WEBVTT - Surveillance: The Fed's Options With Kroszner 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.680 Bloomberg dot Com, and of course on the Bloomberg. It 0:00:27.760 --> 0:00:30.360 has been a joy this morning to have with us. 0:00:30.440 --> 0:00:33.320 Randall Krosner of the Boos School of Chicago were thrilled 0:00:33.360 --> 0:00:35.959 the former governor of the Federal Reserve continues with us 0:00:36.280 --> 0:00:38.800 at Queen Victoria Street and sitting with me in New 0:00:38.840 --> 0:00:42.560 York as Allan Ruskin, chief international strategist for Deutsche Bank 0:00:42.680 --> 0:00:44.720 as well, if you could bring up this chart and 0:00:44.760 --> 0:00:47.240 we ran this by Randy Crossing here moments ago, I 0:00:47.280 --> 0:00:50.159 want to run it by Alan Ruskin as well. We 0:00:50.200 --> 0:00:53.160 had QUEE and then we rolled over and we had 0:00:53.280 --> 0:00:55.880 q T and Allen we got a new set of 0:00:55.920 --> 0:00:59.720 options based around this repo market reality. One was asserted 0:00:59.760 --> 0:01:03.360 to of QT the yellow line, one was the flat line. 0:01:03.360 --> 0:01:06.360 And the new news, as we may expand the balance sheet, 0:01:06.560 --> 0:01:09.440 is that the Deutsche Bank view. I think what you 0:01:09.520 --> 0:01:13.520 saw from Chairman Powell is a reasonable characterization of where 0:01:13.520 --> 0:01:16.360 we're at. I think it'll look and see how effective 0:01:16.360 --> 0:01:19.480 the repos are. We've got some special circumstances now in 0:01:19.560 --> 0:01:24.160 terms of braining factors, you know, particularly from settlements and 0:01:24.520 --> 0:01:28.840 you know, just generally territory balances. But it looks like 0:01:29.840 --> 0:01:33.240 excess reserves that are in the system are not doing 0:01:33.240 --> 0:01:35.000 their job as such, and it does look like we're 0:01:35.040 --> 0:01:37.880 gonna need more reserves. So I think ultimately the organic 0:01:37.920 --> 0:01:40.360 path is probably to that green line to the top side. 0:01:40.440 --> 0:01:42.520 So there's the light blue line of the top side. Okay, 0:01:42.560 --> 0:01:44.640 I want you to speak to the academics and one 0:01:44.640 --> 0:01:48.360 of the charms of Ragarajin and Randy Crosser at BOOST School, 0:01:48.600 --> 0:01:51.720 like your charm at LSE, is you guys actually understand 0:01:51.760 --> 0:01:56.480 there's a market out there. Explain to the academic economist 0:01:56.680 --> 0:01:59.720 purists why they need to pay attention to the repo. 0:02:00.560 --> 0:02:05.160 Explain to the monetary theoreticians why all this matters. Well, 0:02:05.200 --> 0:02:07.880 it certainly matters that the Federal Reserve has control of 0:02:07.960 --> 0:02:10.640 the very front end of the curve, that's the anchor 0:02:10.680 --> 0:02:13.560 to the whole yield curve. So at a minimum they 0:02:13.600 --> 0:02:17.280 want to be able to hit their effective funds read target. 0:02:17.639 --> 0:02:20.320 It pretty much sets the tone for the rest of 0:02:20.320 --> 0:02:23.640 the curve. Um, you don't really want extreme levels of 0:02:23.680 --> 0:02:27.320 volatility either. That sort of sets in tune questions about 0:02:27.720 --> 0:02:32.239 effectiveness and monetary policy, whether the Federal Reserve can also 0:02:32.919 --> 0:02:36.880 quash short term volatility as well at the front of 0:02:36.919 --> 0:02:41.840 the curve. So, um, they're want control. Okay, they want control, 0:02:42.040 --> 0:02:44.680 And we were talking about this with you, Randy Crossner's 0:02:44.760 --> 0:02:47.400 or anything. What can the FED do now to fix 0:02:47.639 --> 0:02:51.400 this more permanently? So I think you know there at 0:02:51.480 --> 0:02:54.560 least two things that they could do. One is exactly 0:02:54.680 --> 0:02:57.720 Zellen said, allow the balance sheet to to continue to grow. 0:02:57.760 --> 0:03:00.359 We talked about that before. And also they could set 0:03:00.440 --> 0:03:03.840 up a facility that allows for more reserves to come 0:03:03.880 --> 0:03:07.119 into the system just naturally as rates go up, rather 0:03:07.160 --> 0:03:09.480 than the FIT having to decide, well, we're gonna put 0:03:09.480 --> 0:03:12.480 in twenty billion at eleven AM or ten billion at 0:03:12.480 --> 0:03:16.040 eleven AM. We the Fed does estimates of how much 0:03:16.200 --> 0:03:19.320 is needed each day. It's difficult to get those estimates right. 0:03:19.600 --> 0:03:21.480 Why not let the market decide that you So you 0:03:21.520 --> 0:03:24.840 effectively could just have a standing facility that if rates 0:03:24.840 --> 0:03:27.800 go above the target by a certain amount, then you 0:03:27.880 --> 0:03:30.200 just provide as as much as as you need at 0:03:30.240 --> 0:03:32.119 that and that would help to provide some stability there. 0:03:32.360 --> 0:03:34.680 M Randy. If there was a liquidity problem in the markets, 0:03:34.720 --> 0:03:37.080 like a real liquidity problem in the market, where would 0:03:37.160 --> 0:03:40.000 we see it first? So I think this is exactly 0:03:40.040 --> 0:03:41.640 where you would see it. In these money markets. You 0:03:41.720 --> 0:03:44.800 see these these short term rates spike up because people 0:03:44.840 --> 0:03:46.680 need the cash and they need it now. They don't 0:03:46.680 --> 0:03:49.320 need it tomorrow, they need it now, and these are 0:03:49.360 --> 0:03:52.720 these these kind of now rates. Um. If you look 0:03:52.880 --> 0:03:55.160 at alan, you know the impact on the rest of 0:03:55.200 --> 0:03:59.320 the markets. Does it have an impact on some of 0:03:59.360 --> 0:04:02.600 the other central banks around the world on on how 0:04:02.880 --> 0:04:07.840 they should look at liquidity? Um, Not to a great degree. 0:04:07.880 --> 0:04:11.080 But I think what you have seen is that just temporarily, 0:04:11.080 --> 0:04:16.599 there was some linkage between currencies and the tightness in 0:04:16.600 --> 0:04:20.279 the liquidity markets, or the dollar liquidity markets. So you 0:04:20.360 --> 0:04:22.880 did see, for example, as things tightened up, the dollar 0:04:23.360 --> 0:04:25.839 briefly went through a spell where it actually did quite well, 0:04:25.880 --> 0:04:29.000 and then when things eased up, the dollar gave back something. 0:04:29.040 --> 0:04:31.320 So you know, some of that relates obviously to the 0:04:31.400 --> 0:04:33.599 you know where the sources of funding. Some of the 0:04:33.600 --> 0:04:37.440 funding comes through the cross currency basis market. So um, 0:04:37.480 --> 0:04:40.200 you know there is a linkage there as well. Um, 0:04:40.240 --> 0:04:42.720 I think the other central banks have got to know. 0:04:42.800 --> 0:04:47.080 Obviously other issues you don't see particular natural spillover is 0:04:47.200 --> 0:04:51.039 yet in terms of tension and I liquidity in other markets. 0:04:51.120 --> 0:04:54.080 Let's keep on McCormick publishing on Australia in the cross 0:04:54.120 --> 0:04:58.559 currency dynamics between Australia and all this last now, Randy 0:04:58.600 --> 0:05:01.440 Krouser ill agrees and wrote a wonderful book, The Age 0:05:01.440 --> 0:05:04.640 of Turbulence in the math world of you and Alan Ruskin. 0:05:04.720 --> 0:05:08.440 Turbulence is at epsilon off the other side of the equation. 0:05:08.839 --> 0:05:12.240 What's the new epsilon? What do we learned this week 0:05:12.279 --> 0:05:15.480 about the new volatility that Mr Ruskin was talking about 0:05:15.520 --> 0:05:19.600 moments ago? Well, I think that's right. I think these 0:05:19.680 --> 0:05:22.760 these challenges and volatility of the market and the liquidity 0:05:22.800 --> 0:05:25.480 the market, that's really it's the financial plumbing. It's the 0:05:25.520 --> 0:05:30.080 base for for everything, and when it's working normally, we 0:05:30.120 --> 0:05:32.160 don't even think about it. It's just like the plumbing 0:05:32.160 --> 0:05:34.159 in your house. You never think about it working, but 0:05:34.320 --> 0:05:36.359 man if it gets backed up, you know that you 0:05:36.360 --> 0:05:38.640 want to run from that house. It causes all sorts 0:05:38.640 --> 0:05:42.760 of troubles and it's foundational for it can cause volatility 0:05:42.800 --> 0:05:45.599 and other markets that can cause difficulties for just making 0:05:46.000 --> 0:05:48.560 making payments. And so I think what we need to 0:05:48.600 --> 0:05:50.360 really do is think about do we have the right 0:05:50.400 --> 0:05:53.039 institutions to make sure we have the smooth function of 0:05:53.080 --> 0:05:56.200 the markets. And that's why allowing the balance sheet to 0:05:56.240 --> 0:05:59.360 grow organically, that's why having a facility like many other 0:05:59.400 --> 0:06:04.000 central banks have to just naturally provide more more reserves 0:06:04.000 --> 0:06:06.520 into the system rather than the New York Fed and 0:06:06.520 --> 0:06:09.240 and the Fed Reserve and Washington try to estimate each day. 0:06:09.480 --> 0:06:12.000 But the right number is that those might be ways 0:06:12.040 --> 0:06:15.360 to go to smoothen out, but still their fundamental fragilities 0:06:15.360 --> 0:06:19.120 that are there that may be unintended consequences of regulation, 0:06:19.200 --> 0:06:21.760 and we need a kind of a bigger rethink about 0:06:21.839 --> 0:06:24.440 what those are. Thank you so much for Randy Crossner. 0:06:24.480 --> 0:06:27.440 They're very generous with this time this morning of University 0:06:27.480 --> 0:06:40.760 of Chicago, both school and Alan Ruskin from Deutsche Bank. 0:06:44.200 --> 0:06:46.640 Why don't you bring in Mischelle? Michelle, do you want 0:06:46.640 --> 0:06:49.440 to us now principal Global Investors chiefs strategist joining us 0:06:49.680 --> 0:06:52.400 out of London. Same you live it every single day, 0:06:52.400 --> 0:06:54.640 So walkers through what on earth is the lightest twist 0:06:54.640 --> 0:06:58.640 and turn in the never ending Brexit story. Yeah, it's 0:06:58.640 --> 0:07:01.360 certainly never ending. Um. To be honest, this this latest 0:07:01.360 --> 0:07:04.320 twist is I think a little bit more of nothing. 0:07:05.080 --> 0:07:07.640 I don't think we've learned anything new if we listen 0:07:07.720 --> 0:07:09.880 really toward Junker said, I don't think he's given any 0:07:09.920 --> 0:07:13.640 clear information about a potential deal. Um. And certainly if 0:07:13.640 --> 0:07:17.640 you've just heard from the Ireland Finance minister, they're certainly 0:07:17.680 --> 0:07:20.920 suggesting that the UK still far away from from getting 0:07:20.920 --> 0:07:23.160 any kind of deal. The Irish thrown cold water on 0:07:23.240 --> 0:07:24.680 the whole thing, and we've still got to wait to 0:07:24.720 --> 0:07:28.000 see what the Supreme Court says about the ruling on 0:07:28.120 --> 0:07:34.080 Boris Johnson suspending Parliament. Any insight on now whatsoever seem well, 0:07:34.120 --> 0:07:37.119 I mean, it's an interesting one and and then again 0:07:37.160 --> 0:07:40.240 it doesn't really likely have any impact on breaksit whatsoever 0:07:40.560 --> 0:07:43.520 unless you were to have a completely drastic ruling which 0:07:43.520 --> 0:07:45.400 meant that everyone was brought back in and a lot 0:07:45.400 --> 0:07:47.800 of the powers taken away from Boris, which seems extremely 0:07:47.840 --> 0:07:49.960 unlikely at this stage. I think for us, what it's 0:07:50.000 --> 0:07:53.280 been really interesting is that people are still have some 0:07:53.400 --> 0:07:56.680 optimism about brigs and and having Stirling and around one 0:07:56.760 --> 0:07:59.840 twenty five against the dollar is to ask quite surprising. 0:08:00.120 --> 0:08:05.960 Does that capture some optimism? See, it must do. It 0:08:06.280 --> 0:08:09.120 must be that people are taking away the risk of 0:08:09.120 --> 0:08:11.680 a no deal Brexit. For us, we would say there's 0:08:11.720 --> 0:08:15.640 still about chance of a no deal Brexit. Uh, there 0:08:15.840 --> 0:08:18.840 doesn't seem to be any advancement in negotiations whatsoever. We 0:08:18.880 --> 0:08:21.840 still have no idea what any deal that Boris has 0:08:21.840 --> 0:08:24.520 in mind is um and of course, and then we're 0:08:24.560 --> 0:08:26.760 hearing that the you know, the chance of a general 0:08:26.760 --> 0:08:29.880 election are increasing, which adds to more uncertainty. So if 0:08:29.880 --> 0:08:33.080 anything actually going into October, we would have expected starting 0:08:33.120 --> 0:08:35.920 to be closer to the one twenty mark rather than mark. 0:08:36.080 --> 0:08:37.880 So tell us what you're telling clients about what they 0:08:37.880 --> 0:08:43.840 should be doing right now. I think that if whatever 0:08:43.840 --> 0:08:45.920 we know, we know that Brexit at some point is 0:08:46.000 --> 0:08:48.120 likely to happen, we know there's going to be a 0:08:48.120 --> 0:08:50.960 prolonged period of uncertainty. To us, that means that the 0:08:51.040 --> 0:08:53.480 UK economy is going to be weakening. So if you 0:08:53.520 --> 0:08:56.120 are willing to wait out and wait for a no 0:08:56.240 --> 0:08:58.800 deal breaks or whatever form of Brexit it is, then 0:08:58.840 --> 0:09:01.320 at some point then there maybe value ahead for any 0:09:01.400 --> 0:09:04.160 kind of assets UK assets. The thing is is that 0:09:04.200 --> 0:09:05.880 if you want to get back into the UK at 0:09:05.920 --> 0:09:07.880 that point, you still have to have a very very 0:09:07.880 --> 0:09:11.760 strong stomach for the macro weakness that's likely to ensue, 0:09:12.000 --> 0:09:14.000 and also there a lot of volatility that's likely to 0:09:14.000 --> 0:09:16.880 come because like breaks, it doesn't mean that there's certainty. 0:09:17.120 --> 0:09:19.520 Businesses still have no idea what breaks it means and 0:09:19.559 --> 0:09:21.840 how they will have to operate under what conditions. So 0:09:21.920 --> 0:09:25.800 if anything that breaks it means I want to take 0:09:25.840 --> 0:09:28.400 it seem into a broader view your work with Principal 0:09:28.400 --> 0:09:32.640 Global Investors and in almost like a strategy into October, 0:09:33.440 --> 0:09:36.400 John and I and all of our listeners worldwide are 0:09:36.400 --> 0:09:40.000 getting bombarded by this story. This story is cacophony the 0:09:40.080 --> 0:09:42.400 right word, John, I think it can be. There's a 0:09:42.480 --> 0:09:47.440 cacophony of stuff going on. How do you synthesize that 0:09:47.920 --> 0:09:53.880 into a cogent message for principal Global investors. I have 0:09:53.960 --> 0:09:56.840 to say it is a very very difficult period for investors, 0:09:56.920 --> 0:09:59.040 and one of the reasons is is it's not just 0:09:59.120 --> 0:10:03.240 a geopolitical atmosphere which is quite volatile, but also the 0:10:03.280 --> 0:10:06.400 macro picture is quite uncertain for us. What we've tried 0:10:06.440 --> 0:10:08.120 to do is we're trying to take a step back 0:10:08.160 --> 0:10:10.280 and look at what are the fundamentals. Now, that doesn't 0:10:10.280 --> 0:10:12.040 mean you take away your eyes from the headlines, because 0:10:12.040 --> 0:10:14.719 their headlines at this stage have a potential to hit. 0:10:14.760 --> 0:10:17.240 And what I mean by that is we can see 0:10:17.320 --> 0:10:20.600 ecting markets doing relatively well over the rest of the year, 0:10:20.640 --> 0:10:23.360 so I mean a very modest rally. And that is 0:10:23.400 --> 0:10:26.240 assuming that the global economy recovers, starts to recover of 0:10:26.320 --> 0:10:29.360 stabilizers even towards the end of the year. But it 0:10:29.480 --> 0:10:32.160 also has to imply that that none of the shocks 0:10:32.160 --> 0:10:35.480 that are threatening the global economy come to fruition. So, 0:10:35.520 --> 0:10:39.160 in other words, the market price for perfection. Okay, I'll 0:10:39.160 --> 0:10:41.640 go with that. The the equity market is clearly priced 0:10:41.640 --> 0:10:46.480 for perfection. Have we become immune to the dreaded exaggerate shark. 0:10:49.600 --> 0:10:51.480 I don't think we're immune, because if you see how 0:10:51.679 --> 0:10:55.240 markets fluctuate um with every single headline, I don't think 0:10:55.240 --> 0:10:57.800 they're becoming immune. But it has been somewhat interesting to 0:10:57.920 --> 0:11:01.000 us that when you consider where actually markets are compared 0:11:01.000 --> 0:11:04.000 to the underlying economy, it's so much stronger that dislocation 0:11:04.480 --> 0:11:07.920 has not disappeared. It's telling us that investors just want 0:11:07.920 --> 0:11:10.319 to put their money to work, which in some ways 0:11:10.480 --> 0:11:12.000 is surprising. But I think we just have to get 0:11:12.000 --> 0:11:13.840 on the back of that. And you have seen some 0:11:14.000 --> 0:11:18.000 capitulation number investors who have had a very bearish um 0:11:18.440 --> 0:11:21.040 outlook for a while now, and now I happen to 0:11:21.080 --> 0:11:23.120 get back on top of this and get behind the 0:11:23.160 --> 0:11:25.240 acting market money. I mean, you have two shingles from 0:11:25.240 --> 0:11:27.680 the London School of Economics. I know you went through 0:11:27.720 --> 0:11:31.640 their international relations course. Is it always been like this? 0:11:31.760 --> 0:11:34.240 I mean, if you go back to classic LSE and 0:11:34.400 --> 0:11:36.640 like the beginning the advent of World War two, or 0:11:36.679 --> 0:11:40.320 even back beyond that, has the cacophony we've been instance 0:11:40.360 --> 0:11:43.520 August normal? Or is this like a new thing because 0:11:43.559 --> 0:11:48.880 of new technology, new information transfer. I think it's something 0:11:48.960 --> 0:11:50.640 of a new thing, and I really think it's down 0:11:50.679 --> 0:11:53.559 to actually the politicians that we have um in the 0:11:53.880 --> 0:11:57.600 global economy, the amount of geopolitical risks. It's an upproval 0:11:57.840 --> 0:12:00.440 of what has become a global norm for a number 0:12:00.440 --> 0:12:03.280 of decades is now being disrupted and I think that 0:12:03.360 --> 0:12:05.520 is really worth driving a lot of the volatility and 0:12:05.640 --> 0:12:09.800 uncertainty which is circling invested every day. Now, this has 0:12:09.840 --> 0:12:12.200 been wonderful. Don't be a stranger. See Michelle with us 0:12:13.000 --> 0:12:14.880 from a London thrill that she could be with us 0:12:14.880 --> 0:12:30.720 today with principal global investors. Right now, I want to 0:12:30.720 --> 0:12:33.960 get a snapshot John, of the American economy. But before that, 0:12:34.080 --> 0:12:38.319 we must digress because it's far too important. Brighton and 0:12:38.600 --> 0:12:42.120 Hove Albion. Is that how you pronounced that? That's right? 0:12:43.040 --> 0:12:45.320 Are they like are they like a relegated coming up 0:12:45.360 --> 0:12:47.280 a better team or have they been there for years? 0:12:47.280 --> 0:12:49.240 I mean they're doing okay. They're doing okay and they're 0:12:49.240 --> 0:12:51.559 going to play Newcastle. Yeah. Should we bring in someone 0:12:51.600 --> 0:12:56.240 with some perspective might have a bit of something about Newcastle? Yeah, 0:12:56.720 --> 0:12:58.840 in Shepherdson with us with Panthea, we're going to get 0:12:58.840 --> 0:13:02.160 to the American economy. It it's funny ivan for me 0:13:02.240 --> 0:13:05.480 to watch Newcastle because it's like totally different than the 0:13:05.520 --> 0:13:09.319 fancy pants Tottenham, you know, in fancy new stadium. I mean, 0:13:09.320 --> 0:13:13.439 Newcastle is a breath of fresh air to watch. Well, 0:13:14.040 --> 0:13:16.000 I wouldn't know something because I've given up my season 0:13:16.040 --> 0:13:18.800 ticket after twenty three years. Why did you do that? 0:13:20.320 --> 0:13:25.000 It's my protest against the ownership. Not another penny goes 0:13:25.080 --> 0:13:28.080 to Mike Ashley. Not another penny. Can you just explain 0:13:28.120 --> 0:13:32.200 to Tom who Mike Ashley is, because is the retalent 0:13:32.280 --> 0:13:34.199 character who bought the club about ten years ago and 0:13:34.200 --> 0:13:35.920 it was kind of running into the ground. So this 0:13:35.960 --> 0:13:37.720 is this is my I'm not the only one protesting. 0:13:37.720 --> 0:13:40.679 There's about ten thou other season tickets you haven't read. 0:13:41.200 --> 0:13:44.240 He like the equivalent of foot locker in the United 0:13:44.320 --> 0:13:48.079 Kingdom sports Direct, one of these big chains of sports 0:13:48.080 --> 0:13:51.640 stores in the UK. You also owns Newcastle United. I'm 0:13:51.679 --> 0:13:53.880 gonna secure you this right over to the expertise of 0:13:53.960 --> 0:13:57.840 Pantheon Economics. The consumer in the United Kingdom at their 0:13:57.840 --> 0:14:01.599 foot locker, how's our foot locker doing? How is the consumer? 0:14:01.679 --> 0:14:06.360 Ian Shepherdson. In America, the consumers fine? I mean, the 0:14:06.360 --> 0:14:09.240 consumer is dragging along the whole economy. It looks to 0:14:09.280 --> 0:14:12.520 me like we're going to get another three plus quarter 0:14:12.600 --> 0:14:15.120 in the third quarter, which is really very good going 0:14:15.160 --> 0:14:17.679 given that we've seen business confidence really take a pounding 0:14:17.720 --> 0:14:20.800 from the trade war. Actually, the trade war might be 0:14:20.840 --> 0:14:24.960 helping consumer spending right now, because looks to me looking 0:14:25.000 --> 0:14:27.080 at the chain store sales numbers that people have been 0:14:27.120 --> 0:14:30.960 pulling forward purchases of consumer goods because they know that 0:14:31.000 --> 0:14:34.280 the tariffs are coming. There were tarwers from post September one, 0:14:34.440 --> 0:14:37.000 so they'll start hitting the stores next month. So people 0:14:37.040 --> 0:14:39.400 looked to have been spending more like bringing forward some 0:14:39.480 --> 0:14:42.560 maybe some of the holiday purchases just to avoid the tariffits. 0:14:42.600 --> 0:14:44.760 So that's going to flatter the third quarter. It's the 0:14:44.800 --> 0:14:46.960 fourth quarter and beyond that. I'm a bit nervous about. 0:14:47.240 --> 0:14:49.360 But I mean, certainly compared to the corporate sect of 0:14:49.360 --> 0:14:52.600 the consumers, pretty a bit nervous about Bullet or bit 0:14:52.680 --> 0:14:57.080 nervous about Rose and Grin George. That's that's an interesting question. 0:14:57.080 --> 0:14:59.040 I gotta Sam. I'm more on the Rose and Grin 0:14:59.080 --> 0:15:03.920 George to the spectrum Blore today talking about needing to 0:15:04.480 --> 0:15:07.720 action downside inflation risks. But the fact is that core 0:15:07.800 --> 0:15:11.000 CPI inflation now is two point four percent. A few 0:15:11.000 --> 0:15:12.840 months ago it is two percent. It hasn't been a 0:15:12.840 --> 0:15:15.920 both point four percent, yes, So I'm not quite sure 0:15:15.920 --> 0:15:17.480 where he's coming from it. You know, we we know 0:15:17.600 --> 0:15:19.680 there's some stuff in the pipeline from caiffs and some 0:15:19.720 --> 0:15:21.800 of the things is going to push inflation higher. So 0:15:22.360 --> 0:15:24.880 I think that that low inflation ship. You know, I 0:15:24.920 --> 0:15:26.960 think maybe it's sailed, and I'm not quite sure why 0:15:26.960 --> 0:15:30.480 Bullot is hanging onto it so tightly. Ian Shepherdson moments ago. 0:15:30.520 --> 0:15:32.280 I'm sure you haven't seen this, because it just came 0:15:32.280 --> 0:15:35.320 out seconds ago, literally from the Federris Bank of Boston, 0:15:35.440 --> 0:15:39.400 Mr Rosen Grin commenting on dissenting vote at the meeting 0:15:39.440 --> 0:15:42.320 of the Federal Open Market Committee. Folks, this is a 0:15:42.320 --> 0:15:46.480 formal document stating his descent was that they should not 0:15:46.680 --> 0:15:50.520 cut rates. The first sentence, Ian Shepherdson, The stance of 0:15:50.560 --> 0:15:54.240 monetary policy is accommodative. Do you agree with that that 0:15:54.560 --> 0:16:00.760 right now, even before this beet cut, that we were accommodative. Yes, 0:16:00.880 --> 0:16:03.320 I'm in real interest rates are zero, depending how you 0:16:03.480 --> 0:16:06.640 measure them, roughly zero long term rates, and some of 0:16:06.680 --> 0:16:10.480 them are below zero implied real mortgage rates on negative 0:16:10.840 --> 0:16:14.840 household service costs of corporate That service costs are rock rock. 0:16:15.720 --> 0:16:19.239 So I'm looking for kigns of any lack of accommodation, 0:16:19.280 --> 0:16:21.720 and as you pose, I'm not seeing them. You know, 0:16:21.800 --> 0:16:23.760 I can I can kind of understand this sort of 0:16:23.800 --> 0:16:27.160 insurance type of proachest risk management approach that Powell has 0:16:27.280 --> 0:16:30.960 talked about, because after all, today core PC inflation is 0:16:31.000 --> 0:16:34.240 one point six percent, and that's not terrifying at all. Um. 0:16:34.280 --> 0:16:36.880 I just think that maybe a bit of forward thinking 0:16:36.960 --> 0:16:39.200 might might might make it clearer than actually that rate 0:16:39.240 --> 0:16:41.440 is going to rise, and that although the economy is 0:16:41.440 --> 0:16:44.240 going to weaken, I think that it's probably not going 0:16:44.320 --> 0:16:46.480 to roll over. So I think some of these tensions 0:16:47.160 --> 0:16:49.040 are going to emerge, but probably not in the way 0:16:49.040 --> 0:16:50.760 that Jim Ballard thinks, more in the way that Eric 0:16:50.800 --> 0:16:54.480 Rosingren thinks, in that actually inflation and risk is not gone. 0:16:54.760 --> 0:16:56.200 But I gotta tell you, Tom, this is a hard 0:16:56.200 --> 0:16:58.120 thing to get over to people, because you know, we 0:16:58.120 --> 0:17:00.880 we haven't seen core CPI inflay at both three percent 0:17:01.000 --> 0:17:02.960 for more than twenty years. I think we might see 0:17:02.960 --> 0:17:06.440 it again next next spring because of the tariffs, and 0:17:06.520 --> 0:17:09.879 so that the sort of disinflation low inflation mindset is 0:17:09.920 --> 0:17:13.800 extremely deeply entrenched, just like the high inflation mindset was 0:17:13.840 --> 0:17:16.640 deeply entrenched in the seventies and eighties, and it took 0:17:16.640 --> 0:17:19.960 a generation to work it out. But maybe we've we've 0:17:20.240 --> 0:17:22.400 We've got so many people know who can't remember any 0:17:22.440 --> 0:17:25.040 any rising inflation environment that they cannot think, well, it 0:17:25.119 --> 0:17:28.199 can't happen, but actually I think it probably can. In 0:17:28.320 --> 0:17:31.360 quick final word on the repo operations that the New 0:17:31.400 --> 0:17:33.520 York Fed has been conducting, the former New York Fed 0:17:33.520 --> 0:17:35.800 President Bill Dudley saying that you should get a crib. 0:17:36.040 --> 0:17:38.560 The Fed can handle the repo market. Do you agree 0:17:38.560 --> 0:17:40.000 with that? Ian? Are we're going to smooth out some 0:17:40.040 --> 0:17:42.720 of the bumps of this week? They can handle it 0:17:42.760 --> 0:17:45.360 if they keep doing repos on a very frequent basis. 0:17:45.359 --> 0:17:48.760 But if they don't, then it won't work because the 0:17:48.840 --> 0:17:52.480 reserves have shrunk so much that the IOE R FED 0:17:52.480 --> 0:17:54.840 funds spread, which has caused a problem. I can't come 0:17:54.840 --> 0:17:57.800 down permanently without a permanent reserve AD. So it's either 0:17:57.840 --> 0:18:00.040 a permanent reserve AD or they have to do a 0:18:00.040 --> 0:18:03.800 lot more frequent repos. I can't really say an Ian Sheperdson, 0:18:03.840 --> 0:18:20.200 thank you so much with Pantheon. Nice update there. We're 0:18:20.200 --> 0:18:22.320 gonna do this now, we're gonna we're spend this black 0:18:22.359 --> 0:18:23.800 in a little bit of the next block with a 0:18:23.880 --> 0:18:27.600 guy who's been all over the media on initial public 0:18:27.640 --> 0:18:30.119 offerings because he's the only one we know east of 0:18:30.160 --> 0:18:33.000 the Hudson River that actually reads a damn prospectus. Red 0:18:33.040 --> 0:18:36.960 Wallace is with a Triton research and instead of going 0:18:37.080 --> 0:18:40.119 like what's we're all gonna do? Or what's Peloton gonna do? 0:18:40.240 --> 0:18:44.440 I want to talk for Global wall Street Wallace. How 0:18:44.480 --> 0:18:47.720 did we get here? We used to get the prospectuses. 0:18:47.800 --> 0:18:50.600 There was a dance, there was a ballet, and it 0:18:50.720 --> 0:18:53.000 just seems to be blown up in the last eight 0:18:53.000 --> 0:18:55.680 months or so. Um, well, it's longer than the last 0:18:55.680 --> 0:18:58.160 eight months in the sense that you know, when Uber 0:18:58.200 --> 0:19:00.239 came out, we did the look back of Uber us, 0:19:00.280 --> 0:19:03.639 Microsoft and Microsoft in Public and nine with a you know, 0:19:04.040 --> 0:19:07.119 fifty page perspectives, right, and a much smaller business that 0:19:07.200 --> 0:19:09.320 was also much more profitable. So it was a simple, 0:19:09.400 --> 0:19:12.480 smaller profitable business that could be described in fifty pages 0:19:12.480 --> 0:19:16.240 and people could understand what they were or the dog perspectives. 0:19:16.240 --> 0:19:20.040 Now three and eighty three pages, what's in there allowed 0:19:20.119 --> 0:19:22.919 us to enjoy these losses. Well, so that's what you 0:19:22.920 --> 0:19:24.080 want to do, is you want to be able to 0:19:24.080 --> 0:19:25.960 build a model out of the materials that they give 0:19:26.000 --> 0:19:28.199 you in the perspectus, and unfortunately you have to do 0:19:28.240 --> 0:19:31.560 three eighty three pages of what looks like it should 0:19:31.600 --> 0:19:34.960 contain the right information and it doesn't. This is well, 0:19:35.000 --> 0:19:37.159 this is said. I mean, between the three of us 0:19:37.160 --> 0:19:41.600 in this room, we've read four thousand twelve perspectives. Also 0:19:41.720 --> 0:19:43.880 read for me, I mean, you know, it's interesting. We've 0:19:43.920 --> 0:19:46.240 had is gonna be the hear of these great tech 0:19:46.280 --> 0:19:48.720 I p o s. We had all lined up Airbnb, 0:19:49.000 --> 0:19:52.280 we work, Uber, Lift, all that kind of stuff. It 0:19:52.280 --> 0:19:53.960 hasn't been very good. And I'm going to go back 0:19:53.960 --> 0:19:56.960 to Uber because for me that was kind of marked 0:19:57.240 --> 0:20:00.560 a sea change from the public markets from the van markets, 0:20:00.560 --> 0:20:04.280 which is the company did not do an adequate job 0:20:04.359 --> 0:20:07.600 apparently of kind of giving investors a sense of the 0:20:07.680 --> 0:20:10.280 path the profitability. How are you going to get there? 0:20:10.359 --> 0:20:13.520 I understand you're not profitable profitable today, that's okay, But 0:20:13.960 --> 0:20:16.520 what's the path of profitability? They didn't do that today. 0:20:16.600 --> 0:20:18.840 Uh no, they didn't. But if you were going to, 0:20:19.160 --> 0:20:21.040 you know, indict the entire I p O market, I 0:20:21.040 --> 0:20:23.240 think you couldn't really do it. Just with you know, Uber, 0:20:23.280 --> 0:20:25.479 you need lift we work now is three points make 0:20:25.520 --> 0:20:27.840 a line, But I think they're clearly bifurcated from the 0:20:27.880 --> 0:20:30.280 rest of the companies that have gone public in a 0:20:30.400 --> 0:20:32.760 very successful showing. This year. I mean just data Dog 0:20:32.800 --> 0:20:35.240 and cloud Flair recently, like going above their ranges with 0:20:35.560 --> 0:20:37.880 great trading performance shows you what really is a tailor 0:20:37.920 --> 0:20:41.000 to cities. Not to use it to blasioism, but um, 0:20:41.040 --> 0:20:43.639 you know the guys who have a model that people understand, 0:20:43.760 --> 0:20:46.000 and when they show investors from respect and give them 0:20:46.000 --> 0:20:48.199 the numbers that expect to see so that you can 0:20:48.240 --> 0:20:51.399 actually do the analysis correctly, it's different. I think you know, 0:20:51.480 --> 0:20:54.640 lift Uber and now we Work are all hyper capitalized, 0:20:54.800 --> 0:20:57.840 hyper opaque situations. And I think you know when we 0:20:57.880 --> 0:20:59.359 look at it, like you know, as you guys know, 0:20:59.440 --> 0:21:01.600 we score these companies on you know, a bunch of 0:21:01.760 --> 0:21:03.960 over a dozen criteria. But the three things that when 0:21:04.000 --> 0:21:06.680 we see them in combination it's really a killer are 0:21:06.960 --> 0:21:11.600 big losses, which lift Uber and we Work all had opacity, 0:21:11.760 --> 0:21:13.720 right when you can't actually look into the numbers and 0:21:13.760 --> 0:21:15.680 pencil at a model that makes sense like okay, you're 0:21:15.720 --> 0:21:17.560