October 17, 2024 • 15 mins
Back into balance. That’s where the job market, U.S. inflation, and other key economic indicators are headed. And THAT has major 2025 implications – both for the underlying economy AND the stock market. Those were just a few of the key insights Alejandra Grindal, chief economist at Ned Davis Research, shared with me for this week’s MoneyShow MoneyMasters Podcast segment.
We begin by putting the strong September labor market report into context. She discusses what it said about payrolls, wages, and earnings – along with what other reports have shown about consumer sentiment and spending, manufacturing, and inflation. Alejandra also covers their implications for Federal Reserve policy. The conversation then pivots to the international arena, with a particular focus on recent fiscal and monetary policy actions in Japan and China. Plus, we discuss the 2024 presidential election...what various voting outcomes could mean for markets...and where investors can find the greatest opportunities if her “base case” outlook for 2025 turns out to be as accurate as her base case outlook was for this year.
Finally, Alejandra previews what she’ll talk about at the 2024 MoneyShow Masters Symposium Sarasota, scheduled for Dec. 5-7 at the Hyatt Regency Sarasota. Click here to register: https://sarasotamms.com/?scode=061246
We begin by putting the strong September labor market report into context. She discusses what it said about payrolls, wages, and earnings – along with what other reports have shown about consumer sentiment and spending, manufacturing, and inflation. Alejandra also covers their implications for Federal Reserve policy. The conversation then pivots to the international arena, with a particular focus on recent fiscal and monetary policy actions in Japan and China. Plus, we discuss the 2024 presidential election...what various voting outcomes could mean for markets...and where investors can find the greatest opportunities if her “base case” outlook for 2025 turns out to be as accurate as her base case outlook was for this year.
Finally, Alejandra previews what she’ll talk about at the 2024 MoneyShow Masters Symposium Sarasota, scheduled for Dec. 5-7 at the Hyatt Regency Sarasota. Click here to register: https://sarasotamms.com/?scode=061246
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Almost one year ago, this week's Money Show, Money Master's
podcast guest told me that the economy faced three risks,
but that ultimately a soft landing was in the cards.
Now we've just received a September job support that seemingly
confirms that forecast is on track, and so as most
of the other data we've gotten in recent months. So
where do things stand, what does she see happening next,
(00:25):
and what will it mean for investors, markets, and Fed policy.
I'm Mike Larson, your podcast host. I'm thrilled to be
speaking with Alejandra Grindall, chief economists at ned Davis Research. Aleijndra,
Welcome to the show.
Speaker 2 (00:37):
Great, thanks for having me. I'm happy to be here. Yeah,
glad you could.
Speaker 1 (00:40):
Glad you could. A lot going on. Why don't you
start just briefly discussing your background and talk a little
bit about what ned Davis Research does. If there's any
viewers who aren't familiar.
Speaker 2 (00:48):
Yet, Oh great, I would absolutely love to. So.
Speaker 3 (00:52):
I am the chief economist at ned Davis Research. I
have been at ned Davis Research since two thousand and six,
very long tenure, like a lot of the other strategists
at NDR. So that's also what we call in DR
and ned Davis Research is an independent investment research firm.
Speaker 2 (01:10):
We've been around since nineteen eighty.
Speaker 3 (01:12):
We provide research for wealth management as well as institutional investors,
and we do it through a top down approach, so
we start off with the macro, then give acid allocation recommendations,
go all the way down to the subsector level. And
one of the things that we're known for is we're
very data dependent, so we just go through so many
(01:34):
pieces of data on a regular basis, and we look
at this notion called the way of the evidence, which
means we don't hang our hat on one indicator to
make a call.
Speaker 2 (01:41):
We like to see sort of broad based confirmation.
Speaker 3 (01:44):
And then we also look at research through a lot
of different disciplines. So as the macroeconomist, I cover the
macro portion of things, but other folks at ENDR look
at things like technicals, fundamentals, sentiment, and we put all
of those things together to come up with the final recommendation.
Speaker 1 (02:00):
Background wonderful. I think it's a great place to start,
and I think I want to roll into discussing the
big picture here. I mean, we just got was arguably
a blowout jobs report, at least relative to expectations. How
does that fit into the bigger picture when it comes
to your view on the economy.
Speaker 3 (02:13):
It really confirms the view that, as you mentioned, we
had been talking about last year, we expected continued growth
in the US economy, you know, maybe a little bit
of a soft landing, but recession was not our base
case scenario, and that that job's number, you know, as
you mentioned, was quite good. Now, you never know, with
revisions down the road, it could come in a little lower,
but ultimately the number was overall just positive across the board.
(02:38):
Diffusion index went up, wages went up slightly, but not
to this you know, horribly scary degree.
Speaker 2 (02:46):
The unemployment rate went down.
Speaker 3 (02:47):
So overall a pretty good number and just sort of
confirms a lot of the other jobs data that we're
seeing that, you know, maybe it wasn't quite as strong
as it was earlier on in this cycle. A lot
of that was just sort of pandemic driven reason, but
things are just kind of coming back into balance.
Speaker 2 (03:03):
So overall quite good. And when I think about it with.
Speaker 3 (03:06):
The broader picture with the economy, as I mentioned before,
I'm not just looking at one indicator to determine what's
the state of the US economy. We'd like to look
at a broad based, you know, set of them because
that will ultimately tell us whether we're in recession or not.
Hanging your hat on one can get you in trouble.
And again, when you look at a broad based, you know,
array of data, whether it's the services PMI, we got
(03:28):
the jobs data that we got today, Sentiment data maybe
not as strong as before, but hasn't totally broken down,
retail sales still telling us that the US economy is
in pretty good shape.
Speaker 1 (03:38):
Let's talk about the other half of the Fed manday
and what you're seeing on the inflation front. Obviously, we've
come down a lot from sort of that mid six
high six is on the core CPI that we had
back in twenty two. You know, where do you think
we are now? And what do you see kind of
ahead of the next reporters there?
Speaker 3 (03:52):
Yeah, I mean the inflation number has gotten you know,
much much better than it was before. And I do
want to emphasize we don't necessarily think prices are going
to go back to where they were before.
Speaker 2 (04:03):
It's not like prices are going.
Speaker 3 (04:04):
To go down, but that piece of growth is just
getting back to that level that the FED is more
comfortable with, and that's why they felt comfortable moving forward
in cutting rates. Now, a few things to point out.
I think one indicator that will continue to weigh heavily
on the CPI, more so on the CPI than say
the PCE, which price index, which is another indicator that
(04:26):
the FED watches.
Speaker 2 (04:27):
Is that shelter component.
Speaker 3 (04:30):
Shelter prices have remained high because of the lock in effect.
People aren't putting their houses out in the market because
interest rates are high, so that's driving up housing prices.
And then once the FED starts easy mortgage rates go down,
you're going to see demand come back and housing prices
are going to continue to rise. So there's really not
much the FED can do about that. So that's going
to continue to provide an upside risk. What I do
(04:52):
feel really positive about is actually wage growth and specifically
unit labor costs, So unit labor cost take wage growth,
but also put in productivity, so how well you're using
those workers and how productive are they being. And this
is now down to levels on a year to year
basis what we saw ten years ago, so you can
(05:13):
actually make a pretty strong adjustment or a pretty strong
statement that wage pressures jobs are no longer putting upside
pressure on inflation, and I think that will allow the
FED to continue to move forward with the easing policy.
Speaker 1 (05:25):
Okay, and that kind of leads to my next question.
You know, the FED sort of pulled out the big
guns with a fifty point move in September. I don't
know if that surprised you. I'm kind of curious whether
it did or not. What do you think that says
about what the FED might do going forward and the
rest of this year and probably the first couple of
quarters of twenty five.
Speaker 2 (05:41):
Yeah, great question.
Speaker 3 (05:42):
So I have to admit I was originally in the
twenty five basis point camp for that September first rate cut.
One of the reasons, as I mentioned, the economy was
doing reasonably well, so why spook the markets? But as
we know, the weekend before the Wall Street Journal there
was a lead with a reporter that tends to have
close ties with the FED, So that sort of eliminated
(06:04):
that notion of spooking the markets that they sort of
planted that in. But I think sort of a key
thing to keep in mind is that inflation, as I
talked about before, did end up slowing faster than the
Fed had anticipated earlier this year when they were just
looking at that twenty five basis point cut, so quite honestly,
in order to get at what they were originally estimating.
(06:27):
Remember we look at for restrictiveness, we look at the
real rate, right, so that's the nominal rate adjusted for inflation.
So what essentially the Fed did is, with that slower
inflation growth than they originally anticipated, that fifty basis point
cut was kind of equivalent to what they thought twenty
five basis points would have been saying three to four
months ago, A.
Speaker 1 (06:47):
Honter, You also focused quite a bit on international economic
developments and especially in Asia. What do you think of
the Bank of Japan's recent policy moves, and of course
the big Chinese stimulus we got kind of out of
the blue that floated Chinese markets.
Speaker 3 (06:59):
Oh, absolutely, because we need to look at the whole world, right,
So first of all, with Japan, they are moving in
contrast to what the rest of the world is doing,
which is highly unusual for Japan, especially in recent history.
But from Japan's perspective, this is almost like a once
in a lifetime opportunity. Keep in mind, they've had like
(07:19):
zero percent interest rates or even negative indust rates for
a while, they were the ones that sort of revolutionized
quantitative easy and they want to use this once in
a lifetime opportunity to finally get policy maybe a little
more toward you know, just regular interest rate policy instead
of having to go through all of these you know,
sort of larger, more extravagant types of toolboxes.
Speaker 2 (07:40):
If you want to call it that.
Speaker 3 (07:41):
And the reason for this is that a lot of
the pandemic inflation as well as the weekend caused a
huge surge in inflation in Japan, and it's actually lasted
for a long time, and because it's lasted a long time,
it's changed, you know, sort of it's changed expectations, which
is good. That's what happens when it lasts for a
while well, and it's also now translating into higher wages,
(08:03):
so this is kind of like a nice change for Japan.
You know, a lot of the market tends to focus
a lot on, you know, the direction of the yen,
so you could see the yen strengthen, which may not
go too well for say large cap or broader Japanese market,
but for the state of the economy. You know, it's
not going to fix its long term demographic problems, but
overall it's a nice change that maybe this inflation churge
(08:27):
allowed the central bank to do more normal things. In
the case of China that you mentioned, I mean, we
knew stimulus was coming. I was quite surprised actually how
big it was. And what makes me most happy about
the stimulus it is there is a component at least announced.
We'll have to see whether it actually comes into fruition
that is focusing on households and the consumer, and this
(08:49):
has really been that portion of the Chinese economy that
has not been in particularly good shape. Now, whether it
solves China's long term downturn growth story, I'm not sure
if it will. China has four long term demographics. They've
been bad already, They're only going to get worse. It
has extremely high debt levels, so you can give a
(09:09):
whole lot of cheap money, but if you have to
pay off debt, you.
Speaker 2 (09:12):
Know here you're not going to borrow, right.
Speaker 3 (09:15):
And then this whole notion of deglobalization that's already happening.
Just recently, the EU is voting on perhaps increasing tariffs
on Chinese electric vehicles, which is actually one sector of
the economy that is doing quite well. So yes, this
is going to help the global economy, say over the
next year a year and a half, but it doesn't
necessarily fix China's long term down trend.
Speaker 1 (09:36):
Got it. I think we have to talk about the election,
given that we're about a month out as we're speaking
from the vote, you know, now, Davis put out a
note saying that both political camps are leaning towards increased
deficit spending, with few specifics on how to balance these expenditures.
The second part of that I noted that this combination
of fiscal stimulus and FED easying could drive aggregate demand,
potentially creating a favorable environment for risk assets. In twenty
(09:58):
five thoughts on that and just kind of what people
should be considered keeping in the back of their mind
regarding the election and outcomes.
Speaker 3 (10:04):
There you answered a lot of the questions for me,
and one other point. Yeah, you're right, both candidates have
expansionary policies all around, more spending and not too many
ways to pay for it, right, so not too many
adjustments on that, and as you know, that can be
quite expansionary. Now, another thing to look at is what
happens with converse. So Congress is often the check and
(10:26):
balance on the president, So if there's not a clean
sweep of one party, then a lot of.
Speaker 2 (10:30):
Those proposals won't actually happen.
Speaker 3 (10:33):
In terms of what it means for the market, typically
when an incumbent party wins, equities tend to do quite well. However,
that has a lot to do with the fact of
the state of the economy. So you know the old
adage it's the economy stupid, right, and so the whole
point behind that is the incumbent party is more likely
to win when the economy is doing well and the
(10:55):
economy the market is going to do well if the
economy is doing well, so it's a little bit of
a feedback loop right there. In terms of combinations, again
you have to take them with some grain of salt
because they tend to be not as many over time,
so the sample size isn't great. But usually a democratic
president with a mixed Congress tends to have the best
equity market performance. Typically, democratic presidents, if that turns out
(11:19):
being the win given the state of the economy, also
tend to have more cyclical leadership inequities.
Speaker 1 (11:26):
Let's shift from the time we have left it. Basically,
you know, given your sort of macro base case, what
does this mean for markets? I mean again, there was
another chart of the league article NDR put out saying
bull markets don't die of old aid. It's you know,
abs in a FED policy or hard landing, external shock
and so on. Those things tend to do real markets.
And it doesn't sound like that's what you're looking for.
Speaker 2 (11:44):
Correct, No, not at.
Speaker 3 (11:46):
This point, and for at least I'll present it more
from a macro perspective. But I think it's so important
just to look at the broader global economy because typically
you tend to get cyclical bear markets in equity, so
the short term bear markets, you tend to get those
when the global economy is in a sustained slowdown. I
talked about the US still holding up quite well, so
(12:08):
they would be the culprit. China maybe would have been
an area of concern that the stimulus might actually prevent
that from happening, so that risk of a sustained global
slowdown remains quite low. And then you mentioned the whole
notion of monetary policy. Right, One of our rules at
NDR is don't fight the FED or don't fight the
world's central banks, and.
Speaker 2 (12:28):
Usually equities do quite well.
Speaker 3 (12:30):
When not only the Fed, but when most of the
world's central banks are in easy cycles, which is clearly
what's happening right now, and the rally tends to be
even stronger when the global economy is not in recession.
Speaker 1 (12:43):
Okay, you know again, I know you do top down
work as opposed to bottoms up stock picking, but anything
any thoughts on sectors asset classes that again, if your
economic case plays out, would look particularly attractive or on
the flip side, not attractive.
Speaker 3 (12:56):
Right, right, So I think I would turn back to
a lot of that election leadership that I mentioned before.
So if it turns out that the incumbent party wins,
you get a democratic president, you tend to get more
cyclical leadership inequities, and of course that tends to coincide
with the continuation of the cyclic global market.
Speaker 2 (13:17):
A right, perfect.
Speaker 1 (13:18):
I guess last question would be, you know you're going
to be joining us for the twenty four Money Show
Master Symposium in Sarasota. Can't wait for it again? I
think people got a lot out of your appearance last year.
You give viewers a sneak peek at what you think
you might talk about or basically what somebody is going
to come away with if they come cuspeak.
Speaker 3 (13:33):
Oh absolutely, So we at that point will have completed
our twenty twenty five outlooks, so I will discuss in
more detail where we see the global economy and next
year the US economy and directly apply it to markets,
which is obviously, you know, one of the things we
do a lot at NDR. We'll have a few more
months read on data, so we'll have a better picture
(13:55):
of what global monetary policy trends, and I think also
most importantly, we should have an answer to who won
the wh who won the election, who won Congress, and
then that could ultimately determine policy going forward and where
we recommend our clients to be in markets.
Speaker 1 (14:10):
Excellent, Well again, thank you so much for insights Alejandra. Viewers,
if you're watching this and you'd like to learn more
about her work or NDRs, she is going to be
speaking at the Money Show Masters Symposium Sarasota. It runs
December fifth to seventh of the highatt Regency of Sarasota.
You can also find out more about that event in
the link below. In the description definitely like or subscribe
to our updates if you want to see more of these. Ijandra,
(14:32):
thanks again for joining the podcast. Thanks for having me
more interviews for you every week, so I encourage you
to subscribe to The Money Master's podcast so you can
stay up to date with the insights from top money experts.
You can follow me on Twitter at real Mike Larson
and follow money Show for more investing and trading content
on Twitter, Instagram, and YouTube at money Show. Thanks for listening,
(14:54):
See you next time.
Almost one year ago, this week's Money Show, Money Master's
podcast guest told me that the economy faced three risks,
but that ultimately a soft landing was in the cards.
Now we've just received a September job support that seemingly
confirms that forecast is on track, and so as most
of the other data we've gotten in recent months. So
where do things stand, what does she see happening next,
(00:25):
and what will it mean for investors, markets, and Fed policy.
I'm Mike Larson, your podcast host. I'm thrilled to be
speaking with Alejandra Grindall, chief economists at ned Davis Research. Aleijndra,
Welcome to the show.
Speaker 2 (00:37):
Great, thanks for having me. I'm happy to be here. Yeah,
glad you could.
Speaker 1 (00:40):
Glad you could. A lot going on. Why don't you
start just briefly discussing your background and talk a little
bit about what ned Davis Research does. If there's any
viewers who aren't familiar.
Speaker 2 (00:48):
Yet, Oh great, I would absolutely love to. So.
Speaker 3 (00:52):
I am the chief economist at ned Davis Research. I
have been at ned Davis Research since two thousand and six,
very long tenure, like a lot of the other strategists
at NDR. So that's also what we call in DR
and ned Davis Research is an independent investment research firm.
Speaker 2 (01:10):
We've been around since nineteen eighty.
Speaker 3 (01:12):
We provide research for wealth management as well as institutional investors,
and we do it through a top down approach, so
we start off with the macro, then give acid allocation recommendations,
go all the way down to the subsector level. And
one of the things that we're known for is we're
very data dependent, so we just go through so many
(01:34):
pieces of data on a regular basis, and we look
at this notion called the way of the evidence, which
means we don't hang our hat on one indicator to
make a call.
Speaker 2 (01:41):
We like to see sort of broad based confirmation.
Speaker 3 (01:44):
And then we also look at research through a lot
of different disciplines. So as the macroeconomist, I cover the
macro portion of things, but other folks at ENDR look
at things like technicals, fundamentals, sentiment, and we put all
of those things together to come up with the final recommendation.
Speaker 1 (02:00):
Background wonderful. I think it's a great place to start,
and I think I want to roll into discussing the
big picture here. I mean, we just got was arguably
a blowout jobs report, at least relative to expectations. How
does that fit into the bigger picture when it comes
to your view on the economy.
Speaker 3 (02:13):
It really confirms the view that, as you mentioned, we
had been talking about last year, we expected continued growth
in the US economy, you know, maybe a little bit
of a soft landing, but recession was not our base
case scenario, and that that job's number, you know, as
you mentioned, was quite good. Now, you never know, with
revisions down the road, it could come in a little lower,
but ultimately the number was overall just positive across the board.
(02:38):
Diffusion index went up, wages went up slightly, but not
to this you know, horribly scary degree.
Speaker 2 (02:46):
The unemployment rate went down.
Speaker 3 (02:47):
So overall a pretty good number and just sort of
confirms a lot of the other jobs data that we're
seeing that, you know, maybe it wasn't quite as strong
as it was earlier on in this cycle. A lot
of that was just sort of pandemic driven reason, but
things are just kind of coming back into balance.
Speaker 2 (03:03):
So overall quite good. And when I think about it with.
Speaker 3 (03:06):
The broader picture with the economy, as I mentioned before,
I'm not just looking at one indicator to determine what's
the state of the US economy. We'd like to look
at a broad based, you know, set of them because
that will ultimately tell us whether we're in recession or not.
Hanging your hat on one can get you in trouble.
And again, when you look at a broad based, you know,
array of data, whether it's the services PMI, we got
(03:28):
the jobs data that we got today, Sentiment data maybe
not as strong as before, but hasn't totally broken down,
retail sales still telling us that the US economy is
in pretty good shape.
Speaker 1 (03:38):
Let's talk about the other half of the Fed manday
and what you're seeing on the inflation front. Obviously, we've
come down a lot from sort of that mid six
high six is on the core CPI that we had
back in twenty two. You know, where do you think
we are now? And what do you see kind of
ahead of the next reporters there?
Speaker 3 (03:52):
Yeah, I mean the inflation number has gotten you know,
much much better than it was before. And I do
want to emphasize we don't necessarily think prices are going
to go back to where they were before.
Speaker 2 (04:03):
It's not like prices are going.
Speaker 3 (04:04):
To go down, but that piece of growth is just
getting back to that level that the FED is more
comfortable with, and that's why they felt comfortable moving forward
in cutting rates. Now, a few things to point out.
I think one indicator that will continue to weigh heavily
on the CPI, more so on the CPI than say
the PCE, which price index, which is another indicator that
(04:26):
the FED watches.
Speaker 2 (04:27):
Is that shelter component.
Speaker 3 (04:30):
Shelter prices have remained high because of the lock in effect.
People aren't putting their houses out in the market because
interest rates are high, so that's driving up housing prices.
And then once the FED starts easy mortgage rates go down,
you're going to see demand come back and housing prices
are going to continue to rise. So there's really not
much the FED can do about that. So that's going
to continue to provide an upside risk. What I do
(04:52):
feel really positive about is actually wage growth and specifically
unit labor costs, So unit labor cost take wage growth,
but also put in productivity, so how well you're using
those workers and how productive are they being. And this
is now down to levels on a year to year
basis what we saw ten years ago, so you can
(05:13):
actually make a pretty strong adjustment or a pretty strong
statement that wage pressures jobs are no longer putting upside
pressure on inflation, and I think that will allow the
FED to continue to move forward with the easing policy.
Speaker 1 (05:25):
Okay, and that kind of leads to my next question.
You know, the FED sort of pulled out the big
guns with a fifty point move in September. I don't
know if that surprised you. I'm kind of curious whether
it did or not. What do you think that says
about what the FED might do going forward and the
rest of this year and probably the first couple of
quarters of twenty five.
Speaker 2 (05:41):
Yeah, great question.
Speaker 3 (05:42):
So I have to admit I was originally in the
twenty five basis point camp for that September first rate cut.
One of the reasons, as I mentioned, the economy was
doing reasonably well, so why spook the markets? But as
we know, the weekend before the Wall Street Journal there
was a lead with a reporter that tends to have
close ties with the FED, So that sort of eliminated
(06:04):
that notion of spooking the markets that they sort of
planted that in. But I think sort of a key
thing to keep in mind is that inflation, as I
talked about before, did end up slowing faster than the
Fed had anticipated earlier this year when they were just
looking at that twenty five basis point cut, so quite honestly,
in order to get at what they were originally estimating.
(06:27):
Remember we look at for restrictiveness, we look at the
real rate, right, so that's the nominal rate adjusted for inflation.
So what essentially the Fed did is, with that slower
inflation growth than they originally anticipated, that fifty basis point
cut was kind of equivalent to what they thought twenty
five basis points would have been saying three to four
months ago, A.
Speaker 1 (06:47):
Honter, You also focused quite a bit on international economic
developments and especially in Asia. What do you think of
the Bank of Japan's recent policy moves, and of course
the big Chinese stimulus we got kind of out of
the blue that floated Chinese markets.
Speaker 3 (06:59):
Oh, absolutely, because we need to look at the whole world, right,
So first of all, with Japan, they are moving in
contrast to what the rest of the world is doing,
which is highly unusual for Japan, especially in recent history.
But from Japan's perspective, this is almost like a once
in a lifetime opportunity. Keep in mind, they've had like
(07:19):
zero percent interest rates or even negative indust rates for
a while, they were the ones that sort of revolutionized
quantitative easy and they want to use this once in
a lifetime opportunity to finally get policy maybe a little
more toward you know, just regular interest rate policy instead
of having to go through all of these you know,
sort of larger, more extravagant types of toolboxes.
Speaker 2 (07:40):
If you want to call it that.
Speaker 3 (07:41):
And the reason for this is that a lot of
the pandemic inflation as well as the weekend caused a
huge surge in inflation in Japan, and it's actually lasted
for a long time, and because it's lasted a long time,
it's changed, you know, sort of it's changed expectations, which
is good. That's what happens when it lasts for a
while well, and it's also now translating into higher wages,
(08:03):
so this is kind of like a nice change for Japan.
You know, a lot of the market tends to focus
a lot on, you know, the direction of the yen,
so you could see the yen strengthen, which may not
go too well for say large cap or broader Japanese market,
but for the state of the economy. You know, it's
not going to fix its long term demographic problems, but
overall it's a nice change that maybe this inflation churge
(08:27):
allowed the central bank to do more normal things. In
the case of China that you mentioned, I mean, we
knew stimulus was coming. I was quite surprised actually how
big it was. And what makes me most happy about
the stimulus it is there is a component at least announced.
We'll have to see whether it actually comes into fruition
that is focusing on households and the consumer, and this
(08:49):
has really been that portion of the Chinese economy that
has not been in particularly good shape. Now, whether it
solves China's long term downturn growth story, I'm not sure
if it will. China has four long term demographics. They've
been bad already, They're only going to get worse. It
has extremely high debt levels, so you can give a
(09:09):
whole lot of cheap money, but if you have to
pay off debt, you.
Speaker 2 (09:12):
Know here you're not going to borrow, right.
Speaker 3 (09:15):
And then this whole notion of deglobalization that's already happening.
Just recently, the EU is voting on perhaps increasing tariffs
on Chinese electric vehicles, which is actually one sector of
the economy that is doing quite well. So yes, this
is going to help the global economy, say over the
next year a year and a half, but it doesn't
necessarily fix China's long term down trend.
Speaker 1 (09:36):
Got it. I think we have to talk about the election,
given that we're about a month out as we're speaking
from the vote, you know, now, Davis put out a
note saying that both political camps are leaning towards increased
deficit spending, with few specifics on how to balance these expenditures.
The second part of that I noted that this combination
of fiscal stimulus and FED easying could drive aggregate demand,
potentially creating a favorable environment for risk assets. In twenty
(09:58):
five thoughts on that and just kind of what people
should be considered keeping in the back of their mind
regarding the election and outcomes.
Speaker 3 (10:04):
There you answered a lot of the questions for me,
and one other point. Yeah, you're right, both candidates have
expansionary policies all around, more spending and not too many
ways to pay for it, right, so not too many
adjustments on that, and as you know, that can be
quite expansionary. Now, another thing to look at is what
happens with converse. So Congress is often the check and
(10:26):
balance on the president, So if there's not a clean
sweep of one party, then a lot of.
Speaker 2 (10:30):
Those proposals won't actually happen.
Speaker 3 (10:33):
In terms of what it means for the market, typically
when an incumbent party wins, equities tend to do quite well. However,
that has a lot to do with the fact of
the state of the economy. So you know the old
adage it's the economy stupid, right, and so the whole
point behind that is the incumbent party is more likely
to win when the economy is doing well and the
(10:55):
economy the market is going to do well if the
economy is doing well, so it's a little bit of
a feedback loop right there. In terms of combinations, again
you have to take them with some grain of salt
because they tend to be not as many over time,
so the sample size isn't great. But usually a democratic
president with a mixed Congress tends to have the best
equity market performance. Typically, democratic presidents, if that turns out
(11:19):
being the win given the state of the economy, also
tend to have more cyclical leadership inequities.
Speaker 1 (11:26):
Let's shift from the time we have left it. Basically,
you know, given your sort of macro base case, what
does this mean for markets? I mean again, there was
another chart of the league article NDR put out saying
bull markets don't die of old aid. It's you know,
abs in a FED policy or hard landing, external shock
and so on. Those things tend to do real markets.
And it doesn't sound like that's what you're looking for.
Speaker 2 (11:44):
Correct, No, not at.
Speaker 3 (11:46):
This point, and for at least I'll present it more
from a macro perspective. But I think it's so important
just to look at the broader global economy because typically
you tend to get cyclical bear markets in equity, so
the short term bear markets, you tend to get those
when the global economy is in a sustained slowdown. I
talked about the US still holding up quite well, so
(12:08):
they would be the culprit. China maybe would have been
an area of concern that the stimulus might actually prevent
that from happening, so that risk of a sustained global
slowdown remains quite low. And then you mentioned the whole
notion of monetary policy. Right, One of our rules at
NDR is don't fight the FED or don't fight the
world's central banks, and.
Speaker 2 (12:28):
Usually equities do quite well.
Speaker 3 (12:30):
When not only the Fed, but when most of the
world's central banks are in easy cycles, which is clearly
what's happening right now, and the rally tends to be
even stronger when the global economy is not in recession.
Speaker 1 (12:43):
Okay, you know again, I know you do top down
work as opposed to bottoms up stock picking, but anything
any thoughts on sectors asset classes that again, if your
economic case plays out, would look particularly attractive or on
the flip side, not attractive.
Speaker 3 (12:56):
Right, right, So I think I would turn back to
a lot of that election leadership that I mentioned before.
So if it turns out that the incumbent party wins,
you get a democratic president, you tend to get more
cyclical leadership inequities, and of course that tends to coincide
with the continuation of the cyclic global market.
Speaker 2 (13:17):
A right, perfect.
Speaker 1 (13:18):
I guess last question would be, you know you're going
to be joining us for the twenty four Money Show
Master Symposium in Sarasota. Can't wait for it again? I
think people got a lot out of your appearance last year.
You give viewers a sneak peek at what you think
you might talk about or basically what somebody is going
to come away with if they come cuspeak.
Speaker 3 (13:33):
Oh absolutely, So we at that point will have completed
our twenty twenty five outlooks, so I will discuss in
more detail where we see the global economy and next
year the US economy and directly apply it to markets,
which is obviously, you know, one of the things we
do a lot at NDR. We'll have a few more
months read on data, so we'll have a better picture
(13:55):
of what global monetary policy trends, and I think also
most importantly, we should have an answer to who won
the wh who won the election, who won Congress, and
then that could ultimately determine policy going forward and where
we recommend our clients to be in markets.
Speaker 1 (14:10):
Excellent, Well again, thank you so much for insights Alejandra. Viewers,
if you're watching this and you'd like to learn more
about her work or NDRs, she is going to be
speaking at the Money Show Masters Symposium Sarasota. It runs
December fifth to seventh of the highatt Regency of Sarasota.
You can also find out more about that event in
the link below. In the description definitely like or subscribe
to our updates if you want to see more of these. Ijandra,
(14:32):
thanks again for joining the podcast. Thanks for having me
more interviews for you every week, so I encourage you
to subscribe to The Money Master's podcast so you can
stay up to date with the insights from top money experts.
You can follow me on Twitter at real Mike Larson
and follow money Show for more investing and trading content
on Twitter, Instagram, and YouTube at money Show. Thanks for listening,
(14:54):
See you next time.
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