Professor Campbell Harvey, professor of finance at the Fuqua School of Business at Duke University and the inventor of the most famous recession indicator — the inverted yield curve — joins The Julia La Roche Show for a wide-ranging conversation on the economy, the Federal Reserve, and the yield curve. 

In this episode, Professor Harvey highlights how the Federal Reserve made things worse in 2023 with its unnecessary rate hikes. According to Professor Harvey, we’re fortunate if the economy delivers slow growth this year in spite of the Fed’s damaging actions. He argues that the Fed will need to undo the damage they did with immediate rate cuts no smaller than 50 basis points at the next meeting. 

Elsewhere, Professor Harvey shares the origin story of the inverted yield curve indicator and it’s 8 for 8 track record in predicting economic recessions. Now that we’re in the 9th inversion, he shares that it’s way too early to call if we’re in a false signal. He also makes a case that the inverted yield curve is causing slower economic growth, and that’s not necessarily a bad thing because you avoid a deep recession. 

Links: 

DeFI and the Future of Finance: https://www.amazon.com/DeFi-Future-Finance-Campbell-Harvey/dp/1119836018

https://www.fuqua.duke.edu/faculty/campbell-harvey

https://people.duke.edu/~charvey/

https://twitter.com/camharvey

0:00 Intro 

1:00 Big picture macro view 

1:30 Understanding the current state of the economy and the role of the consumer

5:20 Fed needs to 

5:55 The story has to do with the consumer

8:30 Federal Reserve undoing the damage

10:00 Inflation, the false narrative, and policy errors

18:00 Fed rate cuts need to happen immediately 

21:27 What would Professor Harvey do differently at the Fed? 

23:30 Inverted yield curve indicator origin story

30:00 Difference between long-term rate and short-term rate is highly predictive of economic growth 

36:40 8 out of 8 without a false signal 

39:00 If Fed undoes the damage it created, there’s a good shot of a soft landing

39:30 What do folks get wrong when it comes to the inverted yield curve? 

45:00 The inverted yield curve is causing slower economic growth 

47:00 Understanding how the inverted yield curve works 

49:30 What keeps Professor Harvey up at night? 

Famed economist Professor Jeremy Siegel, professor of finance emeritus at Wharton, discusses the macroeconomic overview, his outlook for the Fed’s interest rate policy, the probability of a recession, the stock market outlook, and owning stocks for the long run. 

Timestamps 

00:00 Introduction 

01:12 Macro overview

04:50 Probability of a soft landing is over 50%

06:09 3 reasons to lower interest rates

10:24 Commercial Real Estate and banks

13:07 Expectations for the Fed, how fast will the lower?

17:45 Misconceptions about rate cuts

20:27 Most important message from the latest FOMC

22:22 Goldilocks economy, 60-40 soft landing odds 

25:20 Stock market

27:27 Productivity 

29:10 Market outlook for 2024

32:00 Value stocks

34:37 Bond market outlook

34:30 The Noisy Market Hypothesis 

37:48 10,000 students in 49 years as a professor

39:25 Never taken a finance class 

42:42 Milton Friedman

44:10 Parting thoughts

Links: 

https://ir.wisdomtree.com/company-information/advisor

https://fnce.wharton.upenn.edu/profile/siegel/

https://www.amazon.com/Stocks-Long-Run-Definitive-Investment/dp/1264269803/

Investment banker and author Chris Whalen, chairman of Whalen Global Advisors, who is also the author of The Institutional Risk Analyst, returns to The Julia La Roche Show to discuss the big picture of the economy and markets, including an impending maxi reset in home prices and the potential for more bank failures. 

He also highlights the “silent crisis” in commercial real estate and the potential increase in bank failures. Whalen shares his insights on the earnings of big banks and media coverage. He provides an outlook on the Federal Reserve and discusses the debt situation in the US. Lastly, he addresses the possibility of releasing Fannie Mae and Freddie Mac from conservatorship and shares his work and parting thoughts.

Takeaways

Links:

Twitter/X: https://twitter.com/rcwhalen

Website: https://www.rcwhalen.com/

The Institutional Risk Analyst: https://www.theinstitutionalriskanalyst.com/

Comments most recent Fed proposal in Basel III Endgame: https://www.regulations.gov/comment/OCC-2023-0008-0052

Timestamps:

00:00 Intro

01:08 Big picture view of the economy and markets

3:29 Impact of Basel III endgame 

4:50 A maxi reset in housing

06:20 Silent Crisis in commercial real estate

09:28 Potential increase in bank failures

13:00 Big bank earnings and media coverage

15:30 Grim economic picture for commercial 

21:15 Outlook on the Federal Reserve

24:55 Fed could cause a bank crisis 

26:15 Debt situation in the US

31:30 Release of Fannie Mae and Freddie Mac from Conservatorship? 

35:15 Parting Thoughts

Luke Gromen, founder of FFTT, joins The Julia La Roche Show to discuss the macro picture and the sovereign debt bubble that’s bursting in the U.S.

In this episode, Gromen makes a case that he thinks this is the year where the consensus realizes the Federal Reserve as a “shadow third mandate,” which is the Treasury market functioning. He explains the concept of fiscal dominance and its implications for the economy, including higher inflation and a weaker dollar. 

Gromen predicts that there will not be a recession in 2024 due to the Fed's focus on maintaining the functioning of the treasury market. He recommends investing in gold, Bitcoin, and industrials as these assets are likely to perform well in the current environment. 

Gromen also discusses potential scenarios that could avoid the negative outcomes of the sovereign debt bubble.

Links: 

https://fftt-llc.com/

Twitter/X: https://twitter.com/lukegromen

Dr. Charles Calomiris’ paper on fiscal dominance: https://files.stlouisfed.org/files/htdocs/publications/review/2023/10/02/fiscal-dominance-and-the-return-of-zero-interest-bank-reserve-requirements.pdf

Timestamps: 

0:00 Introduction and macro view

1:40 The Fed has a “shadow third mandate”

3:54 Fiscal dominance and its symptoms 

9:24 Realization of fiscal dominance by the consensus 

14:10 No recession in 2024

21:31 It’s a new Great Depression

26:00 Investment Opportunities: gold, Bitcoin, and industrials

35:19 Avoiding the scenario

40:05 Conclusion and parting thoughts

Jim Bianco, president of Bianco Research, returns to The Julia La Roche to share his macroeconomic outlook, his prediction for 5.5% on the 10-year Treasury yield impact on the stock market, inflation, the US debt situation, and the approval of a Bitcoin spot ETF. 

Links: 

BiancoResearch.com

BiancoAdvisors.com

twitter.com/BiancoResearch 

Timestamps

00:00 Introduction and macro outlook 

03:07 Call for 5.5% 10-year Treasury and impact on the stock market

6:12 The pathway to 5.5%

8:08 The Fed's response to inflation

11:26 Soft Landing vs. No Landing

15:40 Implications of 5.5% on the 10-year

21:40 Why can’t we get to 2%? 

28:38 Biggest worry with 5.5% on the 10-year

31:16 US debt crosses $34T

36:35 Bitcoin Spot ETF 

44:40 Closing remarks 

46:50 Consensus forecasts have been wrong

Bestselling author Morgan Housel, partner at The Collaborative Fund and first-ever guest on The Julia La Roche Show returns for episode 132 to discuss his newest New York Times Bestseller Same As Ever: A Guide to What Never Changes. Morgan’s first book The Psychology of Money has sold over four million copies and been translated into 50 languages worldwide.

Morgan is a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers, and winner of the New York Times Sidney Award. In 2022, MarketWatch named him one of the 50 most influential people in markets. He serves on the board of directors at Markel. 

Takeaways

Timestamps 

00:00 Introduction and Catching Up

01:08 Surprising Success of 'The Psychology of Money'

02:24 The Value of Low Expectations

04:08 Managing Expectations and Balancing Optimism

07:28 The Dangers of High Expectations and Social Media

09:37 The Gap Between Expectations and Reality

12:59 The Inflation of Expectations

15:11 The Impact of Social Media on Happiness

18:30 Envy and the Pursuit of Status and Success

23:39 Risk and the Unforeseen Consequences

26:17 The World Hanging by a Thread

31:41 Personal Story: Skiing Accident and Risk Aversion

40:32 The Demand for Economic Forecasts

43:01 Calm Plants the Seeds of Crazy

46:00 Investment Strategy: Simplicity and Endurance

48:23 Charlie Munger's Legacy

51:08 Writing for Self-Discovery

In this conversation, Julia interviews Sallie Krawcheck, the CEO and founder of Ellevest, about the economy, the role of women in finance, and the retirement crisis.

Sallie shares her assessment of the economy and markets, emphasizing the importance of long-term investing and the historical growth of the stock market. She also discusses the significant impact women had on the economy in the past year and the growth of Ellevest as a platform for women's wealth-building.

Sallie reflects on her initial skepticism about starting a women-focused investing firm and the importance of overcoming imposter syndrome with a growth mindset. The conversation concludes with a shared love for their alma mater, UNC, and a reminder to support and promote women in finance.

Takeaways

Chapters

00:00 Introduction and Gratitude

00:46 Assessment of the Economy and Markets

03:12 The Role of Women in the Economy

04:48 Update on Ellevest

07:33 Sallie's Initial Skepticism and Change of Perspective

10:26 The Retirement Crisis and its Impact on Women

12:48Women's Investment Behavior and Performance

16:02 Regional Banking Crisis and Risks

20:01 Incentive Structures for Bank Executives

20:48 The Role of Men in Advancing Gender Equality

23:57 Overcoming Imposter Syndrome with a Growth Mindset

25:33 Shared Love for UNC and Closing Remarks

Dr. Charles Calomiris, Henry Kaufman Professor of Financial Institutions Emeritus at Columbia Business School, joins The Julia La Roche Show to discuss his recent paper, ⁠Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements⁠.

Timestamps:

00:00 Introduction and background

01:01 Short-run and long-run perspective of the economy

03:23 The dysfunctional state of the economy, the blame is ours

06:37 Generational government accounting and political responsibility

10:06 We are not a grown-up society right now 

11:20 Debt situation in the U.S. 

13:53 The point of no return? 

17:50 Less than a decade to make the political decision

19:50 Deficits, recessionary environment, and the consequences

23:00 Signs to look out for in the bond market 

24:40 Fiscal Dominance and its definition

27:30 Will the government tax the banking system into almost oblivion? 

28:50 Taxing the banking system and the inflation tax

34:00 If nothing changes, how implied annual inflation could be 35-40%

37:00 Fed could raise reserve requirements and pay zero interest to expand the inflation tax base, lower implied inflation rate

40:00 Impact on the banking system

46:17 The power of the Federal Reserve

51:00 Bitcoin

54:19 Parting Thoughts and Advice

Links:

Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements

Fragile By Design The Political Origins of Banking Crisis and Scarce Credit

Tom Lee, Managing Partner and Head of Research at Fundstrat and FS Insight, returns to The Julia La Roche Show to share his market outlook.

Lee was among the bullish entering 2023, with a prescient call that the S&P 500 would rise 20% to 4,750 as inflation cooled off. 

In this episode, Lee shared his 2024 market outlook, noting it’s a year that investors shouldn’t be afraid. He expects the S&P 500 will end 2024 at 5,200, but with a caveat that most of the gains will be in the second half of the year. He pointed out that his base case is the S&P could be flat or down 5% during the first half.

Looking ahead to 2024, Lee predicts positive changes in monetary policy and an earnings recovery cycle, with small caps and financials as top picks. He anticipates that small-cap stocks could outperform and rally as much as 50%. He also shares his bullish outlook on Bitcoin.

Takeaways

Links:

30-day free trial to FS Insight: https://bit.ly/485XjUl

https://fsinsight.com/

https://fundstrat.com/

Timestamps 

0:00 Intro and welcome Tom Lee

1:13 Retrospective on 2023 market call, what people got wrong

5:13 Mass psychology playing a bigger role than ever

6:58 Institutional and retail investors reading from the same playbook

8:42 2024 outlook, a year investors shouldn’t really be afraid 

14:12 Base case is S&P down/flat in first half, most gains in the second half

18:26 Small caps 

21:10 S&P 5200

22:00 Sector positioning

24:20 ‘Permabull’ reference is a cheap shot   

30:00 Bitcoin

32:00 Closing remarks 

Former hedge fund manager Felix Zulauf, who is the founder and CEO of Zulauf Consulting, joined The Julia La Roche Show to share his insights on macroeconomics, geopolitics, and the market. Zulauf Consulting is a boutique research and consulting firm that offers investment advisory services to institutional investors and family offices.

In this episode, Zulauf predicted that the market will continue to rise in early 2024 due to the economy appearing stronger than expected. However, he anticipates a drop in equities due to a recession. He described the current market as a "rollercoaster," with ups and downs that could be particularly frustrating for passive investors. He suggested that these investors might see low or even negative total returns in the next decade. According to Zulauf, those who can play mini cycles could find the environment beneficial.

Zulauf also commented on the concentration of fund managers in the Magnificent 7, a level of concentration he has never seen in his 40-year career.

Turning to inflation, Zulauf argued that what we're currently seeing is only a "temporary victory" and that we have "not killed the inflation beast." He shared his thesis for the latter part of the 2020s, predicting a possible 10% inflation rate. He noted that while occasional crises have been managed and kept under control, he worries that the next big crisis in the late 2020s "will be a shocker." As he put it, "all hell will break loose," and the latter half of the decade will be characterized by social, economic, financial, and currency crises.

0:00 Intro and Welcome Felix Zulauf 

1:12 Macro view, geopolitical impact, changing world order

2:40 Equity markets likely to go up first, then drop

3:50 Inflation could rise above 10% 

5:20 Nimble and flexible 

7:29 Playing the markets in the environment 

9:40 Fund managers piling into Magnificent 7 stocks, never seen this kind of concentration 

14:24 FOMC reaction, Fed outlook, rate cut likely 

17:40 Late 2020s, higher inflation, debt trillion

19:38 Inflation cycle similar to late 60s/70s

21:15 Next inflation cycle will create a problem for the bond market

22:15 Yield curve control 

23:30 Hell will break loose, next big crisis will be a shocker 

24:30 Addressing the fiscal problems 

25:37 Gold not just a monetary asset, but a geopolitical asset

30:40 Parting thoughts, Japanese Yen