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 00:00:12,280 --> 00:00:27,240 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,320 --> 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 --> 00:00:48,879 Speaker 1: and of course on the Bloomberg Right now, we need 9 00:00:48,960 --> 00:00:52,840 Speaker 1: to go to our Michael McKee in Dublin. Well, thank 10 00:00:52,880 --> 00:00:55,560 Speaker 1: you very much, and we welcome Patrick Harker, the President 11 00:00:55,560 --> 00:00:58,320 Speaker 1: of the Philadelphia Fed, for your first one on one 12 00:00:58,440 --> 00:01:01,960 Speaker 1: media interview. Thank you very much for joining us this morning. 13 00:01:02,680 --> 00:01:03,960 Speaker 1: I want to start with the news of the day, 14 00:01:04,000 --> 00:01:06,800 Speaker 1: which was basically the news of yesterday, Janet Yellen saying 15 00:01:06,840 --> 00:01:10,120 Speaker 1: that the FETE is going to ramp up scrutiny of banks. Now, 16 00:01:10,200 --> 00:01:13,640 Speaker 1: Wells Fargo is not directly supervised by the FETE as 17 00:01:13,680 --> 00:01:16,440 Speaker 1: its primary supervisor, but it is the largest bank in 18 00:01:16,440 --> 00:01:19,360 Speaker 1: your district. So what do you say to its depositors? 19 00:01:19,600 --> 00:01:21,680 Speaker 1: What do you say to the American people in general 20 00:01:21,920 --> 00:01:24,360 Speaker 1: about the state of their banks, about the behavior of 21 00:01:24,400 --> 00:01:27,120 Speaker 1: their banks. So Wells is in the twelfth district of 22 00:01:27,160 --> 00:01:31,400 Speaker 1: San Francisco District, so we don't directly involved with them. 23 00:01:31,480 --> 00:01:33,920 Speaker 1: I think there's two things going on. One is to 24 00:01:34,000 --> 00:01:37,120 Speaker 1: make sure, working with our counterparts at the SEC and 25 00:01:37,160 --> 00:01:42,440 Speaker 1: the CFPB and others, that the consumers protected first and foremost, 26 00:01:42,520 --> 00:01:45,400 Speaker 1: and the banking systems safe and sound. At the same time, 27 00:01:45,959 --> 00:01:50,640 Speaker 1: Cherry Yellen did discuss and I'm strongly supportive of also 28 00:01:50,760 --> 00:01:54,440 Speaker 1: relieving some of the smaller banks, particularly my district community banks, 29 00:01:54,440 --> 00:01:57,720 Speaker 1: from some of the regulatory burden. We hear repeatedly the 30 00:01:57,840 --> 00:02:01,880 Speaker 1: costs that they incur and occur in a way that 31 00:02:01,960 --> 00:02:06,320 Speaker 1: does not commensurate with their size or their significance in 32 00:02:06,440 --> 00:02:11,079 Speaker 1: terms of the risk they provide to the whole economy. 33 00:02:11,240 --> 00:02:12,800 Speaker 1: I want to get back to that in just a second, 34 00:02:12,840 --> 00:02:14,880 Speaker 1: but I do want to ask about the nominal subject 35 00:02:14,880 --> 00:02:18,040 Speaker 1: of this conference, Brexit. The FED was particularly worried about 36 00:02:18,080 --> 00:02:20,400 Speaker 1: that earlier in the year, and now it's sort of 37 00:02:20,400 --> 00:02:23,360 Speaker 1: fallen out of the statement in terms of major concerns. 38 00:02:23,400 --> 00:02:25,840 Speaker 1: But the speakers here have said, yes, the data has 39 00:02:25,880 --> 00:02:28,240 Speaker 1: been good so far, but the worst is yet to come. 40 00:02:28,760 --> 00:02:31,760 Speaker 1: What do you think about Brexit and its impact on 41 00:02:31,800 --> 00:02:35,840 Speaker 1: the US economy and it's impact therefore on monetary policymaking. 42 00:02:36,000 --> 00:02:37,799 Speaker 1: I think simply, we don't know yet, right. There's a 43 00:02:37,880 --> 00:02:40,160 Speaker 1: risk there that we need to take into account, but 44 00:02:40,240 --> 00:02:44,040 Speaker 1: exactly what a Brexit will look like has not been determined. 45 00:02:44,200 --> 00:02:47,840 Speaker 1: So until that's determined, we really can't plug that into 46 00:02:47,840 --> 00:02:51,320 Speaker 1: our models and get precise numbers on what impact it 47 00:02:51,360 --> 00:02:53,520 Speaker 1: will have on the US economy. And I assume that 48 00:02:53,560 --> 00:02:56,639 Speaker 1: means you can't know what impact monetary policy could have 49 00:02:56,680 --> 00:02:59,839 Speaker 1: in mitigating anything, not yet. I mean, we can try 50 00:02:59,840 --> 00:03:04,400 Speaker 1: to to plan for it, but we can't precisely tell 51 00:03:04,400 --> 00:03:07,560 Speaker 1: you what that path is. And addressing the conference this morning, 52 00:03:07,560 --> 00:03:10,639 Speaker 1: you were quite clear. You said monetary policy has reached 53 00:03:10,639 --> 00:03:13,040 Speaker 1: the limits of what it can do, and it's time 54 00:03:13,080 --> 00:03:16,000 Speaker 1: for fiscal and other policies to step up. I'd like 55 00:03:16,040 --> 00:03:20,440 Speaker 1: to unpack that a little first. Monetary policy reaching its limits? 56 00:03:20,440 --> 00:03:23,760 Speaker 1: Does that mean at this point your accommodative, but essentially 57 00:03:23,760 --> 00:03:27,000 Speaker 1: pushing on a string. So we are accommodative and will 58 00:03:27,040 --> 00:03:30,160 Speaker 1: continue to be even with increases, and a shallow path 59 00:03:30,200 --> 00:03:34,120 Speaker 1: of increases, will still be quite accommodative. That said, if 60 00:03:34,160 --> 00:03:35,960 Speaker 1: you look at the big issue that we face, the 61 00:03:36,000 --> 00:03:38,680 Speaker 1: neutral real rate, our star, right, how do we bring 62 00:03:38,720 --> 00:03:42,560 Speaker 1: that off of essentially zero monetary policy? Won't do that? 63 00:03:42,680 --> 00:03:46,040 Speaker 1: Can't do that. That has to be fiscal policy, immigration policy, 64 00:03:46,120 --> 00:03:49,520 Speaker 1: tax policy, you name it. Well, you have accommodative policies 65 00:03:49,560 --> 00:03:51,520 Speaker 1: as you mentioned, But is go back to the banks, 66 00:03:51,560 --> 00:03:56,600 Speaker 1: the small banks, etcetera. Regulatory or whatever reasons they're willing 67 00:03:56,640 --> 00:04:00,080 Speaker 1: to lend, but don't people don't want the money. How 68 00:04:00,120 --> 00:04:02,440 Speaker 1: do you change that? How does monetary policy affect that? 69 00:04:03,520 --> 00:04:06,880 Speaker 1: So let's define which people were talking about in terms 70 00:04:06,880 --> 00:04:12,040 Speaker 1: of households. Now, we're continuing to see household formation, new 71 00:04:12,080 --> 00:04:14,720 Speaker 1: home purchases, existing home purchases. One of the issues with 72 00:04:14,840 --> 00:04:17,880 Speaker 1: the existing home purchases is the inventories low, and so 73 00:04:17,960 --> 00:04:20,880 Speaker 1: we are starting to see the housing market continue to firm. 74 00:04:21,040 --> 00:04:25,200 Speaker 1: Business investment, You're right, we have seen that quite weak 75 00:04:25,600 --> 00:04:29,039 Speaker 1: over the last several quarters, last several years. That I 76 00:04:29,040 --> 00:04:31,159 Speaker 1: think is due to a myriad of factor. Some of 77 00:04:31,200 --> 00:04:34,640 Speaker 1: it is uncertainty. Right, there's a lot of uncertainty right 78 00:04:34,640 --> 00:04:37,160 Speaker 1: now in the world and in the US. There's also 79 00:04:37,240 --> 00:04:40,680 Speaker 1: issues of return to the shareholders. There are a couple 80 00:04:40,680 --> 00:04:43,839 Speaker 1: of ways of providing returns to a shareholder. One is 81 00:04:43,880 --> 00:04:46,840 Speaker 1: through long term investment and plant and equipment. The other 82 00:04:47,160 --> 00:04:49,559 Speaker 1: is through things like stock buy backs, and so boards 83 00:04:49,560 --> 00:04:54,080 Speaker 1: are making rational decisions based on the cost that they 84 00:04:54,120 --> 00:04:57,080 Speaker 1: have right now for capital and debt. And so I 85 00:04:57,080 --> 00:05:01,200 Speaker 1: think as rates rise, we may see and as may 86 00:05:01,320 --> 00:05:04,040 Speaker 1: um that that reverses a little bit. Well, you've been 87 00:05:04,040 --> 00:05:07,720 Speaker 1: on several corporate boards, you're in warden, you've got business experience. 88 00:05:07,760 --> 00:05:10,240 Speaker 1: It's been presented sort of as to two ways. One 89 00:05:10,320 --> 00:05:13,960 Speaker 1: is that companies have shifted their short term now. They 90 00:05:13,960 --> 00:05:16,760 Speaker 1: don't want to look at long term investments, whether it's 91 00:05:16,800 --> 00:05:18,320 Speaker 1: because they want to keep the c e o S 92 00:05:18,360 --> 00:05:20,960 Speaker 1: pay up or not. The other is that why invest 93 00:05:21,040 --> 00:05:24,360 Speaker 1: if you don't see a return in the near future. 94 00:05:24,640 --> 00:05:27,200 Speaker 1: How do you read it? So, I think it depends 95 00:05:27,240 --> 00:05:30,120 Speaker 1: on the industry, It depends on the individual company. Uh, 96 00:05:30,240 --> 00:05:34,040 Speaker 1: there's no universal truth there. But if you think about 97 00:05:34,120 --> 00:05:38,000 Speaker 1: what companies are facing right now, given the uncertainty, particularly US, 98 00:05:38,279 --> 00:05:41,120 Speaker 1: if you're an export led country and you don't know 99 00:05:41,320 --> 00:05:45,160 Speaker 1: what the world's going to look like post election, you're 100 00:05:45,160 --> 00:05:47,880 Speaker 1: probably going to hold off on some of those investments. Today. 101 00:05:48,120 --> 00:05:52,400 Speaker 1: Three descents at the last meeting, highly unusual for the FED. 102 00:05:52,640 --> 00:05:56,760 Speaker 1: How divided is this policymaking group. I think people do 103 00:05:56,880 --> 00:06:01,000 Speaker 1: have different perspectives on the pace of normal station. I 104 00:06:01,080 --> 00:06:03,320 Speaker 1: tend to be in the camp of normalizing sooner rather 105 00:06:03,360 --> 00:06:07,159 Speaker 1: than later. But I wouldn't say there's great descent other 106 00:06:07,200 --> 00:06:11,400 Speaker 1: than the speed at which we do we remove accommodation. 107 00:06:11,800 --> 00:06:15,080 Speaker 1: But nobody thinks that we should do that quickly. It 108 00:06:15,120 --> 00:06:18,279 Speaker 1: will be a shallow path. Tell me more about that. 109 00:06:18,360 --> 00:06:22,680 Speaker 1: How fast, how far? Not clear right. I think that 110 00:06:22,960 --> 00:06:25,560 Speaker 1: is a function of how the economy responds as we 111 00:06:25,560 --> 00:06:29,360 Speaker 1: start to remove accommodation. At least one of the dissenters, 112 00:06:29,480 --> 00:06:33,000 Speaker 1: Eric Rosenrid of Boston, said he's worried about bubbles developing 113 00:06:33,000 --> 00:06:35,760 Speaker 1: in financial markets, and other members of the fom C 114 00:06:35,880 --> 00:06:39,960 Speaker 1: have suggested the same. Do you see monetary policy distorting 115 00:06:39,960 --> 00:06:43,520 Speaker 1: financial markets? I think there's a potential for some bubbles, 116 00:06:43,600 --> 00:06:46,680 Speaker 1: particularly something we watch in the third district commercial real estate, 117 00:06:47,080 --> 00:06:49,800 Speaker 1: and we're watching really across the country. But the other 118 00:06:49,839 --> 00:06:53,600 Speaker 1: thing I worry about again is that possible distorative effect 119 00:06:53,600 --> 00:06:57,680 Speaker 1: we're having on corporate decision making. Is much easier to 120 00:06:57,960 --> 00:07:01,000 Speaker 1: do a stock buy back today to increase your share price, 121 00:07:01,160 --> 00:07:04,159 Speaker 1: then long term investing in plant and equipment, and I 122 00:07:04,200 --> 00:07:06,640 Speaker 1: think that we have to reverse every time. How do 123 00:07:06,680 --> 00:07:08,880 Speaker 1: you reverse that? Well, I think if the cost of 124 00:07:08,880 --> 00:07:12,400 Speaker 1: debt goes up over time slowly and that will naturally 125 00:07:12,440 --> 00:07:15,840 Speaker 1: start to reverse. Is there a point where that happens? 126 00:07:15,840 --> 00:07:19,480 Speaker 1: And I'm asking that because interest rates are so low 127 00:07:20,000 --> 00:07:23,000 Speaker 1: that when does it start to actually have an impact 128 00:07:23,040 --> 00:07:26,360 Speaker 1: on corporate decision making? Don't know until we start making 129 00:07:26,800 --> 00:07:31,040 Speaker 1: that transition, right, So I think a shallow path toward 130 00:07:31,120 --> 00:07:35,720 Speaker 1: normalization and then watching and be careful about not reacting 131 00:07:35,760 --> 00:07:38,280 Speaker 1: too quickly. But let's see how that plays out as 132 00:07:38,320 --> 00:07:41,040 Speaker 1: we make those changes. I think that's the appropriate policy. 133 00:07:41,360 --> 00:07:44,160 Speaker 1: Now we're speaking with Patrick Harker. He is the president 134 00:07:44,200 --> 00:07:48,960 Speaker 1: of the Philadelphia Federal Reserve. On BLUEBIRG radio and television worldwide. Uh. 135 00:07:49,040 --> 00:07:53,000 Speaker 1: You mentioned earlier uncertainty about the political situation in the 136 00:07:53,080 --> 00:07:56,200 Speaker 1: United States, UH and around the world. You spent much 137 00:07:56,200 --> 00:07:59,280 Speaker 1: of your speech today defending the merits of free trade 138 00:07:59,400 --> 00:08:02,480 Speaker 1: for an economy. Are you worried about the economy in 139 00:08:02,520 --> 00:08:05,320 Speaker 1: the political climate that we see today? Sure, I think 140 00:08:05,320 --> 00:08:09,440 Speaker 1: everybody is. And we don't know, and that's a political statement. 141 00:08:09,520 --> 00:08:11,560 Speaker 1: What we know For example, in the Philly FED we 142 00:08:11,640 --> 00:08:14,800 Speaker 1: published something called the Partisan conflict Index, which is an 143 00:08:14,800 --> 00:08:19,040 Speaker 1: interesting index of looking at how partisan that the conversation 144 00:08:19,160 --> 00:08:21,320 Speaker 1: is in the country. What we know is that's highly 145 00:08:21,320 --> 00:08:26,880 Speaker 1: correlated with economic results. And so because we have such conflict, 146 00:08:27,360 --> 00:08:29,480 Speaker 1: it's natural for people to stand on the sidelines and 147 00:08:29,520 --> 00:08:32,360 Speaker 1: say I'll just wait until some of this resolves itself. 148 00:08:32,400 --> 00:08:34,600 Speaker 1: That's not good for the economy. We need people to 149 00:08:34,640 --> 00:08:39,400 Speaker 1: take risks right the economy growth because people take prudent risk. Well, 150 00:08:40,160 --> 00:08:43,800 Speaker 1: free trade is a risk for the worker who doesn't 151 00:08:43,920 --> 00:08:46,440 Speaker 1: get to keep his job. How do you defend it 152 00:08:46,520 --> 00:08:49,560 Speaker 1: to somebody like that. One of the things that we've 153 00:08:49,600 --> 00:08:52,560 Speaker 1: not done a good job of the US is deal 154 00:08:52,600 --> 00:08:55,600 Speaker 1: with the following fact. Free trade benefits the economy as 155 00:08:55,600 --> 00:08:58,640 Speaker 1: a whole. Right, So everybody benefits by the cost of 156 00:08:58,640 --> 00:09:02,160 Speaker 1: a good going down a few hours, but the workers 157 00:09:02,200 --> 00:09:05,800 Speaker 1: who lose their jobs get disproportionately hurt. We need to 158 00:09:05,840 --> 00:09:09,679 Speaker 1: find a way to share those benefits to the economy benefits, 159 00:09:10,480 --> 00:09:12,319 Speaker 1: but we need to help give some of the benefits 160 00:09:12,360 --> 00:09:14,200 Speaker 1: back to the people who are hurt, whether it's through 161 00:09:14,200 --> 00:09:17,400 Speaker 1: things like wage insurance or retraining programs. We need to 162 00:09:17,440 --> 00:09:20,760 Speaker 1: do a better job of making that transition. Let's talk 163 00:09:20,800 --> 00:09:23,400 Speaker 1: a little bit about you. Unlike many members of the FIT, 164 00:09:23,440 --> 00:09:26,320 Speaker 1: you didn't come trained as a classical economist. You're an 165 00:09:26,320 --> 00:09:29,480 Speaker 1: engineer by background. In training, what do you bring to 166 00:09:29,520 --> 00:09:32,760 Speaker 1: the table that maybe others don't? So I think as 167 00:09:32,760 --> 00:09:36,760 Speaker 1: an engineer, right, the engineer. Engineers are pragmatic right by definition, 168 00:09:36,840 --> 00:09:39,960 Speaker 1: So I'm a modeler. I'm a quant by nature, and 169 00:09:40,000 --> 00:09:43,800 Speaker 1: so I bring a perspective both in terms of thinking 170 00:09:43,840 --> 00:09:47,480 Speaker 1: through data, but also ultimately it comes down to judgment. 171 00:09:47,640 --> 00:09:50,360 Speaker 1: And people learn judgment in a variety of ways, whether 172 00:09:50,400 --> 00:09:54,679 Speaker 1: it's in managing organizations or building bridges. There's a lot 173 00:09:54,679 --> 00:09:58,320 Speaker 1: of ways to you build your capacity for judgment. But 174 00:09:58,400 --> 00:10:01,599 Speaker 1: that's ultimately what everybody in the FOMC table brings to 175 00:10:01,640 --> 00:10:04,520 Speaker 1: the table. Well, judgment has been a hallmark of the 176 00:10:04,520 --> 00:10:06,720 Speaker 1: way FED has made policy for years. But you go 177 00:10:06,760 --> 00:10:09,160 Speaker 1: back to the political question on Capitol Hill now about 178 00:10:09,440 --> 00:10:12,360 Speaker 1: raiding in the FED and arguments that the FED should 179 00:10:12,360 --> 00:10:14,880 Speaker 1: be rule based and the FED should answer more to 180 00:10:14,920 --> 00:10:19,319 Speaker 1: Congress about how they make their policy decisions. I presume 181 00:10:19,840 --> 00:10:22,800 Speaker 1: that's not something you would support, so as a modeler, right, 182 00:10:23,080 --> 00:10:25,640 Speaker 1: but I know is if you have a model and equation, 183 00:10:26,200 --> 00:10:28,360 Speaker 1: and you put on certain data in, you're going to 184 00:10:28,440 --> 00:10:30,760 Speaker 1: get uncertain judgments out the other end. Do you think 185 00:10:30,800 --> 00:10:33,720 Speaker 1: about things we measure GDP inflation. There's a lot of 186 00:10:33,800 --> 00:10:37,360 Speaker 1: error around those and they're always revised. But those revisions 187 00:10:37,640 --> 00:10:40,320 Speaker 1: happen after we have to make a decision. We have 188 00:10:40,360 --> 00:10:42,800 Speaker 1: to make a decision based on what we know today 189 00:10:43,320 --> 00:10:45,680 Speaker 1: we are Rule just won't do a good job of 190 00:10:45,720 --> 00:10:48,960 Speaker 1: that because yeah, just think simply, we based out on 191 00:10:49,040 --> 00:10:52,000 Speaker 1: Q one GDP numbers and then they get revised, they 192 00:10:52,000 --> 00:10:54,360 Speaker 1: get revised, and we look back, the rule would have 193 00:10:54,400 --> 00:10:57,840 Speaker 1: done something very different. Judgment is very important to smooth 194 00:10:57,880 --> 00:11:02,680 Speaker 1: out what we know to be fundamental errors in how 195 00:11:02,800 --> 00:11:06,280 Speaker 1: we measure, because they're inherently hard to measure. O. Speaking 196 00:11:06,280 --> 00:11:08,920 Speaker 1: of fundamental errors, the Fed's ability to predict the path 197 00:11:08,960 --> 00:11:11,640 Speaker 1: of the economy has been subject to a lot of criticism, 198 00:11:11,720 --> 00:11:15,480 Speaker 1: shall we say? And I wonder from your position as 199 00:11:15,480 --> 00:11:17,800 Speaker 1: somebody who came from the immediate outside and has been 200 00:11:17,800 --> 00:11:19,959 Speaker 1: in the job for about a year now and sees 201 00:11:20,040 --> 00:11:23,160 Speaker 1: what's happening at the FED, do you think the Central 202 00:11:23,160 --> 00:11:26,800 Speaker 1: Bank has a credibility problem communicating with the public and 203 00:11:26,800 --> 00:11:29,840 Speaker 1: particularly Wall Street about what it's seeing when because you 204 00:11:29,920 --> 00:11:34,160 Speaker 1: have forecast a lot of interest rate moves that haven't happened. Yeah. 205 00:11:34,240 --> 00:11:36,800 Speaker 1: So I think one of the fundamental problems we've had 206 00:11:37,000 --> 00:11:42,199 Speaker 1: is that in the SEP we the dot plot, uh 207 00:11:42,240 --> 00:11:45,440 Speaker 1: the path of the Fed funds rate is often taken 208 00:11:46,120 --> 00:11:49,079 Speaker 1: as some sort of commitment by the Fed as opposed 209 00:11:49,120 --> 00:11:52,760 Speaker 1: to our best guess, our estimate of what will happen. 210 00:11:53,080 --> 00:11:55,680 Speaker 1: And I think that's been a communications issue that it 211 00:11:55,800 --> 00:11:59,240 Speaker 1: really isn't saying this is exactly what we're going to do, 212 00:11:59,360 --> 00:12:02,120 Speaker 1: it's saying, give then what we know today, this is 213 00:12:02,160 --> 00:12:05,880 Speaker 1: our best estimate of where that will be, assuming that 214 00:12:06,000 --> 00:12:09,080 Speaker 1: proper policy has followed. Well, as a modeler, would you 215 00:12:09,240 --> 00:12:12,560 Speaker 1: get rid of the dot plot? I'm not sure. I 216 00:12:12,600 --> 00:12:16,040 Speaker 1: think that does provide value, and we need to think 217 00:12:16,080 --> 00:12:18,880 Speaker 1: of lots of ways to communicate and be transparent. So 218 00:12:18,920 --> 00:12:21,840 Speaker 1: it does provide that. It's really the interpretation of that 219 00:12:21,920 --> 00:12:25,839 Speaker 1: particular dot plot, not on GDP or inflation, because people 220 00:12:25,880 --> 00:12:29,000 Speaker 1: understand that's our forecast. The one I worry about is 221 00:12:29,080 --> 00:12:32,040 Speaker 1: the Fed funds rate dot plot. Well, I would be 222 00:12:32,080 --> 00:12:34,439 Speaker 1: remiss in not asking you, as the president of the 223 00:12:34,440 --> 00:12:37,920 Speaker 1: Philadelphia FEDE, about inflation and where the FED is on 224 00:12:38,040 --> 00:12:42,400 Speaker 1: the curve. Your predecessor descented quite often worried about higher 225 00:12:42,440 --> 00:12:46,199 Speaker 1: inflation and the FED falling behind. Would you agree with 226 00:12:46,280 --> 00:12:48,200 Speaker 1: that or do you think the FED has more time? 227 00:12:48,760 --> 00:12:51,880 Speaker 1: I think core inflation PC, E C P I, whatever 228 00:12:51,920 --> 00:12:54,760 Speaker 1: measure you look at, is moving towards the two percent target. 229 00:12:55,640 --> 00:12:58,440 Speaker 1: Some of this, when it comes to headline inflation, of course, 230 00:12:58,520 --> 00:13:01,920 Speaker 1: is related to energy prices and other commodity prices. As 231 00:13:01,920 --> 00:13:04,480 Speaker 1: we see those firm or increase, we're gonna see the 232 00:13:04,480 --> 00:13:07,400 Speaker 1: two percent target attained. I am convinced we're going to 233 00:13:07,559 --> 00:13:10,679 Speaker 1: achieve that sooner rather than later. So I am somewhat 234 00:13:10,720 --> 00:13:13,640 Speaker 1: concerned about falling behind the curve. If you move in 235 00:13:13,720 --> 00:13:17,000 Speaker 1: December and you've suggested that you would be in favor 236 00:13:17,000 --> 00:13:20,680 Speaker 1: of that, h then do you catch up? Not clear yet. 237 00:13:20,720 --> 00:13:23,319 Speaker 1: I mean it really depends on where the path the 238 00:13:23,360 --> 00:13:25,080 Speaker 1: economy takes from there. And that's why I think we 239 00:13:25,160 --> 00:13:28,880 Speaker 1: have to make the move and then watch November. The 240 00:13:28,920 --> 00:13:31,360 Speaker 1: FED is going to meet. Can you defend Jennet Yell 241 00:13:31,400 --> 00:13:33,720 Speaker 1: and say it's a live meeting and that anything could 242 00:13:33,720 --> 00:13:36,839 Speaker 1: happen a week before the election, or we really are 243 00:13:36,880 --> 00:13:39,120 Speaker 1: we really talking with a nodded a week here about 244 00:13:39,160 --> 00:13:41,200 Speaker 1: that meeting. Look, I take every meeting is a live 245 00:13:41,200 --> 00:13:42,960 Speaker 1: meeting too. I think we have to because you don't 246 00:13:42,960 --> 00:13:45,840 Speaker 1: know what's going to happen between now and then, and 247 00:13:45,960 --> 00:13:48,199 Speaker 1: to take any meeting off the table as a mistake. 248 00:13:48,559 --> 00:13:50,960 Speaker 1: All right, What last question, and that is, Uh, the 249 00:13:51,000 --> 00:13:54,960 Speaker 1: FED has been charged with play politics to help one 250 00:13:55,000 --> 00:13:57,640 Speaker 1: side in this election. How do you respond to that? 251 00:13:58,360 --> 00:14:01,960 Speaker 1: So I'm a relatively newer I've finished nine of them 252 00:14:02,000 --> 00:14:04,560 Speaker 1: C meetings. In none of those meetings have I ever 253 00:14:04,600 --> 00:14:09,160 Speaker 1: heard anything political. People may disagree, but they disagree because 254 00:14:09,200 --> 00:14:11,920 Speaker 1: they're looking at the data through different lenses. There's lenses 255 00:14:12,280 --> 00:14:17,240 Speaker 1: of history, their academic, intellectual backgrounds, what they've done in 256 00:14:17,280 --> 00:14:20,160 Speaker 1: their own lives. Everybody, we're human beings. We interpret that 257 00:14:20,200 --> 00:14:22,160 Speaker 1: data in different ways. That's why the diversity of that 258 00:14:22,240 --> 00:14:26,720 Speaker 1: room is so important, right, That's why having those different perspectives. 259 00:14:26,760 --> 00:14:30,040 Speaker 1: But in no case have I ever heard anybody state 260 00:14:30,120 --> 00:14:33,960 Speaker 1: anything remotely political when they've tried to justify their decision. 261 00:14:34,440 --> 00:14:36,760 Speaker 1: Patrick Harker, thank you very much for joining us today 262 00:14:36,760 --> 00:14:41,760 Speaker 1: on libert Radio and television worldwide. Who you put your 263 00:14:41,760 --> 00:14:46,080 Speaker 1: trust in matters? Investors have put their trust in independent 264 00:14:46,160 --> 00:14:49,760 Speaker 1: registered investment advisors to the tune of four trillion dollars. 265 00:14:50,480 --> 00:14:54,280 Speaker 1: Why they see their role as to serve, not sell. 266 00:14:55,160 --> 00:14:57,520 Speaker 1: That's why Charles Schab has committed to the success of 267 00:14:57,560 --> 00:15:02,160 Speaker 1: over seven thousand independent financial advi users who passionately dedicate 268 00:15:02,200 --> 00:15:06,400 Speaker 1: themselves to helping people achieve their financial goals. Learn more 269 00:15:06,880 --> 00:15:14,720 Speaker 1: and find your independent advisor dot com. The Liberty Blanchard 270 00:15:15,040 --> 00:15:18,960 Speaker 1: as a former director of Economics for Madame Legarde in 271 00:15:19,000 --> 00:15:23,640 Speaker 1: the International Monetary Fund and is now at the Peterson Institute. 272 00:15:23,640 --> 00:15:26,000 Speaker 1: Professor Blanchard, wonderful to speak to you again. I was 273 00:15:26,080 --> 00:15:29,280 Speaker 1: so happy that in your recent Peterson Institute note you 274 00:15:29,400 --> 00:15:34,280 Speaker 1: spoke about productivity the mystery of productivity. In your seventh 275 00:15:34,440 --> 00:15:38,560 Speaker 1: edition of your textbook, Chapter twelve, you go right at 276 00:15:38,560 --> 00:15:43,280 Speaker 1: how important productivity is for growth. Why are we seeing 277 00:15:43,680 --> 00:15:47,800 Speaker 1: a lack of productivity and a lack of growth? Well, 278 00:15:47,840 --> 00:15:50,960 Speaker 1: I think the the honest time sizes nobody's sure. The 279 00:15:51,400 --> 00:15:53,960 Speaker 1: I think what we got is ten years of vague 280 00:15:54,120 --> 00:15:58,640 Speaker 1: productivity from the mid nineties to the mid two thousand's, 281 00:15:59,200 --> 00:16:02,520 Speaker 1: which we now on the stent as having been due 282 00:16:02,600 --> 00:16:05,440 Speaker 1: to the fact that firms found ways of using of 283 00:16:05,520 --> 00:16:08,880 Speaker 1: implementing the innovations that were available at the time, and 284 00:16:08,920 --> 00:16:11,320 Speaker 1: that you know, it came as a surprise. It ended 285 00:16:11,360 --> 00:16:15,280 Speaker 1: as a surprise. It hasn't been there since. UH. I 286 00:16:15,280 --> 00:16:18,480 Speaker 1: think the expectation is we're going to have low productivity. 287 00:16:18,480 --> 00:16:21,960 Speaker 1: But I wouldn't be surprised if we had another ten 288 00:16:22,040 --> 00:16:24,760 Speaker 1: years a good decade of productivity goal in the future. 289 00:16:24,920 --> 00:16:27,120 Speaker 1: But for at the moment, clearly the assumption has to 290 00:16:27,160 --> 00:16:30,040 Speaker 1: be that productivity goal is going to be low. You 291 00:16:30,120 --> 00:16:32,960 Speaker 1: have constructed of it is probably not due to the crisis. 292 00:16:32,960 --> 00:16:35,840 Speaker 1: It's probably due to something else. Right, You've you have 293 00:16:36,080 --> 00:16:40,760 Speaker 1: constructed for the International Monetary Fund their world economic outlook. UH. 294 00:16:40,920 --> 00:16:44,640 Speaker 1: And within the low productivity growth, within the search for innovation, 295 00:16:44,720 --> 00:16:49,120 Speaker 1: the real question is how do institutions like the IMP 296 00:16:49,240 --> 00:16:51,960 Speaker 1: for frankly, the FED, how do they adapt to this 297 00:16:52,120 --> 00:16:56,360 Speaker 1: low low productivity? How does this change Chair Yellen's work? 298 00:16:57,600 --> 00:17:00,040 Speaker 1: I think it changes it in two ways. Which is 299 00:17:00,040 --> 00:17:03,200 Speaker 1: an economy which has low productivity golf is an economy 300 00:17:03,200 --> 00:17:06,800 Speaker 1: which goes most slowly, so the risk of recessions is higher. 301 00:17:07,200 --> 00:17:10,800 Speaker 1: Investment is lawer consumption is law. That makes for a 302 00:17:10,880 --> 00:17:14,720 Speaker 1: tougher job for the FED. And then in addition, Viziolo 303 00:17:14,840 --> 00:17:18,119 Speaker 1: abound is more likely to be binding, so that you 304 00:17:18,200 --> 00:17:20,359 Speaker 1: have to have a much wet policy which is ready 305 00:17:20,400 --> 00:17:24,159 Speaker 1: to react to the next recession whenever it comes, and 306 00:17:24,280 --> 00:17:26,240 Speaker 1: has the tools to do it. It's much harder to 307 00:17:26,320 --> 00:17:29,359 Speaker 1: do in an environmental flow interest rates, which is what 308 00:17:29,480 --> 00:17:31,880 Speaker 1: we have. You know, there's a heated debate over negative 309 00:17:31,880 --> 00:17:36,920 Speaker 1: interest rates. You told us your doubts about helicopter money, 310 00:17:37,000 --> 00:17:39,040 Speaker 1: and here we are in negative interest rates. As Ken 311 00:17:39,119 --> 00:17:42,480 Speaker 1: Rogoff of Harvard mentions, we're learning as we go. He 312 00:17:42,520 --> 00:17:44,840 Speaker 1: has it, of course in his new book, give us 313 00:17:44,880 --> 00:17:48,399 Speaker 1: an update on what you've learned about negative interest rates, 314 00:17:48,680 --> 00:17:52,000 Speaker 1: say in the last two months. Uh. Look, I think 315 00:17:52,080 --> 00:17:55,399 Speaker 1: upon with negative interest rates as opposed to low interest rates, 316 00:17:55,480 --> 00:17:58,879 Speaker 1: is we low interest rates in banks can basically, you know, 317 00:17:58,960 --> 00:18:02,280 Speaker 1: to busy kei hipmogin just dequease the rate at which 318 00:18:02,320 --> 00:18:04,600 Speaker 1: they land relative to the rate at which they bo. 319 00:18:04,960 --> 00:18:07,480 Speaker 1: When you get to negative interest rates, phase upon that 320 00:18:07,560 --> 00:18:11,679 Speaker 1: they are very reluctant to actually dequease the rate on 321 00:18:12,320 --> 00:18:15,320 Speaker 1: on deposits on depositors, right, So it it's in the 322 00:18:15,359 --> 00:18:18,040 Speaker 1: profits now. This being said, I think the news not 323 00:18:18,160 --> 00:18:20,240 Speaker 1: from the last two months, but maybe the last year 324 00:18:20,760 --> 00:18:22,800 Speaker 1: is that the effect on the profits of banks have 325 00:18:22,920 --> 00:18:26,000 Speaker 1: not been big so so far it hasn't led to 326 00:18:26,040 --> 00:18:28,760 Speaker 1: a major effect on the profits of banks. But if 327 00:18:28,760 --> 00:18:32,520 Speaker 1: it choosed more than I would start worrying critically here then, 328 00:18:32,560 --> 00:18:34,560 Speaker 1: And you've been so good at this over the years 329 00:18:34,560 --> 00:18:38,840 Speaker 1: of separating outside shocks, exogerous shocks, from what's going on 330 00:18:38,880 --> 00:18:43,000 Speaker 1: inside the model. Does the model of negative rates make 331 00:18:43,119 --> 00:18:46,280 Speaker 1: Deutsche Bank, Commerce Bank, and for that matter, other banks 332 00:18:46,720 --> 00:18:51,000 Speaker 1: more susceptible to exogenous shocks? I mean they have to 333 00:18:51,240 --> 00:18:55,240 Speaker 1: live with economist work. Well. I think it's a much 334 00:18:55,240 --> 00:18:58,359 Speaker 1: more general issue than negative rates, is that the profits 335 00:18:58,359 --> 00:19:00,520 Speaker 1: of banks, you know, have come to on a lot, 336 00:19:01,080 --> 00:19:03,600 Speaker 1: and when you have low profits, than any shock can 337 00:19:03,640 --> 00:19:05,640 Speaker 1: get you to a region where you don't want to be. 338 00:19:05,920 --> 00:19:08,440 Speaker 1: So I think, yes, banks are in a way more 339 00:19:08,520 --> 00:19:11,640 Speaker 1: risky than they were. We have undone this partly through 340 00:19:11,800 --> 00:19:15,199 Speaker 1: higher capital ratios, but in the end, you know, if 341 00:19:15,200 --> 00:19:18,800 Speaker 1: they may evale little profit, the posity that they make 342 00:19:18,840 --> 00:19:21,119 Speaker 1: a loss and get in trouble is higher. So we 343 00:19:21,200 --> 00:19:25,159 Speaker 1: have to worry about this. You had a wonderful, wonderful 344 00:19:25,280 --> 00:19:29,119 Speaker 1: article recently on the future of modern academic economics and 345 00:19:29,280 --> 00:19:35,080 Speaker 1: DSG widely reported and discussed among economic leaders as yourself. 346 00:19:35,480 --> 00:19:39,360 Speaker 1: The argument now is of traditional M I T economics 347 00:19:39,440 --> 00:19:44,399 Speaker 1: like Blanchard, like Vice Chairman Stanley Fisher, and the idea 348 00:19:44,560 --> 00:19:50,120 Speaker 1: of a modern Phillips curve. Economics are traditional orthodox economics, 349 00:19:50,520 --> 00:19:53,080 Speaker 1: and some people saying, no, wait a minute, here's what 350 00:19:53,280 --> 00:19:57,840 Speaker 1: happens if you work with an Irving Fisher of eighty 351 00:19:58,000 --> 00:20:01,560 Speaker 1: years ago, if you jet rate low rates, you end 352 00:20:01,640 --> 00:20:07,040 Speaker 1: up generating disinflation and outright deflation. Help us here with 353 00:20:07,240 --> 00:20:11,840 Speaker 1: a raging debate in economics about what the zero bound does. 354 00:20:12,280 --> 00:20:15,440 Speaker 1: Does it help us get to inflation or does the 355 00:20:15,560 --> 00:20:18,720 Speaker 1: zero bound in negative rates? Does it help us get 356 00:20:18,800 --> 00:20:24,480 Speaker 1: to disinflation and that ugly thing deflation? Well, they say, 357 00:20:24,560 --> 00:20:28,399 Speaker 1: us risk about the zerol a bound, which is that 358 00:20:28,560 --> 00:20:30,800 Speaker 1: when you get to the zerolo abound and it's you 359 00:20:30,880 --> 00:20:34,880 Speaker 1: cannot decrease interest rates enough. The economy remains weak, which 360 00:20:34,960 --> 00:20:38,080 Speaker 1: means to let, which leads to less inflation, which eventually 361 00:20:38,160 --> 00:20:41,000 Speaker 1: leads to disinflation. This makes the real rates the rate 362 00:20:41,080 --> 00:20:44,960 Speaker 1: suggested for inflation even higher, and you get into a 363 00:20:45,040 --> 00:20:52,400 Speaker 1: disinflation loop disinflation spiral, which we saw in the thirties. Fortunately, 364 00:20:52,440 --> 00:20:56,200 Speaker 1: we haven't gone there. What we've gotten is deflation, but 365 00:20:56,960 --> 00:20:59,800 Speaker 1: low inflation. It hasn't got gotten much worse. And the 366 00:21:00,000 --> 00:21:03,280 Speaker 1: reason is, I think partly because the expectations of inflation 367 00:21:03,680 --> 00:21:06,520 Speaker 1: haven't reacted to the low inflation. But we know that 368 00:21:06,600 --> 00:21:08,760 Speaker 1: there's a great danger we when we get to the 369 00:21:08,880 --> 00:21:13,639 Speaker 1: zolo about if people start expecting deflation, the deflation becomes 370 00:21:13,720 --> 00:21:16,639 Speaker 1: worse and worse, the interest rates become higher and higher, 371 00:21:17,040 --> 00:21:20,520 Speaker 1: and when you're there, you're indeed trouble. Fortunately, that's one 372 00:21:20,640 --> 00:21:23,800 Speaker 1: trouble we have avoided so far. Professor Blanchard, you know 373 00:21:23,920 --> 00:21:26,720 Speaker 1: that Janet Yelling is a world class economists and she's 374 00:21:26,800 --> 00:21:29,680 Speaker 1: under the very bright lights and pressure of coining a 375 00:21:29,800 --> 00:21:32,800 Speaker 1: phrase of the moment. She didn't come up with V shape. 376 00:21:32,840 --> 00:21:34,920 Speaker 1: I don't know how to blame for that. But then 377 00:21:35,000 --> 00:21:38,800 Speaker 1: we had data dependency, forward guidance, and the new word 378 00:21:38,960 --> 00:21:43,160 Speaker 1: is evidence. What does evidence mean? Do you when bankers speak, 379 00:21:43,240 --> 00:21:47,200 Speaker 1: central bankers speak of we need evidence. What's the evidence? 380 00:21:48,560 --> 00:21:52,440 Speaker 1: I think Janet and the Fed are blamed much too much. 381 00:21:52,560 --> 00:21:55,160 Speaker 1: I mean they do the right thing, which is they're 382 00:21:55,240 --> 00:21:57,160 Speaker 1: very clear about what they want to do. They want 383 00:21:57,200 --> 00:22:01,280 Speaker 1: to achieve full employment, they want to achieve steady inflation 384 00:22:01,359 --> 00:22:04,280 Speaker 1: at a relatively low level, and then they look at 385 00:22:04,320 --> 00:22:06,240 Speaker 1: the economy and they try to do the best. So 386 00:22:06,359 --> 00:22:10,760 Speaker 1: that's called state dependent decisions, which is exactly what they 387 00:22:10,760 --> 00:22:12,680 Speaker 1: should be doing. And they're very clear about the fact 388 00:22:12,720 --> 00:22:16,840 Speaker 1: that there's uncertainty that some members of the FOMC believe that, 389 00:22:17,280 --> 00:22:19,720 Speaker 1: you know, it's time to increase interest rates, of us don't. 390 00:22:19,760 --> 00:22:22,720 Speaker 1: A majority of this stage doesn't. I think that's that's 391 00:22:22,800 --> 00:22:26,040 Speaker 1: exactly the way to run policy. Now. Markets would like 392 00:22:26,280 --> 00:22:29,480 Speaker 1: kind of calendar certainty. You know, we want to know 393 00:22:29,600 --> 00:22:32,440 Speaker 1: exactly on what dave interest rate is going to be increased. 394 00:22:32,800 --> 00:22:37,639 Speaker 1: But if you do this exposed they come back and 395 00:22:37,720 --> 00:22:39,320 Speaker 1: they said, well, that was not the right day to 396 00:22:39,400 --> 00:22:41,560 Speaker 1: do it. It's too early, it's too late. So I 397 00:22:41,680 --> 00:22:45,520 Speaker 1: think the fact maybe has a communication poem in explaining this, 398 00:22:45,680 --> 00:22:47,840 Speaker 1: which I think makes a lot of sense. But I 399 00:22:47,880 --> 00:22:49,920 Speaker 1: think they're doing the right thing. I mean, basically, they're 400 00:22:49,960 --> 00:22:52,280 Speaker 1: looking at the economy. They're saying, well, we're getting very 401 00:22:52,359 --> 00:22:55,560 Speaker 1: close to to you know, to full employment. Maybe it's 402 00:22:55,600 --> 00:22:58,399 Speaker 1: time to increase interest rates. Some people believe it should 403 00:22:58,720 --> 00:23:01,480 Speaker 1: some people don't. Of a moment, we don't, but we 404 00:23:01,600 --> 00:23:04,840 Speaker 1: indicate we might that's exactly what they should be saying, 405 00:23:04,920 --> 00:23:07,560 Speaker 1: what they should be doing, and the markets just have 406 00:23:07,720 --> 00:23:09,879 Speaker 1: to swallow hot and understand that that's the way to 407 00:23:09,920 --> 00:23:14,359 Speaker 1: do things. Professor Bunchard, one final delicate question. If I quote, 408 00:23:14,400 --> 00:23:17,080 Speaker 1: and I say this with immense respect for French economics, 409 00:23:17,160 --> 00:23:20,960 Speaker 1: the good work now of ben Wa Cray interview after interview. 410 00:23:21,000 --> 00:23:24,719 Speaker 1: There's a hope the continental Europe will find the market 411 00:23:24,840 --> 00:23:29,320 Speaker 1: clearing courage of the Anglo Saxon model, which is a 412 00:23:29,400 --> 00:23:32,880 Speaker 1: little more brutal and a little more quickly market clearing. 413 00:23:33,359 --> 00:23:36,240 Speaker 1: Do you how do you respond to the idea of 414 00:23:36,400 --> 00:23:39,359 Speaker 1: people when they say the continent should be more like 415 00:23:39,560 --> 00:23:44,840 Speaker 1: England and more like United States economics. I'm not sure 416 00:23:44,960 --> 00:23:47,280 Speaker 1: what you're referring to. Are you referring to a needful 417 00:23:47,320 --> 00:23:52,160 Speaker 1: structural reform, structural reform and the courage to clear markets? 418 00:23:53,040 --> 00:23:55,240 Speaker 1: I don't I don't know what it means to clear markets. 419 00:23:55,240 --> 00:23:57,520 Speaker 1: Say markets clearing you up as much as they clear 420 00:23:57,520 --> 00:24:00,240 Speaker 1: in the US supplies you call to demand may not 421 00:24:00,440 --> 00:24:03,520 Speaker 1: like the outcome. Now, I think you're talking about structural reforms, 422 00:24:03,880 --> 00:24:06,159 Speaker 1: and yes they are structural reforms, which would be very 423 00:24:06,200 --> 00:24:09,080 Speaker 1: important in some of the open countries in my own 424 00:24:09,640 --> 00:24:13,199 Speaker 1: home country. You know, labor market reforms are really essential, 425 00:24:13,480 --> 00:24:16,720 Speaker 1: but they run into enormous trouble politically. And the reason 426 00:24:16,880 --> 00:24:19,720 Speaker 1: is that these reforms, even they are good for the economy, 427 00:24:19,800 --> 00:24:23,520 Speaker 1: make losers. And you know, one of the characteristics of 428 00:24:23,600 --> 00:24:26,480 Speaker 1: our things these days is losers are very aware that 429 00:24:26,600 --> 00:24:29,760 Speaker 1: they're losing, and they are powerful force, and they are 430 00:24:29,840 --> 00:24:32,560 Speaker 1: limits to how much reform you can do, what speed 431 00:24:33,320 --> 00:24:35,920 Speaker 1: speed at which you can do it. So governments have 432 00:24:36,000 --> 00:24:38,720 Speaker 1: to try, but they have to be deeply conscious of 433 00:24:38,880 --> 00:24:42,560 Speaker 1: distributional effects of these reforms. So it's not going to 434 00:24:42,680 --> 00:24:45,560 Speaker 1: happen overnight. Professor one Chart, thank you so much, Oliver 435 00:24:45,720 --> 00:24:59,000 Speaker 1: bond Chart with the Pearson Institute. We're Howard Marks were 436 00:24:59,240 --> 00:25:01,840 Speaker 1: dividement seventy years. I think of a risk of nineteen 437 00:25:01,920 --> 00:25:05,359 Speaker 1: seventy four is really the beginning of institutional public rules 438 00:25:05,400 --> 00:25:08,680 Speaker 1: and regulations on pensions. There was an actual assumption back 439 00:25:08,760 --> 00:25:11,840 Speaker 1: then which we all said, okay, that makes sense. Now 440 00:25:12,480 --> 00:25:17,199 Speaker 1: you've got this outrageous responsibility to make six x x percent, 441 00:25:17,720 --> 00:25:20,920 Speaker 1: you can't do it. What's the new extual assumption in 442 00:25:21,040 --> 00:25:24,800 Speaker 1: Howard Marks's world? Well, you know, when I meet with clients, 443 00:25:25,280 --> 00:25:27,000 Speaker 1: the main thing they want me to do is talk 444 00:25:27,040 --> 00:25:30,320 Speaker 1: about the environment macro wise and what you what you 445 00:25:30,440 --> 00:25:33,000 Speaker 1: do and what you see. And I talk about a 446 00:25:33,600 --> 00:25:36,000 Speaker 1: a world full of uncertainty on the one hand and 447 00:25:36,160 --> 00:25:39,800 Speaker 1: low prospective returns on the other. So they say, our 448 00:25:40,160 --> 00:25:42,280 Speaker 1: actual real assumption is seven and a half percent. What 449 00:25:42,359 --> 00:25:45,640 Speaker 1: do you recommend we do? And so I I say, 450 00:25:45,760 --> 00:25:49,200 Speaker 1: I recommend you change your actually assumption. You see, the 451 00:25:49,520 --> 00:25:52,040 Speaker 1: assumption used to be what you think you can make 452 00:25:52,920 --> 00:25:56,720 Speaker 1: agree Now more often I think it is what you 453 00:25:57,000 --> 00:26:02,840 Speaker 1: need two cause your assets and your future cash flows 454 00:26:02,880 --> 00:26:07,119 Speaker 1: to equate to your needed funds for liabilities. What's the 455 00:26:07,160 --> 00:26:10,680 Speaker 1: real electoral assumptions? V Body's way down at Boston University 456 00:26:10,720 --> 00:26:13,639 Speaker 1: has led the way on a low statistic. We may 457 00:26:13,760 --> 00:26:16,480 Speaker 1: you make jokes about V Body ten years ago. He 458 00:26:16,520 --> 00:26:20,359 Speaker 1: looks like a genius. Now, what's your assumption for sixty 459 00:26:20,800 --> 00:26:23,960 Speaker 1: efficient market blend? Well? I haven't thought about that, but 460 00:26:24,240 --> 00:26:26,200 Speaker 1: you know, I think, Look, most people think, and I 461 00:26:26,400 --> 00:26:29,280 Speaker 1: can't differ, that stocks will make five or six percent 462 00:26:29,320 --> 00:26:32,399 Speaker 1: a year for the coming x years. And you know 463 00:26:32,560 --> 00:26:35,480 Speaker 1: historically those number, that number fluctuated between nine and eleven. 464 00:26:35,640 --> 00:26:38,600 Speaker 1: What people fought, not what it was, but what I thought, uh, 465 00:26:39,040 --> 00:26:42,760 Speaker 1: and then of course, uh, let's say high grade bonds 466 00:26:43,240 --> 00:26:45,960 Speaker 1: two to three. So if you if you average two 467 00:26:46,000 --> 00:26:48,080 Speaker 1: to three and five to six, you don't get seven 468 00:26:48,080 --> 00:26:49,359 Speaker 1: and a half. That's the only thing I'm sure of. 469 00:26:50,280 --> 00:26:54,600 Speaker 1: You write a memo which is gospel. Mr Buffett talks 470 00:26:54,720 --> 00:26:57,399 Speaker 1: of it as others on the street. It is a remark. 471 00:26:57,440 --> 00:26:59,479 Speaker 1: I'm gonna You're not gonna send it out to anybody, 472 00:26:59,560 --> 00:27:04,040 Speaker 1: so don't ask me to. But you're writing on our politics. 473 00:27:04,160 --> 00:27:07,119 Speaker 1: How do you fold the debate, the next debate, the 474 00:27:07,240 --> 00:27:10,600 Speaker 1: debate after that, how do you fold October and the 475 00:27:10,760 --> 00:27:13,720 Speaker 1: dash to the first Tuesday of November into what you 476 00:27:13,800 --> 00:27:17,680 Speaker 1: want to do. I'm not here to talk about who 477 00:27:17,760 --> 00:27:19,600 Speaker 1: my favorite candidate is, and I don't think that's why 478 00:27:19,680 --> 00:27:24,800 Speaker 1: you asked me on. But the one thing I know 479 00:27:26,040 --> 00:27:30,879 Speaker 1: is that if Hillary Clinton is elected, most people have 480 00:27:31,040 --> 00:27:33,879 Speaker 1: a pretty good idea what you'll do. And in fact, 481 00:27:34,600 --> 00:27:38,040 Speaker 1: the complaint of her, of the people who don't like Hillary, 482 00:27:38,160 --> 00:27:40,480 Speaker 1: is that she's too predictable, she's too going to be, 483 00:27:40,920 --> 00:27:44,000 Speaker 1: too reliably status quo. Her fiscal line is pretty much 484 00:27:44,119 --> 00:27:48,200 Speaker 1: on the present trid. If Donald Trump is elected, I 485 00:27:48,320 --> 00:27:50,520 Speaker 1: don't think we know what he's going to do, and 486 00:27:50,640 --> 00:27:52,840 Speaker 1: in fact, he believes that keeping your cards close to 487 00:27:52,920 --> 00:27:55,879 Speaker 1: your vest and being unpredictable is an important part of 488 00:27:56,000 --> 00:28:00,600 Speaker 1: being a leader. Uh So I think that, And yet 489 00:28:00,800 --> 00:28:04,760 Speaker 1: the market abhors uncertainty. That's a really old soul that 490 00:28:04,960 --> 00:28:08,240 Speaker 1: you've heard many times, and I have to and I 491 00:28:08,440 --> 00:28:11,480 Speaker 1: think that if you get Trump, you're going to get uncertainty. 492 00:28:11,880 --> 00:28:15,360 Speaker 1: So if I thought Trump was going to win, then 493 00:28:15,640 --> 00:28:18,720 Speaker 1: I would anticipate a decline. Now it happens that we 494 00:28:18,920 --> 00:28:23,600 Speaker 1: don't invest for the short term. I abhor personally the 495 00:28:23,760 --> 00:28:27,359 Speaker 1: term trader, and we're not traders. And we're also not 496 00:28:27,560 --> 00:28:31,119 Speaker 1: in the stock market, the US mainstream stock market, uh 497 00:28:31,359 --> 00:28:35,720 Speaker 1: in any important way. And so I think the safest 498 00:28:35,760 --> 00:28:38,640 Speaker 1: thing to say is that we are not doing anything 499 00:28:39,560 --> 00:28:43,880 Speaker 1: in anticipation of the election. Outlook Bill Gross as a 500 00:28:43,960 --> 00:28:48,960 Speaker 1: moniker now unconstrained. I'm not sure from a prospective basis 501 00:28:49,040 --> 00:28:53,160 Speaker 1: whether it's a publicly traded mutual fund or actually say 502 00:28:53,240 --> 00:28:56,959 Speaker 1: publicly registered mutual fund or more private money such as 503 00:28:57,000 --> 00:29:01,680 Speaker 1: Howard Marx has what unconstrained? Do you like definitions within 504 00:29:01,800 --> 00:29:04,560 Speaker 1: your portfolio? Or is the new new, the new normal 505 00:29:04,960 --> 00:29:08,920 Speaker 1: going to be for everyone in fixed income, unconstrained. I 506 00:29:09,120 --> 00:29:12,880 Speaker 1: think you have to define what you do because the 507 00:29:13,080 --> 00:29:17,160 Speaker 1: client has to fit you into a batting order. And 508 00:29:17,400 --> 00:29:20,200 Speaker 1: if you have if you have a number, but you 509 00:29:20,320 --> 00:29:22,840 Speaker 1: refuse to tell anybody what position you play or what 510 00:29:23,000 --> 00:29:25,160 Speaker 1: your skills are, then how can you be put in 511 00:29:25,200 --> 00:29:28,960 Speaker 1: the lineup? Uh? So you know, our approach is we 512 00:29:29,120 --> 00:29:32,680 Speaker 1: have funds that do twenty five different things, and we 513 00:29:33,000 --> 00:29:37,520 Speaker 1: enunciate them clearly and we have never strayed. That means 514 00:29:37,600 --> 00:29:41,040 Speaker 1: the client can figure out whether we should play a 515 00:29:41,120 --> 00:29:47,960 Speaker 1: place in his batting order. And managers in theory can 516 00:29:48,080 --> 00:29:51,160 Speaker 1: do better for their clients if they are unconstrained, if 517 00:29:51,240 --> 00:29:54,760 Speaker 1: they can buy any security in their universe or in 518 00:29:54,800 --> 00:29:58,800 Speaker 1: any universe. UM, but that makes them very unpredictable. So 519 00:29:58,920 --> 00:30:01,240 Speaker 1: there has to be a kind of give and take 520 00:30:02,240 --> 00:30:05,880 Speaker 1: of of the flexibility that will enhance the managers uh, 521 00:30:06,440 --> 00:30:12,360 Speaker 1: the potential and the predictability that the client needs. Thanks 522 00:30:12,440 --> 00:30:16,520 Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen 523 00:30:16,880 --> 00:30:22,200 Speaker 1: to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. 524 00:30:22,840 --> 00:30:26,239 Speaker 1: I'm on Twitter at Tom Keane, Michael McKee is at 525 00:30:26,400 --> 00:30:30,640 Speaker 1: Economy Before the podcast, you can always catch us worldwide. 526 00:30:31,040 --> 00:30:40,840 Speaker 1: I'm Bloomberg Radio. Who you put your trust in matters. 527 00:30:41,520 --> 00:30:45,320 Speaker 1: Investors have put their trust in independent registered investment advisors 528 00:30:45,400 --> 00:30:49,400 Speaker 1: to the tune of four trillion dollars. Why learn more 529 00:30:49,880 --> 00:30:52,000 Speaker 1: and find your independent advisor dot com.