WEBVTT - Surveillance: Fed's Dilemma With Reinhart 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:31.360 and of course, on the Bloomberg Terminal. Michelle Meyer joins 0:00:31.480 --> 0:00:34.040 us this morning. Michelle, a nine and a half percent 0:00:34.159 --> 0:00:37.239 GDP statistic. I want you to frame right now the 0:00:37.320 --> 0:00:40.839 Bank of America guestimate of the path from a boom 0:00:40.840 --> 0:00:46.320 economy to a normal economy. How does that process look sure? 0:00:46.360 --> 0:00:48.600 And I think that's actually the big question. It's trying 0:00:48.600 --> 0:00:51.000 People are trying to figure out what the moderation and 0:00:51.000 --> 0:00:54.960 growth will look like because we know that nine percent growth, 0:00:54.960 --> 0:00:58.320 which is what we're tracking in Q two, is not sustainable. 0:00:58.440 --> 0:01:00.760 So there will be a slow down, and the data 0:01:00.840 --> 0:01:04.240 is already indicating that um but it's slowly, you know, 0:01:04.720 --> 0:01:08.920 in a in a fairly manageable way, all things considered. 0:01:08.959 --> 0:01:10.880 So when you look ahead to the next few quarters, 0:01:11.319 --> 0:01:14.120 we very much believe the economy will be still growing 0:01:14.200 --> 0:01:17.800 well above trend trend being close to two so you'll 0:01:17.800 --> 0:01:20.480 see somewhere in the order of five maybe six percent 0:01:20.520 --> 0:01:22.840 g peak growth on average of the next few quarters. 0:01:23.200 --> 0:01:25.559 It's half the piece that we had in the second quarter. 0:01:26.000 --> 0:01:28.240 But we can't imagine the economy will continue to grow 0:01:28.280 --> 0:01:31.120 with that type of piece, given in the capacity in 0:01:31.160 --> 0:01:35.560 the economy. Dovetailed Bank of America sellside research, your securities 0:01:35.680 --> 0:01:39.680 research into what you and Ethan are doing in economics. 0:01:40.040 --> 0:01:46.080 What is the corporate response to the economy? You imagine, well, 0:01:46.080 --> 0:01:50.840 I mean businesses are investing. Businesses are seeing consumers go 0:01:50.920 --> 0:01:54.360 out and spend. They have cash on hand, and they 0:01:54.400 --> 0:01:58.559 were actively spending on all things good up until recently 0:01:58.600 --> 0:02:01.480 where there's been some slowing and now they're really embracing 0:02:01.480 --> 0:02:04.120 the services side of the economy. But without a doubt, 0:02:04.440 --> 0:02:07.840 the consumers out there participating in the economy, and when 0:02:07.880 --> 0:02:10.080 you see that as the company, you want to go 0:02:10.120 --> 0:02:13.239 out and invest and meet that demand. Um and that's 0:02:13.360 --> 0:02:15.360 very much still what we're seeing in the data flow. 0:02:15.520 --> 0:02:17.440 That seems to be what Morgan Stanley's and I was 0:02:17.480 --> 0:02:19.360 saying also over the weekend when he says that he 0:02:19.400 --> 0:02:23.079 expects a red hot capex cycle to sustain global GDP 0:02:23.240 --> 0:02:27.720 growth above pre COVID levels. Why is that not necessarily 0:02:27.800 --> 0:02:30.320 the case as sort of portrayed by the bond market, 0:02:30.400 --> 0:02:33.040 or in other words, how inconsistent is the bond market 0:02:33.200 --> 0:02:36.280 with some of these projections. Look, I mean, I know 0:02:36.360 --> 0:02:38.200 the last few weeks has been all this debate around 0:02:38.200 --> 0:02:41.040 fundamental and technical factors driving the bond market, But I 0:02:41.080 --> 0:02:44.600 think beyond that, you know, there seems to be this 0:02:45.639 --> 0:02:49.320 storyline or sentiment in the market that, yeah, we can 0:02:49.360 --> 0:02:52.240 have really strong growth and next few quarters by and 0:02:52.240 --> 0:02:56.720 that's still part of the payback from this incredibly artificial 0:02:56.760 --> 0:02:58.880 time in the economy around COVID and the and n's 0:02:58.960 --> 0:03:02.600 doing stimulus. But what's the underlying trend? What's the structural trend? 0:03:02.639 --> 0:03:04.800 Has that changed? Are we going to return to this 0:03:04.919 --> 0:03:08.359 environment of slow under outlying growth. We're gonna return to 0:03:08.400 --> 0:03:12.120 an environment where demographics are still quite negative and depressing, 0:03:12.280 --> 0:03:16.280 where they're still disinflationary in psychology, and I think that 0:03:16.280 --> 0:03:18.680 that's starting to kind of spook the marketing. You can 0:03:18.720 --> 0:03:20.760 see in the longer end of the curve, and that's 0:03:20.760 --> 0:03:22.960 what the FEDS. Tom Barkin was talking about in Wall 0:03:22.960 --> 0:03:25.360 Street Journal article that came out this morning. He really 0:03:25.440 --> 0:03:29.040 pointed to the employment of population ratio, this sort of 0:03:29.040 --> 0:03:33.040 participation rate is still being too low to justify tapering. 0:03:33.320 --> 0:03:36.600 How much, however, can the FED overwhelm some of these 0:03:36.640 --> 0:03:40.040 actual economic inputs with their stimulus. In other words, we 0:03:40.080 --> 0:03:43.200 even have to look at the fundamentals or the fundamentals 0:03:43.360 --> 0:03:48.240 entirely the amount of liquidity pumped in by the Federal Reserve. Yeah, so, 0:03:48.360 --> 0:03:50.160 I mean that is the balance, right Is that the 0:03:50.240 --> 0:03:53.160 FED is you know, a heavy hands in the markets. 0:03:53.160 --> 0:03:55.160 And what the FED is doing today in terms of 0:03:55.320 --> 0:03:58.360 buying and what they are communicating for their future in 0:03:58.480 --> 0:04:01.400 terms of forward guidance and huge right. So, and it's 0:04:01.440 --> 0:04:03.760 not just a FED, it's a whole the central banks 0:04:03.800 --> 0:04:06.680 that are creating these types of challenges for getting a 0:04:06.680 --> 0:04:09.800 clear signal of what's happening in the bond market. Um. 0:04:09.840 --> 0:04:14.440 But going back to your comments around what um Barkin said, 0:04:14.520 --> 0:04:17.800 I think that is super important when you consider where 0:04:17.800 --> 0:04:20.120 the underlying growth rate is in the economy. It's a 0:04:20.200 --> 0:04:23.440 supply side. How much capacity is there for the economy 0:04:23.520 --> 0:04:26.120 to continue to grow? And for that we rely on 0:04:26.960 --> 0:04:29.880 labor force participation people going out and working, and we 0:04:29.960 --> 0:04:33.160 rely on productivity, um, And those two factors I think 0:04:33.160 --> 0:04:35.040 are super important to keep an eye on when you're 0:04:35.040 --> 0:04:37.960 thinking about the long run potential for the economy. Michelle, 0:04:37.960 --> 0:04:41.040 looking at you, like this research on chairman pals testimiar, 0:04:41.160 --> 0:04:42.640 you said the following, we look for him to sound 0:04:42.640 --> 0:04:45.040 relatively more davish than he did during the tune press. 0:04:45.080 --> 0:04:48.600 So why is that, Michelle? You know in the press conference, 0:04:48.640 --> 0:04:51.080 remember he's talking about having the committee and we know 0:04:51.279 --> 0:04:53.880 from the STP, but there are seven of them. The 0:04:53.960 --> 0:04:56.880 officials are looking for a hike next year. So there 0:04:56.920 --> 0:04:59.360 are a lot of voices out there that we're growing 0:04:59.480 --> 0:05:03.520 kind of anxious about what they're seeing on the inflation front. 0:05:03.520 --> 0:05:06.520 And why did you get started with the normalization of policy? 0:05:06.600 --> 0:05:09.839 But we don't think Powell is in that camp of AI, 0:05:10.360 --> 0:05:13.280 and in the testimony to Congress, we think we'll get 0:05:13.320 --> 0:05:14.880 a little more of a sense than that. And we 0:05:14.920 --> 0:05:17.960 also think in the testimony he's really going to reinforce 0:05:18.400 --> 0:05:21.320 how the fair thinks about maximum employment, which remember is 0:05:21.360 --> 0:05:26.120 were broad based um labor market recovery, one where the 0:05:26.160 --> 0:05:29.280 inequalities that we had seen over the last several decades 0:05:29.480 --> 0:05:31.840 could be resolved to some extent that is still really 0:05:31.880 --> 0:05:34.160 poor to I think what's your power is trying to 0:05:34.200 --> 0:05:36.680 accomplish with this new framework. Well, let's get into that. 0:05:37.000 --> 0:05:39.320 I read the Monechy policy report that came out on Friday, 0:05:39.320 --> 0:05:41.320 which will service the basis for this testimony length to 0:05:41.360 --> 0:05:42.800 this week case. The line that jumped down to a 0:05:42.839 --> 0:05:45.960 lot of people, the post pandemic labor market and the 0:05:46.040 --> 0:05:50.240 characteristics characteristics of maximum employment may well be different from 0:05:50.240 --> 0:05:52.960 those of early What do you think againting at there, 0:05:54.240 --> 0:05:56.479 I think the idea they have, you know, changed the 0:05:56.520 --> 0:05:59.480 definition of maximum employment. It's not just getting the U 0:05:59.640 --> 0:06:02.320 three unemployment rate down to call it four to four 0:06:02.360 --> 0:06:06.360 and a half percent. It's about getting an environment where 0:06:06.360 --> 0:06:10.200 that unemployment rate is down across the economy, um, where 0:06:10.200 --> 0:06:13.240 the employment of population ratio for prime working and individuals 0:06:13.320 --> 0:06:15.080 is back up as well across the time. You know, 0:06:15.400 --> 0:06:17.400 it's not gonna be perfect, right, and there's gonna be 0:06:17.440 --> 0:06:19.200 a lot of challenges. At some point you're gonna really 0:06:19.200 --> 0:06:21.920 get this tension between the tightness and parts of the 0:06:22.040 --> 0:06:25.760 labor market versus the age, inflation or underlying price pressures. 0:06:25.960 --> 0:06:28.760 I know, I know what Jackson hole you've pushed then aside, 0:06:28.760 --> 0:06:31.000 You're gonna be out there, Michelle, probably under the white 0:06:31.000 --> 0:06:34.520 tent and the lawn chairs for the Saturday speech. Are 0:06:34.560 --> 0:06:38.320 you telling me we have a central bank committing social 0:06:38.400 --> 0:06:44.680 policy now with monetary tools. Look, it's not social policy, 0:06:44.720 --> 0:06:46.680 and the fact would be very clear that they're not 0:06:46.839 --> 0:06:50.800 trying to you know, uh, move one part of the 0:06:50.800 --> 0:06:54.080 economy versus the other. Right, that's fiscal policy. Well, the 0:06:54.120 --> 0:06:56.920 fet is saying is in order to have a complete recovery, 0:06:57.240 --> 0:06:59.680 and one that we think we'll be able to, you know, 0:06:59.720 --> 0:07:02.359 can hinue because you have broad based wage growth, because 0:07:02.400 --> 0:07:05.279 you have the ability to seek broad based price pressures 0:07:05.320 --> 0:07:07.400 in the economy. It needs to be a complete recovery. 0:07:07.600 --> 0:07:09.520 And that was the lesson that I think they learned, 0:07:09.560 --> 0:07:11.920 one of many in the last cycle that came out 0:07:11.920 --> 0:07:14.440 of the FED listens events is that if you don't 0:07:14.480 --> 0:07:19.360 have the economy, you know, increasing across the spectrum, it 0:07:19.480 --> 0:07:22.440 may end up not lasting or you end up damaging 0:07:22.720 --> 0:07:28.080 your long run potential even more. I look at this, Michelle, 0:07:28.120 --> 0:07:29.800 I got it, you know, Michelle, I'm just sort of 0:07:29.920 --> 0:07:32.560 dazzled by all the theory that's getting out. Can we 0:07:32.600 --> 0:07:36.480 go back to core values, core knowledge? How some house 0:07:36.520 --> 0:07:39.240 the housing market? Michelle, I mean this is how you 0:07:39.320 --> 0:07:43.160 became famous. Do you believe in this housing rally or 0:07:43.160 --> 0:07:46.239 the suburbanistic outside New York. If I was by chance 0:07:46.360 --> 0:07:49.360 north and Westchester and if by chance I loaded the 0:07:49.360 --> 0:07:52.960 boat right now on one point seven five million, am 0:07:53.000 --> 0:07:55.280 I going to enjoy that at one point three million 0:07:55.320 --> 0:07:58.960 when this natural disaster is over, just by chance, just 0:07:59.120 --> 0:08:02.120 because by chance? Um? Right? Yeah? So for anybody moving 0:08:02.120 --> 0:08:06.960 to Westchester? Um No, So I think, um, I think 0:08:07.000 --> 0:08:09.000 there's been a lot of movement. Clearly, there's been a 0:08:09.040 --> 0:08:11.720 lot of turn in the housing market. We've seen that 0:08:11.840 --> 0:08:15.320 in terms of the volumes um and part of that 0:08:15.440 --> 0:08:18.240 is because after the pandemic, people thought differently about where 0:08:18.280 --> 0:08:20.640 they want to live. It was very clear in the surveys. 0:08:20.680 --> 0:08:22.600 Part of it was because people had cash just spend 0:08:22.600 --> 0:08:25.120 if they weren't going out traveling, et cetera, so they 0:08:25.120 --> 0:08:27.160 went and bought goods. Housing is one of them. So 0:08:27.360 --> 0:08:30.600 there was definitely a distortion in the timing of the 0:08:30.640 --> 0:08:34.120 housing market. And we're still picking up the pieces from that, 0:08:34.240 --> 0:08:37.280 because you can see that the supply side was not 0:08:37.440 --> 0:08:41.640 already to accommodate this big increase in demand. Quite the contrary, 0:08:41.640 --> 0:08:44.640 builders kind of froze when the pandemic hit naturally, so 0:08:44.760 --> 0:08:49.200 inventory was very low and demand just greatly exceeded expectations 0:08:49.200 --> 0:08:53.560 in that create this big price increase. It's not sustainable, 0:08:53.920 --> 0:08:57.120 we will see and we are already seeing demand pulling 0:08:57.160 --> 0:09:00.440 from the highs at the end of last year. We 0:09:00.480 --> 0:09:04.200 are seeing now construction start to pick up, inventory levels 0:09:04.200 --> 0:09:05.960 start to pick up that and take some of the 0:09:06.000 --> 0:09:09.160 pressure off of home price appreciation. Are we going to 0:09:09.240 --> 0:09:12.560 see housing crash? No? Are we going to see uh 0:09:12.920 --> 0:09:15.160 further slow down? Yeah? I think so, And that makes sense. 0:09:15.200 --> 0:09:18.280 Home price appreciation should come off of these crazy high 0:09:18.800 --> 0:09:21.120 levels that just don't add up with what you're seeing 0:09:21.120 --> 0:09:24.120 in the broader economy. Michelle love to catch up Michelle, 0:09:24.480 --> 0:09:26.680 Bank America looking ahead to a ky week with inflation 0:09:26.720 --> 0:09:29.120 TOTA tomorrow and of course Cham and Paus testimate a 0:09:29.160 --> 0:09:36.880 little bit later in the week. Right now, we start 0:09:36.920 --> 0:09:40.080 strong with a gentleman looking not only making the relative 0:09:40.080 --> 0:09:42.560 move in the market, but the absolute move as well. 0:09:42.920 --> 0:09:46.280 Skybridge Capital has been steeped in moving money to hedge funds, 0:09:46.559 --> 0:09:50.480 trying to get big return this year. That's sport. Troy 0:09:50.520 --> 0:09:55.000 Gayski joins us right now, whether Italy or England, what 0:09:55.200 --> 0:09:57.880 is it for hedge funds? Right now given the confusion 0:09:58.000 --> 0:10:00.360 that we see out there, is it an up yere 0:10:00.600 --> 0:10:03.160 or down here? Yea, so far it's been a reasonable year. 0:10:03.240 --> 0:10:05.120 I think the most important point that we make to 0:10:05.120 --> 0:10:07.720 our clients is, just like broader markets, it's the first, 0:10:07.720 --> 0:10:10.400 shelby last, and the last shall be first. What that 0:10:10.480 --> 0:10:14.400 means is that managers that outperformed last year mainly because 0:10:14.440 --> 0:10:17.600 they were long growth and secular growth stories have underperformed 0:10:17.600 --> 0:10:20.520 because you had about a four month under performance period there, 0:10:20.760 --> 0:10:23.960 and managers more focused on cyclical strategies like structure credit 0:10:24.080 --> 0:10:27.040 or distress credit of outperformed as economic strength has been 0:10:27.400 --> 0:10:30.800 very pronounced. So you know, more broadly going forward, the 0:10:30.840 --> 0:10:34.280 market or the industry is still overweight secular growth, but 0:10:34.360 --> 0:10:36.760 a lot of these value places still we think have legs. 0:10:36.960 --> 0:10:40.480 Do you think the conviction around cyclical growth stories Troy 0:10:40.559 --> 0:10:42.480 how French down? Do you think that is if it exists? 0:10:42.760 --> 0:10:44.280 And so given what we've say now that the the last 0:10:44.280 --> 0:10:46.000 week cold it takes the move into bond market and 0:10:46.000 --> 0:10:48.920 it just completely upsets any confidence people have about where 0:10:48.920 --> 0:10:51.640 they are in the equity market. Yeah, well again, sector 0:10:51.760 --> 0:10:54.160 rotation this year has been more critical than it has 0:10:54.200 --> 0:10:57.000 in the past, So first five months you had significant 0:10:57.040 --> 0:11:00.080 underperformance of growth versus value and cyclicals, and so no 0:11:00.160 --> 0:11:03.200 surprise obviously sicklically focused managers in which there are very 0:11:03.200 --> 0:11:07.000 few left by the way, because of the years of underperformance. UM, 0:11:07.120 --> 0:11:10.080 they they had very strong starts. Last month, however you 0:11:10.120 --> 0:11:13.040 started see secular growth reassert itself and so you do 0:11:13.080 --> 0:11:16.720 have a very fragile dynamic between those factor rotations, and 0:11:16.760 --> 0:11:19.120 that continues to keep hedge funds up at night. Do 0:11:19.160 --> 0:11:21.080 they have the right balance? Are they two over their 0:11:21.120 --> 0:11:23.320 skis and one factor or the other? So let's talk 0:11:23.360 --> 0:11:26.439 about active management. Why do I need active management when 0:11:26.480 --> 0:11:28.400 the smpages seems to be doing old the hand work 0:11:28.440 --> 0:11:31.320 for me. Yeah, I'll tell you the FED keeps pumping 0:11:31.320 --> 0:11:35.280 in liquidity. We have plus annualized growth rates. Obviously, you 0:11:35.280 --> 0:11:38.120 guys have been discussing where bond yields are. Um. You know, 0:11:38.240 --> 0:11:40.959 at the end of the day, active management, it's why 0:11:41.000 --> 0:11:43.520 do you have it? Part of it is the non correlation. 0:11:43.880 --> 0:11:46.480 So you have either stocks or you have bonds. Obviously 0:11:46.559 --> 0:11:51.160 bonds look even more so now like return free risk. Obviously, 0:11:51.160 --> 0:11:53.439 when yields get up to one point six one point seven, 0:11:53.440 --> 0:11:57.920 you had some upside or extremely low real return rates. 0:11:57.960 --> 0:12:00.600 Now UM, so if hedge funds are act the managers 0:12:00.600 --> 0:12:03.360 can out perform fixed income and high yield and provide 0:12:03.400 --> 0:12:07.160 some correlation benefit to equities. That's still the value proposition. 0:12:07.480 --> 0:12:10.280 It should be easier to outperform bonds going forward and 0:12:10.320 --> 0:12:13.880 equities at twenty two times two earnings. You know how 0:12:14.000 --> 0:12:16.520 much more multiple expansions left there, Troy. One of the 0:12:16.600 --> 0:12:19.320 active decisions has been to go into bitcoite, and I 0:12:19.360 --> 0:12:22.000 know that you have been a pretty big proponent of that, 0:12:22.080 --> 0:12:26.160 and we've seen the bitcoins price basically have since the 0:12:26.160 --> 0:12:28.680 peak that we saw over in April. What did you 0:12:28.760 --> 0:12:31.400 do during this period of time? Yes, So for us, 0:12:31.440 --> 0:12:33.360 basically what we did is we trimmed the position in 0:12:33.440 --> 0:12:35.600 order to keep it from growing further. UM. In our 0:12:35.640 --> 0:12:37.480 portfolios at then of the March is we had more 0:12:37.520 --> 0:12:40.800 outflows than inflows UM, and since then we've rotated a 0:12:40.840 --> 0:12:43.560 small amount of the capital into ethereum. We view the 0:12:43.559 --> 0:12:46.560 market pretty straightforward, is you know, bitcoin will be the 0:12:46.679 --> 0:12:49.720 market leader in terms of store value and ethereum at 0:12:49.800 --> 0:12:52.000 least so far as the market leader in terms of 0:12:52.000 --> 0:12:54.600 transaction transaction use. So we wanted a little bit of 0:12:54.600 --> 0:12:57.360 diversification there. All in all, we have a nine percent 0:12:57.400 --> 0:13:00.320 position size, and when we look right now the on 0:13:00.480 --> 0:13:02.959 chain data, what is basically telling you is a lot 0:13:02.960 --> 0:13:06.520 of the strongholders are reasserting themselves and accumulating from those 0:13:06.559 --> 0:13:08.960 that got into the market late last year, and that 0:13:09.080 --> 0:13:11.400 is setting itself up for some type of supply shock 0:13:11.760 --> 0:13:14.880 very similar to what we had last October November. Um, 0:13:14.920 --> 0:13:16.640 so it's going to be a volatile asset, but it 0:13:16.640 --> 0:13:19.160 continues to be very non correlated, and we think the 0:13:19.240 --> 0:13:22.079 risk reward is now skewed again to the upside. So Troy, 0:13:22.160 --> 0:13:24.400 perhaps there will be future gains. But when it comes 0:13:24.400 --> 0:13:27.960 to justifying active management to clients, how do you discuss 0:13:28.160 --> 0:13:31.280 your investment in bitcoin when it is volatile and sort 0:13:31.320 --> 0:13:33.679 of argue that this is a reason to go into 0:13:33.720 --> 0:13:36.680 the fund even though it is an unproven asset class, 0:13:36.720 --> 0:13:38.760 that it does have all of the ups and downs 0:13:38.760 --> 0:13:41.839 that can be rather unpredictable. Oh yeah, look, I mean 0:13:41.920 --> 0:13:45.080 part of active management again is trying to identify Nassan 0:13:45.120 --> 0:13:49.360 asset classes that have asymmetric risk return and again we're 0:13:49.360 --> 0:13:52.000 in the non correlation business, or trying to generate returns 0:13:52.000 --> 0:13:55.200 that are differentiated from equities and fixed income. So so 0:13:55.240 --> 0:13:57.960 that's what drew us to bitcoin initially. And then of 0:13:58.000 --> 0:14:00.520 course if you look at the broader macro environment of 0:14:00.559 --> 0:14:03.880 incredible money supply growth still record low, you know, ten 0:14:03.920 --> 0:14:07.320 year yields for instance, the adoption cycle that continues, we 0:14:07.360 --> 0:14:10.280 think that small part of our portfolio can provide non 0:14:10.320 --> 0:14:13.680 correlation and asymmetric upside. And then of course over time 0:14:13.679 --> 0:14:16.600 we have to manage that relative to other positions as 0:14:16.640 --> 0:14:19.920 we evolve. Tell me about earning season and the long 0:14:20.080 --> 0:14:24.520 short structure. Right now, tech has researched. Yes, our hedge 0:14:24.520 --> 0:14:28.360 phones exposed to Apple and Amazon. Are they an afterthought 0:14:28.400 --> 0:14:31.120 from another time? And no? So you know we've talked 0:14:31.120 --> 0:14:33.680 about this in the past. Facebook and Google are more 0:14:33.680 --> 0:14:36.800 heavily owned, more visible. Yes, so those are those of 0:14:36.840 --> 0:14:40.200 the of the fangs or or the large cat make interesting. Yeah, 0:14:40.400 --> 0:14:42.680 the most heavily owned. And you know, the view there 0:14:42.760 --> 0:14:44.920 is that a lot of the antitrust action when it 0:14:45.000 --> 0:14:48.040 come to pass that. You know, if you look at 0:14:48.560 --> 0:14:51.160 cash flow growth as well as earnings growth over time, 0:14:51.480 --> 0:14:54.440 you get a very reasonable multiple. Um. You know, Amazon 0:14:54.520 --> 0:14:56.320 is probably the third in the list. There hasn't been 0:14:56.440 --> 0:14:59.080 really heavy ownership of Apple um and you know, I 0:14:59.160 --> 0:15:00.800 keep pointing out the act if you look at a 0:15:00.800 --> 0:15:03.080 guy like Seth Klarman, who's one of the greatest value 0:15:03.080 --> 0:15:05.360 investors that I think any of us have ever seen. 0:15:05.720 --> 0:15:07.560 You know, two of his largest ten equity names are 0:15:07.600 --> 0:15:10.160 Facebook and Google, which says a lot, right, and that 0:15:10.360 --> 0:15:12.800 it's very rare that you can have megacat tech stocks 0:15:12.920 --> 0:15:15.120 be viewed as value, which is sort of a reverse 0:15:15.160 --> 0:15:16.760 of the whole mindset of the market. You're an m 0:15:16.800 --> 0:15:19.720 I T engineer. Were you dazzled by our calculus earlier 0:15:19.760 --> 0:15:22.600 on the Carmen line and the difference between Brandson and Bezos. 0:15:22.680 --> 0:15:26.720 I'll tell you, honestly, I haven't focused on that in 0:15:26.760 --> 0:15:29.160 so long. It was like it was like a breath 0:15:29.160 --> 0:15:36.600 of fresh air. I'm trying to memorize the equation. So 0:15:37.040 --> 0:15:39.760 I'll tell you guys a funny story. My first engineering 0:15:39.760 --> 0:15:41.400 class I ever took it un I T was actually 0:15:41.400 --> 0:15:45.280 fluid mechanics, and it really blew my mind. You went 0:15:45.360 --> 0:15:48.800 from you know, math calculus to real engineering and it 0:15:48.880 --> 0:15:51.080 was like, oh my goodness, this is really really hard. 0:15:51.160 --> 0:15:55.880 So that that was the was your textbook, Serisan Zamanski Uh, 0:15:56.160 --> 0:15:58.560 it was not. I don't remember exactly who the authors were, 0:15:58.600 --> 0:16:03.680 but it was just tears. I won't even tell you 0:16:03.680 --> 0:16:05.440 what I got on my first test score because I'll 0:16:05.440 --> 0:16:07.600 never have you back on air again. But let me 0:16:07.680 --> 0:16:09.040 let me just tell you it wasn't an A. But 0:16:09.080 --> 0:16:12.120 I didn't finish you in the class, so I been 0:16:12.120 --> 0:16:17.040 white lone. It's good at you back in Troy. What 0:16:17.080 --> 0:16:20.800 we did in Alto Bumps look over here. Yeah, no, 0:16:20.840 --> 0:16:23.160 it's it's really great to be back here, and thanks 0:16:23.160 --> 0:16:29.200 for having me on. It's always chin a commercial break. 0:16:33.120 --> 0:16:36.280 Vincent Reinhardt joins us. He is Melan Investment Management, chief 0:16:36.280 --> 0:16:41.680 economist and macro strategist, but far more is encyclopedic on 0:16:41.720 --> 0:16:45.640 the research paths plural that we have taken over the 0:16:45.680 --> 0:16:48.680 many decades leading the research effort at the FED a 0:16:48.800 --> 0:16:51.600 number of years ago, Professor Reinert, thank you so much 0:16:52.160 --> 0:16:55.440 for joining us, vincent Reinhart. When you look at the 0:16:55.520 --> 0:17:01.920 Leaguard Powell Nexus, how are they attached right now? They 0:17:02.120 --> 0:17:07.160 share a love of ambiguity and of talking a lot. Uh, 0:17:07.200 --> 0:17:11.320 They'll take every platform they can, and right now they're 0:17:11.320 --> 0:17:16.600 both in the position of wanting to reassure markets that 0:17:16.680 --> 0:17:19.359 they are they know what they're doing. They have a 0:17:19.359 --> 0:17:23.800 new framework and they're putting that framework in place. For 0:17:24.040 --> 0:17:27.480 President le guard it's only a week old and that's 0:17:27.480 --> 0:17:29.920 why you see her UH and and pretty much all 0:17:29.960 --> 0:17:33.760 the ECB leadership have been been out and force over 0:17:33.800 --> 0:17:38.160 the weekend through this morning evince. The framework that they're 0:17:38.200 --> 0:17:41.919 putting in place will be tested by data. Does the 0:17:42.040 --> 0:17:49.560 framework collapse when the data moves against these central banks? Uh? 0:17:50.119 --> 0:17:52.439 It will be a test of whether they're willing to 0:17:52.480 --> 0:17:56.520 follow through with what they've said they have UH. The 0:17:56.600 --> 0:18:00.600 features the similarities between the AT in the e c 0:18:00.800 --> 0:18:04.400 B or two fold. Number One is they interpret their 0:18:05.000 --> 0:18:08.800 two percent inflation goal is symmetric. That's news for the ECB. 0:18:09.680 --> 0:18:13.879 And second, it's outcome based, not outlook based, i e. 0:18:14.400 --> 0:18:19.040 Wait until we actually see it happen before responding. Key difference. 0:18:19.440 --> 0:18:23.439 ECB hasn't gone fed like in saying the goal is 0:18:23.440 --> 0:18:28.760 an average inflation UH unspecified average. Two. And the one 0:18:28.840 --> 0:18:33.960 thing where they're most similar is their unspecific. Central bankers 0:18:34.040 --> 0:18:37.239 like to pitch a really big tent because that's how 0:18:37.240 --> 0:18:41.480 they can get their governing committees together, the FMC and 0:18:41.520 --> 0:18:46.160 the Government Council, and so they use ambiguous words. They 0:18:46.320 --> 0:18:50.080 don't they'll tolerate and overshoot. But how long an overshoot, 0:18:50.240 --> 0:18:52.680 how big an overshoot, we don't know. Well within the 0:18:52.760 --> 0:18:56.760 language is unambiguous. Concern about housing prices, the idea that 0:18:56.760 --> 0:18:58.879 we've seen a huge move in that on both sides 0:18:58.880 --> 0:19:01.240 of the Atlantic. We've seen this the Federal Reserve as 0:19:01.280 --> 0:19:04.159 well as from the e CPS. Christine Laguard, What do 0:19:04.200 --> 0:19:07.080 you expect, What measures do you expect from central bankers 0:19:07.080 --> 0:19:09.439 to try to tame housing prices or will they just 0:19:09.480 --> 0:19:12.199 say this is a necessary consequence to a policy that 0:19:12.280 --> 0:19:16.159 otherwise helps the economy. Well, here's an irony. The c 0:19:16.320 --> 0:19:20.359 B wants to add uh owner's equivalent rent into their 0:19:20.440 --> 0:19:23.439 price index because it makes it go up up higher, 0:19:23.560 --> 0:19:27.920 So they're actually welcoming that little extra kick to inflation 0:19:27.960 --> 0:19:31.800 to get closer to their goal. What can they do, Um, 0:19:31.960 --> 0:19:36.120 there's monetary policy and regulatory policy in the same building. 0:19:36.600 --> 0:19:40.960 Expect to see them to tighten up where they can 0:19:41.119 --> 0:19:46.040 in terms of supervisory restraint. If it's a it's a problem, 0:19:46.080 --> 0:19:49.879 it's a problem they would prefer to address from that 0:19:50.000 --> 0:19:55.560 side of the building right now, Um, They're overwhelming concern 0:19:55.840 --> 0:19:59.800 is a macro one the level of employment. UH, and 0:20:00.040 --> 0:20:03.359 therefore they're not going to adjust the setting a rate 0:20:04.040 --> 0:20:08.359 nor their balance sheet UH to worry about housing. Fed's 0:20:08.359 --> 0:20:11.160 got an opportunity when it does start the taper, though, 0:20:11.640 --> 0:20:16.119 because it could slow purchases of mortgage backed securities by 0:20:16.119 --> 0:20:18.879 by a quicker pace than it could do treasury securities. 0:20:18.920 --> 0:20:20.520 That would be a way to send the signal. And 0:20:20.560 --> 0:20:22.359 that's something that I know a number of FED officials 0:20:22.400 --> 0:20:25.000 have actually discussed, and people are wondering whether that will 0:20:25.040 --> 0:20:27.600 be where they start. I want to dig into one 0:20:27.640 --> 0:20:29.520 thing that you said, which is they know that they're 0:20:29.520 --> 0:20:32.400 pretty far away from their employment targets. And Tom asked 0:20:32.400 --> 0:20:35.639 the question earlier. Is the Federal Reserve trying to set 0:20:35.720 --> 0:20:39.480 social policy in some ways with its targets given the 0:20:39.480 --> 0:20:42.600 fact that it has such a multifaceted kind of definition 0:20:43.040 --> 0:20:47.399 of full employment. So I think that the reality is 0:20:47.440 --> 0:20:52.359 we're putting new new labels on old bottles. That's true 0:20:52.359 --> 0:20:55.840 both at the ECB and and in FED Reserved. ECB 0:20:56.280 --> 0:20:59.520 is going to adjust its and direct its policy toward 0:20:59.600 --> 0:21:03.399 climate change. Exactly tell me how you do that? UM? 0:21:03.440 --> 0:21:08.400 I think in this environment, share pal has actually been 0:21:08.440 --> 0:21:13.320 at the forefront of explaining what the central Bank has 0:21:13.359 --> 0:21:16.800 always done in a way to to reach more people. 0:21:17.000 --> 0:21:19.520 And the way you reach more people is you talk 0:21:19.600 --> 0:21:24.720 about their economic circumstance. You don't focus on on aggregates. 0:21:25.000 --> 0:21:29.280 Economists can be can can can get apart from the 0:21:29.359 --> 0:21:33.920 real world by focusing on concepts and numbers rather than 0:21:34.080 --> 0:21:36.560 people's plight and share Pal has done a good job 0:21:36.600 --> 0:21:39.960 of reorienting the focus, but it doesn't change what they're doing. 0:21:40.480 --> 0:21:43.440 It's this is brilliant and they're going to be tested. 0:21:43.480 --> 0:21:46.080 If we look at John Taylor at Stanford, if we 0:21:46.119 --> 0:21:49.200 look at Paul Krugman, it's it's cute wherever he's got 0:21:49.200 --> 0:21:52.919 a shingle out today. The Venn diagram of Taylor and 0:21:53.000 --> 0:21:57.200 Krugman does have a lot of overlap, but that overlap 0:21:57.359 --> 0:22:01.640