1 00:00:03,880 --> 00:00:06,439 Speaker 1: Hello, Odd Lodge listeners. I'm Joe Wiesenthal. 2 00:00:06,620 --> 00:00:07,560 Speaker 2: And I'm Tracy Alloway. 3 00:00:07,700 --> 00:00:10,260 Speaker 1: We're the hosts of the Odd Lodge podcast, and we've 4 00:00:10,300 --> 00:00:11,480 Speaker 1: got something exciting for you. 5 00:00:11,760 --> 00:00:13,980 Speaker 2: That's right. So one of the best parts of hosting 6 00:00:14,060 --> 00:00:16,820 Speaker 2: our podcast is we get to actually meet and interact 7 00:00:16,970 --> 00:00:19,729 Speaker 2: with our listeners. And we know we have some listeners 8 00:00:19,870 --> 00:00:20,989 Speaker 2: over in Los Angeles. 9 00:00:21,170 --> 00:00:23,709 Speaker 1: That's right. So if you're in L.A., we're going to 10 00:00:23,750 --> 00:00:27,330 Speaker 1: be recording a live show, some live recordings at the 11 00:00:27,390 --> 00:00:29,550 Speaker 1: Vermont Theater in Hollywood on September 17th. 12 00:00:30,240 --> 00:00:32,979 Speaker 2: We have some really exciting guests lined up, have some 13 00:00:33,150 --> 00:00:36,450 Speaker 2: really great conversations planned. So go ahead and get your tickets. 14 00:00:36,470 --> 00:00:39,890 Speaker 2: You can find those over at Bloomberg.com forward slash oddlots 15 00:00:40,030 --> 00:00:42,530 Speaker 2: or click the link below in the show notes and 16 00:00:42,690 --> 00:00:43,750 Speaker 2: come and say hi when you're there. 17 00:00:49,490 --> 00:00:53,980 Speaker 1: Bloomberg Audio Studios, podcasts, radio, news. 18 00:01:04,800 --> 00:01:07,670 Speaker 2: Hello, and welcome to another episode of the Odd Lots podcast. 19 00:01:07,780 --> 00:01:08,620 Speaker 2: I'm Tracy Allaway. 20 00:01:08,870 --> 00:01:09,950 Speaker 3: And I'm Joe Wiesenthal. 21 00:01:10,170 --> 00:01:12,970 Speaker 2: Well, Joe, we are still at Jackson Hole, where the 22 00:01:13,290 --> 00:01:18,530 Speaker 2: official theme of this year's symposium is financial innovation in payments. However, 23 00:01:18,550 --> 00:01:21,950 Speaker 2: the unofficial theme has to be what the heck is 24 00:01:21,970 --> 00:01:24,440 Speaker 2: going on with bond yields and the Federal Reserve, because 25 00:01:24,459 --> 00:01:28,780 Speaker 2: this whole meeting is coming against a backdrop of higher yields, 26 00:01:28,840 --> 00:01:32,190 Speaker 2: particularly at the long end. a new Fed chair who 27 00:01:32,270 --> 00:01:34,569 Speaker 2: seems to want to make a mark on the Fed 28 00:01:34,610 --> 00:01:37,390 Speaker 2: and has started all these different task forces to look 29 00:01:37,420 --> 00:01:40,380 Speaker 2: at things like comms and balance sheets. And then, of course, 30 00:01:40,500 --> 00:01:42,940 Speaker 2: we also have a Fed that seems to kind of 31 00:01:43,020 --> 00:01:46,560 Speaker 2: maybe be operating at cross-currents to the U.S. Treasury, given 32 00:01:46,580 --> 00:01:49,700 Speaker 2: that the Treasury is now buying back longer-dated bonds and 33 00:01:49,780 --> 00:01:51,940 Speaker 2: seemingly suppressing longer-dated yields. 34 00:01:52,020 --> 00:01:54,440 Speaker 1: There's so many different dimensions to what you described, right? 35 00:01:54,460 --> 00:01:57,370 Speaker 1: So there is the formal technical thing. There is the 36 00:01:57,410 --> 00:02:01,310 Speaker 1: sort of relationship between... the Fed and the Treasury. There 37 00:02:01,390 --> 00:02:05,330 Speaker 1: is the new things going on inside the Fed. There's 38 00:02:05,490 --> 00:02:08,410 Speaker 1: obviously the warmth in the economy. By the way, the 39 00:02:08,470 --> 00:02:11,820 Speaker 1: sun just came out. We're recording outside. It's been rainy 40 00:02:11,860 --> 00:02:14,160 Speaker 1: and cool all day. Now it suddenly got hot again. 41 00:02:14,520 --> 00:02:15,380 Speaker 1: Maybe that's a sign. 42 00:02:15,880 --> 00:02:18,700 Speaker 3: Anyway. That's why it's fun to be in Jackson Hole, though. 43 00:02:18,720 --> 00:02:20,799 Speaker 1: There are all kinds of different people we can talk to, 44 00:02:21,100 --> 00:02:24,380 Speaker 1: including people who sit perfectly at this intersection of all 45 00:02:24,419 --> 00:02:25,359 Speaker 1: the things that we're talking about. 46 00:02:25,380 --> 00:02:27,200 Speaker 2: That's exactly what I was going to say. So the 47 00:02:27,440 --> 00:02:30,180 Speaker 2: guest for today, truly the perfect guest, someone who's able 48 00:02:30,240 --> 00:02:33,040 Speaker 2: to sort of synthesize the macro and what's going on 49 00:02:33,060 --> 00:02:34,880 Speaker 2: in the bond market, as well as some of the 50 00:02:35,040 --> 00:02:38,570 Speaker 2: operations of the actual treasury market. So truly the perfect guest. 51 00:02:38,590 --> 00:02:40,910 Speaker 2: We're going to be speaking with Daryl Duffy. He is, 52 00:02:40,970 --> 00:02:45,769 Speaker 2: of course, professor of finance over at Stanford University. So Daryl, 53 00:02:45,790 --> 00:02:47,329 Speaker 2: thank you so much for coming back on OddLots. 54 00:02:47,610 --> 00:02:49,380 Speaker 4: Tracy, Joe, great to be back. Thank you. 55 00:02:49,700 --> 00:02:52,740 Speaker 2: Is there a connection between higher bond yields and the 56 00:02:52,780 --> 00:02:55,220 Speaker 2: payment system? Basically, why are you here? 57 00:02:56,240 --> 00:02:56,959 Speaker 4: Well, there can be. 58 00:02:58,000 --> 00:03:02,109 Speaker 5: In March of 2020, when the markets became dysfunctional, the 59 00:03:02,370 --> 00:03:05,090 Speaker 5: Fed had to step in and dig out the balance 60 00:03:05,110 --> 00:03:07,230 Speaker 5: sheets of the largest dealers to keep the bond market moving. 61 00:03:07,960 --> 00:03:10,160 Speaker 5: and bond yields jumped and were very volatile. 62 00:03:10,400 --> 00:03:12,810 Speaker 1: The last time we talked was also at Jackson Hole. 63 00:03:13,270 --> 00:03:16,670 Speaker 1: And we talked about this relationship between just the sheer 64 00:03:16,770 --> 00:03:20,269 Speaker 1: volume of public debt that's traded these days and the 65 00:03:20,310 --> 00:03:23,280 Speaker 1: sort of like scarce dealer balance sheet. And this is like, 66 00:03:23,360 --> 00:03:25,180 Speaker 1: you know, often when people talk about the size of 67 00:03:25,200 --> 00:03:28,310 Speaker 1: the debt, They talk about maybe like debt to GDP. 68 00:03:27,750 --> 00:03:29,030 Speaker 3: Or something like that or whatever. 69 00:03:29,050 --> 00:03:32,090 Speaker 1: This is like what you focus on then and some 70 00:03:32,110 --> 00:03:35,220 Speaker 1: of your work takes it from a different angle. Yes, 71 00:03:35,560 --> 00:03:38,140 Speaker 1: talk about the volume, but just sort of the pipes 72 00:03:38,180 --> 00:03:39,400 Speaker 1: that we have to run it through. 73 00:03:39,840 --> 00:03:40,260 Speaker 4: That's right. 74 00:03:40,580 --> 00:03:43,900 Speaker 5: And, you know, after that event in 2020, I said 75 00:03:43,940 --> 00:03:46,960 Speaker 5: it would happen again. Dealer balance sheets would get clogged again. 76 00:03:47,260 --> 00:03:49,940 Speaker 5: But even with massive amounts of trading we're seeing today, 77 00:03:51,020 --> 00:03:54,890 Speaker 5: the dealers have more space yet. Could be capital regulations 78 00:03:54,950 --> 00:03:57,810 Speaker 5: are not as strong. Could be the dealers have recapitalized, 79 00:03:58,610 --> 00:04:00,400 Speaker 5: but they're definitely in force. 80 00:04:01,240 --> 00:04:02,960 Speaker 2: I definitely want to talk more about that, but just 81 00:04:03,020 --> 00:04:05,340 Speaker 2: on a basic level, when you look at yields on 82 00:04:05,400 --> 00:04:08,320 Speaker 2: something like the 30-year above 5%, I know they've come 83 00:04:08,360 --> 00:04:13,160 Speaker 2: in slightly today following the chairman's speech, but when you 84 00:04:13,200 --> 00:04:15,980 Speaker 2: see a yield at that level, what do you think? 85 00:04:16,080 --> 00:04:16,940 Speaker 2: What is it telling you? 86 00:04:17,640 --> 00:04:20,260 Speaker 5: Well, if I'm the Secretary of the Treasury, it's telling 87 00:04:20,300 --> 00:04:22,120 Speaker 5: me that the United States is spending a heck of 88 00:04:22,170 --> 00:04:24,609 Speaker 5: a lot on interest expense and I need to do 89 00:04:24,650 --> 00:04:27,700 Speaker 5: what I can to get those yields down. The question is, 90 00:04:28,580 --> 00:04:34,820 Speaker 5: what can the Treasury Secretary do? As an economist, I 91 00:04:34,860 --> 00:04:37,900 Speaker 5: run the following thought experiment. Suppose, Tracy, I were to 92 00:04:38,260 --> 00:04:43,990 Speaker 5: convince you there's no inflation risk. Inflation, as indicated in 93 00:04:44,029 --> 00:04:47,609 Speaker 5: today's markets, is pretty stable going forward. The sovereign is 94 00:04:47,650 --> 00:04:52,150 Speaker 5: not going to default. You are, let's say, a hedge fund, 95 00:04:52,170 --> 00:04:56,450 Speaker 5: a macro hedge fund. You have $ 20 billion of the 96 00:04:56,450 --> 00:04:56,930 Speaker 5: 10 years. 97 00:04:58,510 --> 00:04:59,540 Speaker 3: I wish, but go on. 98 00:04:59,790 --> 00:05:04,370 Speaker 5: And I'm calling from the Treasury Department, and I'm suggesting 99 00:05:04,470 --> 00:05:07,690 Speaker 5: that you could take another 10. There's space on your 100 00:05:07,710 --> 00:05:11,250 Speaker 5: own balance sheet to do that. Now, given the conditions 101 00:05:11,270 --> 00:05:15,440 Speaker 5: that I described for the safe bonds, why wouldn't you? 102 00:05:16,200 --> 00:05:18,320 Speaker 5: And the reason is you already have what you chose 103 00:05:18,360 --> 00:05:21,380 Speaker 5: to have at 5.3%. And in order to get you 104 00:05:21,400 --> 00:05:24,080 Speaker 5: to buy $ 10 billion more, you need a higher yield 105 00:05:24,100 --> 00:05:29,110 Speaker 5: to compensate you. The foreign central banks, they have had 106 00:05:29,170 --> 00:05:30,870 Speaker 5: what they need for a long time now. 107 00:05:31,170 --> 00:05:31,870 Speaker 4: They're not buying more. 108 00:05:32,790 --> 00:05:35,849 Speaker 5: Foreign investors generally are not keeping up with the size 109 00:05:35,890 --> 00:05:39,290 Speaker 5: of the bond market. So it's the discretionary investors, the 110 00:05:39,370 --> 00:05:45,090 Speaker 5: mutual funds, hedge funds, banks, insurance companies, pension funds that 111 00:05:45,130 --> 00:05:47,860 Speaker 5: are yield sensitive and are being asked to take more 112 00:05:47,950 --> 00:05:50,540 Speaker 5: of a pretty safe asset, but they're not gonna do 113 00:05:50,600 --> 00:05:52,620 Speaker 5: it unless they get more yield compensation. 114 00:05:53,160 --> 00:05:54,810 Speaker 3: It's an interesting way to think about it. 115 00:05:54,860 --> 00:05:58,580 Speaker 1: So in Tracy's proverbial hedge fund, she has the $ 20 116 00:05:58,260 --> 00:06:02,550 Speaker 1: billion allocation to treasuries. But no one's paying Tracy just 117 00:06:02,560 --> 00:06:04,710 Speaker 1: to hold treasuries, right? So she presumably has a lot 118 00:06:04,730 --> 00:06:08,109 Speaker 1: of other assets, risky assets. Maybe she's been in Nvidia. 119 00:06:08,130 --> 00:06:09,969 Speaker 2: I've got the best assets, Joe, the best. 120 00:06:09,990 --> 00:06:12,669 Speaker 1: Maybe she's been in Korean chip stocks or all the 121 00:06:12,710 --> 00:06:15,750 Speaker 1: other things. When we think about the pricing, though, to 122 00:06:15,790 --> 00:06:18,560 Speaker 1: what extent Does it make sense to think about a 123 00:06:18,620 --> 00:06:24,880 Speaker 1: treasury bond being as in competition for other theoretically investable assets? 124 00:06:25,260 --> 00:06:27,279 Speaker 1: And when all those are flying to the moon, or 125 00:06:27,339 --> 00:06:30,000 Speaker 1: many of them like we've seen, does that have a 126 00:06:30,060 --> 00:06:32,520 Speaker 1: sort of reverberation onto the risk-free asset? 127 00:06:32,740 --> 00:06:35,100 Speaker 4: Sure it does. And it's other bonds included in that. 128 00:06:35,300 --> 00:06:39,010 Speaker 5: The hyperscalers have famously been demanding a lot of investment 129 00:06:39,110 --> 00:06:40,150 Speaker 5: by bond investors. 130 00:06:41,070 --> 00:06:42,040 Speaker 4: And it's all piling on. 131 00:06:42,930 --> 00:06:45,750 Speaker 5: But the biggest culprit is our governments generally, not just 132 00:06:45,790 --> 00:06:49,570 Speaker 5: the U.S., but especially the U.S. And government, you know, 133 00:06:49,589 --> 00:06:54,110 Speaker 5: deficits and debt to GDP are spectacularly high and there's 134 00:06:54,130 --> 00:06:57,710 Speaker 5: no end in sight. So this piling on effect, you know, 135 00:06:57,740 --> 00:06:59,440 Speaker 5: I think it's mainly in the bond market. 136 00:06:59,860 --> 00:07:03,160 Speaker 1: Debt to GDP ratio is no end in sight, et cetera. Certainly, 137 00:07:03,180 --> 00:07:06,440 Speaker 1: that seems right. People could have said that five or 138 00:07:06,480 --> 00:07:09,960 Speaker 1: six years ago. Well, they could have said that 2018, 2019. 139 00:07:09,960 --> 00:07:12,360 Speaker 1: And they said it for years about Japan. and just 140 00:07:12,420 --> 00:07:15,170 Speaker 1: rates kept going lower. Now they're going higher. But they 141 00:07:15,190 --> 00:07:20,650 Speaker 1: said they kept going lower. What changed? You could have 142 00:07:20,690 --> 00:07:22,710 Speaker 1: told this story 10 years ago, and you could have 143 00:07:22,730 --> 00:07:24,810 Speaker 1: laid out the demographics, and you could have talked about 144 00:07:25,110 --> 00:07:27,950 Speaker 1: the lack of political appetite to cut spending, et cetera. 145 00:07:28,310 --> 00:07:31,320 Speaker 1: What changed fundamentally such that we got this reversal? 146 00:07:32,700 --> 00:07:35,540 Speaker 5: Okay, so let's go back even further to when the 147 00:07:35,680 --> 00:07:39,340 Speaker 5: IMF said, 60% debt to GDP is the red line. 148 00:07:40,020 --> 00:07:42,640 Speaker 5: You should not want to go beyond that. And if 149 00:07:42,680 --> 00:07:45,800 Speaker 5: you do, it's at your own risk. That number just 150 00:07:45,840 --> 00:07:48,460 Speaker 5: kept getting higher and higher for all major governments. France 151 00:07:48,520 --> 00:07:52,450 Speaker 5: now is also at 100% debt to GDP. So what's 152 00:07:52,510 --> 00:07:56,050 Speaker 5: changed is the sheer volume of government debt relative to GDP. 153 00:07:56,630 --> 00:07:57,810 Speaker 4: It marches on and on. 154 00:07:57,810 --> 00:08:01,670 Speaker 5: 10 years ago, it wasn't anywhere near 100%. And the 155 00:08:01,770 --> 00:08:06,150 Speaker 5: treasury market was, let's see, if I recall, about $ 18 trillion. 156 00:08:06,630 --> 00:08:09,670 Speaker 4: Now it's $ 31 trillion. So it's just volume. 157 00:08:10,170 --> 00:08:13,970 Speaker 5: It's not, I mean, as Ken Rogoff remarked at lunch, 158 00:08:15,270 --> 00:08:17,360 Speaker 5: there's a lot of regression to the mean in terms 159 00:08:17,440 --> 00:08:21,220 Speaker 5: of long-term yields. And things come and go. But what's 160 00:08:21,260 --> 00:08:23,640 Speaker 5: been coming is more and more bond debt. 161 00:08:24,040 --> 00:08:26,860 Speaker 2: Yeah, can you say more about this idea of competition 162 00:08:27,000 --> 00:08:30,420 Speaker 2: with hyperscalers? Because I see some people seem to take 163 00:08:30,440 --> 00:08:33,179 Speaker 2: it as a given. Like the hyperscalers are issuing so 164 00:08:33,220 --> 00:08:37,239 Speaker 2: much debt into the market. particularly longer-term debt, that it 165 00:08:37,420 --> 00:08:40,000 Speaker 2: obviously has this crowding out effect. But then I see 166 00:08:40,040 --> 00:08:42,760 Speaker 2: some other people, and they'll be like, oh, no, the 167 00:08:42,820 --> 00:08:45,319 Speaker 2: buyers of U.S. treasuries are different to the buyers of 168 00:08:45,380 --> 00:08:48,210 Speaker 2: investment-grade bonds. And there's no way they're in competition with 169 00:08:48,250 --> 00:08:50,470 Speaker 2: each other. But to me, it feels like the overall 170 00:08:50,510 --> 00:08:53,130 Speaker 2: theme of the bond market right now is this additional 171 00:08:53,190 --> 00:08:55,350 Speaker 2: duration that investors have to absorb. 172 00:08:55,370 --> 00:08:56,949 Speaker 4: No, that's absolutely right. 173 00:08:57,309 --> 00:08:59,960 Speaker 5: And I wouldn't describe it as the hyperscalers crowding out 174 00:09:00,000 --> 00:09:01,939 Speaker 5: the Treasury Department, but rather the other way around. 175 00:09:02,460 --> 00:09:03,059 Speaker 3: Oh, interesting. 176 00:09:03,160 --> 00:09:05,790 Speaker 5: Yeah, I mean, $ 32 trillion and and rising at $ 2 177 00:09:05,610 --> 00:09:08,780 Speaker 5: trillion a year, there's nothing. I mean, it is true 178 00:09:08,800 --> 00:09:12,240 Speaker 5: hyperscalers are perhaps going to hit a trillion of debt 179 00:09:12,340 --> 00:09:15,220 Speaker 5: in the next couple of years. That's small compared to 180 00:09:15,260 --> 00:09:19,820 Speaker 5: the Treasury Department. So I really think it's the Treasury, 181 00:09:20,720 --> 00:09:25,530 Speaker 5: and not just the US Treasury, finance ministries and legislatures 182 00:09:25,570 --> 00:09:27,950 Speaker 5: around the world that are stuffing a lot of bonds 183 00:09:28,690 --> 00:09:33,650 Speaker 5: into the hands of the same investors Yeah, pension funds, 184 00:09:33,690 --> 00:09:37,210 Speaker 5: insurance companies, they'll buy all of this and they make trade-offs. 185 00:09:38,750 --> 00:09:40,860 Speaker 4: And we see what's happening to yields. 186 00:09:41,580 --> 00:09:43,800 Speaker 1: I just thought of a great idea for a sci-fi 187 00:09:44,380 --> 00:09:50,200 Speaker 1: story in which essentially these giant government debt loads, collapsed governments, 188 00:09:50,559 --> 00:09:54,190 Speaker 1: and these AI building companies become the new sovereign. 189 00:09:54,210 --> 00:09:56,929 Speaker 2: That's what I've been saying. So that's in Margaret Atwood, 190 00:09:57,030 --> 00:09:59,969 Speaker 2: one of Margaret Atwood's books. It's the companies basically revolving 191 00:10:00,040 --> 00:10:03,080 Speaker 2: replace the governments and you live in a corporate compound 192 00:10:03,140 --> 00:10:05,610 Speaker 2: and everything is provided to you by the tech company. 193 00:10:06,250 --> 00:10:09,410 Speaker 1: The Claude yield and the Gemini yield. And those will 194 00:10:09,429 --> 00:10:11,430 Speaker 1: be earned to risk free. But I want to get 195 00:10:11,450 --> 00:10:13,050 Speaker 1: back to one more thing. So I get all of this, 196 00:10:13,090 --> 00:10:16,210 Speaker 1: what you're saying. One word that hasn't come up, though, 197 00:10:16,470 --> 00:10:18,550 Speaker 1: is inflation. And so when I think like a big 198 00:10:18,600 --> 00:10:21,460 Speaker 1: difference between seven or eight years ago and now is 199 00:10:21,500 --> 00:10:26,640 Speaker 1: that there's continued to be high inflation years above target. 200 00:10:26,760 --> 00:10:29,320 Speaker 1: And it turned out it was even a very aggressive 201 00:10:29,380 --> 00:10:33,069 Speaker 1: rate hiking cycle didn't get it back to target. Why 202 00:10:33,190 --> 00:10:37,030 Speaker 1: couldn't it simply be that the reason for higher rates 203 00:10:37,370 --> 00:10:41,830 Speaker 1: is the series of higher short-term rates as expected because 204 00:10:42,410 --> 00:10:44,130 Speaker 1: there are a lot of inflationary impulses. 205 00:10:44,730 --> 00:10:46,670 Speaker 3: One among them may be spending. 206 00:10:48,309 --> 00:10:52,070 Speaker 5: In the long run, inflation and bond prices go together. 207 00:10:52,090 --> 00:10:54,510 Speaker 5: It's a fiscal theory of the price level. Read John 208 00:10:54,550 --> 00:10:56,280 Speaker 5: Cochran's book or maybe you have. 209 00:10:56,420 --> 00:10:58,640 Speaker 3: We've never heard John on the podcast. We really should 210 00:10:58,660 --> 00:10:59,059 Speaker 3: do that. 211 00:10:59,100 --> 00:11:01,819 Speaker 5: He would be perfect on this question. But today, if 212 00:11:01,840 --> 00:11:06,760 Speaker 5: you look at forward implied inflation numbers coming from real 213 00:11:06,840 --> 00:11:10,290 Speaker 5: and nominal bonds, They're not showing alarm bells at all. 214 00:11:11,280 --> 00:11:14,579 Speaker 5: It's true that we've had significantly more inflation than the 215 00:11:14,600 --> 00:11:16,340 Speaker 5: Fed would like to see for the last five years. 216 00:11:17,500 --> 00:11:21,680 Speaker 5: And as Kevin Warsh remarked this morning and others have spoken, 217 00:11:21,700 --> 00:11:24,920 Speaker 5: the last part is a lot of work remaining to 218 00:11:24,960 --> 00:11:26,699 Speaker 5: be done by the Fed. 219 00:11:27,520 --> 00:11:29,479 Speaker 4: So, yeah, inflation is a concern. 220 00:11:29,980 --> 00:11:32,160 Speaker 5: But I don't, my view, I don't think that's what 221 00:11:32,200 --> 00:11:34,980 Speaker 5: bond investors that are thinking about the 10s, 20s and 222 00:11:34,980 --> 00:11:39,130 Speaker 5: 30 years what's foremost on their mind. I think they're 223 00:11:39,190 --> 00:11:42,780 Speaker 5: looking at the supply relative to the demand. And again, 224 00:11:43,300 --> 00:11:46,700 Speaker 5: foreign central banks have had all that they need and 225 00:11:46,720 --> 00:11:52,250 Speaker 5: they're not buying more. And it's mostly domestic discretionary investors 226 00:11:52,270 --> 00:11:55,030 Speaker 5: that are being asked to take this additional supply and 227 00:11:55,070 --> 00:11:56,250 Speaker 5: they just need more compensation. 228 00:12:12,240 --> 00:12:15,900 Speaker 2: This is kind of a cliched question, but that deluge 229 00:12:16,100 --> 00:12:18,920 Speaker 2: of debt issuance, I guess, what does that actually mean 230 00:12:19,000 --> 00:12:21,800 Speaker 2: for central bankers? Because when you come to a conference 231 00:12:21,850 --> 00:12:25,930 Speaker 2: like this, it feels like that's the obvious thing in 232 00:12:25,950 --> 00:12:28,849 Speaker 2: the mix. And you hear little whispers of words like 233 00:12:29,110 --> 00:12:32,170 Speaker 2: fiscal dominance, but no one actually talks about it in 234 00:12:32,270 --> 00:12:33,050 Speaker 2: any direct way. 235 00:12:34,030 --> 00:12:36,650 Speaker 5: Yeah, I think the Fed is studiously avoiding fiscal dominance. 236 00:12:36,690 --> 00:12:41,110 Speaker 5: It would not entertain a discussion with the Treasury regarding 237 00:12:41,130 --> 00:12:44,150 Speaker 5: yield curve control. The last time that happened, it was 238 00:12:44,200 --> 00:12:48,760 Speaker 5: a very acrimonious end in the 1950s with the Fed-Treasury accord. 239 00:12:49,080 --> 00:12:53,099 Speaker 5: People think the word accord means they had a good agreement. 240 00:12:53,540 --> 00:12:56,059 Speaker 5: It actually means they had a really, really rough argument. 241 00:12:57,120 --> 00:13:01,710 Speaker 5: And the Fed supplied some support to the bond market, 242 00:13:01,750 --> 00:13:04,520 Speaker 5: kicking and screaming. for a short period of time, and 243 00:13:04,540 --> 00:13:06,540 Speaker 5: then got out of the business of yield curve control, 244 00:13:07,179 --> 00:13:11,949 Speaker 5: and it won't want to revisit that. The FOMC will 245 00:13:11,970 --> 00:13:17,750 Speaker 5: do everything possible not to get into fiscal dominance. So 246 00:13:18,309 --> 00:13:19,770 Speaker 5: I think that's my reaction. 247 00:13:20,470 --> 00:13:22,270 Speaker 2: So one of the reasons we wanted to speak to 248 00:13:22,330 --> 00:13:25,910 Speaker 2: you is because you've done work on the impact of 249 00:13:26,000 --> 00:13:29,209 Speaker 2: Treasury buyback programs in particular, and of course, I guess, 250 00:13:29,250 --> 00:13:31,070 Speaker 2: was it a week or two ago? I've lost all 251 00:13:31,090 --> 00:13:36,449 Speaker 2: sense of time. But recently, we had Scott Besson announcing 252 00:13:36,490 --> 00:13:39,370 Speaker 2: that he was increasing the size of the Treasury's buyback program. 253 00:13:39,870 --> 00:13:44,210 Speaker 2: He cited liquidity concerns. But as far as I can tell, 254 00:13:44,650 --> 00:13:47,670 Speaker 2: things looked pretty normal in the Treasury market at that 255 00:13:47,740 --> 00:13:50,240 Speaker 2: moment in time. What do you think his thinking was? 256 00:13:51,840 --> 00:13:52,240 Speaker 4: Well, from. 257 00:13:53,200 --> 00:13:56,280 Speaker 5: From his remarks, he seemed to think that yields were 258 00:13:56,320 --> 00:14:00,959 Speaker 5: too high, irrespective of liquidity concerns, and that, in his view, 259 00:14:01,740 --> 00:14:04,179 Speaker 5: market participants should have understood. 260 00:14:03,990 --> 00:14:06,410 Speaker 4: That a lower yield for the U.S. Treasury securities would 261 00:14:06,429 --> 00:14:07,010 Speaker 4: be appropriate. 262 00:14:07,990 --> 00:14:10,830 Speaker 5: And he said that he was signaling, he used the 263 00:14:10,850 --> 00:14:15,309 Speaker 5: word signal, signaling to the market his belief that Treasury 264 00:14:15,330 --> 00:14:19,560 Speaker 5: yields were too high. Now, I think we subsequently can 265 00:14:19,600 --> 00:14:24,460 Speaker 5: see that while the market reacted quickly to that news, 266 00:14:26,000 --> 00:14:30,100 Speaker 5: it reversed itself pretty quickly afterwards. Part of that related 267 00:14:30,140 --> 00:14:32,660 Speaker 5: to the firepower of the Treasury Department relative to the 268 00:14:32,710 --> 00:14:36,170 Speaker 5: bond market. I'm sure you remember James Carville's famous comments 269 00:14:36,270 --> 00:14:39,450 Speaker 5: about the power of the bond market. 270 00:14:39,750 --> 00:14:42,000 Speaker 2: Anyone who has ever written about the bond market has 271 00:14:42,160 --> 00:14:44,280 Speaker 2: used this quote as the lead for a column at 272 00:14:44,320 --> 00:14:45,560 Speaker 2: some point, myself included. 273 00:14:45,960 --> 00:14:47,120 Speaker 3: Did you see what Trump said? 274 00:14:47,140 --> 00:14:52,470 Speaker 1: Oh, yeah, about military intervention in the bond market. So 275 00:14:52,500 --> 00:14:55,270 Speaker 1: I don't know, maybe James Carville wasn't thinking fully that 276 00:14:56,210 --> 00:14:58,990 Speaker 1: the bond vigilante had not, James Carville had not considered 277 00:14:59,010 --> 00:15:02,810 Speaker 1: that the bond vigilantes could be bombed into submission, potentially. 278 00:15:02,850 --> 00:15:05,040 Speaker 3: I don't know if he... thought about that one. 279 00:15:05,120 --> 00:15:07,750 Speaker 5: Well, even the mighty US Treasury Department is not as 280 00:15:08,230 --> 00:15:11,010 Speaker 5: powerful as bond markets when it comes to setting yields. 281 00:15:11,030 --> 00:15:11,390 Speaker 4: Yeah. 282 00:15:11,730 --> 00:15:16,850 Speaker 5: We also saw in the yen intervention some signals that perhaps, first, 283 00:15:16,930 --> 00:15:19,300 Speaker 5: we have a more activist Treasury Department than we've had 284 00:15:19,320 --> 00:15:22,360 Speaker 5: in the past in terms of willingness to engage in 285 00:15:22,960 --> 00:15:23,880 Speaker 5: financial market. 286 00:15:25,420 --> 00:15:25,740 Speaker 4: Trades. 287 00:15:26,140 --> 00:15:29,200 Speaker 5: And secondly, that there might be some concern that if 288 00:15:29,240 --> 00:15:32,370 Speaker 5: things don't go well in Japan and the Japanese central 289 00:15:32,410 --> 00:15:36,880 Speaker 5: bank needs to unload treasuries that that would add on 290 00:15:36,970 --> 00:15:39,930 Speaker 5: to this piling on that we just discussed and cause 291 00:15:39,950 --> 00:15:43,770 Speaker 5: problems for U.S. Treasury markets and the interest expense of 292 00:15:43,790 --> 00:15:44,110 Speaker 5: the U.S. 293 00:15:44,150 --> 00:15:44,490 Speaker 4: Government. 294 00:15:44,970 --> 00:15:48,010 Speaker 5: So my impression, maybe I'm reading too much between the lines, 295 00:15:48,650 --> 00:15:51,960 Speaker 5: is that Secretary Besson wanted the market to understand that 296 00:15:52,000 --> 00:15:54,840 Speaker 5: the Treasury Department wasn't just going to sit there idly 297 00:15:55,380 --> 00:15:55,960 Speaker 5: and take that. 298 00:15:56,040 --> 00:15:57,620 Speaker 4: They wanted to be involved. 299 00:15:58,500 --> 00:16:03,690 Speaker 1: I feel like classical discussions of interventions... they seem to 300 00:16:03,750 --> 00:16:07,650 Speaker 1: work better when they are not volume bound but by 301 00:16:07,710 --> 00:16:10,930 Speaker 1: level bound. And when it seems often the case when 302 00:16:10,950 --> 00:16:12,950 Speaker 1: they're level bound, you don't even have to spend anything. 303 00:16:12,970 --> 00:16:15,670 Speaker 1: So you say, OK, 5% is our line in the sand. 304 00:16:16,070 --> 00:16:19,650 Speaker 1: And in theory, doesn't the Treasury have, it could just 305 00:16:19,710 --> 00:16:25,090 Speaker 1: issue two-year bills and just take out the 30s. I mean, 306 00:16:25,130 --> 00:16:28,500 Speaker 1: if Besset very strongly feels that it's like these prices 307 00:16:28,530 --> 00:16:31,500 Speaker 1: just do not, on some fundamental level, do not make sense, 308 00:16:32,230 --> 00:16:33,630 Speaker 1: Could he just say, you know what, we're going to 309 00:16:33,710 --> 00:16:36,750 Speaker 1: issue only two years or five years or whatever. We're 310 00:16:36,770 --> 00:16:40,020 Speaker 1: going to buy 30 years anytime they get to 4.99%. 311 00:16:40,020 --> 00:16:42,400 Speaker 1: And if you're a bond vigilante and you're thinking it's 312 00:16:42,420 --> 00:16:45,160 Speaker 1: going to go, you're shorting debt, you're going to get 313 00:16:45,200 --> 00:16:45,760 Speaker 1: badly burned. 314 00:16:47,360 --> 00:16:50,460 Speaker 5: Well, that would be a formula for increasing the interest 315 00:16:50,500 --> 00:16:55,320 Speaker 5: rate expense volatility for the US government because your debt 316 00:16:55,340 --> 00:16:58,400 Speaker 5: maturity is going to be shorter and shorter. And you're 317 00:16:58,420 --> 00:17:00,980 Speaker 5: going to be rolling over that debt in auctions that 318 00:17:01,020 --> 00:17:03,700 Speaker 5: will reflect current market conditions and a larger and larger 319 00:17:03,760 --> 00:17:07,040 Speaker 5: fraction of your interest expense is going to be realized 320 00:17:07,100 --> 00:17:10,240 Speaker 5: on a day to day basis. So that's US is 321 00:17:10,260 --> 00:17:11,959 Speaker 5: still in pretty good shape. It has an average debt 322 00:17:12,000 --> 00:17:19,419 Speaker 5: maturity of about six years. I also have the view 323 00:17:19,550 --> 00:17:24,150 Speaker 5: that governments are just not powerful enough to control these 324 00:17:24,230 --> 00:17:25,550 Speaker 5: trends with their own. 325 00:17:27,590 --> 00:17:29,149 Speaker 4: Resources. Let's go back to the. 326 00:17:31,030 --> 00:17:33,870 Speaker 5: Attack on the British pound in which Scott Besant had 327 00:17:34,290 --> 00:17:37,629 Speaker 5: a role in 1992 when he was working with the 328 00:17:37,670 --> 00:17:43,990 Speaker 5: Soros hedge fund. The British government was simply unable to 329 00:17:44,040 --> 00:17:45,920 Speaker 5: defend the pound, and it should never have tried. It 330 00:17:46,020 --> 00:17:48,399 Speaker 5: used up a lot of its firepower that way. And 331 00:17:48,420 --> 00:17:51,159 Speaker 5: so even, as I said, the U.S. Treasury Department, if 332 00:17:51,220 --> 00:17:53,060 Speaker 5: markets decide that yields are going to be at 6%, 333 00:17:53,060 --> 00:17:57,120 Speaker 5: the U.S. Treasury Department is not going to be able 334 00:17:57,180 --> 00:18:01,730 Speaker 5: to have a strong say in that, not without you know, 335 00:18:01,770 --> 00:18:03,130 Speaker 5: taking a lot of risk. Yeah. 336 00:18:03,470 --> 00:18:06,149 Speaker 2: What does your research actually say about, I guess, the 337 00:18:06,300 --> 00:18:11,060 Speaker 2: impact and duration of Treasury buybacks? Because this isn't the 338 00:18:11,080 --> 00:18:13,659 Speaker 2: first time the Treasury is doing this. There's plenty of 339 00:18:13,740 --> 00:18:16,699 Speaker 2: empirical instances that you can base your research on. What 340 00:18:16,720 --> 00:18:17,680 Speaker 2: have you found previously? 341 00:18:18,420 --> 00:18:21,129 Speaker 5: Well, I'm working right now with two economists at the 342 00:18:21,170 --> 00:18:24,070 Speaker 5: Federal Reserve Bank of New York, Michael Fleming and Or Shachar, 343 00:18:24,790 --> 00:18:29,010 Speaker 5: and with my PhD student at Stanford, Sam Wicherle. And 344 00:18:29,730 --> 00:18:34,270 Speaker 5: We are using the buyback data as well as turnover 345 00:18:34,310 --> 00:18:38,960 Speaker 5: data on dealer balance sheets to understand the benefit of 346 00:18:39,000 --> 00:18:42,560 Speaker 5: the original purpose of the buyback program, which is to 347 00:18:42,600 --> 00:18:46,870 Speaker 5: go out and clean up the leftover bits and pieces 348 00:18:47,180 --> 00:18:49,050 Speaker 5: of old treasury notes and bonds. 349 00:18:49,410 --> 00:18:50,790 Speaker 4: Odd lots. Odd lots, yeah. 350 00:18:50,810 --> 00:18:54,040 Speaker 2: But this was stuff that actually wasn't really trading anymore, right? 351 00:18:54,080 --> 00:18:57,160 Speaker 5: Yeah, it was clogging up dealer balance sheets and trading 352 00:18:57,460 --> 00:19:00,119 Speaker 5: at lower prices than would be suggested by a smooth 353 00:19:00,140 --> 00:19:03,900 Speaker 5: yield curve. And so the idea was, as explained by 354 00:19:03,960 --> 00:19:08,590 Speaker 5: then Assistant Treasury Secretary Josh Frost, let's be regular and 355 00:19:08,619 --> 00:19:12,949 Speaker 5: predictable and clean up these bits and pieces, make the 356 00:19:12,970 --> 00:19:17,310 Speaker 5: treasury market more liquid by replacing those with new liquid treasuries, 357 00:19:17,890 --> 00:19:21,810 Speaker 5: and implicitly make some money for the U.S. taxpayer by 358 00:19:22,090 --> 00:19:25,430 Speaker 5: buy low, sell high. And that's a good program. Our 359 00:19:25,450 --> 00:19:29,230 Speaker 5: research shows, well, it's in progress. You'll see the paper eventually. 360 00:19:29,250 --> 00:19:30,949 Speaker 5: We'll have you back on. 361 00:19:31,150 --> 00:19:32,820 Speaker 3: You and your PhD student can come back. 362 00:19:32,760 --> 00:19:34,380 Speaker 4: On for that. It shows that that's effective. 363 00:19:34,760 --> 00:19:37,860 Speaker 5: And by the way, I think it's totally legitimate that 364 00:19:37,880 --> 00:19:40,780 Speaker 5: a treasury secretary or treasury department would step into the 365 00:19:40,820 --> 00:19:44,070 Speaker 5: market and use the buyback program for unanticipated needs. 366 00:19:44,740 --> 00:19:46,200 Speaker 4: So, for example, going back to March 2020. 367 00:19:48,180 --> 00:19:51,399 Speaker 5: It's totally legitimate that a finance ministry or a Treasury 368 00:19:51,420 --> 00:19:56,710 Speaker 5: Department would say, it's our bond market, it's dysfunctional, it 369 00:19:56,750 --> 00:19:59,070 Speaker 5: benefits us to step into that market and not leave 370 00:19:59,090 --> 00:20:02,090 Speaker 5: it entirely to the central bank. You may remember the 371 00:20:02,109 --> 00:20:03,210 Speaker 5: Liz Truss budget. 372 00:20:03,869 --> 00:20:05,030 Speaker 3: Vaguely, yes. 373 00:20:05,190 --> 00:20:07,250 Speaker 4: At that time, the Bank of England faced this dilemma. 374 00:20:07,430 --> 00:20:10,760 Speaker 5: It was tightening its monetary policy And at the same time, 375 00:20:10,820 --> 00:20:13,300 Speaker 5: it had to buy gilts. And so it made a 376 00:20:13,340 --> 00:20:18,400 Speaker 5: very clear distinction and soon afterwards sold those gilts. It's 377 00:20:18,580 --> 00:20:23,160 Speaker 5: easier if the Treasury Department is involved. In the case 378 00:20:23,200 --> 00:20:25,610 Speaker 5: of the UK, it indemnified the Bank of England for 379 00:20:26,190 --> 00:20:28,490 Speaker 5: the losses that it might have incurred. And in the 380 00:20:28,510 --> 00:20:30,929 Speaker 5: case of the United States, the Treasury Department could use 381 00:20:30,970 --> 00:20:35,390 Speaker 5: its own buyback program to add firepower. And that could 382 00:20:35,410 --> 00:20:37,430 Speaker 5: be done on the scale of hundreds of billions, not 383 00:20:37,490 --> 00:20:42,520 Speaker 5: the mere four to eight billion that the Treasury Department 384 00:20:42,540 --> 00:20:44,260 Speaker 5: has been speaking about over the last couple of weeks. 385 00:20:44,840 --> 00:20:48,070 Speaker 1: But from your perspective, in the last few weeks, there's 386 00:20:48,180 --> 00:20:53,129 Speaker 1: nothing in the sort of classical measures of liquidity that. 387 00:20:53,010 --> 00:20:53,710 Speaker 3: Were out of whack? 388 00:20:54,550 --> 00:20:55,490 Speaker 4: No, nothing. 389 00:20:56,190 --> 00:20:58,370 Speaker 5: Dealer balance sheets seem to be in good shape. Bid 390 00:20:58,950 --> 00:21:01,480 Speaker 5: offer spreads, market depth are in normal range. 391 00:21:17,560 --> 00:21:20,859 Speaker 1: I mean, one way to think about it is it's 392 00:21:20,960 --> 00:21:25,760 Speaker 1: not that different from QE or Operation Twist as some 393 00:21:25,800 --> 00:21:28,440 Speaker 1: of these things that the central bank did in the 394 00:21:28,840 --> 00:21:31,180 Speaker 1: 2010s to sort of change the shape or the slope 395 00:21:31,240 --> 00:21:33,800 Speaker 1: of the yield curve. But that was in a time 396 00:21:33,880 --> 00:21:38,280 Speaker 1: of below target inflation and central bank trying to cause 397 00:21:38,300 --> 00:21:42,200 Speaker 1: things to reaccelerate. But on some level, does this look 398 00:21:42,350 --> 00:21:47,020 Speaker 1: like efforts that classically would, uh, you might expect to 399 00:21:47,080 --> 00:21:49,790 Speaker 1: see in an environment where the central bank is trying 400 00:21:49,810 --> 00:21:50,650 Speaker 1: to goose inflation? 401 00:21:51,369 --> 00:21:53,170 Speaker 4: Uh, when you say this, meaning what? 402 00:21:53,350 --> 00:21:56,490 Speaker 1: The, the sort of, uh, the, um, the expanded buybacks, 403 00:21:56,550 --> 00:21:59,350 Speaker 1: the attempt to depress the long end that sort of 404 00:21:59,410 --> 00:22:02,780 Speaker 1: looks operation twisty, but that had, you know, that was 405 00:22:02,800 --> 00:22:05,260 Speaker 1: in an environment where we were sub 2% of that 406 00:22:05,420 --> 00:22:06,880 Speaker 1: to the frustration of the central bank. 407 00:22:07,080 --> 00:22:07,260 Speaker 4: Yeah. 408 00:22:07,380 --> 00:22:09,420 Speaker 5: So, uh, well, first of all, I don't think this 409 00:22:09,460 --> 00:22:11,869 Speaker 5: is stepping on the toes of the fed and, uh, 410 00:22:12,850 --> 00:22:15,670 Speaker 5: I do think that it feels like a twisty type 411 00:22:15,790 --> 00:22:19,730 Speaker 5: of operation, but a micro twist. It's not the firepower that, 412 00:22:19,910 --> 00:22:21,930 Speaker 5: you know, a few billion dollars, other than the signaling, 413 00:22:22,550 --> 00:22:24,170 Speaker 5: a few billion dollars is just not going to move 414 00:22:24,190 --> 00:22:24,490 Speaker 5: the needle. 415 00:22:25,230 --> 00:22:28,100 Speaker 2: Micro twist sounds like one of those terrible Alco pops 416 00:22:28,180 --> 00:22:30,100 Speaker 2: of like the early 2000s, right? I was thinking maybe 417 00:22:30,140 --> 00:22:31,020 Speaker 2: it sounds like a dance. 418 00:22:31,060 --> 00:22:32,280 Speaker 3: I would try a micro twist. 419 00:22:33,040 --> 00:22:34,240 Speaker 4: Okay. Well, okay. 420 00:22:34,280 --> 00:22:37,520 Speaker 2: But if the treasury is issuing more short-term debt, which 421 00:22:37,540 --> 00:22:41,990 Speaker 2: it is, does... Does that solve the long-end yield problem, 422 00:22:42,070 --> 00:22:45,390 Speaker 2: or does that just end up shifting the issue into 423 00:22:45,430 --> 00:22:46,130 Speaker 2: money markets? 424 00:22:46,930 --> 00:22:50,540 Speaker 5: Well, it does shift issuance into bills, and that's how 425 00:22:50,580 --> 00:22:56,399 Speaker 5: buybacks are working with these particular operations. And yeah, so 426 00:22:56,440 --> 00:23:00,720 Speaker 5: it means, as I mentioned, there's shorter and shorter debt maturity, 427 00:23:01,050 --> 00:23:02,160 Speaker 5: but no alarm bells yet. 428 00:23:02,530 --> 00:23:02,950 Speaker 4: The U.S. 429 00:23:03,030 --> 00:23:06,230 Speaker 5: Is not out of historical norms. It's actually a little 430 00:23:06,250 --> 00:23:11,219 Speaker 5: bit longer maturity, average maturity than normal. And, you know, 431 00:23:11,480 --> 00:23:13,270 Speaker 5: I'm not that worried yet. I mean, if they were 432 00:23:13,720 --> 00:23:18,850 Speaker 5: to continue, and really the real action is in new issuance, 433 00:23:18,910 --> 00:23:21,710 Speaker 5: not in buybacks, if they were to continue to keep 434 00:23:22,430 --> 00:23:26,330 Speaker 5: the issuance of long-term securities at current levels, as they 435 00:23:26,369 --> 00:23:29,750 Speaker 5: have been, and have forecasted that they will, if they 436 00:23:29,770 --> 00:23:33,379 Speaker 5: were to keep doing that for years, then the piling 437 00:23:33,450 --> 00:23:36,119 Speaker 5: up of short-term debt would eventually be notable, and it 438 00:23:36,640 --> 00:23:37,320 Speaker 5: would cause concern. 439 00:23:38,080 --> 00:23:38,300 Speaker 3: All right. 440 00:23:38,359 --> 00:23:40,419 Speaker 2: So, you know, I talked in the beginning of all 441 00:23:40,440 --> 00:23:42,399 Speaker 2: these different things that are happening at the moment, but 442 00:23:42,480 --> 00:23:44,639 Speaker 2: one of them is the new Fed chair and the 443 00:23:44,680 --> 00:23:48,389 Speaker 2: task forces that he's created, including one that's looking at 444 00:23:48,590 --> 00:23:52,270 Speaker 2: the Fed balance sheet. Can you maybe put your Kevin 445 00:23:52,290 --> 00:23:54,970 Speaker 2: Warsh hat on for a second? When he says he 446 00:23:55,010 --> 00:23:57,690 Speaker 2: wants to shrink the size of the Fed's balance sheet, 447 00:23:58,150 --> 00:23:59,230 Speaker 2: why is that desirable? 448 00:24:01,609 --> 00:24:04,250 Speaker 5: Well, first, I'm not Kevin Warsh, so I'm not going 449 00:24:04,270 --> 00:24:08,669 Speaker 5: to get inside his head. But judging from his speech 450 00:24:08,970 --> 00:24:12,460 Speaker 5: around the G30 meeting last year, in which he was 451 00:24:12,580 --> 00:24:18,140 Speaker 5: most clear on his views here, I think he worries 452 00:24:18,220 --> 00:24:21,859 Speaker 5: that the Fed looks like it's too active in financial markets, 453 00:24:21,900 --> 00:24:24,710 Speaker 5: that its footprint is too big, and that it has 454 00:24:24,770 --> 00:24:25,710 Speaker 5: the image of. 455 00:24:29,480 --> 00:24:33,359 Speaker 5: Possibly getting into fiscal policy. And so he wants to 456 00:24:33,420 --> 00:24:37,500 Speaker 5: say completely, my interpretation, he wants to stay clear of 457 00:24:37,600 --> 00:24:42,540 Speaker 5: having created that impression. And a smaller balance sheet would 458 00:24:42,660 --> 00:24:47,919 Speaker 5: signal that. I think the more interesting question is, how 459 00:24:47,980 --> 00:24:51,179 Speaker 5: could you do it? Because it's easy enough to sell 460 00:24:51,520 --> 00:24:54,780 Speaker 5: bonds on the asset side. but it's not easy to 461 00:24:54,880 --> 00:24:58,070 Speaker 5: extinguish the liabilities on the other side of the balance sheet. 462 00:24:58,119 --> 00:24:58,439 Speaker 4: That's right. 463 00:24:58,460 --> 00:25:00,400 Speaker 2: When we think about the Fed balance sheet, everyone always 464 00:25:00,440 --> 00:25:02,990 Speaker 2: thinks about assets because we've gone through years and years 465 00:25:03,050 --> 00:25:05,550 Speaker 2: and years of QE and no one ever thinks about liabilities. 466 00:25:05,670 --> 00:25:07,449 Speaker 2: But how do you, those two things have to be 467 00:25:07,490 --> 00:25:10,030 Speaker 2: in balance. You can't shrink the asset side without shrinking 468 00:25:10,050 --> 00:25:10,910 Speaker 2: the liability side. 469 00:25:11,390 --> 00:25:13,990 Speaker 5: You reached that conclusion, Tracy, faster than almost anyone that 470 00:25:14,010 --> 00:25:14,469 Speaker 5: I talked to. 471 00:25:14,490 --> 00:25:14,770 Speaker 2: Oh dear. 472 00:25:14,930 --> 00:25:15,370 Speaker 4: Okay. 473 00:25:15,410 --> 00:25:16,830 Speaker 5: So if you just do adding up, you know, if 474 00:25:16,869 --> 00:25:19,050 Speaker 5: you want to reduce the assets, you have to reduce 475 00:25:19,070 --> 00:25:21,610 Speaker 5: the liabilities one for one. Let's take them in turn. 476 00:25:22,430 --> 00:25:25,310 Speaker 5: You've got the Treasury General Account. I don't think the 477 00:25:25,350 --> 00:25:27,250 Speaker 5: Fed's going to call the Treasury and say, would you 478 00:25:27,270 --> 00:25:29,630 Speaker 5: take some money out of your account at the Fed? 479 00:25:30,270 --> 00:25:33,250 Speaker 5: Then you've got paper money. I don't think the Fed 480 00:25:33,310 --> 00:25:37,850 Speaker 5: is going to put out advertisements saying, please Americans and 481 00:25:37,890 --> 00:25:40,710 Speaker 5: everybody else out there in the world that has paper money, 482 00:25:40,830 --> 00:25:42,510 Speaker 5: would you mind turning it in so that we can 483 00:25:42,550 --> 00:25:48,570 Speaker 5: reduce that liability? So the only significant possible reduction is 484 00:25:48,690 --> 00:25:52,440 Speaker 5: in reserves, meaning the deposits that commercial banks have at 485 00:25:52,480 --> 00:25:55,750 Speaker 5: the Fed. And there is scope for doing that, but 486 00:25:55,830 --> 00:25:57,650 Speaker 5: not with the current tools that the Fed has. 487 00:25:58,150 --> 00:26:00,850 Speaker 1: Would there be a regulatory change that would be necessary? 488 00:26:00,869 --> 00:26:03,410 Speaker 1: Because we went years and years, right, with basically no 489 00:26:03,450 --> 00:26:07,159 Speaker 1: balance sheet, and then... you know, then 2008 hit and 490 00:26:07,720 --> 00:26:10,719 Speaker 1: suddenly there's all these reserves. Why can't we go back to, 491 00:26:10,840 --> 00:26:12,429 Speaker 1: what would it, what would be the challenge of. 492 00:26:12,420 --> 00:26:13,950 Speaker 2: Going back to 2000? 493 00:26:13,950 --> 00:26:14,710 Speaker 3: Yeah, right, right. 494 00:26:14,869 --> 00:26:16,910 Speaker 1: So what would be, what would it take if we, 495 00:26:17,010 --> 00:26:19,570 Speaker 1: if for some reason we thought this is very important, 496 00:26:19,990 --> 00:26:21,630 Speaker 1: we want to get back to the real good old 497 00:26:21,670 --> 00:26:24,270 Speaker 1: days of Fed balance sheet side, what would it actually 498 00:26:24,310 --> 00:26:28,899 Speaker 1: take from a regulation perspective to get to just a 499 00:26:28,900 --> 00:26:30,320 Speaker 1: 2005 looking banking system? 500 00:26:30,680 --> 00:26:33,240 Speaker 5: It's not going to happen, Joe, because back in 2005, 501 00:26:33,220 --> 00:26:38,740 Speaker 5: liquidity regulations were, were much different, and the Fed didn't 502 00:26:38,760 --> 00:26:40,859 Speaker 5: pay interest on reserves. So the banks were not in 503 00:26:40,900 --> 00:26:43,879 Speaker 5: the least interested in holding reserves, because why would you 504 00:26:43,920 --> 00:26:46,639 Speaker 5: hold reserves getting zero interest when you could invest the 505 00:26:46,680 --> 00:26:49,810 Speaker 5: money in money markets and under a full market rate? Today, 506 00:26:49,880 --> 00:26:52,790 Speaker 5: in order to control inflation, the Fed is forced to 507 00:26:52,830 --> 00:26:56,950 Speaker 5: pay an interest rate to banks that's roughly the market rate. 508 00:26:57,310 --> 00:27:00,530 Speaker 5: And so if you ask a bank, why don't you 509 00:27:00,550 --> 00:27:02,590 Speaker 5: give up some of those reserves? They might say, well, why? 510 00:27:03,500 --> 00:27:06,500 Speaker 5: so useful for meeting liquidity regulations. They pay a full 511 00:27:06,540 --> 00:27:12,869 Speaker 5: market interest rate. They're perfect for payment services. What's not 512 00:27:12,910 --> 00:27:15,389 Speaker 5: to like? It's the Swiss army knife of finance. We're 513 00:27:15,410 --> 00:27:17,590 Speaker 5: not going to give those up easily. And right here 514 00:27:17,690 --> 00:27:22,410 Speaker 5: in Jackson Hole in 2017, Veral Acharya and Raghu Rajan 515 00:27:23,730 --> 00:27:28,490 Speaker 5: presented a paper describing a ratchet effect by which every 516 00:27:28,550 --> 00:27:31,930 Speaker 5: time the Fed increases its balance sheet and adds reserves, 517 00:27:32,600 --> 00:27:36,580 Speaker 5: the banks get addicted to having more of that extremely 518 00:27:36,660 --> 00:27:39,859 Speaker 5: useful asset, reserves, and they're reluctant to give it up. 519 00:27:39,940 --> 00:27:42,940 Speaker 5: And if you try to make them, markets get volatile 520 00:27:43,480 --> 00:27:44,520 Speaker 5: and the Fed has to back off. 521 00:27:45,040 --> 00:27:45,920 Speaker 4: So a lot has changed. 522 00:27:46,700 --> 00:27:48,699 Speaker 2: What would be your recommendation if you were on this 523 00:27:48,720 --> 00:27:51,380 Speaker 2: task force? I think it's Stein who's heading it. But, 524 00:27:51,420 --> 00:27:53,050 Speaker 2: you know, if Warsh says, I want to shrink the 525 00:27:53,090 --> 00:27:55,870 Speaker 2: size of the balance sheet and we have this reserves problem, 526 00:27:55,990 --> 00:27:56,610 Speaker 2: what would you do? 527 00:27:57,310 --> 00:28:01,290 Speaker 5: It's Jeremy Stein, Raghu Rajan, the same economist that spoke 528 00:28:01,330 --> 00:28:04,970 Speaker 5: here about the ratchet effect, and Karen Dinan, all very noted, 529 00:28:05,670 --> 00:28:09,929 Speaker 5: very credible, extremely wise and articulate economists. What they're going 530 00:28:09,950 --> 00:28:12,020 Speaker 5: to do, what they're going to recommend, I don't know. 531 00:28:13,080 --> 00:28:15,620 Speaker 5: But I think that they're going to take a very 532 00:28:15,780 --> 00:28:18,040 Speaker 5: wide lens look at this. They're not going to look 533 00:28:18,140 --> 00:28:20,040 Speaker 5: only at size. They're going to look at the composition 534 00:28:20,080 --> 00:28:24,040 Speaker 5: of the assets. I predict that they will, and this 535 00:28:24,080 --> 00:28:28,030 Speaker 5: is with no information from them, I predict that they 536 00:28:28,070 --> 00:28:33,070 Speaker 5: will recommend reducing the quantity of long-term treasury securities that 537 00:28:33,090 --> 00:28:36,990 Speaker 5: the Fed holds and replacing those with Treasury bills in 538 00:28:37,090 --> 00:28:41,690 Speaker 5: order to reduce the volatility of the Fed's interest expense. So, 539 00:28:41,890 --> 00:28:45,400 Speaker 5: for example, if you back the reserves one-to-one with Treasury bills, 540 00:28:46,100 --> 00:28:47,980 Speaker 5: then every time the Fed has to pay more interest 541 00:28:48,020 --> 00:28:50,840 Speaker 5: to the banks to control inflation, it's getting more interest 542 00:28:50,900 --> 00:28:55,270 Speaker 5: on their Treasury bills one-for-one. Paper money, they could continue 543 00:28:55,290 --> 00:28:59,180 Speaker 5: to hold long-term securities. And I don't think the Fed 544 00:28:59,220 --> 00:29:01,700 Speaker 5: feels good about having mortgage-backed securities. I think they're just 545 00:29:01,720 --> 00:29:04,300 Speaker 5: going to let those roll off. So I think that 546 00:29:04,360 --> 00:29:07,740 Speaker 5: could be in one area that they will get into, 547 00:29:08,320 --> 00:29:11,460 Speaker 5: is the composition of the assets. And on the liability side, 548 00:29:11,500 --> 00:29:14,500 Speaker 5: it's hard to predict. In my own view, the Fed 549 00:29:14,560 --> 00:29:16,720 Speaker 5: doesn't need to reduce the size of its balance sheet, 550 00:29:17,610 --> 00:29:19,570 Speaker 5: but it should have the tools that would allow it 551 00:29:19,790 --> 00:29:24,870 Speaker 5: to do that. Because if my hunch that this has 552 00:29:24,930 --> 00:29:28,690 Speaker 5: politics around it is correct, The Fed never wants to 553 00:29:28,730 --> 00:29:33,250 Speaker 5: be put into a corner by Congress over the size 554 00:29:33,270 --> 00:29:36,709 Speaker 5: of its balance sheet without the tools that would allow 555 00:29:36,770 --> 00:29:40,330 Speaker 5: the Fed to say, no, we're not going to increase 556 00:29:40,430 --> 00:29:42,490 Speaker 5: our balance sheet as you would like us to do 557 00:29:42,850 --> 00:29:44,990 Speaker 5: and buy the assets that you would like us to buy. 558 00:29:45,870 --> 00:29:48,990 Speaker 5: But rather, we can control our own balance sheet by 559 00:29:49,430 --> 00:29:52,170 Speaker 5: reducing it if we need to. And those tools exist 560 00:29:52,970 --> 00:29:59,260 Speaker 5: in theory, but they haven't been developed in practice by 561 00:29:59,280 --> 00:30:01,200 Speaker 5: the Fed yet. They have been for other central banks. 562 00:30:02,120 --> 00:30:04,580 Speaker 2: I have one more question, and it's not really a question. 563 00:30:04,620 --> 00:30:07,570 Speaker 2: It's more of a favor, really. But can you convince 564 00:30:07,690 --> 00:30:11,790 Speaker 2: Joe that the term premium is a useful concept? He 565 00:30:11,810 --> 00:30:13,950 Speaker 2: doesn't believe in it. I think you believe it exists, 566 00:30:13,990 --> 00:30:16,970 Speaker 2: but you don't believe that it's useful in any way. 567 00:30:16,990 --> 00:30:20,500 Speaker 3: Let's let our guest talk. 568 00:30:20,520 --> 00:30:21,740 Speaker 4: You're not going to defend yourself, Joe? 569 00:30:23,230 --> 00:30:25,550 Speaker 3: I'm a simple man. I look at a 30-year yield. 570 00:30:25,590 --> 00:30:27,610 Speaker 1: I think it looks like a 30 years worth of 571 00:30:27,690 --> 00:30:29,780 Speaker 1: overnight rates. You just add them up. And I just, 572 00:30:30,020 --> 00:30:32,200 Speaker 1: you know, that's how, that's how, what I assume. And 573 00:30:32,220 --> 00:30:34,180 Speaker 1: then everyone's like, no, but the term premium. And then 574 00:30:34,200 --> 00:30:35,580 Speaker 1: they say, and then I say, okay, but what is it? 575 00:30:35,580 --> 00:30:37,920 Speaker 1: They're like, well, we can't really measure it. And then 576 00:30:38,000 --> 00:30:39,960 Speaker 1: all the models that we have to measure don't work, 577 00:30:40,340 --> 00:30:42,760 Speaker 1: but trust us. This is why it's useful. And then 578 00:30:42,800 --> 00:30:44,760 Speaker 1: they say, and then they say, oh, well, they need, 579 00:30:45,240 --> 00:30:48,260 Speaker 1: treasury investors need compensation for risk to which I say, 580 00:30:49,090 --> 00:30:53,210 Speaker 1: just treasury investors, as if there's something special about it. 581 00:30:53,350 --> 00:30:54,430 Speaker 3: I really struggle with it. 582 00:30:54,530 --> 00:30:57,670 Speaker 1: So this is why we need a Stanford economist to 583 00:30:57,710 --> 00:30:58,270 Speaker 1: straighten me out. 584 00:30:58,410 --> 00:31:02,210 Speaker 4: Yeah, it's an easily measured concept. 585 00:31:02,320 --> 00:31:04,900 Speaker 5: And so it tells everyone the value of short-term versus 586 00:31:04,920 --> 00:31:07,900 Speaker 5: long-term money and interest rates. But then decomposing it is 587 00:31:07,920 --> 00:31:10,700 Speaker 5: the hard part. So you mentioned there's the path of 588 00:31:10,760 --> 00:31:16,290 Speaker 5: expected short-term interest rates that's built in. That in and 589 00:31:16,390 --> 00:31:19,400 Speaker 5: of itself reflects inflation. And then on top of that, 590 00:31:19,440 --> 00:31:22,250 Speaker 5: there's a risk premium. And how to decompose that, you know, 591 00:31:22,310 --> 00:31:25,950 Speaker 5: economists like John Cochran, who we mentioned earlier, with Monica Piazzesi, 592 00:31:26,510 --> 00:31:29,790 Speaker 5: have done some of the best work on that decomposition. 593 00:31:29,850 --> 00:31:32,610 Speaker 5: And it changes over time depending on one of the 594 00:31:32,650 --> 00:31:35,390 Speaker 5: things that we just discussed earlier, which is the. 595 00:31:35,330 --> 00:31:36,600 Speaker 4: Volume of treasury issuance. 596 00:31:37,260 --> 00:31:40,640 Speaker 5: That elevates the entire curve and it elevates it more 597 00:31:41,300 --> 00:31:45,580 Speaker 5: in the future if you don't think that the fiscal 598 00:31:45,620 --> 00:31:46,620 Speaker 5: deficits are going to go down. 599 00:31:47,620 --> 00:31:50,020 Speaker 2: All right, Joe's going home from his podcast with homework. 600 00:31:50,100 --> 00:31:51,180 Speaker 3: I'm going to do some reading, yeah. 601 00:31:51,580 --> 00:31:55,050 Speaker 2: Assigned reading. All right, Daryl Duffy from Stanford, thank you 602 00:31:55,090 --> 00:31:57,150 Speaker 2: so much for coming back on All Thoughts. Really appreciate it. 603 00:31:57,410 --> 00:31:59,330 Speaker 4: Tracy, Joe, it's always a pleasure. Ask me back. 604 00:31:59,550 --> 00:32:01,730 Speaker 3: We'll definitely do it again. Thank you so much. 605 00:32:14,420 --> 00:32:16,540 Speaker 2: So, Joe, that was great. I know we've been meaning 606 00:32:16,600 --> 00:32:18,810 Speaker 2: to talk about the Treasury buyback, so I'm glad we 607 00:32:18,850 --> 00:32:21,170 Speaker 2: could get into that. I was thinking, you know, he 608 00:32:21,210 --> 00:32:24,610 Speaker 2: mentioned the Treasury general account at the Fed, which is 609 00:32:24,650 --> 00:32:28,170 Speaker 2: like the Treasury's checking account. And you always hear this 610 00:32:28,210 --> 00:32:32,150 Speaker 2: stat that it covers five days of government expenses or 611 00:32:32,190 --> 00:32:34,560 Speaker 2: something like that. And I always think about the headlines saying, oh, 612 00:32:34,710 --> 00:32:38,430 Speaker 2: ordinary Americans, you know, half of ordinary Americans only have 613 00:32:38,470 --> 00:32:40,890 Speaker 2: enough money to cover three months expenses. And then I'm like, 614 00:32:40,910 --> 00:32:41,860 Speaker 2: what about the Fed? 615 00:32:41,880 --> 00:32:42,500 Speaker 3: What about the Treasury? 616 00:32:42,520 --> 00:32:43,700 Speaker 2: I'm being somewhat facetious. 617 00:32:43,720 --> 00:32:44,020 Speaker 1: Sorry. 618 00:32:44,060 --> 00:32:46,640 Speaker 2: What about the Treasury? But like, it is kind of crazy. 619 00:32:46,700 --> 00:32:47,180 Speaker 2: Five days. 620 00:32:47,760 --> 00:32:50,500 Speaker 3: Yeah, I guess it is kind of crazy. But, you know. 621 00:32:51,150 --> 00:32:52,370 Speaker 3: They can always just issue more debt. 622 00:32:52,410 --> 00:32:55,830 Speaker 2: What if Trump actually bombs the bond market? What happens 623 00:32:55,870 --> 00:32:56,870 Speaker 2: to the Treasury's account? 624 00:32:56,970 --> 00:32:58,910 Speaker 1: It is weird that we actually haven't talked about that 625 00:32:59,020 --> 00:33:00,320 Speaker 1: quote very much, but. 626 00:33:00,360 --> 00:33:01,040 Speaker 3: Such is life. 627 00:33:01,060 --> 00:33:02,740 Speaker 2: We'll find the perfect guest to talk about it. 628 00:33:02,820 --> 00:33:05,180 Speaker 3: Such is life in 2026. I thought that was really good. 629 00:33:05,200 --> 00:33:10,540 Speaker 1: I actually did not fully understand previously why buybacks exist 630 00:33:10,700 --> 00:33:13,400 Speaker 1: in the normal term. Okay, setting aside why there's the 631 00:33:13,440 --> 00:33:16,460 Speaker 1: deviation from the typical schedule, why they exist in the 632 00:33:16,530 --> 00:33:19,390 Speaker 1: first place, and this idea that what is the point 633 00:33:19,430 --> 00:33:25,140 Speaker 1: of having these sort of off the run, some 27 634 00:33:25,140 --> 00:33:28,320 Speaker 1: year bond that's sitting out there that no one wants, whatever, 635 00:33:28,600 --> 00:33:30,480 Speaker 1: that it just sort of makes sense to have a 636 00:33:30,850 --> 00:33:32,190 Speaker 1: regular sweep of that. 637 00:33:32,710 --> 00:33:35,630 Speaker 3: You know what they call it in crypto world? It's dust. 638 00:33:35,990 --> 00:33:39,190 Speaker 2: So for example, like- Like abandoned assets, kind of. 639 00:33:39,330 --> 00:33:42,780 Speaker 1: It's kind of like if there'll be little flecks of 640 00:33:43,260 --> 00:33:46,219 Speaker 1: like 0.0002 Bitcoin on like. 641 00:33:45,680 --> 00:33:48,320 Speaker 3: Some wall or something. 642 00:33:48,340 --> 00:33:51,200 Speaker 1: But because there's a transaction fee with all of them, 643 00:33:51,510 --> 00:33:55,030 Speaker 1: you can accumulate this dust and it's not economical to 644 00:33:55,070 --> 00:33:56,870 Speaker 1: move it off of them that creates all kinds of 645 00:33:56,930 --> 00:33:57,550 Speaker 1: issues and stuff. 646 00:33:57,690 --> 00:33:58,490 Speaker 3: It's sort of similar. 647 00:33:58,650 --> 00:34:00,730 Speaker 2: I remember, weren't there some startups at one point who 648 00:34:00,750 --> 00:34:03,110 Speaker 2: were trying to like collect all the dust and roll 649 00:34:03,130 --> 00:34:07,120 Speaker 2: it up into something substantial? The other thing I was 650 00:34:07,160 --> 00:34:12,140 Speaker 2: thinking just about the buyback program now is, I mean, 651 00:34:12,860 --> 00:34:16,200 Speaker 2: You almost have an issue with the reaction function of 652 00:34:16,260 --> 00:34:20,799 Speaker 2: the Treasury now. It's citing market liquidity in order to 653 00:34:21,500 --> 00:34:24,920 Speaker 2: increase the size of the buybacks. But the Treasury market 654 00:34:24,960 --> 00:34:28,320 Speaker 2: seems to be operating pretty normally. And then everyone starts 655 00:34:28,360 --> 00:34:31,540 Speaker 2: focusing on the yield, as Daryl was saying. It seems 656 00:34:31,580 --> 00:34:33,980 Speaker 2: like Besant just doesn't think the yield is at the 657 00:34:34,000 --> 00:34:37,359 Speaker 2: right level. Well, then suddenly you have this target that 658 00:34:37,400 --> 00:34:40,839 Speaker 2: investors are maybe going to be watching for signs that 659 00:34:40,880 --> 00:34:42,279 Speaker 2: the Treasury is going to come back in. 660 00:34:42,600 --> 00:34:45,480 Speaker 1: I think Besson really just misses being a hedge funder. 661 00:34:45,560 --> 00:34:48,440 Speaker 1: It's like he's like, no, this is like it's the 662 00:34:48,480 --> 00:34:49,279 Speaker 1: yield is too high. 663 00:34:49,300 --> 00:34:50,720 Speaker 3: It's like an opportunity to buy. 664 00:34:50,800 --> 00:34:50,970 Speaker 4: Right. 665 00:34:50,989 --> 00:34:53,290 Speaker 1: And you're like intervening in the end and stuff. I 666 00:34:53,350 --> 00:34:56,850 Speaker 1: think this is like. He's in his comfort ground when 667 00:34:56,890 --> 00:34:57,750 Speaker 1: he's making moves like this. 668 00:34:57,770 --> 00:35:00,130 Speaker 2: Well, I will say, as of the moment we're recording, 669 00:35:00,230 --> 00:35:03,750 Speaker 2: he's probably above water on his treasury purchases, right? 670 00:35:03,790 --> 00:35:04,830 Speaker 3: So I thought so, too. 671 00:35:04,910 --> 00:35:05,250 Speaker 2: Yeah. 672 00:35:05,450 --> 00:35:07,620 Speaker 1: Except, so this is what I thought. I was like, oh, 673 00:35:07,680 --> 00:35:11,480 Speaker 1: this is a good trade. Evidently, the purchase, this is 674 00:35:11,500 --> 00:35:13,540 Speaker 1: what two people on Twitter told me this, because I 675 00:35:13,739 --> 00:35:15,660 Speaker 1: thought that, too. That must be true, Jeff. The purchases 676 00:35:15,700 --> 00:35:18,800 Speaker 1: start September 9th. So there was the announcement that came. 677 00:35:18,820 --> 00:35:19,299 Speaker 4: I see. 678 00:35:19,360 --> 00:35:22,450 Speaker 1: So had he, anyway. But I had that same thought. Oh, 679 00:35:22,510 --> 00:35:23,850 Speaker 1: it's looking like a pretty good trade now. 680 00:35:24,210 --> 00:35:26,670 Speaker 2: All right, stay tuned for the Odd Lots episode tracking 681 00:35:26,730 --> 00:35:28,660 Speaker 2: Besson's trade. But shall we leave it there for now? 682 00:35:28,670 --> 00:35:29,089 Speaker 3: Let's leave it there. 683 00:35:29,110 --> 00:35:31,810 Speaker 2: Okay, this has been another episode of the Odd Lots podcast. 684 00:35:31,930 --> 00:35:34,450 Speaker 2: I'm Tracy Allaway. You can follow me at Tracy Allaway. 685 00:35:34,610 --> 00:35:37,359 Speaker 3: And I'm Joe Weisenthal. You can follow me at The Stalwart. 686 00:35:37,680 --> 00:35:41,160 Speaker 1: Follow our producers, Carmen Rodriguez at Carmen Ehrman, Dashiell Bennett 687 00:35:41,239 --> 00:35:44,540 Speaker 1: at Dashbot, Cale Brooks at Cale Brooks, and Kevin Lozano 688 00:35:44,680 --> 00:35:45,740 Speaker 1: at Kevin Lloyd Lozano. 689 00:35:46,020 --> 00:35:47,880 Speaker 2: And for more Odd Lots content, you should check out 690 00:35:47,960 --> 00:35:50,720 Speaker 2: our daily newsletter. You can find that at Bloomberg.com forward 691 00:35:50,739 --> 00:35:51,440 Speaker 2: slash Odd Lots. 692 00:35:51,690 --> 00:35:53,270 Speaker 1: And you can chat about all of these things 24-7 693 00:35:53,370 --> 00:35:57,560 Speaker 1: in our Discord, discord.gg. 694 00:35:57,840 --> 00:36:00,500 Speaker 2: And if you enjoyed this conversation, then please leave a 695 00:36:00,540 --> 00:36:03,040 Speaker 2: comment or like the video, or better yet, subscribe. 696 00:36:03,620 --> 00:36:05,460 Speaker 3: Thanks for watching and listening. 697 00:36:21,420 --> 00:36:21,859 Speaker 4: Thank you.