1 00:00:10,039 --> 00:00:13,720 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Always 2 00:00:14,000 --> 00:00:17,560 Speaker 1: with Michael McKee daily we bring you insight from the 3 00:00:17,560 --> 00:00:22,760 Speaker 1: best in economics, finance, investment, and international relations. Find Bloomberg 4 00:00:22,840 --> 00:00:27,240 Speaker 1: Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course 5 00:00:27,760 --> 00:00:32,839 Speaker 1: on the Bloomberg. You look at the markets, and you 6 00:00:32,880 --> 00:00:35,680 Speaker 1: look at what is happening in the face of reported 7 00:00:35,720 --> 00:00:39,760 Speaker 1: slow down across the world, the Brexit situation in the 8 00:00:39,840 --> 00:00:42,479 Speaker 1: United States, and many have argued all this is going 9 00:00:42,520 --> 00:00:45,800 Speaker 1: to end badly and over stimulated global economy running on 10 00:00:45,840 --> 00:00:49,440 Speaker 1: central bank fumes. One of those who has argued most 11 00:00:49,600 --> 00:00:52,959 Speaker 1: vociferously that we are headed for trouble is Camal Sri 12 00:00:53,120 --> 00:00:56,760 Speaker 1: Kumar of Sri Kumar Global Strategies, and Camal, You've got 13 00:00:56,760 --> 00:00:58,600 Speaker 1: to be shaking your head at the fact that we 14 00:00:58,720 --> 00:01:03,360 Speaker 1: keep making new eyes on the stock markets and we're 15 00:01:03,480 --> 00:01:07,199 Speaker 1: starting to see barnes get a little weaker and yields 16 00:01:07,240 --> 00:01:10,039 Speaker 1: go up, and yet everybody's talking about cuts, cuts, cuts 17 00:01:10,040 --> 00:01:13,039 Speaker 1: from the central banks. Yeah, Mike, I think what is 18 00:01:13,080 --> 00:01:16,520 Speaker 1: happening today is the steepening of the yield curve. But 19 00:01:16,600 --> 00:01:19,520 Speaker 1: we have seen the yield curve in the United states 20 00:01:19,600 --> 00:01:23,440 Speaker 1: flattened before today, and I think we will return to 21 00:01:23,480 --> 00:01:27,880 Speaker 1: the flattening yield curve. And specifically, you may remember that 22 00:01:27,959 --> 00:01:31,240 Speaker 1: when I was on the radio program with you a 23 00:01:31,280 --> 00:01:34,240 Speaker 1: couple of months ago, there was a caller who was 24 00:01:34,280 --> 00:01:36,520 Speaker 1: going who called wrote to you to say that he 25 00:01:36,560 --> 00:01:39,000 Speaker 1: would take the other side of my one percent ten 26 00:01:39,080 --> 00:01:41,560 Speaker 1: year yield. Bet. I would really like to take that 27 00:01:41,640 --> 00:01:44,480 Speaker 1: person on. I think we are headed to one percent, 28 00:01:44,600 --> 00:01:47,840 Speaker 1: and I think we have still think so ninety basis points. 29 00:01:47,840 --> 00:01:50,480 Speaker 1: I feel a lot stronger today than even when I 30 00:01:50,520 --> 00:01:53,480 Speaker 1: was with you the last time. There is no growth 31 00:01:53,520 --> 00:01:58,040 Speaker 1: in the economy, Mike, and inflation is non existent, and 32 00:01:58,080 --> 00:02:00,960 Speaker 1: the central banks have nothing to do but to go 33 00:02:01,000 --> 00:02:04,120 Speaker 1: on with more and more easing. I think the Federal 34 00:02:04,160 --> 00:02:07,520 Speaker 1: Reserve is going to not only cut interest rates, but 35 00:02:07,640 --> 00:02:10,800 Speaker 1: I wouldn't be surprised if we have negative federal funds 36 00:02:10,880 --> 00:02:15,720 Speaker 1: rates sometime before the end of twenties seventeen. So why else, 37 00:02:15,919 --> 00:02:19,200 Speaker 1: what else should equities do? They keep going up until 38 00:02:19,280 --> 00:02:22,080 Speaker 1: some point in time you have a crash. I'm SUREE 39 00:02:22,160 --> 00:02:24,160 Speaker 1: did I hear you just say negative rates? What do 40 00:02:24,160 --> 00:02:26,560 Speaker 1: you mean by that? You mean like a negative two 41 00:02:26,639 --> 00:02:31,919 Speaker 1: year yield? The effective federal funds rate, Tom, is about 42 00:02:32,040 --> 00:02:36,320 Speaker 1: forty basis points. So, in other words, instead of the 43 00:02:36,480 --> 00:02:39,519 Speaker 1: zero to twenty five basis points which we had before, 44 00:02:39,600 --> 00:02:42,640 Speaker 1: we have gone to twenty five to fifty currently pass 45 00:02:42,639 --> 00:02:46,720 Speaker 1: of December sixteen, and effectively we had at about forty. 46 00:02:46,800 --> 00:02:49,920 Speaker 1: And I'm saying that forty goes to zero and goes 47 00:02:50,000 --> 00:02:52,040 Speaker 1: below zero. That's what I think, Okay. I wanted to 48 00:02:52,040 --> 00:02:54,240 Speaker 1: make that clear. The way that came out, I was like, 49 00:02:54,240 --> 00:02:57,360 Speaker 1: whoa negative interest rates in the United States? Street comar. 50 00:02:57,480 --> 00:03:01,079 Speaker 1: It's a big country, it's a diversified country. We are 51 00:03:01,120 --> 00:03:03,760 Speaker 1: the United States of America. We're not the United States 52 00:03:04,120 --> 00:03:09,839 Speaker 1: of Europe. Explain how Washington policy affects the West where 53 00:03:09,880 --> 00:03:13,840 Speaker 1: Michael McKee is right now. It's not New York City, 54 00:03:14,240 --> 00:03:19,320 Speaker 1: it's not Boston, San Francisco. It's a rural, mining, agriculture west. 55 00:03:19,680 --> 00:03:22,520 Speaker 1: How do the free lunch affect those people? A very 56 00:03:22,560 --> 00:03:26,560 Speaker 1: good question, Tom. The difference here is that if you 57 00:03:26,600 --> 00:03:29,760 Speaker 1: were to look at an Italian, the French, and the German, 58 00:03:29,840 --> 00:03:32,880 Speaker 1: even though they have a common currency, you don't have 59 00:03:33,040 --> 00:03:36,880 Speaker 1: similar interest rates because the country risks are still present 60 00:03:36,960 --> 00:03:40,400 Speaker 1: and they are very different. What you don't have between 61 00:03:40,440 --> 00:03:44,280 Speaker 1: Wyoming and California and New York is the kind of 62 00:03:44,520 --> 00:03:48,240 Speaker 1: divergence that you see in Europe. That's the first part. Second, 63 00:03:48,560 --> 00:03:51,280 Speaker 1: if you live in whether you live in Wyoming at 64 00:03:51,440 --> 00:03:54,120 Speaker 1: or whether you live in New York, you are still 65 00:03:54,160 --> 00:03:57,680 Speaker 1: going to suffer the impact of the federal reserves essentially 66 00:03:57,800 --> 00:04:01,560 Speaker 1: zero interest rate policy. I if you're a retiree in 67 00:04:01,680 --> 00:04:06,640 Speaker 1: Wyoming enjoying the situation there, you still don't have a 68 00:04:06,680 --> 00:04:09,400 Speaker 1: good retirement income coming. So that's a second way in 69 00:04:09,440 --> 00:04:12,400 Speaker 1: which you are affected. The third is again if you 70 00:04:12,440 --> 00:04:15,320 Speaker 1: go back and look at what happened with Hurricane Katrina 71 00:04:15,360 --> 00:04:18,479 Speaker 1: in two thousand five, the whole country came to the 72 00:04:18,600 --> 00:04:22,560 Speaker 1: defense of Louisiana as a result of it, and you 73 00:04:22,640 --> 00:04:26,560 Speaker 1: will what you have today is Wyoming as also the 74 00:04:26,600 --> 00:04:30,400 Speaker 1: other states of the United States work as one in 75 00:04:30,480 --> 00:04:33,320 Speaker 1: case there is a situation of difficulty anywhere, which is 76 00:04:33,360 --> 00:04:37,440 Speaker 1: I think a very commendable task for the single United 77 00:04:37,480 --> 00:04:41,440 Speaker 1: States as opposed to the Disunited Europe. We have well 78 00:04:41,520 --> 00:04:46,000 Speaker 1: in the United States, we have one monetary policy, but 79 00:04:46,160 --> 00:04:49,320 Speaker 1: is it working as it should for the entire country 80 00:04:49,400 --> 00:04:52,240 Speaker 1: or are we seeing the real gains go to the 81 00:04:52,240 --> 00:04:55,599 Speaker 1: folks who live in New York and work in Manhattan. 82 00:04:56,160 --> 00:04:59,039 Speaker 1: Good question, Mike. I think it is there. I wouldn't 83 00:04:59,040 --> 00:05:02,200 Speaker 1: say that it's a re difference between Wyoming and New York. 84 00:05:02,279 --> 00:05:05,040 Speaker 1: I think the differences between the rich and the poor. 85 00:05:06,040 --> 00:05:10,960 Speaker 1: And consistently the policy followed by the Fed since September 86 00:05:11,000 --> 00:05:14,839 Speaker 1: two eight has helped you. If you are an equity investor, 87 00:05:15,000 --> 00:05:17,800 Speaker 1: which means you are typically higher income, you're able to 88 00:05:17,839 --> 00:05:21,359 Speaker 1: take that risk and has hurt you badly. If you 89 00:05:21,360 --> 00:05:24,239 Speaker 1: are a wage earner or you're at a lower income 90 00:05:24,320 --> 00:05:27,640 Speaker 1: level in terms of looking for a job, You're working 91 00:05:27,640 --> 00:05:30,719 Speaker 1: hours have been cut back, but from two thousand seven 92 00:05:30,800 --> 00:05:33,880 Speaker 1: you have not had a decent salary increase in real terms. 93 00:05:34,320 --> 00:05:38,400 Speaker 1: So the difference has been countrywide. Everybody suffers from it. 94 00:05:38,800 --> 00:05:42,720 Speaker 1: But the difference is more based on income stratification, which 95 00:05:42,720 --> 00:05:45,680 Speaker 1: is why you see that becoming such an important point 96 00:05:45,920 --> 00:05:49,040 Speaker 1: in the elections this November. We are not fighting based 97 00:05:49,040 --> 00:05:53,479 Speaker 1: on regional differences. We are competing based upon how people 98 00:05:53,520 --> 00:05:57,320 Speaker 1: in different income groups have been differentially rewarded by the 99 00:05:57,400 --> 00:06:01,160 Speaker 1: Federal Reserve, which shows no sign of changing its policy. 100 00:06:01,520 --> 00:06:05,799 Speaker 1: Is this some more unequal America than it was before? 101 00:06:05,880 --> 00:06:09,480 Speaker 1: Roubini's q E one q E two QUE three is 102 00:06:09,680 --> 00:06:15,159 Speaker 1: QE forced our Genie coefficient to a more unequal point. 103 00:06:16,480 --> 00:06:20,039 Speaker 1: The Genie coefficient, the measure of the inequality of income 104 00:06:20,120 --> 00:06:23,520 Speaker 1: TOM I think has been worsening shift two thousands. It 105 00:06:23,600 --> 00:06:26,680 Speaker 1: has shifted, It has worsened, and there's no sign it 106 00:06:26,800 --> 00:06:30,279 Speaker 1: is going to change anytime soon. Again. You can see 107 00:06:30,279 --> 00:06:32,920 Speaker 1: that in terms of the number of billionaires you had 108 00:06:32,960 --> 00:06:35,880 Speaker 1: in two thousand eight compared with today. You can also 109 00:06:35,960 --> 00:06:39,120 Speaker 1: look at it in terms of the labor force participation rate, 110 00:06:39,320 --> 00:06:42,920 Speaker 1: which has steadily gone down, which means that people at 111 00:06:42,920 --> 00:06:44,920 Speaker 1: the working level who would like to get a job 112 00:06:44,960 --> 00:06:47,120 Speaker 1: are not getting it. Michael McKee and I are having 113 00:06:47,160 --> 00:06:50,200 Speaker 1: fun the other day on Facebook Live. We sit down 114 00:06:50,279 --> 00:06:52,880 Speaker 1: at eleven am New York time, and we should chat 115 00:06:52,880 --> 00:06:56,240 Speaker 1: over four charts, and one of them was the tailor rule. 116 00:06:56,960 --> 00:06:59,359 Speaker 1: There are two plug ins to the tailor rule, the 117 00:06:59,480 --> 00:07:02,400 Speaker 1: neutral real rate and then the gues estimate of the 118 00:07:02,440 --> 00:07:06,240 Speaker 1: best unemployment rate. Do we have a clue what the 119 00:07:06,279 --> 00:07:09,320 Speaker 1: two plug ins are to the tailor rule? I think 120 00:07:09,360 --> 00:07:12,520 Speaker 1: people have had plug in storm. But if you if 121 00:07:12,560 --> 00:07:15,360 Speaker 1: you put in both of those, what we do know 122 00:07:15,520 --> 00:07:18,920 Speaker 1: is you can disagree on what exactly the tailor rule 123 00:07:19,560 --> 00:07:23,120 Speaker 1: suggested into a federal funds rate should be. But it 124 00:07:23,200 --> 00:07:26,480 Speaker 1: is not twenty five to fifty basis points. It's the 125 00:07:26,680 --> 00:07:30,800 Speaker 1: generally agreed figure is about one point five percent or 126 00:07:30,880 --> 00:07:34,440 Speaker 1: so for the for the tailor rule, A prescribed interest 127 00:07:34,520 --> 00:07:37,480 Speaker 1: rate perhaps higher, but we are not going to go 128 00:07:37,600 --> 00:07:40,880 Speaker 1: there any time soon, not with this FED, which I 129 00:07:40,920 --> 00:07:43,200 Speaker 1: don't think has much trust in the tailor rule, and 130 00:07:43,200 --> 00:07:45,360 Speaker 1: they're not going to do it. Well, if you've got 131 00:07:45,400 --> 00:07:47,360 Speaker 1: to do a tailor rule, you've got to have some 132 00:07:47,440 --> 00:07:51,480 Speaker 1: sort of estimate for what the neutral rate is. Everybody 133 00:07:51,480 --> 00:07:54,920 Speaker 1: basically seems to agree that it's come down a whole lot, 134 00:07:55,040 --> 00:07:57,280 Speaker 1: and kind of the question at this point is where 135 00:07:57,320 --> 00:07:59,520 Speaker 1: would you see it? Do you think it's negative? So 136 00:07:59,520 --> 00:08:01,880 Speaker 1: a lot of people think it's it's gone negative. Well, 137 00:08:02,000 --> 00:08:06,680 Speaker 1: the the neutral rate in the sustainable rate is probably 138 00:08:06,880 --> 00:08:10,080 Speaker 1: somewhere at least one percent, Mike, I'm not going to 139 00:08:10,160 --> 00:08:12,200 Speaker 1: say that it has gone negative. So I think the 140 00:08:12,280 --> 00:08:16,320 Speaker 1: neutral rate is positive. It is clearly suggestive of of 141 00:08:16,360 --> 00:08:19,760 Speaker 1: a move up. And if you're looking at also the unemployment, 142 00:08:20,640 --> 00:08:24,160 Speaker 1: the unemployment figure is four point nine percent, but if 143 00:08:24,200 --> 00:08:27,760 Speaker 1: you combine that with the labor force participation rate, the 144 00:08:27,880 --> 00:08:32,280 Speaker 1: unemployment situation is actually worse than the rate alone would suggest, 145 00:08:32,440 --> 00:08:35,440 Speaker 1: So I would go, I think, putting both together to 146 00:08:35,559 --> 00:08:37,840 Speaker 1: somewhere between one and one and a half percent, if 147 00:08:37,920 --> 00:08:40,640 Speaker 1: not higher. I look at where we are and translate 148 00:08:40,720 --> 00:08:44,760 Speaker 1: this then into the American political process. Secretary Clinton today 149 00:08:44,800 --> 00:08:47,600 Speaker 1: is going to get support from Sandra Sanders. Mr Trump 150 00:08:47,679 --> 00:08:49,880 Speaker 1: is going to go to Cleveland, and they're looking at 151 00:08:49,920 --> 00:08:54,600 Speaker 1: an economy which both of them suggest is unacceptable. You've 152 00:08:54,640 --> 00:08:58,360 Speaker 1: been one of the great voices of this nation and saying, yes, 153 00:08:58,480 --> 00:09:01,559 Speaker 1: g d P is unaccepted the boar, but is your 154 00:09:01,640 --> 00:09:05,719 Speaker 1: unacceptable the new normal that the politicians are coming to 155 00:09:05,800 --> 00:09:08,960 Speaker 1: grips with. I think both of them are coming to 156 00:09:09,080 --> 00:09:11,839 Speaker 1: grips with that. And I think both of them are 157 00:09:11,880 --> 00:09:16,160 Speaker 1: also coming together on one part. Tom not only that 158 00:09:16,200 --> 00:09:18,840 Speaker 1: the growth rate is not high enough, it should be 159 00:09:18,920 --> 00:09:22,160 Speaker 1: much better, which, as you know, you and Mike and 160 00:09:22,200 --> 00:09:24,440 Speaker 1: I have been talking about this for the last six 161 00:09:24,520 --> 00:09:28,520 Speaker 1: or seven years. It just hasn't changed after the financial crisis. 162 00:09:28,600 --> 00:09:32,559 Speaker 1: But something more important is taking place. Both candidates are 163 00:09:32,600 --> 00:09:37,520 Speaker 1: saying that the inequality has weakened, the inequality has increased. 164 00:09:37,559 --> 00:09:42,840 Speaker 1: Excuse me, So from that viewpoint, the equality situation has worsened, 165 00:09:42,920 --> 00:09:46,160 Speaker 1: and I think both Bernie Sanders and Hillary Clinton on 166 00:09:46,200 --> 00:09:50,440 Speaker 1: the Democratic side, donald Trump on the Republican side, all 167 00:09:50,600 --> 00:09:52,679 Speaker 1: would like to do something about it. They are that 168 00:09:52,800 --> 00:09:55,960 Speaker 1: prescriptions are all very different. But it's interesting to me 169 00:09:56,120 --> 00:09:59,560 Speaker 1: that the income inequality is playing such an important role, 170 00:10:00,080 --> 00:10:03,440 Speaker 1: lot more important role than even the pace of growth 171 00:10:03,559 --> 00:10:06,560 Speaker 1: of GDP. You mentioned the presidential candidates, so we've talked 172 00:10:06,559 --> 00:10:09,400 Speaker 1: a lot about the FED bottom line tree. What would 173 00:10:09,440 --> 00:10:12,360 Speaker 1: you do about it? And at the same time give 174 00:10:12,760 --> 00:10:15,560 Speaker 1: us your advice to your clients, what should they do 175 00:10:15,559 --> 00:10:18,800 Speaker 1: while they're waiting for these people to act? Well as 176 00:10:18,880 --> 00:10:21,160 Speaker 1: you wait for the people to act, And you said, 177 00:10:21,200 --> 00:10:23,320 Speaker 1: what would I say to my clients? What would I 178 00:10:23,360 --> 00:10:25,960 Speaker 1: say to the investors? I would say, one, the bubble 179 00:10:26,080 --> 00:10:29,520 Speaker 1: is going to become bigger in the equity side, perhaps 180 00:10:29,600 --> 00:10:33,520 Speaker 1: for a few more months. But on that side, stay defensive, 181 00:10:33,880 --> 00:10:37,920 Speaker 1: look at utilities, look at telecom, look at healthcare. Be 182 00:10:38,160 --> 00:10:41,840 Speaker 1: more on the risk of equity rather than risk. On second, 183 00:10:42,240 --> 00:10:45,040 Speaker 1: I would say high yield bonds have once again got 184 00:10:45,040 --> 00:10:49,000 Speaker 1: a renewed pace of life because of all the monetary easing. 185 00:10:49,120 --> 00:10:52,640 Speaker 1: No expectation of a FED tightening anytime soon. So if 186 00:10:52,679 --> 00:10:57,040 Speaker 1: you are a very nimble investor, enjoy some high bond 187 00:10:57,080 --> 00:10:59,760 Speaker 1: returns for the short period of time, be prepared to 188 00:11:00,120 --> 00:11:04,000 Speaker 1: pout quickly before the market happens. Third, there is a 189 00:11:04,160 --> 00:11:09,160 Speaker 1: lot more juice in the highest grade fixed income US treasuries, 190 00:11:09,360 --> 00:11:13,160 Speaker 1: German buns, UK guilt. I have been one of those 191 00:11:13,160 --> 00:11:16,760 Speaker 1: saying despite Brexit, the UK guilt yields will go down, 192 00:11:16,800 --> 00:11:19,520 Speaker 1: and they'll go down further. The pound will go down, 193 00:11:19,720 --> 00:11:22,400 Speaker 1: but so will the UK guilty yield Street Commar with 194 00:11:22,480 --> 00:11:25,120 Speaker 1: us thank you so much, greatly appreciate it. With three 195 00:11:25,160 --> 00:11:39,520 Speaker 1: Commar Global advisors, one d gartment has given us great 196 00:11:39,559 --> 00:11:44,839 Speaker 1: assistance in the linkage of economics in the financial investment 197 00:11:45,160 --> 00:11:48,040 Speaker 1: and we talked to him about being in cash, not 198 00:11:48,160 --> 00:11:51,760 Speaker 1: being in cash and being whips Dennis, good morning, Good morning, Tom, 199 00:11:51,760 --> 00:11:54,880 Speaker 1: Thanks for having me on all my my deepest sympathies 200 00:11:54,880 --> 00:11:56,800 Speaker 1: to you. Somebody said to me the other day what 201 00:11:56,840 --> 00:11:58,440 Speaker 1: would you do? When I said, well, I run a 202 00:11:58,480 --> 00:12:00,920 Speaker 1: sovereign wealth fund, so I don't have to worry about 203 00:12:00,920 --> 00:12:04,840 Speaker 1: being whipsode in this market. I know. The cheap question 204 00:12:05,000 --> 00:12:07,080 Speaker 1: is have you ever seen anything like this? And the 205 00:12:07,120 --> 00:12:11,240 Speaker 1: answer is no, we haven't. How do you work day 206 00:12:11,320 --> 00:12:17,600 Speaker 1: today trying to here's the key phrase, folks, not lose money. 207 00:12:17,640 --> 00:12:20,480 Speaker 1: How are you doing that? Uh? With with a great 208 00:12:20,520 --> 00:12:23,680 Speaker 1: deal of non confidence. To be quite honest, the only 209 00:12:23,720 --> 00:12:26,240 Speaker 1: thing that one can do too to keep the dangers 210 00:12:26,280 --> 00:12:28,640 Speaker 1: aside is to make sure that one either has derivatives 211 00:12:28,640 --> 00:12:32,439 Speaker 1: in place, or stop orders in place, or options in place, 212 00:12:32,760 --> 00:12:36,360 Speaker 1: and simply does what I think. After forty years of 213 00:12:36,400 --> 00:12:38,720 Speaker 1: being in the business, I've found the only rule of 214 00:12:38,760 --> 00:12:41,400 Speaker 1: thumb to follow is doing more of that which is working, 215 00:12:41,440 --> 00:12:45,079 Speaker 1: unless of that which is not. I've looked askance at 216 00:12:45,120 --> 00:12:48,200 Speaker 1: the at the the temerity of the strength of this 217 00:12:48,280 --> 00:12:50,600 Speaker 1: bull market, but it's still a bull market. Nonetheless, I've 218 00:12:50,600 --> 00:12:53,880 Speaker 1: found myself always wanting to sell it short, and sometimes 219 00:12:53,920 --> 00:12:57,080 Speaker 1: that's that's just been the wrong course of action to 220 00:12:57,120 --> 00:12:59,599 Speaker 1: have taken. Stocks seem to be breaking up to the 221 00:13:00,640 --> 00:13:02,960 Speaker 1: we are as overbought as I've ever seen. But it 222 00:13:03,000 --> 00:13:06,120 Speaker 1: has been foolish to even attempt to be on the 223 00:13:06,120 --> 00:13:08,560 Speaker 1: short side, and many of my I and many of 224 00:13:08,600 --> 00:13:10,640 Speaker 1: my friends have tried that, and it's just proven to 225 00:13:10,640 --> 00:13:15,360 Speaker 1: be wrong. Within the short call, let's extend that timeline 226 00:13:15,360 --> 00:13:18,520 Speaker 1: out to most of our listeners is being in cash 227 00:13:18,800 --> 00:13:22,160 Speaker 1: a bad thing in the gartment world. No, not at all. 228 00:13:22,240 --> 00:13:25,480 Speaker 1: Being in cash is sometimes a very wise thing in 229 00:13:25,520 --> 00:13:30,080 Speaker 1: anybody's world. My good friend Dougie Cass says, it's not 230 00:13:30,160 --> 00:13:33,599 Speaker 1: a game of Tina. There there is no other alternative, 231 00:13:34,040 --> 00:13:37,560 Speaker 1: but it's sena that cash is the only alternative, and 232 00:13:37,640 --> 00:13:40,440 Speaker 1: sometimes cash is absolutely the proper place to be. One 233 00:13:40,480 --> 00:13:43,600 Speaker 1: doesn't have to be fully invested at all times. In fact, 234 00:13:43,679 --> 00:13:47,080 Speaker 1: I think there are rare times when one is fully invested. 235 00:13:47,120 --> 00:13:49,880 Speaker 1: Cash is not a bad place to be a lot 236 00:13:49,920 --> 00:13:52,160 Speaker 1: of times, and this might well be one of those times. 237 00:13:52,480 --> 00:13:55,760 Speaker 1: If you distrust the breakout to the upside. What's wrong 238 00:13:55,800 --> 00:13:59,679 Speaker 1: with cash? Cash doesn't wilt, cash doesn't lose value. Cash 239 00:13:59,760 --> 00:14:03,520 Speaker 1: is cash. Tom, I'm gonna do something that will probably 240 00:14:03,559 --> 00:14:07,280 Speaker 1: stun you. I'm going to ask about gold. Everybody knows 241 00:14:07,480 --> 00:14:09,880 Speaker 1: my feelings about that, but we also know your feelings, Dennis, 242 00:14:09,880 --> 00:14:11,800 Speaker 1: and you you like to buy it in other currencies, 243 00:14:11,840 --> 00:14:14,400 Speaker 1: and you've made money on it. But I'm looking at 244 00:14:14,440 --> 00:14:17,600 Speaker 1: the volatility in the gold market over the last couple 245 00:14:17,679 --> 00:14:20,920 Speaker 1: of weeks, reflecting the ups and downs of the psychology 246 00:14:20,920 --> 00:14:23,360 Speaker 1: of the markets, and the question I want to put 247 00:14:23,360 --> 00:14:25,960 Speaker 1: to you is I know you buy it and end. 248 00:14:26,040 --> 00:14:27,440 Speaker 1: But how do you buy it? Do you buy it 249 00:14:27,480 --> 00:14:29,520 Speaker 1: as an E T F? Do you buy the physical gold? 250 00:14:29,520 --> 00:14:32,440 Speaker 1: Do you buy forward contracts? What's the best way to 251 00:14:32,560 --> 00:14:36,760 Speaker 1: avoid getting completely whipsawed by this kind of volatility when 252 00:14:36,800 --> 00:14:39,240 Speaker 1: it really is a volatility play at the moment? Well, 253 00:14:39,400 --> 00:14:41,600 Speaker 1: quite honestly, make the only the only way that one 254 00:14:41,640 --> 00:14:44,320 Speaker 1: can reduce the volatility of the gold market is to 255 00:14:44,400 --> 00:14:47,120 Speaker 1: you is to buy gold in non US dollar terms, 256 00:14:47,160 --> 00:14:50,880 Speaker 1: because on balance, most people price gold in dollar terms. 257 00:14:51,240 --> 00:14:53,280 Speaker 1: If the dollar gets strong, gold gets weak. If the 258 00:14:53,320 --> 00:14:56,520 Speaker 1: dollar gets weak, gold gets stronger. If you want to 259 00:14:56,560 --> 00:14:59,840 Speaker 1: ameliorate some of that risk, perhaps owning it in terms 260 00:14:59,840 --> 00:15:01,640 Speaker 1: of the end or euro is the better place to 261 00:15:01,680 --> 00:15:05,000 Speaker 1: do it. I've always viewed gold as being nothing more 262 00:15:05,040 --> 00:15:08,560 Speaker 1: than another currency, and as a as an old foreign 263 00:15:08,600 --> 00:15:12,000 Speaker 1: currency trader, we were always taught from from the outset 264 00:15:12,040 --> 00:15:14,440 Speaker 1: to be a buyer of one currency as seller of another. 265 00:15:14,640 --> 00:15:16,440 Speaker 1: So I tend to be a buyer of gold in 266 00:15:16,640 --> 00:15:18,480 Speaker 1: in euro terms. I tend to be a buyer of 267 00:15:18,520 --> 00:15:21,240 Speaker 1: gold in the end terms. And honestly, over the course 268 00:15:21,280 --> 00:15:24,120 Speaker 1: the past several actually over the course the past several years, 269 00:15:24,120 --> 00:15:26,880 Speaker 1: it's been a far better trade to have been involved in, 270 00:15:27,000 --> 00:15:30,680 Speaker 1: and it reduces the daily volatility, it reduces the the 271 00:15:30,760 --> 00:15:34,560 Speaker 1: abject movements of gold. Now, what's really important to understand 272 00:15:34,880 --> 00:15:38,320 Speaker 1: if stocks move far more volatively individually than does gold. 273 00:15:38,320 --> 00:15:41,640 Speaker 1: A one percent move in gold is, by normal standards, 274 00:15:41,640 --> 00:15:44,560 Speaker 1: a very large move. A one percent move in almost 275 00:15:44,600 --> 00:15:48,080 Speaker 1: any stock is relatively minor. So gold really, although it 276 00:15:48,120 --> 00:15:51,320 Speaker 1: looks like it moves a lot in relationship to stock prices, 277 00:15:51,400 --> 00:15:53,960 Speaker 1: it really doesn't move that much at all. But even 278 00:15:54,000 --> 00:15:56,840 Speaker 1: in other currencies, it's been volatile the last couple of 279 00:15:56,840 --> 00:15:59,640 Speaker 1: weeks because there's you know, certainly the euro in the end, 280 00:16:00,000 --> 00:16:01,680 Speaker 1: I know we're here where they were at the end 281 00:16:01,680 --> 00:16:04,440 Speaker 1: of June. Yes, no question. In the past several weeks 282 00:16:04,440 --> 00:16:07,880 Speaker 1: because of the British referendum, all currencies have become far 283 00:16:07,960 --> 00:16:11,680 Speaker 1: more volatile. In the foreign currency world, if gold movement 284 00:16:11,840 --> 00:16:15,080 Speaker 1: is of one percent is large compared to a one 285 00:16:15,160 --> 00:16:17,600 Speaker 1: or two or three percent movement in stock prices. In 286 00:16:17,640 --> 00:16:20,840 Speaker 1: the foreign currency world, a movement of a core one 287 00:16:20,880 --> 00:16:23,600 Speaker 1: currency to another is very large, and lately we've seen 288 00:16:23,680 --> 00:16:26,480 Speaker 1: one and two percent movements, especially in the British pound 289 00:16:26,480 --> 00:16:29,400 Speaker 1: sterling relative to almost anything else. So yes, there there's 290 00:16:29,440 --> 00:16:31,960 Speaker 1: been any a particularly volatile period of time. I want 291 00:16:31,960 --> 00:16:34,760 Speaker 1: to talk about Britain in the next section, Dennis Garment, 292 00:16:34,840 --> 00:16:37,560 Speaker 1: but right now I think all of our audience would 293 00:16:37,600 --> 00:16:41,440 Speaker 1: like you to explain the knock on effects to American 294 00:16:41,520 --> 00:16:46,000 Speaker 1: banking of negative interest rates. Negative interest rates clearly are 295 00:16:46,040 --> 00:16:51,120 Speaker 1: affecting European banking, I would say quietly, Japanese banking. The 296 00:16:51,200 --> 00:16:54,840 Speaker 1: idea that we are removed from them is comedy. How 297 00:16:54,880 --> 00:16:58,520 Speaker 1: will negative rates affect our banks? Well, first of all, 298 00:16:58,560 --> 00:17:00,680 Speaker 1: I don't think that we're going to go to negative rates. 299 00:17:00,720 --> 00:17:02,680 Speaker 1: I hope that we do not go to negative rates, 300 00:17:02,680 --> 00:17:05,480 Speaker 1: because if you go to negative rates, as we've seen 301 00:17:05,640 --> 00:17:09,000 Speaker 1: in Japan and as we're seeing in Europe, the banking 302 00:17:09,040 --> 00:17:12,520 Speaker 1: system simply almost freezes up. It's, as I like to explain, 303 00:17:12,680 --> 00:17:15,560 Speaker 1: negative rates have have the same effect upon banking and 304 00:17:15,640 --> 00:17:21,040 Speaker 1: lending as absolute zero temperatures have upon physics. All the 305 00:17:21,119 --> 00:17:24,480 Speaker 1: rules seem to change when you go to negative interest rates. 306 00:17:24,680 --> 00:17:27,080 Speaker 1: Loans are not made. You think they would be, but 307 00:17:27,119 --> 00:17:29,880 Speaker 1: they're not because deposits are not made. And when that happens, 308 00:17:30,080 --> 00:17:35,400 Speaker 1: the reserve currents or the reserve bank lending circumstances loses 309 00:17:35,440 --> 00:17:40,600 Speaker 1: its capabilities. You end up getting deflationary circumstances, not inflationary circumstances. 310 00:17:40,960 --> 00:17:43,639 Speaker 1: You get money seeking other avenues. It's one of the 311 00:17:43,680 --> 00:17:45,960 Speaker 1: reasons why the dollar has been stronger. I pray that 312 00:17:46,040 --> 00:17:49,280 Speaker 1: we don't go to negative interstates here in the United States, 313 00:17:49,320 --> 00:17:52,960 Speaker 1: because I think it would end up causing untold disturbances 314 00:17:53,000 --> 00:17:55,119 Speaker 1: within the banking system, given that we are still the 315 00:17:55,160 --> 00:17:58,720 Speaker 1: world's reserve currency. Mica Love talking to Dennis Gartment. Where 316 00:17:58,720 --> 00:18:02,280 Speaker 1: else can you mix in vestment in thermodynamics. I don't 317 00:18:02,320 --> 00:18:04,440 Speaker 1: know where else you could do that, like maybe out 318 00:18:04,440 --> 00:18:09,280 Speaker 1: in Wyoming, Dennis. The markets are up. It seems on 319 00:18:09,920 --> 00:18:13,600 Speaker 1: you know, this risk on feel about additional central bank stimulus, 320 00:18:13,640 --> 00:18:17,080 Speaker 1: particularly in Japan. We have seen that over and over 321 00:18:17,119 --> 00:18:21,440 Speaker 1: and over again. Why you know, when do people stop 322 00:18:22,040 --> 00:18:25,400 Speaker 1: doing the same thing expecting a different result. To sort 323 00:18:25,400 --> 00:18:29,199 Speaker 1: of paraphrase Einstein here, write this down. They'll stop when 324 00:18:29,240 --> 00:18:31,919 Speaker 1: they stop, and not a minute before at least at 325 00:18:31,960 --> 00:18:35,679 Speaker 1: this point, Mr Abe, who had had found himself in 326 00:18:35,720 --> 00:18:38,800 Speaker 1: a very uncomfortable political position, finds himself in a much 327 00:18:38,840 --> 00:18:42,520 Speaker 1: more comfortable political position and says, let's move forward with 328 00:18:42,560 --> 00:18:45,360 Speaker 1: the three arrows policies that we put forth. They they're 329 00:18:45,400 --> 00:18:48,000 Speaker 1: going to go ahead and to spend more money. They're 330 00:18:48,000 --> 00:18:50,520 Speaker 1: going to go ahead and build more bridges to nowhere. 331 00:18:50,880 --> 00:18:53,960 Speaker 1: They're probably going to build more railroads to nowhere. They'll 332 00:18:54,000 --> 00:18:56,919 Speaker 1: put people to work. Will it work over time, probably not. 333 00:18:56,960 --> 00:18:59,560 Speaker 1: Will it work in a short period yes, Will more 334 00:18:59,560 --> 00:19:02,200 Speaker 1: money move being into the system before it finds its 335 00:19:02,200 --> 00:19:05,760 Speaker 1: way into their projects, find its way into the capital markets, 336 00:19:05,760 --> 00:19:08,879 Speaker 1: find its way into stock prices, absolutely so no reason 337 00:19:08,920 --> 00:19:11,360 Speaker 1: to standards. Way then Nick wants to go higher right now. 338 00:19:12,040 --> 00:19:15,480 Speaker 1: I want to digress here, Dennis, because yesterday I was 339 00:19:15,800 --> 00:19:20,120 Speaker 1: in a conversation and I mentioned this most interesting thing 340 00:19:20,280 --> 00:19:23,960 Speaker 1: of the kind of conservative that the new Prime Minister 341 00:19:24,080 --> 00:19:26,399 Speaker 1: of the United Kingdom will be. This goes back to 342 00:19:26,480 --> 00:19:31,080 Speaker 1: the middle nineteenth century in a one nation conservatism. I'm 343 00:19:31,080 --> 00:19:35,600 Speaker 1: going to call it a more liberal conservatism of Mr Disraeli, 344 00:19:35,640 --> 00:19:39,159 Speaker 1: and it's beautifully written up in Wikipedia. I was channeling you, 345 00:19:39,160 --> 00:19:41,960 Speaker 1: you were channeling me. You wrote it up as well. 346 00:19:42,400 --> 00:19:46,960 Speaker 1: Can Donald Trump be a one nation conservative? I'm not sure. 347 00:19:47,080 --> 00:19:49,159 Speaker 1: I'm not a great fan of Mr Trump, and I'm 348 00:19:49,200 --> 00:19:51,840 Speaker 1: not sure he can be a one nation conservative. I 349 00:19:52,240 --> 00:19:54,679 Speaker 1: do actually like what I have read and what I 350 00:19:54,720 --> 00:19:58,480 Speaker 1: have listened to, and heard of mismay. She seems to 351 00:19:58,520 --> 00:20:02,560 Speaker 1: be um at least as she seems closer to Jack 352 00:20:02,640 --> 00:20:07,720 Speaker 1: kempion like uh economics than did Mr Cameron. I'm actually 353 00:20:08,400 --> 00:20:10,639 Speaker 1: I'm hoping that this will be a very good prime minister. 354 00:20:10,760 --> 00:20:14,320 Speaker 1: She's she was not in favor of separation, she was 355 00:20:14,400 --> 00:20:18,000 Speaker 1: not in favor of the referendum, and and perhaps that's 356 00:20:18,040 --> 00:20:20,800 Speaker 1: that's a little in a little difficult position for her 357 00:20:20,840 --> 00:20:22,720 Speaker 1: to be in. But she says she's going to push through. 358 00:20:22,880 --> 00:20:25,640 Speaker 1: As she said, Brexit is Brexit. But from what I've 359 00:20:25,680 --> 00:20:27,680 Speaker 1: readden what I understand, she's going to be a very 360 00:20:27,720 --> 00:20:32,000 Speaker 1: interesting and I think a reasonably conservative for a European politician, 361 00:20:32,000 --> 00:20:34,200 Speaker 1: and somebody that we can deal with, somebody more free 362 00:20:34,240 --> 00:20:37,320 Speaker 1: market than we have grown accustomed to. But as I said, 363 00:20:37,720 --> 00:20:40,120 Speaker 1: she's not Jack Kemp, she's not Ronald Reagan, and she's 364 00:20:40,160 --> 00:20:43,199 Speaker 1: certainly not magg Thatcher. Well do you invest on the 365 00:20:43,240 --> 00:20:47,240 Speaker 1: belief that Britain will actually go through with the exit? Oh? 366 00:20:47,280 --> 00:20:49,120 Speaker 1: I think you have to. I I think that that 367 00:20:49,240 --> 00:20:52,439 Speaker 1: is absolutely a given. I can't imagine that they're going 368 00:20:52,480 --> 00:20:56,160 Speaker 1: to put themselves through the same trauma and have another referendum. 369 00:20:56,160 --> 00:20:59,240 Speaker 1: That would seem to me anathema. It's it's possible, but 370 00:20:59,320 --> 00:21:01,080 Speaker 1: I would put the of it at less than ten 371 00:21:01,119 --> 00:21:04,240 Speaker 1: percent out of a ten percent. It can't be that high. 372 00:21:04,400 --> 00:21:06,240 Speaker 1: So what do you see that through with the process 373 00:21:06,240 --> 00:21:08,520 Speaker 1: of investing thinking that this is done? Where do you 374 00:21:08,560 --> 00:21:11,520 Speaker 1: see that in the global economy going as this proceeds along, 375 00:21:11,600 --> 00:21:14,960 Speaker 1: the general feeling seems to be either bad or muddling. 376 00:21:15,280 --> 00:21:18,160 Speaker 1: But there's no good out of this. Oh. I think 377 00:21:18,160 --> 00:21:20,840 Speaker 1: in the end, uh Mike, I think that there's going 378 00:21:20,880 --> 00:21:22,880 Speaker 1: to be a great, good deal of good coming out 379 00:21:22,880 --> 00:21:25,720 Speaker 1: of it. I think that this was a vote for independence, 380 00:21:25,720 --> 00:21:28,800 Speaker 1: a vote for for a self assurance, a vote for 381 00:21:28,920 --> 00:21:31,560 Speaker 1: freeer markets. They vote for smaller government. And I think 382 00:21:31,560 --> 00:21:34,040 Speaker 1: in the end, two years, three years, four years down 383 00:21:34,040 --> 00:21:36,439 Speaker 1: the road, that has to be good. If it's not good, 384 00:21:36,840 --> 00:21:40,560 Speaker 1: then my whole ideas of free free market economics have 385 00:21:40,680 --> 00:21:43,080 Speaker 1: to be thrown into the basket case. So I have 386 00:21:43,200 --> 00:21:45,240 Speaker 1: to believe it's good in the next two weeks, in 387 00:21:45,280 --> 00:21:48,119 Speaker 1: the next two months, is it? Can it be somewhat confusing? 388 00:21:48,119 --> 00:21:50,439 Speaker 1: Can it be somewhat disconcerting? Of course it can, It 389 00:21:50,480 --> 00:21:54,320 Speaker 1: probably shall be. Confusion is always a little disconcerting. But 390 00:21:54,640 --> 00:21:56,919 Speaker 1: in the end, I think it's obviously a step in 391 00:21:56,920 --> 00:21:59,480 Speaker 1: the right direction. Dennis. If you and I were doing 392 00:21:59,480 --> 00:22:01,280 Speaker 1: one of hers aminars are I was talking to you 393 00:22:01,320 --> 00:22:03,000 Speaker 1: for an hour, you know, a bunch of bunch of 394 00:22:03,040 --> 00:22:05,639 Speaker 1: people late in the suminary, I'd say something like, what 395 00:22:05,800 --> 00:22:08,879 Speaker 1: will our pension plans do? I can ask a smart 396 00:22:08,880 --> 00:22:12,760 Speaker 1: alec question about Johnson and Johnson are other blue chips 397 00:22:12,800 --> 00:22:16,240 Speaker 1: price to perfection? We all know bonds are priced absurdly 398 00:22:16,680 --> 00:22:20,600 Speaker 1: right now. Everybody can agree on that. But what's the 399 00:22:20,680 --> 00:22:25,600 Speaker 1: opposite of your trading regime? What do are actually assumed 400 00:22:26,080 --> 00:22:29,920 Speaker 1: serious money? What do those people do right now? Well, 401 00:22:30,080 --> 00:22:32,320 Speaker 1: I've given that. I said on two endowment committees for 402 00:22:32,359 --> 00:22:36,080 Speaker 1: two universities were involved in exactly that idea for everybody. 403 00:22:36,119 --> 00:22:41,000 Speaker 1: Every pension fund, every endowment has predicated it's it's spending 404 00:22:41,040 --> 00:22:44,639 Speaker 1: capabilities on eight percent returns on equity. And I'm sorry 405 00:22:44,680 --> 00:22:47,400 Speaker 1: those those days are gone. As the Beatles said, those 406 00:22:47,480 --> 00:22:50,159 Speaker 1: days are gone, and I'm not so self assured. You 407 00:22:50,240 --> 00:22:53,120 Speaker 1: have to ratchet those down to four and five, which 408 00:22:53,160 --> 00:22:55,399 Speaker 1: I'm sorry is going to make for great good deals 409 00:22:55,400 --> 00:22:58,440 Speaker 1: of difficulty, especially for pension funds. People are going to 410 00:22:58,520 --> 00:23:00,560 Speaker 1: have to get used to the fact that one. If 411 00:23:00,560 --> 00:23:02,199 Speaker 1: they think they have a pension fund that's going to 412 00:23:02,240 --> 00:23:04,200 Speaker 1: pay out x per cent, that's going to be ratcheted 413 00:23:04,200 --> 00:23:06,399 Speaker 1: down dramatically over the course of the next several years, 414 00:23:06,520 --> 00:23:10,680 Speaker 1: expectations for return have to take a markedly lower. There 415 00:23:10,680 --> 00:23:13,000 Speaker 1: could be no question then that means to be the 416 00:23:13,040 --> 00:23:20,359 Speaker 1: only outro for executives incentivized by compensation is transactions in combinations. 417 00:23:20,400 --> 00:23:23,160 Speaker 1: The M and A business has just got to go wild. Yes, 418 00:23:24,119 --> 00:23:27,160 Speaker 1: alternatives business is probably going to continue to be quite strong. 419 00:23:27,680 --> 00:23:30,320 Speaker 1: And whether you like it or not, money I guess 420 00:23:30,320 --> 00:23:32,720 Speaker 1: it's going to make its way continuously into equities. That's 421 00:23:32,720 --> 00:23:35,680 Speaker 1: the only real bet, whether we like it or not. Clearly, 422 00:23:36,119 --> 00:23:38,320 Speaker 1: five years from now or certainly ten years from now, 423 00:23:38,359 --> 00:23:40,600 Speaker 1: interest rates are going to be demonstrably higher than where 424 00:23:40,600 --> 00:23:42,439 Speaker 1: they are at the long end of the curve, and 425 00:23:42,480 --> 00:23:45,719 Speaker 1: the value of an OH one, the the diminishing value 426 00:23:45,720 --> 00:23:48,080 Speaker 1: of bond portfolios over the course the next five or 427 00:23:48,119 --> 00:23:50,879 Speaker 1: ten years, I think will be relative will be shockingly bad. 428 00:23:51,359 --> 00:23:53,800 Speaker 1: Dennis Gartman, thank you so much, and again we thank 429 00:23:53,840 --> 00:24:00,320 Speaker 1: you for very clear trade recommendations good and bad, always 430 00:24:00,359 --> 00:24:03,000 Speaker 1: published by de Gartment at the back end of his report. 431 00:24:03,600 --> 00:24:15,240 Speaker 1: Very few people do that as clearly as Dennis. We 432 00:24:15,320 --> 00:24:17,719 Speaker 1: do have some FED speak today, with Daniel Trulo from 433 00:24:17,760 --> 00:24:20,280 Speaker 1: the Board of Governor speaking in Washington and Jim Bullard 434 00:24:20,320 --> 00:24:24,080 Speaker 1: of the St. Louis FED speaking in his hometown. We've 435 00:24:24,119 --> 00:24:27,200 Speaker 1: heard from Bullard lately. Trullo hasn't spoken much, but when 436 00:24:27,200 --> 00:24:31,159 Speaker 1: he does, he usually talks about regulation. We'll see today 437 00:24:31,160 --> 00:24:33,880 Speaker 1: if he is going to be bringing us any different 438 00:24:33,960 --> 00:24:38,680 Speaker 1: information on his view of the economy and FED policy. 439 00:24:39,280 --> 00:24:42,840 Speaker 1: Joining us now to offer his view on those subjects. 440 00:24:42,880 --> 00:24:45,639 Speaker 1: Stean McKie of Point Sivity two Asset Management, he's the 441 00:24:45,720 --> 00:24:49,920 Speaker 1: chief economist there, and Dean Um. At this point, everybody's 442 00:24:49,960 --> 00:24:53,480 Speaker 1: parsing every FED speech, but nobody seems to think that 443 00:24:53,880 --> 00:24:57,200 Speaker 1: anything is going to change anytime soon. We were talking 444 00:24:57,200 --> 00:25:00,240 Speaker 1: at this Rocky Mountain Economic summit yesterday with a bullet 445 00:25:00,280 --> 00:25:03,639 Speaker 1: FED officials who say they shake their heads. They marvel 446 00:25:03,680 --> 00:25:05,960 Speaker 1: at the idea that people think there will be nothing 447 00:25:06,000 --> 00:25:08,760 Speaker 1: until two thousand eighteen or two thousand nine. Yes, it 448 00:25:08,880 --> 00:25:11,679 Speaker 1: is a it is a strange occurrence that the market 449 00:25:11,720 --> 00:25:15,480 Speaker 1: has completely disregarded FED tightening offer for the next year 450 00:25:15,480 --> 00:25:17,640 Speaker 1: and a half or so. UM. But I think part 451 00:25:17,640 --> 00:25:20,920 Speaker 1: of the issue is that the FED really hasn't at 452 00:25:20,920 --> 00:25:24,440 Speaker 1: this point tried to combat that to that move. Um 453 00:25:24,520 --> 00:25:26,560 Speaker 1: they you know, they, And I think the FED was 454 00:25:26,600 --> 00:25:28,840 Speaker 1: burned in the second quarter when they tried to talk 455 00:25:28,920 --> 00:25:31,200 Speaker 1: up a rate hike in June and then and then 456 00:25:31,560 --> 00:25:35,160 Speaker 1: backed off because of brexfit theorism and the weak employment reports. 457 00:25:35,160 --> 00:25:37,639 Speaker 1: So I think they're loath to to try to do 458 00:25:37,680 --> 00:25:39,960 Speaker 1: that again, and we get into this cycle where the 459 00:25:40,000 --> 00:25:43,040 Speaker 1: market just keeps pricing out the FED tightening. Is this 460 00:25:43,160 --> 00:25:46,800 Speaker 1: something though that he is easily reversible. Another strong month 461 00:25:46,800 --> 00:25:50,439 Speaker 1: of job creation or strong retail sales something like that 462 00:25:50,480 --> 00:25:52,640 Speaker 1: start to put it back into the markets, or does 463 00:25:52,680 --> 00:25:55,800 Speaker 1: Brexit too much overwhelming? I think it really comes down 464 00:25:55,840 --> 00:25:58,720 Speaker 1: to the FED, because you know, I think it's hard 465 00:25:58,800 --> 00:26:01,400 Speaker 1: to look at the last employer and report. I think 466 00:26:01,400 --> 00:26:03,520 Speaker 1: the GDP report will get for Q two is going 467 00:26:03,560 --> 00:26:06,320 Speaker 1: to look fine and and get very worried about things. 468 00:26:06,600 --> 00:26:10,280 Speaker 1: So I think what what really has has led the 469 00:26:10,320 --> 00:26:13,919 Speaker 1: market to price things out is, for example, FMC minutes 470 00:26:14,280 --> 00:26:17,440 Speaker 1: showed a lot of different worries about many different things, 471 00:26:17,440 --> 00:26:21,040 Speaker 1: so epithet and so a good employment report or a 472 00:26:21,040 --> 00:26:23,200 Speaker 1: strong retail sales report is not going to fix all 473 00:26:23,240 --> 00:26:25,199 Speaker 1: of those worries. So it really comes down to when 474 00:26:25,240 --> 00:26:29,200 Speaker 1: the fad becomes less worried. Dana is a remarkable time, 475 00:26:29,440 --> 00:26:31,439 Speaker 1: and part of that Hallmark and Mike and I have 476 00:26:31,520 --> 00:26:36,080 Speaker 1: talked this up is your outrageous call of an unemployment 477 00:26:36,200 --> 00:26:39,320 Speaker 1: rate below four percent. Even some of our Steam guests 478 00:26:39,359 --> 00:26:42,960 Speaker 1: pushed back against it. Reaffirm how we get to a 479 00:26:43,040 --> 00:26:47,920 Speaker 1: sub four percent unemployment rate and try to game Chair 480 00:26:48,080 --> 00:26:51,920 Speaker 1: Yellin's reaction to the Mackey thesis. Yeah, I mean the 481 00:26:52,359 --> 00:26:54,960 Speaker 1: way we get there is by continuing the two percent 482 00:26:55,040 --> 00:26:57,480 Speaker 1: growth that we've had in the recovery. To date, the 483 00:26:57,680 --> 00:27:01,080 Speaker 1: unemployment rate has been falling steadily between half and one 484 00:27:01,080 --> 00:27:04,040 Speaker 1: percent per year, depending on which month we're looking at 485 00:27:04,040 --> 00:27:06,320 Speaker 1: the year over year rate, and job growth is running 486 00:27:06,840 --> 00:27:09,960 Speaker 1: close to tw hundred thousand on average. If we say 487 00:27:10,000 --> 00:27:12,800 Speaker 1: anywhere in that range, the unemployment rates can keep falling 488 00:27:12,800 --> 00:27:15,640 Speaker 1: steadily and we will be below four percent next year. 489 00:27:16,000 --> 00:27:19,359 Speaker 1: So really, to get the unemployment rate to stabilize, we 490 00:27:19,440 --> 00:27:22,560 Speaker 1: need job growth to sold very sharply soon, and and 491 00:27:22,640 --> 00:27:25,439 Speaker 1: there's no sign that that's really happening. Well, do you 492 00:27:25,480 --> 00:27:28,760 Speaker 1: think that it's going to slow soon? We see mixed signals, 493 00:27:28,800 --> 00:27:32,280 Speaker 1: we see you know, some employers reporting jobs hard to get. 494 00:27:32,520 --> 00:27:35,160 Speaker 1: We were talking with Bill Dunkelberg. The number for small 495 00:27:35,200 --> 00:27:39,560 Speaker 1: businesses significantly higher this month. But others seem to think 496 00:27:39,560 --> 00:27:43,040 Speaker 1: that it's it's not a question of that at this point, 497 00:27:43,080 --> 00:27:46,040 Speaker 1: it's it's a question of whether or not the investment 498 00:27:46,080 --> 00:27:49,320 Speaker 1: continues by consumers and businesses. Yeah. I think that we're 499 00:27:49,359 --> 00:27:52,480 Speaker 1: not yet at the point where there's no workers to hire, 500 00:27:52,760 --> 00:27:55,359 Speaker 1: you know it. It is somewhat harder than it was 501 00:27:55,400 --> 00:27:58,160 Speaker 1: early in the recovery, for example, and the unemployment rate 502 00:27:58,200 --> 00:28:01,080 Speaker 1: was at ten percent, But there's all our workers that 503 00:28:01,680 --> 00:28:05,480 Speaker 1: that are willing to work, and I think that that's 504 00:28:05,480 --> 00:28:07,720 Speaker 1: why we're seeing, for example, in the second quarter, we 505 00:28:07,720 --> 00:28:10,080 Speaker 1: saw hundred and fifty thousand jobs per month on average. 506 00:28:10,440 --> 00:28:14,000 Speaker 1: So there's no sign that that there aren't workers out there. 507 00:28:14,520 --> 00:28:16,960 Speaker 1: I think that we are seeing wage games have to 508 00:28:17,000 --> 00:28:20,679 Speaker 1: pick up to attract those workers. But but that's that 509 00:28:20,840 --> 00:28:24,920 Speaker 1: is happening. That is happening, which tells me Dr Maggie 510 00:28:25,320 --> 00:28:29,280 Speaker 1: that we are more ultra accommodative. When Vice Chairman Fisher 511 00:28:29,960 --> 00:28:33,920 Speaker 1: was ultra accommodative eight nine months ago, are we we're 512 00:28:33,960 --> 00:28:37,320 Speaker 1: certainly more accommodative than we were then. Uh, definitely. The 513 00:28:37,320 --> 00:28:40,680 Speaker 1: the inflation rate. Core inflation is rising, wage rates are rising. 514 00:28:40,920 --> 00:28:43,000 Speaker 1: So you know in the FED funds rate has gone 515 00:28:43,040 --> 00:28:45,440 Speaker 1: up only a quarter of a present since since then. 516 00:28:45,560 --> 00:28:49,360 Speaker 1: So I think that we certainly are more accommodative now 517 00:28:49,400 --> 00:28:51,560 Speaker 1: than we were a year ago, for example. I mean, 518 00:28:51,600 --> 00:28:55,480 Speaker 1: I just look at this date and I say to myself, 519 00:28:55,560 --> 00:28:58,840 Speaker 1: it is a theory without theory. What is the reigning 520 00:28:58,920 --> 00:29:02,080 Speaker 1: theory at the Fed? Is there something in your Stanford 521 00:29:02,080 --> 00:29:06,800 Speaker 1: textbooks that describes what we're seeing? I think the main 522 00:29:07,200 --> 00:29:11,080 Speaker 1: theory right now is worried about various things, and that 523 00:29:11,120 --> 00:29:14,120 Speaker 1: seems to be the worried shifts from meeting to meeting, 524 00:29:14,240 --> 00:29:17,520 Speaker 1: what keeps them on hold. But I think it's it's 525 00:29:17,560 --> 00:29:20,600 Speaker 1: a they're a very risk converse group right now. So 526 00:29:20,720 --> 00:29:24,760 Speaker 1: it's whether it's China slowing, Brexit fear, is one week 527 00:29:24,760 --> 00:29:27,560 Speaker 1: employment report, you know, any of those things will will 528 00:29:27,640 --> 00:29:31,400 Speaker 1: keep the set on hold. And because you know we 529 00:29:31,480 --> 00:29:35,040 Speaker 1: have short term cycles and economic data and do happen overseas, 530 00:29:35,160 --> 00:29:37,400 Speaker 1: you know, it seems like there's always something to keep 531 00:29:37,400 --> 00:29:40,280 Speaker 1: the fet on hold. Dean. This goes to the resilient 532 00:29:40,360 --> 00:29:44,560 Speaker 1: optimism that's been part of your economics which is almost 533 00:29:44,560 --> 00:29:48,000 Speaker 1: to a Kines quote. When the facts change, I change 534 00:29:48,400 --> 00:29:51,680 Speaker 1: the idea of institutions deciding to get done what needs 535 00:29:51,720 --> 00:29:56,360 Speaker 1: to be done is an underpinning to economic resilience. How 536 00:29:56,400 --> 00:29:59,200 Speaker 1: will we see that to get back to better than 537 00:29:59,240 --> 00:30:02,360 Speaker 1: good g D in the United States? Well, I don't 538 00:30:02,440 --> 00:30:06,920 Speaker 1: think that there's any anything policymakers can do quickly to 539 00:30:07,000 --> 00:30:11,440 Speaker 1: get to boost our two percent growth rate. The the 540 00:30:11,960 --> 00:30:14,120 Speaker 1: you know, we've talked in the past about the demographic 541 00:30:14,160 --> 00:30:17,280 Speaker 1: forces that are that are weighing on labor force growth. 542 00:30:17,600 --> 00:30:21,120 Speaker 1: Productivity growth is extremely weak as well. There's really nothing 543 00:30:21,160 --> 00:30:23,720 Speaker 1: that can be done quickly to make that better. There 544 00:30:23,720 --> 00:30:26,800 Speaker 1: there are some longer term things that that may help, 545 00:30:27,240 --> 00:30:30,080 Speaker 1: but my baseline view is that we we stay in 546 00:30:30,120 --> 00:30:32,040 Speaker 1: this to two to two and a half percent growth 547 00:30:32,120 --> 00:30:35,239 Speaker 1: rate team definitely from here. I mean, I look at 548 00:30:35,280 --> 00:30:37,960 Speaker 1: where we are in the lower growth rate, but on 549 00:30:38,000 --> 00:30:41,320 Speaker 1: a relative basis, can we state it's never been wider 550 00:30:41,360 --> 00:30:44,400 Speaker 1: with Europe and maybe with a troubled United Kingdom? Well 551 00:30:44,880 --> 00:30:47,640 Speaker 1: there certainly there have been times when Europe has been 552 00:30:47,680 --> 00:30:49,960 Speaker 1: in recession in the US has been growing fine. So 553 00:30:49,960 --> 00:30:51,880 Speaker 1: so I don't think that's quite true, but but it 554 00:30:52,000 --> 00:30:54,720 Speaker 1: is a significant gap that you're pointing out, um, and 555 00:30:54,800 --> 00:30:57,320 Speaker 1: part of it is the demographics are are much worse 556 00:30:57,360 --> 00:31:00,840 Speaker 1: in Europe than in the US. Now. Brexit, of course, 557 00:31:01,360 --> 00:31:03,960 Speaker 1: is likely to weigh on UK growth at least for 558 00:31:04,000 --> 00:31:06,600 Speaker 1: some time until it becomes more clear what exactly is 559 00:31:06,600 --> 00:31:09,800 Speaker 1: going to be worked out there. Well, speaking of demographics, 560 00:31:09,840 --> 00:31:12,200 Speaker 1: one of the arguments that's being made one of the 561 00:31:12,200 --> 00:31:16,120 Speaker 1: criticisms of central banks and particularly the FED, is that 562 00:31:16,160 --> 00:31:20,760 Speaker 1: we are an aging society and as the baby boomers retire, 563 00:31:20,760 --> 00:31:22,680 Speaker 1: they're gonna be living off their savings and they get 564 00:31:22,720 --> 00:31:25,880 Speaker 1: no money because interest rates are so low, so they 565 00:31:25,920 --> 00:31:29,560 Speaker 1: don't have additional money to spend, and that retards the economy. 566 00:31:29,680 --> 00:31:32,560 Speaker 1: So the argument goes the FED would be better off 567 00:31:32,600 --> 00:31:36,000 Speaker 1: at this point raising rates because keeping rates low to 568 00:31:36,080 --> 00:31:39,680 Speaker 1: stimulate spending isn't working. Try the other way. I'm not 569 00:31:39,720 --> 00:31:42,680 Speaker 1: a believer that raising rates is going to boost growth 570 00:31:42,800 --> 00:31:45,800 Speaker 1: because of that effect that that the retirees have more 571 00:31:45,840 --> 00:31:48,120 Speaker 1: money to spend, you know, I think it's it's worth 572 00:31:48,200 --> 00:31:51,160 Speaker 1: highlighting that even the many of the retirees do hold 573 00:31:51,200 --> 00:31:53,800 Speaker 1: some equities, so they are benefiting from the coast to 574 00:31:53,960 --> 00:31:56,440 Speaker 1: record highs in the stock market. So I don't. I 575 00:31:56,480 --> 00:31:59,640 Speaker 1: don't believe in that reverse causation. There certainly are some 576 00:31:59,640 --> 00:32:02,880 Speaker 1: some effected negatively by the low rates, but on average, 577 00:32:02,880 --> 00:32:04,920 Speaker 1: I do think low rates are a boost to growth, 578 00:32:05,280 --> 00:32:07,360 Speaker 1: aren't they? At this point, it's pretty much running out 579 00:32:07,360 --> 00:32:11,120 Speaker 1: of gas because the Fed is keeping rates extraordinarily low, 580 00:32:11,960 --> 00:32:13,600 Speaker 1: and they have for seven years, and we can't get 581 00:32:13,600 --> 00:32:16,640 Speaker 1: above two percent and we can't get inflation. Well, I 582 00:32:16,640 --> 00:32:19,280 Speaker 1: don't pick that's quite fair. Inflation has gone from below 583 00:32:19,320 --> 00:32:21,840 Speaker 1: one percent on the core basis to one point six percent, 584 00:32:21,960 --> 00:32:25,000 Speaker 1: so it is gradually rising. A wage inflation is picking up, 585 00:32:25,040 --> 00:32:27,800 Speaker 1: So it's not as though the easy policy isn't doing anything. 586 00:32:27,960 --> 00:32:30,160 Speaker 1: It's just said it takes some time in an economy 587 00:32:30,200 --> 00:32:33,600 Speaker 1: like this to to raise inflation. I'm quite comfortable saying 588 00:32:33,960 --> 00:32:36,360 Speaker 1: the core inflation will be at two percent over the 589 00:32:36,400 --> 00:32:39,840 Speaker 1: next year. So so what does it do to nominal GDP? 590 00:32:40,720 --> 00:32:43,400 Speaker 1: I just did the one year moving average of nominal 591 00:32:43,480 --> 00:32:46,880 Speaker 1: GDP and it's gone from four point one percent down 592 00:32:46,920 --> 00:32:50,320 Speaker 1: to three points some percent, which for everybody, all of 593 00:32:50,360 --> 00:32:54,480 Speaker 1: our candidates and even Dan Mackie is subbar Do we 594 00:32:54,520 --> 00:32:57,480 Speaker 1: get nominal backup of four percent? I think if the 595 00:32:57,560 --> 00:33:00,040 Speaker 1: Fed succeeds in getting inflation back to two percent. On 596 00:33:00,240 --> 00:33:03,000 Speaker 1: we should see nominal GDP and the Ford four and 597 00:33:03,000 --> 00:33:05,680 Speaker 1: a half percent range, but it probably doesn't go much 598 00:33:05,720 --> 00:33:08,280 Speaker 1: above that, at least for the next few years. The 599 00:33:08,320 --> 00:33:12,280 Speaker 1: money question, Dean is can an institution manage inflation? Do 600 00:33:12,320 --> 00:33:17,040 Speaker 1: you have a confidence that they can actually drive inflation higher? 601 00:33:18,000 --> 00:33:20,920 Speaker 1: I think they can and they We have seen it 602 00:33:21,120 --> 00:33:24,440 Speaker 1: as as the labor markets tightened, as as the economy 603 00:33:24,480 --> 00:33:26,880 Speaker 1: has grown, as Flack has been reduced, we have seen 604 00:33:26,920 --> 00:33:30,520 Speaker 1: inflation rising. So I think that process will continue. It 605 00:33:30,600 --> 00:33:35,280 Speaker 1: doesn't doesn't happen rapidly, but as as Flack gets removed, 606 00:33:35,360 --> 00:33:39,000 Speaker 1: inflation does tend to rise. Well. We are seeing wages 607 00:33:39,120 --> 00:33:43,520 Speaker 1: rise a little bit, We're seeing some evidence of prices rising. 608 00:33:43,600 --> 00:33:46,360 Speaker 1: But when you say we're going to see inflation start 609 00:33:46,400 --> 00:33:48,800 Speaker 1: to move higher and get to two percent, does it 610 00:33:48,920 --> 00:33:50,920 Speaker 1: keep going? In other words, is the FED going to 611 00:33:51,000 --> 00:33:54,040 Speaker 1: be behind the curve? I think that they're very willing 612 00:33:54,080 --> 00:33:57,520 Speaker 1: to have an overshoot up the two percent target. And 613 00:33:57,640 --> 00:34:00,200 Speaker 1: you know, different members express this in different way. Is 614 00:34:00,360 --> 00:34:02,280 Speaker 1: um You know, some of them say it's fine to 615 00:34:02,320 --> 00:34:06,040 Speaker 1: overshoot for somewhat because we've been under target for a while, 616 00:34:06,120 --> 00:34:08,360 Speaker 1: so we can be over target for a while. I 617 00:34:08,400 --> 00:34:10,480 Speaker 1: think they will do that. So I think they will 618 00:34:10,520 --> 00:34:12,600 Speaker 1: see inflation get up to two and a half percent 619 00:34:12,640 --> 00:34:15,560 Speaker 1: before before this cycle has done. Once it gets above 620 00:34:15,640 --> 00:34:17,560 Speaker 1: two and a half percentthing, I think they start getting 621 00:34:17,560 --> 00:34:20,480 Speaker 1: more nervous. Maybe that's the overshoot. Dean Mackie, thank you 622 00:34:20,520 --> 00:34:24,360 Speaker 1: so much with point seven two. Thanks for listening to 623 00:34:24,400 --> 00:34:30,560 Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, 624 00:34:30,880 --> 00:34:34,879 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 625 00:34:34,920 --> 00:34:39,640 Speaker 1: Tom Keane, Michael McKee is at Economy Before the podcast. 626 00:34:39,760 --> 00:34:43,280 Speaker 1: You can always catch us worldwide on Bloomberg Radio