Comments
Transcript
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ptMG is a super genius. amazing, thought, ideas and explanations.
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JM"Somebody who never agrees with me unless we are both wrong" - love that idea i.e. the classic contrarian indicator!
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JLGotta love Mike Green, but the anti-inflation arguments were unacceptably weak in my view. I don't say this as an inflation bug. I just think the actual, substantive case for why inflation will occur was not really addressed here. After 2008, there was a broad expectation that the Federal Reserve's rapid expansion of its balance sheet would cause inflation. This expectation was wrong, as we now know, because QE is not inflationary by itself. It simply adds to the quantity of stagnant bank reserves. It is "pushing on a string" as it were. But here is the thing that doesn't get discussed. Those who see inflation potential would say something like this: — The Bernanke-Yellen Fed used loose monetary policy to wage a fight against tight fiscal. — Even as the Fed did lots of QE circa 2009-2019, tight fiscal pushed in the other direction. — The arrival of the Tea Party in 2010 reinforced tight fiscal impulses for the following years. — Fiscal policy did not really become loose until year end 2017, with the Trump tax cut. So basically, if loose monetary policy fights against tight fiscal policy, you get a cancellation of forces. The Fed's juicing of the system helps the valuation of corporate assets — which is what we saw — but tight fiscal policy is a contractionary influence. That is the reason the 2009-2019 was sluggish, but great for asset prices. Loose monetary and tight fiscal is an ideal recipe for mild-to-weak growth, no inflation, and asset prices going up. But here is what is different moving forward: — With the Trump tax cuts, fiscal policy went from tight to loose. — With Covid in 2020, fiscal policy flapped like the pages of a phone book. — Loose monetary AND loose fiscal at the same time is a game changer. I mean come on. How can we talk about inflation and NOT talk about the big fiscal change? They sent direct checks to people in March. That is a straight up helicopter drop. A $1,200 check is not an obligation to think carefully about or a loan to be repaid. It is straight up "here is some money." With the $600 check they are doing it again. And if the bottom half of the economy is weak in 2021 (an almost certainty) they will do more. Also, re Janet Yellen: The take there was way off base. Yellen doesn't care about the stock market. I seriously doubt she cares about the opinion of hard money types. But she cares deeply and passionately about labor economics, and she cares deeply and passionately about helping the weakened half of the U.S. economy. Translation: Yellen is happy to stimulate the living heck out of the U.S. economy, dollar debasement be damned, if she thinks it is the right thing to do to help the struggling lower half of the labor market. Yellen does not love Wall Street, but nor is she bothered by the thought of a big run-up — or a big run-up of inflation concerns — if that is what's needed to help labor. Yellen is a labor economist and a Keynesian's Keynesian; she loves labor economics and has given impassioned speeches about helping the struggling classes; she is willing to stimulate like crazy to help labor; and her and Powell will be of one mind on this. So look. You put monetary policy and fiscal policy rowing in the same direction; AND you put Yellen and Powell in exactly the same mental place (they worked together for years, remember, and Powell is a big stimulus advocate); AND you put shifting expectations around a vaccine recovery in the mix; AND you put direct checks going out to people with the potential for more to go out; AND you put a high likelihood of shortages for high demand goods in a post-vaccine recovery environment in line with expectations; and what you have is a recipe for serious inflation. As for the whole "Fed printer goes brr" thing — it's a red herring. It is a meme and a narrative that reddit/WSB can understand and build a framework around. Meanwhile the popularity of the "Fed printer goes brr" meme is a real thing. Why? Because inflation is influenced by expectations. Inflation is one of those weird things where perception can make it real. Why do you think Bitcoin is above $30,000? In part because inflation worries are taking hold. I am fine with those who are skeptical of inflation. But I wish they had more substantive arguments! One of the strongest pro-inflation arguments is that, for years, monetary policy had to fight against fiscal policy. Now monetary and fiscal are rowing in the same direction, and fiscal is a big fricking howitzer. It is the real deal when governments are sending checks to people. Then, too, about that QE. Richard Koo has pointed out that QE doesn't help anything, but it does in fact build up a large quantity of bank reserves that are sitting there inert. The issue with this is that, when animal spirits come back to life, the inert bank reserves created by QE can suddenly create a lending boom that quickly drives inflation. Bank reserves are just cash. Nothing more, nothing less. They are cash holdings that are required to be sequestered in bank vaults or kept on deposit with the Fed. QE, in a depressed environment, doesn't do anything because more cash to banks who don't want to lend it is coals to Newcastle, or water in an underground lake. BUT, when the appetite for lending returns, all that stagnant liquidity becomes available, and then it can start cycling through the economy, and meanwhile the Federal Reserve CANNOT remove the excess reserves quickly because that would be a destructive fiscal impulse that would kill the recovery. And none of this even mentions the dollar divestment argument (the USD is seeing a historic global rebalancing away from too-high levels of manager reserves in central banks and SWFs) or the commodity price argument (as the dollar weakens and commodity prices rise, investors get more excited about EM growth, which creates a cycle of further dollar weakening and greater rises in commodity prices). So, again, I'm not an inflation bug. But I see how those anticipating inflation have a real and substantive case. I can respect the anti-inflation view, but it should address more of the stuff I'm talking about here. The anti-inflation arguments being presented thus far are largely straw man.
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TRFairly useless observations unless they have some solution to the ICU capacity issue, which they clearly don't. All the same interesting observations around testing, what constitutes a positive test as well as the healthcare incentives. But without any solution to how the healthcare system should deal with the surge of cases they should not be so smug
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DBDon't go into finance ffs. Be useful, go into stem. Finance is a waste of intelligent humanity.
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PVMG's position on China is puzzling. The statement of China's labor force shrinking is patently false as it has increased in 2019 from 805 to 811 mio (check for yourself). Granted labor participation rate is declining and that is common in most advanced economies. I reckon his views are tainted (as often is the case sadly) by his political beliefs and that puts in question all his analysis.
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ACWould be great to get a deck with evidence of some of the commentary (esp China), and links to papers mentioned also.. thanks
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BBJust too much to consume in half an hour. Thank you Mike Green as always!
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JKMan, he is a total contrarian to conventional views
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AANice summary Mike, would be very grateful if you could elaborate on your method of obtaining long vol exposure. In the equity index space the market is too efficient for such an arbitrage to exist between ITM & OTM options. Trading delta-hedged would capture this difference. Perhaps in the single-stocks world... however when you account for the cost of trading, I can't understand where you find a net benefit. Any comments much appreciated thanks
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JLAaaand Republicans just lost control of the senate. So much for no inflation.
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DDWhat an awesome way to start the year! Mike is an exceptionally generous guy with regard to his knowledge and wisdom, but I suspect in general too.
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BAGiven Mike's ability to understand and explain where things went astray in the 70's and given my scepticism that the FED/Treasury have the correct settings for today or post Covid, I humbly ask Mike the question: What is the correct policy setting now and in the immediate post-covid era in regards to interest rates, QE and govt spending? As background, here is my simpleton's understanding of Mike's description of inflation/deflation historical dynamics (please correct me Mike): 1) 70's demand curve shift outward overwhelms supply and leads to ill conceived interest rate hikes that curtailed supply more than they curtailed demand....leading to 'shortages' that pushed prices higher. This was within a US growth environment, not a stagflation environment. It wasn't currency devaluation (USD taken off the gold standard) and massive deficit spending by the US govt (Vietnam War, etc). 2) Pre-covid dynamic: Aging demographics leading to weaker demand while low interest rates and technological innovation result in supply further out pacing demand?? . 3) Covid dynamic: Supply disruptions shifting supply curve up at same time that capital goods demand is being brought forward (e.g. spend on recreation vehicle instead of international travel, etc). Corporations draw down credit lines leading to illusion of M1 growth, Fed starts QE 'whatever it takes' and introduces average inflation targeting. Treasury provides seed capital plus FED loans to create special purpose lending vehicles. Gov't deficit jumps and jumps and jumps. 4) Post-covid: Price inflation will be a temporary phenomenon as capital goods demand settles down and supply comes back on stream. Gov't deficit hawks will force taxes up to offset any excessive govt spending. Corporations will re-establish their original credit lines (reducing M1 money supply). Continuation of disinflation? as aging demographics and technological innovation keep FED in easy mode (bond yields low) and thus supply side is strong. Do wages remain contained?
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PCThank you for having Mike Green on RV. I'll watch anything and everything with him. I appreciate his somewhat contrarian views - effect of raising interesting rates in the 70s leading to more inflation through reduced supply, etc. - and especially his caution against fear-based, centrally-planned governance in the developed world. It seems that most accept further centralization as a foregone conclusion, even by the more libertarian among us. We need Green's deep thinking and influential challenge to that trend.
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MMThank god for Michael Green. Humanity is clearly at a tipping point and it's individuals like this, regardless of the domain they operate in, that will shift us towards world that's sustainable and worth living in
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NZMike: Please just get a normal background. Love the comments and insight as always!
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RMExcellent comments. Appreciate the closing billboard that summarizes Mike's thoughts. That use to be standard on RV videos and have missed them.
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DDFinally! Sensible comments on the money supply and inflation.
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MHDoes keto work? Just look at Mike Green!
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DKI'm still confused why inflation isn't a concern. I understand covid-19 pulling demand forward pushes up prices temporarily but prices were going up before the outbreak. The Chapwood inflation index shows many cities with a five year average of double digit inflation growth: https://chapwoodindex.com/ The counter argument I always hear to this is everyone knows the CPI doesn't accurately measure inflation but the CPI is what the Fed looks at so everyone else uses it. How is this rational behavior? Shouldn't there be an advantage for investors using accurate information for such an important economic activity that is 'mispriced by the market' for using CPI to alleviate inflationary concerns??
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NLthank you Mike.
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HESeriously - Mike is a fucking legend. Always provides huge value.
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JBThis is definitely a Power-Share; Mr. Green provides the most value per word and hypothesis.
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SNUseful perspectives to start the year... Would love to see Mike in discussion with Jeff Booth, please!!
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EHMike Green is a unique, pragmatic individual willing to think for himself vs buying into narratives. Love all of his content
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TCGreat ideas and perspective as usual. Nice to see impartial independent thinking
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JMHello Mike, only 5% of trading activity comes from passive instruments and more than 90% from etf trades take place on the secondary market which implies that buying etf's almost never has an impact on the underlying securities. As we all know, it's transactions that set prices. I'm having difficulty believing in your viewpoint after reading these two papers from Blackrock (Index investing supports vibrant capital markets) and Vanguard (Setting the record straight: truth about indexing)? Also, passive investment has gotten rid of bad active managers, which makes the market more, and not less, efficient. Passive investment has also reduced the cost of shorting, making the market more efficient. How would you reply to these points? Thank you very much!
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DWIf he's long vol, and unsure what direction the markets go, does this sound like a good setup for a "straddle" type trade? Any ideas? Cheers
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DSExcellent presentation. Carl Jung: “It is as if our consciousness were a continent, an island or even a ship on the great sea of the unconscious.” I feel the same way about objective reason being a ship on an ocean of emotion and non-objective reason. Objective reason is a rare commodity. Mr. Green is exceedingly successful in the use of objective reason in financial analysis. We have seen this innumerable times on RVTV. It took me a long time to understand passive investment as just supply and demand without the filter of valuation getting in the way. Money flows in. Money flows out. During 2020, I finally came to terms with how emotional human beings are including myself. Most of us use non-objective reasoning to support our prior emotional conclusions. Enlightenment thinking plays a small roll in how we often act. Many voters in both parties based their vote on a single issue not on the common good. No wonder the US is so divided. The western world and China have many issues to work through. Both Republicans and Democrats recognize this. President Trump choose a direct confrontational strategy. President Elect Biden will probably choose an integrated strategy with our allies. In the long term I hope the combination will work for the betterment of both. Regardless, my understanding of emotionally driven conclusions supported by non-objective reason is my new understanding. Objective reason can be used to provide the initial thesis – China is not following international norms. Then the action can be emotional and/or non-rational. The Rave in France over the weekend of 2,500 people during a nation-wide lock down is a simple example of emotional driven actions. They are not alone. Long-term investments based on passive flows is even a better example. Paraphrasing a quote from movie The Lion in Winter – We can tangle spiders in the webs we weave. DLS
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HSI remember not too long ago Mike said he didn't have time to be a regular on Real Vision. I'm glad all my incessant nagging on Twitter wasn't in vain :)
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TPI fully enjoyed this video - Mr Green is pragmatic and forward-thinking without falling into the trap that most subjects on RV do, talking their book, which I appreciate. I do disagree on the inflation expectation, but that is a minor quibble. QE only works after all, if only one central bank is doing it, and the whole world is devaluing as we speak. I also appreciate his frank and honest opinions on China, and how they have significant headwinds described by their demographics and credit market problems. This is one of the few reasons why I continue my RV membership. Bravo, Mr. Green.
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MFMaybe in 3 or so years there is a great trade to be had playing the increasing passive penetration in the rest of the world versus perhaps passive-saturated US asset markets. In combo with the inelasticity of US asset markets you could have a lot of interesting set ups. Lots of moving parts to think about but this interview was great for that sort of thing. Many nuggets to build trade theses from!
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WBMike is the best. Smartest guy in the RV universe
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SBBrilliant interview, always look forward to Mike Green on RV
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JMUsing the signal of the bond market as a sign that inflation will not come seems very strange to me. In October 2018 the 10 yield was above 3%. Surely, it was signaling that inflation was coming you would think. Of course, inflation didn't come and the economy slowed down sharply. The bond market isn't a good predictor at all. You need leading indicators like Julian Brigden uses. His models are predicting inflation. Too many people use theories and narratives. I've followed most people on realvision since the very beginning. My conclusion is that only those that use leading indicators have been right on a consistent basis (like Julian Brigden and Michael Howell from Crossborder Capital).
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mfMy god, someone finally said it; there are commodity shortages because of supply disruptions.
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NDPopulation control through fear, challenging Jeremy Granthams’ world view. Awesome stuff! Run for office lol jk your too smart for that
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AEThis was awesome. Love the long vol views (also Chris Cole’s stuff). Currently a winner of “financed” long vol exposure that is starting to pay today. Thank you RV team!
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CKWould love to see a debate between the late Jack Bogle and mike green on the rise of passive. would be epic.
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SBLearned so much, thank you
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JSThank you for you generosity Mr. Green! Happy New Year!
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RMWhoa, great start to the New Year! Very inciteful look at the trends that will affect markets. Lots to think about here!
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KSReal Vision sub paid itself first day :)
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APMike Green on day 1. This year is already looking up!
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TRThe best possible way to start the RV year!
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AAI'm so glad Mike got his own show - always great listening to his thoughts. APA
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MOMike Green can you pretty please register your long volatility fund in the Cayman Island so retail folks like me can invest in?
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DVMike your interviews on Realvision as interviewee and interviewer are always super! I hope you interview Druckenmiller in your series
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BIFascinating as always. Would love to see Mike interview Peter Zeihan. I feel that they may have a similar view on China, but would be interested to see how they view the rest of the world.
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JSCannot wait to see this! Thank you RV Happy Nee Year!
Chapters
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Big Investment Themes for 2021
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Unique Ways to Gain Exposure to Long Vol
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Problems with "Fed Printer Goes Brrr" Ideologies and the Inflation Narrative
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Narrative Driven Markets
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Will the Rotation Trade Continue in 2021?
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US vs. Non-US Assets in 2021
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What About China?
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Fiscal Policy, Janet Yellen, and the New Administration
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Can Progressive Policies Like $15 Minimum Wage Empower Labor and Generate Inflation?
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The Biggest Changes that Won't Revert
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"Mike Green in Conversation" in 2021
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Who is the Anti Mike Green Who You Look to Challenge Your Views?
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Summary and Takeaways