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Speaker 1: Who you put your trust in matters. Investors have put

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Speaker 1: their trust in independent registered investment advisors to the tune

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Speaker 1: of four trillion dollars. Why learn more and find your

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Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keane. Always with Michael McKee. Daily we bring

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Speaker 1: you insight from the best in economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com,

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Speaker 1: and of course on the Bloomberg Michael Ponder. That's even

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Speaker 1: slicing and dicing inflation or return to that here in

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Speaker 1: a moment, or thrilled to bring you right now, not

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Speaker 1: on job's day. James Glassman of JP Morgan Jim Glassman

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Speaker 1: helping us out with Bill gross on every saying we

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Speaker 1: drag them in before Jackson all, Jim, I want to

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Speaker 1: go to a chart that I think you first showed me,

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Speaker 1: not the unemployed, the employed in America, going back to

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Speaker 1: seven and Leontief in the advent of modern macroeconomics. Up

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Speaker 1: we go, Slope, matters. That little green line is a

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Speaker 1: decade that we all remember wistfully when we were a

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Speaker 1: job creating machine and then something happened. I'm sorry. This

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Speaker 1: is the great unspoken at Jackson Hole, isn't it. Yeah?

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Speaker 1: And what the beauty of this chart is it tells

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Speaker 1: you give you a better sense of what the true

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Speaker 1: unemployment picture looks like because a lot of people dropped

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Speaker 1: out of the job market when they gave up looking. Now,

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Speaker 1: the problem is there is a demographic thing going on here. Also,

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Speaker 1: so many people get older, they are moving to retirement.

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Speaker 1: But the fact is there's still about two million twenty

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Speaker 1: and thirty year olds who are out of the market.

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Speaker 1: They're doing something else, parents are helping, and they are

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Speaker 1: slowly coming back. But it tells you there is that's

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Speaker 1: a hidden population of unemployed people. What is the level

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Speaker 1: of under employment in American society? You know that? And

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Speaker 1: that includes the people who are working part time involuntarily. Um,

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Speaker 1: it's it's it's hard to tell. But I I personally

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Speaker 1: think the true unemployment measure maybe like six and a

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Speaker 1: half percent, not the four points. Okay, there's the headline

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Speaker 1: item that we're back up above six and a half percent.

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Speaker 1: Jerry Yellen has a dual mandate. Is she speaks on Friday.

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Speaker 1: Everybody's focused on Michael Pond's world of interest rates, negative

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Speaker 1: rates and that are you expecting to hear her say

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Speaker 1: something about that six and a half percent Glassman statistics.

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Speaker 1: You know, they've been saying this all along. They've been

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Speaker 1: they've been telling you that they understand that the official

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Speaker 1: unemplumber right, doesn't capture the whole picture. The fact is,

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Speaker 1: though we are making progress, and um, that doesn't mean

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Speaker 1: you keep rights to zero forever. That's the problem. Uh.

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Speaker 1: It looks like the labor market is improving slowly, and

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Speaker 1: I think if the FED can slowly work its way

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Speaker 1: back to normal, we're going to have a very good

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Speaker 1: chance of extending this eight year expansion into something it's longer. Um, Jim,

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Speaker 1: you're saying the true jobless rates in the US about

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Speaker 1: six and a half percent. Yesterday we were talking about

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Speaker 1: robots and the fact that there's so many robots that

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Speaker 1: will actually take over our jobs. So what will be

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Speaker 1: the ideal or the best in class for unemployment when

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Speaker 1: we see the Fourth Revolution really coming into play. Well,

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Speaker 1: you know, those are all things I've been going on

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Speaker 1: for a couple of centuries, right, And the fact is

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Speaker 1: that that process doesn't happen overnight, and it does create

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Speaker 1: new job opportunities. Uh, it frees up a lot of

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Speaker 1: useless work that we do, and it does create other opportunities.

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Speaker 1: So that's a longer running issue, and it doesn't tell you.

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Speaker 1: It's hard to know what kind of unemployment comes out

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Speaker 1: of that if policy is put up in the right place.

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Speaker 1: I personally think the economy has a way of achieving

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Speaker 1: full employment absent crisis, and the FAT Reserve can help

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Speaker 1: make that happen. So personally, I think we all this

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Speaker 1: is why the FAT has a mandate of full employment

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Speaker 1: to per cent inflation. Um, if we can't get there

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Speaker 1: because of robots and AI, then well they'll they'll work

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Speaker 1: to make that happen. But it's full employment. Does it

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Speaker 1: automatically assume that wages have to go up? Or can

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Speaker 1: you have full employment and absolutely no wage growth? No?

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Speaker 1: I mean if you if you have full employment, you

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Speaker 1: would expect that workers are in better position to bargain

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Speaker 1: and you you would expect that wage trends would try

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Speaker 1: to match what's going on with productivity. So it doesn't

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Speaker 1: it doesn't guarantee what pace of what pace of wage

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Speaker 1: trends you get, But and that's part of the fed's job.

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Speaker 1: Is to try to figure out how you can get

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Speaker 1: the full employment and have inflation too low, and that's

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Speaker 1: why they talked about overheating someone. But I think there's

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Speaker 1: a pretty good chance in the US that we're working

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Speaker 1: our way back towards that too percent inflation that the

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Speaker 1: FED is looking for, and that means more normal wage

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Speaker 1: trends coming. And actually actually we're seeing that, right. We've

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Speaker 1: had two percent wage inflation are a little bit while

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Speaker 1: now it's starting to pick up a little bit, Yeah,

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Speaker 1: a little bit. But is a linkage actually broken because

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Speaker 1: of productivity and the other factors that you're talking about,

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Speaker 1: You know, I don't. I don't think so. We don't.

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Speaker 1: First of all, we don't really know what's going on

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Speaker 1: the productivity, but over time you would expect that real

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Speaker 1: wages should putty much match the growth and labor productivity.

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Speaker 1: That has really happened for a while, But I think

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Speaker 1: it's because there's a lot going on in the economy

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Speaker 1: that's disrupted things globalization, technology, But I think you over

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Speaker 1: time you would expect that to happen. It's bringing Michael

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Speaker 1: pon Barclay's Capital. Michael, you were mentioning after the show

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Speaker 1: here September or never. This idea of it's a FED

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Speaker 1: that better get it in here now, can they do

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Speaker 1: that with Jim Glassman's scenario of a of a grinding

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Speaker 1: better American labor economy. Well, Jim mentioned that you know,

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Speaker 1: if if they don't go in September, then then maybe

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Speaker 1: you have to to actually overheat the economy to get

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Speaker 1: inflation up. And that's exactly the theory behind our September

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Speaker 1: or never. Either they go in September because the job

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Speaker 1: markets fine and inflation will go up eventually, or they say,

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Speaker 1: you know what, we need to overheat this economy in

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Speaker 1: order to get inflation up because of globalization, because of technology. Okay,

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Speaker 1: but absolutely critical if they go in September, does it

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Speaker 1: knock x thousand off non firm payils. I don't see

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Speaker 1: the linkage now there No, it's it's very loose. But

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Speaker 1: I think, I think, I think to remember, we wouldn't

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Speaker 1: be talking about the Fed that there there there be

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Speaker 1: no reason for the Fed raised rates based on what's

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Speaker 1: going on the economy. The problem is the rates are

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Speaker 1: extremely low, and what we worry about is having rates

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Speaker 1: near zero creating financial imbalances that we're going to find

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Speaker 1: out about later. That's what you want to avoid, because

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Speaker 1: that's been that's been the kind of thing that it

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Speaker 1: has thrown us off course in the last several cycles. Right.

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Speaker 1: But actually, Jim, the problem is that if you wait

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Speaker 1: too long that you may have to then rise very quickly.

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Speaker 1: That's problem, and so what's right? But so what's more

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Speaker 1: damaging to wait a little bit too long, um and

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Speaker 1: actually risk them having to go to too steep and

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Speaker 1: raising interest rates, or actually taking your sweet time and

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Speaker 1: or not taking a sweet time and then having to

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Speaker 1: reverse course. That's been the FEDS choices, right, and I

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Speaker 1: think they opted for start early and go slowly, except

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Speaker 1: a few things got in the way here. But I

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Speaker 1: really think it's more disruptive if you wait until it's

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Speaker 1: obvious and then you go very rapidly. I mean, we

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Speaker 1: saw we gotta taste of this actually back in when

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Speaker 1: the fat moved very quickly. The Mexican crisis was born

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Speaker 1: out of that, and so I think the problem with

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Speaker 1: moving very quickly when the market is very a liquid

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Speaker 1: is can be challenging. And I think for the FED

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Speaker 1: right now, starting to normalize policy is a perfect timing

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Speaker 1: because everybody else is still in the in an easy moment.

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Speaker 1: Let me bring this up right now, get over to

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Speaker 1: the chart, Anthony, I'm doing this in real time. Folks

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Speaker 1: are ripping up the script big time. Here here's And

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Speaker 1: did I hear you just say, Jim Glassman, that the

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Speaker 1: Mexican crisis came out of that lift in rates ninety

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Speaker 1: four on. I think there's a good chance of that,

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Speaker 1: because if you remember when the FETE started to raise

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Speaker 1: very gradually, what happened bon yeelds around the world rose

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Speaker 1: about three d basis points. It was very disruptive. Francy, Yeah,

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Speaker 1: I want to go back to michaellect because there's something

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Speaker 1: that Jim said which I've been reading about but actually

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Speaker 1: really struck me when you said it's dangerous and in

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Speaker 1: liquid markets, Michael, do you agree we sometimes underestimate or

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Speaker 1: we look deeply at the factors and play within the

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Speaker 1: markets that the FED has to deal with. Well, one

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Speaker 1: of the things that clearly came out of the minutes

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Speaker 1: from the last fm C meeting was that they think

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Speaker 1: they actually have time if inflation picks up, and that's

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Speaker 1: sort of a part of the rethink of the monetary

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Speaker 1: policy framework that will happen this weekend that Jackson hole

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Speaker 1: of you know, where's the Phillips curve? Where's the kink

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Speaker 1: in the Phillips curve? And how flat is it? So

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Speaker 1: do they need to really overheat the economy in order

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Speaker 1: to hit their inflation objective? We go to Jim Blastman,

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Speaker 1: who's with a W Phillips LS when he figured this

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Speaker 1: and I'm kidding knows a few years before you would mean,

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Speaker 1: but the Phillips curve was a mechanical machine at the

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Speaker 1: London School of Economics that try to game this. Is

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Speaker 1: it dated? Well? Economist differ on this right if you

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Speaker 1: Jenny Yellin's view of this is the Phillips curves pretty

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Speaker 1: plat so you don't get much banging out of unemployment.

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Speaker 1: It's more inflation expectations than anchored. Bob Gordon, though, thinks

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Speaker 1: that he doesn't buy that. He thinks that the unployment

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Speaker 1: gap is much more saying nip. In other words, you

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Speaker 1: find eppoyment is about a percentage above you get some disinflations.

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Speaker 1: Brilliant conversation of a dynamic finance guy and an old

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Speaker 1: line economist. How closely Michael ponder your world's linked right now?

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Speaker 1: Or are they so discreet because of our great bomb distortion.

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Speaker 1: I think they're they're pretty closely linked. And to me,

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Speaker 1: the key at all is is inflation expectations. So you

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Speaker 1: mentioned that inflation expectations really need to to be anchored

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Speaker 1: in order for policy to work. Here, we think they're

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Speaker 1: starting to to move lower. Joining Michael mckahe and me

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Speaker 1: right now, Michael Pond, who has been with us. We've

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Speaker 1: been talking about expectations of inflation. Michael Pond, how far

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Speaker 1: out do our expectations go? I see two year, one year,

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Speaker 1: five year, is there even ten year inflation expectations? Well,

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Speaker 1: the Treasury issues thirty year tips, so we can actually

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Speaker 1: measure those against thirty year nominals and get inflation expectations

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Speaker 1: or at least inflation compensation within nominal bonds out to

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Speaker 1: the out to the thirty year point um, and we

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Speaker 1: can break those up into individual years. This is brilliant,

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Speaker 1: very critically, when we talk about the public expectations, what

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Speaker 1: you're really talking about is the compensation within any yield

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Speaker 1: you get right, So it's not just pure inflation expectations,

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Speaker 1: it's also inflation risk premium. So you might think that

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Speaker 1: inflation is going to come in at two percent, But

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Speaker 1: your conviction around that will drive how much you're willing

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Speaker 1: to pay for a nominal bond versus locking in a

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Speaker 1: guaranteed real rate. So you might have a baseline view

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Speaker 1: of two percent, but you might be worried that you

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Speaker 1: might get four percent six percent inflation and be willing

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Speaker 1: to pay a little bit extra for the certainty of

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Speaker 1: a real rate in tips because of that. Right now,

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Speaker 1: the markets the other way, where investors may have may

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Speaker 1: may still we think it's declining, but may still have

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Speaker 1: a view that the Fed is going to be right,

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Speaker 1: but basically saying, look if they're wrong, they're gonna be wrong,

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Speaker 1: that inflation comes in too low, and sing in my

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Speaker 1: colleague Michael McKee in Emmigrant Montana. How much conviction can

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Speaker 1: you have over thirty years? Michael, Thirty years ago inflation

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Speaker 1: was running at four to fourteen percent of the United States,

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Speaker 1: and look how much that has changed. I get why

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Speaker 1: you would buy a nominal bond for duration purposes, but

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Speaker 1: why would you buy a TIPS thirty year because right

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Speaker 1: now the market is priced for inflation to come in

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Speaker 1: at one and a half percent basically over the next year.

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Speaker 1: The year after that the five years after that and

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Speaker 1: the thirty years after that, and so you might think, well,

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Speaker 1: eventually inflation might be low. Now we might not be

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Speaker 1: at full employment yet. But events truly, Uh, the Fed

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Speaker 1: gets it right, and inflation moves higher. So you want

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Speaker 1: to capture that very cheap inflation insurance that the market

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Speaker 1: is offering you. I mean, I mean, you look at

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Speaker 1: the the cheap insurance. It's out there. I guess things

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Speaker 1: are so messed up. I'm gonna ask you a question

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Speaker 1: from another time in place, Michael, when we are less gray,

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Speaker 1: Where is the belly of the curve right now? Is

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Speaker 1: it still five to seven? Or things so messed up

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Speaker 1: that there's either a no belly or it's in a

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Speaker 1: new location. When I refer to the belly, I usually

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Speaker 1: refer to just put it from a pure maturity perspective,

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Speaker 1: around the seven year points of the five ties in

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Speaker 1: the Great Distortion. But importantly, the belly of the curve

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Speaker 1: to some extent represents some curvature, right and so um,

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Speaker 1: given that the curve is has flattened, Uh, you know

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Speaker 1: that that's that's less pronounced the belly of your world.

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Speaker 1: The curvature is less pronounced when the curve is is flatter.

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Speaker 1: It's also a risk premium idea, and we think risk

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Speaker 1: premium here, particularly inflation risk premium, is quite low. Michael Well,

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Speaker 1: I was gonna say the term premium is in near

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Speaker 1: record lows. That has to scare you, doesn't it that

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Speaker 1: maybe we go too far and this there's too many

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Speaker 1: people in one trade and nobody taking the other side. Well,

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Speaker 1: the Fed is dismissed the low level of break evens

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Speaker 1: in part because they think they have declined because decline

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Speaker 1: in inflation risk premium. We don't dispute that, but we

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Speaker 1: think the Feds should be worried about low inflation risk

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Speaker 1: premium because again it says that is the market is

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Speaker 1: saying if the Fed is wrong, it's gonna be wrong

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Speaker 1: to the downside pretty pretty significantly for a long period

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Speaker 1: of time. We think the Fed should be more worried

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Speaker 1: about that and not complacent with inflation risk premium coming down. Well,

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Speaker 1: that would suggest you think the Fed should raise rates then, right, Well,

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Speaker 1: I'm not saying that. We we do expect them. Our

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Speaker 1: baseline is for to go in September, but we think

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Speaker 1: they outlook is essentially September or never. Either they go

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Speaker 1: in September because the they're they're focused on the employment

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Speaker 1: side of it, their their mandate, or they start to

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Speaker 1: focus on the inflation side, and that leads to them

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Speaker 1: to be on whole for a longer period of time,

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Speaker 1: then to work back into more the economics of Michael plan,

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Speaker 1: which inflation rate matters now. Michael McKee and I have

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Speaker 1: done a lot of work on service sector medical O

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Speaker 1: E R, owners equivalent rent, other measures Cleveland CPI which

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Speaker 1: are elevated to some extent, and then these other measures

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Speaker 1: which our audience just feels as nuts say no, no, no,

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Speaker 1: which isn't you can stop right there when it comes

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Speaker 1: to the FED because none of those matters. What matters

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Speaker 1: to them is their view of the underlying trend and inflation,

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Speaker 1: not where it is right now. So that would be

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Speaker 1: you know what's driving CPI lower, Well, it's medical this month.

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Speaker 1: They don't care about that. They care about what's going

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Speaker 1: to be driving it over the next three or four years.

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Speaker 1: And if it's just medical, well then they're fine with it.

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Speaker 1: If it's just oh we are, they can ignore it.

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Speaker 1: Uh So they think about the Their inflation forecasting model

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Speaker 1: is really a labor uh driven model, slack driven model.

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Speaker 1: So I've always said that really they only have in

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Speaker 1: general most cases, they have one mandate, and it's on

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Speaker 1: the labor market. And if that's because even if they

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Speaker 1: just had an inflation mandate, their view of inflation would

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Speaker 1: be driven by the labor market. Do you think their

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Speaker 1: models are wrong? Well, they're coming to the conclusion that

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Speaker 1: perhaps the Phillips curve looks a little bit different than

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Speaker 1: it did ten years ago. Perhaps it's it's quite a

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Speaker 1: bit flatter, Perhaps nehru Is is quite a bit lower

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Speaker 1: um and so the same models that they were using

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Speaker 1: ten years ago, the coefficients may have changed significantly and

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Speaker 1: they need to rethink policy as a result. I mean

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Speaker 1: that speaks to the not dissenters, but people curious about theory.

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Speaker 1: In terms of Bullet of St. Louis and Williams of

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Speaker 1: San Francisco as well. Michael Pond with us from Barclay's Capital. Michael,

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Speaker 1: you're in the bond world. You're capturing a coupon nominal unreal.

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Speaker 1: It's next to nothing, and everybody every weekend rights go

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Speaker 1: to cash. The gloom out there is unbelievable. All sorts

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Speaker 1: of professional investors saying this is terrible. The world's coming

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Speaker 1: to an end. Go to cash, not as an equity guy,

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Speaker 1: but as a bond guy. How do you respond to

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Speaker 1: go to cash? Well, I think I think the investment world,

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Speaker 1: the FED is also trying to fend off the bears, UH,

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Speaker 1: if you will, just as Michael McKee is out there,

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Speaker 1: um and and we think that you know, there there

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Speaker 1: are pockets of investment opportunities out there. We think, for example,

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Speaker 1: the front end of the break even curve is quite

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Speaker 1: cheap relative to expected in inflation. But you really have

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Speaker 1: to pick your spots. There aren't clear trends in the

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Speaker 1: market anymore, so you have to play the ranges, um

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Speaker 1: and and look for opportunities on a short term basis

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Speaker 1: because those trends just aren't in place. Well, what would

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Speaker 1: you say as an opportunity right now? Um? You know?

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Speaker 1: And how long a time frame do you view an opportunity?

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Speaker 1: Is this short term get in and get out? Well again,

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Speaker 1: it's we don't make um uh specific recommendations UH in

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Speaker 1: a in a public form like this because of regulation.

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Speaker 1: But we again, we do think that UH inflation in

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Speaker 1: general is price quite low here UH in CPI inflation

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Speaker 1: on a core CPI basis is at two point two percent.

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Speaker 1: The market is priced for inflation to come in at

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Speaker 1: one and a half percent basically forever. As we talked

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Speaker 1: about earlier in the show. UM, so that is both

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Speaker 1: a short term and a long term opportunity from an

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Speaker 1: asset class perspective, What about the duration of your opportunity?

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Speaker 1: Would you be buying thirty years at this point? Are

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Speaker 1: they good enough value? Maybe? Do allocate a small portion

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Speaker 1: to something that long and maturity or do you want

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Speaker 1: to look at the shorter end and just be nimble

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Speaker 1: and react to what the Fed is doing. Well? When

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Speaker 1: you say thirty year, I think it's important to I

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Speaker 1: assume you mean thirty or nominal. I think it's important

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Speaker 1: to think about the makeup of that between UH it's

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Speaker 1: real and inflation UH component term premium is is quite

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Speaker 1: low here, and over time as volatility comes back in

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Speaker 1: the market, UM that that's likely to rise. Inflation is

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Speaker 1: priced quite low, so that's likely to rise. But really

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Speaker 1: yields are quite low here by historical standards, but importantly

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Speaker 1: could go lower still if the Fed comes out of

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Speaker 1: Jackson Hole rethinking monetary policy that they actually need to

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Speaker 1: be easier UH than they have been given a low

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Speaker 1: productivity world. How did to our to our listeners who

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Speaker 1: are desperate for yield? This is not a funny issue.

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Speaker 1: You know, they're looking at dividend growth. I get that,

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Speaker 1: But if I look at B double A ten years spreads,

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Speaker 1: they're they're almost Okay. Do you wake up at Barclay's

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Speaker 1: every day and say, full faith and credit is so

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Speaker 1: distorted your world, Michael Pond, that you have to shift

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Speaker 1: to a corporate world for yield. Well, that's exactly how

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Speaker 1: cue he is supposed to work. So monetary policy essentially

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Speaker 1: wasn't being It wasn't all that effective to through the

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Speaker 1: normal lending channel, and so the Fed in large part

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Speaker 1: embarked on quantity to be easing buying of treasuries, pushing

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Speaker 1: longer yields down to make them unattractive and to encourage

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Speaker 1: investors to move out the risk spectrum so that it

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Speaker 1: was by design, it's not just random here. This has

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Speaker 1: been great, Michael Pond, thank you so much for coming in.

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Speaker 1: That was great. With Jim Glasso, who you put your

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Speaker 1: trust in matters. Investors have put their trust in independent

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00:20:07,760 --> 00:20:11,360
Speaker 1: registered investment advisors to the tune of four trillion dollars.

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Speaker 1: Why they see their role is to serve, not sell.

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Speaker 1: That's why Charles Schwab is committed to the success of

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00:20:19,160 --> 00:20:24,280
Speaker 1: over seven thousand independent financial advisors who passionately dedicate themselves

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00:20:24,680 --> 00:20:28,520
Speaker 1: to helping people achieve their financial goals. Learn more and

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Speaker 1: find your independent advisor dot com. Here's the difference, folks.

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Speaker 1: Michael McKee has been exceptionally brave this morning, getting up

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Speaker 1: at the crack of two am or one am or

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Speaker 1: whatever in Montana. Blanch Flowers said, no, I'm not getting

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Speaker 1: up that early. That's what David Bachelor said. And the

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Speaker 1: reason Mike is Blanche Flower has black bear in his

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Speaker 1: backyard outside scenic Dartmouth College. He no was the risk

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Speaker 1: of grizz He lives at firsthand in New Hampshire every

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Speaker 1: day every day, and he and and he has risked

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Speaker 1: his life to come join us here out at Hulberts

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Speaker 1: Yellowstone Lodge where we are at Camp Kotok West David

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Speaker 1: Kotoks gathering of FED officials and economists ahead of the

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Speaker 1: FED meeting down in Jackson Holet later this week. Obviously,

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Speaker 1: as you can tell from his accent, Mr blatch Flower

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Speaker 1: has a rooting interest in what is happening in the

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Speaker 1: United or maybe not so United Kingdom these days. We

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Speaker 1: had a very long discussion last night, uh, centered around

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Speaker 1: the idea that the Brits voted to leave the EU.

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Speaker 1: Disaster was predicted and the numbers haven't not uh shown

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Speaker 1: a disaster yet. But Danny's your argument is, uh, just

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Speaker 1: you wait. Well, these are very early days. But if

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Speaker 1: we look back to two thousand and eight as we

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Speaker 1: went into a set session, the data that actually looked

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Speaker 1: really bad around Eightpril two thousand and eight were business

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Speaker 1: and consumer confidence, and boys are there are a lot

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Speaker 1: of similarities. They are not looking good at all. Business

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Speaker 1: confidence down, consumer confidence down, and all the surveys asking

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Speaker 1: employers what are you planning to do to investment and

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Speaker 1: to employment? Well, I suppose this words a bit much,

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Speaker 1: but apocalyptic would be the right word. The Bank of

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Speaker 1: Being and Agents have done a survey, um the Institute

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Speaker 1: of Directors, a number of companies that have taken these

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Speaker 1: kinds of surveys, and they look really bad. It will

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Speaker 1: take a while to have some hard data, but we

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Speaker 1: have a bit. But the answer that I would have

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Speaker 1: is this is very early days. Two months in thankfully

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Speaker 1: the Bank of England are aware of this and have acted,

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Speaker 1: but I think there's a lot of bad news coming.

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Speaker 1: You are have an interest in this because you were

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Speaker 1: at the Minetary Policy Committee in two thousand and eight

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Speaker 1: when the when things went south, they went to very quickly.

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Speaker 1: Is this going to be a similar speed and depth

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Speaker 1: of I mean, do we get into recession and if so,

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Speaker 1: does it how bad does it get? Well? I'm not yeah,

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Speaker 1: I'm not. I'm not absolutely sure that when I'm not

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Speaker 1: certain that we went in very quickly. I mean the

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Speaker 1: UK went into recession in April eighth and we didn't

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Speaker 1: really get hard evidence until later in the year, perhaps

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Speaker 1: a few months, so I would give it probably six

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Speaker 1: months before you really start to see some hard data

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Speaker 1: sort of tanking. But the reality is we didn't know

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Speaker 1: that we got into recession properly until a year later,

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Speaker 1: until around June, so I would say in the next

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Speaker 1: three months we're going to see hard data come. We

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Speaker 1: started to see things like i'll beyond a bit of

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Speaker 1: the unemployment rate suddenly jumping and Professor, all of what

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Speaker 1: you say gets attention from the optimus on Britain, including

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Speaker 1: Governor King because of how good you've done on austerity

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Speaker 1: within that concurrency adjust in lesson or eliminate the recession risk.

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Speaker 1: I certainly don't think it can m I went. I

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Speaker 1: actually went to the Bank of England living in America,

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Speaker 1: paid in pounds, and when I went there it was

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Speaker 1: two oh five and when I left left it was

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Speaker 1: a buck fifty. So there was a big fall in

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Speaker 1: the exchange rate. Then that didn't really dissipate the loss.

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Speaker 1: I mean you'd argue perhaps that it would have been

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00:24:20,320 --> 00:24:23,440
Speaker 1: worse without it. Um. Certainly we've seen a fall in

431
00:24:23,480 --> 00:24:26,720
Speaker 1: the currency and that's had a positive impact already on

432
00:24:26,800 --> 00:24:29,960
Speaker 1: some of the retail sales figures. UM. But no, I

433
00:24:30,040 --> 00:24:32,960
Speaker 1: don't think the fall in the currency is enough. Um.

434
00:24:33,280 --> 00:24:36,320
Speaker 1: The Bank of England has acted acted cutting rates, doing

435
00:24:36,440 --> 00:24:38,720
Speaker 1: quie likely to do more and try and push it

436
00:24:38,800 --> 00:24:42,919
Speaker 1: down further. Um. That's the first arrow that they've fired,

437
00:24:43,320 --> 00:24:45,159
Speaker 1: but hopefully more will come. But we have a new

438
00:24:45,240 --> 00:24:48,000
Speaker 1: government and a new Chancellor who I've been sent probably

439
00:24:48,040 --> 00:24:50,960
Speaker 1: by now has actually found his office where whether we

440
00:24:51,200 --> 00:24:53,080
Speaker 1: will actually get a response from that we're going to

441
00:24:53,160 --> 00:24:55,919
Speaker 1: probably talk about. But no, I don't think it's as

442
00:24:56,040 --> 00:24:58,760
Speaker 1: deep probably as in two thousand and eight, but in

443
00:24:58,800 --> 00:25:01,919
Speaker 1: two thousand and eight, we didn't have a political crisis, So, UM,

444
00:25:02,000 --> 00:25:04,040
Speaker 1: I don't think this is these are very good days.

445
00:25:04,680 --> 00:25:07,840
Speaker 1: Well if if that's the case, then uh, can the

446
00:25:07,880 --> 00:25:11,680
Speaker 1: Bank of England stand in the ramparts and actually hold

447
00:25:11,760 --> 00:25:14,840
Speaker 1: back the tide at this point? Or um? You know

448
00:25:15,400 --> 00:25:18,760
Speaker 1: they basically did? Did Mark Connie throw the kitchen sink

449
00:25:18,840 --> 00:25:20,800
Speaker 1: at it last month because he's trying to create a

450
00:25:20,880 --> 00:25:24,280
Speaker 1: psychological effect because he knows policy doesn't have a strong effect.

451
00:25:24,480 --> 00:25:28,200
Speaker 1: Can't do it all. It's a starter, But he's basically saying,

452
00:25:28,240 --> 00:25:31,119
Speaker 1: I can't do it alone. New Chancellor, get your act together.

453
00:25:31,200 --> 00:25:33,000
Speaker 1: Act soon, because we're going to have to act again.

454
00:25:33,160 --> 00:25:35,320
Speaker 1: But we can't cut rates that much. We're half now

455
00:25:35,640 --> 00:25:39,359
Speaker 1: when we stopped it. We are here in uh. We

456
00:25:39,440 --> 00:25:42,560
Speaker 1: keep saying immigrant it is uh. Immigrant is about thirty

457
00:25:42,600 --> 00:25:44,119
Speaker 1: miles north of where we are. We're sort of on

458
00:25:44,200 --> 00:25:47,720
Speaker 1: a mountaintop in the middle of nowhere in Montana, looking

459
00:25:47,760 --> 00:25:51,400
Speaker 1: down on Yellowstone the Yellowstone River, and Michael mckeat along

460
00:25:51,440 --> 00:25:54,080
Speaker 1: with Tom Keene, who is uh fending off some bears

461
00:25:54,119 --> 00:25:56,760
Speaker 1: in the studio at the moment. I think Danny Blanchflower

462
00:25:56,880 --> 00:25:59,359
Speaker 1: is here with me, of course, Professor of economics at

463
00:25:59,440 --> 00:26:02,000
Speaker 1: Dartmouth College in Hanover, New Hampshire. You're used to being

464
00:26:02,040 --> 00:26:05,360
Speaker 1: in the mountains, so this is nothing new for the mountains.

465
00:26:05,400 --> 00:26:07,800
Speaker 1: These are bigger mountains that you've got back in New Hampshire,

466
00:26:08,040 --> 00:26:09,760
Speaker 1: and they even get more snow than we do, so

467
00:26:09,880 --> 00:26:12,359
Speaker 1: I think they get big bes. Tom was doing the

468
00:26:12,440 --> 00:26:15,560
Speaker 1: weather report from out here and basically you don't want

469
00:26:15,600 --> 00:26:18,159
Speaker 1: to be here in the dead of winter. Yeah, I

470
00:26:18,600 --> 00:26:22,000
Speaker 1: heard that. It's it is not it is not pleasant.

471
00:26:22,640 --> 00:26:26,680
Speaker 1: We're talking Danny's expertise of course on the United Kingdom

472
00:26:26,720 --> 00:26:29,200
Speaker 1: and labor policy because he was a member of the

473
00:26:29,480 --> 00:26:33,440
Speaker 1: Monetary Policy Committee for the Bank of England. We don't

474
00:26:33,600 --> 00:26:36,840
Speaker 1: have a lot of data yet, but the thing you

475
00:26:36,920 --> 00:26:41,280
Speaker 1: were pointing me to the consumer and business confidence surveys,

476
00:26:41,320 --> 00:26:44,440
Speaker 1: which are really the only July data that we have.

477
00:26:44,920 --> 00:26:47,240
Speaker 1: What's come out lately that's been better than expected was

478
00:26:47,359 --> 00:26:49,440
Speaker 1: for June and the and the vote was at the

479
00:26:49,560 --> 00:26:52,680
Speaker 1: end of June, and these numbers have all collapsed. But

480
00:26:52,920 --> 00:26:56,720
Speaker 1: in the United States there's always a caution that survey

481
00:26:56,880 --> 00:27:00,000
Speaker 1: data doesn't necessarily match up to what ends up happened

482
00:27:00,000 --> 00:27:03,360
Speaker 1: in with actual spending. Is it different for the UK?

483
00:27:04,240 --> 00:27:08,240
Speaker 1: Um I don't think it's actually different. Um. The problem

484
00:27:08,560 --> 00:27:10,320
Speaker 1: with much of the data you've talked about was that

485
00:27:10,440 --> 00:27:13,680
Speaker 1: prior to two thousand and eight, there wasn't much movement

486
00:27:13,800 --> 00:27:17,440
Speaker 1: in the data. Then actually what happened very quickly is

487
00:27:17,520 --> 00:27:20,600
Speaker 1: that these numbers went to the historically low levels and

488
00:27:21,080 --> 00:27:24,040
Speaker 1: they all went together, which I think is what people

489
00:27:24,119 --> 00:27:27,040
Speaker 1: have missed. I'm just sitting here looking at the consumer

490
00:27:27,359 --> 00:27:29,800
Speaker 1: confidence data. This is set of data published every month

491
00:27:29,840 --> 00:27:32,720
Speaker 1: by the European Union, and that's a very scary number

492
00:27:32,800 --> 00:27:36,680
Speaker 1: that just collapsed in July from minus one to minus nine.

493
00:27:37,280 --> 00:27:40,240
Speaker 1: And actually that was exactly the number that this survey

494
00:27:40,359 --> 00:27:43,320
Speaker 1: had in March two thousand and eight. And we know

495
00:27:43,480 --> 00:27:47,040
Speaker 1: that the UK entered recession in April two thousand and eight,

496
00:27:47,280 --> 00:27:50,600
Speaker 1: and these numbers collapsed through the floor. Um, And so

497
00:27:50,800 --> 00:27:52,560
Speaker 1: that that's that is a big worry. You're right to

498
00:27:52,600 --> 00:27:55,520
Speaker 1: show concerns. But if I look back, the one thing

499
00:27:55,680 --> 00:27:59,200
Speaker 1: you would have known with hindsight, but really early in

500
00:27:59,320 --> 00:28:04,040
Speaker 1: the recession, was that these numbers collapsed together. Looking back

501
00:28:04,119 --> 00:28:07,000
Speaker 1: now with hindsight, this is what you should have looked at.

502
00:28:07,240 --> 00:28:09,120
Speaker 1: What do you know where you were, Well, I assume

503
00:28:09,160 --> 00:28:11,159
Speaker 1: you're to the right of Mr Corbin, we can make

504
00:28:11,240 --> 00:28:14,760
Speaker 1: that assumption. Professor blanch Flower, what is your prescription for

505
00:28:14,880 --> 00:28:18,000
Speaker 1: Prime Minister may Well? I think at the moment what

506
00:28:18,160 --> 00:28:21,240
Speaker 1: we need us some some rapid action. I wrote a

507
00:28:21,320 --> 00:28:23,639
Speaker 1: couple of columns in the Guardian newspaper in the UK

508
00:28:23,720 --> 00:28:26,480
Speaker 1: in the last couple of weeks saying that the obvious

509
00:28:26,600 --> 00:28:29,200
Speaker 1: thing to do was would be to cut V eight,

510
00:28:29,400 --> 00:28:33,080
Speaker 1: which is the value added tax on on goods in

511
00:28:33,160 --> 00:28:37,200
Speaker 1: the UK, by five percent immediately. And the benefit of that,

512
00:28:37,440 --> 00:28:39,960
Speaker 1: unlike in the US, is that you can actually act

513
00:28:40,040 --> 00:28:42,760
Speaker 1: really quickly. So if the if the if the Keen

514
00:28:43,920 --> 00:28:47,560
Speaker 1: McKee Blanche Flower policymaking groups said we'll cut it, you

515
00:28:47,640 --> 00:28:50,440
Speaker 1: could actually in the UK cut it at midnight UM

516
00:28:50,520 --> 00:28:52,520
Speaker 1: and that would have an immediate effect. It would actually

517
00:28:52,640 --> 00:28:55,560
Speaker 1: have a very progressive effect because cutting the eighty, which

518
00:28:55,600 --> 00:28:58,960
Speaker 1: is a regressive tax cut it has it is progressive

519
00:28:59,520 --> 00:29:01,200
Speaker 1: and six of seven months down the road, if you

520
00:29:01,240 --> 00:29:03,400
Speaker 1: think things will fine and we're wrong, then you can

521
00:29:03,440 --> 00:29:06,280
Speaker 1: actually remove it. The problem is that we have a

522
00:29:06,320 --> 00:29:09,560
Speaker 1: new chancellor in place, and we know that the previous

523
00:29:09,600 --> 00:29:13,880
Speaker 1: government had absolutely no plans for what to do post brexit.

524
00:29:14,040 --> 00:29:17,080
Speaker 1: So if you simply start to do that you can

525
00:29:17,120 --> 00:29:19,960
Speaker 1: get yourself a little more time, a little more planning.

526
00:29:20,360 --> 00:29:23,920
Speaker 1: But the worry is that, um that the fiscal authorities

527
00:29:24,720 --> 00:29:26,680
Speaker 1: seemed to be asleep when Mike said that. It was

528
00:29:26,800 --> 00:29:29,560
Speaker 1: clear that Mark Carney said, I'm going to do this stuff,

529
00:29:29,720 --> 00:29:32,200
Speaker 1: but you guys better do something. And it's no good

530
00:29:32,240 --> 00:29:34,880
Speaker 1: doing something and saying, oh, we're gonna cut corporation tax rates.

531
00:29:34,920 --> 00:29:36,920
Speaker 1: Well that's fine, but that's not going to do anything

532
00:29:37,000 --> 00:29:39,680
Speaker 1: for two years. You need to do something and quickly,

533
00:29:40,160 --> 00:29:43,080
Speaker 1: because carneye can't do enough on his own. There's there's

534
00:29:43,080 --> 00:29:46,600
Speaker 1: only so many corporate bonds you can buy. Well, um,

535
00:29:47,000 --> 00:29:49,160
Speaker 1: I just checked m and where we are on top

536
00:29:49,160 --> 00:29:52,080
Speaker 1: of this mountain is about six thousand feet high, and

537
00:29:52,160 --> 00:29:54,040
Speaker 1: there are mountains that are much higher all around us.

538
00:29:54,080 --> 00:29:57,160
Speaker 1: So let's ask Danny for the six thousand foot view

539
00:29:57,720 --> 00:30:00,520
Speaker 1: here of of what happens u to the rest of

540
00:30:00,560 --> 00:30:02,480
Speaker 1: the world, to the EU. A lot of predictions that

541
00:30:03,040 --> 00:30:07,600
Speaker 1: Britain's exit could fracture the EU. Now everybody's looking at Italy.

542
00:30:08,560 --> 00:30:10,840
Speaker 1: Is this the beginning of a major change or does

543
00:30:10,880 --> 00:30:13,200
Speaker 1: Europe just keep muddling along as it always has. Well,

544
00:30:13,240 --> 00:30:16,000
Speaker 1: I think traditionally, when we've had referenda in Europe. What's

545
00:30:16,040 --> 00:30:19,680
Speaker 1: happened is the EU has muddled along. We've seen quite

546
00:30:19,760 --> 00:30:22,640
Speaker 1: relatively positive p m I s out of Europe this morning.

547
00:30:23,320 --> 00:30:26,000
Speaker 1: I think what we're going to see is that countries

548
00:30:26,040 --> 00:30:28,400
Speaker 1: are going to realize that this is quite a nasty shock.

549
00:30:28,800 --> 00:30:31,040
Speaker 1: You see the UK going into recession, and people are

550
00:30:31,080 --> 00:30:33,920
Speaker 1: going to be fearful of that. But I think also

551
00:30:34,080 --> 00:30:37,600
Speaker 1: that the complexity of of a Brexit turns out to

552
00:30:37,640 --> 00:30:41,200
Speaker 1: be really complicated and it's going to take a long time.

553
00:30:41,480 --> 00:30:45,160
Speaker 1: So my suspicion is that Brexit is going to take

554
00:30:45,160 --> 00:30:48,120
Speaker 1: a long time. It probably is not going to suggest

555
00:30:48,160 --> 00:30:50,080
Speaker 1: to everybody else it's a great place to go to

556
00:30:50,560 --> 00:30:53,880
Speaker 1: because the plans, which were non existent, suddenly look kind

557
00:30:53,920 --> 00:30:55,400
Speaker 1: of tough. What what are you going to do about

558
00:30:55,440 --> 00:30:58,360
Speaker 1: the law? It's going to take that tens of thousands

559
00:30:58,400 --> 00:31:00,680
Speaker 1: of pieces of law, you're gonna have to change, lots

560
00:31:00,720 --> 00:31:02,560
Speaker 1: of trade deals, you're going to have to adjust, and

561
00:31:02,720 --> 00:31:05,120
Speaker 1: if you keep if you go down into recessions Suddenly,

562
00:31:05,280 --> 00:31:07,760
Speaker 1: that's probably not a great signal to everybody else. And

563
00:31:07,920 --> 00:31:11,240
Speaker 1: why would why would the EU kind of make it

564
00:31:11,320 --> 00:31:13,920
Speaker 1: easy for everybody else? So and I think the answer

565
00:31:13,960 --> 00:31:15,760
Speaker 1: as well is that Brexit is going to look like

566
00:31:16,360 --> 00:31:20,120
Speaker 1: sort of non Brexit, and then within that will be

567
00:31:20,360 --> 00:31:22,920
Speaker 1: the search for real economic data, which we will bring

568
00:31:23,000 --> 00:31:26,959
Speaker 1: you and particularly our team from our London headquarters. Professor

569
00:31:27,000 --> 00:31:29,160
Speaker 1: Blanche Farre thank you so much. A former member of

570
00:31:29,240 --> 00:31:35,480
Speaker 1: the Bank of England. He is at Dartmouth College. Thanks

571
00:31:35,560 --> 00:31:39,640
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen

572
00:31:39,960 --> 00:31:45,320
Speaker 1: to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer.

573
00:31:45,920 --> 00:31:50,120
Speaker 1: I'm on Twitter at Tom Keane. Michael McKee is at Economy.

574
00:31:50,560 --> 00:31:54,280
Speaker 1: Before the podcast, you can always catch us worldwide. I'm

575
00:31:54,360 --> 00:32:03,920
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576
00:32:04,640 --> 00:32:08,440
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577
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