Prepping for a Market Melt-Up

Published on
May 2nd, 2019
Topic
Housing Market, Career, Canada, Global Outlook, Investment Framework, Trading, Monetary policy, Derivatives, Equities, Fiscal Policy
Duration
66 minutes

Prepping for a Market Melt-Up

The Interview ·
Featuring Kevin Muir

Published on: May 2nd, 2019 • Duration: 66 minutes • Topic: Housing Market, Career, Canada, Global Outlook, Investment Framework, Trading, Monetary policy, Derivatives, Equities, Fiscal Policy

Veteran trader Kevin Muir quit Bay Street, Canada’s version of Wall Street, and set up his own shop. Until he joined, East West Investment Management. In this wide-ranging interview with Tony Greer, Muir explains what led him to make that major career change, and also speaks to the genesis of his Macro Tourist newsletter. Equally fascinating are Muir’s deep dives into Fed policy under Jerome Powell, Modern Monetary Theory, and the signals from the Canadian housing market that make him bullish on equities. Filmed on April 15, 2019 in New York.

Comments

Transcript

  • PG
    Philippe G.
    20 May 2019 @ 13:43
    Great stuff. Love this guy's blog.
  • EQ
    Eduardo Q.
    15 May 2019 @ 18:46
    The interview I was waiting for since long time ago... the Macro Tourist. The guy of the nice and insightful articles and funny pictures... I hope he´s coming back
  • JO
    Johnny O.
    6 May 2019 @ 16:38
    QE has been pumped into massive asset price inflation. If we print under MMT to pump money into "free" college and universal basic income and green jobs, and a thousand other crazy government freebies, won't that cause the other standard type of inflation? I think with debt-based money that we are doomed anyway, but the idea we could do this new type of QE without something unraveling seems fanciful.
  • SW
    Scott W.
    6 May 2019 @ 14:16
    The referenced article by Kevin at his site The Macro Tourist is a fantastic piece. There are at least two factors to ponder regarding MMT per Kevin: 1. Is MMT "good"? 2. Is it coming regardless? On factor 1, proponents argue it's good per se. I would disagree (oh the perils of unintended consequence) but would leave the convincing to the likes of Bob Murphy. From another (more "fair"?) perspective however, it's hard to argue that MMT isn't perhaps less bad than QE in total to date. Occupy Wall Street might have been largely collectivist whiners, but they sort of had a solid point irrespective of underlying ideology and advocated "solutions". To put it another way, the ivory tower is adverse to money printing, but they did it big and they did it long while calling it something else. If we're going to print money, why not do it in a more equitable fashion? On factor 2, there's an increasing chance. So adjust your investment plans accordingly.
    • TC
      Tom C.
      8 May 2019 @ 07:14
      Agree. Ignore the noise, don’t worry about rights and wrongs or what should be. Invest in what, on the balance of probabilities, will be. The $2tn (fake news quantity!) infrastructure MOU by both sides of the aisle in US is showing the way. ECB have also started making noises about having fiscal stimulus as part of their toolbox.
  • JK
    James K.
    6 May 2019 @ 01:02
    Futures down 500 points - Dow
  • KS
    Kathleen S.
    5 May 2019 @ 14:31
    Central Banks make money out of nothing (MMT) and use it to make their rich friends richer --- by blowing asset bubbles. I like MMT, but question is how do you control corrupt politicians from pork barreling and using power to create money to buy votes to support their agendas?
  • SB
    Stewart B.
    5 May 2019 @ 08:13
    Great interview. A relevant question for pro-MMT folk is this - Once MMT has been underway and inflation is over target then growth slips (for whatever reason), where will they make cuts to fiscal stimulus in order to lower inflation: education, health or welfare? How will that go down? That is we were giving everyone all this stuff paid for with the printing press, and now we need to take it away, most likely at a time when the economy is slowing through stagnation and lack of productivity.
  • PD
    Pat D.
    4 May 2019 @ 23:45
    Loved it. Two awesome, down-to-earth traders. Thanks
  • RK
    Robert K.
    4 May 2019 @ 22:38
    Unbelievable how otherwise intelligent people can think about going down the MMT route. Please read where all such roads end: https://en.wikipedia.org/wiki/The_Road_to_Serfdom . You cannot rely on a central government being an all informed entity that is able to regulate and stimulate the economy. Unless you live in Star Trek of course.
    • ZB
      Zachary B.
      5 May 2019 @ 07:29
      Exactly so they should also stop trying to control the price of money (ergo the interbank rate)
    • JM
      John M.
      5 May 2019 @ 16:10
      I was a little surprised by the casual conversation around MMT. No comments on what the unintended (negative) consequences might be further down the road. Naive.
    • CW
      C W.
      5 May 2019 @ 16:26
      From the very little I know about prescriptive side of MMT, the role of the central bank is just to "print the money" for the government to spend. So it's the government that decides how it wants to spend to stimulate the economy. The Fed is just a cash dispenser. My nagging worries about this prescription are the following: 1) pork barrel spending also mentioned by Kathleen S. 2) related to 1) serious misallocation of resources 3) if the Fed mindset becomes that of a serf, will there still be an effective curb on spending when inflation becomes a problem 4) when inflation rises while the dollar weakens because investors start losing confidence in the dollar, will raising rates and cutting spending reverse them? and what will it do to an economy that's used to low rates and profligate spending? But overall I like it that an alternative like MMT is getting a serious examination. And yes I love listening to Kevin. @themacrotourist and @the markethuddle are handles I follow.
  • MS
    Matt S.
    4 May 2019 @ 20:26
    I asked an IT guy I knew 15 years ago when I was thinking about learning to programme, what language should I learn - he told me, "Python". I ignored him and didn't learn to code. Damn.
    • TM
      The-First-James M.
      5 May 2019 @ 01:34
      Never too late. Good site for anybody to learn the basics of Python: https://realpython.com/ Helps if you already know the basics of coding, but for anybody who feels it's beyond them, it ain't rocket science to start. I say this as somebody who's spent most of his professional life working as a developer - primarily in RDBMS, but had an opportunity to branch out into Spark (Big Data Tech) and Python over the last 2 years. Had an engineering degree background, but it wasn't anything at all to do with Software Engineering or IT.
  • MS
    Matt S.
    4 May 2019 @ 20:24
    "Learn to code?!" ;) haha
  • JC
    John C.
    4 May 2019 @ 18:44
    This was great stuff...really enjoyed it. The MMT part was eye opening and helped me understand how we're eventually going to get there (let's face it we are) and also how to look at it from the government/Fed's point of view. One bone to pick is re Powell and why he did a 180 & went dovish. I think Kevin puts too much emphasis on on the "Trump factor" when in my opinion it was more the markets crashing and him quickly realizing what he'd done re being too hawkish, along with the capital markets effectively shutting down. In late 2018 after all those hikes and hawkishness from the Fed “The credit markets froze solid" and “for 41 days there was no high yield bond issuance. That's the longest span ever, with data that goes back to 1995 or so.” as former Fed advisor Danielle DiMartino Booth said on Hedgeye. Ouch, that had to be in Powell's mind as well given how beholden some say he is to the private equity world (where we came from). So of all the reasons for Powell going dovish I'd say #1 is the market drop, #2 is the capital markets / HY world completely closing with #3 being the Trump noise. Anyway, great interview!
  • SG
    Sashi G.
    4 May 2019 @ 11:38
    Liked Kevin's contrary-to-many view that there will not be a bank meltdown in Canada even when and if the housing market breaks. And yes - Tony - you are a natural at interviewing!
  • RU
    Razvan U.
    4 May 2019 @ 06:46
    Love both the Stones and Beatles but....Zeppelin....
  • CR
    Cristian R.
    4 May 2019 @ 04:39
    Looking forward to the music discussion.
  • RP
    Ryan P.
    4 May 2019 @ 03:33
    Two guys that know their shit. Not from a text book. Not from watching fast money or reading twitter. They spent years honing skills that have humbled and transformed their approach completely. You can hear it in their delivery. For that, this is real talk, and should be weighted appropriately with the probability of outcomes you have on these topics. Not trying to pump tires. I heard about Kevin from following Tony on twitter and everything I have read is fantastic and practically presented. It’s hard to find well thought out think pieces that don’t overcomplicate things. After about 1000 videos on here and countless newsletters and subscriptions to macro research providers through trail and error- This is the stuff I look for. Thanks fellas.
  • SH
    Stephen H.
    4 May 2019 @ 02:07
    This was a huuge one!! Great stuff RV. Points on MMT have reshaped my view - a lot to think about. Thanks
  • dw
    douglas w.
    4 May 2019 @ 01:35
    Great interview! One of my faves as of late. Its nice to hear a more serious side of Kevin, but I like the Bob and Doug McKenzie 3 beer version on the Mkt Huddle just as well. Kudos to TG for bringing him into the RV world.
  • VS
    Victor S. | Contributor
    3 May 2019 @ 20:34
    MMT is a theory that paper has value unto itself? No -only as long as others will except it . Inflation follows printing but it can go into assets not consumer items... it depends who gets the fiat paper. In the case of 2008 to date the reason of no inflation is “the people” didn’t get the paper. The fed pays banks to NOT LOAN MONEY IN EXCHANGE FOR INTEREST ON RESERVES. If you give the paper to the people (MMT) see Venezuela for what happens.
    • AC
      Alessio C.
      4 May 2019 @ 23:29
      You couldn't have explained it better. I'm puzzled by Japan debt jubilee. One thing I'm sure, it cannot be adopted by all countries. Japan financed its deficit internally. Countries that don't do that, cannot do it. Still, I think there's a question of "trust" in all fiat currency that hasn't been tested yet.
    • SB
      Stewart B.
      5 May 2019 @ 08:39
      The BoJ and Japanese gov have no incentive to cancel JGB debt as it is not holding them back in any way. If they were to cancel it, it is unlikely to make much difference (in practical terms). It would only be a technical change. The important part is that this does NOT mean the Japanese have had a free lunch. QE is diluting the money supply and in doing so is moving assets from private balance sheets to the public (gov/central bank) balance sheet. In other words, the Japanese people paid for their lunch by enduring QE. QE provides some short term benefits to some participants through weaker domestic currency, arguably lower rates and arguably higher asset prices in short to medium term, but is costly to most through diminished purchasing power (including foregone hedonic deflation), arguably lower real yields and the inevitable fall in asset prices that occurs when it stops. It is in many ways QE is expropriation.
    • JM
      John M.
      5 May 2019 @ 16:29
      Well stated. I didn't follow Kevin's comment about QE not having any inflationary impact. I thought QE had contributed to asset inflation i.e, real estate and financial markets (maybe collectibles etc.,)
  • AH
    Andreas H.
    3 May 2019 @ 19:47
    I always wonderd why money has to be expensive or the gov should not spend when inflation is low! All that dept is either going to be forgiven (by the CBs buing it up and letting it disapear (we just need a good word for it... "liberated"?) or its going to be inflated away (and if ZIRP is not doing it, Spending will!).
  • SS
    Steve S.
    3 May 2019 @ 18:22
    Kevin Muir knows 10,000 times more about MMT than I do, but I just can't see how it would work in the long run. All that spending means debt and interest on the debt. At some point - coming soon - paying interest becomes one of our biggest expenses
    • JC
      John C.
      4 May 2019 @ 18:54
      Yep. But what I think he was saying was the first step is go to ZIRP or NIRP, slowly refi all your debt at low or zero rates (to do this, like in Japan you eventually have the Central Bank as the biggest owner of government bonds, along with maybe pension and other funds who are essentially forced to buy them). Let that all occur over a period of time and then you get to a debt jubilee.....sure there might be some bumps along the way but it's a stealthy way to the Japanese endgame. Effectively what the government has done is flushed out all the bad debt and restarted the process. I am sure there will be inflation but there already is it just doesnt show up in the numbers, and they will effectively hide the massive devaluation everyone is getting on their savings, pensions etc. along the way. Like what's happening now but more intensified over a 20-30 year period. They will do this, just keep that in mind...they literally have no other choice after the interest on the debt becomes too big.
  • RK
    Richard K.
    3 May 2019 @ 15:04
    Great interview. Shouldn’t compare Stones and Beatles. Apples and oranges. Both great.
    • SS
      Steve S.
      3 May 2019 @ 18:20
      Apples & oranges - I always say that about them too
    • WS
      Wm S.
      3 May 2019 @ 22:38
      Both are fruits, so the comparo is fair.
  • VK
    Viresh K.
    3 May 2019 @ 13:44
    There's so many good things I can say about this conversation, but probably the main thing is that Kevin is clearly a life long learner. This guy will outlast the kids. He was a trader, did the CFA, learning Python/ R, spends an insane time on MMT, willing to change his beliefs and is open minded.
  • MT
    Martin T.
    3 May 2019 @ 12:49
    Kevin is super cool guy and I really enjoy his stuff. Very reachable guy as well.
  • IO
    Igor O.
    3 May 2019 @ 12:21
    Shocking amount of thumbs up. My case too
  • DF
    Dominic F.
    3 May 2019 @ 08:21
    Amazing interview. Australia is in the same position as Canada re Banks, Property, China, AUD.
  • MS
    Max S.
    3 May 2019 @ 06:53
    Would be super interested in hearing more about his journey as an independent trader working for himself Really good interview, I enjoyed it
  • BD
    Bryan D.
    3 May 2019 @ 05:23
    I'm not sure how MMT would work in the Eurozone common currency countries. Its hard to see the European populace standing by idly watching other countries potentially pursue this as they control their own currency and they can't.
    • AM
      Alex M.
      5 May 2019 @ 02:47
      MMT scholars will tell you these countries can’t. The big delineation is currency ISSUERS (US, AUS, Japan etc) and currency USERS (the EU). MMT is predicated on a country having monopoly issuance of a sovereign currency.
  • JF
    Joseph F.
    3 May 2019 @ 05:14
    Excellent, enjoyable interview.
  • LJ
    Liam J.
    2 May 2019 @ 23:18
    Honestly, when I hear people talk about MMT I just want to 1st puke and 2nd buy more bitcoin. If printing more and more money doesn't cause inflation than maybe we should think about the possibility that there is something wrong with the way we calculate inflation. In my mind pushing asset prices up by artificially printing more and more money (grossly oversimplifying) is just wrong and waiting for a disaster to eventually happen. It's literally socialism for the rich and diminishing the purchasing power of the middle class and it makes me sick.
    • WM
      Will M.
      19 May 2019 @ 14:38
      Make that more gold and silver Liam......
  • SS
    Shanthi S.
    2 May 2019 @ 22:04
    This was great! Huge fan of Kevin and the Market Huddle with Patrick Ceresna. Fun and fascinating interview guys!
  • KE
    Kathryn E.
    2 May 2019 @ 21:27
    Best interview od thr series. Great job guys
  • KC
    Kenneth C.
    2 May 2019 @ 21:11
    Stones and best Erasure song is Chains of Love. Always use what best sounds best while driving a convertible to determine that. Just subscribed to Macro Tourist, enjoyed the conversation.
  • KC
    Kenneth C.
    2 May 2019 @ 20:39
    Open trade (cheapest goods win), low interest rates (baby boomers spending savings to maintain living standards), quality of job creation (wage growth isn't happening), technology (driving costs down)...there just isn't the fuel right now for inflation.
    • TM
      Tom M.
      2 May 2019 @ 23:18
      With India beginning to industrialize we are not getting inflation anytime soon unless a border tax or tarrifs are implemeted. I wish the Fed would stop playing stupid, and pretending they can stimulate the economy and create inflation in an open trade environment.
    • WS
      Wm S.
      3 May 2019 @ 22:30
      As per Richard Duncan, "globalization has been deflationary."
  • DS
    David S.
    2 May 2019 @ 19:43
    QE and tax cuts are not MMT. These are wealth redistribution tools. MMT is printing money and using it to put real money in the real economy. The $2 trillion dollar infrastructure is MMT that is supported by both parties. DLS
  • ZP
    Zach P.
    2 May 2019 @ 19:30
    This was a really great interview. I love following Kevin on Macro Tourist.
    • TG
      Tony G. | Contributor
      3 May 2019 @ 02:18
      Thank you Zach P.
  • DS
    David S.
    2 May 2019 @ 18:23
    Mr. Muir is a rare combination or practical and theoretical. All politicians, republicans and democrats, will embrace MMT in their own self-interest. How do you think that the $2 trillion dollars of infrastructure will be paid for as presented by congress and the president? There is, however, no free lunch as MMT advocates believe. It is a way to keep the economy going when the capitalistic private sector is not investing capital profitably. It is the FX markets that ultimately will show that there is no free lunch. It is a game of relative debt country by country. I am not smart enough to figure out how it will play out, but I do trust the FX market with skin in the game to make the market more efficient country by country. DLS
    • WS
      Wm S.
      3 May 2019 @ 21:22
      David S writes: "There is, however, no free lunch as MMT advocates believe." Proposition: "If you believe in the existence of moral hazards, then you must also believe that there is such a thing as a free lunch." Please refute that proposition, sir.
    • DS
      David S.
      6 May 2019 @ 22:24
      A very good question. I wish I could answer it better. I can only give you my opinion not a refutation. It is easy to believe in moral hazards - the concept that individuals have incentives to alter their behavior when their risk or bad-decision making is borne by others. The world is awash with “If I am not convicted, I am innocent of the crime and the intent.” The subprime mortgage scandal is just one of many examples. I also believe that there is no free lunch – there are consequences for good or bad behavior. This does not mean that individuals did not make out like bandits. The consequences are rarely borne by the perpetrator like congress and the president, but the consequences fall on us as a result of electing poor politicians. Over last 50 years Congress has given more and more of its power to the president thereby making him more like a dictator. This is how the Roman Republic lost its power to dictators and initiate the fall of Rome. Without checks & balances and transparency, there can be no republic. DLS
  • JM
    John M.
    2 May 2019 @ 17:27
    I think that when Canadian (primarily metro Toronto/Vancouver) housing experiences a serious decline, it will happen in the context of a US/global recession. If people lose their jobs and can't make the mortgage payment they will want to sell. They won't care if BoC lowers rates even to zero! How helpful would that be, since rates in Canada are already very low , 1.75%, and assuming housing prices are dropping or expected to drop by 20-30%. Also consider that USMCA includes provisions forbidding member states from participating in currency manipulation.
  • GH
    Gary H.
    2 May 2019 @ 17:21
    I think its a progression. Lower inflation driven by demographics and debt and then desperation sets in by the central planners and they destroy the dollar creating inflation
  • rr
    rlw r.
    2 May 2019 @ 17:20
    Well done Kevin & Tony - so many interesting nuggets and all done without the whisper of gold. Just a ‘tonne’ of food for good thought.
    • TG
      Tony G. | Contributor
      3 May 2019 @ 02:19
      appreciate that note VERY much.
    • TM
      The-First-James M.
      4 May 2019 @ 01:26
      ... although Kevin did write this piece a couple of month's ago: https://www.themacrotourist.com/posts/2019/02/14/gold/ :)
  • MC
    Minum C.
    2 May 2019 @ 16:29
    I enjoyed this conversation and came away with many thoughts. The idea that the Fed cannot create "inflation" basically tells me the Fed doesn't know what inflation is. They are very good at creating it. Just not that good at gauging it or understanding the leads and lags of their crazy policies. If Trump actually caused Powell to change his mind, then the Fed isn't run by committee as suggested up front. This had me thinking of the longer term impact of having Government basically run a country's monetary policy. Which leads right into MMT which is a political move and not a monetary move as the name implies. Is this the path to high or hyper monetary inflation...because that's what has happened everywhere else I look when Government takes over monetary policy. Probably a really good way to turn a developed economy into a banana republic (without bananas) over the long-term.
    • DS
      David S.
      2 May 2019 @ 20:18
      Minum C, - Japan has not fallen of the cliff yet. They are a good example of a government investing in infrastructure instead of QE. I do agree that the problem is always politicians going too far and printing money forever. Japanese people are community oriented This will help control the spending, I hope. My favorite RVTV presenter on this is Mr. Koo. I would love to have him on to discuss MMT in the US in reference to Japan. DLS
    • WS
      Wm S.
      3 May 2019 @ 22:14
      Minum C: You obviously missed the portion of the interview where Japan was discussed. Pay better attention, or step away from the keyboard, for my sake.
  • sr
    stephen r.
    2 May 2019 @ 16:15
    A question I have on MMT and Governments eliminating the debt. In our modern financial economy isn't much of the debt used as collateral. Would this prevent such a strategy and lead to a shortage of collateral ? Also given the yield curves are so flat in places such as Japan the time value of money has been destroyed. Therefore the BOJ buying the debt and creating new liabilities when yields are so low and flat curves is minimal. QE has distorted the time value of money aspect of debt. Points above are for discussion and in no means complete.
    • WS
      Wm S.
      3 May 2019 @ 22:35
      Re: cancelled JGBs (treasuries?) = dimunition of collateral. Good point. Hadn't thought of that. Perhaps cancel all but *privately held* JGBs/treasuries would solve the problem. Also agree: QE has distorted/destroyed price discovery. Unwinding QE is a (magic) act that remains uncompleted.
  • AF
    Aidan F.
    2 May 2019 @ 15:38
    very interesting comment about gov bond purchases to pay for a war...maybe rv could get someone in to talk about the concept of money flow in war? maybe its a topic a bit close to the bone of certain portfolios :)..
  • GT
    Graham T.
    2 May 2019 @ 15:27
    Every scratch on my Sgt Peppers vinyl tells a story
  • NF
    N. F.
    2 May 2019 @ 14:27
    Happy to see more comfortable-looking chairs in the RV clubhouse
  • TJ
    Terry J.
    2 May 2019 @ 13:57
    Brilliant discussion as always in this terrific series from Tony and his trading friends. Kevin is another top guy and some serious life lessons for young traders and dare I say it investors here. The only time I cringed was when I heard Kevin waxing lyrical about the possible benefits of MMT. I suspect he may already know more about it than I ever will, but what I do know scares the life out of me, and the future for my children's generation. The US is not Japan and has acquired its debt from the rest of the world and just from its own citizens like Japan. Time to get Dr Lacy hunt along with an opposing scholarly reality check on the dangers of destroying not just the economy of the US but the world by dint of the dollar being the reserve currency, if the MMT genie is ever unleashed. Also if the government is ever allowed to do MMT is will become the economy, as big as it already is sadly (the founding fathers would not believe it), and the private sector will be dead in my view. Notwithstanding it's always good to hear the opposite view. Thank you Kevin and Tony.
    • TM
      Tom M.
      2 May 2019 @ 23:09
      "...if the government is ever allowed to do MMT it will become the economy..." That is a very good point. MMT seems to be a back door to a centrally planned economy, implemeted a bit at a time. But hey, apparently we can trade MMT and make money in the interim.
    • WS
      Wm S.
      3 May 2019 @ 22:01
      Re: unleashing the MMT genie Great turn of phrase, Terry J. It indicates the fearful, sharp resistance by the othodoxy (etymology: "those of the 'correct' opinion") to the MMT point of view. Kevin appears to have studied the extant scholarly and popular MMT literarture and marveled that the people who agree with and understand the that POV come from the "plumbing" side of financial markets and the settlement complex, intra- and internationally. Warren Mosler is not exactly a Marxist revolutionary. MMT is first and foremost a **descriptive** theory, as is the theory of evolution. MMT's **prescriptive** component is another animal, and where political inclinations enter the fray and the conversation transitions from economics to politics and normative sociology. Terry J. writes: "I suspect he may already know more about it than I ever will, but what I do know scares the life out of me, and the future for my children's generation." A defeatist stance. Nothing is stopping you from learning as much about MMT as Mosler. If you stop learning about something the moment it "scares the life out of you," then you have a peculiarly frightened and frightening approach to new ideas. My admittedly snobby advice: You need to do some research, sir.
  • SH
    Stephen H.
    2 May 2019 @ 13:40
    Great interview Tony. Confirmed that Kevin truly is one of the most self-effacing people in finance today. Excellent delivery re your MMT thoughts, especially when shaping your own trading construct. And the Cure always rocks.
    • TG
      Tony G. | Contributor
      3 May 2019 @ 02:20
      Many thanks Stephen
  • DL
    David L.
    2 May 2019 @ 12:41
    Recently bought a very small call on the S&P and have been anxious about ever since. Glad to hear there is someone who thinks it might not have been a totally crazy idea! Good interview, thanks.
  • HK
    H K.
    2 May 2019 @ 12:17
    Great interview - covers so much breadth - and goes just deep enough into each area.
  • TE
    Tito E.
    2 May 2019 @ 07:27
    Trading your own dough for 20 years. Well done! My day job basically still funds my losses :(
    • JS
      Jason S.
      2 May 2019 @ 13:56
      Haha, this has to be comment of the year!
    • IO
      Igor O.
      3 May 2019 @ 12:40
      Shocking amount of thumbs up