One thing that is almost a guarantee when high-profile economists take the stage at a big event is that the audience is going to hear some interesting insights on what factors are shaping the markets. What is not always guaranteed is that the session is going to be funny. The Market Mavens Masterclass session at Pershing’s INSITE 2018 was both.
Dr. David Kelly got things going by expanding on the Vodka and Espresso piece he had written on LinkedIn earlier in the week. The piece recalls how during his days working in Sweden, Kelly was often amazed to witness how many Swedes imbibed vast amounts of vodka each night and equally voluminous amounts of espresso during the day. Kelly explained how the ying and yang of the clear and dark beverages was a delicate balancing act as too much of either would invite disastrous results.
Kelly, the Chief Global Strategist and Head of the Global Market Insights Strategy Team for J.P. Morgan Asset Management, likened that delicate balance to the current state of the US economy. From the piece:
“The U.S. economy finds itself in a similarly oddly balanced position today with a strongly stimulative fiscal policy being softened by the dampening impact of trade uncertainty.”
So tariffs and other geopolitical uncertainty are the vodka, while tax cuts and a stimulative Federal Reserve are the espresso. That is hilarious.
Aside from being funny, Kelly’s analogy is also incredibly accurate. So much so that his colleague on-stage, Vincent Reinhart, embraced the analogy and posited a very real-world question that highlighted the serious consequences of vodka-style trade rhetoric: “If you were a CEO, where would you open a plant in the Midwest right now? Nowhere. You probably want to wait and see how trade tensions work out.”
Trump being Trump
Reinhart, the Chief Economist of Standish, which is part of BNY Mellon Asset Management North America, said no one should be surprised that President Trump has shaken up the trade status quo because Trump’s rhetoric and tariff moves represent him following through on his campaign promises. The one small tactical challenge the administration seems to be facing, according to Reinhart, is that members of the Trump team don’t always seem to be sure of what specifics they want to negotiate.
Politics and the markets
Kelly noted that politics is hurting the US right now and quipped that ever news story seems to pit “Foxistan vs CNNistan.” However, Kelly said politics and markets have always been a curious blend, jokingly recounting how he spent years during Obama administration trying to convince Republicans that the market will go up with a Democrat in the White House. Now he has to turn around and convince Democrats the market will go up with a Republican in the White House.
The conversation wasn’t all fun and games and vodka and espresso. On the topic of wage growth, Kelly was very direct in his comments about the underlying structural changes that have caused wage growth to sputter.
When labor dynamics used to pit companies against unions, Kelly says it was a relatively fair fight and wage growth was stable. When unions started losing their power and the equation shifted to pit companies versus individual full-time employees, it wasn’t as fair of a fight and employees started to lose ground. Now that the gig economy has taken hold of many industries, Kelly says the fight is completely one-sided in favor of companies because workers are now competing to perform work for the lowest price.
So while some workers think the gig economy is great because it offers them certain kinds of freedom, many don’t understand that it also suppresses their compensation.