1 00:00:00,320 --> 00:00:04,160 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:04,200 --> 00:00:07,640 Speaker 1: their trust in independent registered investment advisors to the tune 3 00:00:07,640 --> 00:00:12,240 Speaker 1: of four trillion dollars. Why learn more and find your 4 00:00:12,240 --> 00:00:27,240 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,280 --> 00:00:31,320 Speaker 1: I'm Tom Keane. Always with Michael McKee. Daily we bring 6 00:00:31,360 --> 00:00:35,280 Speaker 1: you insight from the best in economics, finance, investment, and 7 00:00:35,360 --> 00:00:41,519 Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, 8 00:00:41,560 --> 00:00:48,360 Speaker 1: and of course, on the Bloomberg Carl Tandenbaum is with 9 00:00:48,520 --> 00:00:52,880 Speaker 1: us from Northern Trust, former official at the Chicago Fed, 10 00:00:52,960 --> 00:00:56,440 Speaker 1: so perfect person to ask about this dichotomy between FED funds, 11 00:00:56,440 --> 00:01:01,800 Speaker 1: futures trading and UH sovereign markets trading. Carl the idea 12 00:01:01,880 --> 00:01:05,959 Speaker 1: that the Fed is not going to move UH. There 13 00:01:05,959 --> 00:01:08,920 Speaker 1: seems to be split in the markets about how likely 14 00:01:09,000 --> 00:01:12,360 Speaker 1: that is. It's not that sovereigns are saying it's definitely 15 00:01:12,360 --> 00:01:14,600 Speaker 1: going to happen, but there seems to be more optimism 16 00:01:14,640 --> 00:01:17,840 Speaker 1: among active traders than future traders. Mark. I think the 17 00:01:17,920 --> 00:01:20,520 Speaker 1: split in the markets also reflects the split within the 18 00:01:20,520 --> 00:01:22,880 Speaker 1: Federal Reserve governance as well. I think there's going to 19 00:01:22,959 --> 00:01:25,920 Speaker 1: be a very active discussion next week about they use 20 00:01:25,959 --> 00:01:30,720 Speaker 1: the word devis Lockhart used yesterday or Monday rather. Yeah, 21 00:01:30,760 --> 00:01:33,199 Speaker 1: I think that there certainly are those who feel quite 22 00:01:33,240 --> 00:01:36,520 Speaker 1: satisfied with the way that the American economy has performed. 23 00:01:36,560 --> 00:01:38,920 Speaker 1: They will point to the fact that we're, if not 24 00:01:39,040 --> 00:01:41,480 Speaker 1: at full employment, very close to it. They'll point to 25 00:01:41,520 --> 00:01:45,200 Speaker 1: the fact that the international uncertainties that tortured us at 26 00:01:45,240 --> 00:01:48,600 Speaker 1: the beginning of the summer have clearly eased, and they 27 00:01:48,600 --> 00:01:50,960 Speaker 1: feel more confident that we're on the way to the 28 00:01:50,960 --> 00:01:54,080 Speaker 1: two percent inflation target. And then there are others who 29 00:01:54,120 --> 00:01:56,240 Speaker 1: would point to the notion that we aren't at the 30 00:01:56,240 --> 00:01:58,560 Speaker 1: inflation target, that we don't seem to be able to 31 00:01:58,680 --> 00:02:02,000 Speaker 1: create much inflation, that taking the next step should not 32 00:02:02,040 --> 00:02:06,280 Speaker 1: be taken lightly given the potential impact on markets and 33 00:02:06,480 --> 00:02:10,160 Speaker 1: emerging markets, and that the cost of waiting is probably 34 00:02:10,240 --> 00:02:13,000 Speaker 1: very low right now, whereas the cost of advancing too 35 00:02:13,000 --> 00:02:16,200 Speaker 1: soon is very high. My sense is that the middle 36 00:02:16,240 --> 00:02:18,720 Speaker 1: of the committee is more sympathetic to that latter set 37 00:02:18,720 --> 00:02:21,800 Speaker 1: of arguments, which will lead them to temporize in September. 38 00:02:22,200 --> 00:02:24,560 Speaker 1: But I think that they have an opportunity to communicate 39 00:02:24,680 --> 00:02:27,800 Speaker 1: very carefully with the markets so that the warp screen 40 00:02:27,840 --> 00:02:30,480 Speaker 1: on Bloomberg that we all follow very closely, gets as 41 00:02:30,480 --> 00:02:33,840 Speaker 1: close as possible to a for the December move, assuming 42 00:02:33,880 --> 00:02:35,960 Speaker 1: that everything lines up for it. What would you put 43 00:02:35,960 --> 00:02:40,679 Speaker 1: the percentage at for a September move like the FED? 44 00:02:40,760 --> 00:02:43,760 Speaker 1: I'll cover my hind quarters by saying its stata dependent. 45 00:02:43,840 --> 00:02:46,600 Speaker 1: But if you tell me that will continue to have 46 00:02:46,680 --> 00:02:49,560 Speaker 1: on employment gains, let's say in the hundred and fifty 47 00:02:49,560 --> 00:02:52,800 Speaker 1: thousand range, which is fine because a hundred thousands break even, 48 00:02:53,080 --> 00:02:56,320 Speaker 1: we don't have any international incidents, and inflation continues to 49 00:02:56,360 --> 00:02:58,200 Speaker 1: either stay where it is and move forward. I would 50 00:02:58,240 --> 00:03:01,280 Speaker 1: say the odds for December are pretty high. I would 51 00:03:01,280 --> 00:03:04,680 Speaker 1: say within the parlor game Carl in a week away 52 00:03:04,760 --> 00:03:10,040 Speaker 1: from September, essentially we're there. The FED talent has gone quiet, 53 00:03:10,400 --> 00:03:15,000 Speaker 1: as they do before a FED meeting, frame the voting 54 00:03:15,160 --> 00:03:19,560 Speaker 1: around share yelling right now, how hawkish, how debbish is 55 00:03:19,560 --> 00:03:22,520 Speaker 1: the FED? And I say that because Marty Feltstine yesterday 56 00:03:22,520 --> 00:03:25,359 Speaker 1: on the show mentioned that Mr rosen Grin is taking 57 00:03:25,400 --> 00:03:29,960 Speaker 1: a different tack. Is the arch dove. I think the 58 00:03:30,040 --> 00:03:33,320 Speaker 1: voices on either side of the tightening question have gotten 59 00:03:33,360 --> 00:03:35,920 Speaker 1: louder and louder. I think that's probably are they shrill 60 00:03:36,240 --> 00:03:39,280 Speaker 1: or just louder. I think they're louder, But I think 61 00:03:39,360 --> 00:03:42,760 Speaker 1: the dissonance, if you will, tom is probably one of 62 00:03:42,760 --> 00:03:46,320 Speaker 1: the reasons why market participants are complaining about the FEDS 63 00:03:46,360 --> 00:03:50,920 Speaker 1: communication and credibility. It sometimes strikes me that in our 64 00:03:50,960 --> 00:03:53,480 Speaker 1: desire for more from the Central Bank, which we've gotten 65 00:03:53,480 --> 00:03:56,400 Speaker 1: over the last thirty years, where perhaps getting less in 66 00:03:56,480 --> 00:03:59,880 Speaker 1: terms of clarity. If I were directing the FEDS communication 67 00:04:00,120 --> 00:04:02,680 Speaker 1: and God help the Central Bank, if I were, I 68 00:04:02,680 --> 00:04:04,680 Speaker 1: would advise it maybe we ought to have a huddle 69 00:04:04,680 --> 00:04:07,520 Speaker 1: and decide a little bit more cocently what we want 70 00:04:07,520 --> 00:04:10,280 Speaker 1: to communicate and who says it. And when I think 71 00:04:10,360 --> 00:04:12,840 Speaker 1: Janet's a great leader. She's been holding the middle and 72 00:04:12,920 --> 00:04:15,200 Speaker 1: building the consensus, and I think she'll do a good 73 00:04:15,280 --> 00:04:18,400 Speaker 1: job inside the room. But once they leave again between 74 00:04:18,440 --> 00:04:21,880 Speaker 1: September and December, I hope that the communication is crisp, 75 00:04:22,200 --> 00:04:24,360 Speaker 1: and I hope that that clarity starts with the press 76 00:04:24,400 --> 00:04:26,760 Speaker 1: conference that you'll hold in the wake of the meeting. 77 00:04:27,040 --> 00:04:31,760 Speaker 1: How do they explain why you would be able to 78 00:04:31,760 --> 00:04:34,200 Speaker 1: say you'll go in December but not. I mean, if 79 00:04:34,240 --> 00:04:36,200 Speaker 1: they want to do it in December, what's the difference 80 00:04:36,240 --> 00:04:39,080 Speaker 1: between September and December. Mike. I think it's just the 81 00:04:39,120 --> 00:04:41,320 Speaker 1: accumulation of evidence, and I think it all has to 82 00:04:41,360 --> 00:04:44,680 Speaker 1: do with inflation, which continues to be a paradox. We've 83 00:04:44,720 --> 00:04:48,560 Speaker 1: had a seven year expansion, We've had immense monetary accommodation. 84 00:04:48,640 --> 00:04:51,000 Speaker 1: Those conditions usually would have absorbed a lot of the 85 00:04:51,040 --> 00:04:54,240 Speaker 1: economic capacity by now and put upward pressure on prices. 86 00:04:54,520 --> 00:04:56,640 Speaker 1: Whether you look at it from a model perspective or 87 00:04:56,680 --> 00:04:59,120 Speaker 1: built from the bottom up, this is puzzling and there 88 00:04:59,160 --> 00:05:00,960 Speaker 1: are a lot of reasons why that might happen. But 89 00:05:01,040 --> 00:05:03,960 Speaker 1: I think the FED needs to understand what inflation dynamics 90 00:05:04,000 --> 00:05:06,560 Speaker 1: look like today and feel confident that we'll get to 91 00:05:06,560 --> 00:05:09,200 Speaker 1: the inflation target. I've had people say, well, what's the 92 00:05:09,240 --> 00:05:11,640 Speaker 1: matter with one point six instead of two? They're almost 93 00:05:11,680 --> 00:05:15,200 Speaker 1: indistinguishable when you get into the measurement error around that 94 00:05:15,200 --> 00:05:19,000 Speaker 1: that factor, but it's shaping expectations. I think the FED 95 00:05:19,200 --> 00:05:21,919 Speaker 1: very much wants to make sure that inflation expectations not 96 00:05:22,000 --> 00:05:24,839 Speaker 1: just remain anchored, but remain anchored at a fairly reasonable 97 00:05:24,920 --> 00:05:27,320 Speaker 1: level so that we don't end up getting too close 98 00:05:27,400 --> 00:05:29,960 Speaker 1: to that sort of Japanese perception, which can become more 99 00:05:30,000 --> 00:05:33,360 Speaker 1: pernicious two months going to make a difference. I think. 100 00:05:33,360 --> 00:05:35,520 Speaker 1: So if we haven't gotten there in seven years, I'm 101 00:05:35,560 --> 00:05:38,280 Speaker 1: i go back to the old saying that Einstein never 102 00:05:38,320 --> 00:05:41,039 Speaker 1: said about, you know, the definition of insanity. Seven years 103 00:05:41,080 --> 00:05:45,000 Speaker 1: they haven't been able to create inflation. So we'll certainly 104 00:05:45,000 --> 00:05:48,480 Speaker 1: give ourselves the opportunity to confirm that some of the 105 00:05:48,480 --> 00:05:52,279 Speaker 1: the international uncertainties have truly settled. Also, we you know, 106 00:05:52,360 --> 00:05:55,240 Speaker 1: had a softer first half. By then in December we'll 107 00:05:55,279 --> 00:05:57,679 Speaker 1: have the third quarter GDP, which most people are expecting 108 00:05:57,720 --> 00:06:00,520 Speaker 1: to be awfully solid. We'll get two more months of numbers. 109 00:06:00,600 --> 00:06:03,560 Speaker 1: Timing with central banks is always a challenging thing, but 110 00:06:03,640 --> 00:06:06,680 Speaker 1: I think to Tom's point, building the consensus so that 111 00:06:06,720 --> 00:06:09,080 Speaker 1: she can walk out of there with maybe only one 112 00:06:09,160 --> 00:06:12,760 Speaker 1: descent in favor of a tightening, I think is an 113 00:06:12,839 --> 00:06:15,560 Speaker 1: art that you'll have a chance to craft over the 114 00:06:15,600 --> 00:06:18,440 Speaker 1: next couple of months, which pushes against the British model, folks, 115 00:06:18,440 --> 00:06:21,200 Speaker 1: where there's a lot more descent collegial and constructive and 116 00:06:21,240 --> 00:06:24,400 Speaker 1: academic descent at the Bank of England. Carl, where are 117 00:06:24,400 --> 00:06:28,000 Speaker 1: you on this debate of measured versus a jump condition 118 00:06:28,120 --> 00:06:31,279 Speaker 1: or a one and done attitude? If you establish a 119 00:06:31,440 --> 00:06:36,360 Speaker 1: vector of moving from altra accommodative to whatever. Is there 120 00:06:36,400 --> 00:06:40,080 Speaker 1: a value to a green spani and measured approach. I 121 00:06:40,080 --> 00:06:42,920 Speaker 1: think so we are in virgin territory, not just with 122 00:06:43,040 --> 00:06:46,320 Speaker 1: rates where they are, but with the global dynamics unlike 123 00:06:46,360 --> 00:06:48,520 Speaker 1: anything that we've seen in our working lifetimes. And I 124 00:06:48,520 --> 00:06:52,520 Speaker 1: think the feed is probably correct and taking caution, I 125 00:06:52,600 --> 00:06:54,839 Speaker 1: think they should give us a little bit more guidance 126 00:06:54,880 --> 00:06:57,159 Speaker 1: of on what their vector is. Tom and I like 127 00:06:57,279 --> 00:06:59,960 Speaker 1: that word very much in not just making a move, 128 00:07:00,040 --> 00:07:02,479 Speaker 1: but also telling us where they're going from there. But 129 00:07:02,520 --> 00:07:05,000 Speaker 1: I think the FED needs to understand a couple of things. One, 130 00:07:05,080 --> 00:07:07,520 Speaker 1: they're at the edge of their effectiveness. I don't think 131 00:07:07,520 --> 00:07:10,040 Speaker 1: that we want our central bank pushing to the degree 132 00:07:10,480 --> 00:07:13,440 Speaker 1: that's certainly Japan or ECB has. I don't think we 133 00:07:13,480 --> 00:07:15,480 Speaker 1: want the FED owning equities. I don't think we want 134 00:07:15,480 --> 00:07:18,280 Speaker 1: them owning more corporate bonds. And they need to recognize 135 00:07:18,320 --> 00:07:21,000 Speaker 1: as well that ultra low interest rates are very damaging 136 00:07:21,000 --> 00:07:23,760 Speaker 1: to savers pension funds and these could be systemic issues 137 00:07:23,800 --> 00:07:26,200 Speaker 1: down the road well. And systemic is certainly what Mike 138 00:07:26,280 --> 00:07:28,920 Speaker 1: mcka and I see in our mail as well. Mike, 139 00:07:29,040 --> 00:07:30,720 Speaker 1: you know I I look at the blur out of 140 00:07:30,800 --> 00:07:34,040 Speaker 1: National Association for Business Economics and it really sets up 141 00:07:34,560 --> 00:07:37,600 Speaker 1: not only a wild week to the FED meeting, but 142 00:07:37,880 --> 00:07:40,120 Speaker 1: you really wonder where we're going to be after the 143 00:07:40,200 --> 00:07:43,480 Speaker 1: December meeting. I mean within the markets, within the correlations, 144 00:07:43,920 --> 00:07:47,080 Speaker 1: and within the new agitation that we see. Well, that 145 00:07:47,160 --> 00:07:50,840 Speaker 1: will depend to um what Karl didn't mentioned on the 146 00:07:50,880 --> 00:07:54,280 Speaker 1: first Tuesday in November and what happens to the markets. 147 00:07:54,600 --> 00:07:57,960 Speaker 1: And and Greg Valier with I think a fabulous note 148 00:07:57,960 --> 00:08:00,280 Speaker 1: this morning on the shift here and the Bloomberg pole 149 00:08:01,200 --> 00:08:04,080 Speaker 1: showing Mr Trump doing better than good in Ohio. Greg 150 00:08:04,160 --> 00:08:08,240 Speaker 1: Valier pointing out the shift now in our fiscal deficit. 151 00:08:08,320 --> 00:08:10,600 Speaker 1: Maybe that's something to touch on here in the coming days. 152 00:08:10,920 --> 00:08:15,000 Speaker 1: The idea of the deficit good news is just about 153 00:08:15,040 --> 00:08:21,280 Speaker 1: over that. According yesterday to Jack Lose, US Treasury, September one, 154 00:08:22,200 --> 00:08:25,040 Speaker 1: fed fed, fed, fed, fed, fed, fed, Mike McKee and 155 00:08:25,080 --> 00:08:29,960 Speaker 1: I will be doing fed, fed, fed, fed. And there's 156 00:08:30,000 --> 00:08:31,920 Speaker 1: something a little more important, Michael, what do you have 157 00:08:32,400 --> 00:08:35,360 Speaker 1: We're just getting the official announcement. Buyer in Monsanto? Have 158 00:08:36,040 --> 00:08:38,679 Speaker 1: I thought we had that we had reports that they 159 00:08:38,679 --> 00:08:40,800 Speaker 1: were going to announce it is I took two Bay 160 00:08:40,840 --> 00:08:44,600 Speaker 1: or hundred and twenty eight dollars per month Santo share, 161 00:08:44,679 --> 00:08:48,040 Speaker 1: which translates to about a fifty six billion dollar total 162 00:08:48,120 --> 00:08:51,880 Speaker 1: pack UH in dollar terms. And let's just quickly note 163 00:08:51,920 --> 00:08:54,800 Speaker 1: that Monsanto shares now up one percent to one oh 164 00:08:54,800 --> 00:09:01,360 Speaker 1: seven five, buyer shares up two euros well, Mansano roughly 165 00:09:02,360 --> 00:09:06,240 Speaker 1: six within that bidding process as well. I just put 166 00:09:06,280 --> 00:09:11,480 Speaker 1: out on the Bloomberg Radio Plus app on your iPhone, UH, 167 00:09:11,600 --> 00:09:17,160 Speaker 1: the Japanese balance sheet, because Michael, on September we have 168 00:09:17,280 --> 00:09:21,960 Speaker 1: something just as important as the FAT if not more important. Yes, 169 00:09:22,040 --> 00:09:26,920 Speaker 1: the Bank of Japan meets and many I wouldn't say that, 170 00:09:27,040 --> 00:09:28,760 Speaker 1: you can't say all eyes because we have our meeting, 171 00:09:28,800 --> 00:09:32,240 Speaker 1: but many of the world's eyes are going to be 172 00:09:32,320 --> 00:09:36,000 Speaker 1: on Japan. Carl Tannebaum with his Northern Trust Company, Carl, 173 00:09:36,040 --> 00:09:40,240 Speaker 1: what is distinctive about how Japan is trying to reflate 174 00:09:40,679 --> 00:09:43,560 Speaker 1: versus how the US or ECB are trying to reflect 175 00:09:44,200 --> 00:09:46,120 Speaker 1: the FED in the Bank of Japan or two central 176 00:09:46,120 --> 00:09:49,599 Speaker 1: banks going in opposite directions Because the underlying circumstances of 177 00:09:49,679 --> 00:09:53,160 Speaker 1: their economies are very different. The Japanese wish they could 178 00:09:53,200 --> 00:09:55,640 Speaker 1: go back, perhaps twenty five years in time and fix 179 00:09:55,720 --> 00:09:58,320 Speaker 1: the banks right away after their financial crisis, so that 180 00:09:58,400 --> 00:10:02,400 Speaker 1: deflationary expectations and set in. But you can't do monetary 181 00:10:02,440 --> 00:10:06,120 Speaker 1: policy and retrospect, and given their demographics, they're having to 182 00:10:06,160 --> 00:10:09,000 Speaker 1: pull out all the stops. Having just been in Japan 183 00:10:09,200 --> 00:10:13,720 Speaker 1: early in July, it's apparent to everybody that helicopter money 184 00:10:13,760 --> 00:10:16,840 Speaker 1: is de facto underway, despite the protestations of both the 185 00:10:16,880 --> 00:10:19,839 Speaker 1: President and the head of the Central Bank. The Center 186 00:10:19,880 --> 00:10:22,559 Speaker 1: Bank of Japan owns a what we would call a 187 00:10:22,600 --> 00:10:26,600 Speaker 1: globally diversified asset collection that includes a lot of government 188 00:10:26,600 --> 00:10:28,560 Speaker 1: bonds that I was telling Mike, I don't think we'll 189 00:10:28,559 --> 00:10:30,960 Speaker 1: ever see the light of day. So essentially they're financing 190 00:10:30,960 --> 00:10:33,760 Speaker 1: a lot of the government uh spending that's going on, 191 00:10:33,840 --> 00:10:36,400 Speaker 1: and they've got a lot of e t Actually they 192 00:10:36,440 --> 00:10:37,960 Speaker 1: own more than half of the e t f s 193 00:10:38,000 --> 00:10:40,520 Speaker 1: that are listed in Japan. Let's go to surveillance. That's 194 00:10:40,520 --> 00:10:44,440 Speaker 1: a beautiful summary, Mr tannerbaumb here's the surveillance one oh 195 00:10:44,520 --> 00:10:47,040 Speaker 1: one question of the day. Then why does the yen 196 00:10:47,640 --> 00:10:53,199 Speaker 1: strengthen given that dire outlook? The markets I think are 197 00:10:53,280 --> 00:10:56,640 Speaker 1: realizing that the natural constraints faced by the Japanese may 198 00:10:56,679 --> 00:11:01,280 Speaker 1: inhibit the translation even of this massive what Mr Abbey 199 00:11:01,360 --> 00:11:04,839 Speaker 1: is called a bazuka of strategy to translate to the 200 00:11:04,920 --> 00:11:07,080 Speaker 1: Japanese economy. If you look at a curve of the 201 00:11:07,200 --> 00:11:09,600 Speaker 1: Japanese labor force, which I don't know how to punch 202 00:11:09,640 --> 00:11:11,199 Speaker 1: it up on Bloomberg, but we've looked at it a 203 00:11:11,280 --> 00:11:14,800 Speaker 1: Northern trust. The labor force in size is back to 204 00:11:14,840 --> 00:11:17,200 Speaker 1: where it was twenty five years ago. It's a big curve, 205 00:11:17,720 --> 00:11:21,080 Speaker 1: and it's very hard to convince international investors that you 206 00:11:21,160 --> 00:11:24,680 Speaker 1: have a dynamic economy into which it's wise to invest 207 00:11:24,720 --> 00:11:28,760 Speaker 1: when you have that kind of demographic working against you. Well, 208 00:11:28,760 --> 00:11:32,400 Speaker 1: what does Japan do? What one? What does Coronason do? 209 00:11:33,360 --> 00:11:36,440 Speaker 1: He has to maintain the psychology that they're going to 210 00:11:36,480 --> 00:11:39,040 Speaker 1: put out all all the stops, even if he suspects 211 00:11:39,080 --> 00:11:41,359 Speaker 1: in his heart of hearts that it will be ineffective. 212 00:11:41,800 --> 00:11:43,559 Speaker 1: I think a lot of the central banks around the 213 00:11:43,600 --> 00:11:46,720 Speaker 1: world that have gone to these extraordinary measures Mike have 214 00:11:46,880 --> 00:11:50,480 Speaker 1: got to at least keep up appearances so that they don't, 215 00:11:51,240 --> 00:11:53,480 Speaker 1: you know, convince the markets that they have reached the 216 00:11:53,559 --> 00:11:56,359 Speaker 1: edge of their effectiveness and therefore lose some of the 217 00:11:56,360 --> 00:11:59,600 Speaker 1: the increment in asset valuation that has been created by 218 00:11:59,600 --> 00:12:01,760 Speaker 1: the sense that the central banks will do in drag 219 00:12:01,760 --> 00:12:04,120 Speaker 1: these words whatever it will take. I mean, is he 220 00:12:04,600 --> 00:12:06,240 Speaker 1: is he going to cut rates? Is he going to 221 00:12:06,280 --> 00:12:12,440 Speaker 1: announce a helicopter by is he can expand quee balance 222 00:12:12,440 --> 00:12:15,839 Speaker 1: sheet expansion is most likely. I think the Japanese as 223 00:12:15,880 --> 00:12:19,120 Speaker 1: well as the European Central Bank have concluded that negative 224 00:12:19,120 --> 00:12:22,520 Speaker 1: interest rates are of limited utility. They seem to be 225 00:12:22,600 --> 00:12:27,000 Speaker 1: sowing more confusion than creating a new leverage or are 226 00:12:27,040 --> 00:12:30,520 Speaker 1: providing incentives for reallocation. The thing I would notice that 227 00:12:30,559 --> 00:12:34,280 Speaker 1: if you're forcing portfolio reallocation towards riskier assets and the 228 00:12:34,320 --> 00:12:37,520 Speaker 1: hope of creating a little bit more economic activity or 229 00:12:37,559 --> 00:12:41,720 Speaker 1: capital formation, instead, what you may be engendering is some 230 00:12:41,840 --> 00:12:45,160 Speaker 1: overvaluation and markets that could be a threat to financial stability. 231 00:12:45,200 --> 00:12:47,960 Speaker 1: Let me announces I always try to do that. I'll 232 00:12:48,040 --> 00:12:52,200 Speaker 1: steal from anyone. Carl Tannembomb. Your chart on japan labor 233 00:12:52,280 --> 00:12:56,120 Speaker 1: force is stunning. I just sent it out on Bloomberg 234 00:12:56,200 --> 00:12:59,120 Speaker 1: Radio Plus. I'll feature it on Facebook Live today and 235 00:12:59,160 --> 00:13:03,600 Speaker 1: I'll steal it from me and use it Bloomberg Television tomorrow. 236 00:13:04,360 --> 00:13:09,720 Speaker 1: It's just amazing the flatness and leveling of their demographs 237 00:13:09,760 --> 00:13:12,120 Speaker 1: and they've they've tried everything in the third arrow program. 238 00:13:12,200 --> 00:13:15,120 Speaker 1: As you know, Tom, they have some talented young women 239 00:13:15,160 --> 00:13:18,840 Speaker 1: who delay child raising because it is certainly not culturally 240 00:13:19,520 --> 00:13:21,840 Speaker 1: common or acceptable for them to return to the labor 241 00:13:21,880 --> 00:13:24,840 Speaker 1: force after having children. Birthrates are low for that reason. 242 00:13:25,200 --> 00:13:28,679 Speaker 1: The Japanese, for cultural language and other reasons, have not 243 00:13:29,160 --> 00:13:32,480 Speaker 1: been successful at having immigrants come in. They have one 244 00:13:32,520 --> 00:13:35,520 Speaker 1: of the lowest immigration rates in the developed world. It's 245 00:13:35,559 --> 00:13:37,200 Speaker 1: something they have in common, by the way, with the 246 00:13:37,240 --> 00:13:41,360 Speaker 1: other developed a near developed Asian nations. And again, those 247 00:13:41,400 --> 00:13:43,079 Speaker 1: are the only two ways that you're going to get 248 00:13:43,080 --> 00:13:46,960 Speaker 1: a favorable demographic trend, and it's hard to do anything. Carl, 249 00:13:47,160 --> 00:13:49,520 Speaker 1: Thank you so much. Carl Tannebaum with us with Northern 250 00:13:49,520 --> 00:13:52,560 Speaker 1: Trust Company. Just spectacular and really to watch for that 251 00:13:52,600 --> 00:13:55,560 Speaker 1: Bank of Japan meeting next week our special coverage of 252 00:13:55,600 --> 00:14:09,440 Speaker 1: that meeting worldwide and in Tokyo. This is Bloomberg. We 253 00:14:09,480 --> 00:14:15,360 Speaker 1: spoke yesterday to someone e I a energy on oil 254 00:14:15,679 --> 00:14:18,200 Speaker 1: and he was truly one of the world's experts on 255 00:14:18,320 --> 00:14:21,600 Speaker 1: demand for oil, and he read from the book of 256 00:14:21,680 --> 00:14:26,160 Speaker 1: Phil Verliger. It was remarkable how he tilted towards the 257 00:14:26,240 --> 00:14:30,120 Speaker 1: dynamics that Phil Verliger speaks of and modeling a lower 258 00:14:30,160 --> 00:14:34,160 Speaker 1: oil price. Phil Verliger joins us now from p K. Hurliger. Phil, 259 00:14:34,240 --> 00:14:40,200 Speaker 1: reaffirm your worries about demand for hydrocarbons UM. Good morning. 260 00:14:41,600 --> 00:14:46,520 Speaker 1: I think that we have been overestimating UH consumption UM 261 00:14:46,760 --> 00:14:50,280 Speaker 1: in part because the growth of consumption, in part because 262 00:14:50,360 --> 00:14:53,880 Speaker 1: the Energy Information Agency and UH does not follow the 263 00:14:53,880 --> 00:14:56,640 Speaker 1: procedures that say the Bureau of Economic Analysis does, where 264 00:14:56,640 --> 00:14:59,800 Speaker 1: they go back and they update their historical ast as 265 00:14:59,880 --> 00:15:02,600 Speaker 1: to months so that they come up with a growth, 266 00:15:02,960 --> 00:15:04,920 Speaker 1: for instance, in gasoline, about two and two and a 267 00:15:04,960 --> 00:15:08,800 Speaker 1: half percent year over year, when if you recorrect correct 268 00:15:08,840 --> 00:15:12,160 Speaker 1: the data, correct the historical data, the growth rates closer 269 00:15:12,200 --> 00:15:14,800 Speaker 1: to one percent, maybe a little bit below one percent. 270 00:15:15,280 --> 00:15:19,080 Speaker 1: And that is beginning to that view is beginning to 271 00:15:19,640 --> 00:15:23,320 Speaker 1: seep into the entire industry as inventories build up and 272 00:15:23,480 --> 00:15:25,880 Speaker 1: people look and say, what we produced all this oil? 273 00:15:25,960 --> 00:15:28,680 Speaker 1: We thought we could sell it. It's still sitting in tanks, 274 00:15:28,720 --> 00:15:31,680 Speaker 1: and so growth is slow. This goes and this goes 275 00:15:31,720 --> 00:15:34,400 Speaker 1: back to what your previous speakers have been saying about 276 00:15:34,440 --> 00:15:38,480 Speaker 1: GDP growth. GDP growth is positive, but it's not very 277 00:15:38,480 --> 00:15:41,160 Speaker 1: good and it's not very good here, and it's slow 278 00:15:41,240 --> 00:15:44,800 Speaker 1: in China is perhaps five percent in China probably four percent. 279 00:15:45,520 --> 00:15:50,080 Speaker 1: And oil use and energy use is inexorably tied to 280 00:15:50,160 --> 00:15:53,520 Speaker 1: the GDP, so slow growth in the economy and energy 281 00:15:53,600 --> 00:15:57,840 Speaker 1: use is growing slow while production continues to grow. Well, 282 00:15:57,920 --> 00:16:01,400 Speaker 1: are are you in the weird balanced camp? We've heard 283 00:16:01,400 --> 00:16:05,280 Speaker 1: that from a number of people. Uh lately, are we balanced? 284 00:16:05,280 --> 00:16:09,080 Speaker 1: Are we still trying to find Well? I think we're 285 00:16:09,120 --> 00:16:12,440 Speaker 1: probably still in a bit of a surplus. We were 286 00:16:12,480 --> 00:16:16,640 Speaker 1: balanced in August when Nigerian production was down due to disruptions, 287 00:16:17,240 --> 00:16:20,120 Speaker 1: when North Sea production was down. But if you look 288 00:16:20,160 --> 00:16:23,600 Speaker 1: at the best indicator, which is the market, the futures curve, 289 00:16:24,080 --> 00:16:27,560 Speaker 1: the cash price, it suggests that supply is still a 290 00:16:27,600 --> 00:16:30,960 Speaker 1: little bit greater than demand. But one of the questions, 291 00:16:31,000 --> 00:16:33,280 Speaker 1: one of those things I've come to realize, especially since 292 00:16:33,880 --> 00:16:37,000 Speaker 1: the August statement by the Saudio Minister that maybe they 293 00:16:37,080 --> 00:16:41,480 Speaker 1: go along with the cut. Is balanced in oil doesn't matter? 294 00:16:41,880 --> 00:16:44,800 Speaker 1: You know, we're not balanced in gold. And if you 295 00:16:44,920 --> 00:16:49,600 Speaker 1: create the belief that the markets is not, you're not 296 00:16:49,600 --> 00:16:51,160 Speaker 1: going to dump on the market and the market is 297 00:16:51,160 --> 00:16:55,480 Speaker 1: going to be balanced. Investors will buy futures and oil 298 00:16:55,520 --> 00:16:58,040 Speaker 1: will go into storage, and I'll stay in storage. I mean, 299 00:16:58,080 --> 00:17:00,480 Speaker 1: it's there's no problem with having high end and tories. 300 00:17:01,160 --> 00:17:05,000 Speaker 1: If there's the right atosphere, right atmosphere that's created, just 301 00:17:05,080 --> 00:17:09,080 Speaker 1: as a banks trying to create it. What's your price target? Then? 302 00:17:09,119 --> 00:17:11,560 Speaker 1: I mean, you know, we had all sorts of analysis, 303 00:17:11,720 --> 00:17:15,040 Speaker 1: you know, as you know, if we had rationalization hundred eighties, 304 00:17:15,080 --> 00:17:19,640 Speaker 1: sixty forty, and then about thirty five people really started 305 00:17:19,720 --> 00:17:23,320 Speaker 1: framing bottom. Some got it right somewhere a little off, 306 00:17:23,560 --> 00:17:27,919 Speaker 1: some missed it. Where's your vector on oil? Well, I 307 00:17:27,960 --> 00:17:32,760 Speaker 1: think the price will oil will tend to trade uh 308 00:17:32,800 --> 00:17:35,760 Speaker 1: in terms of Brent and the fort fifty five range. 309 00:17:35,800 --> 00:17:36,959 Speaker 1: But I think by the end of the year we're 310 00:17:37,000 --> 00:17:42,600 Speaker 1: gonna be down below forty five because the because the 311 00:17:42,640 --> 00:17:45,840 Speaker 1: oil producers have not created the atmosphere, they haven't created 312 00:17:45,840 --> 00:17:49,040 Speaker 1: the environment. Dennis is right on this deniscarpment, and you have, 313 00:17:49,200 --> 00:17:52,880 Speaker 1: you know, you have to create an environment. Gold went 314 00:17:52,880 --> 00:17:56,080 Speaker 1: through this from two thousand to about two thousand nine, 315 00:17:56,720 --> 00:18:00,520 Speaker 1: and then the producers start cut their head just back, 316 00:18:00,600 --> 00:18:03,760 Speaker 1: and they responded by a little and and investors rushed 317 00:18:03,760 --> 00:18:06,600 Speaker 1: in and bought the stiller surplus, and gold goes into 318 00:18:06,600 --> 00:18:09,920 Speaker 1: inventories every month but price doesn't come down that much. 319 00:18:10,000 --> 00:18:15,520 Speaker 1: Prices volatile, but it is creating this expectation, the expectations 320 00:18:15,960 --> 00:18:18,120 Speaker 1: that the market is not going to go to twenty 321 00:18:18,240 --> 00:18:20,600 Speaker 1: and if the if there's this the expectation that the 322 00:18:20,600 --> 00:18:22,920 Speaker 1: market is gonna gonna bounce back to kind of this 323 00:18:23,080 --> 00:18:25,640 Speaker 1: forty to fifty or forty five to fifty five range, 324 00:18:26,119 --> 00:18:30,080 Speaker 1: then price will go down and then the investors will 325 00:18:30,119 --> 00:18:32,320 Speaker 1: come in paper traders I call them, will come in 326 00:18:32,400 --> 00:18:35,159 Speaker 1: by futures, and that will cause oil to go into storage, 327 00:18:35,200 --> 00:18:38,600 Speaker 1: just as gold goes into into storage, and then that 328 00:18:38,640 --> 00:18:41,600 Speaker 1: will kind of restore the range up. And so you know, 329 00:18:41,640 --> 00:18:43,640 Speaker 1: I'm not sure whether it's forty to fifty or forty 330 00:18:45,080 --> 00:18:46,960 Speaker 1: I mean, we don't know that yet, but it's gonna 331 00:18:47,000 --> 00:18:50,359 Speaker 1: go down below that because the producers still haven't gotten 332 00:18:50,400 --> 00:18:53,280 Speaker 1: the message that they have to manage expectation. They don't 333 00:18:53,320 --> 00:18:55,800 Speaker 1: have to manage the glut, they don't have to manage 334 00:18:56,400 --> 00:18:59,760 Speaker 1: work this glut off. They just have to manage expectations. 335 00:18:59,760 --> 00:19:02,560 Speaker 1: And different than my class night sand Fisher does and 336 00:19:02,920 --> 00:19:05,160 Speaker 1: the central bankers try to do in terms of inflation, 337 00:19:05,720 --> 00:19:09,520 Speaker 1: how much can we manage expectations outside of this country? 338 00:19:10,200 --> 00:19:13,080 Speaker 1: A lot of talk about you know what Russia is 339 00:19:13,080 --> 00:19:15,720 Speaker 1: going to continue to do? Uh, that is well and 340 00:19:15,840 --> 00:19:20,639 Speaker 1: desperate for additional income. How much control over it does 341 00:19:20,720 --> 00:19:24,919 Speaker 1: anybody have? Well, Russia and Saudi Arabia can manage that 342 00:19:24,960 --> 00:19:28,320 Speaker 1: expectations pretty well because of the they're the two leading 343 00:19:28,880 --> 00:19:32,520 Speaker 1: big exporters. We're not a big exporter. And if they 344 00:19:33,000 --> 00:19:35,959 Speaker 1: you know, if this meeting they're going to have in October, 345 00:19:36,400 --> 00:19:40,840 Speaker 1: uh pull something off, and this meeting in August and Algeria, 346 00:19:41,600 --> 00:19:45,280 Speaker 1: if if they focus on it and focus on nobody's 347 00:19:45,280 --> 00:19:48,240 Speaker 1: gonna push it, push production off too much, then they 348 00:19:48,280 --> 00:19:51,680 Speaker 1: probably can can restore prices. And I give that a 349 00:19:52,920 --> 00:19:55,280 Speaker 1: probability on the first go around, because you know, it 350 00:19:55,280 --> 00:19:57,720 Speaker 1: took us years to work inflation off after Volker was 351 00:19:57,800 --> 00:20:02,040 Speaker 1: head of the central banks. Find managing and that's what 352 00:20:02,040 --> 00:20:04,479 Speaker 1: what what the oil producers have to do with manage 353 00:20:04,560 --> 00:20:06,960 Speaker 1: expectations in Venezuela is going to go away. I mean 354 00:20:07,040 --> 00:20:09,760 Speaker 1: the Venezuela and economy is sailed, and I worry about 355 00:20:09,800 --> 00:20:13,960 Speaker 1: what happens when it does fail. So you do the economics. 356 00:20:14,000 --> 00:20:16,760 Speaker 1: But away from that is the basic idea, is there 357 00:20:16,880 --> 00:20:21,280 Speaker 1: value in oil upstream? Downstream? Do you find the oil 358 00:20:21,359 --> 00:20:25,119 Speaker 1: companies interesting to acquire or are they a value? Trapp 359 00:20:26,720 --> 00:20:29,520 Speaker 1: I have a paper coming out shortly with the Group 360 00:20:29,560 --> 00:20:32,760 Speaker 1: of thirty and I talk of big oil is being ossified. 361 00:20:33,720 --> 00:20:37,200 Speaker 1: I think that the major oil companies have missed the 362 00:20:37,240 --> 00:20:41,120 Speaker 1: boat by and large. Uh. You know it's the one 363 00:20:41,160 --> 00:20:43,760 Speaker 1: company that I admire, and I'm not an analystis Exxon 364 00:20:43,880 --> 00:20:47,560 Speaker 1: Mobile that manages to keep its costs under control. But 365 00:20:47,680 --> 00:20:52,679 Speaker 1: the the big oil companies are mostly still wetted to 366 00:20:52,800 --> 00:20:55,800 Speaker 1: the view that you it's the big projects, the most 367 00:20:56,000 --> 00:20:59,080 Speaker 1: billion dollar projects that you have to pursue. Do they 368 00:20:59,160 --> 00:21:01,720 Speaker 1: have to pursue those? Is there value there? There's no 369 00:21:01,800 --> 00:21:05,200 Speaker 1: value there. There's no value in those new projects. Technology. 370 00:21:05,600 --> 00:21:11,080 Speaker 1: Technology is overwhelming them. Global warming is overwhelming them. It 371 00:21:11,080 --> 00:21:15,280 Speaker 1: it is the idea of borrowing to pay one's dividends 372 00:21:15,480 --> 00:21:19,400 Speaker 1: strikes me as being a terribly bad idea. Mike. This 373 00:21:19,440 --> 00:21:22,880 Speaker 1: week's talk is kazakh stunt. There's a there's a big 374 00:21:22,880 --> 00:21:26,160 Speaker 1: oil field. Feel only you would know this how many 375 00:21:26,200 --> 00:21:29,600 Speaker 1: billions of dollars have been pumped into that field in Kazakhstan. 376 00:21:30,200 --> 00:21:32,240 Speaker 1: I think I think it's because you can feel. I 377 00:21:32,280 --> 00:21:36,000 Speaker 1: think I saw yesterday something like forty billion dollars or 378 00:21:36,119 --> 00:21:40,720 Speaker 1: fifty and it's just it is a stunning sum and uh, 379 00:21:40,800 --> 00:21:45,280 Speaker 1: never again, never again should the company do that. You 380 00:21:45,359 --> 00:21:48,399 Speaker 1: have the l n G project that Chevron just brought 381 00:21:48,440 --> 00:21:51,520 Speaker 1: on down in uh in Australia, and I think they 382 00:21:51,840 --> 00:21:54,719 Speaker 1: that total project on that one was also something like 383 00:21:54,760 --> 00:21:57,919 Speaker 1: forty five or fifty billion dollars. And the industry, you know, 384 00:21:57,960 --> 00:22:00,400 Speaker 1: the industry is always view that they need eat something 385 00:22:00,440 --> 00:22:03,119 Speaker 1: like ten or fifteen dollar a thousand cubicek natural gas 386 00:22:03,160 --> 00:22:04,920 Speaker 1: in the l n G market, and then they thought 387 00:22:04,920 --> 00:22:07,160 Speaker 1: they were going to get it and they're getting five 388 00:22:07,200 --> 00:22:11,440 Speaker 1: dollars in Japan. Now, you know, the the industry has 389 00:22:11,440 --> 00:22:16,160 Speaker 1: been transformed one by slower economic growth. And and as 390 00:22:16,200 --> 00:22:18,320 Speaker 1: you keep saying, as I keep listening to you and 391 00:22:18,359 --> 00:22:20,880 Speaker 1: listening to other Bloomberg people, we're not going to get 392 00:22:20,920 --> 00:22:23,760 Speaker 1: that economic growth for for some time. So the demand 393 00:22:23,840 --> 00:22:27,359 Speaker 1: is going to grow. Hey, we're gonna have to we 394 00:22:27,480 --> 00:22:29,360 Speaker 1: have to leave it there. Phil, we're running out of time. 395 00:22:29,440 --> 00:22:31,920 Speaker 1: We'll have you back for a longer. I'll point your 396 00:22:31,960 --> 00:22:37,000 Speaker 1: congratulations on the paper you're working on. Group. It's just remarkable. 397 00:22:37,320 --> 00:22:41,560 Speaker 1: And Chris Verliger sometimes an outlier call, but right now Mike. 398 00:22:41,640 --> 00:22:44,879 Speaker 1: I would call him an outlier call. There's a lot 399 00:22:44,960 --> 00:22:48,479 Speaker 1: of people looking for stability and even price increases as 400 00:22:48,520 --> 00:22:52,000 Speaker 1: we've seen that has not happened this week. Who you 401 00:22:52,040 --> 00:22:55,919 Speaker 1: put your trust in matters. Investors have put their trust 402 00:22:55,960 --> 00:22:59,280 Speaker 1: in independent registered investment advisors to the tune of four 403 00:22:59,400 --> 00:23:03,879 Speaker 1: trillion dollars. Why they see their role is to serve, 404 00:23:04,359 --> 00:23:07,600 Speaker 1: not sell. That's why Charles Schwab is committed to the 405 00:23:07,640 --> 00:23:12,320 Speaker 1: success of over seven thousand independent financial advisors who passionately 406 00:23:12,359 --> 00:23:16,720 Speaker 1: dedicate themselves to helping people achieve their financial goals. Learn 407 00:23:16,800 --> 00:23:25,520 Speaker 1: more and find your independent advisor dot com. Now we'll 408 00:23:25,520 --> 00:23:30,160 Speaker 1: bring in Drew Maadis. Drew maddas uh UBS Deputy GVUS 409 00:23:30,160 --> 00:23:33,280 Speaker 1: economist Drew Madis just want to awards, want a plethora 410 00:23:33,280 --> 00:23:36,359 Speaker 1: of awards. Um. There's a plethora of data coming out 411 00:23:37,080 --> 00:23:43,000 Speaker 1: import prices, you know, just an an input into other calculations. 412 00:23:43,040 --> 00:23:46,240 Speaker 1: But there's some numbers like retail sales coming out this week, Drew, 413 00:23:46,320 --> 00:23:49,800 Speaker 1: that will have some impact on the way people think 414 00:23:49,800 --> 00:23:53,639 Speaker 1: about the economy. Yeah, you know, everyone's focused on the 415 00:23:53,680 --> 00:23:58,239 Speaker 1: retail sales UH and the inflations numbers, and you know, 416 00:23:58,359 --> 00:24:00,400 Speaker 1: I I don't think this is gonna be one that's 417 00:24:00,440 --> 00:24:04,040 Speaker 1: going to make people think that September really is in play. Uh. 418 00:24:04,080 --> 00:24:07,560 Speaker 1: And you know, to be honest with you, September's fom 419 00:24:07,640 --> 00:24:10,040 Speaker 1: C meeting and the markets that defend, like Lucy and 420 00:24:10,040 --> 00:24:14,199 Speaker 1: the football. We've been through this before. We run up 421 00:24:14,200 --> 00:24:17,040 Speaker 1: to get to get all excited, uh loosen pools of 422 00:24:17,040 --> 00:24:19,560 Speaker 1: football back and when we land on on on our 423 00:24:20,680 --> 00:24:23,520 Speaker 1: posteriors or posteria. I I don't even know because I'm 424 00:24:23,520 --> 00:24:25,520 Speaker 1: not from northern New Jersey how to pronounce that word, 425 00:24:25,720 --> 00:24:28,880 Speaker 1: but I mean, I think, you know, really at ubs 426 00:24:28,920 --> 00:24:30,480 Speaker 1: are our thoughts so that they're going to go in 427 00:24:30,520 --> 00:24:35,120 Speaker 1: December um, and that uh, it's not the actual evolution 428 00:24:35,160 --> 00:24:38,280 Speaker 1: of the economy and near terms uh you know, near 429 00:24:38,400 --> 00:24:42,679 Speaker 1: term data points, but rather the grinding pressure higher in 430 00:24:42,800 --> 00:24:45,760 Speaker 1: terms of overall levels of economic activity. It is in 431 00:24:45,840 --> 00:24:48,520 Speaker 1: a slow and steady grind, and people are missing it 432 00:24:48,600 --> 00:24:52,439 Speaker 1: because it's so slow and so steady. But when you 433 00:24:52,480 --> 00:24:55,720 Speaker 1: look at everything getting tighter in the labor market getting tighter, 434 00:24:55,800 --> 00:24:58,600 Speaker 1: warees starting to creep higher. U. It all heats up 435 00:24:58,640 --> 00:25:00,439 Speaker 1: to a picture where you know, the it should be 436 00:25:00,480 --> 00:25:06,400 Speaker 1: moving rates higher sooner rather than later, which inflation series 437 00:25:06,800 --> 00:25:10,600 Speaker 1: gets your attention. I got service sector well over three 438 00:25:11,840 --> 00:25:16,560 Speaker 1: goods deflation, but then I got fourteen other flavors in between, 439 00:25:17,280 --> 00:25:21,960 Speaker 1: which one does a pro like Drewmatics look at right now? Well, 440 00:25:22,080 --> 00:25:25,200 Speaker 1: you know, to be honest with you, UM, I look 441 00:25:25,240 --> 00:25:29,160 Speaker 1: at wages. Uh. And there's actually a very little link 442 00:25:29,240 --> 00:25:32,280 Speaker 1: between wage and overall inflation, and if it doesn't goes 443 00:25:32,280 --> 00:25:34,760 Speaker 1: for the service side, which as you notice accelerating. But 444 00:25:36,119 --> 00:25:37,920 Speaker 1: you know, I'm trying to think. Put myself in gianet 445 00:25:37,960 --> 00:25:39,560 Speaker 1: yell and shoes and how she looks at the world, 446 00:25:39,680 --> 00:25:41,919 Speaker 1: and the simple factor matter is it's her. Most of 447 00:25:41,920 --> 00:25:44,960 Speaker 1: her colleagues were educated in a time when wage price 448 00:25:45,040 --> 00:25:49,600 Speaker 1: spirals were the rage in economics. UM. And I think 449 00:25:49,640 --> 00:25:53,320 Speaker 1: that it's very hard to walk away from something you 450 00:25:53,359 --> 00:25:57,280 Speaker 1: were taught as being the truth. Um, even if you 451 00:25:57,359 --> 00:25:59,600 Speaker 1: know that perhaps that linkage isn't as strong as it 452 00:25:59,720 --> 00:26:03,800 Speaker 1: as it was taught when you were in school. So 453 00:26:04,600 --> 00:26:07,000 Speaker 1: long window way of saying that I looked at wage growth, 454 00:26:07,080 --> 00:26:08,959 Speaker 1: I think wage growth will tell you everything you need 455 00:26:09,040 --> 00:26:10,880 Speaker 1: to know about how fast the Fed thinks it needs 456 00:26:10,880 --> 00:26:13,119 Speaker 1: to move. But I will point out that there have 457 00:26:13,200 --> 00:26:16,000 Speaker 1: been some really interesting comments out of people like Williams 458 00:26:16,040 --> 00:26:19,720 Speaker 1: and Rosen Grin, who to people pretty much on opposite 459 00:26:19,720 --> 00:26:22,040 Speaker 1: sides of the spectrum at the FED, who gave pretty 460 00:26:22,119 --> 00:26:26,520 Speaker 1: much identical speeches. UM. Really harkening back to Tom, what 461 00:26:26,640 --> 00:26:28,159 Speaker 1: you and I would remember is kind of like the 462 00:26:28,160 --> 00:26:31,080 Speaker 1: golden days of the FED. UM. You know, they high 463 00:26:31,160 --> 00:26:34,840 Speaker 1: rates to extend the economic recovery, not to contract it. 464 00:26:35,520 --> 00:26:38,120 Speaker 1: UM and also noting that this whole idea that there's 465 00:26:38,160 --> 00:26:41,919 Speaker 1: asymmetric risk because you're so close to zero, really downplaying that. 466 00:26:42,240 --> 00:26:45,040 Speaker 1: And I thought that was particularly telling from Rose and Grin, 467 00:26:45,119 --> 00:26:48,080 Speaker 1: who tends to be more duvish. Yeah, I I Mike 468 00:26:48,160 --> 00:26:50,840 Speaker 1: just allowed to tooralize. I totally agree with Mr Madison, 469 00:26:50,960 --> 00:26:54,840 Speaker 1: this Rosy Grin is a real shift. Are we risking 470 00:26:55,480 --> 00:27:02,399 Speaker 1: drove financial market distortions by continuing this? I think we are. 471 00:27:02,400 --> 00:27:04,000 Speaker 1: And I think that's part of what that has the 472 00:27:04,080 --> 00:27:06,399 Speaker 1: FED worried is that they're seeing this reach for yield 473 00:27:06,400 --> 00:27:09,720 Speaker 1: across a lot of different asset classes. UM, they're seeing 474 00:27:10,119 --> 00:27:13,800 Speaker 1: um less volatility than they would expect up until recently, 475 00:27:14,400 --> 00:27:17,080 Speaker 1: and I think they're just worried that they might be 476 00:27:17,240 --> 00:27:20,000 Speaker 1: creating something worse. I also think that they're beginning to 477 00:27:20,080 --> 00:27:24,800 Speaker 1: think that perhaps if the economy accelerates um that they 478 00:27:24,840 --> 00:27:27,000 Speaker 1: won't be able to go quickly enough that the market 479 00:27:27,080 --> 00:27:29,840 Speaker 1: is not prepared for them to go on an ongoing 480 00:27:29,920 --> 00:27:33,440 Speaker 1: steady basis um. And therefore they have to kind of 481 00:27:33,440 --> 00:27:36,560 Speaker 1: take these as they can get them. Uh. And they 482 00:27:36,920 --> 00:27:38,600 Speaker 1: you know, I'm not sure if they really tried to 483 00:27:38,600 --> 00:27:41,159 Speaker 1: set us up for September or really they set us 484 00:27:41,240 --> 00:27:43,680 Speaker 1: up for the set up in September to get us 485 00:27:43,760 --> 00:27:46,880 Speaker 1: in going in December. But I do think they want 486 00:27:46,880 --> 00:27:49,760 Speaker 1: to go this year. Uh. That's I think the prudent 487 00:27:49,760 --> 00:27:51,720 Speaker 1: thing for them to want to do. And I think 488 00:27:51,760 --> 00:27:54,159 Speaker 1: they will follow through on that. Drew Tea made with 489 00:27:54,200 --> 00:27:58,200 Speaker 1: the UBS. Senior Economy is thrilled to have them on. Drew, 490 00:27:58,320 --> 00:28:02,000 Speaker 1: you have a wonderful page in your wonderfully granular research 491 00:28:02,480 --> 00:28:05,160 Speaker 1: which has four charts on it, and folks, I want 492 00:28:05,160 --> 00:28:07,760 Speaker 1: you to play a game with me. Look at the charts. 493 00:28:07,960 --> 00:28:10,720 Speaker 1: To radio Mike, we can do this. Look at the charts. 494 00:28:11,440 --> 00:28:15,240 Speaker 1: In pretend you took your thumbs and covered over US 495 00:28:15,440 --> 00:28:19,600 Speaker 1: or America wherever they are in the page. Drew these 496 00:28:19,720 --> 00:28:24,080 Speaker 1: four inflation charts for America. If I didn't know it 497 00:28:24,119 --> 00:28:27,760 Speaker 1: was America, I would think it was a disinflation of Europe. 498 00:28:27,800 --> 00:28:33,040 Speaker 1: I'm looking at non energy commodity, core finished consumer capital 499 00:28:33,040 --> 00:28:38,280 Speaker 1: equipment inflation or outright disinflation, and core producer prices. I 500 00:28:38,280 --> 00:28:42,560 Speaker 1: mean it's almost eurolike, isn't it. Well, I mean everyone 501 00:28:42,680 --> 00:28:44,800 Speaker 1: is doing the same policy, so why are we expecting 502 00:28:44,840 --> 00:28:48,080 Speaker 1: different results? Um? You know, I think you know there's 503 00:28:48,080 --> 00:28:52,080 Speaker 1: some great research out of Harvard that tries to explain 504 00:28:52,120 --> 00:28:54,560 Speaker 1: why in place and expectations we go down when rates 505 00:28:54,680 --> 00:28:59,120 Speaker 1: are have been cut to zero. Um, and uh what 506 00:28:59,480 --> 00:29:03,959 Speaker 1: it basically? Uh? The end result of paper is that, uh, 507 00:29:04,120 --> 00:29:08,280 Speaker 1: initially you get an uptick in inflation expectations from low rates, 508 00:29:08,520 --> 00:29:11,080 Speaker 1: but the longer they persist, and more likely those inflation 509 00:29:11,120 --> 00:29:15,720 Speaker 1: expectations will fall. Yeah. Well, so, in you know Layman's parlance, 510 00:29:15,720 --> 00:29:17,800 Speaker 1: what that means is if you keep it zero for 511 00:29:17,880 --> 00:29:20,880 Speaker 1: too long, it begins to affect people's idea that the 512 00:29:20,920 --> 00:29:22,880 Speaker 1: world will ever get back to normal, and they begin 513 00:29:22,960 --> 00:29:26,600 Speaker 1: to expect extraordinarily low inflation over a long period of time, 514 00:29:26,680 --> 00:29:29,640 Speaker 1: so that FED policy can be self defeating. Okay, And now, folks, 515 00:29:29,680 --> 00:29:31,440 Speaker 1: we go to the wonky end of things. We can 516 00:29:31,480 --> 00:29:34,400 Speaker 1: do that with drewmatics of ubs. Drew, what you said 517 00:29:34,400 --> 00:29:38,040 Speaker 1: there was absolutely key. If you get a chronic or 518 00:29:38,160 --> 00:29:43,120 Speaker 1: a inertial force of disinflation, do we flip from a 519 00:29:43,200 --> 00:29:49,120 Speaker 1: traditional orthodox analysis of inflation to, to use the phrase 520 00:29:49,200 --> 00:29:54,360 Speaker 1: in Vogue, a neoficiarian outlook on inflation. Do you get 521 00:29:54,400 --> 00:29:57,800 Speaker 1: that shift not because you believe in the shift or whatever, 522 00:29:58,280 --> 00:30:00,760 Speaker 1: or do you simply get it because of the chronic 523 00:30:01,040 --> 00:30:05,040 Speaker 1: nature of disinflation? Well, I think it's interesting, so they 524 00:30:05,080 --> 00:30:07,440 Speaker 1: can you know if people call it neo Fisherian um 525 00:30:07,480 --> 00:30:10,320 Speaker 1: and and and people who kind of scoff at it. 526 00:30:10,360 --> 00:30:12,120 Speaker 1: And if you're an economist, the best way to be 527 00:30:12,120 --> 00:30:14,720 Speaker 1: ignored at a cocktail party is to say you believe 528 00:30:14,760 --> 00:30:17,560 Speaker 1: in it. But the problem is is that the models 529 00:30:17,640 --> 00:30:20,760 Speaker 1: we have do not work. The models we have would 530 00:30:20,800 --> 00:30:23,040 Speaker 1: tell us that a low rate environment would see a 531 00:30:23,200 --> 00:30:26,720 Speaker 1: surge in capex, of reduction in savings on the part 532 00:30:26,760 --> 00:30:29,960 Speaker 1: of the consumer and more spending because consumers are not 533 00:30:30,000 --> 00:30:32,920 Speaker 1: being incentivized to save money. And instead we've seen a 534 00:30:33,000 --> 00:30:36,720 Speaker 1: decline in savings and a decline in capex relative to 535 00:30:36,720 --> 00:30:39,440 Speaker 1: where we would think it would be. Um and no one, 536 00:30:39,920 --> 00:30:43,400 Speaker 1: no one anywhere is asking why our models aren't working 537 00:30:43,440 --> 00:30:46,160 Speaker 1: and how we get them to work better. Um. And 538 00:30:46,200 --> 00:30:49,760 Speaker 1: the people who do then are mocked for being neo Fisherian. 539 00:30:50,480 --> 00:30:52,040 Speaker 1: You don't have to be you don't have to believe 540 00:30:52,080 --> 00:30:54,960 Speaker 1: in that particular view of the world to just understand 541 00:30:55,000 --> 00:30:58,360 Speaker 1: that if people are approaching retirement and you tell them 542 00:30:58,360 --> 00:31:00,840 Speaker 1: they're going to get zero percent on on yields from 543 00:31:00,880 --> 00:31:04,080 Speaker 1: their assets for X number of years into retirement, that 544 00:31:04,160 --> 00:31:07,280 Speaker 1: they have to save more. Right. So, I think this 545 00:31:07,360 --> 00:31:10,760 Speaker 1: is a case where maybe we should put aside the 546 00:31:10,800 --> 00:31:14,040 Speaker 1: you know, the regressions, and the entire economics profession has 547 00:31:14,080 --> 00:31:16,200 Speaker 1: gotten into this idea that if you can do a 548 00:31:16,240 --> 00:31:18,200 Speaker 1: two factor regression, you might as well do a two 549 00:31:18,600 --> 00:31:21,280 Speaker 1: factor regression because that means you're smarter than everyone else. 550 00:31:22,360 --> 00:31:25,680 Speaker 1: You know, simpler things are better. Um. And if you can't, 551 00:31:25,760 --> 00:31:29,800 Speaker 1: if you know, you just need to use your common 552 00:31:29,800 --> 00:31:32,320 Speaker 1: sense from time to time and think about whether something 553 00:31:32,360 --> 00:31:36,160 Speaker 1: makes sense or not. Uh. And if I'm fifty years 554 00:31:36,160 --> 00:31:39,280 Speaker 1: old approaching retirement, and I think the ten year yield 555 00:31:39,400 --> 00:31:42,400 Speaker 1: is going to be below two percent for the rest 556 00:31:42,480 --> 00:31:45,880 Speaker 1: of my life, I need more money for retirement. That's 557 00:31:45,880 --> 00:31:48,000 Speaker 1: as simple as I can make it. Um. And I 558 00:31:48,040 --> 00:31:50,760 Speaker 1: think that's what's driving the economy right now. Mike did 559 00:31:50,760 --> 00:31:55,360 Speaker 1: you see how Mr Mattis said there fifty and approaching retirement. 560 00:31:55,360 --> 00:31:57,440 Speaker 1: Do we know anybody in that group? Is that a 561 00:31:57,480 --> 00:32:00,440 Speaker 1: subset of zero? John Tucker helps, So we don't anybody 562 00:32:03,120 --> 00:32:12,120 Speaker 1: think we're approaching death. That's a little bit closer to it. Uh. 563 00:32:12,560 --> 00:32:16,880 Speaker 1: And when he mentioned people doing two thousand regression charts? Um, 564 00:32:18,400 --> 00:32:23,040 Speaker 1: but uh, can the here's the basic question. If we 565 00:32:23,120 --> 00:32:25,440 Speaker 1: keep interest rates where they are, are we going to 566 00:32:25,480 --> 00:32:28,720 Speaker 1: get inflation? Is there a connection anymore you talk about 567 00:32:28,760 --> 00:32:33,560 Speaker 1: inflation expectations after a while start to fall. Uh. Seven 568 00:32:33,600 --> 00:32:36,680 Speaker 1: years on, we haven't got inflation. So is it going 569 00:32:36,720 --> 00:32:39,320 Speaker 1: to happen? Is it worth keeping rates where they are 570 00:32:39,520 --> 00:32:43,040 Speaker 1: to make it happen? Well? I I think before we started, 571 00:32:43,280 --> 00:32:46,240 Speaker 1: um looking at inflation expectations all the time and serving 572 00:32:46,520 --> 00:32:51,240 Speaker 1: inflation expectations. Um. You know, the big problem is is 573 00:32:51,280 --> 00:32:53,920 Speaker 1: that most people nowadays, now that we're paying so much 574 00:32:53,920 --> 00:32:57,160 Speaker 1: attention to inflation expectations, most of those people who are 575 00:32:57,200 --> 00:33:01,280 Speaker 1: responding or trying to you know, um, are the are 576 00:33:01,320 --> 00:33:05,600 Speaker 1: the underlying group that they're they're surveying effectively? Don't remember 577 00:33:05,640 --> 00:33:08,640 Speaker 1: a time when inflation was high? Um? You know, four 578 00:33:08,680 --> 00:33:12,480 Speaker 1: percent inflation was two thousand five right, we're not talking 579 00:33:12,480 --> 00:33:15,000 Speaker 1: about ancient history in terms of inflation, and that that 580 00:33:15,080 --> 00:33:17,720 Speaker 1: was not uncontrolled inflation. That was just a kind of 581 00:33:17,720 --> 00:33:21,480 Speaker 1: a stable four percent inflation rate for a period of time, UM, 582 00:33:21,560 --> 00:33:23,720 Speaker 1: and we all survived it. But you know, if you're 583 00:33:23,760 --> 00:33:26,520 Speaker 1: holding a U S tenure note at you know, one sixty, 584 00:33:26,720 --> 00:33:30,120 Speaker 1: and you have four percent inflation for a year or two, um, 585 00:33:30,360 --> 00:33:33,680 Speaker 1: that that doesn't seem like the best idea. Well, what 586 00:33:33,760 --> 00:33:37,640 Speaker 1: then should the FED be doing? Um? If they were 587 00:33:37,680 --> 00:33:39,840 Speaker 1: to do what the Bank of Japan is doing and 588 00:33:39,920 --> 00:33:42,200 Speaker 1: do an audit of their monetary policy, what would it 589 00:33:42,600 --> 00:33:48,720 Speaker 1: What would it tell them? I would remind them that, uh, 590 00:33:48,760 --> 00:33:51,120 Speaker 1: you know, if they're thinking about the rest of the world, 591 00:33:51,680 --> 00:33:53,520 Speaker 1: you need to think about how you could take the 592 00:33:53,600 --> 00:33:56,640 Speaker 1: pressure off the rest of the world. And that a 593 00:33:56,680 --> 00:33:59,200 Speaker 1: lot of what they should ask themselves why the rest 594 00:33:59,240 --> 00:34:02,640 Speaker 1: of the world is at such extremely low interest rates 595 00:34:02,720 --> 00:34:04,920 Speaker 1: and maybe, just maybe it has something to do with 596 00:34:04,960 --> 00:34:07,360 Speaker 1: the fact that the Fed is at an abnormally low 597 00:34:07,400 --> 00:34:12,680 Speaker 1: interest rate given its employment growth and unemployment rate. Dramatis, 598 00:34:12,760 --> 00:34:15,480 Speaker 1: thank you so much, greatly appreciate it. With UBS. That 599 00:34:15,560 --> 00:34:19,920 Speaker 1: was very enjoyable, Mike, Yes, especially the reminder of how 600 00:34:19,960 --> 00:34:22,200 Speaker 1: old we are. Yeah, well, I like that. I want 601 00:34:22,200 --> 00:34:24,200 Speaker 1: to point out, folks, I didn't want to cut into 602 00:34:24,520 --> 00:34:29,120 Speaker 1: the incredibly smart thoughts of Mr Maddis, but I feel 603 00:34:29,160 --> 00:34:31,319 Speaker 1: like I have to every time, because we really try 604 00:34:31,360 --> 00:34:35,799 Speaker 1: to be jargon free. Neil Fisher, which a lot of 605 00:34:35,800 --> 00:34:39,080 Speaker 1: people are learning about in this summer in autumn of 606 00:34:39,080 --> 00:34:43,520 Speaker 1: two thousand sixteen, is not Stan Fisher of the FED. 607 00:34:43,719 --> 00:34:47,680 Speaker 1: It is Irving Fisher of Yale University eighty years ago, 608 00:34:47,760 --> 00:34:50,160 Speaker 1: eight zero eighty years ago. We were kidding with Bob 609 00:34:50,200 --> 00:34:53,720 Speaker 1: Schiller uh that that he took classes with Professor Fisher, 610 00:34:53,760 --> 00:34:57,360 Speaker 1: but that's not quite active. He was revered, There's no 611 00:34:57,400 --> 00:35:00,839 Speaker 1: other way to put it. Among economists, even those Mike 612 00:35:00,920 --> 00:35:05,400 Speaker 1: that disagreed with Irving Fisher adored his work and he 613 00:35:05,560 --> 00:35:09,200 Speaker 1: was truly a giant, and with all of his flaws 614 00:35:09,239 --> 00:35:12,800 Speaker 1: and all of his interesting views on the depression and investment, 615 00:35:12,800 --> 00:35:17,879 Speaker 1: et cetera. But neo Fisherian means new Irving Fisher, and 616 00:35:17,920 --> 00:35:20,040 Speaker 1: we I feel we have an obligation to mention that 617 00:35:20,640 --> 00:35:24,680 Speaker 1: every time we talk about lower rates bringing on lower inflation, 618 00:35:24,840 --> 00:35:28,120 Speaker 1: which is Drew said, is enough to stop a cocktail party. 619 00:35:29,200 --> 00:35:33,319 Speaker 1: Thanks for listening to the Bloomberg Surveillance Podcast. Subscribe and 620 00:35:33,360 --> 00:35:38,760 Speaker 1: listen to interviews on iTunes, SoundCloud, or whichever podcast platform 621 00:35:38,840 --> 00:35:42,960 Speaker 1: you prefer. I'm on Twitter at Tom Keane. Michael McKee 622 00:35:43,000 --> 00:35:46,600 Speaker 1: is at Economy Before the podcast. You can always catch 623 00:35:46,680 --> 00:35:56,880 Speaker 1: us worldwide. I'm Bloomberg Radio. Who you put your trust 624 00:35:56,920 --> 00:36:01,400 Speaker 1: in matters. 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