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Speaker 1: a Wednesday morning, the twelfth of October. Good morning to
Speaker 1: everyone around the world listening on Bloomberg Radio. I'm David
Speaker 1: Gurrow with Tom Keene in New York. Today the Federalserve
Speaker 1: releases minutes from its September meeting. We'll look for more
Speaker 1: detail on that seven to three decision not to raise
Speaker 1: rights and will continue to keep close eye on currencies.
Speaker 1: This morning, the pound strengthening from what was close to
Speaker 1: a three decade low. UK Prime Minister Theresa May, signaling
Speaker 1: more of a willingness to work with Parliament on a
Speaker 1: plan for Brexit. As I mentioned, FED minutes out today
Speaker 1: at two pm in Washington, and Steven Stanley is going
Speaker 1: to be paying attention to that. He is AMers Pierrepont's
Speaker 1: chief Economy is kind enough to join us now in
Speaker 1: the studio in New York. And Stephen, let me just
Speaker 1: start by asking what you're gonna be looking for when
Speaker 1: those notes come out from the Ecoles building this afternoon.
Speaker 1: What's the first thing you're gonna be looking for? Good morning? Well,
Speaker 1: I think the first thing I'm gonna be looking for
Speaker 1: is just how wide was the sentiment for a move?
Speaker 1: I mean, we know that three voters chose to dissent,
Speaker 1: but I think we also have a sense that there
Speaker 1: were others who wanted to move as well. So, um,
Speaker 1: just how close were they? You know? Vice Chair Fisher
Speaker 1: said it was a pretty close call, So I think
Speaker 1: how close was it? And how does that set up
Speaker 1: for for a move in December. I'm sure you've been
Speaker 1: paying attention to what Eric Rosen, going to the Boston Fed,
Speaker 1: has been saying. Talk about the prominent role he's playing.
Speaker 1: Now is someone here advocating for a rate rye sooner
Speaker 1: rather than later? Sure? Well, I think the main significance
Speaker 1: of that is see someone that's traditionally been very dubbish um.
Speaker 1: And the reasoning that he's using is one that I
Speaker 1: think resonates with more than a few of the people
Speaker 1: in the FED, which is that he's concerned that a
Speaker 1: long stretch of very easy monetary policy is leading to
Speaker 1: excessive asset prices, and in particular he's looking at commercial
Speaker 1: real estate and the effect that could have on the
Speaker 1: banking sector if in fact prices get a little too
Speaker 1: inflated and then start to head the other way. Sure,
Speaker 1: Yellen has had a great record of fostering and having
Speaker 1: unanimity among the ranks at the f o MC. We're
Speaker 1: seeing that start to erode a little bit. How much
Speaker 1: of it concern do you think that is to her
Speaker 1: in terms of just management of that committee. Well, I mean,
Speaker 1: you know, she is more devilish, I think than the
Speaker 1: consensus of the committee. So there's a tension there where
Speaker 1: she certainly wants to represent the committee and and to
Speaker 1: bring the committee along, but at the same time I
Speaker 1: think she feels very strongly in pursuing an easier monetary policy.
Speaker 1: This just came across the screen David Gura, n Nate Lanson,
Speaker 1: the Royal Mail of the United Kingdom will not allow
Speaker 1: Samsung's Galaxy Notes seven smartphones to be returned to Samsung
Speaker 1: through its postal network. That is remarkable. Yeah, I read
Speaker 1: that Korean Air was not allowing them to be on
Speaker 1: their planes turned on. But I guess you put it
Speaker 1: on a ship, right. I don't mean to interrupt Steve
Speaker 1: Stanley from uh, did you just Steve Stanley help us here?
Speaker 1: Do you have a sallexy a Galaxy seven? Don't? And
Speaker 1: if I did, I think you'd have to evacuate me. Right,
Speaker 1: ken fellow, do you have a Galaxy seven? We're open
Speaker 1: column of the twins? He has a Galaxy seven. If
Speaker 1: you had a Galaxy seven column, we're gonna let you
Speaker 1: go home. So there it is. Seriously, folks, that's an
Speaker 1: important note on the challenges. It's Samson. Has Steve Stanley
Speaker 1: helped me with the minutes? How do you read the minutes?
Speaker 1: I mean I've seen them several, some many a few.
Speaker 1: How does a pro like you read Janet Yellin's minutes? Well,
Speaker 1: I think that those words that you mentioned are the
Speaker 1: ones that you do have to pay attention to because
Speaker 1: they are often um dueling perspectives. So you'll have a
Speaker 1: hawkish view and a dovish view, and you have to
Speaker 1: pay attention to how many you know, what those words
Speaker 1: suggest about how many are in each camp. And I
Speaker 1: think what we've seen over most of this year is
Speaker 1: that the Hawks have been, um, you know, pushing for
Speaker 1: a move and but they've always been in the minority.
Speaker 1: And it feels to me like the balance of power
Speaker 1: on the committee, at least for the moment, has changed
Speaker 1: a little bit. And it's it's a it's a somewhat
Speaker 1: more um open to a hike. U. Certainly before the
Speaker 1: end of the year, you always learned something new. I
Speaker 1: mean I I look at them, look at how people
Speaker 1: process them. It's looking at word count, it's looking for instance,
Speaker 1: of certain words. How much new or novel do you
Speaker 1: get in the minutes each time? Well, I think it's
Speaker 1: it's not the same every time. Sometimes the minutes aren't
Speaker 1: really all that helpful. Um. And then there are other
Speaker 1: times where there's a there's a paragraph about a conversation
Speaker 1: that you know, a topic was discussed extensively that you
Speaker 1: may not have expected. UM. So I think there's the
Speaker 1: there's the little breadcrumbs that are dropped, you know, the
Speaker 1: explicit policy signals that are sent in the minutes. But
Speaker 1: I think there's also sometimes uh I as an economist,
Speaker 1: I get an insight into things that they're looking at
Speaker 1: on a broader scale rather than just what's going to
Speaker 1: happen at the next meeting. And how about what the
Speaker 1: non voting members say? How much credence do you give
Speaker 1: what they're saying at the meeting with what's recorded from
Speaker 1: them in the minutes. Well, you know, you look at
Speaker 1: this committee as it's currently constituted, and the board is
Speaker 1: is very debbish in general. And also over the years
Speaker 1: we've gotten to a point where the board basically governors
Speaker 1: just aren't going to dissent, right, So the chair basically
Speaker 1: has the votes to get whatever she wants done. There
Speaker 1: is this inner orbit in the outer order, the order
Speaker 1: the banks, right. So then the non voters, I think
Speaker 1: as a rule, are typically more hawkish than the norm
Speaker 1: or the or the enter of the committee because the
Speaker 1: center is so dubbish. Um. So again it's a question
Speaker 1: of are they frustrated because they know they're not going
Speaker 1: to get what they want? Are they eager to move
Speaker 1: and and and feel like we're moving in the right direction,
Speaker 1: and they just like like to go a little more,
Speaker 1: or they just feel like they're just totally butting their
Speaker 1: heads up against the wall. And you do get a
Speaker 1: little bit of a sense of that sometimes In a minute.
Speaker 1: I just did on the dots chart, folks, I may
Speaker 1: do this on television tomorrow and I'll send it out
Speaker 1: on Bloomberg Radio. Plus a linear regression of a dots
Speaker 1: chart translated, we get to two percent FED funds target
Speaker 1: in about February of two thousand eighteen. That seems almost preposterous.
Speaker 1: Where do those dots migrate too? Well, I think the
Speaker 1: question really is about inflation going forward. We've had a
Speaker 1: we've had an economy where the labor market has improved
Speaker 1: a lot, but inflation is kind of stubbornly held below
Speaker 1: two percent. So uh, I think things change a little
Speaker 1: bit as we move into two thousand and seventeen, because
Speaker 1: I think we're going to start to see those inflation
Speaker 1: numbers get very close to two percent and by the
Speaker 1: end of this year, and probably move above it next year.
Speaker 1: So that would be the case for something like the dots.
Speaker 1: And as you say, the market doesn't expect that at all,
Speaker 1: but do the market doesn't expect it even though there
Speaker 1: is language from adults like Stan Fisher of an overshoot.
Speaker 1: So we get near two percent, that's a big So
Speaker 1: what the chair yell and, isn't it? I think so.
Speaker 1: I think they'd be very happy to see inflation a
Speaker 1: few ticks above two percent. The question is, really, um,
Speaker 1: that's not a problem if you're fairly close to a
Speaker 1: neutral policy. But if you're very far away from that,
Speaker 1: um and, and you're and you're not moving closer at
Speaker 1: a at a decent pace, when inflation is already above
Speaker 1: your target, then I think I think it becomes a problem.
Speaker 1: There is a quote from torstens Lock in a Bloomberg
Speaker 1: News piece this morning, talking about the whites of their
Speaker 1: eyes when it comes to inflation. He begs the question,
Speaker 1: what what does that mean in this day and age?
Speaker 1: Is at one point seven? Is it too? How do
Speaker 1: you define the term what's their eyes when it comes
Speaker 1: to to inflation? Well? I think it's it's got to
Speaker 1: be two percent. I mean, the Fed is is even
Speaker 1: now we've on the core pc deflator, which is their
Speaker 1: preferred measure. Of course, that we've moved on a year
Speaker 1: over your basis from one three to one seven, and
Speaker 1: the year to date pace is very close to two percent.
Speaker 1: And yet you know, you've got prominent people in the
Speaker 1: committee who are still talking about that it's a problem
Speaker 1: that inflation is too low. Why are they saying that
Speaker 1: if you and I see the same vectors, higher vectors
Speaker 1: don't matter anymore. Well, it's interesting. You know. Charlie Evans
Speaker 1: was out over the over the long weekend, and his
Speaker 1: view is simply, he's just skeptical. You know, we've spent
Speaker 1: so long below two percent. He's concerned about inflation expectations
Speaker 1: having moved down. I don't necessarily agree with him about that,
Speaker 1: but I think he's just skeptical that we're gonna make
Speaker 1: it to two percent. So there's just disagreement about where
Speaker 1: we're headed very quickly. Here, one of the things I've noticed, David,
Speaker 1: I don't know if you've noticed this in Brooklyn, but
Speaker 1: the basic idea is, all of a sudden, businesses are
Speaker 1: having trouble keeping people and retaining people. Are I looked
Speaker 1: at the Jolts Survey, Michael McKee's favorite series. I'm sorry
Speaker 1: I got a jolt out of it. It's it's above
Speaker 1: the last peak of like seven years ago, isn't it absolutely,
Speaker 1: the labor markets getting tight, and there's Mr the brilliant
Speaker 1: Mr Evans of Carnegie Mellon in Chicago, the land of
Speaker 1: the Chicago Cubs. Does he know that? Well? I think
Speaker 1: again that's where the kind of the hawk ish and
Speaker 1: the dovish predilections come in. I'm I tend to be
Speaker 1: more of a hawk. He's certainly very dubbish. And I
Speaker 1: think where I see the glass half full, he sometimes
Speaker 1: sees the glass half empty. So he's looking at things
Speaker 1: like low labor force participation and elevated you six, and
Speaker 1: he's saying, hey, there's still some slash here, Michael Barr.
Speaker 1: Should we have a drinking game that whenever a guest
Speaker 1: comes in and says glass half full, glass empty, we
Speaker 1: take a shot half empty. We can just have the drinking.
Speaker 1: It's just amazing. Glass half That was Steve. That was
Speaker 1: just outstanding. Next, we're gonna do the Truman one hand
Speaker 1: in this pocket, one hand in that pocket. A lot,
Speaker 1: it's more said to the great song of that David
Speaker 1: gurn Tom King. We're here with Stephen Stanley of Amir's
Speaker 1: pier Pond to remind you he was brilliant on a
Speaker 1: more subdued g DP call than consensus a year at
Speaker 1: a half or so uh ago, let's expand. I love
Speaker 1: the phrase proxy productivity. It's something you and Bob since
Speaker 1: you talk about it, the Amir's pierpont help us with productivity.
Speaker 1: And I love this idea of the demographic dynamics and
Speaker 1: proxy productivity. What is that? Well, you know, I think
Speaker 1: what we're saying is obviously and this is not just
Speaker 1: in the US, but all around the world, we're saying low,
Speaker 1: very low productivity in this cycle, and so um if
Speaker 1: you look at the implications of that, as it has
Speaker 1: really important implications for GDP uh potential GDP growth, as
Speaker 1: the San Francisco FED put out a piece yesterday saying
Speaker 1: that potential GDP growth maybe one and a half to
Speaker 1: one and three quarters. I think that's really important. Is
Speaker 1: something that I've been talking about for a long time.
Speaker 1: I think the other piece of that that that maybe
Speaker 1: people haven't caught onto quite yet, is the implications of
Speaker 1: productivity for wage growth, because people are still even at
Speaker 1: the FED, are still saying, well, we got to get
Speaker 1: back to three percent wage growth because that's what we
Speaker 1: had in the last cycle. Well, if productivity slower businesses
Speaker 1: are not going to pay workers for productivity that doesn't
Speaker 1: exist and beautifully framed. And the idea here, and this
Speaker 1: is so important, folks, is how things mesh in. If
Speaker 1: I get a stronger dollar, if we go to the
Speaker 1: top of the recent range, or if I even breaks
Speaker 1: through that, is that an implied austerity for Janet yelling?
Speaker 1: And is that is something that diminishes growth and diminishes
Speaker 1: our ability to get productivity up. Does a dollar play
Speaker 1: into it even if it's a little bit right? Well,
Speaker 1: I think where yes, it definitely is a dragged growth
Speaker 1: and it's also a a negative factor for inflation. And
Speaker 1: I think that was the bigger issue for the Fed
Speaker 1: in that fourteen fifteen period when the dollar strengthened so much,
Speaker 1: is that it helped to hold down inflation at a
Speaker 1: time when they were hoping to get it up. I'm
Speaker 1: gonna try to get you to be prescriptive here, So
Speaker 1: you know, with this, with this negative time, with the
Speaker 1: US UH wage growth, real wage growth slowing UH and
Speaker 1: your forecast continuing to slow, what's gonna kickstart that? What's
Speaker 1: going to change things? Do you think? Well? I think
Speaker 1: on the wage side will probably be okay, because the
Speaker 1: labor market is tight, right, so if firms want to
Speaker 1: hire workers, they're gonna have to pay more. And we're
Speaker 1: seeing more and more anecdotal evidence of that, and we've
Speaker 1: started to see some movement on the on the wage
Speaker 1: statistics average generally earning z C I whatnot. So I
Speaker 1: think that that real wage growth will be okay as
Speaker 1: long as inflation is only gradually moving higher um. And
Speaker 1: as a result, I think the consumers should be in
Speaker 1: pretty good shape here for the foreseeable future as well.
Speaker 1: Why are demographics something more people aren't talking about. We
Speaker 1: talked about in the context of Japan, we talked about
Speaker 1: in the context of many other economies, but it isn't
Speaker 1: something that we talked about that much here in the US,
Speaker 1: probably because it moves very slow, um, which is actually
Speaker 1: good for someone like myself who's trying to forecast things,
Speaker 1: because demographics is one thing I can forecast pretty well. Um.
Speaker 1: It's good for me because I'm never going to return. Um.
Speaker 1: Steve Stanley, how do you respond to very good charts
Speaker 1: and evidence? And I think of the Zero Edge team
Speaker 1: that have been great on this of part time full
Speaker 1: time America, and I get it. In some job categories,
Speaker 1: there is wage growth and there's a tightness of the
Speaker 1: labor market, but that doesn't speak to the part timization
Speaker 1: of the United States of America. Do you think that's
Speaker 1: just wrong analysis or can you say there's two Americas
Speaker 1: and one of them is a part time America. Well,
Speaker 1: I think there's no question and that um that we're
Speaker 1: gonna see more part time jobs. Uh. And this is
Speaker 1: not a cyclical issue. This is a structural issue. And
Speaker 1: and I've kind of argued against the view coming out
Speaker 1: of chair Yelling and others at the FED that a
Speaker 1: lot of the you know that there's a lot of
Speaker 1: slack in the labor market, as demonstrated by higher part
Speaker 1: time involuntary part timers, or by the U six unemployment rate. UM.
Speaker 1: I think a lot of that is structural, and I
Speaker 1: think it reflects a couple of things. One is that
Speaker 1: the economy itself, the structure the economy has changed. If
Speaker 1: you look at the sectors of the economy where we've
Speaker 1: seen job growth in this cycle, retail, restaurants, temp workers,
Speaker 1: a lot of places where zero hudges just kills us
Speaker 1: after the job's day. Zero hudge does like four or
Speaker 1: five charts on this. I mean, come on, they're not
Speaker 1: hamburger flippers, but they're not the jobs that give us
Speaker 1: an aspiration do that. Yeah? Well, I will say I
Speaker 1: think over the last year or two we have seen
Speaker 1: a little more broad based UM job growth. Certainly early
Speaker 1: in the expansion, I think that was the case. Um.
Speaker 1: But but the point, my point would be that you
Speaker 1: can't look at the U six rate and say, oh, well,
Speaker 1: this is higher than it was in the in the
Speaker 1: you know, ten years ago, and conclude from that that
Speaker 1: there's more cyclical slack. I think that's a structural change
Speaker 1: in our economy. What about this new group of workers
Speaker 1: that Alan Kruegery Princeton talks about, those who elect to
Speaker 1: do contract work or part time work through Uber, through
Speaker 1: other on demand services like that, Yeah, the gig it. Yeah, well,
Speaker 1: I think it's it's great for folks who are looking
Speaker 1: for more flexibility. Um. You know, if it's the only
Speaker 1: thing you can find and you'd like to have a
Speaker 1: forty hour week, full time job, then obviously that's that's
Speaker 1: an issue. UM. But I think for a lot of folks,
Speaker 1: they would like to be able to move in and
Speaker 1: out of of of employment at their leisure to work
Speaker 1: whatever hours they'd like to work. And so for folks
Speaker 1: like that, it's a it's a great opportunity. I'm skeptical.
Speaker 1: To me, it's a lot of people forced into the gig.
Speaker 1: I hate the phrase the gig economy, John Tucker, is
Speaker 1: that what we're doing? Are we part of the gig economy?
Speaker 1: You've always been part of the gig. It's just a
Speaker 1: great gig. Steven Sally, brilliant. Thank you so much for Amerson.
Speaker 1: Go out there with Bob. Send your gig through the
Speaker 1: gig economy, the gig job economy of Amberson. This has
Speaker 1: been fabulous, without any uh delay. Craig Moffatt joins us
Speaker 1: from moffat day. Craig, I'm watching Bob Costas kill it
Speaker 1: on MLB on cable, and one day they had Spanish
Speaker 1: Baseball on MLB channel. I couldn't find where the other
Speaker 1: games are because they're spread out all over. It just
Speaker 1: seems almost like sports chaos in your cable world. Where
Speaker 1: are we going to be in five years if I
Speaker 1: want to watch Red Sox Cubs World Series? Well, hey,
Speaker 1: good morning time you know that. Look, there's a lot
Speaker 1: of talk about uh exclusivity for sports and things like that. UM.
Speaker 1: And and obviously there's been a lot of talk about
Speaker 1: key sports leagues and games moving to online media. My
Speaker 1: best guests and um, and this is really more my
Speaker 1: partner Michael's Baileywick than mine. But our best guess is that, um,
Speaker 1: you're gonna see things stay the same more than they change.
Speaker 1: That sports are so central to the value proposition of
Speaker 1: live television and the cable package. They represent only about
Speaker 1: of viewers I say only, um is an enormous number
Speaker 1: about of viewing points. Um. But in key demos, Fox
Speaker 1: just said last week what was it of their viewership
Speaker 1: or something was? Live sports and live sports are so
Speaker 1: central to the value proposition that uh, that the traditional
Speaker 1: media companies are going to continue to pay up and
Speaker 1: keep them in the traditional venues for a while longer. Well,
Speaker 1: the number one question I get cred I want David
Speaker 1: Gore to jump in here, is Apple TVs trying so
Speaker 1: hard it ain't working. Mr Moffatt, I can tell you
Speaker 1: that from actual use, does Apple TV have any chance
Speaker 1: to be part of live sports? Well, I guess the
Speaker 1: the The obvious retort would be, are they really trying
Speaker 1: that hard? Um? I mean they're certainly trying hard to
Speaker 1: make Apple TV compelling device, but they haven't really tried
Speaker 1: all that hard to make it a compelling service. For
Speaker 1: all the talk of of Steve jobs Um having this
Speaker 1: deathbed revelation about how to crack the code for television, Um,
Speaker 1: not much has happened on the Apple front um. They
Speaker 1: spent a lot of time trying to create a video
Speaker 1: bundle that they thought would be compelling and for intensive purposes.
Speaker 1: They dropped the exercise, whether it was over the lack
Speaker 1: of broadcast television or whatever it was. They don't seem
Speaker 1: to be presuing it anymore, David, So you understand, Craig
Speaker 1: Moffat is single handedly been trying to fix a lousy
Speaker 1: Apple remote control of Apple TV has failed. So forth,
Speaker 1: Mr Gura jumping yeah, Craig. You talk about the importance
Speaker 1: of live sports right now to these broadcasters, and I
Speaker 1: wonder how you react to what we've seen when it
Speaker 1: comes to professional football in particular, over these last few weeks,
Speaker 1: viewership has been diminished, advertisers not getting the bang for
Speaker 1: their buck that they wanted. How much of a warning
Speaker 1: sign is that about the importance of live sports? You know,
Speaker 1: it's a great question, David and and um my partner
Speaker 1: Michael just yesterday published a report, the conclusion of which
Speaker 1: was the jury still out that it's been a funny
Speaker 1: start to the season for the NFL in in that
Speaker 1: you've had a combination of very high profile injury UM
Speaker 1: those injuries in turn and suspensions obviously with Tom Brady,
Speaker 1: the loss of to retirement of Peyton Manning, and that
Speaker 1: combination of things made it difficult for schedulers to put
Speaker 1: the best games on television because they didn't know which
Speaker 1: teams were actually going to be interesting. You know, it
Speaker 1: turned out that injuries really changed which teams were going
Speaker 1: to capture the imagination. And then add to that the
Speaker 1: presidential debates that have come on one Sunday night and
Speaker 1: one Monday night, UM that have taken huge ratings, and
Speaker 1: it's hard to say whether there's something really endemic going
Speaker 1: on here. If this continues and we see for the
Speaker 1: balance of this season or certainly in the beginning of
Speaker 1: next season, UM that ratings aren't coming back, then there
Speaker 1: really is a reason to panic because football is the
Speaker 1: lynch pin. It's not just sports in general. It is
Speaker 1: football and one league against the NFL and if the
Speaker 1: NFL does crack, it's a huge problem. But I think
Speaker 1: it's two early to say that it really is. Let
Speaker 1: me ask you about Twitter's ten million dollar bed. I
Speaker 1: put down my moff at Nathan's notes the other night,
Speaker 1: pick up the phone. They're on Twitter is an NFL game.
Speaker 1: This was characterized as an experiment, but I must say
Speaker 1: clarity of the game easy to watch. There is the
Speaker 1: conversation going on beneath to take it or leave it?
Speaker 1: But how successful has this been for Twitter? And is
Speaker 1: it more than experiment? Is the experiment paying off? Is
Speaker 1: that's something we're going to see more of? Well, it
Speaker 1: certainly isn't paying off financially, although you can't really judge
Speaker 1: it based on a single game. But it was a
Speaker 1: Jets Bills game. The viewership was middling at best, I suppose,
Speaker 1: and you're right. While technologically it worked reasonably well, and
Speaker 1: I say worked reasonably well, that you had a good
Speaker 1: picture and what have you, it operated with a fairly
Speaker 1: significant delay, and the delay got longer and longer as
Speaker 1: the game continued, um which created some jarring moments. Right,
Speaker 1: I mean, at the beginning of the game, you were
Speaker 1: about forty twonds delayed, and so part of the point
Speaker 1: of the exercise was to run tweets alongside the game.
Speaker 1: The tweets were forty seconds into the future versus what
Speaker 1: you were watching, and by the end of the game
Speaker 1: they were you might be hearing tweets about or seeing
Speaker 1: tweets about the next possession by the other team while
Speaker 1: you're watching UM Drive. So I would say it was
Speaker 1: a roughly a success but um but certainly not a
Speaker 1: resounding one. And they didn't come close to making money
Speaker 1: on it, you know, they it was a tiny, tiny
Speaker 1: pool of viewers compared to what you would need for
Speaker 1: advertising revenue. You've written a lot about the transition from
Speaker 1: wired to wireless, the that will no longer use those
Speaker 1: terms in the pretty near term. Here we're gonna be
Speaker 1: talking about the network and we're not gonna be making
Speaker 1: the distinction between the two of those things that as
Speaker 1: big cable operators get into the to the wireless space,
Speaker 1: how far out are we from that happening? You know,
Speaker 1: we're not as far away as you might think. Um.
Speaker 1: If you think about where the world is going with
Speaker 1: five G wireless, which is the next generation of wireless,
Speaker 1: when do we see that another upgrade. Yeah, that's right,
Speaker 1: another upgrade. The technology UM is going to start to appear,
Speaker 1: at least in fixed applications, meaning you won't be able
Speaker 1: to use it on your handset, but you'll be able
Speaker 1: to use it for wireless broadband for your home. UM
Speaker 1: probably as early as en Morison seems to be the
Speaker 1: most aggressive in doing it. Yeah, I'm just trying to
Speaker 1: get my new iPhone seven in the mail, you know,
Speaker 1: started interrupt. No, look, it's so here. Here's here's what's
Speaker 1: going to happen. Right. In order to support those new
Speaker 1: five G networks, you have to push wires deeper and
Speaker 1: deeper and deeper into neighborhoods because the nature of the
Speaker 1: of the new technologies is smaller and smaller cell sites
Speaker 1: that each of which sir of fewer and fewer people,
Speaker 1: in order to support higher and higher capacity. The problem is,
Speaker 1: as you do that, you become more and more like
Speaker 1: a wired network and less and less like a wireless network.
Speaker 1: You know, if the old adage is that any wireless
Speaker 1: network is wires and ten percent wireless, well, in the
Speaker 1: future wireless networks are going to wires and five percent wireless,
Speaker 1: and if you take it to its logical conclusion UM,
Speaker 1: the ultimately competitive advantage in the wireless network comes from
Speaker 1: the most wires, and who has the most wires, it's
Speaker 1: actually the wired operators, say, it's the cable operators who
Speaker 1: are best positioned for next generation wireless UM. At the
Speaker 1: same time, when you think about how you connect to
Speaker 1: your cable network today, you don't connect with a wire
Speaker 1: you connect with WiFi. Right you're watching on your iPad,
Speaker 1: you're watching on your or you're using your your wireless
Speaker 1: device in your home, your your iPhone UM. So these
Speaker 1: distinctions between network are going to go away. You're not
Speaker 1: going to say, in the future do I want wireless
Speaker 1: from the same company as I want my my TV from.
Speaker 1: You're just gonna say, I have a network and I
Speaker 1: use it. Thrilled to have craigna craig, let me start
Speaker 1: in buy hoed cell. Verizon is in a state of flux.
Speaker 1: Is a dividends solid for I think Verizon's dividend is
Speaker 1: very solid, but the wireless business in general is going
Speaker 1: through a state of flux. And that's why you see
Speaker 1: Verizon UM trying new things, trying to to uh to
Speaker 1: change the business by buying first day oh well and
Speaker 1: now buying Yahoo. They aren't big transactions for a company
Speaker 1: like Verizon, but they they I think point to the
Speaker 1: challenges of of operating in a wireless business that's just
Speaker 1: not growing anymore. And their business, their their dividend is
Speaker 1: a safe dividend. They have very good dividend coverage. But
Speaker 1: it's a tough business that there is. I'm glad that
Speaker 1: you brought up that Yahoo deal, wondering in light of
Speaker 1: what Verizon has said here how it wants that one
Speaker 1: billion dollar reduction on what it said it would pay
Speaker 1: for you all. If you think that deal is a
Speaker 1: done deal, well, at first, I would say Verizon hasn'tformally
Speaker 1: confirmed UM that they're looking for that one billion dollar
Speaker 1: reduction that was reported, but Verizon has has not commented
Speaker 1: formally on it. UM that said, I my sense is
Speaker 1: there's another issue here UM, separate and apart from the emails,
Speaker 1: and that is that the FCC UM has has said
Speaker 1: that they are going to impose privacy restrictions on i
Speaker 1: sp s like Verizon and cable operators and what have you,
Speaker 1: UM that are much stricter than the privacy restrictions that
Speaker 1: are used for companies like Google. And and edge providers
Speaker 1: as they're called. That difference is a really big difference,
Speaker 1: including the difference of opt in versus opt out. If
Speaker 1: Verizon is subject to those much stricter privacy rules that
Speaker 1: limit how it can use the information that it has
Speaker 1: for selling average, then the whole strategy of advertising on
Speaker 1: the ad inventory of of Yahoo um is called into
Speaker 1: question is to can you really do what you wanted
Speaker 1: to do? If the FCC effectively says Yahoo is not
Speaker 1: going to be worth as much to a company that's
Speaker 1: an I s P as it would be to a
Speaker 1: company that's not. Thank you. Thank you for pointing out
Speaker 1: to you that was the New York Post that reported
Speaker 1: about that one billion dollar reduction. Will see how Verizon
Speaker 1: responds to that. Let let me ask you about something
Speaker 1: I put to Tim Armstrong when I was at the
Speaker 1: Island Company conference a few months ago in Idaho. So
Speaker 1: many of these companies getting into content now investing large
Speaker 1: sums of money and creating their own content. Tom kicking
Speaker 1: things off a few minutes ago saying how difficult it
Speaker 1: is to find the ball game giving given so much
Speaker 1: that's that's out there, Do you worry about saturation that
Speaker 1: there's too much content that there are companies here coming
Speaker 1: late to the party, spending a lot of money, and
Speaker 1: maybe some of that's going to get lost. Well, look,
Speaker 1: there's there's I think the fragmentation and amount of new
Speaker 1: content is a problem. Are lots of reasons, um And
Speaker 1: you know, one of the unique things about the content
Speaker 1: business in general is try to think of another business
Speaker 1: where you don't just compete with all the other content
Speaker 1: that's being created today, you compete with all the content
Speaker 1: that's ever been created in history. Um. And the that
Speaker 1: creates a real deflationary issue for for the industry. And
Speaker 1: at first it was a real positive. It it meant
Speaker 1: that everybody could start mining their libraries and and selling
Speaker 1: it to places like Netflix and what I do. But
Speaker 1: now suddenly that that temporal competition, I guess you would
Speaker 1: call it, is starting to be a real concern because
Speaker 1: it's it's hard for any piece of content to really
Speaker 1: break out today, um and certainly at anything like the
Speaker 1: levels we used to see. And you still get hits,
Speaker 1: but um, but it hit is now a couple of
Speaker 1: million viewers, not not tens of millions of viewers. Craig quickly, here,
Speaker 1: where is the best value in the land of Moffatt
Speaker 1: or in the intent land of Nathanson. I have said
Speaker 1: for many, many years, every time you hear the phrase
Speaker 1: content is king go by distribution UM. And I think
Speaker 1: we're still in one of those cycles where where everybody
Speaker 1: loves the idea that there's going to be all these
Speaker 1: new distribution pathways and therefore it will drive up the
Speaker 1: value of content. UM. I suspect that, as it has
Speaker 1: been for the last twenty years, that the opposite is true.
Speaker 1: And remember, all of these supposed new distribution pathways are
Speaker 1: not really distribution pathways, their new aggregators UM. And the
Speaker 1: aggregation layer isn't the core issue where the real value
Speaker 1: comes from is the physical layer of distribution where there
Speaker 1: are really scared assets. That's the cable pipe, to some extent,
Speaker 1: the wireless pipe. But there are just so many competitors
Speaker 1: and wireless or players that are hard for them to
Speaker 1: make money. UM. But the content players, as I said,
Speaker 1: are struggling with the fact that they've had a really
Speaker 1: beautiful industry that it over earned. But it's hard to
Speaker 1: see how it keeps doing that at the same level.
Speaker 1: Craig never enough time. Thank you so much, Craig Moffatt
Speaker 1: with Moffatt Naked worldwide. This is Bloomberg. Who you put
Speaker 1: your trust in matters. Investors have put their trust in
Speaker 1: independent registered investment advisors to the tune of four trillion dollars.
Speaker 1: Why they see their role is to serve, not sell.
Speaker 1: That's why Charles Schwab is committed to the success of
Speaker 1: over seven thousand independent financial advisors who passionately dedicate themselves
Speaker 1: to helping people achieve their financial goals. Learn more and
Speaker 1: find your independent advisor dot com accel work. We get
Speaker 1: a ton of mail on he is not so much
Speaker 1: an Austrian manager looking at Austrian economics. That would be
Speaker 1: an unfair uh agorization. But nevertheless he's someone that really questions, UM,
Speaker 1: a lot of the modern economics wrapped around the US
Speaker 1: dollar is with MRK Investments and actually want to congratulate you.
Speaker 1: You've got a long short currency fund, the MURK Absolute
Speaker 1: Return Fund, which has had a spectacular two thousand sixteen,
Speaker 1: challenging performance over the years. Why is why is that
Speaker 1: portfolio done so well over the last eight months. Well,
Speaker 1: it's great to be with you. When I am talking
Speaker 1: to you, I always talked talked about that reification and
Speaker 1: whatnot and and a long short strategy and in our
Speaker 1: case we do it with long short currencies. Provides the
Speaker 1: opportunity to really provide on coal it returns, which on
Speaker 1: a day like yesterday for example, might be quite valuable.
Speaker 1: And they specifically, um many long short strategies have struggled
Speaker 1: when the markets were boring and volatility is low. When
Speaker 1: there's dispersion of risk, that sort of strategy does well.
Speaker 1: And if you've been eve that volatility is bound to
Speaker 1: rise at some point um and that's going to hurt
Speaker 1: risk gasses. In general, you want to be in something
Speaker 1: like that. And obviously we we love that Strategy's just
Speaker 1: this one oddball thing. And this is what's great about
Speaker 1: talking to excel work David is is he's the king
Speaker 1: of oddball pieces. You have a Swedish regional two coupon
Speaker 1: KO M I N S piece that makes up a
Speaker 1: big chunk of that portfolio. Like probably it matures tomorrow.
Speaker 1: Give us a leg up. What are you gonna do
Speaker 1: with all that money? Goodness? You are gonna ask me
Speaker 1: about regulatory intricacies. I mean, the the after Ton currency
Speaker 1: strategy is one where we go long short currencies. And
Speaker 1: what happens in those sort of strategies is we are
Speaker 1: by regulation required to invest in underlying securities such as
Speaker 1: a Swedish short term security, and this happens to be
Speaker 1: a concentrated position, but ultimately one uses forward currency contracts
Speaker 1: to be very partically Indeed, this this fund getting rebounce
Speaker 1: on a daily basis, and and so yes we hold
Speaker 1: the fixed income security. In the long run, we we
Speaker 1: generate income from those things. But that's really only because
Speaker 1: we have this online cash. I mean, one of the
Speaker 1: beauties about the the the currency spaces that you can
Speaker 1: use forward contracts to be very agile and and and so.
Speaker 1: But at the end of the day, because it's a
Speaker 1: muture funstructure, we've got to do something with the cash,
Speaker 1: and the regulators don't want to stroll t bills, so
Speaker 1: we do go out and buy those sort of securities.
Speaker 1: Is that okay, David, Inside people drove off the road,
Speaker 1: including me right now, let me let me get your
Speaker 1: react to what we saw out of London. This warning
Speaker 1: the UK Prime Minister here indicating a willingness to work
Speaker 1: with the Parliament. We saw movement in sterling on on
Speaker 1: the heels of that, take us, Take us through what
Speaker 1: you're thinking in light of what she had to say
Speaker 1: to that. I am shocked that she's going to work
Speaker 1: with Parliament. I mean, it's a we have a currency
Speaker 1: that's been pounded and now the market was looking for
Speaker 1: an excuse to to let it bounce back a little bit.
Speaker 1: Of course you have to consult with Parliament, but none
Speaker 1: of that changes, of course what's ahead. It doesn't change
Speaker 1: that things are going to be difficult. And the ultimate
Speaker 1: reason why the sterling, in my view, is going to
Speaker 1: continue to weaken in the medium term independent what's gonna
Speaker 1: going to be doing today is that the the these
Speaker 1: structural issues aren't being fixed. Um, they have a serious
Speaker 1: issue with the budget. They're gonna be spending more money,
Speaker 1: they're gonna have an inflation issue because they're going to
Speaker 1: kick out the phone workers. They they're gonna be having
Speaker 1: a weaker currency. They're gonna have all kinds of challenges
Speaker 1: and and we just don't have a good plan of
Speaker 1: how it's gonna embrace those sort of things. And and
Speaker 1: yes they'll chat with with Parliament, and maybe they're going
Speaker 1: to soften some things. I mean, the same thing always
Speaker 1: happens you you put up a tough stance, they're going
Speaker 1: to soften, um and and and the the UK is
Speaker 1: going to continue. But it doesn't mean everything is going
Speaker 1: to be great in the UK. And I see them
Speaker 1: slipping down the slope like Italy used to have um
Speaker 1: where they're going to have big deficits and gonna finance
Speaker 1: them with a with a weaker currency. Is the word
Speaker 1: party crossing axel marks lips I. I was quoted on that.
Speaker 1: I think during the breaks of talk that that might
Speaker 1: be might be getting there that set. Of course, the
Speaker 1: moment I say it, the sterling is probably going to
Speaker 1: reach the bottom for a few months um and so
Speaker 1: so to me, the risk of parody is certainly they
Speaker 1: are um am I betting on parody in the coming
Speaker 1: weeks and months, No um and so to me, the
Speaker 1: sterling is structurally weak. If we're gonna look for a
Speaker 1: place in the world where where we're going to have
Speaker 1: a challenge that the central banks are not going to
Speaker 1: be able to keep control on the markets, the UK
Speaker 1: may well be a candidate because the markets are just
Speaker 1: much smaller. The UK continues to ride on its imperialistic
Speaker 1: vision that there are some grand nation and and can
Speaker 1: manage all of this, and the markets are showing them
Speaker 1: that no, you guys are a just yet another country
Speaker 1: and you're going to be subject to market forces. And
Speaker 1: that's something that the UK will have to get used
Speaker 1: over time. We've been focusing on sterling here, but let
Speaker 1: me ask you about the rand force. The news yesterday
Speaker 1: that the Finance minister is going to be charged with fraud,
Speaker 1: the the background, the backdrop of political instability there gets larger. Yeah, well,
Speaker 1: I mean the difference between South Africa and the UK
Speaker 1: is everybody expects South Africa every week. Everybody has been
Speaker 1: looking at this from kind from far away here anyway
Speaker 1: and saying, oh, it's it's really sad, how kind of
Speaker 1: the structurally South Africa is not getting his act together.
Speaker 1: And and yes year today the round is actually up,
Speaker 1: but only because it was so extremely weak at the
Speaker 1: end of last year. It's just that South Africa has
Speaker 1: a lot of homework cut out for itself and unfortunately
Speaker 1: things are not always going in the right direction. And
Speaker 1: that's what you're see reflected in the week around. Yeah, excell,
Speaker 1: let me frame currencies as we come back to you
Speaker 1: in our next section. What you're calling euro right now.
Speaker 1: I've noticed all week not only Sterling worker but euro
Speaker 1: one tense sixteen. Where do you put the euro year out?
Speaker 1: Oh I love the euro UM and I think that's
Speaker 1: an overstatement. But but the UM I happen to think
Speaker 1: that this this, this, this idea in that we're going
Speaker 1: to go through the status fee on interest rates. And
Speaker 1: that's why the NOMA has to be so strong, just
Speaker 1: as in recent years it was completely overblown. I think
Speaker 1: we actually close at the top of the interest rates
Speaker 1: cycle in the US and close at the bottom and Eurozone.
Speaker 1: And the reason I say that is because in the
Speaker 1: Eurozone UM there is just no good way to continue
Speaker 1: to ease, Whereas in the US, yes, we're going to
Speaker 1: high rates, but nominal rates are going up, whereas real
Speaker 1: rates meaning net of inflation, raising rates at is going
Speaker 1: to get real rates of one explainer. Within interest rates
Speaker 1: and within g d P, you've got the actual growth
Speaker 1: of the underlying rate, and then you've got the inflation
Speaker 1: overlay on top of that. David Gurrl bringing Axel Murk
Speaker 1: as we talk about the idea, if we get a
Speaker 1: burgeoning inflation, do you get real growth with that or not?
Speaker 1: I gotta just let Axel respond to that as John
Speaker 1: Tucker pumps his fist with excitement at that second quick take.
Speaker 1: I don't think people. People get real and nominal and
Speaker 1: then actually you have to explain that act. Yes, well,
Speaker 1: I mean we live in this world where we supposedly
Speaker 1: don't have any inflation. If you if you look at
Speaker 1: the the core c core inflation indicator that the FED
Speaker 1: looks at, I mean, anytime there's inflation popping up, but
Speaker 1: it has substitution effects. So you're not going to see
Speaker 1: inflation in the kind of the things that Fed looks
Speaker 1: at until it really steals you in the face. But
Speaker 1: if you look at the labor market, the inflation precures
Speaker 1: are seeping through the system. Now, um, ultimately the FED
Speaker 1: wants to have inflation. I think you had felts find
Speaker 1: on the Hobbit professor who has said the FED wants
Speaker 1: to be behind the curve. I I couldn't agree more.
Speaker 1: I mean, um, BERNANKI used to phrase it that when
Speaker 1: you're faced with the credit bust, you want to be
Speaker 1: late in in in raising rates. The worst thing you
Speaker 1: can do is hike race early. No, I don't agree
Speaker 1: with much of what the FED does, but the fed clearly, UM,
Speaker 1: in my view, wants to be behind the curve. UM.
Speaker 1: I just chat with somebody who says, oh, I think
Speaker 1: inflation that is going to go up about five basis
Speaker 1: points at quarter. I think inflation is going to go
Speaker 1: up more than that. And if you now hike interest
Speaker 1: rates by your point to a year, you're going to
Speaker 1: be behind the curve. And so all this hoopla about tightening,
Speaker 1: we don't have tightening. We have tightening because of library
Speaker 1: is growing up. That's where we have tightening. But the
Speaker 1: FETE doesn't do tightening these days. UM going up at
Speaker 1: twenty five basis point in December. If we do it,
Speaker 1: UM is not going to make the world much tide up.
Speaker 1: But there will be days in the market where the
Speaker 1: dollar surges and the media is gonna write, oh my god,
Speaker 1: the feed is going to high grate. We've had that
Speaker 1: so many times over recent years. Ultimately, the FETE and
Speaker 1: my view, cannot hike real interest rates because they have
Speaker 1: inflated air surprises so much and based the recovery on that.
Speaker 1: UM I once chatted with a form of FT president
Speaker 1: who who told me that the only time the feed
Speaker 1: would be concerned about deflating assetprises if if they created
Speaker 1: a bubble, and then he pauses, and you can make
Speaker 1: your interpretation whether they've created an asset bubble or not. Actually,
Speaker 1: you've written a lot about dollar dominance. I'm looking at
Speaker 1: the u N. It's been weak getting weaker here. We've
Speaker 1: seen the government, Chinese government allowing that to happen. Seemingly
Speaker 1: a few weeks back, the un was welcomed into the
Speaker 1: i m F Special Drawing Rights basket. There are people
Speaker 1: here who are uh flagging the the end of dollar dominance.
Speaker 1: That's something that you've written about yourself. Give us, give
Speaker 1: us your sense of where things are headed. I know
Speaker 1: you've been looking at a new rule, a money markets
Speaker 1: rule that's supposed to go into effect on on Friday,
Speaker 1: and the fact that maybe having yes, well, the SDR
Speaker 1: changes I think are mostly symbolic. Very few nations, none,
Speaker 1: none that are relevant really managed to reserve based on SDR.
Speaker 1: So that's really a symbolic move. Much more relevant is
Speaker 1: what what you're alluding to, these money market fund changes
Speaker 1: for institution money market funds that are are coming into
Speaker 1: effect at the end of the week. Now that said
Speaker 1: money market funds have been getting ready for that. And basically,
Speaker 1: if you go back to eleven, for example, half the
Speaker 1: prime money market fund positions were in commercial papers issued
Speaker 1: by European banks UM. So there was one firm that
Speaker 1: we found that had three quarters of its paper that
Speaker 1: UM and just just indication that US money market funds
Speaker 1: are a major source of funding for everybody, UM be
Speaker 1: that US corporate unity, US municipal but also European banks,
Speaker 1: point sovereigns. And now what's happening is that US money
Speaker 1: market funds are encouraged or discouraged from holding that sort
Speaker 1: of paper holding more government paper holdings in institution, money
Speaker 1: market funds have been have been plunging, and that means
Speaker 1: that there's going to be less funding available. We see
Speaker 1: that now in the in the cost of funding going
Speaker 1: up for European banks, and what that means is the
Speaker 1: US is a less attractive place to get funding. And
Speaker 1: over time that's going to make the US currency less
Speaker 1: of a riginal currency because they've had this implicit guaranteed
Speaker 1: that was assumed that money market funds are safe, and
Speaker 1: that's no longer the case. Your critics, with respects say
Speaker 1: it's a great theory, but we're waiting. When do we
Speaker 1: begin to see the exorbitant privilege slip away of the
Speaker 1: US dollar. What's a gradual process. It's it's like a
Speaker 1: frog in a boiling pot. I mean you see starting
Speaker 1: is that fraud trade weighted sterling? The f TV day
Speaker 1: working off Bank of England has sterling at a hundred
Speaker 1: and sixty eight year low. Is that an example? What? What? Now?
Speaker 1: The example is the US corporates issuing you already nominated
Speaker 1: debt for example. Um, the Euro is becoming a real
Speaker 1: competitor with all the trouble in the Eurozone. And I
Speaker 1: certainly don't dismiss those sort of issues that they have,
Speaker 1: but the Euro has become a funding currency. And that's
Speaker 1: not just for traders, UM, it is a real funding currency.
Speaker 1: US business is funding itself in the Euro these days.
Speaker 1: There will be more Euro based funding. And that's the
Speaker 1: sort of competition that is going to get. That's the sterling.
Speaker 1: They have a bunch of issues obviously, um. And if
Speaker 1: anything that the sterling has been on the long term
Speaker 1: decline is going to continue. But there's going to be
Speaker 1: more local funding. The prime competitor to the dollar is
Speaker 1: going to be more local funding. We we hadn't tempted
Speaker 1: of that in the last decade. It didn't work as
Speaker 1: well as it could. I think the wake up call
Speaker 1: has been there again. Clearly it takes a little bit
Speaker 1: more than than than just a um that that just
Speaker 1: a decision to do local funding. But the us IS
Speaker 1: is obviously going to be relevant. But the there is
Speaker 1: a gradual path that funding is taking place more in
Speaker 1: local currency. And the key reason for that is that
Speaker 1: there had been this implicit subsidy that you has. Money
Speaker 1: market funds were kind of this free piggybank for for
Speaker 1: everybody where they could get funding. That's no longer the case.
Speaker 1: So why would you do dollar funding if you don't
Speaker 1: have the this implicit advantage anymore. It's not a god
Speaker 1: given right, it's something that has to be earned, and
Speaker 1: it was kind of um subsidized with those money market
Speaker 1: funding works that happened in place Excel. Thank you so much,
Speaker 1: Jackson Markets with this on currency. Thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter
Speaker 1: at Tom Keene. David Gura is at David Gura before
Speaker 1: the podcast. You can always catch us World Why at
Speaker 1: Bloomberg Radio. Who you put your trust in matters. Investors
Speaker 1: have put their trust in independent registered investment advisors to
Speaker 1: the tune of four trillion dollars Why. Learn more and
Speaker 1: find your independent advisor dot com.