Is Jerome Powell Lucky or Good? — ft. Robert Armstrong
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Today's number, $4,000. That's the starting cost of rent for a studio apartment in Goldman's former NYC headquarters. I don't know if you heard this, Ed. True story. They're actually pulling everyone back from work from home, which I hate. I love masturbating at my desk and no one calls HR. Welcome to Prop G Markets.

That wasn't that good. No one's laughing. I'm laughing. No one's laughing. I need another one. I'm your audience. Ed, I'm desperate for your affirmation. Everyone thinks you're... Everyone's like, oh, Ed's so smart. People come up to me, literally come up to me on the street and like, oh, you're Ed Elson's co-host on that podcast, right? And I'm like, yeah, that's exactly who the fuck I am. That's not true. I got a message today saying, hey, Ed, like...

God, what did he say? He said, so good to see that you work at Scott Galloway. He said that I work at you. Like working at Bloomberg? I like that. Working at Bloomberg. That's right. I'm running for mayor. Yeah. Okay. What's going on, Ed? What are you doing? Where are you? I am back home in Williamsburg. Back from Sweden after your $500 speaking fee where we spent $40,000 to have you go hang out with Fondue and...

Volvos. Did you drive Volvos everywhere? That's exactly right. I'm back, but I'm leaving again. I'm leaving this afternoon. I'm going to Texas to do another one. How much is this going to cost us, bitch? Jesus Christ. You are my third wife. You're younger and you're costing me way too much money. By the way, something we need to discuss before we get into these headlines is your birthday, which...

We should have discussed last episode, but we forgot about it somehow. Give us the highlights. It was very nice. It was very emotional for me. I'm glad it's over. I had basically my whole life in a room. Minus me. I'm convinced that there are, supposedly there are three times as many 50th celebrations as 60th.

And I can see why. I think at this point you're like, okay, it's the starting gun to death, Ed. It's now a race to death. I heard you gave a rousing speech, but that it also lasted an hour. That is the most unthinly veiled insult I've ever heard. I heard you gave a rousing speech, but...

but that it lasted an hour. Well, thank you for that, Ed. I was planning to speak for 10 minutes and I went an hour and five minutes. Is that really what happened? You just, it just kept going? This was one of my better moments. I thought about this. I grouped everybody I knew, 86 people. I grouped them all into decades. If I've known you less than 10 years, you got one kilt pattern, 10 to 20 years, a different kilt pattern. And I had people stand up based on their kilt pattern, which identified how long I've known them. And I went in...

reverse chronological order, had everyone stand up, and I said something nice about everybody in the room and the role they'd played in my life and kind of rolled all the way up to the last two people who I've known for 50 years were my closest friend, Adam Markman, who I've known 50 years, and my sister, obviously, who I've known about that long. All right, enough of that. Get on to the headlines. Get on with it, Ed. All right. Now is the time to fly.

I hope you have plenty of the world at home. Qualcomm has reportedly approached Intel about a takeover. That potential acquisition would be one of the biggest M&A deals ever. Following the news, Intel shares rose more than 3%. Nike is getting a new CEO after former executive Elliot Hill came out of retirement to replace John Donahoe. The stock was up 7% following the news. That's its biggest gain since 2022.

And finally, Microsoft is partnering with Constellation Energy to reopen the Three Mile Island nuclear power plant. Microsoft will use that energy to power its data centers, and the deal will bring over 3,400 jobs to Pennsylvania. Constellation Energy shares rose more than 20% on that news. Scott, your thoughts, starting with the potential acquisition of Intel by Qualcomm? I actually believe this is a...

would be a great acquisition. Apollo has shown up and said, hey, we have a better idea. We'll give you a lifeline here and give you a $5 billion capital injection investment. I think that's more likely to happen because I don't think the guy running Intel or the employees there, the management there, want to be the people that sold at a low and then have somebody else take credit for the renaissance. And

This feels like they'd be selling cheap. So if I had to guess anything, it would be that they'll take that $5 billion investment. And this is classic Apollo. I think it's a great investment in the sense that they come in, they invest $5 billion, they give them some capital, give them some breathing room to make some more forward-leaning investments, whether it's competing with NVIDIA or trying to get, I don't know, catch up a little bit of mobile, whatever it might be.

And if it works, they're going to see a doubling in the stock because the stock is historically cheap. And if it doesn't work, they call, they call, call, come back and say, are you interested in restarting these conversations? And it, it reminds me of what I consider my best venture investment. And that is not, I've met, I've had some investments that have given me exponential returns. Obviously that's great. But what I consider sort of, I don't know what to call my best investment, but a great venture investment is I invested a decent amount of money for me in a

company called Neva, which was subscription search. And I met this guy, Shraddha Ramaswamy, who had built the Google search business. And the guy's just, there's a guy just reeks of credibility. He's just incredibly impressive. And so I thought, I want in on this. And he said, okay, I'll let you invest. And the bottom line is the product didn't resonate with consumers. Consumers weren't willing to pull out their credit card and pay for a reasonable facsimile of Google, which is a great search engine. And

But I knew that a guy like this, that eventually, even if it didn't work, that we would probably get most of my money back because there'd be an acqui-hire. And what do you know? Snowflake came in, company wasn't working, and basically gave all of the investors their money back. And I called Street R and his management team, and I said, I just absolutely love this investment, even though I didn't make any money here. It was like buying a lottery ticket. And then when my numbers didn't come up, I gave the ticket back to the guy at the bodega and said, I want my – I gave my buck back.

So I just love that kind of investment. And I think that's what Apollo is facing here. I think Intel will take the money rather than selling cheap. And if it doesn't work, they'll get their money back. Any thoughts? Yeah, I think that sounds right. It's interesting what's happening here.

with these what's becoming the chip wars it's very interesting that it's basically the same thing that happened in the streaming wars which is where you have an insurgent that bursts onto the scene rises to power and then the rest of the industry has no choice but to consolidate so you know in the streaming wars that insurgent was netflix then you saw warner merging with discovery and viacom merging with cbs and disney merging with fox and hulu etc etc and

I think you're probably right that the management would actually prefer an investment. But if they want to go through with this, I think there is one number that Qualcomm and Intel's lawyers are going to be focusing on and obsessing over and hammering over and over again. That number is 88%. That is NVIDIA's market share in the GPU market. 88%.

So their argument is going to be, yes, this is a big acquisition. Yes, it's the biggest in history and we're both huge companies. But if you combine our market caps, as you pointed out earlier, Nvidia is still 10 times larger than we are. They still dominate 90% of this market. And so if you want competition in this country, you're going to have to let this slide. So my prediction, if they decide to go the acquisition route, is that it actually will go through.

because of how dominant NVIDIA has become. Your thoughts on the Nike story. Nike's CEO has stepped down and we have a new CEO entering the fold. So I know this company fairly well. They were my former company, L2, like our second or third largest client. I just love this company.

And they picked a guy who ran a tech platform, who ran a consulting firm. Simply put, he's been a disaster. And it's easy to play Monday morning quarterback, but they made a huge bet on direct-to-consumer. And quite frankly, and I have to be open here, that's what I advise them to do, that they needed to have greater control of their channels if they wanted to transition out of the brand age built by broadcast media into a brand age that was built by innovation and their retail channels. And they accepted that whole hog.

What they've been accused of is ignoring their retail partners, their third, you know, everyone from Foot Locker to, you know, I don't know who else sells tennis shoes. But they were accused of ignoring that they focus so much on DTC. It came at the expense of the relationship with their retail partners. And what was unexpected was that retail, physical retail came back.

much stronger than anyone anticipated post-COVID. So they were kind of caught flat-footed with poor relationships and poor merchandising amongst their third-party retailers, and the relationships had withered. And in addition, they've been accused of being really slow and anemic around product development, and that they've lost kind of their edge around merchandising. And then also outside of their control, you know, China sneezes, and some of these firms have caught a cold, including Nike, who obviously sold a lot of

in China. I think the new CEO is a great pick. I didn't work closely with him, but I did work with him. His name's Elliot Hill. And he kind of just bleeds Nike and struck you as a very competent guy. I think whenever I was in a meeting with him, he was a great listener and asked really good questions. And I think he's

I think it's great for morale. I think he's got cloud cover to make some big changes. But probably more than anything, this is a product and a supply chain problem, and that is figuring out a way to get from concept and ideation onto the shelf faster. Because a lot of people would say, well, it's a long-tail thing. Consumers want smaller brands. Adidas has actually done quite well with their vintage line. I think an interesting idea we talked about is this sort of fallen icons basket of Intel, Estee Lauder,

Nike, Starbucks, and we've seen CEO replacements at Nike and Starbucks. And I wonder if the CEO of Estee Lauder, Fabrizio Freyda, is on the green mile.

And that is that stock has been cut in half and more. But I think there's a bit of a changing of the guard of sort of these older baby boomers who came in and oversaw these icons. And as the market was screaming up, you know, we're just terrible for shareholder value. So I think I think it's I think it's a good move. I just wouldn't want to bet against Nike. I think it's a great company with a great global IP, incredible deep roots into sports and endorsements, global awareness, great vendor relationships.

So anyway, I'm bullish on Nike. Do you have any thoughts? Yeah, I mean, I think you're right. They sort of didn't really have their eye on the ball during COVID. And I think the biggest red flag to me is

during COVID, during these past few years, has been in 2021 when they were trying to get involved in NFTs and crypto. I don't know if you remember this, but they acquired a metaverse design studio. They launched this NFT collection. They were building theme parks in the metaverse. I mean, granted, a lot of companies were doing this, but Nike was going hard at it. And the message that I was getting from a company that I used to be kind of in love with is that this is sort of an old

you know, middle-aged guy sort of trying to crash the college party. He really wants to be cool. He wants to get in good with the cool kids, but you know, we can all see it in his eyes. He isn't cool. He isn't what he used to be. I do want to focus on this new CEO though, Elliot Hill. So in 1988, he started as an intern at Nike. Six years later, he was still at Nike, except he had been promoted to sales rep.

By 2000, still at Nike, vice president of sales. In 2013, still at Nike, president of sales. And today, he is the CEO of Nike. So this is a lifetime Nike employee. I feel like we never, ever see this anymore. And I just read that resume and

And I love it. What are your thoughts on this lifetime employee to CEO model? I like it. And it's situational because what I found being on boards is that, you know, that you're not gonna remember this, but the song your grandparents listened to, You're So Vain by Carly Simon, or she had the song called, You Don't Have to Prove to Me That You're Beautiful to Strangers. Boards, when we interview CEOs, it's just so easy for us to fall in love with strangers.

Because when you know someone, when you're in succession meetings and you're reviewing everybody, you get to know them, you like them, but they're not perfect. No one ever is. And then some guy or gal comes in who's the CEO of another company that you admire and you're like, wow, it's easy to be perfect for an hour. And boards have a tendency to think that they can find a savior from outside of the company. And also the idea of having a fresh perspective is very enticing. What I have generally found is that companies and management and boards are

Look at employees through the lens through which they were hired. And I'm guilty of this. And that is, I look at you as this kid just out of Princeton, not as a podcaster who's taking advantage of his expense account and going to Austin and Stockholm. That's just how I should really perceive you. I am making you money. Keep going. Read that fucking ZipRecruiter ad, bitch. Anyways.

But boards have a tendency to be attracted to strangers. So I think it's great that he's coming back. I also think it's a really good move for Nike right now because I think what they probably perceive is the Silicon Valley eBay guy came in, talked about this big future of NFTs and direct-to-consumer and the web, and he got it very, very wrong. So I think this is a great stabilizing move. I think it's probably great for morale.

And he's probably catching the company at exactly the right moment. And that is, I would bet this has bottomed out. I think this is a great company and I'm very positive on it. Let's talk about Constellation. I'm really excited about this. I'm a huge fan of Nuclear. This is arguably, Nuclear is probably the worst managed brand in the world.

And that is something whose total emissions, total emissions, that's the waste that comes out of these nuclear power plants, could be put in one casing that is eight feet high and covers a soccer field. That's it. Now, granted, you can't get near that shit for 75,000 years, and you've got to make sure it's secure and safe. But if you compare that to anything from...

You know, the impact on the environment of wind, the fact that solar is very inconsistent and expensive, and let's not even talk about the emissions and the externalities of fossil-based fuels. I just think nuclear has got to be a huge part of our move towards some sort of sustainable climate future.

It is a fantastic source of energy technologies there. There's now kind of these micro nuclear power plants that can power a house or a neighborhood. I just think it's enormously powerful. The thing that might have an unintended consequence here, and I don't know if I'm just talking about a book, is I wonder if it's going to help swing Pennsylvania forward.

to Harris, because this is a really positive press release and happening in Pennsylvania. And it's happening on the watch of Biden, and they'll bring up the tax credits. It's going to be a big boost. I think there's going to be a pretty nice sugar high or an increase in morale among workers and a feeling that the economy is doing well there, bringing back

But I'm an enormous fan of nuclear. I've even started looking at it from an investment standpoint. What are your thoughts? You called this. I mean, I think it was three years ago. One of your big predictions was that we were going to see a re-embrace of nuclear energy. We overreacted to the dangers of nuclear, both from a waste perspective and also from a...

human danger perspective, the death rate for nuclear power production is actually 800 times lower than coal and 600 times lower than oil. So done right, which we generally do, it's actually very safe. As we've discussed before, we need more energy, just more of it. Doesn't matter what kind of energy in my view. I think that means more fossil fuel production personally. I

And I also think we need way more renewable energy production. More importantly, Greta Thunberg has embraced nuclear power. How dare you? How dare you? Oh, my God. Someone give that kid like a few beers. She should be out drinking. What is she doing? Anyway, I thought, God, how dare you? It's been a couple of years since your Greta impression. That's one of your best. You have stolen my future.

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They're not writers, but they help their clients shape their businesses' financial stories. They're not an airline, but their network connects global businesses in nearly 180 local markets. They're not detectives, but they work across businesses to uncover new financial opportunities for their clients. They're not just any bank. They are Citi. Learn more at citi.com slash weareciti. That's C-I-T-I dot com slash weareciti.

Welcome back. Here's our conversation with Robert Armstrong, U.S. financial commentator for the Financial Times. Robert, thank you for coming back on the pod. It's a great pleasure to be here. Quick question before I start here. Rob, has anyone told you that you sound exactly like Neil deGrasse Tyson? Ha ha!

I don't even know what he sounds like, but I know he's a... You need to check him out because... He's like a famous and powerful media personality. And so that's good news, I think. Yeah. You are the Neil deGrasse Tyson of finance. Of financial markets. I was listening to the podcast afterwards like, oh my God, it's Neil. Which is, that's a compliment. Well, actually, to tell you the truth, I think one of the most dangerous metaphors

in finance is the idea that economic or financial thought can be modeled on the physical sciences, which it really can't. And so even like hydraulic metaphors, to say nothing of our metaphors about particles or dark matter or whatever, these are almost always terribly deceptive in finance and lead us astray. So we'll focus on different analogies, different metaphors that aren't to do with the sciences. Okay, perfect. And to start off...

Let's just get your reaction to the Fed cutting interest rates last week, 50 basis points. Some were expecting a 25-bip cut. What were your initial reactions to the rate cuts from Jerome Powell? We, like probably other financial news organizations, we had a little betting pool. And I was on the 50 basis points side of the betting pool because of...

If you remember, there was a speech at Jackson Hole by Jerome Powell, and the language is extremely strong, about how it was time to change direction and change direction quickly and firmly. So I thought the moment for a big move had come, and I think several other little noises that kind of came out of the Fed through the media in the week immediately before felt a little bit like,

the Fed was prepping the market for a bigger move. So that's the bet I took. So I wasn't terribly surprised, which doesn't make it necessarily less historic. It's still a big move. It's still the change in direction we've all been waiting for. But I don't think it was a huge surprise. And I think the market reaction has borne that out. And what do you think the reasoning was for 50 versus 25? Was it the unemployment data, the labor market? What was going through his head, do you think? I think it was actually...

I think this is the story the Fed is telling, and then we can discuss whether we think it's true or not. I think the Fed story goes like this. We're not doing 50 because we have to. We're doing 50 because we can. In other words, inflation is just about whipped. Now, they won't say that explicitly because you don't want to jinx yourself or embarrass yourself by saying we beat inflation, la, la, la, la, and then it comes back. But the subtext here is we've beaten inflation.

We are now free to loosen rates by a relatively large amount because we're just not worried about that threat anymore. We don't have to do this because actually, and this was the point that Chair Powell hit again and again in the news conference, the labor market, the employment side is actually fine. I can't remember his exact words, but what he said was something like this.

The time to intervene on behalf of the labor market is when it is still strong, not when it has started to weaken. And we have the freedom to intervene and to make sure that the labor market stays as strong as it is right now.

So their view, you know, what they presented was a fundamentally optimistic view. We don't have to worry about inflation anymore so we can act firmly to make sure the labor market stays strong. And what does Robert Armstrong think of that view? I think that it is true that inflation looks beaten. And I don't have to worry as much about public embarrassment if it comes back as Jay Powell does. So I'll just say that. I think we got the beast whipped.

The numbers are just really good. We're either at target or close to target on most measures. Even the measures we're not quite at target, they're moving in the right direction. And we live in a world that just suddenly doesn't look very inflationary, like commodity prices. Oil is cheap. Iron ore, all that stuff is cheap. We have China out there. We have a global economy that's frankly struggling. The U.S. is the bright light of the U.S. economy, but

And but with the rest of the world struggling, what's going to push up inflation again? So I think that is true.

So fact check true on that side. On the other side, I think they're not probably totally comfortable with the rate of change in the unemployment rate. So the unemployment rate is 4.2% in the last reading, which is a fine reading. If America should go through its history with 4.2% unemployment, we will be very happy, right? But the rate of change is a little bit worrisome. You know, it was down there in the threes and it's moving up at a pretty good clip.

So that, and we don't know exactly why that's happening, and that's the rub. We don't know whether we can trust that number or not. But the direction of changing that number might be causing a little bit of perspiration down at the Fed and elsewhere. So, Robert, given the rate cut, who do you think are the winners and losers here? Let's go through real estate, stocks, commodities. You touched on commodities a little bit. Bonds and emerging markets. Who are the biggest winners and losers here over the next 12, 24 months? Okay.

Big winner. Anybody who had too much debt and was about to explode as a result. So these zombie companies. That means sectors of real estate. Right. You want these rates to come down as fast as you can. If you are unable to make the payments on your buildings because you have a floating rate loan and you paid a lot for the building, the building's worth less now,

Any change in the rate definitely helps you. I just want to press pause there for a second because I immediately hear that and I think, okay, there might be outflow or dislocation. I would imagine that commercial real estate REITs have been absolutely taken seriously.

you know, out to the gravel pit and shot, if they can, if they are now going to have less or more room in the collar to wait until vacancy comes or vacancy rates go down, are they, are they potentially a buying opportunity? I mean, I'm sure there's buildings out there that are an opportunity. Um, but the market has been reasonably efficient on this front. In other words, like the real estate investment trusts in the stock market, um,

that actually have good quality assets in them, and you can see how the lower rate environment is going to benefit them, those prices have already had a pretty decent move. So we're not at rock bottom prices on the good assets. This is probably an environment where somebody who's really an expert at picking through piles of crap

and extracting the gold nuggets from them, that's a mixed metaphor of some horrible kind, and I apologize for it, is probably going to be able to do quite well. But I think office real estate, for example, if you have a big, not great, which I mean not particularly new, office building in midtown Manhattan, and you are underwater,

you're on your loan, meaning the proceeds from the building are not covering your loan. It's a floating rate loan. This was a lifeline from the Fed. And that's very important. And you can extend that point to banks generally.

banks, mid-sized banks, there's always something awful somewhere on the asset side of the balance sheet. And this really helps to something awful. So banks are a funny case, right? Because they actually earn a little more money in general when rates are higher, right? Because they can charge higher interest. So that can be good for them. But the higher the interest rate goes,

the higher the chance some awful thing explodes in your balance sheet and knocks a huge hole in your business. So in the case of banks, there's contrary forces. Lower rates make you a bit less profitable in your everyday business, but they decrease the probability of a kind of tail event that destroys you. So banks have been actually, people care more about the tail risk. So bank stocks have been doing actually pretty well.

Getting into other asset classes, asset classes, anything that pays a dividend, anything that you own because it gives you cash flows, like a utility stock might be a perfect example of this. The lower...

the rate you can get on a treasury goes, the more you like your boring utility stock that pays a 3.5% dividend. Because six months ago, you're sitting there and you're like, I can own three-month treasuries at 5.5%, or I can own this utility stock yielding 3.5% and have risk too on top of a lower yield. It's a terrible idea. But now that the risk-free rate, the

Any stock that has a yield on it becomes more attractive. So that is a relative winner. You've been covering the notion that there might be a small cap or a mid-cap renaissance, not the Fed is cutting rates. First, can you break down the thesis of why those stocks might perform better in this environment? And second, can you explain why you're a skeptic that this will actually play out? Okay, let's take one step back and talk about the background. It has been remarkable, right?

In the last 10 years, say, but acutely in the last five years or so since the pandemic, that one class of investable asset has been way better than all the others. And that class is large, growthy American stocks, humongous, primarily tech, but not just tech, but humongous American growth stocks.

And it is amazing. It has been amazing watching those stocks kind of pull away from everything else. So, so you're looking not only at small caps and mid cap stocks, but you're looking at international stocks and you're looking at, you know, all sorts of things. And you start to look at small cap stocks or even mid cap stocks and think these things are so cheap now. And it's been such a great run for the big stuff that we, we're going to, we got to get some mean reversion at some point.

In the history, you know, when you go to finance school, which is not something I recommend you do, but when you go to finance school, they teach you that over the long run, smaller stocks should actually perform better than large stocks because they're riskier.

And if I'm going to buy shares in your small company that is kind of buffeted by the winds of the big economy, I should get paid extra for taking that extra risk. So, you know, it's what they call a factor, a return factor. And so over time, I should outperform if I'm willing to bear the volatility of small cap stocks. Over the last five years, the opposite has happened.

By the biggest stocks, I've made much better returns than small ones. So now we're thinking, so you've been sitting there in a diversified portfolio where you own some small caps. Small caps have been acting like crap for 10 years. And you think something good's got to happen. So now you think, okay, the thesis is rates go down. Small caps are more indebted and they have more floating rate debt than big caps.

And when rates go down, they will benefit more. So the picture is debt burden higher on small stocks. Therefore, when rates go down, they will get, they were hurt more on the way down and they will be helped more on the way up. This is a very tidy economic story of the sort that Wall Street loves to tell. You know, the kind of analyst note on this writes itself.

The problem is when I actually looked to see this effect, myself and my colleague Aidan looked to see this effect, we couldn't find it. In other words, we looked at the interest expense of small cap stocks and how much has gone up when weights were rising. We didn't see a very large effect. So there's nothing to reverse, as it were. Now, you know, maybe we're wrong. You can cut the data a different way, et cetera, et cetera. But, um...

I don't see the grounding for this very nice sounding theory in the actual balance sheets of the actual small cap companies that make up the indexes you might invest in. I just want to go back to Jerome Powell and the Fed and rate cuts for a second. I think if you're not blinded politically, I think we basically can all agree that Jerome Powell has done a very good job so far. Yeah.

But you wrote an article, which I found very interesting, where you asked the question, is Jay Powell lucky or is he good? Could you explain why you're asking that question? And what do you think? Has he been lucky or has he been good? I was inspired to write that article by a friend of mine called Brendan Greeley, who we were talking about this.

And, you know, his description of the process is the Fed is sitting there and they have a huge lever in the Fed office, which is called monetary policy. And when things go wrong, they yank this huge lever and things change and they either did a bad job or a good job. But what nobody knows is the lever isn't attached to anything. It's just stuck there in the wall. And the reason you might argue that he's actually been lucky is

is we had a very specific shock to the economy in the pandemic. There was this massive shock to supply. There was an accompanying shock to demand when all those checks went out.

And what you have, when you have a shock like that, where there's less stuff to buy or people initially can't buy anything because they're stuck in their house and they have tons of money to buy stuff. Those shocks are just going to take a certain amount of time to work their way through the system, right? It's like my, my metaphor, this that I always use is the pig working its way through the Python, right?

And so Jay Powell comes along and just when the pig is about halfway through the Python and he's like, oh, the Python is going to burst or whatever. He's like, we are pulling the lever, monetary policy, ka-chunk. And then as it happens, the pig keeps passing through the Python, inflation comes down. And really whether the monetary policy had anything to do with the fall in inflation, which was just crazy.

The supply chains unravel. People spend through their stimulus checks, things. And if he had done nothing, might we have seen a very similar path to, to, um,

to lower inflation? And I think the answer to that question is yes. If the Fed had just left rates alone, we would have seen a similar, maybe not identical, but a similar decline in inflation as the shocks of the pandemic simply disappeared into the background. And I'm just a journalist. I wouldn't want anyone to take my word on this. But I talked to a lot of big shot economists, and some of them on the record and some of them on the record were like, yeah, that's probably right. It's mostly...

you know, the passage of time, time heals all wounds. And then the Fed is helping kind of at the margin, probably a lot through signaling, right? Like the high priest of our economy, which is the chair of the Fed, stands up and says, this is a very serious matter. We're taking this very seriously. We will do what we have to do. And that changes people's mentality, which helps inflation on the margin. But I think

In most cases, most of the time, central bankers need a lot of luck. And I think Jay Powell got some. So it sounds then like...

we're being a little bit too obsessive about rate cuts. I mean, if that's true, if they don't have that much effect on the economy, and if it sounds like what you're kind of saying is that it's mainly a story that Wall Street interprets and then reacts to, and that's why we see those price changes in the stock market, then perhaps are we, you know, taking this a little too seriously? Are we obsessing too much over Jerome Powell and his decisions? It's hard to say. It's like,

It might be useful that we all think the Fed has more power than it really does. That might give the Fed enough power to actually help us sometimes. Like maybe this is a useful illusion, a kind of – it's like a religious convention that helps everybody calm down and then the Fed can use that kind of –

uh, spiritual authority almost to calm animal spirits and help things at the margin. But I think why do we, why do we people like me obsessed so much 25 versus 50, this number versus that number, they do this. I think it's because action by the federal reserve is a discreet and easily describable phenomenon.

You can quantify it. You can say what time it happened. You can say who did it, who made up their mind. And because the economy is like this huge, poorly understood, very confusing, multifactorial nightmare of a mush, having something that is actually clear and that you can pick apart and is like understandable on its own terms is

That's the kind of stuff we like to talk about. Otherwise, you just spend all day...

not knowing what the hell you're talking about and being afraid. Yeah, exactly. I mean, I'm exaggerating slightly for effect, but you get my point. We are attracted, as people with an analytic bend of mind, we are attracted to talking about things that are susceptible to analysis rather than the real world, which often is not. Yeah, and unexplainable and indescribable. Exactly. Oh, it's just awful. Yeah. Stay with us.

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I want to quickly shift gears here to Intel. Some news brewing that Qualcomm is looking to come in and acquire potentially an investment from Apollo. What are your thoughts on Intel's fall from grace? What's going on here? I used to cover this company a lot more than I do now. So I don't want to come off as presenting myself in authority of what's going on

in the day-to-day operations. But I think it's a very interesting story for somebody who's been covering tech markets for a long time. It's a very interesting story of a company whose position seemed unassailable, certainly 20 years ago, and even maybe 15 or 10 years ago. We talked about Wintel as this monopoly company.

Microsoft made the PCs and the operating system. Intel made the chips. And it was like Intel had these advantages of scale that were just undefeatable. And they were going to be on top of the chip industry forever. And things happened, most notably Intel.

the mobile phone and presumably iPhone in 2007. And it was like, whoa, maybe the way we, the assumption was we, we compute now and we will always compute in a certain way, sitting in front of a computer, tapping the keyboard, la la la. And if that had remained true, Intel would have remained dominant. Then the mobile phone comes along and we start computing with that. And it's like, they are unable to kind of make that transition because

A chip designer called Arm, originally of the UK, now owned, you know, listed in the US, came along and said, we make these chips that actually are not as good as Intel chips. However, they use very little energy. So they don't run down your mobile phone battery.

And Intel was like, oh, these aren't good. Are they, you know, and whatever. And, you know, and lo and behold, it slipped away from them. So the interesting question about this for me is we assume Google will always dominate internet advertising. We assume meta will always dominate social media. We assume go down the list, Microsoft, et cetera, et cetera. You know, we had trouble imagining a world 20 years ago where Intel's dominance would be broken, right?

What are we forgetting to imagine? What are we unable to imagine about a world 10 years from now in which it's not Google, Meta, NVIDIA, these guys that just appear to have a lock on everything?

I'm very bad at imagining the future. I can't even, you know, I can't, I'm bad at visualizing the present. Maybe Scott can see the future better. I'm willing to hallucinate. I'm not even sure imagine is what I want to show. But he does it convincingly. If you look at the MSCI emerging markets index versus the developed markets, it looks just historically out of whack, or it looks as if mature markets are really expensive and emerging markets are really cheap.

Do you think we're on the precipice of sort of this great rotation back into emerging market returns? Okay, so you need a theory to answer that question. You need a theory of what drove this cycle and why that's over, right? And I'll offer you a theory of what drove money into big cap American stocks to the cost of emerging market stocks and some other kinds of stocks. We have a world that is awash in savings.

So we have a very imbalanced economy in places like China and Germany. They generate a huge amount of savings. America, of course, is the deficit side of that. We're the other way. We do the odd. We dis-save.

And so there's all this global saving. Some of it's in the United States too, and it needs some place to go. I think we may have talked about this before. And all that kind of savings glut is what some economists call this. And sometimes they link it to inequality. So there's this group of economists at Princeton and elsewhere, Atif Mian and his colleagues, called the savings glut of the rich. We live in this unequal world where...

Rich people in certain countries have all these assets and they need some place to send it. And America is simply the easiest place to send it. The market is big. It can absorb your money easily. The capital account is open. There is no legal problem. There are large companies, et cetera, et cetera. So like America, big cap stock is like the most receptive place to absorb this extra savings that has developed in our unequal world. Whereas like you want to invest in like

What are the problems in China? Which countries do you pick? Everybody's at war, and it's a nightmare, and you don't do it. Whereas the last time we had an emerging market cycle, which was like this would be late 90s, early 2000s, emerging markets were doing great. There was this story about how the rest of the world is catching up. This is the next big opportunity. The BRICS, Brazil, India, China, Russia,

uh, there's going to be, there's going to be this great catch up and there was a great story and money was chasing in that direction. So what is the shift in global money flows and, or the narrative that is going to push money back into the emerging markets? Cause it's not going to be just because they're cheap. If there is an Armstrong's law in finance, it's that things that are cheap need a reason to correct. There's got to be a story about what's going to happen. So

What's the story that, what changes in the narrative that gets money flowing back to Mexico, et cetera, et cetera, to Brazil, to Indonesia, to South Africa, Turkey?

And I'm not sure what that, I can't think of what that is. Yeah, but isn't it just, so, you know, I never miss an opportunity to miss an opportunity, but isn't there a thesis around that asset classes are cyclical, that when they become so underinvested that any incremental amount of activity capital gets a greater return and that these things are just so oversold? It should attract money in theory, but I think you need a catalyst. So one example of this is,

is India, which as of a few months ago was the best country

performing stock market in the world and the most expensive yeah and the most expensive it was it became super expensive as a result because there wasn't enough stuff to invest in over there and money wanted to go there but there was this notion that a there was a narrative that two things happened a under modi whatever his other sins may be the place is open for business and

It encourages business. The administration is there to encourage rather than inhibit business activity. And B, the money that was getting the hell out of China needed somewhere to go. And if you wanted an emerging market play and you thought China was no good, it had to go to India. So that narrative started getting around and those stocks went bananas.

So the cyclical thing, it definitely helps once the narrative changes, but you need the catalyst. So low prices are something like potential energy. Now, I said we shouldn't use science metaphors, but I'm going to break my own rule. The cyclical thing, the fact that the available returns are suddenly high because the prices are low –

It's potential energy, and we're looking for a catalyst here, and I don't know what it is. Especially in a world that's at war, it's very unstable. America is kind of still, looks like a safe haven in some way, or the, you know, so I don't know, maybe not yet. Maybe we can start a narrative here, though. This could be where it starts, Scott. There you go. This is where it starts. What about, I'm curious, one of the unintended consequences of this kind of historic escalation in interest rates is

I don't think anyone saw real estate prices skyrocketing. I certainly didn't, despite in the face of massively increased interest rates. Do you think there's a chance that...

these kind of unexploded devices of a low interest rate mortgage that has prohibited people from selling or discouraging them from selling their homes, that decreasing interest rates might free up liquidity and we might have conventionalism thrown out the window again and see a decline in housing prices with a decline in interest rates? I was even more surprised than you were by what happened in real estate. I got every article I look back and I wrote about real estate during the pandemic, I look back at it with shame.

I did not say I was really crushed by this. So we know that in general throughout history, real estate prices are sticky down, right? Once real estate prices rise to a certain level, it's very hard for them to fall below it. And that's because they're slow moving assets and people will just hold them and wait, right? If you bought your house for 300 grand or a million dollars, and you're just going to really hesitate to sell it at a loss. So you will just wait, right?

until there's an opportunity to sell it for a gain. So, and even, you know, the real estate crisis that we saw in 2007, 2008, what you had there was forced sellers, right? So there were people who literally had to sell because they were bankrupt, they didn't have the money or whatever, and they were putting the keys in the mailbox and all that.

So if you were going to see a price disruption, you have to answer the question, who are the forced sellers going to be? Right? Because we know that people who are underwater on a piece of real estate who do not have a gun to their head, just sit there. So that is the puzzle you kind of have to solve. But I certainly hope the market unfreezes because it's a mess and it's extremely bad, especially for young people who are trying to get on the

property ladder right now. We have a terrible, and I think this is something that is relevant to this election. I don't never talk about politics, but I think one thing about markets that is extremely relevant to this election that does not get discussed is that we have a housing affordability crisis in America and it makes people mad, especially young people.

And that anger will in some way or another that some political scientists will explain to you is going to affect the election. Yeah, I wanted to go there. And this is just to wrap up last question for me. I feel like you do a really good job of identifying what stories are happening in the markets, how people are interpreting the data and spinning them into stories that leads to action.

And that is sort of the job of the two candidates in this election. So I'd love to get your take on

not necessarily on the overall campaign, but more on their economic proposals. What kind of stories do you think Trump is trying to tell? What kind of story do you think Harris is trying to tell? And I'd love to get your take on which one is going to be more compelling to the American people. Okay. I don't know that I'm going to be answering the second half of that question, but I'll answer the first half of the question, which is this. So Trump wants people to believe that everything is terrible.

And just, I mean, it's awful. And that's his thing is, you know, he's, that's the product he's always sold. And he has a tremendous advantage in telling that story. You know, a little while ago, I was saying, I think inflation is, is defeated. And I do believe that. But the simple fact is that the price level in America through the pandemic changed 20 to 25%. So every time you go to buy anything, excepting probably gas, you know, you remember when prices were really different.

And that's going to be a negative emotional experience that you have every time you look at a price. And maybe the government and the Federal Reserve made the right trade-off. We're going to very much stimulate this economy. We're going to cut rates into this economy. And we're going to keep unemployment low. And if we get some inflation, we'll live with that. And you could have, in theory, done a different trade-off.

more unemployment, less inflation or whatever. But Trump has a story to tell that is reinforced by an actual human being's experience, looking at a price and getting mad. So I think that side is quite simple, actually. On the Harris side, I find the story a lot more vague. Like, so she's talked about prices a little bit by talking about, oh, it's these companies that are gouging you. I don't think that's true, but she's trying to deal with that story.

But I think she, and perhaps wisely, has largely stayed away from the economy. And, you know, she's running on the fact that, as far as I can tell, as not a politics person, she's like, Trump is a chaotic force. We don't want to go back to the reprisals and the chaos and the lies and et cetera, et cetera. But it seems to me—maybe you guys feel differently—

Except for a few phrases, she's almost steering clear of the economy. Yeah, which is strange because the economy has been great. Yes, but Trump has at his back this one incredible emotional fact, which is the price of just food, housing, whatever. And even if someone's employed, I mean, I may have said this to you before because I rattle on about it endlessly, but there's a terrible asymmetry. If you, Ed, or you, Scott, get a promotion...

you think to yourself, why did Ed, why? Ed is wonderful. Scott is wonderful. It's me. Aren't we great? We finally got that promotion that we deserved, or we kept our job because we deserved it. You know, if the price of eggs goes up, that's the government's fault, right? And that fundamental, and, but the two are actually related. You may have kept your job or gotten that raise because of the same thing that caused the cost of eggs to go up. But that fundamental asymmetry plays to the side of the party that wasn't in office. Right.

And that strikes me as being an important economic reality. No one ever blames the economy for their success. No, they certainly don't. I know it's certainly not responsible for my success, which has been a wonderful story of bootstraps and similar things. Hard work. Man, it's been great. It's a great American story.

That's right. Robert Armstrong is the U.S. commentator for the Financial Times and writes the Unhedged newsletter. Previously, he was the FT's U.S. financial editor and chief editorial writer before becoming a journalist. He worked in finance and studied philosophy, and it shows. Wow. Thank you very much for coming on, Robert. Thanks, Robert. We love having you. I wish my answers were as good as your questions, guys. Go on. Go on. Thanks so much, Robert. All right. Thanks for having me on.

This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producer is Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday. I've time I need time

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