1 00:00:00,120 --> 00:00:02,920 Speaker 1: Brought you by Bank of America Mary Lynch. Investing in 2 00:00:03,000 --> 00:00:07,840 Speaker 1: local communities, economies and a sustainable future. That's the power 3 00:00:08,080 --> 00:00:12,360 Speaker 1: of global connections, Mary Lynch, Pierce Fenner, and Smith Incorporated 4 00:00:12,760 --> 00:00:27,400 Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,840 --> 00:00:31,520 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:31,560 --> 00:00:36,600 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:37,000 --> 00:00:41,600 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 8 00:00:41,680 --> 00:00:49,519 Speaker 1: of course on the Bloomberg First Billy joined us here 9 00:00:49,560 --> 00:00:51,920 Speaker 1: in our Bloomberg eleven FIE Studios in New York, managing 10 00:00:51,920 --> 00:00:54,920 Speaker 1: director and head of North American Economics at City. Give 11 00:00:55,000 --> 00:00:56,560 Speaker 1: us a sense of how you've processed all of the 12 00:00:56,560 --> 00:00:59,600 Speaker 1: FED speak this week, all of the comments from various 13 00:00:59,600 --> 00:01:01,400 Speaker 1: meapories of of the Federal Reserve. You know, I think 14 00:01:01,440 --> 00:01:04,960 Speaker 1: that's probably the best example of the success of FED Talk, right. 15 00:01:05,000 --> 00:01:07,440 Speaker 1: I mean, they were out of the picture with probabilities 16 00:01:07,440 --> 00:01:09,040 Speaker 1: of like twenty thirty it's just about a week or 17 00:01:09,200 --> 00:01:12,240 Speaker 1: two weeks ago, and now with this chorus of people 18 00:01:12,360 --> 00:01:14,960 Speaker 1: talking things up. Um. And what's remarkable about is that 19 00:01:15,120 --> 00:01:17,679 Speaker 1: doing it without hard data, right, that they're basing almost 20 00:01:17,720 --> 00:01:20,720 Speaker 1: all of this up upbeat stuff on the prospect of 21 00:01:20,760 --> 00:01:23,360 Speaker 1: physical policy, which we learned nothing about their in speech, right, 22 00:01:23,720 --> 00:01:26,080 Speaker 1: and the fact that sentiment data is on a high 23 00:01:26,200 --> 00:01:28,839 Speaker 1: and we have a divergence between sentiment data and real data. 24 00:01:29,080 --> 00:01:32,039 Speaker 1: So my real question is has the FED changes policy rule? 25 00:01:32,280 --> 00:01:34,920 Speaker 1: Is it really basing monstrey policy now on sentiment data 26 00:01:35,280 --> 00:01:37,039 Speaker 1: or putting at least putting more weight on it, and 27 00:01:37,080 --> 00:01:39,720 Speaker 1: somehow deep saying that sediment data is a good predictor 28 00:01:39,800 --> 00:01:42,320 Speaker 1: of real data. That's a whole new economy model. And 29 00:01:42,360 --> 00:01:44,400 Speaker 1: if that's the case, they should start to show us 30 00:01:44,400 --> 00:01:46,520 Speaker 1: some research that says, you know, the world should look 31 00:01:46,560 --> 00:01:48,559 Speaker 1: at sentiment data and that I have yet to see. 32 00:01:48,560 --> 00:01:51,040 Speaker 1: What did you make of that speech on on Tuesday night, 33 00:01:51,040 --> 00:01:53,320 Speaker 1: our colleague Michael McKee uh saying, when we look at 34 00:01:53,320 --> 00:01:54,840 Speaker 1: the markets, when you look at what's happening here with 35 00:01:54,840 --> 00:01:56,520 Speaker 1: with FED funds features, you can attribute all of that 36 00:01:57,120 --> 00:01:59,320 Speaker 1: to what's been happening with with these FED policy makers, 37 00:01:59,360 --> 00:02:00,520 Speaker 1: not with what the press and had to say. You 38 00:02:00,560 --> 00:02:03,200 Speaker 1: agree with that. I think that what the President showed 39 00:02:03,480 --> 00:02:06,200 Speaker 1: was a very thematic speech and that was great for 40 00:02:06,240 --> 00:02:08,679 Speaker 1: his audience. But what scared me as an analyst and 41 00:02:08,720 --> 00:02:11,440 Speaker 1: as an economist, is where are the plans that we're 42 00:02:11,440 --> 00:02:16,600 Speaker 1: supposed to get for corporate tax rate maybe fift What 43 00:02:16,600 --> 00:02:18,200 Speaker 1: what are you gonna do to pay for it? Those 44 00:02:18,200 --> 00:02:20,600 Speaker 1: details are not appropriate for that kind of sweech, but 45 00:02:20,760 --> 00:02:23,040 Speaker 1: at least a hint to say, here's the framework that 46 00:02:23,080 --> 00:02:25,359 Speaker 1: we're gonna try to sell you coming up. I think 47 00:02:25,400 --> 00:02:27,040 Speaker 1: what it shows that there's a lot of dissensions within 48 00:02:27,120 --> 00:02:30,240 Speaker 1: Republican Party and that makes me worried that the timetable 49 00:02:30,320 --> 00:02:32,239 Speaker 1: for corporate tax reform and all of the so called 50 00:02:32,240 --> 00:02:35,920 Speaker 1: fiscal reforms may actually be pushed back to even beyond 51 00:02:36,880 --> 00:02:38,639 Speaker 1: um And that's what scares me. If I'm a FED 52 00:02:38,639 --> 00:02:40,960 Speaker 1: policy maker, I'm looking at the buffet of economic data 53 00:02:41,320 --> 00:02:43,520 Speaker 1: before me. What's missing, what's not on the table? What, 54 00:02:43,520 --> 00:02:46,320 Speaker 1: what's what could possibly keep them from raising grades here March? 55 00:02:46,360 --> 00:02:49,639 Speaker 1: How about inflation? All right? I mean you're supposed to 56 00:02:49,680 --> 00:02:52,560 Speaker 1: say I'm worried about inflation, but the latest PC reading 57 00:02:52,680 --> 00:02:55,720 Speaker 1: was what exactly one point seven year on year, and 58 00:02:55,800 --> 00:02:57,960 Speaker 1: has that changed. It's been the same one point seven 59 00:02:57,960 --> 00:03:00,359 Speaker 1: for the last six months. So so to say, wow, 60 00:03:00,440 --> 00:03:03,160 Speaker 1: we are behind a curvel worried that we should normalize 61 00:03:03,160 --> 00:03:05,520 Speaker 1: policy on a at a at at least a more 62 00:03:05,560 --> 00:03:07,600 Speaker 1: accelerated pace than what the market thought just a few 63 00:03:07,720 --> 00:03:10,840 Speaker 1: few weeks ago. Then you gotta say, what has changed 64 00:03:10,880 --> 00:03:13,160 Speaker 1: in my mind? What has changed my assessment? And the 65 00:03:13,280 --> 00:03:15,400 Speaker 1: hard data are not giving it to help young Gera. 66 00:03:16,080 --> 00:03:19,919 Speaker 1: And I'll put this chart out, folks, billy, help young Gera. 67 00:03:20,160 --> 00:03:23,079 Speaker 1: Within the era where all we ever said was measured, 68 00:03:23,720 --> 00:03:27,960 Speaker 1: we were measured, we were safe, we were measured. Alan 69 00:03:28,000 --> 00:03:30,920 Speaker 1: Greenspan said we were measured. Boy, that got us in trouble. 70 00:03:31,840 --> 00:03:35,160 Speaker 1: Why can't we just do one and done? I Arthur 71 00:03:35,160 --> 00:03:38,240 Speaker 1: Burns would have done one and done. Now we're measured. 72 00:03:38,280 --> 00:03:42,160 Speaker 1: We have vector's help because we we went to the 73 00:03:42,320 --> 00:03:44,440 Speaker 1: bad place. Um and and yes we had to get 74 00:03:44,480 --> 00:03:47,600 Speaker 1: to a bad place. Means zero rates because of the crisis. 75 00:03:47,840 --> 00:03:49,840 Speaker 1: But now how much how much? How long has it 76 00:03:49,840 --> 00:03:52,640 Speaker 1: been since the crisis? A decade and we're still at 77 00:03:52,680 --> 00:03:55,520 Speaker 1: near zero rates. That's why we can't do one and done. 78 00:03:55,680 --> 00:03:57,880 Speaker 1: So we should be at two, maybe even two and 79 00:03:57,880 --> 00:04:00,640 Speaker 1: a half to three. So you're saying five and well 80 00:04:00,720 --> 00:04:02,960 Speaker 1: we should, we should be at a higher place, but 81 00:04:03,000 --> 00:04:05,680 Speaker 1: we can't get there because of the way the measure 82 00:04:05,680 --> 00:04:08,680 Speaker 1: pace that they've taken. And they told us we're data dependent, 83 00:04:08,920 --> 00:04:10,880 Speaker 1: So now how do we get from here to there? 84 00:04:10,960 --> 00:04:13,560 Speaker 1: And the review for our pop quiz here At the 85 00:04:13,680 --> 00:04:15,880 Speaker 1: end of the show, Bill Lee of City Group just 86 00:04:15,960 --> 00:04:19,839 Speaker 1: told us they have soft data but not hard data, 87 00:04:19,960 --> 00:04:24,159 Speaker 1: right exactly. I know that the employment data we're gonna 88 00:04:24,160 --> 00:04:26,600 Speaker 1: get here comes to you don't have to take you 89 00:04:26,640 --> 00:04:28,680 Speaker 1: don't have to take that scribble my notes here to 90 00:04:28,839 --> 00:04:33,119 Speaker 1: to get that. All fats get out of it. Really, 91 00:04:33,200 --> 00:04:35,479 Speaker 1: I know we get this this jobs report perilously close 92 00:04:35,520 --> 00:04:37,440 Speaker 1: to when we're gonna get this FED decision. Does that matter? 93 00:04:37,480 --> 00:04:39,599 Speaker 1: How much does it matter the proximity of these two, 94 00:04:39,680 --> 00:04:41,920 Speaker 1: these two events, and and well it's because in the 95 00:04:42,000 --> 00:04:44,200 Speaker 1: quiet period they can't talk about it, right, But let's 96 00:04:44,200 --> 00:04:46,440 Speaker 1: face it, if you let one data point push you around, 97 00:04:46,520 --> 00:04:48,080 Speaker 1: that's not the FED that I know, that's not the 98 00:04:48,080 --> 00:04:50,800 Speaker 1: FED that has the credibility to say that we're we're 99 00:04:50,839 --> 00:04:53,039 Speaker 1: analyzing the data and looking at the trends and not 100 00:04:53,160 --> 00:04:56,000 Speaker 1: the noise. And and besides, the data in the labor 101 00:04:56,040 --> 00:04:58,880 Speaker 1: market has actually been very good. We'll be getting much 102 00:04:58,960 --> 00:05:01,520 Speaker 1: higher employment number that would be consistent with a low 103 00:05:02,000 --> 00:05:05,640 Speaker 1: growth regime, which says, what we've got crappy productivity, right 104 00:05:05,920 --> 00:05:08,560 Speaker 1: and and so so in that world, right we we 105 00:05:08,560 --> 00:05:12,919 Speaker 1: we can't just start moving markets because of sentiment and 106 00:05:13,000 --> 00:05:15,920 Speaker 1: feelings data. It really has been based on what has 107 00:05:16,040 --> 00:05:19,680 Speaker 1: changed in our our projection of inflation trajectory to justify 108 00:05:20,000 --> 00:05:23,960 Speaker 1: pulling forward to But even at the level of PC 109 00:05:24,400 --> 00:05:27,719 Speaker 1: is nowhere near Cleveland CPI. We showed that chart yesterday, folks, 110 00:05:27,839 --> 00:05:30,520 Speaker 1: I promise I'll do it tomorrow on television and I 111 00:05:30,520 --> 00:05:33,000 Speaker 1: will get it out on Twitter. It's a great CPI chart. 112 00:05:33,520 --> 00:05:36,960 Speaker 1: But do these people manage to the data point, the 113 00:05:37,120 --> 00:05:41,000 Speaker 1: present data point, or do they manage to the vector 114 00:05:41,160 --> 00:05:44,880 Speaker 1: the inertial force of inflation? You like this physics statement 115 00:05:45,680 --> 00:05:49,560 Speaker 1: physics Thursday and and and you can't get a nerdy 116 00:05:49,600 --> 00:05:52,000 Speaker 1: engineer like me started on this talk. But but if 117 00:05:52,040 --> 00:05:54,560 Speaker 1: you start managing to the data point, then you have 118 00:05:54,680 --> 00:05:56,680 Speaker 1: to be moved around by the data. You have to 119 00:05:56,720 --> 00:05:59,720 Speaker 1: manage the underlying process. You've gotta manage to the process 120 00:05:59,720 --> 00:06:02,880 Speaker 1: and the and what has happened to the process. Nothing. Yes, 121 00:06:02,960 --> 00:06:06,680 Speaker 1: we have improvements, Yes we have more confidence. We're going 122 00:06:06,720 --> 00:06:09,040 Speaker 1: to get there, But are we going to get there faster? 123 00:06:09,200 --> 00:06:11,360 Speaker 1: What's your run rate on GDP right now, frame that 124 00:06:11,440 --> 00:06:13,400 Speaker 1: forces we got a wide dispersion here. Right now the 125 00:06:13,640 --> 00:06:17,680 Speaker 1: GDP now accounting estimates are showing first quarter at below two. Yeah, 126 00:06:17,680 --> 00:06:21,680 Speaker 1: but what about twelve months forward? We we are at 127 00:06:21,720 --> 00:06:26,000 Speaker 1: the two and a quarter to a quarter gloomy day. Well, 128 00:06:26,200 --> 00:06:28,520 Speaker 1: that's pretty good considering we where we don't have a 129 00:06:28,520 --> 00:06:32,040 Speaker 1: one handle right, but certainly for next year we're anticipating 130 00:06:32,040 --> 00:06:34,719 Speaker 1: a two six to seven because we're expected anticipating a 131 00:06:34,760 --> 00:06:37,960 Speaker 1: half point pop from fiscal policy. Now, as we said earlier, 132 00:06:38,120 --> 00:06:40,839 Speaker 1: given the speech that we just heard and no plan inside, 133 00:06:41,200 --> 00:06:43,520 Speaker 1: that timing may actually be pushed back. Now, what are 134 00:06:43,520 --> 00:06:46,000 Speaker 1: the markets reacting to? That's what I'm curious about. Why 135 00:06:46,040 --> 00:06:48,839 Speaker 1: is the stock market at historic new highs? Well, they 136 00:06:48,880 --> 00:06:51,120 Speaker 1: see the regulation, I see that too, right, And they 137 00:06:51,120 --> 00:06:54,000 Speaker 1: see the prospect of corporate text reform, the timing of 138 00:06:54,000 --> 00:06:57,480 Speaker 1: which is uncertain. But is it gonna result in capex 139 00:06:57,680 --> 00:07:00,280 Speaker 1: investment or is it gonna be dividend stuff? Back? So 140 00:07:00,400 --> 00:07:02,880 Speaker 1: I think it's dividends to interrupt David, but I'm gonna 141 00:07:03,160 --> 00:07:07,320 Speaker 1: but do they also see new animal spirits and a 142 00:07:07,400 --> 00:07:12,000 Speaker 1: higher nominal GDP than the gloomsters at City Group? Look Hey, 143 00:07:12,080 --> 00:07:14,240 Speaker 1: you know, the gloomsters are looking at the real data. 144 00:07:14,400 --> 00:07:16,760 Speaker 1: And if I wear a sentiment kind of guy, I'd say, Wow, 145 00:07:17,000 --> 00:07:19,000 Speaker 1: my animal spirits are gonna be pushing things up, and 146 00:07:19,000 --> 00:07:22,400 Speaker 1: I'd be raised my forecast. But lesson learn from modeling 147 00:07:23,080 --> 00:07:25,840 Speaker 1: too for too long the sentiment data or not could 148 00:07:25,840 --> 00:07:28,800 Speaker 1: predictors of real data and the economy itself. I mean, 149 00:07:29,200 --> 00:07:31,000 Speaker 1: I would love to be you know, I think my 150 00:07:31,040 --> 00:07:33,320 Speaker 1: sentiment says I want to be rich and thin. I'm 151 00:07:33,320 --> 00:07:36,920 Speaker 1: neither right, and I can't spend radio we're all rich, 152 00:07:37,000 --> 00:07:40,680 Speaker 1: and I can't spend unless I have a paycheck to 153 00:07:40,760 --> 00:07:44,240 Speaker 1: meet my expenses. So so that's that's the key. We'll 154 00:07:44,240 --> 00:07:45,920 Speaker 1: come back, we'll talk about tax from we'll talk about 155 00:07:45,920 --> 00:07:47,760 Speaker 1: the regulation. But let me ask you just about your 156 00:07:47,840 --> 00:07:49,920 Speaker 1: your purview here is North America, but fold this into 157 00:07:49,960 --> 00:07:52,840 Speaker 1: a global context. I really intended to watch the webcast 158 00:07:52,840 --> 00:07:55,360 Speaker 1: if Governor Branard yesterday, but I crashed hard after staying 159 00:07:55,400 --> 00:07:57,520 Speaker 1: up so late to watch the president speech the night before. 160 00:07:57,720 --> 00:07:59,679 Speaker 1: Read the read the remarks though, and she talks about 161 00:07:59,680 --> 00:08:02,560 Speaker 1: how she's happy with what's happening in Japan and Europe. 162 00:08:02,920 --> 00:08:04,640 Speaker 1: What's your sense of how that folds into into your 163 00:08:05,000 --> 00:08:06,480 Speaker 1: Let me put back my I m F had where 164 00:08:06,480 --> 00:08:08,440 Speaker 1: I did have a global perspective. You know, the global 165 00:08:08,480 --> 00:08:12,440 Speaker 1: economy is improving. Even the emerging markets have have pushed 166 00:08:12,520 --> 00:08:15,280 Speaker 1: up the growth rates. But half the increasing emerging market 167 00:08:15,280 --> 00:08:17,880 Speaker 1: growth is coming about because of the of of two 168 00:08:17,960 --> 00:08:20,960 Speaker 1: countries Russia and Brazil coming out of recession. The rest 169 00:08:21,000 --> 00:08:23,120 Speaker 1: of emerging markets, it's kind of me Andrey along and 170 00:08:23,160 --> 00:08:24,960 Speaker 1: when we look at Europe and say, oh my god, 171 00:08:25,120 --> 00:08:27,920 Speaker 1: Europe has improved so much, we're still talking one handles. 172 00:08:27,960 --> 00:08:30,680 Speaker 1: We're talking one as opposed to one point two percent 173 00:08:30,800 --> 00:08:34,080 Speaker 1: or maybe zero point nine. Now that's a massive improvement, yes, 174 00:08:34,200 --> 00:08:36,400 Speaker 1: but by my books, that's not the kind of growth 175 00:08:36,400 --> 00:08:39,360 Speaker 1: that it spurs us or anybody. That's how we love 176 00:08:39,440 --> 00:08:42,120 Speaker 1: to have you on state that again. The e M 177 00:08:42,240 --> 00:08:46,920 Speaker 1: enthusiasm now, the dr BRAINERD sees and others is mostly 178 00:08:47,000 --> 00:08:50,520 Speaker 1: from Brazil and Russia's cyclical recovery. They're coming out of 179 00:08:50,520 --> 00:08:53,800 Speaker 1: recession and so emerging markets. But the rest of the 180 00:08:53,800 --> 00:08:56,319 Speaker 1: emergint it's not the Philippines, it's not in Mexico, it's 181 00:08:56,360 --> 00:09:00,319 Speaker 1: not They are along in the same pace slightly better 182 00:09:00,480 --> 00:09:03,200 Speaker 1: because because the commodity world has come back a little 183 00:09:03,200 --> 00:09:06,199 Speaker 1: bit right, but really the key there is China. Where 184 00:09:06,240 --> 00:09:08,280 Speaker 1: are you gonna get this? Folks? The inside of Bill 185 00:09:08,360 --> 00:09:11,280 Speaker 1: Lee is sitting group that was brilliant Brazil and Russia 186 00:09:11,320 --> 00:09:14,760 Speaker 1: plus physics Thursday. I mean it's just David. It's enough 187 00:09:14,800 --> 00:09:16,560 Speaker 1: to put David. It's enough to run back to my 188 00:09:16,600 --> 00:09:18,320 Speaker 1: desk and get the calculator. You know why A you 189 00:09:18,400 --> 00:09:20,640 Speaker 1: Yen's in there producing and I think he's not nonfer 190 00:09:20,760 --> 00:09:23,920 Speaker 1: sleep right now with us is William Lee for years 191 00:09:23,920 --> 00:09:27,040 Speaker 1: at the International Monetary Fund. Now it's City Group. And Bill, 192 00:09:27,080 --> 00:09:30,720 Speaker 1: you've done six pages on the border tax. What's your 193 00:09:30,840 --> 00:09:34,800 Speaker 1: value add in the executive summary? What part of the 194 00:09:34,880 --> 00:09:38,520 Speaker 1: debate is what we need to focus on so that 195 00:09:38,679 --> 00:09:42,840 Speaker 1: we can determine the value of an import tax. I'm 196 00:09:42,880 --> 00:09:45,520 Speaker 1: trying to take the debate out of the academic pinhead 197 00:09:45,600 --> 00:09:49,080 Speaker 1: world of instantaneous adjustments. Because the border type has been 198 00:09:49,120 --> 00:09:52,360 Speaker 1: sold as a good source of revenue for paying for 199 00:09:52,400 --> 00:09:55,480 Speaker 1: tax for tax cuts and and tax reform in general. 200 00:09:55,679 --> 00:09:57,640 Speaker 1: So why don't we use it? Well, it's because it's 201 00:09:57,679 --> 00:10:02,400 Speaker 1: the storting. It's gonna mess up the the imports and exports, 202 00:10:02,520 --> 00:10:07,960 Speaker 1: subsidizing exports, uh, shutting off imports, But the the advocates 203 00:10:08,000 --> 00:10:11,679 Speaker 1: like Feldstein, our Back and Holds It can say, don't 204 00:10:11,760 --> 00:10:14,840 Speaker 1: worry because that dollar is just gonna pop up just 205 00:10:14,920 --> 00:10:17,520 Speaker 1: like that and offset the distortion, and we're gonna cut 206 00:10:17,559 --> 00:10:19,679 Speaker 1: the same world that we have. Now, what an awful 207 00:10:19,720 --> 00:10:22,440 Speaker 1: way to sell something to the President Trump instead should 208 00:10:22,440 --> 00:10:25,720 Speaker 1: tell him in the real world that exchange rate takes 209 00:10:25,720 --> 00:10:28,280 Speaker 1: about four to five years to adjust. And even if 210 00:10:28,280 --> 00:10:30,640 Speaker 1: you hold Montrey policy unchanged, that's still we're gonna take 211 00:10:30,640 --> 00:10:33,000 Speaker 1: three years to adjust. So for three to five years, 212 00:10:33,280 --> 00:10:36,240 Speaker 1: you've got a situation where you can actually shut down 213 00:10:36,240 --> 00:10:40,560 Speaker 1: imports a bid, promote exports, concentrate production here in the US, 214 00:10:40,800 --> 00:10:44,000 Speaker 1: get the jobs you want that make America better again. Now, 215 00:10:44,240 --> 00:10:46,000 Speaker 1: isn't that the line you should be using our President 216 00:10:46,000 --> 00:10:49,160 Speaker 1: Trump instead of the hour Back holds Its lines. That's saying, no, 217 00:10:49,880 --> 00:10:52,400 Speaker 1: nothing's gonna change, but you get to get more money. 218 00:10:52,600 --> 00:10:54,880 Speaker 1: But and President Trump says, I don't love it because 219 00:10:54,920 --> 00:10:58,239 Speaker 1: it's way too complex. No, Kidden, Not only is it complex, 220 00:10:58,400 --> 00:11:00,920 Speaker 1: it doesn't work that way. It works in a textbook. 221 00:11:00,920 --> 00:11:03,479 Speaker 1: And when I used teacher Columbia, I talked about incipient 222 00:11:03,800 --> 00:11:06,880 Speaker 1: increases in the in the balance of payments that cause 223 00:11:07,040 --> 00:11:09,840 Speaker 1: an instantaneously stagery jump. We no longer have that. We 224 00:11:09,880 --> 00:11:13,000 Speaker 1: have FX desks, we have importers, we have exporters. We 225 00:11:13,120 --> 00:11:15,520 Speaker 1: have not one good, but a lot of goods with 226 00:11:15,559 --> 00:11:19,160 Speaker 1: different price elasticities. What on earth makes you think that 227 00:11:19,160 --> 00:11:21,199 Speaker 1: that textbook model is the one you should be used 228 00:11:21,280 --> 00:11:24,079 Speaker 1: to sell the president on a very important policy move 229 00:11:24,160 --> 00:11:27,160 Speaker 1: like this. How integral to tax reform is this borderjustment tax? 230 00:11:27,200 --> 00:11:29,000 Speaker 1: We didn't here to mention in the speech last night. 231 00:11:29,000 --> 00:11:30,880 Speaker 1: When you look at how you might pay for all 232 00:11:30,920 --> 00:11:32,880 Speaker 1: this stuff, it seems so important. Could you get tax 233 00:11:32,880 --> 00:11:35,680 Speaker 1: reform without having it involved? We at City actually have 234 00:11:35,800 --> 00:11:40,280 Speaker 1: our forecast um going into without a border tax. But 235 00:11:40,320 --> 00:11:42,520 Speaker 1: in order to do that and not let the budget 236 00:11:42,520 --> 00:11:44,439 Speaker 1: blow out to like two, three or four or five 237 00:11:44,440 --> 00:11:47,200 Speaker 1: percent of GDP, we had to assume that the tax 238 00:11:47,240 --> 00:11:49,720 Speaker 1: cuts on the corporate side will go down to maybe 239 00:11:50,160 --> 00:11:52,880 Speaker 1: not twenty, not fifteen. And we had to go to 240 00:11:52,920 --> 00:11:56,480 Speaker 1: every cat and dog expense and and and deduction we 241 00:11:56,520 --> 00:11:59,480 Speaker 1: could find to shut things down because quite frankly, that 242 00:11:59,480 --> 00:12:02,640 Speaker 1: that tax going down to fift will cost about one 243 00:12:02,640 --> 00:12:04,920 Speaker 1: point a trillion dollars. The border tax gives you more 244 00:12:04,960 --> 00:12:06,640 Speaker 1: than a chillion, and almost pays for all of that. 245 00:12:07,000 --> 00:12:09,520 Speaker 1: Let's take two different businesses. Mark Fields has a small 246 00:12:09,600 --> 00:12:12,760 Speaker 1: car shop called Ford Motor Company. There's a guy named 247 00:12:12,760 --> 00:12:14,920 Speaker 1: Michael Dell in Austin. I what's he doing? Is he 248 00:12:14,960 --> 00:12:17,360 Speaker 1: gonna buy the Rangers this year? I don't know what 249 00:12:17,400 --> 00:12:20,960 Speaker 1: Michael Dell is doing. Two different worlds. They're all affected 250 00:12:20,960 --> 00:12:25,120 Speaker 1: by the border tax. What is the price elasticity? What 251 00:12:25,280 --> 00:12:28,840 Speaker 1: is the responsive thing they should focus on in the 252 00:12:28,880 --> 00:12:32,560 Speaker 1: next two years? Of course, for the one thing about 253 00:12:32,559 --> 00:12:35,719 Speaker 1: autists who know is that they they make stuff and 254 00:12:35,760 --> 00:12:37,920 Speaker 1: they export stuff in order to get to the final 255 00:12:37,920 --> 00:12:40,640 Speaker 1: product of that car. That final product maybe here located 256 00:12:40,679 --> 00:12:42,920 Speaker 1: here in the US, or maybe located in Mexico. But 257 00:12:42,960 --> 00:12:45,480 Speaker 1: there's a lot of interest insity trade. How on earth 258 00:12:45,480 --> 00:12:48,720 Speaker 1: are you going to be taxing and subsidizing that imports 259 00:12:48,720 --> 00:12:51,079 Speaker 1: and exports of these of these firms, Right, So they're 260 00:12:51,080 --> 00:12:54,480 Speaker 1: gonna have a nightmare of an accounting about now. Now 261 00:12:54,520 --> 00:12:58,360 Speaker 1: Michael Dell, Right, I used to buy his Dell computers 262 00:12:58,360 --> 00:12:59,760 Speaker 1: when I was in college. I don't know what he's 263 00:12:59,800 --> 00:13:02,160 Speaker 1: got into now, but he certainly is in the high 264 00:13:02,200 --> 00:13:06,280 Speaker 1: tech industry, which is very very important intensive for parts. Right, 265 00:13:06,480 --> 00:13:10,200 Speaker 1: and Mexico, but Asia, Asia, and and and export intensive 266 00:13:10,280 --> 00:13:14,000 Speaker 1: or intellectual property. So so we're gonna subsidize this intellectual property, 267 00:13:14,160 --> 00:13:16,160 Speaker 1: which kind of means that even by the way, a 268 00:13:16,240 --> 00:13:18,200 Speaker 1: law firm, every law firm is gonna have a server 269 00:13:18,280 --> 00:13:21,120 Speaker 1: in Denmark because they're gonna say, I'm an exporting industry, 270 00:13:21,240 --> 00:13:23,560 Speaker 1: I shouldn't have to pay for my legal services, even 271 00:13:23,559 --> 00:13:26,640 Speaker 1: though you can get stuff here in the well said, 272 00:13:26,760 --> 00:13:31,040 Speaker 1: but on Michael Dell, the assumption is he can raise prices. 273 00:13:31,800 --> 00:13:35,439 Speaker 1: I don't think he got that memo. Can he can? 274 00:13:35,679 --> 00:13:39,000 Speaker 1: Can a Michael Dell raise price? If he does, his 275 00:13:39,080 --> 00:13:42,280 Speaker 1: competitor called the you know, the Taiwanese and and and 276 00:13:42,320 --> 00:13:45,760 Speaker 1: even the Chinese manufacturers are gonna say, we're gonna sell 277 00:13:45,840 --> 00:13:48,280 Speaker 1: things and undercut you. So don't you even dare raised 278 00:13:48,840 --> 00:13:59,160 Speaker 1: David his competitors Wayne Last from another complies my my 279 00:13:59,400 --> 00:14:03,800 Speaker 1: wish that prevent me. Billy, thank you so much. With 280 00:14:03,920 --> 00:14:06,760 Speaker 1: City Group UM this morning on the border text, we 281 00:14:06,840 --> 00:14:09,480 Speaker 1: protect the copyright of all of our guests. We're not 282 00:14:09,480 --> 00:14:12,800 Speaker 1: going to send you out his um lovely, lovely six 283 00:14:12,840 --> 00:14:15,360 Speaker 1: page dissertation in the Border tex Get that through your 284 00:14:15,400 --> 00:14:32,560 Speaker 1: city bank representative as well. We were doing physics earlier. 285 00:14:32,680 --> 00:14:35,720 Speaker 1: David Gura, it's very good to do Thursday physics. We're 286 00:14:35,720 --> 00:14:39,360 Speaker 1: doing vectors in inertial momentum, so let's do something more boring. 287 00:14:39,480 --> 00:14:43,000 Speaker 1: Fanny Freddy, wouldn't that be good? Why don't you bring 288 00:14:43,000 --> 00:14:45,520 Speaker 1: in our esteem guest, Yeah, spring Jim Milstein, here's the 289 00:14:45,560 --> 00:14:47,480 Speaker 1: chief of former Chief Restructuring Officer at the U S 290 00:14:47,520 --> 00:14:49,960 Speaker 1: Department of the Treasury, and joins us here in our 291 00:14:50,000 --> 00:14:53,280 Speaker 1: bloomboog lemon studios. Go ahead, what the hell is the 292 00:14:53,360 --> 00:14:59,400 Speaker 1: chief We're gonna get that last out of there's one 293 00:14:59,400 --> 00:15:04,240 Speaker 1: of my house. Yeah, on personal retainer. Describe briefly what 294 00:15:04,280 --> 00:15:06,680 Speaker 1: you did what that role does within the Treasury Department. Well, 295 00:15:06,800 --> 00:15:09,880 Speaker 1: during the financial crisis, the Treasury was responsible for the 296 00:15:09,880 --> 00:15:12,320 Speaker 1: administration of the TARP program and we made a number 297 00:15:12,320 --> 00:15:16,720 Speaker 1: of significant investments in various institutions in the financial sector 298 00:15:16,760 --> 00:15:20,160 Speaker 1: to make sure that it didn't collapse. And when we 299 00:15:21,040 --> 00:15:24,320 Speaker 1: after those investments were made, somebody had to figure out 300 00:15:24,320 --> 00:15:26,440 Speaker 1: a way to get out of them. And the short 301 00:15:26,480 --> 00:15:29,160 Speaker 1: straw was drawn by and I had there was a 302 00:15:29,160 --> 00:15:32,440 Speaker 1: meeting the Treasury in the Secretary's office and uh, and 303 00:15:32,600 --> 00:15:34,760 Speaker 1: somebody somebody has to do with A I G. And 304 00:15:34,760 --> 00:15:36,680 Speaker 1: the guys who had been there like three days longer 305 00:15:36,720 --> 00:15:39,240 Speaker 1: than need all took a step back, and I was 306 00:15:39,320 --> 00:15:41,840 Speaker 1: left in the front room. I've got six jokes to make. 307 00:15:41,960 --> 00:15:44,880 Speaker 1: Steve Rattner was with this yesterday, but forget about the jokes. 308 00:15:45,560 --> 00:15:47,800 Speaker 1: A I G. Showed up and the tone in the 309 00:15:47,880 --> 00:15:49,960 Speaker 1: room changed. There were all these issues. I mean, I 310 00:15:50,000 --> 00:15:52,040 Speaker 1: get it. You had to buy a building in New 311 00:15:52,120 --> 00:15:54,720 Speaker 1: York City to get Jamie Diamond to take up. You know, 312 00:15:54,920 --> 00:15:57,200 Speaker 1: we all know the history, but the key thing for 313 00:15:57,240 --> 00:15:59,360 Speaker 1: guys like you is A I G. Walked in the 314 00:15:59,440 --> 00:16:02,080 Speaker 1: room and it was a different conversation. What was that 315 00:16:02,160 --> 00:16:05,560 Speaker 1: like the you know, the difference with I mean the 316 00:16:05,640 --> 00:16:08,920 Speaker 1: Lehman Brothers file for bankruptcy on you know, Monday, Monday, 317 00:16:09,000 --> 00:16:11,920 Speaker 1: September fift I think A I G was downgraded that 318 00:16:12,000 --> 00:16:16,640 Speaker 1: day and as a consequence, um all of its derivatives 319 00:16:16,640 --> 00:16:20,440 Speaker 1: book changed in its character overnight because they have been 320 00:16:20,440 --> 00:16:24,080 Speaker 1: relying on the credit rating of the parent company to 321 00:16:24,160 --> 00:16:28,480 Speaker 1: provide their collateral for their derivatives, and so when the 322 00:16:28,520 --> 00:16:32,400 Speaker 1: downgrade occurred, they had a massive cash call, a cash 323 00:16:32,400 --> 00:16:35,840 Speaker 1: call that you know, really no institution, uh their size, 324 00:16:35,880 --> 00:16:38,840 Speaker 1: with their size derivative book could meet without help from 325 00:16:38,880 --> 00:16:41,880 Speaker 1: their friends, and their friends were all reeling. Uh. So 326 00:16:42,120 --> 00:16:44,840 Speaker 1: a private credit facility couldn't of the size needed, couldn't 327 00:16:44,880 --> 00:16:48,080 Speaker 1: be put together. And there was really two choices. Uh. 328 00:16:48,400 --> 00:16:52,080 Speaker 1: The Fed could have uh said I don't know who 329 00:16:52,120 --> 00:16:55,680 Speaker 1: you are, don't darken my door. Uh, you're on your own, 330 00:16:55,760 --> 00:16:57,560 Speaker 1: or the Fed did could do what it did, which 331 00:16:57,600 --> 00:17:00,240 Speaker 1: has stepped in with an emergency loan to en sure 332 00:17:00,320 --> 00:17:02,960 Speaker 1: that they could perform their obligations in the ordinary course 333 00:17:03,000 --> 00:17:05,480 Speaker 1: of business. Tom brings up g SCS. Have we heard 334 00:17:05,560 --> 00:17:06,920 Speaker 1: much in the way of a plan for what the 335 00:17:07,160 --> 00:17:11,080 Speaker 1: government plans to do with the Fanny and Freddy? Um? 336 00:17:11,119 --> 00:17:14,280 Speaker 1: You know there were hints of it, uh during right 337 00:17:14,320 --> 00:17:18,000 Speaker 1: after Munition was nominated. I think one of the first 338 00:17:18,000 --> 00:17:20,400 Speaker 1: things he said was we're going to think about recapitalizing 339 00:17:21,040 --> 00:17:23,600 Speaker 1: Fannie and Freddy and ending the Conservatives ships. He dialed 340 00:17:23,600 --> 00:17:26,920 Speaker 1: that back a little bit during his confirmation hearings Um 341 00:17:27,080 --> 00:17:29,040 Speaker 1: and said he wants to work with the Senate in 342 00:17:29,040 --> 00:17:32,480 Speaker 1: the House on on reform. But you know, the Senate 343 00:17:32,480 --> 00:17:35,840 Speaker 1: in the House tried this three years ago. UH, serious 344 00:17:35,880 --> 00:17:38,480 Speaker 1: effort led by the you know, with the Treasury Department. 345 00:17:38,600 --> 00:17:42,920 Speaker 1: Then Obama Treasury Department, and the topic just proved too 346 00:17:43,000 --> 00:17:46,080 Speaker 1: complicated because there are lots of puts and takes. Right there, 347 00:17:46,480 --> 00:17:50,159 Speaker 1: there's a the implied government guarantee, and you know, if 348 00:17:50,200 --> 00:17:53,200 Speaker 1: you're gonna make that explicit, so it was to ensure 349 00:17:53,240 --> 00:17:55,480 Speaker 1: that we're actually paid for the privilege of guaranteeing all 350 00:17:55,520 --> 00:17:59,800 Speaker 1: of that mortgage debt um. Then you know, the quid 351 00:18:00,000 --> 00:18:02,760 Speaker 1: o quo is that, well, if the government's involved and 352 00:18:02,800 --> 00:18:07,920 Speaker 1: putting its balance sheet behind the credit of various homeowner mortgages, 353 00:18:07,960 --> 00:18:10,639 Speaker 1: then that's a program that should be made widely available 354 00:18:10,680 --> 00:18:13,240 Speaker 1: to all homeowners. It shouldn't just be rich people with 355 00:18:13,280 --> 00:18:16,840 Speaker 1: great credit. Uh. And so you're constantly in a tug 356 00:18:16,840 --> 00:18:20,360 Speaker 1: of war between the affordable housing folks who say, hey, 357 00:18:20,400 --> 00:18:22,400 Speaker 1: if we're using the balance sheet to the federal government, 358 00:18:22,560 --> 00:18:25,439 Speaker 1: there should be a program with public benefit. Because of 359 00:18:25,520 --> 00:18:29,360 Speaker 1: time and we could talk with Mr Milstein folks four 360 00:18:29,400 --> 00:18:32,800 Speaker 1: to five hours and just alone to wander through Pan 361 00:18:32,840 --> 00:18:37,680 Speaker 1: American Airlines, the Disney restructuring of of of euro Disney 362 00:18:37,680 --> 00:18:41,359 Speaker 1: and all that. Your worker clearly gotlie but Lazard, et cetera. 363 00:18:42,200 --> 00:18:46,000 Speaker 1: But I gotta jump forward to how you interpret the 364 00:18:46,119 --> 00:18:51,440 Speaker 1: regulatory and restructuring zeal of this new administration. I mean, 365 00:18:51,520 --> 00:18:54,640 Speaker 1: I mean, you're you're not a constitutional law guy. You're 366 00:18:54,720 --> 00:18:58,960 Speaker 1: you're more in the regulation realm, but interpret force what 367 00:18:59,119 --> 00:19:04,119 Speaker 1: you presume is to come. Yeah. So, UM, you know, 368 00:19:04,200 --> 00:19:09,639 Speaker 1: there's a playbook that UM. The Heritage Foundation, funded by 369 00:19:09,680 --> 00:19:15,000 Speaker 1: the Koch brothers, has um published that many of the 370 00:19:15,040 --> 00:19:17,960 Speaker 1: bills coming out of the House, whether it's the Choice 371 00:19:18,000 --> 00:19:21,960 Speaker 1: Act from Hencer Lank, the tax reform proposals, and healthcare 372 00:19:21,960 --> 00:19:27,359 Speaker 1: proposals pushed by Speaker Ryan are following and it is 373 00:19:27,440 --> 00:19:32,280 Speaker 1: a you know it, it's a it's a limited government 374 00:19:32,400 --> 00:19:36,600 Speaker 1: libertarian philosophy. UM. And the real question is, you know, 375 00:19:37,280 --> 00:19:39,480 Speaker 1: in a much more complicated economy than we had in 376 00:19:39,480 --> 00:19:42,160 Speaker 1: the nineteenth century. I found it interesting that President Trump 377 00:19:42,160 --> 00:19:46,000 Speaker 1: and his speech to Other Night cited Lincoln defending for 378 00:19:46,080 --> 00:19:49,840 Speaker 1: protectionist policies. It's defending a protectionist policy. We were an 379 00:19:49,840 --> 00:19:53,840 Speaker 1: agricultural society back in the nineteenth century. You know, it wasn't. 380 00:19:53,880 --> 00:19:57,520 Speaker 1: It wasn't. Number one of the Chicago Convention was no. 381 00:19:57,720 --> 00:20:00,480 Speaker 1: But but we were. We were running a merkel untilist policy. 382 00:20:00,520 --> 00:20:02,800 Speaker 1: We were in a global power. Then we're a small 383 00:20:02,880 --> 00:20:06,119 Speaker 1: little you should paint the pictures, folks. I'm sitting in 384 00:20:06,160 --> 00:20:09,040 Speaker 1: our studio here. It's fifty nine in Lexington, and I'm 385 00:20:09,040 --> 00:20:11,400 Speaker 1: in my usual turret. David sits across from me. Mr 386 00:20:11,400 --> 00:20:14,320 Speaker 1: Milstein is sitting to my right. David's left in the 387 00:20:14,400 --> 00:20:17,879 Speaker 1: chair to my left sat one of the major hitters 388 00:20:17,920 --> 00:20:22,360 Speaker 1: of your world. The day they renigged on the agreements 389 00:20:22,440 --> 00:20:28,200 Speaker 1: on Chrysler, you were directly involved in those transactions. Moving 390 00:20:28,280 --> 00:20:30,960 Speaker 1: forward with the Trump administration, are we going to get 391 00:20:31,040 --> 00:20:34,800 Speaker 1: the rule of law in the rule of contract or 392 00:20:34,840 --> 00:20:39,600 Speaker 1: are we going to get some form of Chrysler like chaos. Well, listen, 393 00:20:39,720 --> 00:20:43,080 Speaker 1: you know, the government of the United States, the Congress 394 00:20:43,040 --> 00:20:44,879 Speaker 1: of the United States, and the President have the power 395 00:20:44,920 --> 00:20:50,560 Speaker 1: to change the law, uh, and to alter the playing field. UH. 396 00:20:50,560 --> 00:20:53,560 Speaker 1: And so you know, one man's one man's abdication of 397 00:20:53,600 --> 00:20:56,840 Speaker 1: the rule of law is another man's reform. And so 398 00:20:57,080 --> 00:20:59,200 Speaker 1: you know, I think that you always have to understand 399 00:20:59,200 --> 00:21:02,160 Speaker 1: which side of that argument people are on, because there's 400 00:21:02,240 --> 00:21:05,320 Speaker 1: behind that argument is usually an economic interest that's being 401 00:21:06,040 --> 00:21:10,600 Speaker 1: or promoted or gored. Uh. You went from from Lazard 402 00:21:10,640 --> 00:21:13,520 Speaker 1: to government, and as we talk about this moment, and 403 00:21:13,600 --> 00:21:15,879 Speaker 1: we talked with numerous guests within government, who have been 404 00:21:15,880 --> 00:21:18,960 Speaker 1: in government about the deficit when it comes to personnel 405 00:21:19,000 --> 00:21:21,080 Speaker 1: at the deputy level at a lot of these institutions, 406 00:21:21,080 --> 00:21:23,919 Speaker 1: at Treasury, at State. Has it become harder for the 407 00:21:23,920 --> 00:21:26,520 Speaker 1: government to entice people like you from the private sector 408 00:21:26,520 --> 00:21:28,119 Speaker 1: to work for them. Is there's something particular to this 409 00:21:28,160 --> 00:21:31,080 Speaker 1: administration or is it something more endemic that that that 410 00:21:31,160 --> 00:21:32,960 Speaker 1: it's it's it's harder to make that case when it 411 00:21:32,960 --> 00:21:34,960 Speaker 1: comes to doing the confirmation hearing is making the move. 412 00:21:35,280 --> 00:21:37,200 Speaker 1: Is it less attractive to move from the private sector 413 00:21:37,240 --> 00:21:39,440 Speaker 1: to the public sector? Yeah, So if you're if you're 414 00:21:39,520 --> 00:21:42,560 Speaker 1: up for a position for confirmation, which constitutes you know, 415 00:21:42,600 --> 00:21:47,000 Speaker 1: the top three levels of every cabinet department. UM. You know, 416 00:21:47,080 --> 00:21:52,359 Speaker 1: you're you have to be willing to expose your entire life, 417 00:21:52,880 --> 00:21:56,960 Speaker 1: your financial situation, your affiliation to your associations, the things 418 00:21:56,960 --> 00:22:01,359 Speaker 1: you've written to public scrutiny, and UM. The process has 419 00:22:01,400 --> 00:22:05,760 Speaker 1: become quite uncivil because of the partisanship on the hill. Uh. 420 00:22:05,800 --> 00:22:09,600 Speaker 1: You know, often an individual's candidacy is sacrificed on some 421 00:22:09,600 --> 00:22:12,399 Speaker 1: pet peeve between two senators that they had nothing to 422 00:22:12,440 --> 00:22:15,399 Speaker 1: do with. UM. And I think that process of confirm, 423 00:22:15,440 --> 00:22:18,159 Speaker 1: the confirmation procedent is clearly broken and needs to be 424 00:22:18,240 --> 00:22:20,119 Speaker 1: fixed if we're going to get high quality people to 425 00:22:20,200 --> 00:22:22,119 Speaker 1: go back into the government. So I think that's one 426 00:22:22,160 --> 00:22:24,199 Speaker 1: of the problems. I think the other problem is I 427 00:22:24,200 --> 00:22:26,919 Speaker 1: think the president has been it's very unclear what the 428 00:22:26,960 --> 00:22:29,680 Speaker 1: president stands for. Um, there are a couple of things 429 00:22:29,720 --> 00:22:32,240 Speaker 1: that he stands for that, you know, some people find troubling, 430 00:22:32,480 --> 00:22:36,040 Speaker 1: some people find um, you know, worthy of support. But 431 00:22:36,720 --> 00:22:40,879 Speaker 1: you know he's stands for, you know, titaned immigration. He 432 00:22:41,040 --> 00:22:45,159 Speaker 1: stands for more protection to straight policy to promote manufacturing 433 00:22:45,160 --> 00:22:49,600 Speaker 1: a very relatively small part of the U. S economy today. Um, 434 00:22:49,640 --> 00:22:54,000 Speaker 1: you know, he stands for tax cuts, you know, to 435 00:22:54,080 --> 00:22:58,160 Speaker 1: whom distributed unclear. So with the lack of clarity and policy, 436 00:22:59,000 --> 00:23:01,680 Speaker 1: very hard to know what you're signing up for, right. 437 00:23:02,640 --> 00:23:04,280 Speaker 1: So I think that's the other problem. I think until 438 00:23:04,280 --> 00:23:06,920 Speaker 1: the administration really lays its cards on the table and 439 00:23:06,920 --> 00:23:10,840 Speaker 1: announce his clear policy directions and how they want to 440 00:23:10,880 --> 00:23:12,879 Speaker 1: implement him, it's very hard to get the soldiers to 441 00:23:12,920 --> 00:23:16,440 Speaker 1: carry the water. We are out of time. We beg 442 00:23:16,480 --> 00:23:19,719 Speaker 1: you to come back. There's so much we didn't even 443 00:23:19,720 --> 00:23:22,040 Speaker 1: get to Puerto Rico, and it's and it's happening right now, 444 00:23:22,359 --> 00:23:25,480 Speaker 1: and really it's being a restructure and it's and it's 445 00:23:25,480 --> 00:23:27,560 Speaker 1: happening in real time. Jim Millstone, thank you so much, 446 00:23:27,560 --> 00:23:30,960 Speaker 1: greatly appreciate it most any company this morning with his 447 00:23:31,000 --> 00:23:42,760 Speaker 1: work on Wall Street in public service for years, brought 448 00:23:42,840 --> 00:23:46,479 Speaker 1: you by Bank of America, Mary Lynch. Dedicated to bringing 449 00:23:46,520 --> 00:23:50,240 Speaker 1: our clients insights and solutions to meet the challenges of 450 00:23:50,240 --> 00:23:55,240 Speaker 1: a transforming world. That's the power of global connections. Mary Lynch, Pierce, 451 00:23:55,359 --> 00:24:02,879 Speaker 1: Feeder and Smith Incorporated member s I p C. You know, 452 00:24:03,040 --> 00:24:06,320 Speaker 1: joining us Michael Mayo's securities analysts. For those of you 453 00:24:06,480 --> 00:24:09,320 Speaker 1: not up to speed, Mr Mayo is an esteemed seal 454 00:24:09,440 --> 00:24:12,080 Speaker 1: side bank analysts. He's been doing it for a few 455 00:24:12,160 --> 00:24:14,480 Speaker 1: years and he was let go by his firm the 456 00:24:14,480 --> 00:24:16,879 Speaker 1: other day. There was no ill will there. You didn't like, 457 00:24:16,960 --> 00:24:20,360 Speaker 1: steal the the whiskey or something out of the time. 458 00:24:20,400 --> 00:24:23,840 Speaker 1: There was no like, you know, Mike, you destinately person. Right, 459 00:24:25,200 --> 00:24:27,760 Speaker 1: that's correct. Okay, here's the here's the history here, folks, 460 00:24:27,760 --> 00:24:29,640 Speaker 1: and we're gonna talk about the state of global Wall 461 00:24:29,640 --> 00:24:32,720 Speaker 1: Street and securities and analysts right now. In our next section, 462 00:24:32,880 --> 00:24:36,280 Speaker 1: Mr Mayo, we'll talk about the banks your office now 463 00:24:36,400 --> 00:24:40,800 Speaker 1: is eleven seventeen Lexington Avenue, the Starbucks up there. Mrs 464 00:24:40,800 --> 00:24:43,399 Speaker 1: Mayo has seen this a few times. I remember the 465 00:24:43,480 --> 00:24:46,440 Speaker 1: day you were fired at Credit Suites and the entire 466 00:24:46,600 --> 00:24:51,080 Speaker 1: industry was outraged that you were shown, uh the door. 467 00:24:51,320 --> 00:24:55,680 Speaker 1: This is a recurring habit. Can you explain to us 468 00:24:55,800 --> 00:25:00,480 Speaker 1: the state of the securities analysis business now and where 469 00:25:00,480 --> 00:25:02,440 Speaker 1: it's going to be in two years? Well, well, Tom, 470 00:25:02,480 --> 00:25:04,080 Speaker 1: I think I'm ahead of the game. I've been fired 471 00:25:04,119 --> 00:25:07,200 Speaker 1: about three times, but I've resigned five times, so I'm 472 00:25:07,200 --> 00:25:10,320 Speaker 1: a little above you know. But are your kid's gonna 473 00:25:10,359 --> 00:25:13,520 Speaker 1: be in this Are my kids gonna be in this business? 474 00:25:13,880 --> 00:25:15,440 Speaker 1: I don't want my kids to be in this business. 475 00:25:15,480 --> 00:25:16,919 Speaker 1: They don't want to be in this business, So that 476 00:25:17,000 --> 00:25:19,880 Speaker 1: part's fine surprising. When I was fired in two thousand 477 00:25:19,960 --> 00:25:22,480 Speaker 1: is you know, you know, I had a huge negative 478 00:25:22,720 --> 00:25:25,240 Speaker 1: call on the bank stocks. The bank stocks went down, 479 00:25:25,480 --> 00:25:28,080 Speaker 1: and I was fired. Anyway, The difference this time is, 480 00:25:28,720 --> 00:25:30,680 Speaker 1: I thought, I think we've had the most bullish call 481 00:25:30,760 --> 00:25:32,840 Speaker 1: on the banks over the last year, and the banks 482 00:25:32,840 --> 00:25:36,199 Speaker 1: have led the stock market to record highs, and I 483 00:25:36,240 --> 00:25:38,880 Speaker 1: get fired along with the US Research Group. But back 484 00:25:38,920 --> 00:25:41,960 Speaker 1: in two thousand, the silver lining was I could hang 485 00:25:41,960 --> 00:25:44,320 Speaker 1: out with my then infant daughter, I'd go to mommy 486 00:25:44,320 --> 00:25:47,000 Speaker 1: and me classes. But my wife has seen this movie 487 00:25:47,040 --> 00:25:50,920 Speaker 1: before seventeen years ago. She's like, um, well, we went 488 00:25:50,960 --> 00:25:53,520 Speaker 1: to coffee bars in the East Village in the afternoon 489 00:25:53,640 --> 00:25:56,240 Speaker 1: and saw movies. So she read me the Riot Act 490 00:25:56,359 --> 00:25:58,760 Speaker 1: yesterday saying I'm not going to coffee bars, I'm not 491 00:25:58,800 --> 00:26:00,240 Speaker 1: going to movie. I'm not going to take a walk 492 00:26:00,240 --> 00:26:02,359 Speaker 1: around in Central Park at lunchtime with you. I have 493 00:26:02,480 --> 00:26:05,720 Speaker 1: my own life and circle and process. Okay, but but 494 00:26:05,800 --> 00:26:08,320 Speaker 1: within this is the tumult in the United Kingdom over 495 00:26:08,359 --> 00:26:11,520 Speaker 1: how securities UH sell side analysts are gonna get paid. 496 00:26:11,880 --> 00:26:15,680 Speaker 1: You've got Abby Abbey, not not Abbie, Joseph Cohlan, Addie Johnson. 497 00:26:15,960 --> 00:26:19,080 Speaker 1: Its fidelity going to four dollars portrayed she's doing a 498 00:26:19,119 --> 00:26:23,119 Speaker 1: massive layoff of fossils like you and me within a fidelity. 499 00:26:23,200 --> 00:26:27,000 Speaker 1: Where is the business in twenty four months, because it 500 00:26:27,040 --> 00:26:30,880 Speaker 1: appears to me with c ls A, nobody's making money. Well, 501 00:26:30,920 --> 00:26:33,960 Speaker 1: I think the twenty rule always applies. So you know, 502 00:26:35,040 --> 00:26:37,679 Speaker 1: of the top performers provide eight percent of the value. 503 00:26:37,720 --> 00:26:40,400 Speaker 1: So I think there's always room for those who are 504 00:26:40,400 --> 00:26:43,080 Speaker 1: good at their job, And so what what I've been 505 00:26:43,119 --> 00:26:45,800 Speaker 1: proud of is holding truth to power, you know, holding 506 00:26:45,840 --> 00:26:50,000 Speaker 1: managements accountable, especially now that you're pulling back regulation regulation 507 00:26:50,200 --> 00:26:53,800 Speaker 1: overall market, especially in the banking industry that's going to transpire. 508 00:26:54,240 --> 00:26:59,800 Speaker 1: Then we collectively, especially investors, need to hold corporations there 509 00:26:59,800 --> 00:27:02,200 Speaker 1: may edgements and their boards of directors more accountable. So 510 00:27:02,240 --> 00:27:04,080 Speaker 1: there will always be a need for what I do. 511 00:27:04,200 --> 00:27:09,280 Speaker 1: Does anybody care anymore that you've got a fireplace mantle 512 00:27:09,440 --> 00:27:12,080 Speaker 1: of i I awards or is that just you and 513 00:27:12,119 --> 00:27:17,000 Speaker 1: me waxing philosophical about the year two thousand? People absolutely care. 514 00:27:17,080 --> 00:27:20,920 Speaker 1: I've gotten tons of you know, emails and phone calls. 515 00:27:20,920 --> 00:27:23,160 Speaker 1: You want to announce a new company you're working for today, 516 00:27:23,160 --> 00:27:25,240 Speaker 1: it only takes you like twenty four hours. Well I 517 00:27:25,280 --> 00:27:28,639 Speaker 1: got a new job. I think the right perspective is 518 00:27:28,760 --> 00:27:30,840 Speaker 1: I will listen to anything. This is. Look, but this 519 00:27:30,960 --> 00:27:33,240 Speaker 1: is a reminder about how Wall Street works. I mean, 520 00:27:33,440 --> 00:27:35,480 Speaker 1: you're in one day and literally over the course of 521 00:27:35,520 --> 00:27:37,960 Speaker 1: three hours, you're out. So the rough and tumble world 522 00:27:37,960 --> 00:27:40,680 Speaker 1: of Wall Street remains. David, what's charming about Mike as 523 00:27:40,720 --> 00:27:45,000 Speaker 1: he still uses an HP twelve scene both of you guys, 524 00:27:45,680 --> 00:27:47,960 Speaker 1: Has it gotten more difficult to speak truth, pout in 525 00:27:48,000 --> 00:27:50,359 Speaker 1: the way that you do, to be a reverend, to 526 00:27:50,359 --> 00:27:52,159 Speaker 1: to to to go to these meetings and make the 527 00:27:52,160 --> 00:27:54,960 Speaker 1: cases that you make. I don't really think it's changed. 528 00:27:55,200 --> 00:27:59,560 Speaker 1: I'm proud of being the only analyst who testified to Congress, 529 00:27:59,600 --> 00:28:01,280 Speaker 1: and too and two as part of the star Bans 530 00:28:01,320 --> 00:28:03,879 Speaker 1: actually talked about conflicts of interest on Wall Street and 531 00:28:03,920 --> 00:28:07,919 Speaker 1: the retribution for being aggressive with managements and holding them accountable. 532 00:28:08,119 --> 00:28:10,359 Speaker 1: And if you're nice to the companies, you get all 533 00:28:10,359 --> 00:28:12,720 Speaker 1: sorts of perks. They return your phone calls and they 534 00:28:13,040 --> 00:28:14,439 Speaker 1: you know, they go on the road with you and 535 00:28:14,480 --> 00:28:17,880 Speaker 1: you're there like bff um. And if you're aggressive with them, 536 00:28:17,920 --> 00:28:20,320 Speaker 1: sometimes they don't return phone calls, you don't have meetings, 537 00:28:20,359 --> 00:28:22,520 Speaker 1: they aren't nice to you. So I think it's hasn't 538 00:28:22,560 --> 00:28:24,879 Speaker 1: really changed as much as it should have. But we 539 00:28:24,920 --> 00:28:27,679 Speaker 1: should learn a lesson for the financial crisis. The issue 540 00:28:27,720 --> 00:28:31,280 Speaker 1: then is nobody was mining the store. The regulators weren't 541 00:28:31,280 --> 00:28:33,959 Speaker 1: doing their job, and investors weren't doing their job. And 542 00:28:34,000 --> 00:28:38,440 Speaker 1: since that time, regulation has come very heavy handed. If 543 00:28:38,440 --> 00:28:41,000 Speaker 1: you're gonna pull that back, investors need to step up 544 00:28:41,000 --> 00:28:43,280 Speaker 1: and hold them account On the Bloomberg there are thirty 545 00:28:43,400 --> 00:28:46,560 Speaker 1: analysts covering City group. I'll ask you the same question 546 00:28:46,600 --> 00:28:48,480 Speaker 1: I want to ask you in two thousands. Do we 547 00:28:48,520 --> 00:28:54,680 Speaker 1: need thirty opinions on Fortress Corbett rule? So I agree 548 00:28:54,760 --> 00:28:57,680 Speaker 1: that I mean so, I mean in any industry, you're 549 00:28:57,680 --> 00:28:59,440 Speaker 1: gonna have those who do a good job, and then 550 00:28:59,480 --> 00:29:01,560 Speaker 1: there's gonna be fro dead weight. Are you gonna be 551 00:29:01,600 --> 00:29:03,840 Speaker 1: up at the Starbucks on Alex Engineer at about you know? 552 00:29:03,840 --> 00:29:07,400 Speaker 1: When are we off? David ten Oclock, can we get 553 00:29:07,400 --> 00:29:10,720 Speaker 1: an orange mocha frappuccino with you? I'm going to check 554 00:29:10,760 --> 00:29:13,840 Speaker 1: with my wife and assuming I don't actually I think 555 00:29:13,880 --> 00:29:29,360 Speaker 1: she's busy. So I'm opening this little The former vice 556 00:29:29,400 --> 00:29:33,000 Speaker 1: chairman of the Federal Reserve System with Princeton University, Alan Blinder, 557 00:29:33,080 --> 00:29:37,480 Speaker 1: joining us in our studios Michael McKee, Professor Blinder. I'm 558 00:29:37,480 --> 00:29:40,120 Speaker 1: gonna ask a question and Michael will jump in here. 559 00:29:40,280 --> 00:29:44,720 Speaker 1: The perspective is the capitulation of those uh saying that 560 00:29:44,800 --> 00:29:48,719 Speaker 1: a FED will wait. Ellen Zentner Morgan Stanley shifts her 561 00:29:48,800 --> 00:29:53,120 Speaker 1: call to march right now, do you agree that a 562 00:29:53,320 --> 00:29:57,920 Speaker 1: FED should consider three rate hikes this year and then 563 00:29:58,040 --> 00:30:02,800 Speaker 1: four in two thousand eighteen? Well, that's a little specific. 564 00:30:02,880 --> 00:30:06,160 Speaker 1: First of all, I do think they're gonna go up soon, 565 00:30:06,440 --> 00:30:12,200 Speaker 1: and soon probably means this month, UM three verse. I 566 00:30:12,360 --> 00:30:15,360 Speaker 1: think of the three versus four questions, and that's the 567 00:30:15,480 --> 00:30:17,320 Speaker 1: right place to put it. Now, you know, it wasn't 568 00:30:17,320 --> 00:30:21,280 Speaker 1: that long ago people were debating one to three. I 569 00:30:21,320 --> 00:30:24,960 Speaker 1: think three verses four, given the state of the economy, 570 00:30:25,080 --> 00:30:28,120 Speaker 1: is the right place to put the debate. I put 571 00:30:28,160 --> 00:30:33,000 Speaker 1: the question this year, UM three or four. This year, 572 00:30:33,000 --> 00:30:37,360 Speaker 1: who knows about next year? The economy is looking very strong. 573 00:30:38,600 --> 00:30:40,960 Speaker 1: We're staring in the face although it looks to be 574 00:30:41,080 --> 00:30:46,280 Speaker 1: delayed of a large fiscal stimulus to a country, to 575 00:30:46,400 --> 00:30:51,040 Speaker 1: an economy that doesn't need a fiscal stimulus, and the 576 00:30:51,080 --> 00:30:53,800 Speaker 1: FED is going to have to offset some of it. Well, 577 00:30:53,800 --> 00:30:56,080 Speaker 1: that there's a dynamics, Michael McKee, that you're so good 578 00:30:56,120 --> 00:30:58,480 Speaker 1: at in your different interviews, including James Bullard and the 579 00:30:58,560 --> 00:31:01,440 Speaker 1: idea of a regime change. Michael McKee jump in here 580 00:31:01,480 --> 00:31:04,920 Speaker 1: with Professor Blinder. Well, the thing that struck me Alan, 581 00:31:05,040 --> 00:31:07,680 Speaker 1: and I've been saying this for a while is we've 582 00:31:07,680 --> 00:31:11,120 Speaker 1: criticized the FED a lot over the last couple of 583 00:31:11,200 --> 00:31:14,600 Speaker 1: years for missing an opportunity when they had a chance 584 00:31:14,720 --> 00:31:17,520 Speaker 1: to raise rates, and you've got the potential of a 585 00:31:17,560 --> 00:31:21,080 Speaker 1: government shutdown on April, You've got the French presidential vote 586 00:31:21,080 --> 00:31:23,719 Speaker 1: out there, and I'm just wondering if a lot of 587 00:31:23,760 --> 00:31:26,720 Speaker 1: what might be going on in these FEDE officials minds 588 00:31:26,720 --> 00:31:29,880 Speaker 1: is we've got a shot in March. Why not do it? 589 00:31:30,640 --> 00:31:33,959 Speaker 1: Why not avoid things that could complicate our lives? If 590 00:31:34,000 --> 00:31:36,800 Speaker 1: we feel the level of economic activity is such that 591 00:31:36,840 --> 00:31:39,960 Speaker 1: it justifies a rate increase anyway, Yeah, no, I agree 592 00:31:39,960 --> 00:31:44,160 Speaker 1: with I think the level of activity definitely justifies a 593 00:31:44,280 --> 00:31:49,320 Speaker 1: rate increase more than one uh in fact. And furthermore, 594 00:31:49,440 --> 00:31:52,160 Speaker 1: what I did, I don't think the FEDS are all 595 00:31:52,240 --> 00:31:54,520 Speaker 1: worried about at least they shouldn't be worried about a 596 00:31:54,600 --> 00:31:58,800 Speaker 1: government shutdown. Republicans only do that when a Democrat as 597 00:31:58,880 --> 00:32:04,000 Speaker 1: the president. Have No, I put a zero probability on that. 598 00:32:04,240 --> 00:32:10,120 Speaker 1: But what's happened recently, so to speak, is that the 599 00:32:10,320 --> 00:32:13,760 Speaker 1: likely date when we're gonna know the size of the 600 00:32:13,800 --> 00:32:18,080 Speaker 1: fiscal stimulus has been pushed back, so that I think 601 00:32:18,080 --> 00:32:20,120 Speaker 1: it was rational for the Fed to wait a bit 602 00:32:20,240 --> 00:32:23,880 Speaker 1: for the clouds to disappear. And let's get a view 603 00:32:24,200 --> 00:32:27,600 Speaker 1: of what the Trump fiscal policies accident. It will look 604 00:32:27,680 --> 00:32:30,280 Speaker 1: like at this point, if you're sitting on the Fed, 605 00:32:30,440 --> 00:32:32,240 Speaker 1: you're saying, how long do we have to wait for this? 606 00:32:33,040 --> 00:32:34,680 Speaker 1: We know it's going to be there. We don't know 607 00:32:34,760 --> 00:32:38,480 Speaker 1: the size, we don't know the qualitative dimensions, but we 608 00:32:38,520 --> 00:32:41,840 Speaker 1: know it's going to be there, and uh, and we 609 00:32:41,880 --> 00:32:44,600 Speaker 1: don't need it, and we are to stop waiting. David, 610 00:32:44,880 --> 00:32:46,600 Speaker 1: what are you going to be listening for tomorrow from 611 00:32:46,600 --> 00:32:48,840 Speaker 1: the FED chair when she speaks in Chicago and light 612 00:32:48,880 --> 00:32:51,440 Speaker 1: of the groundwork we've seen late here by Dudley and 613 00:32:51,480 --> 00:32:56,040 Speaker 1: Brainerd in caplan this week, Well, I don't actually expect 614 00:32:56,040 --> 00:32:59,360 Speaker 1: her to to move the ball very much. I think 615 00:33:00,400 --> 00:33:03,760 Speaker 1: given what Janet Yellen has already said and what Dudley 616 00:33:03,800 --> 00:33:08,720 Speaker 1: and others have said, they have succeeded in moving the 617 00:33:08,760 --> 00:33:13,480 Speaker 1: market expectation in favor of, you know, to well over 618 00:33:13,560 --> 00:33:17,560 Speaker 1: fifty odds of a rate hike in March. They don't 619 00:33:17,600 --> 00:33:21,440 Speaker 1: like to rate raise rates when the market probability is 620 00:33:21,520 --> 00:33:25,320 Speaker 1: like and shocked the markets, but they have to be 621 00:33:25,320 --> 00:33:29,560 Speaker 1: pretty content with the market thinking is right now, they 622 00:33:29,640 --> 00:33:31,360 Speaker 1: still got a couple of weeks to go. We could, 623 00:33:31,440 --> 00:33:37,200 Speaker 1: for example, have a catastrophically bad jobs report of for 624 00:33:37,520 --> 00:33:41,200 Speaker 1: February coming out in before the f MC meeting. I 625 00:33:41,200 --> 00:33:45,200 Speaker 1: don't expect I certainly don't expect that, but if that 626 00:33:45,240 --> 00:33:49,280 Speaker 1: would happen, they probably want to postpone. Define catastrophically bad 627 00:33:49,320 --> 00:33:53,360 Speaker 1: for us here, pardon me, define catastrophically bad? What what 628 00:33:53,520 --> 00:33:59,040 Speaker 1: would be? Something five thous No, No, I'd say, well 629 00:33:59,280 --> 00:34:03,440 Speaker 1: under well under a hundred thousand, like fifty thou jobs 630 00:34:03,520 --> 00:34:06,360 Speaker 1: or something like that. I don't expect to see a 631 00:34:06,440 --> 00:34:09,359 Speaker 1: number like that. Neither do they, But I think they 632 00:34:09,360 --> 00:34:14,480 Speaker 1: want to leave enough flexibility that if something wild happens, uh, 633 00:34:14,600 --> 00:34:16,360 Speaker 1: they don't go. So I don't think she wants to 634 00:34:16,360 --> 00:34:19,960 Speaker 1: say anything that won't basically lock the FED in. The 635 00:34:20,080 --> 00:34:24,000 Speaker 1: big question is surrounding all this is what's happening with inflation. 636 00:34:24,000 --> 00:34:29,040 Speaker 1: And we did see PC rise the last month and 637 00:34:29,120 --> 00:34:33,279 Speaker 1: we're just under two right now, but a lot of 638 00:34:33,280 --> 00:34:36,600 Speaker 1: that is because energy prices went back up, and there's 639 00:34:36,640 --> 00:34:39,839 Speaker 1: always the dispute about how much weight you put on that. 640 00:34:40,239 --> 00:34:43,080 Speaker 1: So it we've talked a lot about the path the 641 00:34:43,120 --> 00:34:45,000 Speaker 1: fact there seems to be an underlying difference to the 642 00:34:45,120 --> 00:34:48,719 Speaker 1: dynamic of inflation. Is there enough inflation danger that they 643 00:34:48,760 --> 00:34:52,200 Speaker 1: feel like they have to move. I think there is 644 00:34:53,440 --> 00:34:56,359 Speaker 1: now the key thing Mike is moved, how much there's 645 00:34:56,400 --> 00:35:00,160 Speaker 1: not so much inflation danger that the Fed fields we 646 00:35:00,280 --> 00:35:02,400 Speaker 1: get to get this fund right up a hundred a 647 00:35:02,480 --> 00:35:07,040 Speaker 1: hundred fifty basis pointing quickly. It's nothing like that. They're 648 00:35:07,040 --> 00:35:10,960 Speaker 1: still into gradualism, which is but Janet the Ellen's mantra 649 00:35:11,080 --> 00:35:18,200 Speaker 1: for a long time now. But there is an inflation danger. Uh, 650 00:35:18,440 --> 00:35:20,800 Speaker 1: you know a small you know, I used the word danger, 651 00:35:20,880 --> 00:35:26,359 Speaker 1: and well you use this. Let's do that. Let's let's 652 00:35:26,360 --> 00:35:28,640 Speaker 1: put words in the vice chair. We'll come back with 653 00:35:28,760 --> 00:35:31,520 Speaker 1: Professor Blinder. Michael McKee, why don't you pick it up 654 00:35:31,760 --> 00:35:34,920 Speaker 1: with Alan Blinder. And of course the backdrop here is 655 00:35:34,960 --> 00:35:39,000 Speaker 1: a September crowd shifts to March. And we just saw 656 00:35:39,040 --> 00:35:41,640 Speaker 1: that with Morgan Stanley an hour ago. Yeah, Ellen set 657 00:35:41,680 --> 00:35:44,759 Speaker 1: there and Matt hornback from Morgan Stanley shifting their call 658 00:35:44,920 --> 00:35:47,880 Speaker 1: major change for them. One of the things Alan, that 659 00:35:47,960 --> 00:35:52,000 Speaker 1: they suggest will will be a result of a faster 660 00:35:52,239 --> 00:35:55,719 Speaker 1: FED tightening cycle is more quick they will get to 661 00:35:57,160 --> 00:35:59,719 Speaker 1: bringing the balance sheet down, addressing the balance sheet more 662 00:35:59,760 --> 00:36:03,040 Speaker 1: quick Lea. They think the beginning of two thousand eighteen, 663 00:36:04,040 --> 00:36:06,600 Speaker 1: there's a lot of debate about how important that is 664 00:36:06,640 --> 00:36:09,359 Speaker 1: going to be and how much market disruption there's going 665 00:36:09,400 --> 00:36:12,560 Speaker 1: to come from addressing the balance sheet. What do you think. 666 00:36:13,880 --> 00:36:18,319 Speaker 1: I think it's importance is easy to exaggerate. And the 667 00:36:18,320 --> 00:36:20,720 Speaker 1: thing I'm most sure about is there will be minimal 668 00:36:20,840 --> 00:36:24,520 Speaker 1: market disruption. And the reason for that is really simple. 669 00:36:25,080 --> 00:36:30,439 Speaker 1: The Fed is going to do handstands not to pull 670 00:36:30,520 --> 00:36:34,480 Speaker 1: any surprises on anybody. This balance sheet, when they're ready, 671 00:36:34,960 --> 00:36:39,600 Speaker 1: is going to be drawn down on a regular, preannounced 672 00:36:40,000 --> 00:36:44,680 Speaker 1: schedule that everybody in the market knows about. They'll know 673 00:36:44,800 --> 00:36:50,200 Speaker 1: it's coming, so to speak, auction by auction UH and 674 00:36:50,600 --> 00:36:54,200 Speaker 1: markets are pretty good at digesting things like that, even 675 00:36:54,239 --> 00:36:57,000 Speaker 1: if the sums are large. These are huge markets. Remember, 676 00:36:57,560 --> 00:37:00,439 Speaker 1: the key thing is not to surprise anybody, and that's 677 00:37:00,440 --> 00:37:02,319 Speaker 1: the last thing the FED is going to want to do. 678 00:37:03,360 --> 00:37:06,800 Speaker 1: Interesting point that Ellen and Matt made in an earlier 679 00:37:06,880 --> 00:37:10,040 Speaker 1: note a week or so ago they don't think the 680 00:37:10,080 --> 00:37:12,759 Speaker 1: Fed has to do anything to the treasury part of 681 00:37:12,760 --> 00:37:15,919 Speaker 1: the balance sheet because there if you once you take 682 00:37:15,960 --> 00:37:20,440 Speaker 1: out the mortgages and the stuff that expires right away, 683 00:37:20,760 --> 00:37:23,720 Speaker 1: you're not that much bigger than what a normal balance 684 00:37:23,800 --> 00:37:27,160 Speaker 1: sheet size would be. For this size of the economy 685 00:37:27,200 --> 00:37:29,840 Speaker 1: that you would grow into it very quickly. Do you 686 00:37:29,840 --> 00:37:32,200 Speaker 1: agree with that? Yeah, I think that could be right. 687 00:37:32,239 --> 00:37:36,799 Speaker 1: I mean the FED has still not unless they're they've 688 00:37:36,840 --> 00:37:39,560 Speaker 1: actually made a decision. They're keeping it under wraps, but 689 00:37:39,640 --> 00:37:43,279 Speaker 1: I think they still have not come close to deciding 690 00:37:43,360 --> 00:37:47,080 Speaker 1: how large the balance sheet they want to wind up with. 691 00:37:47,360 --> 00:37:51,120 Speaker 1: You may recalled Ben Burnank blogged the other day for 692 00:37:51,280 --> 00:37:54,520 Speaker 1: the other week about you know, a pretty big balance 693 00:37:54,520 --> 00:37:57,840 Speaker 1: sheet at the end, much bigger than it was before 694 00:37:58,040 --> 00:38:03,000 Speaker 1: Lehman Brothers crashed. So so yes, the the draw down 695 00:38:03,160 --> 00:38:06,320 Speaker 1: may not be that huge. We're still probably talking about 696 00:38:06,840 --> 00:38:10,319 Speaker 1: a couple of trillion, but this is a very big 697 00:38:10,360 --> 00:38:14,600 Speaker 1: market and it will happen slowly, not rapidly. Well, Brennard 698 00:38:14,680 --> 00:38:17,799 Speaker 1: saying that yesterday at Harvard near term risks to United 699 00:38:17,840 --> 00:38:20,279 Speaker 1: States who have brought appear to have diminished full what 700 00:38:20,320 --> 00:38:22,960 Speaker 1: we're seeing here in the US into the global context 701 00:38:23,040 --> 00:38:25,440 Speaker 1: for us. If you would, Professor the blinder, how much 702 00:38:25,680 --> 00:38:27,520 Speaker 1: is this FED paying attention to what's going on overseas 703 00:38:27,560 --> 00:38:32,440 Speaker 1: at this point? Well, they always pay attention, but frankly, 704 00:38:32,560 --> 00:38:38,239 Speaker 1: we elite UH usually exaggerate how important the rest of 705 00:38:38,280 --> 00:38:41,839 Speaker 1: the world is. To the Federal reserves decisions. I mean 706 00:38:41,840 --> 00:38:44,960 Speaker 1: it does. If it's a big deal coming from abroad, 707 00:38:45,040 --> 00:38:49,200 Speaker 1: then of course it's a consideration in the Fed's policy. 708 00:38:49,280 --> 00:38:51,960 Speaker 1: But things are happening in other countries all the time 709 00:38:52,040 --> 00:38:55,600 Speaker 1: just as they are here, and for the most part, 710 00:38:55,680 --> 00:38:59,200 Speaker 1: their impact on the US economy and therefore on what 711 00:38:59,239 --> 00:39:02,760 Speaker 1: the FED wants to with monetary policy is quite small. 712 00:39:03,239 --> 00:39:09,200 Speaker 1: So I don't think there's anything right now that's a big, 713 00:39:09,239 --> 00:39:13,440 Speaker 1: big deal on the friends on the FEDS radar screen. 714 00:39:13,480 --> 00:39:15,799 Speaker 1: When we get closer to the date, they're gonna be 715 00:39:15,880 --> 00:39:19,080 Speaker 1: watching the French election the way they were watching the 716 00:39:19,120 --> 00:39:22,680 Speaker 1: Brexit vote. And the Brexit vote turned out to be 717 00:39:22,719 --> 00:39:25,680 Speaker 1: no big deal for the FIT, a very big deal 718 00:39:25,719 --> 00:39:28,040 Speaker 1: for England, but no big deal for the FITS. Uh. 719 00:39:28,160 --> 00:39:31,760 Speaker 1: Something like that could easily happen again with France. For example, 720 00:39:32,320 --> 00:39:35,200 Speaker 1: if if Janet Yellen were here, she would probably be 721 00:39:35,280 --> 00:39:41,920 Speaker 1: boxing our ears. She would be saying and this, and 722 00:39:41,960 --> 00:39:44,240 Speaker 1: I would include you ll that you guys are focusing 723 00:39:44,280 --> 00:39:46,400 Speaker 1: on when you're gonna we're gonna raise rates, and we 724 00:39:46,400 --> 00:39:48,799 Speaker 1: should be focusing on when we're gonna stop what the 725 00:39:48,880 --> 00:39:51,239 Speaker 1: terminal rate is. Do you think the idea that you 726 00:39:51,239 --> 00:39:53,400 Speaker 1: know they want to go in March. Uh, and the 727 00:39:53,480 --> 00:39:56,959 Speaker 1: level of economic activity we have seen indicates any real 728 00:39:57,600 --> 00:40:03,080 Speaker 1: steeper trajectory or higher terminal rate, higher neutral rate, or 729 00:40:03,160 --> 00:40:05,760 Speaker 1: is it just a question of this is the time 730 00:40:05,800 --> 00:40:07,920 Speaker 1: that's available for them to act. I think it's more 731 00:40:07,960 --> 00:40:11,799 Speaker 1: a steeper trajectory than a higher neutral rate. I don't 732 00:40:11,800 --> 00:40:15,400 Speaker 1: know if defendn't seen anything in recent months suggesting that 733 00:40:15,440 --> 00:40:17,759 Speaker 1: the neutral rate is higher than they thought two months ago. 734 00:40:17,880 --> 00:40:19,400 Speaker 1: I'm not aware of it, and I don't know what 735 00:40:20,560 --> 00:40:23,360 Speaker 1: it would be. So I don't think the so called 736 00:40:23,480 --> 00:40:25,520 Speaker 1: terminal rate we don't want to call it, has moved 737 00:40:25,600 --> 00:40:28,960 Speaker 1: very much. But I think the speed, the likely speed, 738 00:40:29,680 --> 00:40:33,840 Speaker 1: has uh change because of the strength of the economy, 739 00:40:34,160 --> 00:40:37,000 Speaker 1: and as I said before, because of the prospects for 740 00:40:37,080 --> 00:40:40,000 Speaker 1: fiscal stimulus. Look, we went through something like this in 741 00:40:40,040 --> 00:40:44,520 Speaker 1: a grand, grand scale with Reagan and Vulker. You guys 742 00:40:44,600 --> 00:40:50,000 Speaker 1: may remember that couples you know, young people don't, but 743 00:40:50,400 --> 00:40:53,320 Speaker 1: a serious collide. That was a really serious collision with 744 00:40:53,560 --> 00:40:56,520 Speaker 1: monetary and fiscal policy. I think we're looking at a 745 00:40:56,600 --> 00:40:59,280 Speaker 1: smaller scale version of that, Okay, but within the model 746 00:40:59,320 --> 00:41:02,560 Speaker 1: that's in blind your Bamba blinder, in your classic textbook. 747 00:41:03,120 --> 00:41:07,080 Speaker 1: Where we are right now? Is that I s l 748 00:41:07,280 --> 00:41:14,080 Speaker 1: M aggregate supplied demand Euclidean model. Is that in place 749 00:41:14,239 --> 00:41:19,640 Speaker 1: right now? Or are you guys flying blind? Theoretically? I 750 00:41:19,680 --> 00:41:24,120 Speaker 1: think frankly that model has done decently. I think it's 751 00:41:24,160 --> 00:41:27,680 Speaker 1: done least well on inflation. I think according to that, 752 00:41:28,719 --> 00:41:31,920 Speaker 1: if I may call a textbook model, we should probably 753 00:41:31,960 --> 00:41:35,239 Speaker 1: be looking at higher inflation rates now, not super high, 754 00:41:35,239 --> 00:41:39,520 Speaker 1: but higher than they are now. But inflation is rising, 755 00:41:39,560 --> 00:41:44,640 Speaker 1: wage inflation is especially rising, and uh, you know, just 756 00:41:44,719 --> 00:41:49,279 Speaker 1: in general, I think as a at not as a 757 00:41:49,400 --> 00:41:53,200 Speaker 1: literal description, but as a framework for thinking about things. 758 00:41:53,719 --> 00:42:03,000 Speaker 1: I think that model has survived, uh this recovery modestly. Well, okay, Uh, professor, 759 00:42:03,120 --> 00:42:04,799 Speaker 1: thank you so much for being with us today. He 760 00:42:04,840 --> 00:42:07,440 Speaker 1: is a former vice chairman of the Photo Reserve System, 761 00:42:07,480 --> 00:42:10,360 Speaker 1: Alan Blinder of Princeton. And for those union need to 762 00:42:10,360 --> 00:42:13,080 Speaker 1: pick up a textbook, was it like eight other pages? Michael? 763 00:42:13,840 --> 00:42:16,840 Speaker 1: The four thousandth edition of It's sort of like the 764 00:42:16,920 --> 00:42:29,320 Speaker 1: hap Bible. Thanks for listening to the Bloomberg Surveillance podcast. 765 00:42:29,680 --> 00:42:34,800 Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever 766 00:42:34,920 --> 00:42:39,360 Speaker 1: podcast platform you prefer. I'm out on Twitter at Tom Keene. 767 00:42:39,440 --> 00:42:43,239 Speaker 1: David Gura is at David Gura. Before the podcast, you 768 00:42:43,239 --> 00:42:59,560 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio, brought you 769 00:42:59,600 --> 00:43:03,279 Speaker 1: by Bank of America Mary Lynch. Dedicated to bringing our 770 00:43:03,280 --> 00:43:06,880 Speaker 1: clients insights and solutions to meet the challenges of a 771 00:43:06,920 --> 00:43:11,800 Speaker 1: transforming world. That's the power of global connections. Mary Lynch, Pierce, 772 00:43:11,920 --> 00:43:15,759 Speaker 1: Fenner and Smith Incorporated, Member s I p C