WEBVTT - Surveillance: A 'Rudderless' Fed 0:00:00.320 --> 0:00:04.160 Who you put your trust in matters. Investors have put 0:00:04.200 --> 0:00:07.640 their trust in independent registered investment advisors to the tune 0:00:07.640 --> 0:00:12.240 of four trillion dollars. Why learn more and find your 0:00:12.240 --> 0:00:27.240 independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 0:00:27.320 --> 0:00:31.320 I'm Tom Keane. Always with Michael McKee. Daily we bring 0:00:31.360 --> 0:00:35.280 you insight from the best in economics, finance, investment and 0:00:35.360 --> 0:00:41.519 international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, 0:00:41.560 --> 0:00:49.640 and of course on the Bloomberg. It is wonderful to 0:00:49.800 --> 0:00:52.760 start off our radio surveillance this morning with William Lee 0:00:53.280 --> 0:00:56.760 of a City Group. You bring such a rich heritage 0:00:56.800 --> 0:01:00.240 of city group economics. Working with Villin Powder me go 0:01:00.320 --> 0:01:05.119 broader global before we tear apart what we observed yesterday 0:01:05.400 --> 0:01:08.360 Catherine Man and O. E. C. D. I believe are 0:01:08.400 --> 0:01:13.120 looking for two point nine global growth down from three. 0:01:13.520 --> 0:01:16.760 I believe that's a recession in most textbooks. Is it 0:01:17.240 --> 0:01:19.399 well when you start to get to trend and trend 0:01:19.560 --> 0:01:22.119 is closer to two percent, but bordering on that because 0:01:22.120 --> 0:01:25.040 the measurement error is just huge on global GDP. The 0:01:25.240 --> 0:01:29.280 big problem is we have global slowdown, global productivity slowdown, 0:01:29.360 --> 0:01:33.959 global investment slowdown. These are the pillars of sustainable expansion 0:01:33.959 --> 0:01:36.319 that we no now. I love to tell Villain Bowder 0:01:36.360 --> 0:01:39.759 when he's wrong. That doesn't happen very often. You guys 0:01:39.800 --> 0:01:45.520 have been so out front in right about global slow down, 0:01:45.920 --> 0:01:50.320 global tepid growth. What's the distinction of why equals C 0:01:50.480 --> 0:01:54.480 plus I plus G plus annex to the global tround. 0:01:54.560 --> 0:01:58.080 I'm gonna guess it's non trade or flat trade exactly. 0:01:58.280 --> 0:02:00.919 The trade volume used in Coral it's six or seven percent. 0:02:01.080 --> 0:02:03.080 And that was the source and engine of growth for 0:02:03.160 --> 0:02:06.240 all emerging markets. Everyone said, oh, it's China doing It's 0:02:06.240 --> 0:02:08.520 not just China, but China and the entire supply chain 0:02:08.960 --> 0:02:11.520 all into South Asia, and and and and the rest 0:02:11.560 --> 0:02:14.079 of the world that was going to export stuff to 0:02:14.160 --> 0:02:17.520 the advanced economies. Now, with trade volume going down because 0:02:17.520 --> 0:02:21.000 they slow down in domestic advanced economies, you have a 0:02:21.120 --> 0:02:24.360 collapse in the emerging markets. And the hardest thing for 0:02:24.400 --> 0:02:26.560 investors to do now is the investing emerging markets because 0:02:26.720 --> 0:02:28.720 you no longer have to. You have to look for 0:02:28.800 --> 0:02:32.600 domestic stories. The hardest thing to do is be Janet 0:02:32.680 --> 0:02:36.840 yelling should she focus on the domestic economy? All of 0:02:36.880 --> 0:02:41.200 the three dissenters, or can she take an internationalist approach 0:02:41.600 --> 0:02:44.280 of the slow grows Tom The radio ones can't see 0:02:44.280 --> 0:02:46.200 how much great here we've got. But one of the 0:02:46.200 --> 0:02:48.480 things that I was doing at the at the board, 0:02:48.480 --> 0:02:52.919 excuse me, the radio audience knows how we have continued. 0:02:53.080 --> 0:02:56.080 When I entered the board right after my PhD, my 0:02:56.160 --> 0:02:58.440 first assignment was to work on the international sector of 0:02:58.440 --> 0:03:01.880 what's known as the Ferbest Model. Now that was UM. 0:03:02.040 --> 0:03:05.360 The Board has and the FED has always been globally oriented, 0:03:05.600 --> 0:03:07.640 and we have always looked at what's going on the world, 0:03:07.760 --> 0:03:10.000 what we're not doing. What we're doing now that's different 0:03:10.200 --> 0:03:13.120 is that we're letting the world run US monetary policy. 0:03:13.480 --> 0:03:16.160 That's been a shift in the way Montrey policy has 0:03:16.200 --> 0:03:19.959 been conducted between Chair Volca and Chair Yelling, and that shift, 0:03:20.000 --> 0:03:22.320 I think is not for the good. Always, yes, we 0:03:22.360 --> 0:03:24.560 should consider the rest of the world, but we shouldn't 0:03:24.600 --> 0:03:27.040 let the rest of the world dominate in deciding what's 0:03:27.120 --> 0:03:29.520 probably monster pulse for us. Let's dive into the press 0:03:29.560 --> 0:03:32.000 conference yesterday, and for those of you that heard every 0:03:32.080 --> 0:03:34.600 word of it, thank you so much for listening to 0:03:34.760 --> 0:03:38.280 to Bloomberg. From everything from Eric Chiasker's question that led 0:03:38.320 --> 0:03:41.480 to the debate on product discussion rather on productivity, to 0:03:41.760 --> 0:03:45.440 just the sheer confusion. There were billy three or four 0:03:45.600 --> 0:03:50.200 times where Chair Yelling stated something of what we want 0:03:50.280 --> 0:03:54.400 to do, a prescriptive fread and out front fed, and 0:03:54.480 --> 0:03:57.680 then she came back a minute later or two minutes 0:03:57.760 --> 0:04:01.160 later and said, but we need evidence. I'm baffled. Help. 0:04:01.720 --> 0:04:04.880 Not only are we baffled, but it is clearly showing 0:04:05.120 --> 0:04:07.720 how the FETE has lost its way, is working without 0:04:07.760 --> 0:04:10.240 a rudder. And Eric asked exactly the question I would 0:04:10.240 --> 0:04:13.440 have asked, how can you in this slowing economy where 0:04:13.480 --> 0:04:16.640 your forecast is slowing down, are you pushing up rates 0:04:16.720 --> 0:04:19.720 by several hundred basis points and you're and you're telling 0:04:19.839 --> 0:04:22.800 us a normalized interest rate is one with a real 0:04:22.920 --> 0:04:25.080 rate that's near zero, and yet you don't see the 0:04:25.120 --> 0:04:27.920 inflation going up several hundred basis points in your forecast. 0:04:28.279 --> 0:04:30.840 So so that I think is caught yelling to the 0:04:30.839 --> 0:04:34.279 point where she had to stumble and said, well, this productivity, well, 0:04:34.480 --> 0:04:36.599 as she went to her script, which is to say, 0:04:36.839 --> 0:04:39.679 we've got structural headwinds. We need to address the headwinds. 0:04:39.839 --> 0:04:41.960 And that's The only thing she could rely on within 0:04:42.040 --> 0:04:46.560 the Strug struggle was the idea of Vector's traditional economics 0:04:46.640 --> 0:04:50.240 is to set up a VECTOR personified by Chairman Greenspan, 0:04:50.320 --> 0:04:53.920 and the idea of a measured approach. We've got suits 0:04:53.960 --> 0:04:57.800 and ties on, fancy dresses, were organized, we know what 0:04:58.040 --> 0:05:01.680 we're doing. We're in control roll. And then there's the 0:05:01.800 --> 0:05:05.280 idea of just let's get back to normal and let 0:05:05.400 --> 0:05:08.320 the market in the system work it out. What would 0:05:08.400 --> 0:05:12.480 be the consequences if the dissenters win and we get 0:05:12.520 --> 0:05:15.360 to one or two or three rate increases, So the 0:05:15.440 --> 0:05:19.560 macroeconomy absolutely nothing, because between zero and a hundred and 0:05:19.560 --> 0:05:22.400 fifty basis points, the cost of capital is still going 0:05:22.440 --> 0:05:25.720 to be negative or zero. Everyone is incentivized with the 0:05:25.760 --> 0:05:28.000 cost of capital as much as they can be right now. 0:05:28.200 --> 0:05:31.760 And where's it led us to? Nothing? Nothing? What we what? 0:05:32.000 --> 0:05:34.160 What I think everyone is concerned about is that my 0:05:34.279 --> 0:05:37.159 god basis points and a vector of another hundred basis 0:05:37.200 --> 0:05:39.760 points over three years is going to collapse with the 0:05:40.279 --> 0:05:42.680 U S economy, There's no But what it will do 0:05:43.040 --> 0:05:47.400 is remove that distortion that's preventing firms from investing resources 0:05:47.480 --> 0:05:51.000 adequately and in the right places short of markets, throw 0:05:51.040 --> 0:05:54.800 off markets. Vice Chairman Fisher entered the press conference briefly. 0:05:54.920 --> 0:05:56.760 He made a cameo appearance. I don't know if you 0:05:56.839 --> 0:06:00.440 saw that, where cheer yelling discuss alter a com dative 0:06:01.000 --> 0:06:06.320 shifting to modestly accommodative. It's like we're doing adverb economics. 0:06:06.880 --> 0:06:09.640 I mean Matt Winkler, the emeritus editor in chief of 0:06:09.720 --> 0:06:12.560 Bloomberg News, would say he'd be starts. Matt's bow tie 0:06:12.600 --> 0:06:17.800 would be spinning, as we all were yesterday over adverb economics. 0:06:17.880 --> 0:06:20.520 That's what we've come down to. And and even worse 0:06:20.720 --> 0:06:23.400 with adverb economics, we know have a framework. We are 0:06:23.560 --> 0:06:26.960 we are data dependent in an adverbial way, and that's ridiculous. 0:06:27.400 --> 0:06:30.040 We we used to be tied with full employment and 0:06:30.040 --> 0:06:33.159 massill employment and postability and a framework to get their 0:06:33.520 --> 0:06:38.040 steady Montrey policy correcting market distortions. That was Montrey policy. 0:06:38.279 --> 0:06:41.600 Now we are adding to market distortions and not going 0:06:41.600 --> 0:06:45.159 into steady fashion. We're letting events and immediate data drive 0:06:45.480 --> 0:06:48.200 from Monty policy. And now, folks, my dumb question of 0:06:48.240 --> 0:06:50.680 the press conference, I could you imagine me given share 0:06:50.760 --> 0:06:53.080 yelling a question of the press conference, it would be 0:06:53.160 --> 0:06:57.240 a frightening thing. Bill Lee, what's the difference between evidence 0:06:57.680 --> 0:07:02.279 and data dependence? Help me here. And that's the struggle 0:07:02.360 --> 0:07:04.360 that that I think they're coming with, which is to say, 0:07:04.760 --> 0:07:07.640 we don't we get a lot of data and we 0:07:07.720 --> 0:07:10.760 are not consistently reacting to it. We're acting to some 0:07:10.920 --> 0:07:15.400 source of events like the child evaluation, we're reacting to fears, 0:07:15.680 --> 0:07:18.400 but we're not reacting in a consistent framework. Help me 0:07:18.480 --> 0:07:20.480 with here, and folks, this is a cottage industry, and 0:07:20.480 --> 0:07:24.280 the United Kingdom is called economic epistemology. It's not that 0:07:24.480 --> 0:07:28.200 much trained in the U S. Bruce Cadwell is legendary 0:07:28.280 --> 0:07:30.680 at North Carolina. But there was a guide bill a 0:07:30.800 --> 0:07:33.880 years ago, Mark Blogg out of Yale and then over 0:07:33.920 --> 0:07:36.480 to Llse and Louvin and I had the honor of 0:07:36.600 --> 0:07:40.160 interviewing him a few times. And Professor Blogg set up 0:07:40.280 --> 0:07:44.280 the philosophy of economics, and the heart of it is 0:07:44.360 --> 0:07:48.800 ex post ex ante, an institution that gets out front 0:07:49.520 --> 0:07:54.120 versus an institution that reacts to evidence and data. The historians, 0:07:54.160 --> 0:07:58.240 including going Bi Bernanke, would say, by definition their ex post, 0:07:59.360 --> 0:08:02.040 where is this idea that we can get out front 0:08:02.440 --> 0:08:04.640 as a central bank? Come from the heart of the 0:08:04.960 --> 0:08:09.080 SEP right. The projections of the FOLC members is to 0:08:09.160 --> 0:08:12.240 say we need to base policy on looking forward our 0:08:12.320 --> 0:08:15.760 ex anti presumptions of where the economy is going. To 0:08:15.840 --> 0:08:18.360 say that we are driving Montree policy by looking at 0:08:18.440 --> 0:08:22.600 data realizations, which is a beautifull ridiculous. But come on, 0:08:22.720 --> 0:08:25.200 it's ridiculous. But I heard her say four times in 0:08:25.280 --> 0:08:28.160 the press conference and making that up folks, maybe two times, 0:08:28.440 --> 0:08:31.760 maybe eight times, that she needs to see evidence, which 0:08:31.800 --> 0:08:35.600 is by definition expost We've never had more Latin. We've 0:08:35.679 --> 0:08:38.280 never had more Latin on surveillance than we are right now. 0:08:38.440 --> 0:08:41.360 Which is it. She's been driven into this evidence based 0:08:41.400 --> 0:08:44.600 world because the brainers and the other doves have said 0:08:44.920 --> 0:08:48.319 the costs and benefits are asymmetric, and we need to 0:08:48.400 --> 0:08:51.079 make sure that we don't see downside evidence and we 0:08:51.160 --> 0:08:54.040 are not seeing upside evidence, so we cannot do everything 0:08:54.280 --> 0:08:56.720 consistent with ex anti upside. I don't want to get 0:08:56.720 --> 0:08:58.680 you in trouble with the General Council of City Group 0:08:58.960 --> 0:09:02.440 or with Mr Corbett, but the basic idea here, would 0:09:02.480 --> 0:09:06.360 you suggest Vice Sherman Fisher and John Williams, non voter, 0:09:06.800 --> 0:09:10.480 would have dissented as well. They would have absolutely dissented. 0:09:10.520 --> 0:09:12.760 And in fact, I think Fisher is tying his hands 0:09:12.800 --> 0:09:14.959 behind his back so he doesn't punch her out. No, 0:09:15.200 --> 0:09:16.760 that's what he did in my interview with him, he 0:09:16.800 --> 0:09:18.880 had his hands behind his back so he wouldn't touch me. 0:09:19.000 --> 0:09:20.880 Bill Lee with us a city, go how about a 0:09:21.000 --> 0:09:28.040 little bit of surveillance inside baseball? We do different things here. No, 0:09:28.120 --> 0:09:30.839 I'm not talking red Side the first place, Boston Red Sox. 0:09:31.120 --> 0:09:34.840 John Tucker does certain things. Why you yen Wire producer 0:09:35.000 --> 0:09:40.560 Colin Our, producer, Ken Folio Global technical director, Michael McKee 0:09:40.640 --> 0:09:46.079 does certain things. He dredges up ancient documents quote. It 0:09:46.280 --> 0:09:49.120 was agreed that the next meeting of the committee would 0:09:49.160 --> 0:09:57.440 be held on Tuesday, November. The meeting adjourned Greenspan, Corrigan, 0:09:57.600 --> 0:10:03.360 Angel Bain, Boykin, Buskins, Kelly la where Mullen, Seeger and Stern. 0:10:04.200 --> 0:10:07.400 Mr Melzer of St. Louis attended the meeting. One of 0:10:07.440 --> 0:10:11.800 the giants of a Siren of economics, so Thecone is 0:10:11.840 --> 0:10:16.000 a secretary and economist Donald Cone, Ted Truman I believe 0:10:16.480 --> 0:10:21.640 was in the room. Mike McKee. What happened on October two? Well, 0:10:21.679 --> 0:10:27.560 he had four descents that day, um which was unusual. 0:10:27.640 --> 0:10:30.160 It's it was the last time he had four descents. 0:10:30.480 --> 0:10:35.559 Governors Seeger and Angel dissented, President Boyken of Dallas, and 0:10:35.679 --> 0:10:38.839 President Hoskins of Cleveland, for those of you old enough 0:10:38.920 --> 0:10:44.440 to remember those names. Uh. They disagreed with the apparently 0:10:44.760 --> 0:10:47.640 because his specifics weren't recorded, but they disagreed with the 0:10:47.720 --> 0:10:51.960 idea that they should be lowering interest rates. Take us 0:10:52.000 --> 0:10:55.880 to one William Lee on this descent. Uh, it is 0:10:56.000 --> 0:10:59.680 very unusual to have three descents. Obviously, it is almost 0:11:00.360 --> 0:11:03.520 unheard of to have four. But I've been going back. 0:11:03.600 --> 0:11:05.520 I still am. I'm going back through all the minutes 0:11:05.559 --> 0:11:08.400 of the previous meetings where we had at least three descents. 0:11:08.480 --> 0:11:11.120 I can't find a time when you had three people 0:11:11.200 --> 0:11:14.719 dissent in favor of higher rates. Uh. This is this 0:11:14.920 --> 0:11:19.400 is obviously a strong message to the chair that there 0:11:19.440 --> 0:11:22.800 are some people concerned. Absolutely, and in fact, it's even 0:11:22.880 --> 0:11:27.400 more shocking in a consensus oriented Yelling fed where you 0:11:27.520 --> 0:11:30.760 have three descents, because Yelling's modus at Brenda has always 0:11:30.800 --> 0:11:33.800 been to try to forge that consensus even before the 0:11:33.880 --> 0:11:36.679 meeting starch that she can have a clear sense of 0:11:36.760 --> 0:11:39.120 backing from the rest of the FOMC. I think she 0:11:39.520 --> 0:11:43.480 differs from the chairs of Vote Vocal and Greenspan because 0:11:43.679 --> 0:11:45.920 they were personality driven in the sense that they said, 0:11:46.240 --> 0:11:49.079 I think this, what do you guys think? Chair Yelling 0:11:49.120 --> 0:11:51.439 goes around asking what is it that it's on your 0:11:51.520 --> 0:11:54.280 mind and how can we forge a consensus together. I 0:11:54.360 --> 0:11:56.920 think that's her strength, but it's also been her weakness 0:11:56.960 --> 0:12:00.920 because the consensus that has driven the pop policy decisions 0:12:01.080 --> 0:12:03.400 has been consensus driven by Brainer and the doves on 0:12:03.440 --> 0:12:05.880 the committee, and I think the hawks have finally said, 0:12:06.160 --> 0:12:08.480 we're putting our foot down now. Remember the history of 0:12:08.520 --> 0:12:11.120 the FED is that the Board has always been a 0:12:11.200 --> 0:12:14.599 more devish leaning part of the fom C, and the 0:12:14.800 --> 0:12:17.720 regional FETs have always tended to be somewhat more hawkish 0:12:18.000 --> 0:12:21.520 because they, I think, are closer in touch with markets 0:12:21.679 --> 0:12:24.760 and people who are doing business, and the business people say, 0:12:24.840 --> 0:12:27.920 we need their market signals. We cannot have FED distortions, 0:12:27.960 --> 0:12:30.040 and that's what we have now. Mike Wayne Angel being 0:12:30.120 --> 0:12:33.440 the example of that from Wayne was. I was there 0:12:33.440 --> 0:12:35.160 when Wayne was there, and I must say he was 0:12:35.240 --> 0:12:38.160 quite a supply cider, so he was quite an extremist, 0:12:38.280 --> 0:12:41.679 but nevertheless he was very market oriented and this consistent 0:12:41.800 --> 0:12:44.640 message from Wayne and and and and and a lot 0:12:44.720 --> 0:12:48.959 of the regional fed governors of uh presidents now is 0:12:49.040 --> 0:12:51.760 that the governors on the fl on the board have 0:12:52.000 --> 0:12:55.400 really lost touch with what is needed in markets, which 0:12:55.480 --> 0:12:58.360 is clear signals. And you cannot have clear signals when 0:12:58.360 --> 0:13:01.160 you have distortions caused by or rate policies. But for 0:13:01.240 --> 0:13:05.640 eight years, and to go back to something that Tom said, well, 0:13:05.679 --> 0:13:10.280 it was actually Fran said earlier on Surveillance TV. Should 0:13:10.320 --> 0:13:13.679 we cut them break in the sense that we have 0:13:13.840 --> 0:13:18.000 not seen monetary conditions like this or any economy like 0:13:18.120 --> 0:13:22.120 this since the Great Depression. So they're working from a 0:13:22.240 --> 0:13:26.679 playbook that is eighty years old and still um and 0:13:26.760 --> 0:13:29.839 may not be completely relevant because of conditions. So the 0:13:29.960 --> 0:13:33.040 fact that there are disagreements, it's not something that should 0:13:33.040 --> 0:13:35.839 be unusually absolutely by. But the conditions that we're seeing 0:13:35.880 --> 0:13:39.640 and the ones that that share yellings highlighting are low productivity, 0:13:40.040 --> 0:13:43.120 low investment, and slow growth. Those are not the things 0:13:43.160 --> 0:13:45.240 that monstro policy can address because, as we all know 0:13:45.320 --> 0:13:48.920 from our textbooks, monster policy cannot create growth. You can 0:13:48.960 --> 0:13:50.880 only move it around. You can borrow it from the 0:13:50.920 --> 0:13:53.280 future by lowing rates, or you take it from a neighbor. 0:13:53.360 --> 0:13:55.720 But I depreciate the exchange rate. But you can only 0:13:55.840 --> 0:13:58.319 set the conditions to allow market force to work and 0:13:58.480 --> 0:14:02.640 structural policies that really get growth and enhance Billy very quickly. 0:14:02.840 --> 0:14:06.200 Eric Schatz had a dashon airplane yesterday after his killer question. 0:14:06.520 --> 0:14:09.000 He cracked the door open to the press conference. How 0:14:09.120 --> 0:14:12.240 much credibility leaked out of the room. In fact, the 0:14:12.360 --> 0:14:17.319 press conference was an example of how credibility just disappeared 0:14:17.480 --> 0:14:20.960 in a heartbeat because chair yelling was flailing. Four answers 0:14:21.280 --> 0:14:25.000 as as you quite uh you know rightly mentioned words 0:14:25.120 --> 0:14:28.560 like data dependent, evidence based. How is it that we 0:14:28.640 --> 0:14:33.520 are letting a world of of expost data drive future policy. 0:14:33.760 --> 0:14:36.520 How is it that we're letting past events drive where 0:14:36.560 --> 0:14:40.480 futures are going? When past events are at hawk chosen 0:14:40.520 --> 0:14:43.960 in an alcoholic exceptionally valuable. I'll be blunt. We would 0:14:44.040 --> 0:14:46.560 kill to get you and villin powder, Stephen England or 0:14:46.600 --> 0:14:49.600 whatever all on the table at the same time. Billy, 0:14:50.240 --> 0:14:54.120 I gotta kill you. He's a city group just just wonderful, wonderful. 0:14:54.680 --> 0:14:59.320 This is fun. Michael McKeon, Tom Kane, this is Bloomberg. 0:15:10.560 --> 0:15:15.120 John Manley is well Sarto's chief equity strategists. So he's 0:15:15.160 --> 0:15:17.200 the guy who was sitting around on the trading guest 0:15:17.600 --> 0:15:21.800 yesterday watching the FED decision come in and telling people, well, 0:15:21.840 --> 0:15:24.800 here's what you do next. And clearly John the advice 0:15:24.920 --> 0:15:28.720 for most strategists was by because the FED has put 0:15:28.800 --> 0:15:32.560 off raising rates. But I wonder how long can that 0:15:33.480 --> 0:15:36.840 knee jerk reaction be justified, given the fact that there's 0:15:36.880 --> 0:15:40.960 so much data between now and December, and we really 0:15:41.000 --> 0:15:43.360 don't know where the economy is going at this point. 0:15:44.360 --> 0:15:46.320 I know it's a set exactly, and I think that's 0:15:46.480 --> 0:15:48.520 part of the trick. I think it's important to realize 0:15:48.520 --> 0:15:50.600 the FED will raise interest rates just as soon as 0:15:50.640 --> 0:15:54.120 they think they can without adversely affecting the economy. As 0:15:54.160 --> 0:15:58.040 the economy gets stronger, it needs less stimulation from the Fed. Uh, 0:15:58.200 --> 0:16:00.440 it can deal with higher interest rates, and market can 0:16:00.480 --> 0:16:02.320 deal with higher interest rates. I think the trick is 0:16:02.400 --> 0:16:04.560 to wait. The set is trying to get a sense 0:16:04.640 --> 0:16:07.200 that the economy has enough momentum that they can ease 0:16:07.280 --> 0:16:09.760 off the throttle. They're not tapping the brake, they're easing 0:16:09.800 --> 0:16:12.440 off the throttle of it. Are you when you look 0:16:12.480 --> 0:16:14.840 at what the fed. Did you pay more attention to 0:16:15.920 --> 0:16:19.640 the fact that they're saying, well, we're getting closer to 0:16:19.680 --> 0:16:22.000 an interest rate increase, or to the fact that they 0:16:22.080 --> 0:16:24.400 lowered the number of interest rate increases they're looking at 0:16:24.520 --> 0:16:28.600 for two thousand seventeen from three to two. Well, as 0:16:28.720 --> 0:16:31.000 with anything a human being does, it's always the best 0:16:31.040 --> 0:16:32.680 guest what are they going to do in the future. 0:16:32.760 --> 0:16:35.000 I think to me, the most important thing is they're 0:16:35.000 --> 0:16:37.920 thinking about it. They realize the risk involved in raising 0:16:38.040 --> 0:16:40.360 rates too quickly. I think there's a muted risk of 0:16:40.480 --> 0:16:42.320 raising them too slowly with that's something you can deal 0:16:42.400 --> 0:16:44.720 with later on. I think they're going to be dated 0:16:44.760 --> 0:16:46.960 dependent in the same way I'm daated dependent. When I 0:16:46.960 --> 0:16:48.960 get off an airplane, I know when it's supposed to land, 0:16:49.000 --> 0:16:50.440 but if it's late and don't get off early, and 0:16:50.440 --> 0:16:52.760 if it's earlier, I don't get off late. Uh. They're 0:16:52.800 --> 0:16:57.000 going to have I think, ample justification to raise rates, 0:16:57.040 --> 0:16:59.400 and I think at some point that's ther were you yesterday? 0:16:59.520 --> 0:17:01.520 Come on, John Manley, I mean you were hanging on 0:17:01.640 --> 0:17:05.359 every word Michael McKee said yesterday afternoon. Of course, data 0:17:05.440 --> 0:17:10.520 dependent is so two thousand and fifteen. It's evidence, evidence 0:17:10.640 --> 0:17:14.560 we need evidence. Evidence is the new word. That's what 0:17:14.640 --> 0:17:17.800 I learned yesterday. I'm an old fashioned guy. Uh, and 0:17:18.119 --> 0:17:21.920 this prosy Tom, your research note is brilliant and you 0:17:22.080 --> 0:17:25.520 absolutely nailed what we observed yesterday. You talk about the 0:17:25.640 --> 0:17:29.720 idea and the risk that a central bank could lose control. 0:17:31.040 --> 0:17:35.080 Did the central bank lose control and that press conference yesterday? 0:17:36.520 --> 0:17:39.200 I don't think so. I mean, um, you know, controlling 0:17:39.240 --> 0:17:42.000 a press conference and controlling the economy are two different things, 0:17:42.080 --> 0:17:44.240 and uh, I think one is more difficult than the other. 0:17:44.280 --> 0:17:47.720 And it's not the obvious one. Um. Uh. The said 0:17:48.040 --> 0:17:51.679 still is in control or the economy is in control. 0:17:51.720 --> 0:17:53.320 The you know, they only have so many tools. They 0:17:53.359 --> 0:17:55.960 can't make us do things, so it's always a question 0:17:56.000 --> 0:17:58.199 of pushing or pulling money to us or from us, 0:17:58.600 --> 0:18:01.760 And that's inherently will look like they don't have absolute 0:18:01.800 --> 0:18:04.600 control because they never have absolute control on bounce though, 0:18:04.640 --> 0:18:06.479 I don't think the economy is running away from them, 0:18:06.480 --> 0:18:08.920 and I don't think it's plunging too quickly. I'll say 0:18:08.960 --> 0:18:12.320 they're in control. With that, in control of the economy 0:18:13.280 --> 0:18:17.880 to what extent um As you say, Uh, they only 0:18:17.960 --> 0:18:20.920 have some tools, so can they only maybe put a 0:18:21.000 --> 0:18:23.320 floor under things. They can't create growth. That was the 0:18:23.359 --> 0:18:26.560 point that Bill Lee was talking about. They can't, Uh, 0:18:27.359 --> 0:18:29.639 they can. They can't make us buy a car, or 0:18:29.680 --> 0:18:31.959 build a house, or start a factory. All they can 0:18:32.040 --> 0:18:34.400 do is make the money we used to do those 0:18:34.480 --> 0:18:37.000 things seem cheaper expensive. So it truly is leading a 0:18:37.080 --> 0:18:40.200 horse to water. It's an imperfect control. Because this is 0:18:40.240 --> 0:18:43.080 a free market economy. We do not have planned growth. 0:18:43.160 --> 0:18:45.440 We don't build so many steel mills or flour mills 0:18:45.520 --> 0:18:47.840 or whatever because the government wants, and we build them 0:18:47.880 --> 0:18:51.560 by supply and demand. The FED, using interest rates, using 0:18:51.600 --> 0:18:54.720 the pressure of money in or out, tries to push 0:18:54.800 --> 0:18:56.440 that along in the way they want to, and then 0:18:56.960 --> 0:18:59.280 it should run by itself. You don't constantly need the 0:18:59.320 --> 0:19:02.200 Fed to push. Let's state it right now. What is 0:19:02.240 --> 0:19:06.160 the level of bullishness that you are It's it's I'm 0:19:06.240 --> 0:19:09.560 still my head spinning off the press conference yesterday. Let 0:19:09.640 --> 0:19:13.920 me just spact something clear. Should I acquire shares this morning? 0:19:15.160 --> 0:19:18.760 I would Yes, it's radio John. You can ask why 0:19:19.040 --> 0:19:22.960 if you give us longer answers? Well, I think I 0:19:23.680 --> 0:19:25.280 think you should. I think you know, it depends on 0:19:25.359 --> 0:19:27.920 what you want. Obviously, individuals what you want to do. 0:19:28.119 --> 0:19:30.760 I think the markets can move higher from here, and 0:19:30.840 --> 0:19:33.040 I think there's a chance that people finally get excited 0:19:33.040 --> 0:19:36.399 about markets, and that usually happens before Beau markets. There's 0:19:36.440 --> 0:19:39.360 a b exclusive right there. Michael McKee and Tom Keene 0:19:39.400 --> 0:19:41.920 were trying to digress away from the FED for like, 0:19:42.040 --> 0:19:44.679 oh six or seven minutes totally. John Manley with US 0:19:45.280 --> 0:19:48.240 with Wells Fargo Asset Management. John, If I had a 0:19:48.320 --> 0:19:51.639 given company and they take sixty two cents on the 0:19:51.720 --> 0:19:55.080 dollar down to gross profit, they take a very ample 0:19:55.240 --> 0:19:59.160 thirty two cents on the dollar down to IBADAR operating 0:19:59.240 --> 0:20:04.600 income net income? Is it exceptionally risk twenty cents on 0:20:04.760 --> 0:20:10.000 the dollar? Free cash flow is ginormous as compared to 0:20:10.080 --> 0:20:13.199 net income. That would be a stock that would develop 0:20:13.240 --> 0:20:15.560 a lot of cash that would have to make a 0:20:15.640 --> 0:20:18.800 decision should they invest or should they give it back 0:20:18.840 --> 0:20:23.879 to shareholders? That company would be Microsoft. Is it financial 0:20:24.080 --> 0:20:28.560 engineering when a blue chip multinational goes, we don't know 0:20:28.640 --> 0:20:30.960 what to do with our cash, let's give it back 0:20:31.000 --> 0:20:35.040 to shareholders. I don't think it is. I think it's 0:20:35.040 --> 0:20:39.480 a legitimate investment decision. Obviously not speaking about the specific company, 0:20:39.560 --> 0:20:43.439 but when a company is generating tremendous profits and doesn't 0:20:43.480 --> 0:20:46.159 see in the opportunity to invest, they shouldn't invest just 0:20:46.400 --> 0:20:49.200 because they're supposed to invest. They should find the best 0:20:49.240 --> 0:20:51.280 place for that money, and that could mean buying into 0:20:51.320 --> 0:20:54.720 their business. So they're I don't think they're necessarily trying 0:20:54.720 --> 0:20:57.160 to manipulate stock prices. That they're trying to buy into 0:20:57.160 --> 0:20:59.440 an attractive business. It just happens to be their own. 0:20:59.720 --> 0:21:02.840 Mike point, Mike is there are many apples, and many 0:21:02.960 --> 0:21:09.399 many apples. Microsoft Cash fifty three sixty three, seventy seven, 0:21:09.960 --> 0:21:16.600 eighties six nine, seven hundred and thirteen billion, one tenth 0:21:16.640 --> 0:21:19.520 of a trillion dollars. Michael McKey, Yeah, and you know 0:21:19.640 --> 0:21:21.560 Apple has the same kind of cash. I know, John, 0:21:21.600 --> 0:21:24.040 you don't want to talk about individual companies, although if 0:21:24.080 --> 0:21:26.160 you'd like to insult any of them, please feel free. 0:21:26.200 --> 0:21:29.840 It will help our ratings. Uh. But you seem to 0:21:29.880 --> 0:21:32.920 be taking issue with the conventional wisdom that the only 0:21:33.000 --> 0:21:35.960 reason companies are deploying cash is to keep the stock 0:21:36.040 --> 0:21:39.879 price up so the CEO gets paid. Well, the CEO 0:21:40.000 --> 0:21:42.359 wants to get paid. But that's how the world works, 0:21:42.520 --> 0:21:45.440 or at least that's how it works in America. We're 0:21:45.480 --> 0:21:48.280 all profit motivated. We all want more for ourselves, or 0:21:48.320 --> 0:21:50.240 many of us do. Let's put it that way. And 0:21:50.359 --> 0:21:52.640 I think that's what draws the economy, that's what's meant 0:21:52.720 --> 0:21:55.120 is to success around the world. And I think there's 0:21:55.160 --> 0:21:57.080 nothing wrong with that. I think that what you have 0:21:57.160 --> 0:21:59.080 to look at his corporations are looking for the best 0:21:59.119 --> 0:22:02.440 way to benefit their shareholders. Ultimately, now the CEO thinks 0:22:02.480 --> 0:22:03.960 he or she's gonna get paid if he or she 0:22:04.040 --> 0:22:07.040 does that, hopefully they align close enough. I think what 0:22:07.400 --> 0:22:10.040 has to happen, you know the old saying for a 0:22:10.080 --> 0:22:12.320 field of dreams building and they shall come as backwards. 0:22:12.480 --> 0:22:14.399 When when your corporations, they shall come, and then you 0:22:14.480 --> 0:22:16.920 build it. Uh, you know, I don't see the point 0:22:17.000 --> 0:22:20.080 of adding to capacity with capacity isn't needed, and I 0:22:20.160 --> 0:22:22.359 think the demand has to come to them. And that 0:22:22.480 --> 0:22:27.040 means eventually all recoveries in the economy, all successful extended 0:22:27.119 --> 0:22:30.280 recoveries come from the consumer. We want to buy more things. 0:22:31.080 --> 0:22:34.080 Corporations decide they have to expand capacities provide us with 0:22:34.160 --> 0:22:37.280 those things. That's I think healthy. Until that happens, why 0:22:37.359 --> 0:22:40.320 not just invest in your own very profitable business well, 0:22:40.400 --> 0:22:42.000