March 10, 2023 • 51 mins
The world has been mired in a new Cold War for at least four years, according to Niall Ferguson, a columnist for Bloomberg Opinion and Milbank Family Senior Fellow. Ferguson joins this episode of Merryn Talks Money to discuss the implications for inflation, the Federal Reserve and how investors should navigate the current economic climate.
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Episode Transcript
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Speaker 1 (00:00):
John, you've been writing about interest rates again. You can
be writing about interest rates forever. Do you remember all
those wonderful years when interest rates just below and stayed low.
We didn't have to worry about it all the time. Yeah,
it was great. I mean I still wrote about them
all the team, which my long soften readers will remember.
But you know it was. It just didn't change very much.
Must have been so good. I apologize John's readers. I
apologize to you on his behalf that he can't find
(00:22):
anything to write about except for interest rates aren't moving.
On the plus side, you don't have to be bored
by him anymore because interest rates they are changing right now.
You're writing your Money Desert newsletter this week about Powell's
comments and how that changed the way everyone was feeling.
(00:43):
We were all frightfully optimistic and nothing can go wrong
ish about things in the first bit of the year,
weren't we. Now we're back into oh my god, everything
can go wrong. Yeah, it's just the I suppose that
Marcus have just been etching for an excuse to believe
that the fad is fainally going to stop reason interest rates,
and they kind of thought that they'd had one towards
the end of last year, and then what appened is
(01:04):
that the employment data in the US came in extremely strong. Well, yeah,
I mean those figures are always interesting, and I need
to take out the research on this, but I am sure.
I remember reading during past financial crises that the data
on the non farm pay rolls is actually not great
at turning points. I mean, it's quite random at best
(01:27):
of times. Anyway, it's interesting how much attention the market
pays to this on the day, and then quite often
that will get revised by several hundred thousand later in
the year and nobody oll care. But long story short,
it was a lot better unexpected, and at that point
everyone started thinking, oh my god, the labor markets running
so hot that the FED can't possibly ignore this. And
(01:49):
then earlier this week, Jerome Powell was up in front
of US politicians and he basically said, yes, we're gonna
have to raise interest rates for higher and we'll have
to keep them here for longer than any your law
currently think. And suddenly everyone's kind of thinking, oh, wow,
it's going to be going up to six percent, maybe
eight percent sort of federal funds, right, And of course
that's got an Awkin effect everywhere else in the world
(02:11):
as well. So we're into good news is bad news
whereas it used to be. I don't know if you remember,
of course you do. Bad news used to be good news,
and good news used to be good news, and now
good news is bad news. So here we are, right
do you think do you think that this is all
about how I'll wanting to be a little bit more
Volca than he's capable of being. I mean, if you're
a central banker now in the first proper inflationary period
(02:33):
you've had for a while, you have to sit there
and think to yourself, am I going to be Arthur
Burns known to be an incompetent although in that with
my main guest and in the podcast we do talk
about this and poor mister Burns was not really incompetent.
But Arthur Burns who everyone thinks of as being incredibly incompetent,
and Volca, who everyone thinks is being the most competent
investment bank central bankers since the beginning of time for
(02:56):
slamming up interest rates again and again again under the
process creating it pretty appalling resertion. So we think of Powell,
he's sitting there and thinking, am I going to be
Burns who had inflation running at an average of six
and a half seven percent all the way through his tenure?
Very bad? And he gave this this lecture which I
was reading in the middle of last year. I was
reading this lecture he gave in nineteen seventy nine in Belgrade.
(03:19):
He called it the anguish of central banking, you know,
because while he had he had this power in theory
to get rid of inflation, to deal with money supply,
to show up interest rates and make it end. But
he couldn't do it because politics, you know, he said
at the time, he said he was caught up in
the philosophic and political currents that were transforming American life
and culture, and as a result, he just couldn't do it.
(03:42):
I am I This is a classic not my faultism,
of course, but you can see how he got himself
caught up in this. And Volker came in and said,
you know, I'm not going to think about these philosophical
and political currents. We don't have the luxury of that anymore.
I'm just shoving up rates. I mean, I can you
aastually think the bonds even that that is overthinking it.
I mean, I think that does these whole debates between
(04:06):
historians about the individuals matter more or the geopolitical currents
matter more, and all that sort of stuff, and I
think the central banking is one of those areas where
the individual matters almost not a jot. Basically, central bankers
always follow the path of least resistance, wherever that is
at a given time, and for Jerome Powell right now,
(04:28):
the path of least resistance is for higher interest rates
to make it look as if he's tackling inflation, or
at least to talk tough on it, because there is
so far no obvious impact on the economy or on
unemployment rates. Now the problem is that obviously unemployment is
a lagging indicator. But for now, Powell's only kind of
(04:54):
rational choice is to stay hawkish on rates. Maybe, I mean,
maybe he won't, maybe they won't raise them as much
as they're saying, but it certainly needs to talk a
good game, because, apart from anything else, if markets get
the sense that he's not going to raise rates, then
of course they bounce again, and kind of technically speaking,
that relaxes financial conditions. So it's like it's a sort
(05:18):
of you're actually lowering rates by not talking about pushing
them up. So I think at the moment, I think
that's that's basically how you have to look at these
things up until you know the end of the pandemic.
The path of least resistance for central banks was always
to cut interest rates if it looked as if, you know,
markets were falling, because at that point the risk was
(05:40):
that markets would fall, some sort of destabilization would happen,
and then we'd be plunged into deflation. But now the
opposite is true, and because there's no political pain really
coming from people losing her job yet they kind of
the obvious path is to stay hockey sewn rates. The
tricky bit will be whenever people do start losing their
(06:01):
jobs and Joe Biden start staying, oh wait a minute,
it was coming off for an election here, can't even
have unemployment going up. So I think, yeah, I just
think these central banks auld basically where the heart at
the time they are in Vulcan was the same. That
was the point in which inflation was too painful in
not do anything about. I mean, I know that he
had his effigy bond on the steps of the capital
(06:24):
or something like that. But but that was going to
happen either way. You know, something it had to be tackled,
and that was the rational choice for Vulcan at the time.
But he was also lucky. I mean he was lucky.
I think people argue about this a lot, but when
when you look at the environment around Chemny, they had
this kind of backup from from domestic and global politics
that poor Arthur Burns were what was going to call him,
(06:44):
poor Arthur Burns, but like used to call terisume poor terisame. Anyway,
poor Arthur Burns. They had the sort of support that
he had. This Volca had the support that Burns couldn't
possibly be had because he had Ronald Reagan's supply side revolution,
I mean, you know, slashing of regulation. That was the
breaking of the Air Traffic Controllers Union of looking this
(07:04):
up in nineteen eighty one, they fired in early twelve
thousand air traffic controllers and one go just like that,
which was kind of a watershed in the battle and
the wage price spiral. So that ended. There was this
productivity boom. You had an oil price crash at the
beginning of a computer age, etcetera. You know, Volka, he
might have served up interest rates. But there is a possibility,
and a not negligible possibility, that if Volca had done
(07:26):
absolutely nothing, inflation would still have come down to three
point five percent by the end of his tenure. You know,
he did after poor Arthur Burns in his Anguish of
Central Banking speech. Volca gave a talk a couple of
years later after it his massive success, called the Triumph
of Central Banking, which he would think, which would have
been extremely rude. Exactly, he put a question mark at
(07:48):
the end of his title. So obviously that was very
very gracious of them, because he knew he was lucky. Yeah,
it's a calculus thing, isn't it, Because it's not a
boat what the individual central anchor does. It's about the
background that they're operating against. And you know, we've talked
about this before the whole I mean, I think on
the edges they could do things differently, Like I think
(08:11):
that certainly since the nineties, and you know, the great moderation,
we could have avoided an awful lot of the kind
of serious bubbles and busts that we had if central
banks had been less in love with themselves and be
less kind of in thrall with this or sort not
even entrall, just using the two percent inflation target as
an excuse to keep rates lowered, and they arguably should
(08:34):
have been for that whole period of time, and we
ignored the fact that China was exporting deflation across the world.
We ignored the fact that, you know, labor courts were
going down because the whole Eastern Europe had been opened
up for you know, highly skilled, very very very cheap
workforce being added to the global economy. John, I'm going
to stop you there, a girl, stop you there, because
you're beginning to encroach on the things that I brilliant
(08:57):
guessed in the men porncas And I don't want to
anyone to think that you know more than Neil focuson
about anything that would not be right. Okay, So I
have to stop you so we can go on. But
before I do, I want to ask you one question. Match.
I don't want you to answer. I want you I
want you to think about because it's a question that
(09:19):
I was going to ask Neil, and we got caught
up and all sorts of other things, and I forgot
to ask him. And it's this question is right now?
What is the most important place in the world. And
I was thinking about this because of last week's podcast, which,
by the way round if you haven't listened to yet,
please go and listen to it, because Pepper was incredibly
interesting and I came away from my conversation with her thinking, Hm,
(09:41):
possibly the most important place in the world right now
is the northern Norwegian island of Falbard. When you start
looking at up it really is the most fascinating place.
Beyond important. I'm going to write about it at some point,
but not everyone would agree. I'm sure that that's the
most important place in the world. So I'm now going
to ask all of our podcast guess what they think
(10:01):
is the most important place in the world, the place
that we should be watching that we're not watching geographically
And we talk about that kind of thing quite a
lot with Neil, but not specifically. So I'm going to
leave you with that, and I'm going to ask you again,
and I'm going to ask all our podcast guests going forward. Okay, yeah,
I can't get a Hallmark listeners. You have homework as well.
(10:25):
Send me emails. Tell me what is the most important
geographical place in the world right now that people are
not looking at and they really really should be. Thank you, John. Thanks.
Welcome to Mary and Talks Money, the podcast in which
(10:46):
people who know the markets explain the markets. I'm Mary
in Sunset Web. This week our guest is Neil Ferguson.
Neil's got a long list of job titles including Millback
Family Senior Fellow at the Hoover Institution, Stanford University, and
a Senior got the Fellow of the Belfast Center for
Science and International Affairs at Harvard. Here is also the
author of sixteen books. How about that I've done two
(11:08):
was absolutely exhausting. I don't know how he does it. Neil,
thank you so much for joining us today. We really
appreciate it. My pleasure. Now we're going to dive right
in World War three? How likely is it? What do
you think out there? Are we into a new Cold War?
Are we into an invisible war? Is the Ukraine just
the beginning of a much bigger Hot war? How do
(11:30):
you see this whole situation at the moment. Well, we're
already in Cold War two, and that's been the case
for four or five years. As at the beginning of
the first Cold War, people in the West have been
rather slow on the uptake. If you go back to
the late nineteen forties, a lot of Americans and also
(11:51):
Brits didn't believe George Orwell and Winston Churchill when they
started talking about a cold war and arn curtain. For
many people, the penny didn't drop until a hot war
broke out in Korea in nineteen fifty and rather in
the same way, people who disbelieved me in twenty eighteen
when I said Cold War two has already begun now
(12:13):
seem more ready to listen with a hot war raging
in Ukraine. And that leads on to your core question,
what's the possibility or probability that a hot war on
a global scale could emerge from this second Cold War.
I think the point that Orwell made when he coined
(12:35):
the phrase cold war is that there is an implicit danger,
and a serious one of World War three. And we
saw in the First Cold War all the way through
right down to the nineteen eighties periods of alarm, most
(12:56):
obviously the Cuban Missile crisis, but not only the Cuban
missile crisis, when people feared with good reason that a
global conflict was going to occur. And with nuclear weapons,
and I think something similar will be true today now.
World wars are a kind of very distinctive genre of
(13:16):
historical event. If you look at World War One and
World War Two, there were really multiple wars that just
happened roughly at the same time, and we then called
them world wars. I think you could imagine a world
in which the war in Ukraine drags on, and then
you get another war in Iran between Iran and Israel,
(13:37):
Iran and Saudi Arabia or some combination, and then you
get a third war over Taiwan in the Far East,
and that would start looking very like World War Three,
even if no nuclear weapons were used, because there would
be this threat of nuclear war as there was in
(13:59):
the First Cold War. That's why I think the atmosphere,
the environment for investors is radically different now from the
period after nineteen ninety or nineteen ninety one. We went
through this extraordinary period after the end of the First
Cold War, which we can now see as an interwar period,
and that interwar period created very low inflation, buoyant asset markets,
(14:26):
globalization boomed, and that's for many people being the period
of their careers, so they're not ready for this altogether
different atmosphere which it's much more similar, I think, to
the period of the first Cold War. Yeah, so let's
just step back a little bit and make a little
bit more of the background and explain why it is
(14:47):
at the end of the end of the Cold War
created this extraordinary and incredibly unusual environment for investors and
for markets. It was the opening up of global label markets,
the opening up of global manufacturing markets that gave that's
the very low inflation that led to the very low
interest rates. They gave us the stunning environment that younger
people now see as the normal environment. One important point
(15:09):
mariners that the interwar period was characterized by quite low
levels of global conflict by any measure. There was a
lot less war in the nineteen nineties and two thousands
in terms of say battlefield casualties or just expenditure on
conflict then there had been during the Cold War. And
(15:32):
that was because during the Cold War, almost any local
conflict would be boosted by superpower involvement. Usually we called
these proxy wars, because the United States and the Soviet
Union didn't ever want to go ahead to head that
they were happy to fight by proxy, supplying combatants in
(15:55):
say Korea or in Vietnam with weaponry. So the nine
nineties and the period really right up until i'll say
twenty eighteen were a period of much lower levels of conflict.
Even although we remember the wars in Iraq and Afghanistan,
they were really small conflicts which didn't involve that many
(16:16):
people and were economically not that significant. And I think
that's part of the reason for the low inflation. Throughout history,
and I'll be talking as an historian. Throughout inflation has
very often been associated with conflict, because conflicts very destructive,
but it's also conducive to monetary and fiscal expansions. So
(16:41):
we had a real break from that after nineteen ninety one.
The other thing that happened was that the barriers to
trade that had existed at the height of the Cold
War were reduced. Even before the end of the Cold War,
in the period of detent Soviets wanted to do trade
(17:02):
with the West, and they did it, not least in
the form of energy exports. More importantly, beginning in the
mid seventies, China was brought in from the Cold and
Chinese growth became the heart of globalization. It was the
sudden advent of China's population and China's savings on world
(17:25):
markets that led to what more sulc and I called
Chimerica back in two thousand and seven. Chai America was
this extraordinary symbiotic relationship between the United States and China
where US corporations benefited from the great shop to global
wages caused by China's entry into the world market and
(17:50):
also benefited from the Great surgeon savings that came from Asia,
so costs of labor and costs of capital went way down.
That was the age of Chamerica. We talk about globalization,
that at its heart was this relationship between the US
and China. Those were the good times, and they were
(18:10):
good times, especially for Western investors. And why do you
make twenty eighteen the turning point? Well, the trade war
that Donald Trump launched against China got going the year
before a Trump had signaled in his election campaign that
(18:32):
part of what differentiated him from the established politicians of
both parties was that he was prepared to go after China.
He didn't really do that until the tariffs of twenty seventeen,
but up until the end of twenty seventeen, it was
still essentially a trade war, and that was what Trump intended.
But in the course of twenty eighteen, it morphed into
something much war more. It became a tech war, and
(18:56):
then it took on an ideological character. You could see
that Mike Pencer's October twenty eighteen speech for the Hudson
Institute the United States government, and I think this was
bipartisan from an early stage because Democrats agreed suddenly woke
up to this Chinese threat, and I think Trump woke
(19:17):
Americans up, but he didn't really expect his trade water
morph so quickly into a cold war. From a Chinese
vantage point, of course, it had been going on for
years because Sejon Ping, from the moment that he came
to power in China, intended a change of strategy and
at the very least to achieve parity with the United States,
(19:39):
if not to displace it as the number one super
par So I think, you know, when I talked to
my Chinese counterparts in academia, I did a lot of
that as a visiting professor at Singhua. I would be told,
you know what, your sense kind of obvious to us,
I mean to them, it was it was almost self evident.
(20:02):
That there would be something like a cold war, but
it was news when I started talking about it in
the United States. I can remember Eric Schmidt's incredulity when
I made this argument at a dinner in San Francisco
in twenty eighteen. A lot of people initially said, well, well,
that's a very bad thing to say, and I said
to them, not at all, because a cold war is
(20:24):
much better than the alternative. If the alternative is a
hot war. What's no longer a viable alternative is Chimerica
because Chia America is basically dead or dying, so cold
war would be a good outcome. We need to recognize
that cold war is preferable to hot war, and in
conditions of superpower rivalry, as Graham Allison Harvard has argued,
(20:47):
very often, it does produce hot war, so got cold
war would actually be a good outcome. Cold war is
also good because it wakens Americans and American policymakers up.
Having effective the Chinese Communist Party operatives roaming around the
universities and tech companies of California doesn't make enough a
lot of sense. Given the strategic importance of things like
(21:10):
artificial intelligence or quantum computing, so making people realize that
the other side is a totalitarian regime with aspirations to
world domination slightly focuses the mind, and it also produces
a much more concerted effort to make the United States
retain its technological lead. Because cold wars are won by
(21:32):
technological leads. They're they're not one in battle. And so
I make no apology for having argued for a cold
war we needed one. I totally understand that, and I
rather agree with you, But we have this cold war.
And cold wars have huge implications for economies in similar
(21:54):
ways to hot wars. I mean, their hot words very
obviously expensive. You know, you need a lot of coal,
you need a lot of energy, web engine, need to
see a lot of intense manufacturing, etcetera. But cold war
is also very expensive fiscally and changes monetary policy because
you still need you know, you need to have your
weaponry and your defense ready to the cold word on
into a hot war. You also you lose a lot
(22:16):
of the benefits of global trade, and you lose a
lot of the benefits of manufacturing in the cheapest place
in the world, etcetera, etcetera. So it still has huge
implications for inflation, hence for interest rate policy, hence for everything. Yes,
it's not an accident that Cold War One produced a
great inflation in the nineteen seventies. That inflation can be
(22:40):
traced back to the mid to late sixties, and it
had its origins in fiscal and monetary policy. So of
course Cold War is going to be more inflationary than
chi America was, because chi America was an adherently deflationary regime,
and let's all forget it got to deflation to the
point that that was a big worry after two thousand
(23:02):
that we were actually going to end up being Japan
with a real problem of falling prices. So you get
rid of that problem with not only the costs of
trade wars, but the much greater costs of reduced globalization,
supply chains that rely less on China, domestic investment in
(23:26):
expensive things like semiconductor manufacturer. It all adds up, and
of course you have to spend much more money on defense,
because what's been revealed by the hot war in Ukraine
is that the military industrial complex that was once so
powerful in the United States has atrophied to an extraordinary extent.
We actually would run out of certain precision missiles within
(23:47):
about a week of a hot war with China over Taiwan.
And so the realization and this is something that we
should thank President Putin for that we actually have. I've
not got the wherewithal to sustain a really large scale
conflict with the number one rival China is causing a
(24:09):
big reassessment of the manufacturing capacity and particularly the capacity
of the United States to produce weaponry and ammunition. And
Europe has an even greater problem because European defense budgets
dwindled and European defense capability at dwindled. And I include
(24:34):
in this the uk to the point that the US
has had to do most of the arming of Ukraine,
and the Europeans have provided some financial support, but much
much less military support. So this is all bracing and
makes one realize that the era of globalization was just
(24:57):
an interwar period and not something that had any inherent
the durability any more than the inter war period of
the nineteen twenties and nineteen thirties, and that this is
all extremely expensive and most government finances in the developed
world already in a pretty digital state. That's right, And
I've been talking about the structural problems of American public
(25:17):
finance for twenty years, going back to a book called
Colossus that I wrote in two thousand and three, It's
been possible for economists and policymakers to ignore that for
a long time because interest rates trended down both in
nominal and real terms. This was the secular stagnation that
(25:39):
Larry Summers talked about. But I think that's over. And
the critical issue here is that once you've got a
really large stock of debt in excess of one hundred
percent of GDP and forecast to rise, and the interest
you're paying on that debt is rising, with the risk
that you end up with positive real rates, We're not there, yeah,
(26:00):
but then it starts being expensive to have a really
large stock of debt and a and a rising defense budget.
That the key metric that I've often used is to
say that when a great power is spending more on
interest payments than on defense, it probably has a problem.
(26:22):
And the way the US is going, if you look
at the recent Congressional Budget Office estimates that point will
be reached at some point this decade, that the US
will be spending more on interest on the federal debt
on defense so, yeah, I mean, I think we need
to realize that the US entered Cold War One in
a stronger position, not only in a fiscally stronger position,
(26:47):
but I think in an economically stronger position. Because, of
course the early years have called War one, the fifties
and sixties or tremendous and sustained economic growth in the
United States, it's a little hard to believe that we'll
be so well positioned this time around. Yeah, So, is
there any fix for the American public finances? Sure? There
(27:10):
are fixes that Again I've been writing about for years.
The US tax system is a mess. There is no
value added tax, which is quite standard and other developed economies.
The income tax regime is full of holes. You could
rationalize the American tax system and make it far more
(27:30):
efficient and eliminate abuses, if you could only get it
through Congress. The problem is not a fiscal technical problem.
The problem is a political problem that it's really hard
to get at the votes for the kind of reforms
to entitlement programs that you would clearly have to do.
(27:50):
Those are the things that are really the big drivers
of the deficits. So the last candidates to run on
fiscal reform were Romney and Paul Ryan, and you may
remember that that didn't prove to be a great hit
with voters. So cold War at some point is going
(28:11):
to force a reckoning, and if past experiences any guide,
the United States will have to get into a proper
mess before it does. As Churchill famously said, the right thing,
after all the alternatives have been exhausted. Let's talk then
a little bit about the inflation that all this is
going to drive. I mean, there are there are predictions
(28:34):
out there now, people seemingly believing that inflation could come
back to two percent by the end of the year.
And you know that's that And I think you and
I would both agree that that's incredibly unlikely, regardless of
what central banks do. And there's also the question of
the extent to which continually tightening monetary policy can help
a supply problem. So what happens here? What do the
(28:55):
big central banks in a particular, the fair in the
worst do to deal with a problem that their solution
hasn't got much to do with. Well, we have some
good history to draw on here, which is really the
history of the nineteen seventies. That problems that have arisen
since the beginning of twenty twenty one have a certain
(29:16):
amount in common with the problems of the late sixties.
It was a combination of fiscal and monetary over at
shoot as we came out of the pandemic that caused
what to me was a quite predictable inflation mistake. Expectations
certainly moved. Ordinary people spotted the inflation and their expectations jumped. Accordingly,
(29:39):
the Fed has to make sure that expectations don't become
embedded at a much higher rate than two percent, and
so it has to keep going down this course. It's
embarked on that, and clearly it's going to have to
go higher and for longer than people were hoping at
the beginning of the year, because there's a lot of
(30:00):
Goldilocks type people out there who just want the salt
to magically go away, some of them are fed economists,
and inflation to come back down towards two percent. I've
said all along that that scenario of soft landing you
get back down to close to two percent without even
a painful recession, requires nothing else to happen. Everything else
(30:22):
in the world has to be just fine. In twenty
twenty three for that to be plausible, But what we
know from the nineteen seventies is that that's not the
way the world works. One damn thing leads to another.
A war in Ukraine had lots of inflationary impact last year,
and who's to say what's next If there were any
(30:44):
escalation in an already fraught situation in the Middle East,
that would obviously be inflationary. So watch Iran, and watch
what the new government in Israel is going to do,
Watch the Iran Saudi relationship, and those are the places
where the FED has no control. The FED can't influence
what happens in the Middle East anymore than it can
(31:05):
influence what happens over Taiwan next year when there'll be
an election in Taiwan, and lots of reasons why the
Chinese might want to escalate, and plenty of people in
Congress who would be ready to escalate right back. So
I think that the lesson that the seventies is that
you can set out on a disinflationary course as the
FED chair, but be caught out by events. Arthur Burns
(31:28):
was not a blithering incompetence. He just wasn't lucky every time.
They kind of done the recession and got inflation down,
something would happen, the most obvious example being the October
nineteen seventy three Arab attack on Israel to blow up
the strategy. In the nineteen seventies saw three distinct peaks
(31:51):
and inflation. I don't think there's anything that the FED
has done to day that really differentiates it from the
Arthur Burns Fed. I mean, I know Jpal wants us
to believe he's pulled Vulcar, but I knew Paul Vulcar,
and he's no Paul Vulcar. And we haven't come anywhere
close to the pain that Paul Vulcan had to inflict
on the US economy to bring inflation expectations down. But
(32:14):
Neil wasn't a Volca lucky. I mean he obviously he did.
He raised into his ray significantly. He looked brutal, but
the environment changed around him too. I don't think it
felt very lucky to be FED chairman. During the very
painful recession of the early eighties. Tom Sargeant wrote the
definitive paper about this at the time, the Ends of
(32:35):
Four Big Inflations, and Sargeant's point was, if you if
you have an inflation problem like that you can't solve
it just by monetary means. There needs to be a
fiscal reset. There needs to be a regime change in
policy right across the board. And that's what happened because
Reagan was president, and that meant a regime change, not
(32:58):
just in terms of fiscal policy, in terms of regulation.
And the nineteen eighties economy of the United States came
out of that recession having broken the inflation expectations cycle,
ready for a period of sustained growth. That's not luck,
that was design. But Paul Vulker couldn't control all that.
(33:19):
And in the same way Jpal can't control the other
moving parts. He can't get Congress to be responsible about
fiscal policy. He doesn't really have any say over trade policy,
which remember is not only as protectionist as Donald Trump's
trade policy, but in some ways is more protectionist, because
(33:39):
the industrial policy of the Inflation Reduction Act, in fact,
is more protectionist than anything Trump did with his tariffs.
So I think the situation the FED is in, as
in the nineteen seventies, is circumscribed by Vivas that the
FED chair can't control. Yeah, okay, we assume ongoing inflation.
(34:01):
Can we assume what five or a volatile around five percent. Well,
the lesson that some is is that one can expect
volatility and inflation if even Paul Krugman, who's not noted
for his modesty, admits to being completely baffled by the
(34:22):
data on inflation, which is another way of saying he
was wrong, by the way, but being Krugman, he can't
quite bring himself to say that. But then who am
I to offer predictions? I think the key thing to
remember is we can't really know because of all the
(34:42):
exogenous variables, particularly the geopolitical variables. If there were a
sudden surge of conflict in the Middle East, then obviously
inflation would go back up, just as inflation picked up
in the wake of the Russian invasion of Ukraine. A
lot of what goes on in economics is kind of
(35:03):
almost theological. Will They'll sit around with their model, tweaking
the variables, forgetting that the exogenous shocks of the things
historically that drive inflation, wars are not part of the
economics models. And yet wars are the big drivers of
inflation historically. Yeah, almost none of the important things are
(35:24):
in the models. I was telling a representative bank of
England the other day that they should put alien sightings
in their models, because when alien sightings go up in
the US and also in the UK, it's normally an
advance of an unexpected election result or a period of
unrash because it suggests that populations are hugely unsettled. And
he seemed to think I was the mad one. Well,
(35:45):
I'm still reeling from the fact that we actually had
unidentified flying objects over the United States and the wake
of the Chinese balloon. I thought that would be a
huge story, that you actually had the US government acknowledging
that it was shooting down UFO, And to my amazement,
everybody just shrugged and returned to their mental health problems
(36:06):
or whatever they are most preoccupied by. Yeah, well, I
we see. Honest, at this point, nothing is extraordinary, is it.
You know? I keep reminding myself that it's not as
crazy a time as we perceive it to be, because
in reality, if we'd been around in nineteen seventy three,
it would have felt a lot crazier. Actually, I mean,
(36:27):
there's a sense in which we exaggerate how volatile, uncertain
crazy our period is. It's just a kind of vanity. Actually,
it's not that special. I mean, imagine if you and
I were having this conversation in nineteen twenty three. I mean,
there was a year, the year of Henry Kissinger's birth,
(36:50):
the year of the German hyperinflation, when of all countries,
Germany suffered a complete collapse of its currency, Year of
Hitler's beer hole Pusch. I mean three at this point
is not even a close. I'll give you all of that.
But I do think the almost the entire world logging
all of their populations up in their houses for a
fairly lengthy amount of time was a fairly extraordinary event.
(37:14):
And we'll have long term the implications are all around us. Yes,
it was. I did a book called Doom, pointing out
that there never had been anything quite like mass house
arrest because in previous pandemics you just didn't have that option.
Wasn't even discussed in nineteen eighteen or in nineteen fifty seven.
So yeah, that was a truly exceptional and one can
(37:36):
say unprecedented event. And the consequences in a whole range
of domains, including mental health, which I was writing about
the other day, are still I think, far from fully
grasped by policymakers. Yeah, I suspect it's an option we're
going to hope that we are going to rather wish
that we hadn't had it. Can't move on to the
miseries of the UK another another country that has inflation troubles. Again,
(38:02):
things don't look like they're going that well here on
the face of things, or that we can be far
too pessimistic and authorizing about this. In fact, things aren't
really as bad as they look. But in your view,
is the UK doomed to become a smaller and smaller
part of the global economy indefinitely? And I don't think
it is, by the way, but you may. And if so,
(38:22):
why Doomed is a word that I use very carefully,
because part of the points of the book Doom was
to make fun of our propensity for demongering, our tendency
to exaggerate the imminence of the end of the world.
The UK's problems are I think more serious than the
(38:43):
problems of most other peer countries, because on top of
the impacts of COVID, which the UK government talk took
pretty seriously and managed pretty badly, and on top of
the war and train which the UK has become more
(39:03):
involved in than average in terms of its support. You've
had Brexit now. I was an opponent of Brexit in
twenty sixteen, not because I have any sentimental attachment to
Brussels or the European Union, but because I didn't believe
the economic arguments that Daniel Hannon and others made. Indeed,
I regarded them as preposterous. And sure enough are the
(39:28):
promises of a brave new world of Singapore on the Thames,
or a free trade in Britain with free trade agreements
with the United States. All of this has turned out
to be just as much nonsense as I said early days, Neil,
early days, early days. Well, actually you know we're now
what getting up towards the seventh anniversary, and if a
(39:53):
week is a long time in politics, seven years a
pretty decent time in the realm of of economic policy
and diplomacy. And it was never plausible that leaving the
Single Market would not be costly. But I think there's
a bigger problem, Marin, which allows me to get away
(40:16):
from the really tedious debates over Breggsits at the heart
of the Brexit project, at least in the Dominic Cummings version,
was the belief that you needed a revolution in the
British state, and that that was really the point. Brexit
was a means to that end that hasn't happened and
(40:38):
it isn't going to happen, and its failure I think
revealed something structural about Britain. You can have a clever
maverick like Dom Cummings, but if the prime minister's Boris Johnson,
there's never going to be a serious revolution in government
(41:01):
because that's just not the kind of person who becomes
prime minister in Britain. I think the British problem is
that in reality, what Brexit did was to take us
back to nineteen seventy two, to the year before we
joined the EC, and Britain's now going to re enact
(41:23):
the nineteen seventies with an amazing fidelity to detail. It's
going to be like the only BBC costume drama re
enactment of the nineteen seventies, and other countries will not
do it so faithfully. Everyone will agree that the Britains
should get the Bafter for best nineteen seventies reenactment. We'll
have we have a weak conservative government, We'll soon have
(41:45):
a week labor government. We'll have strikes will have higher
inflation than our peer countries. My only hope is that
the sitcoms and the music will improve, because the nineteen
seventies had all of that economic malaise, but they were
quite fun. I'm not too optimistic about that, but I
(42:09):
live in hope. But we are sort of. I mean,
this is something that worried me about bregsit all along.
If it was a mistake to join Europe. If that's
the basic thesis, then don't be surprised if if leaving
takes you right back to where you were, and then
you remember why we joined in the first place. The
reason Britain joined in the first place was that its
(42:30):
own institutions of government could not deliver a stable growth
and they could not deliver low inflation. That was why
it happened. So surprise, Okay, So all we can hope
for is better music. Yeah, I'm hoping that Slade will reform.
I was listening to Slade recently. Slave was such a
great band. We only ever hear their Christmas song to
(42:53):
the point of nausea. But if you go back to
Goodbye to Jane Mamma, we were all crazy. Now. I
was playing some Slade some living all the time. We
were in England last week, zooming around the place looking
at schools. Schools are still something Britain has that really
are world beating, And I said, you know, you need
to listen. You need to listen to Slade. So I'm
(43:15):
hoping that there will be there will be at least
some kind of cultural return to the nineteen seventies. You know,
the nineteen seventies were fun for young people. I know,
because I was young then. I'm being young today just
seems rubbish by comparison. And so yeah, my consolation to
everybody that I tell this story too is never mind,
(43:36):
maybe being young can be fun again. Well, we'll try
and play a little Slade at the end of the
podcast and see how that goes. I don't entirely agree
with you, but we haven't got time for me to
tell you why right, I'll write it up in a collar.
But before we end, look, I wanted to ask you
about what on earth the ordinary person is supposed to
do financially in response to this, you know, really fairly
(44:00):
miserable story that you've told us. Thank you very much. Now,
I know that you used to be quite keen on bitcoin,
didn't you. And on the general cryptocurrency thing, do you
still believe or do you think that holding a bitcoin
the only vaguely plausible cryptocurrency is a hedge against chaos
and inflation doesn't have a value of own or as
(44:21):
that ship rather sailed. I think that was true in
twenty twenty twenty twenty one, but I became utterly disgusted
by the advent of Sam bankmun Freed. I was writing
about his I said not so much wild West as
whacko West pronouncements in May of last year, and then
(44:44):
I actually came across him at a conference at the
height of his fame in of all places, Aspen, and
his performance at that conference so disgusted me that I
realized the adoption phase of crypto was over and we'd
enter the scam and speculation phase and exited not long
(45:05):
after that. I wish I had exited sooner. It was
pretty obvious that monetary tightening would be bad for an
increasingly speculative market, because what had happened in the course
of the pandemic was that we'd gone from the adoption
phase to the speculation phase, and lots of leveraged players
were driving up the prices. So you know. The one
lesson of financial history, it's even in the a sense
(45:25):
of money, is once the monetary conditions tighten, the speculative
players will be blown up one by one. That's what happened.
And yeah, I only wish i'd time my exit a
bit better. Peter Teal got out before I did, but
that's why he's a billionaire and I'm not. You were
relatively close. So how do we protect ourselves? Have you
(45:48):
got any thoughts from your great sweep of history is
to how a man on the street and look at
this particular environment and find a way to protect they're
purchasing power long term. Well, it's a very difficult time.
If the nineteen seventies or any guide, you can lose
on both stocks and bonds, and so your standard sixty
(46:08):
forty allocation won't help you. The other lesson of the
nineteen seventies is that real estate housing outperformed in the US,
and I think also in the UK it did, but
it started very cho I was going to say, that
problem is that doesn't quite work today because you're you're
in a very different world and the markets already pretty
(46:32):
inflated after a long period of very low rates, so
it's unlikely that that story will play out. Having said that,
I did position myself quite aggressively in favor of real estate,
but I have a very a desynocratic trade called the
historic real estate trade. I'm thinking about historic real estate.
It's really hard to make a sixteenth century house in
(46:53):
twenty twenty three. They don't make them anymore, and so
I've kind of I've gone about acquiring historic real estate.
It'll probably turn out to be a bad investment because
really they belong on the liability side of the balance sheet,
not the assets side. But they're quite fun to live in.
I don't know. I've got a kind of it's a
(47:14):
sign of old age when you're kind of more attracted
by historic houses than by girls. But I've kind of
reached that stage and I thought I might as well
just go with it. There's a chance it will work out,
and even if it doesn't, it'll still be quite nice
to sit by my my ancient fireplace. I was going
to try shove you towards gold at the end there,
(47:36):
But bad story, because I mean a part of anything else.
If you do sanctions like the sanctions we did to Russia,
that basically reveals that if you get on the wrong
side of the US, holding dollars is a disaster. And
so I think the Russians and the Chinese is going
to happen quietly accumulated as much gold as they can.
(47:57):
So that's probably pretty bullish for gold. I think, you know,
you'd have to prefer gold to bitcoin in this state
of the world. But my advice was always don't have
too big a part of your portfolio in those those
particular instruments, whether it's bitcoin or gold. I mean that
that's not really how you should manage your portfolio. Well,
(48:18):
you know what you really should do at the beginning
of an inflationary period, hold of assets that are cheap.
At the beginning of the inflation period. I think about
your property in the nineteen seventies, and do you know, Neil,
what's cheap right now journalists? Depends which ones. UK equities.
That's true, UK equities are cheap and I think underprised.
(48:39):
But on the other hand, you've got a labor government coming.
UK equities were terrible trade in the seventies. If we're
re enacting the seventies, that's unlikely to work. Yeah, you know,
I think what else was not a bad trade in
the nineteen seventies eighty It was cash because the interest
rates were almost always neutral to real there were very
few occasions when you didn't at least break even on
(49:02):
inflation with your cash deposits. Yeah, I mean, Bill's short
term instruments paying a decent yield are probably the best
best at the moment. It is plain vanilla, it's liquid,
and I mean, I think, look, put it this way,
in the light of what we've said, there are some
significant risks to the downside for equity markets, maybe because
(49:23):
the FED has to be even tougher than has so
far been advertised. Maybe because things blow up in either
Iran or over Taiwan. And that's the kind of thing
that makes you really not want to be long anything
terribly much. So yeah, sort take the interest where people
are paying it and and yeah, listen to Slade. It
(49:47):
cheered me up a lot. I have to say, Okay, well,
I'll remember that so gold very old houses cash, and
if you can get your hands on an old slate tape,
that's cheap, as you know. And I'm probably about to
go up massively and value the second this podcast is released.
So now we have inside information right straight down the
(50:09):
second hand records shop. Well, thank you so much for
joining today, Thanks for listening to this week's Marion 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. This episode was hosted by me Marion Sumset Web.
(50:32):
It was produced by Samasadi. Additional editing by Blake Maple's
special thanks of course to Neil Ferguson anti John Steppec
And this is my weeklyer reminder. You must if you
have not already, you must sign up to John's daily
newsletter Money Distilled the links in the show notes and
you will not regret it. And one more special announcement.
I will be doing a live taping of the podcast
(50:54):
at the Bloomberg invest event on the twenty second of March.
It's called Strategies for Wealth Creation. I guess there's going
to be someone I think an awful lot of you
know and an awful lot of you invest with, So
please do come. If you're in London, you can join
in person. Everyone else join online. There is a link
in the show notes to register
John, you've been writing about interest rates again. You can
be writing about interest rates forever. Do you remember all
those wonderful years when interest rates just below and stayed low.
We didn't have to worry about it all the time. Yeah,
it was great. I mean I still wrote about them
all the team, which my long soften readers will remember.
But you know it was. It just didn't change very much.
Must have been so good. I apologize John's readers. I
apologize to you on his behalf that he can't find
(00:22):
anything to write about except for interest rates aren't moving.
On the plus side, you don't have to be bored
by him anymore because interest rates they are changing right now.
You're writing your Money Desert newsletter this week about Powell's
comments and how that changed the way everyone was feeling.
(00:43):
We were all frightfully optimistic and nothing can go wrong
ish about things in the first bit of the year,
weren't we. Now we're back into oh my god, everything
can go wrong. Yeah, it's just the I suppose that
Marcus have just been etching for an excuse to believe
that the fad is fainally going to stop reason interest rates,
and they kind of thought that they'd had one towards
the end of last year, and then what appened is
(01:04):
that the employment data in the US came in extremely strong. Well, yeah,
I mean those figures are always interesting, and I need
to take out the research on this, but I am sure.
I remember reading during past financial crises that the data
on the non farm pay rolls is actually not great
at turning points. I mean, it's quite random at best
(01:27):
of times. Anyway, it's interesting how much attention the market
pays to this on the day, and then quite often
that will get revised by several hundred thousand later in
the year and nobody oll care. But long story short,
it was a lot better unexpected, and at that point
everyone started thinking, oh my god, the labor markets running
so hot that the FED can't possibly ignore this. And
(01:49):
then earlier this week, Jerome Powell was up in front
of US politicians and he basically said, yes, we're gonna
have to raise interest rates for higher and we'll have
to keep them here for longer than any your law
currently think. And suddenly everyone's kind of thinking, oh, wow,
it's going to be going up to six percent, maybe
eight percent sort of federal funds, right, And of course
that's got an Awkin effect everywhere else in the world
(02:11):
as well. So we're into good news is bad news
whereas it used to be. I don't know if you remember,
of course you do. Bad news used to be good news,
and good news used to be good news, and now
good news is bad news. So here we are, right
do you think do you think that this is all
about how I'll wanting to be a little bit more
Volca than he's capable of being. I mean, if you're
a central banker now in the first proper inflationary period
(02:33):
you've had for a while, you have to sit there
and think to yourself, am I going to be Arthur
Burns known to be an incompetent although in that with
my main guest and in the podcast we do talk
about this and poor mister Burns was not really incompetent.
But Arthur Burns who everyone thinks of as being incredibly incompetent,
and Volca, who everyone thinks is being the most competent
investment bank central bankers since the beginning of time for
(02:56):
slamming up interest rates again and again again under the
process creating it pretty appalling resertion. So we think of Powell,
he's sitting there and thinking, am I going to be
Burns who had inflation running at an average of six
and a half seven percent all the way through his tenure?
Very bad? And he gave this this lecture which I
was reading in the middle of last year. I was
reading this lecture he gave in nineteen seventy nine in Belgrade.
(03:19):
He called it the anguish of central banking, you know,
because while he had he had this power in theory
to get rid of inflation, to deal with money supply,
to show up interest rates and make it end. But
he couldn't do it because politics, you know, he said
at the time, he said he was caught up in
the philosophic and political currents that were transforming American life
and culture, and as a result, he just couldn't do it.
(03:42):
I am I This is a classic not my faultism,
of course, but you can see how he got himself
caught up in this. And Volker came in and said,
you know, I'm not going to think about these philosophical
and political currents. We don't have the luxury of that anymore.
I'm just shoving up rates. I mean, I can you
aastually think the bonds even that that is overthinking it.
I mean, I think that does these whole debates between
(04:06):
historians about the individuals matter more or the geopolitical currents
matter more, and all that sort of stuff, and I
think the central banking is one of those areas where
the individual matters almost not a jot. Basically, central bankers
always follow the path of least resistance, wherever that is
at a given time, and for Jerome Powell right now,
(04:28):
the path of least resistance is for higher interest rates
to make it look as if he's tackling inflation, or
at least to talk tough on it, because there is
so far no obvious impact on the economy or on
unemployment rates. Now the problem is that obviously unemployment is
a lagging indicator. But for now, Powell's only kind of
(04:54):
rational choice is to stay hawkish on rates. Maybe, I mean,
maybe he won't, maybe they won't raise them as much
as they're saying, but it certainly needs to talk a
good game, because, apart from anything else, if markets get
the sense that he's not going to raise rates, then
of course they bounce again, and kind of technically speaking,
that relaxes financial conditions. So it's like it's a sort
(05:18):
of you're actually lowering rates by not talking about pushing
them up. So I think at the moment, I think
that's that's basically how you have to look at these
things up until you know the end of the pandemic.
The path of least resistance for central banks was always
to cut interest rates if it looked as if, you know,
markets were falling, because at that point the risk was
(05:40):
that markets would fall, some sort of destabilization would happen,
and then we'd be plunged into deflation. But now the
opposite is true, and because there's no political pain really
coming from people losing her job yet they kind of
the obvious path is to stay hockey sewn rates. The
tricky bit will be whenever people do start losing their
(06:01):
jobs and Joe Biden start staying, oh wait a minute,
it was coming off for an election here, can't even
have unemployment going up. So I think, yeah, I just
think these central banks auld basically where the heart at
the time they are in Vulcan was the same. That
was the point in which inflation was too painful in
not do anything about. I mean, I know that he
had his effigy bond on the steps of the capital
(06:24):
or something like that. But but that was going to
happen either way. You know, something it had to be tackled,
and that was the rational choice for Vulcan at the time.
But he was also lucky. I mean he was lucky.
I think people argue about this a lot, but when
when you look at the environment around Chemny, they had
this kind of backup from from domestic and global politics
that poor Arthur Burns were what was going to call him,
(06:44):
poor Arthur Burns, but like used to call terisume poor terisame. Anyway,
poor Arthur Burns. They had the sort of support that
he had. This Volca had the support that Burns couldn't
possibly be had because he had Ronald Reagan's supply side revolution,
I mean, you know, slashing of regulation. That was the
breaking of the Air Traffic Controllers Union of looking this
(07:04):
up in nineteen eighty one, they fired in early twelve
thousand air traffic controllers and one go just like that,
which was kind of a watershed in the battle and
the wage price spiral. So that ended. There was this
productivity boom. You had an oil price crash at the
beginning of a computer age, etcetera. You know, Volka, he
might have served up interest rates. But there is a possibility,
and a not negligible possibility, that if Volca had done
(07:26):
absolutely nothing, inflation would still have come down to three
point five percent by the end of his tenure. You know,
he did after poor Arthur Burns in his Anguish of
Central Banking speech. Volca gave a talk a couple of
years later after it his massive success, called the Triumph
of Central Banking, which he would think, which would have
been extremely rude. Exactly, he put a question mark at
(07:48):
the end of his title. So obviously that was very
very gracious of them, because he knew he was lucky. Yeah,
it's a calculus thing, isn't it, Because it's not a
boat what the individual central anchor does. It's about the
background that they're operating against. And you know, we've talked
about this before the whole I mean, I think on
the edges they could do things differently, Like I think
(08:11):
that certainly since the nineties, and you know, the great moderation,
we could have avoided an awful lot of the kind
of serious bubbles and busts that we had if central
banks had been less in love with themselves and be
less kind of in thrall with this or sort not
even entrall, just using the two percent inflation target as
an excuse to keep rates lowered, and they arguably should
(08:34):
have been for that whole period of time, and we
ignored the fact that China was exporting deflation across the world.
We ignored the fact that, you know, labor courts were
going down because the whole Eastern Europe had been opened
up for you know, highly skilled, very very very cheap
workforce being added to the global economy. John, I'm going
to stop you there, a girl, stop you there, because
you're beginning to encroach on the things that I brilliant
(08:57):
guessed in the men porncas And I don't want to
anyone to think that you know more than Neil focuson
about anything that would not be right. Okay, So I
have to stop you so we can go on. But
before I do, I want to ask you one question. Match.
I don't want you to answer. I want you I
want you to think about because it's a question that
(09:19):
I was going to ask Neil, and we got caught
up and all sorts of other things, and I forgot
to ask him. And it's this question is right now?
What is the most important place in the world. And
I was thinking about this because of last week's podcast, which,
by the way round if you haven't listened to yet,
please go and listen to it, because Pepper was incredibly
interesting and I came away from my conversation with her thinking, Hm,
(09:41):
possibly the most important place in the world right now
is the northern Norwegian island of Falbard. When you start
looking at up it really is the most fascinating place.
Beyond important. I'm going to write about it at some point,
but not everyone would agree. I'm sure that that's the
most important place in the world. So I'm now going
to ask all of our podcast guess what they think
(10:01):
is the most important place in the world, the place
that we should be watching that we're not watching geographically
And we talk about that kind of thing quite a
lot with Neil, but not specifically. So I'm going to
leave you with that, and I'm going to ask you again,
and I'm going to ask all our podcast guests going forward. Okay, yeah,
I can't get a Hallmark listeners. You have homework as well.
(10:25):
Send me emails. Tell me what is the most important
geographical place in the world right now that people are
not looking at and they really really should be. Thank you, John. Thanks.
Welcome to Mary and Talks Money, the podcast in which
(10:46):
people who know the markets explain the markets. I'm Mary
in Sunset Web. This week our guest is Neil Ferguson.
Neil's got a long list of job titles including Millback
Family Senior Fellow at the Hoover Institution, Stanford University, and
a Senior got the Fellow of the Belfast Center for
Science and International Affairs at Harvard. Here is also the
author of sixteen books. How about that I've done two
(11:08):
was absolutely exhausting. I don't know how he does it. Neil,
thank you so much for joining us today. We really
appreciate it. My pleasure. Now we're going to dive right
in World War three? How likely is it? What do
you think out there? Are we into a new Cold War?
Are we into an invisible war? Is the Ukraine just
the beginning of a much bigger Hot war? How do
(11:30):
you see this whole situation at the moment. Well, we're
already in Cold War two, and that's been the case
for four or five years. As at the beginning of
the first Cold War, people in the West have been
rather slow on the uptake. If you go back to
the late nineteen forties, a lot of Americans and also
(11:51):
Brits didn't believe George Orwell and Winston Churchill when they
started talking about a cold war and arn curtain. For
many people, the penny didn't drop until a hot war
broke out in Korea in nineteen fifty and rather in
the same way, people who disbelieved me in twenty eighteen
when I said Cold War two has already begun now
(12:13):
seem more ready to listen with a hot war raging
in Ukraine. And that leads on to your core question,
what's the possibility or probability that a hot war on
a global scale could emerge from this second Cold War.
I think the point that Orwell made when he coined
(12:35):
the phrase cold war is that there is an implicit danger,
and a serious one of World War three. And we
saw in the First Cold War all the way through
right down to the nineteen eighties periods of alarm, most
(12:56):
obviously the Cuban Missile crisis, but not only the Cuban
missile crisis, when people feared with good reason that a
global conflict was going to occur. And with nuclear weapons,
and I think something similar will be true today now.
World wars are a kind of very distinctive genre of
(13:16):
historical event. If you look at World War One and
World War Two, there were really multiple wars that just
happened roughly at the same time, and we then called
them world wars. I think you could imagine a world
in which the war in Ukraine drags on, and then
you get another war in Iran between Iran and Israel,
(13:37):
Iran and Saudi Arabia or some combination, and then you
get a third war over Taiwan in the Far East,
and that would start looking very like World War Three,
even if no nuclear weapons were used, because there would
be this threat of nuclear war as there was in
(13:59):
the First Cold War. That's why I think the atmosphere,
the environment for investors is radically different now from the
period after nineteen ninety or nineteen ninety one. We went
through this extraordinary period after the end of the First
Cold War, which we can now see as an interwar period,
and that interwar period created very low inflation, buoyant asset markets,
(14:26):
globalization boomed, and that's for many people being the period
of their careers, so they're not ready for this altogether
different atmosphere which it's much more similar, I think, to
the period of the first Cold War. Yeah, so let's
just step back a little bit and make a little
bit more of the background and explain why it is
(14:47):
at the end of the end of the Cold War
created this extraordinary and incredibly unusual environment for investors and
for markets. It was the opening up of global label markets,
the opening up of global manufacturing markets that gave that's
the very low inflation that led to the very low
interest rates. They gave us the stunning environment that younger
people now see as the normal environment. One important point
(15:09):
mariners that the interwar period was characterized by quite low
levels of global conflict by any measure. There was a
lot less war in the nineteen nineties and two thousands
in terms of say battlefield casualties or just expenditure on
conflict then there had been during the Cold War. And
(15:32):
that was because during the Cold War, almost any local
conflict would be boosted by superpower involvement. Usually we called
these proxy wars, because the United States and the Soviet
Union didn't ever want to go ahead to head that
they were happy to fight by proxy, supplying combatants in
(15:55):
say Korea or in Vietnam with weaponry. So the nine
nineties and the period really right up until i'll say
twenty eighteen were a period of much lower levels of conflict.
Even although we remember the wars in Iraq and Afghanistan,
they were really small conflicts which didn't involve that many
(16:16):
people and were economically not that significant. And I think
that's part of the reason for the low inflation. Throughout history,
and I'll be talking as an historian. Throughout inflation has
very often been associated with conflict, because conflicts very destructive,
but it's also conducive to monetary and fiscal expansions. So
(16:41):
we had a real break from that after nineteen ninety one.
The other thing that happened was that the barriers to
trade that had existed at the height of the Cold
War were reduced. Even before the end of the Cold War,
in the period of detent Soviets wanted to do trade
(17:02):
with the West, and they did it, not least in
the form of energy exports. More importantly, beginning in the
mid seventies, China was brought in from the Cold and
Chinese growth became the heart of globalization. It was the
sudden advent of China's population and China's savings on world
(17:25):
markets that led to what more sulc and I called
Chimerica back in two thousand and seven. Chai America was
this extraordinary symbiotic relationship between the United States and China
where US corporations benefited from the great shop to global
wages caused by China's entry into the world market and
(17:50):
also benefited from the Great surgeon savings that came from Asia,
so costs of labor and costs of capital went way down.
That was the age of Chamerica. We talk about globalization,
that at its heart was this relationship between the US
and China. Those were the good times, and they were
(18:10):
good times, especially for Western investors. And why do you
make twenty eighteen the turning point? Well, the trade war
that Donald Trump launched against China got going the year
before a Trump had signaled in his election campaign that
(18:32):
part of what differentiated him from the established politicians of
both parties was that he was prepared to go after China.
He didn't really do that until the tariffs of twenty seventeen,
but up until the end of twenty seventeen, it was
still essentially a trade war, and that was what Trump intended.
But in the course of twenty eighteen, it morphed into
something much war more. It became a tech war, and
(18:56):
then it took on an ideological character. You could see
that Mike Pencer's October twenty eighteen speech for the Hudson
Institute the United States government, and I think this was
bipartisan from an early stage because Democrats agreed suddenly woke
up to this Chinese threat, and I think Trump woke
(19:17):
Americans up, but he didn't really expect his trade water
morph so quickly into a cold war. From a Chinese
vantage point, of course, it had been going on for
years because Sejon Ping, from the moment that he came
to power in China, intended a change of strategy and
at the very least to achieve parity with the United States,
(19:39):
if not to displace it as the number one super
par So I think, you know, when I talked to
my Chinese counterparts in academia, I did a lot of
that as a visiting professor at Singhua. I would be told,
you know what, your sense kind of obvious to us,
I mean to them, it was it was almost self evident.
(20:02):
That there would be something like a cold war, but
it was news when I started talking about it in
the United States. I can remember Eric Schmidt's incredulity when
I made this argument at a dinner in San Francisco
in twenty eighteen. A lot of people initially said, well, well,
that's a very bad thing to say, and I said
to them, not at all, because a cold war is
(20:24):
much better than the alternative. If the alternative is a
hot war. What's no longer a viable alternative is Chimerica
because Chia America is basically dead or dying, so cold
war would be a good outcome. We need to recognize
that cold war is preferable to hot war, and in
conditions of superpower rivalry, as Graham Allison Harvard has argued,
(20:47):
very often, it does produce hot war, so got cold
war would actually be a good outcome. Cold war is
also good because it wakens Americans and American policymakers up.
Having effective the Chinese Communist Party operatives roaming around the
universities and tech companies of California doesn't make enough a
lot of sense. Given the strategic importance of things like
(21:10):
artificial intelligence or quantum computing, so making people realize that
the other side is a totalitarian regime with aspirations to
world domination slightly focuses the mind, and it also produces
a much more concerted effort to make the United States
retain its technological lead. Because cold wars are won by
(21:32):
technological leads. They're they're not one in battle. And so
I make no apology for having argued for a cold
war we needed one. I totally understand that, and I
rather agree with you, But we have this cold war.
And cold wars have huge implications for economies in similar
(21:54):
ways to hot wars. I mean, their hot words very
obviously expensive. You know, you need a lot of coal,
you need a lot of energy, web engine, need to
see a lot of intense manufacturing, etcetera. But cold war
is also very expensive fiscally and changes monetary policy because
you still need you know, you need to have your
weaponry and your defense ready to the cold word on
into a hot war. You also you lose a lot
(22:16):
of the benefits of global trade, and you lose a
lot of the benefits of manufacturing in the cheapest place
in the world, etcetera, etcetera. So it still has huge
implications for inflation, hence for interest rate policy, hence for everything. Yes,
it's not an accident that Cold War One produced a
great inflation in the nineteen seventies. That inflation can be
(22:40):
traced back to the mid to late sixties, and it
had its origins in fiscal and monetary policy. So of
course Cold War is going to be more inflationary than
chi America was, because chi America was an adherently deflationary regime,
and let's all forget it got to deflation to the
point that that was a big worry after two thousand
(23:02):
that we were actually going to end up being Japan
with a real problem of falling prices. So you get
rid of that problem with not only the costs of
trade wars, but the much greater costs of reduced globalization,
supply chains that rely less on China, domestic investment in
(23:26):
expensive things like semiconductor manufacturer. It all adds up, and
of course you have to spend much more money on defense,
because what's been revealed by the hot war in Ukraine
is that the military industrial complex that was once so
powerful in the United States has atrophied to an extraordinary extent.
We actually would run out of certain precision missiles within
(23:47):
about a week of a hot war with China over Taiwan.
And so the realization and this is something that we
should thank President Putin for that we actually have. I've
not got the wherewithal to sustain a really large scale
conflict with the number one rival China is causing a
(24:09):
big reassessment of the manufacturing capacity and particularly the capacity
of the United States to produce weaponry and ammunition. And
Europe has an even greater problem because European defense budgets
dwindled and European defense capability at dwindled. And I include
(24:34):
in this the uk to the point that the US
has had to do most of the arming of Ukraine,
and the Europeans have provided some financial support, but much
much less military support. So this is all bracing and
makes one realize that the era of globalization was just
(24:57):
an interwar period and not something that had any inherent
the durability any more than the inter war period of
the nineteen twenties and nineteen thirties, and that this is
all extremely expensive and most government finances in the developed
world already in a pretty digital state. That's right, And
I've been talking about the structural problems of American public
(25:17):
finance for twenty years, going back to a book called
Colossus that I wrote in two thousand and three, It's
been possible for economists and policymakers to ignore that for
a long time because interest rates trended down both in
nominal and real terms. This was the secular stagnation that
(25:39):
Larry Summers talked about. But I think that's over. And
the critical issue here is that once you've got a
really large stock of debt in excess of one hundred
percent of GDP and forecast to rise, and the interest
you're paying on that debt is rising, with the risk
that you end up with positive real rates, We're not there, yeah,
(26:00):
but then it starts being expensive to have a really
large stock of debt and a and a rising defense budget.
That the key metric that I've often used is to
say that when a great power is spending more on
interest payments than on defense, it probably has a problem.
(26:22):
And the way the US is going, if you look
at the recent Congressional Budget Office estimates that point will
be reached at some point this decade, that the US
will be spending more on interest on the federal debt
on defense so, yeah, I mean, I think we need
to realize that the US entered Cold War One in
a stronger position, not only in a fiscally stronger position,
(26:47):
but I think in an economically stronger position. Because, of
course the early years have called War one, the fifties
and sixties or tremendous and sustained economic growth in the
United States, it's a little hard to believe that we'll
be so well positioned this time around. Yeah, So, is
there any fix for the American public finances? Sure? There
(27:10):
are fixes that Again I've been writing about for years.
The US tax system is a mess. There is no
value added tax, which is quite standard and other developed economies.
The income tax regime is full of holes. You could
rationalize the American tax system and make it far more
(27:30):
efficient and eliminate abuses, if you could only get it
through Congress. The problem is not a fiscal technical problem.
The problem is a political problem that it's really hard
to get at the votes for the kind of reforms
to entitlement programs that you would clearly have to do.
(27:50):
Those are the things that are really the big drivers
of the deficits. So the last candidates to run on
fiscal reform were Romney and Paul Ryan, and you may
remember that that didn't prove to be a great hit
with voters. So cold War at some point is going
(28:11):
to force a reckoning, and if past experiences any guide,
the United States will have to get into a proper
mess before it does. As Churchill famously said, the right thing,
after all the alternatives have been exhausted. Let's talk then
a little bit about the inflation that all this is
going to drive. I mean, there are there are predictions
(28:34):
out there now, people seemingly believing that inflation could come
back to two percent by the end of the year.
And you know that's that And I think you and
I would both agree that that's incredibly unlikely, regardless of
what central banks do. And there's also the question of
the extent to which continually tightening monetary policy can help
a supply problem. So what happens here? What do the
(28:55):
big central banks in a particular, the fair in the
worst do to deal with a problem that their solution
hasn't got much to do with. Well, we have some
good history to draw on here, which is really the
history of the nineteen seventies. That problems that have arisen
since the beginning of twenty twenty one have a certain
(29:16):
amount in common with the problems of the late sixties.
It was a combination of fiscal and monetary over at
shoot as we came out of the pandemic that caused
what to me was a quite predictable inflation mistake. Expectations
certainly moved. Ordinary people spotted the inflation and their expectations jumped. Accordingly,
(29:39):
the Fed has to make sure that expectations don't become
embedded at a much higher rate than two percent, and
so it has to keep going down this course. It's
embarked on that, and clearly it's going to have to
go higher and for longer than people were hoping at
the beginning of the year, because there's a lot of
(30:00):
Goldilocks type people out there who just want the salt
to magically go away, some of them are fed economists,
and inflation to come back down towards two percent. I've
said all along that that scenario of soft landing you
get back down to close to two percent without even
a painful recession, requires nothing else to happen. Everything else
(30:22):
in the world has to be just fine. In twenty
twenty three for that to be plausible, But what we
know from the nineteen seventies is that that's not the
way the world works. One damn thing leads to another.
A war in Ukraine had lots of inflationary impact last year,
and who's to say what's next If there were any
(30:44):
escalation in an already fraught situation in the Middle East,
that would obviously be inflationary. So watch Iran, and watch
what the new government in Israel is going to do,
Watch the Iran Saudi relationship, and those are the places
where the FED has no control. The FED can't influence
what happens in the Middle East anymore than it can
(31:05):
influence what happens over Taiwan next year when there'll be
an election in Taiwan, and lots of reasons why the
Chinese might want to escalate, and plenty of people in
Congress who would be ready to escalate right back. So
I think that the lesson that the seventies is that
you can set out on a disinflationary course as the
FED chair, but be caught out by events. Arthur Burns
(31:28):
was not a blithering incompetence. He just wasn't lucky every time.
They kind of done the recession and got inflation down,
something would happen, the most obvious example being the October
nineteen seventy three Arab attack on Israel to blow up
the strategy. In the nineteen seventies saw three distinct peaks
(31:51):
and inflation. I don't think there's anything that the FED
has done to day that really differentiates it from the
Arthur Burns Fed. I mean, I know Jpal wants us
to believe he's pulled Vulcar, but I knew Paul Vulcar,
and he's no Paul Vulcar. And we haven't come anywhere
close to the pain that Paul Vulcan had to inflict
on the US economy to bring inflation expectations down. But
(32:14):
Neil wasn't a Volca lucky. I mean he obviously he did.
He raised into his ray significantly. He looked brutal, but
the environment changed around him too. I don't think it
felt very lucky to be FED chairman. During the very
painful recession of the early eighties. Tom Sargeant wrote the
definitive paper about this at the time, the Ends of
(32:35):
Four Big Inflations, and Sargeant's point was, if you if
you have an inflation problem like that you can't solve
it just by monetary means. There needs to be a
fiscal reset. There needs to be a regime change in
policy right across the board. And that's what happened because
Reagan was president, and that meant a regime change, not
(32:58):
just in terms of fiscal policy, in terms of regulation.
And the nineteen eighties economy of the United States came
out of that recession having broken the inflation expectations cycle,
ready for a period of sustained growth. That's not luck,
that was design. But Paul Vulker couldn't control all that.
(33:19):
And in the same way Jpal can't control the other
moving parts. He can't get Congress to be responsible about
fiscal policy. He doesn't really have any say over trade policy,
which remember is not only as protectionist as Donald Trump's
trade policy, but in some ways is more protectionist, because
(33:39):
the industrial policy of the Inflation Reduction Act, in fact,
is more protectionist than anything Trump did with his tariffs.
So I think the situation the FED is in, as
in the nineteen seventies, is circumscribed by Vivas that the
FED chair can't control. Yeah, okay, we assume ongoing inflation.
(34:01):
Can we assume what five or a volatile around five percent. Well,
the lesson that some is is that one can expect
volatility and inflation if even Paul Krugman, who's not noted
for his modesty, admits to being completely baffled by the
(34:22):
data on inflation, which is another way of saying he
was wrong, by the way, but being Krugman, he can't
quite bring himself to say that. But then who am
I to offer predictions? I think the key thing to
remember is we can't really know because of all the
(34:42):
exogenous variables, particularly the geopolitical variables. If there were a
sudden surge of conflict in the Middle East, then obviously
inflation would go back up, just as inflation picked up
in the wake of the Russian invasion of Ukraine. A
lot of what goes on in economics is kind of
(35:03):
almost theological. Will They'll sit around with their model, tweaking
the variables, forgetting that the exogenous shocks of the things
historically that drive inflation, wars are not part of the
economics models. And yet wars are the big drivers of
inflation historically. Yeah, almost none of the important things are
(35:24):
in the models. I was telling a representative bank of
England the other day that they should put alien sightings
in their models, because when alien sightings go up in
the US and also in the UK, it's normally an
advance of an unexpected election result or a period of
unrash because it suggests that populations are hugely unsettled. And
he seemed to think I was the mad one. Well,
(35:45):
I'm still reeling from the fact that we actually had
unidentified flying objects over the United States and the wake
of the Chinese balloon. I thought that would be a
huge story, that you actually had the US government acknowledging
that it was shooting down UFO, And to my amazement,
everybody just shrugged and returned to their mental health problems
(36:06):
or whatever they are most preoccupied by. Yeah, well, I
we see. Honest, at this point, nothing is extraordinary, is it.
You know? I keep reminding myself that it's not as
crazy a time as we perceive it to be, because
in reality, if we'd been around in nineteen seventy three,
it would have felt a lot crazier. Actually, I mean,
(36:27):
there's a sense in which we exaggerate how volatile, uncertain
crazy our period is. It's just a kind of vanity. Actually,
it's not that special. I mean, imagine if you and
I were having this conversation in nineteen twenty three. I mean,
there was a year, the year of Henry Kissinger's birth,
(36:50):
the year of the German hyperinflation, when of all countries,
Germany suffered a complete collapse of its currency, Year of
Hitler's beer hole Pusch. I mean three at this point
is not even a close. I'll give you all of that.
But I do think the almost the entire world logging
all of their populations up in their houses for a
fairly lengthy amount of time was a fairly extraordinary event.
(37:14):
And we'll have long term the implications are all around us. Yes,
it was. I did a book called Doom, pointing out
that there never had been anything quite like mass house
arrest because in previous pandemics you just didn't have that option.
Wasn't even discussed in nineteen eighteen or in nineteen fifty seven.
So yeah, that was a truly exceptional and one can
(37:36):
say unprecedented event. And the consequences in a whole range
of domains, including mental health, which I was writing about
the other day, are still I think, far from fully
grasped by policymakers. Yeah, I suspect it's an option we're
going to hope that we are going to rather wish
that we hadn't had it. Can't move on to the
miseries of the UK another another country that has inflation troubles. Again,
(38:02):
things don't look like they're going that well here on
the face of things, or that we can be far
too pessimistic and authorizing about this. In fact, things aren't
really as bad as they look. But in your view,
is the UK doomed to become a smaller and smaller
part of the global economy indefinitely? And I don't think
it is, by the way, but you may. And if so,
(38:22):
why Doomed is a word that I use very carefully,
because part of the points of the book Doom was
to make fun of our propensity for demongering, our tendency
to exaggerate the imminence of the end of the world.
The UK's problems are I think more serious than the
(38:43):
problems of most other peer countries, because on top of
the impacts of COVID, which the UK government talk took
pretty seriously and managed pretty badly, and on top of
the war and train which the UK has become more
(39:03):
involved in than average in terms of its support. You've
had Brexit now. I was an opponent of Brexit in
twenty sixteen, not because I have any sentimental attachment to
Brussels or the European Union, but because I didn't believe
the economic arguments that Daniel Hannon and others made. Indeed,
I regarded them as preposterous. And sure enough are the
(39:28):
promises of a brave new world of Singapore on the Thames,
or a free trade in Britain with free trade agreements
with the United States. All of this has turned out
to be just as much nonsense as I said early days, Neil,
early days, early days. Well, actually you know we're now
what getting up towards the seventh anniversary, and if a
(39:53):
week is a long time in politics, seven years a
pretty decent time in the realm of of economic policy
and diplomacy. And it was never plausible that leaving the
Single Market would not be costly. But I think there's
a bigger problem, Marin, which allows me to get away
(40:16):
from the really tedious debates over Breggsits at the heart
of the Brexit project, at least in the Dominic Cummings version,
was the belief that you needed a revolution in the
British state, and that that was really the point. Brexit
was a means to that end that hasn't happened and
(40:38):
it isn't going to happen, and its failure I think
revealed something structural about Britain. You can have a clever
maverick like Dom Cummings, but if the prime minister's Boris Johnson,
there's never going to be a serious revolution in government
(41:01):
because that's just not the kind of person who becomes
prime minister in Britain. I think the British problem is
that in reality, what Brexit did was to take us
back to nineteen seventy two, to the year before we
joined the EC, and Britain's now going to re enact
(41:23):
the nineteen seventies with an amazing fidelity to detail. It's
going to be like the only BBC costume drama re
enactment of the nineteen seventies, and other countries will not
do it so faithfully. Everyone will agree that the Britains
should get the Bafter for best nineteen seventies reenactment. We'll
have we have a weak conservative government, We'll soon have
(41:45):
a week labor government. We'll have strikes will have higher
inflation than our peer countries. My only hope is that
the sitcoms and the music will improve, because the nineteen
seventies had all of that economic malaise, but they were
quite fun. I'm not too optimistic about that, but I
(42:09):
live in hope. But we are sort of. I mean,
this is something that worried me about bregsit all along.
If it was a mistake to join Europe. If that's
the basic thesis, then don't be surprised if if leaving
takes you right back to where you were, and then
you remember why we joined in the first place. The
reason Britain joined in the first place was that its
(42:30):
own institutions of government could not deliver a stable growth
and they could not deliver low inflation. That was why
it happened. So surprise, Okay, So all we can hope
for is better music. Yeah, I'm hoping that Slade will reform.
I was listening to Slade recently. Slave was such a
great band. We only ever hear their Christmas song to
(42:53):
the point of nausea. But if you go back to
Goodbye to Jane Mamma, we were all crazy. Now. I
was playing some Slade some living all the time. We
were in England last week, zooming around the place looking
at schools. Schools are still something Britain has that really
are world beating, And I said, you know, you need
to listen. You need to listen to Slade. So I'm
(43:15):
hoping that there will be there will be at least
some kind of cultural return to the nineteen seventies. You know,
the nineteen seventies were fun for young people. I know,
because I was young then. I'm being young today just
seems rubbish by comparison. And so yeah, my consolation to
everybody that I tell this story too is never mind,
(43:36):
maybe being young can be fun again. Well, we'll try
and play a little Slade at the end of the
podcast and see how that goes. I don't entirely agree
with you, but we haven't got time for me to
tell you why right, I'll write it up in a collar.
But before we end, look, I wanted to ask you
about what on earth the ordinary person is supposed to
do financially in response to this, you know, really fairly
(44:00):
miserable story that you've told us. Thank you very much. Now,
I know that you used to be quite keen on bitcoin,
didn't you. And on the general cryptocurrency thing, do you
still believe or do you think that holding a bitcoin
the only vaguely plausible cryptocurrency is a hedge against chaos
and inflation doesn't have a value of own or as
(44:21):
that ship rather sailed. I think that was true in
twenty twenty twenty twenty one, but I became utterly disgusted
by the advent of Sam bankmun Freed. I was writing
about his I said not so much wild West as
whacko West pronouncements in May of last year, and then
(44:44):
I actually came across him at a conference at the
height of his fame in of all places, Aspen, and
his performance at that conference so disgusted me that I
realized the adoption phase of crypto was over and we'd
enter the scam and speculation phase and exited not long
(45:05):
after that. I wish I had exited sooner. It was
pretty obvious that monetary tightening would be bad for an
increasingly speculative market, because what had happened in the course
of the pandemic was that we'd gone from the adoption
phase to the speculation phase, and lots of leveraged players
were driving up the prices. So you know. The one
lesson of financial history, it's even in the a sense
(45:25):
of money, is once the monetary conditions tighten, the speculative
players will be blown up one by one. That's what happened.
And yeah, I only wish i'd time my exit a
bit better. Peter Teal got out before I did, but
that's why he's a billionaire and I'm not. You were
relatively close. So how do we protect ourselves? Have you
(45:48):
got any thoughts from your great sweep of history is
to how a man on the street and look at
this particular environment and find a way to protect they're
purchasing power long term. Well, it's a very difficult time.
If the nineteen seventies or any guide, you can lose
on both stocks and bonds, and so your standard sixty
(46:08):
forty allocation won't help you. The other lesson of the
nineteen seventies is that real estate housing outperformed in the US,
and I think also in the UK it did, but
it started very cho I was going to say, that
problem is that doesn't quite work today because you're you're
in a very different world and the markets already pretty
(46:32):
inflated after a long period of very low rates, so
it's unlikely that that story will play out. Having said that,
I did position myself quite aggressively in favor of real estate,
but I have a very a desynocratic trade called the
historic real estate trade. I'm thinking about historic real estate.
It's really hard to make a sixteenth century house in
(46:53):
twenty twenty three. They don't make them anymore, and so
I've kind of I've gone about acquiring historic real estate.
It'll probably turn out to be a bad investment because
really they belong on the liability side of the balance sheet,
not the assets side. But they're quite fun to live in.
I don't know. I've got a kind of it's a
(47:14):
sign of old age when you're kind of more attracted
by historic houses than by girls. But I've kind of
reached that stage and I thought I might as well
just go with it. There's a chance it will work out,
and even if it doesn't, it'll still be quite nice
to sit by my my ancient fireplace. I was going
to try shove you towards gold at the end there,
(47:36):
But bad story, because I mean a part of anything else.
If you do sanctions like the sanctions we did to Russia,
that basically reveals that if you get on the wrong
side of the US, holding dollars is a disaster. And
so I think the Russians and the Chinese is going
to happen quietly accumulated as much gold as they can.
(47:57):
So that's probably pretty bullish for gold. I think, you know,
you'd have to prefer gold to bitcoin in this state
of the world. But my advice was always don't have
too big a part of your portfolio in those those
particular instruments, whether it's bitcoin or gold. I mean that
that's not really how you should manage your portfolio. Well,
(48:18):
you know what you really should do at the beginning
of an inflationary period, hold of assets that are cheap.
At the beginning of the inflation period. I think about
your property in the nineteen seventies, and do you know, Neil,
what's cheap right now journalists? Depends which ones. UK equities.
That's true, UK equities are cheap and I think underprised.
(48:39):
But on the other hand, you've got a labor government coming.
UK equities were terrible trade in the seventies. If we're
re enacting the seventies, that's unlikely to work. Yeah, you know,
I think what else was not a bad trade in
the nineteen seventies eighty It was cash because the interest
rates were almost always neutral to real there were very
few occasions when you didn't at least break even on
(49:02):
inflation with your cash deposits. Yeah, I mean, Bill's short
term instruments paying a decent yield are probably the best
best at the moment. It is plain vanilla, it's liquid,
and I mean, I think, look, put it this way,
in the light of what we've said, there are some
significant risks to the downside for equity markets, maybe because
(49:23):
the FED has to be even tougher than has so
far been advertised. Maybe because things blow up in either
Iran or over Taiwan. And that's the kind of thing
that makes you really not want to be long anything
terribly much. So yeah, sort take the interest where people
are paying it and and yeah, listen to Slade. It
(49:47):
cheered me up a lot. I have to say, Okay, well,
I'll remember that so gold very old houses cash, and
if you can get your hands on an old slate tape,
that's cheap, as you know. And I'm probably about to
go up massively and value the second this podcast is released.
So now we have inside information right straight down the
(50:09):
second hand records shop. Well, thank you so much for
joining today, Thanks for listening to this week's Marion 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. This episode was hosted by me Marion Sumset Web.
(50:32):
It was produced by Samasadi. Additional editing by Blake Maple's
special thanks of course to Neil Ferguson anti John Steppec
And this is my weeklyer reminder. You must if you
have not already, you must sign up to John's daily
newsletter Money Distilled the links in the show notes and
you will not regret it. And one more special announcement.
I will be doing a live taping of the podcast
(50:54):
at the Bloomberg invest event on the twenty second of March.
It's called Strategies for Wealth Creation. I guess there's going
to be someone I think an awful lot of you
know and an awful lot of you invest with, So
please do come. If you're in London, you can join
in person. Everyone else join online. There is a link
in the show notes to register
Host
Merryn Somerset Webb
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