1 00:00:00,320 --> 00:00:04,160 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:04,200 --> 00:00:07,640 Speaker 1: their trust in independent registered investment advisors to the tune 3 00:00:07,640 --> 00:00:12,240 Speaker 1: of four trillion dollars. Why learn more and find your 4 00:00:12,240 --> 00:00:27,240 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,280 --> 00:00:31,320 Speaker 1: I'm Tom Keane. Always with Michael McKee. Daily we bring 6 00:00:31,360 --> 00:00:35,280 Speaker 1: you insight from the best in economics, finance, investment and 7 00:00:35,360 --> 00:00:41,519 Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, 8 00:00:41,560 --> 00:00:48,720 Speaker 1: and of course on the Bloomberg Let's get right to 9 00:00:48,800 --> 00:00:50,960 Speaker 1: it for all of you in Global Wall Street truly 10 00:00:51,320 --> 00:00:55,840 Speaker 1: one of the most interesting controversial securities analysis analysts rather 11 00:00:56,000 --> 00:00:59,840 Speaker 1: on banking and finance. Michael Mayo of c l s 12 00:00:59,880 --> 00:01:02,680 Speaker 1: A are you having fun? I mean, you go into 13 00:01:02,680 --> 00:01:05,679 Speaker 1: this season with all the cost cutting and the angst 14 00:01:05,840 --> 00:01:09,399 Speaker 1: about banking is a fun out there. It's it's a 15 00:01:09,480 --> 00:01:13,559 Speaker 1: battle for the large banks without top line revenue growth. 16 00:01:13,600 --> 00:01:15,360 Speaker 1: The only way to make the bottom line is to 17 00:01:15,400 --> 00:01:19,640 Speaker 1: control expenses better, and that means head count reductions, restructuring 18 00:01:19,959 --> 00:01:22,520 Speaker 1: and dealing with this lower for longer interest rate environment. 19 00:01:22,640 --> 00:01:25,679 Speaker 1: What is Jamie Diamonds marching orders to his twenty top 20 00:01:25,880 --> 00:01:30,319 Speaker 1: leaders in this September. Well, Jamie Diamond at JP Morgan 21 00:01:30,680 --> 00:01:34,039 Speaker 1: has been an outperformer, so their marching orders is to 22 00:01:34,120 --> 00:01:38,560 Speaker 1: continue to gain market share while controlling expenses. We call 23 00:01:38,640 --> 00:01:41,560 Speaker 1: them the Lebron James of banking because they're good at 24 00:01:41,600 --> 00:01:45,280 Speaker 1: both offense and defense. But we think the entire banking 25 00:01:45,280 --> 00:01:49,240 Speaker 1: industry is going in the direction of JP Morgan in 26 00:01:49,360 --> 00:01:53,200 Speaker 1: terms of its resiliency. We think the US banks have 27 00:01:53,280 --> 00:01:56,120 Speaker 1: the most resilient balance sheets in decades. I just picked 28 00:01:56,120 --> 00:01:58,120 Speaker 1: on Bank of America because it's what came up on 29 00:01:58,160 --> 00:02:01,960 Speaker 1: the Bloomberg. They have two as and employees. Forget about 30 00:02:01,960 --> 00:02:04,840 Speaker 1: the minutia, biole cell and all that. Where will that 31 00:02:04,960 --> 00:02:09,960 Speaker 1: employee count be five years or ten years from now? Lower? 32 00:02:10,040 --> 00:02:12,880 Speaker 1: And that's come on, Thank you folks for the brilliant 33 00:02:12,919 --> 00:02:16,440 Speaker 1: Sir Michael Mayo. Lower is the answer. How much lower? No, 34 00:02:16,520 --> 00:02:18,840 Speaker 1: I mean we're looking at five to ten percent lower. 35 00:02:18,919 --> 00:02:23,280 Speaker 1: You have a swap of from people to machines and 36 00:02:23,320 --> 00:02:25,960 Speaker 1: that's been taking place and it's accelerating. And you can 37 00:02:26,000 --> 00:02:31,040 Speaker 1: talk about you know, fintech, you know financial innovators. Yeah, 38 00:02:31,080 --> 00:02:33,000 Speaker 1: but the U S banks are some of the greatest 39 00:02:33,240 --> 00:02:36,320 Speaker 1: fintech innovators out there. And so you're reducing the number 40 00:02:36,320 --> 00:02:39,320 Speaker 1: of people in branches, reducing the branches, you're having more 41 00:02:39,639 --> 00:02:44,040 Speaker 1: mobile banking and internet banking, and you're automating a lot 42 00:02:44,040 --> 00:02:47,239 Speaker 1: of processes, and this comes out of necessity. Necessity is 43 00:02:47,280 --> 00:02:49,519 Speaker 1: the mother of invention. It's certainly the case of the 44 00:02:49,520 --> 00:02:52,720 Speaker 1: banks state the rationalization and this is not sexy, this 45 00:02:52,800 --> 00:02:57,639 Speaker 1: is boring banking state the rationalization that we need branch banks. 46 00:02:57,840 --> 00:03:02,040 Speaker 1: It seems to me a rationalization towards obviously fewer branches 47 00:03:02,080 --> 00:03:06,120 Speaker 1: because nobody's in them. State the why they sustain that 48 00:03:06,200 --> 00:03:10,800 Speaker 1: model by all means consumers do more banking through a 49 00:03:10,919 --> 00:03:13,120 Speaker 1: t M s and mobile devices and the internet. On 50 00:03:13,200 --> 00:03:16,800 Speaker 1: the other hand, when you open up accounts branches, when 51 00:03:16,840 --> 00:03:19,400 Speaker 1: you're a small business banker, you go into branches. The 52 00:03:19,440 --> 00:03:21,640 Speaker 1: older generation, which has a lot of money, they go 53 00:03:21,680 --> 00:03:25,000 Speaker 1: into branches, and even millennials go into branches more than 54 00:03:25,280 --> 00:03:27,720 Speaker 1: you might realize. There's a lot of good data from 55 00:03:27,720 --> 00:03:31,240 Speaker 1: the likes of Wells Fargo and JP Morrigan that highlight, 56 00:03:31,360 --> 00:03:34,040 Speaker 1: you know, what, we need to reduce branches, but they're 57 00:03:34,040 --> 00:03:36,400 Speaker 1: still very important. Okay, let's go over to investment banking 58 00:03:36,520 --> 00:03:41,160 Speaker 1: right now. FICK is the jargon fixed income, currency, commodity 59 00:03:41,480 --> 00:03:45,640 Speaker 1: and all that. It's been bleakerd Is that structural? Is 60 00:03:45,640 --> 00:03:48,640 Speaker 1: that cyclical? Is it a one or two quarter one off? Well, 61 00:03:48,800 --> 00:03:53,280 Speaker 1: Fick has been sick. As you say, we bring it 62 00:03:53,320 --> 00:03:56,480 Speaker 1: to a high level for your showtime, the mayor comedy continues. 63 00:03:56,800 --> 00:03:59,320 Speaker 1: Fick has been sick. Okay, continue. Some of this is 64 00:03:59,360 --> 00:04:03,160 Speaker 1: structural and structure in a good way. You've had bank regulation. 65 00:04:03,240 --> 00:04:05,840 Speaker 1: You have the vocal rule you don't want banks holding 66 00:04:05,840 --> 00:04:09,200 Speaker 1: as many bonds in their inventory for the banks don't 67 00:04:09,200 --> 00:04:11,720 Speaker 1: blow up, and that's one reason banks are a lot 68 00:04:12,000 --> 00:04:15,240 Speaker 1: less riskier, you know, a lot more resilient than in 69 00:04:15,320 --> 00:04:18,120 Speaker 1: the past. On the other hand, some of this is cyclical, 70 00:04:18,560 --> 00:04:22,440 Speaker 1: and you've seen a fallout and this will improve probably 71 00:04:22,440 --> 00:04:25,440 Speaker 1: when the Fed starts to raise interest rates again. That 72 00:04:25,480 --> 00:04:27,479 Speaker 1: will get a lot of investors off the sidelines. I 73 00:04:27,520 --> 00:04:30,000 Speaker 1: want to let's start with someone iconic and and he 74 00:04:30,120 --> 00:04:31,840 Speaker 1: and I have gone back and forth from times we 75 00:04:31,880 --> 00:04:34,720 Speaker 1: took it with the Economic Club of New York, Robert Wilmore, 76 00:04:35,040 --> 00:04:38,760 Speaker 1: Wilmer's of Buffalo, New York, M ANDT Bank. Are there 77 00:04:38,800 --> 00:04:41,880 Speaker 1: any more? Young? Are there? Young? Robert Wilmer's out there. 78 00:04:42,040 --> 00:04:45,960 Speaker 1: He's legendary. Yeah, I'm going to We've in a point 79 00:04:46,000 --> 00:04:48,480 Speaker 1: that I want to make here, Tom, there's only five 80 00:04:49,000 --> 00:04:51,919 Speaker 1: banks CEOs out of banks in the SMP five that 81 00:04:51,960 --> 00:04:53,839 Speaker 1: have been in their jobs for ten or more years. 82 00:04:54,160 --> 00:04:57,479 Speaker 1: One is Jamie Diamond, his stocks up threefold, Another is 83 00:04:57,560 --> 00:05:00,560 Speaker 1: Zience is up eight times, another is Capital One the 84 00:05:00,560 --> 00:05:03,800 Speaker 1: stocks of thirteen times. And the last is Bob Wilmer's 85 00:05:04,040 --> 00:05:07,480 Speaker 1: M ANDT Bank, the stocks of seventy two times. He 86 00:05:07,640 --> 00:05:10,320 Speaker 1: became CEO, so of three times, eight times, thirteen times, 87 00:05:10,320 --> 00:05:13,320 Speaker 1: and seventy two times. The fifth bank who CEO has 88 00:05:13,320 --> 00:05:15,720 Speaker 1: been in the job for over ten years is America 89 00:05:16,120 --> 00:05:18,840 Speaker 1: and over that time the stock is down one five 90 00:05:19,520 --> 00:05:22,120 Speaker 1: what's wrong with that picture? If you do the job well, 91 00:05:22,160 --> 00:05:24,599 Speaker 1: there's an argument for keeping the CEO around, such as 92 00:05:24,680 --> 00:05:27,360 Speaker 1: Bob Wilmer's M ANDT Bank, But if you don't get 93 00:05:27,400 --> 00:05:30,200 Speaker 1: the job done over fourteen years and your stocks down 94 00:05:30,279 --> 00:05:32,200 Speaker 1: one fifth. Oh and by the way, you get paid 95 00:05:32,400 --> 00:05:35,760 Speaker 1: ninety one million dollars during that time, I say, where 96 00:05:35,839 --> 00:05:39,560 Speaker 1: is the accountability? The financial crisis was partly caused due 97 00:05:39,560 --> 00:05:42,760 Speaker 1: to lack of accountability improper incentives, and here we have 98 00:05:42,880 --> 00:05:47,000 Speaker 1: America today where the CEO continues to collect a high paycheck, 99 00:05:47,600 --> 00:05:50,880 Speaker 1: um stocks underperformed, yet we allow him to remain in place. 100 00:05:50,880 --> 00:05:54,240 Speaker 1: So I view America as a test case for the 101 00:05:54,279 --> 00:05:57,520 Speaker 1: degree that the US banking system truly has. Why do 102 00:05:57,560 --> 00:06:00,000 Speaker 1: you buy Americas it deposits? I mean they're in Dallas, 103 00:06:00,040 --> 00:06:03,760 Speaker 1: US got nine thousand employees, Moinan's got two hundred thousand, 104 00:06:03,839 --> 00:06:06,800 Speaker 1: et cetera. Who would be not I don't want to 105 00:06:06,800 --> 00:06:11,400 Speaker 1: know specifically who, but what kind of institution would buy America? Well, 106 00:06:11,440 --> 00:06:15,760 Speaker 1: America formed in eighteen forty nine. They are a true 107 00:06:16,160 --> 00:06:19,839 Speaker 1: middle market lender. They're lending to small businesses, middle market companies. 108 00:06:19,839 --> 00:06:22,880 Speaker 1: They relationship bankers that have been in place for decades. 109 00:06:23,080 --> 00:06:25,200 Speaker 1: This is a good franchise. Think they've done a good 110 00:06:25,279 --> 00:06:27,960 Speaker 1: job with that. On the other hand, they're just not optimized. 111 00:06:28,000 --> 00:06:30,640 Speaker 1: So whether it's the likes of a US band Corps 112 00:06:30,720 --> 00:06:34,480 Speaker 1: or a Japanese bank like Mitsubishi or Canadian bank. Now 113 00:06:34,480 --> 00:06:38,240 Speaker 1: the largest banks are no longer allowed to buy even 114 00:06:38,320 --> 00:06:41,080 Speaker 1: wealth fargers. They're not wellth farged or not Bank America, 115 00:06:41,160 --> 00:06:44,520 Speaker 1: not jap Morgan. They've reached the US deposit limit, but 116 00:06:44,560 --> 00:06:46,679 Speaker 1: other banks could still be possible, and by the way, 117 00:06:46,800 --> 00:06:49,279 Speaker 1: if a bank doesn't buy them, then maybe they should 118 00:06:49,279 --> 00:06:51,680 Speaker 1: sell off a region. If that doesn't happen, we think 119 00:06:51,720 --> 00:06:55,320 Speaker 1: the CEO should go by next year's annual meeting, and 120 00:06:55,360 --> 00:06:58,240 Speaker 1: we by the way we think shareholders. I think there's 121 00:06:58,240 --> 00:07:01,080 Speaker 1: a chance that shareholders will vote out the CEO of America, 122 00:07:01,560 --> 00:07:04,560 Speaker 1: you know, at next year's and your grating tell me 123 00:07:04,640 --> 00:07:07,760 Speaker 1: about asset management. Of course, in Europe and Switzerland, it's 124 00:07:07,800 --> 00:07:10,320 Speaker 1: a big deal. Your buy asset management, you do it, 125 00:07:10,400 --> 00:07:13,120 Speaker 1: and everybody wants to get into the game. All my 126 00:07:13,280 --> 00:07:16,200 Speaker 1: radars up when I hear that, because only so many 127 00:07:16,280 --> 00:07:19,320 Speaker 1: people can play and win as a vanguard is winning 128 00:07:19,440 --> 00:07:21,800 Speaker 1: right now. Look, the goal for the banks is to 129 00:07:21,920 --> 00:07:25,280 Speaker 1: have you know, more stable earnings, and asset management is 130 00:07:25,280 --> 00:07:27,720 Speaker 1: seen as a way to get that stability. But it's 131 00:07:27,760 --> 00:07:30,600 Speaker 1: not the only way, Tom, You're absolutely right. If everybody 132 00:07:30,600 --> 00:07:32,560 Speaker 1: goes in the same place at the same time, what 133 00:07:32,600 --> 00:07:34,760 Speaker 1: does that due to margins? What does that due to competition? 134 00:07:35,040 --> 00:07:38,560 Speaker 1: The goal though is more stable earnings, and asset management 135 00:07:38,600 --> 00:07:40,400 Speaker 1: is one way, but there's a lot of other ways. 136 00:07:40,400 --> 00:07:43,320 Speaker 1: And what I would say such as well, such as 137 00:07:43,440 --> 00:07:47,000 Speaker 1: like not making you know, stupid loans during the financial crisis, 138 00:07:47,040 --> 00:07:51,320 Speaker 1: such as concentrating on your area of relative strength. So 139 00:07:51,440 --> 00:07:54,600 Speaker 1: for a UBS, certainly asset management makes more sense. But 140 00:07:54,680 --> 00:07:58,640 Speaker 1: for other banks that don't have a historical strength of 141 00:07:58,680 --> 00:08:00,680 Speaker 1: asset mand but doesn't make it much. So I'm gonna 142 00:08:00,720 --> 00:08:03,080 Speaker 1: I'm gonna gona switch gears here, folks, to P and 143 00:08:03,160 --> 00:08:06,120 Speaker 1: C Financial Pittsburgh, and I do that because Pittsburgh's lost 144 00:08:06,200 --> 00:08:09,280 Speaker 1: like forty seven games in a row. Is watching Pittsburgh 145 00:08:09,280 --> 00:08:12,280 Speaker 1: Pirates last night, that gorgeous stadium and you go across 146 00:08:12,320 --> 00:08:15,320 Speaker 1: a gorgeous yellow bridge and there's the land of pn C. 147 00:08:15,840 --> 00:08:18,800 Speaker 1: What's the vision of a P and C besides that 148 00:08:18,880 --> 00:08:22,000 Speaker 1: gorgeous C they've got over to Pirates Park. Well, the 149 00:08:22,040 --> 00:08:25,640 Speaker 1: top of PNC is Bill Demcheck, the CEO, who's actually 150 00:08:25,720 --> 00:08:29,280 Speaker 1: a triathlete, so he has strength at the top of 151 00:08:29,320 --> 00:08:32,720 Speaker 1: the house there physically. But I think his vision is 152 00:08:32,800 --> 00:08:38,120 Speaker 1: to use technology to become better at customer service, whill 153 00:08:38,160 --> 00:08:40,800 Speaker 1: at the same time reducing costs. So they're helping to 154 00:08:41,360 --> 00:08:45,280 Speaker 1: lead the way in terms of the swap. For James 155 00:08:45,280 --> 00:08:48,960 Speaker 1: Diamond one on one that he's doing this is like 156 00:08:49,120 --> 00:08:51,240 Speaker 1: it's it's a new way. I mean, you're reducing many 157 00:08:51,280 --> 00:08:53,760 Speaker 1: branches for more technology. And but this is the way 158 00:08:53,760 --> 00:08:57,040 Speaker 1: of the banking industry stry. I mean banks are you know, 159 00:08:57,440 --> 00:09:00,480 Speaker 1: fintech innovators and they have to do that. This has 160 00:09:00,520 --> 00:09:02,560 Speaker 1: been right, Michael Mayob, thank you so much for see 161 00:09:02,679 --> 00:09:16,199 Speaker 1: ls A well one of the world's most famous investors. 162 00:09:16,920 --> 00:09:18,760 Speaker 1: Although that is not what he does for a living, 163 00:09:18,800 --> 00:09:22,400 Speaker 1: he's aid it's he's a Jets fan. Uh. Muhammad is 164 00:09:22,440 --> 00:09:24,760 Speaker 1: with us today. Yesterday you're at a piece for Business 165 00:09:24,760 --> 00:09:29,200 Speaker 1: Insider suggesting a good year ahead could be in store 166 00:09:29,280 --> 00:09:32,160 Speaker 1: for the long suffering New York Jets. I thought, as 167 00:09:32,160 --> 00:09:35,240 Speaker 1: an investor, you learned that past performance was no guarantee 168 00:09:35,400 --> 00:09:37,840 Speaker 1: and that uh, you know, you have to pay attention 169 00:09:37,960 --> 00:09:41,600 Speaker 1: to facts and history to uh to understand where you're 170 00:09:41,600 --> 00:09:44,440 Speaker 1: going to invest your heart. So here's the irony. If 171 00:09:44,480 --> 00:09:47,640 Speaker 1: past performance were no guarantee, then I would be even 172 00:09:47,840 --> 00:09:51,360 Speaker 1: more optimistic about the Jets, because our past performances we 173 00:09:51,400 --> 00:09:54,080 Speaker 1: blew it. Every chance we get, we blow it. No 174 00:09:54,120 --> 00:09:55,920 Speaker 1: matter how big a lead we have, we blew it. 175 00:09:56,360 --> 00:09:59,600 Speaker 1: So the hope is that we will overcome this maddening 176 00:09:59,679 --> 00:10:03,280 Speaker 1: tend and see to make stupid mistakes. Because if we 177 00:10:03,480 --> 00:10:06,480 Speaker 1: can do that, there's enough quality on that team to 178 00:10:06,520 --> 00:10:09,360 Speaker 1: take us to the playoffs. You have to anytime you 179 00:10:09,400 --> 00:10:11,000 Speaker 1: talk about the Jets going in the playoffs, you have 180 00:10:11,040 --> 00:10:12,959 Speaker 1: to stay is talk about the elephant in the room, 181 00:10:13,040 --> 00:10:16,480 Speaker 1: and that is the team to the north. The New 182 00:10:16,480 --> 00:10:19,480 Speaker 1: England Patriots have a lock on that division. So how 183 00:10:19,520 --> 00:10:21,440 Speaker 1: do you get past that? You don't even get to 184 00:10:21,440 --> 00:10:24,320 Speaker 1: play them when Tom Brady is unsuspension. I know, And 185 00:10:24,320 --> 00:10:26,600 Speaker 1: and the schedule is pretty tough. Six of the first 186 00:10:26,679 --> 00:10:29,440 Speaker 1: nine games on the road. Um, I don't think you 187 00:10:29,960 --> 00:10:33,360 Speaker 1: realistically can expect to get first place, but what you 188 00:10:33,440 --> 00:10:36,080 Speaker 1: can hope for the wild card. And we've shown in 189 00:10:36,080 --> 00:10:38,360 Speaker 1: the past that if we get into the playoffs we 190 00:10:38,360 --> 00:10:41,160 Speaker 1: can make it at least to the championship game. I 191 00:10:41,200 --> 00:10:44,839 Speaker 1: gotta let me put it this way, odds. Who has 192 00:10:44,920 --> 00:10:48,000 Speaker 1: better odds the Jets getting into the playoffs or the 193 00:10:48,000 --> 00:10:51,360 Speaker 1: FED raising rates in two thousand and sixteen. The Federation 194 00:10:51,480 --> 00:10:54,559 Speaker 1: raised in two thousand sixteen. You think you actually think 195 00:10:54,600 --> 00:10:57,240 Speaker 1: that's gonna happen because they're going to avoid stupid mistakes 196 00:10:57,600 --> 00:10:59,079 Speaker 1: as you put it with the Jets. Yeah, I think 197 00:10:59,120 --> 00:11:04,080 Speaker 1: it happens for two fundamental reasons. One is the economy 198 00:11:04,160 --> 00:11:08,319 Speaker 1: is doing okay and the headwinds from outside are less severe. 199 00:11:08,880 --> 00:11:13,400 Speaker 1: And secondly, they're getting more concerned about future financial instability. 200 00:11:13,600 --> 00:11:15,840 Speaker 1: I think put these two things together and we would 201 00:11:15,880 --> 00:11:18,840 Speaker 1: likely get a hike in two thousand sixteen. You look 202 00:11:18,840 --> 00:11:22,520 Speaker 1: at jobs, the two I S. M Reports, car sales, 203 00:11:22,840 --> 00:11:24,880 Speaker 1: they've all rolled all over in August. How do you 204 00:11:24,920 --> 00:11:27,720 Speaker 1: build a case, So the the initial conditions are an 205 00:11:27,760 --> 00:11:31,040 Speaker 1: important look where we're starting from. And then also look 206 00:11:31,120 --> 00:11:35,439 Speaker 1: at how strong the labor market has been, so you 207 00:11:35,559 --> 00:11:38,960 Speaker 1: gotta you've gotta address that. Secondly, I think they are 208 00:11:39,040 --> 00:11:43,120 Speaker 1: now paying a lot more attention to Bernankee's famous equation. 209 00:11:43,480 --> 00:11:47,120 Speaker 1: It's about quote benefits, costs and risks. And when you 210 00:11:47,200 --> 00:11:50,800 Speaker 1: come to a point where the benefits of ultra low 211 00:11:50,840 --> 00:11:53,280 Speaker 1: interest rates are going down and the costs and rests 212 00:11:53,280 --> 00:11:56,439 Speaker 1: are going up, you take a second look and you 213 00:11:56,520 --> 00:11:59,560 Speaker 1: take a more holistic assessment. When I look at the 214 00:11:59,640 --> 00:12:02,720 Speaker 1: game theory of our central banks, now, the doctor lar 215 00:12:02,840 --> 00:12:06,439 Speaker 1: and you're truly one of the world's experts and synthesizing 216 00:12:06,600 --> 00:12:10,960 Speaker 1: all the British heritage of game theory back to Frank Ramsey, 217 00:12:10,960 --> 00:12:13,640 Speaker 1: who tragically died young in the early I believe it 218 00:12:13,720 --> 00:12:17,280 Speaker 1: was the early thirties what is the game theory of 219 00:12:17,320 --> 00:12:22,280 Speaker 1: our collective central banks. It's not a prisoner's dilemma, it's 220 00:12:22,320 --> 00:12:24,960 Speaker 1: not a t decision, and these other pet phrases you 221 00:12:25,080 --> 00:12:29,800 Speaker 1: and Avanage Dixon use at Princeton. I can't figure out 222 00:12:29,880 --> 00:12:33,240 Speaker 1: the game theory of their new orthodoxy. What is it? 223 00:12:33,679 --> 00:12:38,600 Speaker 1: So you can't figure it out because they being impacted 224 00:12:39,000 --> 00:12:43,320 Speaker 1: in a significant way by the inaction of other policymakers, 225 00:12:43,760 --> 00:12:46,679 Speaker 1: and that is why they don't solve easily. So they 226 00:12:46,720 --> 00:12:49,920 Speaker 1: are playing a cooperative game in the context where others 227 00:12:49,920 --> 00:12:53,400 Speaker 1: are playing an uncooperative game. And when you have that mix, 228 00:12:54,320 --> 00:12:57,080 Speaker 1: it is doesn't appear a coherent to you, and you 229 00:12:57,160 --> 00:13:01,400 Speaker 1: cannot summarize it easily. And I think that's peaks loudly 230 00:13:01,440 --> 00:13:03,880 Speaker 1: to where we are today. And then it speaks to 231 00:13:03,880 --> 00:13:10,240 Speaker 1: to non mathematical phrases courage and will correct where's the 232 00:13:10,320 --> 00:13:14,640 Speaker 1: courage and where's the will to move from a cooperative 233 00:13:14,679 --> 00:13:20,520 Speaker 1: state to make the non cooperative institutions joined the party? 234 00:13:20,960 --> 00:13:24,840 Speaker 1: So the will is not there yet because it's political will. 235 00:13:25,200 --> 00:13:28,080 Speaker 1: The recognition is there. I was very struck. Um I 236 00:13:28,120 --> 00:13:30,600 Speaker 1: didn't get to see the G twenty communicate the moment 237 00:13:30,679 --> 00:13:33,800 Speaker 1: it came to you, and I was very surprised when 238 00:13:33,800 --> 00:13:37,360 Speaker 1: I actually wet it. It is full of content. There's 239 00:13:37,400 --> 00:13:40,280 Speaker 1: a very good assessment of what ails the global economy 240 00:13:40,480 --> 00:13:42,800 Speaker 1: and as a very good assessment of what's needed. The 241 00:13:42,960 --> 00:13:46,680 Speaker 1: problem is political. We don't have national political will to 242 00:13:46,760 --> 00:13:50,680 Speaker 1: implement the The investor Bill Blaine for Mint Partners, a 243 00:13:50,679 --> 00:13:54,000 Speaker 1: friend of this program road Not, the other day telling 244 00:13:54,080 --> 00:13:56,920 Speaker 1: us that he had been approached by one of his 245 00:13:57,000 --> 00:14:02,959 Speaker 1: customers who said, what if the world's central banks don't 246 00:14:02,960 --> 00:14:05,800 Speaker 1: have a plan. What if they're just making it up 247 00:14:05,840 --> 00:14:08,480 Speaker 1: as they go along. That does seem to kind of 248 00:14:08,520 --> 00:14:11,240 Speaker 1: be the case here in terms of what they do next. 249 00:14:11,800 --> 00:14:15,079 Speaker 1: So what if so they have made it up as 250 00:14:15,080 --> 00:14:19,000 Speaker 1: they go along. No one, no one, i think, expected 251 00:14:19,040 --> 00:14:23,080 Speaker 1: them to stay unconventional for so long. I think no 252 00:14:23,120 --> 00:14:27,280 Speaker 1: one expected negative policy rates. Um, so they have made 253 00:14:27,280 --> 00:14:29,360 Speaker 1: it up, and they've had to make it up because 254 00:14:29,400 --> 00:14:32,320 Speaker 1: they thought they were playing a short term game. They 255 00:14:32,360 --> 00:14:35,320 Speaker 1: were just building a small bridge until the other policy 256 00:14:35,360 --> 00:14:37,680 Speaker 1: makers step up to the plate, and they've ended up 257 00:14:37,720 --> 00:14:39,840 Speaker 1: playing a long term game. So they've had to make 258 00:14:39,840 --> 00:14:42,080 Speaker 1: it up, make it up, make it up. And that's 259 00:14:42,120 --> 00:14:44,800 Speaker 1: the reality. Having said that, where the concern is is 260 00:14:44,840 --> 00:14:47,920 Speaker 1: how do you exit the how do you normalize if 261 00:14:47,920 --> 00:14:51,720 Speaker 1: others aren't cooperating? And that's why I feel strongly that 262 00:14:52,120 --> 00:14:55,120 Speaker 1: a central banks no longer control their own destiny and 263 00:14:55,120 --> 00:14:57,240 Speaker 1: how we judge them is going to be a function 264 00:14:57,280 --> 00:15:00,160 Speaker 1: of what others do, do not do. And secondly, we 265 00:15:00,200 --> 00:15:04,880 Speaker 1: have an obligation two turn the spotlight to other policymaking 266 00:15:05,000 --> 00:15:07,800 Speaker 1: entities that are staying on the sideline. We we over 267 00:15:07,920 --> 00:15:11,760 Speaker 1: obsess with central banks. We over obsessed as to whether 268 00:15:11,760 --> 00:15:13,360 Speaker 1: they're going to hike at the next meeting or not. 269 00:15:13,440 --> 00:15:16,040 Speaker 1: We lose sight of the bigger issue. And the bigger 270 00:15:16,080 --> 00:15:19,400 Speaker 1: issue is that we have over reliance on one set 271 00:15:19,400 --> 00:15:23,000 Speaker 1: of policymakers and the others are not stepping up to 272 00:15:23,000 --> 00:15:27,080 Speaker 1: their responsibility. Have they lost control of policy that central banks? 273 00:15:27,440 --> 00:15:30,240 Speaker 1: I think it depends where you are. If you're in Japan, 274 00:15:30,960 --> 00:15:33,560 Speaker 1: the Bank of Japan has not only become ineffective, but 275 00:15:33,640 --> 00:15:37,320 Speaker 1: in my view, it is counterproductive. The FED is that 276 00:15:37,400 --> 00:15:40,160 Speaker 1: the other one where it's still effective, but it's worried 277 00:15:40,320 --> 00:15:43,720 Speaker 1: about the collateral damage, especially a longer term. And in 278 00:15:43,760 --> 00:15:45,400 Speaker 1: the middle you have the e c B in the 279 00:15:45,440 --> 00:15:49,640 Speaker 1: Bank of England. Does reflation work? Have you seen any evidence. 280 00:15:50,160 --> 00:15:53,120 Speaker 1: And you know this goes back to almost the new 281 00:15:53,160 --> 00:15:56,240 Speaker 1: Cambridge Policy Group and just thinking from years and years ago, 282 00:15:56,520 --> 00:16:00,120 Speaker 1: is there any evidence that someone can reflate the you 283 00:16:00,120 --> 00:16:04,080 Speaker 1: can overtly reflate an economy. What we know is monetary 284 00:16:04,080 --> 00:16:07,080 Speaker 1: policy alans won't do it. And it's not surprising because 285 00:16:07,120 --> 00:16:09,560 Speaker 1: you're pressing the accelerator on monetary policy, and then you're 286 00:16:09,560 --> 00:16:13,320 Speaker 1: pressing the breaks on fiscal policy lack of structure reform 287 00:16:13,400 --> 00:16:15,680 Speaker 1: and dead burdens, and then you're surprised that the car 288 00:16:15,720 --> 00:16:18,840 Speaker 1: doesn't move well, of course, because you're simultaneously pressing the 289 00:16:18,840 --> 00:16:21,080 Speaker 1: accelerat and then a much bigger break. So we know 290 00:16:21,160 --> 00:16:24,320 Speaker 1: monetary policy alone cannot do it, but I do believe 291 00:16:24,800 --> 00:16:28,280 Speaker 1: that a comprehensive policy response can do it. People will 292 00:16:28,360 --> 00:16:33,560 Speaker 1: respond to incentives and not just save the money because uh, 293 00:16:33,800 --> 00:16:37,320 Speaker 1: they expect to have to pay back someday. Yeah, and 294 00:16:37,320 --> 00:16:40,520 Speaker 1: and also people aren't stupid. So in Japan, when people 295 00:16:40,640 --> 00:16:45,520 Speaker 1: see how extraordinary the situation is, including these negative rates, 296 00:16:45,560 --> 00:16:48,240 Speaker 1: what do they do? They self insure. Now we know 297 00:16:48,520 --> 00:16:52,600 Speaker 1: from economics that the more society self insures, the less 298 00:16:52,640 --> 00:16:55,880 Speaker 1: productive it is. Why because self insurance is very inefficient 299 00:16:55,920 --> 00:16:58,080 Speaker 1: way of running a society, and what you're seeing in 300 00:16:58,200 --> 00:17:01,800 Speaker 1: Japan is more and more p ball households and companies 301 00:17:01,800 --> 00:17:04,520 Speaker 1: are self ensuring. Where is your I mean? And this 302 00:17:04,640 --> 00:17:06,840 Speaker 1: goes back to your management of Harvard's and Dominant a 303 00:17:06,840 --> 00:17:10,600 Speaker 1: few years ago. Where is your optimism and equity investment? Now? 304 00:17:10,800 --> 00:17:13,840 Speaker 1: We talked about this with Ambassador Hospital. All these discreet 305 00:17:14,400 --> 00:17:19,160 Speaker 1: issues that are out there, all these gloom issues, could 306 00:17:19,400 --> 00:17:25,640 Speaker 1: Muhammad Alarians stay invested in corporate global corporate multinationals? Oh yeah, 307 00:17:25,680 --> 00:17:28,520 Speaker 1: there's some very exciting stories. You have companies with more 308 00:17:28,600 --> 00:17:32,400 Speaker 1: cash today than they've had in their lifetime. That gives 309 00:17:32,400 --> 00:17:38,520 Speaker 1: them enormous optionality, enormous potential. Second, you have amazing innovations 310 00:17:38,520 --> 00:17:42,200 Speaker 1: that are enabling people to do more. So if if 311 00:17:42,200 --> 00:17:44,280 Speaker 1: you have to step back and say, is this a 312 00:17:44,280 --> 00:17:46,240 Speaker 1: good time for the global economy, yes it is the 313 00:17:46,320 --> 00:17:49,639 Speaker 1: problem is that this is not being unleashed sufficiently because 314 00:17:49,680 --> 00:17:52,520 Speaker 1: you of all, environment is not what it could be. 315 00:17:53,240 --> 00:17:55,200 Speaker 1: If you want to be optimistic, just look at what's 316 00:17:55,200 --> 00:17:59,480 Speaker 1: happening in various sectors and what you get is like 317 00:17:59,640 --> 00:18:02,280 Speaker 1: the put enthul full wake outs. Can we have a 318 00:18:02,280 --> 00:18:07,000 Speaker 1: shout out for James Wales of Wikipedia, Mike I'm ignorant, 319 00:18:07,240 --> 00:18:11,280 Speaker 1: unlike you. I didn't know what but Fumble was. There's 320 00:18:11,320 --> 00:18:15,879 Speaker 1: a whole large art age, the whole article Patriots forty 321 00:18:16,000 --> 00:18:20,280 Speaker 1: nine Hillarian's nineteen. Well, uh, how much team in my 322 00:18:20,359 --> 00:18:22,800 Speaker 1: team managed to get rid of the butt fumble guy. 323 00:18:22,920 --> 00:18:25,480 Speaker 1: So we're both happy about that. But very quickly before 324 00:18:25,520 --> 00:18:29,480 Speaker 1: we let you go, the Mets playoffs. This here, it's 325 00:18:29,480 --> 00:18:32,080 Speaker 1: gonna be hot. But that's that's in the running. I mean, 326 00:18:32,240 --> 00:18:34,400 Speaker 1: they just need to keep doing what they've been doing 327 00:18:34,440 --> 00:18:36,440 Speaker 1: for the last ten days. You're gonna get a call 328 00:18:36,640 --> 00:18:40,160 Speaker 1: from Fred Wilpon. He's gonna say, Dr Larian, pony up, 329 00:18:40,200 --> 00:18:44,639 Speaker 1: we gotta keep four. You're writing check Hillarian with us, 330 00:18:44,680 --> 00:18:56,840 Speaker 1: of course, writing for Bloomberg View. Stephen Ratner with us 331 00:18:56,920 --> 00:18:58,840 Speaker 1: right now? Who is the greatest thing? Since he is 332 00:18:58,880 --> 00:19:02,320 Speaker 1: the greatest thing to Psyche, he's with will Advisers. Maybe 333 00:19:02,320 --> 00:19:05,040 Speaker 1: slicepread wasn't so great. Somebody said that to me. I said, well, 334 00:19:05,040 --> 00:19:10,359 Speaker 1: we are does your brown economics degree does it help 335 00:19:10,400 --> 00:19:14,240 Speaker 1: you in this mill you today? Or do investment animals 336 00:19:14,280 --> 00:19:19,800 Speaker 1: like you just divorce yourselves from the distortions of our macroeconomics. No, 337 00:19:20,080 --> 00:19:22,960 Speaker 1: we spend, we spend an immense amount of time thinking 338 00:19:23,000 --> 00:19:25,200 Speaker 1: about the macro. In fact, we had it to our 339 00:19:25,240 --> 00:19:27,960 Speaker 1: off site yesterday to do this. Do this in part anyway, 340 00:19:28,200 --> 00:19:30,879 Speaker 1: think about the macro. So we have to stop the show. 341 00:19:30,960 --> 00:19:33,359 Speaker 1: I'd love to know where Steve Rettner has an off site. 342 00:19:33,920 --> 00:19:35,919 Speaker 1: Is this in the old King Colbar? We have it 343 00:19:35,960 --> 00:19:38,600 Speaker 1: in a secure, undisclosed location. If I told you, I 344 00:19:38,600 --> 00:19:42,840 Speaker 1: would have to kill you. Continue. But in any event, 345 00:19:43,119 --> 00:19:45,119 Speaker 1: we spend an enormous amount of time. In fact, I 346 00:19:45,200 --> 00:19:48,600 Speaker 1: was just reading presentation that we're gonna discuss this morning 347 00:19:48,640 --> 00:19:51,280 Speaker 1: on Japan and albonomics. We spend an enormous amount of 348 00:19:51,280 --> 00:19:55,080 Speaker 1: time thinking about the macroeconomic picture because that ultimately is 349 00:19:55,080 --> 00:19:57,800 Speaker 1: going to drive corporate profits and ultimately, if you believe 350 00:19:57,840 --> 00:20:01,200 Speaker 1: in efficient markets drive stock price, well let's go there. 351 00:20:01,359 --> 00:20:04,520 Speaker 1: Um twenty one September, we get the FED decision, but 352 00:20:04,560 --> 00:20:07,040 Speaker 1: we also get the Bank of Japan meeting and deciding, 353 00:20:07,040 --> 00:20:11,320 Speaker 1: and uh Coronison has called for a complete reassessment of 354 00:20:11,400 --> 00:20:15,920 Speaker 1: Japanese monetary policy. At that meeting, what do you think 355 00:20:15,960 --> 00:20:19,359 Speaker 1: they decide? Are central banker is likely to say, well, no, 356 00:20:19,560 --> 00:20:22,120 Speaker 1: we blew it. What we decided to do didn't work, 357 00:20:22,160 --> 00:20:25,160 Speaker 1: and we got to do something different. I think it's 358 00:20:25,280 --> 00:20:28,800 Speaker 1: it's relatively self evident that what they decided to do 359 00:20:29,320 --> 00:20:31,879 Speaker 1: worked only a little bit, that it worked sort of 360 00:20:31,920 --> 00:20:34,520 Speaker 1: for a while, and then it kind of stopped working, 361 00:20:34,960 --> 00:20:37,640 Speaker 1: and then the end started going the wrong way. And 362 00:20:37,680 --> 00:20:39,840 Speaker 1: as you know, that's for a variety of reasons. One 363 00:20:39,920 --> 00:20:42,520 Speaker 1: because the Bank of Japan has been disappointing the markets 364 00:20:42,560 --> 00:20:44,240 Speaker 1: the last couple of meetings in terms of what it 365 00:20:44,280 --> 00:20:46,959 Speaker 1: was going to do. And secondly, there's a variety of 366 00:20:47,080 --> 00:20:51,199 Speaker 1: carry trades and other complicated derivatives trades going on between 367 00:20:51,280 --> 00:20:55,040 Speaker 1: dollar assets and j g B assets that have probably 368 00:20:55,080 --> 00:20:58,399 Speaker 1: distorted the exchange rates somewhat. But look at Japan. Unless 369 00:20:58,480 --> 00:21:03,240 Speaker 1: Japan does essentially what Abe said when he came into office, 370 00:21:03,280 --> 00:21:07,439 Speaker 1: all three arrows, including structural reform, I at least, and 371 00:21:07,440 --> 00:21:09,840 Speaker 1: I'm not a Japan expert, see no reason why Japan 372 00:21:09,920 --> 00:21:13,320 Speaker 1: isn't gonna just toddler long uh bounced on the bottom 373 00:21:13,359 --> 00:21:15,480 Speaker 1: the way they've been doing it. I'm going to carry forward. 374 00:21:15,520 --> 00:21:17,280 Speaker 1: I thought that we had an hour ago or so, 375 00:21:17,600 --> 00:21:20,119 Speaker 1: maybe it's forty five minutes ago Steve Rattner where we 376 00:21:20,200 --> 00:21:23,480 Speaker 1: talked about okay, all this is great, was with a Muhammadalarian, 377 00:21:23,920 --> 00:21:26,000 Speaker 1: and he said, none of it matters if you don't 378 00:21:26,000 --> 00:21:29,560 Speaker 1: have courage and will you live? That is, cars are 379 00:21:29,880 --> 00:21:33,520 Speaker 1: people that supported you, including the president in many many, 380 00:21:33,560 --> 00:21:37,120 Speaker 1: many critics all had to agree that at least there 381 00:21:37,160 --> 00:21:40,920 Speaker 1: was courage, at least there was will as you affected 382 00:21:41,280 --> 00:21:44,160 Speaker 1: cars arendom. Do you see courage and will right now 383 00:21:44,560 --> 00:21:47,760 Speaker 1: among these bankers? The courage and will and cars are 384 00:21:47,840 --> 00:21:52,640 Speaker 1: tem Uh resulted really from emanated from two principal factors. One, 385 00:21:52,680 --> 00:21:55,480 Speaker 1: we had a terrible, terrible crisis, not just sort of 386 00:21:55,840 --> 00:21:59,040 Speaker 1: a stagnant economy like in Japan, a terrible, terrible crisis. 387 00:21:59,480 --> 00:22:01,600 Speaker 1: And second, only for variety of reasons that are not 388 00:22:01,640 --> 00:22:04,639 Speaker 1: worth getting into in this show, the president had an 389 00:22:04,720 --> 00:22:07,960 Speaker 1: unusual amount of authority to simply implement the car restructuring. 390 00:22:08,000 --> 00:22:09,920 Speaker 1: We did not have to go through the normal political 391 00:22:09,960 --> 00:22:13,240 Speaker 1: process with Congress. And what you see happening in governments 392 00:22:13,359 --> 00:22:16,080 Speaker 1: in the developed world, all over all over the world 393 00:22:16,560 --> 00:22:20,600 Speaker 1: are political systems that simply cannot implement the kinds of 394 00:22:20,640 --> 00:22:23,960 Speaker 1: structural reforms that all these countries, including ours for that matter, 395 00:22:24,359 --> 00:22:26,560 Speaker 1: need in order to get back to some reasonable level 396 00:22:26,920 --> 00:22:29,440 Speaker 1: of growth. You look at Italy, where Renz has tried 397 00:22:29,480 --> 00:22:31,199 Speaker 1: to do some a lot try to a lot of 398 00:22:31,240 --> 00:22:33,920 Speaker 1: things gotten a little bit done, but is sort of 399 00:22:34,000 --> 00:22:37,159 Speaker 1: dancing on a precipice at the moment. So it's the 400 00:22:37,160 --> 00:22:40,280 Speaker 1: political system does not yet accept what needs to be done. 401 00:22:40,320 --> 00:22:42,520 Speaker 1: And that's a broad statement I think you could apply 402 00:22:42,600 --> 00:22:44,840 Speaker 1: to pretty much any country. Well, when you go to 403 00:22:44,880 --> 00:22:48,959 Speaker 1: your offsite, what do you conclude europe policy has been 404 00:22:49,000 --> 00:22:51,480 Speaker 1: to muddle along. You just talked about Japan muddling along. 405 00:22:51,560 --> 00:22:54,040 Speaker 1: Can we keep muddling along? And because the central banks 406 00:22:54,080 --> 00:22:56,719 Speaker 1: keep bumping in liquidity, the things you invest in are 407 00:22:56,760 --> 00:22:58,800 Speaker 1: going to keep going up? Or is there a price 408 00:22:58,840 --> 00:23:02,360 Speaker 1: to be paid sometime soon a car an automobile industry 409 00:23:02,440 --> 00:23:06,639 Speaker 1: like crisis. Well, this is a this is a complicated question. 410 00:23:06,680 --> 00:23:08,800 Speaker 1: First of all, you've had a huge amount of multiple 411 00:23:08,840 --> 00:23:12,600 Speaker 1: expansion in the stock market that it was driven initially 412 00:23:12,600 --> 00:23:16,040 Speaker 1: by rising and record corporate profits and corporate profit margins. 413 00:23:16,480 --> 00:23:19,240 Speaker 1: That bloom appears to be coming off the rows. The 414 00:23:19,280 --> 00:23:22,119 Speaker 1: second big driver of stock prices has been interest rates. 415 00:23:23,160 --> 00:23:25,040 Speaker 1: If you believe that infest rates are going to stay 416 00:23:25,040 --> 00:23:27,480 Speaker 1: lower for longer as the market believes, contrary to what 417 00:23:27,560 --> 00:23:30,920 Speaker 1: the Fed seems to believe, then that should provide, could 418 00:23:31,000 --> 00:23:34,560 Speaker 1: provide an underpinning to the seventeen multiple of the S 419 00:23:34,600 --> 00:23:37,480 Speaker 1: ANDP is at today. To multiples, that's a lot of 420 00:23:37,480 --> 00:23:41,080 Speaker 1: the consumers, the high dividend consumer stables companies are getting. 421 00:23:41,600 --> 00:23:44,520 Speaker 1: And so you could see the stock market continue to 422 00:23:44,960 --> 00:23:48,560 Speaker 1: edge up a bit. But if if multiple start to 423 00:23:48,600 --> 00:23:51,440 Speaker 1: revert to some kind of normal level, that would be 424 00:23:51,520 --> 00:23:54,480 Speaker 1: a real headwind for the stock market. Steve Wright thinking, 425 00:23:54,520 --> 00:23:56,679 Speaker 1: so it's very quickly, do you do you like Apple? 426 00:23:56,920 --> 00:23:59,320 Speaker 1: Usually don't talk about individuals. You know, I can talk 427 00:23:59,320 --> 00:24:00,879 Speaker 1: about them, but I know anything about him. So I 428 00:24:00,920 --> 00:24:02,680 Speaker 1: don't know why you listen to me? Would you buy 429 00:24:02,680 --> 00:24:05,560 Speaker 1: a new iPhone? I don't think I want to give 430 00:24:05,680 --> 00:24:07,000 Speaker 1: my I don't think I want to give up my 431 00:24:07,040 --> 00:24:10,080 Speaker 1: three point five millimeter jack at the moment. But we'll see, 432 00:24:10,240 --> 00:24:12,000 Speaker 1: we'll see what it looks like when they release it. 433 00:24:12,280 --> 00:24:18,000 Speaker 1: Steve Radner, Who you put your trust in matters? Investors 434 00:24:18,000 --> 00:24:21,359 Speaker 1: have put their trust in independent registered investment advisors to 435 00:24:21,400 --> 00:24:25,800 Speaker 1: the tune of four trillion dollars. Why they see their 436 00:24:25,880 --> 00:24:29,760 Speaker 1: role is to serve, not sell. That's why Charles Schwab 437 00:24:29,840 --> 00:24:32,760 Speaker 1: is committed to the success of over seven thousand independent 438 00:24:32,800 --> 00:24:37,679 Speaker 1: financial advisors who passionately dedicate themselves to helping people achieve 439 00:24:37,680 --> 00:24:42,000 Speaker 1: their financial goals. Learn more and find your independent advisor 440 00:24:42,080 --> 00:24:49,640 Speaker 1: dot com. I'm gonna say it right away up front, 441 00:24:49,720 --> 00:24:53,960 Speaker 1: we will not send you his research report. We religiously 442 00:24:54,000 --> 00:24:57,639 Speaker 1: protect the copyright of all of our guests, and particularly 443 00:24:57,680 --> 00:25:01,639 Speaker 1: when it's a report where Mike McKee just stops walking 444 00:25:01,880 --> 00:25:06,399 Speaker 1: on our news floor with his nose pointed down saying, Tom, 445 00:25:06,520 --> 00:25:10,120 Speaker 1: shut up. You have to read this, Michael. Yeah. And UM, 446 00:25:10,160 --> 00:25:13,240 Speaker 1: we get lots of good stance in and and this 447 00:25:13,280 --> 00:25:15,000 Speaker 1: one was one where I said, we gotta get Steve 448 00:25:15,000 --> 00:25:17,560 Speaker 1: Stanley in right away. He's the chief economist at Amherst 449 00:25:17,560 --> 00:25:22,680 Speaker 1: Peer Pond. It is a very very interesting, very challenging, 450 00:25:22,800 --> 00:25:29,480 Speaker 1: uh fascinating UM push back at the orthodoxy that is 451 00:25:29,520 --> 00:25:32,359 Speaker 1: in place at the Federal Reserve. Not whether they're going 452 00:25:32,400 --> 00:25:34,760 Speaker 1: to raise rates in September or not, but the way 453 00:25:34,800 --> 00:25:37,560 Speaker 1: the Fed looks at the economy. And Steve has a 454 00:25:37,640 --> 00:25:40,679 Speaker 1: great new report called House of Cards. You take on 455 00:25:40,760 --> 00:25:45,800 Speaker 1: the whole idea UH that the Fed has uh measured 456 00:25:46,280 --> 00:25:50,240 Speaker 1: uh the economy correctly and is using the right models 457 00:25:50,640 --> 00:25:54,840 Speaker 1: and has decided that interest rates should be lower for 458 00:25:54,920 --> 00:25:58,880 Speaker 1: longer because our star has come down, uh, and you 459 00:25:58,880 --> 00:26:01,720 Speaker 1: you really make some good points. In chief among them 460 00:26:01,720 --> 00:26:04,840 Speaker 1: that stood out to me was that you think the 461 00:26:04,920 --> 00:26:09,280 Speaker 1: FED is backfitting data to fit a theory rather than 462 00:26:09,680 --> 00:26:12,199 Speaker 1: going where the data should be taking them. Well, I mean, 463 00:26:12,280 --> 00:26:16,080 Speaker 1: I think that the model at the at the board 464 00:26:16,160 --> 00:26:19,959 Speaker 1: has always been very very central to their thinking. And 465 00:26:20,320 --> 00:26:23,720 Speaker 1: you know, when the when the reality diverges from the model, 466 00:26:23,800 --> 00:26:26,399 Speaker 1: sometimes it takes a very long time for economists to 467 00:26:26,760 --> 00:26:30,800 Speaker 1: recognize that and to adjust their uh, their model accordingly. 468 00:26:31,359 --> 00:26:34,080 Speaker 1: How are they doing that and what are they doing wrong? Well, 469 00:26:34,119 --> 00:26:36,440 Speaker 1: I think, you know, just to go through a little 470 00:26:36,480 --> 00:26:38,560 Speaker 1: bit of the thinking in the paper, I mean, you know, 471 00:26:38,600 --> 00:26:42,880 Speaker 1: I kind of broke apart the U the thought process 472 00:26:42,960 --> 00:26:47,520 Speaker 1: behind the law Bock Williams model, which is the UM, 473 00:26:47,640 --> 00:26:50,000 Speaker 1: which is the paper that a lot of the folks 474 00:26:50,040 --> 00:26:52,479 Speaker 1: at the FED have been using to back up the 475 00:26:52,520 --> 00:26:55,159 Speaker 1: idea that that the neutral rate of interest, or as 476 00:26:55,200 --> 00:26:57,640 Speaker 1: they call it, our star has fallen quite a bit. 477 00:26:57,960 --> 00:27:01,199 Speaker 1: And there are good reasons to think that has. But 478 00:27:01,320 --> 00:27:05,320 Speaker 1: I think UM basically the way that that this particular 479 00:27:05,359 --> 00:27:10,720 Speaker 1: model comes to that conclusion is by noting that, um, 480 00:27:10,760 --> 00:27:13,720 Speaker 1: you know, we had this very easy monetary policy or 481 00:27:13,760 --> 00:27:16,439 Speaker 1: what we thought was a very easy monetary policy in 482 00:27:16,480 --> 00:27:20,400 Speaker 1: the earlier part of this cycle, and it didn't result 483 00:27:20,600 --> 00:27:24,119 Speaker 1: in the in the rapid pick up an inflation that 484 00:27:24,240 --> 00:27:28,440 Speaker 1: people thought might happen, and so the conclusion is, well, 485 00:27:28,480 --> 00:27:31,560 Speaker 1: if that is that inflation pickup didn't occur, then it 486 00:27:31,640 --> 00:27:36,359 Speaker 1: must mean that policy actually wasn't that accommodative, and which 487 00:27:36,480 --> 00:27:38,879 Speaker 1: I actually think that part of it is right, but 488 00:27:39,000 --> 00:27:41,960 Speaker 1: I think they get the wrong reason there. I would 489 00:27:41,960 --> 00:27:44,880 Speaker 1: have said it was because a lot of the unconventional 490 00:27:44,920 --> 00:27:48,080 Speaker 1: measures that were used just weren't very effective at stimulating growth. 491 00:27:48,840 --> 00:27:51,240 Speaker 1: But they came to the conclusion that since rates were 492 00:27:51,359 --> 00:27:54,320 Speaker 1: zero and policy wasn't getting much traction, it must have 493 00:27:54,400 --> 00:27:58,840 Speaker 1: meant that this neutral rate had fallen very fast. And 494 00:27:59,040 --> 00:28:02,080 Speaker 1: while I think it has fallen, and we've talked about 495 00:28:02,080 --> 00:28:05,800 Speaker 1: on the show a number of times, the decline in productivity, 496 00:28:05,920 --> 00:28:09,040 Speaker 1: and obviously that has big implications for potential GDP and 497 00:28:09,080 --> 00:28:12,000 Speaker 1: in turn, in my mind, for the neutral rate of interest. 498 00:28:12,560 --> 00:28:14,639 Speaker 1: I just don't think that the idea that the that 499 00:28:14,680 --> 00:28:17,800 Speaker 1: the neutral rate of interest is zero or negative really 500 00:28:17,840 --> 00:28:21,080 Speaker 1: resonates um. You know, it's just not very realistic, even 501 00:28:21,119 --> 00:28:24,119 Speaker 1: if even if one particular model might lead you to 502 00:28:24,160 --> 00:28:28,200 Speaker 1: that conclusion. Is this a failure to distinguish between cyclical 503 00:28:28,240 --> 00:28:31,440 Speaker 1: and structural changes in the economy. I think that's part 504 00:28:31,440 --> 00:28:34,080 Speaker 1: of what's going on, and and I think in particular, 505 00:28:34,119 --> 00:28:35,919 Speaker 1: I think there's a bit of a blind spot in 506 00:28:35,960 --> 00:28:40,760 Speaker 1: the orthodoxy around the structural idea because, um, you know, 507 00:28:40,840 --> 00:28:45,440 Speaker 1: the predominant thought process, which really for fifty years has 508 00:28:45,480 --> 00:28:50,960 Speaker 1: been one version or another of Keynesianism, um, really focuses 509 00:28:51,000 --> 00:28:54,200 Speaker 1: on the demand side of the equation, which is really 510 00:28:54,200 --> 00:28:57,520 Speaker 1: a cyclical story. Uh, if the economy is not performing 511 00:28:57,560 --> 00:28:59,720 Speaker 1: up to speed, then it must mean that we need 512 00:28:59,760 --> 00:29:03,560 Speaker 1: more stimulus to get more demand because demand is insufficient. 513 00:29:04,040 --> 00:29:06,120 Speaker 1: And I think a lot of the problems that we're 514 00:29:06,160 --> 00:29:09,080 Speaker 1: that we're facing in the economy today are more on 515 00:29:09,120 --> 00:29:11,440 Speaker 1: the supply side of the economy or structure. I mean, 516 00:29:11,520 --> 00:29:14,160 Speaker 1: certainly the low productivity growth is the one that's the 517 00:29:14,200 --> 00:29:17,440 Speaker 1: most prominent, and these are things that monetary policy can't 518 00:29:17,480 --> 00:29:22,160 Speaker 1: easily address. Steven Staley and William Duport St. Louis Fett 519 00:29:22,160 --> 00:29:23,880 Speaker 1: has been done a lot of work on this as well. 520 00:29:24,080 --> 00:29:29,360 Speaker 1: Here's just one math equation, summation beta by the by 521 00:29:29,400 --> 00:29:34,680 Speaker 1: the expected fire over alpha seed to the alpha plus 522 00:29:34,800 --> 00:29:39,560 Speaker 1: si over alpha seed to the alpha minus nt. All 523 00:29:39,600 --> 00:29:45,080 Speaker 1: that mathematical mumbo jumbo begs to go back to simpler models. 524 00:29:45,960 --> 00:29:50,440 Speaker 1: Are we walking through an orthodox shift now back to simplicity. 525 00:29:50,520 --> 00:29:53,440 Speaker 1: I think that's the heart of the debate. Well, it'll 526 00:29:53,520 --> 00:29:55,360 Speaker 1: be interesting to see if we get there. I mean, 527 00:29:55,400 --> 00:29:59,800 Speaker 1: I think over the last several decades we've been moving 528 00:29:59,800 --> 00:30:03,240 Speaker 1: to were more complexity. I think there are times when 529 00:30:03,800 --> 00:30:06,720 Speaker 1: the models breakdown, and the question is are you going 530 00:30:06,800 --> 00:30:10,760 Speaker 1: to try to fit your square model into a round 531 00:30:10,760 --> 00:30:13,800 Speaker 1: hole when the when the data suggests that something different 532 00:30:13,880 --> 00:30:17,320 Speaker 1: is going on by tweaking the model in various ways, 533 00:30:17,400 --> 00:30:19,360 Speaker 1: or are you going to start over again? And it's 534 00:30:19,400 --> 00:30:23,440 Speaker 1: obviously for an academic economist the notion of starting all 535 00:30:23,480 --> 00:30:26,520 Speaker 1: over again is a pretty painful one and and and 536 00:30:26,600 --> 00:30:29,520 Speaker 1: a daunting one. So I think there's a natural tendency 537 00:30:29,560 --> 00:30:33,120 Speaker 1: to try to, you know, modulate a couple of parameters 538 00:30:33,120 --> 00:30:35,400 Speaker 1: here and there, and and and try to mash that 539 00:30:36,000 --> 00:30:38,960 Speaker 1: model into the round hole. Sometimes it just doesn't fit. 540 00:30:39,600 --> 00:30:42,760 Speaker 1: Just so the doctor Stanley knows, we call that unsurveillance 541 00:30:42,800 --> 00:30:47,560 Speaker 1: tweaking the model. That's the PhD phrase we use. He got, well, 542 00:30:47,680 --> 00:30:50,400 Speaker 1: Jim Butllard at the St. Louis VET has sort of 543 00:30:50,440 --> 00:30:53,880 Speaker 1: thrown his models out and said, uh, you know, we 544 00:30:53,880 --> 00:30:57,320 Speaker 1: we can't forecast well anymore. So for the time being, 545 00:30:57,400 --> 00:31:00,120 Speaker 1: I'm going to assume that little changes in the out 546 00:31:00,160 --> 00:31:03,920 Speaker 1: of me. Yeah, and I you know, i'd be I'd 547 00:31:03,960 --> 00:31:08,880 Speaker 1: love to get him under truth serum or something like 548 00:31:08,920 --> 00:31:11,360 Speaker 1: that and and and get his feel for how that's 549 00:31:11,520 --> 00:31:15,840 Speaker 1: worked out, because in my view, it really hasn't worked 550 00:31:15,880 --> 00:31:19,320 Speaker 1: out well for him. I don't think that that he 551 00:31:19,480 --> 00:31:23,120 Speaker 1: meant for people to believe that he literally doesn't think 552 00:31:23,160 --> 00:31:25,240 Speaker 1: that there's going to be any movement and growth on 553 00:31:25,640 --> 00:31:28,400 Speaker 1: unemployment inflation in the FED over the next two years. 554 00:31:28,440 --> 00:31:31,800 Speaker 1: I think basically he was throwing his hands up and saying, 555 00:31:33,080 --> 00:31:35,600 Speaker 1: we haven't done a very good job of forecasting, so 556 00:31:36,760 --> 00:31:39,440 Speaker 1: I'm just gonna throw my hands up and not really 557 00:31:39,480 --> 00:31:42,080 Speaker 1: trying to make a multi year forecast and just see 558 00:31:42,080 --> 00:31:46,320 Speaker 1: what happens. But but unfortunately, I think his you know, 559 00:31:46,320 --> 00:31:48,840 Speaker 1: market participants tend to look at headlines, not at the 560 00:31:48,920 --> 00:31:54,120 Speaker 1: underlying um rationale, and I think what people saw is 561 00:31:54,160 --> 00:31:56,000 Speaker 1: that he was the low dot, and so all of 562 00:31:56,040 --> 00:31:59,240 Speaker 1: a sudden, Jim Bullard is now thought of as a 563 00:31:59,320 --> 00:32:01,920 Speaker 1: dove when reality, I don't think that's really the case 564 00:32:01,960 --> 00:32:04,680 Speaker 1: at all. Steve to the Dow Poor paper from the St. 565 00:32:04,720 --> 00:32:07,800 Speaker 1: Louis fed Here's the key sentence in the conclusion, is 566 00:32:07,840 --> 00:32:11,480 Speaker 1: the f O m C choosing monetary policy with a 567 00:32:11,640 --> 00:32:16,200 Speaker 1: roulette wheel? Question mark how close to the theoretical roulette 568 00:32:16,200 --> 00:32:21,400 Speaker 1: wheel are we? Well? I think a roulette will presumes 569 00:32:21,440 --> 00:32:23,920 Speaker 1: that there's a lot of chance involved and it's kind 570 00:32:23,960 --> 00:32:27,200 Speaker 1: of just blind luck and they're closing their eyes and 571 00:32:27,200 --> 00:32:29,640 Speaker 1: and pinning the tail on the donkey or something like that. 572 00:32:30,080 --> 00:32:32,200 Speaker 1: I think it's much different than that. I think it's more, 573 00:32:33,160 --> 00:32:36,600 Speaker 1: if anything, it's more that they kind of are working backwards, 574 00:32:36,640 --> 00:32:38,800 Speaker 1: that they know what they want to do and they 575 00:32:38,840 --> 00:32:41,600 Speaker 1: have to figure out a way to justify that. I 576 00:32:41,640 --> 00:32:45,480 Speaker 1: think there's been a real lack of nerve to to 577 00:32:45,480 --> 00:32:47,560 Speaker 1: to raise rates and then you know a lot of 578 00:32:47,560 --> 00:32:50,800 Speaker 1: backstories to justify it. Michael McKee and our discussion with 579 00:32:50,840 --> 00:32:54,640 Speaker 1: Stephen Stanley Amer's pierpont this sentence really got my attention 580 00:32:55,040 --> 00:32:59,000 Speaker 1: in his outstanding new piece quote, I think there is 581 00:32:59,080 --> 00:33:03,880 Speaker 1: also a wrong leftward lean and ideology at the Feller 582 00:33:03,920 --> 00:33:09,080 Speaker 1: Reserve Board. Michael, Yeah, can you explain that Steve. Most 583 00:33:09,120 --> 00:33:12,040 Speaker 1: people on Wall Street would say yes, if by that 584 00:33:12,120 --> 00:33:15,880 Speaker 1: you mean that Janet Yellen is more intently focused on 585 00:33:15,960 --> 00:33:19,880 Speaker 1: the employment part of the FEDS mandate than on inflation. Yeah, 586 00:33:19,920 --> 00:33:21,560 Speaker 1: I think that's a big part of it. I mean, 587 00:33:21,720 --> 00:33:23,960 Speaker 1: you know, and I don't think I mean she would 588 00:33:24,040 --> 00:33:26,720 Speaker 1: say hey, I'm not political, I'm not partisan one of 589 00:33:26,800 --> 00:33:29,640 Speaker 1: her and and by Leffard Lean, I certainly don't mean 590 00:33:29,680 --> 00:33:32,120 Speaker 1: to suggest that she's being partisan in her job. But 591 00:33:32,560 --> 00:33:36,560 Speaker 1: I do think that ideologically she does lean to the left, 592 00:33:36,600 --> 00:33:38,640 Speaker 1: meaning as you say, a big part of that is 593 00:33:38,680 --> 00:33:42,080 Speaker 1: that she's really focused on getting unemployment down and would 594 00:33:42,160 --> 00:33:45,760 Speaker 1: kind of maybe take some risks on inflation to get there. Um. 595 00:33:45,800 --> 00:33:48,800 Speaker 1: But I think also it comes back to this kind 596 00:33:48,800 --> 00:33:53,080 Speaker 1: of Kensie and orthodoxy. I think, you know, again when 597 00:33:53,080 --> 00:33:56,560 Speaker 1: we think about fiscal policy, and this is really a 598 00:33:56,800 --> 00:33:58,800 Speaker 1: right now I think a global problem, not just a 599 00:33:58,920 --> 00:34:01,880 Speaker 1: US one. Um. You know, there's so much talk about 600 00:34:01,880 --> 00:34:05,320 Speaker 1: how monetary policy is close to being tapped out and 601 00:34:05,320 --> 00:34:08,040 Speaker 1: that we need fiscal policy to take up the more 602 00:34:08,120 --> 00:34:11,520 Speaker 1: of the of the weight. But I think what people 603 00:34:11,560 --> 00:34:14,480 Speaker 1: mean by fiscal policy again is usually that kind of 604 00:34:14,520 --> 00:34:17,840 Speaker 1: old school Keynsie and things just throw money at the problem, 605 00:34:17,880 --> 00:34:20,920 Speaker 1: and again that's not really what would solve our problems. 606 00:34:20,960 --> 00:34:24,840 Speaker 1: We need more structural um reform. We need to we 607 00:34:24,880 --> 00:34:29,000 Speaker 1: need to deal with the the overbearing regulatory structure. We 608 00:34:29,040 --> 00:34:31,440 Speaker 1: need to reform the corporate tax code. We need to 609 00:34:31,440 --> 00:34:33,200 Speaker 1: do things that are going to help to promote growth 610 00:34:33,200 --> 00:34:35,400 Speaker 1: in the long run, not so much to give the 611 00:34:35,440 --> 00:34:40,759 Speaker 1: economy a short term uh, sugar high Another question to 612 00:34:40,800 --> 00:34:43,480 Speaker 1: follow that, But I was just thinking you worked at 613 00:34:43,520 --> 00:34:48,040 Speaker 1: the FED. When you say leftward leaning, do you do 614 00:34:48,080 --> 00:34:51,600 Speaker 1: you put FED people into Republican or Democrat boxes? Or 615 00:34:51,640 --> 00:34:55,400 Speaker 1: is it different branches, different strains of economics that believe 616 00:34:55,800 --> 00:34:58,560 Speaker 1: one one way of doing things works in another way? 617 00:34:59,040 --> 00:35:03,000 Speaker 1: Uh may not. Well, it's it starts more with the ladder. 618 00:35:03,040 --> 00:35:07,360 Speaker 1: I mean, obviously there's some inevitable overlap right between the 619 00:35:07,520 --> 00:35:10,719 Speaker 1: economics and the and the politics of it. But you know, 620 00:35:10,719 --> 00:35:13,640 Speaker 1: I would also just say it's it's perfectly natural. We're 621 00:35:13,680 --> 00:35:16,200 Speaker 1: at the end of the second term of a Democratic president. 622 00:35:16,360 --> 00:35:21,000 Speaker 1: So UM President Obama has nominated pretty much everybody that's 623 00:35:21,600 --> 00:35:24,600 Speaker 1: UM that's on the board in Washington. So it's not 624 00:35:24,680 --> 00:35:27,640 Speaker 1: a surprise that you would expect the FED to have 625 00:35:27,719 --> 00:35:30,840 Speaker 1: shifted at least somewhat in that direction. So, you know, 626 00:35:30,880 --> 00:35:33,040 Speaker 1: I mean, again, I I don't think there's anything the 627 00:35:33,120 --> 00:35:36,440 Speaker 1: faeries going on here, but I do think that um 628 00:35:36,480 --> 00:35:40,959 Speaker 1: that because because they tend to think in a certain way, 629 00:35:41,040 --> 00:35:43,360 Speaker 1: I think maybe they're missing some of the some of 630 00:35:43,360 --> 00:35:46,480 Speaker 1: the solutions that might serve better than than what we're 631 00:35:46,520 --> 00:35:50,799 Speaker 1: saying now within your house of cards. Are we advantaged 632 00:35:50,840 --> 00:35:56,280 Speaker 1: to a better clarity, transparency and stability if we revert 633 00:35:56,400 --> 00:35:59,960 Speaker 1: to a New Zealand type Taylor rule? Well, I think 634 00:36:00,120 --> 00:36:02,319 Speaker 1: what would help the markets a lot, as if there 635 00:36:02,440 --> 00:36:05,200 Speaker 1: was some sort of a consistent reaction function that we 636 00:36:05,200 --> 00:36:08,000 Speaker 1: could understand, you know, I mean it's been a shifting 637 00:36:08,160 --> 00:36:13,239 Speaker 1: explanations and you know, shifting emphasies for several years now, 638 00:36:13,280 --> 00:36:15,160 Speaker 1: and again I think in some ways it's just a 639 00:36:15,200 --> 00:36:17,960 Speaker 1: matter of Okay, well we come to the meeting. We 640 00:36:18,040 --> 00:36:20,959 Speaker 1: thought we might want to raise rates, but we now 641 00:36:21,000 --> 00:36:22,799 Speaker 1: we've changed our mind. We don't want to do that. Now, 642 00:36:22,960 --> 00:36:25,000 Speaker 1: what can we you know, what story can we come 643 00:36:25,080 --> 00:36:28,200 Speaker 1: up with, uh to justify staying where we are? And 644 00:36:28,239 --> 00:36:31,759 Speaker 1: those stories have obviously differed to some degree over the 645 00:36:31,840 --> 00:36:35,000 Speaker 1: last several years. And so I think market participants in 646 00:36:35,040 --> 00:36:37,719 Speaker 1: particular are a bit at a loss right now to 647 00:36:37,880 --> 00:36:41,440 Speaker 1: understand what the reaction function is. You know, if you 648 00:36:41,480 --> 00:36:43,759 Speaker 1: give me some version of the tailor rule and say 649 00:36:43,760 --> 00:36:46,279 Speaker 1: we're going to follow this as closely as we can, 650 00:36:46,440 --> 00:36:49,360 Speaker 1: and at least I can have a better idea of 651 00:36:49,360 --> 00:36:51,960 Speaker 1: how to predict right now, I think it's very difficult 652 00:36:51,960 --> 00:36:54,040 Speaker 1: to predict what that's going to do. And why I 653 00:36:54,080 --> 00:36:56,640 Speaker 1: mean might to be clear here, we all agree that 654 00:36:56,680 --> 00:37:00,040 Speaker 1: we haven't followed the tailor rule, is it, Mike? The 655 00:37:00,120 --> 00:37:02,960 Speaker 1: key is that a correct statement? That is that correct statement? 656 00:37:03,800 --> 00:37:06,040 Speaker 1: And you note that the you know, rates would be 657 00:37:06,120 --> 00:37:10,479 Speaker 1: very different one other area where rates uh, the level 658 00:37:10,480 --> 00:37:14,239 Speaker 1: of rates would matter in that regard, as if we 659 00:37:14,320 --> 00:37:17,279 Speaker 1: get a recession. And Jenny Allen did talk about this 660 00:37:17,360 --> 00:37:20,680 Speaker 1: in Jackson Hole, UH, noting a paper by FED researcher 661 00:37:20,760 --> 00:37:24,600 Speaker 1: David Reischneider who suggests that the you know, going into 662 00:37:24,640 --> 00:37:28,080 Speaker 1: recessions that FED had generally overtightened. So even though rates 663 00:37:28,120 --> 00:37:31,120 Speaker 1: are low now, you could react because you wouldn't have 664 00:37:31,160 --> 00:37:33,480 Speaker 1: to cut rates as much because much of the accommodation 665 00:37:33,480 --> 00:37:37,839 Speaker 1: they were taking away in the past was overtightening, UH, 666 00:37:38,640 --> 00:37:42,080 Speaker 1: was overloosening. So rather let me get that right, so that, uh, 667 00:37:42,440 --> 00:37:46,840 Speaker 1: you know, there there is more space for a for 668 00:37:47,000 --> 00:37:50,960 Speaker 1: a FED reaction to a downturn. But you you disagree 669 00:37:50,960 --> 00:37:54,840 Speaker 1: with some of Mr Reschneider's conclusions, Well, I think he 670 00:37:55,320 --> 00:37:57,759 Speaker 1: makes a great point, which is and I think this 671 00:37:57,840 --> 00:38:00,440 Speaker 1: is something certainly I've been talking about for free years now, 672 00:38:00,520 --> 00:38:04,160 Speaker 1: is that people in the markets, I think, mistake the 673 00:38:04,560 --> 00:38:07,840 Speaker 1: what the FED calls the long run equilibrium rate, you 674 00:38:07,840 --> 00:38:10,799 Speaker 1: know what's in the in the quarterly forecast. Uh, they 675 00:38:10,840 --> 00:38:13,279 Speaker 1: mistake that for the peak in the cycle. And that's 676 00:38:13,320 --> 00:38:15,360 Speaker 1: not what it's designed to be. It's designed to be 677 00:38:15,520 --> 00:38:18,400 Speaker 1: the neutral rate, or what should work out to something 678 00:38:18,440 --> 00:38:21,040 Speaker 1: close to the average over the course of the cycle. 679 00:38:21,200 --> 00:38:24,840 Speaker 1: So what Reef Snyder notes is that in the past, 680 00:38:24,880 --> 00:38:28,680 Speaker 1: if it has typically moved about two basis points above 681 00:38:28,760 --> 00:38:31,320 Speaker 1: neutral at the top of the cycle, which makes sense. 682 00:38:31,360 --> 00:38:32,960 Speaker 1: You get to the top of the cycle and vation 683 00:38:33,040 --> 00:38:36,480 Speaker 1: is accelerating, you have to tighten. And so if you 684 00:38:36,520 --> 00:38:38,680 Speaker 1: assume that that the FED is going to be somewhere 685 00:38:38,680 --> 00:38:41,279 Speaker 1: in that neighborhood at the end of the at the 686 00:38:41,360 --> 00:38:44,440 Speaker 1: end of the tightening cycle, then if neutral is three, 687 00:38:44,920 --> 00:38:47,160 Speaker 1: the funds rate should be five. And in fact, you 688 00:38:47,200 --> 00:38:49,880 Speaker 1: do have a lot of room to lower rates. I 689 00:38:49,920 --> 00:38:52,600 Speaker 1: think where that breaks down is then in the last 690 00:38:52,640 --> 00:38:55,160 Speaker 1: couple of cycles, the FT has not done that, And 691 00:38:55,239 --> 00:38:57,960 Speaker 1: that's really the root of a lot of the complaints 692 00:38:57,960 --> 00:39:00,120 Speaker 1: that I've had about monetary posty for quite a while. Oh, 693 00:39:00,200 --> 00:39:03,560 Speaker 1: I think that the FIT has been very asymmetric in 694 00:39:03,600 --> 00:39:06,840 Speaker 1: their movements. They've been very aggressive on the easing side 695 00:39:07,320 --> 00:39:10,880 Speaker 1: and very tentative on the UH tightening side. And the 696 00:39:10,920 --> 00:39:14,719 Speaker 1: result has been over the last several cycles, while inflation 697 00:39:15,000 --> 00:39:18,959 Speaker 1: price inflation hasn't necessarily gotten out of hand, asset price 698 00:39:19,040 --> 00:39:23,200 Speaker 1: inflation has. And that's a key question. That's a key point. 699 00:39:23,719 --> 00:39:29,920 Speaker 1: Do you equate asset enrichment is being an equivalency to 700 00:39:30,120 --> 00:39:35,239 Speaker 1: a rate move? Well, what I would look at it 701 00:39:35,280 --> 00:39:37,920 Speaker 1: as you know, when asset prices are inflated because of 702 00:39:37,960 --> 00:39:41,240 Speaker 1: FED policy, that tells me that FED policy is too easy. 703 00:39:42,880 --> 00:39:46,200 Speaker 1: And I think what the FED has and they're very 704 00:39:46,400 --> 00:39:50,280 Speaker 1: very very very slowly coming around to this idea um 705 00:39:50,320 --> 00:39:53,520 Speaker 1: but so far anyway that the consensus view has been 706 00:39:53,360 --> 00:39:56,160 Speaker 1: that they only need to look at consumer price inflation 707 00:39:56,239 --> 00:40:00,000 Speaker 1: or even core consumer price inflation when deciding whether policy 708 00:40:00,120 --> 00:40:02,880 Speaker 1: is too easy, and I think the result has been 709 00:40:03,000 --> 00:40:04,640 Speaker 1: you know, there's a little bit of a blind spot, 710 00:40:04,719 --> 00:40:07,600 Speaker 1: and they're actually hampered by their own success. They've been 711 00:40:07,640 --> 00:40:11,080 Speaker 1: so successful at getting inflation down that inflation is very 712 00:40:11,120 --> 00:40:15,799 Speaker 1: slow to move away from their target, and therefore they're 713 00:40:15,920 --> 00:40:18,719 Speaker 1: very slow to notice that policy has been easy and 714 00:40:18,760 --> 00:40:21,800 Speaker 1: it creates and balances in the financial markets. And certainly 715 00:40:21,840 --> 00:40:24,759 Speaker 1: the last cycle we saw some pretty big imbalances that 716 00:40:24,840 --> 00:40:28,560 Speaker 1: developed over the course of that that expansion, even as 717 00:40:29,320 --> 00:40:33,560 Speaker 1: core consumer price inflation stayed reasonably moderate by historical standards. 718 00:40:33,920 --> 00:40:36,040 Speaker 1: A right, what is when you when you take this 719 00:40:36,120 --> 00:40:39,360 Speaker 1: all together, some up your paper for us in terms 720 00:40:39,360 --> 00:40:44,160 Speaker 1: of what it means for policy that the FED is 721 00:40:45,000 --> 00:40:48,000 Speaker 1: doing what it is doing and what it means for 722 00:40:48,040 --> 00:40:52,640 Speaker 1: the overall economy. Well, I think you know, one big 723 00:40:52,680 --> 00:40:55,960 Speaker 1: thing I would say, just taking up where we just were, 724 00:40:56,160 --> 00:40:59,279 Speaker 1: is in thinking about where policy is right now. I 725 00:40:59,280 --> 00:41:02,239 Speaker 1: think to FED feels very strongly that policy needs to 726 00:41:02,280 --> 00:41:06,840 Speaker 1: be very accommodative because of the fact that inflation is 727 00:41:06,840 --> 00:41:10,480 Speaker 1: still running below two percent. And I would look at 728 00:41:10,560 --> 00:41:15,000 Speaker 1: just the general financial environment, um, the level of asset prices, 729 00:41:15,120 --> 00:41:18,560 Speaker 1: the narrow spreads in various risk markets, and all the 730 00:41:18,640 --> 00:41:22,279 Speaker 1: rest as a as an indicator that the FED has 731 00:41:22,280 --> 00:41:25,880 Speaker 1: been easy for a while, and that it's starting to 732 00:41:26,000 --> 00:41:28,840 Speaker 1: create imbalances. If you want to call it bubbles, fine, 733 00:41:28,880 --> 00:41:30,799 Speaker 1: if you know, if you want to call it something 734 00:41:30,920 --> 00:41:34,520 Speaker 1: less extreme, that's that's fine too. Um. We have we 735 00:41:34,560 --> 00:41:37,880 Speaker 1: have an economy that's basically at full employment, and yet 736 00:41:37,960 --> 00:41:41,880 Speaker 1: the funds rate is still you know, pretty close to zero. 737 00:41:42,280 --> 00:41:46,480 Speaker 1: And that's incredibly different from historical experience. And I think 738 00:41:46,680 --> 00:41:51,080 Speaker 1: the FED risks creating a really big problem, um. And 739 00:41:51,160 --> 00:41:55,319 Speaker 1: they want to be both patient and gradual. And the 740 00:41:55,360 --> 00:41:57,920 Speaker 1: mantra that I've been using of late is that they 741 00:41:57,960 --> 00:42:00,200 Speaker 1: may be able to be patient, or they may be 742 00:42:00,280 --> 00:42:02,439 Speaker 1: able to be gradually and not be able to be both. 743 00:42:02,680 --> 00:42:06,800 Speaker 1: Stephen Sertley thinking, so much congratulations on House of Cards, folks. 744 00:42:06,840 --> 00:42:25,080 Speaker 1: That's available at Amherst pure Pont. This is very special 745 00:42:25,120 --> 00:42:28,120 Speaker 1: right now. Annual visit with Gary Bettman of the National 746 00:42:28,320 --> 00:42:30,920 Speaker 1: Hockey League. Mr Bettman used to bounce a basketball, now 747 00:42:30,960 --> 00:42:34,200 Speaker 1: he drops a puck. And it centers around the resurgence 748 00:42:34,320 --> 00:42:41,760 Speaker 1: of a national and North American sport around November where 749 00:42:41,760 --> 00:42:46,160 Speaker 1: the NHL shocked people with a contract with Rogers Media 750 00:42:46,160 --> 00:42:49,840 Speaker 1: and Canada, which changed the dialogue, the scope and the scale. 751 00:42:50,200 --> 00:42:52,719 Speaker 1: And then following on Michael McKee on that was the 752 00:42:52,760 --> 00:42:57,480 Speaker 1: deal with NBC, which is branded it from I'm gonna say, Gary, 753 00:42:57,520 --> 00:43:02,520 Speaker 1: what January there's basically in sanity tool June. Well, actually 754 00:43:02,680 --> 00:43:07,120 Speaker 1: there's insanity throughout the season. Say that between NBC and 755 00:43:07,360 --> 00:43:11,640 Speaker 1: NBC Sports Net, Uh, we get great coverage. There's over 756 00:43:11,680 --> 00:43:15,000 Speaker 1: a hundred games between the two outlets and the regular season. 757 00:43:15,520 --> 00:43:19,440 Speaker 1: And then the most important thing in the new NBC contract, 758 00:43:19,480 --> 00:43:21,920 Speaker 1: which is now I think in its fifth season, is 759 00:43:21,960 --> 00:43:24,160 Speaker 1: the fact that for the first time on our history, 760 00:43:24,360 --> 00:43:27,080 Speaker 1: and and this may sound crazy, but for the first 761 00:43:27,120 --> 00:43:30,080 Speaker 1: time in our history, every game of the Stanley Cup 762 00:43:30,080 --> 00:43:34,840 Speaker 1: Playoffs is on national TV. UH. It would seem obvious 763 00:43:34,880 --> 00:43:36,719 Speaker 1: that that should have always have been the case, but 764 00:43:36,760 --> 00:43:41,680 Speaker 1: there's a long history to our television UH forays long 765 00:43:41,760 --> 00:43:43,840 Speaker 1: before I got to the league, and a lot of 766 00:43:43,880 --> 00:43:46,319 Speaker 1: decisions were made in the seventies and eighties. But but 767 00:43:46,400 --> 00:43:50,000 Speaker 1: in the final analysis, to have all our playoff games 768 00:43:50,120 --> 00:43:53,359 Speaker 1: national is just to for our fans. Michael, bringing our 769 00:43:53,400 --> 00:43:58,160 Speaker 1: special guest here with Mr Bettman uh now skating for 770 00:43:58,239 --> 00:44:01,560 Speaker 1: the Bloomberg Surveillance team is Arelett Fu who is I'm 771 00:44:01,560 --> 00:44:04,160 Speaker 1: the power forward here you're the power forward and uh 772 00:44:04,200 --> 00:44:06,880 Speaker 1: you're you're the real uh not, You're not just a 773 00:44:06,920 --> 00:44:10,560 Speaker 1: hockey mom, You're a hockey player, hockey player, hockey fan, hockey, 774 00:44:10,600 --> 00:44:11,960 Speaker 1: all of the above. In fact, I was at the 775 00:44:12,000 --> 00:44:16,440 Speaker 1: rink for three hours yesterday because practice has already be gotten. Yes, 776 00:44:16,600 --> 00:44:19,480 Speaker 1: Is that all? And that's part of what is interesting 777 00:44:19,560 --> 00:44:23,399 Speaker 1: about right now for the NHL h MR Commissioner, which 778 00:44:23,480 --> 00:44:26,439 Speaker 1: is it's football season, it's back to school season, and 779 00:44:26,520 --> 00:44:29,080 Speaker 1: yet the NHL is getting ready to host the World 780 00:44:29,160 --> 00:44:32,600 Speaker 1: Cup of Hockey. What's kind of been an occasional event 781 00:44:33,200 --> 00:44:36,080 Speaker 1: because it was last held in two thousand four before. 782 00:44:37,360 --> 00:44:40,359 Speaker 1: Why choose to hold this tournament now? Well, we think 783 00:44:40,400 --> 00:44:45,520 Speaker 1: it was long overdue. When we do international events, we 784 00:44:45,600 --> 00:44:50,560 Speaker 1: do them in partnership with the players Association, and after 785 00:44:50,640 --> 00:44:55,360 Speaker 1: two thousand four's World Cup, we kind of had to 786 00:44:55,400 --> 00:44:58,279 Speaker 1: take a little time off. There's some financial issues to 787 00:44:58,320 --> 00:45:01,320 Speaker 1: sort through. Well, no, it was so the collective bargaining 788 00:45:01,560 --> 00:45:04,799 Speaker 1: which which unfortunately cost us a season, but gave us 789 00:45:04,840 --> 00:45:07,960 Speaker 1: a system that has made the league healthier than it's 790 00:45:08,000 --> 00:45:11,640 Speaker 1: ever been. UM and then the union went through some turmoil, 791 00:45:12,040 --> 00:45:15,840 Speaker 1: but under Don Fear, the former executive director of the 792 00:45:15,880 --> 00:45:20,440 Speaker 1: Baseball Players Association now the executive director of the Hockey 793 00:45:20,560 --> 00:45:24,120 Speaker 1: Players Association. Uh, the union has been stable and we've 794 00:45:24,120 --> 00:45:27,000 Speaker 1: had a partner who we could work with, and we 795 00:45:27,120 --> 00:45:31,319 Speaker 1: believe in the international roots of our game. Obviously our 796 00:45:31,440 --> 00:45:35,160 Speaker 1: home starts in Canada and the United States, but in 797 00:45:35,280 --> 00:45:39,279 Speaker 1: terms of the four major North American sports leagues, we 798 00:45:39,360 --> 00:45:42,920 Speaker 1: have the greatest diversity of our players come from outside 799 00:45:42,920 --> 00:45:45,560 Speaker 1: in North America. This is a game with a long 800 00:45:45,719 --> 00:45:49,719 Speaker 1: history and tradition of international play. And so when the 801 00:45:49,760 --> 00:45:53,839 Speaker 1: opportunity presented itself that we could do it right, we 802 00:45:53,880 --> 00:45:57,040 Speaker 1: wanted to bring the World Cup back because our players, 803 00:45:57,080 --> 00:46:00,080 Speaker 1: in addition to loving playing for the Stanley Cup of 804 00:46:00,120 --> 00:46:02,560 Speaker 1: international competition. And I was at the Hockey Hall of 805 00:46:02,600 --> 00:46:04,840 Speaker 1: Fame in July, Mike, and of course I had to 806 00:46:04,840 --> 00:46:08,800 Speaker 1: pick up a Henrik Loquist T shirts for my son. Yeah, 807 00:46:09,360 --> 00:46:11,200 Speaker 1: just a T shirt. You didn't get him a sweater, 808 00:46:11,920 --> 00:46:13,480 Speaker 1: you know, the sweater was a little too big. He 809 00:46:13,680 --> 00:46:17,160 Speaker 1: founded it. Well, Um, let's talk about revenue a little bit. Uh, 810 00:46:17,480 --> 00:46:21,160 Speaker 1: you have gotten the big contract with NBC and all 811 00:46:21,200 --> 00:46:24,319 Speaker 1: the sports leagues keep building and building and building, which 812 00:46:24,400 --> 00:46:27,040 Speaker 1: raises to my mind a question whether we're seeing a 813 00:46:27,080 --> 00:46:30,239 Speaker 1: bubble in sports rights fees, and with all the talk 814 00:46:30,320 --> 00:46:35,640 Speaker 1: about how millennials are moving away from watching television, Uh, 815 00:46:35,920 --> 00:46:39,080 Speaker 1: are you prepared for a world in which you get 816 00:46:39,080 --> 00:46:44,000 Speaker 1: diminishing returns for for your rights fees and which maybe 817 00:46:44,040 --> 00:46:45,960 Speaker 1: you have to accept a little less the players would 818 00:46:46,000 --> 00:46:49,440 Speaker 1: have to accept a little less. That's a world that 819 00:46:49,520 --> 00:46:53,520 Speaker 1: people have been speculating about, particularly from the media side, 820 00:46:53,560 --> 00:46:56,800 Speaker 1: for at least the last twenty years, and it hasn't happened. 821 00:46:57,480 --> 00:47:02,279 Speaker 1: Millennials who or either chord cutters or they never by 822 00:47:02,280 --> 00:47:05,360 Speaker 1: the cord to begin with. The fact is it's about content, 823 00:47:05,960 --> 00:47:09,799 Speaker 1: and there's no better content than live professional sports at 824 00:47:09,800 --> 00:47:15,879 Speaker 1: the elite level. And how the sports gets distributed may 825 00:47:16,000 --> 00:47:21,480 Speaker 1: vary over time, but the fact is whether it's well. Actually, 826 00:47:21,520 --> 00:47:23,880 Speaker 1: when it comes to live programming, there's nothing better than 827 00:47:24,200 --> 00:47:27,600 Speaker 1: it's with the Ultimate Reality Show. And in our case, uh, 828 00:47:27,600 --> 00:47:31,320 Speaker 1: since we're kind of catching up in the world of 829 00:47:31,320 --> 00:47:35,400 Speaker 1: of major media again, we talked initially in our discussion 830 00:47:35,400 --> 00:47:38,480 Speaker 1: about the fact that our NBC agreement that's this is 831 00:47:38,520 --> 00:47:40,719 Speaker 1: the first time that all of our playoff games are 832 00:47:40,760 --> 00:47:44,839 Speaker 1: on nationally. Uh, We're nowhere close to a bubble. We 833 00:47:44,880 --> 00:47:47,040 Speaker 1: think we're still in a big growth mode. So you 834 00:47:47,160 --> 00:47:50,640 Speaker 1: envision a world where rights FEESA continue will continue to rise. 835 00:47:50,640 --> 00:47:55,040 Speaker 1: You're you're certainly, certainly for hockey. But again, we have 836 00:47:55,120 --> 00:48:01,200 Speaker 1: a system which aligns are revenues in our predominant expense 837 00:48:01,960 --> 00:48:05,319 Speaker 1: player salaries. And that was the system that we put 838 00:48:05,360 --> 00:48:08,640 Speaker 1: into place roughly thirteen years ago and has given us 839 00:48:08,760 --> 00:48:12,760 Speaker 1: extraordinary competitive balance. Okay, So, if it's all about content 840 00:48:12,840 --> 00:48:15,960 Speaker 1: and the content is always getting better, Tom referenced the 841 00:48:16,000 --> 00:48:18,160 Speaker 1: deal that you've made with Rogers, a twelve year deal. 842 00:48:18,800 --> 00:48:24,080 Speaker 1: What are the ramifications of falling ratings in Canada for 843 00:48:24,160 --> 00:48:26,560 Speaker 1: the NHL if these ratings continue to slide over the 844 00:48:26,600 --> 00:48:29,560 Speaker 1: next year or two. Well, there are two aspects to that. 845 00:48:30,160 --> 00:48:33,560 Speaker 1: Neither Rogers nor we are concerned. Uh. In the first 846 00:48:33,640 --> 00:48:37,480 Speaker 1: year of our deal with Rogers. Uh, I believe five 847 00:48:37,520 --> 00:48:43,080 Speaker 1: Canadian teams made the playoffs. UH. And over time, Hockey 848 00:48:43,160 --> 00:48:46,880 Speaker 1: Night in Canada and the national broadcast tended to rely 849 00:48:47,239 --> 00:48:50,719 Speaker 1: principally on the Leafs and the Canadians, but really principally 850 00:48:50,719 --> 00:48:53,600 Speaker 1: on the Leafs. The Leafs are in a rebuilding mode. 851 00:48:53,760 --> 00:48:57,080 Speaker 1: And you add that that's our comedy act for the day. 852 00:48:58,040 --> 00:49:01,879 Speaker 1: Can we quote you on that? Probably will. And and 853 00:49:02,080 --> 00:49:05,720 Speaker 1: by the way, under Brendan Shanahan and lou lam Morello 854 00:49:05,840 --> 00:49:09,640 Speaker 1: and coach Babcock, they're doing they're doing this the right way. 855 00:49:09,800 --> 00:49:12,720 Speaker 1: A couple that with the fact that no Canadian teams 856 00:49:12,719 --> 00:49:15,040 Speaker 1: and I think it's the first time since nineteen sixty 857 00:49:15,200 --> 00:49:19,720 Speaker 1: nine no Canadian teams made the playoffs. When you factor 858 00:49:19,840 --> 00:49:25,000 Speaker 1: that in, obviously the viewer patterns will vary when you 859 00:49:25,040 --> 00:49:27,680 Speaker 1: go from five things in the playoffs to none. So 860 00:49:28,440 --> 00:49:30,680 Speaker 1: over the course of a long term deal which we 861 00:49:30,760 --> 00:49:34,399 Speaker 1: have with Rogers, who's a great partner. Uh, they're more 862 00:49:34,440 --> 00:49:37,560 Speaker 1: than comfortable with the relationship. And so wait Michael McKee 863 00:49:37,560 --> 00:49:40,160 Speaker 1: before we get back to Commissioner Bettman and the NHL 864 00:49:40,760 --> 00:49:44,160 Speaker 1: Governor Kearney has spoken. Yes, he is testifying before Parliament 865 00:49:44,239 --> 00:49:46,520 Speaker 1: and he says that the data do suggest the UK 866 00:49:46,640 --> 00:49:50,560 Speaker 1: economy is a bit stronger than the BOE forecast. However, 867 00:49:50,640 --> 00:49:53,320 Speaker 1: he pulls that back on him it's out by saying 868 00:49:53,440 --> 00:49:56,800 Speaker 1: it's improved partly because of the b o E actually 869 00:49:57,080 --> 00:50:01,120 Speaker 1: cutting rates and stimulating the economy. Michael as well, the 870 00:50:01,160 --> 00:50:05,080 Speaker 1: Canadian dollar is a bit stronger. Canadian dollar this morning 871 00:50:05,080 --> 00:50:08,200 Speaker 1: at seventy eight cents is still nothing to write home about. 872 00:50:08,200 --> 00:50:10,680 Speaker 1: And if you know any Canadians, they're not really happy 873 00:50:10,719 --> 00:50:14,480 Speaker 1: about it. And you wonder you mentioned that the issue 874 00:50:14,520 --> 00:50:16,640 Speaker 1: with the Toronto maple leafs, but it's an issue for 875 00:50:16,719 --> 00:50:19,719 Speaker 1: everybody up there is they're dealing in a currency that 876 00:50:19,880 --> 00:50:23,839 Speaker 1: is significantly weaker than in the United States. How much 877 00:50:24,680 --> 00:50:27,360 Speaker 1: influence does that have in the way you do business? 878 00:50:27,360 --> 00:50:30,759 Speaker 1: Both on this, say, the salary cap, on expansion there 879 00:50:30,880 --> 00:50:33,120 Speaker 1: there's talk that you didn't want to go to Quebec 880 00:50:33,120 --> 00:50:37,600 Speaker 1: City because of the because of the Canadian dollar situation. Uh, 881 00:50:38,040 --> 00:50:40,279 Speaker 1: what's it like being the only major sport that really 882 00:50:40,280 --> 00:50:43,640 Speaker 1: has to function in two currencies. Well, first of all, 883 00:50:44,760 --> 00:50:46,920 Speaker 1: the heart and soul and roots of our game are 884 00:50:46,960 --> 00:50:49,879 Speaker 1: in Canada, so whatever we have to do to make 885 00:50:49,920 --> 00:50:53,720 Speaker 1: it work is going to be vitally important. We want 886 00:50:54,239 --> 00:50:57,560 Speaker 1: our Canadian clubs to not only be competitive, but to 887 00:50:57,640 --> 00:51:00,960 Speaker 1: be economically stable and to do well. The system we 888 00:51:01,040 --> 00:51:05,239 Speaker 1: have in place takes into account the possible fluctuations in 889 00:51:05,280 --> 00:51:10,600 Speaker 1: the Canadian dollar. We compute our league wide revenues for 890 00:51:10,680 --> 00:51:13,319 Speaker 1: purposes of the salary cap and revenue sharing in the 891 00:51:13,400 --> 00:51:17,359 Speaker 1: like by using the US dollar because we knew in 892 00:51:17,400 --> 00:51:19,719 Speaker 1: advance that there would be fluctuations. By the way, there 893 00:51:19,760 --> 00:51:22,720 Speaker 1: have been times under this deal where the Canadian dollar 894 00:51:22,920 --> 00:51:27,600 Speaker 1: was overpar to the US dollar, and so from our standpoint, 895 00:51:28,120 --> 00:51:30,719 Speaker 1: it's not so much the level it's at, it's the 896 00:51:30,760 --> 00:51:34,920 Speaker 1: fluctuation that kind of causes people to have to rejigger 897 00:51:34,960 --> 00:51:38,080 Speaker 1: the numbers. But in the final analysis, the system works 898 00:51:38,160 --> 00:51:40,799 Speaker 1: because the system accounts for the fact that there have 899 00:51:40,960 --> 00:51:43,719 Speaker 1: been in will continue to be fluctuations in the Canadian 900 00:51:43,719 --> 00:51:46,880 Speaker 1: dollar lower Canadian dollar higher taxes. Is that one of 901 00:51:46,880 --> 00:51:50,840 Speaker 1: the reasons that the Canadian teams haven't been able to succeed. No, 902 00:51:51,880 --> 00:51:55,920 Speaker 1: our our system enables all of our clubs north and 903 00:51:55,960 --> 00:51:59,600 Speaker 1: south of the forty nine parallel without regard to market size, 904 00:51:59,640 --> 00:52:03,600 Speaker 1: to were to be competitive. Uh, you're also not taking 905 00:52:03,640 --> 00:52:07,160 Speaker 1: into account that revenues that come in, say for example, 906 00:52:07,239 --> 00:52:12,000 Speaker 1: from NBC, are distributed up to Canada and they get 907 00:52:12,040 --> 00:52:16,040 Speaker 1: more Canadian dollars to the US dollar, when in fact 908 00:52:16,120 --> 00:52:20,640 Speaker 1: we're distributing US dollars. So in the final analysis, it 909 00:52:20,719 --> 00:52:23,799 Speaker 1: tends to even itself out. And we, as I said, 910 00:52:23,840 --> 00:52:26,359 Speaker 1: we have revenue sharing that takes that into account. Than 911 00:52:26,400 --> 00:52:28,800 Speaker 1: the cap is a function of that, and the escrow 912 00:52:29,040 --> 00:52:31,640 Speaker 1: also takes that into account and revenue of course, will 913 00:52:31,680 --> 00:52:34,239 Speaker 1: soon be generated in Las Vegas with the expansion of 914 00:52:34,239 --> 00:52:39,160 Speaker 1: a team there for the season. The NHL beat the 915 00:52:39,200 --> 00:52:42,120 Speaker 1: other major sports leagues and putting a team in Las Vegas. 916 00:52:42,280 --> 00:52:46,080 Speaker 1: I didn't know it was a race. Well, nevertheless, did 917 00:52:46,160 --> 00:52:49,600 Speaker 1: any other commissioners, say, Roger Goodell contact you or reach 918 00:52:49,640 --> 00:52:55,040 Speaker 1: out to you since then? Not that I recall all 919 00:52:55,120 --> 00:52:57,680 Speaker 1: the leagues. I know that people tend to think that 920 00:52:58,080 --> 00:53:00,520 Speaker 1: we have this clubhouse and the four of us go 921 00:53:00,600 --> 00:53:03,960 Speaker 1: off on a regular basis, and you know, take secret, 922 00:53:04,200 --> 00:53:07,880 Speaker 1: that's not the way it works. We're all socially friendly, uh, 923 00:53:08,000 --> 00:53:10,600 Speaker 1: we all our professionally friendly, but we all do our 924 00:53:10,640 --> 00:53:15,560 Speaker 1: own thing. And we made the decision for us as 925 00:53:15,560 --> 00:53:18,120 Speaker 1: a league that Las Vegas made a lot of sense 926 00:53:18,160 --> 00:53:20,520 Speaker 1: and would enhance the league, and it's a team that 927 00:53:20,560 --> 00:53:23,839 Speaker 1: we think that we'll have tremendous success in the Las 928 00:53:23,960 --> 00:53:27,960 Speaker 1: Vegas market. The fact that after we pursued this, the 929 00:53:28,080 --> 00:53:31,000 Speaker 1: NFL seems to be or at least the raiders in 930 00:53:31,040 --> 00:53:33,600 Speaker 1: the NFL seemed to be looking at it. That's fine. 931 00:53:33,640 --> 00:53:36,440 Speaker 1: They can do what they want. From our standpoint, we 932 00:53:36,480 --> 00:53:38,640 Speaker 1: have been working on this for the better part of 933 00:53:38,680 --> 00:53:41,279 Speaker 1: a year to two years, and we believe this made 934 00:53:41,320 --> 00:53:43,680 Speaker 1: sense for us. So Las Vegas is a city that 935 00:53:43,719 --> 00:53:46,640 Speaker 1: can handle to professional sports. I don't. I'm not since 936 00:53:46,640 --> 00:53:48,960 Speaker 1: we're since we're going to be there. Whether or not 937 00:53:49,000 --> 00:53:53,839 Speaker 1: it can handle two isn't my issue. Well, if one 938 00:53:53,960 --> 00:53:57,280 Speaker 1: cannibalizes the other is the question is there enough money 939 00:53:57,440 --> 00:54:00,440 Speaker 1: in Las Vegas to keep a National Hockey League team 940 00:54:00,520 --> 00:54:05,680 Speaker 1: going if the economy turns down, if the end off, 941 00:54:06,360 --> 00:54:09,080 Speaker 1: and if an NFL team comes, they have eight home dates. 942 00:54:09,160 --> 00:54:11,920 Speaker 1: It's it's not the same as the forty one home 943 00:54:12,040 --> 00:54:15,840 Speaker 1: dates that we have plus preseason, plus playoffs. But but 944 00:54:15,920 --> 00:54:20,719 Speaker 1: more importantly, uh, this is a team that was granted 945 00:54:20,800 --> 00:54:24,920 Speaker 1: not for the tourist trade. Obviously, people are going to 946 00:54:25,040 --> 00:54:29,520 Speaker 1: follow probably their favorite team, the team they root for, 947 00:54:29,560 --> 00:54:32,200 Speaker 1: their local team to Las Vegas and say, let's go 948 00:54:32,280 --> 00:54:34,560 Speaker 1: for a weekend and watch watch our team play on 949 00:54:34,600 --> 00:54:37,960 Speaker 1: the road, and that'll be fun. But Bill Foley, who's 950 00:54:38,040 --> 00:54:40,759 Speaker 1: going to be who is the owner of the Las 951 00:54:40,880 --> 00:54:44,839 Speaker 1: Vegas franchise, did a season ticket drive. He did it 952 00:54:44,920 --> 00:54:48,560 Speaker 1: with ticket prices and real deposits, and he did it 953 00:54:48,600 --> 00:54:53,480 Speaker 1: over a year ago. And the notion was, see if 954 00:54:53,520 --> 00:54:57,200 Speaker 1: there's interest from the community. We suggested when he was 955 00:54:57,280 --> 00:54:59,440 Speaker 1: going to do the ticket drive, do not go to 956 00:54:59,480 --> 00:55:02,840 Speaker 1: the casino, do not go to large corporations, go to 957 00:55:02,920 --> 00:55:07,400 Speaker 1: individuals and small companies and sell the tickets in groups 958 00:55:07,400 --> 00:55:10,080 Speaker 1: of no more than eight. And let's see what's there 959 00:55:10,160 --> 00:55:14,120 Speaker 1: Indigenous lye. I think their season ticket deposit account is 960 00:55:14,160 --> 00:55:17,319 Speaker 1: somewhere in excess of fifteen thousand, which would make them 961 00:55:17,320 --> 00:55:21,440 Speaker 1: as strong as almost any franchise on a season ticket basis, because, 962 00:55:21,520 --> 00:55:24,240 Speaker 1: and this is what the business leaders in Las Vegas 963 00:55:24,239 --> 00:55:28,360 Speaker 1: were telling me, there is a strong Indigenous population of 964 00:55:28,520 --> 00:55:32,160 Speaker 1: people in a city that's with the suburbs and excess 965 00:55:32,200 --> 00:55:36,040 Speaker 1: of two million people looking for things like they haven't 966 00:55:36,080 --> 00:55:39,440 Speaker 1: other cities. It's great, it's Caesar's Palace. On stage. Everybody 967 00:55:39,560 --> 00:55:43,640 Speaker 1: dresses like Don Cherry. Michael, and you have occasionally dressed 968 00:55:43,640 --> 00:55:45,880 Speaker 1: like Ry. I sense a little bit of between that 969 00:55:45,960 --> 00:55:48,359 Speaker 1: common and the Leafs. There's a little bit of citicism 970 00:55:48,640 --> 00:55:52,480 Speaker 1: coming from you. Donald and the late grade L Harbor 971 00:55:52,600 --> 00:55:57,319 Speaker 1: were wonderful Rochester Americans. Michael, Uh. The elephant in the 972 00:55:57,360 --> 00:56:01,160 Speaker 1: casino when you go to Las Vegas is gambling. You 973 00:56:01,239 --> 00:56:04,320 Speaker 1: already partner with DraftKings, so in a way you're profiting 974 00:56:04,360 --> 00:56:07,600 Speaker 1: from from gambling. Well, you're assuming that daily fantasy sports 975 00:56:07,640 --> 00:56:10,000 Speaker 1: is the same as gambling. But that's well, we don't 976 00:56:10,040 --> 00:56:14,520 Speaker 1: have a Well, there are lots of opinions on it. 977 00:56:14,600 --> 00:56:16,560 Speaker 1: But anyway, how do you how do you walk the 978 00:56:16,600 --> 00:56:19,040 Speaker 1: line on gambling? How do you tiptoe the line on 979 00:56:19,160 --> 00:56:21,680 Speaker 1: gambling when you're in the gambling capital of the United States. 980 00:56:21,840 --> 00:56:26,040 Speaker 1: First of all, gambling for us is probably an entirely 981 00:56:26,120 --> 00:56:30,480 Speaker 1: different focus than say football or basketball, either at the 982 00:56:30,520 --> 00:56:34,479 Speaker 1: pro or at the college level. Uh, we're about one 983 00:56:34,600 --> 00:56:38,680 Speaker 1: percent of the book. Our game doesn't lend itself to 984 00:56:38,840 --> 00:56:42,400 Speaker 1: gambling in the same way that football and basketball do. 985 00:56:43,160 --> 00:56:46,520 Speaker 1: And from our standpoint, as we focus on gambling, it's 986 00:56:46,520 --> 00:56:49,600 Speaker 1: about creating the right environment in the in the arena, 987 00:56:50,200 --> 00:56:53,680 Speaker 1: um making sure it continues to be family friendly, which 988 00:56:53,680 --> 00:56:57,319 Speaker 1: it is for us, and I'm not I believe in 989 00:56:57,360 --> 00:57:00,440 Speaker 1: our players and their professionalism. So it's not about integrity 990 00:57:00,480 --> 00:57:04,240 Speaker 1: the game, it's about the environment. Gary, we'll talking about gambling. 991 00:57:04,239 --> 00:57:06,520 Speaker 1: They had a coach change of the Pittsburgh Penguins early 992 00:57:06,640 --> 00:57:09,320 Speaker 1: last year, which looks like the smartest decisions as the 993 00:57:09,360 --> 00:57:12,040 Speaker 1: time began. With Mike Sullivan, I want you to walk 994 00:57:12,080 --> 00:57:14,000 Speaker 1: through now what you have to deal with, because all 995 00:57:14,040 --> 00:57:16,920 Speaker 1: your critics say Batman can fix us in a heartbeat. 996 00:57:17,320 --> 00:57:19,600 Speaker 1: If you want to change the size of the goalie glove, 997 00:57:19,760 --> 00:57:22,000 Speaker 1: Ben Bishop is huge. He takes up the whole net 998 00:57:22,280 --> 00:57:25,480 Speaker 1: for Tampa Bay. Who do you have to appease to 999 00:57:25,640 --> 00:57:28,400 Speaker 1: change the size of the goalie glove? The three quarters 1000 00:57:28,440 --> 00:57:31,040 Speaker 1: of an inch is that Evan Noby Williams of Bloomberg 1001 00:57:31,040 --> 00:57:36,720 Speaker 1: News suggests when when it comes to the issues relating 1002 00:57:36,760 --> 00:57:40,880 Speaker 1: to player performance and players safety, suffice it to say 1003 00:57:40,920 --> 00:57:45,439 Speaker 1: that the Union tends to weigh in heavily, and they 1004 00:57:45,520 --> 00:57:49,120 Speaker 1: tend to be protective in ways that we can agree 1005 00:57:49,200 --> 00:57:52,640 Speaker 1: or positive, and they tend to weigh in areas where 1006 00:57:52,640 --> 00:57:57,000 Speaker 1: we can disagree. While I think conceptually they agree with 1007 00:57:57,120 --> 00:58:04,800 Speaker 1: us goalie equipment can be made smaller without jeopardizing player safety. 1008 00:58:05,360 --> 00:58:08,800 Speaker 1: The process of doing that and their view of what 1009 00:58:08,880 --> 00:58:13,520 Speaker 1: the goalies need to adjust, what the manufacturers UH need 1010 00:58:13,600 --> 00:58:17,000 Speaker 1: to do, may take more time than we think it 1011 00:58:17,000 --> 00:58:21,360 Speaker 1: should take. But I think the end result is that 1012 00:58:21,440 --> 00:58:26,360 Speaker 1: we're all in agreement that goalies could be smaller equipment wise. Obviously, 1013 00:58:26,400 --> 00:58:30,560 Speaker 1: Ben Bishops big even without the equipment. But but it's 1014 00:58:30,560 --> 00:58:33,840 Speaker 1: a question of process and timing, and we try where 1015 00:58:33,880 --> 00:58:37,840 Speaker 1: we can to do things in cooperation with the Players Association, 1016 00:58:38,280 --> 00:58:40,840 Speaker 1: because there tends to be less distractions if we can 1017 00:58:40,840 --> 00:58:44,200 Speaker 1: work the question. Jump in Scarlett with one more quick question. 1018 00:58:44,360 --> 00:58:46,320 Speaker 1: What do you think the goal equipment will look like 1019 00:58:46,320 --> 00:58:48,040 Speaker 1: in five years? What do you think over time might 1020 00:58:48,080 --> 00:58:50,160 Speaker 1: look like in five years? If the goal is to 1021 00:58:50,440 --> 00:58:53,880 Speaker 1: generate excitement, generate some offense, well we went to three 1022 00:58:53,880 --> 00:59:00,800 Speaker 1: on three sudden death overtime. Any trouble generating excitement. Our 1023 00:59:00,880 --> 00:59:04,360 Speaker 1: game is never pay more entertaining or competitive. The goal 1024 00:59:04,400 --> 00:59:07,919 Speaker 1: will be to get the players goalies into equipment as 1025 00:59:07,920 --> 00:59:11,640 Speaker 1: small as possible but protecting. Gary Batman, thank you so much. 1026 00:59:11,640 --> 00:59:16,080 Speaker 1: An annual visit on the state of his Yeah, where 1027 00:59:16,240 --> 00:59:19,080 Speaker 1: is this? Why don't we get a walk by the pan? 1028 00:59:19,800 --> 00:59:23,240 Speaker 1: What is that? It's actually probably at the engraver about 1029 00:59:23,320 --> 00:59:27,560 Speaker 1: now or on its way to Toronto. Gary, thank you 1030 00:59:27,600 --> 00:59:31,400 Speaker 1: so much. This is Bloomberg. Thanks for listening to the 1031 00:59:31,440 --> 00:59:37,520 Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, 1032 00:59:37,840 --> 00:59:41,800 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 1033 00:59:41,840 --> 00:59:46,640 Speaker 1: Tom Keane, Michael McKee is at Economy. Before the podcast, 1034 00:59:46,720 --> 00:59:56,919 Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio. Who 1035 00:59:57,040 --> 01:00:00,600 Speaker 1: you put your trust in matters. Invest Seers have put 1036 01:00:00,600 --> 01:00:04,000 Speaker 1: their trust in independent registered investment advisors to the tune 1037 01:00:04,040 --> 01:00:08,640 Speaker 1: of four trillion dollars. Why learn more and find your 1038 01:00:08,640 --> 01:00:12,640 Speaker 1: independent advisor dot com