Chamath and Larry Summers Debate the Market Reaction to Trump's Tariffs

if this is such a terrific thing why do markets think it's so terrible for the american economy maybe the market's just completely wrong but job of markets is to look forward it's to look past the immediate it's to see what the long run consequence are going to be and markets are making a pretty devastatingly negative judgment not true not true so let's just establish a couple facts about quote unquote the markets number one there are two markets and they behave totally differently and sometimes inversely to each other there's the stock market and there's the bond market with respect to the stock market what they are debating and you're right larry is what is the effective long-term rate

of return a dollar needs to generate in order to pay me back that dollar that is what the fundamental stock market does and what we've seen for many years with train imbalances trade deficits and close to zero interest rates of which more of that happened under democrats and republicans we have allowed the stock market to inflate past historical averages what we've actually seen happen in the last week is what most people would call mean reversion the stock market is still way above where it was last year 2 years ago 3 years ago what has happened is that the forward multiples have compressed so that's

number one that's a fact and then with respect to bonds what we are seeing now is there are two very complicated issues in the last 2 days we saw one part of the bond market totally get out of whack and what we know is that the yields changed materially in a very acute way which is atypical of how the bond market typically digests a philosophical change in approach to policy what we heard in the last 24 hours is a lot of this move may have been attributed to an enormous levered bet on us treasuries by a japanese hedge fund it will take three and four and five and 6 weeks for us to really know separately what we do know though where the structural complexity of the market and this is where larry i

agree with you is acute and important to observe is in the credit markets for private companies and that is where you have to pay a lot of attention