WEBVTT - Surveillance: Fed's Mester Supports March Hike 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Farrell and Lisa Brownwitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.560 Find Bloomberg Surveillance on Apple podcast, sun Cloud, Bloomberg dot 0:00:23.560 --> 0:00:30.800 com and of course on the Bloomberg terminal. Lauretta Mester 0:00:31.080 --> 0:00:34.519 is a mathematician. She has been consistent and she has 0:00:34.560 --> 0:00:39.800 been very very articulate about her views on the Fed. 0:00:39.960 --> 0:00:43.280 Of course, with Michael McKee and with Jonathan Farrell in 0:00:43.360 --> 0:00:46.240 the great precursor to what we'll hear from Jerome Polier 0:00:46.840 --> 0:00:49.600 in about an hour. We do this with the markets 0:00:49.680 --> 0:00:54.440 churning this morning. Our Jonathan Farrell were the president of 0:00:54.480 --> 0:00:57.639 the Cleveland Fed, New York City especial Welcome to ot 0:00:57.640 --> 0:01:01.120 CV and radio audience worldwide. Bloomberg's My McKey alongside us. 0:01:01.360 --> 0:01:03.920 Happy to say joining us both Cleveland Fed President the 0:01:04.000 --> 0:01:07.440 Randomester President Memester. Always fantastic to catch up with you. 0:01:07.440 --> 0:01:09.600 You know the setup right now, We've got Deutsche Bank 0:01:09.720 --> 0:01:12.840 City JP, Morgan Goldman all calling for rate hikes in March, 0:01:12.920 --> 0:01:15.520 some of your colleagues doing the same. What obstacles the 0:01:15.600 --> 0:01:19.280 left of any for making a move that suit. Well, 0:01:19.319 --> 0:01:22.240 you know, the economy is on a really good track. 0:01:22.800 --> 0:01:26.360 The inflation numbers are high. It looks now that inflation 0:01:26.480 --> 0:01:30.959 is more persistent. I'm going forward early in the pandemic. Earlier, 0:01:31.080 --> 0:01:33.840 you know, in the last year, a lot of those 0:01:34.040 --> 0:01:37.839 rate price increases were really on things that are really 0:01:37.920 --> 0:01:40.640 tied to the reopening of the economy and the supply chain. 0:01:40.920 --> 0:01:44.280 Now those price increases of broadened. So if the economy 0:01:44.319 --> 0:01:46.640 in March looks like it does today and the outlook 0:01:46.680 --> 0:01:49.440 is similar, and of course there's uncertainty around that, but 0:01:49.520 --> 0:01:51.800 if it does, and I would support moving the funds 0:01:51.880 --> 0:01:54.680 right up at that meeting and starting to move back 0:01:54.720 --> 0:01:58.440 from some of the extraordinary accommodation we needed earlier in 0:01:58.480 --> 0:02:00.560 the pandemic. And you know, I just want to point 0:02:00.560 --> 0:02:02.800 out that even when we make that first rate move, 0:02:02.880 --> 0:02:07.480 whenever it is that's not really policy tightening, accommodation is 0:02:07.520 --> 0:02:10.000 still going to be really high at that point. So 0:02:10.680 --> 0:02:13.560 you know, I think that the case is really strong 0:02:13.720 --> 0:02:17.480 to begin to wind back some of that accommodation. Well, 0:02:17.520 --> 0:02:19.800 that raises the question for our friends on the trading 0:02:19.840 --> 0:02:23.960 floor of how far how fast and where do you stop? 0:02:24.919 --> 0:02:27.080 Bill Dudley says you probably need to do four or 0:02:27.200 --> 0:02:30.160 five rate moves this year. You've long been an inflation hawk. 0:02:30.720 --> 0:02:33.080 How far do you think you need to go? Well, 0:02:33.120 --> 0:02:36.960 I can tell you in that December set submission, I 0:02:37.040 --> 0:02:40.480 had three pencil in for for this year and a 0:02:40.520 --> 0:02:43.760 few more over than you know next the trajectory. But 0:02:43.840 --> 0:02:46.160 I also want to point out that you know, we're 0:02:46.160 --> 0:02:48.640 gonna have to see how the economy does over time 0:02:48.680 --> 0:02:52.200 before we can say for sure how many rate increases 0:02:52.200 --> 0:02:54.600 are needed. You know that there's still a lot of 0:02:54.639 --> 0:02:58.400 uncertainty round the outlook. There's uncertainty about how the pandemic 0:02:58.480 --> 0:03:03.120 plays out. As we've seen each new bariat, the economy 0:03:03.200 --> 0:03:07.160 has really navigated it in terms of the economic outlook. 0:03:07.680 --> 0:03:09.919 But right now, you know, we have to say that 0:03:10.000 --> 0:03:14.840 we probably need to recalibrate our policy stance because inflation 0:03:14.960 --> 0:03:18.359 is well above where we need it to be. The 0:03:18.440 --> 0:03:21.600 employment markets, you know, labor markets are tight from the 0:03:21.639 --> 0:03:25.239 standpoint of a policy relevant framework. Do I think we'll 0:03:25.240 --> 0:03:28.680 see labor force participation move up somewhat after we get 0:03:28.720 --> 0:03:31.360 beyond the pandemic, of course, but I don't think we 0:03:31.400 --> 0:03:34.880 can ignore the shorter run or medium run tightness in 0:03:34.920 --> 0:03:36.880 that labor market. So I think we're in a good 0:03:36.920 --> 0:03:40.200 place to move policy, and you know, we'll have to 0:03:40.280 --> 0:03:43.440 see how that affects the economy going forward and the 0:03:43.480 --> 0:03:48.320 other factors affecting economic growth and employment going forward. Well, 0:03:48.360 --> 0:03:51.760 speaking of moving policy, the Fed's statement of principle says 0:03:51.880 --> 0:03:54.960 that the interest rate, the FED funds rate, should be 0:03:55.040 --> 0:03:58.080 the primary tool. But you also have a lot of 0:03:58.280 --> 0:04:02.560 bonds on the ballot. Cheat how does quantitative tightening to 0:04:02.640 --> 0:04:05.839 use the market term fit into your thinking? How much 0:04:05.840 --> 0:04:10.240 would that be worth uh in terms of additional tightening 0:04:10.360 --> 0:04:12.800 and when do you think that should be done, if 0:04:12.800 --> 0:04:16.240 at all? Yeah, So, I mean we have a little 0:04:16.240 --> 0:04:18.440 bit of a playbook from the last time, but I 0:04:18.480 --> 0:04:21.680 think this time is different in the sense that we 0:04:22.120 --> 0:04:24.599 basically have a much larger balance sheet than we did 0:04:24.600 --> 0:04:27.080 because we had to do those asset purchases at the 0:04:27.120 --> 0:04:30.919 start of the pandemic because of financial market conditions being 0:04:32.040 --> 0:04:34.440 the disruption of the financial markets, we really needed to 0:04:34.480 --> 0:04:37.840 make sure that the financial markets continue to function. Now 0:04:37.960 --> 0:04:45.080 that additional liquidity is serving as a accommodate of policy tool. Um, 0:04:45.240 --> 0:04:48.359 we also have a much stronger economy now, so you know, 0:04:48.480 --> 0:04:51.400 I think we'll be able to to allow the balance 0:04:51.400 --> 0:04:54.520 sheet to run down much faster than we did last 0:04:54.600 --> 0:04:58.600 time because of those two factors and adjusting you know, 0:04:59.560 --> 0:05:02.640 how far to go and how We're still considering that, 0:05:03.279 --> 0:05:05.320 but I do think that it's good to look at 0:05:05.640 --> 0:05:08.040 sort of the policy tool to interest rate as our 0:05:08.040 --> 0:05:10.719 main tool, but to take into account that we also 0:05:10.720 --> 0:05:14.360 are going to allow the balance sheet um to to 0:05:14.360 --> 0:05:16.760 to run down. I mean, we double the balance sheet 0:05:16.800 --> 0:05:20.159 over this pandemic period, and I think we can bring 0:05:20.200 --> 0:05:25.080 it down um also to support less accommodate of monetary 0:05:25.200 --> 0:05:27.920 policy stance. And we'll have to see. I mean, frankly, 0:05:27.960 --> 0:05:30.440 there's a lot of estimates out there what happened the 0:05:30.520 --> 0:05:34.240 last time we did quantitaryated eat you know, easing and 0:05:34.279 --> 0:05:37.880 then tightening. But the pandemic is a different environment as 0:05:37.880 --> 0:05:40.960 we've seen the whole time, right, I mean, you know, 0:05:41.040 --> 0:05:43.120 we don't still know kind of what those effects will 0:05:43.160 --> 0:05:45.040 be and we'll have to keep monitoring that. But that's 0:05:45.120 --> 0:05:48.400 kind of what we do always when we're doing monetary policy. 0:05:48.480 --> 0:05:51.000 We always sort of think about we take an action 0:05:51.040 --> 0:05:55.000 that we look at the data. We're very data dependent. Um, 0:05:55.120 --> 0:05:57.599 we're very you know, looking at the current economy and 0:05:57.640 --> 0:06:00.400 then the you know, what's on the horizon for the outlook, 0:06:00.440 --> 0:06:03.320 and then we take into account the risk around that outlook, 0:06:03.360 --> 0:06:05.760 and then we recalibrate our policy. And I that we're 0:06:05.760 --> 0:06:08.520 going to do that this time. I'm sure President message 0:06:08.520 --> 0:06:09.880 just to get some more clarity on that, I think 0:06:09.920 --> 0:06:12.279 this is important. Do you think balance sheet reduction is 0:06:12.279 --> 0:06:15.200 something that runs passively in the background alongside decisions you 0:06:15.240 --> 0:06:17.520 make separately on rate hikes or is it something that 0:06:17.560 --> 0:06:19.880 supports the right hike effort? Mike and I are trying 0:06:19.880 --> 0:06:22.440 to consider trying to work out whether the balance sheet 0:06:22.480 --> 0:06:25.680 reduction reduces the need for further rate hikes at some 0:06:25.760 --> 0:06:27.680 point as well. How do you think about that dynamic. 0:06:27.839 --> 0:06:29.960 Is it's something that runs off in the background passively 0:06:30.040 --> 0:06:34.240 or something that you think about together alongside interest rate hikes. Well, 0:06:34.320 --> 0:06:36.240 I I'm gonna answer your question the way You're not 0:06:36.240 --> 0:06:40.000 gonna like both, right. I Mean, my kind of way 0:06:40.040 --> 0:06:41.919 I think about it is I'd like to sort of 0:06:41.960 --> 0:06:45.599 set sort of a path for the balance sheet, you know, 0:06:45.720 --> 0:06:49.640 communicate that in advance from the markets that will you know, 0:06:49.760 --> 0:06:53.280 reduce accommodation and then we'll use our policy tool, the 0:06:53.279 --> 0:06:56.479 fit fund rate, as our active tool. But you know, 0:06:56.680 --> 0:06:59.360 sometimes we have to recalibrate, as you saw we did 0:06:59.400 --> 0:07:01.760 that in No we're in the December meeting. We started 0:07:01.800 --> 0:07:05.239 with you know, uh, tapering of the asset purchase program 0:07:05.240 --> 0:07:07.400 we announced in November, and then in December of the 0:07:07.440 --> 0:07:10.240 committee sped that up and and that may have to 0:07:10.280 --> 0:07:13.080 happen over this period as we calibrate, But in general, 0:07:13.560 --> 0:07:15.680 you know, my approach will be come up with what 0:07:15.720 --> 0:07:18.080 we think is the right plan for that balance sheet, 0:07:18.440 --> 0:07:22.080 how that happening, and then use the policy tool as 0:07:22.080 --> 0:07:25.360 our main tool of monetary policy. A couple of times 0:07:25.400 --> 0:07:28.560 in this conversation already have used that phrase reduced accommodation 0:07:29.320 --> 0:07:31.600 when we heard from Bill Dundley yesterday talked about the 0:07:31.600 --> 0:07:34.400 fantasy land of Delvish forecasts at the Federal Reserve. And 0:07:34.440 --> 0:07:37.880 I just want to do we need restrictive policy at 0:07:37.880 --> 0:07:39.720 the Federal Reserve? Do we need to get away from 0:07:39.720 --> 0:07:43.040 talking about reducing accommodation and talk about outright having a 0:07:43.080 --> 0:07:46.840 restrictive policy stance. So I don't think we need to 0:07:46.880 --> 0:07:49.520 do that at this point. I think that that's got 0:07:49.520 --> 0:07:52.800 to be on the table of you know, where's the endpoint. 0:07:52.960 --> 0:07:54.920 But you know, when we do our steps, it's three 0:07:55.000 --> 0:07:57.400 years away. And as we've seen, you know, the economy 0:07:57.400 --> 0:08:02.000 can change in ways um that are very unexpected. So again, 0:08:02.360 --> 0:08:05.320 at this point, I think it's really important that we 0:08:05.360 --> 0:08:11.200 take actions to bring inflation down given the environment. And 0:08:11.240 --> 0:08:13.000 you know, a lot of times people think, oh, you're 0:08:13.000 --> 0:08:17.840 either for maximum employment or for you know, lowering inflation, 0:08:17.880 --> 0:08:21.360 and I don't see them as opposing one to drink again, 0:08:21.400 --> 0:08:24.520 how can you reduce inflation without a restrictive policy stance 0:08:24.520 --> 0:08:27.280 with that tone of financial conditions, How does that work? Right? 0:08:27.320 --> 0:08:30.000 Because the markets are reacting, right, So we've already seen 0:08:30.040 --> 0:08:32.640 some tightening and financial conditions in the market, and so 0:08:33.000 --> 0:08:34.520 you know, I think what we have to do is 0:08:34.559 --> 0:08:37.640 we have to bring our polishy rate in line with 0:08:37.960 --> 0:08:41.360 the economy and where we wanted the inflation rates to go, 0:08:41.480 --> 0:08:44.120 and we're gonna have to take actions to do that. 0:08:44.480 --> 0:08:48.360 So right now, if you look at long term inflation expectations, 0:08:48.760 --> 0:08:50.920 you may take some comfort in the fact that they're 0:08:51.559 --> 0:08:55.040 basically maybe a little elevator butt around our cheaper same goal. 0:08:55.520 --> 0:08:57.600 I don't think that much comfort in it because that's 0:08:58.559 --> 0:09:01.800 based on, you know, the taking appropriate actions. So it's 0:09:01.840 --> 0:09:05.000 incumbetent on us to take those actions. And I think 0:09:05.040 --> 0:09:07.679 we're in a good place to do that now. Well, 0:09:07.679 --> 0:09:10.360 you've said that we need to see how the economy 0:09:10.400 --> 0:09:12.600 develops before you know what you're going to have to 0:09:12.640 --> 0:09:15.960 do in total. But the pessimistic view expressed by a 0:09:15.960 --> 0:09:18.280 lot of people, you know who they are, is that 0:09:18.320 --> 0:09:20.600 you've waited too long, you're behind the curve, You're gonna 0:09:20.640 --> 0:09:22.840 have to move too far, too fast, and as the 0:09:22.840 --> 0:09:26.599 phrase goes, you'll break something, maybe send the economy into recession. 0:09:26.920 --> 0:09:30.160 How do you reassure people that won't happen, given that 0:09:30.200 --> 0:09:34.120 the Fed's track record in this area isn't very good. Well, 0:09:34.120 --> 0:09:36.080 I don't know whether the track record is that bad. 0:09:36.120 --> 0:09:38.440 I mean, I think that the last cycle proved that 0:09:38.480 --> 0:09:41.280 we kind of navigated that pretty well and that we 0:09:41.320 --> 0:09:45.040 had a very very long expansion, right, a historically long expansion. 0:09:45.080 --> 0:09:49.040 So this is a pandemic environment, new things. We're gonna 0:09:49.080 --> 0:09:51.480 look at the data. We're gonna make sure we're focused 0:09:51.480 --> 0:09:55.720 on meaning both of our goals and maximum employment and inflation. 0:09:55.960 --> 0:09:58.680 It's it seems clear to me now, and inflation is 0:09:58.720 --> 0:10:01.960 too high, and labor markets are strong, and we need 0:10:02.000 --> 0:10:05.160 to take action and ask the economy moves. We will 0:10:05.200 --> 0:10:08.520 take appropriate action to make sure that we're doing what 0:10:08.600 --> 0:10:12.000 we can to keep the economy on a positive trajectory, 0:10:12.040 --> 0:10:16.880 and that means taking actions to bring inflation down without 0:10:17.559 --> 0:10:20.920 right harming the positive trajectory of the economy. And that's 0:10:20.920 --> 0:10:23.520 gonna be a challenge, There's no doubt about it. That 0:10:23.559 --> 0:10:25.920 will be a challenge for us. But that's what we do, 0:10:26.040 --> 0:10:28.600 that's what we're charged to do, and that's what we'll 0:10:28.640 --> 0:10:30.880 be doing. Let me shift gears a little bit and 0:10:30.880 --> 0:10:35.880 anticipated question from Elizabeth Warren, Massachusetts Senator to the FED 0:10:35.960 --> 0:10:40.079 Chairman J. Powell. Today, we've seen two FED bank presidents resigned. 0:10:40.240 --> 0:10:43.640 We're now seeing the vice chairman resigned early. Does the 0:10:43.720 --> 0:10:47.320 FED have an ethics problem? I don't not believe we 0:10:47.360 --> 0:10:50.240 have an ethics problem. I think what happened was there 0:10:50.280 --> 0:10:54.520 was illumination on things that gave an appearance issue. Right, 0:10:54.640 --> 0:10:57.520 they were technically correct in terms of the rules, but 0:10:57.720 --> 0:11:00.959 it was the appearance issue. Um that share and the 0:11:00.960 --> 0:11:05.319 FED are taking actions to strengthen the rules upon which 0:11:05.400 --> 0:11:08.760 we have to abide, and I think that is addressing 0:11:08.800 --> 0:11:12.080 the situation. I do not believe there's an ethics issue 0:11:12.120 --> 0:11:15.240 at the Federal Reserve Presidents. The final question from us 0:11:16.000 --> 0:11:18.720 every cycle for the past few cycles, the feed funds 0:11:18.800 --> 0:11:21.080 right has piked at a lower level. Do you think 0:11:21.080 --> 0:11:23.679 the dynamics are now in place with this economy? They 0:11:23.720 --> 0:11:25.360 give you reason to think that might not be the 0:11:25.400 --> 0:11:30.360 case this time. Well, I mean partly, that's where what 0:11:30.400 --> 0:11:32.440 we've just been talking about is how far do we 0:11:32.480 --> 0:11:35.959 need to go in order to re calorie policy to 0:11:36.040 --> 0:11:38.400 meet our two mandated goals. But I also want to 0:11:38.440 --> 0:11:41.800 point out that the factors that held down inflation over 0:11:41.840 --> 0:11:47.800 the last cycle, globalization, technological change, demographics, there's probably still 0:11:47.840 --> 0:11:51.079 in play in the economy. It's just that they've been 0:11:51.160 --> 0:11:57.040 swamped by the supply chain issues, the high accommodation that's 0:11:57.080 --> 0:12:00.679 in the markets right now, um labor market issues that 0:12:00.800 --> 0:12:02.840 keep people out of the labor market. So all of 0:12:02.840 --> 0:12:06.600 those things right are now front and center. Eventually will 0:12:06.640 --> 0:12:09.679 probably get back to a low interest rate environment. The 0:12:09.720 --> 0:12:12.640 red messed up the Cleveland Fed. President, Thank you very 0:12:12.679 --> 0:12:20.199 much for being with my McKay and my staff this morning. Well, 0:12:20.320 --> 0:12:24.240 we really need is someone who knows negative celsius and 0:12:24.480 --> 0:12:26.319 like you get the rollodex out and there's only one 0:12:26.400 --> 0:12:30.440 name in surveillance land, and that's David Harrow, Packers fan 0:12:30.880 --> 0:12:34.000 and David in two thousand eight Giants Packers you were 0:12:34.040 --> 0:12:37.679 there and it was a negative thirty one celsius windshill. 0:12:38.000 --> 0:12:41.560 How cold was that game? That was pretty cold? And 0:12:41.720 --> 0:12:43.640 you know you have to cover everything up and make 0:12:43.679 --> 0:12:46.680 sure that as you're drinking beer that you had in 0:12:46.720 --> 0:12:50.079 your face mask. You needed a little thing for you 0:12:50.600 --> 0:12:53.240 drink your beer because the beer, of course keeps you warm. 0:12:55.520 --> 0:12:58.800 Tw notes and you have to start the day with 0:12:58.840 --> 0:13:03.160 the broad worst because that is your fuel. So the 0:13:03.200 --> 0:13:09.720 beer is anti freeze and the fuel is the problems problem. 0:13:10.000 --> 0:13:13.720 Thank you for that analysis from balmb in Chicago this morning. 0:13:13.800 --> 0:13:18.080 David Harrow on international investment, the fuel is a weaker dollar. 0:13:18.440 --> 0:13:24.080 Are you going to get international equity performance singularly because 0:13:24.120 --> 0:13:26.160 you need a weak dollar. You need a weak dollar 0:13:26.240 --> 0:13:29.760 to make it work. Now it's it's certainly been a 0:13:29.920 --> 0:13:32.720 headwind by the way. Strong dollar has been a definite 0:13:32.760 --> 0:13:35.760 headwind over the better part of the decade really, and 0:13:35.800 --> 0:13:39.400 now that the dollar seems to have peaked, perhaps that 0:13:39.480 --> 0:13:42.800 we could get some reversal of this, but that's just 0:13:42.920 --> 0:13:46.760 one of the factors that has impacted international returns has 0:13:46.760 --> 0:13:49.600 been the strength of the dollar. It has been a headwind. 0:13:49.600 --> 0:13:52.080 I expect that will probably be a tail one. But 0:13:52.160 --> 0:13:55.400 I think more importantly areas like Europe coming out of 0:13:55.440 --> 0:13:59.280 the pandemic ending the negative real interest rate, the negative 0:13:59.320 --> 0:14:04.880 interest rate experiment will be even bigger drivers, especially given 0:14:04.920 --> 0:14:09.200 the valuation differentials between say, European equities and the rest 0:14:09.200 --> 0:14:12.240 of the world. So David, let's push that forward into 0:14:12.280 --> 0:14:14.680 your call on European equities, especially as we get a 0:14:14.679 --> 0:14:17.480 headline this morning that the World Health Organization is saying 0:14:17.480 --> 0:14:20.040 the O macron may in fact more than half of 0:14:20.080 --> 0:14:22.640 all Europeans within the next couple of weeks, based on 0:14:22.680 --> 0:14:25.960 how much the transmission rates are increasing. Is your view 0:14:26.240 --> 0:14:28.840 that Europe will actually emerge from this more quickly, will 0:14:28.880 --> 0:14:32.080 actually have a lower interest rate policy for longer, and 0:14:32.080 --> 0:14:35.080 will actually allow equities to outperform in a way that 0:14:35.120 --> 0:14:38.080 most people are not expecting. Yeah. I think what will 0:14:38.120 --> 0:14:42.760 happen is this uh amicron rolls through the world, and 0:14:42.840 --> 0:14:46.240 it kind of seemed to have triggered first in Europe 0:14:46.280 --> 0:14:49.560 compared to the US UH and as as you know, 0:14:49.600 --> 0:14:52.680 the Spanish Prime Minister said today, we've gotta stop stop 0:14:52.720 --> 0:14:55.440 looking at this as a pandemic and start just learning 0:14:55.440 --> 0:14:57.760 to deal with this with the flu. And eventually the 0:14:57.800 --> 0:15:00.240 rest of the world will get this message. I looks 0:15:00.240 --> 0:15:01.680 like China is going to be the last one to 0:15:01.720 --> 0:15:04.640 get this message. But what will happen is is they 0:15:04.680 --> 0:15:08.280 reopen the economy and you you finally are getting this 0:15:08.960 --> 0:15:13.680 is synchronized reopening. This will be a major boost to 0:15:13.720 --> 0:15:16.760 the European economy as it will be to the global economy, 0:15:17.120 --> 0:15:22.040 and European businesses really have a heavy export component to them, 0:15:22.440 --> 0:15:26.440 and so as the global economy reopens, I think you 0:15:26.480 --> 0:15:29.280 will expect to see the European economy is almost a 0:15:29.320 --> 0:15:34.200 warrant on global economic growth because the heavy export influence 0:15:34.520 --> 0:15:37.520 it has on their economy. And in the meantime, you 0:15:37.600 --> 0:15:41.280 have had these negative interview rates almost since post the 0:15:41.280 --> 0:15:44.120 financial crisis. I do believe this will be coming to 0:15:44.160 --> 0:15:47.120 an end as well as the global financial system is 0:15:47.120 --> 0:15:51.440 fully capitalized. Uh you know, the reserves that have been 0:15:51.480 --> 0:15:54.880 built up over the decade can now the money earned 0:15:54.920 --> 0:15:58.240 can now be used to invest, to grow to give 0:15:58.320 --> 0:16:01.560 the owners. Um So I do believe that it's going 0:16:01.600 --> 0:16:04.600 to be a better environment that the tail winds hurting 0:16:05.280 --> 0:16:09.560 investors in Europe and outside the United States, or the 0:16:09.600 --> 0:16:13.280 headwinds hurting them become So, David, is the way to 0:16:13.320 --> 0:16:16.120 get the most out of that call to go into 0:16:16.160 --> 0:16:20.320 European banks. I think that's one way. That is one way. 0:16:20.320 --> 0:16:23.120 I think this is has been for a long time 0:16:23.160 --> 0:16:26.040 and times in the kidney because we've been stubbornly attached 0:16:26.080 --> 0:16:29.720 to these why because the price is low, and even 0:16:29.800 --> 0:16:34.120 despite those macro headwinds, they've been able to grow earnings now, 0:16:34.160 --> 0:16:38.200 albeit at a slow rate, but you know, you have 0:16:38.320 --> 0:16:43.960 been able to see acceptable business performance despite the very 0:16:44.160 --> 0:16:50.280 poor macro conditions. Now these macro conditions are changing, and 0:16:50.400 --> 0:16:52.880 so I believe you will see even a faster build 0:16:52.960 --> 0:16:55.880 up of capital. Instead of that capital having to stay 0:16:55.880 --> 0:16:59.880 on the balance sheet because of reserve requirements, they're in 0:17:00.000 --> 0:17:01.960 to be able to use that capital. So you're gonna 0:17:01.960 --> 0:17:04.640 see an increase in the velocity of money. And this 0:17:04.760 --> 0:17:08.240 is exactly why the central banks can't send David, we 0:17:08.280 --> 0:17:11.040 gotta turn to European banking. It has been a horrific 0:17:11.080 --> 0:17:14.240 two thousand twenty one from management all sorts of stories. 0:17:14.280 --> 0:17:17.320 You've actually been knee deep in this and very visible 0:17:17.440 --> 0:17:21.960 and I'm sure at times invisible as well. Is European 0:17:22.119 --> 0:17:27.679 banking management becoming more Anglo American where they will really 0:17:27.800 --> 0:17:31.879 adapt to shareholder pressure. You know, I was just talking 0:17:31.880 --> 0:17:35.680 to your your very good reporter and covers this, Yeah, 0:17:35.800 --> 0:17:39.000 Jehan Heinrich Forster by the way, and he you know, 0:17:39.400 --> 0:17:42.840 I think it's improved greatly. It is if you look, 0:17:42.880 --> 0:17:46.920 I look across our whole needs UH in Italy and 0:17:47.000 --> 0:17:50.480 TESSAs al Polo and France b NP. I mean, two 0:17:50.520 --> 0:17:53.359 of the best banking CEOs, I would say in the world, 0:17:54.160 --> 0:17:58.880 and UH and and leading those organizations. Credit Suite, of course, 0:17:58.920 --> 0:18:03.159 which is struggled, really really struggle. Come on, David, David, 0:18:03.200 --> 0:18:05.960 I gotta cut you off. Let's get to the chase, 0:18:06.119 --> 0:18:08.600 David Harrow. Does Credit Sweeze have to be put out 0:18:08.640 --> 0:18:12.560 of its misery? You know what happen has to happen 0:18:12.560 --> 0:18:16.439 at Credit Sweets is they have to allow change to 0:18:16.600 --> 0:18:21.800 happen via the new chairman, um Antonio ortez O Sario. 0:18:22.359 --> 0:18:27.320 If he is very capable, he stabilized and repaired Lloyd's. 0:18:27.680 --> 0:18:32.360 He's the exact answer to their problems. Now. To be honest, 0:18:33.240 --> 0:18:34.840 I think this is their lot. This is the last 0:18:34.920 --> 0:18:39.199 chance you. He is the answer to their problems. You 0:18:39.280 --> 0:18:42.159 need organization, you need discipline, you need a culture of 0:18:42.280 --> 0:18:47.720 risk control. These are exactly what he brings to the table. David, 0:18:47.760 --> 0:18:50.200 and I think that if he's not allowed to do this, 0:18:50.280 --> 0:18:52.760 and if they pick on him over this quarantine stuff, 0:18:53.000 --> 0:18:55.960 then you then it should probably be broken up. So 0:18:56.080 --> 0:19:00.359 as an investor, how much time are you giving them? Well, 0:19:00.920 --> 0:19:03.840 you're being paid to weight in essence because the price 0:19:03.920 --> 0:19:06.639 of the business is fifty or sixty of book value. 0:19:06.920 --> 0:19:09.679 When I run properly, it should be a double or 0:19:09.680 --> 0:19:13.280 triple that. So we will be patient as long as 0:19:13.320 --> 0:19:17.280 we're seeing progress, and then if if it becomes unfixable, 0:19:17.320 --> 0:19:20.400 as Tom you know and suggested, Um you know, by 0:19:20.400 --> 0:19:23.240 the way, many parts of the business are operating just fine, 0:19:23.960 --> 0:19:27.800 and unfortunately those many parts of the business. Azzi Grubel 0:19:27.840 --> 0:19:30.920 said this. You know, it's really simple. Banks make money, 0:19:31.000 --> 0:19:33.280 but the object is to keep it after you make it, 0:19:33.880 --> 0:19:37.240 and in Credit Sweezes case, they didn't or have not 0:19:37.320 --> 0:19:39.600 been able to keep all of what they've made because 0:19:39.640 --> 0:19:43.520 of poor risk control and poor legal and compliance etcetera, etcetera. 0:19:43.840 --> 0:19:47.760 So if you can fix these things, all that money 0:19:47.840 --> 0:19:49.960 that has been made in the past, that has been 0:19:49.960 --> 0:19:55.320 fritted away two finds and two losses will become gains 0:19:55.440 --> 0:19:58.720 for the shareholders. And I think this is what's important 0:19:58.800 --> 0:20:02.240 is you know the engine has been producing income. It's 0:20:02.240 --> 0:20:06.159 been coming in the front door, unfortunately because of sour 0:20:06.960 --> 0:20:10.400 leadership and management. And I think you know it's been 0:20:10.400 --> 0:20:14.080 no secret. I think the past chairman of the business, 0:20:14.119 --> 0:20:17.400 who has been there over a decade, presided over all 0:20:17.480 --> 0:20:22.520 these legal incidents and all these marketing fractions. Now that 0:20:22.560 --> 0:20:25.480 you have proper top leadership at the top of the organization, 0:20:26.119 --> 0:20:30.840 I believe that this this income that is generated can 0:20:30.880 --> 0:20:34.560 be captured. It's David, you mentioned a word that unfixable. 0:20:34.800 --> 0:20:37.920 What does unfixable look like? How do you know it 0:20:37.960 --> 0:20:44.280 when you see it? When you continue to see losses 0:20:44.320 --> 0:20:50.240 and infractions and a lack of executional excellence and a 0:20:50.320 --> 0:20:54.080 lack of discipline. You need discipline, and especially in financial 0:20:54.119 --> 0:20:58.440 services where you have in many cases translent, translucent or 0:20:58.520 --> 0:21:02.200 opaque assets, and you need to be able to control 0:21:02.280 --> 0:21:05.439 and manage risk. You don't completely eliminate risk. You have 0:21:05.520 --> 0:21:09.200 to look at risk reward. You have to price risk 0:21:09.560 --> 0:21:13.920 properly and balance it properly in order for a financial 0:21:13.960 --> 0:21:19.040 institution to be successful. And unfortunately this is what credits. Yeah, David, 0:21:19.119 --> 0:21:21.800 we don't care what we want to know Aaron Rodgers. 0:21:21.880 --> 0:21:24.000 I mean, he's got a left tackle back. The gentleman 0:21:24.040 --> 0:21:27.520 from Colorado and Boulder, David bak tr tell me all 0:21:27.560 --> 0:21:30.200 the importance of the line for Aaron Rodgers and that 0:21:30.359 --> 0:21:33.760 left tackle well back, of course, it is critical. He's 0:21:33.800 --> 0:21:36.439 probably one of the best tackles in the league. And 0:21:36.480 --> 0:21:38.560 if you give more, if you get more time to 0:21:38.640 --> 0:21:42.560 Aaron Rodgers, you know, that's like given a sharpshooter. You know, 0:21:43.560 --> 0:21:47.480 you you he becomes even dead later. He becomes even 0:21:47.520 --> 0:21:52.199 dead later. Thank you, John, I misspelled Aaron Rodgers. I'm 0:21:52.240 --> 0:21:54.520 gonna go so much to the Packers time out chair. 0:21:55.119 --> 0:21:59.200 I'm never gonna be invited in Wisconsin again, David, thank you, 0:21:58.880 --> 0:22:01.520 thank you. How I associate it's given how cold some 0:22:01.560 --> 0:22:04.720 of those games out? Is that good enough chanting for you? 0:22:04.880 --> 0:22:08.240 Minus thirty one degrees? Win? Chill give me a bright 0:22:14.080 --> 0:22:15.960 right now, Brent shooting gets the started here. We've got 0:22:15.960 --> 0:22:18.800 a really eventful hour for you on radio and television 0:22:18.840 --> 0:22:22.200 with Northwestern Mutual. Where short term is five years, Brent, 0:22:22.320 --> 0:22:24.760 forget about short term is five years. Let's bring it 0:22:24.800 --> 0:22:28.080 in big time to a three year perspective. What is 0:22:28.119 --> 0:22:32.639 the three year perspective? Given the cacophony right now? I 0:22:32.640 --> 0:22:34.399 think in the narrow term, I actually think the market 0:22:34.440 --> 0:22:36.280 has legs to go higher. Now. I know we're going 0:22:36.280 --> 0:22:38.800 through this painful kind of rotation, which has always been 0:22:38.800 --> 0:22:40.680 a question of ours. Can you actually deflate some of 0:22:40.720 --> 0:22:43.320 the more excessive parts of the markets without causing that 0:22:43.359 --> 0:22:45.960 to leak into the broader market. And so far, despite 0:22:46.000 --> 0:22:48.920 all that commentary, you have seen value stocks hold up well. 0:22:49.320 --> 0:22:51.800 You've seen hopes, dreams, themes and memes, some of those 0:22:51.840 --> 0:22:54.119 things that didn't make sense that we're bit up on 0:22:54.359 --> 0:22:58.520 excessive monetary policy, dy've deflated more than fift I think 0:22:58.560 --> 0:23:00.680