Dr. Shiller Talks Bitcoin

Professor Silla wrote a very well known book, Irrational Exuberance. Professor, I wonder if you had to write that book today and someone said to you can't write about tech stocks, You've got to write about bitcoin. What would be in that book? Professor? Every edition of that book came out with a new bubble and a different market, So yes, it would be bitcoin. Bitcoin is Uh. They captured the world's imagination. I was I was in Russia the other

day and there every It's everywhere. Uh. It shows how contagion of ideas can spread across the entire world and affect markets. How do you define a spectative bubble in something like bitcoin, at least with the tank companies. You could have sat there and said, well, here's the pe ratio. There isn't really much of an e and this is why it's a speculative mania. What do you do with bitcoin? Well, I've been starting to think about that. So the bitcoin

enthusiasts say it will be a medium of exchange. It would be money. So let's take that and go assume that it replaces money completely. I mean, is that a dream? And then I would go to some of the demand for money models that economists have made, but the velocity of bitcoin might be totally different. So I could try to get a fundamental value for a bitcoin, but it

would be largely just guess work. I was speaking to someone just last night and they said, I cannot be invested in something I have zero risk tolerance for something when I don't know the difference White trades at four hundred four thousand or forty thousand. And then that seems to be the way traditional Wall Street minds think about about bitcoin. But this isn't a traditional Wall Street product.

This is a retail product. I think we we here's a job for a young analyst figure out very much so, but the problem is it's going to be depending on assumptions about a wild future. I would say, let's have like five different pe ratios and they'll all be all over the map, and we still want Professor Paul Donovan over at UBS said, bubbles are irrational, so don't try and use rational analysis to to work out when this thing is going to burst? Is that decent advice for

anyone on the outside looking in. But you want to know what it will burst too, so you have to have some idea when it's overpriced and when it's underpriced. Uh. Another thing about the bubble metaphor, which is unfortunate is it tends to the metaphor of a bubble. You know, a soap bubble burst and it does and come back, right, you can get a different bubble, but you can't get the old one back. But in financial markets, they're never quite done. Bitcoin burst in what was and I we

most of us thought it was done. But here it comes roaring back. So it might burst again and come up again. Uh. That's why I don't know if I like the word epidemic. It's a expeculative epidemic. That's better, just in terms of how you characterize the bubble. To some people would define it by the order of which retail gets in Wall Street first, retail last, the retail

investor marks the top Wall Street starts getting out. Can you apply the same thoughts to bitcoin when it seems to be the other way around, the retails first and Wall Street second. Well, you know, in my study of the difference between individual and professional investors, uh, I find it when it comes to things like this, they're not

that different. Professional investors work well when they have something that they can analyze, but there's nothing clear to analyze here, so I think they may be just as vulnerable to bubbles as retail. Just as a final comment on this, professor, do you worry about the infrastructure that not enough thought and time has been given to having these kind of things trade on in exchange? As a future product? Yeah, I'm not sure it was a good idea to launch

future because, uh, it's still not a reputable product. It's still wild. On the other hand, launching your futures market might help calm this market. It's been extremely volatile and generating futures There's been a lot of alarm that generating the futures markets will generate even more volatility, But I think it would probably more likely settled markets down a little bit. Professor Robertshi and Abou laureate and Yale professor. We want to go to UH Washington in a sense

because it is the number two story this week. Um, we'll have the FED down there, and of course the tax debate and the efforts to put together a spending bill. Isaac Boltanski gets paid to follow all that for Compass Point. He's a senior vice president there and he joins us. Now, good morning, Isaac, Good morning. UH. The another analyst I won't give a name, but basically said, you know, there's a couple of things that are going to be happening

this week. Um, the Conference Committy is going to have a photo op and the President is going to give a speech on Wednesday about taxes. But that's not the thing to watch because the real action is behind the scenes, right as they as they try to conduct a math exercise and make all the parts fit financially. Sure, I think it's important to not miss the forest for the trees here. There's going to be a week of speculation,

political theater, and dubious details. But at the end of this week, I think we're going to have a really good picture of where the tax bill is, and the GOP is pushing to actually have this conference canna be done by Friday in the hopes of having something to the President's desk by Wednesday of next week. Now, I think that timeline is likely to slip, but it's realistic given that everything to date has been done at warp pace. When we get a bill, a two part question. One

is anybody going to really know what's in it? And to how many mistakes will there be? I read a funny story over the weekend. A group of tax accountants got together and put together the Tax Accountant's Guide to Avoiding Taxes based on what was in the bills so far. Yeah, I think, Michael, you're absolutely right that this bill is being written at such a hurried pace that there will undoubtedly be a slew of mistakes and loopholes and unintended consequences.

And a concerning theme that that I have when thinking about risks for is that, uh, I'm not sure this Congress will have the capacity to come back and enact a legislative fixed bill for some of those loopholes. So the bill that ultimately gets passed into law later this year is something I think we're going to have to live with for quite some time, which is concerning because it will be riddled with mistakes, loopholes, and untimely consequences.

I think it feels like whole roads lead to and lead from the corporate tax rate and whatever that may well be. Both bills have it. At the President kind of hinted at that this number and twenty two kind of came out of nowhere. Where is your base case right now? Is that the twenty or the twenty two? Sure?

I think that the framing this is a is a math ex size is exactly right, And because it's a math exercise and there are procedural limitations in the Senate regarding um UH revenue neutrality, our view is that the final rate is going to settle somewhere closer to and will likely be effective in You put those two concessions together and right there you've picked up about three billion and extra revenue to fill in gaps elsewhere in the

in the bill. So the other thing we need to work out one once you've worked out in the corporate tax, right, is what happens with salt deductions. There seems to be some flexibility around this. If you talk to people in the administration, what do you think that comes out looking like, Isaac, I think this is something that's important for your listeners.

In particular, the decimation of the salt deduction is something that um we've heard a fair amount from from our clients who live on the coast in particular and high code in high tax state. There has been a deal that would allow for up to ten thousand dollars worth of property taxes to be deducted. But what's interesting is that over the past week or so, we've started to hear more and more chatter from key stakeholders that there might be a deal to allow at least some degree

of income to be deducted as well. Too early to tell how that will look or exactly what the mechanism will be, but that would be a win for for I would think reticent Republicans in high tax states, and also the mortgage industry that's been concerned that the decimation of salt would make the mortgage interest seduction, which has

survived relatively useless. I want to uh do a shameless plug for Sahil coporor congressional correspondent for Bloomberg news story on the Bloomberg Today, asking the question will middle class folks notice their tax cut? He points out in two thousand nine there was a one year tax break worth eight dollars for married couples in working households, people got about oh fifteen dollars a week, and of the people who were surveying thought their taxes had gone up. Nobody

noticed that they got a tax break. So is this bill that's being counted as the biggest thing of all time by the president actually going to be a win for Republicans. Well, right now, it's polling terribly and it's hard to believe that that polling is going to improve. We're going to have to wait and see though, until probably the second quarter of next year, because let's say this passes this year, and that means the individual rate

reductions go into fact the beginning of next year. The i R s will be directed to actually change it's withholding amounts at the beginning of next year, and so there's a potential for folks to actually see some change in their own pocketbooks. The magnitude and the political ramifications yet to be seen. That I did want to come to you on why this is polling side badly. Is it the content at the bill? Although way it's been communicated, I think it's all the above, Johnath, I really do.

I think it's it's the It's the tone, the tenor the speed, and the undeniable focus primarily on a corporate rate reduction. Everything else is peripheral in this bill. The corporate rate reduction is the temple. So, Mike, why have we got this focus on the corporate side of the bill when this was meant to be a consumer focused, get the middle class of America tax cut. It doesn't seem to me that many people are convinced by that, Mike.

I think the politics were that it was supposed to be at least, you know, the publicity was that it was supposed to be. But the intent all along was to bring down the corporate tax rate ISAAC very quickly. Just because we're so focused on taxes doesn't mean there aren't other things Congress has to do. They punted the the spending bill, the Continuing Resolution into next week. Are we going to see a government shut down at some point?

My sense is that if the tax bill gets done the middle of next week, the odds are high that there will be a shutdown at the end of the week. If the tax bill isn't yet done by the December twenty deadline, then there'll be another short term punt, because getting the tax bill is one through ten on the to do list for Republicans right now. Do Democrats keep going along with the idea of punting it, you know, putting off the day of reckoning? I think they will,

but with increasing levels of political concessions necessary. Um, look there, I I firmly believe there will be a shutdown at some point over the next few weeks. It's really just a question to figure out figuring out when the tax bill will get done, and then we can go from there on prognosticating regarding the next shutdown. Well, we will get back to you for prognostications and as things happen. All right, Isaac Boltanski with a Compass Point investment, Thanks

for joining us this morning. I want to know when Varaj Patavi, I g f X strategist who joins us on the telephone now, is going to start covering bitcoin and this regular effects wrap. Does this come into your world varrage or does it not matter yet? It's starting to come into a world, but not not so much.

I wouldn't call it a currency just and for now, it's training like an asset, right, so if I'm an EEx strategist, it's not it's not necessarily a currency, but it's definitely what it does only one of the things. We haven't done a lot of work here, admittedly, but we are starting to take a look at it closely. It's having knock on implications for certain markets, all right. If you look at it from the Chinese remembee market, you start to see sort of the forward points trading off.

When when you sort of saw bitcoin futures exchanges closing earlier this year. Similarly, when Zimbabwe were sort of you know, you had the elections around noise around there, you sort of Bitcoin having invitations for the African currencies around it. So it's starting to have knock on effects and it's definitely more work that we could do, but as a as a currency, when just not they're labeling that okay. So Valence today, of course brought you by Khne Resinic Accounting,

Tax Advisory, Look Ahead, Gain inside, Imagine more. The professionals at khon Resinic can help your business breakthrough. Find out more at con resin dot com, so we can move off from G ten plus one and just concentrate on G ten. I guess for arg the pain trade of this year so far has been dollar strength that did not come. Dollar strength are pretty much everyone called for

but did not materialize. Do you see the dollar getting the kind of bit in seen that so many people hoped and predicted it would in seventeen, Well, not at all. I think this year was the learning point for markets. I think we fell into a trump flation trap earlier this year. A lot of promises that the U S economy would be reflating, potentially generating three trend US growth

two above two sent US inflation. We just haven't seen the evidence in the underlying U S data to to convince you that the dollar has another sort of cyclical upside. And so for US we see three broad reasons why we expect this dollar cycle to continue turning lower. One, the economics of a strong dollar doesn't make sense based on this sort of tax reform bill. For US, we focus on the sort of textbook negative, which is the fact that you're increasing the fiscal deathit without changing the

long run trend growth in the US. Second, the politics of the strong dollar doesn't make sense as well. We've heard the president say he doesn't want a stronger dollar. We actually did some analysis and we looked in our outlook that the second and third terms of a Republican

presidency is actually outright negative for the dollar. Now this maybe coincidence, but if you actually look at sort of some of the retric you here from past previous Republican administrations, plus the fact that you have midterm elections coming up as well, both could be a negative I guess politically for the dollar. And the third and most important point that we we point to, and this is what happened

in twenty seventeen. The rest of the world is catching up to a late US cycle, and that's where when the rest of the world grows is out performing the US growth, that the dollar will take its kew from that. And we actually think that, you know, you've got a three to five percent narrowing also decline of the dollar just for every percentage point out performance in the US of the rest of the world from the U S economy, and that's where the dynamics will be early next year. Ah,

I was gonna say who's better. I mean, do you want to hold Euros even though the BCB isn't going to be raising rates U and so the interest rate differential still favors the United States. You want to hold the end because people hold the end. What pair does best against the dollar? Well, it's certainly two sets of currencies, one where there's stronger growth potential, and there's certainly attractive

investment environments in the emerging markets. We pinpoints say e M as a sort of a preferred investment destination going next year, as well as Central and Eastern Europe. But when it comes to the Euro, I think there's still a bit of juice left from this ECB story going into next summer. Certainly, what from an FX market which prices over an infinite time horizon. Yeah, sure the US to be won't be hiking next summer, but certainly they will start to let the foot off the pedal when

it comes to talking about potential rate hikes. You know, the economy should be sound enough for them to start at least considering it. I mean, maybe it might be a late story, early nine story for the actual rate hikes to come through. At least the consideration should be euro doll at one in our view, is there anything that you see in the Eurozone economy that suggests that core inflation is going to pick up anytime soon for ours? Because if that's what's moving things at the ECB, that

ain't moving much spot on us. But it's kind of like a global phenomena right right now, right core inflation across the d G tent spaces is there is no sort of underlying inflation pressure. So it makes the likes of the Eurozone and Japan less of an anomaly. Um, there's if you look at it by logic, there's a lot more slack in the Eurozone labor markets now. We I wrote once earlier this year suggesting that banking on the Phillips curve is a risky strategy. But it is.

And but if if there's anywhere where at least you're going to get a couple of percentage points of positive surprises, it's probably the Eurozone relative to the US right now. And that's where the euro dollar view comes in. Well, you get US fundamentals good, um, turned growth better um, the real neutral rate in the US higher than in Europe.

So how long can the dollar trend down? Certainly I think that's the euro dollar you has, it's sort of one one potential repricing opportunity, and then after that it's kind of a slow burner. I think that's where we've we've we've kind of markets are priced in the relative Eurozone and US dynamics. It's it's a trade wayed dollar that kind of has we will lose ground against the

pro growth currencies, especially the emerging markets. You know, we are titled for the FX was happy how we do think that the current goldilocks gross investment environment will continue at least for the next six to my nine months. Like with any good happy hours, they'll probably end at some point. But that's but that's the late stories for it, and when they end, you want to get out before everyone else tries to get out of the mess starts. For arch Plateau, I n g FX strategist. You're listening

to Bloomberg Surveillance. We're talking with Dan rist Miller. He is the chief academist at Strategious. Uh don I was noticing that um Larry Summers yesterday wrote a piece of to the U S Academy is on a sugar high right now because the signs of marketing economic strength are largely unrelated to government policy. Do you agree with that assessment, Well, we haven't done much in the way of policy, at least on the fiscal side. Yeah. I think there's some

hope that maybe there's some aspirational moves. If we look at consumer confidence, that's at we're near highs. If we look at business confidence, small businesses are saying they're more optimistic, even c e O s If we look at the Business Roundtable survey have said they're a bit more optimistics. Maybe there's some expectation of policy. But I think it's fair to say we haven't had much actual policy put

in place yet yet. I do think confidence matters, and it matters if we get some follow throughs and tax bill in a few weeks here, depending on the structure of it, could matter at least in the short run. So well, we'll see how that goes. If we get something along the lines of what's been talked about tax rate and lower taxes on passed through small businesses to the extent that they can use it, do you anticipate a lot of business investment is a supply side boost

going to boost growth. So one thing we're watching is whether we get that lower rate in twenty nineteen, so there's still some debate on that. I think the better in the sense of being more of a boost package for growth, would be for that right, even if it's not twenty even if it's twenty two or twenty three to take effect here in as we move forward here.

But if it is delayed, I think that you will see much less of an immediate impact, which may be obvious, but there's a lot of things to be worked out in a few things to pay attention to. But we should know soon. That's the good news. What is the political risk, uh, in the area of government shutdown and or the debt ceiling? Those issues punted into the future at least next week for the continuing Resolution by Congress, and UH it isn't clear when they'll get to the

debt ceiling. Yeah, that's right, and I honestly wish we would just get rid of this item in its entirety, but we were stuck with it, and so we've chosen a few short term patches. We could have dealt with this a few months ago, it was really hard to deal with right now in the midst of everything else that's going on. So an extension for a little bit of time here makes sense, but we're not done and it's gonna come back. Government shutdowns aren't something we worry

too much about. They have a short term impact on growth. You can see a modest impact on g d P as an example, but often workers are paid eventually, and so I wouldn't worry too much about it. One of the things that we were talking with Bob Shiller earlier about, and of course he's MR Housing the case Shiller Indexes and everything, is the impact of the tax deal on housing, because if you double the personal exemption, few of people will be taking the mortgage credit, and maybe that has

an effect on how many homes are sold. I'm wondering how much of an effect that has on the economy on g d P. We haven't seen residential housing have a big impact in recent quarters, right, And that's one reason we wouldn't expect a big hit, which is housing is usually an early cycle variable, but this was a very strange cycle. So if we were in year nine of a more typical cycle, housing would typically be elevated

to a point where it could fall. Here, I think we've taken two steps forward one step back, So for this particular cycle. I think that we're still just moving higher in a very very gradual pace. There. It's certainly a regional issue. If we look at certain states, certain states that may have different deductibility of both the mortgage items as well as the state and local taxes, that could have a regional hit. But we have to see how exactly that gets worked out as it a cap

is it a total repeal of some of those deductions. Again, we will know soon. Uh. The other question, of course, besides the Fed and what happens in Congress as far as taxes, is we're going into an election year, which usually provides some volatility. What we're looking at a vix you know, basically in the nines. Do you think it picks up in the coming year or has Wall Street inured itself to all the political storm and wrong and isn't gonna really worry until maybe we get to November.

I have to think we see some pickup. I mean, we're at levels that are so low that it won't take much here to get some volatility. And we do have some items, whether it's on the trade side, whether some of those packages that we've dont all Right, Don rist Feller, thank you, for being with listening. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

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