O TYM ODCINKU
Stephen Dopp welcomes back recurring guest Tim Paulson for another wide-ranging conversation, this time tying together the fallout from the Jackson Hole symposium and Mr. Paulson’s latest essay, “The Wrong End of the Pool.” Mr. Paulson frames Federal Reserve Chairman Kevin Warsh as trying to revive a pre-Global Financial Crisis ethos at the Fed of less forward guidance and a smaller balance sheet, but Mr. Paulson argues the chairman’s hands are tied by a financial system the Fed helped build over the past two decades. Mr. Paulson extends his swimming pool analogy to argue that oil and food prices are inherently volatile and don’t represent genuine long-run inflation, since money spent at the pump is simply redirected away from other goods rather than added to the system. The real driver of sustained inflation is the volume of fiscal spending flooding the economy, something no Fed policy can meaningfully offset.
The conversation then turns to whether today’s elevated U.S. Treasury yields represent something abnormal or are simply a return to historical norms after an artificially low-rate era. Mr. Paulson points out that today’s 10-year term premium is actually a bit below its 50- to 60-year historical average, a fact he says gets lost in the recency bias of comparing current yields only to the last 15 years. He’s direct in stating that the fiscal deficit is the real long-term risk to watch, comparing it to handing a college student an uncapped credit card with no annual fee: It feels fine until the bill eventually comes due, and Mr. Paulson expects politicians will only act once markets force their hand. He closes by pushing back on recurring “end of the dollar” narratives, arguing that despite genuine erosion of confidence, no credible alternative reserve currency exists today.
Subscribe to The Glide Path:
Speaker Bio: Tim Paulson is a fixed income and macro strategist who spent fifteen years at Goldman Sachs — first as a risk-taker in the mortgage department, then in institutional sales working with some of the world’s largest investors — followed by a decade at Lord Abbett as the firm’s primary investment voice, speaking at major conferences and building market frameworks that moved billions in assets. After thousands of conversations with professional investors across his career, Tim has made debunking bad market narratives something of a personal mission. He writes about it at The Paulson Perspective, an independent macro publication built around a simple conviction: most of what gets written about markets is either an oversimplification or a distortion. He hosts Crosswinds, a monthly conversation about the economic and market ideas the consensus gets wrong.
