On last week’s podcast, we had the pleasure of speaking with Peter Boockvar, chief market analyst at macroeconomic consulting firm the Lindsey Group, and Leland Miller, CEO of China Beige Book, one of the premier China market watchers. Our conversation touched on a number of important issues for the global economy—from both a U.S. perspective but also from an Asian outlook, as much of global gross domestic product (GDP) growth is coming from China.
On the U.S. economic front, Boockvar thinks we are running a 2% growth economy and does not see any signs that productivity growth is increasing to offset a structural decline from the labor force caused by demographic changes. Boockvar hopes that incentives for capital spending from a tax reform package can get productivity growth higher.
Boockvar also talked about pressures he sees on valuations. He questioned whether historically high profit margins are sustainable. If we get tax reform and higher economic growth rates, this could lead to higher interest rates and a higher interest expense for companies. Boockvar credits a good amount of profit margin expansion to low interest rate expenses.
Boockvar believes monetary policy does not change ultimate economic outcomes but rather just changes the time frame. We pulled forward GDP growth and stock market returns, but he thinks over the next five to 10 years we could see a choppy period without much return.
Boockvar pointed out that over the last 13 rate hike cycles since World War II, 10 of them put us into recession. As we look ahead to who becomes Fed Chair next year, there is increased talk that Trump is speaking to Kevin Warsh, who is much more hawkish than Fed Chair Janet Yellen. Boockvar believes Trump wants to “keep the party going” longer and is less likely to put in place a more hawkish member like Warsh.
China Beige Book: Bringing Robust Data for China
On China, Miller’s firm started independently gathering data on China in 2010 to help overcome the lack of trust in Chinese data. His firm cut China into 8 economic regions, 7 separate sectors, and 34 separate subsectors. The firm goes beyond GDP and tracks a number of jobs markets, credit markets, shadow-credit markets, and inflation. He describes this as a ground-up, panoramic view of the Chinese economy.
