WEBVTT - Climate Change Is America's Most Pressing Threat: Admiral Stavridis 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:33.879 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We 0:00:33.920 --> 0:00:37.560 have heard a lot about North Korea potential nuclear war. 0:00:37.680 --> 0:00:41.280 We've heard about increasing unrust in the Middle East. So 0:00:41.720 --> 0:00:44.159 it came as kind of a surprise to me anyway, 0:00:44.200 --> 0:00:47.200 that Admiral James Stavritez, whose tine of the Fletcher School 0:00:47.200 --> 0:00:51.240 of Law and Diplomacy and also was a retired U. S. 0:00:51.360 --> 0:00:54.720 Navy admiral informed military commando of NATO, he views the 0:00:54.720 --> 0:00:59.240 biggest threat right now global warming and climate change. He 0:00:59.360 --> 0:01:01.680 joins US now, Admiral Serrita's thank you so much for 0:01:01.760 --> 0:01:05.920 being with us. Can you explain I was surprised by this. Yeah, 0:01:05.959 --> 0:01:09.440 I think here we have to differentiate between tactical threats 0:01:09.480 --> 0:01:12.680 which kind of loom at us in the minute to minute. 0:01:13.120 --> 0:01:17.399 That would be North Korea, Iran, Russia's activities around the world, 0:01:17.480 --> 0:01:20.959 especially in cyber those tactical threats are very pressing, but 0:01:21.200 --> 0:01:24.640 long term, the strategic threat that I am very concerned 0:01:24.680 --> 0:01:27.680 about is global warming, and i'll tell you why. You know, 0:01:27.760 --> 0:01:33.640 first of all, it contributes to the tactical threats drought, fires, fame, 0:01:33.720 --> 0:01:38.119 and all these things fuel insecurity. Secondly, as sea levels rise, 0:01:38.160 --> 0:01:41.680 we're gonna lose valuable parts of the coastline, and particularly 0:01:41.680 --> 0:01:45.920 in the Arctic, we're gonna see rising tension as the 0:01:45.959 --> 0:01:49.640 polar caps melt and great powers collide up there, competing 0:01:49.640 --> 0:01:53.680 for hydrocarbons. And third and finally, extreme weather. You know, 0:01:53.760 --> 0:01:56.400 we've just been through a cycle, a trifecta, if you will, 0:01:56.400 --> 0:01:59.920 of terrible hurricanes. All of that drains our readiness. It's 0:02:00.040 --> 0:02:03.240 going to get worse and worse if we don't address it. Now, well, 0:02:03.280 --> 0:02:06.360 what role does the defense community have in this, because 0:02:06.400 --> 0:02:09.760 we've noted in the Defense Appropriations Bill there's a lot 0:02:09.760 --> 0:02:12.720 of mention of the effects of climate change. In fact, 0:02:12.840 --> 0:02:16.880 James Maddis, the Secretary of Defense, seems to concur in 0:02:16.960 --> 0:02:19.400 your thoughts. And just to give an example, you know, 0:02:19.440 --> 0:02:23.160 there's an Air Force radar installation that's on the Marshall Islands, 0:02:23.240 --> 0:02:26.800 and I think it cost about a billion dollars and 0:02:27.040 --> 0:02:32.040 it's projected to be underwater within twenty years exactly. So 0:02:32.080 --> 0:02:34.840 I'll tell you the two big things the military can do. 0:02:34.919 --> 0:02:38.079 The first is is very prosaic, and it is that 0:02:38.240 --> 0:02:42.239 the Department of Defense is the largest enterprise in the world. 0:02:42.280 --> 0:02:47.520 It's a seven hundred billion uh four million person enterprise. 0:02:47.639 --> 0:02:53.720 So simply addressing our own carbon footprint, our own emissions, 0:02:53.720 --> 0:02:58.120 our own ability to transfer from hydrocarbons two renewables is 0:02:58.160 --> 0:03:02.880 a not insignific secant contribution. And then secondly, what the 0:03:02.919 --> 0:03:06.960 military can do is prepare as we look at the 0:03:07.120 --> 0:03:11.720 potential for increased conflict, we look at reactions to extreme 0:03:11.760 --> 0:03:15.280 whether we look at um resources being drained away from 0:03:15.320 --> 0:03:19.280 the military. I think the military has a strategic planning role. 0:03:19.560 --> 0:03:22.360 And again this is why I'm advocating paying attention to 0:03:22.480 --> 0:03:25.880 this now. This is one of those problems from Hell 0:03:26.520 --> 0:03:29.880 that you can get by day to day now. But 0:03:29.960 --> 0:03:33.239 if you don't address it when the problem really hits 0:03:33.560 --> 0:03:39.160 in half a century, it's too late. Admiral problement problem 0:03:39.200 --> 0:03:43.160 in Hell, it may become so too would be nuclear war. 0:03:43.280 --> 0:03:46.160 And I do want to get your thoughts on shorter 0:03:46.320 --> 0:03:50.320 term tactical threats, in particular North Korea. In an interview 0:03:50.720 --> 0:03:53.680 that President Trump did with the Wall Street Journal, he 0:03:53.800 --> 0:03:58.080 said that he has actually developed a positive relationship with 0:03:58.160 --> 0:04:02.280 North Korea's leader, despite their mutual public insults. Quote. I 0:04:02.320 --> 0:04:04.440 probably have a very good relationship with Kim Jong. I 0:04:05.080 --> 0:04:07.840 have relationships with people. I think you people are surprised. 0:04:07.920 --> 0:04:12.160 What do you make of that? Um, it's perplexing. I 0:04:12.520 --> 0:04:16.960 think the most uh, in charitable uh analysis of it 0:04:17.000 --> 0:04:20.239 would be that President Trump is developing an imaginary friend 0:04:20.240 --> 0:04:22.839 who visits him at night in the White House. UM. 0:04:23.000 --> 0:04:26.680 Let's hope not. Uh. Let's let's say for a second 0:04:26.720 --> 0:04:29.760 that it was a rational comment that he made. Um. 0:04:29.800 --> 0:04:32.560 The only thing I could think that he's alluding to 0:04:32.920 --> 0:04:37.200 is some level of back channel communication. But you know, 0:04:37.240 --> 0:04:39.400 I talked to a lot of people in Washington. The 0:04:39.880 --> 0:04:43.280 head of the United Nations delegation is a good friend 0:04:43.320 --> 0:04:45.480 of mine. I think I'm fairly plugged into this, and 0:04:45.960 --> 0:04:49.480 I don't see those back channel communications. So I think 0:04:49.480 --> 0:04:52.680 it's quite perplexing. Now we are to remember that life 0:04:52.760 --> 0:04:55.880 is kind of compared to what and compared to throwing 0:04:55.920 --> 0:04:59.320 out juvenile insults. My button is bigger than your button 0:04:59.600 --> 0:05:04.480 or little Rocketman, etcetera. This is probably better and keeps 0:05:04.560 --> 0:05:07.440 us on that narrow sliver of hope we have toward 0:05:07.480 --> 0:05:12.200 a diplomatic resolution. Well, you know, as you have noted 0:05:12.200 --> 0:05:16.240 in the past and your books, the Accidental Admiral describing 0:05:16.240 --> 0:05:20.279 your thirty seven career, thirty seven year career of service 0:05:20.360 --> 0:05:23.960 for which, of course the nation is grateful you have. 0:05:24.640 --> 0:05:29.599 Of course, uh, really put together a look at the history, history, 0:05:29.640 --> 0:05:33.880 and the geopolitics of oceans, of sea lanes. What is 0:05:33.880 --> 0:05:37.360 the most critical sea lane right now? And how is 0:05:37.400 --> 0:05:41.720 the United States dealing with it? The most critical sea passage, 0:05:41.760 --> 0:05:45.279 I would say is the South China Sea, because here 0:05:45.360 --> 0:05:49.160 you see the confluence of another major strategic challenge for 0:05:49.200 --> 0:05:51.719 the United States, and that's the rise of China. I 0:05:51.760 --> 0:05:55.200 don't think we're headed for war with China, but we've 0:05:55.240 --> 0:05:59.760 got a serious strategic competitor, and China's objective is to 0:06:00.000 --> 0:06:02.800 dominate the South China Sea, which is a vast area 0:06:03.040 --> 0:06:05.440 about the size of the Gulf of Mexico, and they 0:06:05.480 --> 0:06:09.920 claim it as territorial sea. It's full of hydrocarbons, natural gas, 0:06:09.960 --> 0:06:13.280 and oil, and it is bounded by a group of 0:06:13.520 --> 0:06:16.840 nations that are allies, friends and partners to the United States, 0:06:16.880 --> 0:06:19.800 So we need to be mindful of the fact that 0:06:19.839 --> 0:06:22.640 we are a pacific power, a maritime power. We need 0:06:22.680 --> 0:06:24.919 to operate in those waters. We're not going to go 0:06:24.960 --> 0:06:27.800 to war with China. But if we simply drift away 0:06:28.320 --> 0:06:32.480 pun intended uh that water space will be dominated by China, 0:06:32.560 --> 0:06:37.719 will will be very, very disadvantaged strategically in another fifty 0:06:37.800 --> 0:06:41.280 years if that occurs. Based on what you know about 0:06:41.360 --> 0:06:43.919 the players and the countries in that region, do you 0:06:44.000 --> 0:06:47.839 believe that American allies are beginning to doubt the resolve 0:06:47.880 --> 0:06:50.159 of the United States to play a meaningful role in 0:06:50.200 --> 0:06:55.280 the area. I think that there is questioning of the 0:06:56.200 --> 0:07:00.400 seriousness of the President frankly personally, um be because of 0:07:00.440 --> 0:07:04.359 the tweets, because of this recent brew haha over his 0:07:04.440 --> 0:07:08.440 foul language in the White House. Individually, each of those 0:07:08.480 --> 0:07:11.880 things would not be necessarily terrible, but when you add 0:07:11.960 --> 0:07:14.200 them up, it creates a lot of confusion on the 0:07:14.200 --> 0:07:17.160 part of our allies. Here's the good news. He's still 0:07:17.200 --> 0:07:21.960 surrounded by a coterie a very capable national security advisors. 0:07:22.280 --> 0:07:26.280 General Maddis over its defense and General McMaster in the 0:07:26.280 --> 0:07:29.440 White House. National Security Advisor General Kelly in the White House. 0:07:29.680 --> 0:07:33.400 These are serious security professionals. I think they'll keep us 0:07:33.440 --> 0:07:38.240 on a fairly even course. But um our allies are 0:07:38.280 --> 0:07:42.040 concerned and it's becoming a kind of endless game of 0:07:42.120 --> 0:07:44.520 reassurance on the part of those other officials to go 0:07:44.560 --> 0:07:47.680 to the region and uh set things to right. I 0:07:47.720 --> 0:07:49.760 think we'll have to do more of that if we're 0:07:49.760 --> 0:07:53.200 going to be regarded seriously in the Pacific. Admiral Real 0:07:53.280 --> 0:07:56.880 quick ten seconds. Do those qualify people around President Trump 0:07:56.960 --> 0:08:01.040 understand the threat of climate change? They do? And look 0:08:01.080 --> 0:08:03.600 at the statements by General Jim Maddis when he was 0:08:03.640 --> 0:08:07.920 a four star general. He understands it very well. Thank 0:08:07.920 --> 0:08:11.200 you very much for being with US. Admiral James steverdis retired. 0:08:11.240 --> 0:08:13.480 He's the dean of the Fletcher School of Law and 0:08:13.560 --> 0:08:17.880 Diplomacy at a Tough university. He is also a Bloomberg 0:08:18.080 --> 0:08:36.280 View columnist. JP Morgan Chase releasing their quarterly report today, 0:08:36.360 --> 0:08:39.160 the biggest bank by the biggest US bank by assets, 0:08:39.200 --> 0:08:42.960 reporting net income of about four and a quarter billion dollars. 0:08:43.000 --> 0:08:45.920 That was down nearly from a year earlier, but it 0:08:45.960 --> 0:08:47.640 has to do with a nearly two and a half 0:08:47.640 --> 0:08:51.160 billion dollar charge related to the new tax law. Here 0:08:51.200 --> 0:08:52.880 to help us understand what's going on in the world 0:08:52.880 --> 0:08:56.600 of banking is Chris Whalen, the chairman of Whalen Global Advisors. Chris, 0:08:56.600 --> 0:08:59.360 A pleasure always to have you on. Happy New Year 0:08:59.400 --> 0:09:01.880 to you. Can you tell us your thoughts and reaction 0:09:01.960 --> 0:09:07.160 to the report from JP Morgan Chase. UM wasn't a 0:09:07.200 --> 0:09:09.520 bad report, as you said. I mean, it was down 0:09:10.040 --> 0:09:13.120 because of the the attacked adjustment, but even if you factor 0:09:13.200 --> 0:09:17.280 that in him, the large banks aren't growing very much. Uh. 0:09:17.400 --> 0:09:20.480 The real winner today was P n C, which had 0:09:20.520 --> 0:09:24.880 a tremendous quarter. They're taking share on the institutional side. 0:09:24.920 --> 0:09:28.280 They're taking share in the mortgage market, believe it or not, 0:09:28.800 --> 0:09:32.280 whereas Wells and JP and Bank America are all backing 0:09:32.280 --> 0:09:36.800 away from that consumer loan sector. So it's really a 0:09:36.840 --> 0:09:40.880 tale of two industries. That's what we have here, PIM, Chris, 0:09:40.920 --> 0:09:43.440 you see a tale of two industries. It's also, uh, 0:09:43.880 --> 0:09:47.040 many many different tales baked into the same earnings report. 0:09:47.160 --> 0:09:49.360 Before I get the idea of P and C and 0:09:49.400 --> 0:09:52.640 other regionals taking business away from Wall Street, I want 0:09:52.640 --> 0:09:54.679 to dig into some of the details that we learned 0:09:54.679 --> 0:09:57.800 from JP Morgan today. UM a lot of different stories. 0:09:57.840 --> 0:10:00.760 We had, of course attack story, we had charge offs 0:10:00.880 --> 0:10:03.920 or not charge offs. But the amount of money that 0:10:04.040 --> 0:10:07.600 JP Morgan set aside to cover credit card loan losses 0:10:07.760 --> 0:10:10.920 increase more than people had expected. You saw fixed income 0:10:10.960 --> 0:10:14.680 trading revenues decline much more than expected, even after stripping 0:10:14.679 --> 0:10:18.880 out a one time effect from the new tax bill. 0:10:19.280 --> 0:10:22.400 What are you focused on the most and UH how 0:10:22.520 --> 0:10:26.760 how should people really be reading this? I think most 0:10:26.800 --> 0:10:30.400 of the big consumer lenders, especially the credit card lenders, 0:10:30.480 --> 0:10:33.920 are a little bit worried about future losses. We've been 0:10:33.960 --> 0:10:37.640 going through a very very easy period largely due to 0:10:37.679 --> 0:10:41.559 the set um, so you've had you know, very It's 0:10:41.600 --> 0:10:46.239 like we shifted the entire matrix for credit a full category, 0:10:46.720 --> 0:10:51.160 and non investment grade companies could raise money investment grade 0:10:51.200 --> 0:10:54.800 spread and so on, So that's part of it. Overall, 0:10:54.840 --> 0:10:58.800 provisions that JP were actually down slightly from the previous quarter. 0:10:58.880 --> 0:11:01.360 But you're right, credit card are is what they're thinking 0:11:01.400 --> 0:11:04.440 about in the future. On the trading side, again, it's 0:11:04.480 --> 0:11:08.840 the FED. The Fed has put the entire uh fixed 0:11:08.840 --> 0:11:12.800 income market into uh an induced coma because they have 0:11:12.880 --> 0:11:15.160 all of these securities on their book and they don't 0:11:15.240 --> 0:11:19.640 hedge them. There's the mortgage markets found thirty percent this year, 0:11:19.679 --> 0:11:22.320 So you don't have interest rate hedging the way you've 0:11:22.320 --> 0:11:24.520 had in the path. This comes right out of the 0:11:24.559 --> 0:11:29.000 pocket of the street firms who served these constituencies. And 0:11:29.040 --> 0:11:30.959 I think you know, given it, the Fed is not 0:11:31.080 --> 0:11:35.160 going to sell anything in their portfolio. This is very important. Uh, 0:11:35.200 --> 0:11:38.240 They're simply going to let it run off. We could 0:11:38.280 --> 0:11:43.160 have uh subdued trading volumes for the major bank for 0:11:43.200 --> 0:11:46.440 the next five years. That's where we're looking at. Lisa 0:11:47.080 --> 0:11:50.600 Chris Whalen talk about p n C. They benefited from 0:11:50.679 --> 0:11:53.400 some higher interest rates, so they could obviously charge more 0:11:53.440 --> 0:11:56.840 for their loans, also growth in the commercial lending business, 0:11:57.080 --> 0:12:01.160 but they also got a boost because of the tax overhaul. Yes, 0:12:01.280 --> 0:12:05.280 interestingly enough, it was actually a benefit for them. You know, 0:12:05.320 --> 0:12:08.800 there's two sides to the tax issue. If on the 0:12:08.840 --> 0:12:11.080 one hand, you've lost a lot of money in the past, 0:12:11.440 --> 0:12:14.679 you have to reduce the value of your your your 0:12:14.800 --> 0:12:18.240 deferred tax asset. On the other hand, if you had 0:12:18.320 --> 0:12:22.280 taxes you hadn't paid yet deferred taxes, that's now lower 0:12:22.280 --> 0:12:25.120 and it's a benefit. In the case of p mc so. 0:12:25.880 --> 0:12:28.360 You know, it's very interesting how you have to read 0:12:28.360 --> 0:12:30.559 through the notes. You guys of Bloomberg are very good 0:12:30.600 --> 0:12:33.760 at it. But each bank has its own story. You know, 0:12:33.880 --> 0:12:37.199 City is going to write off twenty billion dollars in 0:12:37.480 --> 0:12:40.840 tax loss assets, but other banks you could have benefit 0:12:40.880 --> 0:12:44.439 from it. So it really is a very particular analysis 0:12:44.480 --> 0:12:48.160 in each case. Chris, you said that PNC benefited from 0:12:48.200 --> 0:12:50.680 an increase in consumer lending, and some of the big 0:12:50.720 --> 0:12:54.480 banks have really pulled back from that area. Do you 0:12:54.600 --> 0:12:58.880 expect JP Morgan and other big banks City Group maybe 0:12:58.880 --> 0:13:03.280 when they announced Tuesday to say or hint that they're 0:13:03.280 --> 0:13:06.440 going to expand a little bit more in consumer lending 0:13:06.480 --> 0:13:11.840 since it has been so profitable. Not in mortgages. You know, 0:13:11.960 --> 0:13:14.680 P and T has actually been growing their mortgage business. 0:13:14.760 --> 0:13:18.880 They've been acquiring servicing assets and they like it um 0:13:18.920 --> 0:13:21.520 But the larger banks, you know, you remember back in 0:13:21.600 --> 0:13:25.160 two thousand fifteen when Jamie Diamond very publicly said he 0:13:25.200 --> 0:13:28.400 was getting out of the fah A market. Today there's 0:13:28.440 --> 0:13:31.280 only two banks in that fah A Jenny May market 0:13:31.520 --> 0:13:35.240 really well Sin Flagstar. The rest of them have left 0:13:35.320 --> 0:13:39.360 because they don't like getting fined by the Department of Justice. UM. 0:13:39.480 --> 0:13:43.480 The other issue is profitability. Most mortgage lenders, both banks 0:13:43.480 --> 0:13:46.600 and non banks, last year were barely making money. So 0:13:46.760 --> 0:13:50.760 it's a tough business. And Wells Bank America particularly have 0:13:50.880 --> 0:13:54.560 been outbidding for jumbo collateral because they put the loans 0:13:54.600 --> 0:13:57.280 on their book. They are the loss when they buy 0:13:57.320 --> 0:14:00.360 the loan, but after they collect servicing fees for three 0:14:00.480 --> 0:14:02.760 or four years, it ends up being, you know, a 0:14:02.800 --> 0:14:06.840 single digit kind of profit trade. That's a tough business. 0:14:07.080 --> 0:14:11.160 I see a lot of small banks selling mortgage UH 0:14:11.240 --> 0:14:14.040 notes for examples. They can work with the Homeland Bank 0:14:14.120 --> 0:14:17.920 in Chicago, but they keep the servicing because they realize 0:14:17.960 --> 0:14:20.360 that it's a nice business if you do it right. 0:14:20.800 --> 0:14:23.880 But being a Jenny May seller servicers top, you know 0:14:23.920 --> 0:14:26.960 you're facing the government. And even though the servicing fees 0:14:27.000 --> 0:14:29.080 are almost twice what you get for a fan your 0:14:29.120 --> 0:14:32.760 Freddy loan, you make mistakes, you pay, and you're kind 0:14:32.760 --> 0:14:37.080 of in this UH really difficult situation between the CFPP 0:14:37.280 --> 0:14:39.720 on the one hand, who doesn't want you to foreclose, 0:14:40.240 --> 0:14:42.800 and then the SA Chase says if you don't foreclose 0:14:42.840 --> 0:14:46.200 in eight days at the fault you basically lose your 0:14:46.280 --> 0:14:49.080 right to make an insurance claim. So it's a very 0:14:49.080 --> 0:14:52.320 complicated business. It is the lowest return asset for a 0:14:52.320 --> 0:14:55.960 Thank Lisa. That's that's the problem with residential mortgage lending 0:14:56.000 --> 0:15:00.640 to god Frank triple the costs of the industry. Chris Whalen, 0:15:00.720 --> 0:15:03.080 thank you so much for joining us. Chris Whalen is 0:15:03.280 --> 0:15:23.480 chairman of Whalen Global Advisors, which right now we want 0:15:23.520 --> 0:15:27.320 to focus on the bond market. Dr Lacy Hunt joins 0:15:27.400 --> 0:15:30.240 us now. He's executive vice president and chief economists at 0:15:30.240 --> 0:15:34.840 Hoisington Investment Management, which overseas four point three billion dollars, 0:15:34.880 --> 0:15:37.680 and he comes to us from Austin, Texas. Dr Hunt, 0:15:37.720 --> 0:15:40.280 thank you so much for being with us. I particularly 0:15:40.320 --> 0:15:42.880 wanted to touch base with you this week because there's 0:15:42.920 --> 0:15:46.720 been a lot of discussion about longer term yields going higher. 0:15:46.800 --> 0:15:49.520 We saw some action to that effect this week and 0:15:49.720 --> 0:15:53.840 inflationary pressures that would force the Fed to hike faster 0:15:54.360 --> 0:15:57.800 and allow longer term yields to rise further. As a 0:15:57.920 --> 0:16:02.760 longtime investor in long dated treasuries, are you changing your 0:16:02.800 --> 0:16:06.280 strategy and do you expect this sell off in longer 0:16:06.400 --> 0:16:12.680 term rates to accelerate? No? I do not there are 0:16:12.680 --> 0:16:18.600 many factors, far too many to mention that um allow 0:16:18.760 --> 0:16:22.000 short allow the long term rates to rise over the 0:16:22.000 --> 0:16:27.280 short run, But the economy is too fundamentally weak and 0:16:27.560 --> 0:16:31.960 the pattern toward longer term disinflation is strong, and so 0:16:32.080 --> 0:16:34.520 that while the rates can arise as they have done 0:16:34.560 --> 0:16:37.480 this week, in my opinion, they will not be able 0:16:37.520 --> 0:16:40.560 to stay up. Doctor, aren't you say that the economy 0:16:40.680 --> 0:16:43.080 is too weak? A lot of people think that the 0:16:43.120 --> 0:16:46.520 economy is fairly strong and accelerating to what can you 0:16:46.600 --> 0:16:49.520 point that would sort of edify this belief that the 0:16:49.520 --> 0:16:53.280 economy is perhaps weaker than people think. Well, the surface 0:16:53.320 --> 0:16:57.320 indicators of the economy are strong. We've had three quarters 0:16:57.360 --> 0:17:04.199 of three percent growth. However, the the pylons of the 0:17:04.320 --> 0:17:09.560 US economy are continuing to weaken, and very very substantially so, 0:17:11.200 --> 0:17:15.280 most most predominantly as a result of the of the 0:17:15.280 --> 0:17:20.960 fell reserves policies. There has been a very substantial slowdown 0:17:21.000 --> 0:17:24.560 in monetary growth at a time when the velocity of 0:17:24.600 --> 0:17:30.439 money is the lowest since the late nineteen and the 0:17:30.520 --> 0:17:35.760 Fed is engaging in a program that will significantly slow 0:17:35.800 --> 0:17:41.639 monetary growth further at being the balance sheet normalization. I 0:17:41.720 --> 0:17:47.320 realized that um. A lot of folks don't pay much 0:17:47.320 --> 0:17:52.080 attention to this. It's not in the news headlines, and 0:17:52.320 --> 0:17:56.879 the presumption maybe that will Quantitative easing didn't boost the 0:17:56.920 --> 0:18:02.880 money supply, quantitative tightening won't, won't depress it. But the 0:18:02.880 --> 0:18:08.639 the underlying models that have been verified over time indicate 0:18:08.800 --> 0:18:13.520 that money supply growth is going to slow very, very dramatically, 0:18:14.440 --> 0:18:18.280 and that while inflation can rise from time to time, 0:18:19.320 --> 0:18:23.480 the slow down in monetary growth and velocity will mean 0:18:23.520 --> 0:18:29.119 that prices will move lower over time, not higher. Lacy 0:18:29.240 --> 0:18:33.200 Hunt a bond market a bull run for the bond market. 0:18:33.240 --> 0:18:35.639 I've been listening to people talk about the end of 0:18:35.680 --> 0:18:39.880 a thirty year bull market in bonds. Do you agree? No? 0:18:41.040 --> 0:18:44.080 I think the ultimate blows and bonds are still in 0:18:44.119 --> 0:18:46.760 the future. Path will not be easy. It has not 0:18:46.920 --> 0:18:49.800 been easy to get to the point where we are today. 0:18:50.320 --> 0:18:54.560 Another problem that the economy has is that although the 0:18:54.600 --> 0:19:00.399 consumer is spending, the consumer has been left very badly 0:19:00.480 --> 0:19:06.280 behind in this expansion, and the consumer has uh barrod 0:19:06.320 --> 0:19:09.560 a substantial amount of additional money to continue the spending, 0:19:10.200 --> 0:19:13.600 which means because of a of the one of the 0:19:13.600 --> 0:19:17.919 lowest saving rates in US economic history, the consumer sector 0:19:18.119 --> 0:19:23.119 is very vulnerable to business cycle risks. Dr Hunter, have 0:19:23.200 --> 0:19:25.040 you been I know that you're a long term investor 0:19:25.200 --> 0:19:30.000 and you're not looking for short term moves to capitalize on. 0:19:30.200 --> 0:19:34.760 But do you add to your longer term treasury holdings 0:19:34.760 --> 0:19:36.920 when there is a bit of a sell off with 0:19:37.119 --> 0:19:41.360 the belief that longer term rates are likely to go 0:19:41.800 --> 0:19:47.440 lower and possibly much lower? When whenever we receive additional funds, 0:19:48.440 --> 0:19:51.520 we invest them immediately and we put them in the 0:19:51.560 --> 0:19:54.520 long end of the market, just as we do for 0:19:54.560 --> 0:19:58.040 the clients that are already with us. We we don't 0:19:58.040 --> 0:20:02.360 want to be out of position as the economy unfolds. 0:20:02.960 --> 0:20:07.080 There were numerous instants last year year before when the 0:20:07.119 --> 0:20:12.120 interest rates rose, but when night, when seventeen was all over, 0:20:13.000 --> 0:20:18.640 the long term rates actually declined. Now I might say 0:20:18.680 --> 0:20:21.280 that we fully expect the FED will push up the 0:20:21.320 --> 0:20:25.680 short term rates. That has that ability, but the long 0:20:25.800 --> 0:20:29.200 term rates are determined by the Fishery equation, which which 0:20:29.200 --> 0:20:33.040 says that the long treasury rates are primarily determined by 0:20:33.080 --> 0:20:40.399 inflationary expectations. And recognizing that the FED will push the 0:20:40.440 --> 0:20:44.119 short rates up, long rates will not follow. The yield 0:20:44.119 --> 0:20:48.679 curve will continue to flatten and this will this is 0:20:48.760 --> 0:20:54.320 a a cause. It is and it is a symptom 0:20:54.440 --> 0:20:57.960 of the monetary titan hand effect, if you will, But 0:20:58.080 --> 0:21:02.520 it will also have a cause. Dr Lacy Hunt, chief 0:21:02.520 --> 0:21:21.920 economist Hoisington's Investment Management. Facebook shares as my co host 0:21:21.960 --> 0:21:24.960 pim Fox was mentioning earlier down more than four percent, 0:21:25.080 --> 0:21:28.200 after the news that it would be making some pretty 0:21:28.200 --> 0:21:34.000 profound changes to the way people experience the social media giant. 0:21:34.080 --> 0:21:37.199 Share ovid joins us now she's a Bloomberg gad Fly 0:21:37.400 --> 0:21:41.159 columnist covering all things tech. Shara just first give us 0:21:41.200 --> 0:21:45.040 a sense of how significant the change is that Facebook 0:21:45.119 --> 0:21:47.320 is making and just lay out the details of what 0:21:47.400 --> 0:21:51.800 the changes are. Sure, it's hard to know for certain, 0:21:51.840 --> 0:21:53.600 but it does seem like this is going to be 0:21:53.640 --> 0:21:58.159 a very significant change to how Facebook operates. So what 0:21:58.359 --> 0:22:02.920 Mark Zuckerberg outlined late Thursday was a change in how 0:22:02.960 --> 0:22:06.600 Facebook prioritizes what people see in the new seat in 0:22:06.680 --> 0:22:09.800 the main stream of Facebook posts, and what they're going 0:22:09.840 --> 0:22:15.000 to try to encourage more of is their prioritizing posts 0:22:15.040 --> 0:22:21.280 that encourages meaningful social interactions by by Facebook's understanding of 0:22:21.320 --> 0:22:24.679 that term, and that means things like, you know, post 0:22:24.720 --> 0:22:28.040 from a family member who's grieving on Facebook and invites 0:22:28.160 --> 0:22:32.119 kind of long comments back and forth that will get prioritized. 0:22:32.400 --> 0:22:36.520 So will things, um, you know, news, news articles that 0:22:36.640 --> 0:22:38.480 generate kind of a lot of interest and back and 0:22:38.520 --> 0:22:41.760 forth posts and messages from people. So that's the kind 0:22:41.760 --> 0:22:44.560 of thing they're trying to optimize sports rather than the 0:22:44.640 --> 0:22:46.959 kind of passive I kind of look at it and 0:22:47.000 --> 0:22:50.639 then move on kind of posts and videos. Sura. Is 0:22:50.680 --> 0:22:54.879 this going to involve a technical, algorithmic kind of change? 0:22:54.960 --> 0:22:58.360 Is this a technical issue for Facebook? Yeah? I mean 0:22:58.359 --> 0:23:01.479 this is how Facebook basically age of strategies that they 0:23:01.560 --> 0:23:05.280 change the algorithm, and the the algorithm, they change the 0:23:05.320 --> 0:23:07.280 inputs for the algorithm, I should say, and then that 0:23:07.400 --> 0:23:10.440 changes what kinds of things people are likely to see 0:23:10.480 --> 0:23:13.120 more of or less of in the new sheet. Okay, 0:23:13.160 --> 0:23:16.040 So does this also mean that there are companies and 0:23:16.119 --> 0:23:19.440 individuals who are just as smart as the people at 0:23:19.520 --> 0:23:22.240 Facebook that will be able to figure out a way 0:23:22.280 --> 0:23:27.040 to work around this, because doesn't the current problem indicate 0:23:27.240 --> 0:23:29.760 that there are a lot of very intelligent people out 0:23:29.760 --> 0:23:32.320 there who may not agree with the way Mark Zuckerberg 0:23:32.680 --> 0:23:35.680 thinks you should engage with Facebook? Yes, I think that's 0:23:35.680 --> 0:23:37.800 a good point. I think one of the lessons of 0:23:37.880 --> 0:23:42.919 the last couple of years is that their companies, people 0:23:43.560 --> 0:23:47.440 and propagandists, including those back by the Kremlin, who figured 0:23:47.480 --> 0:23:52.960 out how to gain Facebook system um in damaging ways. 0:23:53.160 --> 0:23:57.160 And there are no guarantees that when Facebook changes there 0:23:57.920 --> 0:24:01.200 the kinds of post that prioritize people won't figure out 0:24:01.200 --> 0:24:04.280 how to gain it to prioritize things that are not 0:24:04.760 --> 0:24:08.760 the meaningful social interactions what Facebook wants, but more of 0:24:08.800 --> 0:24:11.960 the kind of damaging but still engaging kind of kind 0:24:11.960 --> 0:24:14.280 of Facebook messages. So yeah, there's no guarantee that this 0:24:14.400 --> 0:24:17.520 fix of Facebook in the way that Mark Zuckerberg intends 0:24:17.600 --> 0:24:21.560 and share. Mark Zuckerberg even admitted that probably the changes 0:24:21.600 --> 0:24:24.919 would mean people would end up spending less time on 0:24:25.000 --> 0:24:27.399 the social media app. And I'm just wondering from a 0:24:27.480 --> 0:24:32.000 business perspective, how substantially could this cut into their revenues 0:24:32.080 --> 0:24:36.120 and their potential growth. Look, there is a direct relationship 0:24:36.240 --> 0:24:39.240 between the amount of time that people spend on Facebook 0:24:39.359 --> 0:24:43.040 and Facebook's resident right, because more time on Facebook gives 0:24:43.040 --> 0:24:46.840 Facebook more slots to sell advertising, which is how Facebook 0:24:46.880 --> 0:24:51.520 makes money. So if Mark Zuckerberg is saying people collectively 0:24:51.560 --> 0:24:54.879 are likely to spend less time on Facebook. That likely 0:24:55.000 --> 0:24:58.359 means a hit to Facebook's revenue growth, at least in 0:24:58.440 --> 0:25:01.080 the short term. And it's really hard to know by 0:25:01.160 --> 0:25:05.040 how much Facebook's revenue is the result of many factors 0:25:05.040 --> 0:25:07.679 and it's a little bit hard to predict what's going 0:25:07.720 --> 0:25:10.080 to happen. But look, the reason the share prices falling 0:25:10.119 --> 0:25:13.840 today is because people are worried about the implications of 0:25:13.920 --> 0:25:17.000 people spending less time on Facebook. Well, just to give 0:25:17.040 --> 0:25:21.560 the numbers to offer the perspective, revenue for the latest 0:25:21.720 --> 0:25:25.439 fiscal year, I believe we're talking about something like thirty 0:25:25.480 --> 0:25:29.399 six billion, thirty six and a half billion dollars, of 0:25:29.560 --> 0:25:34.920 which more than fifteen billion is profit net income. Yeah, 0:25:34.920 --> 0:25:38.640 I mean, look, the last couple of years, Facebook has 0:25:38.680 --> 0:25:44.160 been the tech industry's best combination of fast revenue growth 0:25:44.600 --> 0:25:50.359 and very fat profits, and it's it's been an incredible story. 0:25:50.720 --> 0:25:54.400 But we've seen some of the damaging effects of facebook 0:25:54.800 --> 0:25:57.879 incredible business, which is it's become a place that people 0:25:58.240 --> 0:26:00.320 don't like to spend their time, or at least say 0:26:00.320 --> 0:26:02.320