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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg terminal. We begin right

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Speaker 1: now our coverage into a July seven Federal Reserve meeting, which,

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Speaker 1: in sequence with the last one and maybe in sequence

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Speaker 1: with the next one, is truly historic. A student of this,

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Speaker 1: of the history of the nation's economics and the action

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Speaker 1: of it, is a former Richmond Federal Reserve President, Jeffrey Lacker,

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Speaker 1: and we're thrilled to Professor Lacker could join us this morning.

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Speaker 1: Jeff Lacker, I want to go back to one of

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Speaker 1: my heroes, a gentleman from Washington University at St. Louis,

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Speaker 1: the laureate Douglas North, who codified the word ambiguity and

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Speaker 1: also did a careful study of the dynamics the movable

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Speaker 1: parts of our economy. All of our listeners, all of

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Speaker 1: our viewers, are drowning now in the dynamics of our

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Speaker 1: economic world. How do we get control of it that

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Speaker 1: has to do its job get inflation down. It's the

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Speaker 1: institution with unique control over monetary conditions, the United States UM.

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Speaker 1: Together with the fiscal authorities, they drive inflation, and the

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Speaker 1: FED has got to do its job now uh and

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Speaker 1: do what it takes to get inflation down. I think

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Speaker 1: Chairman Powell has been right in recent months since March

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Speaker 1: to emphasize that maximum employment is going to be out

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Speaker 1: of reach until we get inflation down, and we need

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Speaker 1: to put concerns about the labor market on what it's

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Speaker 1: doing a little bit to the side and focus on

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Speaker 1: getting inflation down. That's gonna take reducing spending growth, producing

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Speaker 1: nominal spent and the labor market will play out as

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Speaker 1: it will. Your shop Codified Economic History with Thomas Humphries

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Speaker 1: one of my heroes. I've read every single page he's

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Speaker 1: ever written. Right now, Thomas Humphries would be writing about

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Speaker 1: comparing Volcer to Powell, Powell to Voker. He's not Paul Voker, right. So,

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Speaker 1: Paul Volker was a um, a great central banker in

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Speaker 1: an age of monetary mystique, an age in which central

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Speaker 1: banks deliberately cultivated some obscurity and a distance from the public.

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Speaker 1: They didn't want to be in the headlines unlessen you know,

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Speaker 1: they wanted to choose when they'd be in the headlines. Um,

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Speaker 1: we're in a different day and age. Getting inflation down

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Speaker 1: revealed to central bankers around the world the value of

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Speaker 1: um managing expectations and the value to that of being

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Speaker 1: transparent and communicating about what they're about, what they're trying

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Speaker 1: to do. J. P See strikes me as better suited

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Speaker 1: for the age of central bank transparency with Paul Boker

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Speaker 1: in terms of personal demeanor. The one big thing that

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Speaker 1: Paul Boker had was the political the backing the political

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Speaker 1: establishment in Washington and New York to get inflation down.

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Speaker 1: They were fed up with it, and they were willing

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Speaker 1: to take the pain. And he cultivated an appreciation of

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Speaker 1: the pain that was needed, uh to withstand in order

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Speaker 1: to get inflation down. And I think J. Pale Is

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Speaker 1: seems to have abundant um political connections and abundant skill

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Speaker 1: in managing the FEDS political connections, and so he seems

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Speaker 1: pretty well suited on that grounds to a delicate subject.

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Speaker 1: But you've touched on and so let's go there. How

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Speaker 1: political is this fat? Right? Now? Uh? So I think

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Speaker 1: they understand that. Um, there's nothing that could damage their

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Speaker 1: credibility more than sustained inflation. Um. You know, they can

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Speaker 1: take all the hits they want unemployment and the labor force,

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Speaker 1: and climate change and and what have you, But uh,

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Speaker 1: job number one is inflation. If they don't get that down,

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Speaker 1: I think they realized there their political toast in some sense.

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Speaker 1: So UM, I think that's true of any FED, no

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Speaker 1: matter what people say about independence. I think it's true

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Speaker 1: to refund. Are you convinced that wanting to tolerate a

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Speaker 1: recession to get inflation? Do? Yes? I do, and they should. Jeff,

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Speaker 1: what kind of recession? Because the consensus right now is

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Speaker 1: short and shallow. Do you share that, let's say, more

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Speaker 1: constructive view of things. I'm tempted, given today's news, yesterday's news,

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Speaker 1: to say a Mario dragging recession, you know, whatever it takes,

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Speaker 1: because the um, the alternative to let your foot up

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Speaker 1: off the break before inflation has come down, let it

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Speaker 1: settled four and five. That's just a recipe for another

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Speaker 1: recession down the road. That's a recession for prolonged pain,

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Speaker 1: making the agony younger and longer, stretching out over years.

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Speaker 1: That's not good for the American public. I think they

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Speaker 1: realized that, so they're gonna have to they ought to.

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Speaker 1: What they ought to do is stick with it until

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Speaker 1: they get inflation down to under three percent, say within

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Speaker 1: spinning distance of two, and um go from there. Okay,

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Speaker 1: So whatever it takes, what is it going to take?

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Speaker 1: What rate on Fed funds, rate on unemployment? Good question?

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Speaker 1: So UM, I think the historical record is clear that

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Speaker 1: they need to get the real federal funds rate out

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Speaker 1: or above zero. So that banks the question right. So

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Speaker 1: the real rate is the actual funds Fed funds rate

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Speaker 1: minus expecting near term inflation. The best reads of that

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Speaker 1: are about six percent. You've got the Michigan survey at

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Speaker 1: five point to the New York Fed Consumer Survey, which

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Speaker 1: is great, very good methodology at six point eight. Split

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Speaker 1: the difference at six percent. If near term expectations of

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Speaker 1: inflation stay at six percent, they're gonna have to get there.

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Speaker 1: If those near term expect patients start falling, then what

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Speaker 1: we have in stores or rendezvous between the Fed funds

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Speaker 1: rate and expected inflation. But I doubt that expected expectations

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Speaker 1: are going to fall to three and a half or

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Speaker 1: four by year end. So I suspect they're going to

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Speaker 1: have to go higher than that, and how quickly would

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Speaker 1: they need to get there? I mean, six percent is

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Speaker 1: still a long way away, even with the supersized hyps

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Speaker 1: we've already seen. I don't think, um, I don't think

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Speaker 1: slowing down the process does them a lot of good. Um.

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Speaker 1: No matter what, whether they go you know, fifties or

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Speaker 1: there's still going to be in a situation where the

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Speaker 1: effect on inflation is out into next year. They're going

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Speaker 1: to have to make a judgment about when to stop

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Speaker 1: without knowing whether they've done enough or not based on

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Speaker 1: other indications and other calculations like the one I cited,

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Speaker 1: Um and uh, so they might as well get get

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Speaker 1: it done. They might as well get there fast. Jeff,

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Speaker 1: do you look at the path back from this inflation

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Speaker 1: to whatever is normal to three let's not get into

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Speaker 1: that now. Is having a smoothness a glide path, as

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Speaker 1: Peter orzag would call it, or is it kinked where

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Speaker 1: we get to a point we stopped, we try to

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Speaker 1: figure out how to lower inflation next, etcetera. You know,

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Speaker 1: if the if the Fed titans enough, I think we'll

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Speaker 1: just see a gradual decline down. I think it'll sag

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Speaker 1: over a couple of years. I expected to be relatively smooth.

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Speaker 1: I don't have any reason to supect any jolts as

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Speaker 1: an other shocks like more oil price problems in the Jeff.

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Speaker 1: How would they respond you think to that negative supply

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Speaker 1: shock on the energy side, I'm interested in that, not

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Speaker 1: just for the Federals Earth, but maybe more so for

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Speaker 1: the e CP on the gas side of things. I

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Speaker 1: don't know if you've followed that news conference yesterday with

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Speaker 1: the GUARD, but then we all fail to establish what

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Speaker 1: their reaction function actually is and how they'd respond to

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Speaker 1: a negative supply shock that push gas prices higher and

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Speaker 1: potentially growth lower. This is a a key area because

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Speaker 1: oil price shocks tend to cause unemployment. People think, well,

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Speaker 1: you need to ease that's a reason to ease policy.

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Speaker 1: But if you think about it more broadly, the central

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Speaker 1: banks controlling the real interest rate, which is the incentive

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Speaker 1: to save and delay consumption, delay spending for later. And

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Speaker 1: if you get a supply shop, you want people to

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Speaker 1: wait and consume later. So what you want to do

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Speaker 1: is raise rates. Uh. At least one argument goes So

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Speaker 1: there's a case that you know it doesn't. It doesn't

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Speaker 1: mean not staying the course of inflation. Interesting, Jeffrey got

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Speaker 1: a cash shop jeff Nack of the former Richmond Fat

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Speaker 1: president right now and this is really important. I line

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Speaker 1: up Kenneth Rogoff with this book. The Curse of Cash

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Speaker 1: is one of those courageous books written in the last

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Speaker 1: number of years. There's our Steve Engel out of Hong

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Speaker 1: Kong and the courage he has done and reporting some

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Speaker 1: of the challenges of the p ccific rim and in

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Speaker 1: securities analysis. There is Richard Greenfield who was tirred and

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Speaker 1: feathers years ago with a small upstart called Advantage. It

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Speaker 1: wasn't funny at the time. Now we can look back

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Speaker 1: with joy and we're thrilled that one of the leaders

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Speaker 1: on media, rich Greenfield joins us today with Lightshead Partners

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Speaker 1: on the challenges of Mr Musk and Chance to record

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Speaker 1: rich just as a as a beginning point. Do the

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Speaker 1: earnings today matter? I mean they matter from the standpoint

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Speaker 1: of it's yet another signal that the online ad market

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Speaker 1: is slowing. You saw it from Snapchat last night, You've

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Speaker 1: seen it from Twitter. There are now just the building

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Speaker 1: series of signs that the economy is slowing and advertising

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Speaker 1: is slowing. Whether that's inflation driven or just overall broader

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Speaker 1: economic weakness, it definitely there. There's very specific Twitter challenges

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Speaker 1: with Musk, but the overall macro environment is clearly weighing.

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Speaker 1: We'll see the big bellweathers in Google and Facebook next week.

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Speaker 1: But this is certainly not um These These are negative

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Speaker 1: data points, both of them for investors. Right now, Search,

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Speaker 1: I gotta rip up the script here. Let's jump over

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Speaker 1: the next week. Are we going to see the big

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Speaker 1: boys and frankly including the Amazon advertising model, are they

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Speaker 1: going to be diminished as well? I mean, look, Google

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Speaker 1: has been talking about YouTube bearing some pressure. I think

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Speaker 1: there's no doubt the connected TV AD market is certainly slowing.

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Speaker 1: I think you're gonna hear that, whether it's from Fox

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Speaker 1: or Paramount. Like I think everywhere you look, connected TV

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Speaker 1: is slowing. The TV market, especially local TV, is starting

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Speaker 1: to slow. The economy is weakening. From the standpoint of

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Speaker 1: advertising companies. Are you know companies are seeing top line

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Speaker 1: growth slow? What do they do? They cut back on

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Speaker 1: the marketing spend. This is nothing. This is not a

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Speaker 1: new I mean, you and I com have lived through

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Speaker 1: multiple cycles over decades like this is what companies do

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Speaker 1: when things start to slow, They cut their marketing spend.

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Speaker 1: There's nothing shocking about it. The question is only how

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Speaker 1: long will it last and how bad will it be?

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Speaker 1: Is this a deep dark recession through twenty three where

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Speaker 1: ads fen gets crushed or is this more of a

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Speaker 1: shorter term phenomenon. We bounced back in twenty three, and

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Speaker 1: that's I think that's the big question. We don't know

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Speaker 1: right now, but I definitely think you'll see Facebook or

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Speaker 1: sorry Meta, I keep saying Facebook, We will see Metah

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Speaker 1: certainly talk about a slowdown in a continued slowdown and

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Speaker 1: ad revenue and probably give relatively underwhelming Q three guys,

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Speaker 1: I don't think as bad as Snapchat, but I don't

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Speaker 1: think it's going to be a great, great outlook. Well

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Speaker 1: for Rich to bring it back to Twitter. They did

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Speaker 1: talk in the statement about those advertising headwinds, but they

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Speaker 1: also said part of its reflective of uncertainty related to

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Speaker 1: the acquisition of Elon Musk. What is your base case

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Speaker 1: about what the verdict will be in that Delaware court

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Speaker 1: in October? Is he going to be forced to buy

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Speaker 1: this company for share? We really do believe he's going

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Speaker 1: to be forced to buy this company for Kaylee, he

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Speaker 1: signed his he signed this agreement when the case in Delaware,

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Speaker 1: which is going to be litigated on an expeditive basis,

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Speaker 1: he already lost the push to push this out. I

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Speaker 1: think the judge, My guess is the judge is gonna

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Speaker 1: look at this and go The entire Elon Musk case

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Speaker 1: essentially rests on this question of bots and did Twitter

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Speaker 1: disclose the proper amount of bots. The problem with that, Kayley,

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Speaker 1: is when you read the merger agreement, it never talks

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Speaker 1: about bots. There's no discussion of bots. It just relies

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Speaker 1: on Twitter's public filings. And if you read Twitter's public filings,

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Speaker 1: it says this is how we this is how we

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Speaker 1: count bots, or this is how we count real users.

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Speaker 1: But we could be wrong. So I think when you

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Speaker 1: actually read the documents, it's very hard to see how

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Speaker 1: Elon which is feels like he's got buyers remorse. He

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Speaker 1: just doesn't want to buy it anymore. Whether it's the martin,

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Speaker 1: the environment, I have no idea. Well to that point, Rich,

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Speaker 1: what happens to a company if someone is forced to

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Speaker 1: buy it who doesn't want it? Well, first of all,

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Speaker 1: it's happened before the specific performance, which is being forced

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Speaker 1: to close a transaction that you signed back in the

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Speaker 1: financial crisis. There is precedent for being forced to buy

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Speaker 1: a company. That's his problem, not Twitter. Rich Greenfield very

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Speaker 1: quickly here, and I want you to take a broader

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Speaker 1: Walter Pizak, Rich Greenfield view. Is their profit in streaming?

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Speaker 1: Is it a durable business or do they compete it

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Speaker 1: all the way spending two hundred million dollars on the

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Speaker 1: gray Man. Uh. Tom, It's an excellent question. I think

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Speaker 1: the way to answer it is right now, you are

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Speaker 1: seeing one company make a lot of money, which is Netflix.

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Speaker 1: Netflix is generating six seven billion dollars of EBITDA, is

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Speaker 1: generating a billion dollars of free cash flow and is

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Speaker 1: going to make dramatically more free cash flow next year.

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Speaker 1: Everybody else, whether we're talking about Disney or I mean Peacock,

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Speaker 1: is losing two and a half billion dollars a year.

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Speaker 1: Paramount Plus lost a billion in the last two quarters.

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Speaker 1: Everyone is just drowning in red tape right now. I mean,

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Speaker 1: this is like a black hole of streaming because there's

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Speaker 1: too many companies competing and they don't generate a significant

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Speaker 1: amount of time spent in streaming Netflix of all time

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Speaker 1: spent streaming on a connected TV YouTube. Everybody else is tiny.

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Speaker 1: And that's the problem is they're all spending billions upon

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Speaker 1: billions of dollars and they're not getting substantial viewership. That's

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Speaker 1: the problem. I got ten more questions in no time.

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Speaker 1: Rich Greenfield, thank you so much for joining us with

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Speaker 1: Walter at light Shed Partners. Right now, we're gonna look

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Speaker 1: at this at the President of the United States. To

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Speaker 1: John mentions, it is way way better than what President

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Speaker 1: Trump confronted. Maybe age, maybe health, but also just virulence

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Speaker 1: as well. Laurence Sour is expert in this field, Associate

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Speaker 1: professor at Nebraska Their Medical Center and director of Special

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Speaker 1: Pathogens Research Network. Lauren, I want to go to our youth.

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Speaker 1: I remember my mother dragging me in for boosters. It

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Speaker 1: was no big deal. There was whooping cough, tetanus, there

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Speaker 1: was dif theory, AD tap and T tap and all

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Speaker 1: the rest of it. Why is our fear over a

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Speaker 1: COVID booster shot so different than our fear over getting

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Speaker 1: a detherial booster shot. To be honest him, I think

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Speaker 1: a lot of it is politics and the conversation around

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Speaker 1: how the vaccine was developed. I think it's rare that

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Speaker 1: we see the development of a vaccine play out in

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Speaker 1: the public like this one has, where we're seeing every

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Speaker 1: minutia of the step wise path, and where people are

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Speaker 1: paying such close attention to the data that aren't scientists,

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Speaker 1: that aren't clinicians, and they're sending out interpretations into social media,

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Speaker 1: into the news media that might not be quite accurate

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Speaker 1: um or might be developing. And so I think changing

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Speaker 1: the conversation about how vaccines are made and why we

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Speaker 1: use them is really important, and bringing the trust back

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Speaker 1: to the process, explaining what happened during the COVID vaccine,

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Speaker 1: explaining how these are developed, and getting people back on

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Speaker 1: track with some of those vaccines you just mentioned. A

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Speaker 1: lot of kids are have been delayed in getting their

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Speaker 1: childhood vaccines because of the COVID pandemic, So bringing everyone

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Speaker 1: back up to speed and getting that population healthy again.

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Speaker 1: What would you like to see in terms of action

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Speaker 1: from politicians to get us back to where we don't

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Speaker 1: die from dithery a in one week like members of

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Speaker 1: my family did in about nineteen o five. I think

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Speaker 1: a huge piece is messaging the process um and why

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Speaker 1: it's important. So we need to have all of our

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Speaker 1: politicians come out and talk about why vaccines are important

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Speaker 1: for their children. UM. We can't have this vitriol, this

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Speaker 1: dialogue playing out in the public um sphere. And and

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Speaker 1: recognizing that scientists have a higher level of training, clinicians

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Speaker 1: have a higher level of training than you know, the

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Speaker 1: average politician on how vaccines work, why we use them,

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Speaker 1: and so the opinion of an individual in you know,

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Speaker 1: let's just say, for example, a member of Congress is

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Speaker 1: different than a physician researcher who's trained for twenty plus

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Speaker 1: years to develop these vaccines, roll out the trials, um

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Speaker 1: and understand the data on how they work. Well, Lauren,

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Speaker 1: as we talk about the messaging that vaccines work, what

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Speaker 1: a lot of people see is I'm vaccinated and yet

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Speaker 1: I still have a positive case. And especially as we

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Speaker 1: talk about a new variant now that we're being told

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Speaker 1: of AIDS all immunity, whether you've previously had COVID, whether

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Speaker 1: you're vaccinated, does that just raise the question of getting

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Speaker 1: more boosters into arms or is that just essentially saying, Look,

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Speaker 1: we have to resign ourselves to the fact that everyone

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Speaker 1: will contract the virus. It's just a matter of how

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Speaker 1: bad it is for them. Yeah, I think it's honestly

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Speaker 1: somewhere in between. I think we had a few missteps

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Speaker 1: on the science side of potentially talking about sterilizing immunity

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Speaker 1: early in the pandemic, especially since we didn't know exactly

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Speaker 1: how the UM data would look, and so expecting people

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Speaker 1: to to change their viewpoint from I'm going to get

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Speaker 1: this vaccine and I won't need a vaccine and I

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Speaker 1: won't get sick to um. The vaccine is protecting you,

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Speaker 1: but it's protecting you from getting really sick and possibly

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Speaker 1: ending up in the hospital, are dying, And that conversation

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Speaker 1: is continuing to play out. I think one eventually, once

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Speaker 1: we get that that vaccine level really high in the population,

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Speaker 1: the mild covid um will is what we'll start to see.

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Speaker 1: So people will be vaccinated, they'll probably get on a

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Speaker 1: regular vaccine schedule, and it'll feel more like the way

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Speaker 1: we we deal with the flu. And to be honest,

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Speaker 1: people get really sick and they die every year from

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Speaker 1: the flu um. But research continues on how to make

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Speaker 1: better flu vaccines, how to make universal flu vaccines, and

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Speaker 1: so that we'll probably follow that same path. So what's

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Speaker 1: the appropriate policy response in a world in which people

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Speaker 1: aren't getting as sick, but they still are getting sick,

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Speaker 1: they could still be contagious. Does that mean masks forever?

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Speaker 1: Does that mean we're going to stick with the policy

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Speaker 1: here at Bloomberg where you're out of the office for

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Speaker 1: at least five days if you test positive. I mean,

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Speaker 1: how do things have to evolve in that scenario? Yeah?

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Speaker 1: I think the first step is that we still have

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Speaker 1: to do a lot of work to get our vaccination

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Speaker 1: rate up, so UM reminding people that that they even

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Speaker 1: if they have gotten vaccinated, that they need to get

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Speaker 1: those boosters, pushing the federal government to bring that fourth

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Speaker 1: dose to people, UM, continuing to do the studies on

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Speaker 1: how we can get into that vaccine cadence and what's

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Speaker 1: most appropriate. And then I think as we grow that

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Speaker 1: natural immunity and the population or that vaccine immunity, will

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Speaker 1: see less and less of the masks. But for now,

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Speaker 1: the cases are still quite high, and I think masking,

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Speaker 1: especially indoors, is quite appropriate. Lauren, are we completely to

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Speaker 1: where this virus is endemic, where it's like it's here,

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Speaker 1: get over it, It's not moving I think it is here, um,

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Speaker 1: and I do think it is endemic. But we we

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Speaker 1: were talking about endemic like it's something we just resign

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Speaker 1: ourselves to and accept, when in reality, we have lots

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Speaker 1: of endemic diseases that we fight tooth and nail to

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Speaker 1: at bay. So dangy is a great example, UM, lots

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Speaker 1: of fever is a great example. Maybe not in the

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Speaker 1: United States, we don't talk about them in the same way, UM,

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Speaker 1: but but across the world we fight endemic diseases because

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Speaker 1: they still cause significant morbidity, immortality, and so UM, doing

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Speaker 1: all we can to stop COVID spread and to fight

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Speaker 1: COVID to protect our our people is still really important

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Speaker 1: even if the disease becomes or is endemic. SAA, thank you.

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Speaker 1: I wonderful to hear from us O. White. It's been

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Speaker 1: a while and that's good news, I guess, but we've

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Speaker 1: missed you. The University of Nebraska Medical Census, Laurence, Sawada.

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Speaker 1: Every week there's fruit basket down on the shore and

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Speaker 1: you know the cake that you know, the Christmas like

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Speaker 1: date cake thing cut a knife through, and gallons of

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Speaker 1: ice cream, even cases of beer we get in sometime

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Speaker 1: but then other times and I'll get the photo out

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Speaker 1: here soon on Twitter. You get a blue shirt that

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Speaker 1: looks perfect on afterthought, because she hates the Red Sox

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Speaker 1: as much as Doug Cass I ate the Red Sox.

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Speaker 1: Got Cass, thank you so much for thinking of me.

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Speaker 1: If you agree to wear that T shirt at the game,

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Speaker 1: and I will as well because I have one. Obviously,

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Speaker 1: I am now committing to taking you the World Series

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Speaker 1: game between the Yanks and Houston in the Bronx. That

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Speaker 1: would be good, dog, Except there's a problem. Yeah, you

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Speaker 1: haven't seen me since I was seven, and there's no

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Speaker 1: chance this floated ticket is getting into that T shirt. Anyways,

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Speaker 1: how about Disastros? I mean, before we get to the market, Uh,

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Speaker 1: Doug quickly here, what is it like when when a

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Speaker 1: team has their number Yankees betting one fifty one against

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Speaker 1: the Astros? Take it easy. Record is still they're gonna

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Speaker 1: meet the Houston. They're going to meet Houston in the

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Speaker 1: World Series. We'll see. By the way, I am told

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Speaker 1: that they're actively um seeking Soto and Castillo. And if

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Speaker 1: that occurred on the door, it's a it's an American

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Speaker 1: Soota joins the Yankees. Well, it's like the Yankees are

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Speaker 1: two and five against the Astros this season, so they're

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Speaker 1: going to be I don't know. You obviously didn't take

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Speaker 1: stats exactly good. Let's look at the stat right now,

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Speaker 1: Doug Cass, of this nascent bull market we're in right now,

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Speaker 1: what is the character of the up we've seen the

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Speaker 1: last six weeks. It's been interesting. I mean, my my skepticism,

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Speaker 1: which emerged late last year, has helped Sea Breeze performance

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Speaker 1: slightly up for the year, a little commercial, but as

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Speaker 1: we discussed last time on surveillance, I've turned more positive

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Speaker 1: in June and I view that period as a likely

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Speaker 1: low in the making, and my mantra continues to be

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Speaker 1: mild and brief. In the first half of the year,

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Speaker 1: we moved from a period of gross an excessive speculation, elations,

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Speaker 1: elation complacency on the part of most market participants, and

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Speaker 1: the expectation of only positive outcomes, to a period in

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Speaker 1: which speculation has been decimated, investors of the risk and

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Speaker 1: the gross valuations have been reset lower. Fear in the

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Speaker 1: VIX was rising, and the general consensus was mostly negative outcomes.

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Speaker 1: In fact, and this is really important, the first half

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Speaker 1: disastrous market to decline. What about a big change in sentiment.

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Speaker 1: Remember the term nattering nabobs of metivism. By the way

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Speaker 1: Q Bramo on this, that was the WILLIAMS. Sapphire's term

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Speaker 1: for a Spireau agnew speech. But that but the nave

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Speaker 1: obs of negatism populated the investment seem uh and reminding

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Speaker 1: me of Helene miss great quote there is nothing like

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Speaker 1: price to change sentiment um. I think it's very interesting

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Speaker 1: if people talk about positioning um, which is a non

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Speaker 1: fundamental analysis of the market. Some say it's non vigorous,

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Speaker 1: but to some degree this has been a positive A

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Speaker 1: position driven rally tradition. Position usually doesn't fit in my

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Speaker 1: investment view, but it doesn't extremes. And let me very

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Speaker 1: briefly explain the market volume is qua totative and passive trading.

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Speaker 1: These products and strategies worship at the altar of price momentum.

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Speaker 1: They know nothing about price everything nothing about value, everything

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Speaker 1: about price. The other of market volume is active trading,

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Speaker 1: mostly hedge funds. They're the marginal buyer. So when price

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Speaker 1: momentum shifts to the upside, as it recently has, the

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Speaker 1: quant strategies following by that other twenty percent hedge funds

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Speaker 1: have been a defensively positioned Remember the b of a

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Speaker 1: bull bear indicative felt to zero and they're all off sides,

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Speaker 1: um and uh so they come in. And what we've

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Speaker 1: seen is that we witnessed the dual impact of both

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Speaker 1: passive and active players buying. Over the last several weeks,

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Speaker 1: I believe we've set the loads of the year. That said,

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Speaker 1: we've traveled long distance in a very short period of time.

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Speaker 1: I sent you a chart, um in which this bear

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Speaker 1: market rally was plus nine percent compare to the pre

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Speaker 1: Is that is that is that? Is that what you

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Speaker 1: call it, Doug? A bear market rally here? I well,

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Speaker 1: that that's what people are calling it. What are you

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00:25:05,840 --> 00:25:09,680
Speaker 1: playing at that? Um more pronounced? You know, you know,

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00:25:10,000 --> 00:25:13,720
Speaker 1: let me do a baseball analog. Okay. The market in

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00:25:13,800 --> 00:25:17,520
Speaker 1: the first half of two was like my cousin Sandy

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00:25:17,560 --> 00:25:20,760
Speaker 1: Kofax when he graduated from Cincinnati and joined the Dodgers.

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00:25:21,160 --> 00:25:23,440
Speaker 1: Both that Sandy and the markets were a mess. The

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00:25:23,600 --> 00:25:29,200
Speaker 1: SMP fell by over Nasdack. Sandy's first two years were

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Speaker 1: as horrible as this year's first half. In the markets,

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00:25:32,640 --> 00:25:35,240
Speaker 1: he was you guys don't remember, but he was so wild.

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00:25:35,600 --> 00:25:38,000
Speaker 1: He averaged a walk and a half every inning he pitched.

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00:25:38,480 --> 00:25:40,919
Speaker 1: In nineteen fifty five and ninety fifty six, he only

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00:25:40,960 --> 00:25:43,760
Speaker 1: pitched about fifty innings each year, and then things changed.

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00:25:43,800 --> 00:25:46,080
Speaker 1: He got his mojo, He's got his rhythm, he got

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00:25:46,160 --> 00:25:48,920
Speaker 1: his control in nineteen fifty nine. He went on from

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00:25:49,040 --> 00:25:52,879
Speaker 1: nineteen sixty one to sixty six, having arguably the greatest

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00:25:52,880 --> 00:25:55,680
Speaker 1: six years ever for a pitcher, finishing his career with

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00:25:55,760 --> 00:25:58,840
Speaker 1: three of the less four years. So so the market

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00:25:58,840 --> 00:26:02,240
Speaker 1: in the last has been more like Sandy than say

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Speaker 1: Troy Pitchers Byron Guardia, who was worth What do you

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00:26:05,840 --> 00:26:08,480
Speaker 1: say this weekend when you're having your eighty dollar brunch

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00:26:08,640 --> 00:26:13,399
Speaker 1: down in Florida? What do you say to someone the

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00:26:13,400 --> 00:26:19,800
Speaker 1: summertime summer bunch? Excuse me, Doug, What do you say

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00:26:19,840 --> 00:26:24,200
Speaker 1: to someone who says I'm comfortable in cash? I say

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00:26:24,320 --> 00:26:31,000
Speaker 1: to them that, uh, that there are substantive and underappreciated buffers.

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00:26:31,680 --> 00:26:33,920
Speaker 1: They're going to serve as ballast to the U. S

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00:26:34,000 --> 00:26:37,879
Speaker 1: economy and are likely to lead to only a mild

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00:26:37,960 --> 00:26:42,040
Speaker 1: and brief recession and a less tragic impact on US

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00:26:42,080 --> 00:26:46,560
Speaker 1: corporate profits than the consensus increase in the expects. Things

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00:26:46,680 --> 00:26:49,680
Speaker 1: like the absence and large part of the sort of

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00:26:49,800 --> 00:26:53,400
Speaker 1: leverage positions and segments of the economy that have characterized

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00:26:53,480 --> 00:26:57,920
Speaker 1: previous deep economic cycles. Unlike fifteen years ago and in

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00:26:58,080 --> 00:27:01,920
Speaker 1: other previous economic downturns, our banking system is far less

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00:27:02,000 --> 00:27:05,800
Speaker 1: leverage and has sizable cushions of liquidity and capital. No

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00:27:05,880 --> 00:27:09,159
Speaker 1: one talks about. Everyone talks about the problems, the woes

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00:27:09,240 --> 00:27:12,520
Speaker 1: facing the housing market, but no one talks about the

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00:27:12,640 --> 00:27:18,119
Speaker 1: sizeable unrealized embedded gains in the nation's housing stock and

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00:27:18,320 --> 00:27:21,320
Speaker 1: also the large unrealized gains in the U S stock market.

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00:27:21,640 --> 00:27:29,120
Speaker 1: And here's an interesting stature. The household liabilities to household

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00:27:29,200 --> 00:27:34,200
Speaker 1: net worth is at the lowest level in fifty two years,

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00:27:35,440 --> 00:27:39,080
Speaker 1: and no one's talking about that. I will look that

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00:27:39,200 --> 00:27:42,240
Speaker 1: up and research that, Doug cast do quickly ten seconds.

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00:27:42,640 --> 00:27:45,560
Speaker 1: Amazon for long term, you've published that. What do you

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00:27:45,640 --> 00:27:49,200
Speaker 1: got now? Um, I wouldn't buy Amazon here. Amazon bases

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00:27:49,240 --> 00:27:51,360
Speaker 1: a number of headwinds going forward. I want to own

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00:27:51,400 --> 00:27:54,000
Speaker 1: it long term. Douglas Cass, thank you so much, greatly

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00:27:54,040 --> 00:28:01,320
Speaker 1: appreciate my T shirt. Yeah, I hate affect afterthought size

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00:28:01,359 --> 00:28:05,920
Speaker 1: she will love You're gonna that. This is the Bloomberg

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00:28:05,960 --> 00:28:10,280
Speaker 1: surveillance podcast. Thanks for listening. Join us live weekdays from

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00:28:10,359 --> 00:28:13,720
Speaker 1: seven to ten am Eastern on Bloomberg Radio and on

483
00:28:13,800 --> 00:28:18,080
Speaker 1: Bloomberg Television each day from six to nine am for

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00:28:18,359 --> 00:28:23,200
Speaker 1: insight from the best in economics, finance, investment, and international relations.

485
00:28:23,760 --> 00:28:28,359
Speaker 1: And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

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00:28:28,560 --> 00:28:32,120
Speaker 1: Bloomberg dot com, and of course, on the terminal. I'm

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00:28:32,200 --> 00:28:34,840
Speaker 1: Tom Keene, and this is Bloomberg