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James Mackintosh From The Wall Street Journal

May 26, 2021 | Podcast | 0 comments

james mackintosh wall street journal

James Mackintosh joined the Wall Street Journal in 2016, after almost 20 years at the Financial Times, most recently as Investment Editor and writer of the Short View column. He is a graduate of St Catherine’s College, Oxford, where he gained a first-class degree in Philosophy and Psychology. He spent two further years at the university in postgraduate study of philosophy before entering the real world. In this wide ranging interview James discusses his recent articles in the WSJ where he explores the macro inflation outlook, the rise of crypto currencies and much more. James is a deep thinker and brings a wealth of insight and astute evaluation to a range of complex topics shaping the global economic outlook and the changing landscape of political economy.

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Jonathan Doyle

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James Mackintosh Wall Street Journal

Jonathan: [00:00:00] Hey everybody, Jonathan Doyle with you. Once again, welcome back to the supply side podcast. Thanks so much for the pleasure of your time. Really hope we can bring you something useful this week. You are about to hear a wide ranging and fascinating discussion. Between myself and Mr. James Mackintosh, James has been with the financial times for over 20 years. 

[00:00:29] Until 2016, where he is now writing almost. On a daily basis for the wall street journal, many of you would be familiar with his work. So it’s really great to have him on the show. It’s a great privilege to to experience his insight, his depth of analysis. And, as we discuss things, you’ll notice his background is so broad the philosophical insight that he brings to some of what’s happening. It’s a really great conversation. So I do hope you enjoy it. 

[00:00:55] He’s going to share with us his insights on the current. Inflation outlook. And we’re gonna talk about global macro. I’m going to talk about crypto and just about everything in between. So I really do hope you get a lot out of this. Please make sure you’ve subscribed. Hit that subscribe button. And of course, 

[00:01:12] I’d love you to take these links wherever you’re hearing it posted on your social media feeds, share it on Twitter. The more people we can have listening into these kinds of conversations. I think it’s just a great thing so that’s it from me sit back relax enjoy this discussion with mr james Mackintosh from the wall street , 

[00:01:28] Jonathan Doyle: [00:01:28] Mr. James Mackintosh, formerly at the financial times now, currently with the wall street journal. Welcome aboard to the supply side podcast. And thank you for joining us. 

[00:01:38] James Mackintosh: [00:01:38] Hi, glad to be here.

[00:01:39] Jonathan Doyle: [00:01:39] Yeah, it’s great to have you. Thank you for making time. For us, as London gets underway for another day, we were just talking off air about a little bit about your backstory.

[00:01:47] And I made the point that economics is an inexact science. You made the point that it’s not really a science. Take us back into that. What a tech is and a bit of your journey in, and what made you say that? 

[00:02:00] James Mackintosh: [00:02:00] So I started economics I did some economics at school, of course, but then I went to university and did a year of economics and ditched it because of the basically, because for me it was D it was low grade maths. I enjoy maths. I’m good at maths. I would actually have preferred to have done a master degree, I think.

[00:02:18]But the economics took this false premise of the rational expectations and then built on it, this huge edifice of stuff that isn’t true using some maths. And I realize now that once you get through the low grade model and you actually get to them, the interesting stuff of discussing the premises and working out.

[00:02:37] You know what actually goes on that at higher levels, economics is very interesting, but I ditched it for psychology at after my first year at university. And I think that was probably more useful for studying markets than most economics is. And the, obviously I’ve come back to economic sense.

[00:02:55]And the interesting bits of economics, which are fascinating, but for me, most economics is really political economy. Not all of it. There are some bits that that are more than that, but most economics is political economy.

[00:03:07] Jonathan Doyle: [00:03:07] So when you say the most interesting bits in your journey So far, which has been quite extensive, what most interest you about this broad space of economics and political economy?

[00:03:18] James Mackintosh: [00:03:18] So I come at it from the side, the point of view of markets, which I think are very interesting because of course you get expressed in markets is the combination of the, money-making, money-making desires of the investors, but also their expectations of what is. Happening in the economy and in many different aspects of the economy.

[00:03:39]They obviously have different preferences to policy makers who don’t particularly care about profits. But they they have an awful lot of very interesting views. Many of which are often horribly wrong. But which themselves are a large part of what happens in the economy, because of course it’s all endogenous the markets influence the policymakers and the policymakers influence the markets.

[00:04:02]So you get this unpredictability, which is fascinating cause you can’t just make a simple bottle that works. History rhymes, but it doesn’t perfectly repeat itself. You can’t no, no two events are identical. And you can never quite tell how investors will react or how policymakers and politicians will react and all these things feed back into each other.

[00:04:23]And that’s what makes that’s what makes an economy for me. And it’s different to what you’ll read in an economics textbook.

[00:04:30] Jonathan Doyle: [00:04:30] Oh, no, I see a couple of things. That’s so interesting. I’ve recently been reading George Gilda’s knowledge and power and this information theory of capitalism where, you have these. Almost unquantifiable number of signals and inputs being sent between vast numbers of actors. And somehow, not exactly Smith’s invisible hand but somehow this stuff coordinates.

[00:04:50] And I remember being in New York with my kids a couple of years ago, and we’re on a upper east side and going into a supermarket there and seeing the vast amount of stuff like even compared to Australia, I was just like, and then reading Gilda’s theory, it’s somehow this supply chain, all of this stuff coordinates for all this stuff to be available.

[00:05:12] But what I’m. going to ask you is just what you were just talking about. Markets were no doubt, never simple necessarily at any point in human history, but in this current historical sort of middle year, are we dealing with a level of complexity? That’s just truly a pocket. Is it fundamentally different?

[00:05:30] The level of complexity we see now,

[00:05:33] James Mackintosh: [00:05:33] I’m. I think one has to think of the complexity and also think of the ability to manage the complexity. And always the complexity runs ahead of our ability to manage it. But at a time when the supply Britain’s supply of food, for example, arrived by steam ship from Australia and South Africa and the Caribbean and all sorts of other places, the supply chains were intensely complex and it’s not flair to me that our ability to manage those supply chains was any, that the gap between the ability to manage and the complexity of the supply chains was any different than to now.

[00:06:09] Now I don’t know how exactly one would measure that. I don’t think you can. I don’t think there’s a sensible mathematical way of measuring that. Clearly things are more complex. Now. Our supply chains are more complex even than in the last big era of globalization before the first world war. But our ability to manage them is also way, way higher.

[00:06:27] I There were back then everything was pen and paper and giant. Big red fat, red alleges. Nowadays it’s all much of it is done automatically. Clearly our ability to manage the complexity is also far higher. Now I still think the complexity runs while ahead of our ability to manage it.

[00:06:41]As you see when crises happen, most recently Suez, but more generally the failure to prepare and we’ll come onto this, I’m sure, but the failure to prepare inventories for the fast recovery in the economy. And so the shortages that we’re seeing everywhere the complexity is hitting and we’re seeing the complexity head and it’s running ahead of our ability to manage it, but it’s not running so much further ahead of our ability to manage it.

[00:07:04] Then when clipper ships fail to arrive in the middle of the 19th century. So I’m not totally convinced that it is the sheer complexity on its own. That matters. I think that it’s the gap between the two things. That’s what matters. And I don’t think that’s necessarily so much greater.

[00:07:20]And that in the crises. The amazing thing, and I was all prepared in March last year. My big worry in March last year was that the food supply chain was going to clams and amazingly, I could still buy everything. I could buy fresh beans, float, flown in and pre chopped in Kenya, and they were still available.

[00:07:40] It was like, I had no idea how this works. I don’t know. I, I’m no expert on food, supply chains. Everything continued to be available. The only shortage was Marmite, which did really bother me. But other than that,

[00:07:52] Jonathan Doyle: [00:07:52] I think most of the planet probably survived. The absence of mom might my gosh. Do you remember  did you ever have Belleville as a kid in the UK? 

[00:08:00]James Mackintosh: [00:08:00] That’s the sort of the beef version I found with right.

[00:08:04] Jonathan Doyle: [00:08:04] Yeah, I think they served that in Guantanamo bay twice a day. Just on that complexity question I would assume that there’s now many more actors in markets than may have been the case once in history. I don’t know if that changes the complexity, but the change in financial instruments, right?

[00:08:20]The derivatives, is that relatively new? Is that adding another layer, or do you think people have always had markets have always had that level of complexity? 

[00:08:30] James Mackintosh: [00:08:30] so my favorite example of derivatives in history now there’ve been two relatives ever since there’ve been markets pretty much. Not formally, I think the first ones were Japanese rice futures or something. But don’t hold me to that. This is from a vague memory of reading some financial history a long time ago, but my favorite example of of derivatives in markets is the British lottery bonds.

[00:08:51] So the British government used to finance itself with bonds that paid a coupon. Only depending on the outcome of a draw. So that draw a number and an amps that bonds with this number would pay or would pay a coupon this month. And obviously the coupon was higher. And that, that was a fabulous financing method because like a lottery people overpay for the chance of winning as you’ll deal overlap of psychology and markets instantly, but the The investors and London’s investors at that point, you’d think this is the 17th, 18th centuries where we’re pretty basic really.

[00:09:25]The stock exchange was still just getting going. And yet at that point they had derivatives and insurance policies on these lottery numbers. So you could buy an insurance policy against your number, not coming up and you could buy derivatives on they, they banned them fairly quickly, but you could buy to relatives linked to the numbers with an active options market going.

[00:09:48]There was strips. The whole thing was there. Everything that we’ve looked at now was there. Now they didn’t have that in a Bitcoin futures. Doge coin, the futures that, getting a bit thought, but none of that, they the. Speed with which these derivatives markets were set up back then was, not very different to today.

[00:10:07]So you know the basic building blocks, I think of market, you would recognize at least for a couple of hundred years as being fairly similar. Now, the speed of the, of course was much slower. You didn’t have nanosecond treads, you didn’t even have one second trade and, leverage was a implied leverage.

[00:10:24] One of the great trades of the time right up until I think the eighties in Britain was that you had either bi-weekly or monthly settlement. So you obviously had free borrow for a month because you buy it with nothing down and you own, you don’t have to pay for a month. There were things like that were available at all available map.


[00:10:44] The buy side.

[00:10:45] Jonathan Doyle: [00:10:45] it was funny as you say that as I was preparing to come into shady, I was looking on the shelf here and Can’t see where it is, but there was one of the first books I read maybe 10 years ago. It was about, some of the big traders building their own fiber optic networks across the entire continental USA.

[00:11:00] And I was like, when I was reading it, I was looking around thinking of people, thinking I’m going to be some kind of crazy conspiracy theorist, but it was like extraordinary to realize that those, nanosecond trades were becoming a reality. And and just on that, I want to get onto your recent articles, but how algos changing this?

[00:11:16]I’ve heard numbers as high as sort of 80% of trades are now algorithm based. So surely the algorithm trading has got to be a historical sort of biggest article change. 

[00:11:29] James Mackintosh: [00:11:29] Yeah, the answer is that we don’t really know. There are large numbers of people who will immediately, whenever anything bad happens, say, see, it was the algos. And it is quite clear that sometimes, some things very bad can happen because of badly designed algorithms. We’ve seen various times when that’s been explicitly identified that someone hurts put in there, their trading plan into an algorithm and called it wrong and it’s had an influence on the markets.

[00:11:56]And of course not two 97 is not exactly algorithms, new financial products gone wrong, massively accentuated the crash. If you’re if you’re a traditional market maker who used to sit there answering the phone and taking both sides of traits for people you’re not quite anti-business, but out of business broadly there’s not a lot left for you because the algorithms are replaced the market makers.

[00:12:17]There are lots of people out there on the plus side who are not algorithmic traders, but who think that it’s great. Cause it’s made markets much more efficiently. The spreads have narrowed to the trading is easier. Liquidity is better, but just like any other form of market making when things are bad, You can’t get, you can’t get a trade.

[00:12:37] so the guys turn off it just the same way as in 1987, if you were trying to sell as the market crashed you, you couldn’t get market maker on the phone. And that’s, that is how it works. Of course will. No one wants to be the market maker who bought in the middle of a crash and lost that bank shirt for them.

[00:12:56] Jonathan Doyle: [00:12:56] no, I think I had it when I started to really study this stuff, I had a. A good look at the Al guys. And I remember talking to my wife and I said, I said, I’m good at a lot of things. But when I look at the equity markets and algorithmic trading, I just said, I just am not. I just don’t back myself to to feel confident in that space at this particular moment history, hence my sorta, love for other forms of investment.

[00:13:18] But it’s interesting listening to you. I watched an interview with Kiril Sokoloff and Druckenmiller the other day, and Sokolof’s kind of going, so do you run any algorithmic trading at the family office and he’s like maybe a sort of alluding to the fact that it’s even for the ones that we, even for the buffets and the  definitely got toes in the water on that kind of stuff.

[00:13:38] Understandably. I want to talk about some of your recent writing. I came across this through Christopher Damuth at the Hudson Institute. You’re writing on inflation. You’ve been writing a great deal in the last in recent time. And I also read your stuff on Bitcoin today, and I liked the part about about the ability to lose wallet addresses and that sort of stuff.

[00:13:57] I my wife and I had an interesting journey a few weeks back where I bought a bunch of light coin. And managed cause I use an, I use a cold storage wallets and I managed to send my light coin to a Bitcoin wallet by accident 

[00:14:10] James Mackintosh: [00:14:10] okay.

[00:14:11] Jonathan Doyle: [00:14:11] and then spent four weeks with a whole bunch of experts slowly trying to get this back and sitting up at night realizing, how do I break this?

[00:14:19]The Karen, is it like, Hey, do you like surprises? Do you like, so basically we got it back. It took a lot of work, but when I read your stuff that I said, yep, that is a reality that this I don’t want in your article. I think it was w what percentage of Bitcoin is. 

[00:14:31] James Mackintosh: [00:14:31] there are estimates. There are estimates out there and I’ve no way of, as I haven’t done any work to try and assess these estimates, but from people who spend their lives analyzing this stuff reckoned that as much as 20% of Bitcoin has been as, but of course, there’s no way to be sure, because a lot of this stuff is, there’s been no moves in the wallets, for five years, but it could be that it could be that it’s just, someone’s sitting on it.

[00:14:56]The ultimate hotline but a lot of it, but they, at the very least a lot has been lost. And of course, if you think about it, theoretically in the long run, when they hit the 20 million, 21 million cap, eventually all be loss. 

[00:15:09] Jonathan Doyle: [00:15:09] Yeah. 

[00:15:10] James Mackintosh: [00:15:10] So one is someone who owns the last remaining Bitcoin because all the rest is lost and no one has the keys for it.

[00:15:16] Jonathan Doyle: [00:15:16] Yeah. 

[00:15:18] James Mackintosh: [00:15:18] Did.

[00:15:20] Jonathan Doyle: [00:15:20] It’s I paid a shift, talks about whales, right? The idea that there’s five to 10. Macaroni has a Bitcoin. And cause I just, I think I mentioned the, I did I did the crypto economics program at Oxford and and you write about this well, and it’s not the focus of our discussion today, but there that the blockchain technology behind Bitcoin’s already been superseded by much more effective, cryptos.

[00:15:41] So it’s interesting to see how it pans out. And I think also I cannot see how central banks let it win. I just can’t see how that happens. Cause if it does the whole idea of nation states and sovereign governments implodes, 

[00:15:56] James Mackintosh: [00:15:56] yes. I, I can’t see how it wins in that sense because unless you believe that nation states will stop taxing then you’re going to continue to have other currencies. Now at the moment, there’s a small advantage for certain things that it is genuinely hard to do certain types of instant transactions, particularly in dollars because the dollar settlement system is atrocious.

[00:16:20] So if you’re a retail man, if you’re a retail customer and which will have the Australian system, it is, but in the UK retail bank customer, if I want to pay another UK, another person in the UK, I can do it instantly. And the money’s there straight away. So in the UK, the, there is no advantage to using crypto for.

[00:16:39] Personal payments. I was also free as the bank so cut the cost. There’s really no sort of payment system advantage there. For certain cross border transactions where it can be very expensive. You can just about make a case for crypto. And for certain speed transactions in countries with very backwards settlement systems, like the U S you can just about make a case for crypto, but most of the time, most crypto payments are more expensive and slower than using fear currencies.

[00:17:06] And there’s a good reason for that, right? Which is that the blockchain is a distributed database and the distributed database is always going to be slower than a centralized database. there’s a, there are, there are things that the Fiat’s system needs to fix in the U S is now working very rapidly on a rapid payment system.

[00:17:25]For domestic payments in the U S which I think will fix some of the problems. But mostly almost no crypto is used for actual payments except for things that are illegal. There’s a good reason to use it for things that are illegal. And within the illegal bucket, I would include, transferring money through capital controls in in Venezuela or in China, or, wherever to get money out.

[00:17:48]But broadly speaking, it’s not used as money. It’s used, I think the way that you’re implying with your last light coin which is it’s an investment, right? You plan one day to sell it 

[00:17:57] Jonathan Doyle: [00:17:57] that’s a hedge. Yeah. 

[00:17:58] James Mackintosh: [00:17:58] in order for that to happen. You’ve got to find a sucker willing to pay more for the bull for it.

[00:18:02] Of course, 

[00:18:03] Jonathan Doyle: [00:18:03] This is the Peter Schiff mantra. It’s like the tulip thing. It’s just, you’ve just got to find one more person stupider than you. That’s just, that’s all you need. It’s funny listening to you. Cause I I I bought something in the us. I bought a beautiful pen knife.

[00:18:17]That I as a, as an anniversary present for myself and a friend of mine, it was 20 year wedding anniversary prisoners. Karen’s what do you want? And I say, leave it to me. I’ll take care of it. But I bought this beautiful, a beautiful pin knife, and I couldn’t get it into the country. Eventually a friend of mine in Washington bought it for me and sent it over and I’m just trying to pay her back.

[00:18:37] I’m trying to put money in her account. I don’t use PayPal because I don’t like their privacy stuff. And I’m like it’s still really hard to actually just send money to someone it’s surprising how for such a technocratic culture that we still struggle to to make our payment rails a bit more lubricated, 

[00:18:52] James Mackintosh: [00:18:52] yeah, it’s the cross border stuff. That’s the problem because of bank tobacco, and also because, banks charge fees, where they can write, and one of the places they can charge the fees and do charge the fees is on international transfers. If you shop around, certainly in countries that have a lot of international transfers, like the U S and the UK, there are very cheap ways of doing it.

[00:19:12]As private sector, things have stepped in to fix it. And there are also some that are remarkably cheap, but broadly speaking, sending a small payment to someone who’s hard and expensive, but sending us full payment via Bitcoin is also on the expense.

[00:19:27] Jonathan Doyle: [00:19:27] I’ve started Googling carrier pigeon long distance carrier pigeon. So I wanted to talk to you about this great article on my fifth. Cause I, people listening and Jonathan stopped talking about your anniversary, present and talk about James, his articles. You wrote a brilliant article on may the fifth with the very unambiguous title, everything screams inflation, and you’ve got five great points in this.

[00:19:50]I want to work through those with you and but I want to take you to the opening statement, which was great. The opening sentence, unambiguous, ambiguous. We could be at. A generational turning point for finance, then you continue politics, economics, international relations, demography, and labor are all shifting to supporting inflation.

[00:20:10] That’s your opening statement and you say the last 40 years of monetary and fiscal policy have been trying to suppress inflation. Tell us what as the big fundamental shifts. 

[00:20:20]James Mackintosh: [00:20:20] The first one, the biggest thing which is behind and all of it is this shift in thinking about political economy that I see, which I think feeds into quite a few of those factors, not all of them, but quite a few of those factors. And that is that after 2009, there was a broad global consensus that what we needed was austerity.

[00:20:39]Governments were far too indebted and we had to do something about it. What we’ve seen this time is that there’s a not quite perfect, but a pretty broad consensus across an awful lot of places that what we need is to spend more money in order to solve a variety of problems that you can take off.

[00:20:58] But primarily among which are issues around Different things in different countries, but in the us inequality in the UK, they call it leveling up regional inequality. In Europe they’re worried about falling behind on all sorts of things that the, they feel that the government needs to spend more money on.

[00:21:18] Now, one might express some skepticism, but they’re going to catch up with the U S on tech by having the French government spend money on tech. But, even though, and so you’ve got this shift that more government spending is now politically acceptable in a way that it wasn’t. So that’s the sort of big shift behind it.

[00:21:35]There’s then a month, 

[00:21:36]Jonathan Doyle: [00:21:36] What do you think at the very basis of that? Cause it, it’d be easy to say it’s some sort of cultural Marxism but what do you think is at the core of that impulse? Do you, 

[00:21:44]James Mackintosh: [00:21:44] think that the failure of last time, I think that people saw the outcome of the austerity in 2010 on what it’s didn’t work. So I think there’s a, a broad feeling against that’s been harnessed by some it’s pushed pop politicians on left and right towards more spending, more debt combined with that is.

[00:22:06] Know, incredibly low interest rates. The failure of, so there’s the second aspect of the political changes, the approach to monetary policy which is that there’s a new theory at that, which is MMT. It’s not really new, but it’s not really a theory but nonetheless it’s seeped into political culture.

[00:22:26] Now, most people, the fast bulk of people are not full-blown MMT is, but there is a deep truth in MMT about how money works. And whilst I disagree with them on that conclusion, I think they’re right about how money works and the result of it is that. Pretty much. Now everyone accepts that the U S is not turning into Venezuela that the us is us.

[00:22:50] Government can spend whatever it wants and it doesn’t make any difference. And they’ve got evidence of that. They’ve also got evidence that QE does not cause runaway inflation because, you think back to 2010 and the letters to the wall street journal by a prominent economists fund managers at the time, warning of the danger of runaway inflation, because of QE, the fed doubled down at the QE two QE infinity, it’s still well during QE.

[00:23:15] And, where’s the inflation, right? Okay, now we are starting to see some inflation, but that’s not exactly because of maybe, should we say and there’s a whole bunch of changes jeez. In mindset that go with that, which is that anyone who says we can’t do this because we can’t afford it has, is going to find that argument hard to press.

[00:23:34] Jonathan Doyle: [00:23:34] So let me, this is my brain is exploding. As you’re speaking, I’m thinking of I’m thinking of George Washington’s. I think it was Washington. I said this in the last interview that, the founding fathers had this idea that no generation should incur debts, that it can not pay off in its own lifetime.

[00:23:49] So when I listened to you and you’ve got some background in psychology, is it simply that profligate spending dare I say, the word is easier to sell in political economy than I stare at you. Like I listen to you and I think in your own household, you don’t, for extensive periods of time, spend more than you make.

[00:24:09] So how does it. Not work at the micro level of human households, but it work can work at the macro level of nations and governments. How do we resolve that.

[00:24:21] James Mackintosh: [00:24:21] well nations, aren’t like nation national finances and not like household finances. So there’s a big difference there. No not that so much, but but you can’t have to all the parts of an economy have to balance. So a nation can’t as a whole safe in aggregate, except in as much as another nation in aggregate spends in the same way.

[00:24:44] As if you say, if every household. When next savers and no one was a borrower. You remember the flip side of your savings is someone else’s borrowing. So if everyone is a saver and no one is a borrower, you’ve got a real problem. And what happens is stressful and that’s in our era. So what you need is you need to encourage someone to be a borrower.

[00:25:04] It doesn’t make, the old Maxim have neither a borrower nor a lender be is fine, right? If no, one’s a lender and you, no one has any savings and no, one’s a borrower. That’s absolutely fine. That can work. But you’re in the stone age, if you’re in that scenario, you’ve got to have a financial system, has to have lenders and borrowers and in a nation state level, they all have to balance out and.

[00:25:24]Ducks, the that’s one of the sort of coal maxims, those behind MMT. But if companies, if you think of the economy divided up into its parts, just take it as two parts there. Very simply as the private sector and the public sector, if the private sector and net savers, the public sector has to be net borrowers, otherwise it doesn’t balance that you’ve obviously got, you can bring in foreign foreigners as well into that.

[00:25:48]But overall for the world as a whole, it has to balance. There is a, there, it doesn’t make sense just to say governments shouldn’t borrow or something like that. And there are clearly limits to borrowing but no one knows where they are. And at the moment, at least the cost of borrowing.

[00:26:05] So the interest costs that governments are spending for developed economies at the moment is lower than it was. So they’re spending less to service this debt, right? It’s costing you as a taxpayer, less with Australia obviously has very low debt to GDP, but in the U S now with debt to GDP at a hundred percent, the is cheaper to finance that than it was when they had debt to GDP at 80%.

[00:26:27]There’s a issue that as a, again, as a household, if you were to apply a household analogy and I really don’t think one should, but if you did, you’d say hang on. Interest rates have fallen. I can afford to borrow more. You could apply that in some governments are explicitly doing that.

[00:26:44] So the UK government has now accepted that as an argument. Now, I think that wrong. I don’t think that should make any difference. I think that they need to look at it as parts of the economy balancing. But nonetheless, that is their argument. And politically it’s a very easy argument to make because of the household parallel.

[00:27:01]If money’s free, why wouldn’t you borrow it?

[00:27:05] Jonathan Doyle: [00:27:05] I’ve got a, I’ve got plenty of friends doing just that right now. You’ve got you’ve got five great points here. We’ll spin through them really quickly. And then we might just unpack them a little bit. Number one, central banks, less concerned about inflation in general. We’ve now obviously got the average targets rather than the direct targets.

[00:27:22]Second point was the shift to massive deaths deficits. And you’ve spoken to that a little bit about the lessons of austerity being resisted globalization out of fashion. Now, when I read that is the impact on the inflation. Is that to do with tariffs, is that with globalization, economy shifting to a more domestic focus that it’s tariff and trade barriers that are gonna drive inflation. 

[00:27:43] James Mackintosh: [00:27:43] no, it’s more, in the short run that does happen of course, but in, but that tends to be deflationary just as taxes are. Cause tariffs are taxes, but in the long term it means less competition. So in the same way as if you think back to the, if you think back to the the olden days, what was it?

[00:28:01] Holden was the Ozzie. Yeah, much, much regretted loss of a brand. But 

[00:28:07] Jonathan Doyle: [00:28:07] silence. 

[00:28:08] James Mackintosh: [00:28:08] but if you go back far enough, there was a point where that was pretty much all you could get. Now you can buy 20 different makes of car, right? And you take that, that obviously is more competition.

[00:28:20] So that just keeps prices down. So the maker of the Nissan conscious Jack up its prices by a thousand bucks a car, because it will sell well, because if they do that. But if Nissan is the only brand available, of course I can Jack up their prices by a thousand dollars a car. The more you have tariffs, the less competition you have, because it’s harder for more of those.

[00:28:44]Reclose company, and that applies all the way down the supply chain. And it’s not really that I expect actually many of the car brands to pull out. It’s more that throughout the supply chain, you get these blockages, which push up prices all the way through. So you’re seeing it already with the sort of pull, pull lamps with China, but lots of companies are doing because of the politics.

[00:29:04] There is not, it’s not purely tariffs here. It’s a whole bunch of things.

[00:29:08] Jonathan Doyle: [00:29:08] Okay. Number four, which is something I’ve been fascinated with for at least a decade around demographics, you make the point that China has peaked let alone the imbalance. I think it’s for every hundred thousand females, there’s 130,000 males born. so they’ve got my understanding is that China’s not only got demographic problems.

[00:29:27] It’s got a lot of social cohesion problems in terms of the differences in gender birth rates, plus relative poverty gaps between coastal regions in the interior. And then you also said that U S is at its lowest population growth since the 1930s. So tell us what your take is on the global demographic implications for for in flight.

[00:29:48] James Mackintosh: [00:29:48] so in a sense it’s similar to the supply chain issues. So if you just think of it as that, one of the, one of perhaps the major contributor to long running inflation is wage inflation. And if you have, if you, if I come along and there’s a hundred workers and I add another 10 workers, what do you think that does to wage inflation?

[00:30:10]All else equal. That means less inflation, right? There’s more supply and the same demand out of as yet, all else is not equal. But when you came up, when China came along in 1989, 79 onwards and then later joined the WTO 2000 that added a huge pool of new workers. That’s a massive disinflationary impulse to the whole world.

[00:30:34]And it wasn’t balanced by China consuming a lot more now, as the China consumption has gone up, in Australia, all about that’s right and ship almost everywhere. There were trade battles recently shipped virtually everything. But the balance in China is that they have a huge export surplus.

[00:30:49]The impact on the world is hugely dis-inflationary of adding this massive pool of relatively well-educated, relatively cheap workers. And that coincided with our political pressure on labor unions around the world. So trade unions were under huge pressure. They’ve not quite disappeared, but collapsed almost everywhere.

[00:31:14] And obviously, again, that means less ability to push for wage rises and more competition because you’re competing with everyone else you work with, for a pay rise rather than all getting together and saying to the company, we want a pay rise. So yeah. Globalization is a large, is part of this.

[00:31:32] Demographics is part of this. Politics is part of this. That again, Biden is now pushing in the U S for more unionization unions in lots of places. Think they’ve got a chance to come back here. They’re pushing again. There’s pressure on the, if you think about the most extreme end of this, it’s the gig economy are, you’re literally competing online for the work against everyone else in the gig economy, right?

[00:31:57]You, if you’ve ever done this, you can log into one of these sites, register for it, log into one of these sites and try and get work. And you aren’t literally competing with people. Depending on what the work is, obviously as delivery drivers, not competing with someone in India, but for the buy online software stuff, you can be competing with sitting in Mumbai, and saying can I get this work?

[00:32:17]What’s the price for the global price for that work is going to be set by the person who’s willing to do it for the least money as long as they’re high quality. So all of that feeds together into competition and demographics just naturally takes some of that away, removes that pressure. So again, it’s it’s we have this big disinflationary impulse, and that’s no switching towards being an inflationary, impulse demographics doesn’t change overnight.

[00:32:42] Jonathan Doyle: [00:32:42] Yeah. 

[00:32:43] James Mackintosh: [00:32:43] but nonetheless that’s the direction of travel is shifting.

[00:32:46]Jonathan Doyle: [00:32:46] Let me ask you on the demographics. So unfunded forward commitments for the U S government, in terms of Medicare, Medicaid, pensions, I’ve heard figures up to 130 trillion or something mind-boggling similar here in Australia and you and I both have young children and that can keep us awake at night.

[00:33:07] So how does that play out in 20, 30 years time when you have a shrinking labor force globally and vast Ford commitments? How does that play out? 

[00:33:21] James Mackintosh: [00:33:21] whereas lots of ways it can play out. But for one model, look at the UK. So the UK had these vast pension commitments just defaulted on them. So you used to be able to retire at 60, as a woman in Britain, and now you can retire at 67 as a woman in Britain. So now, because the government doesn’t have a contract or PR it just has a promise.

[00:33:43]You pay the same. In fact, you pay more for your pension, but you get to retire seven years later. And I, I don’t think there’s one, can’t be absolutely sure it could be solved by much higher taxes, of course. But I think in the U S it’s much more likely to be solved by various forms of default.

[00:33:59] That could be quite messy. Particularly if they let if you look at how these things are applied, so Medicare, Medicaid, they’re relatively easy. They’re promises. So they’re written into the law, but they’re easy to change. They’re not contractually liable here. But state pensions are a real problem.

[00:34:15] City pensions are a real problem. Also to see some of that already. You’ve had the occasional bankruptcy where they’re reorganized. A lot of this stuff will have to be fixed by bankruptcy and reorganization all by national action. And I think certainly for the states as much more likely to be fixed by national action felt some federal dollars and L’s the more divides them up in some way.

[00:34:38]But I think a lot of the people who think they’ve got a pension worth, really quite a lot in many cases will find that it isn’t. And politically that’s going to be difficult. Should we say, which is why they keep putting the problem off because nothing ever wants to deal with it.

[00:34:54] Jonathan Doyle: [00:34:54] I just, yeah. And on that, D do you think there’s an inherent floor in our current political economy where, political terms are four to eight years here in Australia and a member Peter Schiff has that great quote, where he says, you don’t go into politics to make money. You go into politics to make money after politics.

[00:35:10] So is it too cynical to say that a significant percentage of our political elite are making decisions that they literally won’t be around for the implications of them? Is that too cynical?

[00:35:27]James Mackintosh: [00:35:27] It’s hard to know how many, I think, a very large number of politicians clearly go into it because they want to do something, they don’t start, they’ve been, they started at school with, are interested in politics. It didn’t start there because they wanted to make money or they would have been investment bankers.

[00:35:41]This was not their primary motivation for most of these people now. Not all of them, some of them are clearly very highly motivated by the money. But I think A large number of politicians and certainly a large number of politicians I’ve met. They didn’t go into it primarily to make money. And I think you’d be foolish to go into there primarily to make money because it’s far more money, far more easily at a much younger age by becoming an investment banker and retiring at 40.

[00:36:06]It’s that’s really what your motivation was. You would have done that. You wouldn’t go into politics. That’s not the same as saying any motivation to make money. And clearly they, there’s a strong tendency to feather, a net sippy look at, even mild things like like the parliamentary pension scheme or the Senate health care scheme or whatever, then they didn’t punished themselves.

[00:36:26] Should we say. And but yeah, so I don’t think, I don’t think that’s primarily the problem. And on top of that, you go back to the hackneyed old Churchill quote of, democracy is the worst political system there is after all the other ones. And what else are you going to do is the problem.

[00:36:40]You’re going to give people 30 year terms. You could do, but I’m pretty confident that wouldn’t lead to better government. You might get, the best form of government clearly is a benign dictatorship. The problem is that no one’s ever managed to have a benign dictatorship that stayed benign.

[00:36:57]And that’s why we have democracy for all that’s false. So it may be that’s an explanation, but I don’t think it’s a solvable problem, what your, and we can fit bits of it around the edges. You put pressure on politicians who do take money, making gigs on the side or afterwards, there’s, they’re generally FRAND on there.

[00:37:18]They’re limited, they, we can we can ban things, restrict things. And obviously things, I would say it’s a lot better now than it was. So there’s a lot of high profile politicians in, former politicians who’ve made a lot of money. In Britain, just look at Tony Blair, but, you can also look back and say hang on. They used to take straightforward bribes while in office. no, it wasn’t no one batted an eyelid. That was how business was done. You get back to the side C company and half the path of house of commons was on the board, and these are, this is normal, stuff is a lot better than it was, the U S go back to the, the glory days of American kind of wild west capitalism in the late 19th century.

[00:37:59] And, every major stock market stock market player had senators in their pocket. This was done. And so you got to be a, you I think you’ll write that one can criticize the system, but I think you also have to have improvements. And I think there’s still plenty of scope for improvement, but I don’t really think of benign dictatorship as the answer

[00:38:21] Jonathan Doyle: [00:38:21] Brilliant. And I think you’ve captured that you’ve expressed that really well. I having, as I said to you, having coming into this whole space quite late in life, that the polemics are extraordinary as you’d know, there’s there’s plenty of YouTube channels and podcasts where everybody, rants about the fed, but it occurs to me.

[00:38:36] It’s if you were in their position, what would you be doing differently? I think you’re like a great point. We have to, I think it would be good to have some valid solutions before we criticize too much. But the other thing that’s interesting too is I’ve said this in recent interviews is there was a long form interview with Jordan Peterson and a guy professor.

[00:38:55] Tooney T U N Y who’s with an organization called human progress.org. And they’ve got over 2000 data sets on the website of the improvement in the world in general, like everything from sanitation to infant mortality, to, people moving out of absolute poverty. So I find fascinating that as much as the world’s in this, is that what it is? 

[00:39:21] James Mackintosh: [00:39:21] yeah, factful this Hans Rosling 

[00:39:23] Jonathan Doyle: [00:39:23] There you go. Yeah. 

[00:39:24]James Mackintosh: [00:39:24] Yeah, so the subtitle on this is 10 reasons were wrong about the world and why things are better than you think. So yeah, there’s a lot of stuff is a lot better than it was 

[00:39:31] Jonathan Doyle: [00:39:31] yeah, we’ve been, homosapiens for 350 plus thousand years, and we only got flushing toilets in the last kind of, a hundred or so, so there’s definitely a lot to be appreciative for. So other stuff here in the article when you’re talking about central banks you made an interesting point that one of the other leavers that the fed is trying to pull is soaking up excess labor.

[00:39:53]But then you also made the point that if they tighten policy, that it’s often going to be a lot of the marginal sort of aspects of the labor force. So people who were put in very low paid jobs are the first to go. It made me think about this question of how many tools does the fed really have left.

[00:40:10] So w we’ll get onto the other stuff in a second, but if inflation starts to really move and we’ve seen that change in the last week what are the leavers left? 

[00:40:23] James Mackintosh: [00:40:23] Do you mean what can the fed do to stop inflation? 

[00:40:25]Jonathan Doyle: [00:40:25] Yeah. 

[00:40:26] James Mackintosh: [00:40:26] I think it’s very easy. It’s very easy. If the fed wants to stop inflation with this Jack up interest rates, they know they can do this right. And that’s one of the things of course that gives them some confidence here. So I didn’t mention it earlier.

[00:40:37] But part of the issue for central banks is they spent 10 years being wrong about inflation. So he spent some years expecting inflation to pick up and it really didn’t, it didn’t, they constantly undershot their forecast. And as a result of which, then I’m saying we’ve got to let it run.

[00:40:54] We’ve got to, instead of forecasting, that inflation will go up and acting on that basis. We’ve got to wait for the inflation because we’re constantly wrong in our forecasts. We always expect more inflation than there is. So we’ve got to let that influxion appear before we do anything. Because apart from anything else, so central banks, no, they can deal with high inflation.

[00:41:15] They’ve dealt with Anthony times for, they know how to stop high inflation. It hurts the economy, but they can do it. And they, but I don’t really know how to stop low inflation. And they all look askance at Japan’s like, how do we don’t want to be there right there. They know that if they get stuck in a mine in, if the population has a mindset of low inflation or negative or deflation, that they can get stuck there.

[00:41:42] And there’s just nothing they can do as a trend. And they don’t want to be there. And as a result of which they’re desperate to get inflation up and they have been proven wrong for so long that mindset’s name changed. And they’ve said we will wait and maybe it’s better to just let it overshoot the beds.

[00:41:59]And then the politics of it then comes in and I know the central banks are supposed to be independent, but they’re. First of all, they’re just a lot less independent than they were because they’d been working hand in glove with government because of hitting a level band and the tools that they’ve been using require them to work with the government.

[00:42:17]But also they have always been hired as sensitive to politics. It’s part of what they do is just to what they do is too important. And it’s that, it’s, it is the reason I mentioned the minorities is the fed in particular, the fed has been talking a lot about running the economy, halt helps the as you put it marginalized workers, but specifically we’re talking about minorities in the states and getting those people into jobs is obviously an important thing to do, but.

[00:42:49] My view is that having been public about that and emphasized it and emphasize that’s one of the reasons to run the economy, hold, if you then say we’ve got to slow the economy. Now, when you start raising rates, those are the people that get hit first. That’s politically, it doesn’t go because you’re saying what we’re going to throw out work as black people.

[00:43:07] That’s a small, that’s not a good political message to be sending. Even if you’re saying we’ve run the economy hot. So we’ve helped, 500,000 black people into jobs. If that was, they’re not as explicit as that. Of course they wouldn’t say that, but nonetheless, that’s what’s going on.

[00:43:21] And everyone knows that as what’s going on, I think that adds an extra barrier to raising rates above what they normally have because normally they shrug their shoulders and say it’s nothing to do with ALS. We’re starting with some inflation. And what happens in the jobs market is a consequence.

[00:43:37] No, our primary goal. And now it’s, there is that primary goal.

[00:43:42] Jonathan Doyle: [00:43:42] The federal reserve act changed in relatively recent history. Didn’t it to include maximization of labor participation, right? 

[00:43:50] James Mackintosh: [00:43:50] Yeah, full employment 

[00:43:52] Jonathan Doyle: [00:43:52] Full employment. 

[00:43:53] James Mackintosh: [00:43:53] And we sat down just honors everyone, having a job. Of course,

[00:43:56] Jonathan Doyle: [00:43:56] okay. So help me with my simplistic understanding that if the fed was the tightened policy and interest rates shifted north, we have bubbles everywhere.

[00:44:07]Like how does that not pop these bubbles? Like in, in equity markets, in real estate, like here in Australia, like having lived through COVID like, as I said to you, before it wiped our business out completely the global fundamentals just seem, yeah, everything seems quite unusual. How does a tightening of monetary policy not burst those bubbles? 

[00:44:30] James Mackintosh: [00:44:30] Well, a tightening of monetary policy clearly hurts some things. The question is, does it suddenly snap? Does it break things or does it smoothly suppress them? So take Australia to house prices, go down by a fixed amount for every 25 basis point rising rates and house prices say I’m making this up, but say house prices went down 1% for every 25 basis point rising rates.

[00:45:02] Then the RBA can keep raising rates 25 basis points and know exactly what’s going to happen. On the other hand, much more likely is that the market somewhere has a tipping point and that, you raise rates to 2% and nothing much happens. You raise rates to 3% and the market falls 30% and that.

[00:45:21] He’s much more likely in my view not nothing much happens at you because then according to do that, some suppression of hospice nurses but it’s much more likely that you have these tipping points because people can no longer make their mortgage payments and have to sell, become, come sellers.

[00:45:37] And the false sellers lead to Southern drops in markets in a way that you don’t get in traditional models. So traditional economic models don’t have tipping points. They have nice, smooth, nice smooth relationships. And what you’re saying is we’re in bubbles in lots of places and therefore the tipping point is closer and that’s possible.

[00:46:00] That’s certainly possible. I wouldn’t say that is something anyone can confidently predict. We just don’t know. We don’t know where that tipping point is. So the last time we go back to. The fed raising rates, not until 2018 the fed did start to push rates up and Johnny Gatlin and it didn’t get very small.

[00:46:19]And one thing that happened was there are people started to anticipate a recession that we ended 2018 and the market fell very sharp. Now there’s no way causal links are hard to frighten markets. Whether that was the fed or whether that was that the market was out of the DME or whether it was that people looked at each other and saw other people selling.

[00:46:42] And or or the shifts in the economy that made people suddenly start to worry about it, irrespective of what the fed was doing. But all these things feed back into each other. And you ended up with a very sharp fall in markets, but then when the S when the Jay Powell came out at the start of 2019 and said, actually, maybe not the markets will recovered.

[00:47:04]I think there is, there are all these tipping points and they are at some point in related to the fed and some central banks in general. I just don’t know where they are. I don’t think anyone really knows where they are. That’s the problem we have. And that’s the problem that the fed was as well, of course.

[00:47:18]Because if the market falls 20%, it’s very hard, 30%. It’s very hard for them to continue raising rates. The, because of the feedback into the broader economy of the market, having fallen so much 

[00:47:29] Jonathan Doyle: [00:47:29] let me ask you, can you ever see, could you see the reestablishment of a gold standard 

[00:47:35] James Mackintosh: [00:47:35] Nope.

[00:47:36] Jonathan Doyle: [00:47:36] because 

[00:47:40] James Mackintosh: [00:47:40] I think it is completely incompatible with the bar with a proper democracy. So if you have to, as a population, believe that’s what should vary when there’s a recession is employment, not the currency. So what you, what we, what you have now is when there’s a recession the government pays lots of government spends more some of that’s automatic stabilizers, like unemployment benefits and the central bank plots interest rates.

[00:48:14] And as a result of which the ma you know, there is obviously a rising unemployment and so on, but usually also the constables. If it’s if it’s a pure domestic. Recession and lots of global recession. What you want is you want your currency to fall so that you ease some of the pain on your workers.

[00:48:33] That’s the idea, rather than unemployment, you could say we’re going to maintain the currency and force lots of people work. As what happened in Britain after the first world war under Churchill, he decided to re-establish the gold standard that we all level, which currently was too strong, a currency.

[00:48:49] So Britain had too strong of a currency and had whilst the us started the roll into enters Britain had a very major depression extreme, much more than a recession, really deep depression which set the scene for a pretty terrible decade. So I can’t see that really being compatible with the beliefs of most people nowadays and with democracy.

[00:49:10] So you really have to believe in that. Novel out swap matters is a hard currency in order to have a gold standard door or an anything standard. In order to say that the value of money is more important than the value of jobs. And I just don’t think, but I don’t think that populations don’t land

[00:49:30] Jonathan Doyle: [00:49:30] That’s such an interesting insight. I, people all over the world, wake up in the middle of the night, thinking about things, but it’s going to have me awake at 2:00 AM now just because I actually, today I sold out all my equity, finally, equity positions that I am bought more physical metals and I’m so I’m fascinated by that insight.

[00:49:46] And I wish I’d spoken to you yesterday, 

[00:49:48]James Mackintosh: [00:49:48] It doesn’t, but you wouldn’t buy, you wouldn’t buy gold because you expect a gold stock. Because a gold standard isn’t necessarily good for the price of gold. It might be, but the goal currently it could be established at any method. Governments can choose what they decided to tie themselves to.

[00:50:03]So you’ve got to be a bit careful about that, especially when you think that the big stocks with gold 

[00:50:08] Jonathan Doyle: [00:50:08] yeah. 

[00:50:08] James Mackintosh: [00:50:08] in central banks. So

[00:50:12] Jonathan Doyle: [00:50:12] All right. I hope you happy, and keep me awake tonight. Now, here we go. A couple more things, cause I want to get one. I want to be respectful of your time. Your article on May 18th, inflation’s magic number is four. You made interesting points. S and P is established in 1957. Interest rates have gone above 4%, nine times and eight of those times stocks will lower three months later.

[00:50:33]Can you just take us through that? Just take us through your thinking around that magic 4%. 

[00:50:38] James Mackintosh: [00:50:38] yeah, so I would be whilst I think 4% is the number. It’s not that it’s 4.00, zero, but massive. It’s somewhere around there and it’s the people, the mindset of investors switches. If you’re close to deflation and you’re a shareholder, you’re worried, right? That’s deflation very balanced and share promises.

[00:50:57] Don’t want to be in that. So as inflation starts to rise above zero, that’s good for shares you like that. When it starts to get above two it’s, it becomes less good. You’ll no longer thinking or the deflection, deflation fears and lower, because frankly you had already forgotten about inflation.

[00:51:15] Once inflation got above two, it’s not that big a deal. But you’re still thinking it’s all right. We don’t need, we don’t need radical central bank action. We don’t need anything major. I don’t have to worry about runaway inflation. Things are okay around this level to create the same no problem.

[00:51:31] Once things start to get out of control, we know that very high inflation is not good for share process certain sorts of shares or okay. Buy new stocks and cyclical. But for the market as a whole, it’s generally not good. We know that the other thing that happens obviously with high inflation is that provides them to step in and that hurts can often cause a recession.

[00:51:51]And that’s one of the things that you start to worry about, certainly bad for share prices on its own higher interest rates. So if you have inflation, if you’re worried that inflation is starting to get really high. Or may start to get really high. And that’s a reason not to hold stocks.

[00:52:07]Out of course, above 4%, you’re starting to worry about them. So on. And so we broadly speaking a change in mindset and it just so happens that 4% has been the number. Now is that always an everywhere band to be true? I would say probably no, it could be four and a half percent. It could be 5%, it could be 6% in some countries. In China where, or in developing countries or in, developed economies a long time ago in principle, if you were a place that had higher inflation and had accepting higher inflation, it would be a bit above that. Before you started to really run away, right?

[00:52:41] You had stable inflation with 4% for three 30 years. You obviously wouldn’t be worried about 40%. Maybe it would be 6%, 8%. It’s so happens that in the U S 4% has been the number and as a sort of good argument for why, because it’s a five-ish changing mindset, which I think is now well underway, that investors are absolutely very highly sensitive to what happens to inflation in a way that they, they just weren’t, you go back, nine months people were welcoming higher inflation and melanoma.

[00:53:13] Jonathan Doyle: [00:53:13] It’s it takes us back to where we started the interplay of psychology and and political economy. And so many other factors. It’s a gloriously inexact. 

[00:53:23] James Mackintosh: [00:53:23] Yes, 

[00:53:23]Jonathan Doyle: [00:53:23] So the last couple of things you you mentioned the fear of the fed, losing credibility leading to volatile bond yields. Can you speak to that?

[00:53:34] The the general level of confidence in the Fed’s credibility in general at the moment? 

[00:53:40] James Mackintosh: [00:53:40] Yeah. I think people are worrying about that. I don’t think the fed has lost credibility. I think at the moment the markets are priced that in the long run, the fed will have inflation, absolutely under control losses, target that are banks. It’s, it hasn’t lost credibility. But people are much more worried about the, I loved them.

[00:53:59] They were because quite salient, a whole bunch of things are happening, meaning could go wrong and inflation. And one of the interesting things is that people are very uncertain in both directions. So the fed might, we might have a big overshoot. We might have a big undershoot again.

[00:54:15] Because some of the deep forces, I’ve laid, I laid out, we just discussed some of their things, I think are long term, big forces pushing towards inflation, but with loss, we still don’t know. Maybe the fed will counteract a little, those with much higher rates. Maybe the, some of the deflationary forces that we’ve just seen at work very launch dads and I understanding lots of zombie companies that could go if rates are raised more when government Sportage is removed after COVID, there’s all sorts of things that could come through that might mean we are in economically deep trouble again.

[00:54:51]And if we are in economically deep trouble, again, because that’s going to be bad for inflation flushing get tangled. So these investors are highly uncertain and. In some ways that’s a problem because of course the fed wants them to be certain, wants them to be sure, but inflation is going to be 2% and that’s the whole point.

[00:55:11] And that’s why it has this target. It’s why the central banks have these targets. What you want is low and stable inflation. And you want people to believe in low and stable inflation because in part that belief then low and stable inflation helps to ensure the reason I went stapled inflation.

[00:55:28] Jonathan Doyle: [00:55:28] I have I listened to you and I have this image of my must’ve been the eighties. I was a young kid and I had this image of growing up in Queensland and my mother one day just, and I think REITs had got to something like about 18, 19% in Australia for mortgages. I can still remember the look on her face in that I’m going.

[00:55:46]Yeah. So I just hope yeah, 

[00:55:48] James Mackintosh: [00:55:48] Yeah.

[00:55:49] Jonathan Doyle: [00:55:49] I don’t I don’t want to go back there. 

[00:55:51] James Mackintosh: [00:55:51] I don’t think, I don’t think, I’m not, Everything’s screens inflation doesn’t mean we’re going back to the seventies. Certainly. Who knows? It’s 20 years. I wouldn’t make it 20 years old cost yet, but this is, don’t take away from this, that the 1970s adjust around the corner.

[00:56:08] Cause they’re not the wizard, a very different environment than on a whole bunch of things. But the pressures are much more in that direction than they have been for 40 years. 

[00:56:22] Jonathan Doyle: [00:56:22] Yeah, that’s good. Yeah. 

[00:56:23] James Mackintosh: [00:56:23] thing that I think is interesting. 

[00:56:25] Jonathan Doyle: [00:56:25] So let me ask you we’ll wrap up We’re not giving financial advice to anybody on this show, but what do you think people should be thinking about? We’ve got a pretty diverse listenership. We’ve got some real economists and a whole bunch of other sorts of people. I’ve minimized exposure to equities now.

[00:56:41]I’ve hedged into metals and reducing debt. What are you, what are some of the things people should be thinking about? If your broad thesis is in the ballpark?

[00:56:53] James Mackintosh: [00:56:53] so I think that there’s a very, it’s a very difficult position for investors. The moment, because we’ve got, I would distinguish between the long term inflationary pressures, which plan those kind of three, five years, and the short term inflationary pressures playing at run that in between. I might well be a low, the fed might be right. That what’s going on at the moment is a specific combination of. Supply side problems all the there’s bottlenecks everywhere you look right which are pushing our prices. But those won’t last forever. There’s no reason to think that shortages of microchips are gonna last forever.

[00:57:34]This is a very specific problem. Short is a lumber in the U S these things are going to be fixed. Then maybe there’ll be fixed early next year. Maybe there’ll be fixed in three months. I don’t know the answer to that. It will vary by bottleneck. The shortage of shipping containers, all these things that are going on, these things are going to be fixed.

[00:57:53] And they’re the result of, COVID not a result of a broader, deeper shift in the global economy. So once those bottlenecks affects all those supply pressures, go away again. The demand side, obviously everyone is flush with cash. From a huge global government subsidiaries and Americans in particular the flush with cash.

[00:58:15] And again, that’s led to a huge supply sorry, a huge demand shock at the very same time as we’ve got these supply bottlenecks and that leads to short-term inflation in crushes, but the government is not going to do another round of handouts, stimulus checks on arriving in the pipes anymore. The only thing, obviously if we have another major crisis, maybe they will, but they’re not doing another random handouts with the economy where it is.

[00:58:43] So what we should expect is that demand sides, our pressure comes down and then that supply side pressure eases and maybe the fed is right then that the inflation goes away. The short-term inflation. All those long-term pressures are still there. The problem is, cause for investors is to try and trade that long term thing without getting caught up in the short-term thing.

[00:59:09] So you could say things like I want to buy, I want to buy copper or gold or whatever, but yeah, all of those prices are elevated because of the short-term problems. And I want to Trey, I want, I w I run a major risk, but all those short-term problems might go away before the longterm inflation kicks in.

[00:59:28] And it might not, the two things might dovetail. We might get that always high inflation that we’re seeing at the moment carries on for longer than the demand carries on longer that the supply side sharks carry on for longer. It’s hard to tell some of the supply side stuff like pretty permanent short periods of copper, for example, are very hard to resolve.

[00:59:46] It takes a long time to build a new mind, these sorts of things. But yeah. That creates a problem for investors. So I’m afraid that there is no simple solution here that, hedging, hedging, inflation is relatively expensive. As you want it to do this nine months ago.

[01:00:03] Jonathan Doyle: [01:00:03] It’s like, when was that? When was the best time to buy real estate 20 

[01:00:05] James Mackintosh: [01:00:05] Yeah, exactly. Yeah.

[01:00:07] Jonathan Doyle: [01:00:07] best time tomorrow. So are you you’ve got kids. Are you an optimist or a pessimist or an omnivorous as you look into their future? 

[01:00:16] James Mackintosh: [01:00:16] yeah. I’m the sort of person that thinks I probably ought to be prepared for a zombie apocalypse just in case. 

[01:00:23] Jonathan Doyle: [01:00:23] Yeah. 

[01:00:23]James Mackintosh: [01:00:23] But I think I’m pretty optimistic about them. Which is not the same thing as being optimistic about the global economy. But I think probably will. I suppose I have to believe that we’ll muddle through because otherwise I’d be, hold up in a bunker somewhere.

[01:00:38]But all the major warnings of everyone who has been holed up in a bunk in some way throughout my life have always proven wrong. There’s always been reasons to, to panic about stuff and it’s never quite been run. Lots of bad stuff has happened in the economy. I think the British economy, for example, is not particularly great place and I live in Britain.

[01:00:59]And obviously I’ve just lost a whole bunch of freedom of movement stuff that I takes away. If this is on the apocalypse in Britain know on canal fleet to Spain or France so easily. But the I exaggerate for a sec, the.

[01:01:15] So my kids don’t live in whatever world there is. And all I can do is have them the best I can. And the think holding up in a Bunco with them probably isn’t the best preparation

[01:01:23] Jonathan Doyle: [01:01:23] Yeah, my brothers my, one of my older brothers is an historian and he told me about I’m sorry, I don’t know the exact details, but monitoring around the 15th or 16th century, possibly in Germany, there was a group of people who were convinced that the that God was going to flood the earth again.

[01:01:41] And so they built a whole series of ships on the Danube waiting for their version of the zombie apocalypse that didn’t arrive. I take your point sometimes you’re, you can prepare as much for the apocalypse that doesn’t come. 

[01:01:53]James Mackintosh: [01:01:53] One way to think about that as an investor is what’s the cost of your insurance. So you want to ensure your portfolio against inflation. If that insulation doesn’t arrive, how much, what was your insurance premium? And I think that’s a good way of thinking about structuring the portfolio when you’re thinking about how much do I want in cash and how much in bonds, how much in stocks, how much in gold or commodities?

[01:02:17]What, if that, what if that thing I’m worried about doesn’t happen and historically how often is that thing I’m worried about not and what will it cost me if it doesn’t? And I think that’s one, that’s a sort of insurance mindset on structure and a portfolio I think is a good thing to at least think about when you again, and I probably wouldn’t go a hundred percent in anything because nothing is certain.

[01:02:39] I would always have some something in, in different asset losses.

[01:02:44] Jonathan Doyle: [01:02:44] Yeah. I’ve thoroughly enjoyed that. That’s I just think you you’re such an interesting thinker and I will put links everywhere to your work on in the wall street journal. So I really encourage people listening to make sure that you get across to the journal, take out a subscription as I have, and and make sure you’re getting giants and stuff because I genuinely, I can say I can even prove it.

[01:03:03] I even have extensive notes from his recent articles here. So my friend, I thank you for your work. I think it’s you write really well. You’re right. Clearly there’s a humility in what you’re writing, which I really enjoyed. So thank you for the work you’re doing and thank you for joining us today.

[01:03:19] And I feel that could go for a lot longer, but I’d like to stay married and make sure I’m home in a reasonable time. So James 


[01:03:25] Macintosh in the wall street journal. Thank you so much for making time for us on the supply side podcast. 

[01:03:30] James Mackintosh: [01:03:30] Thanks, sir. 


[01:03:31] Jonathan: [01:03:32] Hey everybody, Jonathan, back with you again, listen, I really hope you got a great deal out of that discussion. I was real privileged to just listen to James. I love that depth of philosophical insight. And you can tell that he thinks very deeply and astutely about these complex global macro issues that are rolling out before us. I find that after doing these, I tend to listen to them two or three more times when I’m out on a training ride. 

[01:03:58] And there’s always just a greater layering more depth that I extract from the beach time. And I hope that’s the same for you. Listen, please make sure you’ve subscribed. It’s a huge help to us as we try and grow awareness of. The discussions we’re having here on the supply side podcasts. So Spotify, apple podcasts, Google, wherever you’re listening, hit that subscribe button. We’d love it. If you leave a review, if you leave a review at tends to push it up the rankings and people get a chance to see it more easily. And of course you can find us now on YouTube at just by searching for the supply side podcast. 

[01:04:29]With Jonathan Doyle, you’re going to find a stair on YouTube. So listen, I hope you’re enjoying it. If there’s anybody particularly that you think would be a great guest to have on the show, why don’t you send me an email? Jonathan@supplysidepartners.com. If there’s someone you’d like me to 

[01:04:43] To talk to then just reach out, send me that email and I’ll see what I can set up. We have a very exciting guest, hopefully coming on in the next two weeks. So stay tuned. I’ve actually got to talk to their chief of staff in a couple of hours, and hopefully we can set that up. So hopefully I can give you some good news on that, but that’s it for now. Thanks so much for tuning in and your support of the supply side podcast. As we try and bring some some rational behavior into global macro as best we can. 

[01:05:10] But listen, that’s it for this episode? My name’s Jonathan Doyle. This has been the supply side podcast. And we’ll have another message for you very 

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