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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: Today on the podcast, I have Stephen Roach, and I

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Speaker 1: can't begin to tell you what a master class in

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Speaker 1: both economics and investing this was. You should be familiar

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Speaker 1: with Roach. He was the chief economist at Morgan Stanley

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Speaker 1: for twenty one years. He was there for over three

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Speaker 1: decades before he moved on to becoming chairman of Morgan

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Speaker 1: Stanley Asia. This was just an tour to force discussion

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Speaker 1: on everything from the role of Federal Reserve to the

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Speaker 1: way we measure productivity, to how markets should impact you're

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Speaker 1: thinking about everything from economics to valuation and investing. Uh. Absolutely, Uh,

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Speaker 1: I can't say enough. I'm gushing. I expect you're going

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Speaker 1: to find this to be just uh ninety minutes that

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Speaker 1: are gonna fly by. So rather than have me continue

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Speaker 1: to babble, let me just jump right into it without

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Speaker 1: any further ado. Our conversation with Yale and Morgan Stanley's

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Speaker 1: Steven Roach. This is Masters in Business with Barry Ridholts

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Speaker 1: on Bloomberg Radio. My special guest today is Stephen Roach.

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Speaker 1: You probably know him from his years as the chief

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Speaker 1: economist for Morgan Stanley. A quick background on on Mr Roach,

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Speaker 1: Professor Roach, Dr Roach, Can I call you Dr Roach?

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Speaker 1: Calling anything you want? Barry? Alrighty and um. He began

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Speaker 1: his career as a research fellow at the Brookings Institute

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Speaker 1: before becoming a researcher for the Federal Reserve, where he

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Speaker 1: worked for seven years. Uh. Not only was he chief

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Speaker 1: economist at Morgan Stanley, he eventually rose to the title

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Speaker 1: of Chairman Morgan Stanley Asia, where he was for five years.

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Speaker 1: He's written a number of books, Unbalanced, Codependency of America

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Speaker 1: and China, as well as The Next Asia, Opportunities and

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Speaker 1: Challenges for a New Globalization. He is presently a senior

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Speaker 1: lecturer at the Yale School of Management and a Senior

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Speaker 1: fellow at Yale's Jackson Institute for Global Affairs. Stephen Roach,

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Speaker 1: Welcome to Bloomberg. Pleasure to be so. I was excited

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Speaker 1: to talk to you for so many reasons. Your your

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Speaker 1: background is tremendous, and you were at Morgan Stanley for

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Speaker 1: thirty years, including a huge swath of that as the

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Speaker 1: chief economist, and you worked with a number of legendary

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Speaker 1: people before becoming a legend yourself. You worked with Byron

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Speaker 1: Ween as well as Barton Biggs. What was it like

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Speaker 1: during that era, Actually, Barry, you know, those are the

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Speaker 1: as far as I'm concerned, that was the golden age

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Speaker 1: of Wall Street macro research. Uh. We really had an

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Speaker 1: extraordinary period, not just in the economy and in the markets,

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Speaker 1: but in building UM. Morgan Stanley I think into the

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Speaker 1: pre eminent leader in um sort of macro analysis of

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Speaker 1: markets and economies, and Byron Barton and I sort of

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Speaker 1: spearheaded that they did it from the market strategy point

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Speaker 1: of view, um, I did it from the economics point

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Speaker 1: of view. Barton of course, straddled both the market and

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Speaker 1: the economic realm because he always had some really uh

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Speaker 1: uh you know, quite penetrating and deep insights into the

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Speaker 1: macro underpinnings of the markets that he was following. And um,

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Speaker 1: you know, and Byron had his own knack of looking

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Speaker 1: at the market through the lens of his out of

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Speaker 1: consensus ten surprises, and and and we we all worked

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Speaker 1: very very closely together. We traveled the world together. We

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Speaker 1: provoked each other, we debated each other. Um. Every once

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Speaker 1: in a while, we even agreed with each other. Uh,

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Speaker 1: but most of all we had fun. Uh. It was

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Speaker 1: an extraordinary period. The bulk of this period was the

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Speaker 1: nineteen eighties and nineteen nineties. It was a huge boom

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Speaker 1: going on both in the bond market and the stock market.

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Speaker 1: How does that era of prosperity impact the growth of

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Speaker 1: a firm, a little unknown firm like Morgan Stanley. Well,

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Speaker 1: you know, Morgan Stanley was historically, you know, mainly an

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Speaker 1: investment banking firm that you know, in the nineteen seventies

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Speaker 1: made a commitment to really uh go into a broad

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Speaker 1: based institutional origination and distribution business, adding equities, um, then

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Speaker 1: when I came in the early eighties, adding government securities,

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Speaker 1: becoming a primary dealer, and then really starting to build

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Speaker 1: out a uh a full blown a fixed income uh business.

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Speaker 1: And so Morgan Stanley wanted to ride the wave of

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Speaker 1: the institutionalization and the internationalization of the global securities business.

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Speaker 1: And really, I think was one of the first firms

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Speaker 1: to successfully transition transform itself from a narrow, pre eminent

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Speaker 1: investment bank into a broad based international securities firm. So,

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Speaker 1: given how everything has become so balkanized, you have boutiques rising,

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Speaker 1: you have hedge funds and private equity and venture capital,

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Speaker 1: would it be possible in the modern era for that

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Speaker 1: same story to take place. Could another Morgan Stanley rise

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Speaker 1: or is that just a bygone era and we're not

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Speaker 1: going to see that sort of huge conglomerate coming to

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Speaker 1: the fore again. It's hard to say. I mean, you know,

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Speaker 1: the environment has changed from a macroeconomic perspective. I mean,

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Speaker 1: back in the late seventies early eighties, when this whole

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Speaker 1: magic began, you know, we had double digit inflation, double

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Speaker 1: digit interest rates, and and once we put policies in

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Speaker 1: place to address that, then you know, we we began

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Speaker 1: a you know, extraordinary twenty five year ballmarket with interest

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Speaker 1: rates going one way. That journey is complete, and now

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Speaker 1: you know, there's a big debate as to whether or not,

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Speaker 1: you know, it's gonna go the other way. I'm suspicious

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Speaker 1: of that. But to to get that kind of break

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Speaker 1: from the markets, and then to get the same type

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Speaker 1: of break from the globalization of of of cross border

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Speaker 1: capital flows and the development of a whole new complex

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Speaker 1: of of products that are addressed to uh uh, to

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Speaker 1: deal with these twin forces of disinflation and globalization, I

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Speaker 1: don't think you can recapture that. But that doesn't mean

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Speaker 1: some other combination. Couldn't UH, you know, come up and

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Speaker 1: and and offer a different business model that UM is

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Speaker 1: potentially just as attractive as the one that Morgan Stanley

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Speaker 1: presented in our early nine You're listening to Masters in

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Speaker 1: Business on Bloomberg Radio. My special guest today Yale lecturer

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Speaker 1: and former Morgan Stanley chief economist Stephen Roach, and we

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Speaker 1: were just talking about UH, the f O m C

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Speaker 1: and the most recent UH end of zero interest rate

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Speaker 1: policy in the beginning of what some people have been

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Speaker 1: calling lift off. Let me let me ask a very

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Speaker 1: broad question. So unemployment since the crisis has been cut

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Speaker 1: in half. We were ten percent, were now more or

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Speaker 1: less at five percent. C p I is barely two.

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Speaker 1: So the question is what have the FED been waiting for? Well,

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Speaker 1: the Fed, I think harbor is the mistaken belief that

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Speaker 1: UM UH monetary policy, whether it's traditional using UM their

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Speaker 1: federal funds rate or non traditional using quantitative easing, holds

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Speaker 1: the key to economic recovery whole is the key to

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Speaker 1: controlling inflation, holds the key to controlling UH risk taking

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Speaker 1: and and and driving global economic activity. I think UM,

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Speaker 1: you know, a lot of those assumptions probably are close

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Speaker 1: to being right, but just as many, if not more,

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Speaker 1: of them are are really wrong. So let me push

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Speaker 1: back on you on that a little bit, because between

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Speaker 1: Ben Bernanke's The Courage to Act is his recent book

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Speaker 1: and the circuit he's been doing talking about it. One

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Speaker 1: of the things he has said is we didn't want

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Speaker 1: to be as aggressive as we were, but we had

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Speaker 1: no choice since Congress was paralyzed, there was an austerity movement,

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Speaker 1: and the traditional post recession Kinzie stimulus was not available.

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Speaker 1: Do you buy that or what do he's You know,

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Speaker 1: he's talking his book literally and figured figuratively. Yes, um.

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Speaker 1: And you know he has an uncanny knack for starting

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Speaker 1: history when it's most convenient for him to explain, um uh,

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Speaker 1: the efficacy of the Federal Reserves Rescue Act during the crisis.

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Speaker 1: What he fails to really own up to in Greenspan

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Speaker 1: is the same way is the critical role of FED

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Speaker 1: played in getting us into this mess. Um. I commend

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Speaker 1: Ben Bernanky for his heroic actions in the depth of

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Speaker 1: a crisis, but by advocating a monetary policy that was

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Speaker 1: extraordinarily easy um and the pre crisis years, by steadfastly

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Speaker 1: maintaining as an academic and then as a central banker

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Speaker 1: that monetary policy should play no role whatsoever in containing

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Speaker 1: or controlling asset or credit bubbles. I think he let

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Speaker 1: us down a path that almost blew up the system.

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Speaker 1: And so what I want from a central banker is

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Speaker 1: a much more disciplined approach to focusing on financial stability

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Speaker 1: rather than just targeting an inflation rate which never seems

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Speaker 1: to budget, which it's consistently below the FEDS expectations and

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Speaker 1: has been so for close to eight years now. So

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Speaker 1: you mentioned green Span. Let's let's talk about the central

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Speaker 1: banker formerly known as the Maestro. His reputation took a

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Speaker 1: giant hit following the crisis, deservedly so or not? Yeah,

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Speaker 1: absolutely so? I think, um again, he he was sort

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Speaker 1: of a uh, you know, had a one way view

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Speaker 1: of market disruptions. The so called green Span put whenever

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Speaker 1: the market's got into trouble, just you know, um, turn

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Speaker 1: on the fire hose and and inject more liquidity and

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Speaker 1: let it slash around and the system will take care

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Speaker 1: of itself. And that works brilliantly until one day it doesn't. Uh,

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Speaker 1: And that doesn't was when um, you know, there was

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Speaker 1: this catastrophic near collapse of the system in the fall

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Speaker 1: of sparked by Lehman Brothers. Green Span never believed that

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Speaker 1: we could have uh systemic risk coming from any bubble,

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Speaker 1: while it was a dot com bubble, whether it was

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Speaker 1: the housing bubble, whether it was a credit bubble. He

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Speaker 1: all believed that these were testaments to the oh, you know,

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Speaker 1: the brilliance of you know, the market based system, consistent

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Speaker 1: with his uh you know uh and rand libertarian view

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Speaker 1: of the world that markets always no best in central

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Speaker 1: banks should never interfere with the wisdom and brilliance of markets,

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Speaker 1: Which is sort of bizarre because I just want to

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Speaker 1: clarify something. So two thousand eight Lehman brother Long Term

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Speaker 1: Capital Management. Um. The fascinating thing about Greenspan is here's

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Speaker 1: a guy who who is proselytizing, let the market sorted

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Speaker 1: out hands for off limit the amount of regulation we had.

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Speaker 1: Yet every time there was a twitch, he was there

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Speaker 1: too intervene in the markets. It seems somewhat um hypocritical.

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Speaker 1: Well that I think hypocriticals putting it too kindly. I

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Speaker 1: think I think I was afraid you're gonna say that's

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Speaker 1: too strong in the world. No, I think I think that,

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Speaker 1: um what what the FED didn't And I don't want

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Speaker 1: to single out Alan Greenspan, because we had a system

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Speaker 1: Barry that would have created another Alan Greenspan, if if if,

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Speaker 1: if he wasn't around. We were struggling with economic growth

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Speaker 1: as a nation. Uh really beginning in the nineteen seventies.

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Speaker 1: Uh and um then we had you know, devastating high inflation.

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Speaker 1: Paul Provoker came in and and really broke the back

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Speaker 1: of that inflation. But you know, the economy was still

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Speaker 1: laboring under a lot of pressures, especially in its ability

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Speaker 1: to generate income for average American or middle class workers.

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Speaker 1: And so the Central Bank, under the guidance of Alan

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Speaker 1: Greenspan for eighteen and a half years, relied much more

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Speaker 1: on financial engineering to create asset bubbles to generate so

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Speaker 1: called extra purchasing power to grow the economy beyond the

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Speaker 1: fundamentals of the earnings that we were able to squeeze

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Speaker 1: out of hard work UM and productivity related pay increases.

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Speaker 1: And this disconnect between the UM, the underlying income generation

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Speaker 1: that comes from employment, and the income that could be

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Speaker 1: extracted from asset and credit bubbles let us down, I

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Speaker 1: think a very treacherous path and you know, I think

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Speaker 1: that's the the dilima that Janet Yelling faces today is

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Speaker 1: how to uh put the economy back on a sounder basis,

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Speaker 1: more supported by the fundamentals of wage on labor income

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Speaker 1: generation than by the excesses of asset appreciation. So so,

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Speaker 1: we had the dot com bubble in two thousand, we

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Speaker 1: had the housing and credit bubble in oh five, oh six,

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Speaker 1: we had a subsequent commodities boom and bust. Are we

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Speaker 1: in uh we at risk at another bubble now? Or

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Speaker 1: things on the right track? And part of that comes

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Speaker 1: from the slope to to and a half percent growth now?

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Speaker 1: I like, I think that um uh, there's there there's

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Speaker 1: risks that we're gonna end up with another type of

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Speaker 1: financial accident. Uh. We you know, we're still at a period,

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Speaker 1: historically unprecedented period of rock bottom interest rates. I mean,

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Speaker 1: you know, big deal. You know, the federal funds rights

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Speaker 1: now at basis points. But not only have we taken

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Speaker 1: interest rates to the so called zero bound, uh, and

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Speaker 1: not just in the US, but in you know, Europe,

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Speaker 1: uh and in Japan. But the balance sheets of central

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Speaker 1: banks are so swollen that there continues to be a

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Speaker 1: lot of excess liquidity slashing around the world, and that's

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Speaker 1: where the risk lies in terms of the next potential crisis.

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Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My

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Speaker 1: special guest today is Stephen Roach. He was the chief

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Speaker 1: economist at Morgan Stanley, where he toiled for more than

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Speaker 1: thirty years before becoming Amen of Morgan Stanley Asia. He

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Speaker 1: is currently a lecturer at Yale University. And earlier we

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Speaker 1: were talking about the impact of the FED and some

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Speaker 1: of the bigger mistakes that Alan Greenspan and other FED

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Speaker 1: members had made. Why is it, I'll start you out

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Speaker 1: with a big one. Why is it that the FED

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Speaker 1: specifically and most of the world's economists missed that big

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Speaker 1: crisis in O eight oh nine? How come no one

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Speaker 1: really saw it coming in advance? Well, I think, uh,

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Speaker 1: it's it's it's like an how come investors, you know,

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Speaker 1: don't see bear markets when when a trend is spectacularly

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Speaker 1: in favor of your position, whether it's an investor or

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Speaker 1: a policymaker, you know, you don't want to ever shall

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Speaker 1: be the one who shouts there's a fire in the room.

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Speaker 1: You overstay, You're welcome. The Federal Reserve uh, was was

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Speaker 1: steeped in the hubris of what it loudly proclaimed as

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Speaker 1: the Great Moderation. They had cracked the back of inflation.

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Speaker 1: They had gotten the economy to perform very well. Unemployment

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Speaker 1: was low, and sure, you know, asset markets were frothy

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Speaker 1: in their view, but this wasn't a big, big risk

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Speaker 1: after all of green Spain argued, we can't have a

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Speaker 1: nationwide housing bubble. We could have problems in Las Vegas

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Speaker 1: or Florida, but not for the country as a whole.

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Speaker 1: We can't have a dot com bubble, he argued earlier.

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Speaker 1: I mean, after all, these are new companies that are

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Speaker 1: gonna drive us to a new frontier on productivity. And

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Speaker 1: let's not be critical of some prime mortgages, he argued,

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Speaker 1: because that's providing housing finance to a swath of the

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Speaker 1: population that needed shelter. And so, you know, it went

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Speaker 1: on and on on. The music just kept playing. Uh

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Speaker 1: and um. Nobody wanted to be left holding the bag

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Speaker 1: until they realized suddenly that maybe it wasn't quite as

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Speaker 1: pretty as they thought, and it was too late by then. Bury.

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Speaker 1: Let me push back a little bit, because we know

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Speaker 1: that investors from a psychological standpoint, they have a vested

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Speaker 1: interest in bull markets continuing, and they always overstay their

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Speaker 1: welcome and they never want to believe that markets go

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Speaker 1: up and down. But the FED are supposed to be

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Speaker 1: the professional watchmen who are there for, amongst other things,

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Speaker 1: to look for these aberrations and to identify when policy

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Speaker 1: is too loose or too tighten is going to cause

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Speaker 1: a problem for the FED to behave Like any mom

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Speaker 1: and pop investor who makes bad decisions based on a

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Speaker 1: variety of behavioral eras, seems like they really weren't doing

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Speaker 1: what they were supposed to do. Well, you know, I

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Speaker 1: hate to uh uh disagree with you on that, but

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Speaker 1: but I think I think we ended up. Despite the

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Speaker 1: fact that we extol the virtues of the FED as

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Speaker 1: being politically independent, they're not politically independent. They're part of

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Speaker 1: the body polyp that wants to squeeze more growth out

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Speaker 1: of the system than the system can deliver on the

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Speaker 1: basis of fundamentals. And so you know, if you read

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Speaker 1: that alone, seems very reckless. Well, basically, it's like driving

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Speaker 1: a car that shouldn't go more than a hundred miles

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Speaker 1: an hour. At a hundred and fifty you're gonna run

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Speaker 1: into drug They were part of the Washington consensus that

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Speaker 1: really was disturbed by the lack of fundamentally supported economic growth.

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Speaker 1: So if a central bank could deliver growth beyond the

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Speaker 1: fundamentals by excess liquidity, low interest rates, asset and credit bubbles,

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Speaker 1: who who who was the Congress to be critical of that?

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Speaker 1: And Greenspan ultimately ended up, you know, in his UH memoirs,

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Speaker 1: writing towards the very end buried in the back UH

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Speaker 1: that he says, I regret to say that the political

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Speaker 1: independence of the FIT is not carved in stone, admitting that,

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Speaker 1: you know, he was very much a part of the

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Speaker 1: political process that guided and shaped UH Congress, the President

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Speaker 1: event UH and the so called tough minded independent central bank.

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Speaker 1: Because I look back on America's Central Bank, UM, and

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Speaker 1: I started my career there, as you indicated in the intro, UM,

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Speaker 1: I regret to say I only see one independent chairman,

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Speaker 1: and that was politically independent sharing that was Paul Vulkan.

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Speaker 1: None better. So the first rule of economics I learned

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Speaker 1: is there's no free lunch. Are you suggesting the FETE

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Speaker 1: policy for the better part of three or four decades

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Speaker 1: has been a free lunch policy. Well, yeah, I think

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Speaker 1: that's not a bad image. I mean, again, if you

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Speaker 1: have a central bank that at the first sign of

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Speaker 1: trouble in the market is going to uh flush the

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Speaker 1: system with liquidity, as the so called Greenspan put repeatedly did,

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Speaker 1: maybe it's not a free lunch, but it's certainly a

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Speaker 1: highly subsidized uh longstanding banquet meal. All right, So, in

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Speaker 1: our last minute of this segment, rather than me being

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Speaker 1: critical about the feed and economists, tell me what is

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Speaker 1: it that economists do right but don't get enough credit for? Well,

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Speaker 1: I I think economists are good uh at UM having

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Speaker 1: a disciplined analytical thought process to identify the tensions that

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Speaker 1: build in a system. That want to take a system

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Speaker 1: that moves away from UH stability or equilibrium into a

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Speaker 1: UM a place that needs a correction. And so when

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Speaker 1: I was doing it on Wall Street, I always focused

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Speaker 1: on these disequilibrium UH tensions and how they might be

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Speaker 1: resolved through a correction in the economy or policy. And

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Speaker 1: every once in a while I'd even wander, usually mistakenly,

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Speaker 1: into the realm of how they'd be corrected by markets.

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Speaker 1: You're listening to Masters in Business on Bloomberg Radio My

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Speaker 1: special guest today is Stephen Roach. He is a professor

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Speaker 1: at Yale UH former chief strategist, chief economist actually at

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Speaker 1: Morgan Stanley, where he worked for thirty years, former chairman

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Speaker 1: of Morgan Stanley a Asia. Let's talk a little bit

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Speaker 1: about Asia, because long ahead of the curve, you decided

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Speaker 1: that Asia was a place where global growth was going

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Speaker 1: to come from, and then essentially set up Morgan Stanley's

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Speaker 1: shop up there. How did that whole thing come about, Well, Barry,

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Speaker 1: I was running Morgan Stanley's Global economics team UM beginning

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Speaker 1: in the early nineteen nineties, and UM we had a

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Speaker 1: great team. Actually, we were ranked the number one global

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Speaker 1: team by II Institutional Investor. And then along came the

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Speaker 1: Asian Financial crisis, and our forecast was in shambles, the

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Speaker 1: number one when it ranked team. We had the worst

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Speaker 1: forecast of anybody on Wall Street. So this was a

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Speaker 1: great source of personal humiliation to me. So I had

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Speaker 1: been to China, you know, a few times. I had

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Speaker 1: a hunch that China might hold the key to the

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Speaker 1: endgame of this crisis. And right around the middle of

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Speaker 1: ninety seven, when the Taibot was devalued, I started going

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Speaker 1: to China once every other month to figure out if

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Speaker 1: China would be the next shoe to fall as many believe,

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Speaker 1: and UM it quickly became evident to me that China

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Speaker 1: was cut from a very different cloth, and I started

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Speaker 1: doing a lot of research on China. Then I hired

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Speaker 1: a brilliant young economist, Andy Say, to analyze UM China.

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Speaker 1: But Andy was UH pretty green at that point and

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Speaker 1: and and really had a hard time UM coming up

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Speaker 1: with the types of answers that I thought would be

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Speaker 1: helpful to our team. So I I went off on

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Speaker 1: my own, got hooked on China uh and never turned

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Speaker 1: back and wrote I remember UM my first public article

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Speaker 1: in the Financial Times UM and UM uh probably the

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Speaker 1: spring of that. Not only would China put a floor

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Speaker 1: on the crisis, but it would emerge from the the

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Speaker 1: Asian financial crisis as the new leader of the region,

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Speaker 1: quickly supplanting Japan and you know more not a very

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Speaker 1: controversial old statement today now, but back that was a

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Speaker 1: radical shift, wasn't it. Well? It it got me sort

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Speaker 1: of excommunicated from Morgan Stanley's uh Japanese centric institutional client

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Speaker 1: based in Asia, and you know, my Chinese relationships that

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Speaker 1: I was developing. Were actually embarrassed by they they thought

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Speaker 1: that that I was going a little bit too far.

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Speaker 1: But you know, it always helps, you know, and whether

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Speaker 1: it's Wall Street or Hollywood, to be in the right

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Speaker 1: place at the right time. And China took off, uh,

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Speaker 1: right after the Asian financial crisis, hasn't looked back since

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Speaker 1: then until right about now when the growth rate is slowing.

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Speaker 1: This is causing a big debate. Japan has struggled. Uh.

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Speaker 1: Two and a half lost decades later, is is is

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Speaker 1: still going nowhere despite the hype and promise of the

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Speaker 1: so called abeomics, UH policy proposals and UH. You know,

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Speaker 1: I I've been deeply involved and written books and now

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Speaker 1: teach classes at Yale on on Asia on China on

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Speaker 1: the lessons of Japan ever since. And it's really been

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Speaker 1: a very rewarding part of my own personal journey. And

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Speaker 1: you lived in China for three plus years. What was

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Speaker 1: that experience like? Well, I was a chairman of Morgan

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Speaker 1: Stanley Asia. The office was in Hong Kong, UH, where

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Speaker 1: I had an apartment that I spent about one day

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Speaker 1: a week at I was on the road constantly. I

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Speaker 1: spent about half my time uh in the mainland, and

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Speaker 1: it enabled me to deepen my connections to officials, um,

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Speaker 1: business leaders, academics in China. I traveled all over the country.

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Speaker 1: On what cities did you go to in China? Well,

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Speaker 1: you know, what are the standouts? I mean, I know

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Speaker 1: you're gonna say Beijing, Well, yeah, idea. I did the

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Speaker 1: usuals Beijing, Shanghai, shen Jin, Dalian, uh, Nanjing. UM spent

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Speaker 1: a lot of time in Chongqing. Uh. You know the

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Speaker 1: biggest urban city in in in the world, Shian Uh

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Speaker 1: you name it, uh, changshaw uh Cheng. Do see the

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Speaker 1: pandas there? Uh and uh you know China is um

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Speaker 1: uh more than just Beijing uh and uh Shanghai. You know,

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Speaker 1: There's there's a lot that's going on outside of this

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Speaker 1: thriving coastal region of the country that you really have

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Speaker 1: to know. And and I was privileged to be able

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Speaker 1: to see a lot of that. Did you pick up

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Speaker 1: any Mandarin or can you get by on English? Everywhere

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Speaker 1: I I studied Mandarin. I had tutors um and um.

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Speaker 1: You know, a couple of things along the way told

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Speaker 1: me that UM, I had no reason to do that.

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Speaker 1: I tried out my Mandarin a few times and meetings

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Speaker 1: with senior officials that I was very uh close to,

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Speaker 1: and they would usually stop me and say, you know,

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Speaker 1: do us a favor. Uh, we understand you a lot

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Speaker 1: better stick. And then the final um uh uh embarrassment

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Speaker 1: came when I was invited actually to give a commencement

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Speaker 1: a speech at Nanjing University, one of China's leading universities,

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Speaker 1: and I knew enough not to try to do the

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Speaker 1: speech in Mandarin, but I wanted to close with a brilliant,

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Speaker 1: astute Chinese proverb and delivered in Mandarin. Uh. And I'm

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Speaker 1: pretty comfortable at public speaking uh. And I'd rehearsed this

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Speaker 1: line maybe seventy five times, and I'd had a tutor

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Speaker 1: to help me with the tones, and so it came

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Speaker 1: time to just read it. All I was gonna do

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Speaker 1: is read it. And I look up and I see

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Speaker 1: thousands of students in caps and gowns, and I forgot

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Speaker 1: everything I had learned, and so I did it, you know, fanatically,

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Speaker 1: and no one blinked. Into this day, I'm convinced that

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Speaker 1: no one knew I was even speaking in Chinese at

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Speaker 1: the time. So that's when I said, Okay, I'm done.

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Speaker 1: I don't. I don't no more Mandarin, and pretty much

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Speaker 1: you could get get by with English just about anywhere,

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Speaker 1: get by with it. But you know, um quite to

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Speaker 1: see if I have a regret, you know that that

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Speaker 1: is a regret of not learning mens and not being

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Speaker 1: able from time to time to you know, to to

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Speaker 1: speak comfortably in the language of my host country. I

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00:27:09,960 --> 00:27:13,000
Speaker 1: think that's that. That's something I always tell young people

430
00:27:13,000 --> 00:27:16,800
Speaker 1: when they're thinking about their own career choices. So a

431
00:27:16,880 --> 00:27:20,399
Speaker 1: question that I've always been fascinated by any time I

432
00:27:20,720 --> 00:27:24,800
Speaker 1: speak with someone who's lived overseas for a while. Uh,

433
00:27:24,840 --> 00:27:28,280
Speaker 1: what is it that we in the US misunderstand most

434
00:27:28,320 --> 00:27:32,200
Speaker 1: about China? And then vice versa? What are what misconceptions

435
00:27:32,200 --> 00:27:35,679
Speaker 1: of the Chinese have about Americans that seem to be

436
00:27:35,880 --> 00:27:40,120
Speaker 1: long lasting. Well, that's a great question, and um uh

437
00:27:40,320 --> 00:27:42,320
Speaker 1: you know, the first part of it, um is is

438
00:27:42,359 --> 00:27:44,480
Speaker 1: something that really hit me over the head when I

439
00:27:44,520 --> 00:27:49,200
Speaker 1: read a book actually in nineth publish by now retired

440
00:27:49,280 --> 00:27:53,080
Speaker 1: Yale professor and Jonathan Spence called The Chance Great Continent,

441
00:27:53,080 --> 00:27:57,600
Speaker 1: where he examined forensically, uh, Western views of China going

442
00:27:57,640 --> 00:28:04,000
Speaker 1: back to Marco Polos thirteenth century journals right through Nixon

443
00:28:04,119 --> 00:28:08,000
Speaker 1: and Kissinger, and the bottom line of of Spence's um

444
00:28:08,080 --> 00:28:11,920
Speaker 1: you know extraordinary work, was that the West, especially those

445
00:28:11,960 --> 00:28:15,200
Speaker 1: of us in the US, would always see China through

446
00:28:15,240 --> 00:28:18,080
Speaker 1: the same lens that we saw ourselves, rather than through

447
00:28:18,119 --> 00:28:22,960
Speaker 1: the experiences UH through from the Chinese perspective, example being

448
00:28:23,000 --> 00:28:28,119
Speaker 1: Marco Polo's journals UH in the thirteenth century. UH never

449
00:28:28,440 --> 00:28:32,080
Speaker 1: once mentioned that the Chinese women bound their feet and

450
00:28:32,560 --> 00:28:36,960
Speaker 1: referred constantly to the canals that we went through ancient

451
00:28:37,320 --> 00:28:39,720
Speaker 1: pay King, when in fact there were no canals in

452
00:28:39,760 --> 00:28:43,720
Speaker 1: ancient painting. The canals were in his native Venice, and

453
00:28:43,840 --> 00:28:49,240
Speaker 1: on and on through um more current historical figures. You know,

454
00:28:49,320 --> 00:28:52,959
Speaker 1: Nixon Uh sitting down with mout s tongue and saying, oh,

455
00:28:53,000 --> 00:28:55,360
Speaker 1: we're both from small towns. You know, You're from Changshaw

456
00:28:55,360 --> 00:28:57,520
Speaker 1: and from York Blinda. We have a lot in common

457
00:28:57,920 --> 00:29:01,200
Speaker 1: and maybe not, you know. And so when we look

458
00:29:01,240 --> 00:29:04,400
Speaker 1: today at China through the lens of some of our

459
00:29:04,480 --> 00:29:08,800
Speaker 1: dead issues are housing bubbles. You know, we're looking into

460
00:29:08,880 --> 00:29:10,880
Speaker 1: the thing that China has got the same types of

461
00:29:10,960 --> 00:29:13,960
Speaker 1: problems that we have, and they don't. They're there. It's

462
00:29:13,960 --> 00:29:18,520
Speaker 1: a very different um UH framework and set of issues

463
00:29:18,920 --> 00:29:21,000
Speaker 1: that they're grappling with in their system at a very

464
00:29:21,040 --> 00:29:24,240
Speaker 1: different stage of economic development. So let's talk about that

465
00:29:24,280 --> 00:29:27,640
Speaker 1: for a second. They have a billion seven people, many

466
00:29:27,720 --> 00:29:31,200
Speaker 1: of whom have a billion four billion, four many of

467
00:29:31,240 --> 00:29:36,160
Speaker 1: whom are coming from a very a grarian lifestyle, small towns,

468
00:29:36,560 --> 00:29:44,160
Speaker 1: farming villages, moving all these people to a industrialized um economy,

469
00:29:44,240 --> 00:29:46,720
Speaker 1: moving them into these cities. You know, sixty minutes did

470
00:29:46,760 --> 00:29:49,720
Speaker 1: that big piece on the ghost cities, But are those

471
00:29:49,880 --> 00:29:54,240
Speaker 1: that's an example preparation for changes coming forward. That's a

472
00:29:54,240 --> 00:29:57,040
Speaker 1: complete example of of what I just said. We look

473
00:29:57,200 --> 00:30:03,280
Speaker 1: at unoccupied housing a a bubble waiting to burst. The

474
00:30:03,360 --> 00:30:06,320
Speaker 1: first ghost city that I saw in China was in

475
00:30:06,360 --> 00:30:08,560
Speaker 1: the second half of the nineteen nineties at place called

476
00:30:08,600 --> 00:30:12,200
Speaker 1: Shanghai Pudong, was the largest urban development in the history

477
00:30:12,240 --> 00:30:15,840
Speaker 1: of the world at the time. It's now fully occupied

478
00:30:15,880 --> 00:30:18,959
Speaker 1: by five and a half million people China. That's like

479
00:30:19,000 --> 00:30:23,479
Speaker 1: a Manhattan, practically almost built. China moves between fifteen and

480
00:30:23,480 --> 00:30:27,520
Speaker 1: twenty million people a year from the countryside to the city.

481
00:30:27,560 --> 00:30:30,440
Speaker 1: That's two New York cities a year. Uh. And so

482
00:30:30,600 --> 00:30:36,800
Speaker 1: they don't wait uh to to build shelter and infrastructure

483
00:30:37,480 --> 00:30:39,760
Speaker 1: for these people after they've arrived, which is the sort

484
00:30:39,760 --> 00:30:41,760
Speaker 1: of the model of the urbanization model of India, which

485
00:30:41,840 --> 00:30:45,160
Speaker 1: leads to urban squalor. But they build in anticipation of

486
00:30:45,200 --> 00:30:48,520
Speaker 1: and ensure they will make mistakes. They will build in

487
00:30:48,600 --> 00:30:52,520
Speaker 1: areas that ultimately will um uh not be as fully

488
00:30:52,520 --> 00:30:55,440
Speaker 1: occupied as they would like. But in large part their

489
00:30:55,640 --> 00:30:59,960
Speaker 1: high investment economy is built to anticipate the future sub

490
00:31:00,040 --> 00:31:03,440
Speaker 1: squent flow of rural urban migration, which is gonna be

491
00:31:03,640 --> 00:31:10,360
Speaker 1: you know, enormous. Continuing through, we've been speaking with Stephen Roach.

492
00:31:10,440 --> 00:31:13,400
Speaker 1: He is the former chief economist for Morgan Stanley, currently

493
00:31:13,440 --> 00:31:16,440
Speaker 1: a lecturer at Yale. If you would like to hear

494
00:31:16,880 --> 00:31:20,240
Speaker 1: or see more writings of of Professor Roach. Where can

495
00:31:20,280 --> 00:31:23,640
Speaker 1: people find uh your work other than Barnes and Noble

496
00:31:23,640 --> 00:31:27,720
Speaker 1: and Amazon. Well, I do write a regular um column

497
00:31:27,800 --> 00:31:32,320
Speaker 1: that's available on the Project Syndicate website monthly that has

498
00:31:32,360 --> 00:31:36,520
Speaker 1: distributed to um UH newspapers all over the world in

499
00:31:36,600 --> 00:31:39,000
Speaker 1: multiple languages. So you can check me out on the

500
00:31:39,000 --> 00:31:42,920
Speaker 1: Project Syndicate website as well as your your local book deal.

501
00:31:43,160 --> 00:31:45,960
Speaker 1: If you enjoyed this conversation, be sure and hang out

502
00:31:46,200 --> 00:31:48,640
Speaker 1: and check out our podcast extras, where the tape keeps

503
00:31:48,720 --> 00:31:52,320
Speaker 1: rolling and we continue discussing all these weighty matters. You

504
00:31:52,360 --> 00:31:56,600
Speaker 1: can check out my daily column on Bloomberg View dot com.

505
00:31:56,680 --> 00:31:59,960
Speaker 1: Follow me on Twitter at rid Haltz. I'm Barry rit

506
00:32:00,000 --> 00:32:03,600
Speaker 1: Else you've been listening to Masters in Business on Bloomberg Radio,

507
00:32:04,320 --> 00:32:06,840
Speaker 1: Welcome back to the podcast. Or for those of you

508
00:32:06,920 --> 00:32:09,880
Speaker 1: who haven't left or on treadmills and cars, thanks for

509
00:32:09,920 --> 00:32:13,120
Speaker 1: hanging around. Before I forget Stephen, let me thank you

510
00:32:13,160 --> 00:32:16,320
Speaker 1: for doing this. I really appreciate your time so far.

511
00:32:16,400 --> 00:32:19,120
Speaker 1: This has been absolutely fascinating and I know it's gonna

512
00:32:19,200 --> 00:32:24,640
Speaker 1: continue to be fast. Um a little bit. Hey, there's

513
00:32:24,680 --> 00:32:28,640
Speaker 1: nothing wrong wrong with a little hedge every now and then. Um,

514
00:32:28,680 --> 00:32:31,880
Speaker 1: but I'm pretty confident it's going to continue to be outstanding.

515
00:32:32,160 --> 00:32:34,760
Speaker 1: It's really depending on me not messing up you. I'm

516
00:32:34,760 --> 00:32:38,480
Speaker 1: confident in So we missed. There's so many questions I

517
00:32:38,520 --> 00:32:42,040
Speaker 1: wanted to get to and I didn't have a a

518
00:32:42,120 --> 00:32:44,920
Speaker 1: chance to. Let's talk a little bit about the economy

519
00:32:45,120 --> 00:32:49,160
Speaker 1: in general. What is the state of the labor market

520
00:32:49,240 --> 00:32:51,239
Speaker 1: in the United States? And I'm gonna tea that up

521
00:32:51,240 --> 00:32:55,000
Speaker 1: by saying unemployment at five point one percent depending on

522
00:32:55,040 --> 00:32:59,600
Speaker 1: whose numbers where you date, the data we've created some

523
00:32:59,640 --> 00:33:02,080
Speaker 1: way be me nine and eleven million new jobs since

524
00:33:02,080 --> 00:33:05,160
Speaker 1: the end of the Great Recession GDP at two two

525
00:33:05,200 --> 00:33:08,680
Speaker 1: and a half percent housing off it's lows. What's wrong

526
00:33:08,720 --> 00:33:13,480
Speaker 1: with the US economy? Well, yeah, I don't believe the

527
00:33:13,480 --> 00:33:18,600
Speaker 1: the official labor market statistics UM if well, if the

528
00:33:18,680 --> 00:33:25,920
Speaker 1: unemployment rate is actually as low as UM the the

529
00:33:26,000 --> 00:33:30,280
Speaker 1: official sort of five percent rating indications. Yeah, I believe

530
00:33:30,280 --> 00:33:32,640
Speaker 1: in supply demand there there should be some wage inflation

531
00:33:32,680 --> 00:33:36,480
Speaker 1: by now, um, and we've seen none zero And so

532
00:33:36,800 --> 00:33:42,800
Speaker 1: there's there's a lot of UM, suspicious trends in things like, uh,

533
00:33:42,840 --> 00:33:45,480
Speaker 1: the employment to population ratio, which is barely up off

534
00:33:45,480 --> 00:33:49,240
Speaker 1: the bottom, the labor force participation rate which is still

535
00:33:49,480 --> 00:33:53,520
Speaker 1: near that's been falling for all that's been falling um

536
00:33:54,000 --> 00:33:58,760
Speaker 1: uh dramatically uh since the crisis. And I don't think

537
00:33:58,800 --> 00:34:03,080
Speaker 1: that's an accident. A lot of serious academic work says that, oh,

538
00:34:03,160 --> 00:34:08,799
Speaker 1: this is just a coincidence that's occurred, UM, reflecting you know,

539
00:34:09,400 --> 00:34:13,680
Speaker 1: the demography of of aging workers who are now reaching

540
00:34:13,719 --> 00:34:16,360
Speaker 1: the point in their lives where they are just opting

541
00:34:16,360 --> 00:34:18,640
Speaker 1: out of labor force. I don't think these things happen

542
00:34:18,680 --> 00:34:22,800
Speaker 1: by coincidence sparked by a crisis. So I think the

543
00:34:23,360 --> 00:34:29,480
Speaker 1: long term job issues UM very structural in nature, meaning

544
00:34:29,480 --> 00:34:32,879
Speaker 1: when you say structural automation, globalization and things like that.

545
00:34:33,800 --> 00:34:37,440
Speaker 1: And and reflecting the fact that the demand, the demand

546
00:34:37,480 --> 00:34:42,279
Speaker 1: side of the system, especially consumer demand UM is on

547
00:34:42,400 --> 00:34:49,319
Speaker 1: a extraordinarily uh weak trajectory. So without demand UM and

548
00:34:49,320 --> 00:34:51,839
Speaker 1: and and the numbers are pretty clear. We've had UM

549
00:34:52,080 --> 00:34:57,160
Speaker 1: now uh seven and a half years of growth in

550
00:34:57,320 --> 00:35:01,839
Speaker 1: real consumer spending, which is seven to present the economy UM.

551
00:35:02,160 --> 00:35:04,919
Speaker 1: The the the annualized average adjusted for inflation is one

552
00:35:04,960 --> 00:35:08,960
Speaker 1: point four uh. And you know the pre crisis trend

553
00:35:09,360 --> 00:35:12,880
Speaker 1: is a number slightly north of three. And if you

554
00:35:12,960 --> 00:35:17,440
Speaker 1: back out automobiles, which are booming, it's significantly worse than that. Well,

555
00:35:18,520 --> 00:35:20,279
Speaker 1: this is a seven and a half year average, So

556
00:35:20,440 --> 00:35:22,440
Speaker 1: you know, I think I don't want to back anything

557
00:35:22,440 --> 00:35:23,799
Speaker 1: out of I just want to take the numbers. It

558
00:35:23,880 --> 00:35:28,480
Speaker 1: stands consumer demand is weak and so when people forecast

559
00:35:28,560 --> 00:35:32,520
Speaker 1: the future with an aim toward hiring or investing in

560
00:35:32,560 --> 00:35:35,440
Speaker 1: planted equipment, they look at the past as a guide

561
00:35:35,440 --> 00:35:37,920
Speaker 1: to where we're headed. Uh. And they're going, wait a second,

562
00:35:37,960 --> 00:35:40,759
Speaker 1: in a slow demand environment, why am I going to hire.

563
00:35:41,120 --> 00:35:46,719
Speaker 1: Why am I going to expand my productive facilities? And

564
00:35:46,840 --> 00:35:52,000
Speaker 1: uh so this, you know, this sluggish labor market is

565
00:35:52,160 --> 00:35:56,640
Speaker 1: very much a byproduct of the demand destruction that occurred,

566
00:35:56,640 --> 00:35:59,000
Speaker 1: and it is still with us in the aftermath of

567
00:35:59,000 --> 00:36:02,239
Speaker 1: this horrific crisis. So that goes back to something we

568
00:36:02,400 --> 00:36:06,680
Speaker 1: just barely touched upon during the broadcast portion, which is

569
00:36:06,800 --> 00:36:13,200
Speaker 1: the usual Keynesian stimulus that typically follows the recession was

570
00:36:13,239 --> 00:36:15,120
Speaker 1: pretty much absent. And I know I'm going to get

571
00:36:15,160 --> 00:36:19,000
Speaker 1: emails about the American Recovery Act, and it was eight

572
00:36:19,120 --> 00:36:22,040
Speaker 1: hundred million dollars, but really two thirds of that was

573
00:36:22,600 --> 00:36:27,600
Speaker 1: temporary tax cuts and temporary extension of unemployment policies. We

574
00:36:27,640 --> 00:36:32,279
Speaker 1: didn't really get the trillion dollar stimulus that that we've

575
00:36:32,320 --> 00:36:36,000
Speaker 1: seen in prior recessions. Is that a culprit in this

576
00:36:36,600 --> 00:36:40,440
Speaker 1: soft recovery. Well, it's a big debate, as you say,

577
00:36:40,480 --> 00:36:44,960
Speaker 1: and I think, um, it's it's appropriate to raise that question.

578
00:36:45,040 --> 00:36:49,440
Speaker 1: I think though that um it's it's it's really an

579
00:36:49,440 --> 00:36:52,160
Speaker 1: oversimplification to say that, you know, we had just done

580
00:36:52,800 --> 00:36:57,040
Speaker 1: you know what Sat Paul Krugman said, everything would be fine. Um,

581
00:36:57,120 --> 00:37:04,240
Speaker 1: we went through a Japanese style balance sheet, recession where UM,

582
00:37:04,440 --> 00:37:09,759
Speaker 1: American homeowners, whether they were subprime or prime or not,

583
00:37:10,760 --> 00:37:14,520
Speaker 1: levered their biggest asset and used the proceeds of that

584
00:37:14,640 --> 00:37:19,800
Speaker 1: bet to fund both current consumption and saving. And they made,

585
00:37:20,320 --> 00:37:24,640
Speaker 1: in general, a huge mistake. And so when that asset

586
00:37:24,719 --> 00:37:28,640
Speaker 1: went underwater relative to the liabilities, they were stuck with

587
00:37:28,680 --> 00:37:31,160
Speaker 1: a huge hole in their balance sheet and they needed

588
00:37:31,160 --> 00:37:35,000
Speaker 1: to pay down debt and rebuild their saving and all

589
00:37:35,000 --> 00:37:39,359
Speaker 1: the infrastructure spending in the world would not have repaired. UH,

590
00:37:39,400 --> 00:37:42,680
Speaker 1: these bruised and battered balance sheets. We needed policies aimed

591
00:37:42,680 --> 00:37:46,160
Speaker 1: at taking the excess debt off the system, UH and

592
00:37:46,760 --> 00:37:51,160
Speaker 1: providing some long term incentives for individuals to save, and

593
00:37:51,200 --> 00:37:54,400
Speaker 1: instead we got the opposite, zero interest rates. There's no

594
00:37:54,480 --> 00:37:59,160
Speaker 1: incentive to save, and debt forgiveness is politically you know, incorrect. Um.

595
00:37:59,520 --> 00:38:04,800
Speaker 1: Uh argument. So so right now we have still seven

596
00:38:04,840 --> 00:38:07,640
Speaker 1: years later, we have a lot of homeowners still in

597
00:38:07,640 --> 00:38:11,080
Speaker 1: the process of deleveraging. That accounts for a big chunk

598
00:38:11,239 --> 00:38:15,000
Speaker 1: of the lack of consumer spending that you referred to.

599
00:38:15,880 --> 00:38:18,680
Speaker 1: I have two questions for you. The first is, and

600
00:38:18,760 --> 00:38:22,040
Speaker 1: you you alluded to, debt forgiveness isn't likely to work.

601
00:38:22,360 --> 00:38:25,880
Speaker 1: What could the government have done or or the Federal

602
00:38:25,880 --> 00:38:29,360
Speaker 1: Reserve had done to address that. And and the second

603
00:38:29,480 --> 00:38:32,640
Speaker 1: part of that is really about the new normal. So

604
00:38:32,640 --> 00:38:35,040
Speaker 1: so let's start with the first half. What could have

605
00:38:35,080 --> 00:38:37,400
Speaker 1: been done about all this massive debt held on the

606
00:38:37,440 --> 00:38:42,479
Speaker 1: books of of individuals and homeowners in particular, in order

607
00:38:42,520 --> 00:38:47,239
Speaker 1: to get them back on a normal footing. Well, two

608
00:38:47,280 --> 00:38:50,560
Speaker 1: things I would say, um uh that that are to

609
00:38:50,719 --> 00:38:55,760
Speaker 1: that point. Number one, UH, what we learned from Japan

610
00:38:56,040 --> 00:39:01,800
Speaker 1: is really relevant to um the US and summer um.

611
00:39:02,040 --> 00:39:07,560
Speaker 1: Japanese corporates were kept on artificial life support uh when

612
00:39:08,000 --> 00:39:09,839
Speaker 1: they should have been allowed to go under, and that

613
00:39:09,920 --> 00:39:13,960
Speaker 1: clogged the system. And so the zombies, the walking dead

614
00:39:14,880 --> 00:39:18,520
Speaker 1: ended up creating a massive congestion throughout the entire system

615
00:39:18,640 --> 00:39:21,640
Speaker 1: of viable companies as well as failed companies. We've had

616
00:39:21,640 --> 00:39:25,520
Speaker 1: a similar zombie congestion in the United States where the

617
00:39:25,560 --> 00:39:31,720
Speaker 1: homeowners were under water that access um uh, supply of

618
00:39:31,719 --> 00:39:35,960
Speaker 1: of homes and overhang of debt created a price instruction

619
00:39:36,040 --> 00:39:38,560
Speaker 1: for all the homeowners in general. So we had a

620
00:39:38,680 --> 00:39:42,120
Speaker 1: nationwide collapse in our housing markets sparked by one small

621
00:39:42,160 --> 00:39:45,960
Speaker 1: piece of it, the subprime piece. Secondly, I reject the

622
00:39:46,000 --> 00:39:49,400
Speaker 1: notion that we could not have dealt with with debt forgiveness.

623
00:39:49,400 --> 00:39:53,239
Speaker 1: We just needed a more reasonable approach where everybody's skin

624
00:39:53,360 --> 00:39:56,640
Speaker 1: was in the game. That the government provided some subsidy

625
00:39:56,719 --> 00:40:00,239
Speaker 1: to over extended Americans. The banks took right as they

626
00:40:00,239 --> 00:40:02,759
Speaker 1: didn't want to do that because we hurt their earnings. Uh.

627
00:40:02,800 --> 00:40:07,440
Speaker 1: And um that that individuals would accept some responsibility for

628
00:40:07,480 --> 00:40:11,320
Speaker 1: their own reckless borrowing by moving from non recourse to

629
00:40:11,400 --> 00:40:14,960
Speaker 1: recourse learning. So if you reset their mortgage at a

630
00:40:15,040 --> 00:40:18,200
Speaker 1: market clearing rate and they and they failed to make

631
00:40:18,239 --> 00:40:20,720
Speaker 1: good on that payment, they wouldn't just lose the house,

632
00:40:21,000 --> 00:40:23,520
Speaker 1: they'd lose all their other assets. So we needed a

633
00:40:24,000 --> 00:40:27,560
Speaker 1: you know, a political consensus to go about addressing this

634
00:40:27,680 --> 00:40:30,960
Speaker 1: excess dead problem. Of course, political consensus is an oxymoron

635
00:40:31,440 --> 00:40:34,040
Speaker 1: in a in a system that is so dysfunctional as

636
00:40:34,040 --> 00:40:37,160
Speaker 1: the great American democracy is. So so let me ask

637
00:40:37,440 --> 00:40:42,080
Speaker 1: an even broader question. Uh, We're a number of people

638
00:40:42,160 --> 00:40:45,520
Speaker 1: have described the new normal, but the counter to that

639
00:40:45,560 --> 00:40:50,120
Speaker 1: has been the Reinhardt and Role gelf book Eight Centuries

640
00:40:50,120 --> 00:40:53,279
Speaker 1: of Financial Folly. Were ran Heart and Rogelf right that

641
00:40:53,400 --> 00:40:56,920
Speaker 1: following a huge financial crisis, you have a decade of

642
00:40:57,120 --> 00:41:01,400
Speaker 1: subpar growth and subpar job creation and poor consumer spending.

643
00:41:01,440 --> 00:41:04,080
Speaker 1: This isn't a new normal. This is the old post

644
00:41:04,080 --> 00:41:07,960
Speaker 1: crisis environment. Yeah, I think I couldn't have said it better.

645
00:41:08,160 --> 00:41:12,040
Speaker 1: Very Um, there's nothing normal about what we're going through

646
00:41:12,160 --> 00:41:14,719
Speaker 1: right now. Normal means you know, relax, you know, this

647
00:41:14,800 --> 00:41:17,120
Speaker 1: is the way it's gonna be. And and it sort

648
00:41:17,120 --> 00:41:23,600
Speaker 1: of has a connotation of of of tranquility acceptance that, um,

649
00:41:23,680 --> 00:41:27,520
Speaker 1: this is the way things are supposed to go when

650
00:41:27,600 --> 00:41:31,160
Speaker 1: you nearly blow up the system and you then spend

651
00:41:32,400 --> 00:41:36,080
Speaker 1: seemingly an ordinate amount of time in repairing the damage

652
00:41:36,080 --> 00:41:38,680
Speaker 1: that was done when the system was being blown up.

653
00:41:39,239 --> 00:41:43,719
Speaker 1: That is much more consistent with the post crisis payback

654
00:41:44,480 --> 00:41:48,240
Speaker 1: of the work of Ryan Hart and Rogua Golf and others.

655
00:41:48,600 --> 00:41:52,880
Speaker 1: And you know, I give a Carmen, Ryan Arton, Knrogue

656
00:41:52,880 --> 00:41:54,640
Speaker 1: of a huge amount of credit for assembling it. But

657
00:41:54,680 --> 00:41:58,160
Speaker 1: by no means is this a unique theory that should

658
00:41:58,200 --> 00:42:00,640
Speaker 1: just be associated with their own work. There are plenty

659
00:42:00,680 --> 00:42:02,480
Speaker 1: of other people that have looked at this. One of

660
00:42:02,480 --> 00:42:05,799
Speaker 1: my favorites is actually in the mural economist or Richard

661
00:42:05,880 --> 00:42:09,760
Speaker 1: kop who looked at them the aftermath of the balance

662
00:42:09,760 --> 00:42:13,719
Speaker 1: sheet recession UH in Japan, and came up with a

663
00:42:13,840 --> 00:42:18,520
Speaker 1: very similar but you know, also very uh provocative analytical

664
00:42:18,560 --> 00:42:22,279
Speaker 1: construct of this debt rejection syndrome that falls in the

665
00:42:22,320 --> 00:42:27,520
Speaker 1: aftermath of this um UH debt induced crisis that Japan

666
00:42:27,600 --> 00:42:30,520
Speaker 1: went through. And I think it's very appropriate to analyze

667
00:42:30,840 --> 00:42:36,520
Speaker 1: the US and other debt um UH induced crises with

668
00:42:36,520 --> 00:42:40,200
Speaker 1: with that same type of approach. So some of the

669
00:42:40,360 --> 00:42:44,600
Speaker 1: arguments that I've read about why Japan could not have

670
00:42:45,200 --> 00:42:48,759
Speaker 1: done a full on, why they had no choices, their

671
00:42:48,880 --> 00:42:53,719
Speaker 1: concept of of kiritsu where all these companies are vertically integrated,

672
00:42:53,760 --> 00:42:56,680
Speaker 1: and the great example was Mitsubishi. So the Bank of

673
00:42:56,719 --> 00:42:59,520
Speaker 1: Mitsubishi is laden with all this real estate debt, but

674
00:42:59,560 --> 00:43:02,279
Speaker 1: then there is Mitsubishi realty on top of that, and

675
00:43:02,280 --> 00:43:06,960
Speaker 1: then Mitsubishi having manufacturing, and Mitsubishi Automobiles and Mitsubishi Air

676
00:43:07,040 --> 00:43:10,400
Speaker 1: and all these other companies, including the Bank of Mitsubishi

677
00:43:10,440 --> 00:43:14,160
Speaker 1: stacked the brokerage firm of Mitsubishi stopped on top of that.

678
00:43:14,719 --> 00:43:20,880
Speaker 1: Could Japan have done a full on um sweden UH

679
00:43:21,200 --> 00:43:25,239
Speaker 1: type debt reduction and move forward or had did their

680
00:43:25,280 --> 00:43:29,359
Speaker 1: structure paint them into a corner? Well, you know, this

681
00:43:29,440 --> 00:43:32,719
Speaker 1: is a great topic. Actually, I teach a course UH

682
00:43:32,760 --> 00:43:34,640
Speaker 1: I've been teaching for five years. We'll teach it again

683
00:43:34,680 --> 00:43:38,520
Speaker 1: next semester called the Lessons of Japan, and you're you're

684
00:43:38,560 --> 00:43:41,200
Speaker 1: more than welcome to again apply to Yale Barry and

685
00:43:41,200 --> 00:43:42,879
Speaker 1: we'll see you know, I can get you an accelerated

686
00:43:43,440 --> 00:43:47,080
Speaker 1: um UH process to examine your credentials and you can

687
00:43:47,120 --> 00:43:49,960
Speaker 1: take the course and send my nephew to order the class.

688
00:43:50,120 --> 00:43:55,080
Speaker 1: But but look, um, Japan had this interlocking Caratsu system.

689
00:43:55,120 --> 00:43:58,359
Speaker 1: You're entirely right, but they made serious policy mistakes as

690
00:43:58,400 --> 00:44:02,279
Speaker 1: well by leaving that they could offset the end appreciation

691
00:44:02,320 --> 00:44:06,600
Speaker 1: that came out of the Plaza cord with extraordinary monetary stimulus,

692
00:44:06,600 --> 00:44:11,120
Speaker 1: and that created the bubbles um property and UH and

693
00:44:11,200 --> 00:44:15,879
Speaker 1: equities that, when they burst, then brought this corrective system

694
00:44:16,000 --> 00:44:17,840
Speaker 1: UH to its knees. And it was not until the

695
00:44:17,960 --> 00:44:22,000
Speaker 1: late nineteen nineties when they first started to recapitalize the

696
00:44:22,080 --> 00:44:25,120
Speaker 1: banks and the Japanese corporations that were caught up in

697
00:44:25,160 --> 00:44:28,719
Speaker 1: this web, that the system began to stabilize. And they've

698
00:44:28,719 --> 00:44:31,200
Speaker 1: had a lot of problems since then as well. But

699
00:44:31,680 --> 00:44:35,080
Speaker 1: the structure that they used, which was very successful in

700
00:44:35,200 --> 00:44:40,880
Speaker 1: driving economic growth post World War two fifties sixties, seventies

701
00:44:40,880 --> 00:44:44,680
Speaker 1: and early eighties, UM became you know, serious part of

702
00:44:44,719 --> 00:44:49,239
Speaker 1: the problem. And and that's UM certainly a lesson they

703
00:44:49,320 --> 00:44:51,600
Speaker 1: ultimately had to face. So let's talk a little bit

704
00:44:51,640 --> 00:44:55,240
Speaker 1: about albonomics and what's going on in Japan today. The

705
00:44:55,239 --> 00:44:59,200
Speaker 1: the US has officially and that it's policy of zerp

706
00:44:59,680 --> 00:45:05,200
Speaker 1: qu is winding down. Meanwhile in Japan there a couple

707
00:45:05,239 --> 00:45:08,120
Speaker 1: of years out of phase with US, and they've ramped

708
00:45:08,200 --> 00:45:11,479
Speaker 1: up their QUI and they continue to have zero interest

709
00:45:11,560 --> 00:45:13,640
Speaker 1: rate policy. What what do you think is going to

710
00:45:13,719 --> 00:45:19,399
Speaker 1: happen uh in Japan with their economy and their monetary policy. Well,

711
00:45:19,560 --> 00:45:23,120
Speaker 1: just one slight correction. You say, you us KIWI is

712
00:45:23,120 --> 00:45:25,600
Speaker 1: winding down. I mean we're not. The feed is not

713
00:45:25,640 --> 00:45:28,600
Speaker 1: shrinking it's balance sheet. It's moved the federal funds rate

714
00:45:29,040 --> 00:45:32,120
Speaker 1: above zero by you know a' measily twenty five basis points.

715
00:45:32,120 --> 00:45:35,720
Speaker 1: But the balance sheet, Uh, the size of the assets

716
00:45:35,719 --> 00:45:37,440
Speaker 1: are still four and a half trillion and online. But

717
00:45:37,520 --> 00:45:39,719
Speaker 1: isn't that going to naturally run down? I think it's

718
00:45:39,719 --> 00:45:42,640
Speaker 1: a seven year maturity duration. App believe it when I

719
00:45:42,640 --> 00:45:45,080
Speaker 1: see it, all right, So I'm assuming when they say

720
00:45:45,120 --> 00:45:48,000
Speaker 1: we're just gonna let this run off that that they're

721
00:45:48,000 --> 00:45:51,799
Speaker 1: telling the truth you think they're going to contain. I'm suspicious.

722
00:45:52,360 --> 00:45:58,480
Speaker 1: I'm very suspicious. Let's anyway, your question was about Japan. Japan.

723
00:45:59,520 --> 00:46:02,160
Speaker 1: Uh anomics has three arrows. Recently he has added a

724
00:46:02,160 --> 00:46:05,280
Speaker 1: few more arrows because the first three weren't apparently strong

725
00:46:05,400 --> 00:46:08,879
Speaker 1: enough or sharp enough. And but but the third arrow

726
00:46:08,960 --> 00:46:10,680
Speaker 1: is the one that is ultimately going to hold the

727
00:46:10,760 --> 00:46:14,239
Speaker 1: key to Japan, and that's the structural reform required to

728
00:46:14,239 --> 00:46:17,680
Speaker 1: boost productivity. Japan is an aging population, and it's not

729
00:46:17,719 --> 00:46:21,160
Speaker 1: just getting older, it's now shrinking. Uh. And when when

730
00:46:21,160 --> 00:46:24,920
Speaker 1: your population, you're working age population shrinks, your your output

731
00:46:24,960 --> 00:46:27,640
Speaker 1: is going to go down. Unless you can compensate um

732
00:46:27,760 --> 00:46:30,680
Speaker 1: for that with higher productivity. You need the structural reforms

733
00:46:31,320 --> 00:46:34,960
Speaker 1: to do that. And you know, there's a whole agenda

734
00:46:35,040 --> 00:46:38,799
Speaker 1: of structural issues, especially in the labor market, the immigration

735
00:46:38,880 --> 00:46:42,359
Speaker 1: policies that have not yet been dealt with because it's

736
00:46:42,360 --> 00:46:46,840
Speaker 1: politically difficult to do in this still LDP one party

737
00:46:46,880 --> 00:46:51,920
Speaker 1: dominated system, and UM that puts more onus on the

738
00:46:51,920 --> 00:46:57,120
Speaker 1: fiscal and monetary arrows. The first two arrows UH to

739
00:46:57,280 --> 00:47:01,720
Speaker 1: offset the inability to really deliver on the structural reform front.

740
00:47:02,160 --> 00:47:05,440
Speaker 1: So I take it you're not especially bullish on Japan

741
00:47:05,480 --> 00:47:09,880
Speaker 1: going forward. I think in until you're unless Japan really

742
00:47:09,920 --> 00:47:13,680
Speaker 1: addresses this productivity issue. And by the way, productivity is

743
00:47:13,680 --> 00:47:16,840
Speaker 1: now weak um from most countries in the world, including

744
00:47:16,840 --> 00:47:20,040
Speaker 1: our own in the United States. UM that you can't

745
00:47:20,680 --> 00:47:24,879
Speaker 1: offset that through financial engineering sparked by you know, quantitative

746
00:47:24,960 --> 00:47:29,240
Speaker 1: easing or or zero interest rates. That's such an important

747
00:47:29,280 --> 00:47:31,959
Speaker 1: lesson and it's one that again we we just don't

748
00:47:32,000 --> 00:47:37,840
Speaker 1: have the discipline or the political stamina to to to address.

749
00:47:37,880 --> 00:47:39,480
Speaker 1: We like to think of that the japan Japanese is

750
00:47:39,520 --> 00:47:44,640
Speaker 1: being long term strategic thinkers. But by jumping on the

751
00:47:44,719 --> 00:47:48,360
Speaker 1: Kiwi bandwagon and uh and and really trying to do

752
00:47:48,480 --> 00:47:51,160
Speaker 1: much more in terms of Kiwi than than than even

753
00:47:51,239 --> 00:47:54,319
Speaker 1: we did. You know, that tells me that uh, they're

754
00:47:54,320 --> 00:47:59,080
Speaker 1: they're even betting more on these untested, unconventional policies, uh

755
00:47:59,080 --> 00:48:01,880
Speaker 1: than um the U S did. So in terms of

756
00:48:01,880 --> 00:48:06,240
Speaker 1: structural reform, they need to increase their birth rate, perhaps

757
00:48:06,280 --> 00:48:09,200
Speaker 1: bring in some young migrant workers who can who can

758
00:48:09,280 --> 00:48:15,200
Speaker 1: fill their factories. Is that actually gonna happen? Well, you know, uh,

759
00:48:15,960 --> 00:48:23,680
Speaker 1: longstandings assessment of the cultural um characteristics of a relatively

760
00:48:23,680 --> 00:48:28,719
Speaker 1: closed Japanese society would argue against that. And so you

761
00:48:28,760 --> 00:48:33,280
Speaker 1: know that that that is a disconcerting conclusion. But again,

762
00:48:33,320 --> 00:48:37,960
Speaker 1: when you're when you're working age population is shrinking, you

763
00:48:37,960 --> 00:48:42,240
Speaker 1: either need more workers I you know, um, more more women,

764
00:48:42,680 --> 00:48:46,080
Speaker 1: more younger people, or foreign workers, or you need to

765
00:48:46,080 --> 00:48:50,000
Speaker 1: squeeze more out of the current workforce through productivity. When

766
00:48:50,000 --> 00:48:54,919
Speaker 1: you rule those options out, uh, you know, the implications

767
00:48:55,000 --> 00:48:59,160
Speaker 1: become relatively dire. The game is over before you begin

768
00:48:59,280 --> 00:49:02,000
Speaker 1: under those second makes it really hard. So let's talk

769
00:49:02,000 --> 00:49:05,480
Speaker 1: about productivity a little bit. We One of the things

770
00:49:05,520 --> 00:49:08,640
Speaker 1: that we noticed in the nineties and and two thousands

771
00:49:08,680 --> 00:49:12,960
Speaker 1: is that all these fantastic productivity gains that we were

772
00:49:12,960 --> 00:49:16,160
Speaker 1: all experiencing in our day to day life, thanks primarily

773
00:49:16,640 --> 00:49:22,040
Speaker 1: to technology and telecommunications and software, weren't really showing up

774
00:49:22,520 --> 00:49:25,160
Speaker 1: in the data. In fact, the joke was, you know,

775
00:49:25,280 --> 00:49:29,480
Speaker 1: productivity gains are everywhere except the data. How much of

776
00:49:29,520 --> 00:49:33,279
Speaker 1: the productivity issue is a measurement problem? And how much

777
00:49:33,320 --> 00:49:36,800
Speaker 1: of this is really a function that we're as productive

778
00:49:36,840 --> 00:49:38,080
Speaker 1: as we're going to be and it's not going to

779
00:49:38,160 --> 00:49:41,120
Speaker 1: get any better. Look, it's a great issue, and actually

780
00:49:41,120 --> 00:49:42,680
Speaker 1: I'm proud to say that was one of the issues

781
00:49:42,719 --> 00:49:47,480
Speaker 1: that I really was involved in as a Wall Street economists. Um,

782
00:49:47,680 --> 00:49:50,080
Speaker 1: there are there are very few you know in Wall Street,

783
00:49:50,160 --> 00:49:52,879
Speaker 1: you know, the economics profession. It was always looking at

784
00:49:52,880 --> 00:49:54,800
Speaker 1: the next fed move, the next take in the market,

785
00:49:54,840 --> 00:49:57,800
Speaker 1: so there was very little appreciation for these deeper themes.

786
00:49:57,840 --> 00:50:02,120
Speaker 1: But I I worked continuously on this theme in the

787
00:50:02,200 --> 00:50:06,480
Speaker 1: late nineties and early two thousand's, and UM, you know,

788
00:50:06,680 --> 00:50:11,880
Speaker 1: I think that the productivity mystique, UM, as we shifted

789
00:50:11,920 --> 00:50:16,240
Speaker 1: more into the services based knowledge economy, became a really

790
00:50:16,719 --> 00:50:21,160
Speaker 1: important issue. And eventually, uh, we did move into a

791
00:50:21,239 --> 00:50:25,080
Speaker 1: period where the gains picked up, but now they seem

792
00:50:25,120 --> 00:50:29,080
Speaker 1: to have stalled out. Uh. And you have to ask yourself, um,

793
00:50:29,400 --> 00:50:33,600
Speaker 1: uh was that period from the mid nineties to the

794
00:50:33,719 --> 00:50:36,759
Speaker 1: mid two thousand's was that just an aberration? Did we

795
00:50:36,840 --> 00:50:40,080
Speaker 1: just moved from one technology platform to another. We're now

796
00:50:40,120 --> 00:50:42,600
Speaker 1: at this new platform and we're finding it just as

797
00:50:42,600 --> 00:50:46,279
Speaker 1: hard to deliver on the productivity front going forward as

798
00:50:46,280 --> 00:50:49,879
Speaker 1: we did. Um. You know in the two decades before that,

799
00:50:50,160 --> 00:50:53,200
Speaker 1: you mentioned measurement problems. I'll tell you a big measurement

800
00:50:53,239 --> 00:50:55,239
Speaker 1: problem that I continue to worry about, and that is

801
00:50:55,760 --> 00:51:01,120
Speaker 1: not that we're understating output, but um that we're really

802
00:51:01,480 --> 00:51:06,680
Speaker 1: um understating labor input courtesy of your all right, well,

803
00:51:06,680 --> 00:51:08,520
Speaker 1: think you think about it. You know, you have a

804
00:51:08,520 --> 00:51:11,360
Speaker 1: cell phone or a BlackBerry or whatever. You have a laptop,

805
00:51:11,960 --> 00:51:16,080
Speaker 1: and so you know you're you're probably online, maybe not

806
00:51:16,800 --> 00:51:20,520
Speaker 1: because you're like you're well arrested maybe seven okay, but

807
00:51:20,520 --> 00:51:25,040
Speaker 1: but your work and you're you're basically available all day long.

808
00:51:25,320 --> 00:51:27,960
Speaker 1: The U S. Bureau of Labor Statistics when they report

809
00:51:28,000 --> 00:51:31,840
Speaker 1: your work day, they're telling, um, uh, you know the

810
00:51:33,440 --> 00:51:38,200
Speaker 1: productivity calculus that you're working probably about forty hours maybe

811
00:51:38,200 --> 00:51:40,920
Speaker 1: thirty five hours a week. And that's certainly true of

812
00:51:40,960 --> 00:51:44,640
Speaker 1: financial services, an industry that I know a lot about, uh,

813
00:51:44,680 --> 00:51:46,520
Speaker 1: And nothing can be further from the truth. And what

814
00:51:46,560 --> 00:51:50,400
Speaker 1: that says is my understating work time. You're overstating the

815
00:51:50,440 --> 00:51:53,360
Speaker 1: amount of output per understated work time, and you're getting

816
00:51:53,400 --> 00:51:55,560
Speaker 1: credit for being more productive when in fact, all you're

817
00:51:55,560 --> 00:51:59,600
Speaker 1: doing is working longer. Productivity Berry is not about working longer.

818
00:52:00,000 --> 00:52:03,880
Speaker 1: It's about generating more output per unit of work time.

819
00:52:04,400 --> 00:52:06,960
Speaker 1: And I I've done a lot of work on this,

820
00:52:07,000 --> 00:52:08,480
Speaker 1: and I've looked at some of the data they go

821
00:52:08,520 --> 00:52:10,880
Speaker 1: into it and I think that's a big unanswered question

822
00:52:10,920 --> 00:52:15,279
Speaker 1: in seven technology laden era that we're in. So so

823
00:52:15,440 --> 00:52:19,839
Speaker 1: are we not as productive as we think? Or are

824
00:52:19,880 --> 00:52:23,839
Speaker 1: we just working so much more? United States is notorious

825
00:52:24,200 --> 00:52:27,239
Speaker 1: for having amongst the longest work week, and that's just

826
00:52:27,320 --> 00:52:30,600
Speaker 1: what's reported. Are we just working more hours and and

827
00:52:30,680 --> 00:52:33,720
Speaker 1: it looks like an increase in productivity where it's really

828
00:52:33,800 --> 00:52:36,440
Speaker 1: just more labor less leisure time. And I think that's

829
00:52:36,520 --> 00:52:41,040
Speaker 1: that's what we're doing. I think we are definitely working longer, uh,

830
00:52:41,080 --> 00:52:46,759
Speaker 1: and our productivity as a result is being overstated, not understated.

831
00:52:47,840 --> 00:52:50,360
Speaker 1: So let's talk a little bit about commodities, which we

832
00:52:50,400 --> 00:52:53,960
Speaker 1: really haven't discussed um And that naturally leads to a

833
00:52:53,960 --> 00:52:57,920
Speaker 1: conversation about the dollar. When when we look at the

834
00:52:58,000 --> 00:53:01,280
Speaker 1: collapse of commodity price as oil is cut in half,

835
00:53:01,440 --> 00:53:05,200
Speaker 1: iron ore, steel, old, the manufactured copper, to say the

836
00:53:05,280 --> 00:53:09,520
Speaker 1: least all seem to be under pressure. How much of

837
00:53:09,560 --> 00:53:12,839
Speaker 1: this is attributed to the strong dollar and how much

838
00:53:12,880 --> 00:53:18,360
Speaker 1: of this is attributed to falling global demand? Well, you know,

839
00:53:18,400 --> 00:53:21,680
Speaker 1: the the dollar obviously is um a part of that.

840
00:53:21,760 --> 00:53:23,880
Speaker 1: But I think, you know, the dollar maybe a symptom

841
00:53:24,000 --> 00:53:28,640
Speaker 1: rather than a real cause here, UM. I I look

842
00:53:28,719 --> 00:53:33,040
Speaker 1: at this commodity cycle, the supercycle on the upside and

843
00:53:33,040 --> 00:53:37,080
Speaker 1: the collapse on the downside, as something that is largely

844
00:53:37,120 --> 00:53:42,480
Speaker 1: made in China. Really, China UH has just ended a

845
00:53:42,520 --> 00:53:46,040
Speaker 1: thirty year period of the most spectacular UH growth at

846
00:53:46,239 --> 00:53:50,080
Speaker 1: a large development economy has ever experienced. This was a

847
00:53:50,120 --> 00:53:57,319
Speaker 1: manufacturing lad commodity intensive growth binge. China's UH. You know,

848
00:53:57,480 --> 00:54:01,960
Speaker 1: it's it's primary fuel sources coal, but it's demand for

849
00:54:02,000 --> 00:54:06,560
Speaker 1: oil account for the total growth in global oil demand

850
00:54:07,000 --> 00:54:11,240
Speaker 1: over the last ten years. It's a share of base metals.

851
00:54:11,280 --> 00:54:15,560
Speaker 1: China's the most metal intensive economy in in in the world.

852
00:54:16,280 --> 00:54:20,279
Speaker 1: And China is moving right now transitioning not just to

853
00:54:20,360 --> 00:54:25,680
Speaker 1: slower GDP growth, but to commodity lights services growth. So

854
00:54:25,719 --> 00:54:29,560
Speaker 1: in making the move from commodity intensive manufacturing to commodity

855
00:54:29,640 --> 00:54:33,400
Speaker 1: lights services and taking the GDP down from ten to

856
00:54:33,480 --> 00:54:36,880
Speaker 1: pick your number six or seven. UM, it's a double

857
00:54:36,960 --> 00:54:40,000
Speaker 1: lammy because of the production side. The supply side of

858
00:54:40,000 --> 00:54:44,160
Speaker 1: commodity markets is in denial over the shortfall of Chinese

859
00:54:44,160 --> 00:54:48,239
Speaker 1: demand and the shift to UM commodity led services. And

860
00:54:48,360 --> 00:54:51,560
Speaker 1: I think that's a huge factor that's really unappreciated. The

861
00:54:51,920 --> 00:54:54,520
Speaker 1: cliche I've heard repeatedly, and I've never been able to

862
00:54:54,640 --> 00:54:57,160
Speaker 1: verify the data. Is that in the past three years,

863
00:54:58,040 --> 00:55:00,560
Speaker 1: or in a three year period that ended not long ago,

864
00:55:00,960 --> 00:55:06,799
Speaker 1: China consumes more cements than the United States did last century. Yeah,

865
00:55:06,840 --> 00:55:09,840
Speaker 1: I don't know if that's exactly right, but but but

866
00:55:10,360 --> 00:55:15,440
Speaker 1: China's share of the global cement market is about that.

867
00:55:15,440 --> 00:55:19,279
Speaker 1: That's an extraordinary and and they've got, you know, just

868
00:55:19,760 --> 00:55:23,560
Speaker 1: years of decades to go in terms of cement intensive

869
00:55:23,600 --> 00:55:28,320
Speaker 1: infrastructure construction to um provide the shelter and the roads

870
00:55:28,360 --> 00:55:32,360
Speaker 1: and the bridges and the facilities required of the prospective

871
00:55:32,440 --> 00:55:35,160
Speaker 1: urbanization that is still out there. So let's talk a

872
00:55:35,160 --> 00:55:38,319
Speaker 1: little bit about emerging markets in general. But you just

873
00:55:38,400 --> 00:55:42,279
Speaker 1: said something that I have to follow up on. They

874
00:55:42,360 --> 00:55:47,239
Speaker 1: seem to make infrastructure building maintenance a huge priority. We

875
00:55:47,280 --> 00:55:50,120
Speaker 1: don't really seem to do that anymore. You notice, have

876
00:55:50,200 --> 00:55:53,800
Speaker 1: you been on the FDR. I have been screaming about

877
00:55:53,840 --> 00:55:57,920
Speaker 1: this for a decade. I personally believe that anytime someone

878
00:55:58,000 --> 00:56:00,520
Speaker 1: gets a flat tire or breaks an axle, the bill

879
00:56:00,560 --> 00:56:04,400
Speaker 1: should go to Grover Norquist. But that's just my personal bias.

880
00:56:05,120 --> 00:56:07,400
Speaker 1: Are we ever going to get on the same page,

881
00:56:07,480 --> 00:56:10,640
Speaker 1: as you know, we invented the idea of an interstate

882
00:56:10,680 --> 00:56:13,799
Speaker 1: highway system, mobile phones, the Internet. How is it that

883
00:56:13,840 --> 00:56:20,280
Speaker 1: we've developed these phenomenal economic platforms for growth United States

884
00:56:20,560 --> 00:56:24,040
Speaker 1: and then kind of let them fall into a period

885
00:56:24,120 --> 00:56:28,239
Speaker 1: of under investment, shall we say? Look, yeah, I'm I'm

886
00:56:28,239 --> 00:56:30,239
Speaker 1: an economist. You know, I actually have a PhD in

887
00:56:30,520 --> 00:56:34,239
Speaker 1: economics UM. And one of the things you're taught, you know,

888
00:56:34,320 --> 00:56:36,920
Speaker 1: way back even when I studied it, is if you

889
00:56:36,920 --> 00:56:41,439
Speaker 1: don't say you can't invest our national savings rate, which

890
00:56:41,480 --> 00:56:44,759
Speaker 1: is the sum total of savings of our businesses, our

891
00:56:44,840 --> 00:56:48,480
Speaker 1: households in the government sector, which is always indeficit. If

892
00:56:48,520 --> 00:56:51,799
Speaker 1: you strip out the depreciation UH that needs to be

893
00:56:51,880 --> 00:56:55,480
Speaker 1: funded through our growth savings to replace our warnut capital stock,

894
00:56:55,840 --> 00:56:59,880
Speaker 1: there basically isn't any barrier. Well, now we're about three percent,

895
00:57:00,120 --> 00:57:03,400
Speaker 1: which is, you know, well below our long term average,

896
00:57:03,480 --> 00:57:07,600
Speaker 1: which is closer to eight. And so when you don't save,

897
00:57:08,040 --> 00:57:10,920
Speaker 1: where do you get the wherewithal to invest in the

898
00:57:10,960 --> 00:57:15,279
Speaker 1: infrastructure UM and even invest in human capital, let alone

899
00:57:15,320 --> 00:57:18,280
Speaker 1: the new capacity we will need to compete in this

900
00:57:18,560 --> 00:57:23,760
Speaker 1: globalized world. And no one focuses on the saving imperatives

901
00:57:23,960 --> 00:57:26,160
Speaker 1: of the United States. But I would write about it

902
00:57:26,520 --> 00:57:28,920
Speaker 1: from my Wall Street days or even in my Yale days,

903
00:57:29,200 --> 00:57:32,000
Speaker 1: and I get attacked, you know in um, you know

904
00:57:32,080 --> 00:57:36,600
Speaker 1: by illustrious um uh luminary some of who have Nobel

905
00:57:36,640 --> 00:57:38,520
Speaker 1: prizes that we even have beards who write for the

906
00:57:38,520 --> 00:57:41,439
Speaker 1: New York Times, And they said, don't listen to him.

907
00:57:41,720 --> 00:57:44,960
Speaker 1: We should never save. You know, saving is um what

908
00:57:45,040 --> 00:57:47,920
Speaker 1: got us into trouble uh in the nineteen thirties. And

909
00:57:47,960 --> 00:57:50,040
Speaker 1: I beg to differ. I think if a nation that

910
00:57:50,080 --> 00:57:55,040
Speaker 1: doesn't save well ultimately squander the seed corner of economic growth,

911
00:57:55,040 --> 00:57:57,800
Speaker 1: maybe we don't need to boost our savings rate immediately

912
00:57:57,880 --> 00:58:00,400
Speaker 1: and sharply, but we need to think about a long

913
00:58:00,520 --> 00:58:03,680
Speaker 1: term strategy of having the wherewithal the fund what we

914
00:58:03,720 --> 00:58:07,439
Speaker 1: need for our competitive survival. So let's talk a little

915
00:58:07,480 --> 00:58:10,400
Speaker 1: bit about emerging markets. And by the way, those of

916
00:58:10,440 --> 00:58:14,080
Speaker 1: you listening should just rewind this conversation three minutes and

917
00:58:14,120 --> 00:58:19,320
Speaker 1: listen to that again, because that was an absolutely um

918
00:58:19,800 --> 00:58:24,280
Speaker 1: brilliant and sightful exposition on on what America is currently

919
00:58:24,320 --> 00:58:27,440
Speaker 1: doing wrong and why we have found ourselves in a

920
00:58:27,440 --> 00:58:31,720
Speaker 1: competitive disadvantage. But let's change gears and go to emerging markets.

921
00:58:32,000 --> 00:58:36,480
Speaker 1: We have a tendency to lump em into one group. Remember,

922
00:58:36,600 --> 00:58:41,080
Speaker 1: very famously Goldman Sacks came out with the brick acronym.

923
00:58:41,160 --> 00:58:45,040
Speaker 1: But really I heard they just closed the bricks, didn't

924
00:58:45,040 --> 00:58:49,560
Speaker 1: do it. But stop and think about Brazil, Russia, India, China.

925
00:58:49,800 --> 00:58:54,480
Speaker 1: You couldn't pick four more disparate and different entities that

926
00:58:54,560 --> 00:58:57,480
Speaker 1: don't have a whole lot in common. Do we make

927
00:58:57,520 --> 00:59:02,000
Speaker 1: a mistake lumping all of the emerging markets into one basket? Yeah? Absolutely.

928
00:59:02,040 --> 00:59:03,920
Speaker 1: I mean, you know, with all due respect for Goldman

929
00:59:03,920 --> 00:59:06,240
Speaker 1: SACS and I have great respect for them as a

930
00:59:06,360 --> 00:59:09,760
Speaker 1: very powerful financial institution, but bricks was hype. It was marketing.

931
00:59:10,280 --> 00:59:12,680
Speaker 1: You know, they came up with a clever acronym at

932
00:59:12,720 --> 00:59:17,560
Speaker 1: a time when you know, four large emerging economies were

933
00:59:18,200 --> 00:59:20,600
Speaker 1: uh seemingly on the cusp of a major breakthrough. If

934
00:59:20,640 --> 00:59:23,200
Speaker 1: you pick apart the bricks, the only real growth that came,

935
00:59:23,240 --> 00:59:26,520
Speaker 1: of course was in the Sea China. The b the

936
00:59:26,920 --> 00:59:30,040
Speaker 1: r UH and the I were pathetic in terms of

937
00:59:30,080 --> 00:59:34,920
Speaker 1: really delivering dynamic economic growth. We we do lump them

938
00:59:35,280 --> 00:59:38,640
Speaker 1: all together. You know, a couple of the bricks were

939
00:59:38,680 --> 00:59:43,120
Speaker 1: commodity producers. A couple of them like China and India,

940
00:59:43,760 --> 00:59:47,960
Speaker 1: where commodity consumers. Uh, there are different points in their

941
00:59:47,960 --> 00:59:51,600
Speaker 1: development journey. They have different political systems, they have different needs,

942
00:59:51,640 --> 00:59:56,680
Speaker 1: different strategies. UH. And UM. You know, maybe this shakeout

943
00:59:56,880 --> 01:00:00,000
Speaker 1: in e M that's been going on for several years

944
01:00:00,000 --> 01:00:04,840
Speaker 1: is about moving away from this single minded uh sort

945
01:00:04,840 --> 01:00:08,240
Speaker 1: of homogenization of emerging markets and getting back to the

946
01:00:08,240 --> 01:00:12,640
Speaker 1: fundamentals of really being able to understand individual economies and companies,

947
01:00:12,880 --> 01:00:16,000
Speaker 1: whether they're in emerging markets or developed markets, uh, and

948
01:00:16,080 --> 01:00:18,959
Speaker 1: what their opportunities are. So let me let me change

949
01:00:18,960 --> 01:00:21,440
Speaker 1: stuff up on you. Before I get to my my

950
01:00:21,520 --> 01:00:24,800
Speaker 1: favorite questions. I asked all my guests, I have to

951
01:00:24,840 --> 01:00:29,040
Speaker 1: bring something up that David Rosenberg, who was essentially your

952
01:00:29,040 --> 01:00:33,560
Speaker 1: counterpart at Morgan Stanley who is now back up in Canada,

953
01:00:34,160 --> 01:00:37,920
Speaker 1: said something is a political refugee. A lot of respect

954
01:00:37,960 --> 01:00:41,640
Speaker 1: for you. David had said one of the most profound

955
01:00:41,800 --> 01:00:45,840
Speaker 1: insights he developed as an economist was when he moved

956
01:00:46,040 --> 01:00:50,320
Speaker 1: from the cell side, where you're making forecasts and letting

957
01:00:50,320 --> 01:00:53,280
Speaker 1: the chips full where they may to the by side,

958
01:00:53,880 --> 01:00:59,040
Speaker 1: where the questions that come from clients and fund managers are, well,

959
01:00:59,160 --> 01:01:01,240
Speaker 1: how much conviction do you have in that forecast? And

960
01:01:01,280 --> 01:01:03,960
Speaker 1: if you're wrong what's your plan be? And that was

961
01:01:04,000 --> 01:01:07,440
Speaker 1: something that never came up. Uh from the south side.

962
01:01:08,240 --> 01:01:11,000
Speaker 1: Have you ever had a similar perspective looking at the

963
01:01:11,160 --> 01:01:14,160
Speaker 1: different rules economists. Yeah, I say, I think that's a

964
01:01:14,200 --> 01:01:17,120
Speaker 1: fair point. But but you know, I I was amazed.

965
01:01:17,120 --> 01:01:19,400
Speaker 1: I mean, I maybe I just David had a more

966
01:01:19,480 --> 01:01:22,240
Speaker 1: sheltered life when he was toiling in Maryland. But when

967
01:01:22,240 --> 01:01:24,840
Speaker 1: I first started going out on the road Morgan Stanley

968
01:01:24,880 --> 01:01:27,040
Speaker 1: in the nine, I would go into these conference rooms

969
01:01:27,040 --> 01:01:30,920
Speaker 1: of these legendary investors and you know, I'd give him

970
01:01:30,960 --> 01:01:34,880
Speaker 1: my baseline case. And one guy, actually um had a

971
01:01:35,040 --> 01:01:37,160
Speaker 1: sign in the middle of his conference room where we

972
01:01:37,480 --> 01:01:40,520
Speaker 1: listened to salth side presidents, get to your point within

973
01:01:40,640 --> 01:01:42,600
Speaker 1: five minutes. If you don't with this meeting is over.

974
01:01:42,880 --> 01:01:44,720
Speaker 1: So within five minutes I had to lay out my

975
01:01:44,760 --> 01:01:47,640
Speaker 1: base case. And then then you know, I would stop

976
01:01:47,720 --> 01:01:50,680
Speaker 1: and he and others would say, Okay, you know, good case.

977
01:01:51,760 --> 01:01:54,040
Speaker 1: How could you be wrong? And when I first heard

978
01:01:54,040 --> 01:01:56,160
Speaker 1: that question, I go, like, you gotta be kidding me.

979
01:01:56,160 --> 01:01:57,960
Speaker 1: You know, I can't be wrong. You know, I came

980
01:01:58,000 --> 01:01:59,720
Speaker 1: from the fit, and then I realized, you know, it's

981
01:01:59,720 --> 01:02:02,080
Speaker 1: because actually what you know, they wanted to test, they

982
01:02:02,120 --> 01:02:04,200
Speaker 1: want to test your conviction. And so I got that

983
01:02:04,880 --> 01:02:09,240
Speaker 1: um uh that that pressure repeatedly uh in my cell

984
01:02:09,320 --> 01:02:12,280
Speaker 1: side years on Wall Street. And I think it's a

985
01:02:12,280 --> 01:02:15,080
Speaker 1: great question. You've got you've you've got to you know,

986
01:02:15,160 --> 01:02:18,480
Speaker 1: own both sides of the debate. In fact, the most

987
01:02:18,520 --> 01:02:20,760
Speaker 1: successful course that I teach at Yale right now is

988
01:02:20,800 --> 01:02:24,040
Speaker 1: called the macro Debate, where I co teach it with

989
01:02:24,080 --> 01:02:27,680
Speaker 1: a you know, a theoretical economist from the Yale Econ

990
01:02:27,760 --> 01:02:30,840
Speaker 1: department who has never been in the real world. His

991
01:02:30,960 --> 01:02:34,200
Speaker 1: name Alex Sabinski. He's Russian, he's brilliant, he's a great

992
01:02:34,240 --> 01:02:37,720
Speaker 1: friend of mine. But he's the theorist. I'm the market practitioner,

993
01:02:38,080 --> 01:02:40,960
Speaker 1: and we debate everything. And and when I first hit

994
01:02:41,000 --> 01:02:42,680
Speaker 1: him with this idea, you know, we had a huge

995
01:02:42,720 --> 01:02:45,880
Speaker 1: fight in one of the Yale um uh sort of

996
01:02:45,920 --> 01:02:49,080
Speaker 1: a college dining rooms, because I challenged him on the

997
01:02:49,080 --> 01:02:51,880
Speaker 1: other side of his one of his theoretical models, and

998
01:02:51,920 --> 01:02:55,600
Speaker 1: he was, uh, just not used to being challenged and

999
01:02:55,800 --> 01:02:58,520
Speaker 1: thinking about the other side of the debate, and so

1000
01:02:59,040 --> 01:03:00,520
Speaker 1: you know, we had this big fight. A lot of

1001
01:03:00,560 --> 01:03:02,360
Speaker 1: students thought that, you know, it was cool to see this,

1002
01:03:02,800 --> 01:03:04,640
Speaker 1: you know, this new guy fighting with one of their

1003
01:03:04,920 --> 01:03:08,040
Speaker 1: theoretical giants, and so we turned it into a course

1004
01:03:08,160 --> 01:03:11,520
Speaker 1: in the university supported UM and we've taught this course

1005
01:03:11,680 --> 01:03:15,320
Speaker 1: UM now for five years and it is it's possibly

1006
01:03:15,360 --> 01:03:19,840
Speaker 1: the highest ranked undergraduate e concourse at Yale because we've

1007
01:03:19,880 --> 01:03:23,480
Speaker 1: taught the students that not you don't want to just

1008
01:03:23,800 --> 01:03:29,000
Speaker 1: UM go out with a stylized, theoretically driven view of macro.

1009
01:03:29,160 --> 01:03:31,800
Speaker 1: You've got to debate both sides of these burning issues.

1010
01:03:32,080 --> 01:03:34,440
Speaker 1: And we do that in the classroom UH, and we

1011
01:03:34,480 --> 01:03:36,800
Speaker 1: give them a lot of assignments and exams UH to

1012
01:03:36,960 --> 01:03:39,560
Speaker 1: test them and their ability and the tools they developed

1013
01:03:39,800 --> 01:03:43,680
Speaker 1: to understand this. And so I think that um uh

1014
01:03:43,960 --> 01:03:46,840
Speaker 1: IS has got to be an important feature of the

1015
01:03:46,840 --> 01:03:48,920
Speaker 1: Wall Street debate as well. It's got a flavor of

1016
01:03:48,960 --> 01:03:51,240
Speaker 1: mood court where you have to be able to argue

1017
01:03:51,400 --> 01:03:54,160
Speaker 1: both sides of the case because you really can't understand

1018
01:03:54,240 --> 01:03:59,200
Speaker 1: something unless you know your your counterparty's strengths and your

1019
01:03:59,200 --> 01:04:01,280
Speaker 1: own weaknesses. And and then you have to be you

1020
01:04:01,320 --> 01:04:02,880
Speaker 1: have to have enough hu million now that you know,

1021
01:04:02,920 --> 01:04:06,120
Speaker 1: you may have a brilliant idea or insight, but you

1022
01:04:06,160 --> 01:04:09,040
Speaker 1: know many times you're you're just gonna, you know, fall

1023
01:04:09,080 --> 01:04:11,240
Speaker 1: in your face and be proven dead wrong. If you

1024
01:04:11,280 --> 01:04:13,280
Speaker 1: don't have the framework and the knowledge of what's on

1025
01:04:13,280 --> 01:04:14,720
Speaker 1: the other side of it, you don't know how to

1026
01:04:14,720 --> 01:04:17,200
Speaker 1: pick yourself back up and and and and go back

1027
01:04:17,240 --> 01:04:21,120
Speaker 1: as a credible analyst, economist or strategist again. So so

1028
01:04:21,200 --> 01:04:23,760
Speaker 1: let's go back to your early days at both the

1029
01:04:23,760 --> 01:04:27,000
Speaker 1: FED and Brookings and Morgan Stanley, who were some of

1030
01:04:27,040 --> 01:04:32,640
Speaker 1: your early mentors. Well, um, you know, that's that's a

1031
01:04:32,680 --> 01:04:37,520
Speaker 1: good question. Is I look back on, uh, you know, mentorship.

1032
01:04:37,680 --> 01:04:41,080
Speaker 1: I mean, I certainly when I was at the FED, Um,

1033
01:04:41,680 --> 01:04:47,680
Speaker 1: I was was was intimidated and ultimately influenced by by

1034
01:04:47,680 --> 01:04:51,360
Speaker 1: two major figures. UM one Arthur Burns. He was the

1035
01:04:51,440 --> 01:04:54,760
Speaker 1: chairman of the FED UH in the nineties seventies, and

1036
01:04:54,960 --> 01:04:58,120
Speaker 1: um you know, God rest his soul, did a terrible

1037
01:04:58,200 --> 01:05:02,040
Speaker 1: job as a central banker and really failed to appreciate

1038
01:05:03,280 --> 01:05:07,480
Speaker 1: the role that monetary policy could play in fostering high inflation.

1039
01:05:07,560 --> 01:05:11,880
Speaker 1: So I learned a lot from that experience, which I

1040
01:05:11,880 --> 01:05:15,880
Speaker 1: subsequently would refer to as a politicization of of the FED.

1041
01:05:15,960 --> 01:05:18,000
Speaker 1: And I think there's some of that that is very

1042
01:05:18,080 --> 01:05:21,600
Speaker 1: much present, um uh, you know in the greenspan uh

1043
01:05:21,640 --> 01:05:24,280
Speaker 1: and and bernanke Aris and hopefully will be dealt with

1044
01:05:24,320 --> 01:05:30,960
Speaker 1: effectively by Janet Yellen, who I have enormous respect for. UM.

1045
01:05:31,000 --> 01:05:33,600
Speaker 1: I also learned a lot from from Paul Wolker, who

1046
01:05:33,640 --> 01:05:36,840
Speaker 1: basically came in and said, here's why Arthur Burns is wrong,

1047
01:05:36,920 --> 01:05:39,560
Speaker 1: and here's what it's going to take to ring inflation

1048
01:05:40,080 --> 01:05:43,480
Speaker 1: out of the system. That they were both very formative

1049
01:05:43,640 --> 01:05:47,840
Speaker 1: in my early experience when I went into Wall Street.

1050
01:05:47,880 --> 01:05:51,280
Speaker 1: If I look back on, you know, all the individuals

1051
01:05:51,280 --> 01:05:54,800
Speaker 1: that influenced me the most, UM, I'd have to say

1052
01:05:54,800 --> 01:05:58,800
Speaker 1: it was it was my my dear and sadly departed friend,

1053
01:05:58,960 --> 01:06:04,440
Speaker 1: Barton Biggs. Barton Um was not only I think a

1054
01:06:04,520 --> 01:06:08,440
Speaker 1: great investor, but he was able to marry his macro

1055
01:06:08,600 --> 01:06:12,400
Speaker 1: insights with his views on markets and and we were

1056
01:06:12,440 --> 01:06:15,120
Speaker 1: closely together. And he was tough. Um. You know, he

1057
01:06:15,160 --> 01:06:16,880
Speaker 1: was a gentle soul of many respects, but he was

1058
01:06:16,920 --> 01:06:22,400
Speaker 1: also intellectually rigorous and tough and always demanding that when

1059
01:06:22,440 --> 01:06:26,200
Speaker 1: I came out with some crazy theory on productivity or

1060
01:06:26,360 --> 01:06:31,640
Speaker 1: debt or China or whatever it was, that I market

1061
01:06:31,720 --> 01:06:34,800
Speaker 1: to market, try to understand what the market was discounting

1062
01:06:34,840 --> 01:06:37,600
Speaker 1: with respect to my trends, and then to be stronger

1063
01:06:37,680 --> 01:06:40,880
Speaker 1: weak and emphasizing my trend not on the basis of

1064
01:06:40,960 --> 01:06:44,720
Speaker 1: my quote brilliant unquote analysis, but on the basis of

1065
01:06:44,720 --> 01:06:47,280
Speaker 1: how far the market was willing to go in believing

1066
01:06:47,800 --> 01:06:52,320
Speaker 1: or disbelieving. And so he connected me as a macro

1067
01:06:52,560 --> 01:06:58,120
Speaker 1: thinker to the markets discounting mechanism. And that's not something

1068
01:06:58,120 --> 01:07:02,200
Speaker 1: that you learn uh in PhD program in UH in

1069
01:07:02,240 --> 01:07:06,120
Speaker 1: grad school. Something you learned really by by living and

1070
01:07:06,160 --> 01:07:10,160
Speaker 1: breathing the markets. And and Barton was absolutely superbic. Then

1071
01:07:10,920 --> 01:07:13,640
Speaker 1: you've you've been in the financial industry more or less

1072
01:07:13,680 --> 01:07:18,080
Speaker 1: for thirty almost forty years. What has changed for the

1073
01:07:18,120 --> 01:07:24,000
Speaker 1: better and for the worst since you began? Well, you know,

1074
01:07:24,080 --> 01:07:26,200
Speaker 1: we started out this conversation by and by saying I

1075
01:07:26,600 --> 01:07:28,080
Speaker 1: was just lucky to be in the right place at

1076
01:07:28,120 --> 01:07:30,600
Speaker 1: the right time. You know, it was the golden age

1077
01:07:31,360 --> 01:07:35,480
Speaker 1: of Wall Street research, especially at Morgan Stanley. We we

1078
01:07:35,600 --> 01:07:41,160
Speaker 1: could be very entrepreneurial in the way we developed research products.

1079
01:07:41,680 --> 01:07:45,640
Speaker 1: We really had a clean slate. And you know, thirty

1080
01:07:45,640 --> 01:07:48,840
Speaker 1: five forty years later, UH, there's a lot of people

1081
01:07:48,880 --> 01:07:55,440
Speaker 1: out there competing for um uh sort of airspace and time,

1082
01:07:55,520 --> 01:07:59,240
Speaker 1: and you know, you have these Internet enabled distribution systems

1083
01:07:59,760 --> 01:08:04,880
Speaker 1: push research out seven to everybody. I think the marketplace

1084
01:08:05,400 --> 01:08:11,320
Speaker 1: for ideas has become much more commoditized, and um, the

1085
01:08:11,640 --> 01:08:16,280
Speaker 1: perspective has shortened. There's you know, like I look at

1086
01:08:16,360 --> 01:08:18,920
Speaker 1: what happened, um, you know in the markets this week.

1087
01:08:18,960 --> 01:08:21,240
Speaker 1: I mean, you know, the only issue people cared about

1088
01:08:21,280 --> 01:08:24,240
Speaker 1: was whether the FED was going to finally and the

1089
01:08:24,400 --> 01:08:28,200
Speaker 1: zero interest rate regime and moved by twenty five basis points. UM.

1090
01:08:28,240 --> 01:08:32,120
Speaker 1: I think, um, uh you know, it's a very myopic

1091
01:08:32,320 --> 01:08:37,000
Speaker 1: view of the world. I think there's very little that's

1092
01:08:37,040 --> 01:08:41,439
Speaker 1: done right now in developing these deeper thematic insights. It's

1093
01:08:41,439 --> 01:08:46,439
Speaker 1: really gonna guide shape and reshape the investment climate, the

1094
01:08:46,479 --> 01:08:51,320
Speaker 1: economic climate, uh, and the policy regime over longer periods

1095
01:08:51,320 --> 01:08:54,160
Speaker 1: of time. So I think, um, you know, we were

1096
01:08:54,240 --> 01:08:56,920
Speaker 1: lucky to be able to focus on some of these

1097
01:08:56,920 --> 01:09:01,320
Speaker 1: long term themes and debate them, sometimes seemingly endlessly. Uh.

1098
01:09:01,320 --> 01:09:05,000
Speaker 1: And I think the the cell side is now drawn

1099
01:09:05,040 --> 01:09:10,280
Speaker 1: into a much more short term um uh time arizon

1100
01:09:10,960 --> 01:09:15,120
Speaker 1: that moves away from these um broader themes. I imagine

1101
01:09:15,160 --> 01:09:17,160
Speaker 1: Barton Biggs would have looked at this week and said

1102
01:09:17,280 --> 01:09:21,639
Speaker 1: FED fun futures are at probability of of a quarter

1103
01:09:21,640 --> 01:09:24,200
Speaker 1: point INCREASEY would have waved it off and said, this

1104
01:09:24,320 --> 01:09:26,439
Speaker 1: is already in the price, let's talk about what's going

1105
01:09:26,479 --> 01:09:29,720
Speaker 1: to happen in the future. I think that's absolutely right.

1106
01:09:29,920 --> 01:09:35,679
Speaker 1: Um uh. You know. Once Barton's greatest gift I think

1107
01:09:35,760 --> 01:09:38,760
Speaker 1: was this uncanny sense of knowing when the market was

1108
01:09:38,840 --> 01:09:43,080
Speaker 1: discounting a macro trend. And as soon as that uh

1109
01:09:43,240 --> 01:09:45,920
Speaker 1: he concluded that the trend was in the market, he

1110
01:09:45,960 --> 01:09:48,040
Speaker 1: wanted to move on to something else makes makes a

1111
01:09:48,040 --> 01:09:51,200
Speaker 1: whole lot of sense, and so he and and and Byron,

1112
01:09:51,280 --> 01:09:55,960
Speaker 1: to his credit, understood that through his um contrarian ten

1113
01:09:56,040 --> 01:10:00,720
Speaker 1: surprises approach. He also felt, um, I think have influenced

1114
01:10:00,800 --> 01:10:05,040
Speaker 1: by Barton, although Byron would never want to admit that publicly. Uh,

1115
01:10:05,080 --> 01:10:08,760
Speaker 1: that it was really important to understand what was in

1116
01:10:08,800 --> 01:10:12,000
Speaker 1: the market before you made um uh an out of

1117
01:10:12,000 --> 01:10:14,599
Speaker 1: consensus bet for the future. So Byron was a guest

1118
01:10:14,640 --> 01:10:16,400
Speaker 1: here a couple of months ago. What I what, I

1119
01:10:16,439 --> 01:10:20,160
Speaker 1: really and he still travels extensively, which is amazing. What

1120
01:10:20,280 --> 01:10:22,760
Speaker 1: I loved. I'm not a big fan of forecast, but

1121
01:10:22,800 --> 01:10:27,759
Speaker 1: I find his tense surprises to be brilliant because instead

1122
01:10:27,760 --> 01:10:31,240
Speaker 1: of forecasting what's going to happen and being wrong. The

1123
01:10:31,280 --> 01:10:35,240
Speaker 1: forecast attempt is, hey, here are some unexpected surprises, and

1124
01:10:35,360 --> 01:10:38,439
Speaker 1: it was just a brilliant twist on the usual. Well,

1125
01:10:38,439 --> 01:10:40,479
Speaker 1: but it's the same I, you know, it's the same concept.

1126
01:10:40,520 --> 01:10:43,519
Speaker 1: And I agree, you know, I I like I used to.

1127
01:10:43,680 --> 01:10:46,560
Speaker 1: I spent twenty one years with Byron. We traveled the

1128
01:10:46,560 --> 01:10:48,679
Speaker 1: world together, We were you know, I was as close

1129
01:10:48,720 --> 01:10:51,840
Speaker 1: with him as I uh, I was with you know,

1130
01:10:51,920 --> 01:10:53,840
Speaker 1: my own siblings aren't spent more time with him, and

1131
01:10:53,840 --> 01:10:55,080
Speaker 1: he spent more time with me than we did with

1132
01:10:55,120 --> 01:10:59,840
Speaker 1: our own spouses. Um. And so I I would you

1133
01:11:00,160 --> 01:11:02,680
Speaker 1: be shoulder or shoulder with him as he would articulate

1134
01:11:03,400 --> 01:11:05,639
Speaker 1: his ten surprises, and I would you know, lay out

1135
01:11:05,720 --> 01:11:09,080
Speaker 1: some you know, macro views that were either consistent or

1136
01:11:09,120 --> 01:11:12,599
Speaker 1: inconsistent with that. Sometimes we agreed, sometimes we didn't. Uh.

1137
01:11:12,800 --> 01:11:15,320
Speaker 1: We debated a lot, we challenged each other a lot.

1138
01:11:15,880 --> 01:11:19,920
Speaker 1: But he his focus again was in in maintaining the

1139
01:11:20,000 --> 01:11:23,960
Speaker 1: view that I make big money as an investor when

1140
01:11:24,080 --> 01:11:26,479
Speaker 1: I bet against something that is not in the market,

1141
01:11:26,560 --> 01:11:28,559
Speaker 1: rather than when I bet on something that's in the market.

1142
01:11:28,920 --> 01:11:32,320
Speaker 1: So this goes back to the Barton bigs insight that

1143
01:11:32,400 --> 01:11:35,400
Speaker 1: you need to really focus most of all on what

1144
01:11:35,520 --> 01:11:38,280
Speaker 1: the market is discounting and to be able to identify

1145
01:11:38,320 --> 01:11:42,599
Speaker 1: those anomalies, those trends, those opportunities, those risks that are

1146
01:11:42,640 --> 01:11:45,160
Speaker 1: not in the price. And when you can do that, uh,

1147
01:11:45,320 --> 01:11:48,519
Speaker 1: you really add value to the thought process that guides

1148
01:11:48,560 --> 01:11:52,080
Speaker 1: in shapes markets prospectively rather than looking back through that

1149
01:11:52,439 --> 01:11:56,080
Speaker 1: rear view mirror. So our last two questions, UM, you

1150
01:11:56,120 --> 01:11:58,479
Speaker 1: work with a lot of millennials, a lot of students.

1151
01:11:59,120 --> 01:12:01,960
Speaker 1: What sort of advice would you give a student of

1152
01:12:01,960 --> 01:12:04,639
Speaker 1: yours who comes to you and says, I'm thinking about

1153
01:12:04,720 --> 01:12:08,439
Speaker 1: going into finance as a career. I get a lot

1154
01:12:08,520 --> 01:12:11,200
Speaker 1: of those students all the time, and you know, despite

1155
01:12:11,640 --> 01:12:14,200
Speaker 1: the post crisis shake out of Wall Street, UM, I'm

1156
01:12:14,280 --> 01:12:18,320
Speaker 1: still shocked about a large number of students who want

1157
01:12:18,360 --> 01:12:21,800
Speaker 1: to go down, uh that road. And I always tell them, look,

1158
01:12:21,920 --> 01:12:23,639
Speaker 1: try it out for a few years. You know you're

1159
01:12:23,640 --> 01:12:27,000
Speaker 1: gonna get if you're an undergrad, go to work for

1160
01:12:27,040 --> 01:12:30,080
Speaker 1: a Goldman, Sachs, Morgan, Stanley or whatever for a few years,

1161
01:12:30,880 --> 01:12:35,680
Speaker 1: and then after two to three years take stock. You've

1162
01:12:35,479 --> 01:12:38,160
Speaker 1: you've you've been on a trading desk, you've been an analyst.

1163
01:12:39,240 --> 01:12:42,439
Speaker 1: Does this give you the satisfaction you want going forward,

1164
01:12:42,880 --> 01:12:45,519
Speaker 1: and then take a pause, take a break, do something

1165
01:12:45,560 --> 01:12:48,479
Speaker 1: else after two to three years, after you've done your

1166
01:12:48,520 --> 01:12:53,000
Speaker 1: first stint, uh, you know in Wall Street, and that's

1167
01:12:53,040 --> 01:12:55,960
Speaker 1: something else, could be going back to grad school or

1168
01:12:56,160 --> 01:12:58,759
Speaker 1: getting a job, you know, in an industry that actually

1169
01:12:59,200 --> 01:13:04,759
Speaker 1: makes things opposed to promote ideas. And then compare those

1170
01:13:04,920 --> 01:13:06,760
Speaker 1: next two to three years or your first two to

1171
01:13:06,840 --> 01:13:09,080
Speaker 1: three years, and you'll have a better judgment as to

1172
01:13:09,160 --> 01:13:11,519
Speaker 1: what you want to do in the future. But don't

1173
01:13:11,560 --> 01:13:16,320
Speaker 1: just monolithically get your degree from a great school like

1174
01:13:16,479 --> 01:13:19,880
Speaker 1: Yale where I teach UM, and then just assume that

1175
01:13:19,920 --> 01:13:24,400
Speaker 1: you figured out that Wall Street or finance is your future.

1176
01:13:24,800 --> 01:13:28,080
Speaker 1: It still pays very well, there's great opportunity there, but

1177
01:13:28,439 --> 01:13:31,479
Speaker 1: there's more. As millennials will tell you, and I actually

1178
01:13:31,520 --> 01:13:35,960
Speaker 1: study millennials a lot in my coursework. UM. Millennials are

1179
01:13:36,040 --> 01:13:38,760
Speaker 1: very nonconforming. They want something else out of life than

1180
01:13:38,840 --> 01:13:41,840
Speaker 1: what you and I did when we were first starting out,

1181
01:13:42,320 --> 01:13:46,760
Speaker 1: and so uh, life satisfaction is really important to them,

1182
01:13:46,880 --> 01:13:51,519
Speaker 1: and they need to challenge those aspirations with the actual

1183
01:13:51,520 --> 01:13:54,280
Speaker 1: experiences that they're getting rather than what something looks good

1184
01:13:54,280 --> 01:13:57,800
Speaker 1: on paper. And our final question what is it that

1185
01:13:57,840 --> 01:14:01,320
Speaker 1: you know about investing today that you wish you knew

1186
01:14:01,400 --> 01:14:06,880
Speaker 1: forty years ago when you were beginning. I think, UM,

1187
01:14:07,040 --> 01:14:09,519
Speaker 1: the most important thing is is going back to this

1188
01:14:09,600 --> 01:14:13,800
Speaker 1: discipline of having an enormous respect for the markets to

1189
01:14:14,240 --> 01:14:19,559
Speaker 1: anticipate uh these seemingly brilliant macro economic insights that I

1190
01:14:19,680 --> 01:14:24,320
Speaker 1: and others can come up with, and UH connecting markets

1191
01:14:25,520 --> 01:14:30,840
Speaker 1: to the discernment uh the understanding of macro trends. That's

1192
01:14:30,880 --> 01:14:33,400
Speaker 1: a big challenge a lot of investors. I remember when

1193
01:14:33,439 --> 01:14:36,200
Speaker 1: I first started out in the business. UM, I met

1194
01:14:36,240 --> 01:14:39,519
Speaker 1: this guy at at Fidelity. I had no idea who

1195
01:14:39,520 --> 01:14:43,440
Speaker 1: he was. I was so green. His name was Peter Link,

1196
01:14:43,840 --> 01:14:47,360
Speaker 1: and uh, you know, he was very polite. You know.

1197
01:14:47,360 --> 01:14:49,400
Speaker 1: I remember someone gave me a list of people to call,

1198
01:14:49,479 --> 01:14:51,280
Speaker 1: so I called, you know, I called him up and

1199
01:14:51,439 --> 01:14:53,880
Speaker 1: I introduced myself and he asked me, said, you know,

1200
01:14:53,880 --> 01:14:55,840
Speaker 1: what what do I do? And I said, well, you know,

1201
01:14:55,880 --> 01:14:58,920
Speaker 1: I'm recently on Wall Street. I came from the Federal Reserve.

1202
01:14:59,439 --> 01:15:01,559
Speaker 1: I four asked the economy. He says, so you do

1203
01:15:01,760 --> 01:15:04,840
Speaker 1: economics and I said, you know, I said, well do

1204
01:15:04,920 --> 01:15:07,760
Speaker 1: me A favorite says UM. I really enjoyed talking again,

1205
01:15:08,000 --> 01:15:10,200
Speaker 1: but don't ever call me again because I don't I

1206
01:15:10,240 --> 01:15:15,840
Speaker 1: don't really have any use for economists. He was very polite, uh.

1207
01:15:15,880 --> 01:15:18,080
Speaker 1: And then he wrote about this in one of his

1208
01:15:18,360 --> 01:15:24,120
Speaker 1: books about he didn't unfortunately he didn't mention me by name,

1209
01:15:24,160 --> 01:15:25,680
Speaker 1: but he said, you know, if you're just he has

1210
01:15:25,720 --> 01:15:27,720
Speaker 1: a line with something. You know, if you're spending ten

1211
01:15:27,760 --> 01:15:31,719
Speaker 1: minutes a year thinking about economics, you've wasted nine of them. Uh.

1212
01:15:31,760 --> 01:15:36,639
Speaker 1: And I took personal exception of that as a young kid,

1213
01:15:36,880 --> 01:15:40,920
Speaker 1: and it's been my goal ever since I'm not no

1214
01:15:40,960 --> 01:15:45,720
Speaker 1: longer a young kid to um make make this connection

1215
01:15:45,800 --> 01:15:48,920
Speaker 1: between markets uh and macro because I think if you

1216
01:15:49,000 --> 01:15:52,519
Speaker 1: get that connection right, and it's rare, the macro thinker

1217
01:15:52,560 --> 01:15:54,640
Speaker 1: they can do it, you can really add value to

1218
01:15:54,680 --> 01:15:58,360
Speaker 1: the process. And I wish I understood that better uh

1219
01:15:58,400 --> 01:16:01,240
Speaker 1: thirty five years ago uh than I did today. It

1220
01:16:01,240 --> 01:16:06,280
Speaker 1: takes a long time to understand and accept that. Stephen Roach,

1221
01:16:06,400 --> 01:16:09,479
Speaker 1: this has been absolutely fascinating. Thank you so much for

1222
01:16:09,520 --> 01:16:13,200
Speaker 1: being so generous with your time. UH. If you've enjoyed

1223
01:16:13,240 --> 01:16:16,080
Speaker 1: this conversation, look up an inch or down an inch

1224
01:16:16,520 --> 01:16:18,960
Speaker 1: on Apple iTunes and you could see the other seventy

1225
01:16:19,040 --> 01:16:22,920
Speaker 1: plus uh. Interviews we've done. Uh. Feel free to check

1226
01:16:22,960 --> 01:16:25,439
Speaker 1: out my daily column on Bloomberg View dot com or

1227
01:16:25,479 --> 01:16:27,960
Speaker 1: follow me on Twitter at rid Halts. I would be

1228
01:16:28,040 --> 01:16:30,920
Speaker 1: remiss if I did not thank my producer, Charlie Bohmer

1229
01:16:31,240 --> 01:16:34,760
Speaker 1: and my head of research, um, Michael bat Nick. I'm

1230
01:16:34,800 --> 01:16:37,760
Speaker 1: Barry Ridholts. You've been listening to Masters in Business on

1231
01:16:37,840 --> 01:16:38,799
Speaker 1: Bloomberg Radio.