speaker 1 (03:43):
Worries me is this idea of people being in negative equity.
I mean, what we remember from the early nineteen nineties
is that negative equity and from twenty seven eight nine
is that negative equity is the most awful feeling for people.
And it was resolved very quickly, as we know in
the two thousands, but in the early nineties it was
really hard and it's it's very debilitating. It imprisons you,
(04:04):
it can it can lead to really nasty, unpleasant life
outcomes of being in a position of negative with your house,
and that is something I would really really hate to
happen to another generation of house buyers. So that's my
big worry about it. I can totally see it in
cash flow terms, but in terms of the potential for
negative equity, I mean, anyone thinking of taking some of
(04:24):
the one of these up might go and talk to
some of the people stuck in help to buy homes
because that's nasty too.
Speaker 2 (04:30):
Yeah, that is a good point. They help to buy.
Speaker 3 (04:35):
Earth.
Speaker 2 (04:36):
It's gonna be interesting to see how that all pines
out over the next few years.
Speaker 1 (04:40):
No, I mean, I suppose one thing we can say, John,
one thing we can say is that so far property
prices are defying your gloomy outlook.
Speaker 2 (04:50):
Yeah, exactly, I think the mill I think that this
is where I guess one hundred percent mortgage thing comes
back in. Is that point about that? There are Whenever
I've been writing about this, I've been saying there's a
few ways that this could be wrong, and one is
that basically people either take out loans over a longer
(05:11):
period of time and that means that low it's the
interest rates are higher, you can still you get the
same the same monthly payment will buy you a larger
amount of capital, or the kind of lending conditions can loosen.
And although this isn't much of a loosening at the moment,
I think it's reasonable to expect that if it takes off,
(05:35):
then given that there's competition between the banks and at
the end of the day, they do want to write business,
and they would rather write business against property, get you know,
business that's asset backed, rather than non asset back business
to you know, small firms or something like that. So
I can certainly see a race to the bottom kicking
(05:58):
off again. And then you know, all that means is
that again you get the overall consumer will get overstretched.
House prices won't, affordability won't correct, and then you'll just
get a bigger correction further down the line, maybe in
line with the eighteen year property cycle that we've discussed
(06:18):
occasionally before here.
Speaker 1 (06:20):
Yeah, that sounds about. It sounds increasingly likely as the
week scout passed, doesn't it. One of the puzzant thing
that could happen is that wages in the UK catch
up with inflation. So we have inflation eroding depth wages
catching up with inflation, and we're all good, this is possible, right.
Speaker 2 (06:35):
I mean, I think that is possible, and that would
be good. But for that you need prices. You still
need prices to go up at a slower rate than
wage inflation, and to be fair, at the moment that
is happening, I think the risk is that if you
simultaneously get kind of credit being loosened, then you know,
(07:00):
you may end up losing the benefit because people will
still be chasing whose places a lot higher. And I
suppose this is partly where I start to have sympathy
with the people that say, so, we just do need
to build more and build better. I don't think that
that's the main driving force behind prices, but I do
think that, you know, I'll move towards can building more
(07:24):
and making planning restrictions less.
Speaker 1 (07:27):
Look at that, everybody. A bit of backtracking there from
John maybe heaving those compromise with the people, always says
he doesn't agree with We're getting there, but listen, before
we get started on building more and building better. As
a vague possibility we might build more, but Earth Kelly,
what I see absolutely no possibility that our house builders
will build better, and that is ever going to happen.
Speaker 2 (07:46):
I need more competition, They.
Speaker 1 (07:48):
Need more competition. Everybody needs more competition. Welcome to Maren
Brook's Money, the podcast in which people who know them
explain the markets. I'm mare zumzet Web this week of
conversation with Daria Perkins, managing director on the Global macro
team at TS Lombard. Daria thank you so much for
(08:11):
joining us today. I hugely appreciate it.
Speaker 3 (08:14):
Oh worry, it's always good to see you.
Speaker 1 (08:15):
Are now an expert on recessions, and we are going
to talk today about something you've recently written on the
extent to which the next recession is going to hurt
and what it might mean for markets. So I wondered
if we could start just by talking about what a
recession actually is, because it's a super scary word, but
(08:37):
it actually covers some vast range of things from A
recession can be almost nothing and it can be absolutely hideous.
So when you say a recession, what is it? You mean?
Speaker 3 (08:48):
Well, I mean that's the sort of debate right now,
isn't it. I mean we've been having this debate for
almost twelve months now, I mean twelve months ago we
had two quarters of negative GDP growth in the US
and was saying, oh my god, it's a technical recession
and arguing about that word technical, and I think you know,
what we're really talking about is a sort of broad
based and persistent decline in activity, and by persistent I
(09:12):
mean more than a few months, and a technical recession
that two quarters of negative GDP GRAF doesn't really capture
what a recession is about, because I think ultimately recession
is a process rather than an event, and so what's
really the key to it, I think is the labor market,
because the sort of classic recessionary process is that companies
(09:35):
start to fire workers and so then confidence goes down,
spending goes down, that leads back into lower corporate revenues,
and then you get more rounds of job cuts, and
that I think is the sort of classic reflexivity of
a recession, and that's why when this process starts to happen,
it becomes very nonlinear. And so if you look at
(09:55):
the history of recessions, you get this huge variation in
severity of recessions, both over time and across countries, because
you know how quickly that sort of dynamic of job
losses kicks in really varies in different countries. So if
you're you know, German or Japanese company, it's so expensive
to fire people and then higher them back that you
(10:17):
sort of delay that decision as long as you can,
whereas in the US you tend to get much quicker
decisions to fire people, so you get much more of
a sort of v shaped you know, a quick downturn,
and then you tend to get quicker recoveries too.
Speaker 1 (10:30):
And in the UK it's pretty easy to find people here,
isn't it if their job as redundant.
Speaker 3 (10:36):
Yeah, well it's harder than it is in the US. So,
as always, the UK sort of in between Europe and
the US. But if you think about someone like Italy,
you know you can end up paying people two years severance.
Now you don't get that in the UK, but you
do normally need a sort of good decision for firing,
(10:58):
a good reason for firing people. That's why you tend
to have these sort of complicated redundancy processes and all
of that stuff. So it's sort of in between.
Speaker 1 (11:06):
Got two years. You might think it was better just
not to hire people in the first place.
Speaker 3 (11:11):
Well, I mean that's exactly what happens, isn't That's why
you tend to get these sort of very slow recoveries,
because as the economy starts to improve, companies want to
be really sure that it's genuinely improving, and you know,
you just get this very different dynamic between Europe and
the US.
Speaker 1 (11:28):
I like the way you describe it as a process,
not an event. I think, don't we describe Brexit like
that as well, do we?
Speaker 3 (11:34):
Yeah. I mean it's sort of like it's that sort
of old joke about pornography. You know, you can't define it,
but you know it when you see it. And I
think with a recession, you know a recessionary process when
you're in one. And that was why that argument last
year about two quarters of technical GDP contraction in the
US was so silly because every month US companies were
(11:56):
hiring huge numbers of workers and that's not a recessionary dynamic.
And you know that's not what we're seeing now. You know,
every payroll report in the US is quite positive. Even
in Europe. You know, you're still seeing sort of positive
employment dynamics that is not a recession. So we're not
in a recession. That's possible that that process starts to
(12:17):
kick in, but I think it will be quite clear
when it is kicking in.
Speaker 1 (12:21):
Okay, so let's talk about the next recession. Then the
next recession is something that has been forecast for a
very very long time. And also Commis would have said
that we should be in a recession by now in
the US, in the UK, globally, this idea that there
will be a probably quite mild global recession at some
point in twenty twenty three. Is almost universal. We don't
(12:41):
give very many consensus on this type of thing, but
everybody thinks there'll be a recession this year. And of
course that doesn't really mean anything because economists are famously
bad at forecasting recession, right, But nonetheless, everyone expected something
and it hasn't yet happened. Is it going to happen
this year? And when it does, if it does, is
it to be the mild recession everybody thinks? Or are
(13:02):
they getting it completely wrong?
Speaker 3 (13:04):
Well, you're right that economists are hopeless of forecasting recessions.
I mean, there's an IMF paper on this from a
few years ago saying that economists had failed to predict
one hundred and forty eight of the last one hundred
and fifty three recessions. So that sort of tells you
when you look at sort of consensus forecast for recessions,
you know, we missed all of the sort of the
big ones of the eighties and nineties, the two thousand's
(13:28):
the one. The last time economists actually forecast a recession
correctly was back in the early eighties, and that was
because Volka raised interest rates to twenty percent, so even
economists could figure out that that level of interest rates
was going to kill the economy, and so that's exactly
what happened. So ultimately, I think the recession call for
this year is about are we getting to the point
(13:50):
where central banks are genuinely starting to break the economy?
And you know, I think what worries me more in
the sort of last couple of months than beforehand is
that central banks seem to be losing control of this process.
You know, they were they are these control freaks. You know,
they were raising interest rates quite quickly, but they were
(14:10):
doing it in a sort of measured and methodical way.
You know, they were trying to squeeze the economy and
reduce demand. But we've got to the point now, well
I don't think they're really in control of that process anymore.
And the reason for that is, you know, what's been
happening in the banking system. So suddenly, you know, we've
got this very severe tightening in bank lending standards, and
(14:31):
that is, you know, central bank's really losing control because
once you've got you know, banks making the decisions about lending,
that's happening in a way that you know, central banks
can't really measure. You know, they have no idea what
the sort of true effective and how effectively tight monetary
policy is anymore, and they have no way of sort
of calibrating it. So, you know, is this bank lending tightening,
(14:55):
Is that worth twenty five basis points on interest rates?
Is it worth one hundred and fifty basis points? They
don't know, They have no clue. So what worries me
is that I think there's been a lot of fake
recession signals over the past twelve months. You know, we've
had this big contraction in global manufacturing, this big deterioration
in leading indicators. I think that was always going to
(15:16):
happen on the other side of COVID. You know, I've
been saying for the last three years that we've been
in this sort of fake business cycle. You know, we
shut down the economy, we reopened the economy. There was
nothing organic about that, There was nothing you know that
that wasn't a normal business cycle. That was a policy
induced business cycle. We sent huge amounts of stimulus into
the economy, which was temporary, and we withdraw that. We
(15:39):
withdrew that stimulus, and so we were always going to
get a manufacturing recession. You know, we had sort of
eighteen months where we're all at home buying stuff off
the internet. How could you not have a manufacturing recession
on the other side of that. So I think that
misled people and made people think that this sort of
recession was inevitable. But to me, the genuine demand destruction
(16:01):
is coming from central banks, and I think we've just
got to the point now where that's becoming sort of intractable.
And so there is a worry here that I have that,
you know, central banks are just going too far and
they will drive this economy into recession. Is it inevitable?
I don't think so. You know, I don't think any
of this is inevitable. I don't think a genuine recession
(16:21):
was inevitable, but I think that we may just end
up with one anyway because of the way that central
banks have behaved. And the basic problem here is that
they've been sort of freaking out about this nineteen seventies dynamic.
You know, they were deeply concerned that the inflation was
turning into the nineteen seventies that was never happening. You know,
there was never really any genuine evidence that this was
the nineteen seventies repeated. But you know, central banks had
(16:45):
this sort of personal fear of repeating the mistakes of
the past, and so you know, if there is a recession,
I think it's going to look quite different to the
recessions that we've been in before, because what really happened
is central banks freaked out about inflation. They raised interest
rates too aggressively. They cause the sort of nonlinear problems
in the banking sector. They then, you know, they could
(17:06):
then get whip sword into the reverse and you know,
having caused the economy to deteriorate too far, they would
then ease policy quite quickly.
Speaker 1 (17:14):
I think I just want to ask about the extraordinaries
of unusualness of the situation that we're in. You know,
so if you look at interest rates in absolute terms,
you know, four five percent around the place, that doesn't
seem particularly high. In historical terms, you know, you'd think
that four percent is kind of perfectly normal interest rate
for the UK, right, But the extraordinary thing about what
(17:34):
we've seen recently is that, you know, eighteen months ago,
interest rates were more or less zero nothing, and that
had distortionary effects on the market. And now even though
we've come up to what is a perfectly normal interest rate,
we've done it at phenomenal speed. Eleven we're talking on
the day of the Embassy meetings, so presumably by the
time people listen to this, twelve interest rate rises in
(17:56):
a row. That's fairly unusual. And so the incentives inside
the world of interest rates have changed so absolutely and
so dramatically that it's hard for us to see exactly
what will happen. And one of the things that I've
been looking at this week and writing about is the
shift of money market funds and how you know, even
a year ago, most UK investors had never even heard
(18:18):
of a money market fund. There's been a need for
them for so long because rates have been so low,
people have been perfectly happy to take that you know,
twenty five basis of points or whatever. It is difference
between having money on deposit in a bank and having
money in a say money market vunder a guild or whatever.
But now that you're talking about a difference between deposit
rates at one percent tops and instant access and money
market funds at four percent, there's a huge shift of
(18:39):
money that as investor mindset changes you know, the point
being that it's also unusual and so quick that the
incentives inside it and the things that might or not
break might or might not break are very uncertain. So
it's hard to align what's happening now with any previous
historical time.
Speaker 3 (19:00):
Is that fair? I think so, But I think that
you know, basically, what we've had is that central banks
sort of lied to us. You know, they told us
that interest rates were going to be at zero forever,
and they did that on purpose because that was part
of the stimulus. And then in COVID that sort of
reached an extreme because central bank said, oh my god,
(19:21):
the economy may never recover from this. You know, we're
going to be at interest rates at zero forever. And
then we had the IMF writing about how the world
was in a global liquidity trap, which was an obvious
sort of red flag for anyone who was worrying about inflation.
And then you know, a lot of investors have been
totally caught out about this, and so in areas of
the market, like you know, the technology sector, particularly in
(19:45):
the US, but you know elsewhere, you had this sort
of long duration bet, this idea that interest rates would
be zero forever. And banks were part of this too.
You know, banks who had written mortgages, particularly fixed rate
mortgages over the past sort of five ten years, you know,
are now on the hook because you know, they assume
(20:07):
that interest rates would never go up. And weirdly, you know,
policymakers have been looking at mortgage markets and they've been
taking a lot of reassurance from the fact that, you know,
there's much more fixed rate mortgages than they were in
the past, because interest rates going up don't hurt you know,
mortgage holders as quickly as before. But they forgot about
(20:28):
the banks because the banks on the other side of this.
So suddenly, you know, all of these banks are making
losses and suddenly they're facing this multi year squeeze of
their profits. Now, I think, you know, the good thing
about this, the encouraging thing is that none of this
has really been leveraged in the same way. So you know,
if you look at the sort of really nasty recessions
(20:50):
of the past, you know, very simple story. You had
long periods where asset prices went up a lot and
debt went up a lot, and then the asset price
went down, but the debt was fixed and so you
had these massive strains on balance sheets that led to
these sort of very deep balance sheet recessions. You know,
Japan in the early nineties, Sweden in the early nineties,
(21:14):
bits of dot com. You know, there were certain companies
in the US that struggled with the same dynamic and
then subprime you know, periphery debt in Europe, it was
all that same story, you know, overinflated asset prices and
massive debt binges. And this time we haven't had the debt.
So you know, there's a lot of investors that have
been caught out by this, and banks have been caught
(21:36):
out by this, and profitability and returns are going to
be lower than people expected. But I don't think we
have that sort of deep underlying financial imbalance, particularly in
terms of debt that leads to the really nasty outcomes
that we had in the past. And so, you know,
to go back to your question about historical precedent, the
only one I can really find is US banks in
(21:57):
the sort of late eighties and nineties, which was the
savings and lowing crisis in the US. So you had
this period where you know, similar dynamic. You know, these
banks had written all of these mortgagees. Interest rates went
up a lot because central banks had to squeeze inflation,
and then suddenly the profitability of these banks massively deteriorated,
(22:18):
and then you had these sort of rolling bank failures
that went on for years, and it didn't cause the
sort of disruption destruction to the economy that subprime did
because it didn't have the same levels of leverage or
the same underlying problem.
Speaker 1 (22:35):
You said earlier that the central banks lied to us.
Do you think they lied or do you think they
just got it wrong? Because they're so used to very
low inflation as a result of the global dynamics of
saying things like China joining the global economy, low labor costs, etc.
They got so used to the idea that inflation was
going to stay low, and their models simply extrapolate that.
(22:55):
It was less lying than believing an inaccurate model.
Speaker 3 (23:00):
I mean, I was exaggerating a little bit. Well, it's
an element of that. You know, the central banks when
they say that interest rates are going to be zero
for a long time, they do that because they want
to sort of drive you know, faster growth that they
want it. They wanted to sort of almost be self defeating.
You know, you promise people interustrates are going to stay low,
(23:22):
and you try and create the conditions where they won't
stay low. And I don't think it's just central banks
that did that, you know, I think the whole sort
of period after the global financial crisis created this psychology
where you know, we thought inflation would never come back,
and and you see it on the fiscal side. You know,
(23:43):
we got to the point where people believe there was
absolutely no limit to what fiscal you know, what we
could do on the fiscal side, and so and then
COVID happens and we put all those lessons into effect.
You know, central banks do massive q E. They take
interest rates to zero, they promise that interest rates will
stay at zero, and then we have this massive fiscal
(24:06):
stimulus on the idea that you know, fiscal stimulus wasn't
inflationary because we just never get inflation anymore. So you
could argue that the whole of the economics profession and
the whole of policymaking made this sort of error that
sort of it's almost so the seeds of its own destruction.
You know, the idea that inflation would never return was
(24:27):
ironically the thing that made inflation return. It's this sort
of inherent, sort of Minsky moment in the way that
economics works. And you see this through history. You know,
we have these periods where when everybody believes something and
it turns out that thing is wrong, it totally transforms
the outlook.
Speaker 1 (24:47):
Interesting. But you think, or I think, you think that
this inflation is going away. You don't believe the nineteen
seventieth story, which by way, a lot of the guests
on this podcast do believe. I hear a lot from
people about how we're already in a nineteen seventies dynamic
and we're going to see, if not, you know, steadily
high inflation, extremely volatile inflation, which will hit high rates
(25:11):
along the way. So you know, there's a lot of
people who don't believe for a second that this is
over and that well, we may go back down towards
the end of the year, we'll almost definitely go back
up again after that. But I get the feeling that
that's not what you believe.
Speaker 3 (25:24):
I think that I have a more softle view on inflation.
So subtle is good.
Speaker 1 (25:29):
I like a sudden view, not so easy the headline,
but good.
Speaker 3 (25:32):
I think that a lot of the inflation we've had
over the last two years was transitory, a word that
is now massively out of fashion. I think that it
was very similar to what happened after the Second World War,
where you had this sort of one off increase in
the price level rather than this sort of spiraling of inflation.
(25:53):
But I think that when you look at the world
now compared to twenty nineteen, I think some things have
changed and they're not going back. So the obvious one
is supply chains, you know. I think that companies are
rethinking their supply chains, and that deglobalization, which was you know,
(26:14):
started way before this is now accelerating. I think geopolitics
has changed, you know. I think we have a cold
war between the US and China, which is just getting worse.
We have a hot war in Europe. We have these
big geopolitical shifts around that, you know, that change. We
have a different type of economy, a sort of wartime
(26:35):
economy where governments feel that they have to be more
interventionist and more involved. So things like industrial policy are
coming back and so and I think you have labor shortages.
You know, we didn't have these massive labor shortages back
in twenty nineteen, and part of that is lots of
people have dropped out of the labor market. But when
you put all that together, I think that you're looking
(26:56):
at a subtly different world. You know, over the next
sort of ten years is which is not that inflation
is going to be sort of spiraling like it did
the nineteen seventies, but for sure inflation is going to
be a lot more volatile than we've been used to.
You know, we're not going back to the Great Moderation.
You know, we can argue about whether inflation is going
to be four percent or two percent, but I'm not
(27:18):
sure that's really the story here. I think we're in
a world where we're going to have to live with
supply problems much more than we did in the past.
And so, you know, even though that's a subtly different
view on inflation, it's really important for financial markets because
I think, firstly, there's going to be more periods like
(27:39):
twenty twenty two where you have stagflation. You know, you
have sort of counter cyclical inflation. And what that means
is that you know, bonds and equities that correlation flips
from negative to positive, and that's profoundly important for you know,
where bonds should trade and how you construct a portfolio.
You know, sixty forty isn't going to work if you've
(28:00):
got sort of reoccurring supply problems, not sort of nineteen
seventies permanent inflation, not wage priced spirals, but periods of
very high inflation are going to kill returns in bonds,
and so you know, and I think the prevailing tendency
of inflation has changed. So instead of inflation always being
(28:21):
too low and central banks always trying to get inflation
back up to two percent, I think two percent becomes
a sort of flaw on inflation rather than a ceiling,
and so the whole basic task of monetary policy changes.
So instead of central banks always looking to QI, always
looking to zero interest rates, always trying to get inflation back,
(28:41):
this is going to be a world where central bank's
always trying to stop inflation going too high. And that's
just a totally different investment world. So, you know, it's
a secular bear market in bonds, not as extreme as
the nineteen seventies, but I think it's a secular bear market.
I think the term premium in bonds wildly too low
because that term premium reflects the great moderation and the
(29:06):
fact that you know, bonds had this perfect insurance property
for equity, so you almost paid a premium to own
bonds and put them in your portfolio. That world has gone,
and I think it changes the equity market because you know,
in the old world, you just put money into long
duration tech or US stocks. You didn't put it into
(29:27):
you know, Europe or the UK, and you got you know,
those those returns just you know, went through the roof.
You just it just got constantly re rated on the
basis that interest rates would be lower and lower and lower.
And that world has gone. So you need to be
as an investor. You need to think, well, how is
this world changing, What are the big themes for the
next five ten years. How do I get exposure to
(29:49):
those themes. It's not just about you know, a big
long duration punt, which is what the last decade was
all about.
Speaker 1 (29:55):
We're going to go back to the market in a minute,
but before we do that, I just want to ask
you about inflation in general. You know, there is a
view that consistently higher inflation than we've been used to
for a decade is not necessarily a bad thing because
it will help us deal with some of the public
debt problems we have, and also will it will help
with the housing market. You know, it'll help bring down
(30:17):
some of those real debt levels and the housing market,
and it'll it'll help well debt across the board, because
I know we were talking earlier about this not being
necessarily a problem of leverage as it has been in
the past, but nonetheless there is a big public debt
problem and private debt shot through the system. So you know,
a decade of reasonably high inflation will help get us
out of that. Mind it's not necessarily a bad thing.
Speaker 3 (30:40):
I sort of agree. It depends where you are with inflation.
You know, if you have inflation in the sort of
three to five percent range and it's consistently there, then
you know, that's going to make a huge difference to
the things that you said, you know, debt, deleavergime. You know,
I think history teaches us we basically have two ways
(31:00):
to deal with debt problems. One of them is what
economists called the conventional approach, which is probably wrongly named,
but that's austerity structural reform. That's what we tried after
the Global financial crisis. And the other way is what
economists called the unconventional approach, which is you inflate away
the debt. You use some form of financial repression, or
(31:21):
you write it off, or you send your currency down
so you don't put it back at sort of international terms.
Speaker 1 (31:27):
And that is much more the normal way, isn't it.
That's much more how we've got rid of debt over
the years. In fact, kind of the only way. Austerity
is a tricky way to try and do this.
Speaker 3 (31:36):
Every time we've tried austerity, it's been a disaster. So,
you know, UK in the sort of nineteen twenties, you know,
while the rest of the world was having the Roaring twenties,
we had a sort of depression, you know, with mass
unemployment and deflation because we were so desperate to get
back onto the gold standard. And after twenty ten, you know,
I would say that austerity was a disaster too. And
(31:57):
actually many of the problems that we face in the
UK right now are because people are just you know,
fundamentally pissed off after a decade of austerity. You know
the fact that public sector workers have seen their incomes
consistently squeezed for a decade they're now saying, right, that's enough.
We can't go back to that. And so, you know,
(32:18):
I think austerity was a disaster. I think that actually
this new world promises to be slightly better. You know,
I don't think it's the nineteen seventy So I don't
think we're going to be stuck with inflation that sort
of five, you know, ten percent. But I think if
it's in that slightly higher range, and it's about the
tendency of inflation that is changing. As I said, I
(32:39):
don't think that's a bad outcome, and I think central
banks would readily accept that, even though they will deny
it at every opportunity. So if you ask any of
these central bankers right now, you know, is three percent
inflation all right? They will say no, absolutely not. In reality,
if you offer them three percent inflation for the next
five years, they will bite your hand off at that.
(32:59):
They just can't say it, because you know, they should
have changed their inflation targets back in twenty nineteen. They didn't.
They can't do it now. You know, if you can't
hit your inflation target, you can't raise that inflation target
because it's an admission of defeat if you had changed
your target in twenty nineteen when inflation was below two percent,
(33:20):
it would have been sort of aspirational. You know, you
would had to try really hard to get inflation up. Now,
you know, you're basically saying, well, we don't have a
target anymore if you admit that. So I think, you know,
we're back to central banks telling lies again. And you know,
I think that they can't be honest about this. But
you know, the environment that they're scared of is not
(33:43):
persistent three percent inflation. You know, they're scared of that
nineteen seventies dynamic because none of these central bankers want
to go down in history as the idiots who let
it happen again. You know, we spent the last thirty
years talking about, you know, the policy mistakes of the
nineteen seventy and Arthur Burns and these guys that went
down history as complete clowns. So you can understand why
(34:06):
these central bags don't want to be talked about as
a sort of case study in monetary failure in forty
years time.
Speaker 1 (34:13):
Yeah, poor Arthur Burns, Poor Arthur Burns. Actually we should
do a whole podcast on the miseries of Arthur Burns.
I think he's being slightly misjudged by history. But we'll
come back to that. So let's go back to equity
markets then, So we can't do what we were doing before,
which is a great shame because it was super easy.
If it felt a little bit too easy, and it
clearly was a little bit too easy, what do we
(34:33):
do now? How do we approach investing?
Speaker 3 (34:35):
Well, I mean, it wasn't It was easy, but it
was something that you could replace with automation. I'm not
sure that long term it was really that great. You know,
it didn't take a great deal of thought to buy
us fangs, did it. I mean, no, it really didn't.
Speaker 1 (34:50):
Though of course it took an off a lot of
thought to not buy them, which was a mistake that
a lot of us made.
Speaker 3 (34:55):
That's true. So I think that, you know, I think
basically you need to think about themes. So what are
the themes for the next decade? De globalization, climate change,
carbonomics AI to some extent, although I think there's a
massive amount of hype around that right now. You know,
(35:17):
I think you're thinking about themes, you're thinking about an
economy that behaves differently, so you know, inflation that's slightly
higher periods where you know bonds won't help you, and
so you're almost you know, you're you're looking for different
sectors within the equity market. And so one of the
things I've talked about, you know, over the last eighteen months,
(35:38):
what I called the tangible twenties, which is this idea
that you know, the twenty ten is all about intangibles,
you know, about tech, about long duration. I think now
you want exposure to tangible things, and you know those
are typically the sorts of things that do better in
a higher inflation of regime. So I think you're looking
at things like commodities, materials, semiconductors, anything explode, exposed to decarbonomics,
(36:08):
anything exposed to friends sawing and reshwing and all of
that sort of stuff. You know, So you know, I
think you want a different I mean, you asked me
about equities, but in bonds, I think you just want
a smaller allocation to bonds, and you want to find
bits of the equity market that almost replace bonds in
those periods of stagflation. So you know, commodities is a
(36:31):
sort of obvious replacement if you're talking about not persistently
high inflation, but those periods where inflation is a problem
and bonds sell off because of the inflation. Okay, so in.
Speaker 1 (36:44):
Equities in particular, we want to be heading towards tangible things, industrials, etc. Now,
as I know my listeners quite well, I can tell
you exactly what they're thinking right now. And what they're
thinking is resharing industrial industrialization of say the Middlands of
the UK. That sounds interesting. I don't really know what
(37:07):
companies I would buy to make that theme part of
my portfolio. So I tell you what I'll do. I'll
go out and I'll buy some buy to let houses
in the Midlands.
Speaker 3 (37:17):
Should they do that?
Speaker 1 (37:18):
That's what they're thinking. I know they are right right
to me listeners if I'm wrong, But I know that's
what you're thinking, because everything ends up on should I
buy another house?
Speaker 3 (37:26):
Everything? Well, I mean, this is the point, isn't it.
It's going to be harder. You have to sort of
do a bit more research before you buy stocks. In
terms of housing, you know, I think that you know
clearly we're in a difficult period of housing right now,
just because the speed of the moves in interest rates.
You know, it's it's I think it's more about the
(37:46):
speed than the level of interest rates. Interest rates have
moved very very quickly, and so you know, people get
immediately squeezed because of that moving interest rates. I think
over time, I think the housing market can actually live
with higher levels of interest rates. And the reason for
that is that it's not just the interest rate that matters,
(38:07):
it's income. And so if we're in a world where
nominal wages and nominal profits are growing more quickly than
they were in the past because it's more inflation, then
actually you start to live with higher levels of high
levels of interest rates and you get used to it.
And so I think, you know, at the moment, I
wouldn't want to exposeure to anything related to housing over
(38:28):
the next sort of eighteen months on a five year horizon,
I think that the housing market copes with that sort
of environment. And if you look at sort of look
at commercial property and you look at how it responds
to inflation, you know, clearly very high levels of inflation
are bad. But this sort of moderate inflation that we're
(38:50):
talking about, I don't see that as a bad environment.
I just think right now I wouldn't touch any of
this stuff. It's you know, again, it's this conflict between
a recession risk, which is you know, fairly imminent and
the longer term. And I think they're demanding you to
do very different things as an investor.
Speaker 1 (39:11):
All Right, that's hosing sorted. That'll make everyone satisfied. Let
me ask you two quick questions before I before I
let you go, because I'm sure you have more sessions
to think about. If you had to hold something for
ten years starting now. You're at stockpickers, so I'm not
asking you for a specific stock recommendation, but if you
had to take one of your sectors, one particular area,
(39:33):
to invest in right now and hold for ten years,
what do you think it might be?
Speaker 3 (39:38):
Yeah? I mean I'm not a stockpicker. I tend to
do it in terms of themes. Yeah, so you've got
a lot of themes.
Speaker 1 (39:44):
What's your favorite?
Speaker 3 (39:45):
I think No, I think it's all about value stocks.
So if you think about growth versus value, and you
can get the data on this back to the nineteen twenties,
you see that the twenty tens period was just real,
really bizarre and weird. You know, that constant outperformance of
growth overvalue. There is no other period in history that
(40:08):
it behave like that. And it was it was an
artifact of zero interest rates and sort of endless QE
and the idea that interest rates would be at zero forever.
I think if we're looking at a different sort of world,
then we go back to sort of more historic norms,
which is where value starts to outperform. So I would,
you know, I'd be sort of very long value at
(40:30):
this point on that sort of horizon. You know, over
the next six months, value could get absolutely hosed just
because you know, central banks are cutting interest rates again
and we've got a recession fear, and you know, we've
seen the tendency of investors to jump back into all
of those sort of crappy tech stocks as soon as
they think interest rates are going down again. Yeah, we've
(40:51):
seen that this year already.
Speaker 1 (40:53):
Okay, that's exactly what the listeners like to hear as well,
very very value orientated listeners, I think we have on
this podcast. And final question, and this is a this
is not a trick question, but there is an answer
that I know we all expect gold or bitcoin.
Speaker 3 (41:09):
I think I know what the answers you expect.
Speaker 1 (41:12):
You don't have to give the expected answer. You can
answer however you like but we'll sneer if you give
the wrong one.
Speaker 3 (41:18):
Well, I mean, you know, bitcoin has basically been a
sort of digital tulip as far as I can see,
for the last sort of four or five years. And
I you know, I actually wrote about this and sort
of similarities between what was happening with cryptocurrencies during the
pandemic and tulip mania, because they both happened sort of
backdrop of a pandemic. If you look at this sort
(41:38):
of breakout of the plague in that period in Amsterdam,
you know, when all that stuff was kicking off, you
basically had these sort of bored traders sitting around in
taverns bidding up the price of the price of tulips.
And I think we had a sort of, you know,
an element of that. You know, to me, bitcoin has
behaved like a sort of long duration, extremely speculative asset,
(42:02):
and I don't think that's how gold behaves. And I
think if we're in a world where you've got more
sort of secular inflation than I think, you know, gold
does better in that environment. I don't know how bitcoin
page in that environment because we've never had that environment
before with bitcoin.
Speaker 1 (42:19):
That'll be the interesting bit but I think we can
probably guess how it might behave Daria, that was the
correct answer. Thank you very much for being with us today.
We hugely appreciated, no worries.
Speaker 3 (42:32):
Good to be on the show.
Speaker 1 (42:42):
Thanks for listening to this week's Marin Talks Money. We'll
be back next week in the meantime. If you like
our show, rate review, and subscribe wherever you listen to
podcasts positively if you can. This episode was hosted by
me Marey's Unset Web. It was produced by Someasadi. Additional
editing by Blake Maple's special thanks Sadaria Perkins and of
course to John Steppe. And finally, your weekly reminder, your
(43:06):
important reminder to sign up to John's daily newsletter, Money Distilleder.
The link is in the show notes.
Host
Merryn Somerset Webb
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Special Summer Offer: Exclusively on Apple Podcasts, try our Dateline Premium subscription completely free for one month! With Dateline Premium, you get every episode ad-free plus exclusive bonus content.
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!