1
00:00:02,240 --> 00:00:05,720
Speaker 1: Vis is Master's in Business with Barry rid Holts on

2
00:00:05,840 --> 00:00:09,040
Speaker 1: Bloomberg Radio. Hey, this week on the podcast, I have

3
00:00:09,039 --> 00:00:12,080
Speaker 1: an old friend as a guest. Jim Bianco is one

4
00:00:12,119 --> 00:00:14,880
Speaker 1: of the few people who understood what the Federal Reserve

5
00:00:15,000 --> 00:00:18,560
Speaker 1: was doing post financial crisis in o eight oh nine

6
00:00:19,000 --> 00:00:21,600
Speaker 1: and made a very pressing call as to the impact

7
00:00:21,640 --> 00:00:25,320
Speaker 1: of KWI and ZURP on equities. UH. He is one

8
00:00:25,360 --> 00:00:28,560
Speaker 1: of those rare bond analysts that covers the stock market,

9
00:00:28,640 --> 00:00:31,840
Speaker 1: and because of that, he does so from a unique perspective.

10
00:00:32,280 --> 00:00:37,040
Speaker 1: I always find his analysis and commentary elucidating. He is

11
00:00:37,120 --> 00:00:39,840
Speaker 1: one of the rare people that makes you think about

12
00:00:39,920 --> 00:00:43,040
Speaker 1: things that you have not thought about before. With no

13
00:00:43,120 --> 00:00:50,280
Speaker 1: further ado. My conversation with Jim Bianco VI is Masters

14
00:00:50,280 --> 00:00:54,240
Speaker 1: in Business with Barry rid Holts on Bloomberg Radio. My

15
00:00:54,480 --> 00:00:58,000
Speaker 1: special guest this week is Jim Bianco. He is president

16
00:00:58,080 --> 00:01:02,400
Speaker 1: and macro strategist at Unco Research, where he covers such

17
00:01:02,480 --> 00:01:07,440
Speaker 1: broad areas as monetary policy, the intersection of markets and politics,

18
00:01:07,800 --> 00:01:11,959
Speaker 1: fund flows, and market positioning. Jim was a market strategist

19
00:01:11,959 --> 00:01:15,559
Speaker 1: in both the equity and the fixed income research group

20
00:01:15,640 --> 00:01:19,640
Speaker 1: at UBS Securities. UH. He was equity technical analyst at

21
00:01:19,680 --> 00:01:23,120
Speaker 1: First Boston and Scherson Lehman Brothers. He is both a

22
00:01:23,240 --> 00:01:27,679
Speaker 1: CMT and a member of the Market Technicians Association. James Bianco,

23
00:01:27,959 --> 00:01:32,200
Speaker 1: Welcome back to Masters in Business on Bloomberg Radio. Thanks

24
00:01:32,240 --> 00:01:35,040
Speaker 1: for having me, very really appreciate it. So I've been

25
00:01:35,080 --> 00:01:39,119
Speaker 1: looking forward to having a conversation with you about the

26
00:01:39,160 --> 00:01:42,679
Speaker 1: present circumstances for a while. For people who may not

27
00:01:42,800 --> 00:01:45,920
Speaker 1: be familiar with you, um, not only do you have

28
00:01:45,959 --> 00:01:50,280
Speaker 1: a background as a technician, but you were also a

29
00:01:50,440 --> 00:01:53,960
Speaker 1: fixed income analyst for a long time. And I find

30
00:01:54,040 --> 00:01:59,360
Speaker 1: that bond analysts look at equities very different than stock

31
00:01:59,400 --> 00:02:02,720
Speaker 1: guys do. Is that is that a fair assessment? It's

32
00:02:02,720 --> 00:02:04,600
Speaker 1: more than a fair assessment. I think we're wired a

33
00:02:04,640 --> 00:02:07,840
Speaker 1: little bit different than stock guys. Vind guys are always

34
00:02:07,840 --> 00:02:11,040
Speaker 1: worried about the return of their money, where stock guys

35
00:02:11,040 --> 00:02:14,320
Speaker 1: are the return on their money. So you start off

36
00:02:14,320 --> 00:02:17,320
Speaker 1: by thinking about things very differently than you would from

37
00:02:17,360 --> 00:02:21,200
Speaker 1: an equity investors standpoint. And and let me just give

38
00:02:21,240 --> 00:02:27,200
Speaker 1: you some props about your analysis post financial crisis. I

39
00:02:27,240 --> 00:02:31,000
Speaker 1: think you were the first person I recall reading who

40
00:02:31,040 --> 00:02:36,400
Speaker 1: were describing quantitative easements and zero interest rate policy as

41
00:02:37,000 --> 00:02:40,840
Speaker 1: there is no option. It's going to send stocks appreciably higher.

42
00:02:41,360 --> 00:02:43,520
Speaker 1: For those of you who are pushing back on the

43
00:02:43,520 --> 00:02:47,359
Speaker 1: FED action, just lay back and put your money to

44
00:02:47,440 --> 00:02:50,280
Speaker 1: work and let the FED make it go higher. Is

45
00:02:50,280 --> 00:02:53,240
Speaker 1: that a Is that a fair assessment? Yeah? Early on,

46
00:02:53,400 --> 00:02:55,360
Speaker 1: I did definitely think that, Like you know, in the

47
00:02:55,400 --> 00:02:58,440
Speaker 1: two thousand and ten to two thousand and fifteen era,

48
00:02:59,040 --> 00:03:03,640
Speaker 1: I was definitely on that ball. Um. To be honest,

49
00:03:03,800 --> 00:03:06,760
Speaker 1: I've been a little bit surprised at twelve years later

50
00:03:07,600 --> 00:03:10,600
Speaker 1: it seems to work as well as it did. Uh,

51
00:03:10,639 --> 00:03:14,440
Speaker 1: you know early on that the market hasn't adjusted at

52
00:03:14,480 --> 00:03:18,639
Speaker 1: all to the idea that, um, there's there's this fet

53
00:03:18,760 --> 00:03:21,880
Speaker 1: put and it will always work as veriently as it

54
00:03:21,919 --> 00:03:25,040
Speaker 1: did the first time. Every single time has tried that,

55
00:03:25,160 --> 00:03:28,359
Speaker 1: there's been no um, you know, to use the word

56
00:03:28,400 --> 00:03:30,360
Speaker 1: of the day, there's been no immunity to it in

57
00:03:30,440 --> 00:03:33,800
Speaker 1: the market. That the FED is not as effective as

58
00:03:33,840 --> 00:03:35,880
Speaker 1: it used to be. Now they have to do larger doses,

59
00:03:36,280 --> 00:03:38,360
Speaker 1: but it does seem to still work, and that's been

60
00:03:38,480 --> 00:03:42,600
Speaker 1: very surprising. Hey, every junkie requires a bigger and bigger

61
00:03:42,640 --> 00:03:45,000
Speaker 1: dose if they want the same high. Isn't that a

62
00:03:45,040 --> 00:03:48,640
Speaker 1: fair analogy? Oh? Yeah. In fact, that was the uh.

63
00:03:48,880 --> 00:03:51,360
Speaker 1: That was the analogy that I was using early on,

64
00:03:51,400 --> 00:03:53,320
Speaker 1: was that you know, the markets are a junkie and

65
00:03:53,360 --> 00:03:55,960
Speaker 1: the FED is a pusher, and that seems to have

66
00:03:56,120 --> 00:03:59,320
Speaker 1: worked in it um as it works like I said

67
00:03:59,360 --> 00:04:03,400
Speaker 1: to this day. So here's where the metaphor maybe goes

68
00:04:03,520 --> 00:04:07,040
Speaker 1: off the rails a little bit. Every time I see

69
00:04:07,160 --> 00:04:11,960
Speaker 1: a consensus of people discussing the FED put and why

70
00:04:12,000 --> 00:04:15,400
Speaker 1: markets can never go down, it usually means we're getting

71
00:04:15,440 --> 00:04:18,400
Speaker 1: pretty close to markets going way down. Think back to

72
00:04:18,440 --> 00:04:22,560
Speaker 1: the end of all we heard is Hey, the Greenspan

73
00:04:22,680 --> 00:04:25,159
Speaker 1: put means that that you could be more aggressive and

74
00:04:25,200 --> 00:04:28,080
Speaker 1: take more risks, and that was fantastic right up till

75
00:04:28,120 --> 00:04:33,760
Speaker 1: that drop in the tech sector. Yeah, that's right, and

76
00:04:33,800 --> 00:04:37,120
Speaker 1: I do think that that we might be getting very

77
00:04:37,120 --> 00:04:40,800
Speaker 1: close to that period one more time that the FED

78
00:04:41,279 --> 00:04:46,040
Speaker 1: the FED put might have run into some trouble here. Ultimately,

79
00:04:46,120 --> 00:04:47,760
Speaker 1: at the end of the day, I think there is

80
00:04:47,800 --> 00:04:51,200
Speaker 1: one other thing that people need to remember about markets

81
00:04:51,240 --> 00:04:57,560
Speaker 1: that there is a fair value. There is um uh,

82
00:04:57,600 --> 00:05:00,440
Speaker 1: you know, a level that you would look at to

83
00:05:00,600 --> 00:05:04,039
Speaker 1: say that this is where the market should trade if

84
00:05:04,080 --> 00:05:08,280
Speaker 1: the FED is successful in keeping the market relatively near

85
00:05:08,360 --> 00:05:12,040
Speaker 1: those levels. I think that then the ft point is successful.

86
00:05:12,040 --> 00:05:14,880
Speaker 1: And that's largely been the case over the last ten

87
00:05:14,960 --> 00:05:17,880
Speaker 1: or twelve years, that as the market has gone up

88
00:05:17,920 --> 00:05:21,080
Speaker 1: and as the FED is pushed um, they were fairly

89
00:05:21,080 --> 00:05:23,719
Speaker 1: close to what you would consider fair value. But today

90
00:05:23,800 --> 00:05:27,440
Speaker 1: now the real question is what is the true value

91
00:05:27,480 --> 00:05:30,440
Speaker 1: of the market. Where should a trade if the FED

92
00:05:30,600 --> 00:05:33,599
Speaker 1: wasn't in the market right now? And the big debate

93
00:05:33,880 --> 00:05:37,400
Speaker 1: is how much of a long term effect is this

94
00:05:37,680 --> 00:05:41,839
Speaker 1: shelter in place pandemic gonna have on the economy. Do

95
00:05:41,960 --> 00:05:46,279
Speaker 1: you believe that this is a supply issue? What I

96
00:05:46,279 --> 00:05:48,640
Speaker 1: mean by that is all we really need to do

97
00:05:48,720 --> 00:05:51,200
Speaker 1: is have the governors just allow all these businesses to

98
00:05:51,320 --> 00:05:54,000
Speaker 1: unlock their doors and open them up, and we will

99
00:05:54,080 --> 00:05:57,800
Speaker 1: return to something very very close to normal. That's all

100
00:05:57,800 --> 00:05:59,840
Speaker 1: we need. Or do you believe that there will be

101
00:05:59,839 --> 00:06:03,520
Speaker 1: some longer lasting demand issue. In other words, these businesses

102
00:06:03,600 --> 00:06:06,599
Speaker 1: unlocked their doors and open up. But now we need

103
00:06:06,680 --> 00:06:10,400
Speaker 1: to get people to be convinced to resume two thousand

104
00:06:10,480 --> 00:06:16,000
Speaker 1: nineteen again that they're going to voluntarily stay away, voluntarily

105
00:06:16,120 --> 00:06:21,320
Speaker 1: change their habits, voluntarily take a more conservative approach if

106
00:06:21,320 --> 00:06:23,760
Speaker 1: you believe the latter that they are going to voluntarily

107
00:06:23,800 --> 00:06:26,800
Speaker 1: take a more conservative approach, and I'm in that camp. Uh.

108
00:06:26,839 --> 00:06:28,360
Speaker 1: Then I think the markets might be a little bit

109
00:06:28,360 --> 00:06:31,320
Speaker 1: ahead of themselves if you believe the former. No, they

110
00:06:31,400 --> 00:06:34,799
Speaker 1: just just let these businesses open up and everybody will return.

111
00:06:35,360 --> 00:06:39,240
Speaker 1: Memories are short. Uh, then I think that these markets

112
00:06:39,240 --> 00:06:42,279
Speaker 1: are probably appropriately valued. So to me, that's kind of

113
00:06:42,279 --> 00:06:45,560
Speaker 1: the crux of the question is how much of this

114
00:06:45,640 --> 00:06:49,000
Speaker 1: is being held back by just the rules, or how

115
00:06:49,080 --> 00:06:52,360
Speaker 1: much of it is being held back by people's attitudes

116
00:06:52,400 --> 00:06:56,080
Speaker 1: that have now changed. Quite interesting. I have so many

117
00:06:56,120 --> 00:07:00,080
Speaker 1: different places to go with you, the technical sides, some

118
00:07:00,160 --> 00:07:02,800
Speaker 1: of the other more interesting aspects, but I have to

119
00:07:03,000 --> 00:07:08,240
Speaker 1: stay with this supply versus demand from a framework perspective.

120
00:07:08,960 --> 00:07:12,200
Speaker 1: Last week was the beginning of May. A number of

121
00:07:12,280 --> 00:07:18,040
Speaker 1: states have begun to reopen, either partially or or more aggressively,

122
00:07:18,960 --> 00:07:21,920
Speaker 1: and at the same time, on Sunday we saw the

123
00:07:22,000 --> 00:07:26,160
Speaker 1: highest level of new infections that we've seen, um since

124
00:07:26,200 --> 00:07:29,920
Speaker 1: this whole thing started. You seem to be raising the

125
00:07:29,960 --> 00:07:33,360
Speaker 1: possibility that we're gonna look back a month or two

126
00:07:33,440 --> 00:07:38,200
Speaker 1: from now and suddenly when there's another surge of infections,

127
00:07:38,840 --> 00:07:43,080
Speaker 1: it's gonna frighten consumers into staying home. Is that sort

128
00:07:43,120 --> 00:07:47,000
Speaker 1: of the scenario you're thinking about. Yeah, I would even

129
00:07:47,000 --> 00:07:50,440
Speaker 1: say it's even one step before that. It's not that

130
00:07:50,720 --> 00:07:54,600
Speaker 1: you know, a wave of infections is going to is

131
00:07:54,640 --> 00:07:58,240
Speaker 1: going to frighten consumers. It's the fear of a wave

132
00:07:58,680 --> 00:08:01,480
Speaker 1: that might be enough to get them to change their behavior.

133
00:08:01,960 --> 00:08:05,960
Speaker 1: Let me let me put this in the context for you. Um,

134
00:08:06,000 --> 00:08:09,120
Speaker 1: the worst recession in the post World War two period

135
00:08:09,320 --> 00:08:12,120
Speaker 1: was the last one two thousand seven to two thousand nine.

136
00:08:13,040 --> 00:08:18,920
Speaker 1: At its worst point, real GDP, real economic activity was

137
00:08:19,280 --> 00:08:23,240
Speaker 1: four percent down from its high. Or we retained nine

138
00:08:24,960 --> 00:08:27,400
Speaker 1: of the activity that we had at the high at

139
00:08:27,440 --> 00:08:31,320
Speaker 1: the low. But yet a four percent drop off was

140
00:08:31,480 --> 00:08:34,240
Speaker 1: enough to produce a fifty retracement in the stock market

141
00:08:34,280 --> 00:08:37,880
Speaker 1: at ten percent unemployment rate. Um, you know the social

142
00:08:37,960 --> 00:08:40,959
Speaker 1: unrest that led to Brexit and Trump and the political

143
00:08:41,000 --> 00:08:43,800
Speaker 1: polarization that we had, and a lot of and bailout

144
00:08:43,800 --> 00:08:47,240
Speaker 1: schoolore effect. I think you might wrote a book about

145
00:08:47,240 --> 00:08:50,360
Speaker 1: the bail I recall I recall a few jotting down

146
00:08:50,360 --> 00:08:53,800
Speaker 1: a few notes about the bailout spect and all all

147
00:08:53,840 --> 00:08:58,439
Speaker 1: of that was from a four percent correction in real GDP.

148
00:08:58,800 --> 00:09:00,840
Speaker 1: By the way, the worst app or was the Great

149
00:09:00,880 --> 00:09:05,679
Speaker 1: Depression when we were corrected seventy so another at its

150
00:09:05,720 --> 00:09:09,480
Speaker 1: worst point in ninety three, we still had seventy five

151
00:09:09,640 --> 00:09:13,280
Speaker 1: percent of the economic activity that we had in nine.

152
00:09:13,880 --> 00:09:17,080
Speaker 1: So the reason I bring that up is when people say, okay,

153
00:09:17,240 --> 00:09:20,360
Speaker 1: we're going back. The doors are open. Hey, look at this.

154
00:09:20,720 --> 00:09:23,800
Speaker 1: Three people walked into a store. It's all okay, Look,

155
00:09:23,800 --> 00:09:28,040
Speaker 1: we got to get back of where we were in

156
00:09:28,080 --> 00:09:32,080
Speaker 1: two thousand nineteen. Otherwise, if we make it back to

157
00:09:33,679 --> 00:09:37,880
Speaker 1: and that's the cover of this week's Economist to Economy,

158
00:09:38,040 --> 00:09:40,440
Speaker 1: and they've picked up on the same thing I was

159
00:09:40,480 --> 00:09:45,320
Speaker 1: talking about. A n recovery is a disaster. It's it's

160
00:09:45,400 --> 00:09:48,320
Speaker 1: something twice as bad. It's what two thousand seven was,

161
00:09:48,800 --> 00:09:51,520
Speaker 1: and it's something that is approaching a mini depression. Now

162
00:09:51,520 --> 00:09:54,480
Speaker 1: I'm not trying to be a Cassandra here, but what

163
00:09:54,520 --> 00:09:58,080
Speaker 1: I'm arguing is we need to get almost all the

164
00:09:58,120 --> 00:10:02,000
Speaker 1: way back, if not all the way back. Remember the

165
00:10:02,040 --> 00:10:05,400
Speaker 1: way we used to do analysis before the virus, like

166
00:10:05,520 --> 00:10:08,199
Speaker 1: three months ago. We used to just talk about the

167
00:10:08,320 --> 00:10:11,040
Speaker 1: change of the change of the change, and if something

168
00:10:11,160 --> 00:10:14,560
Speaker 1: was it was was on the third derivative moving a

169
00:10:14,559 --> 00:10:18,160
Speaker 1: little bit that that was somehow significant for markets. But

170
00:10:18,360 --> 00:10:21,320
Speaker 1: now we're talking about just basically the change, not the

171
00:10:21,320 --> 00:10:25,400
Speaker 1: first derivative, not the third derivative. So this is the

172
00:10:25,520 --> 00:10:29,240
Speaker 1: challenge that we have in the economy right now. It's

173
00:10:29,280 --> 00:10:33,120
Speaker 1: not a question of unlocked the doors and activity will return.

174
00:10:33,440 --> 00:10:36,360
Speaker 1: That will happen, and the warmer weather of summer will

175
00:10:36,400 --> 00:10:39,320
Speaker 1: help activity return. Let's leave the virus soft for a second.

176
00:10:39,960 --> 00:10:45,800
Speaker 1: It's do we get back to where we were last year.

177
00:10:46,400 --> 00:10:49,280
Speaker 1: If we do, markets are okay if we make it back.

178
00:10:49,320 --> 00:10:53,520
Speaker 1: To think about it in these terms, if you went

179
00:10:53,600 --> 00:10:57,840
Speaker 1: through and added up every governments, state and local government

180
00:10:57,960 --> 00:11:00,439
Speaker 1: said you just got a ten percent loss of revenue,

181
00:11:00,840 --> 00:11:05,640
Speaker 1: every business loss of revenue, that will be devastating for them.

182
00:11:05,679 --> 00:11:08,719
Speaker 1: So this is the challenge that we have. How far

183
00:11:08,800 --> 00:11:11,560
Speaker 1: back are we going to go? Huh? So before we

184
00:11:11,559 --> 00:11:13,880
Speaker 1: wrap up this segment, I have to ask a question

185
00:11:14,480 --> 00:11:18,400
Speaker 1: not about how far we will get to in Q

186
00:11:18,640 --> 00:11:22,760
Speaker 1: three a Q four. But let's stay with the second quarter.

187
00:11:23,120 --> 00:11:25,480
Speaker 1: You know we got data on Q one. Really it

188
00:11:25,559 --> 00:11:28,560
Speaker 1: was only one month. It was March that had such

189
00:11:28,600 --> 00:11:33,120
Speaker 1: an impact. But my back of the envelope calculations, you know,

190
00:11:33,160 --> 00:11:35,880
Speaker 1: you have thirty million people unemployed out of a hundred

191
00:11:35,880 --> 00:11:39,920
Speaker 1: and fifty five million in the in the entire pool.

192
00:11:40,520 --> 00:11:45,319
Speaker 1: That's over. And then you look at GDP for one month.

193
00:11:45,440 --> 00:11:49,040
Speaker 1: If that continues for the full quarter, are we running

194
00:11:49,040 --> 00:11:53,679
Speaker 1: it six capacity? And we down thirty g d P

195
00:11:54,160 --> 00:11:57,840
Speaker 1: for Q two, which we are now you know barely

196
00:11:58,120 --> 00:12:01,760
Speaker 1: uh a month and change too. Yeah, it looks like

197
00:12:01,800 --> 00:12:04,440
Speaker 1: that that's going to be the case. And these will

198
00:12:04,480 --> 00:12:08,400
Speaker 1: be the worst economic numbers ever recorded for a quarter,

199
00:12:08,520 --> 00:12:11,760
Speaker 1: for a quarter, worse than the worst point the Great Depression,

200
00:12:11,800 --> 00:12:15,600
Speaker 1: worse than anything we saw during the Civil War. Um. Now,

201
00:12:15,679 --> 00:12:19,760
Speaker 1: the the good news is that that should not be

202
00:12:19,880 --> 00:12:23,440
Speaker 1: a sustained level that that was all from the shelter

203
00:12:23,559 --> 00:12:26,880
Speaker 1: in place. Obviously, when we reopened, there is going to

204
00:12:26,920 --> 00:12:30,520
Speaker 1: be some uptick, a big uptick in activity. Uh as

205
00:12:30,559 --> 00:12:34,840
Speaker 1: we return to something that approximates normal, which is what

206
00:12:34,920 --> 00:12:36,920
Speaker 1: we're talking about. What is that going to be on

207
00:12:36,960 --> 00:12:39,679
Speaker 1: the other side. But yes, we are going to see

208
00:12:39,720 --> 00:12:42,320
Speaker 1: some of the worst numbers that we've ever seen. And

209
00:12:42,360 --> 00:12:45,160
Speaker 1: I would also add to you the thing that I've

210
00:12:45,160 --> 00:12:48,000
Speaker 1: been watching that I think is gonna be really important

211
00:12:48,600 --> 00:12:51,959
Speaker 1: is going to be that unemployment number. And and if

212
00:12:52,000 --> 00:12:56,200
Speaker 1: I was to speak in statistical terms, um, we're all

213
00:12:56,400 --> 00:13:00,400
Speaker 1: now familiar with initial claims. That is, when somebody shows

214
00:13:00,520 --> 00:13:04,000
Speaker 1: up at the unemployment office to ask for unemployment insurance.

215
00:13:04,320 --> 00:13:07,760
Speaker 1: There's another number that they put out called continuing claims

216
00:13:07,800 --> 00:13:11,120
Speaker 1: that means that you're still on unemployment insurance week two,

217
00:13:11,160 --> 00:13:14,600
Speaker 1: week three, week four. That number would lacks a couple

218
00:13:14,600 --> 00:13:18,360
Speaker 1: of weeks, but it is now approaching twenty million. It

219
00:13:18,360 --> 00:13:22,760
Speaker 1: should probably approach to thirty million in the coming weeks.

220
00:13:22,760 --> 00:13:25,360
Speaker 1: They'll be It'll come up a little bit short of

221
00:13:25,400 --> 00:13:28,199
Speaker 1: the total of initial claims because a bunch of these

222
00:13:28,200 --> 00:13:31,720
Speaker 1: companies are getting their paycheck Protection Plan loans and they're

223
00:13:31,760 --> 00:13:35,160
Speaker 1: rehiring their workers. But that's only a few million out

224
00:13:35,160 --> 00:13:37,920
Speaker 1: of thirty million that that's happening with. I think the

225
00:13:38,040 --> 00:13:43,160
Speaker 1: real question then becomes, Okay, these twenty odd million people,

226
00:13:43,360 --> 00:13:46,160
Speaker 1: how fast they get off of unemployment? Because if we're

227
00:13:46,200 --> 00:13:49,200
Speaker 1: going to leave them on unemployment for months or quarters

228
00:13:49,240 --> 00:13:51,600
Speaker 1: on end, I think that that's going to be an

229
00:13:51,800 --> 00:13:55,240
Speaker 1: enormous stress point for our economy. Uh And so the

230
00:13:55,360 --> 00:13:58,240
Speaker 1: faster we can get them off, the faster we can

231
00:13:58,320 --> 00:14:01,520
Speaker 1: return to normal. Now now that I've said that, we

232
00:14:01,559 --> 00:14:03,960
Speaker 1: haven't even we're not even done adding them to the

233
00:14:04,080 --> 00:14:07,440
Speaker 1: to the to the unemployment roles right now, let alone

234
00:14:07,440 --> 00:14:11,240
Speaker 1: talking about getting them off. So if there's one focus

235
00:14:11,280 --> 00:14:14,400
Speaker 1: on that worst numbers ever, I think it's going to

236
00:14:14,440 --> 00:14:17,400
Speaker 1: be that unemployment measure. My special guest this week is

237
00:14:17,480 --> 00:14:22,360
Speaker 1: Jim Bianco. He is president and macro strategist at Bianco Research,

238
00:14:22,600 --> 00:14:26,920
Speaker 1: where he covers all manners of markets and strategies. Jim,

239
00:14:27,000 --> 00:14:29,880
Speaker 1: you and I have been fishing pals for I don't

240
00:14:29,920 --> 00:14:32,960
Speaker 1: know about a decade, maybe even longer, going up to

241
00:14:33,360 --> 00:14:37,480
Speaker 1: the Shadow Federal Reserve better known as Camp Kotak up

242
00:14:37,480 --> 00:14:42,800
Speaker 1: in Maine. It's May, and I'm thinking about August, and

243
00:14:42,840 --> 00:14:46,440
Speaker 1: I'm having a hard time imagining getting on a plane

244
00:14:46,600 --> 00:14:53,160
Speaker 1: and flying from LaGuardia up to Banguora Main. Any chance

245
00:14:53,240 --> 00:14:56,800
Speaker 1: that we're going to have the sort of um opening

246
00:14:56,920 --> 00:15:00,240
Speaker 1: that will allow that sort of behavior. What what your

247
00:15:00,280 --> 00:15:04,200
Speaker 1: plans for for August this year? I would very much

248
00:15:04,320 --> 00:15:08,080
Speaker 1: like to go to um Bangor and go to Camp

249
00:15:08,120 --> 00:15:11,480
Speaker 1: Kotak this year. Again. It's always been one of the

250
00:15:11,520 --> 00:15:15,040
Speaker 1: highlights of my summer. Uh, not the least, which is

251
00:15:15,080 --> 00:15:17,560
Speaker 1: to watch a bunch of economists try and fish and

252
00:15:17,680 --> 00:15:21,000
Speaker 1: beda hook. And that's always worth the price of admission

253
00:15:21,120 --> 00:15:25,360
Speaker 1: right there as well. Um, but I'm like you, I

254
00:15:25,400 --> 00:15:30,520
Speaker 1: don't know, uh, if that's going to be doable. Um. Sure,

255
00:15:30,600 --> 00:15:33,520
Speaker 1: I mean technically there are planes that are flying right now,

256
00:15:34,000 --> 00:15:37,480
Speaker 1: and technically you and I could get on a plane.

257
00:15:37,520 --> 00:15:40,200
Speaker 1: But I'll have to see what my comfort level is

258
00:15:40,240 --> 00:15:42,640
Speaker 1: to get on a plane in August, just like you,

259
00:15:42,920 --> 00:15:45,080
Speaker 1: And then we'll have to see how many people actually

260
00:15:45,560 --> 00:15:48,200
Speaker 1: want to make it up there as well too. And

261
00:15:48,240 --> 00:15:51,160
Speaker 1: this is gonna be a story that we just said.

262
00:15:51,200 --> 00:15:54,600
Speaker 1: I just said is gonna be repeated in a lot

263
00:15:54,640 --> 00:15:57,440
Speaker 1: of industries and for a lot of people across the

264
00:15:57,520 --> 00:16:02,720
Speaker 1: economy for the next several months. And it really impacts

265
00:16:02,760 --> 00:16:06,920
Speaker 1: more than anybody else, people that have large gatherings. You know,

266
00:16:07,320 --> 00:16:10,760
Speaker 1: one of the things I've always been saying to people

267
00:16:11,360 --> 00:16:14,760
Speaker 1: because I'm in Chicago, Um, I'll know the day that

268
00:16:14,800 --> 00:16:19,960
Speaker 1: we've hit a recovery is when there's people in Wrigley

269
00:16:19,960 --> 00:16:22,880
Speaker 1: Field watching a baseball game. Now, will that be this year,

270
00:16:22,960 --> 00:16:27,200
Speaker 1: will that be next year, five years? Never? When will

271
00:16:27,240 --> 00:16:30,160
Speaker 1: that event happen? When that event happens, then I'll know

272
00:16:30,200 --> 00:16:32,840
Speaker 1: we're all the way back. But right now, you know,

273
00:16:32,960 --> 00:16:35,800
Speaker 1: that's an open ended question, is to when it's gonna happen.

274
00:16:35,880 --> 00:16:39,520
Speaker 1: Maybe I usually should say if well, I assume we're

275
00:16:39,520 --> 00:16:43,040
Speaker 1: gonna end up with some form of treatment eventually and

276
00:16:43,240 --> 00:16:47,640
Speaker 1: some vaccine. The news this week from Fiser and their

277
00:16:47,720 --> 00:16:50,760
Speaker 1: partners in Germany is that they're very much on a

278
00:16:50,840 --> 00:16:54,360
Speaker 1: fast track for a possible vaccine. If if we have

279
00:16:54,440 --> 00:16:58,280
Speaker 1: a vaccine before the years over, do things things go

280
00:16:58,360 --> 00:17:02,200
Speaker 1: back to normal? Can we rise zoom our previously scheduled

281
00:17:02,320 --> 00:17:05,680
Speaker 1: lives or has this left a mark that's going to

282
00:17:05,800 --> 00:17:09,800
Speaker 1: change us permanently. Um, let's say we get a vaccine.

283
00:17:10,400 --> 00:17:14,000
Speaker 1: I'll answer the question by by posing the metric. Let's

284
00:17:14,000 --> 00:17:16,040
Speaker 1: say we get a vaccine. Let's snap our fingers and

285
00:17:16,080 --> 00:17:20,120
Speaker 1: say we've we've got to max and it happens. Um,

286
00:17:20,720 --> 00:17:22,840
Speaker 1: I go back to the previous segment. We got twenty

287
00:17:22,880 --> 00:17:26,560
Speaker 1: million unemployed people on continuing claims? How fast do we

288
00:17:26,600 --> 00:17:29,399
Speaker 1: get that down to three or four million? It was

289
00:17:29,560 --> 00:17:32,720
Speaker 1: one before this started, but let's just try and get

290
00:17:32,720 --> 00:17:35,320
Speaker 1: it from twenty down to three or four. You know,

291
00:17:35,359 --> 00:17:37,919
Speaker 1: if that thing can go down, that measure can go

292
00:17:37,960 --> 00:17:43,439
Speaker 1: down in a few months as everybody gets massively hired back. Uh,

293
00:17:43,800 --> 00:17:46,840
Speaker 1: then everything's cool and we've gone back to normal. But

294
00:17:46,960 --> 00:17:50,880
Speaker 1: if companies have gone out of business, or even with

295
00:17:50,960 --> 00:17:54,439
Speaker 1: a vaccine, people said, yeah, we dodged a bullet, but

296
00:17:54,520 --> 00:17:56,879
Speaker 1: I got to rethink the way that I do things.

297
00:17:57,880 --> 00:18:01,000
Speaker 1: And then that number stays elevated for a long period

298
00:18:01,040 --> 00:18:04,800
Speaker 1: of time, then we've you know, if you would, the

299
00:18:05,119 --> 00:18:08,040
Speaker 1: behavior has already been changed, the damage has already been done,

300
00:18:08,600 --> 00:18:12,560
Speaker 1: and uh, it's just not a vaccine that can fix it.

301
00:18:13,119 --> 00:18:15,119
Speaker 1: I don't know what the answer to that is, but

302
00:18:15,240 --> 00:18:19,400
Speaker 1: I do fear that the longer we go the more

303
00:18:19,800 --> 00:18:22,560
Speaker 1: without a vaccine, the longer we go with this fear

304
00:18:23,160 --> 00:18:26,879
Speaker 1: of health, the more people are going to be willing

305
00:18:26,920 --> 00:18:31,520
Speaker 1: to change their behavior, and that even a vaccine may

306
00:18:31,600 --> 00:18:34,680
Speaker 1: not bring that back all the way, and it will

307
00:18:34,720 --> 00:18:37,840
Speaker 1: be a while before we see it come back, Like

308
00:18:38,400 --> 00:18:41,480
Speaker 1: you know, in markets parlance, a whole cycle that we'd

309
00:18:41,480 --> 00:18:43,960
Speaker 1: have to run through before we'd have to see it return,

310
00:18:45,080 --> 00:18:48,000
Speaker 1: you know. I think of it in terms of almost

311
00:18:48,000 --> 00:18:51,240
Speaker 1: a science fiction book, where there are some people who

312
00:18:51,240 --> 00:18:54,879
Speaker 1: have had the virus and theoretically have the anybodies and

313
00:18:55,200 --> 00:18:57,560
Speaker 1: may or may not be immune, and then there are

314
00:18:57,600 --> 00:19:01,959
Speaker 1: people who live with people or themselves, or people who

315
00:19:02,000 --> 00:19:06,360
Speaker 1: are either older or immuno compromised or have comorbidity ease

316
00:19:06,760 --> 00:19:10,040
Speaker 1: that put them in a higher risk category. Uh. And

317
00:19:10,080 --> 00:19:13,040
Speaker 1: then there are people that you know, let's call it

318
00:19:13,119 --> 00:19:16,800
Speaker 1: twenty to fifty otherwise healthy who haven't had it. We

319
00:19:16,880 --> 00:19:19,680
Speaker 1: may end up with different groups of people with different

320
00:19:19,760 --> 00:19:23,399
Speaker 1: risk factors, and the way things come back online is

321
00:19:23,400 --> 00:19:26,600
Speaker 1: going to be very dependent upon which group you find

322
00:19:26,640 --> 00:19:29,720
Speaker 1: yourself in, exactly. And I think that that's what I

323
00:19:29,720 --> 00:19:34,320
Speaker 1: mean by that. You know that even with a vaccine,

324
00:19:35,000 --> 00:19:39,920
Speaker 1: and assuming that one comes up, uh, that you might

325
00:19:40,080 --> 00:19:45,200
Speaker 1: you might have already seen the behaviors, especially among different groups, um,

326
00:19:45,440 --> 00:19:47,960
Speaker 1: change and change a lot. And that again, I'll go

327
00:19:48,000 --> 00:19:51,359
Speaker 1: back to what I said before. You had of the

328
00:19:51,400 --> 00:19:54,439
Speaker 1: activity of the high at the worst point in the

329
00:19:54,480 --> 00:19:58,320
Speaker 1: Great Recession, and that produced all that stress. And so

330
00:19:58,560 --> 00:20:01,000
Speaker 1: it would only take a little change at the margin

331
00:20:01,480 --> 00:20:04,440
Speaker 1: to get you, you know, five percent off the high,

332
00:20:04,760 --> 00:20:07,240
Speaker 1: three percent off the high, and that's all we're talking about.

333
00:20:07,560 --> 00:20:11,000
Speaker 1: And that produces what we would ultimately know as a

334
00:20:11,080 --> 00:20:15,960
Speaker 1: recession or recessionary type conditions. So we'll have to see

335
00:20:16,240 --> 00:20:19,480
Speaker 1: where everybody is now. The last thing I mentioned, you know,

336
00:20:19,560 --> 00:20:22,360
Speaker 1: is about surveys, you know, and I'm always been very

337
00:20:22,359 --> 00:20:26,280
Speaker 1: skeptical of surveys too, because every time a gallant organization

338
00:20:26,359 --> 00:20:28,520
Speaker 1: or somebody like that does a survey of people, are

339
00:20:28,560 --> 00:20:31,520
Speaker 1: you concerned, eighty percent of the country says yes. Are

340
00:20:31,560 --> 00:20:35,919
Speaker 1: you taking precautions of the country says yes. Uh. To me,

341
00:20:36,040 --> 00:20:38,680
Speaker 1: that seems like that's the politically correct thing to say.

342
00:20:38,720 --> 00:20:41,240
Speaker 1: I mean, no one said say no, I don't care

343
00:20:41,280 --> 00:20:43,680
Speaker 1: about this, and I'm running around and asking people to

344
00:20:43,720 --> 00:20:46,760
Speaker 1: breathe on me on the subway, um and so. But

345
00:20:46,800 --> 00:20:50,399
Speaker 1: the question really becomes this, when things open up, do

346
00:20:50,480 --> 00:20:54,800
Speaker 1: you still have that attitude? Um? And that remains to

347
00:20:54,840 --> 00:20:58,360
Speaker 1: be seen at this point. I think most won't have

348
00:20:58,400 --> 00:21:00,439
Speaker 1: that attitude. They'll go try and go back to some

349
00:21:01,119 --> 00:21:05,639
Speaker 1: level of reality or normalness. But enough might that it

350
00:21:05,720 --> 00:21:10,440
Speaker 1: could actually restrain economic activity a little more than we think. Yeah,

351
00:21:10,480 --> 00:21:13,399
Speaker 1: the problem with those surveys are it's always a function

352
00:21:13,440 --> 00:21:16,960
Speaker 1: of how they phrase the question. Change a word here,

353
00:21:17,080 --> 00:21:20,800
Speaker 1: change an emphasis there, you get a completely uh different answer.

354
00:21:21,720 --> 00:21:25,800
Speaker 1: You know. A new term just real quick on surveys

355
00:21:26,119 --> 00:21:29,880
Speaker 1: is the shy bias. Um. Even the shy bias might

356
00:21:29,880 --> 00:21:32,119
Speaker 1: be working here, And that is how do you answer

357
00:21:32,160 --> 00:21:35,040
Speaker 1: a question when a human being asked you versus clicking

358
00:21:35,080 --> 00:21:37,280
Speaker 1: on a on a radio, button on a on a

359
00:21:37,359 --> 00:21:40,600
Speaker 1: web page. So when a human being ash you, you,

360
00:21:40,600 --> 00:21:44,280
Speaker 1: you know, how how concerned are you about the virus?

361
00:21:44,800 --> 00:21:47,400
Speaker 1: You're not. You're more willing to tell a human being

362
00:21:47,520 --> 00:21:50,920
Speaker 1: a poster, yes I'm very concerned, as opposed to answering

363
00:21:50,920 --> 00:21:54,200
Speaker 1: a question and anonymously saying not very concerned at all.

364
00:21:54,280 --> 00:21:56,240
Speaker 1: So there could be a shy bias in there too.

365
00:21:56,800 --> 00:21:59,399
Speaker 1: And we did see something very similar to that in

366
00:21:59,480 --> 00:22:04,879
Speaker 1: some of the political polling in when supposedly people didn't

367
00:22:04,920 --> 00:22:08,560
Speaker 1: want to say they were a Trump supporter, uh, and

368
00:22:08,720 --> 00:22:12,280
Speaker 1: yet they were. That was their plans for voting, and

369
00:22:12,320 --> 00:22:14,760
Speaker 1: there was a reasonable argument to be made that the

370
00:22:14,840 --> 00:22:19,760
Speaker 1: polls might have been undercounting um now president Trump strength,

371
00:22:19,920 --> 00:22:22,960
Speaker 1: I'm curious if this is a similar phenomena. It is,

372
00:22:23,080 --> 00:22:25,399
Speaker 1: it is, and we also saw it in Brexit too.

373
00:22:25,840 --> 00:22:29,200
Speaker 1: Was the same thing that um Brexit was really where

374
00:22:29,240 --> 00:22:31,959
Speaker 1: the word shy bias came from, because it has that uh,

375
00:22:32,119 --> 00:22:35,440
Speaker 1: British tone to it, is that people did not want

376
00:22:35,440 --> 00:22:38,080
Speaker 1: to tell human polsters that they were in favor of Brexit,

377
00:22:38,440 --> 00:22:41,640
Speaker 1: but in the online polls it actually pulled a lot

378
00:22:41,760 --> 00:22:44,480
Speaker 1: better because when you didn't have to tell a human being,

379
00:22:44,480 --> 00:22:47,040
Speaker 1: you were more likely to say, yes, I'm in favor

380
00:22:47,160 --> 00:22:50,680
Speaker 1: of of Brexit as well too, so that I fear

381
00:22:50,760 --> 00:22:54,919
Speaker 1: that there's something like that happening again, because it's it's

382
00:22:54,960 --> 00:22:59,400
Speaker 1: almost sounds irresponsible for me to say I'm not concerned

383
00:22:59,400 --> 00:23:02,560
Speaker 1: about the iris. And so therefore when a human ask you,

384
00:23:02,560 --> 00:23:06,400
Speaker 1: you your natural responses yes, but in reality maybe you're not.

385
00:23:06,960 --> 00:23:09,720
Speaker 1: And so we'll have to find out where people are

386
00:23:09,880 --> 00:23:12,640
Speaker 1: once things open, and how we how this all shakes out.

387
00:23:13,359 --> 00:23:16,520
Speaker 1: If you remember that video clip that one viral of

388
00:23:17,160 --> 00:23:21,359
Speaker 1: young college dude on spring break on the beaches in

389
00:23:21,480 --> 00:23:27,480
Speaker 1: Florida who basically saying exactly what you're um articulating, Hey, man,

390
00:23:27,520 --> 00:23:29,520
Speaker 1: I don't really care about the virus. I'm young, I'm

391
00:23:29,560 --> 00:23:32,280
Speaker 1: healthy as spring break. I'm here for a party. Man,

392
00:23:32,520 --> 00:23:37,040
Speaker 1: that poor guy get xcorciated. That is a perfect example

393
00:23:37,119 --> 00:23:41,639
Speaker 1: of not having the Shaw bias. Yeah, exactly, you know,

394
00:23:41,760 --> 00:23:45,160
Speaker 1: and you could you could say, look, that's his opinion,

395
00:23:45,200 --> 00:23:48,679
Speaker 1: and he's welcome to his opinion and it's not illegal. Um,

396
00:23:48,920 --> 00:23:50,520
Speaker 1: you may want to argue a little bit on their

397
00:23:50,560 --> 00:23:53,320
Speaker 1: margins about the morality, and maybe his grandparents wouldn't like

398
00:23:53,400 --> 00:23:56,600
Speaker 1: to hear that or see him soon. But boy did

399
00:23:56,680 --> 00:23:59,199
Speaker 1: we jump down his throat, and that that's what I

400
00:23:59,200 --> 00:24:03,080
Speaker 1: mean by that we've really pushed this behavior on everybody,

401
00:24:03,119 --> 00:24:06,800
Speaker 1: that that you need to change because this is a

402
00:24:06,840 --> 00:24:10,479
Speaker 1: big deal, and that you know, taking this full circle,

403
00:24:11,080 --> 00:24:15,480
Speaker 1: why I fear that even a vaccine, while it will

404
00:24:15,520 --> 00:24:19,080
Speaker 1: get a lot of people to relax and try and

405
00:24:19,160 --> 00:24:23,560
Speaker 1: return back to normal, if it has changed enough people's

406
00:24:23,600 --> 00:24:28,480
Speaker 1: attitudes that even vaccinated, I still think that I want

407
00:24:28,520 --> 00:24:33,760
Speaker 1: to maintain this more conservative attitude, go out less, spend

408
00:24:33,960 --> 00:24:37,760
Speaker 1: less money, and the like that that could wind up

409
00:24:37,880 --> 00:24:42,439
Speaker 1: pushing the economy enough off of its peak that it

410
00:24:42,560 --> 00:24:45,920
Speaker 1: keeps it very, very sluggish. As we move forward from here,

411
00:24:46,880 --> 00:24:50,119
Speaker 1: Let's stick with the topic of sentiment, because there's a

412
00:24:50,240 --> 00:24:52,920
Speaker 1: question that keeps coming up, and you're really the perfect

413
00:24:52,960 --> 00:24:57,480
Speaker 1: person to address it to. I keep reading how many

414
00:24:57,480 --> 00:25:02,280
Speaker 1: people can seem to wrap their heads around a market

415
00:25:02,400 --> 00:25:06,080
Speaker 1: that's rallying so strongly in the face of what looks

416
00:25:06,119 --> 00:25:09,920
Speaker 1: like continual bad news. How would you explain the market's

417
00:25:09,960 --> 00:25:12,600
Speaker 1: recovery to folks who are saying, I don't get it.

418
00:25:12,680 --> 00:25:15,680
Speaker 1: The death count is up to seventy and higher, it's

419
00:25:15,680 --> 00:25:18,199
Speaker 1: more than a million infected. How on earth can the market?

420
00:25:19,040 --> 00:25:21,600
Speaker 1: What was April the one of the top twenty best

421
00:25:21,640 --> 00:25:25,040
Speaker 1: months for the SMP fire. Ever, how is this possible?

422
00:25:25,920 --> 00:25:27,919
Speaker 1: You know, I think what people need to do is

423
00:25:28,000 --> 00:25:31,400
Speaker 1: remember what happened before. There's two things. First of all,

424
00:25:31,440 --> 00:25:35,560
Speaker 1: there's the obvious answer, and that markets look forward, and

425
00:25:35,600 --> 00:25:38,239
Speaker 1: the death count and payrolls are backward looking. You know,

426
00:25:38,280 --> 00:25:42,280
Speaker 1: we're we're bracing ourselves for in early May to get

427
00:25:42,359 --> 00:25:45,400
Speaker 1: the April payroll report. It's the April report, it's last

428
00:25:45,400 --> 00:25:48,879
Speaker 1: month's report, and we know that it's going to show,

429
00:25:49,640 --> 00:25:52,359
Speaker 1: if Wall Streets right, more than twenty million people have

430
00:25:52,440 --> 00:25:56,240
Speaker 1: lost their jobs, far and away the worst report ever

431
00:25:56,760 --> 00:26:00,000
Speaker 1: seen in The markets are looking forward, But let's also

432
00:26:00,119 --> 00:26:04,080
Speaker 1: remember what they did in March. They went from an

433
00:26:04,080 --> 00:26:09,160
Speaker 1: all time high in late February to down in a

434
00:26:09,160 --> 00:26:13,080
Speaker 1: little more than five weeks, far and away the biggest

435
00:26:13,600 --> 00:26:17,360
Speaker 1: all time high to down thirty plus percent correction. It's

436
00:26:17,520 --> 00:26:21,880
Speaker 1: the fastest ever recorded. That was one of the worst

437
00:26:22,000 --> 00:26:27,240
Speaker 1: collapses by that measure ever seen. So was the market

438
00:26:28,480 --> 00:26:33,080
Speaker 1: overdone in late March? Man? Probably? Was the market maybe

439
00:26:33,200 --> 00:26:37,359
Speaker 1: overdone um now as it recovers or wherever it's teak

440
00:26:37,480 --> 00:26:40,040
Speaker 1: winds up being if it's at this level here or

441
00:26:40,119 --> 00:26:45,400
Speaker 1: slightly higher probably as well too. But the market always

442
00:26:46,080 --> 00:26:49,399
Speaker 1: has that irregular kind of move where it kind of

443
00:26:49,840 --> 00:26:52,480
Speaker 1: goes too far one way, too far, the other way,

444
00:26:52,520 --> 00:26:55,119
Speaker 1: too far back the other way one more time, and

445
00:26:55,200 --> 00:26:58,639
Speaker 1: you need to look at the larger trend. And right now,

446
00:26:59,400 --> 00:27:02,320
Speaker 1: the bigger question is what is the larger trend. You know,

447
00:27:02,560 --> 00:27:06,440
Speaker 1: it's still fift off of its all time high that

448
00:27:06,560 --> 00:27:10,000
Speaker 1: was set three months ago. That would suggest the larger

449
00:27:10,080 --> 00:27:13,919
Speaker 1: trend is still still lower um at this point, and

450
00:27:13,920 --> 00:27:18,160
Speaker 1: it's percent off of its March low. That would suggest

451
00:27:18,160 --> 00:27:21,040
Speaker 1: that the larger trend might be back up. So I

452
00:27:21,119 --> 00:27:25,359
Speaker 1: still think we're very much influx with the markets. But um,

453
00:27:25,400 --> 00:27:31,000
Speaker 1: you know, don't get that nuanced with the market. I

454
00:27:31,200 --> 00:27:34,280
Speaker 1: hear a lot of people get mad about the market

455
00:27:34,359 --> 00:27:36,000
Speaker 1: as well too. And what I mean by that is

456
00:27:36,320 --> 00:27:40,400
Speaker 1: they'll run these statistics like for every death, market cap

457
00:27:40,440 --> 00:27:44,359
Speaker 1: has increased five hundred thousand, or for every job you know,

458
00:27:44,400 --> 00:27:48,399
Speaker 1: the market has increased fifty dollars times the number of

459
00:27:48,440 --> 00:27:51,480
Speaker 1: thirty million jobs lost, or or some number like that,

460
00:27:51,520 --> 00:27:53,600
Speaker 1: And that's completely the wrong way to look at it.

461
00:27:54,080 --> 00:27:58,520
Speaker 1: Um it it's it doesn't think of it in those terms.

462
00:27:58,920 --> 00:28:01,840
Speaker 1: It's where are we going next? Is where it is?

463
00:28:01,880 --> 00:28:04,320
Speaker 1: And right now I'd say the larger trend is it's

464
00:28:04,359 --> 00:28:07,120
Speaker 1: still very mixed. You know, the market is still not

465
00:28:07,240 --> 00:28:10,200
Speaker 1: telling you it's all okay or it's all real bad.

466
00:28:10,280 --> 00:28:13,320
Speaker 1: It's still trying to figure it out. Right now, you

467
00:28:13,359 --> 00:28:17,240
Speaker 1: are the perfect person to have this conversation with about

468
00:28:17,359 --> 00:28:22,240
Speaker 1: the policy response from both the federal government and the

469
00:28:22,320 --> 00:28:26,520
Speaker 1: Federal Reserve. Let's let's start with the FED. How does

470
00:28:26,600 --> 00:28:30,280
Speaker 1: monetary policy look? And what do you think of what

471
00:28:30,400 --> 00:28:35,840
Speaker 1: Jerome pal has done so far? Um, He's set all

472
00:28:35,920 --> 00:28:38,880
Speaker 1: kind of records to FED has set all kind of

473
00:28:38,920 --> 00:28:43,760
Speaker 1: records in the most extreme policies that we've ever seen. UM.

474
00:28:43,800 --> 00:28:46,040
Speaker 1: You know, it's about that they threw the kitchen sink

475
00:28:46,680 --> 00:28:49,280
Speaker 1: at the market. They've thrown all the kitchen sinks at

476
00:28:49,280 --> 00:28:54,320
Speaker 1: the market as well too. And it's probably if UM

477
00:28:54,880 --> 00:28:59,080
Speaker 1: I talked about watching financial television, UM and talking and

478
00:28:59,240 --> 00:29:03,400
Speaker 1: watching professional money managers, it's probably reason number one why

479
00:29:03,440 --> 00:29:05,640
Speaker 1: they think the market is up. Co invest with the

480
00:29:05,680 --> 00:29:10,440
Speaker 1: FED seems to be kind of a working uh thesis

481
00:29:10,480 --> 00:29:13,240
Speaker 1: that you hear repeatedly from a lot of people that

482
00:29:13,400 --> 00:29:17,840
Speaker 1: the market is going to go higher. But if the

483
00:29:17,920 --> 00:29:21,320
Speaker 1: question really becomes this, is he doing the right thing?

484
00:29:22,200 --> 00:29:26,720
Speaker 1: But I think Warrenant Buffett this past weekend summed it

485
00:29:26,800 --> 00:29:34,640
Speaker 1: up perfectly. Um that the FED actions has helped markets,

486
00:29:35,280 --> 00:29:39,520
Speaker 1: and in their view, they look at the fixed income

487
00:29:39,560 --> 00:29:41,840
Speaker 1: markets to corporate bond market is opened, it's a lot

488
00:29:41,880 --> 00:29:44,960
Speaker 1: a lot of companies to get financing. It's allowed a

489
00:29:44,960 --> 00:29:47,880
Speaker 1: lot of companies to stay in business, it's allowed a

490
00:29:47,880 --> 00:29:52,239
Speaker 1: lot of people to see their losses get reduced, and

491
00:29:52,320 --> 00:29:55,480
Speaker 1: that the FET is looking at that as being a positive.

492
00:29:55,480 --> 00:29:58,560
Speaker 1: And what Buffett said is it is now. But the

493
00:29:58,760 --> 00:30:02,400
Speaker 1: very big risk is is that as we move forward,

494
00:30:03,120 --> 00:30:07,520
Speaker 1: that distortion in markets that they're creating and they think

495
00:30:07,520 --> 00:30:10,960
Speaker 1: it's a distortion for the good, could wind up being

496
00:30:11,120 --> 00:30:15,239
Speaker 1: a real problem down the road. And he said I

497
00:30:15,240 --> 00:30:17,560
Speaker 1: think the word he used was an extreme problem down

498
00:30:17,560 --> 00:30:22,720
Speaker 1: the road. But then he also said doing nothing and

499
00:30:22,880 --> 00:30:27,920
Speaker 1: just allowing you know, this UH market to sort itself

500
00:30:27,960 --> 00:30:31,120
Speaker 1: out with any support, could have meant that that extreme

501
00:30:31,200 --> 00:30:36,000
Speaker 1: outcome happened now as opposed to later on. So his

502
00:30:36,160 --> 00:30:39,080
Speaker 1: suggestion was, which is why I'm bringing it up because

503
00:30:39,080 --> 00:30:42,720
Speaker 1: I'm in that same camp, is that while the FED

504
00:30:42,760 --> 00:30:46,680
Speaker 1: has made things better now. It's still a very open

505
00:30:46,840 --> 00:30:51,080
Speaker 1: question as if they've made things better for good and

506
00:30:51,120 --> 00:30:54,440
Speaker 1: if there are problems a year or two now because

507
00:30:54,560 --> 00:30:59,000
Speaker 1: of distorted markets or malinvestment meaning bad investment because the

508
00:30:59,080 --> 00:31:02,240
Speaker 1: Fed old everybody, Hey, it's all okay, go ahead and

509
00:31:02,280 --> 00:31:04,800
Speaker 1: paw your money into the market. And then some investments

510
00:31:04,840 --> 00:31:07,760
Speaker 1: go bad because we realized that we were buying them

511
00:31:07,760 --> 00:31:10,440
Speaker 1: at the wrong price or at too high a value.

512
00:31:10,840 --> 00:31:13,760
Speaker 1: And then you would say a year for two from now, Yeah,

513
00:31:14,440 --> 00:31:18,640
Speaker 1: they've really created problems for the economy that very well

514
00:31:18,720 --> 00:31:22,440
Speaker 1: may be true. If they had done nothing, those problems

515
00:31:22,440 --> 00:31:26,000
Speaker 1: would have been occurring now. So I think what he's

516
00:31:26,000 --> 00:31:29,280
Speaker 1: suggesting is what they might be doing is just shifting

517
00:31:29,320 --> 00:31:34,560
Speaker 1: the timelines as opposed to repairing the economy to the

518
00:31:34,600 --> 00:31:37,880
Speaker 1: extent that they think they are. I would I would

519
00:31:37,880 --> 00:31:40,840
Speaker 1: phrase it slightly differently. This is a hair of the

520
00:31:40,880 --> 00:31:43,480
Speaker 1: dog that bit you. You wake up with a hangover,

521
00:31:43,520 --> 00:31:45,959
Speaker 1: You do a quick shot, the hangar goes away, at

522
00:31:46,040 --> 00:31:49,560
Speaker 1: least temporarily. We're still dealing with the hangover from O

523
00:31:49,680 --> 00:31:54,080
Speaker 1: E O nine and uh lo, and behold, hair the

524
00:31:54,120 --> 00:31:56,000
Speaker 1: dog is going to kick the can down the road

525
00:31:56,000 --> 00:31:59,400
Speaker 1: a little bit to mixed metaphors. Is that what I'm

526
00:31:59,400 --> 00:32:02,400
Speaker 1: hearing you say to some degree here, Yes, I think so.

527
00:32:02,560 --> 00:32:05,200
Speaker 1: I think that they they have been able to, you know,

528
00:32:05,280 --> 00:32:07,800
Speaker 1: to use that last metaphor kick the can down the road. Right,

529
00:32:08,440 --> 00:32:12,160
Speaker 1: Um uh, since we're since this is the metaphor segment,

530
00:32:12,760 --> 00:32:15,360
Speaker 1: there's no atheist in a foxhold, there's no capitalists in

531
00:32:15,360 --> 00:32:19,440
Speaker 1: a crisis, we had to do something. If we didn't

532
00:32:19,440 --> 00:32:23,480
Speaker 1: do something, that worst decline that we ever saw down

533
00:32:23,520 --> 00:32:26,800
Speaker 1: thirty four percent in five weeks might have gotten even

534
00:32:26,880 --> 00:32:30,200
Speaker 1: further worse in bad English there, but in that it

535
00:32:30,240 --> 00:32:34,400
Speaker 1: would have created more and more problems. But by kicking

536
00:32:34,440 --> 00:32:37,120
Speaker 1: the can down the road, it gives us some time

537
00:32:37,160 --> 00:32:40,520
Speaker 1: to figure out what we're gonna do. Now. What I'm

538
00:32:40,640 --> 00:32:43,760
Speaker 1: arguing here is that maybe at the end of the day,

539
00:32:44,000 --> 00:32:46,600
Speaker 1: we're still going to have those problems, but we're just

540
00:32:46,640 --> 00:32:48,960
Speaker 1: going to stretch them out over a longer period of time,

541
00:32:49,600 --> 00:32:53,000
Speaker 1: as opposed to having those problems right now and in In

542
00:32:52,880 --> 00:32:56,040
Speaker 1: In other words, what I'm arguing is, I don't think

543
00:32:56,080 --> 00:33:01,480
Speaker 1: that the fat can really taken economy that's sick and

544
00:33:01,600 --> 00:33:06,200
Speaker 1: make it better. Uh. They can't create business, they can't

545
00:33:06,240 --> 00:33:09,320
Speaker 1: create revenue. If people don't want to go to the stores.

546
00:33:09,720 --> 00:33:13,440
Speaker 1: If people don't want to buy, they can create liquidity

547
00:33:13,480 --> 00:33:18,000
Speaker 1: to make the markets behave more in line with what

548
00:33:18,080 --> 00:33:21,840
Speaker 1: you hope for for a shorter period of time. But

549
00:33:21,960 --> 00:33:23,840
Speaker 1: that's all they can do, and you can hope that

550
00:33:24,040 --> 00:33:26,920
Speaker 1: in that period of time that gives us time to

551
00:33:26,960 --> 00:33:30,040
Speaker 1: find a vaccine, to change your behavior, to figure out

552
00:33:30,040 --> 00:33:33,640
Speaker 1: what we're gonna do next, and hopefully mitigate those problems.

553
00:33:33,960 --> 00:33:37,360
Speaker 1: And that's really the big question. So I'm not so

554
00:33:37,400 --> 00:33:40,479
Speaker 1: sure what what they've done short term has been good

555
00:33:41,120 --> 00:33:45,280
Speaker 1: because it's made what looked like a catastrophe at least

556
00:33:45,360 --> 00:33:48,360
Speaker 1: stop for now. But I'm not so sure that they've

557
00:33:48,400 --> 00:33:52,600
Speaker 1: prevented it forever. That remains to be seen. So they

558
00:33:52,680 --> 00:33:54,880
Speaker 1: can't keep the jumbo jet in the air, but they

559
00:33:54,880 --> 00:33:59,560
Speaker 1: could foam the runways, right, all right, So you're listening

560
00:33:59,600 --> 00:34:03,280
Speaker 1: with a fun with metaphors on Bloomberg Radio. So so

561
00:34:03,400 --> 00:34:07,320
Speaker 1: let me put one of my favorite powers to work

562
00:34:08,040 --> 00:34:12,120
Speaker 1: I hereby appoint you chairman of the Federal Reserve. What

563
00:34:12,160 --> 00:34:16,440
Speaker 1: would you do under these circumstances? But you mean I

564
00:34:16,480 --> 00:34:19,480
Speaker 1: can't take the Gratio marks line that any organization that

565
00:34:19,480 --> 00:34:22,520
Speaker 1: would have me I would immediately withdraw from that would

566
00:34:22,640 --> 00:34:25,799
Speaker 1: be well if I if I was, if I was

567
00:34:25,880 --> 00:34:28,160
Speaker 1: the head of the Federal Reserve, I think I wouldn't

568
00:34:28,160 --> 00:34:31,960
Speaker 1: be doing the things that are vastly different than what

569
00:34:32,000 --> 00:34:36,040
Speaker 1: they're doing now. But I would be asking a question,

570
00:34:37,080 --> 00:34:42,040
Speaker 1: you know, kind of behind the scenes. President Trump says

571
00:34:42,440 --> 00:34:45,399
Speaker 1: every time he talks about this, we have to get

572
00:34:45,520 --> 00:34:50,399
Speaker 1: the economy back to where it was. Okay, I would ask,

573
00:34:50,440 --> 00:34:52,400
Speaker 1: as the Federal Reserve chairman, can we go back to

574
00:34:52,440 --> 00:34:56,200
Speaker 1: two thousand nineteen, even with the vaccine? Can we get

575
00:34:56,239 --> 00:34:59,880
Speaker 1: everybody to say, okay, that's over with. Let's all let

576
00:35:00,000 --> 00:35:02,319
Speaker 1: so I'll remember what two thousand and nineteen was like

577
00:35:02,440 --> 00:35:06,319
Speaker 1: and let's go right back to that, or what I

578
00:35:06,360 --> 00:35:10,439
Speaker 1: think might be the case. Can we help transition from

579
00:35:10,520 --> 00:35:15,080
Speaker 1: a pre virus um mentality and economy to a post

580
00:35:15,160 --> 00:35:20,120
Speaker 1: virus mentality and economy and that post virus economy is

581
00:35:20,120 --> 00:35:23,839
Speaker 1: going to be something different? And what's that? Why? Why

582
00:35:23,920 --> 00:35:27,759
Speaker 1: is that important? Because our job then here is not

583
00:35:27,880 --> 00:35:33,000
Speaker 1: to make everybody try and maintain where they were, but

584
00:35:33,200 --> 00:35:35,920
Speaker 1: help them manage to where we're supposed to be going,

585
00:35:36,000 --> 00:35:38,759
Speaker 1: which means I'm going to give you some support for

586
00:35:38,800 --> 00:35:42,920
Speaker 1: a while, then not forever, and while I'm giving you

587
00:35:42,960 --> 00:35:45,200
Speaker 1: that support, you need to sit down and figure out

588
00:35:45,280 --> 00:35:48,160
Speaker 1: your business or figure out your finances, or figure out

589
00:35:48,200 --> 00:35:51,760
Speaker 1: your career and say, Okay, it's going to be different

590
00:35:51,760 --> 00:35:54,120
Speaker 1: in twenty one. It's going to be different in twenty two.

591
00:35:54,360 --> 00:35:57,319
Speaker 1: How and what do I do to get there? As

592
00:35:57,320 --> 00:36:00,440
Speaker 1: opposed to Oh, when are we going to get back two?

593
00:36:01,760 --> 00:36:03,640
Speaker 1: That's the big difference I think we need to be

594
00:36:03,719 --> 00:36:09,040
Speaker 1: talking about is what is economy look like? And my

595
00:36:09,160 --> 00:36:13,080
Speaker 1: fear is too many people still feel like, oh, it'll

596
00:36:13,120 --> 00:36:15,759
Speaker 1: be two thousand nine all over again, and it will

597
00:36:15,800 --> 00:36:20,560
Speaker 1: be you know, not but a hundred percent or in

598
00:36:20,560 --> 00:36:23,560
Speaker 1: the case of Trump, hundred and five of what it

599
00:36:23,719 --> 00:36:27,200
Speaker 1: was in two thousand and nineteen. And maybe it is.

600
00:36:27,440 --> 00:36:30,319
Speaker 1: I mean, you know, this is unprecedented. Nobody knows, but

601
00:36:30,440 --> 00:36:32,960
Speaker 1: I'm going to bet that it's going to be different.

602
00:36:33,320 --> 00:36:37,440
Speaker 1: And trying to preserve a status quo that's unrealistic is

603
00:36:37,480 --> 00:36:40,520
Speaker 1: where I think the problems could come. Jim, let's talk

604
00:36:40,520 --> 00:36:43,640
Speaker 1: a little bit about what we were discussing earlier with

605
00:36:43,680 --> 00:36:46,799
Speaker 1: the Federal Reserve and some of the new things that

606
00:36:46,840 --> 00:36:50,719
Speaker 1: they're doing. I don't ever recall them buying ets that

607
00:36:50,800 --> 00:36:54,279
Speaker 1: seems to be pretty new, and then buying debt of

608
00:36:54,440 --> 00:36:58,360
Speaker 1: some pretty junkie companies that seems to be pretty new. Also,

609
00:36:58,400 --> 00:37:01,200
Speaker 1: what do you think of what's going on? Yeah, they're

610
00:37:01,200 --> 00:37:04,600
Speaker 1: not only buying the e t F, but bear in

611
00:37:04,680 --> 00:37:07,920
Speaker 1: mind only e t F that are tied to corporate bonds,

612
00:37:08,320 --> 00:37:13,319
Speaker 1: so no spiders, which is the sp F. UM. They're

613
00:37:13,360 --> 00:37:16,480
Speaker 1: buying corporate bonds, are buying commercial paper, they're buying asset

614
00:37:16,520 --> 00:37:21,759
Speaker 1: back securities, they're buying municipal bonds, UM. You know, uh,

615
00:37:21,960 --> 00:37:26,480
Speaker 1: They're they're buying paycheck protection loan UM loans and trying

616
00:37:26,480 --> 00:37:29,840
Speaker 1: to package them into securities as well too. This is

617
00:37:30,000 --> 00:37:35,600
Speaker 1: part of the effort to try and support markets from

618
00:37:35,680 --> 00:37:39,920
Speaker 1: falling much more than they can. This is them stepping

619
00:37:39,960 --> 00:37:42,320
Speaker 1: in buying and trying to put a floor on markets

620
00:37:42,719 --> 00:37:46,160
Speaker 1: to try and calm everything down to hopefully get us

621
00:37:46,200 --> 00:37:49,480
Speaker 1: to the other side. Now, there is one thing that

622
00:37:49,760 --> 00:37:54,920
Speaker 1: I worry most about with all of these programs UM.

623
00:37:54,960 --> 00:37:57,440
Speaker 1: Technically the fens not allowed to do this. So how

624
00:37:57,440 --> 00:38:01,279
Speaker 1: did they get away with this? UM? As I pointed out,

625
00:38:02,160 --> 00:38:05,880
Speaker 1: they're actually not doing it. The Treasury is doing it.

626
00:38:06,239 --> 00:38:09,759
Speaker 1: They've put together all of these special purpose vehicles or

627
00:38:10,000 --> 00:38:13,840
Speaker 1: these funds and then the treasury, the taxpayer put some

628
00:38:13,960 --> 00:38:18,279
Speaker 1: money into these funds, the FED offer, the FED finances it,

629
00:38:18,600 --> 00:38:21,960
Speaker 1: and they go out they buy these securities. In other words,

630
00:38:22,080 --> 00:38:25,919
Speaker 1: now monetary policy, and Jerome Paul says this every time

631
00:38:25,960 --> 00:38:30,680
Speaker 1: he speaks about it, monetary policy needs the permission of

632
00:38:30,719 --> 00:38:34,040
Speaker 1: the Treasury Department to do this stuff. So the FED

633
00:38:34,200 --> 00:38:38,560
Speaker 1: is given away a lot of its independence to the administration,

634
00:38:38,640 --> 00:38:42,319
Speaker 1: not just this administration, but whoever is the administration after

635
00:38:42,400 --> 00:38:45,680
Speaker 1: twenty whether it's the same or different, because this program

636
00:38:45,719 --> 00:38:49,680
Speaker 1: will most certainly continue well past the election um as

637
00:38:49,719 --> 00:38:55,520
Speaker 1: well too, and that, I worry could cause two problems. One,

638
00:38:55,920 --> 00:38:58,680
Speaker 1: it seems to be like a nationalization of markets, because

639
00:38:58,680 --> 00:39:02,560
Speaker 1: it is the government that is ultimately buying corporate bonds

640
00:39:03,040 --> 00:39:06,360
Speaker 1: and e T F and municipal securities. The federal government

641
00:39:06,400 --> 00:39:10,319
Speaker 1: in this case and to the FED, is going to

642
00:39:10,520 --> 00:39:14,640
Speaker 1: need the permission of the Treasury Department to change these

643
00:39:14,680 --> 00:39:18,920
Speaker 1: programs anyway they can, and so far that's not been

644
00:39:18,960 --> 00:39:22,799
Speaker 1: a problem. But later on, you know, especially in an

645
00:39:22,800 --> 00:39:25,440
Speaker 1: election year, if the FEDE says, hey, we want to

646
00:39:25,800 --> 00:39:28,520
Speaker 1: maybe back off of this program or not do this,

647
00:39:29,239 --> 00:39:31,960
Speaker 1: the administration could say I got an election to win

648
00:39:32,360 --> 00:39:35,280
Speaker 1: you're gonna keep buying this stuff and keep going because

649
00:39:35,360 --> 00:39:38,480
Speaker 1: now I now have a say in your policy. So

650
00:39:38,560 --> 00:39:41,959
Speaker 1: this is gonna be really an experiment that we haven't

651
00:39:41,960 --> 00:39:45,200
Speaker 1: seen now. Last thing about the people say, didn't do

652
00:39:45,280 --> 00:39:47,480
Speaker 1: this in a weight and the answer is yes, but

653
00:39:47,560 --> 00:39:50,560
Speaker 1: not to disdagree. But we also didn't really understand it

654
00:39:50,600 --> 00:39:52,719
Speaker 1: in a wad, and we had a different administration that

655
00:39:52,840 --> 00:39:55,960
Speaker 1: was willing to say to Ben Burnanky, then you tell

656
00:39:56,040 --> 00:39:58,640
Speaker 1: us what to do and will agree with it. Twelve

657
00:39:58,719 --> 00:40:02,440
Speaker 1: years later, we've had twelve you study this, we understand it.

658
00:40:02,520 --> 00:40:05,760
Speaker 1: We have a very different attitude about the Federal Reserve

659
00:40:05,840 --> 00:40:08,640
Speaker 1: than we did in two thousand and eight. So I'm

660
00:40:08,680 --> 00:40:12,040
Speaker 1: going to ask you two questions about that, and one

661
00:40:12,120 --> 00:40:15,759
Speaker 1: is practical and one is theoretical. Answer them however you like.

662
00:40:16,320 --> 00:40:19,560
Speaker 1: The practical question is what happens if the FED decides

663
00:40:20,320 --> 00:40:22,480
Speaker 1: they don't want to keep buying this and and the

664
00:40:22,520 --> 00:40:25,080
Speaker 1: government says, yes, you are, and the FED says, okay,

665
00:40:25,160 --> 00:40:29,720
Speaker 1: good luck, We're We're done. So that's the practical side

666
00:40:29,760 --> 00:40:32,839
Speaker 1: of it. The theoretical side of it is, have we

667
00:40:33,000 --> 00:40:38,960
Speaker 1: just de facto created a giant experiment in modern monetary theory?

668
00:40:39,120 --> 00:40:42,800
Speaker 1: Is isn't this MMT rit large to take the second

669
00:40:42,840 --> 00:40:45,920
Speaker 1: one first? Yes, I refer to it as MMT version

670
00:40:45,960 --> 00:40:50,480
Speaker 1: one point. Oh is what this seems to be right now? Um,

671
00:40:51,080 --> 00:40:55,120
Speaker 1: And the better it goes, the more I think we're

672
00:40:55,120 --> 00:40:59,239
Speaker 1: going to continue to see more of it. Uh. To

673
00:40:59,280 --> 00:41:05,040
Speaker 1: stick with that question, UM, real quick, the amount of

674
00:41:05,120 --> 00:41:08,920
Speaker 1: stimulus or the amount of support maybe that use that

675
00:41:09,120 --> 00:41:14,279
Speaker 1: phrase that we're giving the economy, Uh, is between what

676
00:41:14,400 --> 00:41:16,719
Speaker 1: the Federal Reserve has done and expanding their balance sheet

677
00:41:16,760 --> 00:41:19,799
Speaker 1: with with the government is going to borrow, and they

678
00:41:19,840 --> 00:41:24,239
Speaker 1: announced this week they're going to borrow three trillion dollars

679
00:41:24,280 --> 00:41:27,200
Speaker 1: just in the current quarter, which is the number most

680
00:41:27,239 --> 00:41:29,440
Speaker 1: bond people are having a hard time understanding. It's so

681
00:41:29,640 --> 00:41:33,440
Speaker 1: such a big number right now, it's the equivalent of

682
00:41:33,640 --> 00:41:37,319
Speaker 1: four years of income tax receipts. When all is said

683
00:41:37,320 --> 00:41:41,720
Speaker 1: and done, If the federal government in the Federal Reserve

684
00:41:42,320 --> 00:41:46,840
Speaker 1: can either borrow or print four years of tax returns

685
00:41:47,680 --> 00:41:52,760
Speaker 1: and not have a problem not produce inflation. I've jokingly said,

686
00:41:52,840 --> 00:41:54,560
Speaker 1: can we get rid of the I R s? Can

687
00:41:54,560 --> 00:41:56,920
Speaker 1: they just print up our factors every year and just

688
00:41:56,920 --> 00:41:59,480
Speaker 1: send them to the Treasury at that point, because if

689
00:41:59,520 --> 00:42:04,640
Speaker 1: you can do this without having any problems, then why

690
00:42:04,680 --> 00:42:06,839
Speaker 1: do we even pay taxes in the first place. And

691
00:42:06,960 --> 00:42:09,720
Speaker 1: isn't that been one of the arguments that mm tears

692
00:42:09,719 --> 00:42:13,600
Speaker 1: have been saying is that MMT believes that the you

693
00:42:13,680 --> 00:42:19,320
Speaker 1: don't adjust monetary policy with interest rates, you adjusted with taxes,

694
00:42:19,880 --> 00:42:22,200
Speaker 1: is that when there's no inflation, you print the money

695
00:42:22,560 --> 00:42:25,560
Speaker 1: and tax rates go down a lot. When there's inflation

696
00:42:25,600 --> 00:42:27,920
Speaker 1: and you want to remove the money from the system,

697
00:42:28,200 --> 00:42:31,719
Speaker 1: you raise taxes as well too. So yes, I do

698
00:42:31,840 --> 00:42:34,520
Speaker 1: think this could be version one of mm T. Now

699
00:42:34,600 --> 00:42:37,400
Speaker 1: to your practical question. If the FETE says, hey, we

700
00:42:37,840 --> 00:42:40,480
Speaker 1: want to back off, and the Treasury says no, and

701
00:42:40,520 --> 00:42:42,640
Speaker 1: the FETE says, good luck trying to do it without

702
00:42:42,800 --> 00:42:47,720
Speaker 1: us financing it, they run a real political problem because

703
00:42:47,800 --> 00:42:54,399
Speaker 1: then they put the treasury the taxpayer at risk of loss,

704
00:42:54,480 --> 00:42:57,400
Speaker 1: and then they would have to Joan Paula, whoever decided

705
00:42:57,440 --> 00:43:00,080
Speaker 1: that policy, would have to stand there and say, you know,

706
00:43:00,400 --> 00:43:03,640
Speaker 1: you agreed with the Treasury to buy hundreds of billions

707
00:43:03,640 --> 00:43:07,000
Speaker 1: of dollars worth of corporate bonds or municipal securities or

708
00:43:07,000 --> 00:43:09,920
Speaker 1: et F and the government and the and the Treasury

709
00:43:09,960 --> 00:43:12,759
Speaker 1: wanted you to do more, and you said no, and

710
00:43:12,880 --> 00:43:15,799
Speaker 1: you backed off, and now the taxpayer is sitting on

711
00:43:15,880 --> 00:43:20,560
Speaker 1: an unrealized loss DROLL and that's your fault. You're causing

712
00:43:20,640 --> 00:43:24,760
Speaker 1: the taxpayer to take tremendous losses. Why are you doing

713
00:43:24,800 --> 00:43:28,440
Speaker 1: that to the taxpayer? That is a issue that they

714
00:43:28,560 --> 00:43:31,239
Speaker 1: never want to be involved with. They don't ever want

715
00:43:31,280 --> 00:43:33,839
Speaker 1: to go there, so and we I don't think we'd

716
00:43:33,840 --> 00:43:36,080
Speaker 1: ever know it. I think that they'll always come to

717
00:43:36,320 --> 00:43:39,600
Speaker 1: some form of an agreement. And let me emphasize, there

718
00:43:39,640 --> 00:43:42,719
Speaker 1: will be no disagreement right now, you know, because we're

719
00:43:42,760 --> 00:43:47,120
Speaker 1: in the process of trying to support a crisis economy.

720
00:43:47,280 --> 00:43:50,840
Speaker 1: The disagreement comes later down the road, whether it's several

721
00:43:50,920 --> 00:43:55,320
Speaker 1: years down the road or several months, whenever we decide

722
00:43:55,360 --> 00:43:59,439
Speaker 1: that it is now getting better enough that the set

723
00:43:59,520 --> 00:44:04,480
Speaker 1: can stop start reversing out of these programs. The administration,

724
00:44:04,640 --> 00:44:08,359
Speaker 1: in theory has a veto over that, and I'm just

725
00:44:08,480 --> 00:44:12,560
Speaker 1: opening the question that maybe they will exercise it when

726
00:44:12,640 --> 00:44:15,440
Speaker 1: that time comes. But no one wants to exit these

727
00:44:15,440 --> 00:44:18,680
Speaker 1: programs right now, right now, probably being in a minimum

728
00:44:18,760 --> 00:44:21,399
Speaker 1: the year, so that's not going to be an issue

729
00:44:21,480 --> 00:44:25,160
Speaker 1: right away. Hey, we we had ultra low rates for

730
00:44:25,200 --> 00:44:29,840
Speaker 1: a decade and the administration screams when pal wanted to

731
00:44:29,920 --> 00:44:33,799
Speaker 1: thike rates, wanted to normalize rates up from one and

732
00:44:33,840 --> 00:44:37,120
Speaker 1: a half percent to a more normal level. I got

733
00:44:37,160 --> 00:44:41,360
Speaker 1: to imagine that, no matter what the circumstances, no president

734
00:44:41,440 --> 00:44:44,360
Speaker 1: is going to want to see this get normalized. Or

735
00:44:44,400 --> 00:44:47,440
Speaker 1: am I now too cynical in the era of a

736
00:44:47,480 --> 00:44:52,200
Speaker 1: White House Federal Reserve jaw boning contest. No, I don't

737
00:44:52,239 --> 00:44:54,680
Speaker 1: think you're too cynical. I mean, if you look at

738
00:44:54,719 --> 00:44:58,840
Speaker 1: the history of the Federal Reserve and the relationship that

739
00:44:58,920 --> 00:45:02,440
Speaker 1: the Federal Reserve has with the White House. Um, the

740
00:45:02,520 --> 00:45:06,520
Speaker 1: big difference between Trump and previous president says Trump does

741
00:45:06,560 --> 00:45:09,040
Speaker 1: it out in the open on Twitter and that. But

742
00:45:09,440 --> 00:45:14,160
Speaker 1: we've known from books and biographies going all the way

743
00:45:14,239 --> 00:45:19,080
Speaker 1: back to Harry Truman. UM, Harry Truman inviting the entire

744
00:45:19,239 --> 00:45:22,040
Speaker 1: think about this entire inviting the entire f O m

745
00:45:22,120 --> 00:45:26,040
Speaker 1: c UH to the White House for lunch and telling

746
00:45:26,080 --> 00:45:28,560
Speaker 1: them that if they did not cut rates, that they

747
00:45:28,560 --> 00:45:34,000
Speaker 1: were doing the bidding of Joseph Stalin to Lyndon Johnson, UM,

748
00:45:34,040 --> 00:45:36,680
Speaker 1: you know, throwing the Federal Reserve chairman against the wall,

749
00:45:36,760 --> 00:45:40,080
Speaker 1: literally physically assaulting him and saying, boys are dying in

750
00:45:40,200 --> 00:45:43,359
Speaker 1: Vietnam and Bill Martin, who was the Federal Reserve chairman

751
00:45:43,440 --> 00:45:48,080
Speaker 1: at the time, can't cut interest rates to Ronald Reagan,

752
00:45:48,480 --> 00:45:52,120
Speaker 1: commanding Paul Vulker. Paul Looker wrote that in his autobiography

753
00:45:52,160 --> 00:45:55,680
Speaker 1: to Cut Rates in which was an election year, to

754
00:45:55,880 --> 00:46:00,280
Speaker 1: George H. W. Bush, blaming Ellen Greenspan for losing the action.

755
00:46:00,600 --> 00:46:04,000
Speaker 1: So this has going out for seventy years that presidents

756
00:46:04,040 --> 00:46:09,080
Speaker 1: have been at odds with the Federal Reserve. The difference

757
00:46:09,160 --> 00:46:11,040
Speaker 1: with Trump is he just does it in the open,

758
00:46:11,080 --> 00:46:14,040
Speaker 1: real time. The rest of them did it behind closed doors.

759
00:46:14,640 --> 00:46:19,000
Speaker 1: And now that we have given the administration a veto,

760
00:46:19,480 --> 00:46:22,400
Speaker 1: it doesn't matter if it's Trump or Biden or whoever.

761
00:46:23,200 --> 00:46:26,160
Speaker 1: They're gonna think twice when it comes back when the

762
00:46:26,200 --> 00:46:28,719
Speaker 1: FETE comes to them and says it's time to leave,

763
00:46:28,760 --> 00:46:31,760
Speaker 1: it's time to us to reverse these policies, and they'll

764
00:46:32,280 --> 00:46:34,759
Speaker 1: maybe push back. That's a very open question. So I

765
00:46:34,840 --> 00:46:38,320
Speaker 1: don't think you're being too cynical. Huh. Quite quite interesting.

766
00:46:38,440 --> 00:46:41,200
Speaker 1: So I recall back in two thousand and ten, two

767
00:46:41,280 --> 00:46:45,120
Speaker 1: thousand and eleven, remember the open letter to Ben bernanke

768
00:46:46,200 --> 00:46:49,920
Speaker 1: Hui and Zurp are going to cause hyper inflation? What

769
00:46:49,960 --> 00:46:52,080
Speaker 1: are you doing. You're going to destroy the dollar. We're

770
00:46:52,080 --> 00:46:55,359
Speaker 1: gonna have crazy inflation. And of course none of that

771
00:46:55,400 --> 00:46:58,520
Speaker 1: came to pass. The dollars was record ties. For the

772
00:46:58,560 --> 00:47:02,280
Speaker 1: next eight years, we saw no inflation at all. If anything,

773
00:47:02,320 --> 00:47:08,399
Speaker 1: deflation is this similar to that in that it's an

774
00:47:08,480 --> 00:47:13,600
Speaker 1: unprecedented set of circumstances, and the natural reaction from inflation

775
00:47:13,600 --> 00:47:16,440
Speaker 1: hawks is oh no, the Fed's action is going to

776
00:47:16,520 --> 00:47:22,080
Speaker 1: send inflation much higher. Uh. This this is clearly different,

777
00:47:22,120 --> 00:47:25,240
Speaker 1: if for no other reason than gold has spiked dual

778
00:47:25,280 --> 00:47:30,760
Speaker 1: Compare and contrast between when it comes to inflation. Yeah,

779
00:47:30,800 --> 00:47:35,920
Speaker 1: you know the letter. I remember the letter to UH.

780
00:47:35,960 --> 00:47:37,760
Speaker 1: To be honest with you, I thought that that letter

781
00:47:37,960 --> 00:47:41,520
Speaker 1: at the time it was written, was a reasonable fear

782
00:47:41,719 --> 00:47:44,399
Speaker 1: that we had that we looked at what the FED

783
00:47:44,600 --> 00:47:48,280
Speaker 1: was doing. If you believe the metric too much money

784
00:47:48,360 --> 00:47:52,879
Speaker 1: chasing too few goods, that the FED was creating money,

785
00:47:53,320 --> 00:47:55,480
Speaker 1: you could argue that it didn't have the velocity that

786
00:47:55,560 --> 00:47:58,279
Speaker 1: it needed to turn over that it needed in order

787
00:47:58,320 --> 00:48:00,880
Speaker 1: to create inflation. But it was a reasonable fear. And

788
00:48:00,960 --> 00:48:03,319
Speaker 1: I would actually argue to you that out of that

789
00:48:03,480 --> 00:48:08,319
Speaker 1: experience that they did, that episode without inflation was the

790
00:48:08,400 --> 00:48:11,600
Speaker 1: catalyst for modern monetary theory to come along and saying, hey,

791
00:48:11,600 --> 00:48:14,279
Speaker 1: look what we just did in two thousands, nine, ten,

792
00:48:14,360 --> 00:48:16,840
Speaker 1: and eleven with all that money printing and then reversed

793
00:48:16,840 --> 00:48:19,480
Speaker 1: it out and we never had inflation. Um, maybe we

794
00:48:19,560 --> 00:48:24,160
Speaker 1: can start rethinking how we could run monetary theory as well.

795
00:48:24,640 --> 00:48:30,839
Speaker 1: Today it's just orders in orders of magnitude larger. And

796
00:48:30,960 --> 00:48:34,320
Speaker 1: today the other thing that's going on that's a little

797
00:48:34,320 --> 00:48:38,120
Speaker 1: bit more different, at least on its surface, is a

798
00:48:38,200 --> 00:48:41,520
Speaker 1: lot of these programs are trying to be pushed down

799
00:48:41,760 --> 00:48:45,840
Speaker 1: to non Wall Street main street. We even call them

800
00:48:45,880 --> 00:48:49,040
Speaker 1: the main street programs. We have p p p T

801
00:48:49,400 --> 00:48:55,600
Speaker 1: PPT Personal Protection Plan loans. We're giving companies direct loans.

802
00:48:56,040 --> 00:48:59,799
Speaker 1: He has they're trying to support markets, but we're trying

803
00:48:59,800 --> 00:49:03,040
Speaker 1: to of those companies loans. Now. The fear here is

804
00:49:03,080 --> 00:49:07,759
Speaker 1: that that lending will lead to a higher turnover of

805
00:49:07,800 --> 00:49:10,600
Speaker 1: that money. Problem in two thousand and ten was the

806
00:49:10,680 --> 00:49:12,879
Speaker 1: FED printing up a lot of money, pushed it into

807
00:49:12,960 --> 00:49:16,759
Speaker 1: financial markets to support financial markets, but it never made

808
00:49:16,800 --> 00:49:20,080
Speaker 1: it to the real economy people. That money never filtered

809
00:49:20,080 --> 00:49:23,440
Speaker 1: into your pocket, or my pocket, or or a neighbor's pocket,

810
00:49:23,440 --> 00:49:25,719
Speaker 1: where we want up buying a new car, or or

811
00:49:25,840 --> 00:49:29,520
Speaker 1: buying a house, or spending more on vacations or something

812
00:49:29,560 --> 00:49:33,400
Speaker 1: along those lines. This time around, we are trying to

813
00:49:33,440 --> 00:49:36,319
Speaker 1: get it into your mind, in our neighbor's pockets for

814
00:49:36,560 --> 00:49:39,400
Speaker 1: that express purpose of go spend it on a vacation,

815
00:49:39,520 --> 00:49:42,399
Speaker 1: Go buy a new car with that money as well too.

816
00:49:42,440 --> 00:49:45,440
Speaker 1: So I think that the risk that it does create

817
00:49:45,480 --> 00:49:49,480
Speaker 1: inflation is a real one and is a concern. And

818
00:49:49,600 --> 00:49:51,960
Speaker 1: it goes back to what I said before. If they

819
00:49:51,960 --> 00:49:56,000
Speaker 1: can do a trillion dollars worth of borrowing and printing

820
00:49:56,800 --> 00:50:01,000
Speaker 1: and it doesn't produce inflation, why do keep raising two

821
00:50:01,040 --> 00:50:03,680
Speaker 1: trillion two and a half trillion dollars a year in taxes?

822
00:50:04,120 --> 00:50:06,520
Speaker 1: Why don't they just print up two trillion dollars a

823
00:50:06,600 --> 00:50:08,120
Speaker 1: year and just send it to the Treasury and say

824
00:50:08,360 --> 00:50:12,239
Speaker 1: everybody's tax rate is now zero um at that point. So,

825
00:50:12,719 --> 00:50:15,560
Speaker 1: I think there's gonna be leng lasting consequences to this.

826
00:50:15,680 --> 00:50:18,719
Speaker 1: Either it produces some kind of a problem in the

827
00:50:18,840 --> 00:50:23,359
Speaker 1: form of inflation, or it doesn't, and not only like

828
00:50:23,600 --> 00:50:26,040
Speaker 1: we just talked about a second, either the administration or

829
00:50:26,080 --> 00:50:29,040
Speaker 1: somebody else says, well, then if it didn't produce a problem,

830
00:50:29,040 --> 00:50:31,120
Speaker 1: why do we stop? Why don't we just keep printing,

831
00:50:31,120 --> 00:50:33,880
Speaker 1: printing more of this money, just keep going and going,

832
00:50:33,920 --> 00:50:36,720
Speaker 1: And why don't we Everybody gets free college education, everybody

833
00:50:36,719 --> 00:50:41,279
Speaker 1: gets free healthcare, everybody gets uh um, a much much

834
00:50:41,320 --> 00:50:43,640
Speaker 1: lower tax rate. And you know, because we've shown that

835
00:50:43,719 --> 00:50:47,040
Speaker 1: we can print this money without there being that consequence.

836
00:50:47,280 --> 00:50:49,760
Speaker 1: So one way or the other, I think we're gonna

837
00:50:49,800 --> 00:50:54,840
Speaker 1: have an issue to deal with. This quite interesting, uh

838
00:50:54,880 --> 00:50:58,560
Speaker 1: the pushback against it, and I'm surprised to learn that

839
00:50:58,600 --> 00:51:00,759
Speaker 1: you were a Bernie bro This is this is news

840
00:51:00,800 --> 00:51:06,640
Speaker 1: to me. Um. The pushback against the inflation argument is, hey,

841
00:51:06,680 --> 00:51:09,400
Speaker 1: this isn't money that's going to people to buy houses

842
00:51:09,480 --> 00:51:15,000
Speaker 1: or cars or vacations or if you remember, the home

843
00:51:15,040 --> 00:51:17,960
Speaker 1: equity mortgage with rural money was being used to buy

844
00:51:18,000 --> 00:51:21,839
Speaker 1: big screen TVs and and do home renovations. These are

845
00:51:21,880 --> 00:51:24,239
Speaker 1: people who have been forced to shelter in place. Many

846
00:51:24,280 --> 00:51:27,640
Speaker 1: of them have lost their paycheck. This is going to rent.

847
00:51:27,760 --> 00:51:31,120
Speaker 1: We've seen thirty of rent payments not being made. This

848
00:51:31,200 --> 00:51:34,759
Speaker 1: is going to food and medicine. This is really basic survival.

849
00:51:35,680 --> 00:51:39,879
Speaker 1: How does that cause inflation, especially if at best were

850
00:51:39,880 --> 00:51:42,839
Speaker 1: an economy and we can't get all the way back

851
00:51:42,880 --> 00:51:46,840
Speaker 1: up to so I think I I think, um, I

852
00:51:46,920 --> 00:51:49,040
Speaker 1: needed to give a little bit of a of a

853
00:51:49,080 --> 00:51:52,680
Speaker 1: definition when I talked about inflation. Um, there is there

854
00:51:52,719 --> 00:51:57,000
Speaker 1: will be no inflation in and there probably will be

855
00:51:57,080 --> 00:52:00,400
Speaker 1: no inflation in the first half of twenty one, and

856
00:52:00,520 --> 00:52:04,239
Speaker 1: there is a risk of deflation exactly the way that

857
00:52:04,320 --> 00:52:09,239
Speaker 1: you said. But there will be this much I think

858
00:52:09,280 --> 00:52:12,040
Speaker 1: we can agree on. There will be a restart to

859
00:52:12,080 --> 00:52:14,520
Speaker 1: the economy. We are not going to shelter in place

860
00:52:14,920 --> 00:52:17,239
Speaker 1: for all of eternity. There is going to either be

861
00:52:17,280 --> 00:52:19,880
Speaker 1: a vaccine or we're just going to get sick of

862
00:52:19,920 --> 00:52:21,680
Speaker 1: this and say that we have to kind of go

863
00:52:21,800 --> 00:52:25,120
Speaker 1: back to some semblance of normal. And there will be

864
00:52:25,200 --> 00:52:27,239
Speaker 1: some kind of a rebound in the economy. Whether it

865
00:52:27,280 --> 00:52:30,680
Speaker 1: goes to hundred remains to be seen, but there will

866
00:52:30,719 --> 00:52:34,160
Speaker 1: be a rebound. And it's on the other side of

867
00:52:34,200 --> 00:52:38,960
Speaker 1: that rebound. Does all this stimulus money, which is becomes

868
00:52:39,120 --> 00:52:43,480
Speaker 1: mere survival money, then some people go back to work.

869
00:52:43,880 --> 00:52:46,640
Speaker 1: Maybe you know, won't cool about how many don't, but

870
00:52:47,000 --> 00:52:50,560
Speaker 1: a fair number of people will, uh, and there will

871
00:52:50,640 --> 00:52:55,520
Speaker 1: be more economic activity plus all this other money as

872
00:52:55,560 --> 00:52:59,120
Speaker 1: well too. That's where the fear that the inflation comes

873
00:52:59,160 --> 00:53:01,960
Speaker 1: back and it set and a half of one twenty

874
00:53:02,040 --> 00:53:06,680
Speaker 1: two in that respect, not necessarily in two thousand and twenty.

875
00:53:06,719 --> 00:53:09,120
Speaker 1: In fact, not in two thousand and twenty. I wouldn't

876
00:53:09,120 --> 00:53:11,799
Speaker 1: say necessarily, wouldn't put that qualifier on it, because I

877
00:53:11,840 --> 00:53:14,600
Speaker 1: think with the with the economic contraction that we're having,

878
00:53:14,880 --> 00:53:17,000
Speaker 1: you're not going to see it now. But the question

879
00:53:17,080 --> 00:53:20,520
Speaker 1: is what about on the other side. And to me,

880
00:53:20,680 --> 00:53:23,400
Speaker 1: you know, that's where I think the message of the

881
00:53:23,440 --> 00:53:26,800
Speaker 1: bond mark that has been the tenure yield hit a

882
00:53:26,880 --> 00:53:31,160
Speaker 1: low of March on March nine thirty basis points. Today

883
00:53:31,160 --> 00:53:34,759
Speaker 1: as we talk, it's around sixty sixty six basis points. Now,

884
00:53:34,800 --> 00:53:37,720
Speaker 1: he's a very little numbers, but it hasn't gone anywhere

885
00:53:37,719 --> 00:53:41,959
Speaker 1: for two months, if you know, it's been trending sideways

886
00:53:42,000 --> 00:53:46,720
Speaker 1: in the face of all of this terrible economic news

887
00:53:46,760 --> 00:53:51,919
Speaker 1: and tremendous amount of Federal Reserve purchases of of traditional

888
00:53:52,080 --> 00:53:56,279
Speaker 1: QUEUEI type of treasury securities as well too. They have

889
00:53:56,360 --> 00:53:58,840
Speaker 1: purchased nearly and this is a hard number to understand,

890
00:53:59,160 --> 00:54:02,760
Speaker 1: they have purchased nearly two trillion dollars worth of bonds.

891
00:54:03,320 --> 00:54:06,000
Speaker 1: This is mortgages and treasuries and agencies. And I'm not

892
00:54:06,040 --> 00:54:08,200
Speaker 1: talking about corporates and e T s. That's a difference

893
00:54:08,239 --> 00:54:12,000
Speaker 1: program in two trillion dollars of those bonds in the

894
00:54:12,120 --> 00:54:15,960
Speaker 1: last seven weeks, and yet interest rates are not falling

895
00:54:16,040 --> 00:54:18,840
Speaker 1: and falling through the floor we have seen in corporate

896
00:54:18,880 --> 00:54:22,240
Speaker 1: bond funds, and we have seen from foreign central banks

897
00:54:22,360 --> 00:54:27,520
Speaker 1: massive liquidations of treasury securities. I think the message to

898
00:54:27,640 --> 00:54:30,680
Speaker 1: market might be telling us is the bullmarket and bonds

899
00:54:30,719 --> 00:54:34,040
Speaker 1: is over, and that we are now looking at not

900
00:54:34,120 --> 00:54:36,799
Speaker 1: only not looking at negative interest rates, which a lot

901
00:54:36,840 --> 00:54:39,319
Speaker 1: of people are wondering in the US we won't get that,

902
00:54:39,960 --> 00:54:42,839
Speaker 1: but we're looking at the fear of what comes on

903
00:54:42,880 --> 00:54:47,799
Speaker 1: the other side, and that fear is crushing supply and inflation,

904
00:54:48,239 --> 00:54:50,239
Speaker 1: which is why I think that's a bond market has

905
00:54:50,280 --> 00:54:52,879
Speaker 1: been struggling as much as it has for the last

906
00:54:52,920 --> 00:54:55,680
Speaker 1: few months, that that's the signal it's trying to send us.

907
00:54:55,719 --> 00:54:58,560
Speaker 1: In the wake of all that fed buying, it still

908
00:54:58,600 --> 00:55:03,120
Speaker 1: cannot rally any more, and that is very concerning. So

909
00:55:04,160 --> 00:55:06,120
Speaker 1: doesn't a lot of that have to do with the

910
00:55:06,160 --> 00:55:10,080
Speaker 1: fact that when you're at the zero bounds, when when

911
00:55:10,200 --> 00:55:14,319
Speaker 1: rates are this low at a certain point, I know

912
00:55:14,360 --> 00:55:16,880
Speaker 1: it's a cliche, but you're you're pushing on a string,

913
00:55:17,280 --> 00:55:21,120
Speaker 1: there's there's no impact, there's no stiffness. Um, there's a

914
00:55:21,120 --> 00:55:23,400
Speaker 1: technical term to that that I'm during a blank on

915
00:55:23,840 --> 00:55:29,200
Speaker 1: but you're not seeing resonance from the FED buying in prices.

916
00:55:29,960 --> 00:55:33,040
Speaker 1: Is that misstating it? Tell me what's wrong with that thesis?

917
00:55:33,600 --> 00:55:36,880
Speaker 1: The thesis is the thesis is right, but it's it's

918
00:55:36,920 --> 00:55:40,120
Speaker 1: it's it's a measure about the real economy. Is that

919
00:55:40,480 --> 00:55:43,080
Speaker 1: lower interest rate? And this gets to the negative interest

920
00:55:43,200 --> 00:55:48,719
Speaker 1: rate argument too, is that lower interest rates? Um, if

921
00:55:48,760 --> 00:55:53,560
Speaker 1: you're not going to buy a house at a two mortgage, Uh,

922
00:55:54,080 --> 00:55:57,359
Speaker 1: why does a one percent mortgage make it more attractive

923
00:55:57,640 --> 00:56:00,239
Speaker 1: for you to buy a house? And the answer it

924
00:56:00,320 --> 00:56:03,319
Speaker 1: doesn't because the reason you're not willing to buy a

925
00:56:03,360 --> 00:56:05,759
Speaker 1: house at a two percent mortgage doesn't have to do

926
00:56:05,840 --> 00:56:08,440
Speaker 1: with interest rates. It maybe has to do with either

927
00:56:08,480 --> 00:56:11,000
Speaker 1: you've lost your job, or your fear you've lost your job,

928
00:56:11,440 --> 00:56:14,520
Speaker 1: or you fear that your company is going to run

929
00:56:14,520 --> 00:56:18,160
Speaker 1: into trouble or something along those lines. That's why you

930
00:56:18,200 --> 00:56:20,840
Speaker 1: wouldn't do it. That's the pushing on the string argument,

931
00:56:21,160 --> 00:56:24,520
Speaker 1: which is which is the big pushback about negative rates. Well,

932
00:56:24,560 --> 00:56:26,719
Speaker 1: if if two percent interest rates won't get me to

933
00:56:26,719 --> 00:56:28,720
Speaker 1: buy a house, and one percent interest rates won't commuter

934
00:56:28,760 --> 00:56:30,960
Speaker 1: buy a house. Why would zero get me to buy

935
00:56:31,000 --> 00:56:34,359
Speaker 1: a house? Um? At this point, my problem is not

936
00:56:34,440 --> 00:56:36,880
Speaker 1: that I need another hundred dollars or a hundred fifty

937
00:56:36,840 --> 00:56:39,400
Speaker 1: dollars a month off the rent page or off the

938
00:56:39,440 --> 00:56:42,520
Speaker 1: mortgage payment to get me into that house. I need

939
00:56:43,120 --> 00:56:47,759
Speaker 1: concern about or I need, um um, to be less

940
00:56:47,800 --> 00:56:51,839
Speaker 1: concerned about the economy or my employment situation to buy

941
00:56:51,880 --> 00:56:54,800
Speaker 1: the house. So that's the pushing on a string argument.

942
00:56:54,800 --> 00:56:58,000
Speaker 1: And I think that that's ultimately what the bond market

943
00:56:58,160 --> 00:57:01,279
Speaker 1: has been saying is that the problem here is not

944
00:57:01,360 --> 00:57:04,840
Speaker 1: that rates are too high, um the you know, and

945
00:57:04,920 --> 00:57:08,800
Speaker 1: that that the fix isn't what nerion of cars collode.

946
00:57:08,800 --> 00:57:11,200
Speaker 1: And the former vice or former president of the Minneapolis

947
00:57:11,200 --> 00:57:13,600
Speaker 1: FET has been saying that we must go to negative

948
00:57:13,640 --> 00:57:16,560
Speaker 1: interest rates in the US like they have in Europe

949
00:57:16,560 --> 00:57:21,000
Speaker 1: and in Japan. The problem, I think is with a

950
00:57:21,080 --> 00:57:23,800
Speaker 1: fear of the state of the economy. That's what's holding

951
00:57:23,880 --> 00:57:27,240
Speaker 1: us back. And what the bond market says is, I

952
00:57:28,040 --> 00:57:30,480
Speaker 1: lower rates isn't going to help you anymore. It's no

953
00:57:30,640 --> 00:57:33,200
Speaker 1: point going lower, and at some point when we get

954
00:57:33,200 --> 00:57:38,680
Speaker 1: a rebound, all this support money could produce inflation, could

955
00:57:38,920 --> 00:57:42,000
Speaker 1: produce inflation. Now I want to emphasize that word could,

956
00:57:42,320 --> 00:57:46,680
Speaker 1: because we're only sixty five basis points in the tenure note. Uh.

957
00:57:46,720 --> 00:57:49,640
Speaker 1: But like I said, the fetes bought to trillion dollars

958
00:57:49,640 --> 00:57:52,840
Speaker 1: to trillion with the T and that is not pushing

959
00:57:52,880 --> 00:57:55,840
Speaker 1: interest rates down. That's a hard number for most bond

960
00:57:55,840 --> 00:57:59,640
Speaker 1: people to understand two trillion, and let alone non bond

961
00:57:59,640 --> 00:58:03,040
Speaker 1: people are understand that much. Mind cannot get the BOMO

962
00:58:03,160 --> 00:58:08,000
Speaker 1: rally to continue um at this point. And so I

963
00:58:08,040 --> 00:58:10,720
Speaker 1: think that what the market is fearing is that there's

964
00:58:10,760 --> 00:58:13,560
Speaker 1: going to be problems on the other side. So yeah,

965
00:58:14,440 --> 00:58:16,720
Speaker 1: that's how the pushing on the string thing fits into it.

966
00:58:17,040 --> 00:58:19,960
Speaker 1: And I think it's a it's a right argument. I

967
00:58:20,000 --> 00:58:22,600
Speaker 1: want to get away from the FED, but I can't

968
00:58:22,600 --> 00:58:25,840
Speaker 1: help it because there's still one or two things I

969
00:58:25,920 --> 00:58:31,920
Speaker 1: have to ask about. The arguments against the purchases and

970
00:58:32,080 --> 00:58:37,080
Speaker 1: in favor of inflation seem very similar to what we

971
00:58:37,160 --> 00:58:41,960
Speaker 1: heard made two the central bank in Japan. If you

972
00:58:42,080 --> 00:58:44,560
Speaker 1: do this, you will cause inflation. If you do this,

973
00:58:44,600 --> 00:58:49,480
Speaker 1: you will cause problems. So question one, can we avoid

974
00:58:50,120 --> 00:58:55,240
Speaker 1: inflation in a similar manner to Japan? And Question two.

975
00:58:55,360 --> 00:58:59,440
Speaker 1: Does that damn us to the same sort of problems

976
00:58:59,480 --> 00:59:02,200
Speaker 1: that Japan and has been suffering ever since its market

977
00:59:02,200 --> 00:59:07,000
Speaker 1: peaked in Yes to the first question, we can't avoid

978
00:59:07,040 --> 00:59:10,600
Speaker 1: the inflation, and is that the the support money just

979
00:59:10,760 --> 00:59:14,520
Speaker 1: winds up not getting You know, what you need to

980
00:59:14,600 --> 00:59:17,960
Speaker 1: have inflation is two things. You need to have too

981
00:59:18,040 --> 00:59:21,520
Speaker 1: much money. And then the other argument, I'm using the

982
00:59:21,960 --> 00:59:25,800
Speaker 1: classic monetary line, chasing too few goods. It needs to

983
00:59:26,000 --> 00:59:29,760
Speaker 1: chase something that's velocity, so you knew. You know, it's

984
00:59:29,800 --> 00:59:33,800
Speaker 1: one thing for me to send you a check, but

985
00:59:33,880 --> 00:59:36,400
Speaker 1: then I need you to spend it as well too.

986
00:59:36,520 --> 00:59:38,440
Speaker 1: As you know, if it just sits in your bank

987
00:59:38,480 --> 00:59:41,120
Speaker 1: account going good, I've got a little bit more money

988
00:59:41,200 --> 00:59:43,320
Speaker 1: just in case things go bad. I'm not going to

989
00:59:43,400 --> 00:59:45,520
Speaker 1: do anything but let it sit there. It's not going

990
00:59:45,560 --> 00:59:47,280
Speaker 1: to produce inflation. But if you go out and you

991
00:59:47,400 --> 00:59:52,720
Speaker 1: spend it, then that will helpfully get the inflation moving.

992
00:59:53,040 --> 00:59:55,800
Speaker 1: And that's always been the problem in Japan, the high

993
00:59:55,880 --> 01:00:00,240
Speaker 1: savings rate, the conservative attitude that most of the Upan

994
01:00:00,280 --> 01:00:04,240
Speaker 1: he's have about spending money because they've been afraid about

995
01:00:04,280 --> 01:00:07,680
Speaker 1: their economy. Can we damn ourselves in the other way

996
01:00:07,720 --> 01:00:11,439
Speaker 1: as well? Too? Yes. One of the things that we've

997
01:00:11,520 --> 01:00:16,120
Speaker 1: learned about negative interest rates, in very very low interest

998
01:00:16,200 --> 01:00:20,720
Speaker 1: rates is it's very damaging to the financial system. Because

999
01:00:20,800 --> 01:00:24,680
Speaker 1: I like to joke, um uh, if I was around,

1000
01:00:24,680 --> 01:00:28,160
Speaker 1: if you were around in the Middle Ages or in

1001
01:00:28,200 --> 01:00:33,240
Speaker 1: the Renaissance, and it's the fifteenth century of uh uh,

1002
01:00:33,280 --> 01:00:38,080
Speaker 1: and we're in Venice when we developed fractional banking. Um.

1003
01:00:38,120 --> 01:00:40,480
Speaker 1: It wasn't developed as an event, but it evolved over

1004
01:00:40,520 --> 01:00:43,160
Speaker 1: time during that period. And you said, look, here's what

1005
01:00:43,200 --> 01:00:45,479
Speaker 1: we do. We take in, We take in a unit

1006
01:00:45,480 --> 01:00:48,240
Speaker 1: of account like a dollar, and we put in eighty

1007
01:00:48,320 --> 01:00:50,960
Speaker 1: cents of it in the reserve account. We lend out

1008
01:00:51,000 --> 01:00:54,240
Speaker 1: the other twenty cents to make some money or make

1009
01:00:54,320 --> 01:00:56,800
Speaker 1: some return on that money. If you or I would

1010
01:00:56,800 --> 01:00:58,840
Speaker 1: have raised our hands in the fifteenth century said hey,

1011
01:00:58,880 --> 01:01:00,800
Speaker 1: this is a good theory of how bank you should work.

1012
01:01:01,040 --> 01:01:03,480
Speaker 1: But what happens when interest rates go negative and you

1013
01:01:03,600 --> 01:01:05,480
Speaker 1: lend out the money and then you have to also

1014
01:01:05,520 --> 01:01:08,479
Speaker 1: pay the the interest payment on it too, They would

1015
01:01:08,480 --> 01:01:10,560
Speaker 1: have asked us to leave the room. It doesn't work

1016
01:01:10,640 --> 01:01:13,920
Speaker 1: that way. But you would make the loan. What's that

1017
01:01:14,760 --> 01:01:17,680
Speaker 1: you wouldn't make the loan if you if that case right, well,

1018
01:01:17,680 --> 01:01:22,800
Speaker 1: welcome to you know, with with negative interest rates. So

1019
01:01:22,920 --> 01:01:27,600
Speaker 1: negative interest rates is very damaging to the financial system.

1020
01:01:27,640 --> 01:01:31,160
Speaker 1: It is crippled the financial system. I think in Europe

1021
01:01:31,320 --> 01:01:34,680
Speaker 1: it is crippled the financial system. In Japan, the Japanese

1022
01:01:34,680 --> 01:01:38,280
Speaker 1: stock Japanese Bank Stock index is at a forty year low,

1023
01:01:38,560 --> 01:01:40,360
Speaker 1: and the only reason it's at a forty year low

1024
01:01:40,400 --> 01:01:43,280
Speaker 1: is because they started the index forty years ago. All right,

1025
01:01:43,320 --> 01:01:46,000
Speaker 1: so let's jump to our favorite questions are speed round

1026
01:01:46,200 --> 01:01:48,960
Speaker 1: and what are you watching these days? What are you

1027
01:01:49,000 --> 01:01:53,320
Speaker 1: streaming on Netflix or Amazon Prime or podcasting? What are

1028
01:01:53,320 --> 01:01:57,560
Speaker 1: you what's keeping you entertained? Um? I am streaming a

1029
01:01:57,560 --> 01:01:59,600
Speaker 1: lot more than I have in the past because I'm

1030
01:01:59,600 --> 01:02:02,240
Speaker 1: a big sports fan and there are no sports to

1031
01:02:02,240 --> 01:02:06,800
Speaker 1: be a big fan of except the Last Dance on ESPN. Yes,

1032
01:02:06,960 --> 01:02:11,200
Speaker 1: that's been fantastic. UM. I tend to like political thrillers,

1033
01:02:11,760 --> 01:02:14,840
Speaker 1: and um there's one that I've been watching that's on Netflix,

1034
01:02:14,880 --> 01:02:18,080
Speaker 1: which is an Israeli show called Fauda, which is the

1035
01:02:18,080 --> 01:02:23,280
Speaker 1: Arab word for chaos. Uh. Interestingly, it's a political thriller

1036
01:02:23,360 --> 01:02:29,800
Speaker 1: about terrorism, Palestinian terrorism in Israel, and supposedly it is

1037
01:02:29,880 --> 01:02:32,960
Speaker 1: one of the most popular shows in the Arab world.

1038
01:02:33,520 --> 01:02:38,320
Speaker 1: So it's an Israeli show about Palestinians attacking Israel, and

1039
01:02:38,360 --> 01:02:42,640
Speaker 1: it was meant for Israeli's to watch, but yet the

1040
01:02:42,720 --> 01:02:45,400
Speaker 1: Arabs love it just as much as they do. It's

1041
01:02:45,560 --> 01:02:47,760
Speaker 1: dubbed show, so you know a lot of it is

1042
01:02:47,800 --> 01:02:51,760
Speaker 1: in Arabic with subtitles. But it's a really good show. Uh.

1043
01:02:51,800 --> 01:02:53,600
Speaker 1: That's been one that I've liked. I've also been a

1044
01:02:53,640 --> 01:02:56,800
Speaker 1: big fan of Better Call Saul and Homeland, um, and

1045
01:02:56,880 --> 01:02:59,400
Speaker 1: a lot of those shows. The Last Dance I've been

1046
01:02:59,720 --> 01:03:03,160
Speaker 1: j eating that up as well too. Amazing. By the way,

1047
01:03:03,200 --> 01:03:06,640
Speaker 1: Fouda is something you can't watch right before bedtime because

1048
01:03:06,680 --> 01:03:09,880
Speaker 1: it's so thrilling you just won't get to sleep for hours.

1049
01:03:09,920 --> 01:03:13,160
Speaker 1: It's that it's that exciting. Um. What about books? Are

1050
01:03:13,160 --> 01:03:16,320
Speaker 1: you reading anything, you're finding anything you're catching your fancy

1051
01:03:16,360 --> 01:03:19,960
Speaker 1: these days? Yeah, I've been trying to catch up a

1052
01:03:20,000 --> 01:03:24,160
Speaker 1: little bit more on some of my economic reading lately.

1053
01:03:24,480 --> 01:03:28,360
Speaker 1: Um as well, So I've been reading, um, you know

1054
01:03:28,480 --> 01:03:32,400
Speaker 1: The Economist Hour by Apple Bomb, which I've show could

1055
01:03:32,400 --> 01:03:37,280
Speaker 1: be a very good book. Uh as well, I've been reading, uh,

1056
01:03:37,360 --> 01:03:41,200
Speaker 1: the Jim Grant's book about Walter Baggett, uh, learning a

1057
01:03:41,200 --> 01:03:44,760
Speaker 1: lot about you know. UH. He was the founder of

1058
01:03:44,760 --> 01:03:48,360
Speaker 1: the Economist magazine in the nineteenth century and was a

1059
01:03:48,480 --> 01:03:51,800
Speaker 1: big thinker as far as what is the role of

1060
01:03:51,800 --> 01:03:53,560
Speaker 1: a central bank. He was the one who coined the

1061
01:03:53,680 --> 01:03:56,960
Speaker 1: term that they are the lender of last resort, uh

1062
01:03:56,960 --> 01:04:00,600
Speaker 1: and what that means as well to uh. And then

1063
01:04:00,640 --> 01:04:04,360
Speaker 1: my kids. I've got four kids, so I've you know,

1064
01:04:04,400 --> 01:04:07,080
Speaker 1: I've I'd like to say that because of my kids

1065
01:04:07,080 --> 01:04:09,520
Speaker 1: are all grown for but for the last twenty years,

1066
01:04:10,040 --> 01:04:12,360
Speaker 1: what they've done to me is they've reintroduced me to

1067
01:04:12,360 --> 01:04:14,560
Speaker 1: peanut butter and jelly sandwiches, and I'm still a fan

1068
01:04:14,600 --> 01:04:18,800
Speaker 1: of those and reading children's books. So I've recently, within

1069
01:04:18,840 --> 01:04:21,560
Speaker 1: the last year or so, I reread the Harry Potter series,

1070
01:04:21,800 --> 01:04:24,920
Speaker 1: which I think is just tremendous. Isle of the Blue

1071
01:04:24,960 --> 01:04:27,800
Speaker 1: Dolphins is another book that I've read. These are children's

1072
01:04:28,240 --> 01:04:33,600
Speaker 1: children's literature, which well done. Children's literature is just fantastic

1073
01:04:33,760 --> 01:04:36,640
Speaker 1: as well too. So you know, I eat my peanut

1074
01:04:36,680 --> 01:04:39,000
Speaker 1: butter and jelly sandwiches and I read these books and

1075
01:04:39,040 --> 01:04:41,080
Speaker 1: I think about that I'm doing a seventh grade homework

1076
01:04:41,080 --> 01:04:44,560
Speaker 1: assignment all over again. Hey, the hobbit was a children's book,

1077
01:04:44,600 --> 01:04:46,960
Speaker 1: and I know people who read that and the rest

1078
01:04:47,000 --> 01:04:49,840
Speaker 1: of The Lord of the Rings every year. Um. So

1079
01:04:49,960 --> 01:04:52,640
Speaker 1: our final question, what do you know about the world

1080
01:04:52,640 --> 01:04:55,640
Speaker 1: of investing today that you wish you knew back in

1081
01:04:56,640 --> 01:05:02,160
Speaker 1: when you first launched Bianco research that you need to

1082
01:05:02,320 --> 01:05:07,439
Speaker 1: question every assumption and be open to the idea that

1083
01:05:07,520 --> 01:05:10,520
Speaker 1: things that are not supposed to happen can happen. Negative

1084
01:05:10,560 --> 01:05:16,200
Speaker 1: interest rates, negative crude oil prices, the Federal reserved buying

1085
01:05:16,280 --> 01:05:20,760
Speaker 1: corporate bonds. There was time not too long ago, just

1086
01:05:20,840 --> 01:05:24,080
Speaker 1: to use those recent examples where if you were to

1087
01:05:24,160 --> 01:05:26,520
Speaker 1: say that these things were going to happen, people would

1088
01:05:26,520 --> 01:05:29,360
Speaker 1: have looked at you and said, you know, you're off

1089
01:05:29,360 --> 01:05:31,960
Speaker 1: your met because it's not the way that the world works.

1090
01:05:32,640 --> 01:05:35,360
Speaker 1: And you need to be open to these ideas. Now,

1091
01:05:35,400 --> 01:05:38,200
Speaker 1: that doesn't mean that you need to run around with

1092
01:05:38,240 --> 01:05:41,120
Speaker 1: a tinfoil hat on looking for all of these things

1093
01:05:41,160 --> 01:05:45,919
Speaker 1: to happen, but that you, as an investor or, as

1094
01:05:46,280 --> 01:05:49,760
Speaker 1: somebody who watches markets, to be open to the idea

1095
01:05:50,320 --> 01:05:54,080
Speaker 1: that things that you never thought were possible could wind

1096
01:05:54,160 --> 01:05:58,600
Speaker 1: up becoming possible, especially in a period of stress. Quite fascinating.

1097
01:05:58,720 --> 01:06:01,760
Speaker 1: We have been speaking with him. Bianco He is the

1098
01:06:01,880 --> 01:06:05,320
Speaker 1: founder and chief strategist at Bianco Research. If you enjoy

1099
01:06:05,400 --> 01:06:08,160
Speaker 1: this conversation, well just look up an incher down an

1100
01:06:08,160 --> 01:06:12,880
Speaker 1: inch on Apple iTunes or Google podcast, Spotify, wherever finding

1101
01:06:12,960 --> 01:06:15,240
Speaker 1: podcasts are sold, and you could see any of the

1102
01:06:15,320 --> 01:06:19,000
Speaker 1: previous three hundred plus conversations we've had over the past

1103
01:06:19,080 --> 01:06:22,920
Speaker 1: six years. We love your comments, feedback and suggestions right

1104
01:06:23,000 --> 01:06:26,479
Speaker 1: to us at m IB podcast at Bloomberg dot net.

1105
01:06:26,720 --> 01:06:29,439
Speaker 1: Give us a review on Apple iTunes. You can check

1106
01:06:29,480 --> 01:06:33,040
Speaker 1: out my weekly column on Bloomberg dot com slash Opinion,

1107
01:06:33,320 --> 01:06:35,959
Speaker 1: sign up for our daily reads at Rid Holtz dot com,

1108
01:06:36,160 --> 01:06:38,480
Speaker 1: or follow me on Twitter at rid Halts. I would

1109
01:06:38,520 --> 01:06:40,760
Speaker 1: be remiss if I did not thank the crack staff

1110
01:06:40,800 --> 01:06:44,240
Speaker 1: that helps put these conversations together each week. Charlie Bohmer

1111
01:06:44,360 --> 01:06:47,760
Speaker 1: is my audio engineer. Michael Batnick is my head of research.

1112
01:06:47,840 --> 01:06:51,720
Speaker 1: Michael Boyle is my producer, slash booker. A Tikoval Bron

1113
01:06:51,840 --> 01:06:56,440
Speaker 1: is our project manager. I'm Barry Ridhults. You've been listening

1114
01:06:56,480 --> 01:06:59,000
Speaker 1: to Masters in Business on Bloomberg Radio