Steve Hanke: Inflation Will Hit Again Sooner Than Markets Expect
Summary
Monetary Outlook: M2 is re-accelerating as QT ends, bank regulations ease, and T-bill issuance ramps, raising the risk that inflation re-emerges with a lag.
Market Bubble: Equities are judged to be in a bubble, and further policy loosening could keep asset prices inflated, though timing of any pop is uncertain.
US Treasuries: Treasury is tilting issuance to short-term bills absorbed by money market funds, effectively monetizing the deficit; holding the 10-year near 4% may prove difficult if inflation rises.
Gold: Bullish view on gold as an inflation hedge amid regime uncertainty, with a long-term target as high as $6,000/oz discussed.
AI: Caution on AI as capital floods into startups without business models; a few large winners may emerge while many fail, with Nvidia cited as a revenue-generating example.
Banks/SLR: Lifting the supplemental liquidity ratio could unleash roughly $2.6 trillion of lending capacity, boosting broad money creation via commercial banks.
Crypto: Bitcoin is viewed as a speculative asset lacking fundamental value, while stablecoins backed by T-bills can increase demand for dollar assets but are not legal tender.
Portfolio Strategy: Emphasis on rebalancing back to target allocations (e.g., 60/40) rather than timing markets amid elevated uncertainty and bubble risks.
Transcript
Inflation is going to rear its ugly head again. [Music] Don't forget to sign up for a free portfolio review with one of our endorsed investment partners at wealthon.com/free. Hello and welcome to Wealthon. I'm Maggie Lake and joining me today to discuss the outlook for monetary policy and inflation is Steven Hanky, professor of applied economics at John's Hopkins University. Professor, it's great to have you on with us. >> Great to be with you, Maggie. >> So, it seems like uh investors are a bit on edge as we kick off the month of December. Uh a lot to worry about, I guess, out there. What's your read on the global economy right now? Well, the global economy starting in the United States re remains a little bit uncertain and somewhat of a mystery. And and in addition to that, I I always like to start by looking at what's going on with the money supply >> and and uh applying the quant good old quantity theory of money. Uh that's still the best way to analyze where nominal GDP is going. And remember nominal GDP includes the real rate of growth in the economy and the inflation rate and and right now the the money supply has been ticking up. It's been accelerating a after contracting. It contracted from 2022 down and until uh bottomed out this this past summer and and it started accelerating again and it's running now the M2 measure is about 4.5% rate of growth. Now that's uh a little below Hanky's golden growth rate of 6% a rate consistent with hitting the inflation target of 2%. But as I say, it it has been accelerating and there there are kind of straws in the wind, Maggie, that concern me that indicate that it it might really start accelerating and then and then we've got a problem, the old infl. >> Yeah. So, the old inflation problem. So, let's unpack that. First of all, all of that sort of mystery and uncertainty kind of explains, I think, why investors are a bit jittery as we go into what can be seasonally for equities anyway, a pretty strong part of the year. Not clear that's going to happen this year. So, you're worried about inflation. So, we have a Fed meeting next week. Walk me through what you think the conversation is around the table. What are the balance of risks facing the US economy? Okay. So, let's let's back up just a little bit before we have the the meeting of December 10th where where the Federal Open Market Committee meets to to determine what where the Fed funds rates going. >> And and that thing the probability of it going down 25 basis points or staying the same has been fluctuating all over the place. And the reason for that is that the Fed actually has no model for economic activity or or the course of nominal GDP. The the only real substantive theory is a quantity theory of money, but they poo poo that. They they they've thrown it into the waste paper can. And and what they are, they're data dependent. Now, that means that they're watching the data every day, every week, and and they have their finger in the wind and and the wind's swirling around and changing all the time. And that's why we have a lot of this uncertainty about what's going to happen at that December 10th meeting. So, if they start looking at the labor market, the labor market looks like it's weakening. and every new piece of data that comes out on the labor market, it looks like it's weakening. So that that that favors reduction in the federal funds rate by 25 basis point. But you look at inflation numbers or or even retail sales and thing things that look a little strong and and that is in the camp of let's hold steady. Let's not reduce the Fed funds rate. So it changes from day to day depending on what the flavor of the day, the direction of the wind because they're just looking at data that come out day by day instead of stepping back and looking at the money supply which is the key thing that drives the economy and and if we look at that as I said it's growing at about 4.5% per year but it's accelerating and there are several things that that lead me to believe that it might continue to accelerate and and get us moving too fast. One of those is precisely this whole Fed funds thing. You know, the the president wants the Fed funds right down at 1%. He he wants a huge drop and he's got his people in there and he's twisting arms and so forth. So, that's a little factor. The the big factor is that starting this month, by the way, quantitative tightening will be terminated at the Fed and and that will affect the growth rate in the money supply. Right now, the Fed is actually not contributing anything to the money supply. They're they're actually have a negative contribution because of the quantitative tightening. So, they're they're going to stop that. That means what? It loosens the monetary policy by by stopping quantitative tightening. So, so that's one factor. I mentioned the Fed funds. We don't know what's really going to happen with that, but there's a lot of pressure to to reduce those. Now, the third big thing, huge thing is bank regulations. There's something called a supplemental liquidity ratio that's put on commercial banks and and that's going to be lifted and and that lifting of the supplemental liquidity ratio means that the banks will have a lot more firepower in their arsenal to make loans and that means to create money because 80% of broad money measured by M2 Maggie is actually produced by Not the Fed, but commercial banks produce it when they make loans. >> So, how big is this? This is huge. It will it will release about $2.6 trillion just by changing this bank regulation. So, you have three factors and they all look to me like they're going in the direction of loosening up. Loosening up. And another factor I should mention is the fact that we have a a huge fiscal deficit and the Treasury is issuing a lot of uh Treasury bills less than one year duration and those are being sucked up by money market funds and and that monetizes that monetizes the financing of the deficit. So that t that tends to add to or accelerate the growth of the money supply. So we really have four things going on. And with the exception of the Fed funds rate, which we don't know exactly what's going to happen, all those other factors, the deficit being monetized, changes in bank regulation and and the uh termination of quantitative tightening. All those things are loosening So that means faster growth rate in the money supply and and with a faster growth rate in the money supply with a lag of course there is a lag between those changes and inflation. It looks to me like the the the big danger coming down the road looking ahead is more inflation because of accelerated money supply growth. >> So that's so interesting. It it it there have been people who were worried about a growth scare. So I imagine some will say fantastic. Let's let get that economic growth out there. Uh get money into the economy. Can we see economic growth without damaging inflation? Can we tolerate higher inflation? Or are you concerned that that will the risks of inflation will outweigh any benefit of stronger growth? Oh, I I think the risk of inflation is is a real problem because we have this so-called K-shaped recovery or or the economic activity Maggie is running in what they call the the K. Now, what is the K? Well, the top part of the K is is the upper upper income group and and and that's booming. That that's that's that's going up. It's accelerating. Now the bottom part is going down and and that that's for th those with lower uh than median income like even middle income people. It's it's going down. >> Now let's let's go back and analyze why that's happened. Why that's happened is that when COVID hit in February of 2020, the Fed accelerated the money supply tremendously and and really gooseed the money supply, loosened everything up. Of course, we know what happened with with a short lag. All asset prices boom. The stock market went up, land prices went up, real estate went up, commodities went up, and and who owns all those assets? Well, rich people own them. little little guys have a balance sheet that's ne negative equity. The the the wealthy ones have a positive equity and and that positive equity really shot up and and the rich became in fact very rich. If you if you look at the billionaire's wealth as a percent of GDP in January of 2020 it was 14.1%. Today it's 22.7%. So that that that's just the billionaires. So you end up with a with the top part of the cave booming. The the upper 10% of income earners actually account for 50% of all the consumption in the United States. The the only the top 10%. So that's booming and that that looks strong and that that looks like like retail sales look look pretty strong actually and I and I think will remain strong because the the wealthy have a lot of firepower and their spending and they account for 50% of all the consumption in the United States and remember consumption accounts for about 2thirds of GDP so it's so it's a very very big part of GDP and half of that is only the the top 10% of earners. Now what about in inflation? Why is it so bad? Wages usually don't keep up with inflation. So wages adjusted for inflation actually decrease as you increase the rate of inflation. So real income go for the for the little guy that doesn't have those assets that are that are exploding under an inflationary environment. He the little little guy's real income adjusted for inflation is actually going down. And that's the bottom part of that K, the K that's going down. >> And I think that we we see that, right? We see that in in some of the uh recent elections we've seen. We see that in polls when people talk about being frustrated about prices, about affordability. That was a big theme in in the recent election. Is there but but it's could have been like that for a while. What is the risk associated with that? What happens if we continue just seeing an acceleration of that sort of bifurcation of the economy? Oh, I I think that you put your finger on on the thing because what what we have if if you look at the K thing that the danger is that you get cons you get cons what they call consumer sentiment is is actually very negative right now because it's there are many more people on the bottom part of the K than on the top part of the K. So, so, so they're they're they're dealing with things like affordability. Why is affordability become a big issue? Because you have a lot of people on the bottom side of the K. And and and for them, affordability is a big deal. And you you had uh the newly elected mayor in New York, of course, has been big time on affordability. And all of a sudden, you know, Trump was calling uh him a communist and so forth. And then they had a meeting in the White House and they were, you know, love and kisses and so forth. And and Trump pivoted and and started talking about affordability >> be >> because because Trump knows it's a big problem. uh affordability has traction and affordability has traction because of the all the damage that was done because of inflation. Th this was this was all caused by the Fed by the way this this huge increase in income inequality that's occurred after COVID that was monetary policy and if people were paying attention to the quantity theory of money like I am and like like my my most recent book by the way which I co-authored on Massie making money work that that's what the whole book is about it's about the quant quantity theory of money and we talk a lot about the fact that the Fed should be paying a lot of attention to what we call money neutrality. >> They they should be not engaging in nonneutral monetary policies like we've just explained that favor one group, one sector of the economy etc. it it should be neutral as much as possible so it's not distorting economic activity and and wealth distribution among different categories in the economy. So that that leads me to the question I was going to ask because if we if we come back to what's about to happen, if we do see the Fed cut rates and that adds to already what you mentioned, this change in money supply that we're seeing, is is all of that just going to find its way to the asset markets again? Is this just going to continue to fuel equities as it has been? >> Yes, there's we're Yes. And and especially for people that are listening to us, this this is probably important. G getting away from the the economic analytics and the classroom theory of the thing and they want to know what's going to happen to the market. Well, the market right now is in a bubble. I I have what's called Dr. X's bubble detector and we're definitely in a in a bubble. And if the Fed loosens up, if that I'm not saying they will, but we've laid the groundwork >> to a flashing yellow light has come on when when I'm looking at the thing >> and I'm saying we we really are in running into the the typical Fed up and down roller coaster. They they they first gave us inflation, then they squeeze things down, and now it looks like they might they might accelerate. And if they do, the the bubble will just continue to be inflated and won't deflate. The the trouble with bubbles, Maggie, is the fact that I there are many different ways to measure the bubble. And all the measurements, including my Dr. X's bubble detector. They all say we're in a bubble. Okay, that's that's that's pretty straightforward. What's not and and and very it's virtually impossible to figure out is is the bubble going to pop or is the air just going to slowly come out of the bubble and and things will come back to kind of normal valuations. We don't know which one of those two things. and and we don't know when it will start. So that that's we started the program by saying, you know, everything seems to be kind of uncertain. We're kind of in a fog almost literally the fog of war >> type of thing when it comes to the economy. >> So what >> and and so with with let's just walk through the scenario. Let let's say the scenario I painted my amber light kind of thing turns to red and and the money supply starts accelerating a great deal. In that scenario with with a lag that that keeps the bubble >> pumped up. >> It does. >> But it but it also it also means with with a little further lag inflation is going to rear its ugly head again. What's the bond market's role in this? Because we know that we you could see that this will fuel further gains in equities. You could you could sort of see how that might happen as you just laid out. What about the bond market? >> Okay. Okay, the bond market is actually very interesting because uh the Secretary of Treasury has indicated that he he really wants to keep the 10-year uh uh rate at about 4% which which it is. Seems to be stuck in around 4% right now. That's fine. But but they're they're issuing a lot of Treasury bills, not not 10-year duration. They're issuing primarily they they've tilted the issuance down to bills that are less than one year in duration and and those are being vacuumed up by money market funds primarily and banks and what does that do when when money markets buy the those treasury bills that increases the money supply. So, so one of the things at the margin that's that's happening is that they're they're shifting the structure of the bond market towards the lower shorter duration. Okay? >> And the shorter durations are very attractive for money market funds and and also for for stable coins and things like that. And so what what happens is that those money market funds are doing what? They're they're monetizing the debt. >> They're monetizing the debt. >> So what do you >> and and that increases the money supply? >> It does. So it's kind of creating this cycle. What about the longer end though? Do you see because if you if with a lag you start to see inflation, do you see a scenario where either the Treasury or the Fed sort of lose control of the bond market or you start to see long tenure the 10ear yield move higher because of inflation? uh nor normally you would see the tenure move higher because in in monetary policy it's kind of a two-step process that happens uh that actually the famous economist Irving Fiser uh in the late 19th century analyzed this thing and and most most people don't understand it but if you lower the the one rate that the government controls in fact is the Fed funds the overnight rate. So let's say the Fed funds rate goes down the the Fed funds rate goes down. That's that's the initial the initial move when when they loosen up with the Fed funds rate is interest rates go down. But then with the lag that we talked about, inflation kicks in and rates go up. So, it's kind of a two-step process. If you you push down on the interest rates, it looks like loosening up. You're loosening up and and and and then that turns around when inflation kicks in. The long end of the bond market goes up. So, you you you got it right. Or the danger is they'll have a devil of a time keeping the 10year 4%. under under this an increased money supply inflation scenario that we're going through. >> So that's going to be tricky for for investors who are going to have to try to figure out how to navigate through this because it sounds like bonds are risky because of inflation. It sounds like equities are going to be bubbly but maybe keep moving higher. Where are do we need to rethink safe haven? How do you protect yourself against inflation in that environment? Oh, well, the one thing that's been pretty good in the past year is some something that I think will remain good, and that's gold. >> We're we're now it it there it made all all-time highs, you know, a couple months ago, and then it pulled back and consolidated gold around $4,000 an ounce. Now, it's it's back up to about almost 4,300 today. uh and and I think by the end of the secular bull market and gold we'll we'll see 6,000 an ounce >> because of this risk of inflation. Well, because of because of lots of lots of things going on the the fog of political economy, you know, you you can you just if you went through a list, Maggie, you'd have a list as long as your arm of things that are potentially very disruptive going on and and big things that we we don't really know how they will end up. What What about the tariff war? How is that going to end up? What's that going to do? No, nobody has a a very good idea. It's It's going to end badly. We know that, but but we don't know exactly how badly in general and how badly in specific sectors of the economy. How about AI? A whole new technology. We we've got money flooding into AI and and we know that most of the firms that are receiving those funds that capital allocation will go bust. They they won't make it. At the end of the day, they're going to be a few big players in AI and all the rest of it, it's going to be money down the rappole. I mean, I I I I have, you know, some of my former students who are involved in private equity tell me how it's going and and they say, "You can't believe it. They say outfits are coming in with they they have no business models or anything and and they they just hang out a shingle and it says AI and the money just shoots into the thing." If you're looking for a simple, secure way to invest and own physical gold and silver, visit our sister company, Hardass Assets Alliance at hardassetsalliance.com. That's hardassallalliance.com. Do you worry that because part of the argument of AI is like, well, these companies like Nvidia have revenue. It's not the dot era where there was no business model. You're hearing something different. Do you think those risks are in the private sector as opposed to the public sector and does that make a difference or you know when you see that kind of uh implosion of a lot of firms there's no fire is there a firewall to the rest of the financial system? Well, uh, no, it is in the private sector, but it could it, you know, at some point at some point with with many of these outfits, you're you're going to have a a willy e coyote moment where you you look down and there there's there are no earnings to support anything. And and and it depends. I mean, if if if it would all happen at once, of course, it would be very disruptive in the market and and would affect the bubble, by the way. So, so you ask, well, what what kinds of things could could actually pop pop the bubble? We know there's a bubble, but but you have to start thinking, well, what could pop the thing? and and that that I'm that's one scenario. the the the whole AI thing uh you know could we we have clearly a a lot of misallocation of capital going on in AI right now with all these new startups and so forth and and as I say I I think the most likely scenario they'll be some of the some of the big players will end up with most of the gravy and the other the other ones with without business models etc etc will just go by the wayside. Do you think given all the uncertainties and risks and risk of inflation, do you do you think we get through this transition intact with some issues, some pockets of of shakeout maybe from the excesses? Or do you see something more destabilizing? because so many people seem to worry because of the debt, because of all of the what's happening geopolitically that it feels like a crisis is brewing. Do you share that concern or do you think that we're going to see pockets of disruption, but there are also some positive forces that will help balance it out? >> Uh I I'm a little bit more in the shall we say this the skeptical cautious camp. uh be it's um there there there's there's there are two kinds of uncertainty there there's normal uncertainty is with us all always and and and it it's the pocket kind of thing that you're talking about there are little pockets here there every place all the time now the problem is we have a different kind of uncertainty and and that's what's called regime uncertainty and regime regime uncertainty is when it's it's like Franklin Delanar Roosevelt in the New Deal when they came in the New Dealers created massive regime uncertainty because they changed the rules of every everything was changing. Now we we have Trump has come in and what do we have? We have regime uncertainty because we we we have the tariffs. We have you you name it. I mean, in any 24-hour news cycle, you're getting some new deal coming into the picture. So, that's that's regime uncertainty. And and that's that's more difficult to get your head around and and analyze. The specific kinds of uncertainty you can analyze. But when you get regime uncertainty, it it's it's a different kettle of fish and and it's much more difficult to deal with usually or what happened the last time we had regime uncertainty with the New Deal. Most people don't realize this, but the the New Deal slowed down, made the Great Depression much more difficult, deep and and la it lasted a lot longer than it would have otherwise lasted because of this regime uncertainty. Because with regime uncertainty, ultimately what you had in in 1929, private investment just stopped. there there was essentially no private investment in the United States from 1929 throughout almost all of the 1930s because of this regime uncertainty. Now now the the investment hasn't been cut off. We we have an investment boom going into AI for example. So so we we don't have that aspect yet. But but you know, fasten your seat belt. You you you just you just don't know with regime uncertainty. That's so interesting. And and I'm glad you sort of brought up the political nature of so much of what's happening in the economy. You know, when we were talking about that K-shaped economy, and obviously people who own assets are happy to continue to see those assets go up and people haven't really gamed out what what the risk is for the from the K, but we're going to be approaching midterm elections. How are you thinking about taxes? Because, you know, we've got the Republicans in charge, everyone. I think investors assume that Trump is pro business anti-ax deregulation. Are are they are they maybe a little too complacent about what might be coming when the bottom of the K heads to the ballot box? I wonder about >> Well, well, I I think I think the affordability issue is going to be here to stay. So So that that will uh you know, throw things into cocked hat. Let's put it that way. I I think it would I think it is it is a big issue and it will stay and and with this if if in fact this monetary acceleration actually comes about it the the the affordability issue because of inflation will will remain in the picture. So, so it'll create a a lot of political um I I think uncertainty. >> Do you do you see taxes eventually going higher or will they resolve the problem through other means? Devaluations. Oh. Oh, though there the the usual way. We we have the debt the deficit by the way have been skyhigh ever since Trump's first term. But Trump's first term was bad. Then Biden was even worse. And and now Trump of course he he doesn't seem to be interested in in in the deficits at all. And and the debt just keeps going up. it. But if things can't continue, they will stop. So the question is how will it stop? And and one way to stop it is to reduce slow down government spending. I don't think that's going to happen. No one in Washington is interested in cutting government spending. That's a bipartisan thing. Both both parties are spending like mad. >> How about taxes? I I I I think to change the taxes will be also difficult. And that leaves number three, inflation. You just inflate it away. >> You you you you have a you have kind of a a phantom tax. It's called the inflation tax. So it it is a tax, but but it's not like a direct tax. So out of all of out of all three possibilities, I I think we're looking at again another factor that concerns me about the debt deficit level and and the debt and and that is the pressure that it's puts on the monetary system to monetize the debt and create a growth rate that's too high in the money supply and and inflation. So for investors who are are it sounds like protecting hedging against inflation is going to be a key theme if you're right about the way this plays out and we've seen that response in hard assets. What about crypto? Some people are looking at that as maybe not only a safe haven they should look at but also maybe part of the solution in terms of dealing with this. Well, I number one, it's not part of a solution and and and number two, it depends on exactly what part of crypto you're talking about. If you're talking about Bitcoin, Bitcoin is just a speculative asset with no fundamental value. >> So, you don't you don't see that as a store of value, as a new store of value. >> You do not see that consider that a a store of value that will help protect against inflation. Oh, I people are still trying to figure out what the use value is for for Bitcoin and and about the only use value is for criminal activity and and that you know that that's that's a small it's a troublesome but it's not a a huge sector of of the economy that that seems to be the the primary use value for the cryptos you know forget about all the rest of it saving the world and everything. It's not going to happen. So what you mentioned stable coins before though and I've heard people make the case that you know that will create demand for treasuries that will you know spread dollarization basically through the world kind of you know anchor the dollar as the reserve currency and that uh there's a lot of innovation around payments and that there that you know that somehow that there there is value and a benefit from a lot of what's happening in that space outside of the sort of Bitcoin. >> Well, to to the extent that the that the stable coin is is actually uh anchored and and and and and supported 100% by Treasury bills. The the answer is yes. It's a it's the the the token the token becomes kind of a clone of the US dollar. So, and it does in increase the demand for US dollar denominated assets. There's no question about that. The the the thing is most people don't realize that the tokens have very little use value and and they're not legal tender. >> That you you can't pay your taxes in stable coins and you can't keep your books in stable coins. So, so, so that's that that's the key when you know you you have to remember that the whole crypto thing is kind of a secular religion. So, whenever you get into religions, you have to be very careful with what you're dealing with because they they they're there are dogmas >> and and and etc etc. So, so getting to the bottom line of stable coins, let me let me give you one key thing to keep in mind. Tokens issued as stable coins are not legal tender. End of story. They're they're not currency. >> So, when we look out, it sounds like you're very concerned. What what what would what would you say to investors as they're sort of, you know, a lot of people like to take stock at the end of the year and try to, you know, come up with a strategy and think about 2026 and, you know, look at their holdings. What What would your advice be? What are what's top of mind for you as you're looking out at 2026? >> Okay. I think that maybe the the the only solid advice that I can give without getting into somebody's particular portfolio, which I'm not going to do, >> uh is to to think about it this way. Look, go back where you were in January of 2020 and and and let's say you you had a a plain vanilla portfolio, 60% stocks, 40% bonds. You you you were, you know, 50 years of age and, you know, what whatever you had 6040. That that portfolio now is is not 6040. It's probably 85 15 or something like that. So, you want to rebalance your portfolio and get it back to where wherever wherever your starting point was that you were comfortable with some time ago is not what you have now. it it's going to be a very heavily weighted into into equities and and you know may maybe you've got real estate in there or something like that. Anyway, it's just think about rebalancing the portfolio. In other words, that that's the sound advice that another piece of sound advice a lot of people say, "Well, Hanky, I'm listening to you. You got all these worries. you're worried about this, that, and the other thing. Maybe I should get out of the stock market. And and the answer to that is no. Because if you get out of the stock market, that's that's one decision when when to get out. But then you got to make another decision of when to get back in. And and and and the history of those two decisions, the the out and back in is a is a disaster. >> Yeah. It's super hard. Do we need to think about hard assets differently? You mentioned most of us back in most most of people living in the US, let's put it that way, uh just because of the nature of of 401's and some of how we handle retirement in this country had that sort of standard 6040. Do we in this new environment and in the middle of regime change? Do we need to think about that differently in terms of you know the assets we look at? It's it's very hard to give in these broad investment advice things. You to to give an investment advice. I have to see the balance sheet. There's nothing more important than than a balance sheet whether it's a a company or an individual. So you you you really have to drill down on and and look at the balance sheet and and and also the the the age of the owner of the balance sheet, the objectives of the owner of the balance sheet. There are all kinds of things you have to look about. So >> so giving kind of sweeping advice is is just not my cup of tea. I I I don't I don't like to do it. I I like to give the analytical uh perspective on the on the economy focusing again on the quantity theory of money and the money supply and and that will tell you where nominal GDP is going the real rate of growth in the economy and inflation and and then we can talk we we've talked a little bit about a few things that that people should be paying attention to in their portfolios but the but but beyond that uh As I say, I I I don't I don't think it's uh wise to be giving these sweeping generalities because investing is a very micro and particular thing depending on the individual involved. >> You're absolutely right and everybody's situation is different. So, so it is um hard to hard to be general um when you when you don't know those those facts. Uh but you reminded us of something very important that's a fundamentals matter. Um, and it's easy to get swept up in a lot of narratives, but um, good to remember what drives financial markets. So, thank you for helping remind us that of that and give us an idea of what to watch um, as we turn the corner. >> Well, you're welcome. Great to be with you, Maggie. >> Thank you so much. And if you are listening, as we just said, this is your, you know, your investments as you look out to 2026 are are very individual and you should go over it with somebody who can really dive in and understand your specifics. Um, if you would like to do that and you want a free portfolio review from an adviser in the Wealthon Network, just hit the link in the description or head over to wealthon.comfree. Thanks so much for watching everyone. We'll see you again next time. [Music]
Steve Hanke: Inflation Will Hit Again Sooner Than Markets Expect
Summary
Transcript
Inflation is going to rear its ugly head again. [Music] Don't forget to sign up for a free portfolio review with one of our endorsed investment partners at wealthon.com/free. Hello and welcome to Wealthon. I'm Maggie Lake and joining me today to discuss the outlook for monetary policy and inflation is Steven Hanky, professor of applied economics at John's Hopkins University. Professor, it's great to have you on with us. >> Great to be with you, Maggie. >> So, it seems like uh investors are a bit on edge as we kick off the month of December. Uh a lot to worry about, I guess, out there. What's your read on the global economy right now? Well, the global economy starting in the United States re remains a little bit uncertain and somewhat of a mystery. And and in addition to that, I I always like to start by looking at what's going on with the money supply >> and and uh applying the quant good old quantity theory of money. Uh that's still the best way to analyze where nominal GDP is going. And remember nominal GDP includes the real rate of growth in the economy and the inflation rate and and right now the the money supply has been ticking up. It's been accelerating a after contracting. It contracted from 2022 down and until uh bottomed out this this past summer and and it started accelerating again and it's running now the M2 measure is about 4.5% rate of growth. Now that's uh a little below Hanky's golden growth rate of 6% a rate consistent with hitting the inflation target of 2%. But as I say, it it has been accelerating and there there are kind of straws in the wind, Maggie, that concern me that indicate that it it might really start accelerating and then and then we've got a problem, the old infl. >> Yeah. So, the old inflation problem. So, let's unpack that. First of all, all of that sort of mystery and uncertainty kind of explains, I think, why investors are a bit jittery as we go into what can be seasonally for equities anyway, a pretty strong part of the year. Not clear that's going to happen this year. So, you're worried about inflation. So, we have a Fed meeting next week. Walk me through what you think the conversation is around the table. What are the balance of risks facing the US economy? Okay. So, let's let's back up just a little bit before we have the the meeting of December 10th where where the Federal Open Market Committee meets to to determine what where the Fed funds rates going. >> And and that thing the probability of it going down 25 basis points or staying the same has been fluctuating all over the place. And the reason for that is that the Fed actually has no model for economic activity or or the course of nominal GDP. The the only real substantive theory is a quantity theory of money, but they poo poo that. They they they've thrown it into the waste paper can. And and what they are, they're data dependent. Now, that means that they're watching the data every day, every week, and and they have their finger in the wind and and the wind's swirling around and changing all the time. And that's why we have a lot of this uncertainty about what's going to happen at that December 10th meeting. So, if they start looking at the labor market, the labor market looks like it's weakening. and every new piece of data that comes out on the labor market, it looks like it's weakening. So that that that favors reduction in the federal funds rate by 25 basis point. But you look at inflation numbers or or even retail sales and thing things that look a little strong and and that is in the camp of let's hold steady. Let's not reduce the Fed funds rate. So it changes from day to day depending on what the flavor of the day, the direction of the wind because they're just looking at data that come out day by day instead of stepping back and looking at the money supply which is the key thing that drives the economy and and if we look at that as I said it's growing at about 4.5% per year but it's accelerating and there are several things that that lead me to believe that it might continue to accelerate and and get us moving too fast. One of those is precisely this whole Fed funds thing. You know, the the president wants the Fed funds right down at 1%. He he wants a huge drop and he's got his people in there and he's twisting arms and so forth. So, that's a little factor. The the big factor is that starting this month, by the way, quantitative tightening will be terminated at the Fed and and that will affect the growth rate in the money supply. Right now, the Fed is actually not contributing anything to the money supply. They're they're actually have a negative contribution because of the quantitative tightening. So, they're they're going to stop that. That means what? It loosens the monetary policy by by stopping quantitative tightening. So, so that's one factor. I mentioned the Fed funds. We don't know what's really going to happen with that, but there's a lot of pressure to to reduce those. Now, the third big thing, huge thing is bank regulations. There's something called a supplemental liquidity ratio that's put on commercial banks and and that's going to be lifted and and that lifting of the supplemental liquidity ratio means that the banks will have a lot more firepower in their arsenal to make loans and that means to create money because 80% of broad money measured by M2 Maggie is actually produced by Not the Fed, but commercial banks produce it when they make loans. >> So, how big is this? This is huge. It will it will release about $2.6 trillion just by changing this bank regulation. So, you have three factors and they all look to me like they're going in the direction of loosening up. Loosening up. And another factor I should mention is the fact that we have a a huge fiscal deficit and the Treasury is issuing a lot of uh Treasury bills less than one year duration and those are being sucked up by money market funds and and that monetizes that monetizes the financing of the deficit. So that t that tends to add to or accelerate the growth of the money supply. So we really have four things going on. And with the exception of the Fed funds rate, which we don't know exactly what's going to happen, all those other factors, the deficit being monetized, changes in bank regulation and and the uh termination of quantitative tightening. All those things are loosening So that means faster growth rate in the money supply and and with a faster growth rate in the money supply with a lag of course there is a lag between those changes and inflation. It looks to me like the the the big danger coming down the road looking ahead is more inflation because of accelerated money supply growth. >> So that's so interesting. It it it there have been people who were worried about a growth scare. So I imagine some will say fantastic. Let's let get that economic growth out there. Uh get money into the economy. Can we see economic growth without damaging inflation? Can we tolerate higher inflation? Or are you concerned that that will the risks of inflation will outweigh any benefit of stronger growth? Oh, I I think the risk of inflation is is a real problem because we have this so-called K-shaped recovery or or the economic activity Maggie is running in what they call the the K. Now, what is the K? Well, the top part of the K is is the upper upper income group and and and that's booming. That that's that's that's going up. It's accelerating. Now the bottom part is going down and and that that's for th those with lower uh than median income like even middle income people. It's it's going down. >> Now let's let's go back and analyze why that's happened. Why that's happened is that when COVID hit in February of 2020, the Fed accelerated the money supply tremendously and and really gooseed the money supply, loosened everything up. Of course, we know what happened with with a short lag. All asset prices boom. The stock market went up, land prices went up, real estate went up, commodities went up, and and who owns all those assets? Well, rich people own them. little little guys have a balance sheet that's ne negative equity. The the the wealthy ones have a positive equity and and that positive equity really shot up and and the rich became in fact very rich. If you if you look at the billionaire's wealth as a percent of GDP in January of 2020 it was 14.1%. Today it's 22.7%. So that that that's just the billionaires. So you end up with a with the top part of the cave booming. The the upper 10% of income earners actually account for 50% of all the consumption in the United States. The the only the top 10%. So that's booming and that that looks strong and that that looks like like retail sales look look pretty strong actually and I and I think will remain strong because the the wealthy have a lot of firepower and their spending and they account for 50% of all the consumption in the United States and remember consumption accounts for about 2thirds of GDP so it's so it's a very very big part of GDP and half of that is only the the top 10% of earners. Now what about in inflation? Why is it so bad? Wages usually don't keep up with inflation. So wages adjusted for inflation actually decrease as you increase the rate of inflation. So real income go for the for the little guy that doesn't have those assets that are that are exploding under an inflationary environment. He the little little guy's real income adjusted for inflation is actually going down. And that's the bottom part of that K, the K that's going down. >> And I think that we we see that, right? We see that in in some of the uh recent elections we've seen. We see that in polls when people talk about being frustrated about prices, about affordability. That was a big theme in in the recent election. Is there but but it's could have been like that for a while. What is the risk associated with that? What happens if we continue just seeing an acceleration of that sort of bifurcation of the economy? Oh, I I think that you put your finger on on the thing because what what we have if if you look at the K thing that the danger is that you get cons you get cons what they call consumer sentiment is is actually very negative right now because it's there are many more people on the bottom part of the K than on the top part of the K. So, so, so they're they're they're dealing with things like affordability. Why is affordability become a big issue? Because you have a lot of people on the bottom side of the K. And and and for them, affordability is a big deal. And you you had uh the newly elected mayor in New York, of course, has been big time on affordability. And all of a sudden, you know, Trump was calling uh him a communist and so forth. And then they had a meeting in the White House and they were, you know, love and kisses and so forth. And and Trump pivoted and and started talking about affordability >> be >> because because Trump knows it's a big problem. uh affordability has traction and affordability has traction because of the all the damage that was done because of inflation. Th this was this was all caused by the Fed by the way this this huge increase in income inequality that's occurred after COVID that was monetary policy and if people were paying attention to the quantity theory of money like I am and like like my my most recent book by the way which I co-authored on Massie making money work that that's what the whole book is about it's about the quant quantity theory of money and we talk a lot about the fact that the Fed should be paying a lot of attention to what we call money neutrality. >> They they should be not engaging in nonneutral monetary policies like we've just explained that favor one group, one sector of the economy etc. it it should be neutral as much as possible so it's not distorting economic activity and and wealth distribution among different categories in the economy. So that that leads me to the question I was going to ask because if we if we come back to what's about to happen, if we do see the Fed cut rates and that adds to already what you mentioned, this change in money supply that we're seeing, is is all of that just going to find its way to the asset markets again? Is this just going to continue to fuel equities as it has been? >> Yes, there's we're Yes. And and especially for people that are listening to us, this this is probably important. G getting away from the the economic analytics and the classroom theory of the thing and they want to know what's going to happen to the market. Well, the market right now is in a bubble. I I have what's called Dr. X's bubble detector and we're definitely in a in a bubble. And if the Fed loosens up, if that I'm not saying they will, but we've laid the groundwork >> to a flashing yellow light has come on when when I'm looking at the thing >> and I'm saying we we really are in running into the the typical Fed up and down roller coaster. They they they first gave us inflation, then they squeeze things down, and now it looks like they might they might accelerate. And if they do, the the bubble will just continue to be inflated and won't deflate. The the trouble with bubbles, Maggie, is the fact that I there are many different ways to measure the bubble. And all the measurements, including my Dr. X's bubble detector. They all say we're in a bubble. Okay, that's that's that's pretty straightforward. What's not and and and very it's virtually impossible to figure out is is the bubble going to pop or is the air just going to slowly come out of the bubble and and things will come back to kind of normal valuations. We don't know which one of those two things. and and we don't know when it will start. So that that's we started the program by saying, you know, everything seems to be kind of uncertain. We're kind of in a fog almost literally the fog of war >> type of thing when it comes to the economy. >> So what >> and and so with with let's just walk through the scenario. Let let's say the scenario I painted my amber light kind of thing turns to red and and the money supply starts accelerating a great deal. In that scenario with with a lag that that keeps the bubble >> pumped up. >> It does. >> But it but it also it also means with with a little further lag inflation is going to rear its ugly head again. What's the bond market's role in this? Because we know that we you could see that this will fuel further gains in equities. You could you could sort of see how that might happen as you just laid out. What about the bond market? >> Okay. Okay, the bond market is actually very interesting because uh the Secretary of Treasury has indicated that he he really wants to keep the 10-year uh uh rate at about 4% which which it is. Seems to be stuck in around 4% right now. That's fine. But but they're they're issuing a lot of Treasury bills, not not 10-year duration. They're issuing primarily they they've tilted the issuance down to bills that are less than one year in duration and and those are being vacuumed up by money market funds primarily and banks and what does that do when when money markets buy the those treasury bills that increases the money supply. So, so one of the things at the margin that's that's happening is that they're they're shifting the structure of the bond market towards the lower shorter duration. Okay? >> And the shorter durations are very attractive for money market funds and and also for for stable coins and things like that. And so what what happens is that those money market funds are doing what? They're they're monetizing the debt. >> They're monetizing the debt. >> So what do you >> and and that increases the money supply? >> It does. So it's kind of creating this cycle. What about the longer end though? Do you see because if you if with a lag you start to see inflation, do you see a scenario where either the Treasury or the Fed sort of lose control of the bond market or you start to see long tenure the 10ear yield move higher because of inflation? uh nor normally you would see the tenure move higher because in in monetary policy it's kind of a two-step process that happens uh that actually the famous economist Irving Fiser uh in the late 19th century analyzed this thing and and most most people don't understand it but if you lower the the one rate that the government controls in fact is the Fed funds the overnight rate. So let's say the Fed funds rate goes down the the Fed funds rate goes down. That's that's the initial the initial move when when they loosen up with the Fed funds rate is interest rates go down. But then with the lag that we talked about, inflation kicks in and rates go up. So, it's kind of a two-step process. If you you push down on the interest rates, it looks like loosening up. You're loosening up and and and and then that turns around when inflation kicks in. The long end of the bond market goes up. So, you you you got it right. Or the danger is they'll have a devil of a time keeping the 10year 4%. under under this an increased money supply inflation scenario that we're going through. >> So that's going to be tricky for for investors who are going to have to try to figure out how to navigate through this because it sounds like bonds are risky because of inflation. It sounds like equities are going to be bubbly but maybe keep moving higher. Where are do we need to rethink safe haven? How do you protect yourself against inflation in that environment? Oh, well, the one thing that's been pretty good in the past year is some something that I think will remain good, and that's gold. >> We're we're now it it there it made all all-time highs, you know, a couple months ago, and then it pulled back and consolidated gold around $4,000 an ounce. Now, it's it's back up to about almost 4,300 today. uh and and I think by the end of the secular bull market and gold we'll we'll see 6,000 an ounce >> because of this risk of inflation. Well, because of because of lots of lots of things going on the the fog of political economy, you know, you you can you just if you went through a list, Maggie, you'd have a list as long as your arm of things that are potentially very disruptive going on and and big things that we we don't really know how they will end up. What What about the tariff war? How is that going to end up? What's that going to do? No, nobody has a a very good idea. It's It's going to end badly. We know that, but but we don't know exactly how badly in general and how badly in specific sectors of the economy. How about AI? A whole new technology. We we've got money flooding into AI and and we know that most of the firms that are receiving those funds that capital allocation will go bust. They they won't make it. At the end of the day, they're going to be a few big players in AI and all the rest of it, it's going to be money down the rappole. I mean, I I I I have, you know, some of my former students who are involved in private equity tell me how it's going and and they say, "You can't believe it. They say outfits are coming in with they they have no business models or anything and and they they just hang out a shingle and it says AI and the money just shoots into the thing." If you're looking for a simple, secure way to invest and own physical gold and silver, visit our sister company, Hardass Assets Alliance at hardassetsalliance.com. That's hardassallalliance.com. Do you worry that because part of the argument of AI is like, well, these companies like Nvidia have revenue. It's not the dot era where there was no business model. You're hearing something different. Do you think those risks are in the private sector as opposed to the public sector and does that make a difference or you know when you see that kind of uh implosion of a lot of firms there's no fire is there a firewall to the rest of the financial system? Well, uh, no, it is in the private sector, but it could it, you know, at some point at some point with with many of these outfits, you're you're going to have a a willy e coyote moment where you you look down and there there's there are no earnings to support anything. And and and it depends. I mean, if if if it would all happen at once, of course, it would be very disruptive in the market and and would affect the bubble, by the way. So, so you ask, well, what what kinds of things could could actually pop pop the bubble? We know there's a bubble, but but you have to start thinking, well, what could pop the thing? and and that that I'm that's one scenario. the the the whole AI thing uh you know could we we have clearly a a lot of misallocation of capital going on in AI right now with all these new startups and so forth and and as I say I I think the most likely scenario they'll be some of the some of the big players will end up with most of the gravy and the other the other ones with without business models etc etc will just go by the wayside. Do you think given all the uncertainties and risks and risk of inflation, do you do you think we get through this transition intact with some issues, some pockets of of shakeout maybe from the excesses? Or do you see something more destabilizing? because so many people seem to worry because of the debt, because of all of the what's happening geopolitically that it feels like a crisis is brewing. Do you share that concern or do you think that we're going to see pockets of disruption, but there are also some positive forces that will help balance it out? >> Uh I I'm a little bit more in the shall we say this the skeptical cautious camp. uh be it's um there there there's there's there are two kinds of uncertainty there there's normal uncertainty is with us all always and and and it it's the pocket kind of thing that you're talking about there are little pockets here there every place all the time now the problem is we have a different kind of uncertainty and and that's what's called regime uncertainty and regime regime uncertainty is when it's it's like Franklin Delanar Roosevelt in the New Deal when they came in the New Dealers created massive regime uncertainty because they changed the rules of every everything was changing. Now we we have Trump has come in and what do we have? We have regime uncertainty because we we we have the tariffs. We have you you name it. I mean, in any 24-hour news cycle, you're getting some new deal coming into the picture. So, that's that's regime uncertainty. And and that's that's more difficult to get your head around and and analyze. The specific kinds of uncertainty you can analyze. But when you get regime uncertainty, it it's it's a different kettle of fish and and it's much more difficult to deal with usually or what happened the last time we had regime uncertainty with the New Deal. Most people don't realize this, but the the New Deal slowed down, made the Great Depression much more difficult, deep and and la it lasted a lot longer than it would have otherwise lasted because of this regime uncertainty. Because with regime uncertainty, ultimately what you had in in 1929, private investment just stopped. there there was essentially no private investment in the United States from 1929 throughout almost all of the 1930s because of this regime uncertainty. Now now the the investment hasn't been cut off. We we have an investment boom going into AI for example. So so we we don't have that aspect yet. But but you know, fasten your seat belt. You you you just you just don't know with regime uncertainty. That's so interesting. And and I'm glad you sort of brought up the political nature of so much of what's happening in the economy. You know, when we were talking about that K-shaped economy, and obviously people who own assets are happy to continue to see those assets go up and people haven't really gamed out what what the risk is for the from the K, but we're going to be approaching midterm elections. How are you thinking about taxes? Because, you know, we've got the Republicans in charge, everyone. I think investors assume that Trump is pro business anti-ax deregulation. Are are they are they maybe a little too complacent about what might be coming when the bottom of the K heads to the ballot box? I wonder about >> Well, well, I I think I think the affordability issue is going to be here to stay. So So that that will uh you know, throw things into cocked hat. Let's put it that way. I I think it would I think it is it is a big issue and it will stay and and with this if if in fact this monetary acceleration actually comes about it the the the affordability issue because of inflation will will remain in the picture. So, so it'll create a a lot of political um I I think uncertainty. >> Do you do you see taxes eventually going higher or will they resolve the problem through other means? Devaluations. Oh. Oh, though there the the usual way. We we have the debt the deficit by the way have been skyhigh ever since Trump's first term. But Trump's first term was bad. Then Biden was even worse. And and now Trump of course he he doesn't seem to be interested in in in the deficits at all. And and the debt just keeps going up. it. But if things can't continue, they will stop. So the question is how will it stop? And and one way to stop it is to reduce slow down government spending. I don't think that's going to happen. No one in Washington is interested in cutting government spending. That's a bipartisan thing. Both both parties are spending like mad. >> How about taxes? I I I I think to change the taxes will be also difficult. And that leaves number three, inflation. You just inflate it away. >> You you you you have a you have kind of a a phantom tax. It's called the inflation tax. So it it is a tax, but but it's not like a direct tax. So out of all of out of all three possibilities, I I think we're looking at again another factor that concerns me about the debt deficit level and and the debt and and that is the pressure that it's puts on the monetary system to monetize the debt and create a growth rate that's too high in the money supply and and inflation. So for investors who are are it sounds like protecting hedging against inflation is going to be a key theme if you're right about the way this plays out and we've seen that response in hard assets. What about crypto? Some people are looking at that as maybe not only a safe haven they should look at but also maybe part of the solution in terms of dealing with this. Well, I number one, it's not part of a solution and and and number two, it depends on exactly what part of crypto you're talking about. If you're talking about Bitcoin, Bitcoin is just a speculative asset with no fundamental value. >> So, you don't you don't see that as a store of value, as a new store of value. >> You do not see that consider that a a store of value that will help protect against inflation. Oh, I people are still trying to figure out what the use value is for for Bitcoin and and about the only use value is for criminal activity and and that you know that that's that's a small it's a troublesome but it's not a a huge sector of of the economy that that seems to be the the primary use value for the cryptos you know forget about all the rest of it saving the world and everything. It's not going to happen. So what you mentioned stable coins before though and I've heard people make the case that you know that will create demand for treasuries that will you know spread dollarization basically through the world kind of you know anchor the dollar as the reserve currency and that uh there's a lot of innovation around payments and that there that you know that somehow that there there is value and a benefit from a lot of what's happening in that space outside of the sort of Bitcoin. >> Well, to to the extent that the that the stable coin is is actually uh anchored and and and and and supported 100% by Treasury bills. The the answer is yes. It's a it's the the the token the token becomes kind of a clone of the US dollar. So, and it does in increase the demand for US dollar denominated assets. There's no question about that. The the the thing is most people don't realize that the tokens have very little use value and and they're not legal tender. >> That you you can't pay your taxes in stable coins and you can't keep your books in stable coins. So, so, so that's that that's the key when you know you you have to remember that the whole crypto thing is kind of a secular religion. So, whenever you get into religions, you have to be very careful with what you're dealing with because they they they're there are dogmas >> and and and etc etc. So, so getting to the bottom line of stable coins, let me let me give you one key thing to keep in mind. Tokens issued as stable coins are not legal tender. End of story. They're they're not currency. >> So, when we look out, it sounds like you're very concerned. What what what would what would you say to investors as they're sort of, you know, a lot of people like to take stock at the end of the year and try to, you know, come up with a strategy and think about 2026 and, you know, look at their holdings. What What would your advice be? What are what's top of mind for you as you're looking out at 2026? >> Okay. I think that maybe the the the only solid advice that I can give without getting into somebody's particular portfolio, which I'm not going to do, >> uh is to to think about it this way. Look, go back where you were in January of 2020 and and and let's say you you had a a plain vanilla portfolio, 60% stocks, 40% bonds. You you you were, you know, 50 years of age and, you know, what whatever you had 6040. That that portfolio now is is not 6040. It's probably 85 15 or something like that. So, you want to rebalance your portfolio and get it back to where wherever wherever your starting point was that you were comfortable with some time ago is not what you have now. it it's going to be a very heavily weighted into into equities and and you know may maybe you've got real estate in there or something like that. Anyway, it's just think about rebalancing the portfolio. In other words, that that's the sound advice that another piece of sound advice a lot of people say, "Well, Hanky, I'm listening to you. You got all these worries. you're worried about this, that, and the other thing. Maybe I should get out of the stock market. And and the answer to that is no. Because if you get out of the stock market, that's that's one decision when when to get out. But then you got to make another decision of when to get back in. And and and and the history of those two decisions, the the out and back in is a is a disaster. >> Yeah. It's super hard. Do we need to think about hard assets differently? You mentioned most of us back in most most of people living in the US, let's put it that way, uh just because of the nature of of 401's and some of how we handle retirement in this country had that sort of standard 6040. Do we in this new environment and in the middle of regime change? Do we need to think about that differently in terms of you know the assets we look at? It's it's very hard to give in these broad investment advice things. You to to give an investment advice. I have to see the balance sheet. There's nothing more important than than a balance sheet whether it's a a company or an individual. So you you you really have to drill down on and and look at the balance sheet and and and also the the the age of the owner of the balance sheet, the objectives of the owner of the balance sheet. There are all kinds of things you have to look about. So >> so giving kind of sweeping advice is is just not my cup of tea. I I I don't I don't like to do it. I I like to give the analytical uh perspective on the on the economy focusing again on the quantity theory of money and the money supply and and that will tell you where nominal GDP is going the real rate of growth in the economy and inflation and and then we can talk we we've talked a little bit about a few things that that people should be paying attention to in their portfolios but the but but beyond that uh As I say, I I I don't I don't think it's uh wise to be giving these sweeping generalities because investing is a very micro and particular thing depending on the individual involved. >> You're absolutely right and everybody's situation is different. So, so it is um hard to hard to be general um when you when you don't know those those facts. Uh but you reminded us of something very important that's a fundamentals matter. Um, and it's easy to get swept up in a lot of narratives, but um, good to remember what drives financial markets. So, thank you for helping remind us that of that and give us an idea of what to watch um, as we turn the corner. >> Well, you're welcome. Great to be with you, Maggie. >> Thank you so much. And if you are listening, as we just said, this is your, you know, your investments as you look out to 2026 are are very individual and you should go over it with somebody who can really dive in and understand your specifics. Um, if you would like to do that and you want a free portfolio review from an adviser in the Wealthon Network, just hit the link in the description or head over to wealthon.comfree. Thanks so much for watching everyone. We'll see you again next time. [Music]