1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,480 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,640 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Darken 5 00:00:27,720 --> 00:00:30,000 Speaker 1: to the Door. Usually rock stars in at nine thirty 6 00:00:30,000 --> 00:00:32,720 Speaker 1: in the morning, but Mr Wisenthal has greeted us this 7 00:00:32,760 --> 00:00:35,959 Speaker 1: morning on this important story. I just got all flamed up. 8 00:00:35,960 --> 00:00:38,720 Speaker 1: Somebody called a currency. I said, no way, there's no 9 00:00:38,760 --> 00:00:41,320 Speaker 1: way this is a currency. Our article even says it's 10 00:00:41,360 --> 00:00:43,959 Speaker 1: going to be based off securities. Is it a currency? 11 00:00:45,200 --> 00:00:49,920 Speaker 1: It's currency ish? Yeah, Jamie Diamond doesn't care about ish. 12 00:00:50,000 --> 00:00:53,599 Speaker 1: Jerome Paul and Randy Quarrels at the FED don't care 13 00:00:53,640 --> 00:00:57,520 Speaker 1: about ish. Why is Zuckerberg different from anybody else that's 14 00:00:57,520 --> 00:00:59,680 Speaker 1: going down in flames? There is going to be a 15 00:00:59,800 --> 00:01:05,039 Speaker 1: thing called libra. Presumably you will have a wallet that 16 00:01:05,080 --> 00:01:07,679 Speaker 1: has an X number of libra in it, So in 17 00:01:07,800 --> 00:01:10,800 Speaker 1: that sense, it's that's I say, it's currency issue. On 18 00:01:10,840 --> 00:01:15,160 Speaker 1: the other hand, it's backed by traditional financial assets probably 19 00:01:15,400 --> 00:01:18,200 Speaker 1: no FIAD currencies and government bonds and banks. And if 20 00:01:18,240 --> 00:01:20,479 Speaker 1: you think about it. If you look at your any 21 00:01:20,520 --> 00:01:23,200 Speaker 1: wallet that we use that's digital, or any credit card 22 00:01:23,280 --> 00:01:25,960 Speaker 1: or anything, what is it but a digital number that's 23 00:01:26,000 --> 00:01:29,560 Speaker 1: represented by something mrez. Today the French finances are saying, 24 00:01:29,680 --> 00:01:33,039 Speaker 1: yeah right, I'm in name the country. I've got five 25 00:01:33,640 --> 00:01:36,400 Speaker 1: two thousand dollars I got to get into the United States. 26 00:01:36,440 --> 00:01:39,280 Speaker 1: This sounds like a gift from God. I think that, Um, 27 00:01:39,440 --> 00:01:41,000 Speaker 1: you know, this is the key thing, which is that 28 00:01:41,440 --> 00:01:46,440 Speaker 1: traditional cryptocurrencies, they're designed to be decentralized permission lists so 29 00:01:46,480 --> 00:01:48,520 Speaker 1: that I can send something to your design is an 30 00:01:48,520 --> 00:01:51,680 Speaker 1: agent for criminals. This I just put it the nice way, 31 00:01:51,720 --> 00:01:54,480 Speaker 1: but you put it the This is clearly not Morning TV. 32 00:01:54,600 --> 00:01:57,160 Speaker 1: We're not nice. This is not designed for that. And 33 00:01:57,200 --> 00:02:01,080 Speaker 1: they make very clear in the white paper and their 34 00:02:01,120 --> 00:02:04,440 Speaker 1: documents that anyone dealing with this, any exchanges that listed 35 00:02:04,520 --> 00:02:09,320 Speaker 1: wallets have to deal with traditional banking regulations, which means 36 00:02:09,360 --> 00:02:12,640 Speaker 1: that it's much less like a traditional cryptocurrency as we 37 00:02:12,680 --> 00:02:15,120 Speaker 1: know them, and much more like a lot of the 38 00:02:15,120 --> 00:02:19,840 Speaker 1: payment apps that we use. Let's bring in yes, no, 39 00:02:20,040 --> 00:02:22,359 Speaker 1: the nice one, the nice one who's in the doghouse, Joe, 40 00:02:22,360 --> 00:02:24,839 Speaker 1: because I'm the one calling it prick cryptocurrency on air 41 00:02:24,880 --> 00:02:26,480 Speaker 1: and Tom was like, no, it's not a currency. But 42 00:02:26,520 --> 00:02:29,320 Speaker 1: actually what it means is I'm going to have a 43 00:02:29,360 --> 00:02:31,960 Speaker 1: mobile phone. I'll be able to use a pacement system. 44 00:02:32,000 --> 00:02:34,440 Speaker 1: So for the nerds out there, we can call it whatever, 45 00:02:34,480 --> 00:02:37,240 Speaker 1: you know, the digital wallet package that Facebook is going 46 00:02:37,240 --> 00:02:39,960 Speaker 1: to introduce, whatever Tom wants. But is it going to 47 00:02:40,000 --> 00:02:43,400 Speaker 1: get traction? And when can you find out whether there's 48 00:02:43,400 --> 00:02:45,680 Speaker 1: going to be traction? Isn't the first two months? Six months? 49 00:02:45,680 --> 00:02:47,720 Speaker 1: Does it take longer? I mean, here's the thing, and 50 00:02:47,760 --> 00:02:50,160 Speaker 1: this is the bold case, which is that there is 51 00:02:50,200 --> 00:02:54,600 Speaker 1: no entity in the entire world that has Facebook size 52 00:02:54,760 --> 00:02:58,880 Speaker 1: and global distribute and that is an enormous leg up. 53 00:02:58,919 --> 00:03:01,160 Speaker 1: And so you have these aiment networks all around the 54 00:03:01,160 --> 00:03:05,160 Speaker 1: world like and Paso or wheat Chad or Venmo or 55 00:03:05,200 --> 00:03:09,560 Speaker 1: PayPal or whatever. It's fragmented. However, there's just no entity 56 00:03:09,600 --> 00:03:13,600 Speaker 1: that exists that is huge virtually everywhere, essentially everywhere outside 57 00:03:13,600 --> 00:03:16,080 Speaker 1: of China the way that Facebook is. So if you 58 00:03:16,080 --> 00:03:18,880 Speaker 1: were able to layer on top of that a payment 59 00:03:18,919 --> 00:03:22,760 Speaker 1: network in theory that could be really big and unify 60 00:03:22,880 --> 00:03:25,400 Speaker 1: global payments in a way that nothing else quite has before, 61 00:03:25,520 --> 00:03:28,239 Speaker 1: that would be I would say, is this right is 62 00:03:28,280 --> 00:03:30,680 Speaker 1: this a medium for payments? Right? And if if it 63 00:03:30,760 --> 00:03:32,880 Speaker 1: is a medium for payments, does it cut out the 64 00:03:32,919 --> 00:03:35,400 Speaker 1: riff raff that Tom was talking about. I mean it 65 00:03:35,520 --> 00:03:38,600 Speaker 1: is a medium for payments. It will attempt to cut 66 00:03:38,600 --> 00:03:41,280 Speaker 1: out the riff raff because there's money backed up by 67 00:03:41,320 --> 00:03:45,400 Speaker 1: traditional financial institutions. Because a libra is backed up by 68 00:03:45,520 --> 00:03:48,760 Speaker 1: dollars and pounds and euros and yen or whatever in 69 00:03:48,760 --> 00:03:52,360 Speaker 1: a bank, they're going to have to comply with traditional 70 00:03:52,440 --> 00:03:58,320 Speaker 1: anti money laundering regulations, anti capital control or capital control regulations. 71 00:03:58,360 --> 00:04:00,800 Speaker 1: If it were to turn out that well could use 72 00:04:01,160 --> 00:04:04,360 Speaker 1: liber to evade these things, then I think regulators would 73 00:04:04,400 --> 00:04:08,280 Speaker 1: attempt to shut down the project pretty quickly. Okay, but 74 00:04:08,280 --> 00:04:11,040 Speaker 1: but I'm holding up in my phone, Joe Wist, I 75 00:04:11,040 --> 00:04:14,120 Speaker 1: want to go to Sebastian galley on this zell from 76 00:04:14,160 --> 00:04:17,080 Speaker 1: a bunch of banks. I can move money around already 77 00:04:17,080 --> 00:04:19,760 Speaker 1: with banks. Why do I need this, Sebastian? Why do 78 00:04:19,800 --> 00:04:24,040 Speaker 1: we need facebook coin? Because you want to avoid capital controls? 79 00:04:24,120 --> 00:04:28,039 Speaker 1: And what when may happen? Is my words that continue. Yeah, 80 00:04:28,200 --> 00:04:30,839 Speaker 1: it's not it's not pretty. In essence, it makes sense 81 00:04:30,839 --> 00:04:32,720 Speaker 1: to have a unit of transaction, but that's called the 82 00:04:32,760 --> 00:04:34,720 Speaker 1: dollar and that's what we use worldwide. So if you 83 00:04:34,800 --> 00:04:36,599 Speaker 1: try to replace it by something else which is linked 84 00:04:36,640 --> 00:04:39,480 Speaker 1: implicitly to the dollar, maybe so some other things you're 85 00:04:39,520 --> 00:04:42,440 Speaker 1: trying to get some of that liquidity out. It might 86 00:04:42,520 --> 00:04:45,800 Speaker 1: work in some small economies such as for example, you're 87 00:04:45,839 --> 00:04:48,160 Speaker 1: sitting in Believia or something like this, there's a lot 88 00:04:48,200 --> 00:04:50,400 Speaker 1: of demand for dollars, then that might be a lot 89 00:04:50,440 --> 00:04:52,839 Speaker 1: of demand for lebos. Always gonna ask Mr Marcus today, 90 00:04:52,839 --> 00:04:55,000 Speaker 1: I mean, I think the Bloomberg coverage and this has 91 00:04:55,040 --> 00:04:58,000 Speaker 1: been very responsible. What are you gonna ask Mr Marcus today? 92 00:04:58,040 --> 00:05:00,480 Speaker 1: I mean, I'm gonna ask him exactly about that. So 93 00:05:00,600 --> 00:05:06,120 Speaker 1: if ah, someone in Bolivia or Venezuela or anywhere wants 94 00:05:06,160 --> 00:05:10,400 Speaker 1: to obtain libra for the purpose of say moving money 95 00:05:10,440 --> 00:05:12,440 Speaker 1: in and out of the country, of aiding in capital controls, 96 00:05:12,480 --> 00:05:14,880 Speaker 1: whatever it is, how are they going to stop it? 97 00:05:14,880 --> 00:05:17,720 Speaker 1: Will this currency be able to be used for that? 98 00:05:17,800 --> 00:05:20,360 Speaker 1: Because if not, or if it can't be stopped, then 99 00:05:20,400 --> 00:05:22,800 Speaker 1: I think the law enforcement in those countries is not 100 00:05:22,839 --> 00:05:25,840 Speaker 1: going to be very happy. Joe. He's going to regulate 101 00:05:25,880 --> 00:05:28,440 Speaker 1: this thing? Is that you know central banks? Is it? 102 00:05:29,240 --> 00:05:31,279 Speaker 1: We don't know? Right? I mean, that is the Tacebook 103 00:05:31,320 --> 00:05:33,960 Speaker 1: isn't going to regulate themselves, right, I mean that's the issue. 104 00:05:34,040 --> 00:05:37,240 Speaker 1: So Tom held up his zel app, which is designed 105 00:05:37,279 --> 00:05:40,320 Speaker 1: to be intro the U S and the regulative. It's 106 00:05:40,360 --> 00:05:44,400 Speaker 1: designed to give money to children, but it's all based 107 00:05:44,440 --> 00:05:47,400 Speaker 1: in US banks, and the regulators of a US based 108 00:05:47,440 --> 00:05:51,279 Speaker 1: payment app are pretty straightforward. It's US regulators, it's the 109 00:05:51,320 --> 00:05:54,080 Speaker 1: FED and so forth. But when you start thinking about 110 00:05:54,120 --> 00:05:56,280 Speaker 1: how something like that could be made equivalent on a 111 00:05:56,320 --> 00:05:59,520 Speaker 1: global scale, I think the regulatory thicket that Facebook and 112 00:05:59,640 --> 00:06:02,880 Speaker 1: Bucking into is gonna be pretty unimaginable. Thank you so much. 113 00:06:22,800 --> 00:06:26,000 Speaker 1: I think we need to find someone expert on monetary theory, 114 00:06:26,120 --> 00:06:29,200 Speaker 1: linking it into the economy, linking it into what we 115 00:06:29,279 --> 00:06:32,279 Speaker 1: do every day that also has a good understanding of 116 00:06:32,320 --> 00:06:36,799 Speaker 1: Germanic culture and society, and possibly also as an expert 117 00:06:36,839 --> 00:06:39,920 Speaker 1: on presidential tweets and and maybe worked at a central 118 00:06:39,920 --> 00:06:42,599 Speaker 1: bank once upon a time. That would be good, fantastic bio. 119 00:06:42,760 --> 00:06:44,800 Speaker 1: Please to say we found someone that fits it, ad 120 00:06:44,800 --> 00:06:48,920 Speaker 1: impose it. Peterson Institute President. He joins us from Central Portugal. 121 00:06:48,960 --> 00:06:51,760 Speaker 1: Good day to Adam's gonna have an empty office. Good 122 00:06:51,880 --> 00:06:55,480 Speaker 1: day John, Good day, Good day Tom. Thank you can 123 00:06:55,520 --> 00:06:58,160 Speaker 1: we start with the prospect of an emptier office over 124 00:06:58,200 --> 00:07:01,200 Speaker 1: at the piece of Peterson Institute. It wasn't missed by 125 00:07:01,200 --> 00:07:04,800 Speaker 1: many people that actually Olivia Blanche delivered the opening speech 126 00:07:05,400 --> 00:07:09,040 Speaker 1: in Central Political yesterday evening Adam. There are some chats 127 00:07:09,120 --> 00:07:11,400 Speaker 1: that perhaps he could be maybe in the running to 128 00:07:11,440 --> 00:07:14,440 Speaker 1: be the next DCP president. Your thoughts on the Adam, 129 00:07:14,520 --> 00:07:18,200 Speaker 1: He would obviously deserve it if they were willing to 130 00:07:18,320 --> 00:07:22,120 Speaker 1: excuse me, if they were willing to consider academics. Um, 131 00:07:22,160 --> 00:07:25,200 Speaker 1: but they're clearly not. It's it's clearly among people who 132 00:07:25,240 --> 00:07:28,119 Speaker 1: are already central bank governors in the Eurosystem, or maybe 133 00:07:28,160 --> 00:07:32,640 Speaker 1: deputy governors. So in an ideal world, yeah, I would 134 00:07:32,640 --> 00:07:35,360 Speaker 1: give up the office of Olivier and or let him 135 00:07:35,440 --> 00:07:40,520 Speaker 1: use my office to be west. But um, but that's 136 00:07:40,520 --> 00:07:45,320 Speaker 1: not running. We have our textbooks, Dr Posen. None of 137 00:07:45,360 --> 00:07:48,080 Speaker 1: what's on my Bloomberg screen is in the textbooks. And 138 00:07:48,160 --> 00:07:52,280 Speaker 1: it's not funny. We've got an economic theory in search 139 00:07:52,320 --> 00:07:56,560 Speaker 1: of a solution, butter stuff against the financial system in crisis. 140 00:07:57,200 --> 00:08:01,040 Speaker 1: Are you surprised that we're back to queue ta contrast 141 00:08:01,040 --> 00:08:05,680 Speaker 1: think whatever it is que five plus? Um, Yeah, I'm 142 00:08:05,720 --> 00:08:08,440 Speaker 1: not surprised, Tom, because We've a number of us have 143 00:08:08,480 --> 00:08:12,200 Speaker 1: been worrying rightly that when we get to the next recession, 144 00:08:12,240 --> 00:08:15,080 Speaker 1: whatever it is, that there wasn't much room to do 145 00:08:15,160 --> 00:08:19,440 Speaker 1: with normal interest rate cuts. And some of us at 146 00:08:19,520 --> 00:08:21,600 Speaker 1: least have been arguing for some times that QUI should 147 00:08:21,600 --> 00:08:24,600 Speaker 1: never have been as demonized as it was. The sad 148 00:08:24,680 --> 00:08:26,960 Speaker 1: part is what you say. It's not even the YO curve. 149 00:08:27,040 --> 00:08:29,920 Speaker 1: It's just at the ten year rate is so low, 150 00:08:30,640 --> 00:08:34,000 Speaker 1: and as Larry Summers and others have argued, that represents 151 00:08:34,160 --> 00:08:37,320 Speaker 1: just total lack of investment appetite, total lack of private 152 00:08:37,320 --> 00:08:41,080 Speaker 1: sector growth momentum. I think that's the reality. That's not 153 00:08:41,160 --> 00:08:43,960 Speaker 1: a monetary reality, that's an overall reality. And I mean 154 00:08:44,200 --> 00:08:46,520 Speaker 1: you wanted to weigh in on the president's thoughts this morning, 155 00:08:46,559 --> 00:08:48,400 Speaker 1: so for our listeners that might be just tuned in, 156 00:08:48,720 --> 00:08:51,760 Speaker 1: I'll repeat the tweet from the president in the last hour. 157 00:08:52,080 --> 00:08:55,400 Speaker 1: Mary drag just announced more stimulus could come, which immediately 158 00:08:55,480 --> 00:08:58,360 Speaker 1: dropped the Europe against the dollar, making it unfairly easier 159 00:08:58,640 --> 00:09:01,160 Speaker 1: for them to compete against the United States. They have 160 00:09:01,240 --> 00:09:03,800 Speaker 1: been getting away with this for years, along with China 161 00:09:03,920 --> 00:09:08,439 Speaker 1: and others. Adam, your thoughts, Yeah, it's it's about as 162 00:09:08,520 --> 00:09:13,000 Speaker 1: unfounded as the average prisoner. Trump tweet regrettably, Um, you know, 163 00:09:13,200 --> 00:09:17,000 Speaker 1: the US FED cut rates and did quee in two 164 00:09:17,040 --> 00:09:20,120 Speaker 1: thousand eight, nine ten, and the rest of the world screamed, 165 00:09:20,160 --> 00:09:23,920 Speaker 1: oh my god, Brazil, India, China, you're unfairly cutting the 166 00:09:24,080 --> 00:09:27,000 Speaker 1: dollar against US. And no, they were just the US 167 00:09:27,040 --> 00:09:30,080 Speaker 1: FED was doing the right thing, looking after its own economy. 168 00:09:30,240 --> 00:09:32,640 Speaker 1: What the e c B did, it wasn't targeted at 169 00:09:32,679 --> 00:09:35,520 Speaker 1: the U S. It wasn't targeted a trade. Was Mario 170 00:09:35,600 --> 00:09:39,720 Speaker 1: draggy constraining his successor and setting forward the fact that 171 00:09:39,760 --> 00:09:44,080 Speaker 1: the ECB will continue to pursue a reflationary policy. And 172 00:09:44,120 --> 00:09:45,880 Speaker 1: I think that was exactly the right thing to do. 173 00:09:45,960 --> 00:09:47,719 Speaker 1: And it would be much worse for the U S 174 00:09:47,760 --> 00:09:50,640 Speaker 1: if you could if the EU didn't do that, if 175 00:09:50,640 --> 00:09:52,680 Speaker 1: the Euro Area didn't do that and fell into trouble, 176 00:09:52,720 --> 00:09:55,360 Speaker 1: you'd lose a lot more net exports to Europe and 177 00:09:55,400 --> 00:09:59,079 Speaker 1: you lose a lot more asset values. I'm sorry just 178 00:09:59,120 --> 00:10:01,280 Speaker 1: to jump in Sonia and we spoke Sebastian Galley of 179 00:10:01,280 --> 00:10:03,920 Speaker 1: No Day Arrestment Management. That thinks perhaps the president isn't 180 00:10:04,040 --> 00:10:08,000 Speaker 1: entirely off base. If we recall when the ECB adopted 181 00:10:08,040 --> 00:10:10,280 Speaker 1: a negative deposit, right, it was to look at the 182 00:10:10,640 --> 00:10:13,360 Speaker 1: X channel, and there's some belief this morning that maybe 183 00:10:13,360 --> 00:10:16,720 Speaker 1: that's the primary tool once again to get inflation expectations higher. 184 00:10:17,120 --> 00:10:20,000 Speaker 1: What are your thoughts on the ATOM. Well, they're not 185 00:10:20,120 --> 00:10:24,040 Speaker 1: directly intervening, let alone manipulating currencies. They're setting a domestic 186 00:10:24,080 --> 00:10:27,200 Speaker 1: monetary policy. If it has an effect on the exchange trade, 187 00:10:27,200 --> 00:10:29,440 Speaker 1: it's then up to the Federal Reserve and the Bank 188 00:10:29,480 --> 00:10:31,400 Speaker 1: of Japan and for that matter, the People's Bank of 189 00:10:31,520 --> 00:10:35,760 Speaker 1: China to decide. Okay, given that the should we react 190 00:10:36,440 --> 00:10:40,760 Speaker 1: and so there's nothing the ECB prevents other other central 191 00:10:40,760 --> 00:10:43,720 Speaker 1: banks from loosening as well. And imposing whether this folks 192 00:10:43,720 --> 00:10:45,640 Speaker 1: appears into the thrilled he could be with us, and 193 00:10:45,720 --> 00:10:48,000 Speaker 1: we see markets on the move. A two year yield 194 00:10:48,000 --> 00:10:50,520 Speaker 1: not back to a one eightiot but one point eight one, 195 00:10:50,840 --> 00:10:54,480 Speaker 1: lowered by a solid six basis points. I'm watching. Yeah, 196 00:10:54,760 --> 00:10:58,120 Speaker 1: it has not moved. That is the headline one O 197 00:10:58,240 --> 00:11:02,559 Speaker 1: eight twenty nine. Slightly strong. Yeah, and adam posing within 198 00:11:02,800 --> 00:11:07,000 Speaker 1: all of this talk of economics is the real economy 199 00:11:07,120 --> 00:11:09,720 Speaker 1: in rule one Friedrich Kayak as you've got to clear 200 00:11:09,760 --> 00:11:12,520 Speaker 1: out the debris. Maybe with Schumpeter, there's got to be 201 00:11:12,520 --> 00:11:16,200 Speaker 1: a little bit of creative destruction of bad debt gone wrong. 202 00:11:16,480 --> 00:11:19,160 Speaker 1: Are we suffering for the fact we haven't cleared out 203 00:11:19,480 --> 00:11:23,480 Speaker 1: the ills of two thousand eight. I think we're suffering 204 00:11:23,840 --> 00:11:26,680 Speaker 1: more from the fact that we started having ills in 205 00:11:26,720 --> 00:11:30,120 Speaker 1: two thousand four. Toms as many people, including John Fernaldo 206 00:11:30,200 --> 00:11:32,360 Speaker 1: used to be at the FED San Francisco, have argued, 207 00:11:32,960 --> 00:11:35,840 Speaker 1: you know, the productivity growth rate in the US down 208 00:11:35,880 --> 00:11:38,440 Speaker 1: shifted and in the rest of the Western world and 209 00:11:38,520 --> 00:11:42,520 Speaker 1: Japan down shifted roughly around two thousand four, and we're 210 00:11:42,559 --> 00:11:46,240 Speaker 1: still suffering for the fact that we haven't found something 211 00:11:46,280 --> 00:11:48,800 Speaker 1: the next big thing in Michael Lewis terms to invest 212 00:11:48,840 --> 00:11:53,200 Speaker 1: in and yeah, there's probably some some some detritus in 213 00:11:53,240 --> 00:11:57,520 Speaker 1: the economy. But on the other hand, you've got monopoly 214 00:11:57,559 --> 00:12:01,760 Speaker 1: oligopoly issues which are regulatory. They're not because of low rates, 215 00:12:02,320 --> 00:12:05,520 Speaker 1: I think. So. I know people keep going back to that, 216 00:12:06,160 --> 00:12:08,560 Speaker 1: But like a Neil cash App said at the FED 217 00:12:08,679 --> 00:12:11,120 Speaker 1: conference in Chicago a week ago, I keep quoting people 218 00:12:11,160 --> 00:12:12,440 Speaker 1: because I want to say I'm not out on a 219 00:12:12,480 --> 00:12:15,640 Speaker 1: limb here. Uh, A new Caship of Chicago said, you know, 220 00:12:15,800 --> 00:12:18,640 Speaker 1: we we had a supervisory regulatory problem. So let's do 221 00:12:18,679 --> 00:12:21,880 Speaker 1: that better. Let's not screw around with monetary policy. Okay, 222 00:12:22,520 --> 00:12:25,760 Speaker 1: when you look at the mix of Stewart in right now, 223 00:12:26,240 --> 00:12:29,839 Speaker 1: it seems like it's a technology overlay that everybody's dealing with, 224 00:12:29,840 --> 00:12:32,640 Speaker 1: whether it's Europe or the United States, and that do 225 00:12:32,720 --> 00:12:34,199 Speaker 1: we just have to get used to one and a 226 00:12:34,240 --> 00:12:36,720 Speaker 1: half percent growth? I mean? Is that? I mean in 227 00:12:36,800 --> 00:12:41,319 Speaker 1: President Trump's defense is a politician, he can't he can't 228 00:12:41,360 --> 00:12:44,040 Speaker 1: get elected on one and a half or even two 229 00:12:44,120 --> 00:12:48,480 Speaker 1: point zero percent growth. Agreed, And in that sense, I'm 230 00:12:48,480 --> 00:12:51,040 Speaker 1: not denying President Trump the right to complain and moan. 231 00:12:51,120 --> 00:12:53,760 Speaker 1: I get nickers less in a twist about him yelling 232 00:12:53,800 --> 00:12:56,079 Speaker 1: at the Fed than people do, because I remember past 233 00:12:56,120 --> 00:12:58,480 Speaker 1: presidents yelling at the Fed as they didn't do things 234 00:12:58,480 --> 00:13:00,959 Speaker 1: they like. So that's fine, that's fair game, as long 235 00:13:01,000 --> 00:13:03,480 Speaker 1: as the markets and the average voter realized that's just 236 00:13:03,520 --> 00:13:07,520 Speaker 1: a politician trying to increase his election chances. The important 237 00:13:07,520 --> 00:13:10,080 Speaker 1: point is exactly what you said, Tom, that we are 238 00:13:10,200 --> 00:13:14,080 Speaker 1: unfortunately going to have to continue to get adapt to 239 00:13:14,160 --> 00:13:18,080 Speaker 1: a world where, for at least the foreseeable future, we're 240 00:13:18,120 --> 00:13:20,040 Speaker 1: not going to be seeing an engine of growth like 241 00:13:20,120 --> 00:13:23,080 Speaker 1: we did, and as Olivia Blanchard, who you mentioned not 242 00:13:23,160 --> 00:13:26,600 Speaker 1: for ECB but for brilliant analysis, did with another colleague 243 00:13:26,640 --> 00:13:30,320 Speaker 1: of ours. You know, Japan has coped, and part of 244 00:13:30,320 --> 00:13:33,960 Speaker 1: how Japan coped is that that ongoing fiscal stimulus, ongoing 245 00:13:34,000 --> 00:13:37,400 Speaker 1: easy money, because the alternative was a cratering Do you 246 00:13:37,440 --> 00:13:41,280 Speaker 1: see evidence that your colleague Olivier Blanchard, who wants to 247 00:13:41,320 --> 00:13:44,400 Speaker 1: goose things up to a four percent level, can that 248 00:13:44,559 --> 00:13:51,960 Speaker 1: reflation end with economic growth? It can, It can't sustain 249 00:13:52,000 --> 00:13:55,080 Speaker 1: it forever. I mean Olivier himself and certainly I and 250 00:13:55,160 --> 00:13:58,120 Speaker 1: anybody else is not going to tell you that pure 251 00:13:58,160 --> 00:14:00,600 Speaker 1: inflation is going to buy you anything. But what you 252 00:14:00,679 --> 00:14:04,119 Speaker 1: can do is say, I'm not gonna worry about inflation 253 00:14:04,160 --> 00:14:07,440 Speaker 1: in a world where there's so much deflationary low growth pressure, 254 00:14:07,720 --> 00:14:10,040 Speaker 1: and I'm gonna try to push up growth through useful 255 00:14:10,080 --> 00:14:13,320 Speaker 1: public investment. And as in the case of the e CP, 256 00:14:13,559 --> 00:14:16,600 Speaker 1: to me, the biggest news from the Druggy statement was 257 00:14:16,640 --> 00:14:19,560 Speaker 1: a very clear emphasis on a symmetric approach to the 258 00:14:19,640 --> 00:14:22,600 Speaker 1: inflation target, that they'll have to overshoot someday to make 259 00:14:22,680 --> 00:14:25,720 Speaker 1: up for the low inflation. Now, these are the elements 260 00:14:25,720 --> 00:14:28,480 Speaker 1: of a sensible policy. Adam posing, thank you so much 261 00:14:28,520 --> 00:14:35,520 Speaker 1: to thank you attitude for international economic We are thrilled 262 00:14:35,560 --> 00:14:39,000 Speaker 1: to bring you a gentleman from a military family. Uh. 263 00:14:39,080 --> 00:14:41,440 Speaker 1: And John McCain gets all the press of Late John 264 00:14:41,480 --> 00:14:44,960 Speaker 1: McCain of Admiral's back fourteen generations. I think they were 265 00:14:45,000 --> 00:14:47,600 Speaker 1: Bunker Hill or one of those battles. Is well. He 266 00:14:47,680 --> 00:14:51,240 Speaker 1: has a grandson of Herbert McCrystal, with tours of duty 267 00:14:51,280 --> 00:14:53,960 Speaker 1: including the Panama Zone. Your father was born in the 268 00:14:53,960 --> 00:14:56,640 Speaker 1: Panama Zone. You did a number of tours of duty 269 00:14:56,640 --> 00:14:59,760 Speaker 1: in Vietnam and then you wandered in and you be 270 00:15:00,040 --> 00:15:04,720 Speaker 1: in a storied career, Generalman Crystal with the Special Forces? 271 00:15:04,840 --> 00:15:08,240 Speaker 1: What was the first day like of Special Forces? And 272 00:15:08,360 --> 00:15:10,800 Speaker 1: I believe Fort Bragg, Well, that's true. I left the 273 00:15:10,840 --> 00:15:13,400 Speaker 1: eighty second Airborne as a lieutenant joined Special Forces and 274 00:15:13,440 --> 00:15:18,680 Speaker 1: it was disappointing because this was and special Forces was 275 00:15:18,720 --> 00:15:21,400 Speaker 1: a few years after Vietnam and it was a shadow 276 00:15:21,960 --> 00:15:25,200 Speaker 1: of what it had rightly, and so I for much 277 00:15:25,200 --> 00:15:28,360 Speaker 1: of my career was about rebuilding our special operating forces 278 00:15:28,440 --> 00:15:31,080 Speaker 1: and watching what they to what they've become today. Edmirald 279 00:15:31,080 --> 00:15:34,040 Speaker 1: Stravitas wrote a book about all you guys in your 280 00:15:34,080 --> 00:15:37,280 Speaker 1: favorite books. What's the book right now the politicians need 281 00:15:37,280 --> 00:15:40,360 Speaker 1: to read who were talking about military action in the 282 00:15:40,400 --> 00:15:43,240 Speaker 1: Middle East, What's the book they need to read right now? 283 00:15:43,880 --> 00:15:48,240 Speaker 1: That's great, that's a great question. Um, nothing jumps out 284 00:15:48,280 --> 00:15:50,880 Speaker 1: of me, although I would probably read a book on 285 00:15:51,120 --> 00:15:53,880 Speaker 1: World War two because when you talk about a war, 286 00:15:53,960 --> 00:15:56,080 Speaker 1: you talk about something that's going to change the world, 287 00:15:56,160 --> 00:15:59,440 Speaker 1: you better understand what it costs. Ed would be my 288 00:15:59,520 --> 00:16:02,600 Speaker 1: choice or general. You've ented civilian life. You've not done 289 00:16:02,640 --> 00:16:05,000 Speaker 1: what most generals do, which is going to advise companies 290 00:16:05,000 --> 00:16:08,320 Speaker 1: and people and organizations on geopolitics. You're running your own 291 00:16:08,360 --> 00:16:12,360 Speaker 1: firm and you're helping business understand the importance of leadership 292 00:16:12,440 --> 00:16:15,360 Speaker 1: changing the hierarchy to better suit their needs. Walk us 293 00:16:15,400 --> 00:16:17,920 Speaker 1: through your framework for thinking about this and what you're 294 00:16:17,960 --> 00:16:20,600 Speaker 1: teaching people right now. It came from an experience that 295 00:16:20,680 --> 00:16:24,040 Speaker 1: we had in Iraq where we had a purpose built 296 00:16:24,040 --> 00:16:28,120 Speaker 1: counter terrorism force that was really operating our industrial age processes, 297 00:16:28,480 --> 00:16:31,760 Speaker 1: top down command and control hierarchy, and we ran into 298 00:16:31,800 --> 00:16:35,200 Speaker 1: a complex environment in which our kind of interac was 299 00:16:35,360 --> 00:16:38,680 Speaker 1: very different. That's exactly what business is running into now. 300 00:16:38,680 --> 00:16:42,200 Speaker 1: They're not competing against the big competitor they used to 301 00:16:42,200 --> 00:16:46,080 Speaker 1: have their competing against a thousand linked together all the 302 00:16:46,160 --> 00:16:50,040 Speaker 1: one consciously linked competitors from garages to small startups, and 303 00:16:50,080 --> 00:16:54,800 Speaker 1: so as a consequence, size is no longer protection. It's 304 00:16:54,840 --> 00:16:57,160 Speaker 1: not a mote to competition. So leaders have got to 305 00:16:57,520 --> 00:17:02,160 Speaker 1: lead differently, organizations got communicate differently. Really, the core of 306 00:17:02,160 --> 00:17:05,920 Speaker 1: this is about how you create shared consciousness in an organization. 307 00:17:06,280 --> 00:17:09,960 Speaker 1: So the contextual understanding that used to be resident only 308 00:17:10,000 --> 00:17:12,840 Speaker 1: in the C suite is now down everywhere, so you 309 00:17:12,840 --> 00:17:15,240 Speaker 1: can make decisions closer to the point of action. You 310 00:17:15,280 --> 00:17:17,440 Speaker 1: are a student of leadership. I hope you don't mind 311 00:17:17,480 --> 00:17:20,120 Speaker 1: me saying so, both in terms of the military leadership 312 00:17:20,119 --> 00:17:23,040 Speaker 1: and in terms of leadership in the business world. Who 313 00:17:23,080 --> 00:17:25,960 Speaker 1: should we be learning from Well, I think first is 314 00:17:26,000 --> 00:17:30,239 Speaker 1: go back and understand that leadership requires character. At the 315 00:17:30,359 --> 00:17:32,560 Speaker 1: end of the day, if you don't have integrity, if 316 00:17:32,600 --> 00:17:34,520 Speaker 1: you don't have the kinds of things that you can 317 00:17:34,560 --> 00:17:38,160 Speaker 1: admire and trust, you're going to be building everything on 318 00:17:38,480 --> 00:17:41,800 Speaker 1: a very weak foundation. I like to go back to 319 00:17:41,920 --> 00:17:46,840 Speaker 1: leaders like uh Thomas Jefferson, George Washington, Abraham Lincoln. Those 320 00:17:46,840 --> 00:17:49,439 Speaker 1: are the names we all know, but peel back some 321 00:17:49,560 --> 00:17:52,080 Speaker 1: of the mythology about him and see how they really operated. 322 00:17:52,320 --> 00:17:54,119 Speaker 1: The one who jumped out in our recent book is 323 00:17:54,160 --> 00:17:57,480 Speaker 1: Martin Luther King Jr. Because although we think of him 324 00:17:57,520 --> 00:18:00,919 Speaker 1: as this wonderful orator who stood on uh steps of 325 00:18:00,960 --> 00:18:03,400 Speaker 1: the Lincoln Memorial in nineteen sixty three and give I've 326 00:18:03,480 --> 00:18:05,760 Speaker 1: had a dream, actually he was a roll up your 327 00:18:05,800 --> 00:18:09,159 Speaker 1: sleeves kind of leader who performed multiple roles for the 328 00:18:09,200 --> 00:18:12,120 Speaker 1: civil rights movement that were very practical. He was jail 329 00:18:12,160 --> 00:18:16,400 Speaker 1: twelve times, and so other than being a symbol, he 330 00:18:16,480 --> 00:18:20,040 Speaker 1: was a practical leader who built teams. One final question 331 00:18:20,119 --> 00:18:26,000 Speaker 1: general the attack jour is the offense against Iran. What 332 00:18:26,080 --> 00:18:33,120 Speaker 1: does our naivete about defensing against or offensing against Iran? Yeah, 333 00:18:33,160 --> 00:18:36,720 Speaker 1: I think Iran's behavior in the Middle East needs to 334 00:18:36,800 --> 00:18:39,520 Speaker 1: be stopped and competed against. But if we talk about 335 00:18:39,600 --> 00:18:42,960 Speaker 1: invading or starting a major warriors, talking about an action 336 00:18:43,000 --> 00:18:46,920 Speaker 1: that would unite eighty million Iranians, they are a sovereign 337 00:18:47,000 --> 00:18:49,760 Speaker 1: nation that would defend itself to the death, and so 338 00:18:50,119 --> 00:18:52,560 Speaker 1: you have to ask yourself what comes next? You have 339 00:18:52,600 --> 00:18:55,840 Speaker 1: a first strike, then what And so I think it's 340 00:18:55,880 --> 00:18:58,879 Speaker 1: a much bigger prospect, and I'm not sure how it 341 00:18:58,920 --> 00:19:01,480 Speaker 1: would end up. I'm sure that we could defeat Iran. 342 00:19:01,840 --> 00:19:03,560 Speaker 1: But what we like there's a pentagon. I have a 343 00:19:03,640 --> 00:19:06,879 Speaker 1: voice with this administration to address the then what's I 344 00:19:06,920 --> 00:19:09,600 Speaker 1: can't speak from inside the room. I certainly hope that 345 00:19:09,640 --> 00:19:14,359 Speaker 1: they do. General McCrystal, Thanks General, thank you. This morning, 346 00:19:15,800 --> 00:19:18,560 Speaker 1: on the American economy, Lindsay Pegit joins us with stif 347 00:19:19,000 --> 00:19:21,119 Speaker 1: Thrilled that she could join us this morning. Lindsey, I 348 00:19:21,160 --> 00:19:24,760 Speaker 1: want to cut right to the chase. Your numbers for 349 00:19:24,800 --> 00:19:29,080 Speaker 1: American economic growth? Can you make a forecast now? Or 350 00:19:29,160 --> 00:19:33,320 Speaker 1: is it so jumbled your hesitant to look out one year? Well, 351 00:19:33,359 --> 00:19:35,399 Speaker 1: it is difficult to look out one year because the 352 00:19:35,480 --> 00:19:38,800 Speaker 1: data is not all pointing in one direction. But of course, 353 00:19:38,840 --> 00:19:41,520 Speaker 1: to be fair, the data very rarely points in one 354 00:19:41,560 --> 00:19:44,280 Speaker 1: direction to make it easy for economists. But what we 355 00:19:44,320 --> 00:19:47,960 Speaker 1: do see is that there's very clearly evidence of the weakness, 356 00:19:48,359 --> 00:19:52,760 Speaker 1: not just bubbling under the surface, but gaining momentum. Underneath 357 00:19:52,760 --> 00:19:56,960 Speaker 1: the surface. We see business investment losing momentum, business confidence 358 00:19:57,040 --> 00:20:00,879 Speaker 1: beginning to wane, manufacturing taking ahead. Even the consumer, with 359 00:20:01,000 --> 00:20:04,120 Speaker 1: last week's better than expected retail sales report, is still 360 00:20:04,160 --> 00:20:07,800 Speaker 1: on very uneven footing at best. So this is painting 361 00:20:08,080 --> 00:20:11,760 Speaker 1: a pretty a pretty negative picture for the second quarter, 362 00:20:11,800 --> 00:20:15,000 Speaker 1: particularly rested to that above trapped growth rate we saw 363 00:20:15,040 --> 00:20:17,320 Speaker 1: at the start of the year. Lindsay, does the Federal 364 00:20:17,320 --> 00:20:21,840 Speaker 1: Reserve disappoint tomorrow? Well, it's going to be very difficult 365 00:20:21,840 --> 00:20:24,000 Speaker 1: for the Federal Reserve. I don't think that they change 366 00:20:24,119 --> 00:20:27,600 Speaker 1: policy in any way, so keeping rates unchanged. But it's 367 00:20:27,600 --> 00:20:29,600 Speaker 1: going to come down to the comments. It's going to 368 00:20:29,600 --> 00:20:32,240 Speaker 1: come down to the tone of the statement, and if 369 00:20:32,240 --> 00:20:34,560 Speaker 1: they failed to tweak at the tone to a more 370 00:20:34,680 --> 00:20:38,040 Speaker 1: debbish position, that will disappoint the market. But I do 371 00:20:38,160 --> 00:20:41,960 Speaker 1: think that Powell has at least opened the door for 372 00:20:42,040 --> 00:20:44,720 Speaker 1: the conversation of a race. As we saw he removed 373 00:20:44,720 --> 00:20:47,640 Speaker 1: that patient language from his earlier comments just a few 374 00:20:47,640 --> 00:20:50,000 Speaker 1: weeks ago at that Fed Listens event. What is your 375 00:20:50,040 --> 00:20:55,520 Speaker 1: twelve month forward economic growth? Is it above two? No? 376 00:20:55,640 --> 00:20:58,000 Speaker 1: It's not. In fact, I don't think the longer run 377 00:20:58,840 --> 00:21:02,040 Speaker 1: growth rate for the account is above Okay, what's your 378 00:21:02,080 --> 00:21:05,280 Speaker 1: number for twelve months forward? I think that we're looking 379 00:21:05,359 --> 00:21:08,320 Speaker 1: at one five percent? Okay, fine, that's the JP Morgan's 380 00:21:08,320 --> 00:21:12,959 Speaker 1: with Lindsay, I like that. Great. What is Powell waiting for? 381 00:21:13,040 --> 00:21:15,920 Speaker 1: I mean, I sound like President Trump. But if you're 382 00:21:16,040 --> 00:21:20,760 Speaker 1: modeling and other adults are modeling, lindsay sub two g 383 00:21:20,880 --> 00:21:25,920 Speaker 1: d P, why why do they need to be patient? Well, 384 00:21:26,119 --> 00:21:29,640 Speaker 1: I think the sun has a historical position of waiting 385 00:21:29,800 --> 00:21:33,240 Speaker 1: until the data very clearly shows that the economy is 386 00:21:33,320 --> 00:21:36,080 Speaker 1: essentially falling off of a cliff. But we also know 387 00:21:36,200 --> 00:21:39,960 Speaker 1: that historically the said weights too late and then when 388 00:21:39,960 --> 00:21:42,600 Speaker 1: they begin to cut rape, they're unable to stave off 389 00:21:42,600 --> 00:21:45,359 Speaker 1: that weakness. So I'm not sure if the fund is 390 00:21:45,359 --> 00:21:50,200 Speaker 1: relying on very antiquated models that's telling them to take 391 00:21:50,240 --> 00:21:52,560 Speaker 1: this more patient stance, or this could be more of 392 00:21:52,560 --> 00:21:55,600 Speaker 1: a political posturing. They don't want to be seen as 393 00:21:55,680 --> 00:21:59,040 Speaker 1: cowing to the whims of the market or political pressures 394 00:21:59,040 --> 00:22:02,160 Speaker 1: out of the administration in lindsay, did President dragging ramp 395 00:22:02,240 --> 00:22:05,000 Speaker 1: up the pressure for chair and power tomorrow or did 396 00:22:05,000 --> 00:22:06,520 Speaker 1: he reduce some of it? How do you frame that 397 00:22:06,560 --> 00:22:10,800 Speaker 1: this morning for our listeners? Well, it's uh, it's difficult 398 00:22:10,800 --> 00:22:13,639 Speaker 1: because the ECB is certainly taking a much more a 399 00:22:13,680 --> 00:22:17,679 Speaker 1: patient stance without even using the word patient. And so 400 00:22:17,720 --> 00:22:19,359 Speaker 1: I do think that when we look out to our 401 00:22:19,400 --> 00:22:22,440 Speaker 1: developed counterparts that are saying, look, rave cuts are are 402 00:22:22,440 --> 00:22:25,240 Speaker 1: on the table. That's that's part of our policy going forward. 403 00:22:25,800 --> 00:22:28,159 Speaker 1: We see the b o J still actively engaged in 404 00:22:28,280 --> 00:22:32,000 Speaker 1: asset purchases. It's very difficult for the Fed to continue 405 00:22:32,040 --> 00:22:35,560 Speaker 1: to push against that string, not only on a relative basis, 406 00:22:35,600 --> 00:22:38,240 Speaker 1: but on a nominal basis when we see such clear 407 00:22:38,400 --> 00:22:41,240 Speaker 1: weakness in the fundamentals. As we talked about some of 408 00:22:41,240 --> 00:22:44,600 Speaker 1: those growth fundamentals, we didn't even mention the weak levels 409 00:22:44,600 --> 00:22:47,560 Speaker 1: of inflation we're seeing in the US. Lindsay, thank you, 410 00:22:47,600 --> 00:22:52,679 Speaker 1: So it was Stephile we try to give you the 411 00:22:52,680 --> 00:22:56,800 Speaker 1: best in conversation. Adam posing this morning was just brilliant 412 00:22:56,800 --> 00:22:59,840 Speaker 1: with the Peterson Institute on what's left in the tool 413 00:23:00,040 --> 00:23:03,560 Speaker 1: hit for central bankers. We now give you, without question, 414 00:23:03,640 --> 00:23:07,320 Speaker 1: the interview of the day on price change. Twenty one 415 00:23:07,400 --> 00:23:11,200 Speaker 1: years ago, almost to the day, Gary Shilling put out 416 00:23:11,280 --> 00:23:14,359 Speaker 1: a small blue book. It was called inflation, Yeah, big deal, 417 00:23:15,160 --> 00:23:18,320 Speaker 1: but it had a secondary headline, as is the vogue 418 00:23:19,000 --> 00:23:23,720 Speaker 1: that was stunning, Lee prescient, Why it's coming, whether it's 419 00:23:23,720 --> 00:23:27,760 Speaker 1: good or bad, and how it will affect your investments, 420 00:23:28,080 --> 00:23:32,639 Speaker 1: business and personal affairs. It is the call of a generation. 421 00:23:33,160 --> 00:23:38,320 Speaker 1: Gary Shilling on less inflation and lower yields. Dr Shilling 422 00:23:38,320 --> 00:23:40,679 Speaker 1: wonderful to have you with us today. I gotta go 423 00:23:40,720 --> 00:23:44,399 Speaker 1: to the headline right now, price up, yield down, and 424 00:23:44,480 --> 00:23:47,119 Speaker 1: you say yields are gonna go ever lower? Yeah, I 425 00:23:47,160 --> 00:23:49,280 Speaker 1: think so. I think we're going to go to one 426 00:23:49,760 --> 00:23:51,880 Speaker 1: on the ten year treasury. How do we get there? 427 00:23:51,960 --> 00:23:54,000 Speaker 1: Is it a yield mover? Is it just price and 428 00:23:54,080 --> 00:23:57,960 Speaker 1: insatiable demand for bonds? Well, it's a combination of things. 429 00:23:58,040 --> 00:24:00,880 Speaker 1: That's the fact that we have low inflation and very 430 00:24:00,880 --> 00:24:05,320 Speaker 1: well could have deflation. We're probably entering a recession now, 431 00:24:05,320 --> 00:24:09,440 Speaker 1: which has always beneficial to treasuries. Knocks down, knocks down inflation, 432 00:24:09,840 --> 00:24:12,600 Speaker 1: makes them a safe haven. Uh. The yield as low 433 00:24:12,640 --> 00:24:14,680 Speaker 1: as they are in this country are higher than almost 434 00:24:14,680 --> 00:24:19,440 Speaker 1: any other major sovereign. Uh. There's and there's says there's 435 00:24:19,480 --> 00:24:22,440 Speaker 1: there's simply the attraction that that people say, where else 436 00:24:22,440 --> 00:24:25,560 Speaker 1: am I going to go now with money? But you know, 437 00:24:25,600 --> 00:24:28,680 Speaker 1: it's interesting. I think that the bond market is telling 438 00:24:28,680 --> 00:24:30,879 Speaker 1: you the economy is a lot weaker than the stock market. 439 00:24:31,480 --> 00:24:34,560 Speaker 1: And I think the history says that bond investors have 440 00:24:34,680 --> 00:24:36,879 Speaker 1: a better view of what's going on in stock investors. Well, 441 00:24:36,880 --> 00:24:39,600 Speaker 1: there's a split there right now going on futures up eighteen, 442 00:24:39,680 --> 00:24:45,439 Speaker 1: the Dow futures up thousand to seventies seven. Can you 443 00:24:45,560 --> 00:24:51,000 Speaker 1: participate in equities this morning? Um, well, we're doing in 444 00:24:51,040 --> 00:24:56,520 Speaker 1: our portfolios defensively, things like utilities and consumer stables. Um. Yeah, 445 00:24:56,600 --> 00:24:59,640 Speaker 1: I think you have some participation. But our principal interests 446 00:24:59,640 --> 00:25:03,200 Speaker 1: are long treasuries, and I like the thirty year zero bond. 447 00:25:03,320 --> 00:25:05,680 Speaker 1: You get the most bang per buckets were given a 448 00:25:05,720 --> 00:25:08,840 Speaker 1: decline in interest ration, you get much more price appreciation. 449 00:25:08,920 --> 00:25:14,000 Speaker 1: As you know, Tom, since I've owned treasury bonds for 450 00:25:14,080 --> 00:25:19,720 Speaker 1: only one reason, appreciation, I couldn't care less. Fourteen point 451 00:25:19,760 --> 00:25:22,960 Speaker 1: six percent. Fourteen point six percent. Yeah, and you still 452 00:25:22,960 --> 00:25:25,240 Speaker 1: own the same paper you own back then, Well, you 453 00:25:25,280 --> 00:25:27,520 Speaker 1: have to roll it over. I mean, there isn't an 454 00:25:27,520 --> 00:25:30,119 Speaker 1: issue that was Okay, this is important. We're gonna rip 455 00:25:30,200 --> 00:25:33,480 Speaker 1: up the scripture. This is so important. The institutional shell 456 00:25:33,560 --> 00:25:37,200 Speaker 1: game now is to roll it over. And they're saying 457 00:25:37,240 --> 00:25:40,520 Speaker 1: to themselves, we're at three percent coupon and we're gonna 458 00:25:40,520 --> 00:25:42,960 Speaker 1: go down to a two point eight percent coupon at 459 00:25:43,000 --> 00:25:47,439 Speaker 1: some point that game ends, right, Well, sure, and I 460 00:25:47,480 --> 00:25:49,360 Speaker 1: think I think it ends to say when you get 461 00:25:49,400 --> 00:25:53,520 Speaker 1: to two percent on the thirty year bond. Uh. But 462 00:25:53,760 --> 00:25:55,880 Speaker 1: at that point it depends whether you go whether they're 463 00:25:55,880 --> 00:25:58,600 Speaker 1: whether attractive or not. And you know, is the appreciation 464 00:25:58,640 --> 00:26:00,720 Speaker 1: game would be over there? That's fine, But what's the 465 00:26:00,800 --> 00:26:03,679 Speaker 1: price to our economy to have a two thirty year piece? 466 00:26:03,960 --> 00:26:07,560 Speaker 1: Well that that's a very interesting point because, uh, unless 467 00:26:07,560 --> 00:26:10,240 Speaker 1: the FED wants to go negative on on rates and 468 00:26:10,240 --> 00:26:12,679 Speaker 1: the FED doesn't. They've seen that with the e c 469 00:26:12,800 --> 00:26:16,320 Speaker 1: B and they and the Bank of Japan, and what happens. 470 00:26:16,359 --> 00:26:19,120 Speaker 1: People don't borrow to spend. They save more because their 471 00:26:19,119 --> 00:26:22,320 Speaker 1: assets are not giving them a return for their retirement 472 00:26:22,400 --> 00:26:25,440 Speaker 1: or whatever. So they want to go negative. There's zero bounds, 473 00:26:25,480 --> 00:26:28,760 Speaker 1: so push the FED in a bind. And and of 474 00:26:28,760 --> 00:26:31,560 Speaker 1: course there was an interesting study by the FED Board 475 00:26:31,560 --> 00:26:35,400 Speaker 1: economists last year where they basically said, quantitative easing again, 476 00:26:35,520 --> 00:26:39,160 Speaker 1: is the only answer. Is there a physics to quantitative easy? 477 00:26:39,200 --> 00:26:41,639 Speaker 1: We should point out the dcor Schilling enjoys a shingle 478 00:26:42,040 --> 00:26:44,159 Speaker 1: in physics as well. I mean, if I look at 479 00:26:44,160 --> 00:26:47,119 Speaker 1: the inertial force of monetary policy, the reaction functions, I 480 00:26:47,200 --> 00:26:50,879 Speaker 1: get it. Is there a physics to quantitative easing? Is 481 00:26:50,920 --> 00:26:57,800 Speaker 1: there a a theory you can lean Uh? Maybe a 482 00:26:57,920 --> 00:27:00,840 Speaker 1: law of diminishing returns. I don't. I mean, I guess 483 00:27:00,880 --> 00:27:03,840 Speaker 1: it's gonna be QA sank. According to Mario Draggy this morning, 484 00:27:03,840 --> 00:27:07,560 Speaker 1: tenure yield two point zero three epercent as well, Japan's 485 00:27:07,560 --> 00:27:10,520 Speaker 1: buying apple shares or whatever they're doing by an equity equivalent. 486 00:27:10,680 --> 00:27:13,880 Speaker 1: This isn't in your textbooks from Amherst a few years ago, 487 00:27:14,040 --> 00:27:16,040 Speaker 1: is it? No, it isn't. And you know, one of 488 00:27:16,040 --> 00:27:18,720 Speaker 1: the interesting things now is the FED and Phil Graham 489 00:27:18,720 --> 00:27:21,119 Speaker 1: had a had a piece in today's journal on this. 490 00:27:21,680 --> 00:27:24,120 Speaker 1: The Feed is being forced to lower the rate they 491 00:27:24,119 --> 00:27:27,600 Speaker 1: pay banks on reserves because that's a better deal now 492 00:27:27,680 --> 00:27:30,840 Speaker 1: than than what is the appropriate Ben Bernanke says, the 493 00:27:30,880 --> 00:27:34,439 Speaker 1: banks are the appropriate, uh support that we need for 494 00:27:34,480 --> 00:27:39,200 Speaker 1: the economy to have a supportive financial system to help us. 495 00:27:39,520 --> 00:27:44,000 Speaker 1: What is the best FED policy prescription now? For Jamie Diamond, Well, 496 00:27:44,920 --> 00:27:48,640 Speaker 1: the best policy for him would would be obviously a 497 00:27:48,720 --> 00:27:52,399 Speaker 1: positive Yeel curve because if we have that, but banks 498 00:27:52,400 --> 00:27:56,440 Speaker 1: for some extent, yeah, well slightly but still suffer from this. 499 00:27:56,920 --> 00:27:59,160 Speaker 1: But you know, I think that I think the what 500 00:27:59,160 --> 00:28:02,760 Speaker 1: what we really scene, uh in the last thirty years, 501 00:28:03,400 --> 00:28:07,119 Speaker 1: is the FED becoming the great supporter of equities um. 502 00:28:07,280 --> 00:28:10,760 Speaker 1: They certainly did this coming out of the Great Recession 503 00:28:11,200 --> 00:28:14,959 Speaker 1: with knocking yields down to basically zero and then quantitative easing, 504 00:28:15,560 --> 00:28:17,760 Speaker 1: and then we got the green Span put, we got 505 00:28:17,760 --> 00:28:20,000 Speaker 1: the Bernankee put, the yelling put, and now it looks 506 00:28:20,000 --> 00:28:22,280 Speaker 1: like we have the power put. And it seems as 507 00:28:22,320 --> 00:28:24,560 Speaker 1: all the FED looks on their number one job is 508 00:28:24,600 --> 00:28:27,240 Speaker 1: supporting equities, and they look on that as the as 509 00:28:27,280 --> 00:28:29,480 Speaker 1: the indicative the economy. But what it does, tom, it 510 00:28:29,560 --> 00:28:31,840 Speaker 1: gives you a big build up to a big decline. 511 00:28:32,160 --> 00:28:35,040 Speaker 1: Green Span said, you don't worry about you don't worry 512 00:28:35,040 --> 00:28:37,400 Speaker 1: about accesses and so on. You clean up the mess 513 00:28:37,400 --> 00:28:39,520 Speaker 1: after the bubble breaks. Well, it was a big bubble 514 00:28:39,520 --> 00:28:43,440 Speaker 1: that to break the bubble and clean up the mess 515 00:28:43,440 --> 00:28:46,600 Speaker 1: and a aken basis, we have to clear the market, 516 00:28:46,680 --> 00:28:48,680 Speaker 1: don't we. We do have to clip. But but you 517 00:28:48,680 --> 00:28:50,800 Speaker 1: know what, You've got two ways of doing and you 518 00:28:50,840 --> 00:28:53,360 Speaker 1: can do this step by step as you go along, 519 00:28:53,720 --> 00:28:57,080 Speaker 1: which creates discipline in the system, the fear versus greed, 520 00:28:57,600 --> 00:29:00,680 Speaker 1: or you can do what we did earlier, will simply 521 00:29:00,760 --> 00:29:02,360 Speaker 1: let it run, Let it run, let it run. You 522 00:29:02,440 --> 00:29:04,280 Speaker 1: build up a huge thing. In that case, it was 523 00:29:04,360 --> 00:29:07,680 Speaker 1: subprime mortgage lending and then you have a huge collapse, 524 00:29:07,680 --> 00:29:11,320 Speaker 1: a huge catharsis. Now. I would prefer the step by 525 00:29:11,400 --> 00:29:14,920 Speaker 1: step keeping things in line, but the Fed seems to 526 00:29:14,960 --> 00:29:17,520 Speaker 1: be on this track now where they don't want to 527 00:29:17,760 --> 00:29:20,840 Speaker 1: they don't want to disturb things, and inevitable is a 528 00:29:20,880 --> 00:29:22,720 Speaker 1: big build up and then a crash. I don't see 529 00:29:22,760 --> 00:29:25,760 Speaker 1: the crash coming now. I don't see the mechanism, but 530 00:29:26,560 --> 00:29:29,560 Speaker 1: human nature hasn't changed. It's there somewhere. How do you 531 00:29:29,760 --> 00:29:34,320 Speaker 1: respond to Barclay's and David blench Flower yesterday telling us 532 00:29:34,880 --> 00:29:37,400 Speaker 1: they need to get away from a green spannion measured 533 00:29:37,920 --> 00:29:40,880 Speaker 1: and get back to an Arthur Burnsey and fifty basis 534 00:29:40,920 --> 00:29:43,560 Speaker 1: point rate cut at some point? Is it good to 535 00:29:43,600 --> 00:29:47,360 Speaker 1: get off the measured track? Uh? If you need that 536 00:29:47,440 --> 00:29:49,640 Speaker 1: kind of if you need that kind of shock, if 537 00:29:49,640 --> 00:29:51,160 Speaker 1: you need to do we need that kind of shock 538 00:29:51,280 --> 00:29:55,040 Speaker 1: right now? Not right now? No, but but you very 539 00:29:55,080 --> 00:29:57,800 Speaker 1: well could. I mean, you know the thing about the economies, 540 00:29:57,840 --> 00:30:00,920 Speaker 1: you never know where you are now until much later. 541 00:30:01,440 --> 00:30:04,440 Speaker 1: It wasn't until December of two thousand and eight that 542 00:30:04,480 --> 00:30:07,440 Speaker 1: the National Bureaue Economic Research, which is the official arbitry 543 00:30:07,480 --> 00:30:10,720 Speaker 1: of recessions, declared that the business had peaked a year 544 00:30:10,800 --> 00:30:13,800 Speaker 1: earlier in December of oh seven, And of course with 545 00:30:13,840 --> 00:30:16,600 Speaker 1: the delays of revisions and so on, you never know 546 00:30:16,640 --> 00:30:19,040 Speaker 1: where you are. So it really means the FED is 547 00:30:19,160 --> 00:30:22,200 Speaker 1: always behind the curve when they're reacting to the economy 548 00:30:22,240 --> 00:30:25,480 Speaker 1: as that goes along. One final question. You've written numerous 549 00:30:25,560 --> 00:30:29,760 Speaker 1: times for Bloomberg Opinion on China. Do we underestimate China's 550 00:30:29,800 --> 00:30:34,120 Speaker 1: resiliency as an economy? On No, I don't think so. 551 00:30:34,360 --> 00:30:36,160 Speaker 1: I think I think China has got a lot of 552 00:30:36,160 --> 00:30:39,360 Speaker 1: problems now. They have a top down economy, and it's 553 00:30:39,360 --> 00:30:40,880 Speaker 1: sort of like the FED. You know, it's one of 554 00:30:40,880 --> 00:30:43,719 Speaker 1: these things that works until it doesn't work. Uh. In 555 00:30:43,720 --> 00:30:46,680 Speaker 1: a democratic system you can have gradual changes. We see 556 00:30:46,720 --> 00:30:48,920 Speaker 1: that in India, we see that in the US, we 557 00:30:49,000 --> 00:30:51,640 Speaker 1: see that in the UK. But in China is one 558 00:30:51,680 --> 00:30:53,960 Speaker 1: of these deals where the guys on top control it, 559 00:30:54,400 --> 00:30:57,360 Speaker 1: and she is putting in more and more controls. Uh. 560 00:30:57,400 --> 00:31:01,320 Speaker 1: They're even watching school teachers, everybody for the government. And 561 00:31:01,400 --> 00:31:04,200 Speaker 1: that works until you until it just it just blows up. 562 00:31:04,240 --> 00:31:06,680 Speaker 1: Look what's happening in Hong Kong. You've got over a 563 00:31:06,720 --> 00:31:10,120 Speaker 1: million people in the streets. It's it's a it's a 564 00:31:10,160 --> 00:31:13,480 Speaker 1: it's a different system, but it's it's much less orderly 565 00:31:13,520 --> 00:31:16,520 Speaker 1: in the in the long run, I gotta get more questions, 566 00:31:16,520 --> 00:31:18,760 Speaker 1: but we don't any time. Dr Schilling with us today. 567 00:31:19,120 --> 00:31:22,480 Speaker 1: I throw his book at the young Deflation, Why it's coming, 568 00:31:22,560 --> 00:31:25,320 Speaker 1: whether it's good or bad, and how it will affect 569 00:31:25,400 --> 00:31:29,360 Speaker 1: your investments, business and personal affairs. It's just out twenty 570 00:31:29,360 --> 00:31:33,080 Speaker 1: one years ago. We're looking for the fourth of July movie. 571 00:31:33,120 --> 00:31:39,040 Speaker 1: Here two thousand markets thirty at the anniversary. Thanks for 572 00:31:39,160 --> 00:31:43,560 Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to 573 00:31:43,720 --> 00:31:49,440 Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 574 00:31:50,000 --> 00:31:53,320 Speaker 1: I'm on Twitter at Tom Keane before the podcast. You 575 00:31:53,360 --> 00:32:02,920 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.