Last updated on October 19, 2022

Barry Knapp of Ironsides Macroeconomics rejoins the podcast to discuss his 2022 outlook for the economy and markets. He is broadly optimistic on the former, but less enthusiastic about the latter — at least in the first half of the year — with strong possibility of ‘uncertainty shocks,’ especially around Fed events (sound familiar?) There is also some interesting discussion around interest rates, inflation, and China, among others.

Content Highlights

(Spotify users can link to the start of the section by clicking on the timestamp)

• A lot has changed in a year, though probably nothing quite as much as the inflation outlook (3:04);
• Markets and economics should diverge significantly in the first half of the year (4:51);
• The Federal Reserve is due to embark on a rate-tightening cycle, which should be negative for markets but will be net-neutral, or perhaps even positive for the economy (8:00);
• Inflation is running hot, but the guest has done some deep research on similar historical epochs and finds the concern less pressing than most (17:20);
• The key level for inflation is 4% — if the CPI exceeds it consistently there could be trouble. Link to the Fed paper referenced here (21:33);
• Still, there is a strong possibility for ‘uncertainty shocks’ in the first half of the year (29:52);
• Finally, China: Reasons to be bearish. Very bearish (34:58).

More Information on the Guest

• Website: IronsidesMacro.com;
• Newsletter: IronsidesMacro.Substack.com;
• Twitter: @BarryKnapp.

Quick Video Highlights From Our YouTube Channel

Transcript

Nathaniel E. Baker
Bary Knapp, of Ironsides Macro Economics. Welcome back to the contrarian investor podcast. You were our original OG — first ever guest on this podcast — way back in early 2019. You have since come back several times, very much enjoy these conversations. Thank you for coming on. You are an individual who doesn’t need much introduction or really any introduction. We see you on CNBC and elsewhere, your website Ironsidesmacro.substack.com, is that right? And, but so I thought that rather than usually I start these things with some long winded intro and some kind of diatribe. But I thought with you, I would just keep things a little more open ended, and ask you for your outlook for 2022. What the biggest issues are facing the economy, as you can see.

Barry Knapp
Sure. So that title of a 2022 outlook note was inflation policy and politics. I started out by taking looking at the summary of economic projections from the December 2020 FOMC. Meeting and comparing it to the December 21 FOMC. Meeting. And the thing that was most stark from that was the inflation expectations. That point that that point meeting late 2020, the Fed did not expect inflation to exceed their 2% Target through the entire forecast period. Of course, one of our main themes back in late 2024 2021 was reflation. And this idea that the pandemic was an inflationary shock, we call it a positive productivity shock and an inflationary shock and expected it to exceed the Fed’s target. So not quite by the order of magnitude that it did do.

Nathaniel E. Baker
Right.

Barry Knapp
So as the year went on, inflation became an increasingly important political issue. We can see that in polling, and we could even see that in policy behavior, right, by the end of the year, you had Joe Manchin killing the bill back better plan. You had Powell’s reappointment, which the Biden administration had no interest in doing but wound up doing anyway, because of the inflationary pressure. And you had the Biden administration swinging towards gee, we actually need you fed to do something about this, because, you know, for all our rhetoric about price controls, you know, anyone who’s seeped in economics in that administration knows that that won’t do a darn thing. Right. So that was that’s sort of a major theme throughout our report. But when you think about it from a markets and economy perspective, what to me was most telling was, there’s going to be a significant divergence between economic activity and market behavior through the first half of the year at least. And the reason for that is a major change in the liquidity environment for the first half of 22, in particular, relative to the first half of 2021. So if you recall, the Fed was full on buying $120 billion of securities a month in 2021. But more importantly, something investors didn’t expect. Or there’s two things they didn’t expect. One was they didn’t expect the Democrats to sweep Georgia and be able to float another $1.9 trillion in stimulus in March. At that point, there wasn’t expectation for any additional stimulus after we had a bipartisan agreement in the omnibus spending bill at the end of 2020, and the end of the Trump administration, so that was unexpected. But what was also unexpected was the Treasury was carrying $1.7 trillion in balances at the Fed and made a determination, they were going to draw that down to something like $400 billion, but wound up going all the way to $100 billion. So that injection of liquidity into the system, largely into the banking system, and initially went out by checks through that stimulus package. But then it went out directly into the banking system when they cut their issuance of treasury bills. So you had all the Fed purchases, you had the reinvestment of maturing securities, which is even larger, and I may come back to this issue, but if you look at mortgage backed securities, for example, The Fed was buying $40 billion a month and reinvesting $50 to $60 billion a month. So that issue remains acute today, as we consider the Fed’s sequencing of normalizing policy and whether they’re going to shrink their balance sheet, but we’ll leave that aside. And we’ll just say, Okay, so the Fed stopped, the Treasury stopped issuing bills. This caused bank assets to surge cash assets, the surge from $1.1 trillion pre pandemic, to $3 trillion by August of this year. This is why you had that ferocious rally in the bond market in the second quarter of last year, and much to the dismay of hedge funds and investors who watched rates reprice significantly higher in the first part of the year, when their treasury borrowed $1.9 trillion, roughly, and then turn around because all that money wound up in the banking system and turn around and reverse almost the entire rally in rates, right that that injection of liquidity just created, you know, massive amounts of speculation early in the year it was the meme stocks and crypto and then later it was the Treasury market, because the banking system had nothing to do with the money. So that was this fantastically liquid environment. Fast forward to today, that ballots at the Treasury is $100 billion, they need to build it back up to five to $600 billion. So they’re going to increase Bill issuance and drain liquidity from the banking system. And the Feds gonna stop the purchases likely go to balance sheet contraction fairly quickly start raising rates. So it’s a decidedly different environment. Which on the margin, you think, okay, we understand why that’s likely negative for markets, but it’s not so clear why it would be negative for the economy. And in fact, I would argue it’s a net neutral if not a positive for the economy. And here’s my logic in that. The and this is a bit of a contrarian view, I suppose. But, you know, part of the idea is I referenced earlier, the fact that bank cash assets went from $1.1 trillion to $3 trillion. As we know, a large percentage of those are on deposit at the Fed in the reverse repo program, earning five basis points per year. That’s a huge drag on bank profitability. Draining that liquidity is a plus for banks, because they’re bumping up against capital requirements, things like the supplementary leverage ratio that got so much discussion. SLR is the acronym for that. And so draining that liquidity will actually help bank profitability, which on the margin increases their marginal propensity to lend makes the credit environment more favorable, and is a net plus for economic activity and for growth over time. capital formation, for example, that if you consider the housing market, we have a similar dynamic. And as much as those real interest rates, the 10 year real interest rate or the tips yield, which is the non inflationary component of yields, did not change through the entire year 2021, it was negative 110 basis points roughly at the beginning of 21. And at the end of ’21. So although the Fed was arguably trying to tighten policy, at least their communication strategy and starting the tapering process, that real interest rate, that benchmark that we use for equity risk premiums that investors borrow on, didn’t change through the whole year, and it’s at historically low accommodative levels, that has brought a fantastic number of financial buyers into the housing market. So first time buyers in the existing home sales report for November were 26% of the total That’s down from 33% a year ago. So you’re actually crowding out first time buyers from the housing market. And that is important because a financial buyer may do some things to the house they purchase. A first time buyer forming a new household is going to furnish the house the multiplier on that is much higher than a financial buyer, and it has much bigger spill on effects on economic activity. So from my perspective, the early stages of the Fed normalizing policy is removing the counterproductive, overly accommodative policy and will not impair economic activity. And in fact, economic activity could actually improve the mix of growth could shift from consumption to investment and investments much better for corporate profits, much better for long term productivity growth, non inflationary growth. So, you know, when I look at what’s likely to happen in the first half of the year, I see the Fed starting to normalize policy, this liquidity getting drained as a net positive for longer term growth, for productivity for capital formation, but going to be pretty difficult for markets. And so that is a sort of a key theme and how I’m thinking about the beginning of the year.

Nathaniel E. Baker
Okay, very interesting. So yeah, you have it so you have this divergence from economy. And like you said, like the economy is generally healthy. And on the other hand, you have markets, which are perhaps levered a bit. And due for potentially due for a pullback, although tech stocks have kind of are basically in a bear market some of these tech stocks, I mean, I just saw flash here, Cathie Wood’s Arc ARKK just dropped below $89 a share. And those stocks were getting beat up. But another thing here is the bond market, because as you remove this liquidity from the bond market, obviously, bonds are going to drop and we’ve seen that the last month or two already, like 10 years now to 1.6% -something the two year yield has gone up a lot. Is that not a concern at all for you that what’s what’s happening?

Unknown Speaker
Well, it’s it’s it’s a concern from a tactical perspective. And from a markets perspective, I have a couple of views that are, again, I think, somewhat contrary, and one is that that terminal funds rate as priced by the market, if you look at a Eurodollar curve, or Fed Funds curve, or whatever, is actually below where the Fed thinks that they can raise the policy rate to, I think it’s it’s more like double what the Fed thinks they can raise the policy rate to. And again, this is a bit of a contrarian view, you hear people like Mohamed El Erian, call this a highly leveraged economy. And his view is that you’ll raise rates and it’ll choke off growth. I strongly disagree with that, and would go back and look at 2018 with a little more nuanced eyes. So in 2018, we ultimately, we had slowing of housing activity in 2018. However, the slowing of housing activity in 2018 was not attributable to higher rates, it was attributable to tax reform. And that tax reform, which raised the minimum standard deduction, and cap, the salt tax, caused an almost identical decline in housing activity is what happened in 1987, after the 86 tax reform, which had a very similar effect, because you, you cut that top marginal tax rate. So the after tax, cost of mortgage went up, decidedly, it caused a one year slowing of housing activity, and then a re acceleration in 1988. And the same thing happened in 2019. So people look back at 18 and say, Oh, no, if the Fed raises rates and start shrinking your balance sheet, it’s going to slow economic, economic activity. And I disagree for for that reason, but also because where who holds the debt or who the debtor is, rather, is incredibly important to whether it’s inflationary or deflationary, after the global financial crisis, the household sector was the most indebted it had ever been in this country that financial sector was the most leveraged it ever been, you had supply and demand constraints on credit creation. That debt got transferred to the public sector to the government. Well, now when you look at the various sectors of the economy, the household sector is under leveraged, the non financial corporate sector is not over leveraged. Despite all the charts you see periodically about how much corporate debt went up, relative to GDP, it barely moved during the whole last business cycle, and it sits it roughly 50% of GDP a level no one would consider to be at a threshold that would choke off growth, financial sector leverages low, it’s all at the government level. So government debt, excessive government debt is inflationary, excessive private sector debt is deflationary. And that’s a key point of differentiation that people like eleri and do not make. So again, what the government generally tries to do to deal with this debt is the first go around is try and raise taxes. That never works, then they try and inflate their way out of it through financial repression. That’s the stage where right now Yeah, and so that outlook means that the economy could actually sustain far more because the government just doesn’t have the same threshold levels as the household sector. And it doesn’t cause the same deflationary dynamic. So, yeah, I definitely think rates are going up. I think interest rate volatility, which is another topic is going to be structurally higher, as the Fed lines down their balance sheet and moves towards normalizing policy. Also, because fundamental volatility in the fixed income market is going to be higher because this is not a temporary, transitory shock to inflation. There are reasons why we are going to be structurally higher through this business cycle that I were already my views before the pandemic hit the pandemic just accelerated the process. So there’s a lot of reasons why bond volatility will be higher, why real rates will go up, but I think the economy can take it more than the back end of the market would now lead you to believe.

Nathaniel E. Baker
Okay, so no concern then over inflation, because, again, inflation is running hog, you know, 6% cpi print year over year. And, you know, wouldn’t that come in and eventually, kind of hurt consumers if they can’t afford all this stuff that they need and that they want. And yeah, the Fed is raising rates to combat that. But there’s usually a lag before that kicks in —

Barry Knapp
Yeah, and I don’t think the Fed will have the political will to ever to truly get it under control. So I would not characterize my views on inflation as not a level of concern. The way I’ve structured my thought process around this is to go back and do some deep research about what happened when we move from the disinflationary regime in the 1950s, which is very similar to the 2010, we had very similar monetary policy, we’d had kept interest rates in the early you know, through World War Two into the early 50s. We had very tight bank, regulatory, very tight bank, regulatory regime, we had very uneven growth, we capital formation, all those things that were very similar to the 2000 and 10s. When JFK got elected in the early 1960s, he had a very severe there was a very similar policy mix to the bind administration been expensive fiscal and monetary policy. Now, the Kennedy administration was more focused on initially the supply side of the economy and had tax cuts that were very similar to the tax cuts and Jobs Act of 2018. But then, when LBJ came in and started in on Medicare reform and Medicaid reform, whatever you thought about those, and there was a very strong societal case for that, for example, 25% of the population over the age of 65, had health insurance in 1965. Right, so 5%, there was a there was a strong case to have Medicare. However, when you look at the inflation dynamics, post, that medical care, inflation started to accelerate. And that’s what really drove inflation in the late 60s, and then into the 70s. And that’s even with energy inflation in those days, which we’re unlikely to have this go around. So you had this policy trade off that started this inflation dynamic. Now, you hadn’t had a shock like we had with the pandemic. But for me, when when we were in that period, from 1960 to 67, you went from 8% earnings growth to 15% earnings growth, you had faster nominal growth, you had operating leverage when you consider the corporate sector, there’s the marginal cost, marginal revenue argument prices paid versus prices, per se, that gets a lot of focus, yet a number of equity strategist get the market and earnings call wrong last year by focusing on that, rather than operating leverage, which is your revenues go up, your fixed costs don’t change. And you get this big operating leverage. And that’s what drove profitability and margins to go to all time highs during 2021. And I think will continue in 2022. But the real issue here is the threshold level that we hit in 1968 was a 4% trend rate of inflation. Now I realize we’re above that now. goods prices are going to come down in 2022. There’s not too much in the way of arguments about that, I think is good as inflation goes down services inflation will come up. The only thing transitory about inflation was disinflation, initially in housing, which is now reversing disinflation in healthcare, which is still fairly low. It’s at about 1.7% and disinflation in education, which is also 1.7%. These are sectors that ran much higher than that for decade after decade, those will recover. So services inflation will settle in back at a higher level, it used to run it three or so percent in the 90s, o’s and 10s. It’ll probably be higher than that as a consequence of policy. Goods, inflation is not going back to negative 1%. So we’re gonna settle into a higher level. The question is, do we settle into a level below four or above four? Because four was the trigger point that really started to press valuations and make a dip difficult for companies to pass through prices triggered inflationary expectations? For those listeners that haven’t seen the Jeremy Rudd paper? He’s a Fed staffer who wrote why do we care about inflation expectations? It’s worth reading. That’s a fascinating argument try to read. But he does say at the end of the paper, above for all bets might be off my words, not his. And so that to me is kind of the key trigger. If we’re in a deflationary regime, where we settle back in somewhere between three and four For, which is my expectation, then the corporate sector can deal with it, the household sector can likely deal with it will have faster wage growth, real wages could be positive. But if we settle above four, if we’ve skipped straight to the 70s, and I wrote a report about that, late in the year straight to the 70s, and the possibility that we go there, that we don’t have this deflationary regime, that that would be obviously a very negative scenario for valuations for getting into something of an inflationary spiral, a boom bust cycle. I think the business cycle will extend through 2025 that long have this settling in of inflation to a much higher level than pre pandemic, but not over that 4% threshold?

Nathaniel E. Baker
How soon do you think it will come down below 4%?

Barry Knapp
Well, it won’t in the first quarter. Because, yeah, the comps are really tough, right? So I don’t want to get carried away with the base effects, because I was making fun of them a year ago. Yeah, a lot of the second quarter will settle below that. The question is, what does it look like? So one of the things I do to really try and gauge this is I’ve built a correlation matrix of the top 20 components of CPI and correlation was very low, early in the year correlation is surging now meaning all those prices are moving together, the same things going on in housing, by the way, if you take the 20 cities of the CoreLogic index, it’s at about point nine 7%, much higher than it was in Oh, 506. Right. So you’ve got all you know, house prices moving up together, you’ve got all a much greater correlation of all the components of CPI moving up, the question will be as goods prices come down? What’s the trend level for service sector inflation? And it’s got to be mid year before we know that right at least mid year. And, you know, so, like, the Fed tried to look through the second quarter last year because of base effects. When it searched, we’ll be looking, we’ll be doing the same thing in the second quarter this year saying, Okay, can we look through this and what is the second half look like? And that’s, again, my related to my idea that the first half of the year is going to be much more difficult for asset markets than the second half of the year when we start to get a better idea of what the trend rate is, and whether we’re going straight to the seven.

Nathaniel E. Baker
Can we talk about that a little more? I’m not sure I understood it. Apologies. But that so yeah, why? Why would asset prices have a hard time if the economy’s in good shape for the first six months of the year,

Barry Knapp
Because of the withdrawal of liquidity? And so if you if you think about the rates market, in particular, for most of 2021 when we had periods whefn rates moved up, if the rate rise was being driven by inflation breakevens equities performed well. Right, and it was this reflation airy environment and companies have fixed their fixed costs, stronger revenue growth meant stronger profit margins, operating leverage, if real rates started to move. That’s a tightening of funding, a real tightening of financial conditions and a risk off scenario. Well, even in the last day or two, we’ve had some decent move in real rates. But as I said, they remain at historically low levels. So if you take that 10 year real rate from negative, where do I have it right now? Well, it’s negative 91. It’s been as low as negative 120. Right? Even in the last week or so it’s moved from negative 105106 to 90, going back to 2018, do you use it to illustrate the point when the Fed was contracting their balance sheet allowing the runoff, you had a sharp 30 basis point rise in 10 year real rates or tips yields? In January, and then in February, we had volume again? Yeah, again, in September, we had a 30 basis points shot higher in real rates. And then we had the whole quantitative tightening 20% equity market correction. So I’m not saying 30 basis points is necessarily the trigger in this important environment because the starting point is lower. Right? Nonetheless, if you see those real rates moving decidedly higher, because the Fed is ending their purchases, and then potentially going into balance sheet contraction, that will tighten financial conditions and equities, all assets, commodities, everything will struggle with

Nathaniel E. Baker
got it got. Yeah, but what do you make of the argument like the earlier you said, you compare it 2018 or 2018 was a third year? I think a Fed tightening. The early stages of Fed tightening are usually pretty good for risk assets. If you go back to 2016 17 2005, six, and of course, the late 90s. So what do you think of that?

Barry Knapp
Well, I think that that’s that’s right. I spent a lot of time studying Studying those, what I call Fed policy normalization related shocks. And so every business cycle since World War Two had one of them. After the global financial crisis, we had eight of them. That was the end of QE one end of QE two, end of Operation Twist, the taper tantrum, the end of zero interest rate, the end of the taper the end, zero interest rate policy, so on and so forth. So, given the magnitude of the policy accommodation that each of these little steps that the Fed takes, and it appears, they’re going to take a much quicker and they’re not going to go back the way they did in 2010. In large part, and this is an important and subtle point. I believe that the strike on the Fed put is much, much lower than it was in 2008 2009, and 11, so on and so forth. And here’s one way to think about that. In 2007, household net worth peaked at, I believe the number was $70.7 trillion by the first quarter of 2009, that had fallen to $59 trillion. It took until 2012, late mid to late 2012. To regain that hit to household wealth. Well, this go around household net worth was $117 trillion dollars. At the beginning of 2020. It fell to 111. By the end of the first quarter, it was right back above that, and it now currently sits at $145 trillion. So the Fed had to cushion they needed this wealth effect to cushion household balance sheet damage, which was highly leveraged, people were underwater on their mortgages, people had lost a lot of money on their on their equity portfolios. None of those things are true today, the Fed does not need to offer that cushion. Nor are they in the same environment. As I said, at the beginning of the podcast, the pandemic was an inflationary shock, the global financial crisis was a deflationary shock. So those two things combined mean that the Fed is less likely to go back and have to try and cushion a 10% decline in markets. But nonetheless, as we receive each of these little steps, it’s likely we get these uncertainty shocks the way I would think about the first half of the year, if I were being a little bit tactical, or maybe a little bit over overly tactical, I think Joe Lavanya once called this cutting the Bologna a little too thin, right? But the idea I would I the way I would think about the first half of the year is earning seasons will be good for equity markets, because of this operating leverage argument I’m making. But when we get around fed meetings, and these inflection points, like the March meeting, for example, when they could very well start that rate hike, cycle, and talk about balance sheet contraction, all these little Fed policy events could be shocks that, you know, could run as big as eight to 10%, which is the historic reaction to these inflection points in Fed policy. A couple of other key points, I think are important points. One is there’s there, you know, there are those out there that are prone to Keynesian economic thought that believe we’re going off something of a fiscal cliff here. And the collapse of the bill back better plan is problematic for the markets, we had a one day sell off that they call the mansion meltdown. The collapse of the build back better plan is very good news for equity investors. And it’s very good news for the longer run outlook for the US economy in as much as we have a very compelling case to rebuild our capital stock in this country. Right. We were already going through D globalization. If you look at that ratio of global trade to global industrial production, it shrank considerably in the 2000 Intense we had run all of the benefits out of globalization. Pressure, you’ve had a series of supply chain shocks. The granddaddy, the Trump trade war was one of them. But the granddaddy of them all, was the global financial crisis. And excuse me, the pandemic and the reaction the policy reaction to that in Asia, which continues to this day, which is zero COVID policy and shutting down ports in the light. So we’re going to restart rebuilding our capital stock. We need obviously a much stronger capital investment cycle. The means are there you know, corporate profitability is really high. That just the economic justification is there. The last thing that really needed to be done to make the us a competitive destination for global capital was to cut our corporate tax rates we were the least competitive in OECD, the Biden tax plan would have taken us back to the bottom of the pack. So collapse of BBB is very good news from, from a capital investment perspective, capital deepening, this could be a major offset to inflation over time. So that was a net plus for the economy. But whatever the real, the real point there, though, was that the bill back better plan was paying for social spending with higher corporate taxes, that was not going to help our capital formation. So whatever you think about the societal benefits of it, like my earlier example of Medicare, it was not going to be a net plus for capital formation for the corporate sector or for an investor in equities. So that is, that is a key point. And then the final point I would make about that, when you look at the mix of growth, for 2022, I believe we’ll have greater investment relative to consumption. I’ve heard others say that well, Service’s consumption is not as good for corporate profits is goods consumption, and that mix could shift. That’s sort of true except for the fact that goods consumption has been held back by capacity constraints, auto sales, for example, are running less than 13 million annualized selling rate, it should be probably more like 80. So you know, you can’t really argue that we’re going to have a big hit to consumption, and a big shift from goods to services. Furthermore, if I’m right about capex, and all the indicators that I look at about capex are are surging, investment is better than consumption for the growth outlook, we’re likely to have less drag from net exports. Because global trade growth is going to slow, by the way that’s related to my very bearish view on China. And then you likely to have inventory rebuilding, the only piece of growth that’s likely to be a major drag is government spending, which is probably the least impactful for the corporate sector, and for corporate earnings next year. So you know, again, I think the economic outlook is, is is really actually pretty good. Again, with this liquidity dynamic changing, it’ll be tough to tell that because the rate of change of growth will slow in the first half of the year. And the markets won’t be clear where we’re going to settle in at. And that’s, that’s what creates that, you know, in uncertainty that makes things a little trickier for the first half of the year. But

Nathaniel E. Baker
I do now have to ask you before I let you go about China, what’s your your bearish view there? I can go through that real quick.

Barry Knapp
Yeah, so almost everything that China did in response to the pandemic was to move away from economic dynamism towards greater state control over the means of resources. And that greater control those if you look at it from state owned enterprises versus productivity from the private sector. China’s productivity, by the way, is in the bottom quadrant. And the US is in the upper right, and China’s in the lower left. So their productivity, their technology, innovation, adoption, is really low. You hear from technologists, even guys like Paige used to be a Google. Well, China’s ahead of us on AI things like this. The integration of technology into the way China does business is so low and so antiquated, in particular, because of the dominance of state owned enterprises, which has taken on an even greater role with Xi wanting even greater control ahead of the next party congress. That and presuming he gets reappointed as general secretary for life. He can’t see that changing anytime soon. But from a catalyst, you know, near term catalyst perspective, I expected that global trade growth would slow somewhere around the third end of the third quarter beginning in the fourth quarter. It hasn’t as of yet, in part because of you know that the variance and zero COVID policies that have kept this going, but global trade growth will slow supply chains will clear when that happens that’s going to leave the mercantilists China, Germany, Japan, South Korea in a very precarious position. My expectation is the first mover to de emphasize an export dependent business model or economic model is going to be Germany. And that in particular is because Merkel’s now gone, Germany did this. In the early 2000s. Schroeter labor reforms allowed them to compete in global trade in the globalization era, they’ll now be likely willing to go the other way. China’s not going to change. And so China’s going to really struggle. And if you think about their currency in particular, they were comfortable with their currency strengthening throughout 21 for two reasons. One is global trade growth was really strong and they weren’t really worried about global trade competitiveness. People can’t restructure supply chains that easily but also the crackdown on the tech sector meant that they had outflow problems. Well, in 2022, global trade growth is going to slow, which is going to put downward pressure on the currency. And those outflow pressures are likely to resume. And this will create tight, tighter financial conditions in China. Now, the counter argument to what I’m saying is, well, China’s just gonna use policy. There’s no market mechanism in China, no banking mechanism, you know, injecting more liquidity to State Owned Enterprise big banks to loan money to the private sector. They don’t loan money to the private sector, they loan money to SOS, so that’ll just exacerbate their whole productivity efficiency problem. So I see this as being a very difficult environment for China. As I said, global trade growth was already slowing in the 2010s. It’s going to slow very fast in the 2020s. D, globalization is going to take on a real urgency. And that’s going to leave China’s export dependency, that big export channel in a very precarious spot.

Nathaniel E. Baker
Very interesting. Yeah. And don’t forget also you have domestic issues there with real estate market and other things that are not great for the country either. Barry Knapp, iron sights, macroeconomics, thank you so much for joining me contrarian investor podcast today. In conclusion, maybe you could just remind our listeners where they can find out more about you. I’ll put all this in the show notes as well. Great.

Barry Knapp
The ironsides macro website is Ironsidesmacro.substack.com. If you’re a wealth advisor, large individual investor, you want to read the research, you can go find it, you can go find it there. I have institutional investors that have onboard me to the research platform, like they did when I was at Guggenheim or Barclays. I also have an affiliate relationship with macro risk Advisors, a very dynamic equity derivative base broker dealer in New York. Dean curnutt was a former colleague of mine when I was in equity derivatives back at Lehman Brothers. So if you’re the type of investor that still pays for research with commissions, you could look into my relationship with macro risk advisors as well. So very cool. I know you’re gonna have a Twitter at Barry Knapp, or you know, as I do,

Nathaniel E. Baker
yeah. And you’re gonna have a new a new offering here for retail investors soon, right?

Barry Knapp
I am. I have a podcast that goes out on on Monday mornings, and I’m going to make some significant enhancements to that podcast, do some periodic periodic interviews with former colleagues and all myself and I will charge a likely charging minimum price for the premium product on that one. So that’s very cool. A new endeavor for for 2022.

Nathaniel E. Baker
Maybe I can give my subscribers a disc a small discount in exchange again,

Barry Knapp
I think that’s a good idea.

Nathaniel E. Baker
Let’s talk about that offline. Cool. Awesome, very nice Barry Knap. Thank you for coming. Thank you all for listening and look forward to speaking to you again next time. Bye.