♪.
LARRY: LET’S BRING IN KEVIN
HASSETT, GREAT FRIEND.
FORMER CHAIR OF COUNCIL OF
ECONOMIC ADVISORS DURING THE
TRUMP ADMINISTRATION.
KEVIN, INTERESTING TO ME, AFTER
ALL THIS FED HOOPLA, THE STOCK
MARKETS ARE ROARING, UP 400 PLUS
TODAY.
I THINK IT IS UP BIG THREE
STRAIGHT DAYS IN A ROW.
I ALSO KNOW OIL JUMPED BACK UP
TODAY, WE’RE NOT SANCTIONING
ANYMORE OIL OR ANYTHING, EXCEPT
WE’RE SANCTIONING DOMESTIC OIL.
SO I GUESS, THE STOCK MARKET IS
NOT AFRAID OF THE FED.
IS ANYBODY AFRAID OF THE FED,
KEVIN HASSETT?
>> WELL, THEY SHOULD BE, IT IS
JUST A QUESTION OF WHEN.
I THINK YOU AND I HAVE BEEN
TALKING FOR MONTHS NOW WE THINK
THE FED IS WAY BEHIND THE CURVE.
THEY HAVE STARTED WAY TOO LATE.
THEY’RE GOING IN STEPS THAT ARE
TOO SMALL.
WHAT THAT MEANS IS, THAT
INFLATION IS GOING TO STAY HIGH.
IT WILL PROBABLY EVEN ACCELERATE
FROM HERE, YOU KNOW, MY FIRST
PAST ESTIMATE OF WHAT INFLATION
IS DOING IN MARCH BECAUSE OF YOU
KNOW THE FIRES IN DIFFERENT
MARKETS LIKE GRAINS AND SO ON.
IS THAT IT IS NOW UP AT ABOUT A
RATE OF 20% PER YEAR, ANNUAL
RATE, IF YOU TAKE THE MARCH
NUMBER.
SO INFLATION IS AT,
SOUTH AMERICAN LEVELS AND THE
FED HAS GIVEN US THESE LITTLE 25
BASIS POINT HIKES.
SO WHY THE IS MARKET
CELEBRATING?
WELL IT IS ACTUALLY BECAUSE THE
VALUE OF THE FIRM IS SORT OF THE
PRESENT VALUE OF ALL THE PROFITS
THAT WE’RE GOING TO MAKE IN THE
FUTURE.
THE PROFITS ARE GOING TO BE LOOK
HIGHER, THE SALES ARE GOING TO
LOOK HIGHER, BECAUSE PRICES ARE
GOING TO RUN AHEAD OF WAGES FOR
A WHILE.
THE ONLY WAY THAT THE EQUITY
MARKET WILL GO DOWN PEOPLE THINK
IF YOU DISCOUNT THE PROFITS
HIGHER INTEREST RATE THAT THE
MARKET GOES DOWN.
THAT EVENTUALLY HAPPENS BECAUSE
INFLATION IS NOT GOING TO GO
DOWN UNTIL THE FED GETS INTEREST
RATES UP AROUND THE INFLATION
RATES.
THAT IS THE HISTORY OF THIS
THING, THERE ARE YEARS PROBABLY
FROM DOING THAT.
LARRY: RIGHT.
YEARS.
>> RUSSIA TURNING US INTO A
RECESSION THIS YEAR, FOR SURE,
YOU KNOW, THE EXACTLY WHAT
HAPPENS IN UKRAINE IS A VERY,
VERY SERIOUS CONCERN FOR
EVERYBODY.
OF COURSE ESPECIALLY FOR THE
PEOPLE WHO ARE IN OUR PRAYERS IN
UKRAINE.
BUT IF THAT IS RESOLVED THEN
WHAT YOU’RE GOING TO SEE AN
INFLATIONARY SPIRAL THAT WON’T
NECESSARILY GIVE YOU A RECESSION
UNTIL THE FED DECIDES TO ACT.
LARRY: HMM.
KEVIN, HERE IS ONE.
BIDEN IS ATTACKING OIL COMPANIES
FOR EXCESS PROFITS AND PRICE
GOUGING BUT THE PRODUCER PRICE
INDEX, WHOLESALE PRICES IS
RISING I GUESS ABOUT 10% LAST 12
MONTHS.
THE CONSUMER PRICE INDEX IS
ABOUT 8%.
SO I JUST POSTULATE, ALL RIGHT,
IF PRODUCER PRICES ARE RISING
FASTER THAN CONSUMER PRICES,
THAT TELLS ME THAT OIL COMPANIES
AND ALL COMPANIES ACTUALLY HAVE
TO EAT SOME OF THEIR HIGH COSTS
INFLATION.
THEY’RE NOT PRICE GOUGING.
THEY’RE ACTUALLY LOSING MONEY ON
THIS.
>> YEAH.
THAT’S RIGHT AND THEN YOU KNOW,
THAT WILL GET WORSE AND WORSE
FOR THEM AS THEY HAVE TO DRIVE
WAGES UP BECAUSE REAL WAGES HAVE
DECLINED.
I THINK YEAR-OVER-YEAR REAL
WAGES ARE DOWN 3% NOW.
AS PEOPLE GO TO THEIR BOSSES,
SAY, HEY, I CAN’T AFFORD TO KEEP
THIS JOB BECAUSE I’M DRIVING TOO
FAR TO WORK, YOU HAVE A BABY,
THAT SEEPS THROUGH PRICES.
THESE SPIRALS YOU CAN SEE IT IN
EQUITY MARKETS TODAY, IN THE
EARLY STAGES REALLY LOOK GOOD
FOR EQUITIES BECAUSE WAGES
ADJUST SLOWLY, PRICES ADJUST
QUICKLY.
THE COSTS BEING SUBTRACTED FROM
THE REVENUES ARE GROWING SLOWER
THAN THE REVENUES, SO IT LOOKS
PRETTY GOOD.
EVENTUALLY IF YOU HAVE A
RESPONSIBLE FEDERAL RESERVE, IT
SAYS HEY, WE’RE NOT GOING TO
TURN INTO A BANANA REPUBLIC.
WE’LL NOT DEFAULT ON OUR DEBT.
WE NEED TO HAVE SUSTAINABLE,
FISCAL MONETARY POLICY.
ONCE THAT HAPPENS.
THINK ABOUT WHAT HAS TO HAPPEN
TO FISCAL POLICY RIGHT NOW TO
MAKE IT FISCALLY STABLE.
MONETARY POLICY TO MAKE IT
STABLE, BOTH THOSE THINGS MOVE
TO RECESSION.
LARRY: QUICKLY IN THE LAST FEW
SECONDS.
WE’RE IN A STAGFLATION POSITION,
THAT WILL HAVE TO LEAD TO
RECESSION.
>> RIGHT.
LARRY: ALMOST UNAVOIDABLE.
I DON’T LIKE THAT.
>> WE’RE GOING TO HAVE VERY LOW
GROWTH AND VERY HIGH INFLATION.
AND WHETHER THE LOW GROWTH TURNS
NEGATIVE OR NOT IT IS YOU KNOW,
50-50, OR SOMETHING THIS YEAR
BUT IT IS DEFINITELY GOING TO
OVER THE NEXT COUPLE, BECAUSE
EVENTUALLY THE FED WILL HAVE TO
DO SOMETHING SERIOUS, MUCH MORE
SERIOUS THAN IT IS PLANNING TO
DO NOW TO STOP THE INFLATION
FROM GETTING COMPLETELY OUT OF
CONTROL.
LARRY: A REALISTIC KEVIN
HASSETT.
THAT IS HOW I’M GOING TO PUT IT.