One thing that is almost a given when high-profile economists hit the stage at a large event is that the audience is going to hear some intriguing views on what variables are affecting the markets. What is not always assured is that the session is going to be humorous. The Market Mavens Masterclass session at Pershing’s INSITE 2018 was both.
Dr. David Kelly got things rolling by elaborating on the Vodka and Espresso essay he had published on LinkedIn earlier in the week. The story remembers how during his days working in Sweden, Kelly was often shocked to watch how many Swedes imbibed large amounts of vodka each night and similarly copious amounts of espresso throughout the day. Kelly described how the ying and yang of the clear and dark liquids was a careful balancing act as too much of either would bring devastating effects.
Kelly, the Chief Global Strategist and Head of the Global Market Insights Strategy Team for J.P. Morgan Asset Management, linked that delicate balance to the present status of the US economy. From the piece:
“The U.S. economy finds itself in a similarly awkwardly balanced position today with a very stimulative fiscal policy being eased by the dampening impact of trade uncertainty.”
So tariffs and other geopolitical uncertainties are the vodka, while tax cuts and a stimulative Federal Reserve are the espresso. That is hilarious.
Aside from being humorous, Kelly’s comparison is also quite correct. So much so that his colleague on-stage, Vincent Reinhart, embraced the parallel and presented a very real-world issue that underlined the severe ramifications of vodka-style trade rhetoric: “If you were a CEO, where would you put a factory in the Midwest right now? Nowhere. You probably want to wait and see how trade issues pan 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 shocked that President Trump has shook up the trade status quo since Trump’s rhetoric and tariff steps constitute him following through on his campaign pledges. The one little tactical problem the administration seems to be encountering, according to Reinhart, is that members of the Trump team don’t always seem to be sure of what specifics they want to discuss.
Politics and the markets
Kelly stated that politics is affecting the US right now and commented that every news article seems to pit “Foxistan vs CNNistan.” However, Kelly said politics and markets have always been a peculiar combination, playfully describing how he spent years during the Obama administration trying to convince Republicans that the market will go up with a Democrat in the White House. Now he needs 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 question of wage growth, Kelly was extremely frank in his comments regarding the underlying structural factors that have led pay growth to stall.
When labour dynamics used to pit employers against unions, Kelly argues it was a very fair struggle, and pay growth was constant. When unions started losing their strength and the equation moved to pit employers vs individual full-time employees, it wasn’t as fair of a struggle and individuals started to lose momentum. Now that the gig economy has taken hold in many industries, Kelly argues the struggle is fully one-sided in favour of employers because employees are now competing to do tasks for the lowest price.
So although some employees think the gig economy is excellent because it allows them certain sorts of independence, many don’t grasp that it also decreases their income.