WEBVTT - Surveillance: TikTok Talks with Nathanson 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.080 Bloomberg dot Com, and of course on the Bloomberg Right now, 0:00:28.280 --> 0:00:30.800 a woman who knows that all of this market chit 0:00:30.920 --> 0:00:34.880 chat folds right into the guestimate on the American economy. 0:00:34.920 --> 0:00:38.919 Francis Donald is at Manual Life and does wonderful short 0:00:39.080 --> 0:00:44.560 brief uh messages and research reports on the concept at hand. 0:00:45.040 --> 0:00:49.279 She's never written on anything like this Friday's Jobless report. Francis, 0:00:49.320 --> 0:00:55.160 how do you approach the complete mystery of this Friday's report. Well, 0:00:55.200 --> 0:00:56.960 I'm not trying to get a sense of what that 0:00:57.160 --> 0:00:59.680 headline is going to look for. I'm looking for a 0:00:59.680 --> 0:01:02.720 lot of the underlying details. And what I suspect are 0:01:02.720 --> 0:01:06.280 going to see is that more people are unemployed on 0:01:06.319 --> 0:01:09.959 a permanent basis as opposed to temporary and the duration 0:01:10.200 --> 0:01:13.520 of unemployment is going to start looking much worse and worse. 0:01:13.600 --> 0:01:17.040 So while you might see headlines seeing we have some 0:01:17.120 --> 0:01:21.600 moderate improvement, ultimately the underlying foundation of the market is 0:01:21.680 --> 0:01:24.760 just getting worse and work. There are three unemployment rates, 0:01:24.800 --> 0:01:28.720 the visible one which everybody is glib about, etcetera. Chairman 0:01:28.760 --> 0:01:33.440 Greenspan's lovely augmented unemployment rate, and then the all in 0:01:33.720 --> 0:01:38.399 use six rate, a much higher statistic, which one matters 0:01:38.440 --> 0:01:41.080 the most, all encompassing. And this is what's been so 0:01:41.200 --> 0:01:45.120 challenging about COVID nineteen minutes ensuing obsession, is that the 0:01:45.240 --> 0:01:47.960 pain on the economy has been so much more sinister 0:01:48.040 --> 0:01:51.200 than what we speak even in headline GDP numbers. We're 0:01:51.240 --> 0:01:54.880 talking about wage losses. We're talking about larger levels of 0:01:55.280 --> 0:01:58.400 income and racial disparities that flow as a result of it. 0:01:58.680 --> 0:02:01.880 As an economist, for us looking at traditional economic data 0:02:01.920 --> 0:02:04.480 and telling you what happens next, but there's so much 0:02:04.480 --> 0:02:07.760 more happening under the service here. It's more concerning. And 0:02:07.880 --> 0:02:10.040 most of all, when we look at the underlying picture, 0:02:10.120 --> 0:02:13.400 we still have fourteen million Americans that have to be 0:02:13.639 --> 0:02:17.240 hired just to get us basketball February. It's very difficult 0:02:17.280 --> 0:02:19.160 for us to look at this number and say, even 0:02:19.200 --> 0:02:21.240 if we see you know, another one point five million 0:02:21.280 --> 0:02:24.280 people quote unquote rehired, we're still in one of the 0:02:24.320 --> 0:02:26.920 worst It's a the worst labor market we've ever seen, 0:02:27.200 --> 0:02:28.760 and yet here we are. We're going to probably hear 0:02:28.760 --> 0:02:31.079 a lot of headlines talking about how there's been improvements 0:02:31.080 --> 0:02:33.919 on Friday. Just doesn't sit right for insis The challenge 0:02:33.960 --> 0:02:35.840 for you is you've got to take the data, understand 0:02:35.840 --> 0:02:38.359 how it's changing, then try and understand how investor attitudes 0:02:38.360 --> 0:02:41.160 to that data are changing as well. If we've got 0:02:41.160 --> 0:02:43.520 a negative print in the pay Rose report this coming Friday, 0:02:43.800 --> 0:02:47.320 how do you think investors would respond to that? I 0:02:47.400 --> 0:02:49.560 think they probably view it as a call to action 0:02:49.600 --> 0:02:53.160 for policy, and likely some implication that we're going to 0:02:53.200 --> 0:02:56.560 see a faster move on fiscal stimulus and maybe some 0:02:56.600 --> 0:02:59.520 additional moves from Powell. You know, for the last month 0:02:59.639 --> 0:03:02.600 or so been claiming or trying to highlight that the 0:03:02.680 --> 0:03:05.560 high frequency data that told us bid April was a 0:03:05.680 --> 0:03:08.760 key positive inflection point is now turning in the other direction. 0:03:09.120 --> 0:03:11.000 But the key here is not to say the economy 0:03:11.080 --> 0:03:13.080 is going to worsen and therefore stocks are going to 0:03:13.080 --> 0:03:15.280 do badly. No, the key here is to say the 0:03:15.320 --> 0:03:17.520 economy is going to worsen and this is going to 0:03:17.560 --> 0:03:20.680 engender an important policy response. The game here is no 0:03:20.760 --> 0:03:23.200 longer than econ data. The game is figuring out how 0:03:23.240 --> 0:03:25.960 Powell and how we're going to see Congress respond to it. 0:03:26.280 --> 0:03:29.240 The dominant policy response when it comes to markets has 0:03:29.280 --> 0:03:31.600 been that of the Federal Reserve monetary policy. And I 0:03:31.639 --> 0:03:35.720 wonder from a job's perspective, how much the low, low, 0:03:35.760 --> 0:03:38.440 low interest rate policy that the Fed has the backstop 0:03:38.520 --> 0:03:42.640 to the markets is actually creating jobs, stabilizing jobs, keeping 0:03:42.680 --> 0:03:46.120 companies from firing people. Can you draw any connection to 0:03:46.200 --> 0:03:49.080 the feds policies to employment in the United States right 0:03:49.080 --> 0:03:53.000 now over the long run. Yes. In the near term, 0:03:53.080 --> 0:03:56.320 their essential function is to ensure we don't see a 0:03:56.360 --> 0:03:59.120 credit crisis. That that is their main issue at the 0:03:59.160 --> 0:04:01.640 current um element. They're doing a very good job of that, 0:04:02.040 --> 0:04:04.600 and that's why the entire focus of the macros here 0:04:04.640 --> 0:04:08.280 has really shifted away from monetary policy. Of course, hugely 0:04:08.320 --> 0:04:10.560 important to the way we're treating and you think from 0:04:10.680 --> 0:04:13.640 late goal the whole variety of asset classes, but towards 0:04:13.720 --> 0:04:16.360 fiscal when we look at the city, surprising that and 0:04:16.440 --> 0:04:19.320 we see, you know, the largest spread between where data 0:04:19.360 --> 0:04:22.279 came in and economists expectations. I like to sell this, 0:04:22.360 --> 0:04:24.840 how wrong economists are. They've been the most wrong they've 0:04:24.880 --> 0:04:28.360 ever been for this particular measure. What we know, and 0:04:28.360 --> 0:04:31.560 what's my personal senior is that the thing we missed 0:04:31.920 --> 0:04:34.600 was just how sizeable fiscal stimulus was going to be, 0:04:34.880 --> 0:04:36.960 how big the numbers were going to be, How he's 0:04:37.000 --> 0:04:39.800 going to see two thirds of Americans would be making 0:04:39.839 --> 0:04:43.120 more than they did pre COVID. You know, personal income 0:04:43.279 --> 0:04:46.760 up double digits on an annualized basis relatives last year. 0:04:47.080 --> 0:04:50.599 If we lose that main pillar of this rebound, then 0:04:50.600 --> 0:04:54.000 the econdia starts to worsen pretty substantially. And my concern 0:04:54.120 --> 0:04:56.240 is that as much as we missed how powerful it 0:04:56.279 --> 0:04:58.440 would be on the upside, we may miss just how 0:04:58.480 --> 0:05:00.720 painful it will be on the downside. Francis, I've got 0:05:00.720 --> 0:05:02.280 to say I like that some do you like that 0:05:02.279 --> 0:05:06.040 that we renamed the surprise indexes the economist success right 0:05:06.360 --> 0:05:10.040 or failure right? Basically just judge in them real time. 0:05:11.800 --> 0:05:14.120 And this has been brutal. This is I have no 0:05:14.200 --> 0:05:16.960 idea Friday, folks, what we're going to see. I don't 0:05:16.960 --> 0:05:19.080 know how I make a three month forecast, let in 0:05:19.080 --> 0:05:21.880 a six month forecast. It's really no different than the companies. 0:05:22.080 --> 0:05:25.240 But Francis, the heart of the matter here is what 0:05:25.320 --> 0:05:29.960 you people do, which is count countable things. Can you 0:05:30.200 --> 0:05:35.200 count the stress in the American economy. You can count 0:05:35.279 --> 0:05:37.840 a lot of stresses. But we're not using the same 0:05:37.839 --> 0:05:40.000 measure as we did before. And this is why, honestly, 0:05:40.080 --> 0:05:42.680 I'm more focused on initial jobless claims this week than 0:05:42.720 --> 0:05:47.800 i am on it's accountable. It's too stale for us. 0:05:47.880 --> 0:05:52.159 This crisis moved so quickly. So all those alternative data 0:05:52.200 --> 0:05:54.880 points that we're now all talking about every day, the 0:05:54.880 --> 0:05:58.080 Google mobility, the t s A passengers, you know, how 0:05:58.120 --> 0:06:01.360 many people are going to restaurant data is so much 0:06:01.440 --> 0:06:04.320 more important and what we witnessed in the past. It's 0:06:04.320 --> 0:06:07.920 about April is that movement and the ultra high frequency 0:06:08.080 --> 0:06:11.600 daily and weekly indicators are what gets markets attention. So 0:06:11.839 --> 0:06:14.560 nonfirm parils, of course, should be the most important number 0:06:14.560 --> 0:06:16.840 of the week or the month, but it's not going 0:06:16.880 --> 0:06:18.960 to be. It's going to be all that mobility data. 0:06:19.040 --> 0:06:22.280 It held us. Are people still moving around and increasingly 0:06:22.400 --> 0:06:25.200 tom not just our people moving around and our stores open, 0:06:25.480 --> 0:06:28.840 but what is their confidence level? Are we reopening economies 0:06:28.839 --> 0:06:31.800 and people feel confident using them? The demand side of 0:06:31.839 --> 0:06:34.720 the picture. That's also much more difficult to count, so 0:06:34.920 --> 0:06:37.640 we aly we have to move away from those traditional 0:06:37.720 --> 0:06:40.480 data points and look at new ones. Is very uncomfortable 0:06:40.520 --> 0:06:42.840 for economists, and maybe you have to change our models 0:06:42.839 --> 0:06:45.880 and are forecasting process. But this is COVID nineteen. We 0:06:45.920 --> 0:06:48.440 have to do economics differently. Francis. I can hear the 0:06:48.440 --> 0:06:52.359 concern in your voice. It's palpable. Can you walk me 0:06:52.400 --> 0:06:55.880 through the scarring and the structural changes, the structural damage. 0:06:56.080 --> 0:07:00.599 But you're really worried about right now. What I see 0:07:00.640 --> 0:07:02.919 ahead is, you know, we we have to trade on 0:07:02.960 --> 0:07:06.040 our you know, three months six months basis as well, 0:07:06.040 --> 0:07:08.440 but we also have long term portfolios. And it's the 0:07:08.480 --> 0:07:10.640 long term portfolios that I spend a lot more time 0:07:10.760 --> 0:07:13.480 thinking about because even though we care about equities. In 0:07:13.480 --> 0:07:16.120 the next six months, we're in the midst of the 0:07:16.200 --> 0:07:20.400 largest fiscal spend outside of wartime. We are beginning to 0:07:20.480 --> 0:07:25.040 see the seeds of debt monetization. Look at really, they 0:07:25.040 --> 0:07:27.920 are deeply negative and likely to stay there. This is 0:07:27.960 --> 0:07:31.200 a transition to a new system. What that's probably going 0:07:31.240 --> 0:07:34.480 to see super yield curve is going to uh, you know, 0:07:34.520 --> 0:07:37.640 probably create some misallocation of capital. It's probably gonna push 0:07:37.680 --> 0:07:40.840 more money into alternative and hard assets. This is the 0:07:40.880 --> 0:07:44.000 way that COVID nineteen actually has these more sinister long 0:07:44.120 --> 0:07:47.200 term impacts on the way our system is working. So yes, 0:07:47.280 --> 0:07:49.520 I could, you know, lay out why the economy will 0:07:49.520 --> 0:07:52.040 weaken in the next six months. But what really keeps 0:07:52.040 --> 0:07:53.600 me up at night is how we need to think 0:07:53.600 --> 0:07:57.520 about the five contending horizon. That's what's changing very dramatically 0:07:57.520 --> 0:08:00.280 on a week to week basis here it's going so weickly, 0:08:00.560 --> 0:08:03.440 and yet it has such long term implications. That's that's 0:08:03.440 --> 0:08:07.080 where the concern you here in me, John comes from. Francis. 0:08:07.120 --> 0:08:09.240 One thing Tom has been focusing on for the past 0:08:09.240 --> 0:08:11.600 few days, and rightly so, is the negative real yield 0:08:11.600 --> 0:08:15.160 in the United States. This increasing inflation expectation longer term 0:08:15.440 --> 0:08:18.400 despite the ultra low yields. Now, what's your sense of 0:08:18.400 --> 0:08:22.240 inflation going forward? So my sense is that we may 0:08:22.280 --> 0:08:26.200 actually hit a little bit of some concern about stactulation 0:08:26.240 --> 0:08:27.760 in the second half the year. Now I've got a 0:08:27.840 --> 0:08:30.560 raging inflation vole. Our models say we get to two 0:08:30.600 --> 0:08:33.400 and a half percent inflation, The markets think something a 0:08:33.440 --> 0:08:35.920 little bit under two. But in the second half of 0:08:35.920 --> 0:08:37.720 the year, a lot of those based effects were going 0:08:37.800 --> 0:08:39.880 to draw out and inflation, and I'm sure I'm going 0:08:39.960 --> 0:08:43.640 to have portfolio managers asking me have we underappreciated how 0:08:43.679 --> 0:08:46.120 much inflation is in the system. I also think we 0:08:46.160 --> 0:08:48.480 need to move away from the idea that monetary policy 0:08:48.559 --> 0:08:51.920 is the source of inflation. And remember that deglobalization and 0:08:52.200 --> 0:08:55.840 huge fiscal spends which large with large fiscal multipliers, that 0:08:55.920 --> 0:08:58.160 may be where inflation is coming from. So I do 0:08:58.320 --> 0:09:00.840 expect the market to raise them to places an expectations. 0:09:00.960 --> 0:09:04.520 I do expect real rates to continue to trend low, 0:09:04.559 --> 0:09:06.959 will remain negative for a long time, and that is 0:09:07.000 --> 0:09:09.120 of course going to push more money into search for 0:09:09.200 --> 0:09:13.560 yield opportunities. It is still bullish, yes all, Francis great 0:09:13.559 --> 0:09:15.199 to catch up with you. As always, my best to 0:09:15.240 --> 0:09:17.400 you and yours, Francis Danner. There of many life asset 0:09:17.480 --> 0:09:21.040 management speaking Tom to the importance of claims this Thursday 0:09:24.200 --> 0:09:27.280 right now a synthesis and we can do that with Jeffrey, 0:09:27.280 --> 0:09:31.360 you of v and White Melon. He just does wonderful work, yes, 0:09:31.400 --> 0:09:34.720 in the foreign exchange space, but much wider than that. Jeffrey, 0:09:34.720 --> 0:09:37.520 you let me just start with the conundrum of these 0:09:37.640 --> 0:09:41.560 low interest rates is your attention on the nominal the 0:09:41.679 --> 0:09:46.920 current rate. Are you focused on real yields? Absolutely real yields, 0:09:46.920 --> 0:09:50.360 you know, because that ties into financial conditions, and that 0:09:50.480 --> 0:09:52.240 is what central banks don't wants to tell you. But 0:09:52.280 --> 0:09:55.559 what they're actually doing with yield control is depressing nominal 0:09:55.800 --> 0:09:58.880 get inflation, not get in flacition to escape velocity, and 0:09:58.960 --> 0:10:02.320 depress real yield because that's the real thing pardon upon 0:10:02.480 --> 0:10:05.240 which helps corporates. So, Jeff, that's the objective right now 0:10:05.240 --> 0:10:07.199 in the United States? Do you think yield curve control 0:10:07.400 --> 0:10:09.800 is happening, whether they formalize it and announce it or not. 0:10:11.760 --> 0:10:14.160 So in effect, I think that's what the market is 0:10:14.200 --> 0:10:16.920 pricing in. And and as you say, if the central 0:10:16.920 --> 0:10:19.960 bank doesn't announce it, but if you keep markets believing 0:10:20.000 --> 0:10:22.680 for long enough and such that it's effectively priced in, 0:10:22.960 --> 0:10:25.320 then the central banks in general, not just in the 0:10:25.360 --> 0:10:27.440 US but elsewhere in the UK here I think they'll 0:10:27.480 --> 0:10:29.960 just won't clap their hands and say job well done. 0:10:30.120 --> 0:10:33.480 It's always about expectations. If they can get long, longer 0:10:33.559 --> 0:10:36.520 dated inflation expectations up, then it's a job done. But 0:10:36.600 --> 0:10:38.760 that's the missing piece of the puzzles right now, non 0:10:39.160 --> 0:10:44.440 not moving inflation even less. Do you think they can, Jeff, So, 0:10:44.679 --> 0:10:47.160 now this debate about whether they want to start to 0:10:47.240 --> 0:10:50.440 tew a target average inflation, you know, not just spot inflation, 0:10:50.480 --> 0:10:54.000 but inflation over a period. I don't think we're there yet. 0:10:54.120 --> 0:10:56.000 They can, you know, when they start to say we 0:10:56.040 --> 0:10:58.840 really want inflation to fly over a five year horizon. 0:10:59.040 --> 0:11:01.240 If you're starting point is one, then for the sake 0:11:01.240 --> 0:11:03.599 of argument, it doesn't matter about your end point is 0:11:03.760 --> 0:11:06.080 four or five. As long as you average out to 0:11:06.120 --> 0:11:09.280 be two or three. You need something like that enshrined 0:11:09.320 --> 0:11:12.320 in a REMIT. So the FED Monetary Policy reviewers coming 0:11:12.400 --> 0:11:15.160 up the UK, they're reviewing this, you know, all the time. 0:11:15.480 --> 0:11:18.320 Once that is enshrined, then markets may begin to believe it. 0:11:18.400 --> 0:11:20.160 So we're not there yet, Jeff. I want to talk 0:11:20.160 --> 0:11:23.760 about the reaction function from the Federal Reserve monetary policies 0:11:24.440 --> 0:11:27.959 setting going to purchase some of these longer dated bonds 0:11:27.960 --> 0:11:30.600 as the US Treasury announces in near one trillion dollar 0:11:30.679 --> 0:11:33.720 borrowing plan in the next three months. Is this basically 0:11:34.000 --> 0:11:37.400 plunge protection control? Is this basically the FED that's going 0:11:37.440 --> 0:11:40.400 to prop up asset prices indefinitely until you get some 0:11:40.480 --> 0:11:43.640 rip roaring inflation, which isn't on the horizon, and it's 0:11:43.720 --> 0:11:46.320 not a matter of any kind of bleed through to 0:11:46.320 --> 0:11:49.640 the underlying economy at this point. Well, I don't think 0:11:49.640 --> 0:11:52.240 any central bank will actively admit that, and that they 0:11:52.280 --> 0:11:54.240 do know. If you do get the market sell off, 0:11:54.240 --> 0:11:56.240 if you do get bond sell off, equality selling off, 0:11:56.520 --> 0:11:59.600 that is a tightening and financial conditions. Now in reality, 0:11:59.640 --> 0:12:02.040 you know, the economy, if it's growing fast enough, might 0:12:02.080 --> 0:12:04.960 be able to withstand that hit. But no central bank, 0:12:05.000 --> 0:12:07.080 you know, wants to take the chance right now, so 0:12:07.160 --> 0:12:10.720 they will just keep going until we get to escape velocity. 0:12:10.960 --> 0:12:13.000 That the r B a decided own night. I know 0:12:13.160 --> 0:12:15.800 they once said, so they're in your curve control already, 0:12:16.120 --> 0:12:18.520 as are the Japanese. They might start to say, we're 0:12:18.559 --> 0:12:20.800 controlling a part of the curve we're comfortable with, but 0:12:20.840 --> 0:12:23.680 at the very long end that starts to steepen due 0:12:23.679 --> 0:12:26.480 to inflation being priced in, they're okay with that. But 0:12:26.679 --> 0:12:28.920 they have a set target right now and the absolutely 0:12:29.040 --> 0:12:31.400 going to stick to it with asset purchases. Right now, 0:12:31.559 --> 0:12:34.439 the real rates an tenier is a negative at one 0:12:34.480 --> 0:12:38.560 point all five percent. What's the breaking point here? So 0:12:38.640 --> 0:12:42.040 the breaking point again is when there are two ways 0:12:42.080 --> 0:12:44.240 to think about this. One is it a breaking point 0:12:44.280 --> 0:12:46.360 to the downside and whereby you fall into into a 0:12:46.440 --> 0:12:49.600 Japan like scenario where no matter how low you depressed 0:12:49.679 --> 0:12:52.160 real rate um, it's just not going to work due 0:12:52.200 --> 0:12:55.040 to demographics, due to productivity. Then the markets just say 0:12:55.040 --> 0:12:57.000 we might as well go home, get out of equities, 0:12:57.000 --> 0:12:59.520 just stay in cash. There's no difference, or there's going 0:12:59.559 --> 0:13:02.120 to be a lot of control, a lot of credibility 0:13:02.360 --> 0:13:05.320 upside inflation risk. But I think right now central banks 0:13:05.320 --> 0:13:08.839 are more worried about downside disinflation deflation. That word is 0:13:08.840 --> 0:13:12.360 still forbidden for them. Yeah, but the Tolsa's brilliant question, Jeff, 0:13:12.440 --> 0:13:16.000 you were doing yield curve control sort of kind of 0:13:16.080 --> 0:13:19.520 like and that you just correctly stated they're worried about 0:13:19.600 --> 0:13:23.280 disinflation in downside moves. What do you see in the 0:13:23.360 --> 0:13:26.559 ten year tips When you see that, I see convexity 0:13:26.679 --> 0:13:30.520 in some form of gentle acceleration to a Japan like 0:13:31.200 --> 0:13:35.559 very low real yield. Well, you know that is something 0:13:35.600 --> 0:13:38.360 about the central banks will just have to try to 0:13:38.720 --> 0:13:41.760 manage as a type as possible. What is their Tallengs threshold? 0:13:41.800 --> 0:13:43.360 You look at the five year break evens right now 0:13:43.360 --> 0:13:47.600 it's falling again. It's it's below you know, one, one fifty, So, um, 0:13:47.720 --> 0:13:49.719 do you want to contain that to make sure it 0:13:49.760 --> 0:13:52.720 doesn't just saw as a sign that central bank is 0:13:52.760 --> 0:13:56.040 doing that the central banks are being too effective? Or 0:13:56.080 --> 0:13:58.120 do you just want to keep it in arrange right now? 0:13:58.280 --> 0:14:01.040 The trajectory matters. We've gone from effects of the zero 0:14:01.160 --> 0:14:03.360 in March down to one and a half. They're happy 0:14:03.400 --> 0:14:05.640 to keep that pace, even if it goes to two. 0:14:05.679 --> 0:14:08.800 They're happy with the pace. But if it's suddenly just 0:14:08.880 --> 0:14:12.199 expands exponentially, then that's the loss of control, lots of 0:14:12.240 --> 0:14:15.440 credibility we talked about. The risk is always you don't 0:14:15.440 --> 0:14:18.680 know you've lost control, lost credibility until you actually lose it. 0:14:18.920 --> 0:14:20.880 And I think that's a risk that all central banks 0:14:20.880 --> 0:14:22.600 will have to take. Right now, Well, Jeff, let's get 0:14:22.600 --> 0:14:24.880 to what that means in the effects market, the relative 0:14:24.880 --> 0:14:26.760 story of a currency pair with the US dollar on 0:14:26.800 --> 0:14:28.680 the one side, how would you push this through? G 0:14:28.840 --> 0:14:32.040 turn right now? But so right now and G turn 0:14:32.120 --> 0:14:34.680 Irrespective of what the RBA said of night, I'm still 0:14:34.840 --> 0:14:38.160 very comfortable owning AUSSI. AUSSY is the best reflation play 0:14:38.280 --> 0:14:40.840 right now, they've got some China tail winds in terms 0:14:40.840 --> 0:14:43.840 of the iron are market, property is reflating there and 0:14:43.920 --> 0:14:48.160 in terms of trades and are improving elsewhere. Euro were comfortable, 0:14:48.200 --> 0:14:51.120 you know, adding to euro loongs. Even if when we 0:14:51.200 --> 0:14:53.280 get a bit of a short term correction, I am 0:14:53.320 --> 0:14:55.280 a bit more concerned about the ECB being worried about 0:14:55.280 --> 0:14:58.600 disinflation due to a strong Euro. But overall it's more 0:14:58.640 --> 0:15:01.200 and more clients are being a asking about the dollar 0:15:01.280 --> 0:15:04.800 debasement narrative. Are we seeing a shift? Is China going 0:15:04.840 --> 0:15:07.600 to push for a second win for whom and b internationalization? 0:15:07.920 --> 0:15:10.000 That as a structural story is going to be really 0:15:10.000 --> 0:15:14.240 really interesting to see now, urine or story really important. 0:15:14.240 --> 0:15:15.640 If someone says to me they're like the r C, 0:15:15.760 --> 0:15:18.280 they're like the Euro, I'm thinking they think we're going 0:15:18.320 --> 0:15:20.560 to get a pick up in cyclical growth to return 0:15:20.600 --> 0:15:23.040 to risk appetite. But when they say we're talking to 0:15:23.080 --> 0:15:25.880 clients about dollar debasement, there's something has happening there. Which 0:15:25.920 --> 0:15:29.400 one is it, Jeff? One is the short term cyclical 0:15:29.520 --> 0:15:32.560 uptick of Europe and Australia get their COVID reaction functions 0:15:32.680 --> 0:15:35.640 right with government investment and you're seeing that in Europe 0:15:35.640 --> 0:15:38.360 and Australia, and then that's a cyclical upturn for the 0:15:38.440 --> 0:15:41.000 dollar story and it's also and then be a euro 0:15:41.240 --> 0:15:43.440 a What is the future for reserve currencies? What is 0:15:43.440 --> 0:15:46.560 the future for currencies? Full stop? And this new quality 0:15:46.600 --> 0:15:50.400 paradigm that we have, then will the dollars relationships to risk, 0:15:50.480 --> 0:15:52.760 to cash to everything else, will that start to change? 0:15:52.840 --> 0:15:54.880 You've got the one year story versus the ten twenty 0:15:54.960 --> 0:15:58.800 year story on this. Did you ever think that we'd 0:15:58.800 --> 0:16:01.280 be talking about the loss of currency status with the 0:16:01.360 --> 0:16:05.640 dollar index in the nineties. Um, so it's not about 0:16:05.760 --> 0:16:08.400 full lots of reserve staff. If it's lots of dominance. 0:16:08.480 --> 0:16:11.760 The US dollar will always be a reserve currency. But 0:16:12.000 --> 0:16:16.560 will it always be sixty nine dominant terms of payments 0:16:16.760 --> 0:16:20.840 for of f X transactions those numbers they put out 0:16:20.880 --> 0:16:23.280 a long time ago. The only direction is probably lower. 0:16:23.360 --> 0:16:25.440 But is that a one year story or a tenure story? 0:16:25.640 --> 0:16:28.720 Let's look at the policy mix. Jeff, fantastic to catch 0:16:28.800 --> 0:16:31.520 up with you as always, Jeff, you of bn Y Mellon. 0:16:36.320 --> 0:16:38.600 Let's do this. Let's save our conversation of the day 0:16:39.040 --> 0:16:43.200 and the foundational theories of this economy, in this central bank. 0:16:43.280 --> 0:16:47.280 There is no one across the Atlantic better qualified than 0:16:47.440 --> 0:16:50.520 Janet Writing his original work with Mr mal Pass at 0:16:50.520 --> 0:16:53.400 bear Stearns years ago, now at Breen Capital as their 0:16:53.480 --> 0:16:57.080 chief economic advisor. Mr Writing is public service to the 0:16:57.120 --> 0:17:00.400 Bank of England and the Feller Reserve System, and it's 0:17:00.480 --> 0:17:04.520 definitive on the underlying theories of the FED. John, what's 0:17:04.640 --> 0:17:09.600 the theory of this Fed. Well, it's clearly shifting to 0:17:09.680 --> 0:17:12.760 do whatever and it's a shift that's been in process 0:17:12.800 --> 0:17:15.440 for a while, to do whatever it can to support 0:17:15.480 --> 0:17:21.480 the labor market, to support minority and underprivileged groups within 0:17:21.520 --> 0:17:25.360 the labor market that have suffered higher unemployment rates over 0:17:25.359 --> 0:17:29.040 the years, and paying less attention and increasing little less 0:17:29.040 --> 0:17:31.280 attention to price stability. I mean, the good news is 0:17:31.320 --> 0:17:35.840 inflation is low, um. But but I think the bad 0:17:35.920 --> 0:17:38.680 news is it puts too much bonus on the FED, when, 0:17:39.160 --> 0:17:41.720 as we know from what happened in the second quarter, 0:17:42.160 --> 0:17:45.360 fiscal action and timely fiscal action is much more important 0:17:45.400 --> 0:17:48.439 for stabilizing the real side of the economy. What is 0:17:48.440 --> 0:17:51.960 the statistic that you have in your head over how 0:17:52.040 --> 0:17:55.040 much this stimulus should be right now? I mean, everyone 0:17:55.160 --> 0:17:59.159 says the Republicans are undershooting at one trillion, maybe the 0:17:59.200 --> 0:18:01.280 Democrats are three chones. Do you have a number in 0:18:01.359 --> 0:18:04.840 your head over the next year where the fiscal stimulus 0:18:04.960 --> 0:18:08.920 is going. Could it be five trillion? Well, I don't 0:18:08.960 --> 0:18:11.840 have a number because I don't know how the virus 0:18:11.920 --> 0:18:14.399 is going to play out, and I don't know how 0:18:14.560 --> 0:18:18.720 the medical response is, particularly a vaccine in the timing 0:18:18.760 --> 0:18:20.440 of the vaccine is going to play out. But we 0:18:20.560 --> 0:18:24.800 need a fiscal bridge and a monetary bridge across the 0:18:24.920 --> 0:18:29.320 chasm in economic activity. Now, the economy has rebounded very 0:18:29.440 --> 0:18:32.520 nicely in May and June. We'll find out later this 0:18:32.560 --> 0:18:36.520 week about how July began, but it looks like the 0:18:36.560 --> 0:18:41.440 pace of improvement is significantly flattened out. And you pointed 0:18:41.520 --> 0:18:46.800 out earlier in the show about my former center field 0:18:46.880 --> 0:18:49.560 when I was at the New York Fed hitman Harris 0:18:49.560 --> 0:18:53.560 Ethan Harris um and I agree with him the number 0:18:53.640 --> 0:18:56.080 could be a million, But we wouldn't be surprised by 0:18:56.080 --> 0:18:58.560 a negative printing in terms of some of the things 0:18:58.560 --> 0:19:01.440 that we see. So if there's uncertain about what happened 0:19:01.560 --> 0:19:04.840 last month, given the data that we have on July, 0:19:05.280 --> 0:19:08.760 it's impossible to know how the next six to nine 0:19:08.760 --> 0:19:11.639 months are going to play out. My guess is that 0:19:11.840 --> 0:19:14.080 by the end of this year, we will still have 0:19:14.160 --> 0:19:18.160 a substantial amount of unemployment, perhaps an eight nine maybe 0:19:18.280 --> 0:19:21.440 higher unemployment rate, and that's a lot of people who 0:19:21.440 --> 0:19:24.800 are unemployed through no fault of their own. I think 0:19:24.800 --> 0:19:27.480 the good news is in the short run, and something 0:19:27.520 --> 0:19:31.520 we've been pointing out that the income support was it 0:19:31.640 --> 0:19:35.879 was search that it more than replaced a lost wage 0:19:35.920 --> 0:19:38.840 income in total, So there is a savings cursion. And 0:19:38.880 --> 0:19:42.000 we estimate that savings cursion through the second quarter to 0:19:42.080 --> 0:19:45.359 be in additional savings of nine twenty five billion dollars. 0:19:45.359 --> 0:19:49.800 So it's not a it's not a shock. It's a 0:19:49.840 --> 0:19:52.719 problem for many households, but in totally it's not going 0:19:52.760 --> 0:19:56.199 to be quite the shock that some people's calculations suggest. 0:19:56.240 --> 0:19:59.280 But I certainly think we need to extend some form 0:19:59.320 --> 0:20:03.480 of extended unemployment benefits. Here, John, forgive me, because these 0:20:03.480 --> 0:20:05.440 are serious issues. But did you really used to call 0:20:05.520 --> 0:20:09.840 Ethan Harris hit man Harris? I absolutely did. He was 0:20:09.880 --> 0:20:13.359 a center fielder and cleanup. Did anyone else but to 0:20:13.480 --> 0:20:15.399 New York for the New York Well, I used to 0:20:15.480 --> 0:20:19.680 I coached and managed the New York fed Research softball team, 0:20:19.720 --> 0:20:23.879 and and Ethan was my center fielder and clean up hitter. 0:20:24.080 --> 0:20:26.000 And you've got a lot of hits, So yeah, I 0:20:27.160 --> 0:20:29.359 gave nicknames to everyone in the game writes ups, and 0:20:30.320 --> 0:20:32.960 Ethan was hit man Harris. I love this, just not 0:20:33.040 --> 0:20:35.000 a name I would ever give to Ethan Harris of 0:20:35.040 --> 0:20:37.280 Bank for America. John, Let's talk about the new era 0:20:37.400 --> 0:20:40.080 for central banking. You touched on the price stability mandate. 0:20:40.119 --> 0:20:42.760 It came out of the nineteen eighties with Mr Volka, 0:20:43.000 --> 0:20:46.280 the obsession with price stability, the war against inflation. Then 0:20:46.320 --> 0:20:49.040 came the independence into the nineties, and I just wonder 0:20:49.119 --> 0:20:51.600 what this new era is, John, where this is going, 0:20:51.960 --> 0:20:53.880 and what it looks like, and whether it's the right 0:20:53.920 --> 0:20:57.040 move to leave behind the work of the last several decades. 0:20:58.760 --> 0:21:02.880 I don't think it look obviously. It's pandemic. Is unlike 0:21:02.960 --> 0:21:05.639 something that we have faced in the last hundred years. 0:21:05.680 --> 0:21:09.080 I mean, the last time the US faced a pandemic 0:21:09.119 --> 0:21:13.240