Odd Lots Podcast Summary: Nouriel Roubini's Vision for a New Safe Haven Asset

Podcast Information:

• Title: Odd Lots
• Host/Author: Bloomberg
• Description: Bloomberg's Joe Weisenthal and Tracy Alloway explore the most interesting topics in finance, markets, and economics. Join the conversation every Monday and Thursday.
• Episode: Nouriel Roubini's Vision for a New Safe Haven Asset
• Release Date: December 5, 2024

Introduction: Revisiting Stagflation Concerns

Tracy Alloway opens the discussion by reflecting on the rampant conversations about stagflation in 2022, noting its recent resurgence as economic discourse evolves. She states, "We definitely had inflation, we didn't necessarily have lower economic growth... now some of that stagflation talk is beginning to creep back into, I guess, the economic discourse" ([01:41]).

Joe Weisenthal concurs, highlighting the confusing economic indicators where inflation has decreased, yet some measures suggest slowing growth. He remarks, "This unpleasant combination of not great growth, not great real growth and inflation that's still like, at the higher end of what people are comfortable with" ([02:35]).

Guest Introduction: Nouriel Roubini on Stagflation Risks

Tracy introduces Nouriel Roubini, chief economist and portfolio manager of the newly launched Atlas America Fund, as the perfect guest to delve into the potential resurgence of stagflation. Roubini joins the conversation, affirming the risks of stagflation and outlining the potential economic policies under the Trump administration that could influence growth and inflation ([03:35]).

Trump Administration's Economic Policies and Their Impact

Roubini outlines two divergent sets of policies within the Trump administration:

1. Pro-Business Policies:

   • Making tax cuts permanent.
   • Enhancing government efficiency.
   • Deregulating the economy.
   • Increasing fossil fuel production to reduce energy prices.

   Quote: "Those go in the direction of policies that actually increase growth and reduce inflation." ([04:00])

2. Stagflationary Policies:

   • Tariff protectionism and economic war with China.
   • Restrictive migration policies.
   • Unfunded tax cuts leading to fiscal deficits.
   • Attempts to weaken the dollar.
   • Interfering with the Federal Reserve's independence.

   Quote: "Their impact will be higher inflation over time and lower economic growth." ([04:30])

Joe highlights the internal contradictions within Trumpism, noting, "there are a lot of internal contradictions, whether on personnel or ideology." ([05:10]).

Inflation Trends and Economic Growth: A Mixed Picture

Setting aside political influences, Tracy inquires why inflation decreased from its peak in 2022. Roubini attributes this decline to a combination of policy normalization by central banks, the reversal of negative supply shocks, and fortunate circumstances such as the end of COVID-19 disruptions, stabilization of commodity prices post-Ukraine invasion, and China's relaxation of zero-COVID policies. Additionally, migration increased labor supply in the U.S., supporting growth and mitigating wage inflation ([08:10]).

US Dollar’s Global Role and De-dollarization

Joe transitions the conversation to the role of the US Dollar in global trade and potential rivals emerging. He references President Trump's threats of tariffs against countries attempting to form rival currency blocs, particularly the BRICS nations.

Roubini responds by asserting that while the US Dollar remains dominant, the process of de-dollarization could gradually occur, driven by geopolitical factors and the search for alternatives. He emphasizes the complexities involved in replacing the dollar and the challenges of maintaining its reserve currency status amidst conflicting policy objectives.

Notable Quote: "The US dollar is still dominant... the US economy is doing stronger than Europe and other advanced economies. That should strengthen the dollar in terms of relative monetary policies." ([16:34])

Nouriel Roubini’s New ETF: Atlas America Fund

Joe introduces Roubini’s latest venture, the Atlas America Fund, an ETF designed as a new safe haven asset amidst rising uncertainties. He questions the feasibility of traditional portfolios, like the 60/40 split, in the current economic climate where both stocks and bonds may underperform.

Roubini explains that the traditional 60/40 portfolio falters in an environment of rising bond yields and inflation. The Atlas America Fund seeks to offer an alternative by incorporating assets that hedge against inflation, currency devaluation, geopolitical risks, and other tail risks.

Quote: "It's the combination of assets that provides solid returns with very low volatility and is an alternative to the traditional defensive asset." ([35:55])

Composition and Rationale of Atlas America Fund

Roubini details the ETF’s composition, emphasizing assets that perform well in high-inflation and high-risk scenarios:

• Short-Duration Treasuries and TIPS: To mitigate the impact of rising bond yields.
• Gold: As a hedge against inflation and currency devaluation.
• Commodities: Especially agricultural commodities, benefiting from steady demand despite climate-induced supply disruptions.
• Real Estate: Focused on climate-resilient properties to counteract the adverse effects of climate change on asset values.

He argues that these assets collectively provide better protection against the multifaceted risks of the current economic environment compared to traditional bond holdings.

Quote: "If you do believe the story... you have essentially $20 trillion of long duration fixed income... and a significant gradual rise in those bond yields is going to imply that your defensive asset actually loses as much if not more than equities." ([33:43])

Tokenization and Future Prospects

Tracy brings up the possibility of tokenizing the ETF to enhance accessibility, especially in regions with high inflation and currency instability. Roubini acknowledges this potential, stating that tokenization could facilitate broader global investment in the ETF, offering a stable store of value in volatile markets.

Quote: "The process of some degree of tokenization is going to occur... it'll be a way of eventually making it available to many investors all over the world." ([42:08])

Challenges in Launching the ETF

Tracy inquires about the most challenging aspects of launching the Atlas America Fund. Roubini highlights the extensive effort required in designing, implementing, and convincing investors of the ETF’s value proposition. Collaborating with financial institutions like Goldman Sachs added layers of complexity to the process.

Quote: "Making the idea, designing it, implementing, convincing people that that's the right thing to do takes a lot of time and effort is hard work." ([43:46])

Closing Remarks and Final Thoughts

The hosts and Roubini wrap up the discussion by reiterating the significance of adapting investment strategies to the evolving economic landscape. Joe emphasizes the ETF’s potential to serve as a reliable safe haven in uncertain times, while Tracy reflects on the depth and practicality of Roubini’s approach.

Final Quote from Roubini: "The thesis is going to take time. It's not something that's going to happen overnight as a medium to long-term story." ([43:55])

Notable Quotes with Timestamps

• Tracy Alloway [01:41]: "We definitely had inflation, we didn't necessarily have lower economic growth... now some of that stagflation talk is beginning to creep back into, I guess, the economic discourse."

• Joe Weisenthal [02:35]: "This unpleasant combination of not great growth, not great real growth and inflation that's still like, at the higher end of what people are comfortable with."

• Nouriel Roubini [04:00]: "Those go in the direction of policies that actually increase growth and reduce inflation."

• Nouriel Roubini [04:30]: "Their impact will be higher inflation over time and lower economic growth."

• Nouriel Roubini [08:10]: "There was so bad luck...the end of COVID so supply of labor increased, we started producing goods and services, supply chains got unstuck."

• Nouriel Roubini [16:34]: "The US dollar is still dominant... the US economy is doing stronger than Europe and other advanced economies. That should strengthen the dollar in terms of relative monetary policies."

• Nouriel Roubini [35:55]: "It's the combination of assets that provides solid returns with very low volatility and is an alternative to the traditional defensive asset."

• Nouriel Roubini [33:43]: "If you do believe the story... you have essentially $20 trillion of long duration fixed income... and a significant gradual rise in those bond yields is going to imply that your defensive asset actually loses as much if not more than equities."

• Nouriel Roubini [42:08]: "The process of some degree of tokenization is going to occur... it'll be a way of eventually making it available to many investors all over the world."

• Nouriel Roubini [43:46]: "Making the idea, designing it, implementing, convincing people that that's the right thing to do takes a lot of time and effort is hard work."

• Nouriel Roubini [43:55]: "The thesis is going to take time. It's not something that's going to happen overnight as a medium to long-term story."

Conclusion

In this episode of Odd Lots, Nouriel Roubini provides a comprehensive analysis of the potential return of stagflation and the inadequacies of traditional investment portfolios in navigating this economic landscape. Introducing the Atlas America Fund, Roubini offers an innovative approach to safe-haven investing, tailored to withstand the multifaceted challenges of rising inflation, geopolitical tensions, and shifting global economic dynamics. The discussion underscores the importance of evolving investment strategies to align with the changing economic realities, emphasizing the need for diversification beyond conventional assets.