WEBVTT - Surveillance: Fed History with Blinder 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.800 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.000 and of course on the Bloomberg terminal. This is a joy. 0:00:30.040 --> 0:00:32.360 And as we all migrate over the river and through 0:00:32.360 --> 0:00:35.600 the woods, it is important to understand the Blinder of 0:00:35.640 --> 0:00:39.280 Princeton will grace the door of grandchildren. We speak to 0:00:39.360 --> 0:00:42.920 him before he celebrates Thanksgiving. He's the former vice chairman 0:00:43.240 --> 0:00:46.560 of the Fetain of course, always and forever with his 0:00:46.680 --> 0:00:52.400 Princeton University. Alan Blinder, your book is wildly accessible to 0:00:52.479 --> 0:00:55.880 review folks. There is Milton Friedman and Anna Schwartz a 0:00:55.960 --> 0:00:59.840 thousand pages, maybe eight under pages, as Alan Meltzer three 0:01:00.000 --> 0:01:05.160 thousand pages. This is, whatever your politics, the readable book 0:01:05.200 --> 0:01:09.160 of four hundred pages on a monetary and fiscal history 0:01:09.200 --> 0:01:11.959 of the United States. Allen, how did you keep the 0:01:11.959 --> 0:01:14.360 book so short? What did you have to do to 0:01:14.480 --> 0:01:17.520 keep it under five hundred pages? It's a it's a 0:01:17.600 --> 0:01:20.200 very it's a very fair question. I think what you 0:01:20.240 --> 0:01:22.800 have to do is be the editor in chief. Uh, 0:01:22.840 --> 0:01:26.280 I do not have every detail that you could imagine 0:01:26.480 --> 0:01:29.280 if you read look at Alan Meltzer's book, you can 0:01:29.440 --> 0:01:32.400 almost go f O MC meeting by f MC meeting 0:01:32.440 --> 0:01:37.040 and see what everybody said. Uh Sadin I was gonna say, sadly, 0:01:37.040 --> 0:01:39.600 I don't think it's sadly. You don't find that here, 0:01:39.640 --> 0:01:43.720 but you do find the basic storyline of what was 0:01:43.760 --> 0:01:48.360 going on with monetary policy and fiscal policy by the way, 0:01:48.360 --> 0:01:50.240 and what were the big issues of the day, and 0:01:50.240 --> 0:01:53.440 how were they resolved? Then sort of where we think 0:01:53.480 --> 0:01:56.840 we have answers, Well, those good decisions are bad decisions 0:01:56.840 --> 0:01:59.639 to me. The singular distinction right now is your chapter 0:01:59.680 --> 0:02:03.240 four team, where you say, all together, now, it was 0:02:03.480 --> 0:02:08.720 unthinkable for Alan Greenspan to comment on the dollar, and 0:02:08.760 --> 0:02:11.760 with the various crises, the once in a lifetime crisis 0:02:11.800 --> 0:02:14.679 we've enjoyed, we now have a FED in bed with 0:02:14.800 --> 0:02:19.560 the Treasury talking about the dollar and frankly social policy 0:02:19.600 --> 0:02:25.400 as well. Where do we go from our present altogether? Now? Well, 0:02:25.720 --> 0:02:29.399 I think in time this is not happening right away, 0:02:29.440 --> 0:02:32.480 but in time you're gonna see more of a separation 0:02:33.120 --> 0:02:37.160 between the Fed and the Treasury in that sense back 0:02:37.200 --> 0:02:41.400 towards the traditional UH system in the at least in 0:02:41.400 --> 0:02:43.720 the United States. Not around the world, by the way, 0:02:43.760 --> 0:02:48.040 but in the UH in the United States, the pandemic 0:02:48.160 --> 0:02:53.480 crisis just insisted that the Treasury and the FED um 0:02:54.560 --> 0:02:57.280 you know, snuggle up together. Well that's a that's a 0:02:57.280 --> 0:03:01.880 bad metaphor, work towards the same goals and then not 0:03:01.960 --> 0:03:05.160 have any distance showing between the two of them. There 0:03:05.160 --> 0:03:09.760 were a liquidity facilities that the FED created, lending facilities 0:03:09.800 --> 0:03:12.800 that the FED created, back stoff by the Treasury. That 0:03:12.919 --> 0:03:18.120 kind of cooperation was dictated by the circumstances. Hopefully, we 0:03:18.200 --> 0:03:20.400 all think we're going to get back to normal. Well 0:03:20.440 --> 0:03:23.240 back to normal was Vice Chairman Blinder speaking, and white 0:03:23.280 --> 0:03:25.840 smoke came out of the chimney in advance to let 0:03:25.880 --> 0:03:28.240 people know what was going to be said. Is there 0:03:28.280 --> 0:03:33.000 too much FED speak today? Allen? I don't think so. 0:03:33.200 --> 0:03:37.600 I mean, an elusive but reasonable goal, but it's elusive 0:03:38.360 --> 0:03:41.080 is to get the FED speaking with one voice. That's 0:03:41.120 --> 0:03:43.520 not so easy when they are nineteen members on the 0:03:43.600 --> 0:03:45.880 f O m C. But it's not been too bad. 0:03:46.280 --> 0:03:48.360 I mean, there are other committees around the world that 0:03:48.400 --> 0:03:52.920 are speaking with many more conflicting voices than the f 0:03:53.080 --> 0:03:56.760 O m c UH does. But you know my view. 0:03:57.120 --> 0:04:01.520 People have often criticized the tendency to speak too much, 0:04:01.560 --> 0:04:04.800 in my view as if you've confused people by speaking 0:04:04.800 --> 0:04:08.360 too much, say more so they're not confused anymore. And 0:04:08.440 --> 0:04:12.840 by the way, without without any advice for me, J. 0:04:13.000 --> 0:04:15.800 Powell does that when he sees that the markets and 0:04:15.880 --> 0:04:18.480 other people are getting it wrong, he speaks up again 0:04:18.640 --> 0:04:20.600 to help them get it right. And I'm blind to 0:04:20.680 --> 0:04:23.320 you're talking to finance wannabes at Princeton, and that's a 0:04:23.360 --> 0:04:26.320 wonderful and and and good thing. As you mentioned, Chairman 0:04:26.360 --> 0:04:29.880 Paul and others including Vice Chairman Brainerd try to speak 0:04:29.920 --> 0:04:32.800 in a safe manner, getting out to an ex post 0:04:32.880 --> 0:04:37.080 reality where they can react. The financial media, and frankly 0:04:37.160 --> 0:04:39.320 much of Wall Street is now in a parlor game 0:04:39.360 --> 0:04:43.080 of futures, trying to find not only the path up 0:04:43.120 --> 0:04:46.080 to a terminal rate, but then to game a pivot 0:04:46.440 --> 0:04:49.560 to a more accommodative stance. You and I have never 0:04:49.640 --> 0:04:55.240 seen this. How do we extricate ourselves from this silliness? Well, 0:04:55.279 --> 0:05:00.120 I think you the federal extricate itself uh from by 0:05:00.160 --> 0:05:03.000 its actions at its words. Remember the jackson Hole speech 0:05:03.520 --> 0:05:07.400 of Chair Powell. The whole purpose of that was to 0:05:07.560 --> 0:05:12.400 shake out of the markets heads the notion that this 0:05:12.440 --> 0:05:14.840 would be a quick peek and they fed funds rate 0:05:14.920 --> 0:05:17.320 and then it was not coming down right away. I 0:05:17.360 --> 0:05:19.600 mean he said very he made it very clear that 0:05:19.600 --> 0:05:21.360 that was not going to happen. And we don't think 0:05:21.400 --> 0:05:26.560 that's going to happen either. We're not going to get 0:05:26.640 --> 0:05:31.920 rid of the constant, incessant drumbeat of disparate chatter about 0:05:31.960 --> 0:05:34.760 the Fed coming out of market people. You know, that's 0:05:34.800 --> 0:05:38.640 their constitutional right, uh so to speak, and they will 0:05:38.640 --> 0:05:41.920 say what they say. But the clever people will keep 0:05:41.960 --> 0:05:45.440 their eye on the ball and uh and filtered through 0:05:45.480 --> 0:05:48.320 a lot of that noise and pay attention to what's 0:05:48.320 --> 0:05:51.040 really coming out of the fence mouth, and that mainly 0:05:51.160 --> 0:05:54.719 means the FED chairman's mouth. All Blinder, one final question 0:05:54.800 --> 0:05:58.279 on your majesty of forty fifty sixty years of FED policy. 0:05:58.760 --> 0:06:01.440 There's the unknown unknown is out there, like Dr al 0:06:01.520 --> 0:06:04.359 Arion would speak of, and one of the great unknowns, 0:06:04.360 --> 0:06:09.480 thinking of the Laureate Paul Romer, is the effective technology 0:06:09.560 --> 0:06:13.159 on Alan Blinder's economy, do we actually really know what 0:06:13.279 --> 0:06:18.560 technology is doing to us right now, we most definitively don't. 0:06:19.160 --> 0:06:22.240 One of the things, you know, economists aren't that great 0:06:22.279 --> 0:06:25.719 at forecasting, period, But one of the things we really 0:06:25.760 --> 0:06:29.000 cannot forecast, and it's not just us, nobody can forecast 0:06:29.040 --> 0:06:32.640 to your question, is the sort of changes in the 0:06:32.720 --> 0:06:36.640 long run trend of productivity. These things happen now and then, 0:06:36.760 --> 0:06:40.160 not every year, not every two years, but they do happen, 0:06:40.520 --> 0:06:44.080 and they almost always hit us by surprise, and in 0:06:44.120 --> 0:06:48.200 some cases, even looking back over years or decades, we 0:06:48.279 --> 0:06:51.960 don't still don't understand quite what in the world happened. 0:06:52.360 --> 0:06:57.600 You know, the acceleration of productivity. I think we understand 0:06:57.640 --> 0:07:00.320 that that to do with companies learning how to use 0:07:00.360 --> 0:07:04.200 all those computers that are hanging around. But the nineteen 0:07:04.320 --> 0:07:07.960 seventy three plus slowdown we still don't understand. Here we 0:07:08.000 --> 0:07:11.520 are in the year two and you know, productivity girls 0:07:11.560 --> 0:07:14.240 just slow down, and we don't know why. I will 0:07:14.280 --> 0:07:16.720 not mince words, folks checking it at under five in 0:07:16.760 --> 0:07:20.480 the pages. A Monetary and Fiscal History of United States 0:07:20.760 --> 0:07:23.760 from a time of John F. Kennedy is without question 0:07:24.200 --> 0:07:27.160 the most readable FED history I've seen. Of course, Sir 0:07:27.280 --> 0:07:30.560 Alan Blinder of Princeton University, Allen, thank you so much 0:07:30.600 --> 0:07:44.920 for joining us before dinner with said grandchildren right now. 0:07:44.960 --> 0:07:47.040 One of the other stories out there is the ping 0:07:47.080 --> 0:07:50.560 pong ball known as oil. Jeffrey Curry provides leadership at 0:07:50.560 --> 0:07:52.560 Goldman Sect, and I can only think of the great 0:07:52.600 --> 0:07:55.920 Adam Saminsky at Deutsche Bank years ago. Here's a guy 0:07:56.280 --> 0:08:00.200 who actually goes into the Excel spreadsheets of figuring out 0:08:00.280 --> 0:08:04.120 supply and demand. Jeff Curry, what do your Golden Sex 0:08:04.360 --> 0:08:09.240 Excel spreadsheets say about oil price next year based off 0:08:09.280 --> 0:08:15.680 the mystery of global demand? Well, we're definitely bullish come 0:08:15.760 --> 0:08:19.920 next spring, but what happens between now and next spring, 0:08:20.040 --> 0:08:25.640 that path is highly uncertain. You have China COVID cases surging, 0:08:25.880 --> 0:08:30.280 so you're getting forced lockdowns that were not planned um, 0:08:30.440 --> 0:08:33.360 which is impacting demand up to about one point two 0:08:33.360 --> 0:08:36.560 million barrels per day. Coincidentally the same size as the 0:08:36.600 --> 0:08:40.000 OPEC cuts, So you know, I think that's important development. 0:08:40.520 --> 0:08:44.960 First time ever OPAC ever cut in anticipation of a 0:08:45.160 --> 0:08:48.440 demand loss. And then you have the G seven price cap, 0:08:48.480 --> 0:08:51.120 which just they keep rolling the dial and it gets 0:08:51.160 --> 0:08:53.959 milder and milder every day. You know. I mean it's 0:08:54.080 --> 0:08:57.760 you know, least enforceable through shipping insurance. And then you 0:08:57.880 --> 0:09:01.640 also have the cap coming out six five seventy, well 0:09:01.679 --> 0:09:03.840 about the sixty that really put the clamp on them. 0:09:03.920 --> 0:09:06.720 Let's go back to your Chicago microeconomics. What is the 0:09:06.840 --> 0:09:11.040 elasticity or responsiveness of demand of China wakes up and 0:09:11.080 --> 0:09:14.360 moves forward and comes out of COVID. How rapidly will 0:09:14.400 --> 0:09:17.679 that demand pick up when and if well? I mean 0:09:17.720 --> 0:09:20.000 that's why you know, we're sticking to our guns of 0:09:20.040 --> 0:09:22.760 a hundred and fifteen dollar price target for next year, 0:09:22.800 --> 0:09:25.800 because when they do come out, um, they're gonna put 0:09:25.800 --> 0:09:27.960 a p a lot of pressure not only on oil 0:09:28.200 --> 0:09:31.680 but the entire commodity complex um. And you can think 0:09:31.679 --> 0:09:36.679 about you know two is really being at an environment 0:09:36.679 --> 0:09:40.000 in which the second largest economy in the world, the 0:09:40.120 --> 0:09:43.680 largest commodity consumer in the world, was hibernating. So I 0:09:43.720 --> 0:09:47.560 think you're absolutely spot on. It's a game changer. Now. 0:09:47.640 --> 0:09:51.000 Their base case is that, hey, they're making the preparations 0:09:51.080 --> 0:09:55.080 today to reopen into Q But when do we learn 0:09:55.120 --> 0:09:58.560 in Hong Kong and Taiwan is that eventually it spirals 0:09:58.559 --> 0:10:01.360 out of control. The cases you know, go up too 0:10:01.440 --> 0:10:03.600 quickly and then you get a forced reopening, and I 0:10:03.640 --> 0:10:05.679 think a lot of fear of that happening right now. 0:10:05.760 --> 0:10:07.480 One of the great realities is you're pull an all 0:10:07.600 --> 0:10:10.720 night or at the University of Chicago Curry teaching micro 0:10:10.840 --> 0:10:14.120 in Chicago years ago, you do that at Bevis. Lisa 0:10:14.160 --> 0:10:17.679 Bran was very familiar with the retro diner in Chicago. 0:10:17.960 --> 0:10:22.240 So the last from Chicago greets her colleague. All right, 0:10:22.320 --> 0:10:24.920 no need to just sort of relive those moments ahead 0:10:24.920 --> 0:10:27.240 of Thanksgiving, Jeff. I am wondering, though, when you talk 0:10:27.320 --> 0:10:30.400 about the supply to demand dynamic and demand picking up 0:10:30.400 --> 0:10:33.680 with China on the supply side, how much of Russia's 0:10:33.720 --> 0:10:36.520 oil has actually been taken off the market, given the 0:10:36.559 --> 0:10:41.920 refineries in India and the exports over to Europe. I mean, 0:10:41.960 --> 0:10:44.880 it's relatively small and somewhere in that. You know, three 0:10:44.920 --> 0:10:48.920 to four hundred thousand barrels per day. You know our expectations. 0:10:48.920 --> 0:10:53.000 It grows modestly as the sanctions began to take place 0:10:53.040 --> 0:10:56.360 and you have frictions and other issues involved. Um, but 0:10:56.520 --> 0:11:00.680 you know, it's nowhere near as large as what people anticipated. 0:11:00.720 --> 0:11:05.400 But the offset on that is the investment across the 0:11:05.520 --> 0:11:08.560 space is far less than what people anticipated. Look at 0:11:08.640 --> 0:11:12.280 drilling in the US, expectations of US shale have been 0:11:12.400 --> 0:11:17.200 ratcheting down, decline rates in non opeq x US beginning 0:11:17.200 --> 0:11:21.240 to set, and so the supply problem of the underinvestment thesis, 0:11:21.400 --> 0:11:24.160 what we call the revenge of the old economy, is 0:11:24.240 --> 0:11:27.560 actually much stronger than we thought six months a year ago. 0:11:27.800 --> 0:11:30.960 And again, it's not just an oil story, it's everything 0:11:31.000 --> 0:11:33.800 in the commodity space. This is really important, Jeff, because 0:11:33.800 --> 0:11:35.480 a lot of people think that we've already seen the 0:11:35.520 --> 0:11:38.360 supply shock. We've already seen so many barrels taken off 0:11:38.360 --> 0:11:40.959 the market because of the sanctions on Russia. What you're 0:11:41.000 --> 0:11:43.200 saying is that's not true, that we have yet to 0:11:43.280 --> 0:11:46.040 see the true supply constraints that have come from a 0:11:46.120 --> 0:11:48.440 lack of investment in the shale patch, a lack of 0:11:48.480 --> 0:11:51.880 investment by oil majors around the world, and now potentially 0:11:51.880 --> 0:11:54.040 some sort of disruption with Russia if they don't comply 0:11:54.520 --> 0:11:57.480 with the price caps being opposed by G seven allies. 0:11:57.920 --> 0:12:00.240 Is that your idea, when will it kick in the 0:12:00.280 --> 0:12:05.400 supply constraints that you predict. This is not a you know, 0:12:05.760 --> 0:12:09.520 a tactical trading view. I mean two years ago in October, 0:12:10.559 --> 0:12:14.120 we called for a commodity supercycle and we still stand 0:12:14.160 --> 0:12:16.960 by that view. And a commodity supercycle is not an 0:12:17.080 --> 0:12:20.840 upward trend in prices. It's spike after spike after spike, 0:12:21.160 --> 0:12:24.120 and this is gonna go on and on until we 0:12:24.160 --> 0:12:27.720 have adequate investment to be able to grow supply. You 0:12:27.800 --> 0:12:31.000 need to grow um hydrocarbons, and until you have enough 0:12:31.040 --> 0:12:34.160 of green energy to be able to meet global demand. 0:12:34.280 --> 0:12:38.760 Right now, one of global energy still comes from hydrocarbons. 0:12:38.800 --> 0:12:41.160 You can't go to zero there and expect the other 0:12:41.960 --> 0:12:44.480 to carry you. It's got to be an energy transition, 0:12:44.520 --> 0:12:47.040 and we need that investment. And then to do the 0:12:47.120 --> 0:12:49.680 green investment, you need the medals. You need to copper, 0:12:49.760 --> 0:12:53.240 the alley, the nickel, lithium, cobalt, silver, You need all 0:12:53.280 --> 0:12:56.000 of those minerals to be able to invest in the 0:12:56.040 --> 0:12:59.760 green capex to be able to solve the long run decarbonization. 0:13:00.280 --> 0:13:03.520 So this is not a near term tactical view. We 0:13:03.679 --> 0:13:05.640 just came off the back of one of the spikes 0:13:05.640 --> 0:13:09.880 that was well underway before before the events in Russia, 0:13:10.240 --> 0:13:13.720 and we'll probably see another spike in three as China 0:13:13.800 --> 0:13:18.360 begins to to reopen. But in terms of solving this problem, 0:13:18.480 --> 0:13:23.120 it requires large scale capital investment and the tuns of 0:13:23.160 --> 0:13:26.200 trillions of dollars. And we're not even close backt we 0:13:26.200 --> 0:13:28.600 haven't even scratched the surface yet. But by the way, 0:13:29.280 --> 0:13:31.880 the one point I want to say is this cycle 0:13:32.000 --> 0:13:33.840 is no different than the ones that we saw in 0:13:33.840 --> 0:13:36.520 the seventies and two thousands. It's the same kind of 0:13:36.600 --> 0:13:39.800 commodity supercycle UM. And what I actually I want to 0:13:39.800 --> 0:13:43.360 make a point. What preceded the seventies, the nifty fifty 0:13:43.640 --> 0:13:47.280 new economy, What preceded the two thousands, it was the 0:13:47.559 --> 0:13:50.840 dot combo. What preceded this one the Feng boom. That's 0:13:50.840 --> 0:13:53.400 what we call the revenge of the old economy. New 0:13:53.440 --> 0:13:57.200 economy takes all the capital from the old economy, starts 0:13:57.200 --> 0:14:00.200 into the investment It needs to grow the supply base UM, 0:14:00.280 --> 0:14:03.480 which then shifts you into this supercycle environment. On the 0:14:03.480 --> 0:14:05.520 flip side, what do you say is the revenge of 0:14:05.559 --> 0:14:07.760 the supplied demand dynamic that when you hit a hundred 0:14:08.400 --> 0:14:11.200 hundred and twenty five dollars in barrel on w T I, 0:14:11.280 --> 0:14:13.880 demand instruction really comes into play. And we learned that 0:14:14.040 --> 0:14:16.360 over the past couple of months. How much does that 0:14:16.480 --> 0:14:20.600 cap where oil prices could go. Well, it depends on 0:14:20.640 --> 0:14:23.920 where the dollar is trading. Um. You know, obviously in 0:14:24.040 --> 0:14:27.840 a really strong dollar environment, you know that the prices 0:14:27.880 --> 0:14:30.840 that in many countries around the world experience were all 0:14:30.880 --> 0:14:34.000 time highs. While in the US in a real term, 0:14:34.000 --> 0:14:36.120 the all time high and somewhere around a hundred and 0:14:36.200 --> 0:14:38.640 ninety back in two thousand and eight, um, and we 0:14:38.720 --> 0:14:40.920 reached a hundred and thirty it wasn't even close. But 0:14:41.040 --> 0:14:45.200 for Europe, Pound, sterling, Japanese, yeah, and many of these 0:14:45.240 --> 0:14:48.880 other currencies around the world, they experienced all time high prices, 0:14:48.960 --> 0:14:51.640 so um, you know they to answer that question, you 0:14:51.760 --> 0:14:54.840 end up having asked where is the doll or trading now? 0:14:54.880 --> 0:14:58.560 I think the key view here in three is, you know, 0:14:58.640 --> 0:15:01.400 you've seen a big run up in the dollar. As 0:15:01.400 --> 0:15:04.360 we see growth start to materialize in China and other 0:15:04.360 --> 0:15:06.840 parts of the world, we would expect the dollar to 0:15:06.880 --> 0:15:09.360 be going to taper off and then you could open 0:15:09.400 --> 0:15:12.960 it up more for dollar denominated commodities. But the big 0:15:13.000 --> 0:15:16.560 event in two was not the fundamental side of the commodities, 0:15:16.600 --> 0:15:18.480 but it was the dollar. Jeff, I want to jump 0:15:18.520 --> 0:15:20.160 to the Chinese wall here and I want to go 0:15:20.200 --> 0:15:23.640 from Jeffrey Curry out to Neil Meta. You've got is 0:15:23.680 --> 0:15:27.400 any other firm has a cell side looking at individual companies? 0:15:27.720 --> 0:15:31.320 How do you link your world in these constraints that 0:15:31.440 --> 0:15:35.480 lead to a higher Brent crude barrel over to their world, 0:15:35.560 --> 0:15:39.200 which is single stock selection like his call, stunning call 0:15:39.280 --> 0:15:42.960 on x on mobile um. You know when you look 0:15:43.000 --> 0:15:46.080 at the UH way the equity has been training. They've 0:15:46.120 --> 0:15:50.440 been looking through this yes in the commodity price because 0:15:50.680 --> 0:15:53.720 they're beginning to see that long term story. And by 0:15:53.720 --> 0:15:58.120 the way, x on versus Microsoft exemplifies this revenge of 0:15:58.160 --> 0:16:00.840 the old economy story. You know, Tom, you've been doing 0:16:00.880 --> 0:16:02.880 as long as I have. How many times have you 0:16:02.960 --> 0:16:05.840 seen Microsoft the largest company in the world, and how 0:16:05.840 --> 0:16:08.360 many times have you seen x on the largest company? Right? 0:16:09.120 --> 0:16:12.480 You go back to two thousand Microsoft on top x 0:16:12.640 --> 0:16:15.760 on nowhere you found and then you you didn't invest 0:16:15.800 --> 0:16:18.840 in oil and then you had that supercycle two ten 0:16:19.280 --> 0:16:23.200 XN on top Microsoft on the bottle reverse. I've got 0:16:23.240 --> 0:16:25.880 eight other questions, but we don't have time for Jeffrey Curry, 0:16:25.880 --> 0:16:32.320 Thank you so much. With Goldman Sachs there let's dive 0:16:32.360 --> 0:16:33.840 into it right now. And what we do is, you 0:16:33.920 --> 0:16:36.120 don't kill two birds with one stone. We killed two 0:16:36.120 --> 0:16:39.960 turkeys with one stone, giving you the Thanksgiving angle. We 0:16:40.040 --> 0:16:44.000 do that with Troy Gayski, chief market strategist FS Investments, 0:16:44.240 --> 0:16:47.320 with a ton of experience of Global Wall Street in 0:16:47.440 --> 0:16:49.920 New York Wall Street. Troy, before we get to your 0:16:49.960 --> 0:16:52.880 sixty comments, I want to talk to you about the 0:16:52.920 --> 0:16:56.480 state of hedge funds. Given the stunning year we've had. 0:16:56.960 --> 0:16:59.760 How is eight twenty two and twenty doing. How are 0:16:59.800 --> 0:17:03.480 they in this year? Yeah, so it depends on the strategy, Tom. 0:17:03.680 --> 0:17:05.480 I mean, it's actually been a very good year for 0:17:05.560 --> 0:17:09.040 multi strategy solutions, whether they're daily forty act or whether 0:17:09.080 --> 0:17:12.919 they're the classic QP structures. UM. There's been big dispersion 0:17:12.960 --> 0:17:17.119 across markets, particularly look at rates versus currency, or you 0:17:17.160 --> 0:17:21.800 look at trade opportunities like shorting mortgages versus treasuries. So 0:17:21.840 --> 0:17:24.840 that's been a very attractive place to be. UM. Systematic 0:17:24.840 --> 0:17:27.639 trend followers have also had a very strong year. Uh, 0:17:27.680 --> 0:17:29.520 there's been huge trends as you know, whether it's the 0:17:29.600 --> 0:17:32.920 dollar or commodities or rates movie higher UM and and 0:17:32.960 --> 0:17:35.280 the strategies that struggled the most of course, wo been 0:17:35.320 --> 0:17:38.720 the growth oriented long short equity strategies that you know, 0:17:38.840 --> 0:17:40.800 got a little too over their skis in terms of 0:17:41.000 --> 0:17:43.480 growth and go go growth and perhaps got a little 0:17:43.520 --> 0:17:46.760 too involved in privates and elevated valuation. So you know, 0:17:46.800 --> 0:17:49.600 in general, we think, you know, liquid multi strategy solutions 0:17:49.640 --> 0:17:52.760 continue to make sense. Uh, you know, and if you're 0:17:52.760 --> 0:17:55.600 going for income, you can look at things like f 0:17:55.720 --> 0:17:58.280 s c O, which we recently listed, which has income 0:17:58.320 --> 0:18:02.760 plus appreciation potential that trades out a discount to nav um. 0:18:02.800 --> 0:18:04.520 So a lot lots to do in the hedge fund space, 0:18:04.560 --> 0:18:06.639 lots to do in the alternative space. And when you 0:18:06.680 --> 0:18:09.480 look at sixty in the heart of your note, we've 0:18:09.480 --> 0:18:12.440 had a lot of different conversations of bond price up, 0:18:12.520 --> 0:18:15.480 yield down. Is the big shock next year that's six 0:18:16.080 --> 0:18:19.280 comes back with a vengeance. Yeah, So coming back with 0:18:19.320 --> 0:18:21.760 the vengeance to be a very strong term. I think 0:18:21.800 --> 0:18:23.720 one of our major themes, you know, our major theme 0:18:23.760 --> 0:18:27.080 for this year has been protect capital, don't be a hero, 0:18:27.680 --> 0:18:30.360 be in the Northwest squad in the fishing frontier right 0:18:30.400 --> 0:18:33.320 except lower risk, and either get a total return from 0:18:33.359 --> 0:18:37.160 income or through multi strategy solutions as we moved through 0:18:37.160 --> 0:18:39.920 the cycle. Uh, the next theme over the next several 0:18:40.000 --> 0:18:42.719 years will be you know, cash flow is king in 0:18:42.760 --> 0:18:45.600 that you don't need price appreciation to make a reasonable 0:18:45.720 --> 0:18:49.200 return as long as you don't have a horrific recession 0:18:49.240 --> 0:18:52.800 where default rates skyrocket. Your law suggested, yield on cash 0:18:52.840 --> 0:18:55.440 flow should be pretty attractive. So that doesn't mean it's 0:18:55.480 --> 0:18:59.160 time to dramatically ramp up risk or or rotate back 0:18:59.200 --> 0:19:02.120 aggressively in this sixty. What it means is, if you're 0:19:02.160 --> 0:19:04.639 going to accept risk in your portfolio and be in 0:19:04.680 --> 0:19:08.199 that northeast quadrant, make sure you're doing it in strategies 0:19:08.520 --> 0:19:12.159 that have ample income and that can provide a buffer 0:19:12.200 --> 0:19:15.000 and also give you positive convexity if next year it 0:19:15.040 --> 0:19:17.360 turns out better than we think it will. So where 0:19:17.359 --> 0:19:19.200 does bitcoin fit in considering that you were bullish on 0:19:19.240 --> 0:19:22.760 the asset class not so long ago. Yeah, well, look 0:19:23.119 --> 0:19:26.000 so again, Lisa, we talked about this and many times. Right, 0:19:26.080 --> 0:19:29.199 bitcoin is the most cyplical asset on the planet. It 0:19:29.280 --> 0:19:34.400 goes through meteoric bowl markets like it did in UM. Eventually, 0:19:35.040 --> 0:19:39.480 as demand exhaust itself, UH supplies in elastic to price. Right. 0:19:39.520 --> 0:19:41.680 So whether bitcoins at a million dollars or a dollar 0:19:42.840 --> 0:19:45.040 come out a day. And that's the reason you have 0:19:45.119 --> 0:19:49.440 these huge cycles. So there's really two approaches to owning crypto, 0:19:49.480 --> 0:19:53.040 and when we talk about crypto bitcoin specifically, either have 0:19:53.359 --> 0:19:58.639 a tiny allocation your overall asset mix, ride the higher 0:19:58.720 --> 0:20:02.199 highs and higher lows, or trade the cycle. But clearly, 0:20:02.240 --> 0:20:05.720 as the Fed continues to tighten monetary policy, um any 0:20:05.760 --> 0:20:08.080 directionally long asset is going to have a much more 0:20:08.160 --> 0:20:11.680 challenging environment than if one hold on a second Troy 0:20:11.720 --> 0:20:14.439 because what you're saying right now challenges the sort of 0:20:14.520 --> 0:20:17.440 existential angs that you hear across the board of people 0:20:17.440 --> 0:20:20.919 saying Bitcoin's done is all a Ponzi scheme, forget about it, 0:20:20.960 --> 0:20:22.560 And we've heard that for the likes even if deal 0:20:22.600 --> 0:20:25.080 cush Cary of the Federal Reserve. How much are you 0:20:25.119 --> 0:20:27.240 pushing back against that, saying this is here to stay? 0:20:27.240 --> 0:20:30.159 And are you among those tracking when there could be 0:20:30.200 --> 0:20:34.680 a good entry point not necessarily bailing with all get out? Yeah? 0:20:34.760 --> 0:20:37.760 Look looks so, I mean it's same as it ever was. Right, Like, 0:20:38.040 --> 0:20:42.480 bitcoin has incredible cycles. Uh, you know, medior gains, whether 0:20:42.520 --> 0:20:44.840 it's sixty four x or thirty two x or eight 0:20:45.000 --> 0:20:48.399 x in the last cycle and then draw downs, but 0:20:48.440 --> 0:20:51.600 it always survives because of the strength of the network UM. 0:20:51.680 --> 0:20:53.800 So we certainly think bitcoin will be around for the 0:20:53.840 --> 0:20:58.040 long haul. But it's very very volatile UM and you know, 0:20:58.080 --> 0:21:00.600 most of what's gone on here recently, it's just bad 0:21:00.640 --> 0:21:04.040 actors in space. It really doesn't speak to the negativity 0:21:04.200 --> 0:21:08.440 or or negatively reflect on bitcoin itself. It more reflects 0:21:08.480 --> 0:21:11.199 negatively on some of the actors that were attracted to 0:21:11.240 --> 0:21:15.320 the asset class, which is incredibly unfortunate and and just 0:21:15.359 --> 0:21:17.600 calls for the fact that we need more regulation without 0:21:17.600 --> 0:21:19.480 a doubt. Try to ask you thank you so much 0:21:19.480 --> 0:21:33.439 with FS investments, Jennifer McKellen, she's just wonderful. She's ad 0:21:33.440 --> 0:21:37.240 a wonderful shop. Capital Economics think of them like x CIOs. 0:21:37.480 --> 0:21:40.960 Xios came out of Media Day one Jim and Michael Rocking, 0:21:41.080 --> 0:21:44.000 and same with Capital Economics Day one they published and 0:21:44.080 --> 0:21:47.200 everybody took him seriously as they should. Jennifer, you are 0:21:47.240 --> 0:21:51.320 readjusting in the next year you bring down the so 0:21:51.480 --> 0:21:55.960 called terminal rate. You're ratcheting down your interest rate. Guests 0:21:56.280 --> 0:22:00.280 in the March of next year discussed that YEES for 0:22:00.280 --> 0:22:03.080 the UK. We we've just reduced our forecast. We had 0:22:03.080 --> 0:22:06.480 a relatively high peak and a five percent and that 0:22:06.560 --> 0:22:08.800 was partly following the mini budget the fiscal stimulus that 0:22:08.840 --> 0:22:11.199 we saw coming at that time. We've just revised that 0:22:11.240 --> 0:22:14.960 peek down to four and a half percent next year, 0:22:15.320 --> 0:22:18.760 partly partly because of that fiscal stimulus not coming and 0:22:18.800 --> 0:22:21.600 in fact turning to tightening orbit will be it a 0:22:21.640 --> 0:22:25.480 bit later on. Partly also because we're seeing some signs 0:22:25.520 --> 0:22:28.880 that perhaps the labor market isn't quite as tight as 0:22:28.920 --> 0:22:31.720 it was. There are some signs in surveys of wage 0:22:31.720 --> 0:22:34.200 negotiations of a bit of a let up, so we're 0:22:34.200 --> 0:22:36.320 not quite as worried about the inflation. Can you take 0:22:36.359 --> 0:22:39.000 it over globally? Can you look at a mis guest 0:22:39.080 --> 0:22:41.439 here of a higher terminal rate will be off the 0:22:41.520 --> 0:22:44.880 mark next year? Yeah, Well, we thought for a long 0:22:44.960 --> 0:22:48.360 time that the US terminal rate will be a bit 0:22:48.400 --> 0:22:51.560 lower than priced into markets. We have a terminal rate 0:22:51.640 --> 0:22:57.840 of for four seven, five to five. And there I 0:22:57.880 --> 0:22:59.800 think in the U S we' seeing much clearer evidence 0:22:59.840 --> 0:23:02.720 of crisis precious easing up and that the UK seems 0:23:02.760 --> 0:23:05.200 to be following suits a little bit in that regard, 0:23:05.320 --> 0:23:09.080