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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern

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Speaker 1: or watch us live on YouTube.

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Speaker 2: Joining us now from the Peterson Institute, the Pride of Brookline, Massachusetts,

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Speaker 2: Adam Posen. Adam, first of all, thank you for your

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Speaker 2: important comments at Jackson Hall. Lisa and I really appreciate that.

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Speaker 2: What's changed in four or five days Adam Posen from

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Speaker 2: Jackson Hall in this FED debate.

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Speaker 3: Thank you Tom for having me back both there with

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Speaker 3: you and Lisa and today with you and Paul Jay

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Speaker 3: A lot has changed. Three things. First, is that the

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Speaker 3: tax on Governor Cook, as Paul Krugman and Larry Summers

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Speaker 3: and many others have pointed out, have shifted into law

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Speaker 3: fair meaning using the powers of the government to go

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Speaker 3: after individual officials with quasi legal means. And as Krugman

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Speaker 3: I think put it very well on his sub stack

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Speaker 3: a few days ago, this is about personal intimidation, and

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Speaker 3: to doctor Cook's credit, she's not giving into that. Second,

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Speaker 3: something that was you were aware of and I was

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Speaker 3: aware of, but we were sort of being discouraged from

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Speaker 3: talking about too openly. Is now front and center, which

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Speaker 3: is the renewal as you were just discussing with my

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Speaker 3: renewal of the Reserve Bank presidents at the end of February,

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Speaker 3: and so whatever happens with Governor Cook, the question is

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Speaker 3: do you have a majority of Trump appointees who are

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Speaker 3: willing to really mess with that process by the end

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Speaker 3: of February. And the third, sorry, the third thing is

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Speaker 3: there's just been such a limited market response right the event.

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Speaker 2: You mentioned doctor Posen that the markets seem to ignore

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Speaker 2: the moment, at least in the United States. Do you

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Speaker 2: anticipate I don't want you to make a market call,

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Speaker 2: but you anticipate that the president is unmindful that the

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Speaker 2: markets end up telling authorities what to do. That's usually

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Speaker 2: in history how it's worked.

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Speaker 3: Yeah, Tom, I think the current president is either falsely

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Speaker 3: overconfident or unmindful. I mean, we all heard the stories

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Speaker 3: about Secretary of Descent and NEC director has it going

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Speaker 3: through this whole elaborate thing in April to get the

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Speaker 3: president to focus on the day that the treasury market

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Speaker 3: started going down a lot because of the China trade war,

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Speaker 3: and all that illustrates, even if you buy it entirely

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Speaker 3: at face value, is that the President wasn't thinking about that,

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Speaker 3: and he wasn't asking for percent or has its advice,

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Speaker 3: or he wasn't listening to present and has its advice

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Speaker 3: before that happened. So I think it's very clear that

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Speaker 3: he is ignoring the markets. And I think he and

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Speaker 3: his team have told themselves as well as others, a

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Speaker 3: story that a variety of things they're doing, including the

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Speaker 3: forthcoming issuance of stable coins creating demand for US treasuries,

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Speaker 3: mean that they're not going to have to worry about this.

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Speaker 3: And the other thing is, of course the market is

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Speaker 3: playing along. Now. Fixed income market in the US generally

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Speaker 3: tends to be both more important and more savvy than

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Speaker 3: the equity market. The equity market, about these things is

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Speaker 3: driven by other factors and so shouldn't be read as

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Speaker 3: much of a verdict on these issues, these being inflation,

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Speaker 3: central bank independence, fiscal policy.

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Speaker 4: Sorry, no, go ahead, go ahead, ata, no, no.

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Speaker 3: All I was just going to say is you know,

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Speaker 3: we're having a very lively internal discussion at the Peterson

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Speaker 3: Institute about why the markets aren't reacting and why, for example,

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Speaker 3: they are reacting so negatively to France. It's not so

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Speaker 3: much that we don't think the situation is very serious

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Speaker 3: in France. It's just okay, why is the situation not

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Speaker 3: at all serious in the US? And we're having trouble understanding.

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Speaker 5: That, Adam, there are those that say that maybe the

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Speaker 5: Federal Reserve does need some changes to be affected there,

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Speaker 5: that maybe they have not performed effectively over the last years,

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Speaker 5: if not even longer.

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Speaker 4: How do you how do you think about that?

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Speaker 3: My view is that as I've gone on the record

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Speaker 3: on the program with you all saying I think they

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Speaker 3: did screw up by not changing monetary policy in early

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Speaker 3: twenty twenty one, when the labor market turned around quickly

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Speaker 3: and when the Democratic Congress passed additional unnecessary fiscal stimulus,

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Speaker 3: I mean they have screwed up. I think they've screwed

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Speaker 3: up more on the financial supervisory side. What happened with

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Speaker 3: Silicon Valley Bank and the other mid sized banks that

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Speaker 3: got a carve out and light touch supervision a few

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Speaker 3: years ago was really bad. What they did and failed

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Speaker 3: to do in six seven eight was really bad. So

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Speaker 3: but the question is does that get addressed. Do either

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Speaker 3: of those get addressed by undermining FED independence politicizing the

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Speaker 3: appointments creating frankly likely more lacks supervision rather than I

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Speaker 3: don't think so.

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Speaker 2: And I'm out a private conversation with Jackson all of

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Speaker 2: the leading banker. I'm not going to say who does. Folks,

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Speaker 2: it doesn't matter. You have the advantage of Olivia Blanchard's

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Speaker 2: perspective at Peterson Institute. This banker was heated that America

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Speaker 2: taught the other banks independence. It is central bank for

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Speaker 2: mere mortals. Our listeners are viewers, restate why we're going

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Speaker 2: through this, Why this independence of a central bank is

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Speaker 2: so important? Unlike the Bank of England years ago, unlike

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Speaker 2: the Bundesbank, and unlike otmar Issing's new fangled ecbank.

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Speaker 3: Okay, I think it is a fair point that the

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Speaker 3: FED was the example and the loadstar on a lot

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Speaker 3: of this about the German buness Bank and the Swiss

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Speaker 3: National Bank too. The rationales are They are four big

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Speaker 3: rationales for why it's in the public interest for central

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Speaker 3: bank to have operational independence, meaning getting to set interest

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Speaker 3: rates and monetary policy on its own. The first is

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Speaker 3: the argument made by the brilliant Ken Rogoff in nineteen

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Speaker 3: eighty six that there's inherently an inflation bias to various

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Speaker 3: degrees in monetary policy, because if you pump up the economy,

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Speaker 3: at least temporarily, you get some growth, but in the

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Speaker 3: end all you get is the inflation. Whence people expect that,

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Speaker 3: and so the point of the independence is to anchor expectations,

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Speaker 3: as the saying goes, so you basically get rid of

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Speaker 3: this extra inflation that's totally avoidable, and all the data

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Speaker 3: suggests this is right, that you get a lower average

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Speaker 3: inflation rate with an independent central bank at no costs.

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Speaker 3: The next two are very straightforward. When you have a

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Speaker 3: politician who wants to have a rate cut time for

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Speaker 3: a particular initiative or ahead of an election, out of

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Speaker 3: whack with what the economic fundamentals are, that's bad. When

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Speaker 3: you have a government that wants the central bank to

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Speaker 3: directly finance its debts so that it doesn't the government

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Speaker 3: doesn't have to behave in a responsible way, that's bad.

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Speaker 3: We saw that in Italy, we saw that in Argentina,

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Speaker 3: we saw it to a limited degree in Britain in

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Speaker 3: the seventies. It's bad news. And so this election cycle installation,

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Speaker 3: this prevention of of fiscal dominance is the other two

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Speaker 3: main reasons why you do central bank independence. Again, I

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Speaker 3: want to stress the late Stan Fisher, former or vice

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Speaker 3: chair of the FED, former Government Bank of Israel, stress

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Speaker 3: the distinction between operational independence and goal independence. It's still

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Speaker 3: the Congress, the legislature that sets what ultimately is the

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Speaker 3: Fed's goal, whether it's in the Humphrey Hawkins Act or

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Speaker 3: two percent inflation or whatever, and evaluates that. But the

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Speaker 3: day to day means the month independence is what we're

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Speaker 3: talking about. And then finally the issue is just the

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Speaker 3: same way that the Trump administration is gutting expertise and

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Speaker 3: technocrafts and bureaucrats have experienced throughout the government, they're now

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Speaker 3: doing the same thing to the FED, and that just

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Speaker 3: makes policy making worse.

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Speaker 4: So individual FED employees here, how does it, I mean,

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Speaker 4: how does it impact the day to day? Do you think?

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Speaker 5: I mean, does an impact the analysis do they do?

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Speaker 5: The data is the data. I guess I can interpret

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Speaker 5: data how they want, but the data is the data.

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Speaker 3: Yeah, I think that's fair, and they certainly are going

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Speaker 3: to try. I think what's happening which is happening again

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Speaker 3: at the Bureau of Labor Statistics, at the National Institute

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Speaker 3: for Health, at the EPA, at a whole range of

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Speaker 3: government agencies in the US right now is a combination

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Speaker 3: of demoralization and depression. Demoralization that the experts who try

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Speaker 3: to do the right thing and do all the hard

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Speaker 3: work of trying to interpret the data and verify the

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Speaker 3: data and come up with good sources of the data

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Speaker 3: and improve the data get ignored more and more and

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Speaker 3: they amount of funding they get. I mean, nonsense about

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Speaker 3: a marble building and all that you lose people because

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Speaker 3: your salaries aren't competitive, the building is crappy place to work,

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Speaker 3: and so that's demoralizing. And then you have the issue

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Speaker 3: that you know think, I mean you would never experience this,

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Speaker 3: but think about having a bad boss. I mean, if

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Speaker 3: you have a boss who you can present pros and

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Speaker 3: cons and sometimes she listens to you, and sometimes she

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Speaker 3: doesn't find but generally actually values a debate. And suddenly

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Speaker 3: you have a boss that listens to you know, one

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Speaker 3: particular shareholder that's pretty bad.

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Speaker 2: And we got to run. I got one final question

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Speaker 2: for you, folks. I want to really lay this out

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Speaker 2: because I think it's really eclectic. The Peterson Institute like

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Speaker 2: they have Jed Coco's and non resident senior Fellow is

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Speaker 2: really strange. Wonderful economists. A guy named Nick Lardie who's

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Speaker 2: pretty good on China, Mary Lovely, a guy named Firm

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Speaker 2: and up school up in Boston. It's called Harvard. I

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Speaker 2: think he's Furman's up there. It's the list of quality.

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Speaker 2: One of my heroes, William Klein, Shedbone Blenchard. As I mentioned,

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Speaker 2: when you all sit around, doctor Posen, are you just

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Speaker 2: consuming a new embedded inflation, not like vocar eighties?

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Speaker 4: But are we to a new regime of inflation?

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Speaker 3: Well, Tom has always I'm grateful to your appreciation and

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Speaker 3: amplification of what our team does. I'm very proud of them.

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Speaker 3: We literally sit around once a week with a lot

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Speaker 3: of the non resident people join twenty twenty five people

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Speaker 3: joining us online and our twenty people in the room

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Speaker 3: and have a working lunch meeting. Sometimes it's about research.

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Speaker 3: Is literally yesterday it's on Tuesdays was about this, and

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Speaker 3: like I said, we're wrestling with why the markets aren't reacting,

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Speaker 3: what the inflation outlooks going to be, how soon? How bad?

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Speaker 3: I think we're all pretty convinced that the tariffs and

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Speaker 3: especially anti migration is going to pass through to higher

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Speaker 3: inflation over the next six to nine months, meaningfully higher

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Speaker 3: like four or five percent. Wow. And we are worried

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Speaker 3: that the FED will change, and we're very worried about

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Speaker 3: the Reserve Bank presence because as Jason Furman, who you mentioned,

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Speaker 3: and other FED alums like Karen Dinan and David Wilcox

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Speaker 3: and so I have argued, if the Committee is still

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Speaker 3: the committee, there's a limit on how much they can

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Speaker 3: screw up on inflation, no matter who Trumpet points. But

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Speaker 3: if suddenly we swing to a number of the Reserve

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Speaker 3: Bank presidents are not reappointed and they either don't get

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Speaker 3: the vote or they're replaced by cronies, then that goes

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Speaker 3: out the window that guard rails.

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Speaker 2: We got to run. Adam Posen, thank you so much,

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Speaker 2: to take away their folks. As if we get four

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Speaker 2: to five percent Adam Posen and inflation, guess what the

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Speaker 2: dialogue changes. It's just as simple as that doctor Posen

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Speaker 2: from Jackson Hole and from the Peterson Institute in Washington,

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Speaker 2: Thank you so much. Stay with us. More from Bloomberg

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Speaker 2: Surveillance coming up after this.

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Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch US Live

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Speaker 2: Mandeep Singh is global head of Tech Research as well.

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Speaker 2: So in the mystery of pre conference call for you

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Speaker 2: is in a study of unit dynamics within the different

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Speaker 2: divisions of Nvidia, including data center. Is it a line

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Speaker 2: on the income statement? What's the man deep sing mystery

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Speaker 2: that you're going to be looking at?

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Speaker 6: I mean, right now, it's about the data center revenue

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Speaker 6: because at revenue, earnings will come simply because this company

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Speaker 6: has a monopoly when it comes to the GPUs that

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Speaker 6: they're making, they can charge whatever margins they want and that.

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Speaker 7: Has been the case. So it's a question of top line.

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Speaker 2: So in technology they can hold price or even increase price.

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Speaker 6: Well, they keep releasing new architectures. So with Blackwell, they

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Speaker 6: will increase price. With the new architecture that's upcoming in

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Speaker 6: twenty twenty six, they will increase price, and the lower

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Speaker 6: skws that are outdated will be sold at a lower

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Speaker 6: prices compared to that.

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Speaker 5: Mandy Tom just forwarded me some research from Rob Shiftman

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Speaker 5: Bloomberg Intelligence credit analysts, who covers the technology space from

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Speaker 5: a credit perspective. Is that man, he's got a lot

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Speaker 5: of pretty pictures, which I like. But what it shows

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Speaker 5: is just these huge capex for all these companies and

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Speaker 5: the bomb market I guess is fine with it. But

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Speaker 5: I mean, is somebody asking a question like, are you

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Speaker 5: guys getting any return on this capex?

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Speaker 7: Well, the cloud companies have shown return.

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Speaker 6: We saw Microsoft's Azure segment growth increase to thirty nine percent. Okay,

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Speaker 6: seventeen percent of that growth was AI workload driven. So

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Speaker 6: from that perspective, the cloud companies have shown the ROI

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Speaker 6: for sure. It's the other smaller software companies.

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Speaker 7: They are the.

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Speaker 6: Ones who are still struggling to figure out what's the

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Speaker 6: right product based on LLM, how much do we charge

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Speaker 6: the customer?

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Speaker 7: And can we increase our margins.

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Speaker 2: Shiffment's core theme, I know you two never talk. Shiffman's

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Speaker 2: core theme is that investor payouts display strength, not strain.

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Speaker 2: Why is the Amazon He's got this fancy man deep

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Speaker 2: singh bar chart here. Amazon's not participating in dividends and

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Speaker 2: share buybacks are.

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Speaker 4: They they're not.

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Speaker 6: But look, when you are at the scale that Amazon,

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Speaker 6: Microsoft and Google are, it doesn't matter you know they

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Speaker 6: are doing dividends or not because they are growing top

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Speaker 6: At the scale at Amazon is you know, five hundred

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Speaker 6: billion plus in revenue. If you are growing top line

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Speaker 6: double digits, that's huge and that's what investors care about.

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Speaker 6: The free cash flows will come. It's just a matter

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Speaker 6: of turning on the show.

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Speaker 2: It's all going to end.

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Speaker 4: It's all going to end.

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Speaker 2: Is there lighten up on the meg seven?

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Speaker 4: Exactly?

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Speaker 5: Is there a bare case for Nvidia out there? Like

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Speaker 5: when you go out there and talk to institutional investors,

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Speaker 5: what do they push back on anything?

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Speaker 4: Oh?

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Speaker 7: Absolutely?

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Speaker 6: I mean, uh, and Vidia is not the same company

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Speaker 6: as it was eight quarters ago when everyone underestimated the

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Speaker 6: size of this market. Now the expectations have gone to

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Speaker 6: a point where everyone expects them to beate and raised

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Speaker 6: by three billion for next quarter. And look, if you

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Speaker 6: are a software company right now, you're trying to optimize,

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Speaker 6: what are the type of use cases where I need

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Speaker 6: to use nvideo, GPUs and others where I don't. There

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Speaker 6: is no one size fits all here. You want to

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Speaker 6: optimize for token pricing, which is a key metric in AI,

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Speaker 6: and that's where I think there is a bear case

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Speaker 6: that you can build around invidious growth expectations being too high.

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Speaker 4: Okay, here's our plan.

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Speaker 2: We want you in every day this week bandeep, so

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Speaker 2: you could rocket Thursday and Friday. I'll be your Saturday.

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Speaker 2: If you want to commit, I can join us. Monday

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Speaker 2: Labor Day. Already I have no life, is it?

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Speaker 4: Yeah, it's early labor. I'll here Monday.

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Speaker 7: You go to the open tom there's so much.

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Speaker 2: Did you go yesterday?

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Speaker 6: No, I'm going this weekend, so you'll have to excuse

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Speaker 6: me on one of these days.

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Speaker 2: Paul, I had your twenty three dollars beverage so you don't.

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Speaker 4: Have to buy itey he made honey do Yeah, commitment.

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Speaker 7: To it, Mandy City, Thank you so much.

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Speaker 2: Stay with us. More from Bloomberg Surveillance coming up after this.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday

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Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto

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Speaker 1: with the Bloomberg Business app. You can also listen live

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Speaker 1: on Amazon Alexa from our flagship New York station, Just

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Speaker 1: say Alexa play Bloomberg eleven thirty.

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Speaker 2: You're thrilled to bring you, Amanda Agatti. She is with

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Speaker 2: P and C Bank. Amanda, let's just start with the

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Speaker 2: why why are stacks ignoring the Trump Cook battle?

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Speaker 8: Well, good morning, guys, it's always great to be with you.

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Speaker 8: I think the equity market is really largely ignoring it.

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Speaker 8: One because it's starting to get conditioned to a lot

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Speaker 8: of this purple haze, a policy uncertainty, but two because

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Speaker 8: I think the bottom line is rate cuts are more

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Speaker 8: likely than not regardless of what ultimately happens with Cook,

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Speaker 8: and I think that is the most important thing for

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Speaker 8: the equity markets path forward.

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Speaker 2: So the equity markets, so they hinge around meg seven

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Speaker 2: and in Nvidia performance or do you see a legitimate

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Speaker 2: rotation at P and C Bank.

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Speaker 8: Well, it's hard to bet against the mag seven, and

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Speaker 8: certainly it is in Nvidia earnings day. So everybody's focused

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Speaker 8: on how strong results are likely to be. But we

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Speaker 8: actually have seen in expanding market breadth over the course

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Speaker 8: of the summer, and a lot of it's been fueled

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Speaker 8: by how strong Q two earning season actually was. It

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Speaker 8: wasn't just about the top seven or the top ten

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Speaker 8: names and when we look at revisions for Q three

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Speaker 8: and even in the balance of the year, we're seeing

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Speaker 8: that breath story take hold. So I think that's a

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Speaker 8: really important fundamental and healthy aspect of the market rally,

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Speaker 8: even as it's stalled out here into the end of

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Speaker 8: the summer a little bit. But given where valuations are,

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Speaker 8: it's healthy. We're not hanging our hat on just one name,

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Speaker 8: even though today is a big day for sure.

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Speaker 5: So today's a big day, Amanda, as you mentioned in Nvidia,

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Speaker 5: but took to us about just earnings in general. The

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Speaker 5: second quote, earnings came in much better than expected, I think,

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Speaker 5: And the question is for a lot of folks, is

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Speaker 5: that enough to continue to push this market higher?

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Speaker 4: How do you think about earnings?

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Speaker 8: Well, Q two, there's no question Q two results were

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Speaker 8: a monster relative to where we started.

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Speaker 6: Now.

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Speaker 8: The bar had been set pretty low because everybody was

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Speaker 8: freaked out technical term for you, as it relates to

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Speaker 8: the impact from tariffs and trade potentially hitting in Q two.

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Speaker 8: Of course, it didn't hit squarely in Q two. We

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Speaker 8: punted it a little bit into Q three. So the

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Speaker 8: results came in I think even much better than a

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Speaker 8: very low bar that was set and I think the

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Speaker 8: results continue to suggest that there's still a lot of

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Speaker 8: fundamental strength here. We're not seeing a lot of weakening.

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Speaker 8: Q three is really what's important in terms of the rally,

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Speaker 8: and revisions have been creeping quite a bit higher.

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Speaker 2: Bloombergerging twenty four to seven on the Fed Trump uproar.

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Speaker 2: Just three headlines here, Claudia sam publishing Federal reserves shouldn't

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Speaker 2: take the political bait. John Authurs, who's been absolutely brilliant

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Speaker 2: firing Lisa Cook won't be enough for what Trump wants.

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Speaker 2: And Jonathan Levin Powell won't save the FED with silence.

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Speaker 2: Amanda Gotti. Here's Bill Dudley, economist saying markets are too complacent.

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Speaker 2: Even if Trump stands only a small chance of taking

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Speaker 2: control of the FED, the effort itself is disruptive. So

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Speaker 2: how do you change an equity strategy for our listeners

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Speaker 2: and viewers. You know, whatever the outcome, there's going to

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Speaker 2: be disruption at the FED. Right.

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Speaker 8: It does seem as if there's going to be a

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Speaker 8: lot of noise at the FED. There's no question about that.

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Speaker 8: I think at the end of the day, though, the

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Speaker 8: forward guidance and the dot plot and the path is

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Speaker 8: really what's going to matter the most. So is it

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Speaker 8: twenty five basis points? Is it fifty? Is it ultimately

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Speaker 8: one hundred? You know, a series of cuts.

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Speaker 9: INSTRC modeling avestent like for rate cuts, we are looking

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Speaker 9: at potentially one hundred basis points worth of cuts, but

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Speaker 9: not all into the end of this year.

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Speaker 8: It spills over into early twenty six. But so if

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Speaker 8: that's the path, then we're not pulling the ripcord and

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Speaker 8: raising a ton of cash and moving to the sidelines.

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Speaker 8: That will create a decent amount of support for the

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Speaker 8: market here and certainly for the earnings and backdrop. So

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Speaker 8: we're tweaking positioning. So we've been talking about quality as

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Speaker 8: being a really important place to be for investors all year.

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Speaker 8: Quality is getting pretty fairly valued or fully valued here,

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Speaker 8: So we are tweaking at the margin, but we're not

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Speaker 8: feeling particularly negative or bearish kind of going into the

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Speaker 8: end of the year if the FED is going to

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Speaker 8: continue to be accommodative.

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Speaker 4: Amanda, thank you so much.

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Speaker 2: Amanda Gottia brief here from P ANDC Bank this morning,

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Speaker 2: where she's Coiossey Management.

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Speaker 4: Stay with us.

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Speaker 2: More from Bloomberg Surveillance coming up after this.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday

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Speaker 1: starting at seven am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. You can also watch

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Speaker 1: us live every weekday on YouTube and always on the

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Speaker 1: Bloomberg terminal.

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Speaker 2: Joining us now from Staten Island. Anthony Crescenzi, executive right,

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Speaker 2: was in Pimco. The way he rolls a Staten Island

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Speaker 2: the famp and then he goes down to Latin America.

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Speaker 4: That actually looks on Argentina paper market.

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Speaker 10: They say a lot of Italian speakers too, Okay.

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Speaker 2: And I've had the honor of being in the acclaimed

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Speaker 2: Pimpco meeting a newport, and all these smart guys are

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Speaker 2: in the room, and all I know is Staten Island

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Speaker 2: electricity is up fifty four percent since twenty nineteen.

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Speaker 4: You are the king of short term paper.

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Speaker 2: Are you telling me there's no inflation out there?

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Speaker 6: Well?

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Speaker 4: There is.

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Speaker 10: In fact, there are studies that's suggest that indicate that

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Speaker 10: in urban areas, big cities, the inflation rates are higher

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Speaker 10: than other places on Staten Island. By the way, I

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Speaker 10: have a solar roof to power my electric car, so

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Speaker 10: I've kind of escaped the very high rate, almost forty

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Speaker 10: cents of Killoot hours. Elsewhere in the country it's a

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Speaker 10: lot less. The inflation rates are higher, but the inflation

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Speaker 10: expectations are anchored.

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Speaker 4: Three years ago.

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Speaker 10: In Jackson Hall, where saw Tom you were last week,

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Speaker 10: Chair Powell gave a speech where he said there's three

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Speaker 10: lessons of history for battling inflation. One of them to

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Speaker 10: take responsibility for the inflation problem. Secondly, to pay attention

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Speaker 10: to inflation expectations, how people feel about it, which Johnny

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Speaker 10: Yellen tells us, and she's an advisor to Pimco is

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Speaker 10: key to the inflation story. And finally, this is very telling.

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Speaker 10: Powell said, keep at it. That's a direct quote from

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Speaker 10: reference to Chavocoho wrote book called Keeping Out into What

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Speaker 10: Do You Eat?

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Speaker 2: Clai It has been a huge support of the program

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Speaker 2: our FED day as well, Professor Claired again advising at

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Speaker 2: PIMCO with us from Jackson Hole. None of you have

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Speaker 2: ever modeled the upset in the FED. We have now

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Speaker 2: how does a specific investment management company feel about an unhinged,

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Speaker 2: non independent FED.

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Speaker 10: Well, as they said that the key lesson of history,

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Speaker 10: as Chair Powell said, is to take responsibility and pay

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Speaker 10: attention to inflation expectations. If anyone, if the members of

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Speaker 10: the Fed collectively decided against that, to decided to persist,

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Speaker 10: to lack, to drop their persistence against the inflation fight,

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Speaker 10: that would be a problem. Now, where this all goes

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Speaker 10: is above all of our heads. It's a matter for

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Speaker 10: the courts, of course. But what we should expect is

437
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Speaker 10: something that we all learned in grade school, which is

438
00:25:10,880 --> 00:25:13,840
Speaker 10: the idea that there's checks and balances, and so so

439
00:25:13,960 --> 00:25:16,160
Speaker 10: far the checks and balances are working. We know one

440
00:25:16,320 --> 00:25:18,280
Speaker 10: major check in balance in this whole story will be,

441
00:25:18,280 --> 00:25:23,400
Speaker 10: of course, the Senate Banking Committee will be very difficulty

442
00:25:24,640 --> 00:25:31,719
Speaker 10: be Ken Trill. She will tell you that it's just

443
00:25:31,920 --> 00:25:36,600
Speaker 10: one one one seat majority, two seat majority in the

444
00:25:36,600 --> 00:25:39,320
Speaker 10: Senate Banking Committee. Three seat majority in the Senate makes

445
00:25:39,320 --> 00:25:42,000
Speaker 10: it very difficult to push nominees through and it's proven

446
00:25:42,119 --> 00:25:47,440
Speaker 10: in fact, in the first Trump administration, five uh suggested

447
00:25:47,440 --> 00:25:51,560
Speaker 10: appointees did not make it through the Senate. So there

448
00:25:51,560 --> 00:25:54,040
Speaker 10: are checks and balances here, and so it's part of

449
00:25:54,119 --> 00:25:56,320
Speaker 10: the reason why markets are even keeled about the story.

450
00:25:56,359 --> 00:25:58,639
Speaker 10: They expect those checks and balances to work out, and

451
00:25:58,640 --> 00:26:01,320
Speaker 10: so we'll have to wait see, and we would expect

452
00:26:01,320 --> 00:26:03,399
Speaker 10: that will be the case in the end, but one

453
00:26:03,680 --> 00:26:04,440
Speaker 10: can't know for sure.

454
00:26:04,480 --> 00:26:06,560
Speaker 5: All right on the beach, the Jersey Shore this weekend,

455
00:26:06,800 --> 00:26:08,240
Speaker 5: I'm sure many people are going to have a house

456
00:26:08,240 --> 00:26:10,520
Speaker 5: sale there. You go, are going to come up to

457
00:26:10,560 --> 00:26:14,840
Speaker 5: me and say, why is it a problem if President

458
00:26:14,840 --> 00:26:16,840
Speaker 5: Trump stacks the Fed?

459
00:26:17,240 --> 00:26:18,840
Speaker 4: Tell me why it's a problem.

460
00:26:18,920 --> 00:26:21,280
Speaker 10: I've written for a long time. I've written six books,

461
00:26:21,280 --> 00:26:24,200
Speaker 10: and one of the first book I wrote two thousand

462
00:26:24,200 --> 00:26:27,920
Speaker 10: and two, I talked about the key situation in the nineties,

463
00:26:28,000 --> 00:26:31,480
Speaker 10: nineteen ninety four when Chair Greenspan raised the policy rate

464
00:26:31,480 --> 00:26:35,560
Speaker 10: to eight percent. I called that tough love medicine, something

465
00:26:35,560 --> 00:26:38,080
Speaker 10: that's needed to get the interest rate levels down in

466
00:26:38,119 --> 00:26:40,000
Speaker 10: the long run. Now take it the opposite way, pull

467
00:26:40,000 --> 00:26:42,840
Speaker 10: away the medicine, and you have a different story where

468
00:26:42,880 --> 00:26:46,560
Speaker 10: the disease, inflation, the bold market's nemesis can get out

469
00:26:46,600 --> 00:26:49,800
Speaker 10: of control. We need keep interest rates at certain levels,

470
00:26:49,840 --> 00:26:52,840
Speaker 10: as they said, to keep the inflation expectation down, because

471
00:26:52,880 --> 00:26:56,080
Speaker 10: that's what's embedded in long term interest rates. And Paul

472
00:26:56,200 --> 00:26:59,560
Speaker 10: yesterday was a great article by Bloomberg. Simon Flint, I say, run,

473
00:26:59,560 --> 00:27:03,240
Speaker 10: don't walk, to read it, to talk about the term premium,

474
00:27:03,359 --> 00:27:06,560
Speaker 10: which is the uncertainty element for longer term rates that

475
00:27:06,680 --> 00:27:10,320
Speaker 10: affect mortgage rates, that that could rise. He thinks based

476
00:27:10,320 --> 00:27:13,400
Speaker 10: on the uncertainties that exists today. And so if there's

477
00:27:13,440 --> 00:27:17,119
Speaker 10: more uncertainty about the future about inflation itself than a

478
00:27:17,160 --> 00:27:19,800
Speaker 10: lower policy rate in terms of what it might mean

479
00:27:19,880 --> 00:27:22,880
Speaker 10: for the future, that becomes more uncertain and hence longer

480
00:27:22,960 --> 00:27:25,600
Speaker 10: term indust rates might rise, not fall. The opposite of

481
00:27:25,640 --> 00:27:28,680
Speaker 10: nineteen ninety four, when higher interest rates knock the interest

482
00:27:28,720 --> 00:27:30,600
Speaker 10: rates down. Even you could even cite the recent example,

483
00:27:30,640 --> 00:27:33,920
Speaker 10: of course, the Federals raised the policy rates significantly after

484
00:27:34,119 --> 00:27:38,040
Speaker 10: the pandemic, and it's caused interest rates lately to fall.

485
00:27:38,240 --> 00:27:40,360
Speaker 10: So you can get that because it's medicine, it's tough love.

486
00:27:40,400 --> 00:27:42,879
Speaker 10: It's what's needed in the end to keep interest rates down.

487
00:27:43,400 --> 00:27:46,120
Speaker 4: What did you take away from Jackson Hole.

488
00:27:46,000 --> 00:27:47,400
Speaker 5: Here from Fitzcherirman.

489
00:27:47,000 --> 00:27:51,840
Speaker 10: Pell chair, Powell is continuing to heed the lessons of

490
00:27:51,960 --> 00:27:55,040
Speaker 10: history that he cited in twenty twenty two, and that

491
00:27:55,280 --> 00:27:59,639
Speaker 10: is very calming. And he does seem to be doing

492
00:27:59,720 --> 00:28:02,800
Speaker 10: every thing it takes to defend the institution, and that

493
00:28:02,960 --> 00:28:07,240
Speaker 10: is for a bottom investor, it's highly admirable.

494
00:28:07,480 --> 00:28:11,040
Speaker 2: Do you see in the Crescenzi short term paper market

495
00:28:11,600 --> 00:28:16,399
Speaker 2: any nuances, dynamics, smoke signals like what I'm seeing in

496
00:28:16,480 --> 00:28:20,879
Speaker 2: Japan twenty thirty, forty, France thirty, Netherlands thirty.

497
00:28:21,680 --> 00:28:25,440
Speaker 10: There still seems to be an excess of so called

498
00:28:25,440 --> 00:28:28,640
Speaker 10: reserves money in the system that's keeping the short term

499
00:28:28,640 --> 00:28:33,160
Speaker 10: interest rate market relatively stable. Some of that money's going

500
00:28:33,200 --> 00:28:35,320
Speaker 10: away because the Federal Reserve is shrinking the size of

501
00:28:35,359 --> 00:28:37,359
Speaker 10: its balance sheet, in other words, taking money out of

502
00:28:37,400 --> 00:28:39,960
Speaker 10: the system. It had a nine trillion dollar balance sheets

503
00:28:39,960 --> 00:28:43,400
Speaker 10: moving down toward six trillion. Now it's in the mid sixes.

504
00:28:43,520 --> 00:28:46,160
Speaker 10: And that's taking money away day by day. And so

505
00:28:46,200 --> 00:28:48,880
Speaker 10: we'll have to watch a tom for those signs as

506
00:28:48,920 --> 00:28:51,840
Speaker 10: the year and approaches, because that's where you get the

507
00:28:51,880 --> 00:28:54,640
Speaker 10: signs in the year end information in terms of the

508
00:28:54,640 --> 00:28:55,960
Speaker 10: interest rate for the Distmothy.

509
00:28:56,000 --> 00:29:01,720
Speaker 2: First, have you taken Libby Kantrell to Campania? And there is.

510
00:29:03,160 --> 00:29:09,239
Speaker 10: An amazing worker, amazing human, and she travels a lot,

511
00:29:09,320 --> 00:29:10,640
Speaker 10: and so she probably.

512
00:29:11,000 --> 00:29:16,160
Speaker 2: To hang out, you know, like she's.

513
00:29:14,280 --> 00:29:18,400
Speaker 10: Done some amazing things for the community and for PIMCO,

514
00:29:18,520 --> 00:29:20,360
Speaker 10: and were great to have.

515
00:29:20,640 --> 00:29:24,240
Speaker 2: What's her distinctive Washington take where you lean into the

516
00:29:24,280 --> 00:29:25,640
Speaker 2: report and read the sentence.

517
00:29:25,920 --> 00:29:28,960
Speaker 10: She uses the word perfunctory a lot in her write ups.

518
00:29:29,280 --> 00:29:31,880
Speaker 10: I'd loved that to make sure I understood exactly what

519
00:29:31,960 --> 00:29:34,920
Speaker 10: it means, which is to say, this is the Senate

520
00:29:34,960 --> 00:29:39,160
Speaker 10: won't necessarily give in to President Trump on nominees that

521
00:29:39,280 --> 00:29:42,720
Speaker 10: he selects to be part of the Federal Reserve. And

522
00:29:42,800 --> 00:29:46,240
Speaker 10: so that's important. So that's the key word of the day, perfunctory.

523
00:29:46,680 --> 00:29:48,920
Speaker 10: Don't expect the Senate to just give in to the

524
00:29:48,960 --> 00:29:52,760
Speaker 10: president's will desires on the Fed. And that's important to

525
00:29:52,800 --> 00:29:53,560
Speaker 10: investors today.

526
00:29:54,520 --> 00:29:55,760
Speaker 5: This is about as good as it gets for you

527
00:29:55,800 --> 00:29:59,080
Speaker 5: bond guys, is it. I mean he got nice yields,

528
00:29:59,240 --> 00:30:00,720
Speaker 5: nice paper, I mean things.

529
00:30:01,000 --> 00:30:02,360
Speaker 4: Credit quality is pretty good.

530
00:30:02,400 --> 00:30:04,400
Speaker 10: I mean, well, it's a nirvana, that's the way I

531
00:30:04,440 --> 00:30:06,400
Speaker 10: like to call it. Because yields are between five and

532
00:30:06,440 --> 00:30:10,480
Speaker 10: seven percent high for a double A minus average credit

533
00:30:10,600 --> 00:30:14,480
Speaker 10: quality double A according to standard and Poo's standing, pores

534
00:30:14,520 --> 00:30:18,120
Speaker 10: and movies almost met them. Mix them together. They that's

535
00:30:18,200 --> 00:30:20,400
Speaker 10: a ninety nine point nine eight percent chance of getting

536
00:30:20,440 --> 00:30:22,160
Speaker 10: your money back. So you need to do a lot

537
00:30:22,360 --> 00:30:24,920
Speaker 10: in the bond market to obtain a yield that's attracted

538
00:30:24,960 --> 00:30:28,640
Speaker 10: relative to history. Expected inflation, which is in the twos

539
00:30:28,760 --> 00:30:31,479
Speaker 10: and expected volatility, which is in the load to mid

540
00:30:31,560 --> 00:30:32,200
Speaker 10: single digits.

541
00:30:32,240 --> 00:30:34,800
Speaker 4: That's a nice story. And what I worry about most

542
00:30:34,920 --> 00:30:36,640
Speaker 4: is missing not locking it in.

543
00:30:36,880 --> 00:30:38,920
Speaker 10: Is in the same way home owners locked in the

544
00:30:38,960 --> 00:30:41,040
Speaker 10: low mortgage rate, they should lock in high interest rates

545
00:30:41,080 --> 00:30:41,600
Speaker 10: on their income.

546
00:30:41,760 --> 00:30:43,880
Speaker 2: Okay, one last thing, and we're running out of time.

547
00:30:44,160 --> 00:30:47,480
Speaker 2: Just because you were here, I took age fifteen, ten year,

548
00:30:47,680 --> 00:30:50,880
Speaker 2: and thirty year back forever like, back to eighteen twenty two.

549
00:30:50,920 --> 00:30:53,640
Speaker 2: What I'm kidding, But the answer is we're starting to

550
00:30:53,680 --> 00:30:55,800
Speaker 2: see a curve steepening in tens thirties.

551
00:30:56,200 --> 00:30:57,280
Speaker 4: What does that signal to you?

552
00:30:57,880 --> 00:31:01,480
Speaker 2: Is that an unraveling of the long duration market? It

553
00:31:01,600 --> 00:31:01,880
Speaker 2: is not.

554
00:31:02,400 --> 00:31:05,480
Speaker 10: It does reflect, as Simon Flint noted in his article,

555
00:31:05,600 --> 00:31:07,440
Speaker 10: that some increase in the term period the big story,

556
00:31:07,440 --> 00:31:09,600
Speaker 10: and we only have a few seconds. The look up

557
00:31:09,680 --> 00:31:12,520
Speaker 10: World Bank global saving rate. You'll see for the first

558
00:31:12,560 --> 00:31:15,200
Speaker 10: time in forty years, it's declining because of increased spending

559
00:31:15,240 --> 00:31:19,200
Speaker 10: on defense, rewiring the global supply chains, tech spending. Money

560
00:31:19,280 --> 00:31:22,960
Speaker 10: is getting used in places that for decades went toward

561
00:31:23,000 --> 00:31:24,440
Speaker 10: financial assets, keeping yields down.

562
00:31:24,560 --> 00:31:27,640
Speaker 2: He's got solar panels on the roof in Staten Island.

563
00:31:27,760 --> 00:31:31,440
Speaker 2: It's Crescense against kan Ed. Thank you, Tony CRESSENSEI.

564
00:31:31,840 --> 00:31:36,640
Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify,

565
00:31:36,800 --> 00:31:41,040
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566
00:31:41,200 --> 00:31:44,640
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567
00:31:44,760 --> 00:31:48,720
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568
00:31:48,800 --> 00:31:52,120
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569
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