WEBVTT - Treasuries Fall as China Asks Banks to Limit US Bond Holdings 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.880 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.240 or watch us live on YouTube. 0:00:27.640 --> 0:00:30.720 Unfortunately he's been driving this salweek. Richard claiit with us 0:00:30.720 --> 0:00:36.159 now his work at Columbia University definitive on fancy economics 0:00:36.200 --> 0:00:40.560 called dynamic stochastic general equilibrium theory holding court at the 0:00:40.600 --> 0:00:44.199 FEDS Vice Chairman, I'm not going to mince words in 0:00:44.320 --> 0:00:48.680 frankly a professor Claret, are you still at Columbia? 0:00:48.880 --> 0:00:49.280 I am? 0:00:49.360 --> 0:00:51.199 You get a piece of chalk out every See. The 0:00:51.240 --> 0:00:55.040 problem is Xavier Sally Martin wouldn't allow Ai in the class. 0:00:55.320 --> 0:00:58.440 You would allow Ai in a freshman class to make 0:00:58.480 --> 0:00:59.560 the kids smarter. 0:00:59.440 --> 0:01:03.920 Right, I don't teach a freshman anymore. 0:01:03.320 --> 0:01:05.440 But would you let Ai in the class? 0:01:05.480 --> 0:01:09.080 Well, not in the classroom, but when I teach, I 0:01:09.120 --> 0:01:11.640 assume the students are making reference to it, which is 0:01:11.640 --> 0:01:13.960 why I've actually put a focus on having. 0:01:13.760 --> 0:01:15.120 In class presentations. 0:01:15.640 --> 0:01:18.880 There you go, there you gold fashion Socratic dialogue. 0:01:18.920 --> 0:01:21.760 I'm going to cut to the Chase Socratic Dialogue. You 0:01:22.040 --> 0:01:24.640 saved Jerome Pale, Folks. I'm not going to mince words 0:01:24.680 --> 0:01:28.920 about it. It's called a dual engine leadership mode model. 0:01:29.200 --> 0:01:31.840 And it was Clarida's vice chairman and a guy from 0:01:31.840 --> 0:01:34.920 Wall Street's chairman. And when he came in you allowed 0:01:35.000 --> 0:01:39.520 him to relax and grow with your prodigious academic abilities. 0:01:39.959 --> 0:01:42.640 Does Chairman worsh need a clarity? 0:01:43.880 --> 0:01:47.120 Well, that that'll be his decision. I enjoyed my four years, 0:01:47.160 --> 0:01:50.000 That's that's for sure. But there are a lot of 0:01:50.000 --> 0:01:51.720 good people at the FAT and I think that's a 0:01:51.760 --> 0:01:54.200 decision he'll he'll make. He's got a very good advice 0:01:54.280 --> 0:01:58.320 chair right now and Phil Phil Jefferson. But at some 0:01:58.440 --> 0:02:01.120 point there will be a vice chair vacancy. 0:02:01.240 --> 0:02:03.240 Is that something that the committee when he goes in 0:02:03.240 --> 0:02:05.480 front of these tough guys in the Hill, they can 0:02:05.600 --> 0:02:10.240 demand you have a vice chair of the academic skills. 0:02:11.160 --> 0:02:13.440 Well, it's not clear that that's what would be on 0:02:13.480 --> 0:02:14.760 their wish list, but. 0:02:17.360 --> 0:02:20.200 Possibility, I suppose. I mean they could request that. 0:02:20.280 --> 0:02:24.640 Certainly, Kevin Warrish has called for a new accord with 0:02:24.720 --> 0:02:26.880 the Treasury Department. Yeah, what does you mean by that? 0:02:27.400 --> 0:02:29.480 Well, you know, this is one of those things where 0:02:31.040 --> 0:02:34.720 this is what they call in DC very big tent language. 0:02:35.120 --> 0:02:37.760 It means different things to different people. The one accord 0:02:37.800 --> 0:02:40.280 that we do know about, which is the one that 0:02:40.360 --> 0:02:43.040 was struck in nineteen fifty one between the Treasury and 0:02:43.080 --> 0:02:46.560 the FED, was a signal moment and Fed independence because 0:02:46.560 --> 0:02:48.800 they got the FED out of the business of essentially 0:02:48.800 --> 0:02:51.280 camping treasure yels. In fact is I'd like to teach 0:02:51.320 --> 0:02:54.560 my students. We all know that World War Two ended 0:02:54.560 --> 0:02:56.880 in nineteen forty five, but the FED didn't get the 0:02:56.919 --> 0:03:00.240 memo till nineteen fifty one because the Truman administry from 0:03:00.280 --> 0:03:02.320 pressure to the FED to keep a cap on rates, 0:03:02.520 --> 0:03:06.919 the FED declare independence in the accord. I think now 0:03:06.960 --> 0:03:09.160 if there is a Treasury Fed accord, it would not 0:03:09.240 --> 0:03:11.600 be so much focused on that. It would be focused 0:03:11.639 --> 0:03:14.200 on for example, should the FED a whole two trillion 0:03:14.280 --> 0:03:17.880 dollars in mortgage backed securities? Should the FED the composition 0:03:17.919 --> 0:03:20.760 of the Fed' portfolio really be tilted toward tea bills 0:03:21.240 --> 0:03:24.320 unless from holding ten and thirty year treasury So I 0:03:24.320 --> 0:03:26.239 think there are a lot of conversations to have, and 0:03:26.360 --> 0:03:28.760 even during my time on the FED there were discussions 0:03:28.800 --> 0:03:34.720 before the pandemic about rethinking the Fed' portfolio composition, So 0:03:34.760 --> 0:03:37.080 I think that's entirely appropriate. But I think we're a 0:03:37.080 --> 0:03:40.680 long way away from any formal accord. 0:03:40.960 --> 0:03:44.240 So what do you expect this Federal Reserve to do 0:03:44.960 --> 0:03:46.240 in County your twenty six? 0:03:47.200 --> 0:03:51.560 Well, first we have to get the chair confirmed. He 0:03:51.760 --> 0:03:53.240 that's not a foregone conclusion, right. 0:03:53.240 --> 0:03:55.880 I think once he has a hearing, he will get 0:03:55.920 --> 0:04:00.000 confirmed because he's very well qualified, but it may be 0:04:00.480 --> 0:04:01.600 maybe a while before he. 0:04:01.600 --> 0:04:03.080 Has a hearing. 0:04:03.800 --> 0:04:06.480 I think it's important to note that the pal FED 0:04:06.800 --> 0:04:10.040 in December when they release those dots, those famous or 0:04:10.080 --> 0:04:13.280 infamous dots, the pal FED, or at least a majority 0:04:13.320 --> 0:04:16.240 of the FED in December, thought at least one rate 0:04:16.279 --> 0:04:18.839 cut this year would be appropriate, and I think eight 0:04:19.160 --> 0:04:20.240 folks thought maybe. 0:04:20.040 --> 0:04:21.400 Two rate cuts would be appropriate. 0:04:21.839 --> 0:04:25.080 So I do think that when Warsh gets in, if 0:04:25.120 --> 0:04:27.760 the economic data play out the way that I and 0:04:27.839 --> 0:04:30.400 others expect, I think he'll be able to persuade the 0:04:30.440 --> 0:04:32.840 committee to continue to cut rates down. 0:04:32.920 --> 0:04:34.760 Describe around three percent? 0:04:34.839 --> 0:04:37.520 Okay, Richard Claarterer with this, folks, the former vice chairman 0:04:37.600 --> 0:04:40.320 of the FED, hugely visible does a great job helping 0:04:40.400 --> 0:04:43.480 us on the FED day. The FED decides, thrilled he 0:04:43.520 --> 0:04:45.599 could be in studio with us for you across the 0:04:45.680 --> 0:04:48.640 nation and around the world. Thank you for your attendance. 0:04:48.680 --> 0:04:53.960 On YouTube, subscribe to bloomberg A podcasts. I look at 0:04:54.000 --> 0:04:57.599 all this, I look at the parlor game, and just 0:04:57.680 --> 0:05:00.520 what it comes down to is staggering from me from 0:05:00.560 --> 0:05:04.960 meeting when mister Wartz joins, do we have a theory 0:05:05.200 --> 0:05:09.120 of monetary policy? Or is it every president and governor 0:05:09.160 --> 0:05:09.919 for themselves? 0:05:11.160 --> 0:05:15.320 Tom fantastic question, because I do think that based upon 0:05:15.400 --> 0:05:18.960 what Kevin has said with his very voluminous paper trail 0:05:19.240 --> 0:05:23.440 over the last fifteen years, will I think that will 0:05:23.480 --> 0:05:26.520 be a discussion. I think Kevin has expressed some skepticism 0:05:26.720 --> 0:05:30.400 for reliance on what he believes are flawed models, too 0:05:30.480 --> 0:05:33.080 much of a backward looking approach. 0:05:33.120 --> 0:05:34.600 What I would point out, at least during my. 0:05:34.640 --> 0:05:39.240 Four years is the palfed and certainly declared device chair. 0:05:39.279 --> 0:05:41.280 It was not handcuffed to the models, even though I 0:05:41.320 --> 0:05:42.880 developed many of them. 0:05:43.040 --> 0:05:46.039 I give you great credit, Paul can I Editorial, I 0:05:46.080 --> 0:05:48.400 give you great credit for this. You are the one 0:05:48.480 --> 0:05:51.200 person who could have said we'd go for the models. 0:05:50.880 --> 0:05:54.240 Well, and in fact my first speech in October of 0:05:54.320 --> 0:05:58.000 twenty eighteen, I basically made the case that the economy 0:05:58.000 --> 0:06:01.479 appeared to have stronger growth potential and a potential for 0:06:01.560 --> 0:06:04.640 lower unemployment than the FED models thought, and that the 0:06:04.680 --> 0:06:07.840 Powerfed should be willing if the labor market was continuing 0:06:07.839 --> 0:06:10.160 to blossom and inflation didn't appear. 0:06:10.160 --> 0:06:11.279 To allow that to happen. 0:06:11.320 --> 0:06:13.760 In fact, I think I said, you know, monetary policy 0:06:13.920 --> 0:06:16.760 is not a problem if too many people are working, right, 0:06:16.800 --> 0:06:19.680 And indeed the Powerfed cut rates in twenty nineteen with 0:06:19.760 --> 0:06:22.600 an unemployment rate out of fifty year low. So I 0:06:22.600 --> 0:06:25.640 think the FED has probably been less handcuffed to models 0:06:25.720 --> 0:06:30.840 than Kevin's remarks might suggest. But I certainly think based 0:06:30.920 --> 0:06:34.000 upon that there will be a discussion of the best 0:06:34.000 --> 0:06:37.960 way to incorporate modeling into FED analysis. 0:06:38.360 --> 0:06:41.080 What happens to j Powell when he does step down 0:06:41.120 --> 0:06:43.800 from FIT? Does he stay on at the FED? Does 0:06:43.839 --> 0:06:46.760 he leave? Typically they ride off into the sunset? 0:06:46.880 --> 0:06:47.880 Right they do. 0:06:47.960 --> 0:06:50.719 In fact, there's only one example in FED history of 0:06:50.760 --> 0:06:53.080 a chair that did not write off into the sunset, 0:06:53.160 --> 0:06:56.360 and a very important FED chair gentleman named marinell Eckles, 0:06:56.360 --> 0:06:57.240 so important as. 0:06:57.160 --> 0:06:58.320 A building angles form. 0:06:58.360 --> 0:07:03.159 There you go, and Eccles was an FDR appointee and 0:07:03.200 --> 0:07:05.719 when Harry Truman came in, Harry Truman wanted a different 0:07:05.760 --> 0:07:08.440 FED share, but Eckles stayed on for four years as 0:07:08.480 --> 0:07:10.880 governor and actually turned out to be a real thorn 0:07:11.760 --> 0:07:13.600 and Harry Truman's side. 0:07:13.800 --> 0:07:15.400 But fast forward to Pal. 0:07:15.720 --> 0:07:18.680 You know j pal'sman asked many times and including at 0:07:18.680 --> 0:07:22.160 the most recent press conference, what his intentions are when 0:07:22.200 --> 0:07:25.120 his term is chair is up, and he's really not commented. 0:07:25.200 --> 0:07:28.440 So there's the possibility he could stay on. I myself 0:07:28.600 --> 0:07:31.240 think that it's unlikely that he stays on for the 0:07:31.280 --> 0:07:34.200 remainder of his term, which goes through twenty twenty eight. 0:07:34.640 --> 0:07:37.840 Richard clarieda with this. So we did a Bloomberg function. 0:07:37.880 --> 0:07:39.760 It was great Michael when Key organized it. It was all 0:07:39.800 --> 0:07:42.520 these worthies in the audience. Catherine Maine comes up and 0:07:42.520 --> 0:07:44.920 gives me a hug to Queen of Descent over at. 0:07:44.880 --> 0:07:48.440 The Bank of England, what's wrong with us being like 0:07:48.480 --> 0:07:49.360 the Bank of England? 0:07:49.640 --> 0:07:51.600 And they come out like a Supreme Court decision. 0:07:51.960 --> 0:07:54.840 Oh no, it's a FED meeting five to four and 0:07:54.880 --> 0:07:56.960 the chairman voted against the majority. 0:07:57.160 --> 0:07:59.680 Is that a bad thing. I don't think it's a 0:07:59.680 --> 0:08:00.240 bad thing. 0:08:00.920 --> 0:08:03.680 I think the back of England really beginning under Mervyn 0:08:03.960 --> 0:08:08.040 King's tangents actually viewed it as a feature, not a bug, 0:08:08.160 --> 0:08:12.520 to have close votes encourage thoughtful dissent. And as I recall, 0:08:12.680 --> 0:08:15.280 the governor has been on losing sight on some votes. 0:08:15.560 --> 0:08:18.840 There unusual in FED history. In fact, I did prepare 0:08:18.880 --> 0:08:21.160 for your show. I went back and looked. Saint Louis 0:08:21.200 --> 0:08:24.560 FED has a great database on this, and you'd have 0:08:24.600 --> 0:08:27.960 to go back to nineteen thirty nineteen thirty nine the 0:08:28.080 --> 0:08:30.880 last time a chair actually lost an FMC vote, and 0:08:30.880 --> 0:08:31.960 that was Mariner Eccles. 0:08:32.360 --> 0:08:35.480 But Jane William Miller and Paul Volker lost votes on 0:08:35.559 --> 0:08:39.000 discount rate adjustments. But again we're going back forty to 0:08:39.080 --> 0:08:40.040 fifty years. 0:08:40.160 --> 0:08:40.679 Did you hear? 0:08:40.720 --> 0:08:42.920 What do you prepare for the show? 0:08:44.080 --> 0:08:50.319 Are you kidding me? You'd be the only one, Richard? 0:08:50.360 --> 0:08:53.439 What's the FED focusing on now? Is it the labor market? 0:08:53.760 --> 0:08:56.240 Is it inflation? Where's the balance? 0:08:56.320 --> 0:08:57.040 These days? 0:08:57.559 --> 0:09:00.959 They've been pretty consistent for a while that inflation is 0:09:01.000 --> 0:09:03.600 too high. It's been above target for five years, it'll 0:09:03.600 --> 0:09:05.160 probably be above target this year. 0:09:05.200 --> 0:09:06.000 For six years. 0:09:06.880 --> 0:09:09.720 But the FAT has a dual mandate, and the unemployment 0:09:09.800 --> 0:09:12.760 rate is basically right now at a point that they 0:09:12.800 --> 0:09:17.080 think is consistent with a healthy labor market. But they 0:09:17.120 --> 0:09:20.400 are noticing that payroll employment gains have been very modest. Indeed, 0:09:20.400 --> 0:09:23.200 when we get the revisions later this week, it actually 0:09:23.200 --> 0:09:26.480 may show negative payroll gains in the second half of 0:09:26.600 --> 0:09:32.320 the year. And so I do think that I take 0:09:32.320 --> 0:09:34.120 them at their word when they say they would not 0:09:34.280 --> 0:09:38.000 welcome any additional rise in the unemployment rate, and I 0:09:38.000 --> 0:09:41.040 think they would react to that. But so long as 0:09:41.040 --> 0:09:45.160 the economy sort of turns along as people expect, I 0:09:45.200 --> 0:09:48.599 think they are trying to balance that against their concerns 0:09:48.640 --> 0:09:50.320 about elevated inflation. 0:09:50.640 --> 0:09:53.360 Paul Sweeney with Richard Clarita right now, can I ask, 0:09:53.600 --> 0:09:54.640 can we go NERD right now? 0:09:55.200 --> 0:09:59.920 Monday freezing money? Okay? Did you recruit Woodford to Columbia? 0:10:00.480 --> 0:10:01.280 Was that you're trying? 0:10:01.559 --> 0:10:05.480 I was not sure when Mike was recruited that. I 0:10:05.559 --> 0:10:09.640 certainly was enthusiastic and worked hard on getting him to Columbia, 0:10:09.679 --> 0:10:11.720 which was a huge appointment for Columbia. 0:10:11.800 --> 0:10:13.120 Now twenty two years ago, I. 0:10:13.040 --> 0:10:15.640 Told you, Michael Woodford, folks, it's a thousand page book. 0:10:15.679 --> 0:10:19.199 Everybody owns it, Martin Felt saying once said Tom, no one's. 0:10:18.880 --> 0:10:22.080 Ever read it cover to cover. Clarida had, Yeah. 0:10:22.240 --> 0:10:24.960 But the bottom line, and I'm bringing this up, folks, 0:10:24.960 --> 0:10:27.000 because we had an Ezra Prosade the other day from 0:10:27.000 --> 0:10:29.920 Cornell with his wonderful important books out Doom the Doom 0:10:30.000 --> 0:10:33.679 Look really important book. And the bottom line is we 0:10:33.760 --> 0:10:39.000 assume Woodford like Oiler equations, they come down to a 0:10:39.040 --> 0:10:43.120 point of stability, and within the system there's stability. The 0:10:43.440 --> 0:10:47.000 result is stability. And Professor Presada is saying, no, it's 0:10:47.080 --> 0:10:49.439 not they're going to go out on the X axis 0:10:49.520 --> 0:10:50.960 and be unstable. 0:10:51.400 --> 0:10:57.120 Discuss well, okay, I think at a thirty thousand foot 0:10:57.200 --> 0:11:01.679 level in thirty seconds, all macro models, or almost all 0:11:01.720 --> 0:11:07.760 macro models, really your best thought of as approximations typically 0:11:07.800 --> 0:11:10.160 linear in a neighborhood of where you want to be, 0:11:11.520 --> 0:11:13.880 and the real world can be a lot messier and 0:11:14.080 --> 0:11:16.400 very nonlinear, a term that I know pomps up on 0:11:16.440 --> 0:11:18.760 this show, and I think, what I'm just beginning to 0:11:18.800 --> 0:11:21.760 read his book but he's been highlighting is we could 0:11:21.800 --> 0:11:26.200 be in a prolonged period of very nonlinear market and 0:11:26.280 --> 0:11:28.360 economic development. 0:11:27.840 --> 0:11:32.320 And geopolitical development. Yeah, so if you're halfway through the book. 0:11:32.360 --> 0:11:35.240 He sold the movie, right, ye, DiCaprio is playing. I 0:11:35.280 --> 0:11:38.200 mean it's a gloomy book. It's shockingly gloomy. 0:11:38.320 --> 0:11:38.680 Yeah. 0:11:38.800 --> 0:11:41.959 Yeah, again, I have not I've not I've not worked 0:11:41.960 --> 0:11:46.520 through it, but I certainly must read for me, So 0:11:46.520 --> 0:11:47.600 I'll wait till I finish it. 0:11:47.600 --> 0:11:50.559 Before I wait, Hey, Richard worked. 0:11:50.800 --> 0:11:55.000 We're thirteen months into this whole tariff thing. I'm going 0:11:55.080 --> 0:11:58.160 to look back on and say, boy, this was nothing. 0:11:58.360 --> 0:12:00.240 It didn't seem to be that big of an isi you. 0:12:01.400 --> 0:12:03.280 And that's not when I heard it. Early on. I 0:12:03.360 --> 0:12:04.720 heard a lot of folks saying, boy, this is going 0:12:04.760 --> 0:12:06.720 to be inflationary and so on and so forth. We 0:12:06.880 --> 0:12:09.840 just haven't seen it. So with a little bit of hindsight, yeah, yeah, 0:12:09.840 --> 0:12:10.600 what's happened. 0:12:10.679 --> 0:12:13.600 So let me reinforce what you said when we eventually, 0:12:13.679 --> 0:12:17.360 when we get the data for twenty twenty five, it 0:12:17.440 --> 0:12:20.440 may show GDP growth the same as it was in 0:12:20.480 --> 0:12:23.720 twenty twenty four, maybe down to tenth. It will likely 0:12:23.760 --> 0:12:30.000 show inflation unchanged from twenty twenty four, And so a 0:12:30.000 --> 0:12:33.200 future historian may well say what you just said, which 0:12:33.240 --> 0:12:35.320 is what was the big deal GDP. 0:12:35.480 --> 0:12:39.240 Growth didn't move, inflation didn't move. I think a couple 0:12:39.240 --> 0:12:39.680 of things. 0:12:39.840 --> 0:12:42.560 One is that the ultimate tariffs put in place were 0:12:42.640 --> 0:12:45.400 a lot lower than the Liberation Day levels, and his 0:12:45.520 --> 0:12:50.880 best and has emphasized that was part of the negotiating strategy. Secondly, 0:12:51.280 --> 0:12:53.920 you know, there's a saying in baseball sometimes you'd rather 0:12:53.960 --> 0:12:56.360 be lucky than good. I think the other thing that 0:12:56.440 --> 0:12:59.240 happened is whatever headwind there might have been from tariff's 0:12:59.240 --> 0:13:05.000 counterfactually was offset by the buoyant capax spending, especially by 0:13:05.040 --> 0:13:08.000 the tech companies, and the fact that the stock market 0:13:08.160 --> 0:13:11.720 is very optimistic on this story, so that generates a 0:13:11.760 --> 0:13:16.000 wealth effect and an investment effect. And then thirdly, US 0:13:16.040 --> 0:13:23.920 companies absorbed more of the tariff hit in somewhat reduced margins, 0:13:24.600 --> 0:13:26.080 and you know, in the area they did have that 0:13:26.160 --> 0:13:28.880 room profit margins have been very healthy, and they didn't 0:13:28.880 --> 0:13:31.600 pass it through to the consumer. And again, of course, 0:13:31.640 --> 0:13:34.880 we have the IEPA decision the Supreme Court is about 0:13:34.920 --> 0:13:39.280 to release, and that may further lead to LOWERJUS. Put 0:13:39.280 --> 0:13:41.560 it this way, I think if you calculate the actually 0:13:41.880 --> 0:13:44.920 the tariff revenue we're collecting divided by imports, it's coming 0:13:44.920 --> 0:13:47.640 in in about ten percent, and Liberation Day was like 0:13:47.679 --> 0:13:48.640 thirty five percent. 0:13:48.679 --> 0:13:50.320 So that's sort of the order of magnitude. 0:13:50.400 --> 0:13:51.520 I got eight other questions. 0:13:51.559 --> 0:13:55.120 I got to squeeze us in to be responsible or 0:13:55.280 --> 0:13:58.400 zeg and pose and creating a firestorm with an idea 0:13:58.440 --> 0:14:02.680 of resilient higher rate or even driving higher rates somewhat 0:14:02.760 --> 0:14:05.920 due to the surprise of higher wages. Right, it's up 0:14:05.920 --> 0:14:09.440 at the Peterson Institute. Do you and PIMCO worry about 0:14:09.559 --> 0:14:11.160 price down yield up? 0:14:12.880 --> 0:14:14.680 Well, you know, we get paid to worry about it. 0:14:14.920 --> 0:14:17.319 What we do observe, at least in the treasure rate 0:14:17.400 --> 0:14:21.920 market is the fact which is really since the last 0:14:21.920 --> 0:14:24.000 FED rate hike, which was two and a half years ago, 0:14:25.120 --> 0:14:27.160 ten your treasure yields have been in a pretty tight 0:14:27.280 --> 0:14:29.880 range four and three quarters at the high end, three 0:14:29.880 --> 0:14:34.560 and three quarters at the low end. Now that also 0:14:35.640 --> 0:14:38.480 you also need to note that underlying real rates, which 0:14:38.480 --> 0:14:41.840 we can see from the inflation index bond market, are 0:14:41.920 --> 0:14:45.840 much higher than they were in twenty nineteen, and so 0:14:45.920 --> 0:14:47.720 we're going to have a steeper yield curve than we 0:14:47.760 --> 0:14:50.040 did pre pandemic, which is a good thing. I think 0:14:50.440 --> 0:14:56.000 we're going to probably have elevated somewhat elevated volatility relative 0:14:56.040 --> 0:14:59.120 to the decade before the pandemic, in which rate volatility 0:14:59.200 --> 0:15:00.600 was suppressed through. 0:15:00.560 --> 0:15:02.840 A zero negative humor. At one point, I think in 0:15:02.880 --> 0:15:03.480 Europe there was. 0:15:03.400 --> 0:15:07.120 Like eighteen trillion dollars of negative yielding sovereign DUTs. So 0:15:08.440 --> 0:15:10.400 we do pay attention to it, but we think a 0:15:10.440 --> 0:15:13.640 lot of the repricing that needed to happen because of 0:15:13.680 --> 0:15:17.000 the fiscal outlook has basically already happened and is in 0:15:17.000 --> 0:15:17.440 the price. 0:15:17.720 --> 0:15:20.400 I am begging when you get through the doom loop, 0:15:20.760 --> 0:15:24.200 When I get through the doomop, I would be honored 0:15:24.200 --> 0:15:27.280 to have you and Prisadon in the same studio together. 0:15:28.160 --> 0:15:32.160 Would be like a service to a lot of people 0:15:32.200 --> 0:15:35.200 thinking about this. His public service to the nation at 0:15:35.240 --> 0:15:36.720 the Federal Reserve System. 0:15:36.840 --> 0:15:37.680 Richard Clarday. 0:15:37.760 --> 0:15:41.160 He is Global Economic Advisor at pimcof. 0:15:42.360 --> 0:15:46.560 Stay with us more from Bloomberg Surveillance coming up after this. 0:15:53.760 --> 0:15:57.360 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:15:57.440 --> 0:16:00.440 weekday afternoons from seven to ten am. E's durn Listen 0:16:00.520 --> 0:16:04.040 on Applecarplay and Android Otto with the Bloomberg Business app, 0:16:04.240 --> 0:16:06.320 or watch US Live on YouTube a. 0:16:06.560 --> 0:16:09.280 I am hate because it's bringing back all my quant nightmares. 0:16:09.440 --> 0:16:12.680 I actually study this like I look at Kurtosis and 0:16:12.720 --> 0:16:16.320 it's like E equals x minus ux squared and. 0:16:16.280 --> 0:16:19.280 The y item is well, lots of mew in there. 0:16:19.400 --> 0:16:22.200 Yes, it's very MEWI as well, joining us out of 0:16:22.200 --> 0:16:23.200 the Queen of Greek letters. 0:16:23.200 --> 0:16:27.360 Amy wou Silverman had a derivative strategy at RBC Capital Markets. 0:16:27.520 --> 0:16:29.880 If you take your world and it's goussy and like 0:16:29.880 --> 0:16:32.800 a bell curve like our high school the height of 0:16:32.840 --> 0:16:36.000 our high school class, and then you transfer it over 0:16:36.080 --> 0:16:39.200 to the oddities of log normal or even to ta 0:16:39.320 --> 0:16:43.480 lab in place saus. You can't use that material now, 0:16:43.560 --> 0:16:46.320 can you, Because the dispersion is stupid. 0:16:46.520 --> 0:16:46.760 Right. 0:16:47.760 --> 0:16:50.320 The duck is quacking tom so you know, I know 0:16:50.440 --> 0:16:53.200 we've beaten this analogy to death of this duck. On 0:16:53.240 --> 0:16:55.040 the surface of the lake, it looks calm, I mean, 0:16:55.080 --> 0:16:57.600 a little choppier now, but those little duck feet are 0:16:57.680 --> 0:17:00.880 even more violent underneath when we think aboutsion. So just 0:17:00.920 --> 0:17:06.600 the difference between average single stock volatility and index level volatility. 0:17:06.600 --> 0:17:09.720 You know, there's a reason why VIX even though it's eighteen, 0:17:09.760 --> 0:17:12.360 it's still sub twenty that's kind of crazy. But then 0:17:12.400 --> 0:17:15.520 go over to something like VXN your nastac vall that 0:17:15.680 --> 0:17:18.280 spreads through the roof, because we got a little zigging, 0:17:18.320 --> 0:17:20.159 but we got a lot of zagging. They tend to 0:17:20.200 --> 0:17:23.360 cancel each other out. But that average single stock move 0:17:23.560 --> 0:17:24.240 has been mindful. 0:17:24.280 --> 0:17:27.920 Where's the opportunity then? Right now Monday morning, it's nuts. 0:17:28.160 --> 0:17:31.040 We had that huge up Friday, right Paul room Jemmy, 0:17:31.200 --> 0:17:34.679 that was like a thousand points up fifty thousand. Now 0:17:35.000 --> 0:17:38.600 Amy was silber, and where's the opportunity now given wacko dispersion? 0:17:39.160 --> 0:17:41.320 So I think the big question right now is we're 0:17:41.320 --> 0:17:44.360 at a crossroads. Does this dispersion continue? I can tell 0:17:44.400 --> 0:17:47.280 you everyone's piled into the dispersion trade, But the question 0:17:47.400 --> 0:17:49.240 is do we at some point just get a lift 0:17:49.240 --> 0:17:52.880 of correlation. Everything all goes risk off at the same time, 0:17:52.960 --> 0:17:55.360 you know, and then that duck's falling off a waterfall 0:17:55.480 --> 0:17:57.560 or something. That's the big question that hasn't happened a 0:17:57.560 --> 0:18:00.919 long time. I think there's more nervousness could occur. 0:18:01.960 --> 0:18:04.600 Last week, last ten days when we saw the selloff 0:18:04.680 --> 0:18:09.680 in the tech names generally software in particular, it felt 0:18:09.880 --> 0:18:13.320 panicky to me. It felt like something unusual. Did you 0:18:13.320 --> 0:18:16.160 see that in the options markets, in the derivatives markets? 0:18:16.359 --> 0:18:18.880 Yeah, And one big question I get now is what 0:18:19.080 --> 0:18:22.440 is IGV volatile? They kind of telling you since then, 0:18:22.760 --> 0:18:25.159 so I can tell you that pickup and skews that 0:18:25.160 --> 0:18:27.959 that demand for hedges has faded. So it's not like 0:18:28.000 --> 0:18:31.000 people are betting that we're going to see further downside there. 0:18:31.040 --> 0:18:33.960 You're actually seeing a decent amount of dispersion just within IGV. 0:18:34.480 --> 0:18:37.560 But the question is, you know, how frequently will we 0:18:37.640 --> 0:18:40.359 continue to have retail save the day? That's what happened again, 0:18:40.400 --> 0:18:41.200 that's your playbook? 0:18:41.320 --> 0:18:42.439 Is that what happened since April? 0:18:42.520 --> 0:18:46.480 Second? Yeah, overall, you know you saw that Friday, and 0:18:47.240 --> 0:18:50.120 to be fair, they won the last few rounds. And 0:18:50.400 --> 0:18:52.439 the question is that does that like at the stool 0:18:52.520 --> 0:18:54.399 continue or does something. 0:18:54.200 --> 0:18:56.960 Just abou ETF phenomena. Is it more pronounced today than 0:18:57.000 --> 0:18:59.680 it was in the past because ETFs have so much 0:19:00.240 --> 0:19:04.119 money that retail maybe has a bigger play in the market. 0:19:04.280 --> 0:19:07.560 It's a great question. I think there's just overall democratization. 0:19:07.800 --> 0:19:10.000 There's there's ease in how you trade. You can trade 0:19:10.040 --> 0:19:13.080 a fractional option, you can go on your iPhone or 0:19:13.320 --> 0:19:16.480 smartphone and do it. But you know, we're seeing a 0:19:16.480 --> 0:19:19.200 lot of flows. I spoke with our ETF team into 0:19:19.240 --> 0:19:22.000 something like Voo, which is tends to be more retail heavy. 0:19:22.000 --> 0:19:25.120 ETF just historic and flows there. And then you see 0:19:25.119 --> 0:19:28.399 them again saying like we believe in the AI theme. 0:19:28.480 --> 0:19:30.480 We're going to go back at it. We won that 0:19:30.520 --> 0:19:33.040 liberation day round. There's no reason we don't believe by 0:19:33.040 --> 0:19:34.520 the DIP continues to work. 0:19:34.640 --> 0:19:35.080 And it was. 0:19:35.080 --> 0:19:37.800 Silverman with this head of derivative strategy at RBC, a 0:19:37.880 --> 0:19:42.480 quant template over the equity market. How can people in 0:19:42.560 --> 0:19:46.440 boring four oh one ks use your work? You talk 0:19:46.520 --> 0:19:50.879 to fancy people with fancy Greek letters, but mere mortals 0:19:50.880 --> 0:19:53.320 like I'm in a tutel one cage because I'm triple 0:19:53.400 --> 0:19:56.720 leveraged all cash fun John Tucker, are you in a 0:19:56.800 --> 0:19:58.880 five oh one k like because you loaned the boat 0:19:58.960 --> 0:19:59.640 on Nvidia. 0:20:00.280 --> 0:20:03.560 No, No, it's you know, it's done remarkably well. 0:20:03.800 --> 0:20:07.000 Yeah, exactly. 0:20:07.440 --> 0:20:08.840 No, that doesn't mean I'm retiring. 0:20:09.000 --> 0:20:11.439 Don't panic, but there might be a work don't appear. 0:20:11.600 --> 0:20:18.639 I'm thinking, yeah, could be nice, sat tied up to 0:20:18.680 --> 0:20:21.720 the Atlantic Highlands work there amy. 0:20:21.920 --> 0:20:25.119 How can people with their mere mortals use your work. 0:20:25.600 --> 0:20:27.960 Yeah, I can tell you they they already are. So 0:20:28.040 --> 0:20:32.160