1 00:00:00,080 --> 00:00:12,960 Speaker 1: Yeah, welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:33,280 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg The 5 00:00:33,320 --> 00:00:35,120 Speaker 1: bond market's kind of the main event over the last 6 00:00:35,159 --> 00:00:37,000 Speaker 1: couple of days, and we continue to focus on it 7 00:00:37,240 --> 00:00:39,239 Speaker 1: right here on Bloomberg Surveillance. And I'm pleased to say 8 00:00:39,240 --> 00:00:42,000 Speaker 1: we have a brilliant guest to explore this topic. It's 9 00:00:42,000 --> 00:00:43,720 Speaker 1: Bill Lee. He's come from the I M F to 10 00:00:43,760 --> 00:00:46,000 Speaker 1: City and he now finds himself at the milk In Institute, 11 00:00:46,080 --> 00:00:48,480 Speaker 1: is the chief economist, and he joins us right here 12 00:00:48,680 --> 00:00:51,440 Speaker 1: on Bloomberg Radio. Bell. It's great to catch up with you. 13 00:00:51,600 --> 00:00:54,840 Speaker 1: As always, your thoughts please on the debt binge of 14 00:00:54,880 --> 00:00:57,080 Speaker 1: the U. S. Treasury over the next couple of days. 15 00:00:57,720 --> 00:00:59,840 Speaker 1: You've just hit on one of the topics that's completely up. 16 00:01:00,000 --> 00:01:02,000 Speaker 1: I seen financial markets right now right with the relative 17 00:01:02,120 --> 00:01:05,240 Speaker 1: balance of supply demand of U S securities. We knew 18 00:01:05,280 --> 00:01:07,720 Speaker 1: that when que started to taper off, and we knew 19 00:01:07,720 --> 00:01:10,640 Speaker 1: that when the FETE started to rebalance and reduce the 20 00:01:10,680 --> 00:01:13,040 Speaker 1: growth of its balance sheet. The demand wasn't going to 21 00:01:13,080 --> 00:01:15,800 Speaker 1: be there. What's surprising everybody was to extent to which 22 00:01:15,800 --> 00:01:17,840 Speaker 1: the deficit is going to pump out supply, which is 23 00:01:18,240 --> 00:01:20,600 Speaker 1: kind of strange when we knew that the depths would 24 00:01:20,600 --> 00:01:22,040 Speaker 1: be adding one and a half trillion dollars over the 25 00:01:22,080 --> 00:01:25,080 Speaker 1: next ten years. The thing that is critical right now 26 00:01:25,120 --> 00:01:28,160 Speaker 1: would be to what extent is it an inflation trade 27 00:01:28,240 --> 00:01:30,920 Speaker 1: and to what extent is it a restoring of the 28 00:01:31,040 --> 00:01:33,800 Speaker 1: normal term premium. And I think to my colleagues out there, 29 00:01:33,880 --> 00:01:36,600 Speaker 1: my former trading desk colleagues a city, that inflation trade 30 00:01:36,640 --> 00:01:40,639 Speaker 1: is premature. My conviction is that inflation is not around 31 00:01:40,640 --> 00:01:42,600 Speaker 1: the corner. The fit is not gonna be bumping up 32 00:01:42,640 --> 00:01:45,800 Speaker 1: rates fast than you think. But truly, what the one 33 00:01:45,800 --> 00:01:48,400 Speaker 1: trade that you have to think about is how to 34 00:01:48,560 --> 00:01:52,160 Speaker 1: engage that term premium from a negative thirty basis points 35 00:01:52,280 --> 00:01:55,880 Speaker 1: to more normal position of about seventy eight basis points. 36 00:01:55,920 --> 00:01:57,840 Speaker 1: So let's walk through that. What do you see is 37 00:01:57,840 --> 00:02:00,600 Speaker 1: the catalyst for a higher term premium and how does 38 00:02:00,640 --> 00:02:02,720 Speaker 1: that materialize out a coming months? Court As he is, 39 00:02:03,000 --> 00:02:05,720 Speaker 1: I think the finally markets have got to realize that 40 00:02:05,720 --> 00:02:08,240 Speaker 1: you've got to pay to have money in your pocket 41 00:02:08,280 --> 00:02:10,840 Speaker 1: for a longer period of time. Until now, because of 42 00:02:10,960 --> 00:02:13,400 Speaker 1: the distortions from que not just in the U S 43 00:02:13,440 --> 00:02:16,920 Speaker 1: but around the world, the markets were somehow convinced that 44 00:02:16,960 --> 00:02:19,320 Speaker 1: they had to pay for the privilege of parking money 45 00:02:19,360 --> 00:02:21,280 Speaker 1: for a longer period of time. And I think that's 46 00:02:21,320 --> 00:02:23,360 Speaker 1: the normalcy that has to come back into the markets. 47 00:02:23,520 --> 00:02:26,240 Speaker 1: And that's what they mean by normalization of mountary policy. Right, 48 00:02:26,280 --> 00:02:28,720 Speaker 1: you get rid of that distortion. But the markets are 49 00:02:28,720 --> 00:02:31,720 Speaker 1: are in some ways talking themselves into a spin by saying, 50 00:02:31,760 --> 00:02:34,120 Speaker 1: oh my god, inflations right around the corner. So certainly 51 00:02:34,160 --> 00:02:35,960 Speaker 1: all rates are gonna go up. The fit's gonna be 52 00:02:35,960 --> 00:02:38,360 Speaker 1: pushing the short end. The flatness that we had in place, 53 00:02:38,400 --> 00:02:40,359 Speaker 1: they might not be working anymore because they might be 54 00:02:40,400 --> 00:02:44,239 Speaker 1: steepeners and and and so the question is where's the trade? 55 00:02:44,280 --> 00:02:48,040 Speaker 1: And I think the critical issue is the restoration of 56 00:02:48,040 --> 00:02:51,320 Speaker 1: that term premium. If it happens at at least a 57 00:02:51,360 --> 00:02:54,400 Speaker 1: normal speed that we would hope to restore a positive 58 00:02:54,480 --> 00:02:57,640 Speaker 1: term premium, that's the trade that we should be engaging in. So, Bill, 59 00:02:57,720 --> 00:02:59,639 Speaker 1: how do you see the shape in a curve evolving 60 00:02:59,680 --> 00:03:02,120 Speaker 1: off that ultimately your framework for thinking about the bond 61 00:03:02,160 --> 00:03:05,000 Speaker 1: market right now, because so far the two year note 62 00:03:05,040 --> 00:03:07,280 Speaker 1: yield is doing much of the heavy lifting in terms 63 00:03:07,320 --> 00:03:09,840 Speaker 1: of this increase in yields to twenty six levels we 64 00:03:09,840 --> 00:03:13,360 Speaker 1: haven't seen in about ten years here in the United States. Absolutely, 65 00:03:13,360 --> 00:03:15,320 Speaker 1: And I think that's the confusion of the inflation trade 66 00:03:15,320 --> 00:03:18,160 Speaker 1: in the term pritment trade. Uh, the the inflation trade 67 00:03:18,280 --> 00:03:21,079 Speaker 1: is that because inflation is just around the corner, because 68 00:03:21,120 --> 00:03:24,280 Speaker 1: we saw this, uh, this, this ridiculous number in average 69 00:03:24,320 --> 00:03:27,280 Speaker 1: all the earnings of you know, mainly because supervisors got 70 00:03:27,280 --> 00:03:30,440 Speaker 1: paid more, and in the CPI, because we see parking 71 00:03:30,480 --> 00:03:33,040 Speaker 1: fees have gone up, and and the so called widespread 72 00:03:33,080 --> 00:03:36,240 Speaker 1: increase in prices has been very limited to hospital costs, 73 00:03:36,800 --> 00:03:40,240 Speaker 1: parking fees, and and and leases on rental and and trucks. 74 00:03:40,480 --> 00:03:41,920 Speaker 1: If you get rid of those, and you get rid 75 00:03:41,960 --> 00:03:44,880 Speaker 1: of the imputed prices out there, there's absolutely no sign 76 00:03:44,920 --> 00:03:48,160 Speaker 1: of inflation. So I think the the the the misguided 77 00:03:48,200 --> 00:03:50,320 Speaker 1: trade that I think a lot of my colleagues are 78 00:03:50,320 --> 00:03:52,360 Speaker 1: trying to do out there, which is to churn the markets. 79 00:03:52,360 --> 00:03:54,920 Speaker 1: Because look, remember, Jonathan, right as you would know you 80 00:03:54,960 --> 00:03:57,280 Speaker 1: were in the markets. The first quarter is where all 81 00:03:57,720 --> 00:04:00,200 Speaker 1: sell side banks make their money. So this is the 82 00:04:00,200 --> 00:04:02,160 Speaker 1: time to turn the market, and what better than to 83 00:04:02,280 --> 00:04:03,880 Speaker 1: cause a lot of it, certainly out there between the 84 00:04:03,880 --> 00:04:05,760 Speaker 1: two trades. And then I should point out to Carl 85 00:04:05,880 --> 00:04:11,120 Speaker 1: Recadna Bloomberg Economics agrees with you, Billy on being a suspect. 86 00:04:11,160 --> 00:04:14,320 Speaker 1: I guess I would say about the new wage growth. 87 00:04:14,320 --> 00:04:16,320 Speaker 1: Throwed you with us this morning, John Farrowe and Tom 88 00:04:16,400 --> 00:04:20,200 Speaker 1: Keane future flat futures negative twenty three Quiet markets with 89 00:04:20,240 --> 00:04:23,400 Speaker 1: William Lee of the Milk and Institute Bill. In the 90 00:04:23,440 --> 00:04:26,640 Speaker 1: old days, we just used to take the tenure yield 91 00:04:26,640 --> 00:04:30,200 Speaker 1: and say how many basis points of it is a 92 00:04:30,320 --> 00:04:34,440 Speaker 1: higher yield because of the Chinese? Can Billy do that 93 00:04:34,520 --> 00:04:38,479 Speaker 1: math today? Wow? You know everyone has obsessed about the 94 00:04:38,560 --> 00:04:42,880 Speaker 1: Chinese being such large holes as US treasuries. How about Apple, Microsoft, Cisco, 95 00:04:43,320 --> 00:04:46,120 Speaker 1: and and and and the pharmaceuticals out there. US corporates 96 00:04:46,120 --> 00:04:48,800 Speaker 1: have now become I think the fire because that the 97 00:04:48,800 --> 00:04:51,000 Speaker 1: money that they have abroad, it's not just part in 98 00:04:51,000 --> 00:04:53,760 Speaker 1: in in cash, it's part in US treasuries. And where's 99 00:04:53,760 --> 00:04:57,160 Speaker 1: the locate? Have you done that math or seeing that math? 100 00:04:57,400 --> 00:05:00,240 Speaker 1: Tom with That's exactly my research agenda at Milton right now. 101 00:05:00,279 --> 00:05:02,160 Speaker 1: And that's exactly the topic that we're writing on and 102 00:05:02,200 --> 00:05:04,520 Speaker 1: we'll be discussing. So when you publish it, your first 103 00:05:04,560 --> 00:05:08,400 Speaker 1: interview will be with Bloomberg Surveilance and not John Farrell. 104 00:05:08,440 --> 00:05:10,960 Speaker 1: In the Real Yield I no longer I no longer 105 00:05:11,040 --> 00:05:13,279 Speaker 1: have compliance officers, Tom So the minute I finished even 106 00:05:13,279 --> 00:05:18,120 Speaker 1: an early draft, I'm sending it to you. But we do. Bell. 107 00:05:18,360 --> 00:05:20,039 Speaker 1: It's a really good point. A lot of that money 108 00:05:20,120 --> 00:05:23,200 Speaker 1: is being put into dollan denominated assets already, not just treasuries, 109 00:05:23,200 --> 00:05:26,760 Speaker 1: but credit as well, bill us credit to almost across 110 00:05:26,800 --> 00:05:30,360 Speaker 1: the board. These guys have become big fixed income bond managers, 111 00:05:30,360 --> 00:05:33,359 Speaker 1: which begs the question, as the tax law has changed, 112 00:05:33,600 --> 00:05:36,320 Speaker 1: what does that mean for the way they rebalance some 113 00:05:36,400 --> 00:05:39,120 Speaker 1: of those holdings. Boy, John, that's a fantastic topic. And 114 00:05:39,160 --> 00:05:40,960 Speaker 1: you know that's like part two of my my research 115 00:05:41,000 --> 00:05:43,560 Speaker 1: agenda because right now half the dead out there isn't 116 00:05:43,680 --> 00:05:46,520 Speaker 1: is exactly in credit, right and so so investment grade. 117 00:05:46,520 --> 00:05:49,160 Speaker 1: And you see that despite all of the voltility and 118 00:05:49,160 --> 00:05:52,000 Speaker 1: the equity markets, absolutely nothing has happened to the spreads 119 00:05:52,040 --> 00:05:54,880 Speaker 1: between high yield and and and investment grade. And I 120 00:05:54,920 --> 00:05:58,440 Speaker 1: think when when we start to have the so called repatriation. 121 00:05:58,839 --> 00:06:00,720 Speaker 1: I question how much hip is going to be brought 122 00:06:00,760 --> 00:06:02,480 Speaker 1: back because a lot of it is already here, and 123 00:06:02,520 --> 00:06:04,800 Speaker 1: says that the US is US companies are flush with 124 00:06:04,839 --> 00:06:06,880 Speaker 1: cash and they can do any kind of capics they 125 00:06:06,920 --> 00:06:11,760 Speaker 1: want out of their current cash flows. What we saw 126 00:06:11,800 --> 00:06:14,640 Speaker 1: in two thousand four was the incentive to bring things back, 127 00:06:14,800 --> 00:06:16,719 Speaker 1: just didn't bring a lot of stuff back. So I 128 00:06:16,760 --> 00:06:21,720 Speaker 1: think the distortions in the markets that are there, Um, 129 00:06:21,920 --> 00:06:25,480 Speaker 1: the bond managers that are now in Apple and Cisco, 130 00:06:25,720 --> 00:06:27,520 Speaker 1: I think they're gonna behave like all the other bond 131 00:06:27,560 --> 00:06:29,600 Speaker 1: traders out there and leave things alone until they start 132 00:06:29,600 --> 00:06:32,280 Speaker 1: to see the incentives again. This is critical. Billy and 133 00:06:32,360 --> 00:06:37,200 Speaker 1: Jack Ablin was brilliant on this yesterday. Do we see 134 00:06:38,080 --> 00:06:41,920 Speaker 1: cap X, do we see investment? However you want to 135 00:06:41,960 --> 00:06:45,600 Speaker 1: phrase it? Is it there now or will it be 136 00:06:45,640 --> 00:06:47,960 Speaker 1: there in the next twelve months? Well? Here, how's this 137 00:06:48,000 --> 00:06:50,880 Speaker 1: for a twist? Tom. Everyone who has come to this microphone, 138 00:06:50,920 --> 00:06:53,320 Speaker 1: including me, has said the thing they worry about most 139 00:06:53,440 --> 00:06:55,560 Speaker 1: is that every corporate out there is saying that we're 140 00:06:55,600 --> 00:06:59,279 Speaker 1: going to use this extra tax reduction money and and 141 00:06:59,279 --> 00:07:01,800 Speaker 1: and whatever money you bring back and distribute as dividends 142 00:07:01,800 --> 00:07:04,240 Speaker 1: and stop buy backs. Now, when you think about it, 143 00:07:04,320 --> 00:07:06,159 Speaker 1: does that mean that it just disappears off the face 144 00:07:06,160 --> 00:07:08,120 Speaker 1: of the earth, that doesn't show up an investment at all. No, 145 00:07:08,279 --> 00:07:10,960 Speaker 1: it just means that your corporate managers tell me, the shareholders, 146 00:07:11,240 --> 00:07:13,880 Speaker 1: I can't make this cash work for you any better 147 00:07:13,920 --> 00:07:16,080 Speaker 1: than I've already done. Why don't you take it back 148 00:07:16,080 --> 00:07:19,040 Speaker 1: and find better investment opportunities. Well, isn't that what exactly 149 00:07:19,040 --> 00:07:22,840 Speaker 1: what we're supposed to be doing, reallocating funds from companies 150 00:07:22,880 --> 00:07:25,840 Speaker 1: that can no longer use the excess cash two companies 151 00:07:25,880 --> 00:07:28,760 Speaker 1: that can. And now your big question is where's the 152 00:07:28,800 --> 00:07:32,480 Speaker 1: money going? And I think the trends in real capex 153 00:07:32,560 --> 00:07:34,680 Speaker 1: if you look at b f I from the National 154 00:07:34,720 --> 00:07:38,280 Speaker 1: Income Accounts right, the place where it's growing fastest is 155 00:07:38,320 --> 00:07:42,160 Speaker 1: in technology and second in uh machinery equipment. So when 156 00:07:42,200 --> 00:07:45,960 Speaker 1: modernizing our productive capacity uh and I think that's really 157 00:07:45,960 --> 00:07:48,280 Speaker 1: the key to boosting productivity growth in the long run. 158 00:07:48,520 --> 00:07:50,800 Speaker 1: She spoke to Cisco about this last week. Tom, and 159 00:07:50,800 --> 00:07:52,960 Speaker 1: I think it's a really important point, And Chuck Robbins 160 00:07:52,960 --> 00:07:55,840 Speaker 1: of Cisco basically owned up. He's been very transparent about it. 161 00:07:56,040 --> 00:07:59,840 Speaker 1: He said, the tax law has not restricted my strategy whatsoever. 162 00:08:00,160 --> 00:08:02,520 Speaker 1: Because the bond market was so open for me in 163 00:08:02,600 --> 00:08:04,480 Speaker 1: the years gone by, I could just borrow in the 164 00:08:04,520 --> 00:08:06,440 Speaker 1: debt market and do what I wanted to do. Anyway, 165 00:08:06,480 --> 00:08:08,080 Speaker 1: So the idea you've got a tax, can you bring 166 00:08:08,120 --> 00:08:11,160 Speaker 1: this money home? So to speak, It doesn't change things 167 00:08:11,200 --> 00:08:14,000 Speaker 1: for money company, Billy think has so much greatly appreciated. 168 00:08:14,040 --> 00:08:29,080 Speaker 1: Here's with Milk and Institute and science coming up later, 169 00:08:29,640 --> 00:08:32,440 Speaker 1: we're really gonna look at what Elon Musk has done. 170 00:08:32,760 --> 00:08:36,080 Speaker 1: This has not had nearly the coverage it should when 171 00:08:36,080 --> 00:08:39,160 Speaker 1: you go back to the days of Mercury, Gemini, Apollo, 172 00:08:39,760 --> 00:08:42,959 Speaker 1: the unmanned missions of Cassini, and then it's like, yeah, 173 00:08:43,000 --> 00:08:47,559 Speaker 1: it's Elon Musk, big deal SpaceX. It is a miracle 174 00:08:47,920 --> 00:08:51,360 Speaker 1: the engineering. From a personal point of view, I think 175 00:08:51,360 --> 00:08:53,920 Speaker 1: we spend too much time talking about Tesla and maybe 176 00:08:53,960 --> 00:08:56,600 Speaker 1: not enough time talking about space X. I don't have 177 00:08:56,600 --> 00:08:59,520 Speaker 1: an opinion on Tesla. What I'm certain is they put 178 00:08:59,720 --> 00:09:02,440 Speaker 1: part of the thing up there to put the whole 179 00:09:02,440 --> 00:09:04,920 Speaker 1: thing up there, and they bring part of it back 180 00:09:05,000 --> 00:09:07,679 Speaker 1: down and reuse it. So so what's interesting today and 181 00:09:07,679 --> 00:09:09,120 Speaker 1: you'll be able to speak to this as well. It's 182 00:09:09,160 --> 00:09:11,640 Speaker 1: the secondary payload they're sending up a big satellite. No 183 00:09:11,679 --> 00:09:14,719 Speaker 1: one really cares much about the secondary payload of these 184 00:09:14,760 --> 00:09:18,080 Speaker 1: two smaller sate low orbit. They are set to put 185 00:09:18,160 --> 00:09:20,600 Speaker 1: thousands up there at some point in the future, so 186 00:09:20,640 --> 00:09:25,040 Speaker 1: we can have this huge internet service from low orbit 187 00:09:25,160 --> 00:09:27,640 Speaker 1: satellites that just fly all around the world. So basically 188 00:09:27,679 --> 00:09:29,720 Speaker 1: you can get broadband to every corner of the planet. 189 00:09:29,840 --> 00:09:32,920 Speaker 1: That's amazing without needing to worry about some activity on land. 190 00:09:33,000 --> 00:09:35,040 Speaker 1: If we do that, I can get Hi guys. It's 191 00:09:35,080 --> 00:09:41,680 Speaker 1: me basically basically, and Hi guys, how are you doing? 192 00:09:42,960 --> 00:09:44,760 Speaker 1: Are you going to do that too? I don't know, 193 00:09:44,840 --> 00:09:47,439 Speaker 1: but I'm getting too much YouTube at home. You know 194 00:09:48,520 --> 00:09:53,199 Speaker 1: my YouTube hate binge as well. Right now, flat on 195 00:09:53,320 --> 00:09:56,080 Speaker 1: the markets negative thirty three, but the two year yield 196 00:09:56,679 --> 00:09:59,400 Speaker 1: gives one pause. Why don't you bring in Robert Miller 197 00:10:00,080 --> 00:10:04,120 Speaker 1: John Farrell of black Rock, who's more than qualified to 198 00:10:04,120 --> 00:10:07,520 Speaker 1: talk about the sudden curve flattening in that two year 199 00:10:07,559 --> 00:10:10,240 Speaker 1: yield jump. Yeah, one of the leading voices in global 200 00:10:10,280 --> 00:10:12,880 Speaker 1: fixed income, working very closely with the c IO of 201 00:10:12,880 --> 00:10:15,079 Speaker 1: black Rock for global fixed income brick Reader, it is 202 00:10:15,120 --> 00:10:17,640 Speaker 1: Bob Miller. I'm very pleased to say it's black Rock's 203 00:10:17,679 --> 00:10:20,800 Speaker 1: head of US multi sector fixed income, Bob, what do 204 00:10:20,840 --> 00:10:22,440 Speaker 1: you make of the big move on the two year 205 00:10:22,520 --> 00:10:24,760 Speaker 1: yield that we've seen over the last few months. Thanks 206 00:10:24,760 --> 00:10:28,360 Speaker 1: for the opportunity to be here, Um well, as you know, Jonathan, 207 00:10:28,400 --> 00:10:31,760 Speaker 1: we've spoken over the last year, so we're not um 208 00:10:31,800 --> 00:10:34,920 Speaker 1: surprised by the move higher. I think it's consistent with 209 00:10:35,400 --> 00:10:38,040 Speaker 1: the guidance that the Federal Reserve has been giving us 210 00:10:38,040 --> 00:10:42,080 Speaker 1: with respect to the anticipated tightening of monetary policy over 211 00:10:42,120 --> 00:10:45,199 Speaker 1: this year and into next year. And also think it's 212 00:10:45,200 --> 00:10:51,240 Speaker 1: consistent with the better growth and inflation prospects that have 213 00:10:51,400 --> 00:10:55,000 Speaker 1: been increasingly evident in the US economy. But a lot 214 00:10:55,000 --> 00:10:57,560 Speaker 1: of people were positioning for a flatty yield curve. I 215 00:10:57,600 --> 00:11:00,280 Speaker 1: do wonder now you've had this real push are at 216 00:11:00,280 --> 00:11:03,000 Speaker 1: the very front end one month bills now about one 217 00:11:03,040 --> 00:11:07,679 Speaker 1: point four, one year notes now about two we had 218 00:11:07,679 --> 00:11:10,600 Speaker 1: a situation where this opportunity cost of being in cash 219 00:11:10,720 --> 00:11:13,640 Speaker 1: light products over other things have really shifted, and whether 220 00:11:13,679 --> 00:11:16,880 Speaker 1: things like investment grade need to read price because you 221 00:11:16,920 --> 00:11:19,040 Speaker 1: can basically have a one month T bill at one 222 00:11:19,080 --> 00:11:21,480 Speaker 1: point four percent and to take any kind of extra 223 00:11:21,559 --> 00:11:25,000 Speaker 1: duration credit risk you need to be compensated for that 224 00:11:25,080 --> 00:11:29,640 Speaker 1: and you're not big great question, And precisely along the 225 00:11:29,679 --> 00:11:32,120 Speaker 1: lines that we're currently thinking, we think the front end 226 00:11:32,120 --> 00:11:34,920 Speaker 1: of the yield curve, in fact, out to the kind 227 00:11:34,920 --> 00:11:37,000 Speaker 1: of the short intermediate out to the three to five 228 00:11:37,080 --> 00:11:41,720 Speaker 1: year point is increasingly attractive as the diversification agent in 229 00:11:41,800 --> 00:11:45,679 Speaker 1: your portfolio, especially if you're holding risk assets. So specific 230 00:11:45,760 --> 00:11:47,760 Speaker 1: your your point the five year yield, the five year 231 00:11:47,800 --> 00:11:52,440 Speaker 1: treasury yields of the thirty year yield. And yet you 232 00:11:52,480 --> 00:11:55,719 Speaker 1: can withstand if if if rates sell off forty four 233 00:11:55,800 --> 00:11:59,760 Speaker 1: basis points more from here, you're gonna lose two price points. 234 00:11:59,800 --> 00:12:02,760 Speaker 1: If it was an instantaneous sell off, you lose two 235 00:12:02,760 --> 00:12:06,199 Speaker 1: price points in your five year note, where the same 236 00:12:06,240 --> 00:12:08,920 Speaker 1: break even in the thirty year yield is ten basis 237 00:12:08,920 --> 00:12:11,880 Speaker 1: points to lose two price points. So we think that 238 00:12:12,000 --> 00:12:15,280 Speaker 1: the front end of the yield curve offers increasingly attractive 239 00:12:15,360 --> 00:12:18,560 Speaker 1: value as a diversification agent in your portfolio. Which of 240 00:12:18,600 --> 00:12:21,960 Speaker 1: those ratios is critical for our listeners, the five year 241 00:12:22,040 --> 00:12:24,800 Speaker 1: compared to the thirty year, the two year compared to 242 00:12:24,840 --> 00:12:27,480 Speaker 1: the ten As you look at the percent of a 243 00:12:27,559 --> 00:12:31,840 Speaker 1: short term yield as compared to a long term yield, 244 00:12:31,960 --> 00:12:35,720 Speaker 1: which is the ratio. That matters, Bob Miller, So I 245 00:12:35,760 --> 00:12:39,240 Speaker 1: think it depends upon the circumstances. So if we were 246 00:12:39,280 --> 00:12:44,280 Speaker 1: at much higher nominal and importantly real rates, then the 247 00:12:44,320 --> 00:12:48,439 Speaker 1: flat yield curve would likely be suggesting um significantly tighter 248 00:12:48,480 --> 00:12:51,560 Speaker 1: financial conditions, which would lead to an increased risk of 249 00:12:51,600 --> 00:12:56,440 Speaker 1: the economy decelerating over the over the forecasterrizon. In this instance, 250 00:12:57,000 --> 00:13:00,600 Speaker 1: policy and interest rates are still relatively accommodated. Right short 251 00:13:00,679 --> 00:13:04,720 Speaker 1: term real interest rates are still quite accommodative. So a 252 00:13:04,760 --> 00:13:08,200 Speaker 1: substantial contributor to the flatness of the yield curve is 253 00:13:08,280 --> 00:13:13,200 Speaker 1: the um non US central bank activity, specifically the the 254 00:13:13,280 --> 00:13:16,000 Speaker 1: large scale asset purchase programs still taking place in Europe 255 00:13:16,000 --> 00:13:19,320 Speaker 1: and Japan, which creates this gravitational pull on the long 256 00:13:19,400 --> 00:13:21,640 Speaker 1: end of the U S yield curves. I think it 257 00:13:21,640 --> 00:13:24,680 Speaker 1: it's important to distinguish why each part of the curve 258 00:13:24,720 --> 00:13:27,280 Speaker 1: is doing what it's doing. I don't think the current 259 00:13:27,360 --> 00:13:32,720 Speaker 1: flatness two's tens or five bonds is indicative or sending 260 00:13:32,760 --> 00:13:36,839 Speaker 1: any signal that of of impending deceleration risk in the 261 00:13:36,960 --> 00:13:40,280 Speaker 1: US economy. Very important comments there with us today, Butt Miller, 262 00:13:40,320 --> 00:13:43,280 Speaker 1: he is with black Rock and will continue our discussion 263 00:13:43,360 --> 00:13:47,720 Speaker 1: Bloomberg surveillance is always brunched by cone Resnick. Text re 264 00:13:47,800 --> 00:13:50,360 Speaker 1: form can have a major impact in your business. Get 265 00:13:50,400 --> 00:13:54,360 Speaker 1: insight from the experts at Cone Resident Visit cone Resnik 266 00:13:55,000 --> 00:13:59,600 Speaker 1: dot com slash text reform Cone Resnick Accounting Text Advisory. 267 00:13:59,679 --> 00:14:01,520 Speaker 1: Let me spell that for you. C O H N 268 00:14:02,440 --> 00:14:05,360 Speaker 1: are easy n I c K can RESI and we 269 00:14:05,440 --> 00:14:09,160 Speaker 1: thank them for their support. John Ferrell, thank you, Tom King. 270 00:14:09,400 --> 00:14:11,720 Speaker 1: Bob Miller with us from black Rock today. I'm really 271 00:14:11,720 --> 00:14:14,400 Speaker 1: pleased to say to help has work through this deluge 272 00:14:14,440 --> 00:14:17,160 Speaker 1: of treasury supply that comes through the week. Talking about 273 00:14:17,160 --> 00:14:21,200 Speaker 1: diversifying into treasuries, the short dated treasuries that have given 274 00:14:21,240 --> 00:14:23,480 Speaker 1: you a little bit extra yield now and Bob, my 275 00:14:23,600 --> 00:14:26,720 Speaker 1: question off the back of that is you diversify into 276 00:14:27,000 --> 00:14:31,480 Speaker 1: some of these treasuries, you diversify away from what investment 277 00:14:31,560 --> 00:14:34,400 Speaker 1: grade high yield. Where do you cut risks so you 278 00:14:34,440 --> 00:14:39,640 Speaker 1: can make that diversification play. Yeah, so good question again, Jonathan. 279 00:14:39,840 --> 00:14:42,600 Speaker 1: I think the way we're thinking about the rise and 280 00:14:42,640 --> 00:14:46,040 Speaker 1: treasury yield and how it competes for capital with other 281 00:14:46,120 --> 00:14:50,200 Speaker 1: asset classes is that the the rise we've seen so 282 00:14:50,280 --> 00:14:54,400 Speaker 1: far in treasury yield is likely to begin competing for 283 00:14:54,520 --> 00:15:00,000 Speaker 1: capital with investment grade credit um and specifically the shorter, mature, 284 00:15:00,000 --> 00:15:05,040 Speaker 1: already tighter spread, high quality product that um. When when 285 00:15:05,160 --> 00:15:08,040 Speaker 1: five your notes were fifty basis points lower yield, you 286 00:15:08,080 --> 00:15:11,359 Speaker 1: know you you were able to earn that extra compensation 287 00:15:11,400 --> 00:15:14,360 Speaker 1: by holding the credit risk. But now with with treasuries 288 00:15:14,400 --> 00:15:19,680 Speaker 1: having increased substantially, it calls into question holding that that 289 00:15:19,760 --> 00:15:22,760 Speaker 1: credit instrument. Even though it's still at a positive spread, 290 00:15:22,920 --> 00:15:25,120 Speaker 1: the spread is less attractive than it was before. So 291 00:15:25,160 --> 00:15:28,560 Speaker 1: I think it starts to compete for capital in shorter 292 00:15:28,640 --> 00:15:31,520 Speaker 1: duration i g. And you're seeing that as the credit 293 00:15:31,560 --> 00:15:35,120 Speaker 1: curves in investment grade space have been flattening quite aggressively, 294 00:15:35,920 --> 00:15:38,680 Speaker 1: and then it eventually. Our our view is that the 295 00:15:39,320 --> 00:15:42,960 Speaker 1: risk free rate competes for capital at different levels with 296 00:15:43,040 --> 00:15:46,040 Speaker 1: different asset classes, meaning risk free rates have to go 297 00:15:46,120 --> 00:15:49,960 Speaker 1: considerably higher before they begin to compete with equities. But 298 00:15:50,080 --> 00:15:53,600 Speaker 1: you'll see them move out the capital structure or or 299 00:15:53,880 --> 00:15:58,160 Speaker 1: down the capital structure, first competing with higher quality investment 300 00:15:58,160 --> 00:16:02,600 Speaker 1: grade bonds, then eventually competeing for higher yield bonds, and 301 00:16:02,640 --> 00:16:05,640 Speaker 1: then eventually competing with equity. So this is a really 302 00:16:05,680 --> 00:16:08,160 Speaker 1: really interesting point, Bob. This is going to work its 303 00:16:08,160 --> 00:16:11,440 Speaker 1: way down the capital structure, but the first to get 304 00:16:11,520 --> 00:16:15,880 Speaker 1: hit it's the stuff at the top of the capital structure, 305 00:16:15,920 --> 00:16:18,240 Speaker 1: So therefore you should take more risk at this point. 306 00:16:18,280 --> 00:16:19,840 Speaker 1: I'm just trying to get my head around that, Bob. 307 00:16:20,880 --> 00:16:22,800 Speaker 1: I think it's more of a barbell approach. We like 308 00:16:22,920 --> 00:16:26,160 Speaker 1: owning the the you know, as I mentioned before, we 309 00:16:26,280 --> 00:16:31,440 Speaker 1: like the short to intermediate part of the treasury curve specifically, 310 00:16:31,480 --> 00:16:33,600 Speaker 1: but we also still think that the equity market is 311 00:16:33,640 --> 00:16:37,880 Speaker 1: likely to do okay this year given the significant impulses 312 00:16:37,880 --> 00:16:40,680 Speaker 1: that are coming through the economy through fiscal policy over 313 00:16:40,720 --> 00:16:43,840 Speaker 1: the course of the next year two year and a half. Well, 314 00:16:43,880 --> 00:16:46,280 Speaker 1: then how do you respond? I think everybody can hear 315 00:16:46,360 --> 00:16:49,160 Speaker 1: the dynamics is in your head, Miller, after decades of 316 00:16:49,200 --> 00:16:52,560 Speaker 1: doing this, including your work at Black Rock, how do 317 00:16:52,600 --> 00:16:57,560 Speaker 1: you respond to the route? Oh, we're worried about the deficit. View, 318 00:16:57,600 --> 00:17:01,080 Speaker 1: how do you respond to the ex cut plus new 319 00:17:01,160 --> 00:17:07,119 Speaker 1: deficit deficits to come. I'm worried about the deficit, but 320 00:17:08,520 --> 00:17:11,960 Speaker 1: you know, so consider this, if we're we're likely going 321 00:17:12,000 --> 00:17:16,040 Speaker 1: to be running five deficits to GDP in the next 322 00:17:16,080 --> 00:17:18,720 Speaker 1: several years at a time when we're at full employment 323 00:17:18,720 --> 00:17:21,960 Speaker 1: and we've closed the output gap. That doesn't that doesn't 324 00:17:22,000 --> 00:17:25,439 Speaker 1: feel good considering that there will be another deceleration slash 325 00:17:25,480 --> 00:17:27,560 Speaker 1: recession on the horizon at some point in the future, 326 00:17:27,960 --> 00:17:31,080 Speaker 1: So that worries me. In a perfect world, we would 327 00:17:31,080 --> 00:17:37,040 Speaker 1: have had spending offsets right to accompany the credible and 328 00:17:37,920 --> 00:17:41,359 Speaker 1: helpful parts of the actual legislation. Bob Miller, thank you 329 00:17:41,440 --> 00:17:44,359 Speaker 1: so much. With black greatly greatly appreciate that this morning. 330 00:17:55,600 --> 00:17:58,960 Speaker 1: For those of you who were enjoying Bob Moon and 331 00:17:59,040 --> 00:18:04,600 Speaker 1: Dana Hall's perspective. If on SpaceX the mission was scrubbed, 332 00:18:05,440 --> 00:18:07,399 Speaker 1: when was the last time we said that or covered that? 333 00:18:07,440 --> 00:18:09,520 Speaker 1: I mean it's been you know, they used to be 334 00:18:09,560 --> 00:18:11,840 Speaker 1: scrubbed all the time, whether it was Space Shuttle or 335 00:18:12,480 --> 00:18:16,040 Speaker 1: Apollo Gemini high level wings. We'll try it all again 336 00:18:16,160 --> 00:18:21,639 Speaker 1: tomorrow six seventeen Pacific time, Eastern times. Some things have 337 00:18:21,760 --> 00:18:24,359 Speaker 1: never changed, and that is one of them, is that 338 00:18:25,000 --> 00:18:27,359 Speaker 1: rocketry has beholden to the weather. So we'll look for 339 00:18:27,359 --> 00:18:30,040 Speaker 1: that from SpaceX tomorrow. And what's great about it, I mean, 340 00:18:30,080 --> 00:18:32,280 Speaker 1: if if you remember, I remember clear as a bell 341 00:18:32,720 --> 00:18:35,080 Speaker 1: pin fox, I do you know that I actually lied 342 00:18:35,160 --> 00:18:38,359 Speaker 1: to my mother to stay home the day that John 343 00:18:38,359 --> 00:18:41,480 Speaker 1: Glenn orbited. Really it was like the movies. I took 344 00:18:41,520 --> 00:18:44,280 Speaker 1: the temperature thermometer thing I put against the light bulb 345 00:18:44,320 --> 00:18:48,879 Speaker 1: and I was incredibly sick with a massive temperature that recovered. 346 00:18:49,000 --> 00:18:54,119 Speaker 1: Is Walter Cronkite told me, I remember, and my father 347 00:18:54,280 --> 00:18:57,880 Speaker 1: was involved in the program and within all the safety 348 00:18:57,920 --> 00:19:01,159 Speaker 1: of that and the certitude of the space program. Right. 349 00:19:01,200 --> 00:19:02,719 Speaker 1: So let me ask you a question though, you know, 350 00:19:02,760 --> 00:19:07,080 Speaker 1: because many people only experienced this through the movies, whether 351 00:19:07,119 --> 00:19:12,360 Speaker 1: it's the right stuff or on or on YouTube. By 352 00:19:12,440 --> 00:19:16,000 Speaker 1: looking at, you know, vintage video of of the launches, 353 00:19:16,480 --> 00:19:19,479 Speaker 1: do you think it really captures the feeling and the 354 00:19:19,520 --> 00:19:23,399 Speaker 1: excitement that you be Yeah, well it's interesting. And I 355 00:19:23,440 --> 00:19:26,879 Speaker 1: heard James minch Wants, the great author of historical fiction, 356 00:19:27,440 --> 00:19:31,160 Speaker 1: he got so angry at the way the Space program 357 00:19:31,200 --> 00:19:34,679 Speaker 1: was covered that he wrote the books Space and he 358 00:19:34,880 --> 00:19:38,440 Speaker 1: purposely gave it a bad ending, not a terrible ending, 359 00:19:38,960 --> 00:19:40,840 Speaker 1: but bad things happened at the end of the book. 360 00:19:40,880 --> 00:19:44,679 Speaker 1: I won't spoil the book, and what I do remember 361 00:19:44,760 --> 00:19:47,000 Speaker 1: about it, I think I think I can speak for 362 00:19:47,080 --> 00:19:50,240 Speaker 1: Bob Moon, whose parents were also intimately involved, that he 363 00:19:50,320 --> 00:19:53,199 Speaker 1: was more in surveyor and Mars and my father was 364 00:19:53,240 --> 00:19:57,600 Speaker 1: more in photography, and the moon is they were acutely 365 00:19:57,880 --> 00:20:01,119 Speaker 1: aware of how it could go long. And the single 366 00:20:01,200 --> 00:20:04,800 Speaker 1: thing I've seen is at the National Archives a small 367 00:20:04,880 --> 00:20:09,040 Speaker 1: almost three by five postcard that William Saffire wrote out 368 00:20:09,440 --> 00:20:12,400 Speaker 1: for President Nixon if the astronauts didn't make it home, 369 00:20:13,080 --> 00:20:15,880 Speaker 1: and that that's chilling, as they actually had the comments 370 00:20:15,920 --> 00:20:18,440 Speaker 1: the president would make if they didn't make it home 371 00:20:18,800 --> 00:20:22,000 Speaker 1: on that July afternoon. So we'll do that tomorrow. We'll 372 00:20:22,040 --> 00:20:24,880 Speaker 1: have full coverage spaces for you tomorrow. We enjoy doing that. 373 00:20:25,480 --> 00:20:28,120 Speaker 1: And um, it's a and again it's a brief flight. 374 00:20:28,160 --> 00:20:30,359 Speaker 1: I mean you can dive into it and do it 375 00:20:30,480 --> 00:20:32,560 Speaker 1: just for a moment. Right now, we want to dive 376 00:20:32,600 --> 00:20:36,119 Speaker 1: into some of the economics at the moment, and it 377 00:20:36,240 --> 00:20:38,399 Speaker 1: is appropriate we speak with Rock and Roger of the 378 00:20:38,480 --> 00:20:41,399 Speaker 1: University of Chicago and their Booth School, of course, with 379 00:20:41,480 --> 00:20:44,560 Speaker 1: his public service to his India is head of their 380 00:20:44,560 --> 00:20:47,040 Speaker 1: Central Bank. Roger, I want to go back to Rogo. 381 00:20:47,040 --> 00:20:49,560 Speaker 1: I want to go back to uh fault lines. You're 382 00:20:49,560 --> 00:20:53,440 Speaker 1: acclaimed book. And there's an equivalencing now where people are 383 00:20:53,480 --> 00:20:56,480 Speaker 1: looking at our fiscal position in the United States and 384 00:20:56,560 --> 00:20:59,720 Speaker 1: saying we've hit a fault line in our fiscal policy. 385 00:20:59,800 --> 00:21:05,159 Speaker 1: Are debt in our deficit? Have we? Well, it isn't helping. 386 00:21:05,480 --> 00:21:09,520 Speaker 1: We've got an expanded deficit. Of course, the biggest issue 387 00:21:09,600 --> 00:21:14,480 Speaker 1: is not so much our debt but the entitlements going forward, 388 00:21:15,000 --> 00:21:18,560 Speaker 1: both on healthcare as well as social security. So at 389 00:21:18,600 --> 00:21:21,240 Speaker 1: some point in the not too distant future, we need 390 00:21:21,320 --> 00:21:23,280 Speaker 1: to take a close look at all this and see 391 00:21:23,320 --> 00:21:26,080 Speaker 1: if it if it in fact is fundable. And of 392 00:21:26,080 --> 00:21:30,359 Speaker 1: course a higher deficit doesn't help in that regard. Part 393 00:21:30,359 --> 00:21:32,080 Speaker 1: of the way you get out of a deficit is 394 00:21:32,080 --> 00:21:34,960 Speaker 1: a little G in the equation, which is economic growth. 395 00:21:35,320 --> 00:21:39,200 Speaker 1: Can you plug in a new little G into your 396 00:21:39,240 --> 00:21:44,000 Speaker 1: mathematics which says the US can grow better? Well, I 397 00:21:44,040 --> 00:21:48,040 Speaker 1: think here the key is productivity. And unless we can 398 00:21:48,160 --> 00:21:51,200 Speaker 1: get productivity up, some of it will come up as 399 00:21:51,280 --> 00:21:54,880 Speaker 1: investment picks up. But unless we get seriously up from 400 00:21:54,920 --> 00:21:57,840 Speaker 1: the point five point six percent it's been growing at, 401 00:21:58,320 --> 00:22:01,280 Speaker 1: it's very hard to imagine the potential growth for the 402 00:22:01,400 --> 00:22:04,680 Speaker 1: United States will go up much beyond two and a half, 403 00:22:05,119 --> 00:22:09,280 Speaker 1: perhaps three in some quarters. But you know that's really 404 00:22:09,320 --> 00:22:13,520 Speaker 1: where everything lies. Can we get the US to be 405 00:22:13,720 --> 00:22:17,639 Speaker 1: more productive? Where are all the innovations going, why aren't 406 00:22:17,640 --> 00:22:22,199 Speaker 1: they showing up in greater labor productivity? Mr Rash And 407 00:22:22,240 --> 00:22:24,520 Speaker 1: I just want to change the topic just slightly. I'm 408 00:22:24,520 --> 00:22:27,760 Speaker 1: curious that the former Secretary of the Treasury, Larry Summers, 409 00:22:27,760 --> 00:22:32,680 Speaker 1: did he ever apologize to you. No, Larry and I 410 00:22:32,760 --> 00:22:36,280 Speaker 1: get along. I don't think there was any apologize apology. 411 00:22:36,400 --> 00:22:38,920 Speaker 1: Maybe just tell people the backstory here, because I want 412 00:22:38,920 --> 00:22:42,000 Speaker 1: to find out what you think is in store for 413 00:22:42,040 --> 00:22:44,200 Speaker 1: the future. Give people the backstory a little bit. Well, 414 00:22:45,640 --> 00:22:48,159 Speaker 1: I guess the backstory're referring to as a speech I 415 00:22:48,200 --> 00:22:50,520 Speaker 1: made in two thousand five in Jackson Holle where I 416 00:22:50,680 --> 00:22:55,200 Speaker 1: said that the financial system was building up risks and 417 00:22:55,440 --> 00:22:58,800 Speaker 1: uh there was there were potential problems down the line. 418 00:22:59,400 --> 00:23:03,840 Speaker 1: Uh and uh I think Larry. At that time Larry 419 00:23:04,680 --> 00:23:07,160 Speaker 1: suggested that I was being a little bit of a Luddite. 420 00:23:07,200 --> 00:23:09,919 Speaker 1: I wanted to go back in time and prevent the 421 00:23:09,960 --> 00:23:13,400 Speaker 1: innovation that was happening. Of course, after that we had 422 00:23:13,720 --> 00:23:18,520 Speaker 1: a good laugh about it. Uh. You know, Uh, predictions 423 00:23:18,920 --> 00:23:23,320 Speaker 1: uh are are really hard to make, and sometimes they 424 00:23:23,400 --> 00:23:26,000 Speaker 1: do come out. But I don't claim I'm a I'm 425 00:23:26,040 --> 00:23:29,520 Speaker 1: a perfect forecaster. Okay. So having said that and that's 426 00:23:29,560 --> 00:23:32,000 Speaker 1: a nice footnote, so that you know, no one gets 427 00:23:32,040 --> 00:23:34,639 Speaker 1: into any trouble based on what you're seeing now and 428 00:23:34,680 --> 00:23:39,159 Speaker 1: how you analyze let's say global financial markets, give us 429 00:23:39,160 --> 00:23:41,240 Speaker 1: your outlook for the next let's say three years. We 430 00:23:41,280 --> 00:23:45,600 Speaker 1: can wait that long. Well, I would say that over 431 00:23:45,640 --> 00:23:50,040 Speaker 1: the next uh next few quarters, we still have the 432 00:23:50,080 --> 00:23:55,640 Speaker 1: benefits of very strong growth. However, strong growth also mean 433 00:23:56,119 --> 00:24:00,199 Speaker 1: that interest rates are going up, and as interest rates 434 00:24:00,359 --> 00:24:03,879 Speaker 1: go up, the extreme levels of leverage we've built up 435 00:24:03,920 --> 00:24:07,640 Speaker 1: in these very accommodative conditions will start showing up in 436 00:24:07,720 --> 00:24:10,080 Speaker 1: some places. Now. I don't think it's going to show 437 00:24:10,160 --> 00:24:13,000 Speaker 1: up all over the place, but certainly there are places 438 00:24:13,080 --> 00:24:16,000 Speaker 1: of worry. For example, if you look at governant light loans, 439 00:24:16,080 --> 00:24:19,600 Speaker 1: they have picked up substantially over the last few years, 440 00:24:20,119 --> 00:24:21,840 Speaker 1: and there are at a much higher level than they 441 00:24:21,880 --> 00:24:25,080 Speaker 1: were before the global financial crisis. So there are pockets 442 00:24:25,560 --> 00:24:29,120 Speaker 1: of worry which will start showing up as as interest 443 00:24:29,200 --> 00:24:32,560 Speaker 1: rates pick up. I think it's hard to say that 444 00:24:33,240 --> 00:24:36,040 Speaker 1: at this point whether there will be a reason for 445 00:24:36,200 --> 00:24:41,199 Speaker 1: systemic stress, but suddenly they bear watching. So broadly I 446 00:24:41,200 --> 00:24:44,399 Speaker 1: think growth for the next few quarters, but eventually we 447 00:24:44,440 --> 00:24:48,520 Speaker 1: have to deal with both the disappearance of of the 448 00:24:48,640 --> 00:24:52,560 Speaker 1: very accommodative conditions and liquity, as well as rising interest rates. 449 00:24:53,240 --> 00:24:55,720 Speaker 1: Margaret Roger with us, with us with the University of 450 00:24:55,760 --> 00:24:59,760 Speaker 1: Chicago in the Bush School. Of course, his leadership at 451 00:24:59,760 --> 00:25:02,720 Speaker 1: this until Bank of India note as well, we're gonna 452 00:25:02,720 --> 00:25:18,720 Speaker 1: come back with him, PIM. That's something to see. That 453 00:25:18,760 --> 00:25:22,080 Speaker 1: new commitment of JP Morgan too to New York City. 454 00:25:22,119 --> 00:25:23,920 Speaker 1: I mean, we're a little biased on this. And then 455 00:25:24,520 --> 00:25:28,840 Speaker 1: Mr Bloomberg has built Bloomberg and our New York headquarters 456 00:25:28,840 --> 00:25:33,480 Speaker 1: here out at Park Park, and then now over here 457 00:25:33,520 --> 00:25:36,000 Speaker 1: on Iley we should say that Michael Bloomberg is of 458 00:25:36,040 --> 00:25:39,800 Speaker 1: course principal owner of Bloomberg LP, owner of this radio 459 00:25:39,880 --> 00:25:42,360 Speaker 1: station as well. But there's JP Morgan. That's a that's 460 00:25:42,400 --> 00:25:48,320 Speaker 1: a big fifteen thousand bodies that avenue people. That that's 461 00:25:48,400 --> 00:25:51,840 Speaker 1: you know, that's something that's called economic growth, which is 462 00:25:51,840 --> 00:25:54,560 Speaker 1: a good way to bring in the gentleman from Chicago, 463 00:25:55,320 --> 00:26:00,520 Speaker 1: Rob and Roger and where this That's what cities are about. 464 00:26:00,680 --> 00:26:04,960 Speaker 1: And whether it's your Chicago or it's New York or 465 00:26:05,040 --> 00:26:08,800 Speaker 1: maybe it's Mumbai as well in India, cities are the 466 00:26:08,880 --> 00:26:14,080 Speaker 1: new dominant force, aren't they? In our economic growth. Absolutely, 467 00:26:14,280 --> 00:26:20,600 Speaker 1: and what is amazing is how some cities are flourishing. Uh, 468 00:26:20,640 --> 00:26:24,280 Speaker 1: even while I think this is the downside, a number 469 00:26:24,320 --> 00:26:28,159 Speaker 1: of areas are not. And so if you're in a 470 00:26:28,200 --> 00:26:31,479 Speaker 1: city and you look around, it all looks well. If 471 00:26:31,520 --> 00:26:34,840 Speaker 1: you're in a capital city, it looks even better. And 472 00:26:34,840 --> 00:26:37,640 Speaker 1: then you look around and you move into the areas 473 00:26:37,680 --> 00:26:39,760 Speaker 1: that you fly over and you see things are not 474 00:26:39,920 --> 00:26:42,520 Speaker 1: so well. I think that's part of what we've been 475 00:26:42,560 --> 00:26:47,040 Speaker 1: going through the last few years, a political awakening that 476 00:26:47,040 --> 00:26:51,359 Speaker 1: that not all areas have benefited. Did you personally experience 477 00:26:51,440 --> 00:26:57,760 Speaker 1: the pollution of Delhi? Oh? Absolutely, unfortunately. Uh. You know, 478 00:26:57,920 --> 00:27:04,120 Speaker 1: Delhi has both a tremendous expansion in traffic, but also, 479 00:27:04,640 --> 00:27:09,400 Speaker 1: and this is the interesting part, farmers around Delhi who 480 00:27:09,480 --> 00:27:14,080 Speaker 1: don't actually pull up the remnants of the harvest but 481 00:27:14,160 --> 00:27:18,640 Speaker 1: instead burn it, and that creates enormous particulate matter, especially 482 00:27:18,680 --> 00:27:21,080 Speaker 1: in winter. So it's both the old and the new 483 00:27:21,480 --> 00:27:24,399 Speaker 1: which are creating pollution problems in Delhi, making it one 484 00:27:24,440 --> 00:27:27,080 Speaker 1: of the more polluted cities in the world. You've been 485 00:27:27,080 --> 00:27:31,000 Speaker 1: in the nexus then, of economic growth in the offsets 486 00:27:31,080 --> 00:27:34,159 Speaker 1: to climate change. What did you learn on your tenure 487 00:27:34,200 --> 00:27:39,399 Speaker 1: of duty? For your India about balancing the dynamics of 488 00:27:39,520 --> 00:27:46,880 Speaker 1: economics with the science of climate change. Well, to some extent, Uh, 489 00:27:47,000 --> 00:27:54,520 Speaker 1: there isn't necessarily a problem that in India today. For example, 490 00:27:55,480 --> 00:27:59,359 Speaker 1: both wind power as well as solar solar power are 491 00:27:59,480 --> 00:28:04,000 Speaker 1: actually quite remunerative, and we've got a lot of new 492 00:28:04,720 --> 00:28:08,000 Speaker 1: sort of ventures coming along which promised to produce that. 493 00:28:08,080 --> 00:28:11,680 Speaker 1: Of course, you need the base load to be produced 494 00:28:11,680 --> 00:28:15,760 Speaker 1: by things like gas and coal, and that won't go 495 00:28:15,840 --> 00:28:21,480 Speaker 1: away until we get safer nuclear. But certainly solar and 496 00:28:21,560 --> 00:28:24,960 Speaker 1: wind are coming up in a tremendous way and this 497 00:28:25,000 --> 00:28:29,280 Speaker 1: will help both in the global emission issue but also 498 00:28:29,359 --> 00:28:32,480 Speaker 1: in local pollution. You know, earlier we were awaiting the 499 00:28:32,560 --> 00:28:37,439 Speaker 1: launch of the Falcon nine from Elon Musk's SpaceX, and 500 00:28:37,440 --> 00:28:39,240 Speaker 1: I wonder if you could speak a little bit about 501 00:28:39,280 --> 00:28:44,760 Speaker 1: Elon Musk's efforts to store energy in huge battery farms 502 00:28:44,800 --> 00:28:48,120 Speaker 1: like the one in Australia. Do you believe that most cities, 503 00:28:48,280 --> 00:28:52,600 Speaker 1: most locations are going to have these kinds of storage facilities. 504 00:28:52,680 --> 00:28:55,760 Speaker 1: Is it really going to change the way people access 505 00:28:55,800 --> 00:29:02,080 Speaker 1: their energy? Well, we require enormous quantities of storage if 506 00:29:02,160 --> 00:29:06,640 Speaker 1: we are to supplant the coal and gas um sort 507 00:29:06,640 --> 00:29:13,280 Speaker 1: of um producers going forward. One possibility, if we can 508 00:29:13,400 --> 00:29:17,720 Speaker 1: do it, is clean nuclear and safe nuclear, and there 509 00:29:17,760 --> 00:29:22,120 Speaker 1: are sort of efforts underway to do that. But my 510 00:29:22,280 --> 00:29:25,680 Speaker 1: sense is what we should do is generally have an 511 00:29:25,760 --> 00:29:28,680 Speaker 1: environment in which we try all the innovation that we can, 512 00:29:29,640 --> 00:29:33,400 Speaker 1: whether it's solar, whether it is a storage, whether it 513 00:29:33,560 --> 00:29:36,800 Speaker 1: is clean nuclear, and and the best way to do that, 514 00:29:37,280 --> 00:29:40,760 Speaker 1: as economists will say again and again, is a carbon tax, 515 00:29:40,880 --> 00:29:45,040 Speaker 1: attacks on pollutants, so that everybody then has the right 516 00:29:45,080 --> 00:29:49,680 Speaker 1: incentive to innovate. Let us turn to the new chairman, 517 00:29:50,280 --> 00:29:53,000 Speaker 1: the fellow Reserve System RAGO, and that is Mr Powell. 518 00:29:53,440 --> 00:29:57,200 Speaker 1: He needs a vice chairman to give him assistance. There's 519 00:29:57,240 --> 00:29:59,880 Speaker 1: wide speculation on this, and of course everybody's seen the 520 00:30:00,000 --> 00:30:03,400 Speaker 1: battle Marvin good friend of Carnegie Mellon's going through and 521 00:30:03,920 --> 00:30:07,240 Speaker 1: trying to become a governor. But but help us here 522 00:30:07,360 --> 00:30:10,680 Speaker 1: with the kind of vice chairman you would perceive as 523 00:30:10,880 --> 00:30:16,640 Speaker 1: necessary at the FED. Well, I think at this point 524 00:30:17,800 --> 00:30:21,640 Speaker 1: Mr Powell obviously has a fair amount of experience already 525 00:30:21,680 --> 00:30:25,680 Speaker 1: having served at the FED with Jan Yellen, but he 526 00:30:25,920 --> 00:30:32,440 Speaker 1: is not an academic economist, and I would see somebody 527 00:30:32,480 --> 00:30:37,320 Speaker 1: as vice chairman who has both an academic background but 528 00:30:37,440 --> 00:30:42,640 Speaker 1: also a fair understanding of policy. So somebody who straddles 529 00:30:42,680 --> 00:30:46,760 Speaker 1: both worlds would be ideal. And uh, you know what 530 00:30:47,200 --> 00:30:52,160 Speaker 1: that person, male or female has to do is help 531 00:30:52,960 --> 00:30:57,680 Speaker 1: Mr Powell as the United States uh sort of goes 532 00:30:57,800 --> 00:31:02,680 Speaker 1: on this process of off normalizing. And this is a 533 00:31:02,800 --> 00:31:08,360 Speaker 1: very critical process because uh, too fast, and you disrupt 534 00:31:08,400 --> 00:31:12,320 Speaker 1: the economy too slow and the amount of leverage that's 535 00:31:12,360 --> 00:31:16,240 Speaker 1: been building up continuous building up and creates longer run problems. 536 00:31:16,280 --> 00:31:19,240 Speaker 1: So we really need somebody who can find that goldilocks. 537 00:31:19,280 --> 00:31:21,400 Speaker 1: Dutch professor, thank you so much. I know you have 538 00:31:21,480 --> 00:31:24,480 Speaker 1: meetings uh at the top of the hour at Chicago. 539 00:31:24,520 --> 00:31:27,280 Speaker 1: We greatly appreciate your time this morning, Roger Roger. Of course, 540 00:31:27,320 --> 00:31:30,680 Speaker 1: folks at the Boost Schools, leadership of the Indian Central 541 00:31:30,720 --> 00:31:34,160 Speaker 1: Bennitt here v I goes without mention. It was by 542 00:31:34,240 --> 00:31:45,680 Speaker 1: all acclaims and extremely successful tenure. Thanks for listening to 543 00:31:45,800 --> 00:31:50,280 Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on 544 00:31:50,320 --> 00:31:56,200 Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm 545 00:31:56,240 --> 00:31:59,520 Speaker 1: on Twitter at Tom Keane Before the podcast, you can 546 00:31:59,560 --> 00:32:02,760 Speaker 1: always catch us worldwide. I'm Bloomberg Radio