May 15, 2021 • 35 mins
This week, Rick Palacios, principal and director of Research at John Burns Real Estate Consulting, went through the latest in the lumber market frenzy and the impact on the U.S. housing market. Bloomberg Opinion columnist Conor Sen and Neil Dutta, the head of U.S. economics at Renaissance Macro Research, debated whether the economic cycle has peaked. Mike Pyle. chief economic advisor to Vice President Kamala Harris and former chief investment strategist at BlackRock, came on to react to the April CPI data and discuss whether those inflationary pressures will make passing the Biden Administration's spending plans more difficult. Then Nic Carter, the founding partner at Castle Island Ventures, went through the wild week in crypto and Elon Musk's bitcoin reversal.
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Episode Transcript
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Speaker 1 (00:08):
Welcome to Would You Miss This Week? I'm Joe Wisenthal.
This podcast has some of our favorite interviews from the
Daily Market Clothes Show that I co anchor along with
Romaine Bostick and Caroline Hyde. What Do you Miss? It's
the perfect way to kick off your weekend. This week
was another wild one for the lumber market, US futures
hovering below a record high as daily trading bumped up
(00:28):
against daily limit up and down prices all within a
couple of hours. On Thursday, we got some perspective on
how these insane lumber prices and supply shortages are weighing
on the US housing market from Rick Pelacio's principal and
director of research at John Burne's Real Estate Consulting. We
started by asking Rick the question that's been confounding us all.
With home prices so high, Why can't we just build
(00:50):
a lot more houses to bring the prices back down?
If builders could do it, they definitely would. Yeah. No,
I've I've been listening to you guys talking about CPO,
and I mean, inflation is everywhere except for CPI right now,
and I think housing is really the poster child for that.
I mean, what got us here though, Rick, I mean,
was this was this really an issue of just too
(01:11):
little supply and too much demand or were there sort
of just maybe regional factors that may be played into
why we're seeing this imbalance. Yeah, it's interesting, you know,
I think inflation maybe a bit more transitory. Um it,
maybe it may may stay longer in housing than than
other kind of industries that we're all talking about. I mean,
(01:32):
catchup packets, that's going to relieve itself pretty soon here,
I'm thinking. But when you think about housing, you've got
these supply chain bottlenecks that have been just on steroids
post COVID, so land, labor, materials, municipalities, and then so
that's kind of the norm across really the entire economy
(01:53):
right now. But then you layer on top of that
there is just insane demand for housing right now, and
I think housing as a whole has had a captive
audience on really the entire consumer. I think some of
that is going to start to wean here as we
get into the latter half of this year. In another
runny areas that the hasn't been demand is it the
(02:14):
whole spectrum, the whole price point gamut that we've been
seeing and housing or has it been the suburbs that
do particularly well. Has it been the less affordable housing
than like plus one million? What about those that are
on the lower income spectrum but wanting to buy the
first time? Yeah? No, So it's so we ranked this
on a monthly basis through a survey we do about
(02:35):
three home builders across the country, and it's demand is
instaable across every buyer segment right now. So entry level
price points move up, second home luxury, I mean across
the board. Builders are having a hard time keeping up
with demand, and that's one of the reasons why if
you look at just home prices. So we have this
data now from April from our survey home prices, new
(02:59):
home prices sixteen year year in April. That's the highest
we've seen in the history of our survey. Talk to
us a little bit more about demand destruction. Where do
you see either because the houses just can't get built
or because the prices are so nuts, Like where what
do you see happening when the finally prospective homebuyers saying,
(03:20):
you know what, I've had enough, I'll stick to renting,
or I'll stick to whatever my current situation is and
maybe look at it in a couple of years. Yeah. No,
I mean, if you if you think about it in
terms of our forecast, we do have growth moderating, and
I think housing is this very unique window in time
for housing where it's just firing on all cylinders for
a lot of the reasons we just talked about. But
(03:42):
over time, and and some of this is rates and
inflation that is looking like it's going to start to
accelerate and rates creeping up. We do have home prices moderating.
We do have the rate of new home sales moderating,
new home construction moderating. I mean, I think you know,
we talked about a captive audience. There is almost no
resell supply and a lot of these markets where home
(04:02):
builders are are active, and so home builders really can
kind of control the market where they're at and demand
what they're demanding on the pricing front because there's really
no other game in town right now. Yeah, that's certainly true.
As we start to sort of get maybe a couple
of years out here, and maybe let's say you start
to see a little bit more normalization with regards to things,
how far out I guess on the risk risk spectrum
(04:25):
are some of these builders I know a lot of
what they're building right now, they've kind of already locked
in the potential buyers for that. But how far out
do they normally go? Yeah, well, it really depends. I mean,
tying up land can take many, many years, namely here
on the West Coast. Mean, one the thing that's been
helping builders right now is that they acquired and bought
(04:46):
the land that they're now monitoring monetizing through selling homes
years ago. Um. But when they're going to buy land
right now, the homes that they're going to deliver on
that land, it's not gonna be for sometimes a year,
two years, if you're on the West Coast here California,
many years out. And so that's where we are starting
to see some builders and I think, Joe, this is
(05:06):
what you reference in that thread that I tweeted out
last week, where builders just don't have there's there's not
a lot of comfort around the volatility and construction costs,
in land costs, labor costs, and so what they're saying is,
you know what, let's kind of pause here a little bit,
Let's dial things back a little bit until we do
have some more some guardrails really around what's happening on
(05:27):
the cost side, so we can price these homes more
accurately to what we're seeing as a home builder in
terms of the notices we're getting from vendors on a
weekly basis sometimes that are ratching up our costs. Talk
to us about the labor part, MAC and how you know,
are more people being channeled towards wanting to work within construction.
(05:48):
Is the supply at any point becoming unbottledneck there is,
there's not enough trained people. I think it's probably a
combination of everything, not a lot of trained people to namely.
I mean, this is something that we highlighted going back
a decade coming out of the Great Financial Crisis. A
lot of the trades and the labor pool that was
in residential construction residential construction essentially left the industry during
(06:12):
the Great Financial Crisis, and we have not seen those
individuals really come back in mass, even though there is
a ton of demand for their skills and their craft
right now. This is super interesting and it's a really
big theme. Whether it seems to me, whether we're talking
about lumber or in your as your description, the trade
to build um to actually know how to build a
(06:34):
home really after feed uh, in the sort of post
crisis period where we had this long slump and now
we're really paying the price for it. Yeah. And a
big part of that, to Joe is that a lot
of the aids pre Great Financial Crisis, I mean they
came from outside the United States, and so we had
immigration coming in that essentially shifted changed and we haven't
(06:55):
seen it reverse. Um. I mean a lot of the
homebuilders I talked to say, gosh, we would love to
have some sort of sort of an immigration policy where
we can get these people in working for us path
the citizenship. And so who knows, maybe we'll see that happen.
And so what's the next step here? Then? I mean,
where do we go from here? Um? I I think
housing this year this kind of goes back to my
(07:17):
comments on this this very unique window in time. I mean,
we're gonna look back on and say we had the
strongest home price appreciation we've had since two thousand and five.
I think we're forecasting about resale price appreciation. New home
prices are going up higher than that. UM. Crazy construction volume.
But you know, builders, if they could build more, they
would it's just the bottlenecks right now are really limiting
(07:40):
what they can do. I think when we get into
a lot of the land that has been purchased over
the last three quarters, we'll start to hit in terms
of community counts, and we'll finally have more supply. We'll
finally get more ReCl supply coming online, and I think
with that you'll get price appreciation moderating to more call
it realistic levels when the chance would be a fine thing.
(08:03):
Your perspective in cities versus sum urbs, I mean, there's
you're starting to see articles pop up here and there
now about how the cities are doing pretty well too
in terms of transactions and in terms of finding the bottom.
I mean, we've got a chief to margarepher who's been
digging into this for many, many years. We actually wrote
a big a book on this called Big Shifts Ahead
(08:24):
years ago, and our view is that you were going
to and we were seeing the suburbs grow at an
accelerated rate from what cities and urban cores were. You
had COVID hit and just like with a lot of
trends across a lot of industries, really that trend was
just accelerated and so it's something that we're seeing right
now in a lot of builders are more comfortable going
(08:46):
further out because of what we're seeing with work from
home and people saying, you know what, I can now
be a little bit further out. We've only got to
go into my office maybe two three times a week,
so I don't want to live in the city now.
This week What You misshosted a debate. We posed a
question has the economic cycle peaked and what does it
mean for markets? We asked two of our frequent guests
(09:08):
Bloomberg Opinion Calmness Connerson and Neil Dutta, the head of
US economics at Renaissance Macro Research. We started with Connor,
who has been warning about supply constraints for a while
now in his new column, which argues that we're not
going to be able to reach G. D. Piegel's if
the labor market remains this type. We asked him why
he thinks things have topped out and whether that poses
a risk for stocks. Well, I think the first sign
(09:33):
that maybe growth is slowing, so we're still growing, but
maybe to slightly slower rate them. The historically strong numbers
we saw in March was that I sm manufacturing survey
we saw last week which did come down from marches
sort of historically high number, and some people might say, well,
it's still a good number, but it is a following
relative to what it used to be. And then, you know,
we obviously have the jobs report where we didn't produce
(09:54):
as many jobs as we thought we would, and it
looks like that was really more due to supply bottlenecks
rather than demand. And then on top of that, we've
got increasing signs that maybe in the housing market, homebuilders
are starting to pull back just because the material costs
pressure is is too insane for them and they want
to just sort of watch things shake out a little bit.
So it seems like, you know, maybe demand growth is
slowing a little bit, and then we're really hitting these
(10:14):
supply bottle next a lot sooner than we thought we would.
But Neil, I mean, we're coming right now for a
lot of us, are finally coming back out of the
house for the first time in quite some time. People
are looking to spend. They got accommodate of fit policy,
and you have fiscal policy out there on the table.
I think that's right, and I think that's the fundamental
story I mean, when we talk about peak I s M,
(10:35):
it's important to remember I think for investors why that
signal has such saliens in the markets, And it's primarily
because of the fit. Right, So when you have a
peak I s M, you have rising prices paid. Usually
the FED steps it's foot on the brake. That's not
happening this time around. UM. I also think it kind
of strange credulity to think that this is UM. Obviously
(10:55):
Europe was blowing up back then. So the fact that
the data quote unquote peaked in two not that it
actually did at the time. UM. You know, it was
more coincidental than anything else. Obviously, this time around, we
have a phase reopening UM, not only in the US,
but globally as well. Right, so Europe is vaccinating more people,
(11:16):
they'll reopen, Latin America will start vaccinating more people, they'll reopen,
and obviously e m Asia. And if you think about it,
each of those economies subsequently are more open than the other.
In other words, they trade more. So that's ultimately good
for for the manufacturing sector. So I think, you know,
when we talk about data peaking, it's important to think
(11:36):
about it in terms of momentum versus levels and um,
you know, in terms of levels, we're not at peak anything.
I mean when you talk about order back logs and
customer inventory and index which is at a record low. Um,
that all suggests that production is likely to accelerate from
here now. Um. You know, I take Connor's point about
(11:56):
certain bottlenecks um arising and at may slow down growth.
But if you're an investor, what do you do with that?
You're gonna revise up two? I mean, has the twelve
eighteen month outlook really changed because of this? I think?
You know, prices still send an important signal. If you're
a lumber producing what are you gonna do? Cut production?
I mean, so it's you know, I mean, I think
that if you're going to trade around this peak, I
(12:19):
s M story, it's a trade you want to rent,
not mail. I already hope you're not peak cuddly toy
situation either, because that is an excellent backdrop. Meanwhile, Conda,
your perspective on you know this this friction, how long
it might remain. If we do start to see the
supply chains get easier, the friction come off. People are vaccinated,
(12:41):
they're no longer fearful of going back to work. The
schools we hope reopened fully, women perhaps returned to the
labor force that much heat more easily. Does that mean
that we could see this more later explosion of growth.
I think he's right about the twelve to eighteen month
you but I think the market might really be focused
on the next three to six months. And I think
we're seeing that maybe these short term frictions are a
(13:01):
lot more severe and longer lasting than we thought. You know,
sort of last spring, maybe we thought that we'd be
sort of through the lockdowns in eight months and or sorry,
eight weeks, and it turned out to be more like
a year. And you know, there's thought that maybe we'd
have okay, some transitory inflation this summer, and we're still
going to get that. It looks like we have the
CPI report tomorrow. But these these bottlenecks just seem a
lot tougher than maybe we thought even a month or
(13:23):
two ago, and that's giving investors pause. And to Niel's point,
you know, I think longer term investors might be saying, well,
maybe just pushes the growth on two. But if we
really do start getting these hot inflation prints and if
we get some downside surprises to growth, will investors be
willing to hang on for the rest of this year
when they thought that this year would be the big
growth number and next year would be be lighter. So
I think we could see investors really struggle with the
(13:44):
next two to three months of data. Yeah, no, I
want to talk about I mean, obviously we're getting that
CPI number tomorrow. You know, transitory base effects, we all
know the story. But a we do see companies whose
results have been hit by the some of the shortages
and bottlenecks, sawmills which should be you know, printing money
right now having issues with trucking. That's an effect. And
(14:07):
then if you get hot numbers, you know, do do
people start to worry that either some combination of real
earnings growth or sorry, real earnings hits plus you know,
FED starting to waiver a little bit. Could that create
some volatility for the market if maybe I don't know,
some of the regional FED presidents come off message, well
(14:27):
they're actually getting I mean, I guess I disagree with
the premise of that because they're actually coming on message.
I mean, you've seen a number of you know, traditionally
hawkish regional FED presidents actually buying in to palace strategy.
Bullard is the latest among them. But you see it
from Master, Um, you see it from Rose and grin
Bargain from Richmond. I mean, these are regional FED presidents
(14:50):
that have been hawkish. Uh So, the Fed's gonna pull
the rug out from underneath it, Um, just as you're
getting more political buying from your lieutenants. I mean that's
sort of see um, you know, absurd to me. Uh So,
I don't think that. I think the Fed being easy
is the name of the game. They will be the
last central bank to taper. Uh. That's going to be
negative for the dollar, um, and that could mean some
(15:12):
rotation into equities overseas. UM. But when you talk about production, Joe, Um, Look,
we're talking about one month, right, and every data point
that went into that one month before it. We're stronger
in terms of employment, right. I mean we had rising
employment in the Small Business Pulse Survey and ADP alongside
(15:33):
rising opening. So Um, does anyone really believe that the
underlying trend and employment do two seventy? I mean my
sense is that it's probably closer to you know, seven
hundred than not so. Um, as you're bringing those people on,
you're gonna get stronger rates of production. Um. You know,
we just we started the segment talking about I s M.
(15:54):
The I s M last I checked is in expansion territory.
That means we're going to see more industrial production growth.
So you know, the these issues, um, and you know
you talked about you know, inflation biting into earnings. We're
seeing net margins actually expand, which would suggest that the
inflation that we're seeing is uh not actually a roading
(16:15):
corporate profits, it's actually you know, helping. So I again,
I disagree with some of the premise of that, but
you know, well, I just I do feel like, um,
this is a trade you want if you're gonna play this,
you want to rent it, you don't want to own it.
And I also think it's maybe a little bit premature
to be talking about this. I mean, you're time. If
you look at like equal weight equities and the SMP hundred,
(16:37):
I mean that's still looking fine. Um. So you know
this is narrow to to uh to us. I think
a specific set of names, and I do think that
the economy is generally on a strong course. And you know,
look I mean the Atlanta FED. I mean, Connor knows
this because he's from there. Um, that's tracking what like
eleven Um. You know, we're not really time in. You know,
(17:00):
we we're sort of you know, quibbling over over over
little things here. But we need this is a round table.
We need some healthy disagreement. Neil, you want to start
with you You have been a very big advocate of
the sort of like the pure reopening trade, long planet fitness,
short peloton, things like that, doesn't everyone know the economy
(17:22):
is reopening? And doesn't everyone know that virus is uh,
the vaccine rollout is picking up? Like, what more juice
is there in your view in this trade? Well, I
guess Joe, everyone knows except the public healthy paratus in
this country, right. I mean the messaging I think has
been somewhat mixed, so that may have taken some of
the juice out of the reopening trade, as you see
(17:43):
with what's coming, I want the cruise lines recently, right, So, Um,
you know it's sort of a two steps forward, one
step back process. But I definitely do think that, you know,
to some degree, I think I sympathize with the view
that the reopening trade is UM has run its course.
But this goes back to a point that you know
we were talking about earlier, is you know, peak I
(18:05):
s M investing does not stop when the I s
M hit sixty. I mean, what do you I mean,
I can't tell my clients that, you know, only invest
in US equities when we're going from thirty to sixty.
So you know, now is the opportunity maybe to take
some of that, UM, you know, some of those profits
and maybe rotated into other areas of the capital markets. UM.
(18:25):
So I think that's the way to think about it. UM.
But I think the broad reopening, I mean it's still continuing.
I mean, we just hit a record in terms of
T s A screenings over Mother's Day, so there's still
some you know, I mean, the fundamental trend in the
services economy is still up. And remember in the first
quarter of this year, UH, service sector consumption in real
(18:47):
terms was really no different than it was in the
fourth quarter of last year. So again, when we talk
about peak, we're going to see an acceleration and service
sector consumption over the next two quarters. I think that
we haven't seen on a scale certainly not an our lifetime.
So UM again, I think there's still a lot of
momentum in that at least in the economy. Maybe the
(19:07):
equity stories run its course, but I think the momentum
in the economy still has a waste to go. So
connor where to put money to work in your thesis,
if we are indeed it potentially peak growth, I mean
you're the dip bar in the NAZDAC or or what
to put money? Well, I think the risk is that
the next jobs report looks just like the April one did,
and that would really I think call in a question
(19:29):
the supply response, and maybe demand is really strong, but
we just can't meet it supply wise wise for whatever reason.
And so in that environment you have, you know, less
than expected US growth, may be hotter than expected US inflation,
and and maybe the Fed just again sits through this
and let's it play out, which means that we're not
getting the response from the Fed, which looks like a
really weak dollar sort of long commodity long non US
(19:52):
type story and just sort of with the way the
traders are kind of you pick one thing and not
the other. I think if commodities are doing well, tech
probably doesn't. Even if tech earnings are growing, and then
I think also, you know, if housing kind of slows
just from lack of supply, then homebuilders can be intra
a root awakening, and that whole housing related to supply
chain that's done so well in the past six months.
I am curious here, Connor. I mean, we're getting to
(20:12):
a stage where at some point we will sort of
sort of see some normalization of monetary policy, maybe a
normalization of fiscal policy. Here. I mean, the real question
here is whether this rebound is economic recovery, can sort
of stand on its own, whether we can transition to
some sort of sustainable growth rate that isn't completely dependent
on j PAL and on what Congress passes with regards
to simulus. Well, I think it's you know, in the
(20:35):
last cycle, the mistake we made was trying to normalize
Monterrey policy, which really was more like normalizing interest rates,
whether or not the economy can handle the interest rates
we got to. So I think the shift under power
is more like, you know, what we have now is
maybe normal, and you know, normal doesn't necessarily mean two
to three percent just to try to get there for
no obvious reason. And you know, if the economy needs that,
(20:56):
then we we lift rates to get us there. But
it's not a goal in and in and of itself.
We leave it that of course, the ning nicknaming. That's
the end of the fight. Joe who won uh ten
ten is a draw. They both raised their hands. Sorry,
I want him to both come back. You're still to
bias and bias I wanted to command. This week, we
(21:21):
also got more fuel for the inflation debate that's been
gripping Wall Street investors. On Wednesday, we got April CPI
data US consumer prices climbing by zero point eight percent
last month. That's the most two thousand nine, outpacing economist estimates,
while the core gauge rose by the most. Since this
inflationary pressure has consequences beyond markets, some Democrats worry that
(21:44):
the data could put President biden spending plans, the American
Jobs Plan, and the American Family Plan in political jeopardy.
So we got some reaction from the White House off
the back of that data from Mike Pyle. He's the
chief economic advisor to Vice President Kamala Harris and a
former chief investments just for Black Rock. We asked Mike
whether the surgeon consumer prices will make passing the Biden
(22:05):
administration spending plans more difficult politically, so we're staying focused
on the economics and the overall strategy here. You know,
the President the Vice President have talked about there being
uh two major prongs. So their economic strategy first around rescue,
around recognizing the whole that we were in by virtue
(22:28):
of the pandemic, and the American Rescue Plan was focused
squarely at that, getting shots and arms, getting relief in
the hands of families and businesses. But we're now kind
of looking to here in Washington that next stage around,
as you say, the job's plan, around the family's plan,
and that's really economically an entirely different problem that we're
looking to solve. That is a multidecade in part me
(22:50):
a multi year investment in our families and our infrastructure,
designed to allow the economy to grow faster, designed to
allow that growth to be more inclusive, designed to allow
us to take on the challenge the climate change. That
isn't stimulus, that isn't the Recovery Act. That's a long
term investment focused on helping to build back better after
decades of under investment. And that's a great point. I mean,
(23:13):
obviously you understand though the politics and how certain things
will be framed, whether you want to frame that way
or not. I'm wondering about the conversations that you're having
uh there in the executive building about just the pace
of economic growth and the idea here that by adding
these programs on, uh, you create potentially maybe a little
(23:33):
bit too much stimulus, even if it's not called stimulus.
There's this idea that you're throwing logs onto the fire,
and this seems to be what some people in the
markets are concerned about. Is that conversation taking place, Well, again,
I would resist that characterization. I mean that take the
American Job's Plan for instance. You know that is a
multi year investment that is intended to over the next
(23:54):
eight or ten years really transform our transportation infrastructure or
enter infrastructure. Uh, you know, our our broadband capacities. And
it's going to be paid for and full through a
set of text changes on the business and corporate side
over the next fifteen years. You know that is again,
that is not the right frame of mind. There is
not stimulus. It's not about responding to the immediate moment.
(24:17):
It's about structurally investing in this economy after decades of
under investment, to make the economy more productive and more
inclusive over the decade and beyond. I hear you, Mike
on the inclusion part of it, of course, something that
you've been very focused on since coming into the role.
But the fact that inflationary pressures drive up the cost
of food, drive up the cost of gas, drive up
(24:38):
the cost of things that the lower income can needs afford,
price pressure on how do you square that circle? How
do you ensure that you're not hurting the victim you're
trying to help. Well, again, I would I would resist
that characterization. So when we look at the inflation print today,
you know, what we see as evidence of an economy
uh that is rapid normalizing coming out of the pandemic
(25:01):
and a reflection of having gotten a lot of shots
and arms and allowing behavior, allowing social life, allowing travel
to begin to get back to normal. So let's look
underneath the hood of this inflation print. You know, we've
said for some time we expect to see transitory inflation.
We expect to see it in particular around parts of
the economy that we're especially hard hit by the pandemic,
and I think in large part that's what this print reveals.
(25:24):
You know, look at places like airfares, look at places
like hotel and leisure more broadly, they're very significant month
over month gains there in terms of prices. But that's
really a reflection of the fact that people feel more
comfortable getting back into the economy, getting back into travel,
getting back to moving again, and and that is and
that is what we think was kind of ultimately a
(25:45):
lot of what was going on in this print. Like,
let me ask you a question about the here and now.
There is clearly some tension about whether the UI expansion
is contributing to UM a labor supply shortage, record job openings,
piece of job creation more than expected. I don't think
the data is a slam dunk, but there does seem
to be some ambiguity. Will the White House be open
(26:06):
to UM the legislation that would allow people who take
a job to take with them a bonus of part
of their future UI. So I'm not going to get
out in front of the legislative process, but what I
will say is, you know a couple of things when
we look at the data, Yeah, we agree with you Uh,
(26:26):
there's there. It is not obvious that that UI, with
the data we have in hand, is having this effect,
you know. That said, we recognize this is a moment
when the economy is changing very rapidly. This is a
historic moment, This is an impressive moment. This is a
moment where the economy is changing day to day, and
the data that we have in hand, you know, is
(26:47):
a snapshot of the economy for six eight weeks ago.
So we're very much kind of vigilant around this, kind
of paying attention to conditions on the ground day over day,
given how rapidly things are changing, because we recognize the
data we have in hand, while not conclude said is
a snapshot of an economy that doesn't exist anymore in
some ways. Now is the wild five days for the
(27:10):
world of crypto coin based reporting earnings for the first
time as a public company, Bloomberg learned that the U. S.
Department of Justice and the i r S are investigating
the world's largest cryptocurrency exchange Finance. Meanwhile, Elon Musk delivering
a blow to the sector with a major U turn
the Tesla CEO, suspending purchases using bitcoin and voicing concerns
(27:31):
about its energy usage just a few months after becoming
one of the currency's most vocal supporters. So we got
some reaction from longtime bitcoin advocate Nick Carter, the founding
partnered Castle Island Ventures, and we started by asking Nick
the trillion dollar question, does Bitcoin ever have a plan
to transition to a proof of stakes system or will
it always rely on computationally intensive mind? Well, Bitcoin doesn't
(27:57):
have a plan because it has no or, and it's
pretty decentralized, and when individuals or firms have tried to
comment deer bitcoin, they haven't been successful. So Bitcoin has
no plan. But you know, the consensus in the community,
to the extent it exists, is that proof of work
is completely intrinsic to Bitcoin, and proof of steak is
(28:19):
not really a desirable alternative quite frankly, all right, And
a lot some people reading in between the lines of
what Elon Musk said seems to suggest that maybe he's
eyeing an alternative. Here are there alternatives. There's certainly many
other systems that purport to do the same things the
bitcoin does, uh, And there's many clones of bitcoin and
(28:40):
many blockchains three point oh and so on. But at
least in my view, none of them have proven to
be sufficiently decentralized. And frankly, if you pull the proof
of work element out of bitcoin, you get something completely different.
So a lot of bitcoiners would question whether you can
eliminate the proof of work and get a system with
those same assurances. Of Course, some also saying, maybe you know,
(29:04):
Musk is just throwing down the gauntlet here, make yourself
run on cleaner energy all your minors. So is that
the answer? If bitcoin does need to remain in some
sort of digital gold, it's still about the ecosystem. Who
wants to maintain that? Are people looking at ways of
shifting to cleaner ways to mine it? Absolutely? And you
know there's a big distinction between an energy cost and
(29:27):
then the actual carbon outlay which people often miss, right,
and it really depends on the source of energy you're using.
Of course, we know that a large share of bitcoin
is mind in particular in places like sit you on,
you know, on in the wet season with hydro. But
we can do a lot better, and there are some
great secular trends. Actually, the Chinese province of Inner Mongolia
(29:49):
recently banned bitcoin mining, and that was se coal powered.
So if you're actually the trends, they look to be
improving structurally. We're seeing a lot more hash rate onshore
onto the US. The US is a greener grid than China,
so that's great. I'd like to see more from minors
in terms of disclosing what their energy mix is, what
(30:10):
they're power sources are. But you know, certainly there's actually
a lot of cause for optimism here around the energy
mix a bitcoin. Quite contrary to the tone elon Is
is putting out, let me ask you a question. You
write about bitcoins energy usage a lot this debate, these
points that you make about how there's a difference between
(30:31):
energy used total and uh sort of carbon emissions because
some of it's clean, do you, as a participant in
the industry think that from a sort of like regulatory
legal standpoint, that one of the bigger risks to the
environment is that regulators cracked down on it for precisely
this reason. Hence your motivation for writing about it so much. Uh,
(30:55):
the motivation right about it is frankly, because the debate
is very poorly informed and a lot of the critiques
I say I see are just not uh not really
ground in reality. And and and you know the facts
of the protocol. Uh, certainly we're seeing capital becoming much
more politicized and much more informed by E s G
considerations in the us UM and you know that's only
(31:17):
going to continue. And you know, every day I talked
to large allocators that have trepidation about bitcoin precisely because
of the environmental impact of the system. So it absolutely
doesn't affect everyone on those sort of capital allocation capital
management side of the industry. So it's already a consideration
today and I expect that will only continue to be
(31:38):
the case as s G gets fully normalized. And so
that would be the challenge that I would pose to
bitcoin miners. Bitcoin miners tend to be long bitcoin. They
want to accumulate bitcoin, so their duty is to render
themselves as environmentally friendly as possible or by carbon offsets
if they can't. Nick, I want to get your thoughts
here on cooin base. We did get that first earnings
(32:01):
report out of the company today. Obviously they had guided
even before the direct listing, so we kind of knew
the numbers. We did see pretty healthy monthly transaction numbers here,
and they're actually guiding a little bit higher UM what
do you generally see here as sort of the bright
spot for coin based going forward. Well, coin based is
a very straightforward business, frankly. You know, their revenues are um,
(32:23):
you know, very much a function of retail trading volumes,
and those have been strong. Uh. They haven't really changed there.
There's not a lot new there um, so pretty much
delivering exactly as expected. Of course, the price performance has
been somewhat disappointing, and it's it's tract sort of the
broader crypto markets. Um, but not a lot of surprises there.
(32:44):
What I'd like to see would be if they can
diversify their revenue a little bit and build in more
lines of revenue, uh, mirroring the way that conventional exchanges operate.
Who you know, they tend to have larger data businesses.
A few crypto exchanges monetize their data uh, and you know,
seeing if corn based can maybe monetize their au M
(33:05):
on a net interest margin model perhaps, which they haven't
done so far, so they still have plenty of room
for growth. Frankly, Nick, of course, I'm full disclosure. My
husband's a senior manager over at coin based, so passive
the numbers too much, but It is interesting that in
some way coin base gets pulled down when crypto falls,
but apparently they make money off the volatility there in
(33:25):
Bitcoin currently training temper cent lower, but Ethereum down temper
cent as well, even though we see another big institutional
player hanging their hat in the crypto space. Steve Cohen's
points only two exploring blockchain the crypto sector, how it
is a I mean, I feel like you've got to
say this isn't by the dip opportunity, but at what
point does it actually correct? You see a significant set
(33:46):
of coming to the crypto space. We've sold off. I
think most of the sauce partly to do with the
you know, the Elon effect and so on, and the
disappointment around that, but also very saliently regulatory concern uh.
And that's going to affect the broader market. We see
this finance investigation today, I think a lot of people
are starting to realize that this Kinsler SEC is going
(34:08):
to be much more aggressive and uh, you know, the
SEC Commissioner is gonna try and make his mark on
the crypto industry. Uh. And frankly, a lot of these
exchanges are are hosting the trading of dubious products, things
that resemble equity, things that might be uh you know,
potentially brushing up against securities laws, and uh you know
that surprised me Nick real quickly. We just have a
(34:30):
couple of seconds. Is it a problem for bitcoin that
I can't buy dog tokens with it and that I
have to use a theoryum instead? I don't know if
you want to be buying the dog tokens show frankly, Okay, okay,
And that's it for what you missed this week. If
you like the show, and make sure to subscribe and
(34:51):
rate us an Apple podcast or wherever you listen to podcast,
you can catch our show every weekday from three thirty
to five pm on Bloomberg TV and from four of
five jam on Twitter. Thanks for listening and have a
great weekend.
Welcome to Would You Miss This Week? I'm Joe Wisenthal.
This podcast has some of our favorite interviews from the
Daily Market Clothes Show that I co anchor along with
Romaine Bostick and Caroline Hyde. What Do you Miss? It's
the perfect way to kick off your weekend. This week
was another wild one for the lumber market, US futures
hovering below a record high as daily trading bumped up
(00:28):
against daily limit up and down prices all within a
couple of hours. On Thursday, we got some perspective on
how these insane lumber prices and supply shortages are weighing
on the US housing market from Rick Pelacio's principal and
director of research at John Burne's Real Estate Consulting. We
started by asking Rick the question that's been confounding us all.
With home prices so high, Why can't we just build
(00:50):
a lot more houses to bring the prices back down?
If builders could do it, they definitely would. Yeah. No,
I've I've been listening to you guys talking about CPO,
and I mean, inflation is everywhere except for CPI right now,
and I think housing is really the poster child for that.
I mean, what got us here though, Rick, I mean,
was this was this really an issue of just too
(01:11):
little supply and too much demand or were there sort
of just maybe regional factors that may be played into
why we're seeing this imbalance. Yeah, it's interesting, you know,
I think inflation maybe a bit more transitory. Um it,
maybe it may may stay longer in housing than than
other kind of industries that we're all talking about. I mean,
(01:32):
catchup packets, that's going to relieve itself pretty soon here,
I'm thinking. But when you think about housing, you've got
these supply chain bottlenecks that have been just on steroids
post COVID, so land, labor, materials, municipalities, and then so
that's kind of the norm across really the entire economy
(01:53):
right now. But then you layer on top of that
there is just insane demand for housing right now, and
I think housing as a whole has had a captive
audience on really the entire consumer. I think some of
that is going to start to wean here as we
get into the latter half of this year. In another
runny areas that the hasn't been demand is it the
(02:14):
whole spectrum, the whole price point gamut that we've been
seeing and housing or has it been the suburbs that
do particularly well. Has it been the less affordable housing
than like plus one million? What about those that are
on the lower income spectrum but wanting to buy the
first time? Yeah? No, So it's so we ranked this
on a monthly basis through a survey we do about
(02:35):
three home builders across the country, and it's demand is
instaable across every buyer segment right now. So entry level
price points move up, second home luxury, I mean across
the board. Builders are having a hard time keeping up
with demand, and that's one of the reasons why if
you look at just home prices. So we have this
data now from April from our survey home prices, new
(02:59):
home prices sixteen year year in April. That's the highest
we've seen in the history of our survey. Talk to
us a little bit more about demand destruction. Where do
you see either because the houses just can't get built
or because the prices are so nuts, Like where what
do you see happening when the finally prospective homebuyers saying,
(03:20):
you know what, I've had enough, I'll stick to renting,
or I'll stick to whatever my current situation is and
maybe look at it in a couple of years. Yeah. No,
I mean, if you if you think about it in
terms of our forecast, we do have growth moderating, and
I think housing is this very unique window in time
for housing where it's just firing on all cylinders for
a lot of the reasons we just talked about. But
(03:42):
over time, and and some of this is rates and
inflation that is looking like it's going to start to
accelerate and rates creeping up. We do have home prices moderating.
We do have the rate of new home sales moderating,
new home construction moderating. I mean, I think you know,
we talked about a captive audience. There is almost no
resell supply and a lot of these markets where home
(04:02):
builders are are active, and so home builders really can
kind of control the market where they're at and demand
what they're demanding on the pricing front because there's really
no other game in town right now. Yeah, that's certainly true.
As we start to sort of get maybe a couple
of years out here, and maybe let's say you start
to see a little bit more normalization with regards to things,
how far out I guess on the risk risk spectrum
(04:25):
are some of these builders I know a lot of
what they're building right now, they've kind of already locked
in the potential buyers for that. But how far out
do they normally go? Yeah, well, it really depends. I mean,
tying up land can take many, many years, namely here
on the West Coast. Mean, one the thing that's been
helping builders right now is that they acquired and bought
(04:46):
the land that they're now monitoring monetizing through selling homes
years ago. Um. But when they're going to buy land
right now, the homes that they're going to deliver on
that land, it's not gonna be for sometimes a year,
two years, if you're on the West Coast here California,
many years out. And so that's where we are starting
to see some builders and I think, Joe, this is
(05:06):
what you reference in that thread that I tweeted out
last week, where builders just don't have there's there's not
a lot of comfort around the volatility and construction costs,
in land costs, labor costs, and so what they're saying is,
you know what, let's kind of pause here a little bit,
Let's dial things back a little bit until we do
have some more some guardrails really around what's happening on
(05:27):
the cost side, so we can price these homes more
accurately to what we're seeing as a home builder in
terms of the notices we're getting from vendors on a
weekly basis sometimes that are ratching up our costs. Talk
to us about the labor part, MAC and how you know,
are more people being channeled towards wanting to work within construction.
(05:48):
Is the supply at any point becoming unbottledneck there is,
there's not enough trained people. I think it's probably a
combination of everything, not a lot of trained people to namely.
I mean, this is something that we highlighted going back
a decade coming out of the Great Financial Crisis. A
lot of the trades and the labor pool that was
in residential construction residential construction essentially left the industry during
(06:12):
the Great Financial Crisis, and we have not seen those
individuals really come back in mass, even though there is
a ton of demand for their skills and their craft
right now. This is super interesting and it's a really
big theme. Whether it seems to me, whether we're talking
about lumber or in your as your description, the trade
to build um to actually know how to build a
(06:34):
home really after feed uh, in the sort of post
crisis period where we had this long slump and now
we're really paying the price for it. Yeah. And a
big part of that, to Joe is that a lot
of the aids pre Great Financial Crisis, I mean they
came from outside the United States, and so we had
immigration coming in that essentially shifted changed and we haven't
(06:55):
seen it reverse. Um. I mean a lot of the
homebuilders I talked to say, gosh, we would love to
have some sort of sort of an immigration policy where
we can get these people in working for us path
the citizenship. And so who knows, maybe we'll see that happen.
And so what's the next step here? Then? I mean,
where do we go from here? Um? I I think
housing this year this kind of goes back to my
(07:17):
comments on this this very unique window in time. I mean,
we're gonna look back on and say we had the
strongest home price appreciation we've had since two thousand and five.
I think we're forecasting about resale price appreciation. New home
prices are going up higher than that. UM. Crazy construction volume.
But you know, builders, if they could build more, they
would it's just the bottlenecks right now are really limiting
(07:40):
what they can do. I think when we get into
a lot of the land that has been purchased over
the last three quarters, we'll start to hit in terms
of community counts, and we'll finally have more supply. We'll
finally get more ReCl supply coming online, and I think
with that you'll get price appreciation moderating to more call
it realistic levels when the chance would be a fine thing.
(08:03):
Your perspective in cities versus sum urbs, I mean, there's
you're starting to see articles pop up here and there
now about how the cities are doing pretty well too
in terms of transactions and in terms of finding the bottom.
I mean, we've got a chief to margarepher who's been
digging into this for many, many years. We actually wrote
a big a book on this called Big Shifts Ahead
(08:24):
years ago, and our view is that you were going
to and we were seeing the suburbs grow at an
accelerated rate from what cities and urban cores were. You
had COVID hit and just like with a lot of
trends across a lot of industries, really that trend was
just accelerated and so it's something that we're seeing right
now in a lot of builders are more comfortable going
(08:46):
further out because of what we're seeing with work from
home and people saying, you know what, I can now
be a little bit further out. We've only got to
go into my office maybe two three times a week,
so I don't want to live in the city now.
This week What You misshosted a debate. We posed a
question has the economic cycle peaked and what does it
mean for markets? We asked two of our frequent guests
(09:08):
Bloomberg Opinion Calmness Connerson and Neil Dutta, the head of
US economics at Renaissance Macro Research. We started with Connor,
who has been warning about supply constraints for a while
now in his new column, which argues that we're not
going to be able to reach G. D. Piegel's if
the labor market remains this type. We asked him why
he thinks things have topped out and whether that poses
a risk for stocks. Well, I think the first sign
(09:33):
that maybe growth is slowing, so we're still growing, but
maybe to slightly slower rate them. The historically strong numbers
we saw in March was that I sm manufacturing survey
we saw last week which did come down from marches
sort of historically high number, and some people might say, well,
it's still a good number, but it is a following
relative to what it used to be. And then, you know,
we obviously have the jobs report where we didn't produce
(09:54):
as many jobs as we thought we would, and it
looks like that was really more due to supply bottlenecks
rather than demand. And then on top of that, we've
got increasing signs that maybe in the housing market, homebuilders
are starting to pull back just because the material costs
pressure is is too insane for them and they want
to just sort of watch things shake out a little bit.
So it seems like, you know, maybe demand growth is
slowing a little bit, and then we're really hitting these
(10:14):
supply bottle next a lot sooner than we thought we would.
But Neil, I mean, we're coming right now for a
lot of us, are finally coming back out of the
house for the first time in quite some time. People
are looking to spend. They got accommodate of fit policy,
and you have fiscal policy out there on the table.
I think that's right, and I think that's the fundamental
story I mean, when we talk about peak I s M,
(10:35):
it's important to remember I think for investors why that
signal has such saliens in the markets, And it's primarily
because of the fit. Right, So when you have a
peak I s M, you have rising prices paid. Usually
the FED steps it's foot on the brake. That's not
happening this time around. UM. I also think it kind
of strange credulity to think that this is UM. Obviously
(10:55):
Europe was blowing up back then. So the fact that
the data quote unquote peaked in two not that it
actually did at the time. UM. You know, it was
more coincidental than anything else. Obviously, this time around, we
have a phase reopening UM, not only in the US,
but globally as well. Right, so Europe is vaccinating more people,
(11:16):
they'll reopen, Latin America will start vaccinating more people, they'll reopen,
and obviously e m Asia. And if you think about it,
each of those economies subsequently are more open than the other.
In other words, they trade more. So that's ultimately good
for for the manufacturing sector. So I think, you know,
when we talk about data peaking, it's important to think
(11:36):
about it in terms of momentum versus levels and um,
you know, in terms of levels, we're not at peak anything.
I mean when you talk about order back logs and
customer inventory and index which is at a record low. Um,
that all suggests that production is likely to accelerate from
here now. Um. You know, I take Connor's point about
(11:56):
certain bottlenecks um arising and at may slow down growth.
But if you're an investor, what do you do with that?
You're gonna revise up two? I mean, has the twelve
eighteen month outlook really changed because of this? I think?
You know, prices still send an important signal. If you're
a lumber producing what are you gonna do? Cut production?
I mean, so it's you know, I mean, I think
that if you're going to trade around this peak, I
(12:19):
s M story, it's a trade you want to rent,
not mail. I already hope you're not peak cuddly toy
situation either, because that is an excellent backdrop. Meanwhile, Conda,
your perspective on you know this this friction, how long
it might remain. If we do start to see the
supply chains get easier, the friction come off. People are vaccinated,
(12:41):
they're no longer fearful of going back to work. The
schools we hope reopened fully, women perhaps returned to the
labor force that much heat more easily. Does that mean
that we could see this more later explosion of growth.
I think he's right about the twelve to eighteen month
you but I think the market might really be focused
on the next three to six months. And I think
we're seeing that maybe these short term frictions are a
(13:01):
lot more severe and longer lasting than we thought. You know,
sort of last spring, maybe we thought that we'd be
sort of through the lockdowns in eight months and or sorry,
eight weeks, and it turned out to be more like
a year. And you know, there's thought that maybe we'd
have okay, some transitory inflation this summer, and we're still
going to get that. It looks like we have the
CPI report tomorrow. But these these bottlenecks just seem a
lot tougher than maybe we thought even a month or
(13:23):
two ago, and that's giving investors pause. And to Niel's point,
you know, I think longer term investors might be saying, well,
maybe just pushes the growth on two. But if we
really do start getting these hot inflation prints and if
we get some downside surprises to growth, will investors be
willing to hang on for the rest of this year
when they thought that this year would be the big
growth number and next year would be be lighter. So
I think we could see investors really struggle with the
(13:44):
next two to three months of data. Yeah, no, I
want to talk about I mean, obviously we're getting that
CPI number tomorrow. You know, transitory base effects, we all
know the story. But a we do see companies whose
results have been hit by the some of the shortages
and bottlenecks, sawmills which should be you know, printing money
right now having issues with trucking. That's an effect. And
(14:07):
then if you get hot numbers, you know, do do
people start to worry that either some combination of real
earnings growth or sorry, real earnings hits plus you know,
FED starting to waiver a little bit. Could that create
some volatility for the market if maybe I don't know,
some of the regional FED presidents come off message, well
(14:27):
they're actually getting I mean, I guess I disagree with
the premise of that because they're actually coming on message.
I mean, you've seen a number of you know, traditionally
hawkish regional FED presidents actually buying in to palace strategy.
Bullard is the latest among them. But you see it
from Master, Um, you see it from Rose and grin
Bargain from Richmond. I mean, these are regional FED presidents
(14:50):
that have been hawkish. Uh So, the Fed's gonna pull
the rug out from underneath it, Um, just as you're
getting more political buying from your lieutenants. I mean that's
sort of see um, you know, absurd to me. Uh So,
I don't think that. I think the Fed being easy
is the name of the game. They will be the
last central bank to taper. Uh. That's going to be
negative for the dollar, um, and that could mean some
(15:12):
rotation into equities overseas. UM. But when you talk about production, Joe, Um, Look,
we're talking about one month, right, and every data point
that went into that one month before it. We're stronger
in terms of employment, right. I mean we had rising
employment in the Small Business Pulse Survey and ADP alongside
(15:33):
rising opening. So Um, does anyone really believe that the
underlying trend and employment do two seventy? I mean my
sense is that it's probably closer to you know, seven
hundred than not so. Um, as you're bringing those people on,
you're gonna get stronger rates of production. Um. You know,
we just we started the segment talking about I s M.
(15:54):
The I s M last I checked is in expansion territory.
That means we're going to see more industrial production growth.
So you know, the these issues, um, and you know
you talked about you know, inflation biting into earnings. We're
seeing net margins actually expand, which would suggest that the
inflation that we're seeing is uh not actually a roading
(16:15):
corporate profits, it's actually you know, helping. So I again,
I disagree with some of the premise of that, but
you know, well, I just I do feel like, um,
this is a trade you want if you're gonna play this,
you want to rent it, you don't want to own it.
And I also think it's maybe a little bit premature
to be talking about this. I mean, you're time. If
you look at like equal weight equities and the SMP hundred,
(16:37):
I mean that's still looking fine. Um. So you know
this is narrow to to uh to us. I think
a specific set of names, and I do think that
the economy is generally on a strong course. And you know,
look I mean the Atlanta FED. I mean, Connor knows
this because he's from there. Um, that's tracking what like
eleven Um. You know, we're not really time in. You know,
(17:00):
we we're sort of you know, quibbling over over over
little things here. But we need this is a round table.
We need some healthy disagreement. Neil, you want to start
with you You have been a very big advocate of
the sort of like the pure reopening trade, long planet fitness,
short peloton, things like that, doesn't everyone know the economy
(17:22):
is reopening? And doesn't everyone know that virus is uh,
the vaccine rollout is picking up? Like, what more juice
is there in your view in this trade? Well, I
guess Joe, everyone knows except the public healthy paratus in
this country, right. I mean the messaging I think has
been somewhat mixed, so that may have taken some of
the juice out of the reopening trade, as you see
(17:43):
with what's coming, I want the cruise lines recently, right, So, Um,
you know it's sort of a two steps forward, one
step back process. But I definitely do think that, you know,
to some degree, I think I sympathize with the view
that the reopening trade is UM has run its course.
But this goes back to a point that you know
we were talking about earlier, is you know, peak I
(18:05):
s M investing does not stop when the I s
M hit sixty. I mean, what do you I mean,
I can't tell my clients that, you know, only invest
in US equities when we're going from thirty to sixty.
So you know, now is the opportunity maybe to take
some of that, UM, you know, some of those profits
and maybe rotated into other areas of the capital markets. UM.
(18:25):
So I think that's the way to think about it. UM.
But I think the broad reopening, I mean it's still continuing.
I mean, we just hit a record in terms of
T s A screenings over Mother's Day, so there's still
some you know, I mean, the fundamental trend in the
services economy is still up. And remember in the first
quarter of this year, UH, service sector consumption in real
(18:47):
terms was really no different than it was in the
fourth quarter of last year. So again, when we talk
about peak, we're going to see an acceleration and service
sector consumption over the next two quarters. I think that
we haven't seen on a scale certainly not an our lifetime.
So UM again, I think there's still a lot of
momentum in that at least in the economy. Maybe the
(19:07):
equity stories run its course, but I think the momentum
in the economy still has a waste to go. So
connor where to put money to work in your thesis,
if we are indeed it potentially peak growth, I mean
you're the dip bar in the NAZDAC or or what
to put money? Well, I think the risk is that
the next jobs report looks just like the April one did,
and that would really I think call in a question
(19:29):
the supply response, and maybe demand is really strong, but
we just can't meet it supply wise wise for whatever reason.
And so in that environment you have, you know, less
than expected US growth, may be hotter than expected US inflation,
and and maybe the Fed just again sits through this
and let's it play out, which means that we're not
getting the response from the Fed, which looks like a
really weak dollar sort of long commodity long non US
(19:52):
type story and just sort of with the way the
traders are kind of you pick one thing and not
the other. I think if commodities are doing well, tech
probably doesn't. Even if tech earnings are growing, and then
I think also, you know, if housing kind of slows
just from lack of supply, then homebuilders can be intra
a root awakening, and that whole housing related to supply
chain that's done so well in the past six months.
I am curious here, Connor. I mean, we're getting to
(20:12):
a stage where at some point we will sort of
sort of see some normalization of monetary policy, maybe a
normalization of fiscal policy. Here. I mean, the real question
here is whether this rebound is economic recovery, can sort
of stand on its own, whether we can transition to
some sort of sustainable growth rate that isn't completely dependent
on j PAL and on what Congress passes with regards
to simulus. Well, I think it's you know, in the
(20:35):
last cycle, the mistake we made was trying to normalize
Monterrey policy, which really was more like normalizing interest rates,
whether or not the economy can handle the interest rates
we got to. So I think the shift under power
is more like, you know, what we have now is
maybe normal, and you know, normal doesn't necessarily mean two
to three percent just to try to get there for
no obvious reason. And you know, if the economy needs that,
(20:56):
then we we lift rates to get us there. But
it's not a goal in and in and of itself.
We leave it that of course, the ning nicknaming. That's
the end of the fight. Joe who won uh ten
ten is a draw. They both raised their hands. Sorry,
I want him to both come back. You're still to
bias and bias I wanted to command. This week, we
(21:21):
also got more fuel for the inflation debate that's been
gripping Wall Street investors. On Wednesday, we got April CPI
data US consumer prices climbing by zero point eight percent
last month. That's the most two thousand nine, outpacing economist estimates,
while the core gauge rose by the most. Since this
inflationary pressure has consequences beyond markets, some Democrats worry that
(21:44):
the data could put President biden spending plans, the American
Jobs Plan, and the American Family Plan in political jeopardy.
So we got some reaction from the White House off
the back of that data from Mike Pyle. He's the
chief economic advisor to Vice President Kamala Harris and a
former chief investments just for Black Rock. We asked Mike
whether the surgeon consumer prices will make passing the Biden
(22:05):
administration spending plans more difficult politically, so we're staying focused
on the economics and the overall strategy here. You know,
the President the Vice President have talked about there being
uh two major prongs. So their economic strategy first around rescue,
around recognizing the whole that we were in by virtue
(22:28):
of the pandemic, and the American Rescue Plan was focused
squarely at that, getting shots and arms, getting relief in
the hands of families and businesses. But we're now kind
of looking to here in Washington that next stage around,
as you say, the job's plan, around the family's plan,
and that's really economically an entirely different problem that we're
looking to solve. That is a multidecade in part me
(22:50):
a multi year investment in our families and our infrastructure,
designed to allow the economy to grow faster, designed to
allow that growth to be more inclusive, designed to allow
us to take on the challenge the climate change. That
isn't stimulus, that isn't the Recovery Act. That's a long
term investment focused on helping to build back better after
decades of under investment. And that's a great point. I mean,
(23:13):
obviously you understand though the politics and how certain things
will be framed, whether you want to frame that way
or not. I'm wondering about the conversations that you're having
uh there in the executive building about just the pace
of economic growth and the idea here that by adding
these programs on, uh, you create potentially maybe a little
(23:33):
bit too much stimulus, even if it's not called stimulus.
There's this idea that you're throwing logs onto the fire,
and this seems to be what some people in the
markets are concerned about. Is that conversation taking place, Well, again,
I would resist that characterization. I mean that take the
American Job's Plan for instance. You know that is a
multi year investment that is intended to over the next
(23:54):
eight or ten years really transform our transportation infrastructure or
enter infrastructure. Uh, you know, our our broadband capacities. And
it's going to be paid for and full through a
set of text changes on the business and corporate side
over the next fifteen years. You know that is again,
that is not the right frame of mind. There is
not stimulus. It's not about responding to the immediate moment.
(24:17):
It's about structurally investing in this economy after decades of
under investment, to make the economy more productive and more
inclusive over the decade and beyond. I hear you, Mike
on the inclusion part of it, of course, something that
you've been very focused on since coming into the role.
But the fact that inflationary pressures drive up the cost
of food, drive up the cost of gas, drive up
(24:38):
the cost of things that the lower income can needs afford,
price pressure on how do you square that circle? How
do you ensure that you're not hurting the victim you're
trying to help. Well, again, I would I would resist
that characterization. So when we look at the inflation print today,
you know, what we see as evidence of an economy
uh that is rapid normalizing coming out of the pandemic
(25:01):
and a reflection of having gotten a lot of shots
and arms and allowing behavior, allowing social life, allowing travel
to begin to get back to normal. So let's look
underneath the hood of this inflation print. You know, we've
said for some time we expect to see transitory inflation.
We expect to see it in particular around parts of
the economy that we're especially hard hit by the pandemic,
and I think in large part that's what this print reveals.
(25:24):
You know, look at places like airfares, look at places
like hotel and leisure more broadly, they're very significant month
over month gains there in terms of prices. But that's
really a reflection of the fact that people feel more
comfortable getting back into the economy, getting back into travel,
getting back to moving again, and and that is and
that is what we think was kind of ultimately a
(25:45):
lot of what was going on in this print. Like,
let me ask you a question about the here and now.
There is clearly some tension about whether the UI expansion
is contributing to UM a labor supply shortage, record job openings,
piece of job creation more than expected. I don't think
the data is a slam dunk, but there does seem
to be some ambiguity. Will the White House be open
(26:06):
to UM the legislation that would allow people who take
a job to take with them a bonus of part
of their future UI. So I'm not going to get
out in front of the legislative process, but what I
will say is, you know a couple of things when
we look at the data, Yeah, we agree with you Uh,
(26:26):
there's there. It is not obvious that that UI, with
the data we have in hand, is having this effect,
you know. That said, we recognize this is a moment
when the economy is changing very rapidly. This is a
historic moment, This is an impressive moment. This is a
moment where the economy is changing day to day, and
the data that we have in hand, you know, is
(26:47):
a snapshot of the economy for six eight weeks ago.
So we're very much kind of vigilant around this, kind
of paying attention to conditions on the ground day over day,
given how rapidly things are changing, because we recognize the
data we have in hand, while not conclude said is
a snapshot of an economy that doesn't exist anymore in
some ways. Now is the wild five days for the
(27:10):
world of crypto coin based reporting earnings for the first
time as a public company, Bloomberg learned that the U. S.
Department of Justice and the i r S are investigating
the world's largest cryptocurrency exchange Finance. Meanwhile, Elon Musk delivering
a blow to the sector with a major U turn
the Tesla CEO, suspending purchases using bitcoin and voicing concerns
(27:31):
about its energy usage just a few months after becoming
one of the currency's most vocal supporters. So we got
some reaction from longtime bitcoin advocate Nick Carter, the founding
partnered Castle Island Ventures, and we started by asking Nick
the trillion dollar question, does Bitcoin ever have a plan
to transition to a proof of stakes system or will
it always rely on computationally intensive mind? Well, Bitcoin doesn't
(27:57):
have a plan because it has no or, and it's
pretty decentralized, and when individuals or firms have tried to
comment deer bitcoin, they haven't been successful. So Bitcoin has
no plan. But you know, the consensus in the community,
to the extent it exists, is that proof of work
is completely intrinsic to Bitcoin, and proof of steak is
(28:19):
not really a desirable alternative quite frankly, all right, And
a lot some people reading in between the lines of
what Elon Musk said seems to suggest that maybe he's
eyeing an alternative. Here are there alternatives. There's certainly many
other systems that purport to do the same things the
bitcoin does, uh, And there's many clones of bitcoin and
(28:40):
many blockchains three point oh and so on. But at
least in my view, none of them have proven to
be sufficiently decentralized. And frankly, if you pull the proof
of work element out of bitcoin, you get something completely different.
So a lot of bitcoiners would question whether you can
eliminate the proof of work and get a system with
those same assurances. Of Course, some also saying, maybe you know,
(29:04):
Musk is just throwing down the gauntlet here, make yourself
run on cleaner energy all your minors. So is that
the answer? If bitcoin does need to remain in some
sort of digital gold, it's still about the ecosystem. Who
wants to maintain that? Are people looking at ways of
shifting to cleaner ways to mine it? Absolutely? And you
know there's a big distinction between an energy cost and
(29:27):
then the actual carbon outlay which people often miss, right,
and it really depends on the source of energy you're using.
Of course, we know that a large share of bitcoin
is mind in particular in places like sit you on,
you know, on in the wet season with hydro. But
we can do a lot better, and there are some
great secular trends. Actually, the Chinese province of Inner Mongolia
(29:49):
recently banned bitcoin mining, and that was se coal powered.
So if you're actually the trends, they look to be
improving structurally. We're seeing a lot more hash rate onshore
onto the US. The US is a greener grid than China,
so that's great. I'd like to see more from minors
in terms of disclosing what their energy mix is, what
(30:10):
they're power sources are. But you know, certainly there's actually
a lot of cause for optimism here around the energy
mix a bitcoin. Quite contrary to the tone elon Is
is putting out, let me ask you a question. You
write about bitcoins energy usage a lot this debate, these
points that you make about how there's a difference between
(30:31):
energy used total and uh sort of carbon emissions because
some of it's clean, do you, as a participant in
the industry think that from a sort of like regulatory
legal standpoint, that one of the bigger risks to the
environment is that regulators cracked down on it for precisely
this reason. Hence your motivation for writing about it so much. Uh,
(30:55):
the motivation right about it is frankly, because the debate
is very poorly informed and a lot of the critiques
I say I see are just not uh not really
ground in reality. And and and you know the facts
of the protocol. Uh, certainly we're seeing capital becoming much
more politicized and much more informed by E s G
considerations in the us UM and you know that's only
(31:17):
going to continue. And you know, every day I talked
to large allocators that have trepidation about bitcoin precisely because
of the environmental impact of the system. So it absolutely
doesn't affect everyone on those sort of capital allocation capital
management side of the industry. So it's already a consideration
today and I expect that will only continue to be
(31:38):
the case as s G gets fully normalized. And so
that would be the challenge that I would pose to
bitcoin miners. Bitcoin miners tend to be long bitcoin. They
want to accumulate bitcoin, so their duty is to render
themselves as environmentally friendly as possible or by carbon offsets
if they can't. Nick, I want to get your thoughts
here on cooin base. We did get that first earnings
(32:01):
report out of the company today. Obviously they had guided
even before the direct listing, so we kind of knew
the numbers. We did see pretty healthy monthly transaction numbers here,
and they're actually guiding a little bit higher UM what
do you generally see here as sort of the bright
spot for coin based going forward. Well, coin based is
a very straightforward business, frankly. You know, their revenues are um,
(32:23):
you know, very much a function of retail trading volumes,
and those have been strong. Uh. They haven't really changed there.
There's not a lot new there um, so pretty much
delivering exactly as expected. Of course, the price performance has
been somewhat disappointing, and it's it's tract sort of the
broader crypto markets. Um, but not a lot of surprises there.
(32:44):
What I'd like to see would be if they can
diversify their revenue a little bit and build in more
lines of revenue, uh, mirroring the way that conventional exchanges operate.
Who you know, they tend to have larger data businesses.
A few crypto exchanges monetize their data uh, and you know,
seeing if corn based can maybe monetize their au M
(33:05):
on a net interest margin model perhaps, which they haven't
done so far, so they still have plenty of room
for growth. Frankly, Nick, of course, I'm full disclosure. My
husband's a senior manager over at coin based, so passive
the numbers too much, but It is interesting that in
some way coin base gets pulled down when crypto falls,
but apparently they make money off the volatility there in
(33:25):
Bitcoin currently training temper cent lower, but Ethereum down temper
cent as well, even though we see another big institutional
player hanging their hat in the crypto space. Steve Cohen's
points only two exploring blockchain the crypto sector, how it
is a I mean, I feel like you've got to
say this isn't by the dip opportunity, but at what
point does it actually correct? You see a significant set
(33:46):
of coming to the crypto space. We've sold off. I
think most of the sauce partly to do with the
you know, the Elon effect and so on, and the
disappointment around that, but also very saliently regulatory concern uh.
And that's going to affect the broader market. We see
this finance investigation today, I think a lot of people
are starting to realize that this Kinsler SEC is going
(34:08):
to be much more aggressive and uh, you know, the
SEC Commissioner is gonna try and make his mark on
the crypto industry. Uh. And frankly, a lot of these
exchanges are are hosting the trading of dubious products, things
that resemble equity, things that might be uh you know,
potentially brushing up against securities laws, and uh you know
that surprised me Nick real quickly. We just have a
(34:30):
couple of seconds. Is it a problem for bitcoin that
I can't buy dog tokens with it and that I
have to use a theoryum instead? I don't know if
you want to be buying the dog tokens show frankly, Okay, okay,
And that's it for what you missed this week. If
you like the show, and make sure to subscribe and
(34:51):
rate us an Apple podcast or wherever you listen to podcast,
you can catch our show every weekday from three thirty
to five pm on Bloomberg TV and from four of
five jam on Twitter. Thanks for listening and have a
great weekend.
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