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Speaker 1: This is Bloomberg surveillance. On average, seventy of the companies

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Speaker 1: will beat on their Wall Street guests. And that has

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Speaker 1: been the case now for going on twenty years. You

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Speaker 1: can still make a million bucks a year in investment banking.

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Speaker 1: You can't make five anymore. We're gonna see the combination

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Speaker 1: do you think happen over the next year or two.

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Speaker 1: One is wage growth will accelerating, the morog is. The

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Speaker 1: second thing is the job growth will Bloomberg surveillance. Your

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Speaker 1: link to the world of economics, finance and investment on

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Speaker 1: Bloomberg Radio. Good morning, Michael McKey along with Tom Keene.

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Speaker 1: It is seven am on Wall Street. It is noon

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Speaker 1: in London where the Bank of England has just released

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Speaker 1: its latest monetary policy decision. John Tarrell calls them the vos,

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Speaker 1: and that's the case again today no change in policy.

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Speaker 1: The base rate stays at half a percent. Q E

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Speaker 1: purchases three and seventy five billion pounds. The minute show

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Speaker 1: the vote nine to nothing. We will have analysis ahead.

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Speaker 1: But the immediate market reaction is a boost to the

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Speaker 1: foot See it was down most of the morning, now

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Speaker 1: up two points about a percent, but gaming altitude the

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Speaker 1: pound one fifty one is lower but pairing its losses.

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Speaker 1: It is one pm in Paris, now home of the

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Speaker 1: International Energy Agency. The agency out with a report this

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Speaker 1: morning suggesting the global oil supply glut will be gone

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Speaker 1: by the second half of the year, and that has

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Speaker 1: changed the direction of oil prices this morning, which has

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Speaker 1: changed the direction of global equities. West Texas is at

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Speaker 1: eight right now, a tenth of eight percent. Brent crude

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Speaker 1: up two tenths of a percent. A big day in

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Speaker 1: Asian markets, with Hang Seng finishing up nine tenths and

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Speaker 1: the Nika in Tokyo up three on the day. Those

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Speaker 1: games didn't carry over to Europe, but the oil report

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Speaker 1: has slowly changed at the stock six hundred now up

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Speaker 1: by about a point a tenth of a percent, the

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Speaker 1: DAK in Germany up twelve points, also eight tenth of

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Speaker 1: eight percent. Here in the US, futures have paired losses.

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Speaker 1: The SNP emunies are down just a point right now

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Speaker 1: at tenth down emunies are flat on the day, nazac

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Speaker 1: emenies off three points a tenth of eight percent. They

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Speaker 1: have all flirted with gains on the morning, so we

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Speaker 1: will see where we open after the index is closed

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Speaker 1: at their highs for the year yesterday. The bondom market

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Speaker 1: is lower on the day, yields higher tenure at one

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Speaker 1: point seven nine percent, the five year at one point

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Speaker 1: to four seventy seven basis points your two year note yield.

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Speaker 1: The dollar index is at ninety four five, which is parent.

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Speaker 1: It's up a little bit, but it has paired its

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Speaker 1: gains on the debt joining us. Now, I'm gonna let

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Speaker 1: you bring him in because this is perhaps the most

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Speaker 1: Tom Keen guest we have ever had on the show.

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Speaker 1: And you can explain that it's a lot of fun.

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Speaker 1: And we were talking about Myron Scholes an hour ago.

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Speaker 1: And you think, folks, at the foundation of how we

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Speaker 1: think within our mathematics and what we do on global

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Speaker 1: at Wall Street, and one of the names. It always

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Speaker 1: rises to the top of any discussion, in the beginning

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Speaker 1: of any discussion. As Emmanuel Derman at Columbia University, he

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Speaker 1: corrected me earlier, I said, forty years plus Columbia, you

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Speaker 1: had a small interluded a bank. As I recall, I

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Speaker 1: had a large interlude. I got a PhD at Columbia

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Speaker 1: and theoretical physics, and then I worked to the physics

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Speaker 1: for seven years. Then I worked to Goldman for eighteen years,

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Speaker 1: and then I went back to Columbia to run a

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Speaker 1: financial What was it like your first aid Goldman? Did

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Speaker 1: Lloyd Blank find go get your coffee here? And Gary Cohen? Well,

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Speaker 1: that was in six I don't I don't know if

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Speaker 1: Lloyd was there, but but I worked with Fisher Black.

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Speaker 1: It was actually incredibly exciting. I've gotten kind of bored

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Speaker 1: with physics, and I got a real shot in the

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Speaker 1: m when I came to Goldman, because people are It's

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Speaker 1: like being a theoretical physics of experimentalists surrounding exactly like

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Speaker 1: what you're doing, and they want to interact with you.

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Speaker 1: It was very exciting. What is the biggest mistake market

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Speaker 1: participants make the applied people when they try to take

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Speaker 1: your theoretical world and apply it to the real world,

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Speaker 1: You fucking get a little high salutin. They place to

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Speaker 1: be idolater as they think that if you've written down

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Speaker 1: an equation, that it describes the market and the markets

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Speaker 1: getting to behave that way forever, and that somebody's created

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Speaker 1: an equation which describes the market, which is a kind

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Speaker 1: of idolatry. And and I think that's the biggest to

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Speaker 1: take it away from quad then Sir John Templeton made

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Speaker 1: very clear that any trend that is successful, people learn

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Speaker 1: from it, and the trend becomes less valuable, the model

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Speaker 1: becomes less valuable over time. Is your world the same, Yes, precisely,

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Speaker 1: I think, And there isn't any you know, the planets

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Speaker 1: are always gonna obey Newton's laws and go around the

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Speaker 1: go around the some the way they do. But that's

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Speaker 1: not gonna happen to suck markets. Okay, Well, then the

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Speaker 1: question of Mike, I want you to jump in here

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Speaker 1: with Mark Karney in the Bank of England out what

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Speaker 1: are your thoughts on the to Newtonian mechanics that cherry yelling,

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Speaker 1: Mr Drug, Mr Kurney you're dealing with. You know, it's

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Speaker 1: not Newtonian mechanics. These guys talk about it as though

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Speaker 1: it's Newton. It's not even Kepler. There aren't any There

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Speaker 1: aren't any firm laws in finance, um um. They like

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Speaker 1: to talk about their student in the Newtonian world before

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Speaker 1: quantum mechanics, but they're they're back in the world of

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Speaker 1: the Greeks. But it is somewhat kepler esque because the

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Speaker 1: market seemed to rotate around the central banks these days. Yes,

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Speaker 1: and they've got incredible amount of control. With great control,

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Speaker 1: with great power should come great responsibility. How do you

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Speaker 1: quantify central bank decisions in a world that central banks

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Speaker 1: have never been in? You know, I think they're they're

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Speaker 1: flying by the seat of their parts, and they they

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Speaker 1: radiate a lot more confidence than I think they probably

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Speaker 1: have internally. Well, what when you look at it, can

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Speaker 1: you reduce that to mathematics given the fact that they

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Speaker 1: are flying by the seat in their pants. No, I

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Speaker 1: don't think there's any there's any methem. I mean, I

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Speaker 1: understand financial a lot. I think economics and finance has

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Speaker 1: some fairy good models. Economics is um the amount of

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Speaker 1: mathematics we were talking about on the show, The amount

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Speaker 1: of mathematics that people use is grossly overaggerated in terms

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Speaker 1: of its result in Francine asked you that a horrendous question,

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Speaker 1: an employe question earlier. But friends, friends, you can almost

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Speaker 1: let me. I'm gonna give you a router one here

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Speaker 1: in a moment when where surveillance This morning with Emmanuel

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Speaker 1: Derman brought you by Investco explore what eye conviction investing

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Speaker 1: means to investcos value equity managers. Watch the conversation at

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Speaker 1: investco dot com slash interactive and that's a great dovetail

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Speaker 1: a fundamental value analysis with a little bit of matthewist

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Speaker 1: Emmanuel Derman of Columbia University with us Mr Woodford holds

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Speaker 1: court in the economics department at Columbia from Princeton up

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Speaker 1: to up to Columbia. Richard Clarida, who's on our show often,

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Speaker 1: is one of the founders and in students and has

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Speaker 1: a great humility about dynamics, stochastic general equal. When you

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Speaker 1: see there the multidimensional optionality of that mathematics, how do you,

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Speaker 1: as a leading quad respond to the certitude those models

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Speaker 1: are supposed to give? Cher yelling, Yeah, I'm extremely skeptical.

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Speaker 1: I'm on, I'm on, I'm on. Jim grand Side of

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Speaker 1: how DSD Dynamic said Glubrium models, um uh, you know,

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Speaker 1: I don't believe them. I think they're much too complicated

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Speaker 1: and deep in mahad. I think that people at the

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Speaker 1: FIT are probably using them to justify things that they

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Speaker 1: decided for much more trivial and statistical reasons than those models.

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Speaker 1: And I'm gonna be fair in mine can say, the

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Speaker 1: Professor Clarida to a great degree tilts towards Professor Dermott,

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Speaker 1: even though he and Girdler and Gali did that research.

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Speaker 1: There's a renewed humility about what value those basic models have. Well,

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Speaker 1: without any humility, Paul Krugman certainly attacked the models after

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Speaker 1: the after the financial crisis. Uh. One of the things

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Speaker 1: that even people at the FED, Bill Dudley has been

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Speaker 1: out front on this in saying, is that their models,

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Speaker 1: they have not successfully integrated financial markets into the D

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Speaker 1: s G. E. Markels markets and the feedback impacts we

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Speaker 1: get from financial markets. Yeah, I would say that's true. Um,

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Speaker 1: I don't think. To be honest, I'm really sechtical. I

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Speaker 1: don't think anybody will even do that. Human life and

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Speaker 1: human markets are so complicated. I don't think somebody's gonna

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Speaker 1: write down a successfully equation that describes them. I'm not

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Speaker 1: saying people shouldn't try, but you've got to. You've gotta

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Speaker 1: always be looking over your shoulder all the time when

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Speaker 1: you're trying to figure out what I'll appeal to to

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Speaker 1: your skepticism and also your math background. At the same

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Speaker 1: time when you're trying to figure out what's going to happen?

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Speaker 1: How far can you take mathematics? Is it worthwhile to

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Speaker 1: to to use it to try to prove an economic theory? Um?

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Speaker 1: I think mathematics is much more successful in finance than

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Speaker 1: in economics. So black Shouls is a really good theory. UM.

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Speaker 1: You don't use it to predict things, but you use

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Speaker 1: it to try to UM do a sort of rational interopolation.

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Speaker 1: You want to fagil want to pay for an out

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Speaker 1: of the money option, you use black shels given it

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Speaker 1: out the money option. I want to get this in.

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Speaker 1: I think this is so important. Tom Secunda helped Mike

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Speaker 1: Bloomberg found this beast. They did it on first order

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Speaker 1: difference equations. Black shows and others are continuous functions, which

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Speaker 1: we have found over the years are squishy and time

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Speaker 1: in determinate. We find value in t t plus one

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Speaker 1: T plus two. That's a foundation of Tom Secunda. Do

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Speaker 1: we need to go back to that certitude of t

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Speaker 1: t plus one T plus two versus pie in the

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Speaker 1: sky continuous functions? Well, I didn't see a big difference

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Speaker 1: on insty between continuous and t t plus one T

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Speaker 1: plus two. The versions of black shouls that worked like that. Look,

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Speaker 1: I think Black Shows is a real success. That's that's

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Speaker 1: the best theory in finance and economics. But the reason

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Speaker 1: is is that it gives you something to think about.

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Speaker 1: You can have intuition about volatility. You can't have intuition

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Speaker 1: about option prices. So if you want to figure out

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Speaker 1: what something's worth, you can say, I think volatilely is

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Speaker 1: gonna double the volatility is gonna have And it lets

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Speaker 1: you translate your mental intuition about volatility into a dollar price.

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Speaker 1: And that's what most models are good for. Professor, thank

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Speaker 1: you so much. Coming in Emmanuel Derman at Columbia University.

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Speaker 1: John Tucker, keeper of the Garden State Park. How many

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Speaker 1: people drove off the Garden State Parkway and that conversation.

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Speaker 1: I want to ask the professor, how do you get

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Speaker 1: bored with theater theoretical physics? We have no time, John Tucker,

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Speaker 1: thank you so much. Futures negative to futures negative fourteen

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Speaker 1: the yield one point. This hour of surveillance brought you

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Speaker 1: by Mont Kisco Volvo. Visit Mount Kisco Volvo dot com.

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Speaker 1: Here's Michael r. With the latest world in national headlines.

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Speaker 1: Mike ton Vank you very much. US health officials say

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Speaker 1: there is conclusive evidence that the zeke of virus causes

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Speaker 1: babies to be born with abnormally small heads and other

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Speaker 1: severe brain defects. The findings by US experts, confirmed with

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Speaker 1: doctors in Brazil, have suspective. Moscow is rejecting US complaints

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Speaker 1: that Russian attack planes buzzed dangerously close to a U. S.

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Speaker 1: Navy destroyer in the Baltic Sea earlier this week. Spokesman

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Speaker 1: for the Russian defense industry says the pilots of Russian

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Speaker 1: jets saw the ship and turned back while using all

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Speaker 1: measures of precaution. Doctors believe in Texas, deputy constable will

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Speaker 1: survive after he was shot six times outside a convenience

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Speaker 1: store in Houston. Police are looking for the shooter. Global

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Speaker 1: News twenty four hours a day, powered by our twenty

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Speaker 1: four hundred journalists in more than a hundred fifty news

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Speaker 1: bureaus from around the world. Mike Labar, Michael bar thanks

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Speaker 1: so much again. Futures negative to the doubt, closing seventeen

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Speaker 1: thousand in the VIX eight four. I believe it's a

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Speaker 1: bool market. Bloomberg surveillance. Bloomberg Surveillance brought to you you by

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Speaker 1: your tri State BMW centers. Visit them online at tri

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Speaker 1: State BMW dot com at BMW. They make only one thing,

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Speaker 1: the ultimate driving machine,