WEBVTT - A Boston Fed Special 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, podcasts, radio news. 0:00:11.920 --> 0:00:16.320 This is the Bloomberg Surveillance Podcast. Catch us live weekdays 0:00:16.360 --> 0:00:19.640 at seven am Eastern on Apple car Player, Android Auto 0:00:19.760 --> 0:00:23.080 with the Bloomberg Business app. Listen on demand wherever you 0:00:23.120 --> 0:00:26.279 get your podcasts, or watch us live on YouTube. 0:00:26.360 --> 0:00:30.200 Now, are Michael McKee an important conversation with the President 0:00:30.240 --> 0:00:32.880 of the Boston Fed, Susan Collins. 0:00:33.120 --> 0:00:37.159 I'm Michael McKee, the international economics and Policy correspondent for Bloomberg, 0:00:37.440 --> 0:00:40.200 and we are at the Boston Federal Reserve Bank today. 0:00:40.200 --> 0:00:41.519 They're holding their sixty eighth. 0:00:41.360 --> 0:00:45.320 Annual Economics conference, and we're joined by the President of 0:00:45.360 --> 0:00:48.680 the Boston Fed, Susan Collins. Thank you very much for 0:00:48.720 --> 0:00:49.760 being with us today. 0:00:49.960 --> 0:00:51.920 It's delighted to be here. Thanks for being at the 0:00:51.920 --> 0:00:52.640 Boston Fed. 0:00:52.880 --> 0:00:55.360 It's great. We tell everybody. It's a beautiful day. But 0:00:55.400 --> 0:00:57.840 it's thirty nine degrees so winter is finally hit here. 0:00:58.240 --> 0:00:59.320 The seasons are wonderful. 0:01:00.040 --> 0:01:03.480 Oh, speaking of winter, December eighteenth, you have another FED meeting, 0:01:03.720 --> 0:01:06.720 and at this point there seem to be some questions 0:01:06.800 --> 0:01:10.160 about whether or not the Fed will be cutting rates again, 0:01:10.200 --> 0:01:13.800 because this week we got some firm inflation news retail 0:01:13.840 --> 0:01:18.920 sales were okay, but not particularly strong at this point. 0:01:19.640 --> 0:01:20.640 Are you thinking that. 0:01:20.560 --> 0:01:22.920 We should see a cut or is it better to 0:01:23.080 --> 0:01:23.839 pause and wait? 0:01:24.880 --> 0:01:28.199 So I think it's important to say there's no preset path. 0:01:29.040 --> 0:01:31.919 I do see rates as still in the restrictive range, 0:01:31.959 --> 0:01:34.560 which means that over time some amount of easing will 0:01:34.600 --> 0:01:36.640 be appropriate. But you know, the economy is in a 0:01:36.760 --> 0:01:41.000 very good place right now, and inflation's coming back down 0:01:41.080 --> 0:01:45.400 to target. The labor markets are healthy, we're seeing solid growth. 0:01:46.040 --> 0:01:47.520 The goal of policies. 0:01:47.000 --> 0:01:52.280 Really to sustain that healthy set of conditions, recognizing you know, 0:01:52.360 --> 0:01:55.040 there are risks on both sides, and so I think 0:01:55.040 --> 0:02:00.600 we're well positioned. I certainly wouldn't take another ease in 0:02:00.640 --> 0:02:02.880 December off the table, But again we're not in a 0:02:02.920 --> 0:02:05.600 preset path, and so we'll have to look carefully at 0:02:05.680 --> 0:02:09.000 the data and see what makes sense when we get 0:02:09.000 --> 0:02:10.280 to December eighteenth. 0:02:10.360 --> 0:02:13.200 Well, the data this week showed inflation a little bit 0:02:13.200 --> 0:02:16.280 stronger than it had been in the CPI and the PPI, 0:02:16.440 --> 0:02:19.040 and those who do the nerdy calculations for the PCE 0:02:19.360 --> 0:02:20.360 say we're going to see. 0:02:20.160 --> 0:02:20.800 The same thing. 0:02:22.200 --> 0:02:24.480 Should you keep your foot on the brake a little 0:02:24.480 --> 0:02:27.840 more then because inflation is not back down to your target. 0:02:28.120 --> 0:02:31.520 So you know, I don't focus too much on any 0:02:31.600 --> 0:02:35.079 one data point. I think it's really important to look holistically. 0:02:35.520 --> 0:02:38.800 And when I do that, what I see is that, 0:02:39.400 --> 0:02:43.760 first of all, inflation has come down significantly. I focus 0:02:43.880 --> 0:02:48.600 on the you know, a couple of month averages, and 0:02:49.880 --> 0:02:54.960 if you take food, energy, and in particular shelter out, 0:02:55.400 --> 0:02:59.240 the rest of inflation has actually been in the range 0:02:59.280 --> 0:03:02.280 consistent with the two percent, exactly what we'd like to see. 0:03:02.560 --> 0:03:06.800 What's really still elevated as shelter and that is taking 0:03:06.919 --> 0:03:10.359 time to come back down, and a lot of that 0:03:10.440 --> 0:03:14.400 really reflects shocks from the past. I'm not seeing evidence 0:03:14.440 --> 0:03:17.720 of new price pressures, and so I think it's important 0:03:17.720 --> 0:03:22.560 to stay the course. But that analysis of the data 0:03:22.720 --> 0:03:24.800 is part of why I thought it was really appropriate 0:03:24.840 --> 0:03:29.120 for us to begin easing in September, and to be 0:03:29.600 --> 0:03:35.320 in an environment where we are really looking over time methodically, 0:03:35.880 --> 0:03:40.560 perhaps patiently, to be normalizing policy, to maintain those healthy 0:03:40.800 --> 0:03:42.640 conditions that I talked about a moment ago. 0:03:42.880 --> 0:03:45.040 Well, let's look at the other side of the mandate. Employment. 0:03:45.800 --> 0:03:48.560 We had a very strong employment report, and then we 0:03:48.600 --> 0:03:52.920 had a very weak employment report, granted, affected by hurricanes 0:03:52.960 --> 0:03:53.520 and strikes. 0:03:53.960 --> 0:03:55.440 So what's your judgment of. 0:03:55.440 --> 0:03:57.880 Where the labor market is when you look holistically at 0:03:57.920 --> 0:04:00.480 all of the labor data and when I. 0:04:00.480 --> 0:04:02.839 Look at all of the data, and you're absolutely right, 0:04:02.920 --> 0:04:06.720 there have been some stronger readings, there have been some 0:04:06.840 --> 0:04:09.320 readings over time that were a bit weaker, and there are. 0:04:09.240 --> 0:04:10.480 A lot of special factors. 0:04:10.800 --> 0:04:16.360 So looking at averages over time, looking at the range 0:04:16.360 --> 0:04:18.920 of information, what I see is a labor market that 0:04:19.080 --> 0:04:23.800 looks similar to conditions that we've considered full employment, so 0:04:23.920 --> 0:04:27.839 in terms of job openings and quit rates, and the 0:04:27.880 --> 0:04:31.320 fact that wage growth has been coming down and given 0:04:31.360 --> 0:04:36.279 the high productivity we've seen is consistent with the move 0:04:36.400 --> 0:04:40.080 back down to two percent inflation and staying there. And 0:04:40.279 --> 0:04:44.400 unemployment has stayed in a range that is near four 0:04:44.440 --> 0:04:47.840 percent low by historical standards, so yes, higher than a 0:04:47.920 --> 0:04:50.680 year ago. So all of that, to me says healthy 0:04:50.720 --> 0:04:56.720 labor market conditions. Things to watch carefully and don't focus 0:04:56.839 --> 0:04:59.599 too much on any one piece of data. 0:05:00.120 --> 0:05:01.400 Have to look at the whole picture. 0:05:01.560 --> 0:05:04.680 All right, healthy labor market. Inflation's coming down, even if 0:05:04.680 --> 0:05:07.080 it's stalled a little bit, but it's in the twos 0:05:07.680 --> 0:05:12.159 and the economy is stronger than people had forecasts. So 0:05:13.120 --> 0:05:16.039 do you agree with Chairman Powell and saying there is 0:05:16.120 --> 0:05:19.880 nothing telling you you have to cut rates very quickly? 0:05:20.520 --> 0:05:25.000 So I think that I don't. I agree that I 0:05:25.040 --> 0:05:27.960 don't see a big urgency. At the same time, I 0:05:28.040 --> 0:05:31.960 do think that preserving those healthy conditions, right, I mean, 0:05:31.960 --> 0:05:35.200 that's what our mandate really is from Congress. Price stability 0:05:35.680 --> 0:05:38.760 and maximum employment sustained over time, not just at some 0:05:38.880 --> 0:05:42.200 point in time. And so as I said before, I 0:05:42.320 --> 0:05:47.599 do see financial the policy stances being in a restrictive 0:05:47.640 --> 0:05:50.760 place and over time, normalizing that I think is going 0:05:50.800 --> 0:05:54.200 to be important. But we're well positioned to be really 0:05:55.000 --> 0:05:58.320 careful in assessing the data and making decisions about the pace, 0:05:58.440 --> 0:06:02.160 about the timing, and so that you know, that's how 0:06:02.200 --> 0:06:02.960 I think about that. 0:06:03.560 --> 0:06:06.120 Let me ask about the elephant in the room, and 0:06:06.120 --> 0:06:09.480 that is the new President elect of the United States. 0:06:09.600 --> 0:06:13.480 His policies have not been fleshed out. Tremen Pol's made 0:06:13.480 --> 0:06:16.440 it clear you don't know exactly what's going to happen. 0:06:17.000 --> 0:06:23.160 But do you expect that something in whatever his fiscal 0:06:23.200 --> 0:06:25.960 plans are will affect the economy and you will have 0:06:26.040 --> 0:06:29.520 to take another look, say at what your economic projections 0:06:29.560 --> 0:06:33.120 are and what the plot projections are for twenty twenty five. 0:06:33.640 --> 0:06:37.040 Now, as we get information about the economy, certainly that 0:06:37.080 --> 0:06:40.919 includes about fiscal policy. Of course, it's really important to 0:06:40.960 --> 0:06:42.680 factor that in. And there are lots of things we 0:06:42.720 --> 0:06:45.400 look at. Fiscal policies certainly one of them, but I 0:06:45.440 --> 0:06:49.000 don't want to speculate on what policies that haven't been 0:06:49.080 --> 0:06:51.039 enacted or implemented might look like. 0:06:51.680 --> 0:06:55.960 Well, do you think that tariffs as an economic concept 0:06:56.680 --> 0:06:57.640 add to inflation? 0:06:59.240 --> 0:07:02.120 They can, And again we would have to see if 0:07:02.160 --> 0:07:07.200 there are tariffs that are implemented, more about the specifics 0:07:07.200 --> 0:07:08.360 and the dynamics for those. 0:07:08.839 --> 0:07:13.160 Now, if there's a fiscal impulse in whatever the President 0:07:13.200 --> 0:07:16.560 elect chooses to do, is the economy growing too fast 0:07:16.600 --> 0:07:19.880 for that right now? Would that be a danger a worry? 0:07:20.080 --> 0:07:22.040 So again, I think there are lots of things that 0:07:22.160 --> 0:07:26.040 determine how the economy evolves and grows over time. Fiscal 0:07:26.080 --> 0:07:28.720 policy is certainly one of them and certainly does have 0:07:28.760 --> 0:07:30.760 an impact on that, and we'd have to factor that 0:07:30.840 --> 0:07:35.600 in and look through that. You know, I do think, 0:07:35.640 --> 0:07:38.440 and Chair Powell has also said this that you know, 0:07:38.480 --> 0:07:40.760 fiscal policy at the moment is on a path that's 0:07:40.800 --> 0:07:45.320 not sustainable. But again, we when we make our policy 0:07:45.360 --> 0:07:48.640 decisions to focus on our mandate from Congress, it's really 0:07:48.680 --> 0:07:50.960 based on the data that we have available and the 0:07:51.000 --> 0:07:54.800 analysis and the assessments that we can do on that basis. 0:07:55.080 --> 0:07:57.920 As far as I know, President like Trump has never 0:07:58.240 --> 0:07:59.160 threatened to fire you. 0:08:00.120 --> 0:08:02.040 But I wanted to ask. 0:08:02.520 --> 0:08:06.760 What is in your mind the relationship between the Federal 0:08:06.760 --> 0:08:08.360 Reserve and the executive branch. 0:08:09.720 --> 0:08:14.040 So what I would say is that the FED is 0:08:14.160 --> 0:08:20.080 structured by Congress as an independent body, and that that 0:08:20.760 --> 0:08:24.480 is important in terms of the ability for us to 0:08:24.520 --> 0:08:26.920 do our job well. There's a lot of analysis that 0:08:27.040 --> 0:08:32.560 shows that independent central banks are more effective at keeping 0:08:32.600 --> 0:08:35.920 inflation low and stable, and we have really seen how 0:08:36.040 --> 0:08:38.719 important it is to keep inflation low and stable in 0:08:38.800 --> 0:08:43.600 terms of the impact the higher prices past inflation have had. 0:08:44.360 --> 0:08:48.080 And so I think that is a very good structure 0:08:48.120 --> 0:08:50.199 to enable us to do our jobs well. 0:08:50.440 --> 0:08:52.760 So the things that come across social media basically just 0:08:52.840 --> 0:08:55.680 noise in the background to you as a policymaker. 0:08:55.440 --> 0:08:58.520 I am very focused on doing my job and there 0:08:58.640 --> 0:09:01.200 is more than enough to keep me very focused and 0:09:01.360 --> 0:09:02.800 very busy now. 0:09:03.120 --> 0:09:04.440 The people, well you can't see them. 0:09:04.440 --> 0:09:06.000 I could see them out there, all the traders on 0:09:06.000 --> 0:09:08.240 their knees going tell us when you're going to. 0:09:08.200 --> 0:09:09.080 Do this sort of thing. 0:09:10.120 --> 0:09:12.920 Can we basically say, because of the potential changes that 0:09:12.960 --> 0:09:15.439 are coming and the data that we have seen, that 0:09:16.160 --> 0:09:18.800 the dot plot for twenty twenty five and the SEP 0:09:19.000 --> 0:09:21.040 for twenty twenty five, those are kind of out the 0:09:21.040 --> 0:09:24.559 window now and we should really wait until December or 0:09:24.600 --> 0:09:27.600 even later to get a good idea of where you 0:09:27.600 --> 0:09:29.640 think you're going to be and the economy is going 0:09:29.679 --> 0:09:29.840 to be. 0:09:30.920 --> 0:09:34.920 All things I think always evolve, and so in about 0:09:34.920 --> 0:09:38.040 a month or so, we will have a new SEP 0:09:38.320 --> 0:09:41.920 and information from all of the policymakers about what they think. 0:09:42.800 --> 0:09:46.200 And so I think it's always true that you know, 0:09:47.320 --> 0:09:51.760 in the middle of the SEP information you don't want 0:09:51.840 --> 0:09:56.000 to take too much from what might have been written down, 0:09:56.200 --> 0:09:59.960 penciled in. I would say a number of weeks earlier, 0:10:00.320 --> 0:10:01.920 a lot of the data evolves. 0:10:02.120 --> 0:10:04.880 What are the people in these tall buildings around us, 0:10:04.880 --> 0:10:09.120 all the corporate leaders in your district telling you about 0:10:09.480 --> 0:10:12.120 how they see the economy going forward and their plans. 0:10:12.559 --> 0:10:15.120 Yeah, and I appreciate you asking about that. I think 0:10:15.559 --> 0:10:19.319 one of the really important things that I do, that 0:10:19.400 --> 0:10:22.800 my colleagues do is talk to people across the economy 0:10:22.960 --> 0:10:25.800 in lots of different sectors. So being out and about 0:10:25.880 --> 0:10:29.480 throughout New England and what I'm hearing is pretty consistent 0:10:29.640 --> 0:10:33.160 with what I said at the outset that people are 0:10:33.160 --> 0:10:38.600 cautiously optimistic. They see an economy that seems resilient. Labor 0:10:38.640 --> 0:10:44.000 markets have moved into much more normal conditions relative to 0:10:44.120 --> 0:10:48.960 the unsustainable, more overheated conditions from a year or more ago, 0:10:49.600 --> 0:10:55.000 and the price pressures really have abated considerably. So that's 0:10:55.040 --> 0:10:57.800 all very consistent. But of course, you know, the aggregate 0:10:57.840 --> 0:11:01.960 data masks a range of different specifis across individual firms 0:11:01.960 --> 0:11:04.880 and sectors and regions, and it's really I think helpful 0:11:04.920 --> 0:11:07.920 to hear all of that and pull the qualitative information 0:11:08.080 --> 0:11:09.439 together with the statistics. 0:11:09.960 --> 0:11:14.359 One last question at your conference. It's on financial technology 0:11:14.400 --> 0:11:17.120 this year and the Boston Fed's been in the middle 0:11:17.160 --> 0:11:19.840 of financial technology and just coincidentally, coming up at the 0:11:19.840 --> 0:11:22.040 top of the hour, we have our Bloomberg Technology Show. 0:11:22.559 --> 0:11:24.000 So let me ask you. 0:11:24.360 --> 0:11:28.240 A lot of tech talk over the last five, six, 0:11:28.320 --> 0:11:30.000 seven years has been tech talk. 0:11:30.679 --> 0:11:34.480 How fast are we going to see some. 0:11:34.200 --> 0:11:40.040 Sort of impact on the average person from new payment systems. 0:11:40.080 --> 0:11:42.319 I realize you have fed now in place, but how 0:11:42.360 --> 0:11:44.760 fast are people going to say, hey, this is something different? 0:11:45.200 --> 0:11:46.079 And are we going to. 0:11:46.080 --> 0:11:52.240 See any kind of digital currency adoption, whether it's private 0:11:52.640 --> 0:11:54.480 or government in the next few years. 0:11:55.000 --> 0:12:01.720 So, you know, the impacts of technology have many, many dimensions, 0:12:01.960 --> 0:12:05.920 and I think we're already seeing some impacts in terms 0:12:06.080 --> 0:12:09.240 of the roles that fintech are playing across our economy 0:12:09.240 --> 0:12:13.480 in different ways. And the conference today and tomorrow is 0:12:13.559 --> 0:12:17.840 intended to really bring experts together who have knowledge and 0:12:17.960 --> 0:12:21.840 done analysis from different vantage points to see as we 0:12:21.920 --> 0:12:24.599 put together the things we know, what are some of 0:12:24.640 --> 0:12:26.440 the things we don't know and need to know better. 0:12:26.480 --> 0:12:29.360 And so what we're really focusing on is a number 0:12:29.400 --> 0:12:34.679 of different themes, including financial inclusion, what are some of 0:12:34.720 --> 0:12:40.360 the implications of the innovations for access to financial services? 0:12:40.360 --> 0:12:43.320 And then also what are some of the implications of 0:12:43.600 --> 0:12:49.679 technological innovation for the transmission of monetary policy, for our 0:12:49.720 --> 0:12:54.359 supervision and regulation of financial institutions, and also for financial stability. 0:12:54.480 --> 0:12:57.840 So thinking about both the opportunities and the risks, and 0:12:57.920 --> 0:13:00.400 I think we are already seeing some of those implications, 0:13:00.480 --> 0:13:04.040 but it's still unfolding. It's complicated, and it's moving pretty quickly. 0:13:04.400 --> 0:13:08.560 So that's what we're trying to better understand. And again 0:13:08.600 --> 0:13:11.440 we're delighted that you're all here while we're in the 0:13:11.440 --> 0:13:13.760 midst of a conference on an important topic. 0:13:14.200 --> 0:13:15.360 Well, thank you for having us. 0:13:15.360 --> 0:13:18.920 Susan Collins, the President of the Federal Reserve Bank of Boston. 0:13:19.480 --> 0:13:20.760 We'll send it back to you now. 0:13:21.200 --> 0:13:23.679 Hi, Michael McKee, thank you very much. Bloomberg's Michael McKey 0:13:23.679 --> 0:13:27.760 speaking with Boston FED President Susan Collins here in Boston. 0:13:34.400 --> 0:13:38.240 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:13:38.320 --> 0:13:41.640 weekday afternoons from seven to ten am. Easter Listen on 0:13:41.679 --> 0:13:44.920 Apple car Play and Android Auto with a Bloomberg Business app, 0:13:45.040 --> 0:13:47.360 or watch us live on YouTube. 0:13:47.000 --> 0:13:48.360 And commute this morning. 0:13:49.080 --> 0:13:52.040 It's very important on radio on Apple car Play and 0:13:52.040 --> 0:13:54.920 Andrew Auto to talk to the number one chart guy 0:13:54.920 --> 0:13:55.360 in the world. 0:13:55.440 --> 0:13:57.640 It really works on radio, maybe works better. 0:13:57.480 --> 0:13:59.760 On YouTube, but we're going to be chart free this 0:13:59.840 --> 0:14:03.760 morn with Uri and Timmer. The title is Director Global 0:14:03.840 --> 0:14:08.000 Macro at Fidelity Management, and you can see the miracle 0:14:08.080 --> 0:14:11.280 of this work on LinkedIn, where he's very very visible. 0:14:11.840 --> 0:14:14.720 Urine Timmer joins us now as he gets ready for 0:14:14.760 --> 0:14:18.320 the charts of the weekend. How do you amend your charts? 0:14:19.000 --> 0:14:22.800 When there was a news bulletin yesterday, the Bloomberg headline 0:14:23.240 --> 0:14:28.280 that there's seven trillion dollars in cash laying out there, 0:14:28.440 --> 0:14:30.960 how does that affect Will dan Off? How does that 0:14:31.000 --> 0:14:32.240 affect Uri and Timmer? 0:14:33.120 --> 0:14:36.960 Well, so that's that's cash shitting in money market accounts. 0:14:36.960 --> 0:14:39.960 Of course, we are the leading provider of money market 0:14:40.040 --> 0:14:43.720 so we're intimately involved with that with that cash. But 0:14:44.120 --> 0:14:46.720 my sense always has been that a lot of that 0:14:46.800 --> 0:14:51.040 cash did not flee the stock market in a flight 0:14:51.080 --> 0:14:53.760 to quality, which is kind of typically what you would expect, 0:14:53.840 --> 0:14:57.400 and then when when people feel more comfortable, they bring 0:14:57.400 --> 0:14:59.760 the cash back in. In this case, the cash came 0:14:59.800 --> 0:15:04.280 out of the banks during the regional bank crisis, you 0:15:04.320 --> 0:15:07.680 know a few years ago, when banks, you know, still 0:15:07.720 --> 0:15:10.320 are paying half a percent on deposits, and they were then, 0:15:10.720 --> 0:15:14.280 and the Fed was raising rates and providing alternatives. So 0:15:14.680 --> 0:15:17.760 I don't quite see this as a powder keg of 0:15:17.800 --> 0:15:21.480 cash waiting to chase stocks. And the metric I look 0:15:21.520 --> 0:15:24.920 at is money market fund access assets as a percentage 0:15:24.960 --> 0:15:28.120 of the market cap in the stock market, and there 0:15:28.240 --> 0:15:31.480 it's more it's more normal, it's more normal. So that 0:15:31.760 --> 0:15:34.200 money came out of the banks, my senses eventually will 0:15:34.200 --> 0:15:36.080 go back into banks, but not necessarily stock. 0:15:36.240 --> 0:15:38.840 We need to go into the crown jewel secrets of fidelity. 0:15:39.000 --> 0:15:41.680 And Abby, thank you so much for listening this morning 0:15:41.680 --> 0:15:44.520 and giving us access to mister Timmer. 0:15:45.040 --> 0:15:46.400 I'm going to cut to the chase. 0:15:46.440 --> 0:15:51.240 What's the elasticity I've yield in money market flows? If 0:15:51.320 --> 0:15:54.800 yields come down two decimal points or one decimal point 0:15:55.000 --> 0:15:57.720 or a big figure, when does Paul get out of 0:15:57.800 --> 0:15:58.880 his money market funds? 0:15:59.800 --> 0:16:03.160 Well, I think the FED is not going to cut 0:16:03.200 --> 0:16:07.040 as much as many people have thought and continue to think. 0:16:07.080 --> 0:16:10.280 So maybe it goes to four, it's at four and 0:16:10.360 --> 0:16:12.680 five eighths. If that's the case, money market yields stay 0:16:12.760 --> 0:16:15.600 around four or so, and I don't think that is 0:16:15.640 --> 0:16:18.520 going to create a tsunami, you know, out of cash 0:16:18.560 --> 0:16:23.760 into other assets, whether it's bombs or equities. So I 0:16:24.040 --> 0:16:25.920 don't think we're going to have another sort of zerb 0:16:26.040 --> 0:16:30.240 era where we go to zero or one and risk 0:16:30.280 --> 0:16:32.960 premia in the bond market. Gets suppressed and then that 0:16:33.040 --> 0:16:37.000 money flees into the risk market. So I don't think 0:16:37.000 --> 0:16:39.320 we're going to get there, but it would be, it 0:16:39.400 --> 0:16:41.600 would It would take you know, more than what we've 0:16:41.640 --> 0:16:42.920 seen so far, for sure. 0:16:42.800 --> 0:16:44.360 You're in What do you make of the move we've 0:16:44.360 --> 0:16:48.200 seen in financial markets since the election, big move of stocks, 0:16:48.600 --> 0:16:53.240 yields pushing higher, dollars, stronger, Bitcoin at ninety thousand per token, 0:16:54.120 --> 0:16:54.920 What do you make of all that? 0:16:55.160 --> 0:16:58.800 Yeah, so the markets are always in price discovery mode. Right, 0:16:58.840 --> 0:17:03.360 Sometimes the new information comes in gradually, slowly, a company 0:17:03.440 --> 0:17:08.560 reports earnings, the stock price adjusts, and sometimes the information 0:17:08.720 --> 0:17:11.240 comes in all at once, as we had with the election. Right, 0:17:11.280 --> 0:17:13.760 you can tell that people were sitting on their hands, 0:17:13.840 --> 0:17:16.240 you know, it was supposedly too close to call, so 0:17:16.400 --> 0:17:20.439 nothing really got done. And the market's brutally efficient in 0:17:20.640 --> 0:17:24.880 discounting new information, and so on November sixth, it had 0:17:25.000 --> 0:17:28.840 a lot of new information to discount, and that's what 0:17:28.840 --> 0:17:31.560 it did. And that's what price discovery is. And so 0:17:32.200 --> 0:17:36.959 the red wave trade right, small caps, less fed cuts 0:17:37.119 --> 0:17:42.280 return of the term premium rotation into financials, energy industrial, 0:17:42.400 --> 0:17:43.960 so broadening. 0:17:44.359 --> 0:17:46.280 That is the trade. 0:17:46.320 --> 0:17:50.000 And I think in twenty sixteen that trade was pretty 0:17:50.040 --> 0:17:53.479 much sort of done by December, right, So it happens 0:17:53.560 --> 0:17:56.639 very quickly. It's not like this is like the first 0:17:56.760 --> 0:18:00.560 bat of the first inning, like it's done instantaneously. 0:18:00.640 --> 0:18:04.240 You have portfolios of Fidelity that are over fifty percent 0:18:04.320 --> 0:18:07.520 in their top ten stocks and they're very mag seventy. 0:18:07.200 --> 0:18:09.880 Et cetera, et cetera. What do you see in your 0:18:10.000 --> 0:18:13.160 chart work on the flows? 0:18:13.560 --> 0:18:17.280 Luisja Motto would say, the distributions in and out of 0:18:17.359 --> 0:18:20.520 MEG seven right now? Are we selling? Are we buying? 0:18:20.800 --> 0:18:22.280 What are we doing well? 0:18:22.320 --> 0:18:25.199 I think the good news for the MAG seven is 0:18:25.200 --> 0:18:28.040 that they're not that expensive, right. I think I take 0:18:28.080 --> 0:18:30.000 a broader brush. I look at the nifty to fifty, 0:18:30.080 --> 0:18:32.720 the top fifty stocks, just because I have a data 0:18:32.720 --> 0:18:35.719 sets all the way back to the sixties and eighteen 0:18:35.840 --> 0:18:39.240 sixty and during the early seventies the original nifty to 0:18:39.240 --> 0:18:42.880 fifty and the late nineties, the dot com era, those 0:18:42.920 --> 0:18:46.440 fifty stocks were trading at twice the valuation multiple as 0:18:46.480 --> 0:18:49.840 the bottom four fifty. Today, the top fifty are trading 0:18:49.840 --> 0:18:53.080 at a twenty five percent premium. So you can't call 0:18:53.119 --> 0:18:55.359 it a bubble if the valuation is not extreme. The 0:18:55.400 --> 0:18:58.080 price movements have been extreme, but not the valuation. So 0:18:58.760 --> 0:19:01.000 what we've seen over the past few months really since 0:19:01.040 --> 0:19:03.919 the FED started cutting rates, is that this has been 0:19:03.920 --> 0:19:07.680 a bullish broadening. So the market has broadened eighty percent 0:19:07.720 --> 0:19:09.960 of stocks are above the two hundred moving average, but 0:19:10.000 --> 0:19:14.760 it's not happening at the expense of the mega growers, 0:19:14.840 --> 0:19:17.400 and in that sense, this cycle in a way has 0:19:17.520 --> 0:19:20.520 kind of gone in reverse. It's like a Benjamin Button cycle, 0:19:20.560 --> 0:19:24.160 where you know, usually a bull market starts very broad right, 0:19:24.160 --> 0:19:28.679 because the junkie low price stocks that are obliterated in 0:19:28.720 --> 0:19:31.720 the bear market come bouncing back, and then as the 0:19:31.760 --> 0:19:34.840 cycle matures, it gets more narrow and the blue chips 0:19:34.840 --> 0:19:36.760 are left standing at the end and you get those 0:19:36.800 --> 0:19:40.760 breath divergences. This time, it's been the opposite. It started 0:19:40.760 --> 0:19:43.400 with the Mac seven and then even during the rate 0:19:43.480 --> 0:19:46.720 hiking cycle, those were the safe stocks to be in 0:19:46.760 --> 0:19:48.800 because they were immune to the FED because they had 0:19:48.840 --> 0:19:53.720 so much cash. And now they're holding their absolute performance. 0:19:54.160 --> 0:19:57.159 But the market has broadened really since a year ago, 0:19:57.960 --> 0:20:00.360 and so it's kind of the best that you can 0:20:00.520 --> 0:20:04.160 hope for. Like are a more disorderly version of that 0:20:04.359 --> 0:20:07.000 would be that the mag seven or the nifty to 0:20:07.040 --> 0:20:11.840 fifty decline because money is moving from those stocks to 0:20:12.400 --> 0:20:14.720 the broader market. Then the index, the S and P 0:20:15.280 --> 0:20:18.040 would have trouble staying up just because of the weight 0:20:18.119 --> 0:20:20.840 of those seven stocks. But we're not seeing that yet. 0:20:21.200 --> 0:20:25.040 Your titles director of Global Macro. Where do you see 0:20:25.080 --> 0:20:27.160 the US versus non US right now? 0:20:27.400 --> 0:20:31.000 Well, so US, you know, excellence, you know has been 0:20:31.000 --> 0:20:34.480 in place for a decade. And it's interesting, you know, 0:20:34.480 --> 0:20:37.120 because we're always debating, you know, do we go outside 0:20:37.119 --> 0:20:40.080 the US? I mean the US trading at twenty two x, 0:20:40.240 --> 0:20:43.560 US is trading at fifteen PE, So the US is 0:20:43.600 --> 0:20:46.840 sixty percent more expensive than the rest of the world, 0:20:46.880 --> 0:20:50.840 whether it's em or EFA, you know, Japan, Europe. But 0:20:50.920 --> 0:20:53.879 you need a catalyst, right, Evaluation is not alone. You 0:20:53.960 --> 0:20:56.919 need relative earnings. Like if you go across the street 0:20:57.280 --> 0:21:00.960 and you're in the halls of fidelity, there is price 0:21:01.000 --> 0:21:06.160 follows earnings and relative price or relative performance follows relative earnings. 0:21:06.560 --> 0:21:09.080 And so that is missing with between the US and 0:21:09.119 --> 0:21:11.680 the rest of the world because US earnings continue to dominate. 0:21:11.800 --> 0:21:15.320 Price follows earning. Sounds like Bettina Dalton nineteen eighty. Okay, 0:21:15.760 --> 0:21:19.439 let's go there. I got an election. I got a 0:21:19.480 --> 0:21:23.480 belief nominal GDP's gonna pop. Do you, within the research 0:21:23.480 --> 0:21:26.520 of the fundamental animals at Fidelity and what you're doing 0:21:26.560 --> 0:21:30.840 with charts, agree that nominal is gonna pop. Revenues are 0:21:30.840 --> 0:21:33.200 gonna pop, and that's earnings will sustain. 0:21:33.720 --> 0:21:36.200 Yes, So we are one year into an earning cycle. 0:21:36.520 --> 0:21:39.119 Trailer earnings are up eight percent this year. Forward earnings 0:21:39.119 --> 0:21:42.760 are off about twelve or so. The expectation is that 0:21:42.880 --> 0:21:45.000 earnings will continue to grow next year. And if we 0:21:45.040 --> 0:21:47.560 do get this nominal GDP pop and earnings are a 0:21:47.640 --> 0:21:50.760 nominal thing, the earning cycle can continue. But the thing 0:21:50.800 --> 0:21:53.840 I worry about is the return of the of the 0:21:53.880 --> 0:21:56.040 fed model, you know, back in the green span in 0:21:56.160 --> 0:21:59.879 days of the eighties. Bond yields kind of you know, 0:22:00.080 --> 0:22:04.600 are causing indigestion again the rockvigilantes, And we've seen that 0:22:04.680 --> 0:22:07.120 now repeatedly over the last few years, and I think 0:22:07.200 --> 0:22:09.240 that is a risk for twenty twenty five. 0:22:09.359 --> 0:22:11.960 You gonna be in New York soon, I will be please. 0:22:12.119 --> 0:22:14.040 You got to come in because we got to talk 0:22:14.040 --> 0:22:16.560 about Babson the global ranking. 0:22:16.600 --> 0:22:19.840 They just got yes, And while while you have me 0:22:19.920 --> 0:22:22.240 on the air, I don't know what your schedule is, 0:22:22.240 --> 0:22:24.560