David Woo on What the Economists Got Wrong About the Stimulus

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:17)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

Tracy, you see that inflation print that we just got, that CPI print?

Tracy Alloway (0:22)

I did, I logged on the terminal, especially at 8.3 in the evening here in Hong Kong, to watch it. And it looks like we're seeing moderation in the price increases.

Joe Weisenthal (0:36)

Yeah, so we are recording this on August 11th, and we just had the latest CPI report. And indeed, it did show some moderation, particularly on a sequential basis.

Inflation readings, the CPI have been quite elevated lately by historical standards. And there's this whole debate about whether it's transitory or some sort of new regime and what's causing it and so forth. And we'll get into all that. But at least for this one month, and at least like on a sequential basis, we definitely saw a bit of a deceleration, used car prices, which had been absolutely soaring. It finally looks like that whole thing has topped out a little bit.

Tracy Alloway (1:14)

Yeah, and we've had such a heated debate over whether or not inflation is transitory or something more permanent. And I think the vociferousness of that debate kind of hints at something wider and more fundamental about the economic situation right now, which is that we're in a really unusual time. The recession that we saw during COVID was basically unlike any others. It only lasted for a couple months. In the end, we had record stimulus.

And so that kind of means that no one's really sure exactly what the recovery is gonna look like. And it's hard to look at previous recoveries in order to make an analogy to today.

Joe Weisenthal (1:59)

Yeah, and inflation in particular, we get economic data points literally every day or virtually almost every day. But inflation is one of those that really gets people going in a way that other data points don't. People, we had that recent episode with Orico Momandier. People feel it, they feel it at the grocery store. They attribute it to policies when it's up, they attribute it to policies that they don't like, they attribute it to Fed, they attribute it to spending and so forth.

Inflation just, it gets people going.

Tracy Alloway (2:32)

It does indeed. And it's very easy for people to sort of overlay their own thoughts and feelings and biases on inflation. So people kind of see what they want to see. Cherry picking the data is something that goes on quite a lot. And again, in the current environment, there is a reason that you would strip out some unusual activity in things like used car prices, but then you get into the dangerous territory of are you basically stripping everything out that's actually rising and obscuring what's happening in the market.

Joe Weisenthal (3:07)

Inflation, ex-inflation. All right, well, I am very excited. I said inflation always gets people going. I'm very excited because we have a guest today who almost never needs anything to get him going. Very, he's long been one of my favorite people to interview. Talked to him several times on TV, but we've never had him on the podcast before. We're gonna be speaking with David Woo. He was formerly the head of global rates, global effects, global EM fixed income and economic research at Bank of America.

He's a veteran there of 10 years and recently left. And now he's a blogger. He's like us.

He's a blogger. He has David Woo Unbound where he talks about all this stuff, macro things, things going on in society, the data and so forth.

And always one of my favorite people to talk to. So sort of a perfect person to kick off a sort of like, let's take stock of the macro situation right now. David, thank you so much for coming on Odd Lots.

David Woo (4:04)

It's my total pleasure. Thank you for inviting me.

Joe Weisenthal (4:07)

Absolutely. It's always a treat to talk to you, David. Let's start with that inflation print. I'm sure you have been looking at it for the last half hour, as have me and Tracy. How would you put it into context? What's your take on it? And how does it fit more broadly in where you see the overall inflation situation right now in the US.?

David Woo (4:27)

I think we have to first of all put things in perspective. I don't think anybody in their right mind thought that the sort of 6%, 7% inflation was sustainable. Everybody knew that it had to do with these one-off factors like used cars, computers, things that have been affected by supply chain basically break down. So therefore, the spike in price ought to be temporary. Our supply chain basically came back on track. So the question really is, so if it's not 6% or 7%, what is it?