Hello and welcome to the Fisher Investments’ Market Insights podcast, a podcast where we discuss our firm’s latest thoughts on global capital markets and current events.
I’m Naj Srinivas, Senior Vice President of Corporate Communications here at the firm.
Today’s episode is part 2 of our latest Listener Mailbag. In part 1, we answered listener questions about cryptocurrencies [and] Bitcoin. And we examined whether there’s anything behind all the recent talk of inflation. If you haven’t listened to part 1, I encourage you to check it out.
Part 2 today again features Michael Hanson, Senior Vice President of Research, a member of our Investment Policy Committee, and the host of The Well-Read Investor podcast. In today’s episode, we’re going to dive into questions around global trade and Mike also explains the connections he sees with cyber security issues. We’ll also answer questions about the proposed US infrastructure plans talked about in the media today and China’s economic recovery. And stick around; at the end of today’s episode, Mike shares some recommendations for books that could improve your investment decision making.
Before we get started though, I’d ask that if you enjoy what you hear on Market Insights, take a few minutes to rate and review the podcast wherever you listen. It’s easy and it helps us share this valuable information with even more people.
Thank you, and please enjoy the episode!
Another popular story—you mentioned four years ago—but another popular story just a couple of years ago was trade. Talk of trade tariffs. Talk of trade barriers. Trade seems to be in the news again a little bit, tied to things like the UK and Europe and the United States and what trade deals President Biden might want to enact or ratify. So, what's your view of trade and how that actually impacts markets in the economy? Do we need to see big, broad sweeping trade deals or is the status quo enough to keep the bull market running and the economy humming along?
Yeah, I'm sort of an old school type of person in the sense that I tend to have the view that what a government entity can do is make things easier for trade. They can't necessarily just create trade, or they can’t create, all of a sudden, a new economic prosperity out of thin air. What they can do is make the conditions better for countries, whatever they may be doing, to bring their competitive advantages to market and to trade with the rest of the world. And I fundamentally believe that to be a good thing. But it gets very geopolitically fraught, of course. And one of the ironies of today is that while everyone just a year ago or more was talking about trade restrictions [and] trade tariffs—especially the United States versus China. Since the onset of COVID and since goods have been more demanded than services, of course, over the last year, because services have been very curtailed by the lockdowns, but people have bought a lot of stuff in the last year. It's made the trade globally for tangible things, just absolutely surge and it's happening all over the world.
But, one of the things that I believe is interesting is if you look at the Suez canal sort of crisis. What a big deal that seemed like for a while that the Suez canal was blocked. And it was. I mean, the last thing I saw was something like $150 billion. I mean, it might've been more like $15 billion a day or half day, whatever it was, it was a huge numbers that they're losing by, you know, not getting trade going through those canals. And yet, asset prices didn't move that much. And even commodity prices didn't really react the way you might think.
And one of the reasons for that is because trade is so globally interconnected now. It goes everywhere. There are ways to supply the world with things that are redundant and can happen in many ways. The sophistication of the trade routes is increasing. There's more than one way to get goods and services to places, although some of these canals are of great importance. And so the part that I think is most interesting is that asset prices didn't change very much of that, which shows the resilience of trade.
But, what's really on investors’ minds today—and I think is going to matter a lot—is the topic of semiconductor security—cybersecurity in general. And what's talked about really a lot—if you open up the Wall Street Journal—is national security tied to semiconductors. And this is a huge topic. It's also going to involve China and the US as well as it will anyone, and especially a country like Taiwan. And this is where things get geopolitically fraught.
So Mike, cybersecurity…semiconductors? How do those connect with the conversation on trade for investors?
There's a huge shortage of semiconductors in the world today because there's been a surge in demand for all sorts of tech goods and services. I think that that is going to be a very durable theme. But, I don't think infrastructure is everything, but I do think infrastructure is technology today. It is part of the infrastructure. And as a result, you're going to have government demand, private demand, electric vehicle demand, server demand—you know, everything you can think of for not just semiconductors, because there's just chips going into everything these days, but high-value-add chip sets that are doing very sophisticated things, especially in things like cars.
This is going to be hugely sought after it's going to be a major trade issue. And I bring up Taiwan and China and the US because the US is already acting—even agnostic to what the Biden infrastructure package is talking about. Intel, for example, is already committed to building several new foundries in the United States because they want more of that done in the US. China is doing similarly, but the place where most semiconductors are made are in Asia. It's places like South Korea, but it's especially Taiwan. Taiwan Semiconductor, of course, is one of the largest companies in the world.
This is a national security issue because everybody wants a share of those chips coming out of there. And I see that continuing to be a geopolitically fraught issue, but I think the net result of it is that some of the big developed economies of the world—along with many others—are going to be building a lot of semiconductor infrastructure over the course of the next decade.
It takes a long time to do that. It won't happen overnight. So I think the shortages persist. And what that means is that some of those companies that make semiconductors or the equipment involved in it stand to see big volume—about as much volume as they can handle. And with that, probably some pretty good margins. And so I think that's a great way of thinking about trade today.
Speaking of China, what does China’s economic recovery look like? And are there any lessons for investors to take away from it? Or how should investors think about the world’s second-largest economy today?
It's a hard issue. One, because people have such strong, emotionally linked views about the US and China, and all the things that go along with that. But from an investor standpoint, there's a few interesting things you can say. One is China, in a certain regard, has been ahead of the curve on COVID—if you'll pardon the extremely bad pun. And what I mean by that is the onset happened there before most other nations and the recovery there now has been something of a litmus test for other countries to just see if they maintain the same trajectory.
I don't think it will be the same in every country. And I think these things are all so interlinked that it's kind of hard to separate it all out, but what you've seen with China is they had their shutdowns, and regardless of whatever your views on that, or however that worked, they eventually reopened and their economy has recovered. It's about back to where it was. It's still a little below, but about back to where it was.
And the interesting part about that is that they're not necessarily seeing above-trend, huge growth today. Like so many people are saying is going to happen in the rest of the world. What they're seeing instead was a big run-up back to about the levels there were before, and then moving back to about moderated growth.
Some of their industries are going to do great because their exporters and the rest of the world's about to demand a lot of things, so I think they can grow well too. But, it's just very interesting to see China do the thing where the thing, where they fell first, they recovered faster than most, and now they're, they're kind of gliding along at about a moderate pace.
This is typified by the fact that I think people think about the US too much in terms of stimulus and fiscal policy and all that. In China, for example, they are, as far as I can tell, starting to look to slow credit growth. And when you slow credit growth, especially in China, it means you're not going to have this white-hot economic numbers. It's just part of how that works. And I see a similar thing happening in the United States and elsewhere, we're going to have a pickup in loans as the economy fully reopens, but there aren't truly great reasons to think we're just going to continue on with that, on and on. And I think in that sense, China is a pretty good exemplar of what we may expect for the rest of the world over the next year or two.
Mike, you just mentioned infrastructure and President Biden's infrastructure bill tied to a potential spending bill as well. What's your take on these infrastructure bills? And do you actually end up seeing the impact in the market tied to companies that may directly benefit from such bills?
I mean, you don't have to look too far back, maybe back to 2010, for the last industry infrastructure bill. Did we see measurable growth for companies that benefited from that last bill that the US government passed, for example?
Yeah. You bring up a very important way of thinking about infrastructure, Naj. I think because there will be groups, industries, specific companies that benefit. That is part of the nature of this. These are big dollars—it’s not small—these are not small numbers we're generally talking about whether it's infrastructure is stimulus. So there will be beneficiaries.
Separate question though, is what does it mean on a macro scale across all of it? There's a very different question.
The history of stimulus in the United States—which is the best place to measure it because we've just got great data and you can see it through time—is very limited. And you can look at this every which way you want. There is stimulus that is tax cuts or, or versions of that. There is stimulus, that's new spending. All sorts of reconciliation bills going back to the 70s. You can look at them.
The net effect of stimulus in almost all examples with really no exceptions is it's not very much. And not only is it not very much, but the effect is fleeting. And this is just part of the… And so as an investor, this is a crucial point because it's not just that. It's that market's price forward. And because whatever form this ends up taking now, it's broadly sorta known at least this first part of it, as it stands today, what it's going to be, the infrastructure bill—reconciliation, whatever it is.
Markets have an opportunity to price that in and anticipation. And so the effect of that, especially on asset prices, is either here now or already passed, but it's not in the future. And this is just one of those things is so counterintuitive. It's tough for investors to understand, but it's true. Because I, you know, I get questions frequently. They say, well, the infrastructure plan is on, shouldn't you buy heavy industrials or whatever it is? And you say to yourself, well, not really because markets anticipate. And so if you thought that was going to happen, you should have, should have been there already, because you're probably not going to get anything much from here. And knowing that stimulus on a macro scale doesn't tend to be as stimulative as people tend to believe, which doesn't mean it doesn't help. But net-net on a macro scale, if you're expecting this infrastructure bill to be part of the argument that makes the economy run higher for longer over, you know, let's say several years, I'm really quite skeptical of it.
So that's the fiscal side, but there's also the tax side. I do think there's going to be higher tax on the corporate side, but as we've shown our clients for many, many years, tax changes have counterintuitive effects or non-correlated effects to things they, they might think are important. And I think it's for the same reasons we were saying about infrastructure. Tax changes are so well telegraphed there so far talked about in advance before they take an effect, that asset prices having an opportunity to move long before they're enacted.
And so to the extent we will have new taxes—which I think we will have some—the markets are digesting that here and now, or have already done. So it's another classic example of you think you're anticipating you're not really because the market is already ahead of these things. And that which is widely known, you either need to know something very different or make the assumption that the market has, in fact, priced a lot of this in.
I always like to end these interviews with a question of what are you reading now. Not only because of your role as the host of The Well-Read Investor podcast, but also because you are my go-to for book recommendations. So what are you reading now that's interesting?
I appreciate that Naj, especially the plug for the podcast. We have a ton of fun talking to some of the best authors in the world. And I do a ton of reading, as people know. And so some of the things I'm reading today…actually some very good books have come out for sort of the spring season.
The first one is a book by a guy named Michael Strevens, who I had not encountered before. And he wrote a book called The Knowledge Machine. And his thesis is how subjectivity and especially irrationality led to science. And it's, it's a fascinating exploration because—particularly in this business, investing—everybody makes these claims to being objective, “Oh, I'm just being objective. I'm looking at the data. I'm looking at the science.”
The truth about that is there's no real such thing as objectivity. In order to glean anything from data, you have to have a point of view. You have to have some kind of subjectivity. And what Strevens is doing here is making the case for why that's actually not only true, but it's vital and you should actually pursue your subjectivity to try to find angles and truths out there that may not be seen elsewhere, which I think is really true about investing. And so I enjoyed this book. He's actually quite a nice writer and very literary as well.
Another good one, Useful Delusions by Shankar Vedantam, which is about how the brain deceives itself. And it's kind of a contemporary take on what I would call cognitive and behavioral biases, which has been known in investing for many years. But it's quite a lot of fun. And it talks about all the ways in which we deceive ourselves. And I've never really liked the language of saying that we're biased and self-deceiving, although that's true. What I choose to think instead is more like we have our own personal points of view and those are valid, and what's important for each individual is to bring their own unique point of view to the table. And that's what I believe market prices are. I believe markets are stronger when people do bring their own unique views, versus homogeneity where everybody thinks the same thing. That makes for weak asset prices. Anyway, there's a lot of fun and it's always fun to, to look at how we deceive ourselves.
Well, outside of the real serious stuff, I'm reading a great book. A new translation of what's called the Monkey King, which is the hero myth of China, or one of the great hero myths of China. The Monkey King. He would be the equivalent of Odysseus and that sort of thing in the Greek world and whatnot. And it's a great epic, and in fact, this new translation is a real nice contemporary version of it. There's wizards and all this other sorts of things going on as this monkey seeks enlightenment and it heads towards the West towards India. And he becomes a great warrior and he becomes immortal.
I've always been a believer that great hero myths of the world reveal more about what's common about us, not what's different. And even more importantly, I study a lot of heroic mythology because I think it's a codex and a guide for how we can move through our own lives, especially with difficulties and mature and evolve. I just think all the great myths speak to that in one way or the other. And so I'm reading that as well. It's called The Monkey King: A Journey to the West.
Some great books to check out. Well, Mike, thanks as always for your time.
The pleasure was all mine, Naj. Until the next.
That’s part 2 of our Listener Mailbag. Huge thanks to Mike Hanson for sharing his insights with us. If you haven’t already, check out Mike’s podcast. I highly recommend it. It’s The Well-Read Investor. And you can find it wherever you get your podcasts.
For more information on the topics we discussed today, you can visit the Market Insights podcast page. There’s a link in our episode description. We’ll also have more info and links for The Well-Read Investor, if you’re interested.
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Join us next time. Until then, I’m Naj Srinivas for Fisher Investments. Stay safe and be well.
Investing in securities involves the risk of loss. The content of this podcast represents the opinions and viewpoints of Fisher Investments, and should not be regarded as personal investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. Copyright Fisher Investments, 2021.