Slate Money – “The Petro Edition”

Date: December 9, 2017
Host: Felix Salmon, with Anna Szymanski and Jordan Weissmann
Special Guest: Dave Rolley (Co-Head of Global Fixed Income, Loomis Sayles)

Episode Overview

This episode of Slate Money, dubbed "The Petro Edition," features a sprawling global tour of major economic and political developments, from U.S. tax plans to Europe’s Brexit conundrum, ongoing turmoil in Latin America, and the wacky notion of Venezuela's oil-backed cryptocurrency, the “Petro.” With Dave Rolley, a seasoned bond market expert, joining the regular hosts, the discussion offers rich, candid commentary, context, and sharp humor on recent financial events and what they mean for global markets.

Key Discussion Points & Insights

1. The U.S. Tax Plan and Fiscal Policy

[02:17 - 16:17]

• Economic Context:
  The U.S. is seeing strong economic performance, with sustained GDP growth and full employment. Dave Rolley argues “we don’t need a stimulus… one step at a time, 2% per year, we’re at something like full employment… so the economy is actually doing okay.” [03:12]

• Purpose Behind Tax Cuts:
  Rather than being driven by macroeconomic necessity, the tax plan is depicted as political theater geared to please the Republican donor base.

  “If you don’t pass this, don’t ever call me again.” [03:47]
  This sentiment captures the existential role tax cuts play for the GOP.

• Deficit Worries and Bond Vigilantes:
  Fear of spiraling debt is debated, with Anna pressing on whether higher deficits could awake “bond vigilantes”—investors pushing yields higher over fiscal worries. Dave Rolley feels QE (quantitative easing) has “stunned [bond vigilantes] into a coma.” [07:44]
  The only thing that could jolt markets now is “an inflation surprise.” [09:46]

• Outcome:
  Even if yields spike, it may not spell doom for government finances but could hit investors in stocks and bonds, reinforcing the interconnectedness of asset values, interest rates, and investor sentiment.

  “You can break the stock market either with an earnings disappointment or a yield surprise. Either one… could be very damaging to equities and for real estate, for that matter. Every single thing out there except Bitcoin… has a cash flow.” [12:15]

2. Brexit and the Future of the United Kingdom

[17:13 - 26:23]

• Sterling’s Resilience:
  Despite Brexit turmoil and the looming threat to London as a financial center, the British pound remains surprisingly strong. Dave sees this as a market underestimating long-term pain for Britain:

  “We just don’t see what the alternative is to their lost financial service revenue right now for us to get comfortable with, with how things are going. And we still think there’s more pain ahead.” [18:56]

• Ireland and the Border Issue:
  The podcast dwells on the threat Brexit poses to the Good Friday Agreement and peace on the island of Ireland, emphasizing how overlooked this issue has been in global coverage.

  “The entire UK-Irish relationship… collateral damage from the Brexit vote. And it doesn’t look like anyone did any thinking about it before the vote.” [21:11]

• Market Complacency:
  They note that markets seem to discount expert warnings after dire predictions post-Brexit and Trump elections didn’t materialize, leading to a sense of false security:

  “We’ve had enough of experts, like, you guys were wrong.” [24:03]

• Disconnect Between Market Timelines and Reality:
  Rolley offers:

  “If you instantaneously discount a bad thing and then nothing bad happens for a while, you kind of conclude you got it wrong. You may not be wrong, you may simply be early because reality takes time.” [24:45]

3. Latin America: Venezuela’s “Petro” and Brazil’s Political Crossroads

[27:55 - 39:01]

• Venezuela’s Petro:
  Anna and the team delve into Nicolas Maduro’s announcement of a cryptocurrency backed by oil, the “Petro”—calling it both “insane” and a symptom of deeper chaos.

  “Every part of this plan is insane.” [28:21, D]
  “Imagine that all of American fiscal and monetary policy was just run by Donald Trump individually with zero kind of institutional basis or support.” [29:30, B]

• Venezuela’s Collapse:
  Hyperinflation, loss of tax collection, mass emigration, and possibly imminent default are discussed.

  “When you have a hyperinflation, it means that the government has lost its ability to collect taxes. That’s what a hyperinflation is. It’s an inflation tax. I’ll tell you something else, as a bondholder, when you see a hyperinflation, you can kind of figure you’re not going to get paid…” [30:55, C]

• Chinese and Russian Involvement:
  The Chinese suing PDVSA (Venezuela’s oil company) signals fading international patience; only Russian support remains, but even that’s limited.

  “What’s interesting this week is that the Chinese have come out and said that there are some, they’re starting to sue PDESA for nonpayment. That’s different. And suggests the Chinese have exhausted patience…” [32:17, C]

• Brazil and Regional Populism:
  Brazil’s ongoing corruption scandals are discussed as both a market risk and a potential path to healthier politics. Rolley warns replacement of left populists with right populists may not lead to positive outcomes.

  “If we replace a left-wing populist with a right-wing populist who’s sort of a Duterte type and talks about shooting a lot of criminals, that may not be a real market friendly outcome.” [37:32, C]

• Mexico’s Political Risk:
  Warnings about a potential leftward shift if U.S. rhetoric stays aggressive, with possible consequences for markets.

  “The more strident the American criticism of Mexico, the more likely Mexico would go with a local nationalist.” [38:40, C]

4. Numbers Round: Wonky Facts and Oddities

[39:12 - 48:17]

• Dave Rolley:
  Number: 0.5
  Significance: Estimated “R-star,” the real rate of interest at the Fed that should neither stimulate nor restrain economic growth.

  “It’s basically the Goldilocks interest rate…” [39:39, A]
  “All the cool kids now know what their R star is.” [42:21, C]

• Anna Szymanski:
  Number: 300 million (rand)
  Significance: Amount misappropriated from South Africa’s budget for Nelson Mandela’s funeral; highlights rising awareness and pushback against corruption. [43:03]

• Felix Salmon:
  Number: 814 million
  Significance: The supposed number of “Tether”—a cryptocurrency pegged 1:1 to the US dollar—circulating, raising questions about transparency and true backing.

  “The problem is that no one has seen these $814 million. There is no reason to believe they actually exist.” [44:10, B]

• Jordan Weissmann:
  Number: 10,731
  Significance: Number of times “Space Oddity” could play on Elon Musk’s planned Mars-bound Tesla; a quirky aside on eccentric billionaire ambition. [47:09]

Notable Quotes & Memorable Moments

• On U.S. Tax Policy:

  “The Republican Party exists to cut taxes. They can do it. If they don’t do it, what are they for? Okay, so it’s almost existential.”
  — Dave Rolley, [04:12]

• On Hyperinflation:

  “When you see a hyperinflation, you can kind of figure you’re not going to get paid because the only way to stop a hyperinflation is with currency reform… So most of the time you look at a situation like Venezuela and you say well this is a default.”
  — Dave Rolley, [31:15]

• On Brexit and Markets:

  “The entire UK-Irish relationship… collateral damage from the Brexit vote. And it doesn’t look like anyone did any thinking about it before the vote.”
  — Dave Rolley, [21:11]

• On Market Psychology:

  “If you instantaneously discount a bad thing and then nothing bad happens for a while, you kind of conclude you got it wrong. You may not be wrong, you may simply be early because reality takes time.”
  — Dave Rolley, [24:45]

• On Asset-Backed Crypto:

  “The problem is that no one has seen these $814 million. There is no reason to believe they actually exist... Now one of the things you want to do… is see third party pricing of all assets and… third party custody of all assets.”
  — Felix Salmon & Dave Rolley, [44:10, 45:11]

Timestamps of Major Segments

• Opening & U.S. Tax Plan: 00:14 – 16:17
• Brexit & UK Market Response: 17:13 – 26:23
• Latin America, Venezuela, and “Petro”: 27:55 – 39:01
• Numbers Round (R-Star, South Africa, Tether, Space Oddity): 39:12 – 48:17

Tone and Style

The episode is lively, laced with dry wit and expert analysis. The panel doesn’t shy away from controversial statements or speculation and brings an international, macroeconomic perspective to topics frequently dominated by domestic discussion in other forums. As always, Felix Salmon keeps the conversation moving with humor, while Anna Szymanski and Jordan Weissmann deliver sharp, well-informed commentary.

For listeners who missed this episode:
Expect a whirlwind tour of global finance, insightful commentary on current events in the U.S., UK, and Latin America, and entertaining detours into cryptocurrency absurdity and even space-bound roadsters. The discussion delivers both depth and personality—essential listening for anyone interested in how politics, markets, and institutions collide.