1 00:00:10,039 --> 00:00:13,720 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Always 2 00:00:14,000 --> 00:00:17,560 Speaker 1: with Michael McKee daily we bring you insight from the 3 00:00:17,560 --> 00:00:22,760 Speaker 1: best in economics, finance, investment, and international relations. Find Bloomberg 4 00:00:22,840 --> 00:00:27,240 Speaker 1: Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course 5 00:00:27,760 --> 00:00:33,880 Speaker 1: on the Bloomberg. Much of what the Fed in the 6 00:00:33,880 --> 00:00:35,680 Speaker 1: Bank of Japan and other central banks for that matter, 7 00:00:35,680 --> 00:00:38,480 Speaker 1: want to accomplish is based on the idea of raising inflation. 8 00:00:38,520 --> 00:00:41,519 Speaker 1: They blame much of the disinflation we're experiencing on the 9 00:00:41,600 --> 00:00:45,200 Speaker 1: dropping oil prices last year. Now oil prices are falling 10 00:00:45,240 --> 00:00:47,040 Speaker 1: again and you have conical saying we're going to have 11 00:00:47,080 --> 00:00:50,479 Speaker 1: more oil coming to market. What's going on at Morris's 12 00:00:50,479 --> 00:00:55,240 Speaker 1: global head of Commodities research for City Group, what is 13 00:00:55,280 --> 00:00:58,080 Speaker 1: going on? Is this just simply is this what everybody 14 00:00:58,120 --> 00:01:00,480 Speaker 1: thought would happen. The price goes up and then we 15 00:01:00,640 --> 00:01:04,480 Speaker 1: bring more oil to market instead of letting the market clear. Well, actually, 16 00:01:04,800 --> 00:01:09,320 Speaker 1: on a general global basis, oil from OPEC countries has 17 00:01:09,360 --> 00:01:12,080 Speaker 1: basically peaked. We don't expect any more coming out of 18 00:01:12,080 --> 00:01:14,160 Speaker 1: Iraq or i Ran this year or next year or 19 00:01:14,160 --> 00:01:17,000 Speaker 1: the year after and uh and we're seeing non OPEC 20 00:01:17,080 --> 00:01:20,040 Speaker 1: production sliding the way it should be. People anticipated that 21 00:01:20,080 --> 00:01:22,880 Speaker 1: the slide would happen last year, but we're we're projecting 22 00:01:22,920 --> 00:01:26,000 Speaker 1: that non OPEC production will be down a good million, 23 00:01:26,040 --> 00:01:30,240 Speaker 1: three thousand barrels a day exit to exit. Well, what 24 00:01:30,600 --> 00:01:34,319 Speaker 1: I know this is unfair because you haven't seen this. 25 00:01:34,480 --> 00:01:36,400 Speaker 1: I'm just seeing the headlines come across. But what is 26 00:01:36,480 --> 00:01:40,640 Speaker 1: conical Phillips talking about. Well, we're saying more oils coming 27 00:01:40,680 --> 00:01:43,520 Speaker 1: to market. They may have more oil coming to market, 28 00:01:43,720 --> 00:01:48,000 Speaker 1: and that's not unreasonable. Projects take a long time to 29 00:01:48,160 --> 00:01:52,400 Speaker 1: sanction and UH, and we've had a postponement of sanctioning. 30 00:01:52,480 --> 00:01:57,520 Speaker 1: We had about fifteen projects sanctioned globally big ones UH 31 00:01:57,640 --> 00:02:00,680 Speaker 1: two years ago and this year we're seeing half a 32 00:02:00,720 --> 00:02:04,720 Speaker 1: dozen big projects being sanctioned. This is a slow move 33 00:02:04,800 --> 00:02:10,160 Speaker 1: of decline, but it's surely coming. And forty w t 34 00:02:10,280 --> 00:02:12,640 Speaker 1: I doesn't allow for much in the way of supply 35 00:02:12,760 --> 00:02:16,480 Speaker 1: growth globally. Tom let me just got the numbers now 36 00:02:16,560 --> 00:02:20,200 Speaker 1: from Contago. They're raising their two thousand sixteen production view 37 00:02:20,240 --> 00:02:25,000 Speaker 1: to one point five four to one point five seven 38 00:02:25,080 --> 00:02:28,839 Speaker 1: million barrels a day versus the prior view of one 39 00:02:28,840 --> 00:02:32,119 Speaker 1: point five to one point five four so they they're 40 00:02:32,160 --> 00:02:36,400 Speaker 1: significantly raising. It looks like their their their numbers for 41 00:02:36,440 --> 00:02:39,600 Speaker 1: their production and they're not allowing There are a lot 42 00:02:39,600 --> 00:02:42,839 Speaker 1: of us independence that have healthy balance sheets. Then they're 43 00:02:42,840 --> 00:02:45,880 Speaker 1: in the Permian basin and the cost of production has 44 00:02:45,919 --> 00:02:49,160 Speaker 1: slid in a bunch of pocketed areas. If you well positioned, 45 00:02:49,440 --> 00:02:52,120 Speaker 1: you'll see supply growth. We're thrilled to bring Edward Morris 46 00:02:53,000 --> 00:02:57,400 Speaker 1: for years associated with Princeton University, always looking at the bigger, 47 00:02:57,440 --> 00:03:01,920 Speaker 1: the larger picture, within careful micro economic analysis of hydrocarbons, 48 00:03:01,919 --> 00:03:06,200 Speaker 1: and of course running the commodity shop for City Group. 49 00:03:06,280 --> 00:03:10,400 Speaker 1: Dr Morris, are we any smarter in our guestimates at 50 00:03:10,480 --> 00:03:13,519 Speaker 1: forty dollars a barrel than we were in our certitude 51 00:03:13,520 --> 00:03:16,480 Speaker 1: at a hundred dollars of barrel? I think we're a 52 00:03:16,480 --> 00:03:19,640 Speaker 1: lot better. I think the debate at a hundred was 53 00:03:19,639 --> 00:03:23,360 Speaker 1: whether it was sustainable. The consensus was that it was 54 00:03:23,400 --> 00:03:26,720 Speaker 1: going to go up. Brethern down that that consensus was wrong, 55 00:03:26,760 --> 00:03:29,800 Speaker 1: by the way, But the consensus now that low forty 56 00:03:29,840 --> 00:03:33,200 Speaker 1: dollar oil is unsustainable, I think is a judgment that 57 00:03:33,360 --> 00:03:36,560 Speaker 1: is very, very difficult to challenge. Certainly a thirty five 58 00:03:36,600 --> 00:03:39,680 Speaker 1: dollars you don't get enough oil coming into the market 59 00:03:39,760 --> 00:03:43,720 Speaker 1: to expected year and year at one point something million 60 00:03:43,720 --> 00:03:46,520 Speaker 1: barrels a day on the demand side. What are the 61 00:03:46,600 --> 00:03:50,600 Speaker 1: dollar dynamics with oil? You have the privilege of Stephen 62 00:03:50,720 --> 00:03:55,000 Speaker 1: Englander to throw things out when it becomes uncorrelated. When 63 00:03:55,040 --> 00:03:58,320 Speaker 1: you and Dr Englanders sit down, how do you link 64 00:03:58,640 --> 00:04:01,920 Speaker 1: dollar to oil? Well, we generally link it in the 65 00:04:01,960 --> 00:04:06,240 Speaker 1: same way. There's been a very strong negative correlation that 66 00:04:06,680 --> 00:04:11,680 Speaker 1: has emerged between not just oil, but all commodities and 67 00:04:11,800 --> 00:04:15,600 Speaker 1: the US dollar. The oil link is particularly strong because 68 00:04:15,960 --> 00:04:19,440 Speaker 1: all of the other commodities well denominated in the UH 69 00:04:19,480 --> 00:04:22,640 Speaker 1: in the US dollar, they're all energy intensive, so they 70 00:04:22,680 --> 00:04:26,680 Speaker 1: respond to both the price of oil and the UH 71 00:04:26,720 --> 00:04:29,320 Speaker 1: and the relative value of the dollar. If this is 72 00:04:29,360 --> 00:04:31,960 Speaker 1: a world in which we expect a stronger dollar, it's 73 00:04:31,960 --> 00:04:35,920 Speaker 1: gonna weigh on the fundamentals and their impact on prices. 74 00:04:36,360 --> 00:04:39,760 Speaker 1: So if we get, let's say, a non brutal, modestly 75 00:04:39,839 --> 00:04:43,560 Speaker 1: strong dollar, Mike, I'm going to call that consensus that 76 00:04:43,839 --> 00:04:48,320 Speaker 1: impinges upon oil's recovery to fifty and sixty. Right, It 77 00:04:48,360 --> 00:04:50,720 Speaker 1: impinges on it, but it doesn't stop it. Because this 78 00:04:50,839 --> 00:04:54,640 Speaker 1: is an environment in which petro states are failing and 79 00:04:54,720 --> 00:04:58,440 Speaker 1: which we've got disruption risk that it's palpable in which 80 00:04:58,480 --> 00:05:01,080 Speaker 1: we have to be sure a bunch to emergency stocks, 81 00:05:01,120 --> 00:05:04,719 Speaker 1: but they're politically not really very usable. So the big 82 00:05:04,760 --> 00:05:08,080 Speaker 1: inventories that we have of oil not being produced or 83 00:05:08,080 --> 00:05:11,480 Speaker 1: in Saudi Arabia on the one hand, UH and UH. 84 00:05:11,560 --> 00:05:14,760 Speaker 1: In the US where we have this new swing supplier, 85 00:05:15,160 --> 00:05:17,760 Speaker 1: you've got a kick up in prices and you get 86 00:05:17,760 --> 00:05:20,799 Speaker 1: a drilling rebound. You have a whole bunch of wells 87 00:05:20,880 --> 00:05:23,920 Speaker 1: that have been drilled but not completed, they're not yet fracked, 88 00:05:24,480 --> 00:05:26,880 Speaker 1: uh and UH, and they can come back into the 89 00:05:26,880 --> 00:05:29,520 Speaker 1: market pretty quickly. You can add four or five or 90 00:05:29,520 --> 00:05:33,360 Speaker 1: six thousand barrels a day to supply on a disruption 91 00:05:34,040 --> 00:05:37,040 Speaker 1: increase UH, and the US production will rebound. It will 92 00:05:37,120 --> 00:05:40,279 Speaker 1: be the swing supply in the market. I don't want to. 93 00:05:40,960 --> 00:05:42,479 Speaker 1: I think it's kind of silly to say, you know, 94 00:05:42,560 --> 00:05:45,440 Speaker 1: what's the oil price target, because those things move around. 95 00:05:46,000 --> 00:05:49,880 Speaker 1: But putting it in fed terms, they say inflation is 96 00:05:49,880 --> 00:05:53,040 Speaker 1: going to move back up. It's been low partly reflecting 97 00:05:53,040 --> 00:05:56,880 Speaker 1: their declines in oil prices. Is is oil going to 98 00:05:56,960 --> 00:06:00,640 Speaker 1: move up in price enough to have an impact on inflation? 99 00:06:00,800 --> 00:06:02,599 Speaker 1: Would be the way i'd ask, well, I think the 100 00:06:02,760 --> 00:06:06,560 Speaker 1: real question is what are the two most traded commodities 101 00:06:06,560 --> 00:06:08,839 Speaker 1: in the world, and they amount of food and fuel. 102 00:06:09,320 --> 00:06:12,640 Speaker 1: And that's really the heart of inflation, particularly UH in 103 00:06:12,720 --> 00:06:16,159 Speaker 1: emerging markets. They've already seen this inflation because as emerging 104 00:06:16,200 --> 00:06:20,760 Speaker 1: market currencies of depreciating against the US dollar as they 105 00:06:20,800 --> 00:06:23,400 Speaker 1: have been, the cost of commodities has gone up. So 106 00:06:23,800 --> 00:06:29,200 Speaker 1: we may be complacent about inflationary issues and UH advanced 107 00:06:29,240 --> 00:06:32,239 Speaker 1: economies but particularly the US, but it's really a big 108 00:06:32,279 --> 00:06:36,040 Speaker 1: issue for emerging markets. And no, UH, it'll be not 109 00:06:36,200 --> 00:06:38,919 Speaker 1: as significant an issue as it is now. If we 110 00:06:38,960 --> 00:06:41,000 Speaker 1: really get the shortness of supply, if we get the 111 00:06:41,000 --> 00:06:44,320 Speaker 1: inventory draw I'd say, no, matter what happens to the U. 112 00:06:44,440 --> 00:06:48,720 Speaker 1: S dollar, we'll see these underlying agricultural and energy related 113 00:06:48,760 --> 00:06:51,760 Speaker 1: commodities going up. We're with the Edward wars of City Group. 114 00:06:51,800 --> 00:06:54,680 Speaker 1: Michael mcke you have to follow on question for Dr Morris, 115 00:06:54,920 --> 00:06:57,360 Speaker 1: follow on questionings to you know things that affect the 116 00:06:57,400 --> 00:07:00,600 Speaker 1: inflation the most of food and fuel. We talked about fuel. 117 00:07:01,000 --> 00:07:03,160 Speaker 1: Let me ask about food and I said, I want 118 00:07:03,200 --> 00:07:05,720 Speaker 1: to do my Tim Caine impression and throwing Spanish into 119 00:07:05,800 --> 00:07:09,159 Speaker 1: my question. Here La Nina After Elno last year, La 120 00:07:09,240 --> 00:07:11,880 Speaker 1: Nina is forecast to come back this year. What is 121 00:07:12,520 --> 00:07:15,360 Speaker 1: that going to do, if anything, to the production of 122 00:07:15,520 --> 00:07:19,600 Speaker 1: agricultural products around the world. Wells already doing something because 123 00:07:19,640 --> 00:07:22,720 Speaker 1: the impact has been in Latin America. We're seeing very 124 00:07:22,760 --> 00:07:26,360 Speaker 1: poor crops coming out of Argentina and brazili in particular. 125 00:07:26,480 --> 00:07:30,240 Speaker 1: So actually, just to go back to the point we're 126 00:07:30,280 --> 00:07:33,400 Speaker 1: talking about earlier, does the value of the dollar, the 127 00:07:33,480 --> 00:07:35,720 Speaker 1: relative value of the dollar have an impact on commodities? 128 00:07:36,120 --> 00:07:38,400 Speaker 1: People are saying today, Yes, a lot of the oil 129 00:07:38,600 --> 00:07:43,240 Speaker 1: fall is a result of dollar strength. On the other hand, 130 00:07:43,520 --> 00:07:46,160 Speaker 1: while oil is down, all of the grains are up, 131 00:07:46,200 --> 00:07:48,640 Speaker 1: corn is up, wheat is up, means are up, And 132 00:07:48,680 --> 00:07:51,720 Speaker 1: I'd say that difference is really the Spanish effect. That's 133 00:07:51,760 --> 00:07:56,880 Speaker 1: the La n Nino effect coming home to roost. Uh. Fortunately, 134 00:07:57,600 --> 00:08:01,560 Speaker 1: last year crop eels were pretty good, so the inventory 135 00:08:01,600 --> 00:08:03,760 Speaker 1: is there. It will be a drag on whatever happens 136 00:08:03,800 --> 00:08:07,160 Speaker 1: this year as a result of weather conditions. How's it 137 00:08:07,160 --> 00:08:09,200 Speaker 1: going to affect the United States or do we know yet? 138 00:08:09,680 --> 00:08:13,000 Speaker 1: I think we're gonna see exports up because uh uh. 139 00:08:13,040 --> 00:08:16,960 Speaker 1: The impediment last year was competition from the countries. Weed 140 00:08:16,960 --> 00:08:20,320 Speaker 1: exports were down. They were challenged, but we were looking 141 00:08:20,360 --> 00:08:25,280 Speaker 1: because of the supply availability and other producing countries, we're 142 00:08:25,280 --> 00:08:29,520 Speaker 1: seeing exports likely to surge, soybeans up and corn will 143 00:08:29,520 --> 00:08:32,720 Speaker 1: be very strong. Edward more a couple of times in 144 00:08:32,760 --> 00:08:35,160 Speaker 1: your generous time with us this morning, you have circled 145 00:08:35,160 --> 00:08:39,000 Speaker 1: back to the dynamics of Saudi Arabia. Give us their 146 00:08:39,200 --> 00:08:43,120 Speaker 1: desperation on the fiscal side. We all know of their 147 00:08:43,240 --> 00:08:46,800 Speaker 1: wealth and their buried wealth, but they have a nation 148 00:08:46,840 --> 00:08:49,720 Speaker 1: to run, and they have a foreign policy. They have 149 00:08:49,760 --> 00:08:53,760 Speaker 1: a huge military component. Can they do it at forty 150 00:08:53,800 --> 00:08:56,440 Speaker 1: dollars a barrel? They can do it for a while 151 00:08:56,679 --> 00:09:00,520 Speaker 1: and the while UH has an end point on it 152 00:09:00,559 --> 00:09:04,520 Speaker 1: because there uh, their cash reserves have been drawn down 153 00:09:04,559 --> 00:09:08,800 Speaker 1: at an alarming rate. UH. They're still phenomenally large. Their 154 00:09:08,840 --> 00:09:13,160 Speaker 1: cushion is larger than that of any other oil exporting country, 155 00:09:13,240 --> 00:09:15,960 Speaker 1: especially Russia. So they can go on for a while. 156 00:09:16,080 --> 00:09:19,480 Speaker 1: They have a debt to issue and to rely on 157 00:09:19,960 --> 00:09:23,160 Speaker 1: to give them more breathing room. But I think if 158 00:09:23,200 --> 00:09:26,440 Speaker 1: we have a forty dollar oil world in ten or 159 00:09:26,440 --> 00:09:29,040 Speaker 1: twenty nineteen, they're gonna have to think of a change 160 00:09:29,040 --> 00:09:32,520 Speaker 1: in policy. Do they have the same dynamics fiscally that 161 00:09:32,600 --> 00:09:35,679 Speaker 1: we do. We have a CBO CBO. Rather, we have 162 00:09:35,760 --> 00:09:39,440 Speaker 1: transparency and such. I mean to the younger generation of 163 00:09:39,559 --> 00:09:42,480 Speaker 1: royalty there, this is all brand new, isn't they They've 164 00:09:42,520 --> 00:09:45,679 Speaker 1: basically and their life never confronted this. Is that right, 165 00:09:45,960 --> 00:09:48,079 Speaker 1: They've never confronted a world in which they had to 166 00:09:48,080 --> 00:09:51,120 Speaker 1: pay any kind attacks, even a mild value add attacks. 167 00:09:51,200 --> 00:09:53,880 Speaker 1: They've never had to pay for electricity, They've ember had 168 00:09:53,920 --> 00:09:56,480 Speaker 1: to pay for water. All that has been changing. So 169 00:09:56,520 --> 00:10:00,160 Speaker 1: in the last year, Uh, they saw price liberalization on 170 00:10:00,800 --> 00:10:04,559 Speaker 1: gasoline and diesel, no big protests in the street. Last winter, 171 00:10:04,720 --> 00:10:08,199 Speaker 1: they had electricity prices go up, no big protests in 172 00:10:08,240 --> 00:10:10,840 Speaker 1: the street. They had water prices go up, and yes, 173 00:10:10,960 --> 00:10:14,560 Speaker 1: that was that was a a massive problem for them. 174 00:10:14,600 --> 00:10:17,720 Speaker 1: So uh, they're testing what they can do on the 175 00:10:17,720 --> 00:10:20,559 Speaker 1: physical side, but it will be more transparent. But they're 176 00:10:20,600 --> 00:10:24,160 Speaker 1: not there yet. Do we see anything in the overall 177 00:10:24,240 --> 00:10:27,960 Speaker 1: commodity space, and probably what we want to talk about 178 00:10:28,000 --> 00:10:30,600 Speaker 1: maybe is industrial commodities that tells you anything about at 179 00:10:30,600 --> 00:10:33,400 Speaker 1: this point where the forecast is for global growth. We 180 00:10:33,440 --> 00:10:35,840 Speaker 1: have a lot of people saying that the prospect the 181 00:10:35,840 --> 00:10:39,520 Speaker 1: economists are saying the prospects are better. But do you 182 00:10:39,559 --> 00:10:42,720 Speaker 1: see that on the ground, uh, in the kind of 183 00:10:42,760 --> 00:10:45,480 Speaker 1: things that people need in a better economy. Well, you 184 00:10:45,520 --> 00:10:48,520 Speaker 1: do see down the ground in China in particular, where 185 00:10:48,880 --> 00:10:53,280 Speaker 1: imports of industrial metals have been surprisingly strong. Uh. You 186 00:10:53,320 --> 00:10:58,600 Speaker 1: see on the imports side uh. Structurally, UH, the inputs 187 00:10:58,640 --> 00:11:01,839 Speaker 1: are strong. Copper and ports of refined copper have gone up. 188 00:11:02,600 --> 00:11:07,200 Speaker 1: Raw or UH imports have not gone up. They're in 189 00:11:07,240 --> 00:11:11,640 Speaker 1: an environment in which they need to use those industrial metals. 190 00:11:12,120 --> 00:11:15,000 Speaker 1: Part of the complexity of the situation, though, is that 191 00:11:15,320 --> 00:11:20,040 Speaker 1: China itself is going through an underlying adjustment. Recently, they 192 00:11:20,120 --> 00:11:24,240 Speaker 1: actually did move to shut in the coal production, and 193 00:11:24,360 --> 00:11:28,240 Speaker 1: surprisingly thermal coal imports shut up and thermal coal prices 194 00:11:28,280 --> 00:11:30,640 Speaker 1: along with them. So there are a lot of dynamics 195 00:11:30,640 --> 00:11:34,280 Speaker 1: at work. The industrial demand for the industrial medals in 196 00:11:35,040 --> 00:11:39,080 Speaker 1: UH and the advanced economies is very weak, but it 197 00:11:39,120 --> 00:11:42,520 Speaker 1: remains robust enough. Uh. It's really going to be a 198 00:11:42,520 --> 00:11:46,040 Speaker 1: supply issue at the end. Unlike iron ore and coal, 199 00:11:46,120 --> 00:11:49,760 Speaker 1: where high prices unearthed a lot of cheap raw material, 200 00:11:50,640 --> 00:11:55,160 Speaker 1: Unlike oil where high prices triggered high priced oil and gas. 201 00:11:55,200 --> 00:11:58,360 Speaker 1: But a revolution took place technologically when it comes to 202 00:11:58,400 --> 00:12:01,600 Speaker 1: copper and zinc and UH and the other industrial medals. 203 00:12:01,880 --> 00:12:04,320 Speaker 1: We had more supply, it was high cost to the 204 00:12:04,360 --> 00:12:08,079 Speaker 1: Greek costs have gone down. It's because UH, the currencies 205 00:12:08,120 --> 00:12:11,800 Speaker 1: of Brazil and Peru and copper have gone down. But 206 00:12:11,960 --> 00:12:15,480 Speaker 1: the costs of incremental supply is really there. So once 207 00:12:15,520 --> 00:12:20,120 Speaker 1: we get that inventory adjustment on the industrial medals, we 208 00:12:20,200 --> 00:12:22,719 Speaker 1: certainly think that those costs, those prices are going to 209 00:12:22,800 --> 00:12:25,640 Speaker 1: go up at a higher level than inflation. Inflation is 210 00:12:25,640 --> 00:12:28,160 Speaker 1: not something we worry about now, but we might buy then. 211 00:12:28,679 --> 00:12:31,480 Speaker 1: Edward Morris, thank you so much, very very valuable. He 212 00:12:31,559 --> 00:12:35,920 Speaker 1: of course, UH is with City Group and I Commodity 213 00:12:35,960 --> 00:12:51,880 Speaker 1: Research barely describes his abilities in the hydrocarbon world. Rich 214 00:12:51,920 --> 00:12:54,160 Speaker 1: Clarida is one of those guests that we have on 215 00:12:54,240 --> 00:12:56,080 Speaker 1: and you don't even have to introduce him because he's 216 00:12:56,160 --> 00:12:58,640 Speaker 1: got he does so many things and he's so well known. 217 00:12:58,720 --> 00:13:01,760 Speaker 1: But I'll do it anyway, just just a touch base 218 00:13:01,800 --> 00:13:05,760 Speaker 1: and he's a magic director at PEPCO is a professor 219 00:13:05,800 --> 00:13:10,000 Speaker 1: of economics. Said to Columbia, he's the former chief economist 220 00:13:10,040 --> 00:13:13,400 Speaker 1: at the Treasury Department, and um, I've only gotten through 221 00:13:13,440 --> 00:13:15,600 Speaker 1: the first line of your business card, right you've got 222 00:13:15,600 --> 00:13:18,040 Speaker 1: a frequent Bloomberg guest. It's always happen. And as you 223 00:13:18,080 --> 00:13:22,040 Speaker 1: were mentioning frequent flyer, which just poses the question in 224 00:13:22,080 --> 00:13:24,880 Speaker 1: my mind, Um, you've been traveling around the world this 225 00:13:24,920 --> 00:13:28,080 Speaker 1: summer so far, what are you finding? Uh? You know, 226 00:13:28,240 --> 00:13:30,720 Speaker 1: in terms of the global economy, is it the doom 227 00:13:30,760 --> 00:13:34,040 Speaker 1: and gloom of one camp or is it the sun 228 00:13:34,160 --> 00:13:37,440 Speaker 1: is coming peeking over the horizon of the other? You know. 229 00:13:37,679 --> 00:13:40,560 Speaker 1: I actually I'm gonna sound boring, but it's very much 230 00:13:41,040 --> 00:13:45,000 Speaker 1: a model through ho home global economy. The baseline view, 231 00:13:45,559 --> 00:13:47,760 Speaker 1: both that that I have and I think others that 232 00:13:47,840 --> 00:13:49,960 Speaker 1: I meet with have, is we just keep going on 233 00:13:50,000 --> 00:13:53,000 Speaker 1: at two or three percent growth. It's not exciting. It's 234 00:13:53,040 --> 00:13:56,080 Speaker 1: actually sort of boring. There's no breakout to the upside. 235 00:13:56,120 --> 00:13:59,320 Speaker 1: But knock on wood, so far we've avoided a downturn. 236 00:13:59,360 --> 00:14:02,200 Speaker 1: But that's the only them because we've got totally unprecedented, 237 00:14:02,280 --> 00:14:07,599 Speaker 1: unconventional monetary policy Keewey's zero rates and negative rates, So increasingly, 238 00:14:07,679 --> 00:14:10,760 Speaker 1: even though it appears stable, the global economy looks more 239 00:14:10,800 --> 00:14:13,840 Speaker 1: and more in secure. The other thing I found out, uh, 240 00:14:14,400 --> 00:14:16,360 Speaker 1: is there's a lot of interest in the US election. 241 00:14:16,400 --> 00:14:18,520 Speaker 1: Every place I went when I wanted to talk FED 242 00:14:18,600 --> 00:14:21,120 Speaker 1: and g d P, the questions were about the US 243 00:14:21,160 --> 00:14:24,680 Speaker 1: presidential race, both before and after Brexit, so that's obviously 244 00:14:24,720 --> 00:14:26,280 Speaker 1: going to continue to be on the minds of a 245 00:14:26,280 --> 00:14:30,960 Speaker 1: lot of folks. What did you tell them, Well, I said, obviously, uh, 246 00:14:31,000 --> 00:14:33,480 Speaker 1: you know, this is sort of an unprecedented situation that 247 00:14:33,520 --> 00:14:36,960 Speaker 1: we're in right now. Um, and that in the US, 248 00:14:37,120 --> 00:14:39,760 Speaker 1: you know, the polls can move up and down, but 249 00:14:39,880 --> 00:14:43,280 Speaker 1: stay tuned. Obviously, all the predictions this far turned out 250 00:14:43,320 --> 00:14:45,720 Speaker 1: to be off the mark. So I tell him to 251 00:14:45,720 --> 00:14:49,240 Speaker 1: stay tuned. Uh. When you get on the plane to 252 00:14:49,520 --> 00:14:51,520 Speaker 1: go to the next stop and they hand you the 253 00:14:51,520 --> 00:14:54,000 Speaker 1: pajamas and you lay down, but put your seat back 254 00:14:54,040 --> 00:14:55,520 Speaker 1: all the way down and start to go to sleep, 255 00:14:56,160 --> 00:14:59,080 Speaker 1: what keeps you from falling asleep? What's the biggest worry 256 00:14:59,120 --> 00:15:01,440 Speaker 1: that you have as you've traveled around the world and 257 00:15:01,640 --> 00:15:04,560 Speaker 1: and and get a better picture of what's going on? 258 00:15:04,720 --> 00:15:06,400 Speaker 1: You know, I think they're There are two things, Mike, 259 00:15:06,440 --> 00:15:09,760 Speaker 1: I think. I think the first is is that we're 260 00:15:09,800 --> 00:15:13,560 Speaker 1: now entering the eighth year of the global expansion. I 261 00:15:13,600 --> 00:15:16,240 Speaker 1: know it doesn't seem like it, but the global economy 262 00:15:16,280 --> 00:15:18,400 Speaker 1: it's been eight years since the dark days of the 263 00:15:18,440 --> 00:15:22,800 Speaker 1: financial crisis UM. And as a result, this global expansion 264 00:15:22,880 --> 00:15:25,720 Speaker 1: is a little bit long in the tooth UM And 265 00:15:25,840 --> 00:15:27,720 Speaker 1: at some point, I'm not saying I know when, but 266 00:15:27,800 --> 00:15:31,240 Speaker 1: at some point we're gonna have another global downturn UM. 267 00:15:31,240 --> 00:15:33,280 Speaker 1: And if you think about that, there aren't a lot 268 00:15:33,320 --> 00:15:37,680 Speaker 1: of options available in terms of countercircle policy in most countries, 269 00:15:37,760 --> 00:15:41,000 Speaker 1: not a lot of fiscal room maneuver outside of the US, 270 00:15:41,120 --> 00:15:43,960 Speaker 1: in Germany and maybe China. I'm in the camp that 271 00:15:44,000 --> 00:15:45,920 Speaker 1: thinks that we're in very much in the realm of 272 00:15:45,920 --> 00:15:51,440 Speaker 1: diminishing returns to unconventional monetary policy. Uh. And so in 273 00:15:51,520 --> 00:15:53,440 Speaker 1: the next downturn, we're not going to have a lot 274 00:15:53,480 --> 00:15:56,520 Speaker 1: of policy tools available. I think. The other concern that 275 00:15:56,560 --> 00:15:58,160 Speaker 1: I have is, you know, there's an old saying which 276 00:15:58,160 --> 00:16:01,120 Speaker 1: I've probably used on your show. Generals are very good 277 00:16:01,120 --> 00:16:03,800 Speaker 1: at fighting the last war. So I'm very confident that 278 00:16:03,880 --> 00:16:07,440 Speaker 1: in the next downturn, the financial sector will not be 279 00:16:07,600 --> 00:16:09,640 Speaker 1: hit with the crisis that we saw No. Seven and 280 00:16:09,720 --> 00:16:14,680 Speaker 1: oh eight. But that doesn't mean that there isn't some others. 281 00:16:16,160 --> 00:16:18,560 Speaker 1: So those are the two I think. This weekend we 282 00:16:18,680 --> 00:16:24,720 Speaker 1: tried to inform offspring of another time and place and 283 00:16:24,760 --> 00:16:26,960 Speaker 1: I had the great honor a number of years ago 284 00:16:27,600 --> 00:16:32,080 Speaker 1: of interviewing Mr Hick of October Sky, and there was 285 00:16:32,120 --> 00:16:37,160 Speaker 1: a magic of doing ballistic Newtonian mechanics and trying to 286 00:16:37,200 --> 00:16:41,320 Speaker 1: figure out where an anybody rocket moving. Very quickly went yeah, 287 00:16:41,320 --> 00:16:44,960 Speaker 1: I've kind of This just gives me an interesting angle 288 00:16:45,000 --> 00:16:47,760 Speaker 1: here to talk to you about. We we We're hearing 289 00:16:47,800 --> 00:16:53,880 Speaker 1: the convention last night, the various speakers all variation on 290 00:16:53,920 --> 00:16:57,320 Speaker 1: the theme that America's best days are not behind it. 291 00:16:57,960 --> 00:17:00,480 Speaker 1: You teach, you have the kids in your class room. 292 00:17:00,560 --> 00:17:02,880 Speaker 1: You also see all of the things that have gone wrong, 293 00:17:02,920 --> 00:17:05,480 Speaker 1: particularly since the financial crisis, and the whole idea of 294 00:17:05,680 --> 00:17:09,920 Speaker 1: income inequality and and all that. Are you optimistic? Are 295 00:17:09,920 --> 00:17:14,679 Speaker 1: you pessimistic? Is the October Sky America still there? Have 296 00:17:14,800 --> 00:17:17,760 Speaker 1: we lost something? Well? I think I would say I'm 297 00:17:17,760 --> 00:17:22,000 Speaker 1: cautiously optimistic. I think that the challenge right now is 298 00:17:22,400 --> 00:17:27,159 Speaker 1: that globalization increases the size of the pie, but it 299 00:17:27,200 --> 00:17:30,800 Speaker 1: also shifts the distribution of income. And I'm a macro economist, 300 00:17:30,840 --> 00:17:34,280 Speaker 1: and throughout most of my career, macro economists ignore the 301 00:17:34,320 --> 00:17:37,600 Speaker 1: income distribution in part because it was relatively stable and 302 00:17:37,640 --> 00:17:39,399 Speaker 1: it was easier to think of the world by looking 303 00:17:39,440 --> 00:17:42,199 Speaker 1: at arroga GDP, it wasn't it was incomes went up 304 00:17:42,200 --> 00:17:44,119 Speaker 1: and we didn't care how it was distributed well or 305 00:17:44,200 --> 00:17:46,960 Speaker 1: we thought that it would be evenly distributed, and increasingly, 306 00:17:47,040 --> 00:17:49,800 Speaker 1: not just in the US, but UH, in in in 307 00:17:49,840 --> 00:17:53,159 Speaker 1: Europe certainly, and in Asia. What we observe is that 308 00:17:53,240 --> 00:17:57,640 Speaker 1: globalizations increased opportunities and the size of the global pie 309 00:17:57,640 --> 00:18:00,520 Speaker 1: and the aggregate, but it's also had big packs on 310 00:18:00,560 --> 00:18:02,879 Speaker 1: the distribution of income. And I think that what is 311 00:18:02,920 --> 00:18:05,400 Speaker 1: going on now, whether or not you're talking about political 312 00:18:05,440 --> 00:18:09,960 Speaker 1: polarization or Occupy Wall Street or Brexit or BEPPI, Grio 313 00:18:10,160 --> 00:18:12,600 Speaker 1: or all the other dynamics that we can think about, 314 00:18:13,200 --> 00:18:15,880 Speaker 1: what they all share in common is that there are 315 00:18:15,960 --> 00:18:21,040 Speaker 1: more losers to globalization UH that are recognizing that they 316 00:18:21,080 --> 00:18:23,000 Speaker 1: are and can be a political force. And so I 317 00:18:23,080 --> 00:18:26,680 Speaker 1: am cautiously optimistic, but I think the challenge for policy 318 00:18:26,720 --> 00:18:30,119 Speaker 1: makers UH is in some ways more complex because they 319 00:18:30,200 --> 00:18:32,919 Speaker 1: just can't focus on growing GDP and growing the pie 320 00:18:33,320 --> 00:18:37,280 Speaker 1: as they did in the past. The policymakers did you 321 00:18:37,400 --> 00:18:40,800 Speaker 1: know up to it. I think some of them are. 322 00:18:40,800 --> 00:18:42,800 Speaker 1: I think some of them aren't. I think I think 323 00:18:42,880 --> 00:18:47,400 Speaker 1: that UM. I think institutions are being challenged now, and 324 00:18:47,440 --> 00:18:50,480 Speaker 1: I think we'll learn something about which institutions are robust 325 00:18:50,520 --> 00:18:53,800 Speaker 1: and which institutions are less robust. But but yeah, if 326 00:18:53,840 --> 00:18:57,680 Speaker 1: you think about the amazing innovations that we see and inventiveness, 327 00:18:57,920 --> 00:18:59,919 Speaker 1: I'm not a pessimist. So you have this view the 328 00:19:00,200 --> 00:19:02,480 Speaker 1: everything that's been invented has been invented. I'm not in that. 329 00:19:02,760 --> 00:19:04,880 Speaker 1: I'm not in that camp, but I do think in 330 00:19:04,920 --> 00:19:09,680 Speaker 1: some ways the political and economic challenges UH in terms 331 00:19:09,680 --> 00:19:12,560 Speaker 1: of being inclusive, I think are much more front and 332 00:19:12,600 --> 00:19:17,040 Speaker 1: center than for many decades they have been. Yeah, but Clarida, 333 00:19:17,160 --> 00:19:21,240 Speaker 1: Girdler and the other Mathew nous I think of October 334 00:19:21,320 --> 00:19:24,159 Speaker 1: Sky where they lose a rocket in the woods and 335 00:19:24,160 --> 00:19:26,000 Speaker 1: then they go out there and it's not They're based 336 00:19:26,000 --> 00:19:28,520 Speaker 1: in their math. And then one of the kids goes, oh, yeah, 337 00:19:28,520 --> 00:19:31,760 Speaker 1: but what about the wind. Guys like you have to 338 00:19:31,800 --> 00:19:35,159 Speaker 1: worry about the wind. The Bank of Japan will worry 339 00:19:35,160 --> 00:19:38,359 Speaker 1: about the wind. Yesterday, Chery Yelling had to worry about 340 00:19:39,080 --> 00:19:44,879 Speaker 1: the wind. Critically, Richard Clarida, do the models work or 341 00:19:44,880 --> 00:19:47,040 Speaker 1: are you guys flying blind? You just don't want to 342 00:19:47,040 --> 00:19:51,760 Speaker 1: admit it in your esteemed Mathew nous Well, Tommy and 343 00:19:51,800 --> 00:19:54,800 Speaker 1: I and Mike we've discussed this. I I view macro 344 00:19:54,960 --> 00:19:58,359 Speaker 1: models as a starting point, but not a destination. And 345 00:19:58,400 --> 00:20:01,679 Speaker 1: to the extent that macro economists are rethinking the value 346 00:20:01,720 --> 00:20:05,080 Speaker 1: of models is to be more humble about that dichotomy, 347 00:20:05,119 --> 00:20:08,080 Speaker 1: about the starting point for thinking about an issue as 348 00:20:08,119 --> 00:20:11,160 Speaker 1: opposed to the destination. You mentioned my work with Mark 349 00:20:11,200 --> 00:20:14,280 Speaker 1: Gurtland Geordy Galley that was essentially a starting point, a 350 00:20:14,320 --> 00:20:18,399 Speaker 1: simple three equation model. Everybody at the Bank of Japan 351 00:20:18,520 --> 00:20:22,120 Speaker 1: read clarata, every single person, well, thank you. Is it's 352 00:20:22,200 --> 00:20:26,200 Speaker 1: still within their thinking before this important meeting that we 353 00:20:26,280 --> 00:20:29,720 Speaker 1: see tomorrow. I think I think that work in others 354 00:20:29,800 --> 00:20:32,479 Speaker 1: is where central bankers start. But I think the difference 355 00:20:32,480 --> 00:20:34,919 Speaker 1: between now and ten years ago, as we recognize it's 356 00:20:34,960 --> 00:20:37,720 Speaker 1: just a starting point, it's not the end of the analysis. 357 00:20:37,760 --> 00:20:41,080 Speaker 1: So as you analyze where we are in the policymakers 358 00:20:41,080 --> 00:20:44,200 Speaker 1: and the issues out there, what would be your prescription 359 00:20:44,240 --> 00:20:47,240 Speaker 1: if you're writing a briefing paper for the next president, 360 00:20:47,800 --> 00:20:50,399 Speaker 1: what would be your prescription for what they should come 361 00:20:50,440 --> 00:20:55,480 Speaker 1: into office trying to do? Wow? But uh, to talk 362 00:20:55,520 --> 00:20:58,320 Speaker 1: about tip of the tongue. I have definitely not done 363 00:20:58,320 --> 00:21:01,960 Speaker 1: a lot of thinking on this, but I guess I'll 364 00:21:01,960 --> 00:21:04,720 Speaker 1: give a point. I will give you three. I think 365 00:21:04,880 --> 00:21:08,280 Speaker 1: that I would have a serious desire to be honest 366 00:21:08,680 --> 00:21:12,080 Speaker 1: with folks about medium and longer term things that we 367 00:21:12,359 --> 00:21:15,840 Speaker 1: that we can do. I think the political system really 368 00:21:16,359 --> 00:21:19,479 Speaker 1: drives folks into thinking about what's gonna work for the 369 00:21:19,480 --> 00:21:22,359 Speaker 1: next election. Companies, what's going to be good for the 370 00:21:22,359 --> 00:21:24,879 Speaker 1: next quarterly earning cycle, and so there's a lot of 371 00:21:24,880 --> 00:21:27,600 Speaker 1: glib talk about let's do infrastructure. There's there's a lot 372 00:21:27,640 --> 00:21:31,800 Speaker 1: of glib talk about global trade or whatever, but the 373 00:21:31,800 --> 00:21:35,200 Speaker 1: the deliverable benefits of these are oftentimes five and ten 374 00:21:35,280 --> 00:21:38,240 Speaker 1: years down the road. And I think we under invest 375 00:21:38,359 --> 00:21:40,480 Speaker 1: both in the US and abroad and things that we 376 00:21:40,520 --> 00:21:43,120 Speaker 1: could do because the payoffs are are down the road. 377 00:21:43,160 --> 00:21:44,760 Speaker 1: So I think that that would that would be the 378 00:21:44,760 --> 00:21:46,640 Speaker 1: first thing. I think. The next thing that I would 379 00:21:46,680 --> 00:21:50,240 Speaker 1: do is I would recognize, both in the US and globally, 380 00:21:50,960 --> 00:21:53,359 Speaker 1: that central banks have been caring too much of the burden. 381 00:21:53,600 --> 00:21:56,760 Speaker 1: And I think I would I would think carefully and 382 00:21:56,800 --> 00:21:59,920 Speaker 1: try to use my powers of persuasion to reorient thinking 383 00:22:00,119 --> 00:22:04,760 Speaker 1: about policy away from central banks towards other other policies. 384 00:22:05,119 --> 00:22:07,679 Speaker 1: And then, thirdly, I think as I mentioned in response 385 00:22:07,680 --> 00:22:12,480 Speaker 1: to earlier question, I would respect and not ignore the 386 00:22:12,640 --> 00:22:16,720 Speaker 1: political polarization and potency of that because of the concerns 387 00:22:16,760 --> 00:22:20,840 Speaker 1: about the winners and losers from globalization, and I would 388 00:22:20,880 --> 00:22:23,040 Speaker 1: not try to avoid it or sume it away, but 389 00:22:23,400 --> 00:22:26,520 Speaker 1: I would try to confront it with those other two policies. 390 00:22:27,359 --> 00:22:30,200 Speaker 1: When you look at where we are, it all comes 391 00:22:30,240 --> 00:22:33,440 Speaker 1: back to a search for growth, and we're, Mike, We're 392 00:22:33,560 --> 00:22:35,760 Speaker 1: I can't believe this. We're coming up again on the 393 00:22:35,800 --> 00:22:43,439 Speaker 1: anniversary of August two thousand seven. Well that was after that. 394 00:22:43,520 --> 00:22:45,680 Speaker 1: Actually it was when Live Woary went out and Treasury 395 00:22:45,680 --> 00:22:49,919 Speaker 1: win three month TIBO went forced standard deviations. But but 396 00:22:50,400 --> 00:22:53,480 Speaker 1: I think of Ned phelps speech to Bank of International 397 00:22:53,520 --> 00:22:57,879 Speaker 1: Settlements on the search for dynamism, which is maybe not 398 00:22:58,000 --> 00:23:00,960 Speaker 1: a claar to word. That's a phelpsie and one of 399 00:23:01,000 --> 00:23:04,640 Speaker 1: my heroes, yeah, all of our heroes. But I treasure 400 00:23:04,680 --> 00:23:09,879 Speaker 1: a pencil sketch I have from Professor Phelps. But this dynamism, 401 00:23:09,880 --> 00:23:12,760 Speaker 1: where is it? I mean, you're traveling the world, You're 402 00:23:12,800 --> 00:23:15,080 Speaker 1: you're talking to all the people we talked to, and 403 00:23:15,160 --> 00:23:19,880 Speaker 1: then some do we find it? Do we invent it 404 00:23:20,000 --> 00:23:24,520 Speaker 1: or or Professor Clarida, do we just wait. Well, one 405 00:23:24,560 --> 00:23:26,679 Speaker 1: of the things that I actually take some comfort in 406 00:23:27,040 --> 00:23:30,520 Speaker 1: um is that economists are quite good at looking backwards 407 00:23:30,560 --> 00:23:34,440 Speaker 1: historically and talking about innovation. Economists actually have a terrible 408 00:23:34,480 --> 00:23:38,359 Speaker 1: track record at forecasting inflection points in terms of productivity 409 00:23:38,600 --> 00:23:40,960 Speaker 1: and dynamism, and so the fact that the last ten 410 00:23:41,040 --> 00:23:43,400 Speaker 1: years have not been very dynamic tells us nothing about 411 00:23:43,440 --> 00:23:45,560 Speaker 1: the next ten years. I think there's a tendency to 412 00:23:45,600 --> 00:23:48,000 Speaker 1: extrapolate the past, and the one area where you can't 413 00:23:48,040 --> 00:23:51,600 Speaker 1: do that is technology and productivity. And anecdotally, it does 414 00:23:51,720 --> 00:23:55,200 Speaker 1: seem that there is a lot of innovation and dynamism. 415 00:23:55,240 --> 00:23:58,600 Speaker 1: It's so far not translated into the numbers that we measure, 416 00:23:59,080 --> 00:24:01,960 Speaker 1: and I think there be some measurement issues there. But 417 00:24:01,960 --> 00:24:04,760 Speaker 1: but I speak to folks who are actually quite optimistic 418 00:24:04,800 --> 00:24:07,919 Speaker 1: about about the future, even though the last ten years 419 00:24:07,920 --> 00:24:10,879 Speaker 1: have not really had that that payoff. So I would 420 00:24:10,920 --> 00:24:14,040 Speaker 1: I would definitely be in the UH and the glasses 421 00:24:14,040 --> 00:24:17,320 Speaker 1: have full camp. They're acknowledging that for a variety of reasons, 422 00:24:17,359 --> 00:24:21,280 Speaker 1: we've had a pretty bleak ten years. Mike, I'm there too, 423 00:24:21,400 --> 00:24:25,160 Speaker 1: But I wonder about the allocation of the benefits. Yeah, 424 00:24:25,680 --> 00:24:28,600 Speaker 1: we got thirty seconds. We haven't even touched on current 425 00:24:28,640 --> 00:24:31,600 Speaker 1: monetary policy. We just quickly asked you because everybody wants 426 00:24:31,640 --> 00:24:36,920 Speaker 1: to uh FED raise rates. Win, they'll raise rates this year. 427 00:24:36,960 --> 00:24:38,800 Speaker 1: I think that there's a consensus that they got to 428 00:24:38,800 --> 00:24:41,160 Speaker 1: go at least once or otherwise their tar and feathered 429 00:24:41,160 --> 00:24:44,560 Speaker 1: with the one and done. Uh. That said, I was looking, 430 00:24:44,600 --> 00:24:46,639 Speaker 1: as you all were, for the statement yesterday to give 431 00:24:46,720 --> 00:24:50,119 Speaker 1: us some indication that that they're inclined to move in September, 432 00:24:50,200 --> 00:24:52,439 Speaker 1: and I really didn't. I really didn't see it. So 433 00:24:52,520 --> 00:24:56,359 Speaker 1: my best guests would be in December, professor, Thank you 434 00:24:56,400 --> 00:25:00,520 Speaker 1: so much, Richard Clara with PIMCO and with Colombia You University. 435 00:25:00,520 --> 00:25:03,480 Speaker 1: I do recommend for those of you, UH with a 436 00:25:03,520 --> 00:25:07,119 Speaker 1: moderate level of mathiness, a review of the Clarata classic 437 00:25:07,160 --> 00:25:17,600 Speaker 1: papers from the nineties. Well after the belt last night, 438 00:25:18,240 --> 00:25:22,240 Speaker 1: the folks at Facebook came out with an amazing headline 439 00:25:22,280 --> 00:25:25,240 Speaker 1: noting that every single person in the world other than 440 00:25:25,359 --> 00:25:30,160 Speaker 1: me had signed up. No, not exactly, but second quarter 441 00:25:30,200 --> 00:25:35,480 Speaker 1: earnings and sales far surpassed consensus estimates. Uh. The company 442 00:25:36,080 --> 00:25:39,760 Speaker 1: had a terrific quarter, and right now you looking at 443 00:25:39,840 --> 00:25:43,159 Speaker 1: Facebook shares are up four point two percent in the 444 00:25:43,200 --> 00:25:48,720 Speaker 1: pre market. So you had a close uh yesterday, what 445 00:25:48,880 --> 00:25:53,760 Speaker 1: do they closed that one? So we're going on from there. 446 00:25:54,280 --> 00:25:58,520 Speaker 1: Brian Weezer is our friend at pivol and he joins 447 00:25:58,600 --> 00:26:01,800 Speaker 1: us now and talk about what can Mark Zuckerberg do 448 00:26:01,960 --> 00:26:05,720 Speaker 1: for an encore besides try to sign me up. That's 449 00:26:05,720 --> 00:26:07,840 Speaker 1: a great way to phrase it, you know. I think 450 00:26:07,840 --> 00:26:11,000 Speaker 1: that it's almost as if they have this gravitational poll 451 00:26:11,080 --> 00:26:14,359 Speaker 1: they and and Google. Frankly, um, you could call the 452 00:26:14,359 --> 00:26:16,960 Speaker 1: black hole if you're anyone not named facebooker Google, because 453 00:26:16,960 --> 00:26:21,160 Speaker 1: it just sucks all the energy and of the industry. Um, 454 00:26:21,160 --> 00:26:25,840 Speaker 1: by my calculations, it's not. It's more than one of 455 00:26:25,920 --> 00:26:28,440 Speaker 1: the growth of digital advertising outside of China is going 456 00:26:28,440 --> 00:26:30,639 Speaker 1: to Facebook and Google. And right now they have around 457 00:26:30,760 --> 00:26:36,280 Speaker 1: sev of total digital advertising spend in total going through 458 00:26:36,320 --> 00:26:38,560 Speaker 1: those two companies. So yeah, it's it's just going to 459 00:26:38,680 --> 00:26:41,159 Speaker 1: keep doing what's doing and they'll continue to capture share 460 00:26:41,280 --> 00:26:45,280 Speaker 1: of advertiser's wallets. When do they start getting affected by 461 00:26:45,280 --> 00:26:48,439 Speaker 1: the law of large numbers? They have been, That's the 462 00:26:48,480 --> 00:26:52,000 Speaker 1: remarkable thing. I mean, yes, we've seen an acceleration, but 463 00:26:52,720 --> 00:26:55,399 Speaker 1: the numbers are already so large. I mean I calculated 464 00:26:55,440 --> 00:27:00,000 Speaker 1: that their outperformance relative to consensus expectations, not their growth, 465 00:27:00,160 --> 00:27:03,880 Speaker 1: just their outperformance relative to expectations. With almost as large 466 00:27:03,920 --> 00:27:07,920 Speaker 1: as Twitter's entire quarter, which is just stunning. That's the 467 00:27:08,000 --> 00:27:12,080 Speaker 1: number four player in the industry. And um no, I 468 00:27:12,080 --> 00:27:15,480 Speaker 1: mean these are the laws of large numbers, and the 469 00:27:15,560 --> 00:27:18,119 Speaker 1: law of large numbers with Facebook is the larger you get, 470 00:27:18,160 --> 00:27:22,440 Speaker 1: the larger you get. Brian, you have been wonderful over 471 00:27:22,480 --> 00:27:26,440 Speaker 1: the years of pushing back against the convenient and ever 472 00:27:26,600 --> 00:27:32,200 Speaker 1: changing zeitgeist. I'm going to call you a media advertising traditionalist. 473 00:27:32,880 --> 00:27:36,440 Speaker 1: For example, you've said I'm sorry people are still watching TV, 474 00:27:36,560 --> 00:27:40,080 Speaker 1: get over it, etcetera. And you've done that recently with 475 00:27:40,240 --> 00:27:44,080 Speaker 1: the with the interesting changes of guard at Fox. We 476 00:27:44,119 --> 00:27:46,200 Speaker 1: don't need to get into a discussion of mr ales 477 00:27:46,200 --> 00:27:49,280 Speaker 1: in the future Fox. But what you've really done is 478 00:27:49,359 --> 00:27:56,200 Speaker 1: say there's a reason we all watch traditional media. Ref 479 00:27:56,440 --> 00:28:00,320 Speaker 1: reaffirm that why is that not going away? Even within 480 00:28:00,359 --> 00:28:04,600 Speaker 1: all of our digital excitement. Well, so much media consumption 481 00:28:04,720 --> 00:28:08,320 Speaker 1: is just ambient and it still counts. Now we can 482 00:28:08,400 --> 00:28:12,560 Speaker 1: quibble about the relative value of a TV set that's 483 00:28:12,600 --> 00:28:15,639 Speaker 1: just on, and I hope you guys won't mind. I 484 00:28:15,640 --> 00:28:19,240 Speaker 1: have a Bloomberg TV on right now, I'm seeing David 485 00:28:19,280 --> 00:28:23,240 Speaker 1: Weston's face like steel, and I would say, yeah, there's 486 00:28:23,280 --> 00:28:29,080 Speaker 1: a reason. The fact is that that's on and it 487 00:28:29,200 --> 00:28:32,000 Speaker 1: counts even though I'm I guess you could say I'm 488 00:28:32,040 --> 00:28:35,000 Speaker 1: multitasking right now, but that's not a typical for a 489 00:28:35,040 --> 00:28:37,439 Speaker 1: consumer any given day. And the fact is that if 490 00:28:37,440 --> 00:28:41,160 Speaker 1: an AD shows up, uh wow, that's on, and I 491 00:28:41,240 --> 00:28:45,120 Speaker 1: happen to be doing something else, it still has an impression. 492 00:28:45,200 --> 00:28:47,880 Speaker 1: And there's the data I have with with industry practitioners 493 00:28:47,920 --> 00:28:51,280 Speaker 1: is whether or not that's subliminal, let's call it AD 494 00:28:51,440 --> 00:28:53,640 Speaker 1: interaction has as much of value as one which is 495 00:28:53,720 --> 00:28:55,760 Speaker 1: much more active and more engaged. And it's not actually 496 00:28:55,840 --> 00:28:58,320 Speaker 1: a clear answer, by the way points of view I 497 00:28:58,400 --> 00:29:00,160 Speaker 1: go with the idea, it's not a clear answer. Or 498 00:29:00,280 --> 00:29:02,920 Speaker 1: here's what I see at home. I watch Major League 499 00:29:02,920 --> 00:29:07,560 Speaker 1: Baseball on Apple TV, and there's silence between innings. Are 500 00:29:07,600 --> 00:29:11,160 Speaker 1: you afraid of that silence? And more critically, is sir 501 00:29:11,240 --> 00:29:14,600 Speaker 1: Martin's sorrel afraid of that silence? Well, but you also 502 00:29:14,600 --> 00:29:18,080 Speaker 1: have to remember that from an advertiser's perspective, it's all 503 00:29:18,120 --> 00:29:21,040 Speaker 1: about the least batt alternatives, right, So, as my Churchills 504 00:29:21,080 --> 00:29:23,240 Speaker 1: um of television is the worst one of advertising for 505 00:29:23,280 --> 00:29:26,160 Speaker 1: all those others which have been tried. As long as 506 00:29:26,160 --> 00:29:30,440 Speaker 1: you're a brand advertiser that cares about marketing the differences 507 00:29:30,480 --> 00:29:34,920 Speaker 1: of your brand attributes, right, If that's true, nothing compares 508 00:29:35,120 --> 00:29:37,560 Speaker 1: to television the line of what was the last time 509 00:29:37,560 --> 00:29:39,720 Speaker 1: a banner ad made you cry? And I think you 510 00:29:39,720 --> 00:29:42,800 Speaker 1: could argue that increasingly the ad units that you might 511 00:29:42,840 --> 00:29:45,920 Speaker 1: see in a Facebook or another digital environment become increasingly powerful. 512 00:29:45,920 --> 00:29:47,840 Speaker 1: But but it's not the same thing at all. We 513 00:29:47,880 --> 00:29:51,320 Speaker 1: saw agreed time that we've been watching traditional TV. Yeah, 514 00:29:51,400 --> 00:29:56,320 Speaker 1: but I'm watching I'm watching the same product with no ads. 515 00:29:56,760 --> 00:29:59,320 Speaker 1: I'm paying a fee for it. I get that. But 516 00:29:59,720 --> 00:30:04,160 Speaker 1: are you worried about silences on Apple TV because I'm 517 00:30:04,200 --> 00:30:08,000 Speaker 1: not watching ads? It's so small right now, I mean, frankly, 518 00:30:08,040 --> 00:30:09,680 Speaker 1: this is why the aim in the trade ger for 519 00:30:09,760 --> 00:30:13,320 Speaker 1: marketers I think is against the SEC's current set top 520 00:30:13,320 --> 00:30:16,880 Speaker 1: box rules, which is to say, if you have independent developers, 521 00:30:16,920 --> 00:30:20,360 Speaker 1: more independent developers have set top boxes, introducing different set 522 00:30:20,360 --> 00:30:23,360 Speaker 1: top boxes into the ecosystem, is it possible that you 523 00:30:23,520 --> 00:30:27,400 Speaker 1: have much more in a way of effectively ad blocking 524 00:30:27,760 --> 00:30:30,880 Speaker 1: technologies in in traditional TV? I think that's that's sort 525 00:30:30,920 --> 00:30:33,040 Speaker 1: of the slippery slip that I think there's some fear about, 526 00:30:33,080 --> 00:30:35,320 Speaker 1: but that seems like a long way away. And we 527 00:30:35,360 --> 00:30:38,880 Speaker 1: also have to remember that again, most people consume traditional 528 00:30:38,960 --> 00:30:42,760 Speaker 1: media more or less the same way that they always have. Interestingly, 529 00:30:42,760 --> 00:30:46,520 Speaker 1: from Nielsen's perspective, Nielsen, of course, which attracts all the data. 530 00:30:46,920 --> 00:30:48,960 Speaker 1: Um she talked to their head research people. What they're 531 00:30:49,000 --> 00:30:51,480 Speaker 1: saying is that yes, they see the declines in viewing, 532 00:30:52,000 --> 00:30:55,240 Speaker 1: but what they see is that people spend fewer sessions watching. 533 00:30:55,520 --> 00:30:59,760 Speaker 1: They're still watching is long when they watch TV, right, 534 00:31:00,040 --> 00:31:02,200 Speaker 1: and so the reality is that most people still have 535 00:31:02,360 --> 00:31:06,720 Speaker 1: these extensive sessions where the TV's on, and to traditional set, 536 00:31:06,720 --> 00:31:08,680 Speaker 1: there's just fewer days where they're doing it. So you 537 00:31:08,720 --> 00:31:12,400 Speaker 1: get to more technologies where there's um uh no ads. 538 00:31:12,880 --> 00:31:15,720 Speaker 1: I mean yes, that that does impact the ecosystem. That 539 00:31:15,760 --> 00:31:18,440 Speaker 1: doesn't impacted dramatically, I'm got to call that it will 540 00:31:18,480 --> 00:31:21,520 Speaker 1: anytime soon. Just casing through the New York Times earnings released, 541 00:31:21,520 --> 00:31:25,240 Speaker 1: It's not something that Brian Weezer looks at with Pivotal Research. 542 00:31:25,320 --> 00:31:29,120 Speaker 1: But Brian, when I look at advertising revenue dynamics for 543 00:31:29,200 --> 00:31:32,200 Speaker 1: traditional print like the New York Times, one of the 544 00:31:32,240 --> 00:31:35,440 Speaker 1: girl magazines came across the transom at the home yesterday 545 00:31:35,480 --> 00:31:40,640 Speaker 1: and my word, it's thin. I guess before the September extravaganza. 546 00:31:41,000 --> 00:31:44,520 Speaker 1: Where is print in five years? Sell me that it 547 00:31:44,560 --> 00:31:48,360 Speaker 1: will be there. I wouldn't sell you that it will 548 00:31:48,400 --> 00:31:51,760 Speaker 1: in every place around the country. UM. I think that 549 00:31:52,440 --> 00:31:54,520 Speaker 1: what happens is you just see less and less of it. 550 00:31:54,720 --> 00:31:58,440 Speaker 1: So a city with three or four daily newspapers, like 551 00:31:58,840 --> 00:32:01,880 Speaker 1: New York City, may he goes down to two. Um. 552 00:32:02,000 --> 00:32:05,920 Speaker 1: A city that has one goes down to um, you know, 553 00:32:06,360 --> 00:32:09,280 Speaker 1: three days a week. Now. Interestingly, it does seem to 554 00:32:09,320 --> 00:32:11,680 Speaker 1: be the case of a lot of the community titles 555 00:32:11,720 --> 00:32:14,920 Speaker 1: and uh in many instances are really niche titles too. 556 00:32:15,040 --> 00:32:19,280 Speaker 1: Can you know, can find an existence if you will. Um. 557 00:32:19,320 --> 00:32:22,480 Speaker 1: But in general, the newspaper business has everyone's known it is. 558 00:32:23,480 --> 00:32:26,920 Speaker 1: It's not no more. It's just going to continue to shrink. Mike, 559 00:32:26,960 --> 00:32:29,920 Speaker 1: you wanted to go cultural, global and culture. Well, actually 560 00:32:30,120 --> 00:32:32,600 Speaker 1: it did. We were talking Facebook and then I was 561 00:32:32,640 --> 00:32:34,920 Speaker 1: remembering that we talked to you last week on the 562 00:32:35,520 --> 00:32:38,760 Speaker 1: Roger Ale story. You were in France, and it occurred 563 00:32:38,760 --> 00:32:44,480 Speaker 1: to me, where's the French Facebook or where's the German uh? Twitter? 564 00:32:44,920 --> 00:32:48,040 Speaker 1: Or you know, why are these things all come out 565 00:32:48,040 --> 00:32:52,720 Speaker 1: of the United States or copied in by the Chinese. Um, 566 00:32:52,800 --> 00:32:56,120 Speaker 1: you don't see these kind of things developing elsewhere. Yeah, 567 00:32:56,160 --> 00:32:58,960 Speaker 1: I mean, you know, I certainly a pit close attention 568 00:32:59,000 --> 00:33:01,000 Speaker 1: to this for on a couple of different levels, for 569 00:33:01,000 --> 00:33:05,080 Speaker 1: for a long time. One thing that's interesting is that, um, 570 00:33:05,120 --> 00:33:07,360 Speaker 1: you know, the United States de look ten years ago, 571 00:33:07,480 --> 00:33:10,400 Speaker 1: the dominant players in digital is like pre Facebook, the 572 00:33:10,440 --> 00:33:12,840 Speaker 1: dominant players in digital advertising would have been Yahoo, A, 573 00:33:13,080 --> 00:33:15,600 Speaker 1: l M, S N, which incidentally all sit now under 574 00:33:15,680 --> 00:33:19,000 Speaker 1: Verizon in terms of displaying inventory. But um, but you 575 00:33:19,120 --> 00:33:21,520 Speaker 1: had almost an independent sector. But if you were to 576 00:33:21,560 --> 00:33:24,400 Speaker 1: look at in Germany, you'd see it was um, you know, 577 00:33:24,440 --> 00:33:27,720 Speaker 1: actual Springer owned titles. If you looked in Australia was 578 00:33:28,280 --> 00:33:31,480 Speaker 1: Frankly news Corps, or it was the dominant owners of 579 00:33:31,560 --> 00:33:36,440 Speaker 1: print were the dominant owners of digital properties in those countries. 580 00:33:36,920 --> 00:33:41,200 Speaker 1: And that has to have had some crowding artifacts on 581 00:33:41,400 --> 00:33:43,680 Speaker 1: the one hand in terms of limiting the potential for 582 00:33:44,400 --> 00:33:47,440 Speaker 1: a company to start in a in a different market. Um. 583 00:33:47,520 --> 00:33:49,440 Speaker 1: And then at the other end, you you know that 584 00:33:49,440 --> 00:33:50,920 Speaker 1: that gave it a lot of room I think for 585 00:33:50,920 --> 00:33:55,120 Speaker 1: for uh Facebook to build its scale up to a 586 00:33:55,160 --> 00:33:56,760 Speaker 1: lot of American players to build their scale up, and 587 00:33:56,760 --> 00:33:58,120 Speaker 1: then of course through it's the fact that you could 588 00:33:58,120 --> 00:34:02,000 Speaker 1: attract talents to the United States. UM immigration policies undoubtedly 589 00:34:02,200 --> 00:34:06,400 Speaker 1: unambiguously helped UM in that regard, and vibrant capital markets too, 590 00:34:06,480 --> 00:34:08,640 Speaker 1: So I think it all just played together to help 591 00:34:08,680 --> 00:34:12,160 Speaker 1: the U S out. Can can we ever think that 592 00:34:12,160 --> 00:34:14,160 Speaker 1: we're going to see something from these other countries or 593 00:34:14,200 --> 00:34:19,080 Speaker 1: is there something special about the United States? It's democratic 594 00:34:19,120 --> 00:34:22,680 Speaker 1: convention here, but you know, randomly, I think you will. 595 00:34:22,719 --> 00:34:24,760 Speaker 1: But I mean, and I think right now there's certainly 596 00:34:24,920 --> 00:34:28,960 Speaker 1: niche players that have evolved. Look in France, Cretato certainly, 597 00:34:29,000 --> 00:34:31,520 Speaker 1: and I think there's a number of other um, smaller 598 00:34:31,840 --> 00:34:34,920 Speaker 1: uh players, um you know, I mean Germany has s 599 00:34:34,960 --> 00:34:38,400 Speaker 1: a t that's not exactly advertising, but they're also you know, 600 00:34:38,400 --> 00:34:41,479 Speaker 1: they have started interest to mad products into what they're doing. 601 00:34:41,680 --> 00:34:43,799 Speaker 1: So I think that it can happen. But as I said, 602 00:34:43,840 --> 00:34:48,360 Speaker 1: if if the circumstances that allowed Facebook and Google to dominate, 603 00:34:48,400 --> 00:34:50,200 Speaker 1: we're just that, you know, the newspaper comes here were 604 00:34:50,239 --> 00:34:52,680 Speaker 1: so weak, relatively speaking, in the early days of digital, 605 00:34:53,040 --> 00:34:55,200 Speaker 1: whereas in other countries they are strong, and that gave 606 00:34:55,239 --> 00:34:57,200 Speaker 1: the room for these guys to build up. I mean, 607 00:34:57,880 --> 00:35:00,480 Speaker 1: circumstances can change and someone else can merge from a 608 00:35:00,480 --> 00:35:05,720 Speaker 1: different market. Certainly, what is your single best buy right now? UM, well, 609 00:35:05,760 --> 00:35:07,399 Speaker 1: you know, I mean, I guess it is a lot 610 00:35:07,440 --> 00:35:10,520 Speaker 1: of it depends on on on your risk tolerance right now. 611 00:35:10,719 --> 00:35:13,400 Speaker 1: I mean Discoveries certainly seems to have a lot of 612 00:35:13,480 --> 00:35:16,680 Speaker 1: value among the TV names. UM. I think when we 613 00:35:16,719 --> 00:35:21,399 Speaker 1: look at digital UM, you know, Facebook probably still has 614 00:35:21,600 --> 00:35:23,360 Speaker 1: more room to run, and so there's a lot of 615 00:35:23,360 --> 00:35:26,360 Speaker 1: reasons to be positive there. I would say that Salesforce 616 00:35:26,400 --> 00:35:30,280 Speaker 1: dot com uh probably has the highest price target relative 617 00:35:30,360 --> 00:35:33,040 Speaker 1: to UM where it's trading. I think that's a really 618 00:35:33,040 --> 00:35:35,120 Speaker 1: important point to call out. Though I think again, far 619 00:35:35,160 --> 00:35:37,160 Speaker 1: too often we stile out how we think about the 620 00:35:37,200 --> 00:35:40,560 Speaker 1: world right, like animals. To cover Facebook and Google, will 621 00:35:40,560 --> 00:35:43,760 Speaker 1: focus more on say Amazon, right because that's how institutional 622 00:35:43,800 --> 00:35:47,760 Speaker 1: investor bucketed everybody upon a time, And I don't cover Amazon. 623 00:35:47,840 --> 00:35:51,280 Speaker 1: It's a wonderful company, it's interesting, it's relevant in many ways, 624 00:35:51,320 --> 00:35:54,440 Speaker 1: but it's it's ultimately retail and technology and a lot 625 00:35:54,440 --> 00:35:56,520 Speaker 1: of other things. But if you're looking at the future 626 00:35:56,560 --> 00:35:59,560 Speaker 1: of marketing and the end market of how marketers are 627 00:35:59,560 --> 00:36:02,520 Speaker 1: ALCA resources. You have to understand agencies, you have to 628 00:36:02,600 --> 00:36:05,360 Speaker 1: understand the TV ecosystem, and you have to understand marketing 629 00:36:05,360 --> 00:36:10,959 Speaker 1: technology because it's marketing spending is five exercise of advertising 630 00:36:11,280 --> 00:36:13,480 Speaker 1: and very little of it's been automated so far. So 631 00:36:13,520 --> 00:36:16,480 Speaker 1: when you look at what UM, Salesforce and Adobe and 632 00:36:16,560 --> 00:36:19,880 Speaker 1: Oracle and SEP and others are doing, it's really important 633 00:36:19,560 --> 00:36:22,680 Speaker 1: from upside there where you're sitting or when you're sitting 634 00:36:22,680 --> 00:36:25,920 Speaker 1: on the Gulf stream next to Sir Martin Sorel what 635 00:36:25,920 --> 00:36:29,160 Speaker 1: what to the big ad agencies? How do they adapt 636 00:36:29,160 --> 00:36:32,720 Speaker 1: and adjust? What is the business plan that you see 637 00:36:32,800 --> 00:36:36,760 Speaker 1: strategically from w P P to adapt to the Brian 638 00:36:36,840 --> 00:36:40,280 Speaker 1: Weiser world. There are doing it. I mean, frankly DOTTP 639 00:36:40,440 --> 00:36:45,399 Speaker 1: and pooblicists UM are probably doing more to adapt than 640 00:36:45,480 --> 00:36:48,920 Speaker 1: most companies I think. I mean, I think Google as 641 00:36:48,920 --> 00:36:51,120 Speaker 1: well is also adapting and that they're pushing hard down 642 00:36:51,160 --> 00:36:54,600 Speaker 1: this marketing technology path as well. UM. Very few people 643 00:36:54,600 --> 00:36:57,440 Speaker 1: pay attention to the competitive dynamic between Google and Adobe, 644 00:36:57,480 --> 00:36:59,799 Speaker 1: but it's real and it's a it's a pretty important deal. 645 00:37:00,160 --> 00:37:02,400 Speaker 1: But on the agency side, UM, you look at the 646 00:37:02,440 --> 00:37:06,120 Speaker 1: investments that the pool assist buying Sapient was a really 647 00:37:06,160 --> 00:37:09,680 Speaker 1: important deal. It was massively, it was over they were 648 00:37:09,760 --> 00:37:11,920 Speaker 1: paid by far and they bought a lot of businesses 649 00:37:11,920 --> 00:37:14,080 Speaker 1: that have nothing to do with their core business. But 650 00:37:14,600 --> 00:37:18,839 Speaker 1: the thrust of the acquisition was rooted in reality that 651 00:37:19,520 --> 00:37:26,000 Speaker 1: marketing technology consulting services are much broader uh skill set 652 00:37:26,160 --> 00:37:29,040 Speaker 1: than what agencies have historically done. It reflectible markers are going, 653 00:37:29,200 --> 00:37:31,719 Speaker 1: don't p P has also been investing, I would say, 654 00:37:31,800 --> 00:37:34,759 Speaker 1: much more prudently in the same space. They there's a 655 00:37:34,800 --> 00:37:39,360 Speaker 1: coming called Globin, which is the Argentina Centure, the piece 656 00:37:39,400 --> 00:37:41,760 Speaker 1: of that um. They certainly bought a lot of smaller 657 00:37:41,840 --> 00:37:45,480 Speaker 1: entity's acceleration, They reinvented some of their older agencies like Wonderman, 658 00:37:45,840 --> 00:37:48,080 Speaker 1: and so I think they're going down the right path. Certainly, 659 00:37:48,160 --> 00:37:51,800 Speaker 1: that sounds like intellectual capital is the key asset. Brian Weeezer, 660 00:37:51,840 --> 00:37:54,839 Speaker 1: thank you so much with Pivotal, particularly early on there 661 00:37:54,880 --> 00:38:00,000 Speaker 1: on Facebook as well. Thanks for listening to the Bloomberg's 662 00:38:00,000 --> 00:38:05,520 Speaker 1: of Valence podcast. Subscribe and listen to interviews on iTunes, SoundCloud, 663 00:38:05,840 --> 00:38:09,839 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 664 00:38:09,840 --> 00:38:14,640 Speaker 1: Tom Keane, Michael McKee is at Economy Before the podcast. 665 00:38:14,719 --> 00:38:18,200 Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio.