Alex speaks with Tendayi Kapfidze, Chief Economist and Vice President at LendingTree, about the current market conditions, asset and USD inflation scenarios, and LendingTree’s data on the COVID spurred “migration” from large cities. Also covered, the actual impact seen of the recent stimulus actions taken, whether you should be holding bitcoin, cash, or gold, and if a 2021GDP growth rebound can get the U.S. back to pre-pandemic levels.
Tendayi Kapfidze is Vice President, Chief Economist at LendingTree. He leads the company’s analysis of the U.S. economy with a focus on housing and mortgage market trends. Tendayi utilizes data analysis to be a resource for both consumers and trade media, providing actionable insights to help consumers make informed financial decisions. He has been quoted in numerous publications including The New York Times, The Wall Street Journal, The Washington Post, USA Today, Yahoo Finance, The Chicago Tribune, The Miami Herald and Reuters and has appeared on CNBC and Cheddar television.
Tendayi has a successful track record as a research professional specializing in macroeconomic and financial analysis. In his most recent role, Tendayi served as Director of Global Economics at Pfizer in New York City. He crafted Pfizer’s view on global macroeconomic trends, advising the executive leadership team on economic and financial risks. Prior to his position at Pfizer, Tendayi served as Director of Economic and Capital Markets Research at Ally Financial and as Vice President and Senior Economic Analyst in the chief investment office at Bank of America.
Tendayi earned his B.S. in Engineering Management at Saint Louis University and his M.S. in Applied Economics from Johns Hopkins University.
Originally Aired: 03/16/21
#Fintech #Economics #Inflation
Alex Moazed (00:08):
Hello. I’m Alex Moazed. Welcome to Winner Take All, where we talk about the constant battle between large tech monopolies and traditional incumbents. I’m excited to have a guest with me here, Tendayi Kapfidze, the chief economist at LendingTree. Tendayi, great to have you with us.
Tendayi Kapfidze (00:26):
Yeah. Glad to be here. Thanks for having me.
Alex Moazed (00:28):
There’s a lot of chatter about just what’s going on with the economy: Where will GDP come back? How fast can it come back? Inflation, all the QE that we’re seeing, all the fiscal spending and deficit spending that we’re seeing here. What’s the headline banner thesis from your perch as chief economist? Then let’s dig deeper.
Tendayi Kapfidze (01:00):
Yeah. I think the big headline this year, obviously, I think is going to be GDP growth is going to be the highest in decades, right, but the question is, does that GDP growth get us back to where we were pre-pandemic, and does it get us back onto the path that we were on a pre-pandemic? I suspect that may not happen this year, and even if it does happen, there are other concerns, I think, with the economy, mainly what’s happening in the labor market. We’re still down 10 million, maybe 20 million jobs, it depends how you measure it. If you just look at payrolls, we probably down around 10 million. If you’re looking at all the people who are on the various unemployment programs, we’re probably down 20 million. If you look at underemployed people who maybe are working part-time when they want full-time, maybe gig workers who are not getting the same amount of demand that they were seeing before the crisis, you’re probably looking upwards of 20 million, so I think even if we get robust GDP growth and good acceleration this year, you’re still looking at a relatively weak labor market, which means that a lot of people out there are still going to need help.
Alex Moazed (02:14):
Jim Rickards on the show a few weeks ago and a lot of what he was talking about is we shouldn’t call it “stimulus.” You can do quantitative easing as the Fed, you can do, I think his phrase was if we just call it “fiscal spending by the government,” and maybe this is to your point when we get to inflation, but because we see such low velocity, and I guess it’s been low for decades at this point, you’re not actually seeing a mechanism for the spending and the money supply creation to actually influence an increase in GDP, and then conversely, helping to solve this kind of big labor market issue. How do you see it? Do you see the fiscal spending, the deficit spending, the QE as viable or now semi-diluted tools to accelerate growth and influence that?
Tendayi Kapfidze (03:22):
What I’ll do is I’ll separate the two, right? I’ll separate the fiscal and the monetary. I think on the fiscal, yeah, some people say you shouldn’t call it a “stimulus,” I think they say you should call it a “recovery support,” or something. I don’t know, “stimulus” just sounds like a more fun word to me. “Stimulus” is like, yeah, we’re doing something, we’re going somewhere, the train is moving, so I’m not too hung up on whether it’s called “stimulus” or not.
Tendayi Kapfidze (03:51):
I think, though, that this fiscal part of the spending impacts the economy very directly, right, especially when it’s done in a timely way. What I mean by “timely way” is that with the previous fiscal bills, some of that money that hasn’t been spent, right, so it’s one thing for money to be in a bill, it’s another thing for money to be actually spent, so I think the money that’s actually spent hits the economy pretty quickly and pretty rapidly.
Tendayi Kapfidze (04:23):
Now, the question is: How is it that some money is spent on some money is not spent? It’s really a function of who’s getting the money and what their needs are, right, so for a lot of people who are unemployed, those unemployment checks and those stimulus checks are replacing lost income, so those pretty directly turn into spending, right, but for some people who maybe have more income, have savings and businesses that have access to other funds, some of that money, they’re taking it on, but they’re using it more as like an insurance policy, so they putting that money into savings. What we saw last year, if we look at the personal savings rate, we have excess savings now of almost $2 trillion versus where it would have been without a decline in spending because of the pandemic and then some of the money coming in from the government, so you could probably say $2 trillion has been taken out of the economy, even though it’s money that people have because they’re not spending it and they’re keeping it in savings, so that’s the fiscal side.
Alex Moazed (05:36):
That makes complete sense to me, right? I think there’s a lot of reports coming out now about, like we saw in ’08, where the recovery measures widened the gap, the equity or income gap, widens the divide even greater. Certainly, I think that some of what we’re seeing here, if you got, yeah, people that are still employed, obviously have been affected by COVID, but aren’t as down and out as millions of other Americans, they can take these monies that they’re either getting checks, or they’re getting PPP money, or they’re getting other kinds of recovery funds, and they’re stashing it away, which I think is why we’re not seeing inflation, even though we’re seeing huge fiscal spending, huge QE, which we can get to, but you’re not seeing the velocity. To your point, you need the money to be spent in the economy, not just going and being put into some form of saving, and I guess that’s the thing I’m seeing is that it might not be inflation, but is there such a thing called “asset price inflation”? Because I feel like we’re seeing asset price inflation. It might not be true inflation, but are we seeing asset price inflation?
Tendayi Kapfidze (07:05):
Yeah, I mean, it certainly seems like it, right? There’s not an asset in the world, it looks like to me, that hasn’t gone up, call it the past six months to a year, right, so that tells you where a lot of that money is ending up, right? A good bit of it is ending up in the housing market and we’ve seen really robust home price growth. The other issues in the housing market, like lack of inventory, and of course, really low-interest rates, but I think some of these $2 trillion, maybe people are using it to pay bigger down payments, which is something that we’ve seen in our data at LendingTree. Certainly, some of it, I guess, is ending up in the stock market, and then some of it is ending up in these new crypto and digital markets with cryptocurrencies and now the NFTs, which, yeah, I’m one person who’s glad to say that there’s stuff in this world that I just don’t understand and that stuff, I just don’t understand, so yeah, certainly, there seems to be some asset inflation.
Alex Moazed (08:13):
I’m seeing it in my world. I’m screen-sharing here. I’ve got the European angel and seed pre-money valuations and the chart, I mean, it’s just going up. I mean, it’s been going up, but we’re seeing it in my world with these mid-to-high growth growth-stage tech startups. Towards second half of last year, we published a report showing that all your mid-to-later stage startups, all the money was flocking to those and their valuations were exploding. Now, I think you’re actually seeing it trickled down even further. Now, in the VC community, they’re talking about how later-stage VC funds are looking to write earlier seed or Series A stage checks because the valuations have become so expensive for the mid-to-late stage, now that money is now inflating the earlier stage value.
Alex Moazed (09:18):
This chart’s Europe. We did our report on US startups, so you’re seeing it, certainly, in US and European markets, and even these more illiquid investment vehicles like VC funds, PE, private equity is a wash in money, the housing market you’re talking about, so bringing it full circle, if we have asset price inflation and if we have the mechanisms to arbitrarily spur growth, fiscal spending and QE, let’s call it, but that money isn’t hitting the velocity, so it’s not actually creating increased GDP, right, or for every dollar you spend, you get back less than a dollar, maybe way less than a dollar of derivative GDP spend. Going back to your point on when is GDP going to actually reach 2019 levels, that paints a not-so-good outlook in the sense of how do we get this economy really juiced and back to where it was, and if our institutions have diluted their ability to accelerate that timeline, that’s unfortunate. Or do you see it differently?
Tendayi Kapfidze (10:53):
No, I mean, I think probably part of what it is is, yeah, where’s the money going, right? It’s going to people who don’t need to use it for consumption, so therefore, they use it for asset purchases, right, which is creating maybe some froth in the asset markets. If you want to boost GDP, which is one part of gross domestic product, the other way to measure it is, a big part of it is consumption. If you want to boost consumption, you have to get money to people with a high propensity to consume, which probably means those are people who do not have assets that they hold on to because they use most of their income as consumption, so it’s really a question of: Are you designing these stimulus or these monetary policies in a way that the money towards the people who are likely to consume?
Tendayi Kapfidze (11:57):
It’s not an easy problem to solve, right, which is why if you look at some of the policies, like the Fed, right, has a hammer, so everything is a nail, and the only thing they can do is pump money into it, right? Part of the challenge, the Fed is trying to figure this out, right, what they’re doing now is they’re saying that one of the reasons there’s this big inflation debate is that, the Fed is now saying that the 2% is not an inflation ceiling, it’s an inflation average, so they are happy to see inflation run ahead of that level.
Tendayi Kapfidze (12:36):
What the Fed is also doing is that they’re putting more emphasis on the other part of the dual mandate, which is full employment, and they’re now saying that full employment is not on the aggregate employment statistics, but it’s on the employment statistics of vulnerable groups, or previously disadvantaged groups, like black unemployment, right, which is why the Fed is saying, “We can let inflation run a little bit hotter so that we can improve this metric of people who probably have a high propensity to spend.” The challenge is the way they do that is by, sorry, more monetary stimulus, which ends up increasing the assets or the wealth of the asset holders, right, so yeah, it’s not an easy problem to solve. Probably the fiscal side is better equipped to solve this than the monetary side, and then that gets into the questions of inequality and tax policy and some of those more complex issues, which then turns into a left-rights type of debate.
Alex Moazed (13:46):
Yeah. Oh, it sounds fun. We’ve got a couple questions from the audience here. First one is: “Hi, Tendayi. Should I be holding gold, Bitcoin, or cash?”
Tendayi Kapfidze (13:59):
You should probably hold what it lets you sleep at night. Probably if you look at the volatility of those three things, I would guess cash is the least volatile one, but you’re probably not going to get much appreciation out of cash, right? If you get inflation, you might actually get net depreciation in the real value of your cash. Gold is going to be more volatile than cash, so you have some opportunity for appreciation, but of course, you can lose value. Then Bitcoin is the ultimate volatility play. If you can sleep with that kind of volatility, then that’s your choice. I can’t tell you what to do. I can really just tell you what are the characteristics of some of these things you are asking about, so think about what kind of volatility you’re comfortable with, and that will let you know where you can put your money.
Alex Moazed (14:47):
‘Kay, and last question, it was great to have you on the show today, and I think you were making comments on some of what LendingTree is seeing in particularly the housing market, so the question here is: “Do you anticipate the migration out of cities to suburbs and to more rural locations to continue? If so, will housing price appreciation continue outside the major cities?”
Tendayi Kapfidze (15:14):
Yeah, so the migration was never a real thing. It was a media thing as a fun story. The data that we looked at, we saw that migration of people moving out of cities, and we define those as metropolitan areas, into small towns, which were micropolitan areas, went from like 1.8% in 2019 to like 2.4% in 2020. Most people who moved move within the same city, like 80-something percent, and then like another 13% moved from one big city to another big city, so there really wasn’t a migration out of cities. I guess maybe there was some movement out of downtown cores into suburban areas for more space, but even that is kind of overplayed.
Tendayi Kapfidze (16:08):
But in terms of home prices, yeah, I think you’ll still see pressure on home prices because there is a supply problem. The supply problem just got worse, right? Because of all these people who refinanced in 2020 at rock-bottom rates, one thing that does is if you have a really low-interest rate, it’s a mechanism for locking you into your current house, because if you are having to move and if moving means you’re moving into a new house, but you’re also moving into a higher-rate mortgage, if he sees mortgage rate starts to go up, people are going to want to stay in their houses with their rock-bottom mortgage rates, so that’s going to reduce the medium-to-long-term supply of housing, so we will continue to see price pressures, certainly this year and probably into next year as well.
Alex Moazed (16:55):
Wow. Very enlightening, my friend. That’s the chief economist from LendingTree. Tendayi, wonderful to have you on the show. Hope you come back again soon.
Tendayi Kapfidze (17:03):
Anytime. Just let me know.
Filed under: Winner Take All | Topics:
Winner Take AllRead more
Winner Take AllRead more