1 00:00:02,520 --> 00:00:13,760 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 2 00:00:13,800 --> 00:00:17,920 Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern 3 00:00:18,200 --> 00:00:22,000 Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business App. 4 00:00:22,320 --> 00:00:25,640 Speaker 1: Listen on demand wherever you get your podcasts, or watch 5 00:00:25,760 --> 00:00:27,000 Speaker 1: us live on YouTube. 6 00:00:27,240 --> 00:00:28,040 Speaker 2: Joining us right now. 7 00:00:28,120 --> 00:00:32,760 Speaker 3: Phil Corporeal is with JP Morgan as well. 8 00:00:33,159 --> 00:00:34,480 Speaker 2: Your midyear review. 9 00:00:34,800 --> 00:00:37,720 Speaker 3: You got to be coming out with fifty sixty seventy pages. 10 00:00:38,120 --> 00:00:41,920 Speaker 3: What's the paragraph that you most debated about? You get 11 00:00:41,920 --> 00:00:44,920 Speaker 3: twenty people in a room. What was that single paragraph 12 00:00:45,000 --> 00:00:49,440 Speaker 3: on page thirty two where there was JP Morgan collegial debate. 13 00:00:49,720 --> 00:00:51,959 Speaker 2: It had to be the federal reserve over the next 14 00:00:52,000 --> 00:00:54,360 Speaker 2: six to twelve months. I mean there's still a camp 15 00:00:54,840 --> 00:00:57,800 Speaker 2: for us that believe that it's a federal reserve that's 16 00:00:57,800 --> 00:00:59,280 Speaker 2: going to be on hold. And then there's still a 17 00:00:59,280 --> 00:01:01,680 Speaker 2: camp that believes that this inflation could be a little 18 00:01:01,680 --> 00:01:03,880 Speaker 2: bit stickier that would have to force them to move 19 00:01:03,880 --> 00:01:06,839 Speaker 2: and that has acid allocation implications. Tom. But I will 20 00:01:06,880 --> 00:01:11,440 Speaker 2: say there's been so much headline around how much is 21 00:01:11,680 --> 00:01:13,960 Speaker 2: their price to move? Nine of the eighteen last week 22 00:01:14,000 --> 00:01:17,280 Speaker 2: believe that they should be moving rates higher. I keep 23 00:01:17,360 --> 00:01:20,759 Speaker 2: going back though, to the fact that this market, via 24 00:01:20,840 --> 00:01:22,560 Speaker 2: the ten year note, which I think is the most 25 00:01:22,600 --> 00:01:25,399 Speaker 2: important rate on the whole Yell curve, has given the 26 00:01:25,440 --> 00:01:28,679 Speaker 2: Federal Reserve a vote of confidence in terms of them 27 00:01:28,840 --> 00:01:32,000 Speaker 2: achieving their price stability mandate. The ten year Treasury rate 28 00:01:32,040 --> 00:01:35,200 Speaker 2: today right now is lower than where they came out 29 00:01:35,319 --> 00:01:38,640 Speaker 2: on last Wednesday when they were supposedly hawkish. Now they 30 00:01:38,640 --> 00:01:40,720 Speaker 2: moved the che year note up, for sure, but again 31 00:01:40,760 --> 00:01:42,720 Speaker 2: I think the ten year note is the most important 32 00:01:43,040 --> 00:01:45,679 Speaker 2: rate on the curve, and then the volatility of that rate, 33 00:01:46,400 --> 00:01:49,680 Speaker 2: the move index is back to where we were before 34 00:01:49,800 --> 00:01:53,440 Speaker 2: r N. And if you think about capital market activity, confidence, 35 00:01:53,840 --> 00:01:57,440 Speaker 2: even the housing market, low volatility on the ten year note, 36 00:01:57,480 --> 00:01:59,600 Speaker 2: I think is a really good backdrop for taking risk. 37 00:02:00,600 --> 00:02:03,080 Speaker 4: Bulls out there will suggest that we've seen peak great 38 00:02:03,680 --> 00:02:04,360 Speaker 4: peak inflation. 39 00:02:04,560 --> 00:02:06,960 Speaker 2: Yes, are you in that camp? We are, so, we 40 00:02:07,000 --> 00:02:11,560 Speaker 2: believe primarily from the fact that we sit here today 41 00:02:11,919 --> 00:02:14,800 Speaker 2: on June twenty third, and oil prices are around seventy 42 00:02:14,800 --> 00:02:16,760 Speaker 2: five dollars, and they got as high as one hundred. 43 00:02:17,080 --> 00:02:19,160 Speaker 2: Gas prices were up at four dollars and fifty cents. 44 00:02:19,160 --> 00:02:21,520 Speaker 2: They're now down at about three dollars and ninety cents. 45 00:02:21,720 --> 00:02:24,440 Speaker 2: So that move alone, Paul, leads us to believe that 46 00:02:24,480 --> 00:02:25,200 Speaker 2: we saw a peak. 47 00:02:25,320 --> 00:02:25,480 Speaker 5: Now. 48 00:02:25,520 --> 00:02:28,560 Speaker 2: Could there be some stickiness in service sector inflation? Sure, 49 00:02:28,600 --> 00:02:30,600 Speaker 2: I mean that's why the Federal Reserve is an easing 50 00:02:30,680 --> 00:02:33,760 Speaker 2: policy like they thought they were three months ago. But 51 00:02:33,880 --> 00:02:37,760 Speaker 2: I think that's okay. Service sector inflation is okay if 52 00:02:37,800 --> 00:02:41,240 Speaker 2: it's emblematic of a resilient consumer. And Paul, as you know, 53 00:02:41,280 --> 00:02:43,400 Speaker 2: the US consumer is the most important thing to get right. 54 00:02:43,440 --> 00:02:45,200 Speaker 2: If you can get the US consumer right, you can 55 00:02:45,240 --> 00:02:46,799 Speaker 2: get all of your acid allocation right. 56 00:02:46,960 --> 00:02:49,120 Speaker 4: Just filled up the VESTPA over the weekend three dollars 57 00:02:49,200 --> 00:02:52,400 Speaker 4: and eighty seven cents for both gallons two gallon. 58 00:02:52,960 --> 00:02:54,880 Speaker 3: That's going to take me for the rest of the summer. 59 00:02:57,320 --> 00:03:00,960 Speaker 4: Exactly. So what are we doing here as to maybe 60 00:03:01,200 --> 00:03:03,320 Speaker 4: kind of asset allocation here as we think back that, 61 00:03:03,400 --> 00:03:05,040 Speaker 4: you know, the back half of the year here. 62 00:03:05,120 --> 00:03:07,640 Speaker 2: Yeah, So, Paul, we still believe in the AI trade 63 00:03:07,720 --> 00:03:10,800 Speaker 2: irrespective of what's happening in places like Korea overnight. I 64 00:03:10,880 --> 00:03:14,120 Speaker 2: keep going back to that stat that there's a thirty 65 00:03:14,160 --> 00:03:18,000 Speaker 2: percent increase in the supply for semiconductor chips and a 66 00:03:18,040 --> 00:03:21,320 Speaker 2: seventy percent increase in the demand, Right, that's economics one. 67 00:03:21,520 --> 00:03:24,680 Speaker 2: One that those earnings we think are sustainable. But at 68 00:03:24,720 --> 00:03:26,840 Speaker 2: the same time, one of the things that's becoming front 69 00:03:26,880 --> 00:03:29,639 Speaker 2: and center is a sector that's actually negative year to date, 70 00:03:30,040 --> 00:03:33,600 Speaker 2: that little sector called financials. So financials for US, three 71 00:03:33,639 --> 00:03:35,440 Speaker 2: things really point us that way in terms of the 72 00:03:35,480 --> 00:03:39,200 Speaker 2: acid allocation and the rotation. The first an inflection and earnings. 73 00:03:39,880 --> 00:03:44,320 Speaker 2: Second is a buyback and a dividend story that looks 74 00:03:44,360 --> 00:03:46,640 Speaker 2: really unique. And then the third goes back to the consumers. 75 00:03:46,680 --> 00:03:50,800 Speaker 2: I just mentioned loan growth and if we're putting geopolitics 76 00:03:50,840 --> 00:03:53,360 Speaker 2: in the rear view mirror, okay, that's one of the 77 00:03:53,400 --> 00:03:56,480 Speaker 2: assumptions we have to make here. That then gives you know, 78 00:03:56,480 --> 00:03:57,320 Speaker 2: that long world story. 79 00:03:57,400 --> 00:04:02,040 Speaker 3: So Gale and Greenspan nineteen seventies. Loan growth, how is 80 00:04:02,080 --> 00:04:02,480 Speaker 3: long growth? 81 00:04:02,560 --> 00:04:07,640 Speaker 2: Yeah, so in terms of what the growth the overall economy. 82 00:04:07,840 --> 00:04:11,440 Speaker 3: I mean, it's such an old school thing to say, 83 00:04:11,880 --> 00:04:13,960 Speaker 3: is there demand for loans? 84 00:04:14,440 --> 00:04:16,320 Speaker 2: Yeah, so that we think that there is going to 85 00:04:16,400 --> 00:04:21,760 Speaker 2: be incremental demand for loans because the US consumer stays afloat. 86 00:04:21,839 --> 00:04:24,480 Speaker 2: That's what it comes down to. So if they're demanding that, 87 00:04:24,680 --> 00:04:26,560 Speaker 2: and again this goes back to the tenure. Note this 88 00:04:26,600 --> 00:04:29,960 Speaker 2: goes back to the volatility of rates. Capital markets activity 89 00:04:30,160 --> 00:04:34,560 Speaker 2: happens when people aren't nervous about moves higher and rates. So, Tom, 90 00:04:34,600 --> 00:04:38,359 Speaker 2: if we're of the view peak rates, peak inflation in 91 00:04:38,400 --> 00:04:40,839 Speaker 2: the second quarter, and that means you can see some 92 00:04:40,880 --> 00:04:42,760 Speaker 2: incremental loan growth into the back half of the year 93 00:04:42,800 --> 00:04:46,279 Speaker 2: in a sector that again is negative year to day. 94 00:04:46,520 --> 00:04:49,479 Speaker 2: So that's the relative value opportunity Tom, that we're looking for. 95 00:04:49,920 --> 00:04:51,520 Speaker 4: What are we doing in a fixed income market here? 96 00:04:51,560 --> 00:04:53,120 Speaker 4: I just sit in a two year and get four 97 00:04:53,200 --> 00:04:55,960 Speaker 4: spot two on a two year treasury? I mean, do 98 00:04:56,040 --> 00:04:57,960 Speaker 4: I take credit risk. 99 00:04:57,839 --> 00:05:01,160 Speaker 2: Above and beyond that? Yeah, So that's a really good question. 100 00:05:02,560 --> 00:05:04,800 Speaker 2: We think that the ten you note probably settles at 101 00:05:04,800 --> 00:05:06,200 Speaker 2: the end of the year around four and a half 102 00:05:06,279 --> 00:05:08,400 Speaker 2: to four point six percent, So basically where we are 103 00:05:08,720 --> 00:05:11,560 Speaker 2: where we are today. The real problem for me is 104 00:05:11,640 --> 00:05:15,680 Speaker 2: people believing that they're getting the risk free rate, the 105 00:05:15,680 --> 00:05:17,960 Speaker 2: federal funds rate in their checking account savings, got some 106 00:05:18,000 --> 00:05:22,839 Speaker 2: money market funds, Paul. The average yield on checking savings 107 00:05:22,880 --> 00:05:26,240 Speaker 2: and money markets in this country is fifty two basis 108 00:05:26,360 --> 00:05:29,320 Speaker 2: prides right, fifty two bases much you could throw a 109 00:05:29,440 --> 00:05:32,000 Speaker 2: dart at any asset class this year and beat fifty 110 00:05:32,040 --> 00:05:34,680 Speaker 2: two basis points, so within fixed income. Again, if we 111 00:05:35,279 --> 00:05:37,320 Speaker 2: saw peak rates, if we saw peak inflation in the 112 00:05:37,360 --> 00:05:41,440 Speaker 2: second quarter, extending out of cash into anything you mentioned 113 00:05:41,480 --> 00:05:44,440 Speaker 2: the two year and old. Okay, even even short duration 114 00:05:45,040 --> 00:05:45,920 Speaker 2: credit makes sense. 115 00:05:46,080 --> 00:05:48,440 Speaker 3: I'm looking at Cathay Pacific, just out, folks. This is 116 00:05:48,480 --> 00:05:51,640 Speaker 3: the giant Hong Kong. I had a huge affiliation with 117 00:05:51,720 --> 00:05:53,960 Speaker 3: him years ago when I used to go there all 118 00:05:54,000 --> 00:05:57,920 Speaker 3: the time. Paul Cathay Pacific to cut fuel search charges 119 00:05:58,040 --> 00:06:03,479 Speaker 3: for flights July Rar, I mean the micro data where 120 00:06:03,520 --> 00:06:06,960 Speaker 3: this keeps going. And to me, Phil, it's a calendar item. 121 00:06:07,000 --> 00:06:10,479 Speaker 3: We mentioned this with Robert Teeter. I'm sorry, nine days 122 00:06:10,520 --> 00:06:14,000 Speaker 3: before the end of every single quarter. Everybody has a 123 00:06:14,040 --> 00:06:18,040 Speaker 3: Bart Simpson cow about earnings and revenues. It's not if 124 00:06:18,080 --> 00:06:21,840 Speaker 3: a sophisticated but it's a calendar item. OMG, We're all 125 00:06:21,880 --> 00:06:23,880 Speaker 3: gonna die. That's the basic idea. 126 00:06:24,400 --> 00:06:27,640 Speaker 2: Yeah, so that's that's one hundred percent the case. By 127 00:06:27,640 --> 00:06:31,040 Speaker 2: the way, speaking of earnings, Tom, six straight quarter of 128 00:06:31,040 --> 00:06:33,440 Speaker 2: double digit earnings. Yeah, it's like the opposite of the 129 00:06:33,760 --> 00:06:38,240 Speaker 2: model again that going forward we do have doubleged earnings 130 00:06:38,240 --> 00:06:41,520 Speaker 2: growth into twenty seven, but six straight quarters we're not modeling. 131 00:06:41,600 --> 00:06:43,640 Speaker 2: We're not modeling that, Tom, but it's kind of the 132 00:06:43,680 --> 00:06:45,520 Speaker 2: opposite of a bubble. Like if I just look at 133 00:06:45,560 --> 00:06:49,080 Speaker 2: the S and P five hundred pe ratio, it's lower 134 00:06:49,080 --> 00:06:52,760 Speaker 2: today than where we were coming into the year. Earnings 135 00:06:52,800 --> 00:06:56,280 Speaker 2: have completely dominated the total return on both the index 136 00:06:56,400 --> 00:06:59,080 Speaker 2: level as well as the information technology level. So it's 137 00:06:59,120 --> 00:07:02,839 Speaker 2: pretty nice fundamental story combined with the evaluation Sloy. We 138 00:07:02,920 --> 00:07:04,960 Speaker 2: have to match those two things up to be bullsh 139 00:07:04,960 --> 00:07:05,440 Speaker 2: on the market. 140 00:07:05,480 --> 00:07:09,720 Speaker 3: Sill Cam Pouriel, Chief Investor Strategy is GP Morgan Wealth 141 00:07:10,080 --> 00:07:14,520 Speaker 3: the Management. Stay with us. More from Bloomberg Surveillance coming 142 00:07:14,600 --> 00:07:15,600 Speaker 3: up after this. 143 00:07:22,840 --> 00:07:26,440 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 144 00:07:26,480 --> 00:07:29,640 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 145 00:07:29,720 --> 00:07:33,400 Speaker 1: Applecarplay and Android Otto with the Bloomberg Business app, or 146 00:07:33,560 --> 00:07:35,040 Speaker 1: watch us live on YouTube. 147 00:07:35,240 --> 00:07:38,640 Speaker 3: Shuning so Ellen Fraser a partner and energy expert burringa 148 00:07:38,720 --> 00:07:43,080 Speaker 3: partners out of the United Kingdom. Ellen, can you just 149 00:07:43,120 --> 00:07:47,520 Speaker 3: say simply we remove the peak and petroleum prices and 150 00:07:47,560 --> 00:07:50,360 Speaker 3: we have a new regime now of getting back to normal. 151 00:07:52,280 --> 00:07:52,920 Speaker 2: Yeah, soundy? 152 00:07:53,080 --> 00:07:55,320 Speaker 6: That would be the hope. I think there is so 153 00:07:55,440 --> 00:07:59,680 Speaker 6: much economic and political pressure to make sure from all sides, frankly, 154 00:07:59,840 --> 00:08:03,080 Speaker 6: that Straight stays open and all of the trade flows 155 00:08:03,080 --> 00:08:06,240 Speaker 6: get back to normal. Certainly, the markets are pricing in 156 00:08:06,280 --> 00:08:09,720 Speaker 6: an expectation that we're getting back to some level of normal. 157 00:08:10,240 --> 00:08:12,840 Speaker 6: Let's be real about it. There's quite a rocky road ahead. 158 00:08:12,880 --> 00:08:14,640 Speaker 6: We've seen that in the last couple of weeks. We've 159 00:08:14,640 --> 00:08:16,960 Speaker 6: seen that, you know, persistently over the last few months 160 00:08:16,960 --> 00:08:20,200 Speaker 6: around a deal or no deal, straight open or straight not. 161 00:08:21,320 --> 00:08:23,440 Speaker 6: And it's really, you know, really critical that we get 162 00:08:23,440 --> 00:08:26,400 Speaker 6: back to reliable flows given where stock levels are more 163 00:08:26,400 --> 00:08:29,400 Speaker 6: generally but trending in the right direction, I think, is 164 00:08:29,480 --> 00:08:30,760 Speaker 6: the overall summary. 165 00:08:31,040 --> 00:08:33,960 Speaker 4: Ellen, what do we know about damage done to some 166 00:08:34,000 --> 00:08:35,880 Speaker 4: of the energy infrastructure in that part. 167 00:08:35,760 --> 00:08:36,200 Speaker 5: Of the world. 168 00:08:37,400 --> 00:08:41,360 Speaker 6: Yeah, the energy infrastructure damage was quite early on in 169 00:08:41,400 --> 00:08:44,920 Speaker 6: the conflict, so we saw ras Laffan taking a hit, 170 00:08:45,960 --> 00:08:48,840 Speaker 6: we saw some other facilities taking the hit even actually 171 00:08:48,880 --> 00:08:51,679 Speaker 6: the Sidi pipeline took a hit at one point as well, 172 00:08:51,720 --> 00:08:55,040 Speaker 6: and that Sidi pipeline being quite important because it's the 173 00:08:55,080 --> 00:08:57,480 Speaker 6: one of the key routes out of the Strait should 174 00:08:57,480 --> 00:09:01,200 Speaker 6: they actual straight be closed. It's an overlandpe line into 175 00:09:01,280 --> 00:09:03,440 Speaker 6: the Red Sea, so it offers a bit of an 176 00:09:03,440 --> 00:09:07,520 Speaker 6: alternative flow. Some of those areas of damage will be 177 00:09:07,600 --> 00:09:11,120 Speaker 6: relatively easy to get restored, and there will have been 178 00:09:11,200 --> 00:09:14,959 Speaker 6: activity on that already some of them. However, and certainly 179 00:09:15,040 --> 00:09:19,000 Speaker 6: you know that the Razlafan timings they quoted when it 180 00:09:19,040 --> 00:09:21,840 Speaker 6: first happened three to five years to get that facility 181 00:09:21,920 --> 00:09:25,240 Speaker 6: back up and running. Now every bit of pressure, economic 182 00:09:25,280 --> 00:09:28,240 Speaker 6: pressure and political pressure will be on them to get 183 00:09:28,240 --> 00:09:31,400 Speaker 6: that up and running more quickly, So that three to 184 00:09:31,480 --> 00:09:33,960 Speaker 6: five year timeline is probably worst case scenario. But there's 185 00:09:34,000 --> 00:09:38,160 Speaker 6: absolutely no doubt there has been some structural damage and 186 00:09:38,200 --> 00:09:40,360 Speaker 6: that will take time to get back to normal. 187 00:09:40,600 --> 00:09:44,480 Speaker 3: Well than all your knowledge found in physics at Manchester, Alan, 188 00:09:44,520 --> 00:09:48,320 Speaker 3: can you say that we underestimate their ability to rebuild 189 00:09:48,440 --> 00:09:51,840 Speaker 3: and heal and frankly to do new projects as well. 190 00:09:52,160 --> 00:09:56,360 Speaker 3: I mean, basically the history of these people is so 191 00:09:56,520 --> 00:09:58,920 Speaker 3: they have to build something, they get it done, don't they. 192 00:10:00,200 --> 00:10:04,600 Speaker 6: That's exactly right. You know, a very very resourceful set 193 00:10:04,600 --> 00:10:08,640 Speaker 6: of nations over there, and frankly, they have significant assets 194 00:10:08,720 --> 00:10:11,920 Speaker 6: behind them, and they have significant incentives to get that 195 00:10:11,960 --> 00:10:14,640 Speaker 6: oil back on the water, get the gas back on 196 00:10:14,679 --> 00:10:16,880 Speaker 6: the water, and all of the other products that have 197 00:10:16,920 --> 00:10:20,440 Speaker 6: been impacted as well, and they can pour resource into it, 198 00:10:20,520 --> 00:10:23,760 Speaker 6: and they're happy to buy resource from elsewhere as well. 199 00:10:23,800 --> 00:10:25,760 Speaker 6: We've seen that, you know, even just simple things like 200 00:10:25,840 --> 00:10:28,480 Speaker 6: the World Cup, the amount of effort that went into 201 00:10:28,520 --> 00:10:33,240 Speaker 6: building the infrastructure in very short timelines, sometimes with some 202 00:10:33,280 --> 00:10:36,040 Speaker 6: negative consequences in terms of human rights, etc. But you 203 00:10:36,040 --> 00:10:38,840 Speaker 6: know they will get it done, you know, at quite 204 00:10:38,880 --> 00:10:39,920 Speaker 6: an interesting pace. 205 00:10:40,160 --> 00:10:42,440 Speaker 3: Ellen, Thank you for the brief. Alan Fraser with us 206 00:10:42,440 --> 00:10:46,199 Speaker 3: from Brewing of Partners. Stay with us. More from Bloomberg 207 00:10:46,320 --> 00:10:48,319 Speaker 3: Surveillance coming up after this. 208 00:10:55,600 --> 00:10:59,160 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live 209 00:10:59,240 --> 00:11:02,400 Speaker 1: weekday afternoon from seven to ten am Eastern Listen on 210 00:11:02,480 --> 00:11:05,880 Speaker 1: Apple Karplay and Android Otto with the Bloomberg Business app, 211 00:11:06,040 --> 00:11:07,640 Speaker 1: or watch us live on YouTube. 212 00:11:07,760 --> 00:11:12,160 Speaker 3: We now commence a three hour interview. Gary Gensler joins 213 00:11:12,200 --> 00:11:15,160 Speaker 3: us now. He's a former chairman of the Securities Exchange Commission, 214 00:11:15,559 --> 00:11:18,800 Speaker 3: a modest tenure of duty at the Gulben Sachs as 215 00:11:18,800 --> 00:11:24,239 Speaker 3: well and critically long ago and far away writing legislation 216 00:11:24,440 --> 00:11:30,160 Speaker 3: sarbains Oxley is well well well over twenty years ago. Gary, 217 00:11:30,240 --> 00:11:32,800 Speaker 3: I've been dying to talk to you. I read all 218 00:11:32,840 --> 00:11:38,040 Speaker 3: the wonderful comments on this life of Alan Greenspan, and 219 00:11:38,200 --> 00:11:43,400 Speaker 3: I get the criticism about interest rate dynamics in two 220 00:11:43,400 --> 00:11:46,280 Speaker 3: thousand and five, two thousand and six and that, But 221 00:11:46,320 --> 00:11:47,720 Speaker 3: I'm going to go to a guy that you have 222 00:11:47,760 --> 00:11:52,000 Speaker 3: a nodding acquaintance with, one S. Johnson up at MIT. 223 00:11:52,559 --> 00:11:55,760 Speaker 3: I've quoted this many times, folks, Simon Johnson and his 224 00:11:55,880 --> 00:12:02,559 Speaker 3: magisterial thirteen Bankers the SEC not Gainst's sec Final Rule 225 00:12:02,720 --> 00:12:07,160 Speaker 3: Alternative net capital requirements for broker dealers that are part 226 00:12:07,200 --> 00:12:12,320 Speaker 3: of consolidated supervised Entities August twenty, two thousand and four. 227 00:12:12,840 --> 00:12:16,480 Speaker 3: Gary Gensler. We can criticize Chairman Greenspan, but he had 228 00:12:16,520 --> 00:12:19,240 Speaker 3: a lot of help in screwing us up into the 229 00:12:19,240 --> 00:12:20,640 Speaker 3: financial crisis, didn't he. 230 00:12:22,000 --> 00:12:25,200 Speaker 7: Well, there was a broad miss I don't know how 231 00:12:25,240 --> 00:12:30,080 Speaker 7: else to say it. Policymakers across the spectrum and the 232 00:12:30,120 --> 00:12:34,320 Speaker 7: American public paid the price, and we exported by the 233 00:12:34,320 --> 00:12:38,200 Speaker 7: way that crisis around the globe. But in terms of 234 00:12:38,320 --> 00:12:42,480 Speaker 7: Allen himself, I worked with them closely in the late 235 00:12:42,600 --> 00:12:46,080 Speaker 7: nineteen nineties. Actually met Allen in the nineteen eighties at 236 00:12:46,080 --> 00:12:51,120 Speaker 7: a wonderful dinner at Larry and Billy Tish's house in 237 00:12:51,160 --> 00:12:55,880 Speaker 7: the mid nineteen eighties, and Alan was a dedicated economist, 238 00:12:55,960 --> 00:13:01,600 Speaker 7: a dedicated public servant, and looked none of us get 239 00:13:02,040 --> 00:13:06,559 Speaker 7: everything right. And yes, in those key years going into 240 00:13:06,600 --> 00:13:10,040 Speaker 7: that OA crisis, there was too much leverage being built 241 00:13:10,120 --> 00:13:14,840 Speaker 7: up in the housing market, too much leverage being built 242 00:13:14,920 --> 00:13:16,480 Speaker 7: up in the financial markets. 243 00:13:16,679 --> 00:13:19,200 Speaker 3: One final question in Sherman green Smith, just is Paul 244 00:13:19,240 --> 00:13:23,040 Speaker 3: and I feel the news flow right now. Gary Gensler 245 00:13:23,120 --> 00:13:27,319 Speaker 3: is just so important. He was in my estimated market economist. 246 00:13:27,360 --> 00:13:30,840 Speaker 3: I love what Greg Yips said, more accountant than theorists. 247 00:13:31,240 --> 00:13:35,720 Speaker 3: Do we need more central bankers steeped in trucking data 248 00:13:35,800 --> 00:13:39,400 Speaker 3: in Nebraska? I mean, do we need a more of 249 00:13:39,440 --> 00:13:44,400 Speaker 3: a tinge of Alan Greenspan in our future economist types? 250 00:13:45,240 --> 00:13:47,320 Speaker 7: Well, I'll tell you the other thing about Alan, having 251 00:13:47,360 --> 00:13:50,800 Speaker 7: worked closely with him for three or four years, maybe 252 00:13:50,840 --> 00:13:54,640 Speaker 7: not as closely as others. He also was really steeped 253 00:13:54,679 --> 00:13:57,760 Speaker 7: in the financial market. So there's all sorts of different 254 00:13:57,760 --> 00:13:58,880 Speaker 7: types of economists. 255 00:13:58,920 --> 00:14:01,800 Speaker 8: And we've had leaders of the Federal Reserve that were lawyers. 256 00:14:01,840 --> 00:14:04,840 Speaker 7: We've had leaders of the Federal Reserve that have come 257 00:14:04,880 --> 00:14:09,520 Speaker 7: from all sorts of places. William McChesney Martin famously, from 258 00:14:09,520 --> 00:14:11,760 Speaker 7: the nineteen fifties and sixties had run the New York 259 00:14:11,760 --> 00:14:17,079 Speaker 7: Stock Exchange. Alan understood markets. He was a young guy. 260 00:14:17,240 --> 00:14:21,400 Speaker 7: He used to trade futures in the old Chicago Mercantil 261 00:14:21,480 --> 00:14:25,320 Speaker 7: type of futures markets. And I remember conversations with Alan 262 00:14:25,360 --> 00:14:28,360 Speaker 7: about futures in the nineteen nineties, and then when I 263 00:14:28,400 --> 00:14:31,480 Speaker 7: took the role at the Commodity Futures Trading Commission, Allan 264 00:14:31,480 --> 00:14:33,920 Speaker 7: and I would sometimes get on the phone and he said, well, 265 00:14:33,920 --> 00:14:36,120 Speaker 7: this is how futures markets really work, and this is 266 00:14:36,160 --> 00:14:39,560 Speaker 7: how energy markets and he'd beg into the backwardization of 267 00:14:39,600 --> 00:14:43,120 Speaker 7: the markets. That was remarkable about Alan. I think he 268 00:14:43,200 --> 00:14:46,840 Speaker 7: had a sense of financial markets. He had too much 269 00:14:46,880 --> 00:14:51,000 Speaker 7: of a trust, though in them to right themselves when 270 00:14:51,000 --> 00:14:54,400 Speaker 7: they were in balances, and there were big imbalances he 271 00:14:54,600 --> 00:14:59,400 Speaker 7: navigated during the Internet enthusiasm, but he didn't quite navigate 272 00:14:59,440 --> 00:15:00,640 Speaker 7: that on the house markets. 273 00:15:00,760 --> 00:15:03,880 Speaker 3: Paul Sweeney, you get lucky. You have Gary Genslron and 274 00:15:04,040 --> 00:15:09,600 Speaker 3: moments ago across the Bloomberg is a five trunch SpaceX benchmark, 275 00:15:09,680 --> 00:15:11,680 Speaker 3: dead offering right, perfect timing. 276 00:15:12,240 --> 00:15:14,960 Speaker 4: Gary, We're at a time here in the markets here 277 00:15:14,960 --> 00:15:20,040 Speaker 4: where we're getting just these mega IPOs SpaceX, you know, 278 00:15:20,080 --> 00:15:23,600 Speaker 4: they went public, and we've got Anthropic and Open Aiet's 279 00:15:23,560 --> 00:15:25,720 Speaker 4: send a signal to you and to others about where 280 00:15:25,760 --> 00:15:26,880 Speaker 4: we are in this market cycle. 281 00:15:27,640 --> 00:15:30,960 Speaker 7: Well, I think so you used the word signal. I 282 00:15:31,080 --> 00:15:34,960 Speaker 7: use the word Tell Simon Johnson, who you mentioned earlier. 283 00:15:35,560 --> 00:15:37,520 Speaker 7: He and I do this podcast and we just put 284 00:15:37,560 --> 00:15:40,240 Speaker 7: one out on the mega IPOs just this morning on 285 00:15:40,320 --> 00:15:44,840 Speaker 7: power and consequences. And I think the overall equity markets, 286 00:15:45,520 --> 00:15:49,360 Speaker 7: like Alan kreen Spence nineteen nineties, equity markets is funding 287 00:15:49,400 --> 00:15:53,920 Speaker 7: this big burst of infrastructure built in AI seven hundred 288 00:15:53,920 --> 00:15:57,600 Speaker 7: and fifty billion dollars this year, up threefold in just 289 00:15:57,640 --> 00:16:00,240 Speaker 7: two years. And to scale that, that's about two and 290 00:16:00,320 --> 00:16:03,400 Speaker 7: a half percent of our gross domestic product. And so 291 00:16:03,560 --> 00:16:07,200 Speaker 7: then you have like Space Echo public and maybe Anthropic 292 00:16:07,240 --> 00:16:07,960 Speaker 7: and Open AI. 293 00:16:08,120 --> 00:16:09,040 Speaker 8: We'll see. 294 00:16:09,440 --> 00:16:12,880 Speaker 7: I think that's somewhat of a tel Google raising eighty 295 00:16:12,920 --> 00:16:17,840 Speaker 7: five billion, and the markets have to digest this, and 296 00:16:17,880 --> 00:16:20,640 Speaker 7: then there's valuation questions. You know, I at one hundred 297 00:16:20,640 --> 00:16:25,480 Speaker 7: and one hundred and forty times revenues without earnings. So 298 00:16:26,800 --> 00:16:29,160 Speaker 7: this will all sort out, but it also might be 299 00:16:30,640 --> 00:16:32,760 Speaker 7: six months from now we look back. It was fine, 300 00:16:33,080 --> 00:16:36,000 Speaker 7: but there's an equal and better chance that six months 301 00:16:36,040 --> 00:16:38,800 Speaker 7: from now we look back, we say, as all those 302 00:16:38,880 --> 00:16:42,440 Speaker 7: venture capitalists and sovereign wealth funds starts selling those shares, 303 00:16:42,880 --> 00:16:46,880 Speaker 7: that you see a downward pressure on the not just SpaceX, 304 00:16:46,920 --> 00:16:47,880 Speaker 7: but the whole market. 305 00:16:48,560 --> 00:16:50,840 Speaker 4: You're up there at MIT, Gary, and as I understand, 306 00:16:50,840 --> 00:16:53,760 Speaker 4: there's some pretty good engineers and computer geeks up there 307 00:16:53,800 --> 00:16:56,880 Speaker 4: as well. What is kind of your understanding? What's the 308 00:16:56,920 --> 00:17:00,240 Speaker 4: understanding up there at MIT just about AI today? Because 309 00:17:00,280 --> 00:17:03,240 Speaker 4: initially we in the marketplace, we just said, let's just 310 00:17:03,280 --> 00:17:06,960 Speaker 4: buy the chips, but there's more to it than that. 311 00:17:07,200 --> 00:17:09,840 Speaker 4: Market seems to be trying to discern some winners and losers. 312 00:17:09,960 --> 00:17:11,080 Speaker 4: How do you guys think about that? 313 00:17:12,359 --> 00:17:16,560 Speaker 7: Look, there's thousands of remarkable research scientists and faculty here, 314 00:17:16,600 --> 00:17:17,720 Speaker 7: so I can speak for. 315 00:17:17,800 --> 00:17:21,600 Speaker 8: Just maybe myself, and I think. 316 00:17:22,160 --> 00:17:26,600 Speaker 7: AI is the most transformative technology of our times. But 317 00:17:26,680 --> 00:17:30,399 Speaker 7: we've had this before. If you go back over the 318 00:17:30,480 --> 00:17:33,159 Speaker 7: last two hundred years from canals to the Internet to 319 00:17:33,240 --> 00:17:36,840 Speaker 7: this and what happens, and Ray Dalio talks about this too. 320 00:17:36,960 --> 00:17:42,600 Speaker 7: We get an over enthusiastic financial market support, and then 321 00:17:42,640 --> 00:17:45,639 Speaker 7: at some point we build so much infrastructure we have 322 00:17:45,760 --> 00:17:49,680 Speaker 7: a reckoning and I think that's what you learn from history, 323 00:17:49,760 --> 00:17:52,240 Speaker 7: is that we tend to have reckonings. Now, is it 324 00:17:52,240 --> 00:17:55,960 Speaker 7: a calamitous reckoning like with railroads in the eighteen seventies 325 00:17:55,960 --> 00:18:00,520 Speaker 7: where we had disastrous recessions? Is the reckoning like after 326 00:18:00,560 --> 00:18:03,960 Speaker 7: the nineteen twenties we had a big boom on. 327 00:18:04,119 --> 00:18:06,400 Speaker 8: Electrification mostly in utilities. 328 00:18:07,000 --> 00:18:08,639 Speaker 7: Or is it like the Internet where you have a 329 00:18:08,680 --> 00:18:14,280 Speaker 7: modest reckoning, still a recession. And that's so AI is transformative. 330 00:18:14,359 --> 00:18:15,960 Speaker 8: One last thing, Paul, I think of. 331 00:18:15,920 --> 00:18:18,240 Speaker 7: It a little bit like a parlay bat. You know 332 00:18:18,480 --> 00:18:20,800 Speaker 7: those the prediction markets. You have to have two things. 333 00:18:21,040 --> 00:18:25,600 Speaker 7: You have to have AI hyperscalers and open AI be 334 00:18:25,680 --> 00:18:28,439 Speaker 7: able to build the revenues. Right now they don't have 335 00:18:28,520 --> 00:18:32,280 Speaker 7: the revenues. And two, you need to build productivity in 336 00:18:32,320 --> 00:18:37,480 Speaker 7: the economy enough for the capital markets to overlook all 337 00:18:37,520 --> 00:18:40,240 Speaker 7: the disruption, all the companies that are going to be 338 00:18:40,359 --> 00:18:43,200 Speaker 7: disrupting value with a successful AI. 339 00:18:43,600 --> 00:18:46,159 Speaker 3: We continue with Gary against the former chairman of the 340 00:18:46,240 --> 00:18:50,320 Speaker 3: Securities Exchange Commission as commitment to Sloan, where he's won 341 00:18:50,400 --> 00:18:52,640 Speaker 3: a couple like student trophies. Is that right, I didn't 342 00:18:52,680 --> 00:18:54,960 Speaker 3: fall asleep in his class trophy. 343 00:18:54,800 --> 00:18:57,520 Speaker 8: Doesn't wonderful. Tom, You're two kind. 344 00:18:57,800 --> 00:19:00,680 Speaker 3: He does a wonderful podcast as Simon Johnson. I want 345 00:19:00,680 --> 00:19:02,320 Speaker 3: to go two questions here very quickly. 346 00:19:02,960 --> 00:19:04,000 Speaker 2: A lot of people. 347 00:19:03,800 --> 00:19:06,719 Speaker 3: Went retail on bitcoin and they enjoyed buying it one 348 00:19:06,800 --> 00:19:09,240 Speaker 3: hundred or one hundred and ten. What do you say 349 00:19:09,280 --> 00:19:12,320 Speaker 3: to the retail crew that have losses in bitcoin? 350 00:19:14,480 --> 00:19:19,119 Speaker 7: Look, markets both trade on sentiment and fundamentals, and the 351 00:19:19,359 --> 00:19:22,600 Speaker 7: challenge for those purchasers who are is what are the 352 00:19:22,600 --> 00:19:26,520 Speaker 7: fundamentals we were just talking about that is with SpaceX. 353 00:19:26,560 --> 00:19:28,840 Speaker 7: But there's a real business there. I mean Elon Musk 354 00:19:28,880 --> 00:19:31,199 Speaker 7: has built a real business. It's just a question of 355 00:19:31,240 --> 00:19:32,320 Speaker 7: where do you value it? 356 00:19:32,920 --> 00:19:33,320 Speaker 8: Here? 357 00:19:34,119 --> 00:19:39,520 Speaker 7: The EBB and flow of any purchaser of bitcoin has 358 00:19:39,560 --> 00:19:41,960 Speaker 7: to think, all right, what are the real use cases? 359 00:19:42,160 --> 00:19:46,600 Speaker 7: And particularly to be even more careful with the rest 360 00:19:46,680 --> 00:19:52,479 Speaker 7: of that asset class crypto. It's like meme stocks. You 361 00:19:52,520 --> 00:19:54,800 Speaker 7: have to be very careful that you're not trading just 362 00:19:54,880 --> 00:19:55,560 Speaker 7: on sentiment. 363 00:19:56,560 --> 00:20:00,480 Speaker 3: I'll refrain from editorial lensing here for Tom. I've got 364 00:20:00,480 --> 00:20:03,560 Speaker 3: to chart from Jeff Jacobson. Thank you zero Hedge for this. 365 00:20:03,680 --> 00:20:07,160 Speaker 3: Gary Gensler, to me, it's manipulated. They do an IPO 366 00:20:07,280 --> 00:20:10,919 Speaker 3: which is five percent of the SpaceX float. They trunch 367 00:20:10,960 --> 00:20:15,440 Speaker 3: it out August eleven, twenty one, September ten, September twenty five, 368 00:20:15,960 --> 00:20:18,640 Speaker 3: they get fifty percent of the stock out October ten. 369 00:20:19,119 --> 00:20:21,359 Speaker 3: They finally get out to sixty percent of the stack 370 00:20:21,400 --> 00:20:26,639 Speaker 3: out December ninth. Is it just a manipulation of folding 371 00:20:27,040 --> 00:20:31,080 Speaker 3: the trend the stock into the public in a way 372 00:20:31,119 --> 00:20:34,440 Speaker 3: that keeps the fervor up. It doesn't seem like the 373 00:20:34,440 --> 00:20:36,840 Speaker 3: old days where a company went public. 374 00:20:38,400 --> 00:20:42,359 Speaker 7: Well, so here's the other thing. Nasdaq made an accommodation 375 00:20:43,119 --> 00:20:47,320 Speaker 7: in how they do their index, the NASTAK one hundred 376 00:20:47,760 --> 00:20:51,920 Speaker 7: and Once there's thirty percent of that stock outstanding, which 377 00:20:52,000 --> 00:20:55,080 Speaker 7: might happen as soon as mid August after the earnings release. 378 00:20:56,240 --> 00:21:00,199 Speaker 7: Once that happens, the entire free float is count it 379 00:21:00,200 --> 00:21:05,160 Speaker 7: into the indexes, which put out Elon's forty fifty eight 380 00:21:05,200 --> 00:21:09,520 Speaker 7: percent might fold into the indexes, and then there's a buy. 381 00:21:10,119 --> 00:21:13,359 Speaker 7: But here's the other side. I caught the great rebalancing 382 00:21:13,760 --> 00:21:17,439 Speaker 7: all those venture capitalists and sovereign wealth funds. They're going 383 00:21:17,520 --> 00:21:19,760 Speaker 7: to want to take risk off the page. I mean, Tom, 384 00:21:19,800 --> 00:21:22,280 Speaker 7: They're not going to want to just leave their profits 385 00:21:22,320 --> 00:21:26,200 Speaker 7: in and say, let's let's go for more. They got 386 00:21:26,240 --> 00:21:29,080 Speaker 7: to take you know, a third, a half, maybe three 387 00:21:29,160 --> 00:21:32,280 Speaker 7: quarters of the risk off the page, and so there's 388 00:21:32,320 --> 00:21:35,680 Speaker 7: going to be a lot of selling pressure too as 389 00:21:35,760 --> 00:21:37,040 Speaker 7: these lockups come off. 390 00:21:38,000 --> 00:21:40,560 Speaker 4: Gary, as we think about the continued rollout of AI 391 00:21:40,720 --> 00:21:44,440 Speaker 4: across the economy, what do you think the regulatory framework 392 00:21:45,000 --> 00:21:46,440 Speaker 4: should be going forward? 393 00:21:47,760 --> 00:21:51,679 Speaker 7: Look, I think with any great technology, a society adapts 394 00:21:51,720 --> 00:21:53,960 Speaker 7: and says, listen, there's public goods and we have to 395 00:21:54,000 --> 00:21:55,000 Speaker 7: promote them. 396 00:21:56,000 --> 00:21:57,600 Speaker 8: We call it responsible AI. 397 00:21:57,720 --> 00:22:02,200 Speaker 7: I started doing work on this years ago and tried 398 00:22:02,240 --> 00:22:04,360 Speaker 7: to move the ball on that even at the Securities 399 00:22:04,359 --> 00:22:07,520 Speaker 7: and Exchange Commission. I think the most it's happening is 400 00:22:07,520 --> 00:22:14,399 Speaker 7: at the States about protecting people against bias, protecting people's privacy. 401 00:22:14,440 --> 00:22:17,800 Speaker 7: Of course, the accuracy of it, but when the algorithms 402 00:22:17,800 --> 00:22:21,200 Speaker 7: are making decisions on our behalf, who gets healthcare, who 403 00:22:21,240 --> 00:22:24,680 Speaker 7: gets a job, who gets credit, it's important that they 404 00:22:25,320 --> 00:22:30,439 Speaker 7: are accurate. And I think that right now this current 405 00:22:30,520 --> 00:22:36,000 Speaker 7: president is more into let's just support a competition with China. 406 00:22:36,119 --> 00:22:40,320 Speaker 7: Let's you know, as they say, just take off the 407 00:22:40,359 --> 00:22:45,040 Speaker 7: regulatory guard rails. And yet I think society is reacting 408 00:22:45,160 --> 00:22:47,880 Speaker 7: and starting to say, what about my kids? What about addiction, 409 00:22:48,240 --> 00:22:50,560 Speaker 7: what about the use of this, what about my lost 410 00:22:50,640 --> 00:22:51,679 Speaker 7: job potential? 411 00:22:51,720 --> 00:22:52,200 Speaker 8: Maybe? 412 00:22:52,520 --> 00:22:54,840 Speaker 7: And so it will be a very interesting next several 413 00:22:54,960 --> 00:22:57,560 Speaker 7: years in terms of the politics. 414 00:22:56,960 --> 00:23:01,000 Speaker 3: Of all this, Paul, what's it like working Simon Johnson? 415 00:23:01,200 --> 00:23:03,600 Speaker 3: I mean, I've known him for years, We're quite close, 416 00:23:03,640 --> 00:23:06,359 Speaker 3: et cetera. But I'm not in the trenches where gunstlers 417 00:23:06,400 --> 00:23:08,960 Speaker 3: to walk in the room with the Nobel Laurier. What's 418 00:23:08,960 --> 00:23:11,280 Speaker 3: it like working He's Johnson? 419 00:23:12,480 --> 00:23:16,840 Speaker 7: It's fabulous. He's a very gracious colleague. He's got a 420 00:23:17,080 --> 00:23:19,960 Speaker 7: fertile mind, I mean his mind just I mean, how 421 00:23:20,000 --> 00:23:22,160 Speaker 7: did he come up with those ideas in the nineteen 422 00:23:22,280 --> 00:23:25,359 Speaker 7: nineties working with Drona s and Oaklow and Jim Robinson. 423 00:23:25,440 --> 00:23:31,200 Speaker 7: It led to that Nobel prize. But it's a remarkable collaboration. 424 00:23:32,000 --> 00:23:36,879 Speaker 7: Sometimes sometimes we in the classroom have to make room 425 00:23:36,960 --> 00:23:40,160 Speaker 7: for each each of us. And he's he's a remarkable 426 00:23:40,240 --> 00:23:41,520 Speaker 7: chalkboard teacher as well. 427 00:23:41,640 --> 00:23:42,639 Speaker 8: This is a secret of his. 428 00:23:42,760 --> 00:23:46,719 Speaker 7: But he loves being at the chalkboard and summarizing things 429 00:23:46,840 --> 00:23:49,760 Speaker 7: and then bringing students into that conversation. 430 00:23:49,880 --> 00:23:53,040 Speaker 3: Here at MIT, Stanley Fisher has a great story. Gary 431 00:23:53,720 --> 00:23:58,520 Speaker 3: of Samuelson was so angry at his incompetence that he 432 00:23:58,640 --> 00:24:02,479 Speaker 3: ripped the chalk out of Stanley Fisher's heads threw it 433 00:24:02,520 --> 00:24:06,480 Speaker 3: across the room. Some of that some of the intensity 434 00:24:06,600 --> 00:24:10,680 Speaker 3: at the Massachusetts Institute of Technology. Their next podcast will 435 00:24:10,720 --> 00:24:14,119 Speaker 3: be how to Fix the Red Sox. Gary Gensler is 436 00:24:14,160 --> 00:24:16,800 Speaker 3: a former chairman of the SEC, and we greatly appreciate 437 00:24:17,600 --> 00:24:23,240 Speaker 3: remembrance for the life of Allen Greenspan. Stay with us. 438 00:24:23,480 --> 00:24:26,720 Speaker 3: More from Bloomberg Surveillance coming up after this. 439 00:24:33,960 --> 00:24:37,560 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 440 00:24:37,640 --> 00:24:40,760 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 441 00:24:40,880 --> 00:24:44,240 Speaker 1: Apple Karplay and Android Auto with the Bloomberg Business app, 442 00:24:44,440 --> 00:24:46,120 Speaker 1: or watch us live on YouTube. 443 00:24:46,320 --> 00:24:49,800 Speaker 3: William Dudley is a different FED president, Yes, of the 444 00:24:49,840 --> 00:24:53,480 Speaker 3: New York Fed and all, but far more. He built 445 00:24:53,640 --> 00:24:58,960 Speaker 3: Goldman Sachs Economics with Ed McKelvey and the rest of 446 00:24:59,040 --> 00:25:03,720 Speaker 3: Young Yanah. At the time, Bill Dudley joins us this 447 00:25:03,800 --> 00:25:06,840 Speaker 3: morning to me Bill Dudley, and the phrase I've always 448 00:25:06,960 --> 00:25:10,320 Speaker 3: used is chart paragraph, chart, And it was a people 449 00:25:10,480 --> 00:25:14,280 Speaker 3: like Hymen and Yardnni at CJ. Lawrence. It was the 450 00:25:14,320 --> 00:25:17,920 Speaker 3: Bear Stearns combine with mail pass and writing, but more 451 00:25:17,920 --> 00:25:24,240 Speaker 3: than anyone. It was Goldman Sachs chart paragraph chart. Alan 452 00:25:24,359 --> 00:25:28,040 Speaker 3: Greenspan loved that at the end of the day, he 453 00:25:28,240 --> 00:25:31,879 Speaker 3: was a market economist, a ween to data. 454 00:25:32,560 --> 00:25:34,400 Speaker 8: Do we have anyone that can be like. 455 00:25:34,480 --> 00:25:36,840 Speaker 3: Alan green Span in our future or was he a 456 00:25:36,960 --> 00:25:39,959 Speaker 3: one off in the history of our economics? 457 00:25:41,040 --> 00:25:43,359 Speaker 5: Well, if you're here, it takes up a long potential 458 00:25:43,359 --> 00:25:45,680 Speaker 5: times of I'm sure we'll see someone similar to green 459 00:25:45,720 --> 00:25:48,080 Speaker 5: Span in the future. But you're right. He was a 460 00:25:48,080 --> 00:25:52,480 Speaker 5: different type of FED chairman because not only was he 461 00:25:52,680 --> 00:25:56,200 Speaker 5: very knowledgeable about economics, but he wasn't academic, and so 462 00:25:56,240 --> 00:25:59,440 Speaker 5: he was basically going from the data to the decision 463 00:25:59,440 --> 00:26:02,520 Speaker 5: making rather than from the model to the decision making. 464 00:26:02,800 --> 00:26:05,800 Speaker 5: And so sometimes when the world changed, he got it 465 00:26:05,880 --> 00:26:08,520 Speaker 5: right before anybody else did. The best example, of course, 466 00:26:08,560 --> 00:26:10,880 Speaker 5: was the late nineteen nineties when there was the three 467 00:26:10,920 --> 00:26:15,479 Speaker 5: Boom and greenspand held off on tightening entree policy. So 468 00:26:15,760 --> 00:26:18,479 Speaker 5: I think he was, you know, an exceptional exceptional chairman, 469 00:26:19,680 --> 00:26:23,160 Speaker 5: both in terms of his understanding of economics, his openness 470 00:26:23,160 --> 00:26:26,080 Speaker 5: to data, his willingness to you know, change his mind 471 00:26:26,080 --> 00:26:30,160 Speaker 5: and update is his forecast. I think the only really 472 00:26:30,320 --> 00:26:33,360 Speaker 5: you know, blind spot was really his views about financial 473 00:26:33,440 --> 00:26:36,639 Speaker 5: stability and regulation. His view was always, you know, we 474 00:26:36,720 --> 00:26:39,040 Speaker 5: can't identify bubbles in real time, so all we can 475 00:26:39,320 --> 00:26:41,880 Speaker 5: clean up after the fact. And obviously the Great Financial 476 00:26:41,880 --> 00:26:45,520 Speaker 5: Crisis showed that cleaning up after the fact is always 477 00:26:45,600 --> 00:26:46,760 Speaker 5: it's not always the right approach. 478 00:26:46,880 --> 00:26:50,159 Speaker 3: Well did you get into your excellence at Berkeley and 479 00:26:50,240 --> 00:26:54,240 Speaker 3: to say, okay, it is about the regulation decision. Are 480 00:26:54,240 --> 00:26:58,560 Speaker 3: we making the same mistakes today that the critics say 481 00:26:58,560 --> 00:27:00,760 Speaker 3: were made in five six? 482 00:27:02,720 --> 00:27:05,880 Speaker 5: I don't see the same kind of problems. Number one, 483 00:27:06,200 --> 00:27:08,800 Speaker 5: in terms of, you know, the market having a lot 484 00:27:08,800 --> 00:27:10,880 Speaker 5: of assumptions that will ultimately turn out to be wrong. 485 00:27:10,920 --> 00:27:12,280 Speaker 5: I mean, if you look at two thousand and six, 486 00:27:12,320 --> 00:27:14,240 Speaker 5: two thousand and seven, there was all these assumptions triple 487 00:27:14,280 --> 00:27:17,280 Speaker 5: A CDOs are safe housing, markets can never decline on 488 00:27:17,320 --> 00:27:21,960 Speaker 5: a national basis. You know, you know, there were just 489 00:27:22,000 --> 00:27:24,440 Speaker 5: a lot of assumptions that turned out some prime lending 490 00:27:24,560 --> 00:27:27,240 Speaker 5: is not risky. All those assumptions turned out to be 491 00:27:27,320 --> 00:27:29,280 Speaker 5: dramatically wrong. So I think, you know, I think there's 492 00:27:29,520 --> 00:27:31,920 Speaker 5: risk of financial stability today, obviously in the non bank 493 00:27:32,000 --> 00:27:34,679 Speaker 5: financial sector. But the other thing is we have a 494 00:27:34,760 --> 00:27:37,480 Speaker 5: much more robust regulatory regime. I know, I know we're 495 00:27:37,520 --> 00:27:39,919 Speaker 5: in the process of dismantling that to a degree. I 496 00:27:39,920 --> 00:27:42,199 Speaker 5: think it's important that we don't throw the baby out 497 00:27:42,240 --> 00:27:44,600 Speaker 5: with the bathwater. But you know, we did learn a 498 00:27:44,640 --> 00:27:46,760 Speaker 5: lot of good lessons from the financial crisis that I 499 00:27:46,760 --> 00:27:49,760 Speaker 5: think means that the financial system fundamentally is stronger than 500 00:27:49,800 --> 00:27:51,679 Speaker 5: it was back then. All that. 501 00:27:53,359 --> 00:27:55,280 Speaker 4: Putting all that together, Bill, what do you think the 502 00:27:55,359 --> 00:27:58,639 Speaker 4: legacy is for mister Greenspan? With our little bit of 503 00:27:58,640 --> 00:28:00,000 Speaker 4: a hindsight. 504 00:27:59,560 --> 00:28:03,199 Speaker 5: Here, I think he's obviously going to go down in 505 00:28:03,280 --> 00:28:06,720 Speaker 5: history as a great central banker, also go down as 506 00:28:06,760 --> 00:28:09,879 Speaker 5: someone who was really politically adept. I mean, he navigated 507 00:28:09,920 --> 00:28:14,480 Speaker 5: through democratic and Republican administrations really well and didn't have 508 00:28:14,560 --> 00:28:17,040 Speaker 5: the kind of conflicts that a lot of other central 509 00:28:17,080 --> 00:28:21,439 Speaker 5: bankers have run into, like J. Powell, for example. So 510 00:28:21,520 --> 00:28:26,200 Speaker 5: I think that combination of good economic intuition, reliance on data, 511 00:28:26,359 --> 00:28:30,960 Speaker 5: ability to navigate through Washington really well is pretty special. 512 00:28:31,280 --> 00:28:33,040 Speaker 5: I just wish he'd done a little bit better on 513 00:28:33,080 --> 00:28:35,800 Speaker 5: the financial stability regulatory side. If you did that, he 514 00:28:35,920 --> 00:28:36,600 Speaker 5: sort of get straight. 515 00:28:36,640 --> 00:28:40,480 Speaker 4: A's let's fast forward to today, mister Walsh. We did 516 00:28:40,480 --> 00:28:43,160 Speaker 4: hear from Kevin Walsh last week for the first time 517 00:28:43,160 --> 00:28:44,080 Speaker 4: as chairman of the FED. 518 00:28:44,680 --> 00:28:45,560 Speaker 3: What were your takeaways? 519 00:28:47,040 --> 00:28:50,080 Speaker 5: Well, I think the big takeaway is number one that 520 00:28:50,480 --> 00:28:53,200 Speaker 5: it's going to be a different regime under Kevin Walsh. 521 00:28:53,280 --> 00:28:55,840 Speaker 5: You know, so the regime change that he promised is 522 00:28:55,880 --> 00:28:58,920 Speaker 5: in the process of happening. You just tell it right 523 00:28:58,920 --> 00:29:01,200 Speaker 5: off the bat with the very very much shortened statement, 524 00:29:01,680 --> 00:29:04,400 Speaker 5: I think, and the getting rid of four guides I 525 00:29:04,440 --> 00:29:05,520 Speaker 5: think is completely appropriate. 526 00:29:05,560 --> 00:29:06,640 Speaker 3: But I'm pretty. 527 00:29:06,400 --> 00:29:09,520 Speaker 5: Nervous about his views about not communicating at all about 528 00:29:09,560 --> 00:29:12,200 Speaker 5: how the FED is likely to react if the economic 529 00:29:12,280 --> 00:29:16,200 Speaker 5: circumstances has changed. This reliant on the markets views to 530 00:29:16,360 --> 00:29:19,360 Speaker 5: sort of guide policy, I think is a mistake. The 531 00:29:19,400 --> 00:29:22,640 Speaker 5: FED Reserve needs to set monetary policy, not financial markets. 532 00:29:22,640 --> 00:29:24,640 Speaker 5: And then if you're relying on the on the markets, 533 00:29:25,240 --> 00:29:27,800 Speaker 5: how do you make the decision? Markets basically don't price 534 00:29:27,880 --> 00:29:30,160 Speaker 5: to what they think the FED should do. They priced 535 00:29:30,200 --> 00:29:32,440 Speaker 5: to what the Fed what they think the Fed will do. 536 00:29:32,880 --> 00:29:35,800 Speaker 5: So if you're relying on the market, you're sort of 537 00:29:36,000 --> 00:29:38,320 Speaker 5: you have this indeterminacy about what you should do. So 538 00:29:38,400 --> 00:29:40,680 Speaker 5: I think so I think that's a mistake. I think, 539 00:29:41,240 --> 00:29:43,760 Speaker 5: you know, I think transparency, I think it is very 540 00:29:43,760 --> 00:29:46,440 Speaker 5: helpful in terms of the conduct of monitary policy, because 541 00:29:46,480 --> 00:29:48,480 Speaker 5: you do want markets to think along with the FED 542 00:29:49,200 --> 00:29:51,520 Speaker 5: when you know strong economic report comes out. You want 543 00:29:51,520 --> 00:29:53,960 Speaker 5: the markets to reprice in terms of their expectation about 544 00:29:53,960 --> 00:29:56,880 Speaker 5: the monetary policy path. But to do that well, you 545 00:29:56,920 --> 00:30:01,560 Speaker 5: need good community, good communication. Market understand the fed's Monterrey 546 00:30:01,600 --> 00:30:03,920 Speaker 5: policy reaction from you. So I think the risk here 547 00:30:04,040 --> 00:30:05,880 Speaker 5: is Kevin is throwing out the baby with the bath water. 548 00:30:05,920 --> 00:30:08,280 Speaker 5: I have no problem getting rid of afford guys, but 549 00:30:08,440 --> 00:30:12,600 Speaker 5: don't throw out information about the Fed's Monterrey policy reaction 550 00:30:12,720 --> 00:30:14,840 Speaker 5: function at the same time. And I think he did 551 00:30:14,880 --> 00:30:17,480 Speaker 5: that at the press conference because he was asked very explicitly, 552 00:30:17,520 --> 00:30:20,040 Speaker 5: what would how you didn't want to tighten Nentre palsy, 553 00:30:20,440 --> 00:30:22,959 Speaker 5: and he really want to answer the question. I mean, obviously, 554 00:30:23,280 --> 00:30:26,920 Speaker 5: obviously answer would be if inflation stays longer for higher 555 00:30:26,920 --> 00:30:29,640 Speaker 5: than I expect, then we'll obviously have to tighten Mantrey palsy. 556 00:30:29,840 --> 00:30:31,800 Speaker 5: Or if the economy is stronger than what we expect, 557 00:30:31,840 --> 00:30:34,320 Speaker 5: then obviously I'll advise up my estimate of a neutral 558 00:30:34,320 --> 00:30:37,200 Speaker 5: mantary policy. But he refused to answer those questions, and 559 00:30:37,240 --> 00:30:39,840 Speaker 5: I think that's maybe okay for the first press conference, 560 00:30:39,880 --> 00:30:41,600 Speaker 5: but I don't think that can be sustained over time. 561 00:30:42,240 --> 00:30:45,920 Speaker 3: Dudley fired up. That's what we're saying right now, William 562 00:30:45,960 --> 00:30:48,640 Speaker 3: Dudley with it. Soon we continue, the former president of 563 00:30:48,760 --> 00:30:52,280 Speaker 3: the New York Fed. You're sitting there, Bill, all fired up, 564 00:30:52,320 --> 00:30:55,120 Speaker 3: and everybody knows I agree with you on this. I 565 00:30:55,120 --> 00:30:58,040 Speaker 3: mean to be polite about it. The heritage of your 566 00:30:58,160 --> 00:31:02,720 Speaker 3: shop called Goldman, Sachs and Hosius has carried this forward. 567 00:31:03,040 --> 00:31:07,520 Speaker 3: Is a disinflation narrative? Is the big shock after this 568 00:31:07,640 --> 00:31:11,400 Speaker 3: war with West Texas? Intermediate to seventy one forty nine? 569 00:31:11,720 --> 00:31:14,840 Speaker 3: So I could get with constructive news is sixty nine handle. 570 00:31:14,960 --> 00:31:19,960 Speaker 3: Here are we prepared, Bill Dudley for the disinflation narrative 571 00:31:20,000 --> 00:31:20,720 Speaker 3: that could come. 572 00:31:22,200 --> 00:31:25,760 Speaker 5: Well, there's going to be a disinflation narrative really next month, rightway, 573 00:31:25,800 --> 00:31:28,560 Speaker 5: when we get the PC and CPI data for June. 574 00:31:28,640 --> 00:31:31,840 Speaker 5: Because obviously oil prices and gasoline prices have come down 575 00:31:31,920 --> 00:31:34,160 Speaker 5: this month. But I think that you have to look 576 00:31:34,160 --> 00:31:36,880 Speaker 5: in the broader context, what's the pressure on resources? More broadly, 577 00:31:36,920 --> 00:31:39,080 Speaker 5: we still have a lot of price pressures, like for example, 578 00:31:39,280 --> 00:31:43,960 Speaker 5: chip prices going up really rapidly. And I think the 579 00:31:44,000 --> 00:31:47,360 Speaker 5: fundamental question really for the Mantre policy. Outlook is the 580 00:31:47,400 --> 00:31:51,400 Speaker 5: question is Mantre policy actually restricted today? And my own 581 00:31:51,440 --> 00:31:53,480 Speaker 5: personal view is that there's not much evidence of that. 582 00:31:53,520 --> 00:31:55,920 Speaker 5: I mean, we've had the Mantre policy at this setting 583 00:31:56,040 --> 00:31:58,600 Speaker 5: or tighter for three years, and yeah, we're still at 584 00:31:58,600 --> 00:32:02,120 Speaker 5: an unplaying rate consistent with full employment. So if Madre 585 00:32:02,280 --> 00:32:06,480 Speaker 5: policy isn't restrictive, then why do you need to cut rates? 586 00:32:08,000 --> 00:32:10,640 Speaker 4: What's the next data point bill that you think the 587 00:32:10,680 --> 00:32:12,360 Speaker 4: market should really be focusing on. 588 00:32:13,120 --> 00:32:15,320 Speaker 5: I think the layer market is really important here. I mean, 589 00:32:15,360 --> 00:32:17,600 Speaker 5: I think if the economy is strong enough to keep 590 00:32:17,720 --> 00:32:20,640 Speaker 5: the payrolls growing like the pace they've done over the 591 00:32:20,720 --> 00:32:24,720 Speaker 5: last few months, the unemployment rates flat to declining, you know, 592 00:32:24,840 --> 00:32:27,400 Speaker 5: that's going to continue to push the FED in the 593 00:32:27,440 --> 00:32:30,040 Speaker 5: direction of thinking that they need to tighten Mandre policy. 594 00:32:30,480 --> 00:32:32,840 Speaker 5: I don't know, I'm a little uncertain about, you know, 595 00:32:32,920 --> 00:32:35,560 Speaker 5: how fast Madre policy is titan it's likely to occur, 596 00:32:36,280 --> 00:32:39,800 Speaker 5: or what that probability is, because it's not clear how 597 00:32:39,880 --> 00:32:42,880 Speaker 5: much commitment Kevin Walsh has to actually doing it. I mean, 598 00:32:42,920 --> 00:32:44,920 Speaker 5: the talk is cheap. Of course, everybody's in favor of 599 00:32:45,000 --> 00:32:47,400 Speaker 5: price stability, but the question is what are you actually 600 00:32:48,080 --> 00:32:50,280 Speaker 5: prepared to do to achieve that outcome, and I don't 601 00:32:50,320 --> 00:32:52,280 Speaker 5: think we really know that at this point. I mean, 602 00:32:52,320 --> 00:32:54,480 Speaker 5: you couldn't you couldn't have obviously said the opposite. I'm 603 00:32:54,480 --> 00:32:57,600 Speaker 5: not in favorite price stability, so it's not really clear 604 00:32:57,600 --> 00:32:59,440 Speaker 5: that there's a lot of content in that statement. 605 00:33:00,360 --> 00:33:03,160 Speaker 3: Just valuable. Thank you so much, Bill Dudley with as 606 00:33:03,160 --> 00:33:06,240 Speaker 3: a former president New York Fed in remembrance of the 607 00:33:06,360 --> 00:33:08,680 Speaker 3: life of Alan Greenspan. 608 00:33:09,160 --> 00:33:14,000 Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify, 609 00:33:14,120 --> 00:33:18,400 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 610 00:33:18,520 --> 00:33:22,000 Speaker 1: seven to ten am Eastern on Bloomberg dot Com, the 611 00:33:22,080 --> 00:33:26,120 Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You 612 00:33:26,160 --> 00:33:29,520 Speaker 1: can also watch us live every weekday on YouTube and 613 00:33:29,720 --> 00:33:31,440 Speaker 1: always on the Bloomberg terminal.