WEBVTT - Single Best Idea with Tom Keene: Mohamed El-Erian

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>The single best idea is maybe I should take off

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<v Speaker 2>when vix explodes from eighteen out to twenty three. I

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<v Speaker 2>guess it was out to sixty. Quite a Monday, to

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<v Speaker 2>say the least. And I thought that a lot of

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<v Speaker 2>the coverage was spot on and wonderful. A major shout

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<v Speaker 2>out to Bloomberg and Tokyo, who I thought off Bloomberg Intelligence,

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<v Speaker 2>Bloomberg Markets, and Bloomberg News had some really informed coverage.

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<v Speaker 2>Where I take issue is the waiting of the worry

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<v Speaker 2>waiting I mean not wait, but w eighd the waiting

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<v Speaker 2>of the different worries. And it was a joy to

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<v Speaker 2>have Mohammado Arian with us today. This was scheduled and

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<v Speaker 2>just wonderful to have them on as we pick up

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<v Speaker 2>the pieces of maybe a flash crash. Maybe it's more

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<v Speaker 2>than that. It's not for me to say, but to me,

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<v Speaker 2>there has to be a study of the worst financial

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<v Speaker 2>experiment in my lifetime, which is Japan. This has been

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<v Speaker 2>a theme of Bloomberg surveillance for years, going back to

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<v Speaker 2>Martin Feldstein of Harvard University. I should mention Robbie Feldman

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<v Speaker 2>of Morgan Stanley providing a wonderful perspective. Here, my visits

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<v Speaker 2>to Japan years ago really underscored not a malaise but

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<v Speaker 2>just a unique demography of Japan. Here is Mohammad Alarian

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<v Speaker 2>of Queen's College on the legacy of Martin Feldstein and Japan.

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<v Speaker 1>When you won an economy at low growth, high debt,

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<v Speaker 1>zero interest rates, and quantitative easing for a number of decades,

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<v Speaker 1>and that's what happened to Japan, then you get first

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<v Speaker 1>the contrast that Madi Feldstein correctly pointed out, which is

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<v Speaker 1>the numbers are awful, but the stock numbers are great.

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<v Speaker 1>So a wealthy economy that nevertheless doesn't grow. But importantly,

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<v Speaker 1>you encourage that wealth to go seek higher returns elsewhere.

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<v Speaker 1>And that's what happened. The Japanese financial system became very

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<v Speaker 1>large holders of other people's securities. Then when you change

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<v Speaker 1>the regime and you raise interest rates, the currency appreciates,

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<v Speaker 1>inflation comes back. Suddenly people cannot refinance these positions and

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<v Speaker 1>are either actual or perceived sales. So what happened in

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<v Speaker 1>the last few days is a shock that started in

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<v Speaker 1>the US migrated to Japan. It then exposed a vulnerability

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<v Speaker 1>that a lot of people knew about but didn't take

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<v Speaker 1>a serious way, and then that got amplified, and then

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<v Speaker 1>it came back here one day.

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<v Speaker 2>And of course I should mention all of his great

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<v Speaker 2>work and his academics as he went to the IMF.

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<v Speaker 2>In his ute was game theory of really really thinking.

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<v Speaker 2>And I should mention that in the United Kingdom there's

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<v Speaker 2>a cottage industry, a heritage around names like Ramsey and

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<v Speaker 2>Morganthon and others of game theory. And this is something

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<v Speaker 2>Alarian is definitive. I kid him about tea decisions and

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<v Speaker 2>all that one of the TA decisions is what will

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<v Speaker 2>the FED do now? When the facts change? They change?

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<v Speaker 2>And doctor Alarian was adamant that it is a different

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<v Speaker 2>Jackson Hole as of yesterday. Here's Mohammad Alarian on Powell

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<v Speaker 2>at Jackson Hall.

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<v Speaker 1>The marketplace thinks it is whether to cut twenty five,

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<v Speaker 1>fifty or seventy five in September. That is what the

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<v Speaker 1>marketplace thinks. I would bring you to the end of

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<v Speaker 1>this month and Jackson Hall. He has a golden opportunity

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<v Speaker 1>to regain control of the policy narrative, and to do

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<v Speaker 1>that he has to pay some risk in laying out

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<v Speaker 1>what he thinks the neutral interest rate is in discussing

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<v Speaker 1>like the back I think has discussed what structural changes

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<v Speaker 1>are happening to the domestic economy and to the global economy.

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<v Speaker 1>So for me, his teen decision is actually at Jackson Hall,

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<v Speaker 1>whether he just gives a mail in speech or whether

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<v Speaker 1>he tries to regain control of the policy narrative.

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<v Speaker 2>Brilliantly said, and this so often Doctoral Aria and maybe

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<v Speaker 2>elucidates what we're thinking but can't quite do with his

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<v Speaker 2>great skill. Lisa Bramwots and I will attend Jackson Hall

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<v Speaker 2>with the wonderful Michael McKee. We're already working on a

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<v Speaker 2>great guest list. It's going to be fascinating. I do

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<v Speaker 2>agree with doctor Larian that the dialogue changed yesterday for

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<v Speaker 2>Jackson Hall. That could easily make it eventful. We'll get

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<v Speaker 2>some more jobs reports and such to make it exciting.

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<v Speaker 2>But I really do agree that then all of a sudden,

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<v Speaker 2>Jackson Hall is a chance for the chairman to write

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<v Speaker 2>the ship. After that audio that you just heard, I

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<v Speaker 2>asked him about measured fed action versus some more ad

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<v Speaker 2>hoc fed and go back and listen to the entire interview. Folks,

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<v Speaker 2>A generous amount of time with doctor Alarian. Of course

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<v Speaker 2>he had to go after the Mets, and we didn't

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<v Speaker 2>mention it was Jets New York, Jets free here and

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<v Speaker 2>the pillars of our economy and our crisis yesterday Mohammed

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<v Speaker 2>al Arian.

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<v Speaker 1>So, yesterday was an example where we lost three anchors.

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<v Speaker 1>We lost a notion that of the US economic exceptionalism.

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<v Speaker 1>That anchor was put in doubt with the data. We

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<v Speaker 1>lost a notion of policy anchors because people started calling

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<v Speaker 1>on the FED due to an intermeding cut. That was

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<v Speaker 1>I mean, there was a lot, a lot of ridiculous

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<v Speaker 1>things being said, and we lost Tom Keane's calm voice.

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<v Speaker 2>There, Mohammed Hilarian pointing out, I was looking at the phone.

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<v Speaker 2>I got the batphone out about ten am. I was

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<v Speaker 2>having a momos. I spilled the thing all over Vettvil.

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<v Speaker 2>It was terrible. I mean, there was the shock yesterday.

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<v Speaker 2>I take one day off and you think it was

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<v Speaker 2>a sabbatical like what Hilaria will take at Cambridge In

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<v Speaker 2>the coming months as well, we will continue our coverage

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<v Speaker 2>across all of our platforms. Look at YouTube, subscribe to YouTube.

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<v Speaker 2>We were stunned at the audience yesterday, absolutely stunned. Thank

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<v Speaker 2>you so much for this nascent project that we're doing.

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<v Speaker 2>Subscribe to Bloomberg Podcasts, out at YouTube, and of course

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<v Speaker 2>on Apple podcasts. It's single best idea