Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along
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Speaker 2: the Bloomberg Terminal, and the Bloomberg Business App. I'm not
Speaker 2: so much in the camp of a certitude of a
Speaker 2: September a rate Let's get wisdom on that with Nationwide
Speaker 2: with a wonderful Ohio perspective. Kathleen bus Johnson joins US
Speaker 2: now Chief Economists Nationwide because she's on our side. Kathy,
Speaker 2: I look at where we are right now, and more
Speaker 2: than anything, I would say there's a certitude about a
Speaker 2: September rate cut. Why do we feel that way?
Speaker 1: God, Good morning, Tom. Well the inflation data have you know, namely,
Speaker 1: really cooled off significantly. It makes it seem as if
Speaker 1: that the flare up we saw on the first quarter
Speaker 1: was anomalous and that really inflation is back on a
Speaker 1: good trend, you know, and eventually get back to two
Speaker 1: percent case. And we've also seen some slowing or moderation
Speaker 1: in employment and other key economic readings that you know,
Speaker 1: as a FED was there says they're more balanced right
Speaker 1: between the risks with inflation and employment, so it kind
Speaker 1: of gives them the green light and the reasons to
Speaker 1: start to cut rates.
Speaker 2: Where are you on jab as claims when you say
Speaker 2: that the labor market is breaking? I got a four
Speaker 2: week moving average of the weekly data of two hundred
Speaker 2: and thirty five thousand. It's buttressed right up against a
Speaker 2: peak of twenty twenty three of about two hundred and
Speaker 2: fifty one thousand. What's the statistic in your head where
Speaker 2: jobless claim signals?
Speaker 1: Let's go, yeah, so that you know, we've seen some
Speaker 1: upward movement and jobless claims, but that's still quite low.
Speaker 1: And I'm not suggesting or worry that we're about to
Speaker 1: see a big roll over in the labor market. It's
Speaker 1: not as if we're going to start seeing negative payroll
Speaker 1: prints or the unemployment rate jumping sharply higher. But as
Speaker 1: we creep higher, that's sick news.
Speaker 3: Some slowing.
Speaker 1: And you know, one statistic that I would say on payrolls,
Speaker 1: besides all the other ones that will watch, is in
Speaker 1: the household servey those who've been unemployed twenty six weeks
Speaker 1: or longer. Interesting thing to see that pick up.
Speaker 2: Gen know, that used to be the first statistic I
Speaker 2: looked at back when we were eight nine, ten percent unemployment.
Speaker 2: If that's If that's the case, Kathy, let me frame
Speaker 2: this out as a dual mandate. The laureate Krugman over
Speaker 2: at the New York Times has a tweet out yesterday
Speaker 2: on this disinflation, and he says, now, now, now is
Speaker 2: what he wants your own pole to do. I've got
Speaker 2: a market economist plural maybe led by over at Steefel
Speaker 2: the Lindsay Piagsa saying okay, maybe, but we need jobs
Speaker 2: to finally collapse. I don't see jobs collapsing. And I
Speaker 2: believe you just said edbing is more like what the
Speaker 2: labor economy will do.
Speaker 1: Yeah, that's right. I have sympathy for those who said
Speaker 1: the face should consider cutting rates, you know tomorrow right,
Speaker 1: getting the announcement, but they're not. They're not going to.
Speaker 1: They haven't signaled that, and I do think they want
Speaker 1: to see more data, particularly to be really convinced that
Speaker 1: the Q one inflation data ship they're corobinists. But yeah,
Speaker 1: back to the labor market moderation. Now, what we don't
Speaker 1: know is this moderation a harbinger of something you know,
Speaker 1: more dramatic as we go into twenty twenty five. We
Speaker 1: just don't know yet as if had been too late
Speaker 1: to cut rates starting in to cut rates again, we
Speaker 1: don't know. But right now, I would say, in the
Speaker 1: New York time, there's no signs of labor markets collapsing.
Speaker 4: Hey, Kathy, give me an idea. Just how restrictive are
Speaker 4: we at this point?
Speaker 1: Well, we're restricted when you look at certain pockets of
Speaker 1: the economy. Right, So, housing we know has been paralyzed
Speaker 1: for you know, for months, right well over a year.
Speaker 1: People are locked into low mortgages, aren't even putting their
Speaker 1: homes up for sale or moving. Housing starts are still
Speaker 1: really low. And then we know the lower income households
Speaker 1: are really facing headwinds that they're increasingly maxed out on
Speaker 1: their credit card. The New York Fed data shows us
Speaker 1: a fully fed data shows us that they're delinquent. And
Speaker 1: even though inflation is cooled, as we all know, price
Speaker 1: levels are still high relative to pre pandemic, So they're
Speaker 1: feeling the pressure there. I think that and the pandemic
Speaker 1: savings are topped out, So we have to remember that
Speaker 1: the tail was that god ess as resilient economy are
Speaker 1: really fading and the headwinds are still there and maybe
Speaker 1: even get a little stronger.
Speaker 4: And that other part of the dual mandate with employment.
Speaker 4: When employment goes, what does it take with it consumer spending? Obviously, right, Yeah.
Speaker 1: That's rights. As employment slows, aggregate income declines, and then
Speaker 1: that starts to restrain consumer spending. And the consumers don't
Speaker 1: have that, you know, they can't really, they don't have
Speaker 1: a lot of savings to rely on. If income starts
Speaker 1: as slow, you've got an unemployment a savings rate that's
Speaker 1: three point four mark that against pre pandemic savings rate
Speaker 1: which was seven point seven. And we also know again
Speaker 1: that you're starting to see delinquencies when the unemployment rate's
Speaker 1: only four point one, delinquencies on credit card and loan payments.
Speaker 1: What will that look like if we do start to
Speaker 1: see some deeper cracks in the labor market.
Speaker 2: Kathy, Thank you so much, Kathleen in Wes johnsick the nationwide.
Speaker 2: You get us started towards a FED day.
Speaker 3: Joining us.
Speaker 2: Now he's been a huge value to us. Terry Haynes
Speaker 2: at PENGEEA Policy here on the next step forward, I
Speaker 2: get a plan of exhilarance, exuberants, Terry Haynes from Harris.
Speaker 2: What's the plan from the Trump camp?
Speaker 5: The plan from the Trump campaign Tom is basically to
Speaker 5: try to define Harris before she can define herself effectively.
Speaker 5: They see a window of about three weeks before the
Speaker 5: convention where they can present Harris not only kind of
Speaker 5: the word salad that everybody knows about, but also defining
Speaker 5: I forget what Trump's exact words are, but you know
Speaker 5: it's extreme, most liberal ever, you know. So on and
Speaker 5: so forth, in an attempt, frankly, to blunt momentum and
Speaker 5: blunt the potential ceiling that she has, which is, you know,
Speaker 5: quite substantial.
Speaker 2: I look at this and just as a vignette, and
Speaker 2: I have not seen the video, folks, Neil Cavudo over
Speaker 2: at Fox last night went after the senator from Louisiana.
Speaker 2: Mister Kennedy on the verbiage that seems to be used
Speaker 2: by the Trump campaign and Trump supporters against the Vice president.
Speaker 2: Is everybody on the same page within conservative America? Or
Speaker 2: do you see the divides Terry even greater as you've
Speaker 2: laid out for the last two years? Oh?
Speaker 5: I see the divides in terms of the message. The
Speaker 5: message is all over the place right now, and and
Speaker 5: there isn't a clear signal from the Trump side about
Speaker 5: what they you know, what they prefer. So therefore, you know,
Speaker 5: you're getting very scattershot kind of kind of words. And
Speaker 5: you know, by comparison, the Harris folks have been have
Speaker 5: been very disciplined on that.
Speaker 2: Terry John Tucker here the question, are you going to
Speaker 2: ask him about property taxes?
Speaker 4: Oh? Yeah, it's saltcoming in the hunt you or Vice President?
Speaker 4: I'm hearing now the name of the Minnesota Governor Tim Waltz.
Speaker 4: Who is he and does he counterbalance the idea of
Speaker 4: the liberal San Francisco Democrat?
Speaker 5: Governor Wall seems to be beloved of progressives, and for
Speaker 5: that reason alone, I think I discount his chances.
Speaker 2: You know.
Speaker 5: The you know, what Harris needs is is balance on
Speaker 5: the ticket. She needs it both geographically. She needs it
Speaker 5: in terms of swing states, and she needs it in
Speaker 5: terms of you know, the centrism, and I think Walts
Speaker 5: doesn't really fill much.
Speaker 2: Of those buckets.
Speaker 5: So I think that he's less likely than somebody like
Speaker 5: like Shapiro for example, like Whitmer.
Speaker 3: Maybe.
Speaker 4: Okay, so as the favorite son of Pittsburgh, Terry, you're
Speaker 4: going for Pennsylvania's governor with his nineteen electoral college votes.
Speaker 5: Well, now, favorite sonism doesn't havehing to do with it, really, John,
Speaker 5: the it's much more that.
Speaker 2: You know.
Speaker 5: I think last time I saw you all I called
Speaker 5: this the captain obvious analysis, and that is that he
Speaker 5: fills the biggest electoral college need, and he also checks
Speaker 5: all of those other boxes as well. It's interesting to
Speaker 5: me that there's been a somewhat of a backlash within
Speaker 5: Democratic circles about his unabashed support for Israel. You know,
Speaker 5: I think that's plus for him. Frankly, that's ticket back Terry.
Speaker 2: John Tucker has a one item candidate voter. Rather, all
Speaker 2: he cares about is property texts in New Jersey and
Speaker 2: a repeal of the assault. Are there a lot of
Speaker 2: John Tucker's out there and issues when you look at
Speaker 2: the electorate of America. How much of us has one item?
Speaker 2: This is the way we want to be. Are we
Speaker 2: that focused? Are we more sophisticated?
Speaker 5: Ah, We're more scattershot. I think there's I'd say most
Speaker 5: voters care about lots of different issues. And you see
Speaker 5: you see that, you know, in the usual surveys that happen,
Speaker 5: there aren't that many to think only one thing is important.
Speaker 5: I will say that I've been hearing uh, you know,
Speaker 5: hugely from New York New Jersey area folks for a
Speaker 5: decade now about salt and whether it might come back,
Speaker 5: and so that seems to be a myopic focus of
Speaker 5: your particular area.
Speaker 2: It seems to be very myopic, particularly to my right
Speaker 2: here at Bloomberg Studio, Terry. Let's go then to the border,
Speaker 2: and does a gentleman from Arizona have a strength for
Speaker 2: Vice President Harris because he's in Tucson, some hundred miles
Speaker 2: from the border.
Speaker 5: I think it's less I think it's less likely that
Speaker 5: Senator Kelly gets it because of the because of the
Speaker 5: UH and UH, and also less likely because of Arizona.
Speaker 5: If you look at the swing States, Arizona seems a
Speaker 5: little bit more out of hand than uh and and
Speaker 5: less gettable, I would say than some of the others,
Speaker 5: although I think it very much in play. But comparatively speaking,
Speaker 5: the Harris people seem to be emphasizing what they call
Speaker 5: the blue Wall of Michigan, Wisconsin, and Pennsylvania. That seems
Speaker 5: to be where their focus is. And you know, although
Speaker 5: Senator Kelly I think would be a fine candidate.
Speaker 4: When do I get the polls that are really going
Speaker 4: to tell me about how this new lineup is faring?
Speaker 5: I think not until after Labor Day, John, And the
Speaker 5: reason why is that you know what you see here
Speaker 5: in something of hammer for a while. But you know,
Speaker 5: registered voter poles, I think, don't tell you very much.
Speaker 5: And that's pretty much all you've got right now. I mean,
Speaker 5: I've seen likely voter polls occasionally, but you know, registered
Speaker 5: voter poles are like, you know, I'm thinking about maybe
Speaker 5: going to see that movie over the weekend. As opposed
Speaker 5: to the people who are actually going to go see
Speaker 5: the movie, it is less of less interest to you know,
Speaker 5: theater owners and movie studios who might see as opposed
Speaker 5: to who's likely to see. So I think it gets
Speaker 5: the stilled down starting after Labor Day before then not
Speaker 5: really running those poles.
Speaker 2: Just quickly here, Terry Haines, is as simple as this
Speaker 2: old style. I'll use Reagan, but I could use any
Speaker 2: other candidate as well. You entrenched the base through August,
Speaker 2: get into September, and as a miraculous amendment the second
Speaker 2: week of October where you move to the middle. Are
Speaker 2: we that old school?
Speaker 5: Well yeah, I mean that that both of these campaigns
Speaker 5: are a start from the premise that their bases are
Speaker 5: not secure, which is interesting because they're always talked about
Speaker 5: as if they are, but they're not. They're constantly doing
Speaker 5: things to try to to lock down their base. But
Speaker 5: then they you know, they kind of move to the middle,
Speaker 5: and you'll see Harris start to move to the middle
Speaker 5: with the vice presidential pick. I think Trump, in contrast,
Speaker 5: I think has given up his chance to bridge by
Speaker 5: picking Vance and I said so an hour after we
Speaker 5: got picked. You know, he doubled down on I think
Speaker 5: more small ball, and it's going to come back to
Speaker 5: bite him.
Speaker 2: Terry Haynes, thank you so much for Pangaea. An update
Speaker 2: there and really careful advice. I think to maintain the
Speaker 2: certitude until we get into September. In October, ed Ludlow.
Speaker 2: In the last two three four months, he's done a
Speaker 2: national value add But you bought a Tesla, right, Retto didn't.
Speaker 2: Retto didn't buy it for your keeper.
Speaker 6: Coming straight out of my paycheck. Rehtto doesn't pay for it.
Speaker 2: You bought a Tesla, and they had a Bloomberg technology
Speaker 2: and all our San Francisco efforts. His chronicled self driving
Speaker 2: on a Tesla like, literally, it's a public good. When
Speaker 2: are we going to have confidence for a Tesla or
Speaker 2: any other car to be quote unquote self driving.
Speaker 6: I don't know when we collectively will have confidence. I
Speaker 6: don't have confidence. So I leased a Tesla. Little why
Speaker 6: I think I've discussed it with you on the show.
Speaker 1: Right.
Speaker 6: I did it because it was the most affordable option
Speaker 6: at the time when I needed a car.
Speaker 2: I was in one yesterday. Actually it's very.
Speaker 6: Comfortable, Yeah, very comfortable, And the lease is like, it's
Speaker 6: very cheap for you know, and we can afford it.
Speaker 6: But I love technology, so my thinking was get hands
Speaker 6: on with it. We write about and talk about full
Speaker 6: self driving supervised software on air all the time. I
Speaker 6: don't think it's fair for a journist to do that
Speaker 6: and not use it. So I've been using it a lot,
Speaker 6: and I have the latest version, twelve point five point
Speaker 6: one that was released limited release Friday. It started to
Speaker 6: roll out widespread today last twenty four hours, and I
Speaker 6: took it for a ride Saturday, thirty miles from my
Speaker 6: home to San Francisco. There were no incidents bar one,
Speaker 6: so Golden gate Bridge iconic.
Speaker 4: All it takes is one incident.
Speaker 6: By the way, well exactly, So I get onto the
Speaker 6: Golden gate Bridge, I'm in the correct lane. I actually
Speaker 6: change the software changes lanes for me, and it spits
Speaker 6: me out the other side, on the San Francisco side,
Speaker 6: and I'm heading toward the toll booth. There are six
Speaker 6: toll booths, only two of them are open. Gets me
Speaker 6: in one of them that's open with a green arrow.
Speaker 6: Good start, but it says very clearly, do not stop.
Speaker 6: Maintain speed twenty five miles an hour. I get to
Speaker 6: the bollards and the self driving system slams the brakes
Speaker 6: and I go down to six miles an hour. What's
Speaker 6: behind me dozens of cars shooting off the bridge, not
Speaker 6: at twenty five miles or forty miles an hour. I
Speaker 6: made the choice in the moment not to intervene.
Speaker 3: I should have done.
Speaker 2: Were you listening to Jefferson Airplane and Grateful Dead?
Speaker 6: I was listening to Kenny Gail. Okay, just classic for
Speaker 6: the Woodwind movement, John.
Speaker 2: Lives and the Garden State Parkway. There's someone doing in
Speaker 2: Ned Ludlow experience.
Speaker 4: Well, no, it's working, that's right. It doesn't take into
Speaker 4: account the other nuts who are behind you on the roadway.
Speaker 6: Yes, yes, and no. It's a purely camera based system, right,
Speaker 6: and there are cameras around the perimeter of the car,
Speaker 6: and so it literally does take into account the nuts
Speaker 6: around you based on what the cameras can detect envision
Speaker 6: in the speed they're moving at. I mean, I saw
Speaker 6: something on the Bloomberg terminal yesterday that I don't think
Speaker 6: I've seen in my career, which is Bloomberg's trick created
Speaker 6: Now writing up that truest analyst note, he reflected on
Speaker 6: his own experience where he almost had an incident, right,
Speaker 6: he almost had crash. But what's the most amazing about
Speaker 6: the story is not just the details of his note
Speaker 6: and his thesis around Tesla's that that story got almost
Speaker 6: fourteen thousand terminal reads in a single kill that day.
Speaker 6: So people care, and I think that's why it's important
Speaker 6: we talk about it.
Speaker 4: Peter Thiel tells a great story about getting in Elon
Speaker 4: Musk when he got his supercar way back when, and
Speaker 4: he crashed it with him in the car. Didn't have
Speaker 4: insurance either, by the way.
Speaker 2: So what's the relationship of Tesla, California to Texas. We
Speaker 2: all know the SOBA right and say, the California Department
Speaker 2: of Driver's Licenses. Is there a government watching of Ed
Speaker 2: Ludlow almost coming to death on the Golden gate Bridge?
Speaker 2: Do they care?
Speaker 6: That's a really excellent question.
Speaker 2: So I only good one of the days to go
Speaker 2: with a day.
Speaker 6: The answer is that the federal level, it's NITZA, the
Speaker 6: National Highway in Traffic Safety Administration, who essentially policed this
Speaker 6: and different to other companies that you may or may
Speaker 6: not have heard of, for example Zooks which is owned
Speaker 6: by Amazon, or Waimo, which is owned by Alphabet, the
Speaker 6: parent of Google. What Tester is doing is developing this
Speaker 6: technology through the consumer in the real world with a
Speaker 6: view long term to operating so called robotaxi fleet. And
Speaker 6: what others are doing are testing vehicles where there is
Speaker 6: no driver in the front seat and the consumer sits
Speaker 6: in the back a genuine robotaxi, and that answers the
Speaker 6: jurisdiction question that because this is going through the consumer,
Speaker 6: it's largely NITZA that is adjudicating the development of it
Speaker 6: in the risk in real time in this country only,
Speaker 6: I should.
Speaker 4: Say, crossing fifty seventh Street this morning at three am,
Speaker 4: they've milled the roadway preparing it for removing. There are
Speaker 4: no lines on the roadway and this has been this
Speaker 4: way for three week typical in New York City. You
Speaker 4: get prepared to pave a roadway, it takes about three
Speaker 4: weeks after you jam. Well, no, it's the truth. AI
Speaker 4: is going to solve that problem for me.
Speaker 6: Finance, isn't you go across.
Speaker 4: Fifty seven streets lines the road?
Speaker 6: So this is another excellent question. In the truest note,
Speaker 6: the analyst recalls three incidents where he had to intervene
Speaker 6: because he felt unsafe. What the camera system is supposed
Speaker 6: to do is detect all elements of the road around you,
Speaker 6: including a white solid line now on a freeway or
Speaker 6: a highway environment, the rules of the road in any
Speaker 6: state are that you must not change lane with a
Speaker 6: white solid line. In the analyst's note, the car chose
Speaker 6: to change lane of its own decision making, breaking that
Speaker 6: rule of the road. Now, in the incident or the
Speaker 6: environment you've described, there are no lines, and so that's
Speaker 6: one of the things the camera based system is supposed
Speaker 6: to use to help it navigate the world around it.
Speaker 6: It's another great question. It would use proximity to basically
Speaker 6: maintain a course, but of course it's not ideal.
Speaker 2: Do you assume at some point that Tesla will continue this,
Speaker 2: reinvigorate it, or will they step aside and say we
Speaker 2: just can't get it done.
Speaker 5: They're all in.
Speaker 6: I mean, my sourcing that company is that this is it,
Speaker 6: and you're either with it or you're not. I'll say
Speaker 6: something I've said to you many times Tom, which is
Speaker 6: Elon Musk is often late, always late, but he gets
Speaker 6: there in the end, and to his credit, you know,
Speaker 6: it's not a perfect safe experience. It's pretty astonishing the technology.
Speaker 6: The difficulty for investors many listening to this program is
Speaker 6: I don't get the jump. How do I go from
Speaker 6: sitting in my own car where I partially allow it
Speaker 6: to dry itself drive itself to a future where Tesla
Speaker 6: operates a fleet like Uber of robotaxing.
Speaker 2: We've been unfair, We've been Thank you seriously ed for
Speaker 2: just this incredible real life coverage. I read it voraciously
Speaker 2: on the weekends. Ludlow is all I read anything else kind?
Speaker 2: Microsoft this afternoon, what's your nuance at Bloomberg Technology? Yeah?
Speaker 6: I call it this earning season. Do you understand the
Speaker 6: money machine? For every dollar you're putting in the machine,
Speaker 6: how many dollars are coming out? And Microsoft gave us
Speaker 6: a sense of that last quarter. Basically, they gave us
Speaker 6: a CAPEX figure and they said we had thirty percent
Speaker 6: top line growth on Cloud. Seven percent of that came
Speaker 6: from AI and for the street, that was kind of enough.
Speaker 6: But the concern is, you're spending all this money, what
Speaker 6: do you have to show for it in terms of
Speaker 6: top line growth. You guys probably have a longer standing
Speaker 6: relationship with Microsoft than I do. With respect. It's been
Speaker 6: around since the mid seventies. But what it's always been
Speaker 6: good at is selling software you could otherwise get for free,
Speaker 6: and that gives the market some confidence in that name.
Speaker 6: It's one of the most widely held stocks among institutionals
Speaker 6: and retailers on the planet.
Speaker 2: We're doing it. We have a baseball player of the
Speaker 2: New York Yankees. It's a baseball team, ED and they
Speaker 2: have a new player that's wonderful called Jazz Chisholm. So
Speaker 2: I talk to your people and I said, what does
Speaker 2: what does Ed Lovelow want in terms of jazz And
Speaker 2: they said, adds just like all Kenny g is Kenny
Speaker 2: g js Jan.
Speaker 4: Well, if that's open to debate, I would say no,
Speaker 4: But yeah.
Speaker 3: Ed Ludlow wember respect.
Speaker 2: Mike Green joins its chief strategies to simplify asset management,
Speaker 2: always thinking about the market for various and sundry firms,
Speaker 2: including Canyon. Over the years you have and you know, Mike,
Speaker 2: how I feel about this. I hate the modern parlor
Speaker 2: game of the FED. And the parlor game exists because
Speaker 2: we have data and we could go to our Bloomberg
Speaker 2: and look at the data, and we're more certain ourselves
Speaker 2: because we've got the data. And now we're data dependent.
Speaker 2: And you liken it to two drunks, the dual mandates
Speaker 2: at the ex post bar of the FED.
Speaker 7: Yeah, we're definitely staggering home trying to solve both unemployment,
Speaker 7: which we're not entirely sure what it is and how
Speaker 7: it's caused. And we're trying to solve inflation, which we
Speaker 7: freely admit we're not entirely sure how to fix it
Speaker 7: or solve it.
Speaker 2: And you mentioned the Blinder op ed here in the
Speaker 2: Western Journal is the example. So how does that fold
Speaker 2: into the July seven September guessing game of those in
Speaker 2: the parlor?
Speaker 7: So I think we're now at a point of decision
Speaker 7: where the FED is likely to go ahead barring some
Speaker 7: catastrophic rating that comes through. But the important point the
Speaker 7: Blinder is making is that we've changed the seasonality. Just
Speaker 7: the methodology with which we produce the data on inflation
Speaker 7: is influenced by the prior behavior of prices. The last
Speaker 7: revision basically adjusted for the time period from twenty seventeen
Speaker 7: to twenty twenty two, which includes the nonsense around COVID.
Speaker 7: This has shifted seasonality dramatically. It raises prices or raises
Speaker 7: inflation numbers that we're getting in the fall and early spring,
Speaker 7: and it's lowering them in the summer. That's creating conditions
Speaker 7: where we could come into the fall, even as underlying
Speaker 7: inflation continues to fall, and suddenly we see a hot
Speaker 7: CPI print again, derailing the question of is the FED
Speaker 7: going to cut despite the very obvious need to do
Speaker 7: so and.
Speaker 4: The inflation fight. It comes at the expanse of jobs.
Speaker 7: It can right. It becomes a question of what we
Speaker 7: actually trying to diagnose. And this is one of these
Speaker 7: really weird situations in which the map becomes the territory.
Speaker 7: We're not actually looking at what's happening in the economy. Instead,
Speaker 7: we're turning around and relying on the data, which was
Speaker 7: the point that Tom was making, that we confidently receive
Speaker 7: from government agencies that are printing this. Now most people
Speaker 7: think there's giant conspiracies around this. It's really just mechanical inputs.
Speaker 2: Right.
Speaker 7: When you have thousands and thousands of employees who are
Speaker 7: doing this, you have to have rules around how you
Speaker 7: construct it. Those rules are built for time periods of stability,
Speaker 7: and the last five years have been anything.
Speaker 4: But if we're not data dependent, then we're what anecdotally depended.
Speaker 7: Well, anecdotes are data in one form or another, right,
Speaker 7: but we need to actually have a theoretical model and
Speaker 7: an understanding of what's really going on. We are looking
Speaker 7: at components of inflation that are deeply lagging, things like
Speaker 7: insurance that ensures the value of the car as of
Speaker 7: last year. Right, that it relates to behaviors of consumers
Speaker 7: who are increasingly stressed and deciding to, you know, sue
Speaker 7: people for compensation in a variety of ways. We're seeing
Speaker 7: this insurance fraud is rising. Those are not inflationary. Those
Speaker 7: are market pressures and market powers, And the answer to them,
Speaker 7: of course, is fewer people drive cars. That's gonna end
Speaker 7: up playing out even if the FED reacts.
Speaker 2: What does it do to assets? I mean, what we're
Speaker 2: talking here about, folks, is a difference between risk where
Speaker 2: you can model what you've got, and outright uncertainty where
Speaker 2: you can't model it. What does that do to asset prices?
Speaker 7: So the uncertainty around the Fed's reaction function, or the
Speaker 7: uncertainty around do we have anything approximating an optimal path
Speaker 7: of interest rates is ultimately just like sand in the
Speaker 7: gears of the system. Right, it slows it down, It
Speaker 7: creates increased risks. You can err on the side of
Speaker 7: too liberal and too generous, as we may have done
Speaker 7: ten years ago. Now we're on the flip side of that,
Speaker 7: and we're watching segments of the economy slowly wither away.
Speaker 4: How restrictive are we right now?
Speaker 7: I think it really depends on who you ask. Right
Speaker 7: there's no restriction for a company that is incredibly cash
Speaker 7: rich like Microsoft. There was a fantastic headline that Apple,
Speaker 7: you know, made over a billion dollars on its cash
Speaker 7: balance last quarter. They're not thinking about interest rates at all.
Speaker 7: They don't care. But there are many companies that are
Speaker 7: deeply distressed in terms of their access to credit, particularly
Speaker 7: at the small side.
Speaker 2: So who's your study of who the Fed should listen to?
Speaker 2: The to to borrow a word from pure research, the
Speaker 2: topology of America, your own Powell has to choose who
Speaker 2: to adapt policy to. Obviously it's not going to be
Speaker 2: Tim Cook, I get that, But they who do they
Speaker 2: adapt for?
Speaker 7: Ultimately, what we should be doing is adapting for the
Speaker 7: maximum ability to change, right so, the ability to accommodate
Speaker 7: the shifts that are occurring in our economy right right now.
Speaker 7: What we're doing is we're basically saying the answer is
Speaker 7: get prices down, where the answer is get inflation or
Speaker 7: get unemployment up. Neither of those are answers. Those are
Speaker 7: actually just data.
Speaker 2: Again, well, I could go on for this for hours
Speaker 2: because full disclosure, folks. I agree with everything Mike Green's saying.
Speaker 2: But to be direct about it, are we victims of
Speaker 2: green spans measured? To me? The dampening folks, I'm not
Speaker 2: going to go to the math of this, but there's
Speaker 2: a browning function and a drift function, and the answer
Speaker 2: is you dampen out. And that's a good thing. Basically,
Speaker 2: with a measured approach, we've dampened out our outcomes. That's
Speaker 2: the hope.
Speaker 7: That is the objective is to minimize the disruption that
Speaker 7: occurs because when people become unemployed, you lose years of
Speaker 7: human capital. Right, It's just that simple. That's really the
Speaker 7: issue that we're dealing with. On the flip side of that,
Speaker 7: as Stan Druckenmiller pointed out many years ago, you can overdampen.
Speaker 7: Over damping encourages excess leverage. And so it is a
Speaker 7: very tough job that the FED has And the simple
Speaker 7: answer is we're asking it to do way too much.
Speaker 7: We got a dysfunctional Congress, We've outsourced much of our
Speaker 7: policy making to monitor.
Speaker 2: They are are they affected by Laurence Summer and Olivia
Speaker 2: Blanchard's great work on hysteresis the long term effect of unemployment,
Speaker 2: or they just simply slaves to the Dallas trim mean
Speaker 2: or the PCE deflator.
Speaker 7: I think unfortunately this is where it gets confused with
Speaker 7: political influence, right. It really depends on what people are
Speaker 7: worried about.
Speaker 2: Right.
Speaker 7: So in a low unemployment environment, they're very focused on
Speaker 7: the inflation number. That's what people are angry about. In
Speaker 7: a high unemployment environment, you're gonna have to flip that.
Speaker 7: And unfortunately it feels very much like the risks that
Speaker 7: is flipping in the opposite direction are quite high.
Speaker 2: Now, bottle of Mike Green and a little bit out
Speaker 2: on Bloomberg Digital. Here today Mike Green is to simplify
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