WEBVTT - Lots More: Did the Fed Just Make a Policy Mistake? 0:00:03.120 --> 0:00:07.480 Bloomberg Audio Studios, podcasts, radio news. 0:00:10.360 --> 0:00:18.240 Hi, Tracy, how are you You're getting getting You're getting worse. 0:00:18.480 --> 0:00:19.280 I'm getting worse. 0:00:19.400 --> 0:00:24.280 Yeah, then the last three months, yes, and the rest 0:00:24.320 --> 0:00:29.920 of the no. No, no, But you must be very 0:00:30.040 --> 0:00:30.680 very relaxed. 0:00:30.840 --> 0:00:32.800 I'm not shaving until the fence starts. 0:00:32.560 --> 0:00:36.440 Cutting, right, Okay, that's coming. So that's that's good. 0:00:39.240 --> 0:00:41.240 I did a dead LFT one. 0:00:42.240 --> 0:00:46.280 Okay, uh barges. 0:00:46.440 --> 0:00:48.599 This isn't after school Special, except. 0:00:48.240 --> 0:00:50.760 I've decided I'm going to base my entire personality going 0:00:50.800 --> 0:00:54.000 forward on campaigning for a strategic pork reserve in the US. 0:00:54.120 --> 0:00:55.840 Where's the best imposta? 0:00:56.040 --> 0:00:58.600 These are the important question? Is that robots taking over 0:00:58.640 --> 0:00:59.000 the world? 0:00:59.080 --> 0:01:00.200 No, I see the like. 0:01:00.760 --> 0:01:03.200 In a couple of years, the AI will do a 0:01:03.240 --> 0:01:06.560 really good job of making the Odd Lounch podcast and 0:01:06.720 --> 0:01:08.400 people to say, I don't really need to listen to 0:01:08.480 --> 0:01:09.600 Joe and Tracy anymore. 0:01:09.840 --> 0:01:13.479 We do have touching the perfect. 0:01:14.240 --> 0:01:16.600 You're listening to lots more where we catch up with 0:01:16.600 --> 0:01:19.520 friends about what's going on right now, because even. 0:01:19.360 --> 0:01:22.200 When the Odd Lots is over, there's always lots more. 0:01:22.400 --> 0:01:28.240 And we really do have the perfect guest. It is 0:01:28.319 --> 0:01:30.720 kind of crazy, so the market is pricing in what 0:01:30.840 --> 0:01:34.600 is it a little over seventy basis points of cuts 0:01:35.360 --> 0:01:37.399 right now, which means like the Fed would need to 0:01:37.440 --> 0:01:41.560 cut every meeting through the end of this year, assuming 0:01:41.560 --> 0:01:44.240 it doesn't do a fifty basis point cut, which seems 0:01:44.319 --> 0:01:45.080 a little extreme. 0:01:46.560 --> 0:01:50.160 Uh yeah, I saying it does. But remember Federal Reserve 0:01:50.320 --> 0:01:54.560 has no visibility. They have no trust in their models. 0:01:54.880 --> 0:01:58.840 That is why they so data dependent. So when people say, well, 0:01:58.920 --> 0:02:01.760 we can roll off fifty, why could you rule out 0:02:01.880 --> 0:02:04.000 if you sing of the governors or the former governors 0:02:04.040 --> 0:02:06.320 only two three months ago they were high for longer. 0:02:06.600 --> 0:02:09.440 Suddenly they've changed their mind. It's no longer high for longer. 0:02:09.760 --> 0:02:14.080 So that's sort of volatility, almost inevitable outcome of highly 0:02:14.160 --> 0:02:17.359 volatile neutral rates. So prima facie, if you just look 0:02:17.400 --> 0:02:20.800 at it, seventy BIPs looks high. But on the other hand, 0:02:20.960 --> 0:02:23.800 I don't think you can necessarily rule it out. And 0:02:23.880 --> 0:02:26.760 if you start looking slightly longer term, let's say, look 0:02:26.800 --> 0:02:30.800 at December twenty twenty five January twenty twenty six, the 0:02:30.880 --> 0:02:34.040 market is still looking at somewhere around four as a 0:02:34.160 --> 0:02:37.919 policy rates. Now for the policy rates to me is 0:02:38.080 --> 0:02:41.359 too high. I think the numbers should be somewhere closer 0:02:41.400 --> 0:02:44.359 to three and a half, maybe even less than that. 0:02:44.639 --> 0:02:47.399 So to answer your question, it looks like it's high 0:02:48.160 --> 0:02:51.720 they but FED has no confidence in their methodology, in 0:02:51.800 --> 0:02:55.200 their models, or a visibility what happens, and therefore it 0:02:55.240 --> 0:02:56.639 is possible that you might. 0:02:56.560 --> 0:02:57.079 End up with it. 0:02:57.560 --> 0:03:01.280 So we are speaking with Victor Schwetz, Corey strategist and 0:03:01.320 --> 0:03:04.120 one of our repeat Odd Thoughts guests. It is, of 0:03:04.120 --> 0:03:06.320 course the week that we have just seen a meeting 0:03:06.360 --> 0:03:09.480 from the Federal Reserve where they opted to hold rates 0:03:09.560 --> 0:03:13.079 as expected, but they definitely telegraphed that that rate cut 0:03:13.200 --> 0:03:13.520 was coming. 0:03:13.639 --> 0:03:16.920 Joe, you know when I so, I didn't watch the 0:03:16.960 --> 0:03:20.000 press conference because I was on a train and I 0:03:20.000 --> 0:03:22.040 had an appointment. I had taken the day off of work. 0:03:22.320 --> 0:03:24.800 But it was nice because then I read the transcript 0:03:24.960 --> 0:03:28.440 this morning without the you know, without the distraction of 0:03:28.440 --> 0:03:30.520 Twitter and all the commentary, and I hadn't read any 0:03:30.520 --> 0:03:33.400 of the various commentary from the strategists. But when I 0:03:33.520 --> 0:03:38.120 read the transcript, I thought of our last conversation with Victor, specifically, 0:03:38.160 --> 0:03:42.360 because it was so clear they, to your point, all 0:03:42.440 --> 0:03:46.000 they just want to see more numbers the models that suggest, Okay, 0:03:46.240 --> 0:03:49.800 unemployment is rising and the feeders are restrictive, and therefore 0:03:49.840 --> 0:03:53.480 inflation should come down, etcetera. All of these theoretical ideas. 0:03:53.840 --> 0:03:55.640 I don't get the impression they have any confidence. They 0:03:55.680 --> 0:03:56.680 just want to see more numbers. 0:03:56.960 --> 0:03:59.680 That's it. That's absolutely right, And there was a reason 0:03:59.720 --> 0:04:02.400 for them. And the reason is that we live in 0:04:02.400 --> 0:04:05.520 the world of abundance. We have too much of everything, 0:04:05.800 --> 0:04:07.960 We have too much of capital, we have too much 0:04:08.000 --> 0:04:11.880 of most of the products. Technology keeps reducing marginal costs. 0:04:11.920 --> 0:04:14.320 There was a perception for a period of time that 0:04:14.400 --> 0:04:19.039 certain areas are in deficit or constrained, such as some 0:04:19.120 --> 0:04:22.120 of the metal, also labor, but even that is proving 0:04:22.200 --> 0:04:24.600 to be not true. So if you live in a 0:04:24.640 --> 0:04:28.839 world of abundance rather than scarcity, economic models do not work. 0:04:29.000 --> 0:04:32.440 Because all economic models and investment model are predicated on 0:04:32.600 --> 0:04:37.160 constrained outcomes, that you're choosing the best possible outcome out 0:04:37.200 --> 0:04:41.640 of variety. If there is abundance, prices don't work. Prices 0:04:41.680 --> 0:04:44.560 don't signal the same impact, neither do they have the 0:04:44.600 --> 0:04:46.680 same impact on underlying economy. 0:04:47.480 --> 0:04:51.320 Wit So Powell is definitely I feel like he's aware 0:04:51.560 --> 0:04:54.080 of the criticism that the FED is maybe too data 0:04:54.120 --> 0:04:56.200 dependent at this point, and in fact, in the press 0:04:56.200 --> 0:04:59.440 conference he was kind of at pains to emphasize that 0:04:59.480 --> 0:05:03.080 they're not data dependent or sorry, what was it? Data 0:05:03.120 --> 0:05:08.200 dependency doesn't mean data point dependency, which is kind of funny, 0:05:08.320 --> 0:05:11.960 especially since we're recording this on Thursday, and we have 0:05:12.120 --> 0:05:15.960 had some very interesting single data points, including initial jobless 0:05:15.960 --> 0:05:19.039 claims rising to the highest level in nearly a year. 0:05:19.279 --> 0:05:22.640 But what does it mean to be data dependent but 0:05:22.760 --> 0:05:24.600 not data point dependent? 0:05:25.000 --> 0:05:28.359 It means I have no clue. And essentially what it 0:05:28.440 --> 0:05:31.240 says is that, look, I don't know what I'm going 0:05:31.279 --> 0:05:35.200 to do because I don't understand why financial conditions are 0:05:35.200 --> 0:05:38.120 not tightening more than they should have. I don't understand 0:05:38.240 --> 0:05:42.640 why unemployment is where it is. Yes, employment cost numbers, 0:05:42.680 --> 0:05:45.960 for example, yesterday've come out point nine percent was really 0:05:46.000 --> 0:05:49.400 the lowest for about three or almost four years. So 0:05:50.000 --> 0:05:52.600 there is no evidence there is a wage spiral. If 0:05:52.680 --> 0:05:56.080 you sing of goods inflation, it's continued to disinflate. Service 0:05:56.120 --> 0:06:02.000 inflation is coming back. Even idiosyncratic numbers like imaginary orner 0:06:02.120 --> 0:06:07.480 occupied rent, or differences between insurance policies in the market 0:06:07.520 --> 0:06:11.000 and what CPI numbers have or use car prices, all 0:06:11.000 --> 0:06:14.200 of those DA synchrisis also going away. So you could 0:06:14.320 --> 0:06:18.720 argue a legitimate question, what are you waiting for? And 0:06:18.800 --> 0:06:21.799 the answer is they don't want to be Arthur Burns. 0:06:21.800 --> 0:06:24.320 They don't want to be in a position that they're 0:06:24.360 --> 0:06:28.080 revisiting sort of nineteen seventies all over again. And so 0:06:28.560 --> 0:06:33.080 he's basically saying anything is possible, anything is probable, and 0:06:33.160 --> 0:06:36.960 I cannot guide you in any meaningful way forward. The 0:06:37.000 --> 0:06:39.159 only thing I can say is that it looks like 0:06:39.200 --> 0:06:42.799 we're going to cut beyond that. We're either data dependent 0:06:42.880 --> 0:06:45.640 or data point dependent, or maybe we're not data point dependent, 0:06:45.839 --> 0:06:49.359 but we certainly not forward looking the way we should be. 0:06:50.000 --> 0:06:54.000 So Tracy mentioned this recording this August. First, there's a 0:06:54.080 --> 0:06:56.720 non firm payrolls report that will come out tomorrow, probably 0:06:56.720 --> 0:06:59.200 by the time people listen to this. I just want 0:06:59.240 --> 0:07:01.760 to talk about some of the data that we've seen. 0:07:01.960 --> 0:07:06.080 Tracy mention it initial jobless claims around the highest in 0:07:06.120 --> 0:07:10.920 the year. The ISM manufacturing number came in Glubbalo expectations. 0:07:11.280 --> 0:07:16.200 The employment sub index of ISM outside of the COVID period. 0:07:16.280 --> 0:07:18.440 This is the worst since two thousand and nine, which 0:07:18.440 --> 0:07:22.360 Bloomberg's Cameron Christ pointed out ADP, I don't know if 0:07:22.400 --> 0:07:25.560 anyone actually pays that close attention to it. It came 0:07:25.600 --> 0:07:29.280 in lower than expectations. Today we've got unit labor costs. 0:07:29.280 --> 0:07:31.560 They're expected to grow one point seven percent. They only 0:07:31.600 --> 0:07:36.560 grew zero point nine percent. I guess the question is, Okay, 0:07:36.800 --> 0:07:38.880 is there a risk of a policy mistake? Could things 0:07:38.920 --> 0:07:42.760 be slowing down more rapidly than the FED things? And 0:07:42.840 --> 0:07:45.320 even with the concerns that they have that actually this 0:07:45.360 --> 0:07:47.520 is the moment and maybe things are going to get rolling. 0:07:47.720 --> 0:07:49.840 There is there is a possibility of that. And you 0:07:49.880 --> 0:07:52.760 can also add to that quit rates. Quit rates basically 0:07:53.080 --> 0:07:56.440 return to normality. So everything is pointing to the fact 0:07:56.440 --> 0:08:00.120 that labor market is getting noticed. Height everything points to 0:08:00.320 --> 0:08:04.480 direction of a less robust wage increases coming through. There 0:08:04.520 --> 0:08:07.840 is no wage spiral. Now, could you commit a policy era, 0:08:08.000 --> 0:08:09.880 Of course you could. But one of the things I 0:08:09.920 --> 0:08:13.600 keep highlighting policy errors are important when you got scarcity. 0:08:14.120 --> 0:08:17.240 If you have abundance, you can reverse a policy era 0:08:17.400 --> 0:08:20.280 in thirty seconds. In fact, even less than thirty second, 0:08:20.560 --> 0:08:25.520 one word potentially could reverse almost the entire impact of 0:08:25.560 --> 0:08:28.240 your policy era. So one of the things I've been 0:08:28.320 --> 0:08:31.640 highlighting is that there is a strong possibility of committing 0:08:31.680 --> 0:08:34.960 policy era if you're backward looking rather than if you're 0:08:35.000 --> 0:08:38.480 forward looking. But the fact that we have too much capital, 0:08:38.559 --> 0:08:41.720 the fact that we reprising things, and a split second, 0:08:42.080 --> 0:08:45.840 the fact that central banks have unlimited toolkit that is 0:08:45.880 --> 0:08:48.800 growing on a daily basis. Even if you commit a 0:08:48.800 --> 0:08:53.000 policy era, you probably cannot perpetuated, So in other words, 0:08:53.040 --> 0:08:55.520 you will be able to reverse it quite quickly in 0:08:55.559 --> 0:08:56.000 my view. 0:08:56.679 --> 0:08:58.920 I saw an interesting thing from Nick Collis over at 0:08:59.000 --> 0:09:01.840 Data Track this morning where he was talking about or 0:09:01.920 --> 0:09:06.880 asking if labor market normalization, which is how Powell couched 0:09:06.920 --> 0:09:10.120 it on Wednesday, whether or not normalization is the new 0:09:10.200 --> 0:09:13.560 transitory in the sense that they might be focusing on that, 0:09:13.880 --> 0:09:16.440 and the market starts to focus on it too, and 0:09:16.480 --> 0:09:19.840 then it turns out that, well, it's not really normalizing, 0:09:20.000 --> 0:09:23.199 it's in a downturn, and the Fed is making a mistake. 0:09:23.480 --> 0:09:26.320 But just on the idea of abundance, I mean, you 0:09:26.360 --> 0:09:29.839 say repricing can happen very quickly, but going back to 0:09:29.880 --> 0:09:32.120 the transitory idea, that's not what we saw when we 0:09:32.160 --> 0:09:34.079 saw prices begin to go up. 0:09:34.480 --> 0:09:37.200 That's because essentially what you had at the time is 0:09:37.280 --> 0:09:41.719 Federal Reserve insisting on transitory when it wasn't transitory. So 0:09:41.840 --> 0:09:44.320 in other words, if fed a Reserve wants to commit 0:09:44.440 --> 0:09:48.520 a policy era, they can. If they insist on perpetuating 0:09:48.640 --> 0:09:52.040 policy era, they can do that too. If they want 0:09:52.080 --> 0:09:55.520 to put the economy into recession, they capable of doing it. 0:09:55.840 --> 0:09:59.240 My point is none of it is necessary because even 0:09:59.280 --> 0:10:02.400 if you commit a era and you quickly realize you have, 0:10:02.920 --> 0:10:06.160 you can unwind it incredibly fast. Whereas say, if you 0:10:06.200 --> 0:10:09.199 look at Paul Walker, if you look at greenspand they 0:10:09.240 --> 0:10:12.720 had nowhere near the same capability of achieving that outcome. 0:10:13.400 --> 0:10:15.280 So there is a risk of an error, there is 0:10:15.320 --> 0:10:17.920 a risk of a recession. But your view is that 0:10:18.080 --> 0:10:22.800 the rate tool is powerful enough such that even if 0:10:22.800 --> 0:10:25.840 we were to go into a downturn, that that one 0:10:25.960 --> 0:10:30.040 lever for what various reasons, is powerful enough to reverse 0:10:30.040 --> 0:10:30.760 it fairly quickly. 0:10:30.840 --> 0:10:34.280 Well, not so much, not so much raids, but Rada 0:10:34.400 --> 0:10:38.600 communication strategy. So the essence of Federal Reserve or any 0:10:38.640 --> 0:10:43.800 central bank these days Israeli communications strategy coupled with macro 0:10:44.080 --> 0:10:49.480 and micro prudential controls and coupled with specific policies designed 0:10:49.480 --> 0:10:54.040 to tailor circumstances that beyond your control that suddenly arises, 0:10:54.080 --> 0:10:57.400 whether it's Silicon Valley Bank or something else. That's the essence, 0:10:57.520 --> 0:10:59.760 not so much rates, because in the world of a 0:10:59.760 --> 0:11:03.480 buve Lounden's price doesn't work as well because there is 0:11:03.520 --> 0:11:07.400 no scarcity. So all Federal Reserve needs to do is 0:11:07.440 --> 0:11:11.760 to change communication strategy, to change some of the liquidity positions, 0:11:12.120 --> 0:11:14.679 and that could be enough now. Ultimately, if you start 0:11:14.720 --> 0:11:18.160 looking really longer term, there is no doubt that rates 0:11:18.160 --> 0:11:20.079 at some point in time do work. And that's what 0:11:20.200 --> 0:11:23.040 I'm saying that if Federal Reserve wants to commit a 0:11:23.040 --> 0:11:26.240 policy era, wants to perpetuate policy era and place the 0:11:26.400 --> 0:11:29.640 US economy or any other economy inter recession, they're capable 0:11:29.640 --> 0:11:38.640 of doing it. Just there is no reason for that. 0:11:45.520 --> 0:11:48.360 Victor. Do you remember two years ago, I think it 0:11:48.400 --> 0:11:53.000 was also in the summertime, when the Fed said they 0:11:53.600 --> 0:11:56.960 basically like ruled out the possibility of a seventy five 0:11:57.000 --> 0:11:59.720 basis point hike, and then they went ahead and did it, 0:11:59.760 --> 0:12:03.160 and they sort of abandoned forward guidance, which had been 0:12:03.200 --> 0:12:06.720 this principle that they had been using post two thousand 0:12:06.720 --> 0:12:09.880 and eight financial crisis to guide the markets and damp 0:12:09.880 --> 0:12:11.319 and bond market volatility. 0:12:11.720 --> 0:12:12.080 I don't know. 0:12:12.120 --> 0:12:14.360 I've been thinking about that moment for a while now. 0:12:14.360 --> 0:12:16.760 It feels like we're sort of having a repeat on 0:12:16.840 --> 0:12:19.920 the data dependency thing, like it's another shift in the 0:12:19.960 --> 0:12:22.520 emphasis of the central banks communication policy. 0:12:22.960 --> 0:12:25.960 Yeah, it is. It is. And again if you go back, 0:12:26.040 --> 0:12:28.640 if you go back to those times, the reason we 0:12:29.040 --> 0:12:32.880 shifted is because j Pill quite correctly, was saying that 0:12:33.000 --> 0:12:35.960 neutral rates are becoming very unstable. You know, I can't 0:12:36.000 --> 0:12:38.520 see the stars he keept highlighting. He'd been highlighting it 0:12:38.520 --> 0:12:42.240 for years now. And what he basically saying, I don't 0:12:42.240 --> 0:12:45.240 know where neutral rate is in the nominal terms. Is 0:12:45.280 --> 0:12:47.200 it more like three three and a half percent that 0:12:47.240 --> 0:12:50.480 people currently expect or is it closer to four four 0:12:50.520 --> 0:12:52.319 and a half. And if it is four four and 0:12:52.360 --> 0:12:54.920 a half, is it possible that in the next six 0:12:54.960 --> 0:12:56.560 or twelve months is going to drop to two and 0:12:56.559 --> 0:12:59.480 a half three percent. And so he has no visibility 0:12:59.520 --> 0:13:02.880 exactly where neutral rate is. He doesn't know what's going 0:13:02.960 --> 0:13:06.439 up or coming down. He is not even sure what 0:13:06.600 --> 0:13:10.240 forces actually are driving it so quickly up and down. 0:13:10.600 --> 0:13:12.640 I mean, we can talk about a number of forces, 0:13:12.640 --> 0:13:15.600 one of them election and electoral cycles. We can talk 0:13:15.600 --> 0:13:18.760 about geopolitics, we can talk about climate, we can talk 0:13:18.800 --> 0:13:22.199 about healthcare. There is a number of sayings that outside 0:13:22.280 --> 0:13:25.360 the economic system that drives you. So in the past 0:13:25.840 --> 0:13:29.280 mostly what you had is economic cycles and capital market cycle. 0:13:29.320 --> 0:13:33.959 We're driving everything today. It's a force us outside the system. Now, 0:13:34.000 --> 0:13:37.160 what is the ability of Federal Reserve to estimate and 0:13:37.440 --> 0:13:42.960 anticipate any of these things outside macroeconomic system? The answer 0:13:43.080 --> 0:13:46.400 is zero. The ability to predict, the ability to anticipate, 0:13:46.440 --> 0:13:49.480 the ability to price is zero. But these are the 0:13:49.520 --> 0:13:54.359 factors that are capable of swinging neutral rates quite quite considerably. 0:13:54.880 --> 0:13:58.400 Well, you mentioned one thing just then, which is political uncertainty, 0:13:58.480 --> 0:14:00.240 And this is something I wanted to ask you, which 0:14:00.320 --> 0:14:04.160 is Okay, markets are pricing in roughly a little over 0:14:04.240 --> 0:14:07.640 seventy basis points worth of cuts at the moment for 0:14:07.679 --> 0:14:09.880 the rest of the year. How much of that pricing 0:14:10.040 --> 0:14:14.360 is due to uncertainty stemming from the political situation right now? 0:14:14.360 --> 0:14:16.920 How much of it is basically risk off getting priced 0:14:16.920 --> 0:14:17.680 into that market. 0:14:18.240 --> 0:14:24.120 None. I don't believe anybody can price political outcomes, either 0:14:24.280 --> 0:14:27.960 with a Trump or Harris wins, or whether the Republicans 0:14:28.000 --> 0:14:30.960 swip and control the House and Senate and the presidency 0:14:31.320 --> 0:14:34.360 with a Democrat swip and to have it at full trifecta. 0:14:34.440 --> 0:14:37.160 What's going to happen at state election levels, because remember 0:14:37.240 --> 0:14:40.520 forty four states also have elections, sixteen governors or something 0:14:40.640 --> 0:14:43.280 running for elections. On top of that, I don't think 0:14:43.320 --> 0:14:47.440 anybody can predict, including investors. So right now, I don't 0:14:47.440 --> 0:14:50.600 think anything is reflected. People are trying to do Trump 0:14:50.680 --> 0:14:54.280 trades and they have Harris trades. To me, it's not relevant. 0:14:54.440 --> 0:14:56.960 First of all, it's not clear what the trades are 0:14:57.360 --> 0:15:00.320 because one of the sayings, it's been very clear in 0:15:00.400 --> 0:15:04.320 European elections and increasingly US as well, that if you 0:15:04.480 --> 0:15:08.320 on extreme right want to take control and govern, people 0:15:08.360 --> 0:15:12.640 will force you to abandon your most extreme views. This 0:15:12.680 --> 0:15:15.160 is what happened to Brothers of Italy, That's what happened 0:15:15.160 --> 0:15:18.520 to RNN, that's what happened to Urn in some ways, 0:15:18.520 --> 0:15:21.560 that's even happening to AfD in Germany. On top of that, 0:15:21.960 --> 0:15:25.200 the same happening with Republicans. They no longer want to 0:15:25.240 --> 0:15:29.600 cut welfare payments. They've abundant Project twenty twenty five if 0:15:29.640 --> 0:15:32.400 you say, with Kamala Harris, she's now saying fracking is 0:15:32.440 --> 0:15:35.400 going to go forward. So the good thing I sing 0:15:35.560 --> 0:15:39.280 right now globally is that electorate is not mad enough, 0:15:39.560 --> 0:15:43.240 is not angry enough to go to the extreme. So 0:15:43.360 --> 0:15:46.760 if you want to have an opportunity to govern, you 0:15:46.920 --> 0:15:51.160 must abundant your most extreme views and extreme policies. And 0:15:51.200 --> 0:15:54.200 if you do abandon them, then really, how much of 0:15:54.240 --> 0:15:58.200 a real difference is there between the Harris trade or 0:15:58.520 --> 0:16:01.640 don't Trump trade or any other trade? So right now, 0:16:01.680 --> 0:16:03.880 to answer you a question, I don't think anything is embedded. 0:16:04.120 --> 0:16:07.800 I think people are trying to trade and anticipate certain sayings, 0:16:08.040 --> 0:16:10.760 but at the end of the day, it's pretty useless 0:16:10.760 --> 0:16:13.000 because there is no way you will know that, and 0:16:13.040 --> 0:16:15.720 we might not even know that until January, because more 0:16:15.760 --> 0:16:18.520 than likely there's going to be quite a lot of litigation, 0:16:18.760 --> 0:16:20.040 often the vemby elections. 0:16:20.160 --> 0:16:24.400 It's always striking to me how badly various political electoral 0:16:24.440 --> 0:16:28.080 themed baskets or trade ideas. Do you know that the 0:16:28.120 --> 0:16:31.320 Mexican peso was a Trump trade in twenty sixteen and 0:16:31.480 --> 0:16:33.160 was getting hammered every time he did well in the 0:16:33.200 --> 0:16:35.520 polls turned out to be one of the best performing 0:16:35.560 --> 0:16:37.520 currencies during his years of presidency. 0:16:37.840 --> 0:16:41.680 Do you remember, Joe in twenty sixteen, after Trump won, 0:16:42.120 --> 0:16:45.600 every single cell side piece of research that came out 0:16:45.800 --> 0:16:48.920 was like Trump will make whatever great again. And it 0:16:48.960 --> 0:16:52.840 was everything from like energy stocks to the most esoteric, 0:16:53.000 --> 0:16:55.400 like asset backed securities. It was amazing. 0:16:55.480 --> 0:16:57.080 Yeah, people, including cryptocurrency. 0:16:57.080 --> 0:17:00.480 There's still other than the one in our in the 0:17:00.520 --> 0:17:05.440 studio right now, many lazy titlers of cell side notes, 0:17:05.480 --> 0:17:07.439 with the exception of the person we're talking to. But 0:17:07.520 --> 0:17:09.760 you know, the energy is a good example because energy 0:17:09.800 --> 0:17:11.800 did really badly under Trump, and then it did really 0:17:11.800 --> 0:17:15.280 well under Biden, even though the Biden baskets in twenty 0:17:15.359 --> 0:17:17.560 twenty would have said to all buy solar stocks, which 0:17:17.560 --> 0:17:22.159 have all done extremely mediocre. Actually, you also mentioned geopolitics, 0:17:22.320 --> 0:17:24.639 and I get that you can't really put together a 0:17:24.800 --> 0:17:29.160 compelling electoral trade. Would you see any fingerprints of either 0:17:29.160 --> 0:17:32.000 of the geopolitical situation or the election on either the 0:17:32.040 --> 0:17:34.640 economy or markets right now? Is it showing up anywhere? 0:17:34.920 --> 0:17:38.840 No? Non, I would argue, even Europe, where we've gone 0:17:38.840 --> 0:17:41.040 through quite a number of cycles because quite a few 0:17:41.080 --> 0:17:44.879 countries head elections and European Union parliament head elections. You 0:17:44.880 --> 0:17:47.440 don't actually see a great deal of fingerprints at all, 0:17:47.840 --> 0:17:51.800 either or an economy or ECB policies, or the market, 0:17:51.840 --> 0:17:54.399 whether it's equity of fixing of any other market. So 0:17:55.119 --> 0:17:57.360 to me, and again, I think part of the reason 0:17:57.440 --> 0:18:00.600 these I keep coming back to that people not yet 0:18:00.640 --> 0:18:04.439 met enough, they are not yet angry enough, and so 0:18:04.560 --> 0:18:08.080 the extremes did not have the same pool as they 0:18:08.119 --> 0:18:09.159 otherwise would have. 0:18:22.720 --> 0:18:24.239 Can we just go back to it? I would just 0:18:24.280 --> 0:18:27.200 like to go back to the US in the FED specifically. Again, 0:18:27.400 --> 0:18:30.760 so setting aside, you know, one of the concerns about 0:18:30.760 --> 0:18:34.240 a policy mistake or waiting too long is this notion. 0:18:34.960 --> 0:18:37.919 And this is sort of the implied insight of the 0:18:37.960 --> 0:18:41.280 some rule, for example, is that unemployment feeds on itself. 0:18:41.800 --> 0:18:44.920 I lose my job, I spend less, I spend less 0:18:44.920 --> 0:18:48.200 at your business, you layoff workers, your workers lose income, 0:18:48.240 --> 0:18:49.160 they spend less. 0:18:48.960 --> 0:18:49.440 Et cetera. 0:18:50.080 --> 0:18:52.199 That intuitively makes a lot of sense to me that 0:18:52.359 --> 0:18:56.480 unemployment contained its own momentum that builds on itself. But 0:18:56.680 --> 0:18:59.520 your view seems to be that it can be short 0:18:59.560 --> 0:19:02.080 circuited in a fairly short period of time. Can you 0:19:02.160 --> 0:19:05.000 reconcile that for me, and like, why you have this 0:19:05.119 --> 0:19:07.560 belief that, Okay, maybe it is a mistake to wait 0:19:07.640 --> 0:19:10.760 to September, or maybe the Fed should signal more forcefully 0:19:11.160 --> 0:19:13.600 than a rate cut cycle that begins in September will 0:19:13.640 --> 0:19:16.600 be aggressive. But can you sort of reconcile this for me, 0:19:16.680 --> 0:19:19.840 why you believe that they can reverse a policy or 0:19:19.920 --> 0:19:20.880 fairly quickly. 0:19:20.640 --> 0:19:24.560 And a saying Clodia sum yes, actually pulling back from 0:19:24.600 --> 0:19:27.960 your rule, and for a very good reason. For a 0:19:28.040 --> 0:19:30.520 very good reason. First of all, we had a massive 0:19:30.520 --> 0:19:33.800 dislocation of demodern supply curves for goods and services and 0:19:33.920 --> 0:19:37.040 labor over the last three to four years. Secondly, we're 0:19:37.080 --> 0:19:40.439 getting very tremendous changes in the structure of the labor 0:19:40.520 --> 0:19:44.720 market itself, so increasingly Bureau of Labor Statistics is not 0:19:44.880 --> 0:19:48.320 really capturing the labor market. And well, the labor market does, 0:19:48.520 --> 0:19:51.520 whether it's a gig jobs, whether it's a multiple jobs. 0:19:51.720 --> 0:19:54.520 There are many studies of we're done over the last 0:19:54.520 --> 0:19:58.280 five six years which basically shows that methodology that Bureau 0:19:58.280 --> 0:20:02.960 of Labor Statistics employees understate labor participation by at least 0:20:03.000 --> 0:20:05.960 two percentage points, which means all of this law labor 0:20:06.000 --> 0:20:10.840 participations aren't actually true. They also significantly therefore are understating 0:20:10.880 --> 0:20:14.960 the hours work and overstating wages per hour. So it's 0:20:14.960 --> 0:20:17.359 a structural shift that are occurring right now in a 0:20:17.440 --> 0:20:21.960 labor market, combined with a gradual volatility of the modern 0:20:22.000 --> 0:20:26.120 supply curves that we have experienced that really blonds that rule. 0:20:26.200 --> 0:20:29.480 It doesn't really allow that rule to function. But beyond that, 0:20:29.680 --> 0:20:32.760 and that's something as including it doesn't address. Beyond that 0:20:33.400 --> 0:20:37.360 is sort of my pet idea of abundance rather than scarcity. 0:20:37.600 --> 0:20:41.200 But just understand, regardless of whether the rule holds firm 0:20:41.320 --> 0:20:43.359 and I get that because no rule is going to 0:20:43.400 --> 0:20:44.320 be ironclad. 0:20:44.600 --> 0:20:46.040 And you know that talked. 0:20:45.800 --> 0:20:47.639 About it in the pressor yesterday. He was like, this 0:20:47.680 --> 0:20:50.320 is something that has happened throughout history, but it doesn't 0:20:50.320 --> 0:20:51.840 mean it's always going to in the future. 0:20:51.880 --> 0:20:54.800 It's absolutely not an iron law at all. And you 0:20:54.800 --> 0:20:55.520 know there are others. 0:20:55.560 --> 0:20:56.960 Not a law of nature, it's not a law. 0:20:57.119 --> 0:21:00.480 Neither is the curve inversion a law of incoming recession, 0:21:00.600 --> 0:21:04.480 as we've seen over the last couple of years. Nonetheless, 0:21:04.520 --> 0:21:08.600 just the insight, just the core intuition of negative momentum 0:21:08.600 --> 0:21:10.360 building on itself does that concern. 0:21:10.359 --> 0:21:15.320 Yes, yeah, it is because ultimately people do need to consume. 0:21:15.480 --> 0:21:18.600 Ultimately people do need to spend. We have a problem 0:21:18.680 --> 0:21:22.919 measuring exactly where we are. But the intuitive reaction what 0:21:22.960 --> 0:21:26.879 you've just said, Joe is absolutely correct. So that's why 0:21:26.920 --> 0:21:29.960 I keep saying, can we have committed policy era? Yes? 0:21:30.080 --> 0:21:30.439 Okay. 0:21:30.560 --> 0:21:33.720 Can we wait too long? Yes? Could there be a 0:21:33.800 --> 0:21:37.439 price that will be exacted from the economists and the 0:21:37.520 --> 0:21:40.679 market because we waited too long? The answer is yes. 0:21:40.960 --> 0:21:44.119 Can you quantify it right now? The answer the answer 0:21:44.160 --> 0:21:47.359 is no, okay. And the only twist I have that 0:21:47.440 --> 0:21:50.639 we have a capability of reversing it faster than what 0:21:50.720 --> 0:21:53.280 we did fifteen years ago, twenty thirty years ago. 0:21:53.840 --> 0:21:55.640 Joe wanted to go back to the FED. I want 0:21:55.640 --> 0:21:58.160 to go back to politics because I opened up one 0:21:58.160 --> 0:22:01.720 of your recent research notes and I had a minor 0:22:01.760 --> 0:22:04.800 heart attack because one of the things in it it 0:22:04.840 --> 0:22:08.160