WEBVTT - 'The Heat Is On' Goldman Sachs, Mayo Says 0:00:00.080 --> 0:00:12.799 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:12.840 --> 0:00:16.239 with David Gura. Daily we bring you insight from the 0:00:16.239 --> 0:00:21.640 best of economics, finance, investment, and international relations. Find Bloomberg 0:00:21.720 --> 0:00:27.000 Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, 0:00:27.320 --> 0:00:34.960 on the Bloomberg Doug Bando is not removed from our 0:00:35.000 --> 0:00:39.360 debate on international relations. He's with the libertarian Cato Institute. 0:00:39.400 --> 0:00:42.159 I'm gonna call him a conservative. Doug, you had a 0:00:42.200 --> 0:00:45.800 tour of duty with President Ronald Reagan. Let me start 0:00:45.840 --> 0:00:50.559 with the what if? What would Reagan do? I think 0:00:50.600 --> 0:00:53.440 Regan would be tough, but he wouldn't talk the way 0:00:53.440 --> 0:00:56.880 that President Trump has done. He'd recognized it as a superpower. 0:00:56.920 --> 0:00:59.360 We don't have to ratchet up the pressure. He'd make 0:00:59.480 --> 0:01:02.920 very clear any attack on the America's America would be 0:01:02.960 --> 0:01:06.440 responded to. But I think he'd also looked for negotiation. 0:01:06.520 --> 0:01:08.560 I think he'd looked for that back door channel. He 0:01:08.640 --> 0:01:11.880 did that with the Soviets. You know, regular is a 0:01:11.880 --> 0:01:13.560 man who understood you had to be tough, but you 0:01:13.600 --> 0:01:15.440 have to look for diplomatic solutions. We have to have 0:01:15.520 --> 0:01:19.280 both those possibilities and also suggested he had a respect 0:01:19.319 --> 0:01:24.880 for the intelligence community. Chosan Hung has without question the 0:01:24.920 --> 0:01:27.479 read of the Morning. It is a link the article 0:01:27.560 --> 0:01:30.639 on the leader of North Korea in the New York Times. 0:01:30.640 --> 0:01:34.119 It is a spectacular read of his Pulitzer Prize winning 0:01:34.760 --> 0:01:37.640 history in Korea. Doug, do we know who this guy 0:01:37.880 --> 0:01:40.679 is and his President Trump have a clue who he's 0:01:40.800 --> 0:01:44.320 up against? I'm skeptical of the President does. I mean, 0:01:44.319 --> 0:01:46.920 at least his reputation as somebody who doesn't particularly like 0:01:47.000 --> 0:01:51.400 to be briefed and particularly doesn't like to have long briefings. 0:01:51.440 --> 0:01:53.840 So my guess is that he's responding much more kind 0:01:53.880 --> 0:01:56.120 of out of his gut in many ways. I think 0:01:56.120 --> 0:01:58.840 there are certain similarities, oddly enough, between Kim Jong Hoon 0:01:58.920 --> 0:02:02.640 and President Trump and the they respond more emotional, more impulsive, 0:02:03.200 --> 0:02:06.000 and that that that's the reason that's caused for concern. 0:02:06.040 --> 0:02:08.280 I don't think either man wants war, but you get 0:02:08.280 --> 0:02:10.840 a couple of guys kind of being tough against one another, 0:02:11.080 --> 0:02:13.760 things could spire a lot of control. The question here 0:02:13.760 --> 0:02:17.080 about Reagan's rhetoric. We talked so much about his sweeping rhetoric, 0:02:17.120 --> 0:02:19.200 his ability to give a speech that would galvanize the 0:02:19.360 --> 0:02:22.799 the the American people. Uh. Compare the speeches. He gave 0:02:22.840 --> 0:02:25.079 his appreciation for rhetoric to what we're hearing from from 0:02:25.080 --> 0:02:27.560 President Trump. I look at look at the tweets. I 0:02:27.600 --> 0:02:30.360 certainly I'm still focused on that fire and fury line. 0:02:30.360 --> 0:02:32.639 How much of that was was Reagan himself? How much 0:02:32.680 --> 0:02:37.000 of that was a very closely coordinated communications team. Well, 0:02:37.080 --> 0:02:39.560 it's both. I mean Reagan had a very good sense. 0:02:39.600 --> 0:02:43.280 I mean he understood, for example, you know, joke calling 0:02:43.320 --> 0:02:46.000 the evil Empire. He was trying to reach you, Soviets, 0:02:46.000 --> 0:02:48.680 he was trying to reach especially Eastern Europeans. He had 0:02:48.720 --> 0:02:51.880 an audience in mind, but under Gorbitsav At one point 0:02:51.919 --> 0:02:53.880 he was asked, do you still consider the Soviet an 0:02:53.960 --> 0:02:56.240 evil empire? And he basically said that was in the past. 0:02:56.639 --> 0:02:59.639 I'm looking forward, you know. And he had a communications 0:02:59.680 --> 0:03:03.680 team would monitor things. Very concerned about dealing with the Soviets, 0:03:03.720 --> 0:03:05.960 but Reagan was quite willing to buck them when he 0:03:05.960 --> 0:03:08.880 thought it was necessary, being prepared to make a deal. 0:03:08.919 --> 0:03:10.840 But he was prepared to be tougher as well. And 0:03:10.960 --> 0:03:13.799 for example, the Berlin Wall, the line, you know, Mr 0:03:13.800 --> 0:03:17.160 Gorbachev tear down this wall, Reagan kept putting that in 0:03:17.200 --> 0:03:20.080 when staff members were taking it out. His view was, 0:03:20.240 --> 0:03:23.000 this is a clarion call we've got to make. But 0:03:23.080 --> 0:03:25.960 compare that, I think to President Trump. Reagan had a 0:03:26.000 --> 0:03:28.320 specific objective there in terms of who he was trying 0:03:28.360 --> 0:03:30.600 to reach in a way that I think President Trump 0:03:30.639 --> 0:03:33.280 is kind of blustering. I think that's the difference. Doug. 0:03:33.320 --> 0:03:35.240 I draw a line here between what you've written what 0:03:35.720 --> 0:03:38.040 Ambassador Susan Rice writes in the New York Times this morning. 0:03:38.080 --> 0:03:39.760 You've said, there's plenty of evidence that the leader North 0:03:39.800 --> 0:03:42.200 Korea is ruthless and cruel, but none that he's blind 0:03:42.360 --> 0:03:45.560 or suicidal. She writes, by most as sentiments, he's vicious 0:03:45.560 --> 0:03:48.760 and impetuous, but not irrational. Does the rhetoric that we 0:03:48.840 --> 0:03:53.600 hear here match the risk? Well, I think illogically there 0:03:53.640 --> 0:03:55.760 should not be much of her risk. That is the 0:03:55.840 --> 0:03:58.960 northers response got a weakness. They're scared. I mean, they 0:03:59.040 --> 0:04:01.440 point to Afghani stand, they point to a rock. Frankly, 0:04:01.440 --> 0:04:04.080 they point to Libya where the dictator made a deal, 0:04:04.120 --> 0:04:06.200 gave up these nukes and missiles, and look what happened 0:04:06.200 --> 0:04:09.600 to him. So this bluster, I think covers that up. 0:04:10.080 --> 0:04:11.640 You know, they don't want to start a war, they 0:04:11.680 --> 0:04:14.640 want to keep America out. On the other hand, if 0:04:14.640 --> 0:04:17.080 you start calling one on one with the United States 0:04:17.160 --> 0:04:21.120 you start talking about dropping missiles near American possessions, I 0:04:21.160 --> 0:04:25.240 think they've kind of underestimated Americans. You're willingness to put 0:04:25.279 --> 0:04:28.080 up with this stuff, David Girl bring back the esteemed 0:04:28.160 --> 0:04:32.919 uh Mr Bando Cato. But I'm trying to put in 0:04:33.000 --> 0:04:36.080 scope and scale North Korea, which is difficult with the data. 0:04:36.760 --> 0:04:40.400 But the economy of North Korea is on first order, 0:04:40.960 --> 0:04:44.279 two percent the size of New York City's economy. And 0:04:44.360 --> 0:04:46.880 that's just some back of the envelope, back of the 0:04:46.920 --> 0:04:51.360 bow time math. It maybe fo but my quick math 0:04:51.480 --> 0:04:54.120 is two percent the size of the New York City 0:04:54.160 --> 0:04:56.840 economy and greater New York Tug Bando, senior fellow with 0:04:56.839 --> 0:04:59.200 the Kato wins Too, former special assistant to a President 0:04:59.279 --> 0:05:01.279 Ronald Ring and Doug As. I understand you were in 0:05:01.320 --> 0:05:03.920 North Korea rather recently, and just give us a sense 0:05:03.960 --> 0:05:07.200 of how that visit has has shaped your sense of 0:05:07.360 --> 0:05:11.200 this conflict in particular. Sure, and if you're thinking about comparisons, 0:05:11.200 --> 0:05:13.800 it's about the economy of Anchorage. I mean that's the 0:05:13.839 --> 0:05:17.480 economy North Korea. Thank you, you're welcome. I was I 0:05:17.520 --> 0:05:19.320 was there twenty five years ago, so I had a 0:05:19.320 --> 0:05:21.920 point of comparison. I mean, kiel Young has more money 0:05:21.960 --> 0:05:24.960 today than it did twenty five years ago. The countryside 0:05:24.960 --> 0:05:28.000 remains desperately poor. As you pointed out, it's got about 0:05:28.000 --> 0:05:30.920 five percent of the economy of South Korea. I mean, 0:05:31.120 --> 0:05:33.599 you know, you compare Soul, South Korea, and you know 0:05:33.680 --> 0:05:36.640 Kyong Young. I mean, there's no comparison, at least today. 0:05:36.680 --> 0:05:39.680 There's some private cars in North and Killing Young. There's 0:05:39.720 --> 0:05:42.080 cell phones. They're not supposed to reach outside of the country, 0:05:42.080 --> 0:05:45.840 but they are there. If fashionists come to Pyongyang, women 0:05:45.920 --> 0:05:49.279 dressed nice, minister pretty plain, you know, so it's you 0:05:49.279 --> 0:05:51.479 can see a little bit of economic life there that 0:05:51.600 --> 0:05:55.480 Kim Jong un clearly wants economic development. His father, I think, 0:05:55.600 --> 0:05:58.720 viewed it as being destabilizing and frankly didn't care very much. 0:05:59.560 --> 0:06:02.479 But it were means desperately far behind the US. I 0:06:02.480 --> 0:06:05.680 mean desperately far behind South Korea. That's one of the 0:06:05.720 --> 0:06:09.799 things that fuels this kind of rabid nationalism and the bluster. 0:06:10.560 --> 0:06:12.280 All they have to do is look south. I mean, 0:06:12.320 --> 0:06:16.039 any North Korean who visits another country, almost any other 0:06:16.080 --> 0:06:19.960 country knows how far behind they are. We talk a 0:06:20.000 --> 0:06:23.279 lot about the trade relationship between North Korea and China, 0:06:23.839 --> 0:06:26.520 given given the focus of that relationship as we talk 0:06:26.560 --> 0:06:29.239 about sanctions at the UN Security Council, and we certainly 0:06:29.240 --> 0:06:30.760 hear the present talking about Chinese and the need for 0:06:30.839 --> 0:06:32.880 China to do more. How does that play out when 0:06:32.920 --> 0:06:36.000 you're on the ground there. How evident is the is 0:06:36.040 --> 0:06:39.720 that trading relationship. It's actually not very evident at all. 0:06:39.800 --> 0:06:43.279 What's interesting is despite the trading relationship, the relations between 0:06:43.279 --> 0:06:45.919 the two governments is not good. You know that. I 0:06:45.920 --> 0:06:48.760 mean tradition. The North Koreans are very independent. They don't 0:06:48.800 --> 0:06:51.400 want to be a province of China. Back in the fifties, 0:06:51.440 --> 0:06:54.440 the dictator took out kind of the pro China faction 0:06:54.920 --> 0:06:57.839 within the North Korean Communist Party, to the consternation of 0:06:57.880 --> 0:07:00.840 the Chinese. You know, what you find is a lot 0:07:00.880 --> 0:07:04.680 of dismissiveness and complaints about China in their media. And 0:07:04.680 --> 0:07:06.720 what was striking. I went to the war museum, they 0:07:06.720 --> 0:07:10.080 call it the Victorious Fatherland War Museum, and basically you 0:07:10.080 --> 0:07:12.040 would think that Kim Il sung won the war on 0:07:12.120 --> 0:07:15.080 his own you wouldn't be aware that somewhere along the 0:07:15.120 --> 0:07:18.040 line a few hundred thousand Chinese troops showed up. I mean, 0:07:18.080 --> 0:07:21.960 this museum presents this is almost entirely a victory of 0:07:21.960 --> 0:07:24.200 the North Koreans. I mean, China is not even mentioned. 0:07:24.200 --> 0:07:27.240 That kind of thing irritates the Chinese, especially because the 0:07:27.280 --> 0:07:30.120 son of the dictator, Mause Dung died in North Korea. 0:07:30.440 --> 0:07:32.120 You know, I was buried there. I mean, it's a 0:07:32.240 --> 0:07:35.840 very strange relationship, and that that economic side, they don't 0:07:35.880 --> 0:07:39.640 advertise that there the Chinese are involved. They buy minerals 0:07:39.880 --> 0:07:42.720 until recently, call and other stuff, you know, but they 0:07:42.720 --> 0:07:45.880 don't highlight that. Doug I returned to this op ed 0:07:45.960 --> 0:07:47.920 in The Times this morning by Susan Rice from a 0:07:48.000 --> 0:07:52.040 national security advisor. She she writes about preventative war, a 0:07:52.040 --> 0:07:53.640 phrase that we've heard a few times here over these 0:07:53.720 --> 0:07:56.240 last couple of weeks, and she writes that would result 0:07:56.280 --> 0:07:59.160 in hundreds of thousands, if not millions, of casualties metropolitan 0:07:59.160 --> 0:08:01.920 souls twenty six million people are only thirty five miles 0:08:01.920 --> 0:08:04.520 from the border, within easy range of the North missiles 0:08:04.560 --> 0:08:07.200 and artillery. She also notes twenty three thou United States 0:08:07.200 --> 0:08:10.840 troops plus their families live between Seoul and the demilitarized Zone, 0:08:10.840 --> 0:08:14.520 and total at least two thousand Americans reside in South Korea. 0:08:14.960 --> 0:08:18.119 Give us your sense of of the calculus policy makers 0:08:18.160 --> 0:08:20.640 in the Pentagon are going through right now. Of course, 0:08:20.680 --> 0:08:23.600 we had Secretary Maddis on the West coast last evening 0:08:23.600 --> 0:08:26.560 talking to reporters about this, talking solemnly about all the 0:08:26.600 --> 0:08:29.120 preparation that he's been doing, because indeed that is a 0:08:29.360 --> 0:08:31.840 huge component of of his job. What's happening in the 0:08:31.840 --> 0:08:35.360 policy planning department at the Defense Department right now, Well, 0:08:35.400 --> 0:08:38.400 my sense is that, I mean Maddis is until recently 0:08:38.400 --> 0:08:40.640 has talked about how diplomacies deans. So this is not 0:08:40.720 --> 0:08:44.120 a guy looking towards some kind of preventative war. I 0:08:44.120 --> 0:08:46.720 mean he understands the seriousness of it. I mean Matdis 0:08:46.760 --> 0:08:49.520 is a very serious guy and understands the costs of war. 0:08:50.040 --> 0:08:52.760 I think that his statements, though tough, I think in 0:08:52.800 --> 0:08:55.200 many ways you're trying to calm things down a bit 0:08:55.640 --> 0:08:57.560 by making it very clear that you know, we would 0:08:57.559 --> 0:09:00.960 retaliate against anything we're capable of doing it. The North 0:09:01.000 --> 0:09:03.640 had better not act. I don't think that he expects 0:09:03.640 --> 0:09:05.840 North Korea to do so again. I don't think people 0:09:05.840 --> 0:09:08.400 have seen North Korea as being suicidal. I like to 0:09:08.440 --> 0:09:11.760 tell people Kim Jong Oon, like his father and grandfather, 0:09:11.880 --> 0:09:14.760 wants his virgins in this life, not the next. This 0:09:14.840 --> 0:09:16.840 is not a guy who's thinking of wouldn't it be 0:09:16.840 --> 0:09:19.640 wonderful to go out in a bit of glory. He 0:09:19.720 --> 0:09:22.920 wants to preserve the regime. So I think they're looking 0:09:23.000 --> 0:09:26.239 at particularly the questions of mistake. They're worried about escalation. 0:09:26.720 --> 0:09:28.280 I mean, if you wanted to try to take out 0:09:28.360 --> 0:09:30.840 nuclear sights as they're a way you could convince the 0:09:30.880 --> 0:09:33.240 North Koreans it was not the beginning of regime change. 0:09:33.640 --> 0:09:36.680 To me, that's the biggest problem. If the North Koreans 0:09:36.760 --> 0:09:40.400 merely thought you were taking out, say their missile, they 0:09:40.480 --> 0:09:42.800 might decide it's not worth starting a war. But if 0:09:42.840 --> 0:09:45.800 they're convinced this is merely a prelude to an all 0:09:45.800 --> 0:09:49.800 out American attack all Iraq, then I think the lesson 0:09:49.840 --> 0:09:52.400 they learned is you don't wait for the US. You go. 0:09:52.720 --> 0:09:56.520 You started. What you know, if they do a missile 0:09:56.640 --> 0:09:58.160 or whatever they do, I don't want to sound like 0:09:58.160 --> 0:10:01.079 a no ballistics or whatever it's called. And they point 0:10:01.160 --> 0:10:04.120 the things self you know, usually they pointed east if 0:10:04.120 --> 0:10:07.400 you will, in the vicinity of Japan with a capital J. 0:10:08.559 --> 0:10:11.280 What would you expect would be anyone's response if they 0:10:11.360 --> 0:10:15.280 change the vector of that missile launch and pointed selfish 0:10:16.280 --> 0:10:19.040 in the vicinity of Guam, and I mean a thousand 0:10:19.040 --> 0:10:22.360 miles of Guam. But what would be the vector change 0:10:22.360 --> 0:10:25.000 that we would see. Well, my guess is that they've 0:10:25.040 --> 0:10:27.959 monitored very closely. What they try to do is get 0:10:28.000 --> 0:10:30.880 a sense does this look like another test that's going 0:10:30.920 --> 0:10:33.839 to land the ways away or do you actually think 0:10:33.880 --> 0:10:36.840 there's a possibility this could hit. I mean again, one 0:10:36.920 --> 0:10:40.960 missile being shot off. It's almost impossible to imagine that 0:10:41.000 --> 0:10:43.880 would be an attack on Guam because that would be 0:10:43.920 --> 0:10:48.199 the craziest thing imaginable, very unlikely, but still, I mean, 0:10:48.240 --> 0:10:49.959 at the Pentagon, you have to watch that stuff. So 0:10:50.000 --> 0:10:51.400 I think that's what they would look at. And then 0:10:51.440 --> 0:10:53.840 they decide that they think they could take it down. 0:10:53.880 --> 0:10:56.360 The question they do have a sad battery there, you know, 0:10:56.360 --> 0:10:58.960 an anti missile battery. They have to decide could they 0:10:59.000 --> 0:11:01.280 take it out in the terminal phases is coming down 0:11:01.720 --> 0:11:03.480 and if they thought it was coming too close they 0:11:03.559 --> 0:11:07.240 might try that. There's been a lot of criticism of 0:11:07.240 --> 0:11:10.400 previous administrations for not having done more. Eli Lake a 0:11:10.480 --> 0:11:13.080 columnst for bloom Review, writting about that this week that 0:11:13.440 --> 0:11:15.120 you know, there was opportunity in the past before North 0:11:15.200 --> 0:11:17.760 Korea got to where it is today, miniaturizing a nuclear weapon, 0:11:17.800 --> 0:11:21.040 testing these intercontinental ballistic missiles. Take us back to when 0:11:21.040 --> 0:11:23.319 you were in the Reagan White House. To what degree 0:11:23.360 --> 0:11:27.199 was North Korea then on the radar? Oh, it really 0:11:27.280 --> 0:11:29.320 wasn't at all. I mean, the Soviet Union was the 0:11:29.320 --> 0:11:31.720 big issue. I mean, we were still dealing in the 0:11:31.760 --> 0:11:34.319 early days with the Soviet Union as the evil Empire. 0:11:34.360 --> 0:11:36.600 We had bression of you know, I mean the the 0:11:36.600 --> 0:11:39.199 the kind of general secretaries. You got Andropov, who is 0:11:39.240 --> 0:11:42.079 a former KGB chief. You know, so the US is 0:11:42.120 --> 0:11:45.440 worried about a real chance nuclear exchange with the real 0:11:45.559 --> 0:11:48.800 nuclear power. If we weren't even talking about nuclear weapons 0:11:48.840 --> 0:11:52.079 for North Korea, then it was a very small subset 0:11:52.600 --> 0:11:54.640 that it became kind of the bigger issue. In the 0:11:54.640 --> 0:11:58.000 Soviet Union went away, it's China went away. They're kind 0:11:58.040 --> 0:12:00.600 of left is the real bad guys. I've never asked 0:12:00.600 --> 0:12:03.240 this question because it's never gone through my puny little brain. 0:12:03.880 --> 0:12:08.559 My experience of so called nuclear is either movies, cinema, Hollywood. 0:12:09.160 --> 0:12:11.440 I guess we dropped two bombs on Japan a few 0:12:11.840 --> 0:12:16.760 years ago. Have we ever done a supposed modern nuclear exchange? 0:12:16.880 --> 0:12:20.640 Is this like to the military people? Is this all 0:12:20.679 --> 0:12:24.240 as new as it is for us? Oh? Yeah, because 0:12:24.280 --> 0:12:27.160 I mean certainly our nuclear weapons and the hydrogen bombs 0:12:27.160 --> 0:12:29.680 are far more powerful. I mean what you find is 0:12:29.960 --> 0:12:33.679 people occasionally say this warhead has the power of say 0:12:33.800 --> 0:12:36.840 ten of the bombs that were dropped on near Hiroshima 0:12:36.920 --> 0:12:39.080 or something. I mean, we are in a different world 0:12:39.120 --> 0:12:42.840 the father than of multiple nukes falling. We have merved warheads. 0:12:42.880 --> 0:12:45.800 We have multiple warheads on a missile. I mean, you know, 0:12:45.840 --> 0:12:49.200 we have miniaturized, we have tactical We're in such a 0:12:49.320 --> 0:12:51.640 vastly different world here that you know, the US has 0:12:51.679 --> 0:12:54.080 a quite an arsenal. I mean North Koreans we think 0:12:54.160 --> 0:12:57.760 might have about twenty maybe nuclear warheads of you know, 0:12:57.840 --> 0:12:59.719 we have no idea really how how they could to 0:12:59.760 --> 0:13:03.560 be toployed and presented. The US has a vast arsenal. 0:13:03.800 --> 0:13:05.559 You get into a nuclear it's change, and you know 0:13:05.640 --> 0:13:07.360 the North can do some harm the U S can 0:13:07.400 --> 0:13:10.560 wipe out the North without any question. Great to speak 0:13:10.559 --> 0:13:12.440 to you, very valid briefly this morn. Yeah, Doug Band 0:13:12.800 --> 0:13:16.760 from Anchorage. That's very good. That parallel useful as well. 0:13:16.840 --> 0:13:19.040 Doug banda senior fell at the Cato Institute, former special 0:13:19.040 --> 0:13:34.360 assistant to presidents around Reagan on our phone lines. Always 0:13:34.360 --> 0:13:36.679 good on a Friday to speak to Jeffrey Rosenberg. He 0:13:36.840 --> 0:13:41.520 synthesizes the financial and the mathiness of what we do 0:13:42.080 --> 0:13:46.319 with where do I get some yield? Among other great services. 0:13:46.360 --> 0:13:51.360 He writes a note for black Rock with uncommonly smart charts. Jeffrey, 0:13:51.360 --> 0:13:55.240 if we get inflation today in twenty eight minutes, if 0:13:55.280 --> 0:13:59.200 we get another inflation report comes September and then we 0:13:59.360 --> 0:14:03.520 staggered was September twenty FED meeting? Do any of those 0:14:03.559 --> 0:14:08.199 inflation port reports really matter? Yeah? Thanks Tom. You know 0:14:08.600 --> 0:14:12.040 they do matter because the FED is telling a narrative 0:14:12.280 --> 0:14:17.000 of transitory weakness. So the inflation prints that come in 0:14:17.000 --> 0:14:20.960 inform the markets expectations as well as the FEDS and 0:14:21.080 --> 0:14:23.960 the FMC members expectations just to whether or not that 0:14:24.120 --> 0:14:27.120 story actually playing out, and so to the extent that 0:14:27.160 --> 0:14:31.160 we don't get big disappointments in today's print, and that's 0:14:31.200 --> 0:14:35.280 going to hold up the expectation that transitory story works, 0:14:35.400 --> 0:14:38.920 and that's about keeping the December rate hike in play. 0:14:38.960 --> 0:14:41.720 September in the balance sheet is about growth. The rate 0:14:41.800 --> 0:14:44.760 hikes are about infltation. I mean within this and I 0:14:45.240 --> 0:14:47.440 don't believe I've ever asked this question. Let's try it out, 0:14:47.480 --> 0:14:50.880 David and Mr Rosenberg h the idea, do you know 0:14:51.000 --> 0:14:54.440 ahead of the certitude of a CPI report or is 0:14:54.480 --> 0:14:56.520 it like the jobs report where we sort of go 0:14:56.560 --> 0:14:59.760 into it blind. Well, we we go into it with 0:14:59.760 --> 0:15:02.360 a out of expectations, and we do a tremendous amount 0:15:02.400 --> 0:15:07.960 of analysis within our within our sorry, within our inflation team, 0:15:08.000 --> 0:15:12.120 and looking at the components, analyzing trends in pricing and 0:15:12.200 --> 0:15:15.880 building up bottoms up forecasts, and so there are just 0:15:16.040 --> 0:15:18.640 like there is in the case of the payroll report, 0:15:18.680 --> 0:15:21.680 and in some sense, because roll and payroll volatility has 0:15:21.680 --> 0:15:25.000 been so low, the inflation prints have actually taken on 0:15:25.200 --> 0:15:27.560 as great or even great or important. So there's a 0:15:27.600 --> 0:15:30.720 lot of expectations around a point two point one eight 0:15:30.880 --> 0:15:33.240 in terms of the number today. So you have built 0:15:33.240 --> 0:15:37.240 into the market same kind of dynamic of expectations and 0:15:37.280 --> 0:15:42.800 then disappointment or um excitement over the you know, the 0:15:42.840 --> 0:15:44.480 number that we're gonna get a few minutes. How does 0:15:45.240 --> 0:15:47.520 this relate to the PPI numbers that we got yesterday? 0:15:47.560 --> 0:15:49.760 And they compliment one another, what do they tell you about? 0:15:50.080 --> 0:15:54.640 Rosenberger has no idea how smart that question is, given 0:15:54.680 --> 0:15:58.360 the worship for PPI numbers twenty and thirty years ago. 0:15:59.320 --> 0:16:01.920 You know, there is a little bit um. They're they're 0:16:02.040 --> 0:16:05.440 very different in terms of components in the short run, right, 0:16:05.520 --> 0:16:09.280 so when we're talking about the short run market expectations 0:16:09.640 --> 0:16:13.200 and short run movements, there's not a tremendous amount of correlation. 0:16:13.280 --> 0:16:16.680 What you do have is you have it's feeding into 0:16:16.680 --> 0:16:19.360 the narrative. And again Tom, back to your comments about 0:16:19.400 --> 0:16:21.600 comparing it to to pay roll employment, it's kind of 0:16:21.600 --> 0:16:26.160 like initial jobless claims or a DP. It feeds into 0:16:26.840 --> 0:16:31.280 the narrative around the data over longer periods of time 0:16:31.560 --> 0:16:33.760 that are really kind of outside the day to day 0:16:33.800 --> 0:16:39.720 market movements. There's there's obviously connection between purchasing purchase prices UH, 0:16:39.760 --> 0:16:42.720 producer prices and and and consumer prices, but in the 0:16:42.800 --> 0:16:46.480 in the short run UM, it really has a very 0:16:46.520 --> 0:16:50.320 different set of drivers. There's overlap, but but there's a 0:16:50.400 --> 0:16:53.360 there's a very different set of near term drivers. What's 0:16:53.400 --> 0:16:55.480 your sense of how wetted this feed is to to 0:16:55.680 --> 0:16:58.080 raising rates again this year? In other words, are they 0:16:58.120 --> 0:17:00.800 on a tract that necessitates that or is there really 0:17:00.840 --> 0:17:03.160 some flexibility or chance here of reversal in light of 0:17:03.160 --> 0:17:06.520 these data and others. So you know, this is where 0:17:06.560 --> 0:17:09.560 the market gets a lot of cross currents because it's 0:17:09.600 --> 0:17:12.600 a diverse group of people that we hear from. And 0:17:12.640 --> 0:17:15.359 so it's a committee and there's a committee day based 0:17:15.359 --> 0:17:18.560 decisions and there's a spectrum of viewpoints. But what the 0:17:18.640 --> 0:17:22.600 central message of the committee is that we should get 0:17:22.600 --> 0:17:25.480 on with normalization, that the goals of the Fed have 0:17:25.680 --> 0:17:28.880 mainly been achieved, and that they want to move on 0:17:29.040 --> 0:17:31.960 with normalization at a gradual and predictable pace to not 0:17:32.840 --> 0:17:37.080 unlind financial market conditions that would unlind the benefits of 0:17:37.080 --> 0:17:42.480 what the accumulated benefits of normal of of accommodation have 0:17:42.720 --> 0:17:44.960 given the economy. But they want to get on with 0:17:45.000 --> 0:17:47.879 normalization because they don't want to overheat. And part of 0:17:47.880 --> 0:17:52.600 the payroll story is these unemployment rates are real. Every 0:17:52.640 --> 0:17:55.960 measure of the labor markets is pointing to the potential 0:17:56.000 --> 0:18:00.000 that we are or are on track to an overheating economy, 0:18:00.040 --> 0:18:04.119 and that's classic business cycle overheating that eventually becomes the 0:18:04.160 --> 0:18:06.480 roots of your next procession, and they want to avoid that, 0:18:06.520 --> 0:18:08.840 so they want to get on with it without disrupting 0:18:08.880 --> 0:18:11.440 banana market. T want to rip up the script here. 0:18:11.520 --> 0:18:14.040 We trust Jeff Rosenberg enough to be very adept at 0:18:14.080 --> 0:18:17.800 going outside every min and actually commenting on the state 0:18:17.840 --> 0:18:22.240 of our world. Punham Gyle, Jeff Rosenberg and Bloomberg Intelligence 0:18:22.320 --> 0:18:26.560 just reported and publish a scathing note on J. C. 0:18:26.800 --> 0:18:30.399 Penny and the idea of a stock going from thirty 0:18:30.560 --> 0:18:37.040 to ten, migrating eight, cratering to five, and enjoying three 0:18:37.080 --> 0:18:41.960 dollars and nine cents this morning. Help us with what 0:18:42.119 --> 0:18:46.600 you observe of the disruption as you mentioned of Amazon, 0:18:47.200 --> 0:18:49.679 we we are when you look at yael C plus 0:18:49.760 --> 0:18:52.280 I plus G plus n X, do you really have 0:18:52.320 --> 0:18:55.560 a handle on consumption as you see something like J. C. 0:18:55.720 --> 0:19:00.119 Penny blow up an Amazon prosper so well to so 0:19:00.240 --> 0:19:03.600 to put it into today's you know, ten minute fifteen 0:19:03.640 --> 0:19:08.680 minute attention span, uh conversation. This this is about the 0:19:08.720 --> 0:19:15.600 impact of technology on inflation. It's about the tech on pricing, 0:19:15.760 --> 0:19:19.560 So you J C. Penny, the retailer's Amazon, what is that? All? 0:19:19.680 --> 0:19:24.359 Part of technology is the dominant force in our era, 0:19:24.480 --> 0:19:29.200 right the technology curve has gone vertical, the tremendous dramatic changes, 0:19:29.280 --> 0:19:32.639 the second machine age, everything that we've seen, even in 0:19:32.680 --> 0:19:36.280 the last five to seven years, the incredible acceleration and 0:19:36.320 --> 0:19:42.439 the macro implication of technology is technology is disinflationary. And 0:19:42.600 --> 0:19:45.320 that's the challenge, and it's a huge challenge. Back to 0:19:45.320 --> 0:19:48.240 our earlier conversation to the FED, which is still operating 0:19:48.280 --> 0:19:53.320 with nineteen sixties technology of Phillips curves that anticipate that 0:19:53.359 --> 0:19:57.679 there's a trade off between unemployment and broad based price inflation. 0:19:57.760 --> 0:20:01.359 But in the technology we're we may not see that 0:20:01.480 --> 0:20:03.760 to the same degree. So it's a huge impact, you know, Jeff. 0:20:04.680 --> 0:20:07.040 One of the high points yesterday was our conversation with 0:20:07.119 --> 0:20:10.520 a very distinguished Brigadier General Mr. Kimmitt, who has not 0:20:10.560 --> 0:20:13.280 only given public service to the nation, but he's had 0:20:13.280 --> 0:20:15.000 the ability to get up in front of a mic 0:20:15.040 --> 0:20:17.639 at the State Department and be the smooth guys a 0:20:17.720 --> 0:20:20.480 C F A, etcetera. And I said to him, I said, 0:20:20.480 --> 0:20:22.440 why did you get your c f A. And he said, 0:20:22.440 --> 0:20:24.960 because they went to Harvard Business School and didn't learn anything. 0:20:25.359 --> 0:20:28.760 And I mentioned Temper, I mentioned Cardigi Mellon where you went. 0:20:28.840 --> 0:20:33.240 I mean, does the underlying mathematics of m I T. 0:20:33.480 --> 0:20:36.800 Sloan Cardigi Melon. You know some of the great public 0:20:36.840 --> 0:20:40.440 schools that we've got, Penn State as a rigorous economics program, 0:20:40.440 --> 0:20:43.600 and on and on Michigan where Diane Swunk went. Does 0:20:43.640 --> 0:20:46.840 the mathematics of the sixties even work now in a 0:20:46.960 --> 0:20:52.239 in a in a in a bimodal American world. So so, 0:20:52.320 --> 0:20:56.320 one of the things that you know, quantitative tools give 0:20:56.440 --> 0:20:59.679 us is they give us a rigorous way of thinking. 0:20:59.720 --> 0:21:02.680 They of us a systematic way of thinking that allows 0:21:02.760 --> 0:21:07.480 us to test the logic and our understanding. But there's 0:21:07.560 --> 0:21:10.879 limits to those tools, and they are best fault of 0:21:10.920 --> 0:21:13.040 these tools. And when we listen to our policymakers who 0:21:13.040 --> 0:21:17.199 are very um wedded to these tools, it's interesting to 0:21:17.280 --> 0:21:20.239 see the debate about how much reliance is there, Like, 0:21:20.280 --> 0:21:23.960 for example, the estimation of our star. There have been 0:21:24.000 --> 0:21:26.960 five papers in the last five months written on this 0:21:27.400 --> 0:21:30.399 and they come to very different conclusions. And it highlights 0:21:30.440 --> 0:21:34.480 that in many of these areas the application of rigor 0:21:35.359 --> 0:21:39.320 hard science to what is essentially a social science doesn't 0:21:39.320 --> 0:21:43.560 always work, uh as well as the rigor of the 0:21:43.600 --> 0:21:45.840 models would like us to believe. And so there's a 0:21:45.960 --> 0:21:50.040 place for judgment, and there's a place for human understanding. 0:21:50.280 --> 0:21:52.880 And that's the important balance that that we should get 0:21:52.880 --> 0:21:55.280 out of, you know, using our tool Kain, and I 0:21:55.320 --> 0:21:57.720