1 00:00:00,120 --> 00:00:02,920 Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in 2 00:00:03,000 --> 00:00:07,840 Speaker 1: local communities, economies and a sustainable future. That's the power 3 00:00:08,080 --> 00:00:12,360 Speaker 1: of global connections. Mary Lynch, Pierce Fenner and Smith Incorporated 4 00:00:12,760 --> 00:00:27,400 Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,840 --> 00:00:31,520 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:31,600 --> 00:00:36,600 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:37,000 --> 00:00:41,600 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 8 00:00:41,680 --> 00:00:51,680 Speaker 1: of course on the Bloomberg. Now joining us is someone 9 00:00:51,760 --> 00:00:54,400 Speaker 1: that was way out front. In fact, maybe President Trump 10 00:00:54,440 --> 00:00:58,120 Speaker 1: read his book The Price of Civilization. Jeffrey Sachs is 11 00:00:58,120 --> 00:01:01,440 Speaker 1: at Columbia University. He is a guide to world liberal 12 00:01:01,560 --> 00:01:03,760 Speaker 1: He is someone who does not agree with the president, 13 00:01:04,000 --> 00:01:07,360 Speaker 1: but he has to see how the president applies policy here. 14 00:01:07,600 --> 00:01:10,600 Speaker 1: You were way out front on the struggles of this 15 00:01:10,720 --> 00:01:15,200 Speaker 1: nation with your book Price of Civilization. The President struck 16 00:01:15,240 --> 00:01:19,280 Speaker 1: a third rail with the American public, a poorer opulated, 17 00:01:19,560 --> 00:01:21,800 Speaker 1: the different other issues that are out there that are 18 00:01:21,840 --> 00:01:23,920 Speaker 1: all in your book. I mean you were at what 19 00:01:24,160 --> 00:01:27,959 Speaker 1: is the prescription to get this administration to begin a 20 00:01:28,080 --> 00:01:34,319 Speaker 1: constructive dialogue with liberals, independence, and Republicans. This administration is 21 00:01:34,360 --> 00:01:38,560 Speaker 1: not having a constructive dialogue with anybody right now. What 22 00:01:38,680 --> 00:01:42,039 Speaker 1: happened at the G twenty this weekend was alarming. Actually, 23 00:01:42,400 --> 00:01:47,200 Speaker 1: they couldn't even make a statement opposing protectionism because Steve 24 00:01:47,280 --> 00:01:50,920 Speaker 1: Manuk in the Treasury Secretary, held the ground to say, no, 25 00:01:51,120 --> 00:01:54,760 Speaker 1: we're not going to oppose protectionism. We're not going to 26 00:01:54,800 --> 00:01:59,080 Speaker 1: make a statement about climate change. It's so nineteen to one. 27 00:01:59,800 --> 00:02:04,920 Speaker 1: The US Trump is absolutely arraying the whole world against 28 00:02:05,000 --> 00:02:07,640 Speaker 1: the U S. You watch it step by step, That's 29 00:02:07,720 --> 00:02:10,799 Speaker 1: that's what's happening. Would you suggest and just in one issue, 30 00:02:10,840 --> 00:02:14,480 Speaker 1: the opioid epidemic, Rob Portman, I'm going to suggest doesn't 31 00:02:14,560 --> 00:02:18,960 Speaker 1: read Jeffrey Sachs. He's a Republican, a moderate from Ohio. 32 00:02:19,000 --> 00:02:21,280 Speaker 1: He probably is aware of your work, but he doesn't 33 00:02:21,320 --> 00:02:23,560 Speaker 1: read it word for word. And except right now, you 34 00:02:23,680 --> 00:02:27,040 Speaker 1: and the senator from Ohio have more common ground than 35 00:02:27,120 --> 00:02:31,239 Speaker 1: with the president. Can the Democrats co opt a Republican 36 00:02:31,400 --> 00:02:35,280 Speaker 1: centrist group to oppose this administration? But let me just 37 00:02:35,400 --> 00:02:39,320 Speaker 1: say a word about what's happening. Our society is falling apart. 38 00:02:39,320 --> 00:02:43,200 Speaker 1: This has been clear for years. There's a divide between 39 00:02:43,440 --> 00:02:47,240 Speaker 1: those who have a college education, times couldn't be better. 40 00:02:47,800 --> 00:02:51,760 Speaker 1: And those who have a high school degree. Jobs are falling, 41 00:02:51,760 --> 00:02:57,760 Speaker 1: wages are falling, mortality rates are rising, opiate addiction rising, 42 00:02:57,880 --> 00:03:03,280 Speaker 1: suicide rates rising. So along comes the Republican Health Plan. 43 00:03:03,800 --> 00:03:07,120 Speaker 1: It's to cut the tax at the top and throw 44 00:03:07,200 --> 00:03:10,839 Speaker 1: more than twenty million people off of healthcare coverage. Are 45 00:03:10,880 --> 00:03:15,080 Speaker 1: they kidding? Are they kidding? What are they doing? It's 46 00:03:15,240 --> 00:03:18,200 Speaker 1: dreadful what's going on right now? And we have to 47 00:03:18,240 --> 00:03:22,240 Speaker 1: say it today. You know you said I'm you introduced 48 00:03:22,280 --> 00:03:25,440 Speaker 1: me earlier. Is miserable mood because today is supposed to 49 00:03:25,480 --> 00:03:29,120 Speaker 1: be world It is World Happiness Day and we are 50 00:03:29,200 --> 00:03:33,880 Speaker 1: releasing the World Happiness Report. The United States is in 51 00:03:33,919 --> 00:03:37,440 Speaker 1: a free fall right now. Out of the thirty four 52 00:03:37,520 --> 00:03:42,000 Speaker 1: o C countries, the US Cayman twenty one. We're going 53 00:03:42,040 --> 00:03:46,920 Speaker 1: to come back to that. Yeah. But so, Jeffrey, this 54 00:03:47,000 --> 00:03:49,080 Speaker 1: is why people voted for Trump, right, He's trying to 55 00:03:49,160 --> 00:03:53,120 Speaker 1: fix a problem. Now you're saying he's fixing it badly 56 00:03:53,160 --> 00:03:55,800 Speaker 1: and he's focusing on the bad things, or he's going 57 00:03:55,840 --> 00:03:58,960 Speaker 1: about it the wrong way. How would you deal with 58 00:03:59,000 --> 00:04:02,120 Speaker 1: this unhappiness or this uneasiness that we clearly saw in 59 00:04:02,120 --> 00:04:05,720 Speaker 1: the American people to give them something better. We would 60 00:04:06,160 --> 00:04:10,160 Speaker 1: have rich people pay taxes and we would have poor 61 00:04:10,240 --> 00:04:15,200 Speaker 1: people on healthcare. That's simple. We would say, we tell 62 00:04:15,280 --> 00:04:17,599 Speaker 1: the truth in this country that the rich have never 63 00:04:17,680 --> 00:04:21,160 Speaker 1: had it better, they've never had more money, they've never 64 00:04:21,240 --> 00:04:24,279 Speaker 1: had more rise of incomes, and they should do something 65 00:04:24,480 --> 00:04:28,680 Speaker 1: for our society. And what he's doing is exactly the opposite. 66 00:04:28,800 --> 00:04:32,600 Speaker 1: He's given every single position in this administration to Goldman 67 00:04:32,680 --> 00:04:35,440 Speaker 1: Sacks so that they can cut taxes at the top. 68 00:04:35,680 --> 00:04:39,440 Speaker 1: It's a but he was but he was voted on 69 00:04:39,440 --> 00:04:41,800 Speaker 1: that platform, right, Yeah, But then it's bait and switch. 70 00:04:42,680 --> 00:04:45,600 Speaker 1: It's complete bait and switch. He said I'm going to 71 00:04:45,720 --> 00:04:49,040 Speaker 1: fight Wall Street and then he gave every top position 72 00:04:49,040 --> 00:04:52,800 Speaker 1: in the administration to one company. How much more bait 73 00:04:52,880 --> 00:04:54,800 Speaker 1: and switch can it be? We have to tell the 74 00:04:54,800 --> 00:04:58,520 Speaker 1: truth about what's happening in this country. It's dramatic, it's 75 00:04:58,520 --> 00:05:02,240 Speaker 1: a word on the poor. But Jeffrey Sax, do you 76 00:05:02,800 --> 00:05:04,600 Speaker 1: actually admit that a lot of people in the US 77 00:05:04,720 --> 00:05:07,920 Speaker 1: voted for President Trump because he was going to deregulate 78 00:05:08,320 --> 00:05:11,280 Speaker 1: and they voted for him. Again, I'm not saying it's 79 00:05:11,279 --> 00:05:13,480 Speaker 1: boutter wrong, but this is what people voted for. They 80 00:05:13,560 --> 00:05:16,840 Speaker 1: voted for him because he made promises to them and 81 00:05:16,880 --> 00:05:19,960 Speaker 1: he is lying. I'm sorry, this is the biggest, very 82 00:05:20,360 --> 00:05:23,359 Speaker 1: very quickly here did Secretary Clinton loses election because she 83 00:05:23,400 --> 00:05:27,280 Speaker 1: didn't go after Midwest Democrats who are more conservative than 84 00:05:27,320 --> 00:05:31,240 Speaker 1: the East Coast liberals like you. She lost the election 85 00:05:31,279 --> 00:05:34,520 Speaker 1: because she was a lousy candidate and she didn't have 86 00:05:34,560 --> 00:05:37,600 Speaker 1: a position that people trusted. And Donald Trump said I'm 87 00:05:37,640 --> 00:05:40,520 Speaker 1: going to help you, and what he's doing is helping 88 00:05:40,760 --> 00:05:44,920 Speaker 1: his billionaire buddies. It's so clear, it's obvious as long 89 00:05:44,960 --> 00:05:47,119 Speaker 1: as we look at what he's really doing. Don't watch 90 00:05:47,120 --> 00:05:50,080 Speaker 1: what he tweets, watch what he says, watch what he's doing. 91 00:05:50,440 --> 00:05:53,520 Speaker 1: I feel miserable. We're gonna talk happiness to Jeffrey Sachs 92 00:05:53,560 --> 00:05:56,560 Speaker 1: here in Am. I just had a nightmare thought Jeffrey 93 00:05:56,560 --> 00:06:01,640 Speaker 1: Sachs playing golf with Donald Trump floor around. That would 94 00:06:01,640 --> 00:06:05,120 Speaker 1: be quite around, to say the least. Jeff Sex, thank 95 00:06:05,160 --> 00:06:19,680 Speaker 1: you so much. Feel l joining us some p K 96 00:06:20,440 --> 00:06:24,039 Speaker 1: burlicer on oil. Phil. We've got your new research note 97 00:06:24,640 --> 00:06:26,960 Speaker 1: and folks, we protect the copyright of our guests. I'm 98 00:06:27,000 --> 00:06:28,919 Speaker 1: not going to send it out to you, and you 99 00:06:29,000 --> 00:06:32,240 Speaker 1: go right to gasoline. Why does a pro like you 100 00:06:32,560 --> 00:06:38,400 Speaker 1: look at gasoline dynamics, Well something, Gasoline is probably excuse, 101 00:06:38,560 --> 00:06:42,640 Speaker 1: probably the most important component of petroleum demand, and it's 102 00:06:42,680 --> 00:06:46,800 Speaker 1: also the one that's most influenced by economic cycles and 103 00:06:46,839 --> 00:06:50,560 Speaker 1: by expectations. UH. And and this report, UH what I've 104 00:06:50,560 --> 00:06:53,839 Speaker 1: been writing about for a while. I've been looking at 105 00:06:54,560 --> 00:07:00,920 Speaker 1: the failure, essentially of most following the market to recognized 106 00:07:01,000 --> 00:07:06,080 Speaker 1: the consumers respond in an anticipatory fashion. You know, I 107 00:07:06,160 --> 00:07:10,239 Speaker 1: take take my cues from my gold class making good friends. 108 00:07:10,240 --> 00:07:15,600 Speaker 1: Stand Fisher of the FED Monitorists talk about expectations and 109 00:07:15,640 --> 00:07:19,600 Speaker 1: how consumers adjust ahead of time when they hear news 110 00:07:19,640 --> 00:07:22,440 Speaker 1: about changes in the FED. Right, consumers have done the 111 00:07:22,480 --> 00:07:25,280 Speaker 1: same thing. In the case of gasoline. We had strong 112 00:07:25,320 --> 00:07:29,440 Speaker 1: growth and gasoline on a year over year basis every 113 00:07:29,480 --> 00:07:32,040 Speaker 1: month UH in two thousand and fifteen and two thousand 114 00:07:32,040 --> 00:07:35,120 Speaker 1: and sixteen until OPEC said, oh, Saudi Arabia said we 115 00:07:35,120 --> 00:07:37,920 Speaker 1: want to raise oil prices. And then consumers heard the 116 00:07:37,920 --> 00:07:43,080 Speaker 1: news and immediately began changing their consumering pattern. Nothing surprising here. 117 00:07:43,360 --> 00:07:46,720 Speaker 1: The big surprises that those who follow the market, follow 118 00:07:46,760 --> 00:07:50,600 Speaker 1: oil markets totally ignore this. And gasoline is you know, 119 00:07:50,800 --> 00:07:53,920 Speaker 1: a good portion of petroleum demand. How tight is this 120 00:07:53,960 --> 00:07:56,200 Speaker 1: market getting right now? How tight is the gas market getting? 121 00:07:56,680 --> 00:08:00,400 Speaker 1: Gasolene market is getting a little tighter because people produced 122 00:08:00,400 --> 00:08:03,440 Speaker 1: a less less and because a good deal of gasolene 123 00:08:03,440 --> 00:08:08,360 Speaker 1: has been exported. Uh. The gasolene was flashing around the 124 00:08:08,360 --> 00:08:11,520 Speaker 1: East Coast two or three weeks ago to uh maybe 125 00:08:11,600 --> 00:08:15,320 Speaker 1: a month ago, and large volumes were sent to other 126 00:08:15,360 --> 00:08:17,840 Speaker 1: parts of the world because the prices just couldn't be 127 00:08:17,880 --> 00:08:22,600 Speaker 1: held up. But you know, gasoline supply is getting a 128 00:08:22,600 --> 00:08:26,480 Speaker 1: little tight, but gasolene demands looks to be down relative 129 00:08:26,600 --> 00:08:30,960 Speaker 1: to UH last year by about two three. I know 130 00:08:30,960 --> 00:08:33,400 Speaker 1: you're paying close attention to that Sarah conference in Houston 131 00:08:33,679 --> 00:08:35,920 Speaker 1: a week or two ago, the h s Market conference. 132 00:08:35,920 --> 00:08:37,400 Speaker 1: And what's the biggest news that came out of there 133 00:08:37,480 --> 00:08:40,400 Speaker 1: is you listen to all those speakers on stage in Houston. 134 00:08:40,880 --> 00:08:44,640 Speaker 1: Um I was. I wasn't there. Uh you know you're 135 00:08:44,679 --> 00:08:51,400 Speaker 1: gonna and I haven't spoken since uh and the but 136 00:08:51,679 --> 00:08:54,360 Speaker 1: the news that came out to me was the attempt 137 00:08:54,480 --> 00:08:58,520 Speaker 1: by the oil exporting countries to try to get US 138 00:08:58,559 --> 00:09:02,360 Speaker 1: producers to cooperate. Uh. They had a dinner, UH, they 139 00:09:02,360 --> 00:09:06,480 Speaker 1: had the Nigerian delegation. I had had the dinner, and uh, 140 00:09:06,520 --> 00:09:09,479 Speaker 1: every anti trust lawyer in the country must have been squirming, 141 00:09:10,080 --> 00:09:13,120 Speaker 1: because you know, the idea of a group of producers 142 00:09:13,120 --> 00:09:16,040 Speaker 1: getting together to talk about controlling production any place in 143 00:09:16,040 --> 00:09:18,320 Speaker 1: the world is scary, but doing the United States is 144 00:09:18,360 --> 00:09:25,320 Speaker 1: really dangerous and it shows opex desperation, the producer desperation. Uh. 145 00:09:25,720 --> 00:09:29,800 Speaker 1: With essentially the change in technology and drilling and finding oil. Uh, 146 00:09:29,840 --> 00:09:33,040 Speaker 1: they are working. Uh. You know, the U S producers 147 00:09:33,040 --> 00:09:36,080 Speaker 1: are working extremely hard to drive costs down. And and 148 00:09:36,120 --> 00:09:42,240 Speaker 1: More's law the more from Intel that technology doubles every uh, 149 00:09:42,360 --> 00:09:45,960 Speaker 1: with every new generation or speed doubles applies to oil fracking. 150 00:09:46,000 --> 00:09:49,040 Speaker 1: So suddenly people are talking about being profitable with twenty barrel. 151 00:09:49,120 --> 00:09:52,840 Speaker 1: So we had a real moment ten days ago. Edward 152 00:09:52,920 --> 00:09:56,719 Speaker 1: more Stark on the door the acclaimed oil or theologist 153 00:09:56,720 --> 00:10:00,800 Speaker 1: at City Group and basically said, oils stupid. Maybe it 154 00:10:00,800 --> 00:10:04,559 Speaker 1: works higher, but he said, given a longer time frame 155 00:10:05,080 --> 00:10:07,720 Speaker 1: we go to the land of Phil Verlager, which is 156 00:10:07,880 --> 00:10:13,640 Speaker 1: cheaper oil, what will be the catalyst if we have stability, 157 00:10:13,800 --> 00:10:16,080 Speaker 1: if we go to somewhat of a higher per barrel, 158 00:10:16,559 --> 00:10:19,000 Speaker 1: what will be the catalyst to get us to the 159 00:10:19,080 --> 00:10:23,640 Speaker 1: Verlager vision? Well, it'll be it'll be a the same 160 00:10:23,679 --> 00:10:29,520 Speaker 1: sort of catalyst, the catalysts technology. Uh, the fact that 161 00:10:30,040 --> 00:10:34,920 Speaker 1: every every time we drill another well, we're finding new things. 162 00:10:36,200 --> 00:10:38,600 Speaker 1: One of the stateless lumber shades president out there came 163 00:10:38,600 --> 00:10:41,760 Speaker 1: out with a statement that the amount of data one 164 00:10:41,840 --> 00:10:44,840 Speaker 1: uses right now for a well, uh, is the amount 165 00:10:44,840 --> 00:10:48,880 Speaker 1: of constitutes the amount of data on to high definition television, 166 00:10:49,040 --> 00:10:52,800 Speaker 1: tell of movies. I mean, big data is just beginning 167 00:10:52,840 --> 00:10:55,520 Speaker 1: to arrive into the oil business. And when did it arise. 168 00:10:56,720 --> 00:10:59,640 Speaker 1: We're just going to have an overwhelming falling calos and 169 00:10:59,720 --> 00:11:03,920 Speaker 1: an overwhelming expansion and opportunity. And it's gonna happen here. 170 00:11:03,920 --> 00:11:07,560 Speaker 1: It's gonna happen in Argentina where there's a great opportunity. 171 00:11:07,559 --> 00:11:09,360 Speaker 1: It's gonna happen in Russian where there's a great deal 172 00:11:09,360 --> 00:11:12,720 Speaker 1: of shale. Uh, we're gonna you know, two years ago 173 00:11:12,800 --> 00:11:15,559 Speaker 1: or a year and a half ago, Spencer Dale of 174 00:11:15,679 --> 00:11:18,120 Speaker 1: BT came out with a thing, and I think I 175 00:11:18,160 --> 00:11:22,360 Speaker 1: came out with about the same simultaneously. But is the 176 00:11:22,400 --> 00:11:25,760 Speaker 1: oil is no longer a finite resource? Uh, so much 177 00:11:25,760 --> 00:11:27,320 Speaker 1: oil is gonna have to be left in the ground. 178 00:11:27,360 --> 00:11:31,160 Speaker 1: It's really a race to see who loses. You are 179 00:11:31,240 --> 00:11:33,720 Speaker 1: you very kindly quote and praise our colleagues that Liam 180 00:11:33,760 --> 00:11:36,280 Speaker 1: Denning and Halfier have bloss here of Bloomberg News on 181 00:11:36,280 --> 00:11:39,200 Speaker 1: the issue of technology. And what I find fascinating is 182 00:11:39,200 --> 00:11:42,200 Speaker 1: how the old hands, the oil producers are processing all 183 00:11:42,240 --> 00:11:44,360 Speaker 1: of this technological change. Talk a bit about that, how 184 00:11:44,360 --> 00:11:49,240 Speaker 1: they're how they're facing this change. Well, it's not the 185 00:11:49,600 --> 00:11:52,040 Speaker 1: it's not really the oil producers, it's the companies like 186 00:11:52,120 --> 00:11:54,679 Speaker 1: Slumberge and so on. Now I'm a visiting fellow at 187 00:11:54,679 --> 00:11:57,360 Speaker 1: the School of Minds. We've just moved here to Denver, 188 00:11:57,840 --> 00:12:00,720 Speaker 1: and the School of mind produces some of the best engineers, 189 00:12:01,480 --> 00:12:04,200 Speaker 1: uh in the world. It's been recognized for years. And 190 00:12:04,200 --> 00:12:06,960 Speaker 1: what what what's happening is all these young engineers are 191 00:12:07,000 --> 00:12:09,839 Speaker 1: coming out knowing all these new technologies. So a woman 192 00:12:09,840 --> 00:12:12,960 Speaker 1: I know is working uh for for slumbers j I 193 00:12:12,960 --> 00:12:17,280 Speaker 1: think down in Texas comes out is totally trained in 194 00:12:17,400 --> 00:12:20,800 Speaker 1: new technology and everything, and they bring all this technology 195 00:12:20,840 --> 00:12:22,800 Speaker 1: to the to the drilling companies, and then the drilling 196 00:12:22,800 --> 00:12:26,959 Speaker 1: companies apply it steadily, uh, to the to the wells 197 00:12:27,160 --> 00:12:31,520 Speaker 1: and and just essentially bring along these the companies who 198 00:12:31,520 --> 00:12:34,600 Speaker 1: are are developing. It's it's in many ways. It's like 199 00:12:34,640 --> 00:12:39,040 Speaker 1: the agricultural business. It's the farmers are the customers for 200 00:12:39,080 --> 00:12:42,160 Speaker 1: the John Deere's and the Monsantos, the Montsando's producers of 201 00:12:42,240 --> 00:12:46,679 Speaker 1: the new the new UH seeds, and the farmers by 202 00:12:46,720 --> 00:12:50,160 Speaker 1: the seeds and double the triple their their products. So 203 00:12:50,559 --> 00:12:53,800 Speaker 1: it's it's it's that sort of relationship. And the universities 204 00:12:53,840 --> 00:12:56,680 Speaker 1: and the companies like Slumber, J. Baker Hughes are just 205 00:12:56,800 --> 00:12:59,720 Speaker 1: all developing these technologies and driving costs down. What do 206 00:12:59,760 --> 00:13:02,560 Speaker 1: you do in Golden Colorado? Is this like a big 207 00:13:02,600 --> 00:13:05,880 Speaker 1: salary and a six pack? Of course, every time it 208 00:13:05,960 --> 00:13:09,880 Speaker 1: comes out of the faucet. I've moved down their UH. 209 00:13:10,200 --> 00:13:12,800 Speaker 1: Friend of mine who's teaching there, I was supposed to 210 00:13:12,800 --> 00:13:14,440 Speaker 1: teach their back in the early nineties and had a 211 00:13:14,440 --> 00:13:19,160 Speaker 1: medical issue. Um asked me. They have a new research institute, 212 00:13:19,160 --> 00:13:22,560 Speaker 1: the Pain Institute. And what I'm looking for is is 213 00:13:22,600 --> 00:13:24,760 Speaker 1: an opportunity to work with some of these younger students 214 00:13:25,320 --> 00:13:28,160 Speaker 1: and and spread the economics and and and as I 215 00:13:28,200 --> 00:13:30,920 Speaker 1: said when I was talking about the demand here in Gasolene, 216 00:13:31,040 --> 00:13:35,360 Speaker 1: is the monetary economists have moved ahead with rational expectations. 217 00:13:35,360 --> 00:13:39,120 Speaker 1: And you just read their material and Stanley's and I've 218 00:13:39,120 --> 00:13:43,480 Speaker 1: watched therely for years and that this whole economics, the 219 00:13:43,520 --> 00:13:47,160 Speaker 1: way of thinking about backing out demand for petroleum has 220 00:13:47,480 --> 00:13:50,280 Speaker 1: Let's come back soil f earliger with this on the 221 00:13:50,320 --> 00:13:53,240 Speaker 1: Colorado school of mind. What have we learned about the 222 00:13:53,320 --> 00:13:56,160 Speaker 1: role of OPEC now and going forward in light of 223 00:13:56,280 --> 00:13:58,040 Speaker 1: what we've seen since that deal was inked a few 224 00:13:58,040 --> 00:14:04,360 Speaker 1: months back. Well, OPEC has been struggling to be relevant 225 00:14:05,480 --> 00:14:10,960 Speaker 1: for several years UM. In the early part of this decade, 226 00:14:11,559 --> 00:14:17,199 Speaker 1: we had a series of disruptions of supply in Nigeria, Libya, 227 00:14:17,840 --> 00:14:22,200 Speaker 1: Syria and the tight oil market, and you know, OPEC 228 00:14:22,920 --> 00:14:26,280 Speaker 1: essentially ignored what was going on and produced at full rate, 229 00:14:26,360 --> 00:14:31,280 Speaker 1: so it was no different than the market for week uh. 230 00:14:31,680 --> 00:14:37,720 Speaker 1: When the production disruptions essentially passed and the US oil 231 00:14:37,760 --> 00:14:43,160 Speaker 1: supply came in, the organization looks to try to reorganize 232 00:14:43,160 --> 00:14:46,960 Speaker 1: and this is the way Cartel's work and cut production 233 00:14:47,040 --> 00:14:52,200 Speaker 1: and the sustained prices, and what they have found is 234 00:14:52,320 --> 00:15:00,280 Speaker 1: that essentially in today's world they are at best a 235 00:15:00,440 --> 00:15:04,280 Speaker 1: very marginal player as an organization. The reason is that 236 00:15:04,640 --> 00:15:07,800 Speaker 1: demand is now a good deal more price sensitive. Who 237 00:15:07,840 --> 00:15:11,920 Speaker 1: spoke about the consumers responding quickly to news of higher prices. 238 00:15:12,600 --> 00:15:17,840 Speaker 1: Consumers are more astute. And secondly that the supply response 239 00:15:19,040 --> 00:15:22,480 Speaker 1: is much quicker and the costs again as we were 240 00:15:22,480 --> 00:15:25,440 Speaker 1: talking on the previous segment, are falling much more rapidly. 241 00:15:25,520 --> 00:15:31,680 Speaker 1: So OPEC I think is opex day has passed? And 242 00:15:32,080 --> 00:15:35,920 Speaker 1: UH the organism attempts by groups of countries such as 243 00:15:36,120 --> 00:15:40,800 Speaker 1: especially high cost countries producers like Venezuela are waging a 244 00:15:40,880 --> 00:15:44,920 Speaker 1: regard war that they are not ultimately going to be successful, 245 00:15:44,920 --> 00:15:47,680 Speaker 1: but they may hold prices up a little bit and 246 00:15:47,760 --> 00:15:53,280 Speaker 1: just provide a much greater incentive for UH lots of 247 00:15:53,320 --> 00:15:57,400 Speaker 1: small producers, relatively small problem producers such as E G, 248 00:15:57,960 --> 00:16:01,080 Speaker 1: E O G and others, and UH pioneer just to 249 00:16:01,400 --> 00:16:04,920 Speaker 1: keep pushing ahead and expand supply. UH. You know, if 250 00:16:04,920 --> 00:16:08,280 Speaker 1: you want to say, put it bluntly, UH, they've been 251 00:16:08,320 --> 00:16:14,440 Speaker 1: overtaken by technology. I'm still confused here about the metrics 252 00:16:14,480 --> 00:16:16,920 Speaker 1: that we use to gauge how these countries are upholding 253 00:16:16,920 --> 00:16:18,880 Speaker 1: their ends of the barn. With Saudi Arabia in particularly, 254 00:16:18,880 --> 00:16:20,960 Speaker 1: they released their own figures. We had figures from the 255 00:16:20,920 --> 00:16:23,520 Speaker 1: International Organization as well. What do you prize more when 256 00:16:23,560 --> 00:16:25,680 Speaker 1: you're when you're looking for for outputs, say what are 257 00:16:25,680 --> 00:16:28,680 Speaker 1: you looking at? I very rarely try to do that. 258 00:16:28,960 --> 00:16:31,080 Speaker 1: What I do is I turned to the market. I 259 00:16:31,160 --> 00:16:34,160 Speaker 1: turned to the futures market. Uh you know. I was 260 00:16:35,120 --> 00:16:37,480 Speaker 1: when the company called Drexel Burning was around. I was 261 00:16:37,560 --> 00:16:43,240 Speaker 1: helping create this market. And today we have over five 262 00:16:43,280 --> 00:16:47,360 Speaker 1: and almost five and a half billion barrels of oil 263 00:16:48,840 --> 00:16:51,800 Speaker 1: outstanding in futures contracts. And what you do is you 264 00:16:51,840 --> 00:16:53,720 Speaker 1: look at the shape of the forward price curve and 265 00:16:53,760 --> 00:16:56,160 Speaker 1: how the companies are responding, and you look at the 266 00:16:56,160 --> 00:17:00,480 Speaker 1: cash prices. It is you know what OPEC says it's 267 00:17:00,560 --> 00:17:04,160 Speaker 1: doing is it has become irrelevant. Now I know this 268 00:17:04,240 --> 00:17:06,400 Speaker 1: is this is what people have watched for fifty years. 269 00:17:06,400 --> 00:17:09,000 Speaker 1: And as I'm moving into this new home, we got 270 00:17:09,000 --> 00:17:11,240 Speaker 1: a hundred boxes of file cabinets and books and you 271 00:17:11,240 --> 00:17:12,880 Speaker 1: look at all these old books and so on where 272 00:17:12,920 --> 00:17:15,560 Speaker 1: people talked about OPEC and how we had to follow 273 00:17:15,720 --> 00:17:19,320 Speaker 1: production and so on, and and it's all quaint. It's 274 00:17:19,359 --> 00:17:23,120 Speaker 1: it's like filing away old train schedules when you used 275 00:17:23,119 --> 00:17:26,320 Speaker 1: to use the train to go across the country. I mean, 276 00:17:26,320 --> 00:17:29,080 Speaker 1: I look still at where we are, and we've gone 277 00:17:29,080 --> 00:17:31,600 Speaker 1: from a hundred dollar framework down to twenty nine and 278 00:17:31,640 --> 00:17:34,720 Speaker 1: back up to fifty ish. When you think about it 279 00:17:34,840 --> 00:17:37,960 Speaker 1: every day, what is the thing our audience should watch 280 00:17:38,440 --> 00:17:44,520 Speaker 1: in the oil market? If I were what, you know, 281 00:17:44,880 --> 00:17:48,959 Speaker 1: if i'm I thought, I'm an investor, I wouldn't be 282 00:17:49,000 --> 00:17:51,960 Speaker 1: watching so much the oil market because it's it's it's 283 00:17:51,960 --> 00:17:56,239 Speaker 1: not going to move dramatically. Uh. What I'm watching is 284 00:17:56,520 --> 00:18:01,040 Speaker 1: uh North Korea. Uh so you go act of political 285 00:18:01,119 --> 00:18:06,040 Speaker 1: analysis that if somebody does something that takes a lot 286 00:18:06,040 --> 00:18:10,600 Speaker 1: of demand off the market, which is what an attack 287 00:18:10,640 --> 00:18:13,639 Speaker 1: on North Korea would do, or takes a lot of 288 00:18:13,680 --> 00:18:16,399 Speaker 1: supply off the market, you're going to be in a 289 00:18:16,600 --> 00:18:20,880 Speaker 1: very different situation. And every commodity market is this way. 290 00:18:21,000 --> 00:18:23,760 Speaker 1: You know, you look at copper. There's this big strike 291 00:18:23,960 --> 00:18:28,520 Speaker 1: down in Chili that's changed the dynamic copper market. It 292 00:18:28,840 --> 00:18:32,359 Speaker 1: is something like that. You know, I picked North Korea 293 00:18:32,480 --> 00:18:35,919 Speaker 1: because that's the highest scary thing right now, but it 294 00:18:36,119 --> 00:18:40,800 Speaker 1: is you know, it is not in the oil market 295 00:18:40,880 --> 00:18:43,400 Speaker 1: right now. Okay, so we gotta leave it there. Feel 296 00:18:43,440 --> 00:18:46,560 Speaker 1: really good, Thank you so much, and congratulations on analysis 297 00:18:46,600 --> 00:18:51,080 Speaker 1: of gasoline. Is the dynamic going into the warmer season 298 00:18:59,280 --> 00:19:02,800 Speaker 1: brought you by Bank of America. Mary Lynch dedicated to 299 00:19:02,880 --> 00:19:06,760 Speaker 1: bringing our clients insights and solutions to meet the challenges 300 00:19:06,920 --> 00:19:10,640 Speaker 1: of a transforming world. That's the power of global connections. 301 00:19:11,000 --> 00:19:15,960 Speaker 1: Mary Lynch, Pierce Federan Smith Incorporated Member s I p C. 302 00:19:19,160 --> 00:19:23,240 Speaker 1: On the Spectum Enterprise phone line. Jack Bogo, Mr Bogo, 303 00:19:23,240 --> 00:19:26,280 Speaker 1: wonderful to speak to you again. What has changed is 304 00:19:26,359 --> 00:19:29,120 Speaker 1: not so much the migration of billions of dollars from 305 00:19:29,160 --> 00:19:32,800 Speaker 1: active to passive, but just in the last six months 306 00:19:33,080 --> 00:19:35,800 Speaker 1: we are now it what appears to be a crisis 307 00:19:35,920 --> 00:19:41,200 Speaker 1: moment for active managers, mergers, mergers, mergers, cutting of costs, 308 00:19:41,240 --> 00:19:46,640 Speaker 1: et cetera. Where will active management be in five years, Well, 309 00:19:46,680 --> 00:19:49,480 Speaker 1: it will almost certainly be a smaller proportion of the 310 00:19:49,520 --> 00:19:53,000 Speaker 1: mutual fund industry and than it is today. And today 311 00:19:53,040 --> 00:19:59,199 Speaker 1: passive is around mutual fund equity mutual funds, and you know, 312 00:19:59,240 --> 00:20:02,560 Speaker 1: it could get it gets very tough to build these numbers, 313 00:20:02,560 --> 00:20:06,120 Speaker 1: these share numbers. But I would say probably five years 314 00:20:06,119 --> 00:20:10,000 Speaker 1: from now it would be maybe maybe over forty five. 315 00:20:10,600 --> 00:20:13,000 Speaker 1: There's a very strong tide out there, tom as you know, 316 00:20:13,680 --> 00:20:18,639 Speaker 1: and amazingly, I mean the the e t F I'm sorry, 317 00:20:18,680 --> 00:20:22,280 Speaker 1: the Total Index fun business. I was doing a bad 318 00:20:22,600 --> 00:20:26,119 Speaker 1: forty billion last year and this year forty billion a 319 00:20:26,119 --> 00:20:29,080 Speaker 1: month a month, and this year in the first two 320 00:20:29,119 --> 00:20:32,320 Speaker 1: months it's something like sixty seven billion. That's a huge 321 00:20:32,400 --> 00:20:36,960 Speaker 1: increase in UM in index fund close. I haven't seen 322 00:20:36,960 --> 00:20:39,400 Speaker 1: all the data for active management, but they're still very, very, 323 00:20:39,560 --> 00:20:41,639 Speaker 1: very negative. I want to quote a letter here from 324 00:20:41,680 --> 00:20:45,080 Speaker 1: one Warren Buffett of Omaha, Nebraska. Quote. If a statue 325 00:20:45,119 --> 00:20:46,920 Speaker 1: is ever erected to honor the person who's done the 326 00:20:46,920 --> 00:20:49,320 Speaker 1: most for American investors, the hands down choice should be 327 00:20:49,920 --> 00:20:52,920 Speaker 1: Jack Bogel. What's your relationship like with with Warren Buffett? 328 00:20:52,960 --> 00:20:55,280 Speaker 1: And how how closely, how in sync or your two 329 00:20:55,520 --> 00:21:01,760 Speaker 1: investing strategies. Well, are in many accidentical. And I first 330 00:21:01,800 --> 00:21:04,920 Speaker 1: met Warren probably in about five out of the State 331 00:21:04,960 --> 00:21:09,800 Speaker 1: Securities Commissioners meeting and in San Diego, California. We had 332 00:21:09,800 --> 00:21:12,560 Speaker 1: a nice chat and we stayed in touch really a 333 00:21:12,560 --> 00:21:15,600 Speaker 1: little bit. Ever since. He's written forwards to my books. 334 00:21:16,480 --> 00:21:19,639 Speaker 1: He's done a great blurb if you will endorsement of 335 00:21:19,720 --> 00:21:22,520 Speaker 1: the tenth anniversary edition of my little Book of Common 336 00:21:22,560 --> 00:21:24,840 Speaker 1: Sense Investing, which will be coming out in the ball 337 00:21:25,280 --> 00:21:27,240 Speaker 1: and it's right there in the cover of the book 338 00:21:28,080 --> 00:21:31,119 Speaker 1: and that book has been He greatly admired that book, 339 00:21:31,880 --> 00:21:34,679 Speaker 1: greatly admires it, and every time he speaks about it, 340 00:21:34,720 --> 00:21:36,800 Speaker 1: up go the sales. He has a lot of a 341 00:21:36,800 --> 00:21:40,160 Speaker 1: lot of effect. But you know, it's so close. He 342 00:21:40,160 --> 00:21:43,240 Speaker 1: he recommends the S and P five just about every 343 00:21:43,280 --> 00:21:48,240 Speaker 1: regular investor. He's leaving a trust for his wife and 344 00:21:48,280 --> 00:21:53,600 Speaker 1: he has directed that invested in the Vanguards seven s 345 00:21:53,640 --> 00:22:01,080 Speaker 1: and Index fund. You know, decades on he gets a 346 00:22:01,080 --> 00:22:08,439 Speaker 1: shameless plug in. There again, you got the plug in 347 00:22:08,480 --> 00:22:12,560 Speaker 1: for the Vanguard funds. Jack there with Mr Buffet, I 348 00:22:12,560 --> 00:22:16,600 Speaker 1: get there's David continued, I. I can't avoid the plug. 349 00:22:16,640 --> 00:22:18,280 Speaker 1: He was the one that plug there you go, there 350 00:22:18,359 --> 00:22:20,880 Speaker 1: you go. We were talking with Arthur Levin a moment 351 00:22:20,920 --> 00:22:23,840 Speaker 1: ago about the passive versus active debate, and I asked 352 00:22:23,920 --> 00:22:26,480 Speaker 1: him how close we are to settling it? What's what's 353 00:22:26,520 --> 00:22:31,240 Speaker 1: your sense of that? Well, we've seen something very very 354 00:22:31,240 --> 00:22:33,160 Speaker 1: few people have talked about this, but what we've really 355 00:22:33,200 --> 00:22:38,720 Speaker 1: done has moved active to a different section. Exchange traded funds, 356 00:22:38,720 --> 00:22:40,960 Speaker 1: which are the big driver this year. They haven't always 357 00:22:40,960 --> 00:22:43,600 Speaker 1: been in recent years, but they are right now. And 358 00:22:43,640 --> 00:22:45,399 Speaker 1: that is people who are doing a lot of trading 359 00:22:45,400 --> 00:22:49,919 Speaker 1: a lot of activity in their index fund investing. And 360 00:22:50,000 --> 00:22:51,760 Speaker 1: you know, you can buy an index fun and bet 361 00:22:51,760 --> 00:22:53,720 Speaker 1: whether the markets going up or down today and get 362 00:22:53,720 --> 00:22:56,840 Speaker 1: three times leverage. I'm not sure exactly what sense that makes, 363 00:22:56,880 --> 00:22:59,600 Speaker 1: and I would recommend nobody do it. But there's some 364 00:22:59,720 --> 00:23:02,479 Speaker 1: very aggressive e t s out there. There's a very 365 00:23:02,560 --> 00:23:05,879 Speaker 1: undiversified e t s out there, and there's a lot 366 00:23:05,920 --> 00:23:07,960 Speaker 1: of trading. These e t s are turning over it 367 00:23:08,720 --> 00:23:11,080 Speaker 1: while the Spider, the most popular stock in the world 368 00:23:11,119 --> 00:23:13,200 Speaker 1: every day, the Standards and Boors five under e t 369 00:23:13,440 --> 00:23:17,240 Speaker 1: F run by State Street has an annualized turnover at 370 00:23:17,240 --> 00:23:21,560 Speaker 1: the moment of two thousand percent a year. Two percent 371 00:23:21,600 --> 00:23:23,679 Speaker 1: a year. I mean, I'm the kind of guy Toma 372 00:23:23,760 --> 00:23:26,480 Speaker 1: thinks three percent a year is pushing the envelope. Yeah, 373 00:23:27,000 --> 00:23:29,280 Speaker 1: I mean, I I look jack at this debate, and 374 00:23:29,320 --> 00:23:31,520 Speaker 1: again I look at the M and A, and it 375 00:23:31,640 --> 00:23:34,359 Speaker 1: really just comes back to the theory, which you know 376 00:23:35,160 --> 00:23:40,440 Speaker 1: your expert on among others of modern portfolio management. What 377 00:23:40,600 --> 00:23:45,639 Speaker 1: did they get wrong the act of tom Let me 378 00:23:45,880 --> 00:23:49,359 Speaker 1: respectfully disagree with that. You know, I had never heard 379 00:23:49,400 --> 00:23:53,119 Speaker 1: of modern port folio theory. And when I started the 380 00:23:53,160 --> 00:23:59,960 Speaker 1: first FUN back in back in nineteen seventy five recommend 381 00:24:00,000 --> 00:24:01,919 Speaker 1: into the board of directors and got it approved here 382 00:24:01,920 --> 00:24:04,760 Speaker 1: at Vanguard, the first index fund, And all I did 383 00:24:04,760 --> 00:24:08,000 Speaker 1: was look at the record. I'm the pragmatic indexer. The 384 00:24:08,080 --> 00:24:11,000 Speaker 1: record shows very clearly, and it showed the same thing 385 00:24:11,080 --> 00:24:14,679 Speaker 1: to the great economist Paul Samuelson, that the record shows 386 00:24:14,760 --> 00:24:19,480 Speaker 1: clearly that most managers, if not all managers, cannot consistently 387 00:24:19,880 --> 00:24:22,760 Speaker 1: beat the stock market. And when you think about it, Tom, 388 00:24:22,920 --> 00:24:26,160 Speaker 1: how could they. They're all average, They're competing with each other, 389 00:24:26,200 --> 00:24:28,560 Speaker 1: and the market is the average. So if you take 390 00:24:28,560 --> 00:24:30,119 Speaker 1: out a little bit every year, you'll do better than 391 00:24:30,119 --> 00:24:31,879 Speaker 1: the guys that are taking out the great hunks of 392 00:24:31,880 --> 00:24:36,920 Speaker 1: money every every day. Very quickly. Here, I'm just I'm disappointed, sir, 393 00:24:36,960 --> 00:24:40,199 Speaker 1: you don't have Princeton the champion of the final four. Gonzaga. 394 00:24:40,280 --> 00:24:44,200 Speaker 1: What is it about Gonzaga that Jack Bocal likes. Well, 395 00:24:44,240 --> 00:24:48,840 Speaker 1: they're they're little, they were pretty unknown four or five 396 00:24:48,920 --> 00:24:53,120 Speaker 1: years ago, and they've gone from being a constant underdog 397 00:24:53,640 --> 00:24:57,520 Speaker 1: to you know, a rising star. And one of these 398 00:24:57,560 --> 00:25:00,320 Speaker 1: days that the star will will be aligned with some 399 00:25:00,320 --> 00:25:03,280 Speaker 1: pretty good things. So that was my guest. That's good, 400 00:25:03,359 --> 00:25:06,280 Speaker 1: Jack Bogel, thank you so much greatly appreciated. Mr Bogel, 401 00:25:06,960 --> 00:25:09,320 Speaker 1: one of the celebrities that we have within our Bloomberg 402 00:25:09,320 --> 00:25:27,880 Speaker 1: brackets today, the aerospace engineer at the Minneapolis Fed, Neil 403 00:25:28,359 --> 00:25:31,760 Speaker 1: at cash carry Um, the president of the Minneapolis Fed. 404 00:25:31,800 --> 00:25:34,680 Speaker 1: In a recent UH dissenter, Neil, I want to get 405 00:25:34,720 --> 00:25:37,760 Speaker 1: away from the four questions you've been asked in the 406 00:25:37,880 --> 00:25:41,199 Speaker 1: forty seven interviews you've done sense of descent, and I 407 00:25:41,240 --> 00:25:43,960 Speaker 1: want to get a little Matthew, as you put in 408 00:25:44,000 --> 00:25:46,119 Speaker 1: your wonderful note with a lot of good charts on 409 00:25:46,200 --> 00:25:50,119 Speaker 1: why I dissented. You talk about linearity, and you talked 410 00:25:50,240 --> 00:25:54,919 Speaker 1: about the vector of inflation in this worry that we 411 00:25:55,000 --> 00:26:00,040 Speaker 1: get convexity or acceleration or a second derivative move in 412 00:26:00,040 --> 00:26:04,680 Speaker 1: inflation at some point. Discuss the evidence from your PhDs 413 00:26:05,119 --> 00:26:09,119 Speaker 1: that we can get an acceleration of inflation at a 414 00:26:09,160 --> 00:26:12,800 Speaker 1: certain tipping point. Well, first of all, Tom, I'm good 415 00:26:12,800 --> 00:26:15,800 Speaker 1: to talk to you, and thanks for having me. Well, 416 00:26:15,800 --> 00:26:19,320 Speaker 1: that's the thing I'm pushing our PhD saying, show me 417 00:26:19,359 --> 00:26:22,560 Speaker 1: the evidence of this downlinearity, and there isn't any. I 418 00:26:22,560 --> 00:26:26,359 Speaker 1: mean the question is all of our models work and 419 00:26:26,400 --> 00:26:29,360 Speaker 1: are based on the premise of inflation expectations being anchored. 420 00:26:29,680 --> 00:26:33,680 Speaker 1: If inflation expectations get unanchored, they break somehow, then all 421 00:26:33,680 --> 00:26:36,520 Speaker 1: sorts of bad things can happen. We don't know what 422 00:26:36,760 --> 00:26:40,679 Speaker 1: causes inflation expectations to break or to become unanchored, but 423 00:26:40,760 --> 00:26:44,040 Speaker 1: all the data right now suggests they are rock solid anchored, 424 00:26:44,480 --> 00:26:47,960 Speaker 1: and investors appropriately really believe the Federal Reserve that we're 425 00:26:47,960 --> 00:26:51,160 Speaker 1: committed to not letting inflation take off. And so if 426 00:26:51,200 --> 00:26:54,159 Speaker 1: that's the case, then I don't see this big concern 427 00:26:54,240 --> 00:26:56,320 Speaker 1: that inflations all of a sudden going to go above target. 428 00:26:56,520 --> 00:26:59,280 Speaker 1: Help me with horse and cart, David Gara, This is 429 00:26:59,280 --> 00:27:03,800 Speaker 1: an extreme, a complex economic model of the horse before 430 00:27:04,400 --> 00:27:06,960 Speaker 1: the cart. When you showed up at the University of 431 00:27:07,000 --> 00:27:10,320 Speaker 1: Illinois Urban a years ago, Champagne, I thought you were 432 00:27:10,359 --> 00:27:12,640 Speaker 1: you know, maybe it came on a horse and a 433 00:27:12,640 --> 00:27:15,920 Speaker 1: cart or something equivalent to it. Can the FED be 434 00:27:16,040 --> 00:27:19,280 Speaker 1: the horse or by definition is the FED the cart? 435 00:27:19,720 --> 00:27:25,360 Speaker 1: And must act ex post in light of visible evidence? Well, 436 00:27:25,400 --> 00:27:29,280 Speaker 1: I don't know how else to behave and conduct policy 437 00:27:30,119 --> 00:27:32,639 Speaker 1: other than the look at the evidence. Otherwise we're just guessing. 438 00:27:32,680 --> 00:27:35,040 Speaker 1: Because for the past five or six years, the Sutter 439 00:27:35,119 --> 00:27:39,040 Speaker 1: Reserve has been consistently guessing the form C participants that 440 00:27:39,119 --> 00:27:42,160 Speaker 1: inflation is around the corner, and if they had acted 441 00:27:42,200 --> 00:27:45,600 Speaker 1: based on those guesses, they would have hurt the economy. 442 00:27:45,680 --> 00:27:48,320 Speaker 1: And so I'm saying, we've been guessing wrong for five 443 00:27:48,400 --> 00:27:51,879 Speaker 1: or six years. Let's stop guessing. Let's just focus on 444 00:27:51,920 --> 00:27:55,280 Speaker 1: the data and let the data guide us present cast car. 445 00:27:55,359 --> 00:27:57,440 Speaker 1: I look back on the speech that FED your Janet 446 00:27:57,480 --> 00:28:00,280 Speaker 1: Yellen gave in Chicago ahead of the last meeting, and 447 00:28:00,359 --> 00:28:01,960 Speaker 1: something that she said a couple of times is the 448 00:28:01,960 --> 00:28:04,160 Speaker 1: FED has not fallen behind the curve when it comes 449 00:28:04,160 --> 00:28:06,800 Speaker 1: to inflation, when it comes to the labor market. I 450 00:28:06,880 --> 00:28:10,000 Speaker 1: understand you're very concerned about their being slack. How worried 451 00:28:10,040 --> 00:28:13,720 Speaker 1: are you about the FED falling behind the curve? I'm not. 452 00:28:14,000 --> 00:28:16,160 Speaker 1: I agree with her about that, and not in terms 453 00:28:16,160 --> 00:28:18,800 Speaker 1: of we're not too late, because here's the thing. From 454 00:28:18,840 --> 00:28:22,359 Speaker 1: a risk management perspective, we have very powerful tools to 455 00:28:22,520 --> 00:28:26,800 Speaker 1: raise rates to bottle up inflation if it starts to accelerate. 456 00:28:27,680 --> 00:28:30,520 Speaker 1: We have far fewer tools, as do other central banks 457 00:28:30,520 --> 00:28:32,679 Speaker 1: around the world to deal with very low inflation. And 458 00:28:32,720 --> 00:28:35,560 Speaker 1: so from a risk management perspective, that also tells us 459 00:28:35,880 --> 00:28:39,520 Speaker 1: we should be patient, allow inflation to build back towards targets. 460 00:28:39,520 --> 00:28:41,320 Speaker 1: So I agree with her. I don't think we're behind 461 00:28:41,360 --> 00:28:43,600 Speaker 1: the curve, but if we are, we have the tools 462 00:28:43,600 --> 00:28:46,120 Speaker 1: to and the will to deal with it. At the 463 00:28:46,200 --> 00:28:47,880 Speaker 1: end of the last statement, it says voting against the 464 00:28:47,920 --> 00:28:49,840 Speaker 1: action with Neil cash Car who preferred at this meeting 465 00:28:49,840 --> 00:28:53,000 Speaker 1: to maintain the existing target range for the federal funds. Right, 466 00:28:53,040 --> 00:28:55,120 Speaker 1: you go on and write a very extended medium post 467 00:28:55,160 --> 00:28:58,200 Speaker 1: explaining why in fact that you did that incredibly valuable 468 00:28:58,240 --> 00:29:01,000 Speaker 1: to somebody like me or does somebody like Tom. You 469 00:29:01,080 --> 00:29:04,080 Speaker 1: also note that of the medium term inflation forecasts in 470 00:29:04,120 --> 00:29:07,480 Speaker 1: the semi economic projections have been too high. What's wrong 471 00:29:07,520 --> 00:29:09,880 Speaker 1: with the Fed's ability to forecast right now? And is 472 00:29:09,880 --> 00:29:14,120 Speaker 1: there a way to change the forecasting mechanism? You know, 473 00:29:14,400 --> 00:29:16,080 Speaker 1: people are doing their very best, and we have some 474 00:29:16,120 --> 00:29:18,400 Speaker 1: of the best economists, the best PC's in the world, 475 00:29:18,440 --> 00:29:21,600 Speaker 1: helping us to think through these issues. I think we 476 00:29:21,720 --> 00:29:24,560 Speaker 1: all have this desire to go back to normal, that 477 00:29:24,640 --> 00:29:26,480 Speaker 1: we just think in a couple of years things are 478 00:29:26,480 --> 00:29:29,560 Speaker 1: going to return to normal. And after the financial crisis, 479 00:29:29,600 --> 00:29:32,360 Speaker 1: it has taken the economy a lot longer to return 480 00:29:32,400 --> 00:29:35,520 Speaker 1: to normal. You know, remember over time, the FED is 481 00:29:35,560 --> 00:29:39,080 Speaker 1: really just following what the economy is doing. Over the 482 00:29:39,160 --> 00:29:41,640 Speaker 1: last thirty years, real interest rates have been falling all 483 00:29:41,680 --> 00:29:44,320 Speaker 1: around the world, not because of the FED, not because 484 00:29:44,360 --> 00:29:47,600 Speaker 1: the central banks, because there broader economic forces and we're 485 00:29:47,600 --> 00:29:51,920 Speaker 1: adjusting around that overall trend. And so uh, I want 486 00:29:51,960 --> 00:29:55,000 Speaker 1: to return to normal to Let's let the data guide us. 487 00:29:55,240 --> 00:29:57,160 Speaker 1: Let's stop guessing. The other thing I put in that 488 00:29:57,240 --> 00:29:59,960 Speaker 1: piece is I think we're behaving as though two per 489 00:30:00,040 --> 00:30:03,080 Speaker 1: sent as a ceiling rather than a target. If we 490 00:30:03,120 --> 00:30:06,080 Speaker 1: really truly believe the two is a target, then we 491 00:30:06,120 --> 00:30:10,760 Speaker 1: should be behaving that way. Within this is a working paper, 492 00:30:10,880 --> 00:30:13,320 Speaker 1: your Minneapolis Fed folks, if you're just joining us, Neils 493 00:30:13,400 --> 00:30:16,920 Speaker 1: carry with this President of the Minneapolis Fed, Amador Bianchi, 494 00:30:16,960 --> 00:30:21,320 Speaker 1: Pacola and Perry about exchange rates and dollar dynamics at 495 00:30:21,320 --> 00:30:24,760 Speaker 1: the zero bound? What's wrong with getting away from the 496 00:30:24,880 --> 00:30:27,959 Speaker 1: zero bound? Did share yelling? And can we have a 497 00:30:28,000 --> 00:30:32,320 Speaker 1: few measured rate rises to give us some wiggle room 498 00:30:32,360 --> 00:30:35,800 Speaker 1: if we've got to go back down at some point? Well, 499 00:30:35,840 --> 00:30:38,080 Speaker 1: you know, I don't find that argument compelling. It's like 500 00:30:38,120 --> 00:30:40,600 Speaker 1: saying you're driving down the highway and you think there 501 00:30:40,640 --> 00:30:43,120 Speaker 1: might be a hill coming up so let's let off 502 00:30:43,120 --> 00:30:45,560 Speaker 1: the gas now so that if a hill comes up, 503 00:30:45,720 --> 00:30:48,000 Speaker 1: we can floor it. You know, you're much better off 504 00:30:48,000 --> 00:30:50,200 Speaker 1: just maintaining your speed, and then if you reach a hill, 505 00:30:50,560 --> 00:30:52,520 Speaker 1: give it what remaining gas you have left. So this 506 00:30:52,960 --> 00:30:56,760 Speaker 1: preemptive raised hikes just so we can turn around and 507 00:30:56,760 --> 00:30:58,920 Speaker 1: cut them. I don't actually think that that makes sense. 508 00:30:59,360 --> 00:31:01,560 Speaker 1: I think we just need to allow the economy to 509 00:31:01,600 --> 00:31:05,360 Speaker 1: continue to perform, allow inflation to gradually go up to target, 510 00:31:05,360 --> 00:31:08,160 Speaker 1: allow the labor market to continue using up slack, and 511 00:31:08,200 --> 00:31:10,720 Speaker 1: then raise rates when the data call for it. You 512 00:31:10,800 --> 00:31:13,000 Speaker 1: mentioned the data. What's your preferred set of data when 513 00:31:13,000 --> 00:31:14,640 Speaker 1: it comes to inflation? What are you looking at? What's 514 00:31:14,680 --> 00:31:17,720 Speaker 1: Neil cash Car looking at? You know, there's the number 515 00:31:17,720 --> 00:31:20,640 Speaker 1: one thing that I look at is twelvemonth core PC 516 00:31:21,200 --> 00:31:25,200 Speaker 1: personal consumption expenditures. At the prior f MC meeting, it 517 00:31:25,240 --> 00:31:28,800 Speaker 1: was around one point seven year over year. It's now 518 00:31:28,880 --> 00:31:32,320 Speaker 1: ticked up to one point seven, but it's still well 519 00:31:32,360 --> 00:31:35,360 Speaker 1: below our two percent target. And the reason we focus 520 00:31:35,400 --> 00:31:38,640 Speaker 1: on core is because core is the best predictor we 521 00:31:38,760 --> 00:31:42,320 Speaker 1: know of of future headline inflation. So we do care 522 00:31:42,360 --> 00:31:45,120 Speaker 1: about headline inflation, but we know that energy and food 523 00:31:45,120 --> 00:31:47,600 Speaker 1: bounce around a lot, so we focus on Core as 524 00:31:47,640 --> 00:31:50,280 Speaker 1: a forward indicating give us an update on too Big 525 00:31:50,760 --> 00:31:54,800 Speaker 1: to Fail? Are you and James Diamond on speaking terms, Well, 526 00:31:55,200 --> 00:31:58,160 Speaker 1: I haven't spoken of it quite a while. UM I 527 00:31:58,440 --> 00:32:02,040 Speaker 1: would hope that he would admit it that JP Morgan 528 00:32:02,040 --> 00:32:04,680 Speaker 1: and Goldman Sachs and Bank of America are still too 529 00:32:04,680 --> 00:32:07,520 Speaker 1: big to fail because if they got into trouble today, 530 00:32:07,560 --> 00:32:10,000 Speaker 1: the Federal Reserve and the Treasury would have to step 531 00:32:10,040 --> 00:32:13,200 Speaker 1: in to stabilize them, not for their own sake, but 532 00:32:13,280 --> 00:32:14,840 Speaker 1: because of the damage they would do to the U. 533 00:32:14,920 --> 00:32:18,200 Speaker 1: S economy. And I think Republicans and Democrats agree we 534 00:32:18,240 --> 00:32:20,520 Speaker 1: need to do something about that. President cash Curry, thank 535 00:32:20,520 --> 00:32:22,760 Speaker 1: you so much. Neil cash Cary with a miniapluis fed 536 00:32:23,320 --> 00:32:27,320 Speaker 1: uh with with a different view and an important view. 537 00:32:27,360 --> 00:32:30,160 Speaker 1: I can't say enough about their website. All of the 538 00:32:30,200 --> 00:32:33,880 Speaker 1: FEDS have distinctive websites, and the mini appus FED as 539 00:32:33,920 --> 00:32:38,360 Speaker 1: a terrific Lincoln sure of their district including agriculture, along 540 00:32:38,400 --> 00:32:42,800 Speaker 1: with the independence that's been seen for decades from the 541 00:32:42,840 --> 00:32:46,800 Speaker 1: Minnieapolis uh fed Uh. Neil cash Curry today on the 542 00:32:46,800 --> 00:32:49,280 Speaker 1: Spectrum Enterprise phoneline is what do we learned to David. 543 00:32:49,840 --> 00:32:53,000 Speaker 1: You know, I'm really glad that he did write this, 544 00:32:53,000 --> 00:32:54,840 Speaker 1: this piece of the medium, and I don't know if 545 00:32:54,880 --> 00:32:56,360 Speaker 1: he's going to do that after every meeting, but it 546 00:32:56,440 --> 00:32:59,240 Speaker 1: is certainly insightful. You know, we listen to the speeches, 547 00:32:59,280 --> 00:33:00,960 Speaker 1: we look at the trans to the speeches, but to 548 00:33:01,000 --> 00:33:04,080 Speaker 1: have this sort of considered assessment of why he voted 549 00:33:04,120 --> 00:33:06,560 Speaker 1: the way he did, I thought was great. So agree 550 00:33:06,640 --> 00:33:10,880 Speaker 1: and with great charts, which you would expect from engineer 551 00:33:11,440 --> 00:33:13,680 Speaker 1: Cash carrigs Well, a real different take on how to 552 00:33:13,760 --> 00:33:27,000 Speaker 1: do monetary transparency. Thanks for listening to the Bloomberg Surveillance Podcast. 553 00:33:27,320 --> 00:33:32,440 Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever 554 00:33:32,600 --> 00:33:37,000 Speaker 1: podcast platform you prefer. I'm out on Twitter at Tom Keene. 555 00:33:37,080 --> 00:33:40,880 Speaker 1: David Gura is at David Gura. Before the podcast, you 556 00:33:40,920 --> 00:33:57,200 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio, brought you 557 00:33:57,280 --> 00:34:00,920 Speaker 1: by Bank of America Mary Lynch. Dedicated to bringing our 558 00:34:00,960 --> 00:34:04,560 Speaker 1: clients insights and solutions to meet the challenges of a 559 00:34:04,600 --> 00:34:09,480 Speaker 1: transforming world. That's the power of global connections. Marylynch, Pierce, 560 00:34:09,560 --> 00:34:13,440 Speaker 1: Fenner and Smith Incorporated Member s I p C.