Market Meltdown? Webcast Transcript: Pippa Malmgren 1-on-1 with Keith McCullough - HE RC PM Thumb 2.1

Q: What do China’s Xi Jinping, Brexit and Donald Trump all have in common?

A: They embody the current geopolitical battle between “centralization” and “decentralization” … a key global development which may significantly impact investors’ future returns, according to Dr. Pippa Malmgren.

Malmgren—the influential economist, best-selling author and former White House economic advisor is our special guest in a new, just-released Real Conversations webcast with Hedgeye CEO Keith McCullough.

CLICK HERE to watch the entire 27-minute interview.

Below is a brief transcript from their conversation.

Keith McCullough: All institutional investors want to talk about is the downside these days. They want to talk about the biggest risks. People rarely want to talk about the upside. What are your thoughts on that?

Pippa Malmgren: Well, I’ve been bullish on stocks now for the past five years and I remain so for many reasons. One of the reasons is that we have $20 trillion in the economy that we didn’t have before the crisis happened.

We know the central banks are going to raise interest rates a couple times, maybe even four times this year. That’s nothing. It’s like taking a cup of water out of the Atlantic Ocean. It’s not a tightening. So when I talk to the biggest institutional investors in the world, they’re saying: ‘I’m in stocks and not overweight because it’s bad luck to be buying stocks at the top. So every day I hope and I pray that the market falls -10%, but it never happens. So I have to buy every pullback.’

They’re in bonds and have cash. The problem with bonds and cash is inflation is back. I’m not saying it’s wild inflation, but even a little bit of inflation is a huge issue for an investor. Everywhere inflation is now burning at your rear-end and you’ve got to get out of cash and into something hard, like equities, private equity, building or financing of a business, or hard assets like property.

So what I see is big institutional investors that have been sitting on the sidelines. Now they’re saying, ‘I need to get out of cash and into something real.’ All of this makes equities go up, not down.

KM: The last thing I wanted to ask you about is Brexit. You’re one of the few people who nailed it right out of the box. I’m sure everyone wants to hear your current thoughts about what’s happening in the U.K.

PM: So, I’ll give my personal views because I’m an independent advisor to the British government.

I don’t think it’s a lose-lose for the U.K and E.U. Both sides can win. What’s clear is that Britain is not likely to raise its regulatory red tape to be higher than E.U. levels. In fact, it’s lowering it’s regulatory red tape. It’s going to have the freedom to lower its tax rate if it wants to relative to Europe. In my view, money is like water and it’s going to go to the place of least resistance.

So in the meantime where are the Europeans going. They’re moving toward more centralization and more harmonization. That means higher tax rates and higher red tape and higher government involvement in the economy. More centralization.

When I talk to the biggest investors in the world, the sovereign wealth funds, the pension funds. They’re saying, ‘You know Pippa. I don’t like the uncertainty that Brexit brings, but on the other hand I still can’t make any money in France and Italy. We’re still having economies that are not functioning very well. They look likely to function less well as countries raise regulatory burdens.

Foreign direct investment to the U.K. has actually risen since the Brexit announcement. But not me I’m like of course that’s going to go up because Britain is the freest economy in the region.

Having said that, there’s a movement on the continent. Now, they’re not all looking to exit the E.U. but the citizens of Europe are starting to say, ‘Hey whatever we’re doing isn’t working. We’ve got 40% youth unemployment.’

And this is why we see the Five Star Party in Italy beginning to win more than expected, why the AFD in Germany is performing better than expected. In France, the right is gathering to have more of a comeback. It’s not that I think the hard right is winning ideologically.

The issue is the same as in Britain. It’s about centralization versus decentralization. As the European Commission tries to tighten and centralize the power, the public will want more power at the national level, not in Brussels.

CLICK HERE to watch the entire 27-minute interview.