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Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in

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Speaker 1: local communities, economies and a sustainable future. That's the power

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Speaker 1: of global connections. Mary Lynch, Pierce Fenner and Smith Incorporated

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Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keene with David Gura. Daily we bring you

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Speaker 1: insight from the best in economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and

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Speaker 1: of course on the Bloomberg. Let we begin this morning

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Speaker 1: with Steve Eisman, familiar to anyone who's read or seeing

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Speaker 1: The Big Short, of course, now he's a portfolio manager

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Speaker 1: with new Burger Berman Group. He joins us here in

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Speaker 1: our Bloomberg eleven three O Studios and New York right

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Speaker 1: to see you here. Thanks for coming on the show.

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Speaker 1: You focused on You've paid so much attention to the

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Speaker 1: integrity of the strength of the financial sector in the US,

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Speaker 1: and I want to just start there if I could,

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Speaker 1: asking you about what you make of the rhetoric we've

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Speaker 1: heard from this president, indeed from any Republicans about the

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Speaker 1: future of financial reform and regulation in this country. How worried,

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Speaker 1: are you about the the integrity of that apparatus going forward?

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Speaker 1: You know, I'm really not that worried about it at

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Speaker 1: this point. I mean, let's just throw some numbers around.

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Speaker 1: You know, when pre cry Let's use City Group as

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Speaker 1: an example, just to get some numbers. You know, pre crisis,

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Speaker 1: City Group was levered thirty five to one. You know,

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Speaker 1: five years before that, in two thousand and two, it

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Speaker 1: had been levered twenty two to one. Today it's levered

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Speaker 1: ten to one. You know, the last time City Group

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Speaker 1: was levered ten to one, I probably wasn't alive. So,

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Speaker 1: I mean, I can honestly say that what the FED

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Speaker 1: has accomplished via the auspices of Dodd Frank and the

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Speaker 1: Stress Test, which is how the FED regulates the banks,

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Speaker 1: is that the United States banking system has never been

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Speaker 1: the safe in anyone's lifetime. Now what I think is

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Speaker 1: going to happen, and I think the odds of Dodd

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Speaker 1: Frank being changed is extremely low because you need sixty votes.

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Speaker 1: And I think Senator Elizabeth Warren will probably get on

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Speaker 1: the Senate floor and say, you're gonna have to kill

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Speaker 1: me if I've performing let anything happen here, now they

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Speaker 1: may kill her, but that's what almost it's going to take.

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Speaker 1: So let's put aside changing Dodd frank Um. The FED

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Speaker 1: regulates the banks, and the person who has been the

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Speaker 1: chief regulator is Governor Daniel to Rollo, and he's resigned.

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Speaker 1: So President Trump will appoint someone to replace him, and

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Speaker 1: that person will not be Daniel to Rollo. They'll have

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Speaker 1: a very different orientation. And I think what's going to

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Speaker 1: happen is UM via the stress test starting in two eighteen,

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Speaker 1: because it's too late now, UM for the two thousand

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Speaker 1: and seventeen stress tests. Uh, this test will be let's

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Speaker 1: just say, graded on a different curve, and the vocal

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Speaker 1: rule will be reinterpreted. Today it's interpreted extremely strictly, tomorrow

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Speaker 1: will be interpreted less strictly. So I think the leverage

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Speaker 1: will start to go up, and we're not going to

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Speaker 1: go back anywhere to where we were so many maybe

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Speaker 1: city group goes from ten times over the next several

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Speaker 1: years to twelve, thirteen, fourteen times. That's more leverage and

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Speaker 1: more risk in the system, but it's still significantly significantly

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Speaker 1: lower than we've ever seen anyway, So it's not it's

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Speaker 1: not a calamity, and the returns will start to go

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Speaker 1: up because they'll be able to do more things on

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Speaker 1: their balance sheet via or like I said, the reinterpretation

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Speaker 1: of the vocal rule, and the profitability of the banks

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Speaker 1: will go up considerably. When you look at the softness

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Speaker 1: of the thickness of that cushion, that capital cushion, do

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Speaker 1: you attribute it exclusively to the work of the FIT

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Speaker 1: or do we have banks and and executives here on

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Speaker 1: Wall Street who learned a lesson from from what happens

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Speaker 1: this way? Um, the what the FEED is accomplished has

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Speaker 1: been with the banks kicking and screaming. They have not

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Speaker 1: done it willingly. They've been ordered to do it, and

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Speaker 1: they haven't had a choice. When when when you look

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Speaker 1: at the FED, when you look at these stress tests

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Speaker 1: they've changed over the years. Are we closer to getting

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Speaker 1: perhaps not a perfect stress test? And again we note

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Speaker 1: the departure of Mr Tribula, But how good is the

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Speaker 1: FED now at assessing the integrity of these banks? Yeah,

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Speaker 1: no one ever actually gets to see what's in those tests.

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Speaker 1: What's very hard to say. All you can just see

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Speaker 1: is the net results. And you know, like I said,

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Speaker 1: going from thirty five to one leverage. To tend to

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Speaker 1: one leverage is like discussing the difference the distance from

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Speaker 1: Mercury to Pluto. It's just it's so it's so different,

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Speaker 1: you know, for people in my world, it's it's even

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Speaker 1: hard to describe what that means. It's just so unbelievable.

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Speaker 1: Steve I's been working with his cell phone. It's part

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Speaker 1: of being the guests. You're allowed to come into the

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Speaker 1: studio with cell phone blaring. He's making cell phone adjustments

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Speaker 1: right now. Help me here is you get out your

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Speaker 1: the bad phone to work here on it. And you know,

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Speaker 1: I know you want to go back to banking as well.

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Speaker 1: But that the speed of information, the speed of flow,

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Speaker 1: everybody glued to their cell phones, everybody with information flow.

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Speaker 1: Has that changed the game? I actually think it has not.

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Speaker 1: Um you know, if you go back to you know

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Speaker 1: where I made my name in two thousand and seven

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Speaker 1: and two thousand and eight, there wasn't a lack of

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Speaker 1: information flow. It's just how you interpret that flow. So

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Speaker 1: you know, people have more access in information. That's true,

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Speaker 1: But there are no naked facts in this world. You

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Speaker 1: have to interpret them, and it's how you interpret them

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Speaker 1: that really matters. How do you interpret President Trump. That's

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Speaker 1: a dangerous question. That's why we're here Friday. We wouldn't

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Speaker 1: ask this rtion on Wednesday, but Wednesday the doors over there.

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Speaker 1: I mean, I look at it. Let's leave aside the

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Speaker 1: social stuff, which is always dangerous to talk about, just

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Speaker 1: from a pure economic perspective. Um. You know, I do

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Speaker 1: think we need tax reform in this country. It's long overdue.

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Speaker 1: Hopefully what they'll do will be good, but we don't

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Speaker 1: know what. They haven't presented a plan, so there's nothing

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Speaker 1: to criticize yet. UM. But you know, my hope is

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Speaker 1: that with lower tax rates, you will see companies be

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Speaker 1: more willing to invest in the United States. UM. I

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Speaker 1: think that, you know, some of the criticisms that the

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Speaker 1: President has gotten about trade are misplaced. And the reason

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Speaker 1: why I say that is, you know, if you go

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Speaker 1: back to NAFTA in the ninety nineties, NAFTA was sold

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Speaker 1: to the American public as it's going to improve GDP

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Speaker 1: and it's going to create millions of jobs. And now

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Speaker 1: whether or not have to improve g d P not

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Speaker 1: we could debate, but there's no question that we lost

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Speaker 1: millions of jobs. And so I think the president's um

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Speaker 1: critique of the whole way that free trade has been

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Speaker 1: done in our country over the last thirty years. He

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Speaker 1: has a very valid point, and you know, maybe hopefully

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Speaker 1: they'll make changes that are helpful. When you hear him

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Speaker 1: talk about making changes, about pursuing these bilateral deals and

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Speaker 1: doing it rather quickly, is he demonstrating to you optimism

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Speaker 1: or naiveness about the way that Washington works in the

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Speaker 1: way the way that you can get a deal like that.

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Speaker 1: That's just political rhetoric to me, What do you what

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Speaker 1: do you think he's going to say? You know, we're

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Speaker 1: gonna try and do this, but we might fail, so

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Speaker 1: you know, he's got to position it so that things

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Speaker 1: look hopeful. Is there opportunity for you in the ambiguity

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Speaker 1: and when it comes to taxi form that we don't

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Speaker 1: know what's going to happen as an as an investor,

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Speaker 1: is somebody who's who's watching the market? Um? Is this

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Speaker 1: a a? Is there any opportunity? Is just a wait

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Speaker 1: and see to see what I mean? There's more than ambiguity.

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Speaker 1: We don't know anything. No one's proposed, hasn't imposed anything yet,

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Speaker 1: So it's more than ambiguity. I don't know anything. Is

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Speaker 1: there too much money chasing distress debt you mentioned earlier

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Speaker 1: on our television. It's not my area of expertise. I

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Speaker 1: don't have to stress have an opinion. You mentioned subprime autos, right,

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Speaker 1: I mean, is there is there? Is there just like

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Speaker 1: in private equity and the rest of it. Is there

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Speaker 1: just such a wall of money that you can't get

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Speaker 1: advantage or is there so much dumb money chasing after

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Speaker 1: opportunities in the Matthew securitized world that it creates a

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Speaker 1: huge opportunity for you because they do dumb things. You know,

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Speaker 1: it's a it's maybe it's an opportunity, but in a

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Speaker 1: zero right world, it's it's an opportunity that you can't

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Speaker 1: really take advantage of yet, because I mean, you know,

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Speaker 1: when you take a step back, you know, how do

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Speaker 1: you value any asset or or company. You know, in theory,

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Speaker 1: it's a discounted cash flow And and and the question

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Speaker 1: and the discount of cash flow is what discount rate

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Speaker 1: do you use? And in the world of zero rates,

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Speaker 1: discount rate is heres are gonna We're gonna continue with

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Speaker 1: Steve Weisman and and this is the third or fourth

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Speaker 1: time this morning he's mentioned the great distortion about the

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Speaker 1: complete linkage of central bank to fixed income distortion that

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Speaker 1: we'll see. Let's come back and talk about that and

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Speaker 1: the path as we get out to where he wants

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Speaker 1: to be, which I believe he said earlier was three

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Speaker 1: or four rate increases out. We'll do that with Steve

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Speaker 1: Eisman and new Burger Berman. Steve I just put out

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Speaker 1: on Twitter, it's a log normal world after all, and

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Speaker 1: there's something about being in the finance business where we're smart,

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Speaker 1: well meaning people outside of finance start lecturing finance people

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Speaker 1: on a log normal world, people get a little moved,

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Speaker 1: which brings us to the president of the Minneapolis Fed.

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Speaker 1: Right now, Neil cash Carry has ideas about how to

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Speaker 1: fix the banks, and many in your world go maybe not.

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Speaker 1: What's he getting wrong? Well, I mean cash Car seems

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Speaker 1: to think that the banks are um still too levered

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Speaker 1: and that they should have three times more capital than

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Speaker 1: they currently have. Um. So, let me say, as politely

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Speaker 1: as I can, I think that view is ridiculous. I mean,

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Speaker 1: he's outswissing the Swiss. It's insane. I mean, let's let's

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Speaker 1: do some math. City group today is leveraged ten to

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Speaker 1: one and has in return equity of eight. So if

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Speaker 1: you triple the capital, City group is going to have

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Speaker 1: a return equity of two and a half. Bad things

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Speaker 1: happen to banks when it is mathematically impossible for them

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Speaker 1: to achieve uh their costs of capital. And let me

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Speaker 1: elaborate on that for a second. That would mean there's

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Speaker 1: only two eventualities that could happen here. Either spreads on

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Speaker 1: new loans would have to explode so that the banks

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Speaker 1: would be able to make their return on capital, which

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Speaker 1: would not be good for anybody, or all banks would

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Speaker 1: have to shrink because every single loan that you would

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Speaker 1: make would destroy capital. You know, the point of a

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Speaker 1: banking system when you think about leverage, leverage is like

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Speaker 1: little bears porridge. It has to be just right. Too

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Speaker 1: much leverage is bad, but too little leverage is bad too,

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Speaker 1: because the banks recycle money, and if and if you

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Speaker 1: have too little leverage, they're not performing their function of

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Speaker 1: recycling money into the banking system. It betrays a complete

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Speaker 1: misunderstanding of how banks work. I want to elaborate on

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Speaker 1: this for a second. You know, I don't have any

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Speaker 1: institutional obligations to anybody. I work at New Burger Berman.

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Speaker 1: If I have the opinion that that the banks are

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Speaker 1: under capitalized, I could say it. Nobody owes me anything.

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Speaker 1: They could agree with me, they could disagree with me.

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Speaker 1: There's been a process in place for six years of

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Speaker 1: regulating banks and delivering them and last year Kushkari shows

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Speaker 1: up and and the first thing out of his mouth

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Speaker 1: is the process is broken and we need more capital.

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Speaker 1: It's like, you know, wait a second, you're part of

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Speaker 1: the new Minneapolis fed. You you just don't show up

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Speaker 1: and try and blow up what people have been doing

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Speaker 1: for the last six years. And you know, and I,

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Speaker 1: like I said on the TV, you know, prior to

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Speaker 1: the financial crisis, bank regulators did about his bad job

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Speaker 1: as anybody's ever did done and history Planet Earth, um,

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Speaker 1: you know, thankfully, you know, Governor Daniel Torula took over

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Speaker 1: and he's done a fantastic job. And I take great umbrage.

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Speaker 1: And somebody's showing up and announcing to the whole world

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Speaker 1: that the guy to Rula who's interest a fantastic job,

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Speaker 1: doesn't know what he's talking about, because it's insane. We

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Speaker 1: were talking about the transparency lack through of in these

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Speaker 1: stress tests, and let me just ask you the last

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Speaker 1: minute we've got with you about the call that we've

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Speaker 1: heard of the last week from Senator Tom Cotton and others.

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Speaker 1: You know, a letter to the Treasury Secretary to look

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Speaker 1: at the jurisdiction of the Financial Stability Oversight accounts that

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Speaker 1: to reevaluate that and look more closely at too big,

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Speaker 1: too big to failness and systemic importance. Do you see

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Speaker 1: an erosion with the f stock as well? Is that

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Speaker 1: is the Is the role of the f SO gonna change? No,

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Speaker 1: I don't know that that letter is irrelevant. It's who cares.

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Speaker 1: It's just I mean you mean anything. You know, that's

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Speaker 1: some politicians. Mollot Off doesn't mean the thing. Steve Iceman,

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Speaker 1: thank you so much. Thank your room, always valuable, some

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Speaker 1: real insight there, and particularly thank you for your comments

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Speaker 1: earlier on the sport of asset management. Mr Heisman clearly

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Speaker 1: optimistic on the good times for active management once we

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Speaker 1: get rate normalization. That was such a good band, David

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Speaker 1: Gurrow right, and they were awesome. The band reunited Emerson

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Speaker 1: like and Palmer like Noboddy. You know, it's they were

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Speaker 1: just super bud. You've got a wonderful interview coming up.

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Speaker 1: Our David Weston, Alex Steele, and John Farrell with Peter Navarro.

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Speaker 1: Let's be clear here, he's got he's got bulletproof chops,

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Speaker 1: tough university, as doctorate is from Harvard and economics. He's

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Speaker 1: out of Irvine. His acclaim book Death by China, and

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Speaker 1: he has been a lightening rod of support and criticism,

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Speaker 1: uh for Trump economics. So this is a timely conversation,

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Speaker 1: certainly with the leadership of China meeting with Mr Trump

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Speaker 1: tomorrow and now to David Weston. Trump will be signing

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Speaker 1: two executive orders on trade and joining us now on

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Speaker 1: both Bloomberg Television and on radio to take us through

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Speaker 1: these two orders as the Director of the National Trade

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Speaker 1: Council in the White House, Dr Peter Navarro. Peter, welcome

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Speaker 1: back to the program. Good to have you here, David,

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Speaker 1: How are you today? Good? Thanks. So we've had some

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Speaker 1: preview of these two orders. I'd like to talk about themselves. First.

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Speaker 1: The one that's going to review country by country possible

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Speaker 1: unfair trade practices. Is that based largely on the question

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Speaker 1: of a trade deficit with those countries. That's correct, David.

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Speaker 1: There's uh about sixteen countries with which we have significant

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Speaker 1: trade deficits. And the bigger picture here is that the

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Speaker 1: United States is the freest trader in the world. Let's

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Speaker 1: be clear about that. On balance, we have the lowest tariffs,

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Speaker 1: we have the lowest non tariff barriers, yet we have

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Speaker 1: the largest trade deficit. And these deficits are causing the

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Speaker 1: job loss, They're causing our factories to move off shore

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Speaker 1: their reflection of that, and so uh. Historically, what's going

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Speaker 1: to happen with this omnibus investigation into trade abuses is

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Speaker 1: that the Secretary of Commerce Wilber Ross, with the U. S.

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Speaker 1: Trade Representative are going to take a comprehensive look at

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Speaker 1: all of the different ways uh that that trade deficit

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Speaker 1: might be happening. UM in the trade space. We're gonna

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Speaker 1: look at differential tariffs, non tariff barriers, things like forced

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Speaker 1: technology transfer, all of these things, and in ninety days,

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Speaker 1: UM wilber Ross is going to deliver a report to

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Speaker 1: the desk of the President and the information in that

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Speaker 1: report will basically be the foundation of which will guide

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Speaker 1: our our future trade policy. The purpose of this investigation

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Speaker 1: is basically to fulfill a promise to the American people

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Speaker 1: that that the Canada Trump made, uh to basically look

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Speaker 1: into these trade abuses, correct them, smart new deals in

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Speaker 1: a way which will basically put our people back to

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Speaker 1: work and bring our factories back on shore. So so, Peter,

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Speaker 1: certainly trade deficits or something to take a look at.

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Speaker 1: But as an economist, I'm sure you would agree that

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Speaker 1: a trade deficit does not necessarily equate to unfair trade practices.

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Speaker 1: There are lots of reasons you can have a trade deficits,

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Speaker 1: so it's a possible at least some of these countries

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Speaker 1: you'll take a look at and decide, you know what

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Speaker 1: it's for other factors, it's not because of untare practices. Yeah,

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Speaker 1: that's a great question, and you're act exactly right. I mean,

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Speaker 1: take Canada for example, We run a trade deficit in

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Speaker 1: goods with them of over ten billion dollars, but a

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Speaker 1: lot of that is driven by oil energy, so no

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Speaker 1: big deal air. On the other hand, we have other

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Speaker 1: countries which are cheating us blind uh. We have also

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Speaker 1: a systemic problem um with our taxes, our income tax

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Speaker 1: system relative to the rest of the world, which runs

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Speaker 1: on a vat, which creates a disadvantage for us for

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Speaker 1: for our country. So these are all the things we

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Speaker 1: need to look at. Trade deficits aren't bad per se,

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Speaker 1: but when you run a large and persistent trade deficit

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Speaker 1: for as long as we have, UH, it's basically a

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Speaker 1: proxy for all of the job loss, the slow economic growth,

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Speaker 1: the low wages that we've suffered over the last fifteen years.

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Speaker 1: And President Trump is going to deliver on this promise

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Speaker 1: to turn that right around. And this is a big

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Speaker 1: first step and his historic No American president has ever

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Speaker 1: looked at this problem UH and committed to solving it.

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Speaker 1: This and the Secretary of Commerce is going to deliver

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Speaker 1: an historic report in a ninety days. We're going to

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Speaker 1: start moving and Peter, it raises the question about what

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Speaker 1: the proper remedy is insofar as you find unfair practices.

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Speaker 1: Is it to enforce the existing laws, including under w

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Speaker 1: t O more effectively or is it new agreements? Is

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Speaker 1: it possible, and this goes to the second order as

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Speaker 1: I understand it, that goes to anti dumping and countervailing

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Speaker 1: duty enforcement. Is it possible that we have the rules

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Speaker 1: in place, we just haven't been enforcing them effectively. Well,

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Speaker 1: that is the day. That's a great segue to the

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Speaker 1: second order. And let me describe that for the for

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Speaker 1: for your viewers. UM, there's there's two ways that we

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Speaker 1: can enforce against cheating. UH. One is he called anti dumping,

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Speaker 1: and that's basically to defend our manufacturers and workers against

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Speaker 1: countries that dump products into our markets below cost. And

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Speaker 1: then the other part of that is what's called countervailing duties,

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Speaker 1: and that's when foreign governments unfairly subsidize their industries and

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Speaker 1: we get products essentially at costs lower than they should be.

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Speaker 1: So the Department of Commerce historically has been able to

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Speaker 1: file these anti dumping und availing duty cases. We have

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Speaker 1: almost four hundred of them active right now, covering forty countries.

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Speaker 1: But the problem is that the duties we are supposed

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Speaker 1: to collect, UM, we haven't always been collecting. Since two

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Speaker 1: thousand one, we failed to collect two point eight billion

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Speaker 1: dollars in these duties. And it's not just the revenues

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Speaker 1: we lose when we fail to collect them, it's also

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Speaker 1: the fact that our industries don't get the kind of

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Speaker 1: relief that they were promised when they filed their cases.

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Speaker 1: So Customs and Border Protection we're giving them the tools

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Speaker 1: basically to turn that situation around. And this order besides

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Speaker 1: being a great order on trade in the economy, is

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Speaker 1: a beautiful example of interagency cooperation and a new Trump administration.

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Speaker 1: Because Secretary Ross and Commerce Secretary Kelly at the Department

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Speaker 1: of Homeland Security, and the Commissioner at Customs and Boarder

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Speaker 1: Protection Kevin mcaleen, and they all work together on this,

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Speaker 1: it's a great order. Well, Peter, nowhere is this more

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Speaker 1: clear than what has already happened over the last few

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Speaker 1: years in terms of China and the anti dumping tariffs

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Speaker 1: on steel, which at some point a triple digit taxes

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Speaker 1: and that did wind up benefiting the steel industry. Here

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Speaker 1: are you looking at those kind of tariffs like triple

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Speaker 1: digit uncertain products from certain countries and what about retaliation? Well,

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Speaker 1: you managed to go off in in in a direction

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Speaker 1: that has nothing to do with what we're talking about today.

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Speaker 1: We're talking today about two orders, one which will look

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Speaker 1: at trade abuses in a copy handsome way, and another

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Speaker 1: which is directed at collecting customs duties. The principle here

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Speaker 1: for the Trump administration is smart, tough trade negotiations. The

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Speaker 1: information we're gonna get from the Omnibus investigation will inform

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Speaker 1: that the second pillar of President Trump's trade policy is

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Speaker 1: strict enforcement and compliance. And when you have cheaters basically

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Speaker 1: sending products in here after we've already had duties assessed

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Speaker 1: and they don't pay them, that's not the kind of

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Speaker 1: behavior we're going to tolerate. So this is the let's

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Speaker 1: not don't even go there. I mean, we're not talking

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Speaker 1: about trade wars or tariffs or anything like that. That's

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Speaker 1: that's your rhetoric. We're talking and tariff barriers. I mean

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Speaker 1: you specifically mentioned you're looking at tariff and non tariff

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Speaker 1: barriers and anti dumping, and that's exactly what we're talking about, exactly,

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Speaker 1: and what we're gonna do with this report, if I may,

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Speaker 1: what we're gonna do with this report is lay a

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Speaker 1: strong foundation for measured, analytically based steps that we're going

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Speaker 1: to take to fight what's happening with unfair trade practices

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Speaker 1: in this world. Look, I go back to the beginning

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Speaker 1: of what I said. We are the freest trader in

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Speaker 1: the world. We have the lowest tariffs, we have the

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Speaker 1: lowest non tariff barriers, and that's not fair of the

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Speaker 1: American people. And and we're gonna look at the causes

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Speaker 1: of these trade deficits. There's gonna be some causes that

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Speaker 1: are unrelated to trade per se. But when it's trade

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Speaker 1: and when there's unfair or non reciprocal behavior by any

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Speaker 1: of our trading partners, I can assure you President Trump

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Speaker 1: is going to take action. How significant paid effects distortions

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Speaker 1: to the problems that you're talking about currently? Say again,

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Speaker 1: how significant our FECs distortions to the problem that you're

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Speaker 1: talking about currently? Okay, little code word there? The effects

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Speaker 1: you're talking about the currency issue? Pay that you're familiar

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Speaker 1: with foreign exchange and ECT go U. Yeah, Come on, um, Look,

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Speaker 1: Secretary Ross is going to look carefully at many many factors.

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Speaker 1: Currency misalignments are certainly one of them in an international environment.

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Speaker 1: Will he will look at that, uh and come up

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Speaker 1: with an assessment and see where we are. Is that

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Speaker 1: something that we'll be brought up with a president? She next,

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Speaker 1: sweet pizza? Uh. These orders are totally unrelated to the

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Speaker 1: Chinese visit, and I have nothing to say about the

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Speaker 1: Chinese visit. I'm here to talk about the two orders today,

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Speaker 1: So let's let's talk about what's happening within the White House.

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Speaker 1: Has been a lot of reporting about a division between

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Speaker 1: the nationalists like your South Peter and the Bannons of

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Speaker 1: this world, and a division between yourselth and sake Gary

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Speaker 1: co in the film President of Goldman Sacks, what do

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Speaker 1: you make of those reports at the moment? And it's

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Speaker 1: that fracture within the White House or is that just

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Speaker 1: a natural debate that's emerging. Well, two days ago we

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Speaker 1: were sitting in a room altogether going over these executive

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Speaker 1: orders and we agreed that these would move forward today.

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Speaker 1: So that's that's pretty good. But you know, look, I'm here,

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Speaker 1: and I know you want to sell soap here with

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Speaker 1: selictions stories or whatever, but I'm here to talk about

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Speaker 1: two historical events. Be omnibus investigation. His historical because no

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Speaker 1: sitting president has ever looked at the issue of trade

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Speaker 1: deficits and trade abuses in this way and promised to

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Speaker 1: take action. The Customs and Border Protection Order is historic

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Speaker 1: because here we have UH agencies working strongly together with

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Speaker 1: the White House solving a problem with the stroke of

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Speaker 1: a pen in in in in less than thirty days.

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Speaker 1: When we're looking at this UH that's gone on for

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Speaker 1: fifteen years. So I would say that's pretty good for

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Speaker 1: the for President Trump and his team brought you by

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Speaker 1: Bank of America. Mary Lynch. Dedicated to bringing our clients

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Speaker 1: insights and solutions to meet the challenges of a transforming world.

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Speaker 1: That's the power of global connections. Marylynch, Pierce Federan Smith

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Speaker 1: Incorporated Member s I p C. Good morning everyone, David

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Speaker 1: gurn Tom Keenan moments are Michael McKee in Florida, his

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Speaker 1: Florida with William Dudley, David Gurrow. This is gonna be great.

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Speaker 1: Bill Dudley is one of the most interesting practicing economists today.

428
00:25:21,320 --> 00:25:24,280
Speaker 1: Eleven years of Goldman Sachs out of the New College

429
00:25:24,359 --> 00:25:28,120
Speaker 1: of Florida are really interesting school. And then his PhD

430
00:25:28,200 --> 00:25:32,159
Speaker 1: at Berkeley. Bill Dudley has done original economics full disclosure.

431
00:25:32,440 --> 00:25:34,639
Speaker 1: He was in my book Flag on one Engine and

432
00:25:34,720 --> 00:25:38,480
Speaker 1: it's phrasing there. Uh. David Gurra was from Patrick O'Brien

433
00:25:38,600 --> 00:25:41,639
Speaker 1: on the budget deficit. There is not a moment to

434
00:25:41,760 --> 00:25:45,680
Speaker 1: lose and it's ever more so today. Absolutely very eager

435
00:25:45,720 --> 00:25:47,159
Speaker 1: to hear what he has to say to our our

436
00:25:47,200 --> 00:25:49,720
Speaker 1: colleague Michael McKee, who has been traveling the world quite

437
00:25:49,720 --> 00:25:52,240
Speaker 1: literally traveling the world talking to to central bankers and

438
00:25:52,280 --> 00:25:55,040
Speaker 1: policy makers here over these last a few weeks. He's

439
00:25:55,040 --> 00:25:57,480
Speaker 1: in Sarasota for the for the interview today. Just a

440
00:25:57,520 --> 00:25:59,520
Speaker 1: host of interviews this week, Kathleen Hayes talking with Eric

441
00:25:59,600 --> 00:26:01,959
Speaker 1: Rosen Green, Jim Bullard coming up on Blomberg Grady as

442
00:26:01,960 --> 00:26:04,320
Speaker 1: well at ten o'clock Wall Time. And what's great about

443
00:26:04,359 --> 00:26:08,160
Speaker 1: him versus other presidents governors is he was knee deep

444
00:26:08,240 --> 00:26:11,840
Speaker 1: in the practicing grind of market economics, where he had

445
00:26:11,880 --> 00:26:15,959
Speaker 1: to publish weekly with his team including jan Hanseius. Now

446
00:26:16,560 --> 00:26:19,639
Speaker 1: there Ed mcelvy of course, Uh there for years at

447
00:26:19,640 --> 00:26:22,520
Speaker 1: Goldman Sex. But he's one of the few people in

448
00:26:22,560 --> 00:26:28,679
Speaker 1: the academic central bank world that actually did the market

449
00:26:28,760 --> 00:26:31,840
Speaker 1: economics grind, which gives you great respect for being wrong

450
00:26:32,080 --> 00:26:35,080
Speaker 1: because as you know, you're wrong often. David early and

451
00:26:35,119 --> 00:26:38,240
Speaker 1: often will admit that for sure. Uh. Eager to hear

452
00:26:38,240 --> 00:26:40,160
Speaker 1: what he has to say about the Fed's balance sheet,

453
00:26:40,160 --> 00:26:42,679
Speaker 1: Michael McKee saying he's eager to talk more about that

454
00:26:42,760 --> 00:26:45,119
Speaker 1: with Bill Dudley. It's something that Bill Deadley spoke about

455
00:26:45,480 --> 00:26:48,520
Speaker 1: in broad strokes yesterday in his speech down in Florida.

456
00:26:48,600 --> 00:26:51,120
Speaker 1: Mike mculbee following up on that and of course said

457
00:26:51,119 --> 00:26:53,800
Speaker 1: just his outlook for for growth, outlook for rate increases,

458
00:26:53,840 --> 00:26:55,560
Speaker 1: something of paramount interest to all of us as well.

459
00:26:55,640 --> 00:26:57,600
Speaker 1: And of course the background and this of course coming

460
00:26:57,640 --> 00:27:00,520
Speaker 1: off the Federals at phrase from RK. Kathleen Haser conversation

461
00:27:00,560 --> 00:27:04,440
Speaker 1: with Jim Bullard later this morning of noisy g d P.

462
00:27:04,640 --> 00:27:06,360
Speaker 1: And at the end of the day, with the mandate

463
00:27:06,840 --> 00:27:11,600
Speaker 1: that we have of inflation, the mandate of jobs, there's

464
00:27:11,680 --> 00:27:16,280
Speaker 1: also the quiet unspoken mandate of economic growth has no substitute.

465
00:27:16,480 --> 00:27:20,359
Speaker 1: The backdrop against CBO report yesterday pretty grim on the

466
00:27:20,400 --> 00:27:26,080
Speaker 1: future budget, and also the backdrop of challenging productivity numbers. UH.

467
00:27:26,119 --> 00:27:32,720
Speaker 1: The other UH to day here is our Michael McKee. Well,

468
00:27:32,720 --> 00:27:35,560
Speaker 1: good morning. We are at New College, a small liberal

469
00:27:35,680 --> 00:27:39,159
Speaker 1: arts institution here in Sarasota that is the honors college

470
00:27:39,160 --> 00:27:42,480
Speaker 1: for the Florida University System. It is also the alma

471
00:27:42,520 --> 00:27:45,960
Speaker 1: mater of New York FED President Bill Dudley, and we

472
00:27:46,040 --> 00:27:49,000
Speaker 1: thank you for having us at your alma mater this morning.

473
00:27:49,160 --> 00:27:51,280
Speaker 1: We're glad to have you for joining us. The mood

474
00:27:51,320 --> 00:27:54,639
Speaker 1: on Global Wall Street, the question on Global Wall Street

475
00:27:54,640 --> 00:27:57,880
Speaker 1: has shifted recently from when is the FED going to move?

476
00:27:58,000 --> 00:28:00,840
Speaker 1: To how far? How fast? So to put it in

477
00:28:00,920 --> 00:28:02,520
Speaker 1: terms that have come up in the last week or so.

478
00:28:02,800 --> 00:28:05,359
Speaker 1: Are you a two more this year kind of guy?

479
00:28:05,520 --> 00:28:08,879
Speaker 1: Or maybe a three more this year kind of guy? Um?

480
00:28:09,000 --> 00:28:11,320
Speaker 1: How many times do you see the Fed moving in

481
00:28:11,359 --> 00:28:13,800
Speaker 1: two thousand seventeen? Oka, It really depends on the data.

482
00:28:13,920 --> 00:28:16,359
Speaker 1: So trying to predict, you know, what, what's going to

483
00:28:16,400 --> 00:28:18,280
Speaker 1: happen based on what I think today is not. I

484
00:28:18,280 --> 00:28:20,400
Speaker 1: don't think that's very relevant. Look what happened in two

485
00:28:20,400 --> 00:28:23,440
Speaker 1: thousand and sixteen. In the fall of two thousand and fifteen,

486
00:28:23,600 --> 00:28:27,400
Speaker 1: the medium consensus was four hikes. In two thousands sixteen,

487
00:28:27,480 --> 00:28:30,359
Speaker 1: we did one. Uh. Two thousand seventeen, going into the year,

488
00:28:30,400 --> 00:28:33,520
Speaker 1: the medium with three. So far we've done one. So

489
00:28:33,560 --> 00:28:35,879
Speaker 1: I think I think where where the where the FONC

490
00:28:36,080 --> 00:28:38,280
Speaker 1: is is? I think in a reasonable place? Uh, you know,

491
00:28:38,360 --> 00:28:40,920
Speaker 1: a couple more hikes this year seems reasonable. Uh. You know,

492
00:28:40,960 --> 00:28:42,680
Speaker 1: if the comedy is a little bit stronger than we expect,

493
00:28:42,680 --> 00:28:43,920
Speaker 1: we could go do a little bit more, and if

494
00:28:43,960 --> 00:28:45,520
Speaker 1: it's weaker than we expect, we could do a little

495
00:28:45,520 --> 00:28:47,960
Speaker 1: bit less. Well, what tells you it's time to raise rates?

496
00:28:48,000 --> 00:28:50,280
Speaker 1: It took a long time and to build Dudley interview

497
00:28:50,440 --> 00:28:52,680
Speaker 1: to convince Wall Street you were going to move in March,

498
00:28:52,720 --> 00:28:55,200
Speaker 1: primarily because people were saying, well, nothing really changed in

499
00:28:55,240 --> 00:28:58,480
Speaker 1: the economy between December and March. Well, the fact was

500
00:28:58,560 --> 00:29:01,160
Speaker 1: nothing really changed. The economy is on the same trajectory,

501
00:29:01,240 --> 00:29:05,240
Speaker 1: growing above trend, generating sturdy job gains, and we basically

502
00:29:05,480 --> 00:29:07,440
Speaker 1: we had been trying to communicate to people if the

503
00:29:07,480 --> 00:29:10,040
Speaker 1: econmy state on that trajectory, we're going to get gradually

504
00:29:10,080 --> 00:29:14,200
Speaker 1: remove monetary policy accommodation. So the March move was consistent,

505
00:29:14,240 --> 00:29:16,920
Speaker 1: I think with what we said previously because the communy

506
00:29:16,960 --> 00:29:19,680
Speaker 1: was performing in line with what we were anticipating. What

507
00:29:19,760 --> 00:29:21,920
Speaker 1: does that mean you would consider moving in May? Or

508
00:29:21,920 --> 00:29:24,320
Speaker 1: do you want some time to see what happened with

509
00:29:24,400 --> 00:29:27,120
Speaker 1: this rate increase, to see if there are changes in

510
00:29:27,160 --> 00:29:28,960
Speaker 1: the economy, And of course there's no press conference, so

511
00:29:29,040 --> 00:29:31,640
Speaker 1: mechanically it's a little more difficult. Well, I don't think

512
00:29:31,640 --> 00:29:33,320
Speaker 1: that we're at the stage in the cycle where there's

513
00:29:33,320 --> 00:29:36,240
Speaker 1: a great urgency to tightening monitor policy, because the economy

514
00:29:36,320 --> 00:29:39,320
Speaker 1: is growing just a little bit above trend and inflation

515
00:29:39,360 --> 00:29:41,080
Speaker 1: is still a little bit below our target. If you

516
00:29:41,080 --> 00:29:44,280
Speaker 1: look at the underlying pace of inflation, if just for example,

517
00:29:44,320 --> 00:29:47,600
Speaker 1: if you look at the core personal consumption expenditures deflators

518
00:29:47,600 --> 00:29:50,040
Speaker 1: from running about one in three courters per cent. So

519
00:29:50,080 --> 00:29:52,000
Speaker 1: that tells you that there's not this huge rush that

520
00:29:52,040 --> 00:29:54,280
Speaker 1: we have to tighten monterary policy quickly. The e commedy

521
00:29:54,320 --> 00:29:58,280
Speaker 1: is clearly not overheating. At the same time, policy is accommodative,

522
00:29:58,720 --> 00:30:01,520
Speaker 1: and we're pretty close to full employment, so it makes

523
00:30:01,520 --> 00:30:05,440
Speaker 1: sense to very gradually take back accommodation to get monterrey policy,

524
00:30:05,520 --> 00:30:08,320
Speaker 1: you know, closer to neutral as we go through two

525
00:30:08,320 --> 00:30:11,320
Speaker 1: thousand and seventeen. All right, well, where's neutrals? How high

526
00:30:11,720 --> 00:30:15,120
Speaker 1: will you go? Well, I think the consensus about among

527
00:30:15,120 --> 00:30:18,280
Speaker 1: many people is that the neutral federal funds rate, so

528
00:30:18,280 --> 00:30:21,120
Speaker 1: adjusted for inflation, is somewhere between zero and one percent.

529
00:30:21,720 --> 00:30:24,120
Speaker 1: So add our two percent inflation tiret, you're probably talking

530
00:30:24,160 --> 00:30:26,720
Speaker 1: a neutral federal funds rate maybe somewhere in the two

531
00:30:26,720 --> 00:30:30,360
Speaker 1: to three percent range. Uh So we're we're right now,

532
00:30:30,360 --> 00:30:32,320
Speaker 1: we're you know, ninety one basis points or so on

533
00:30:32,360 --> 00:30:34,840
Speaker 1: the federal funds rate. So we have maybe you know,

534
00:30:34,880 --> 00:30:37,680
Speaker 1: a hundred and hundred fifty basis points of tightening ahead perhaps,

535
00:30:38,280 --> 00:30:40,800
Speaker 1: but it all depends on the economy. If the comedy

536
00:30:41,200 --> 00:30:43,080
Speaker 1: is stronger, that would suggest that we have a little

537
00:30:43,120 --> 00:30:44,880
Speaker 1: more to do if the commedy is weaker than the

538
00:30:45,040 --> 00:30:47,080
Speaker 1: probably not so much. Well what about the pace? How

539
00:30:47,120 --> 00:30:49,080
Speaker 1: soon do you need to get that hundred basis? I

540
00:30:49,120 --> 00:30:50,760
Speaker 1: don't think that soon. I mean, if you look at

541
00:30:50,800 --> 00:30:53,280
Speaker 1: the last year, we've been growing above trend, generating very

542
00:30:53,320 --> 00:30:56,120
Speaker 1: sturdy job gains, yet the unemployment rate hasn't really moved

543
00:30:56,200 --> 00:30:58,600
Speaker 1: very much. So that tells you that there's actually something

544
00:30:58,680 --> 00:31:00,880
Speaker 1: maybe a little bit more excess back in the labor market.

545
00:31:00,920 --> 00:31:03,920
Speaker 1: Then then you would think just looking at the unempotant rate,

546
00:31:04,120 --> 00:31:06,760
Speaker 1: the fact is as people who have been discouraged, workers

547
00:31:06,760 --> 00:31:09,200
Speaker 1: are coming back into the labor force, So that allows

548
00:31:09,240 --> 00:31:11,400
Speaker 1: you to generate pretty sturdy job games without putting a

549
00:31:11,440 --> 00:31:14,680
Speaker 1: lot more pressure on the labor mark. Are you doing that?

550
00:31:14,840 --> 00:31:17,800
Speaker 1: Is it the level of FED funds that is stimulating

551
00:31:17,880 --> 00:31:20,280
Speaker 1: job growth? In other words, if you raise raids, so

552
00:31:20,320 --> 00:31:22,480
Speaker 1: you're going to cut that off, well, I think you're

553
00:31:22,520 --> 00:31:25,160
Speaker 1: gonna You're gonna you're perhaps gonna slow that down a

554
00:31:25,160 --> 00:31:26,880
Speaker 1: little bit, and that's what that would be the goal.

555
00:31:27,120 --> 00:31:29,200
Speaker 1: I don't think it's a question of you know, the

556
00:31:29,200 --> 00:31:32,160
Speaker 1: spicket wide open or the spicket shut. I think the spicket,

557
00:31:32,400 --> 00:31:34,720
Speaker 1: just turning the spicket down a little bit, so that

558
00:31:34,800 --> 00:31:38,720
Speaker 1: comedy isn't is it less risk of overheating as we

559
00:31:38,800 --> 00:31:42,680
Speaker 1: go forward in two thousand, seventeen, eighteen and beyond fiscal policy,

560
00:31:42,760 --> 00:31:45,640
Speaker 1: did you adjust any of your forecast to account for

561
00:31:45,800 --> 00:31:49,240
Speaker 1: something happening in two thousand seventeen or eighteen? Not explicitly,

562
00:31:49,280 --> 00:31:52,440
Speaker 1: because I don't know what it is, how big it is,

563
00:31:52,920 --> 00:31:55,400
Speaker 1: or when it's going to happen. I do think that

564
00:31:55,440 --> 00:31:57,440
Speaker 1: it's true that the likelihood over the next couple of

565
00:31:57,480 --> 00:32:00,800
Speaker 1: years is fiscal policy becomes more expansive. But until I

566
00:32:00,840 --> 00:32:02,680
Speaker 1: can see a little bit more visibility in terms of

567
00:32:02,720 --> 00:32:05,280
Speaker 1: what it is, when it isn't how big it is,

568
00:32:06,040 --> 00:32:09,080
Speaker 1: I'm not going to corporate explicitly into my growth forecus

569
00:32:09,360 --> 00:32:10,960
Speaker 1: now what I think the fact that I think fiscal

570
00:32:11,000 --> 00:32:13,560
Speaker 1: policy is likely to turn somewhat stimulative over the next

571
00:32:13,600 --> 00:32:16,760
Speaker 1: couple of years, that just means that affects my view

572
00:32:16,800 --> 00:32:19,080
Speaker 1: of the risk to the outlook. So this creates a

573
00:32:19,080 --> 00:32:22,600
Speaker 1: little bit more upside risks to the outlook than before. Well,

574
00:32:22,920 --> 00:32:26,760
Speaker 1: consumer and corporate confidence very high since the election, But

575
00:32:26,800 --> 00:32:29,680
Speaker 1: do you see evidence our corporate leaders tell you that

576
00:32:29,720 --> 00:32:33,440
Speaker 1: they're acting on that confidence are they investing. I would

577
00:32:33,440 --> 00:32:35,640
Speaker 1: say at this point there's been a huge increase in

578
00:32:35,680 --> 00:32:39,880
Speaker 1: both consumer and business sentiment, but it's not translating at

579
00:32:39,920 --> 00:32:42,480
Speaker 1: least yet into the hard data. So this is one

580
00:32:42,520 --> 00:32:46,800
Speaker 1: reason why when we get the first quarter GDP numbers

581
00:32:46,840 --> 00:32:49,960
Speaker 1: at the end of next month, uh, they're probably gonna

582
00:32:49,960 --> 00:32:52,280
Speaker 1: be a little weaker than one might one might expect

583
00:32:52,560 --> 00:32:56,920
Speaker 1: given the very large improvements that we've seen in consumer

584
00:32:56,920 --> 00:32:59,440
Speaker 1: and business sentiment. So the jury is out is the

585
00:32:59,560 --> 00:33:02,000
Speaker 1: rising off is going to translate to forward into a

586
00:33:02,080 --> 00:33:05,080
Speaker 1: greater economic activity or not. We'll see business leaders say

587
00:33:05,160 --> 00:33:07,920
Speaker 1: they have to see something concrete before they spend. Well,

588
00:33:08,000 --> 00:33:10,040
Speaker 1: I think that, you know, they probably would like to

589
00:33:10,040 --> 00:33:12,080
Speaker 1: see more clarity on what's for example, it's going to

590
00:33:12,160 --> 00:33:14,800
Speaker 1: happen to the corporate tax regime. I imagine that's important

591
00:33:14,800 --> 00:33:16,760
Speaker 1: to them. But I think that that generally the mood

592
00:33:16,840 --> 00:33:20,000
Speaker 1: is pretty pretty pretty upbeat. Do you think that fiscal

593
00:33:20,040 --> 00:33:23,440
Speaker 1: policy as being talked about can generate three percent or

594
00:33:23,520 --> 00:33:26,920
Speaker 1: better growth on a sustained basis or we eight two

595
00:33:26,960 --> 00:33:29,400
Speaker 1: percent to come? It all depends on what happens to

596
00:33:29,480 --> 00:33:32,959
Speaker 1: productivity growth. If we can do things that push up

597
00:33:32,960 --> 00:33:35,640
Speaker 1: productivity growth. We can also push up the sustainable growth

598
00:33:35,720 --> 00:33:37,960
Speaker 1: rate of the economy. If you think about that sustainable

599
00:33:37,960 --> 00:33:40,080
Speaker 1: growth rate of the economy, it's basically how fast is

600
00:33:40,080 --> 00:33:43,560
Speaker 1: the labor force growing plus productivity. Labor force in the

601
00:33:43,640 --> 00:33:45,520
Speaker 1: US is only growing about a half percent a year,

602
00:33:45,600 --> 00:33:47,560
Speaker 1: so to get to three percent, we need to an

603
00:33:47,560 --> 00:33:50,760
Speaker 1: half percent growth in productivity. Not impossible, we did it

604
00:33:50,800 --> 00:33:53,360
Speaker 1: in the late nineteen nineties. But you'd have to say,

605
00:33:53,520 --> 00:33:55,680
Speaker 1: these policies are going to have you know, have are

606
00:33:55,680 --> 00:33:58,320
Speaker 1: gonna have to lift productivity in some some some some

607
00:33:58,360 --> 00:34:00,680
Speaker 1: sort sort of way. What what kind of policy would

608
00:34:00,760 --> 00:34:04,080
Speaker 1: do that? Well, I think there's no question that infrastructure

609
00:34:04,080 --> 00:34:08,840
Speaker 1: spending over time would raise productivity growth. Better education for people,

610
00:34:08,960 --> 00:34:12,320
Speaker 1: are more job training and others lift the capabilities of workers,

611
00:34:12,360 --> 00:34:15,840
Speaker 1: would lift productivity over time. Uh, some types of regular

612
00:34:16,000 --> 00:34:19,600
Speaker 1: deregulation might also help on the proactivity front. So there

613
00:34:19,600 --> 00:34:21,920
Speaker 1: are things you can do to live proactivity. The question

614
00:34:21,920 --> 00:34:24,280
Speaker 1: is how much will you get from those things. FEDS

615
00:34:24,320 --> 00:34:26,480
Speaker 1: balance sheet just under four and a half trillion dollars

616
00:34:26,480 --> 00:34:29,760
Speaker 1: back into prominence. Members of the Open Market Committee talking

617
00:34:29,880 --> 00:34:33,320
Speaker 1: about it, big implications for investors when you start doing something.

618
00:34:33,360 --> 00:34:35,440
Speaker 1: So the first question is when do you address it?

619
00:34:35,440 --> 00:34:37,960
Speaker 1: How do you know that it is time to start

620
00:34:38,000 --> 00:34:41,080
Speaker 1: doing something. Well, we've said publicly a number of times

621
00:34:41,080 --> 00:34:43,560
Speaker 1: that we're not going to normalize begin to normalize the

622
00:34:43,600 --> 00:34:47,520
Speaker 1: balance until the federal funds rate normalization process is well advanced.

623
00:34:47,880 --> 00:34:50,200
Speaker 1: And the question is what is well advanced me? I

624
00:34:50,239 --> 00:34:52,320
Speaker 1: think generally if you talk to people in the market,

625
00:34:52,360 --> 00:34:54,960
Speaker 1: they think that that's going to start sometime with the

626
00:34:54,960 --> 00:34:57,920
Speaker 1: federal fund rate between one and two percent. So not

627
00:34:58,040 --> 00:35:00,840
Speaker 1: quite yet. When surprise A is me, is you know

628
00:35:00,920 --> 00:35:04,239
Speaker 1: sometime later this year or sometime in two thousand and

629
00:35:04,320 --> 00:35:07,040
Speaker 1: eighteen should be comedy perform in line with our expectations

630
00:35:07,440 --> 00:35:11,000
Speaker 1: that we'll start to gradually let securities mature rather than

631
00:35:11,040 --> 00:35:14,479
Speaker 1: reinvesting them. We've been very clear that the balance sheet

632
00:35:14,560 --> 00:35:17,439
Speaker 1: is really not our primary tool of monetary policy. Short

633
00:35:17,560 --> 00:35:20,879
Speaker 1: term interest rates are primary to monetary policy. So if

634
00:35:20,880 --> 00:35:22,400
Speaker 1: we do something on the balance sheet, it's gonna be

635
00:35:22,440 --> 00:35:24,640
Speaker 1: something that's gonna be very passive. It's just gonna be

636
00:35:24,760 --> 00:35:27,399
Speaker 1: running in the in the background. So we we want

637
00:35:27,440 --> 00:35:29,600
Speaker 1: to do this in a way that was just very

638
00:35:29,719 --> 00:35:33,280
Speaker 1: very not a big deal for the You suggested yesterday

639
00:35:34,360 --> 00:35:38,799
Speaker 1: tapering your reinvestments rather than just ending them. But given

640
00:35:38,840 --> 00:35:40,919
Speaker 1: the taper tantrum we saw a couple of years ago,

641
00:35:40,920 --> 00:35:42,920
Speaker 1: wouldn't the markets just take it as a sign that

642
00:35:42,960 --> 00:35:45,880
Speaker 1: it's ending in adjust accordingly. Well, I'm not that worried

643
00:35:45,880 --> 00:35:48,160
Speaker 1: that the markets are going to react to changes in

644
00:35:48,160 --> 00:35:50,359
Speaker 1: our balance sheet in a in a violent way, because

645
00:35:50,400 --> 00:35:53,279
Speaker 1: because it's already factored in. I mean, most people think

646
00:35:53,360 --> 00:35:56,920
Speaker 1: that sometime late this year or sometime in two thousand eighteen,

647
00:35:56,960 --> 00:36:00,160
Speaker 1: we're gonna gradually start to allow securities to match your

648
00:36:00,600 --> 00:36:03,279
Speaker 1: and D gradually and the reinvestment process. So I think

649
00:36:03,280 --> 00:36:06,279
Speaker 1: that's already an expectation. The taper tantrum in two thousand

650
00:36:06,360 --> 00:36:10,839
Speaker 1: thirteen I think was violent as it was because people conflated, UH,

651
00:36:10,880 --> 00:36:12,640
Speaker 1: the idea that we're going to reduce the pace of

652
00:36:12,680 --> 00:36:17,680
Speaker 1: asset purchases with pulling forward the timing of monetary policy tightening. UH.

653
00:36:17,719 --> 00:36:20,239
Speaker 1: In this case, I, from my personal opinion, if we

654
00:36:20,280 --> 00:36:23,640
Speaker 1: start to normalize the balance sheet, that's a substitute for

655
00:36:23,840 --> 00:36:26,239
Speaker 1: short term rate hikes because it would also work in

656
00:36:26,239 --> 00:36:29,200
Speaker 1: the direction of actually tightening financial conditions. So if and

657
00:36:29,239 --> 00:36:31,279
Speaker 1: when we decided to begin to normalize the balance sheet,

658
00:36:31,280 --> 00:36:32,960
Speaker 1: we might actually decide at the same time to take

659
00:36:33,000 --> 00:36:36,160
Speaker 1: a little pause in terms of raising short term interest rates?

660
00:36:36,520 --> 00:36:40,440
Speaker 1: Do you stop reinvestments in mortgages only? Are also treasuries

661
00:36:40,440 --> 00:36:43,120
Speaker 1: because if you look at currency in circulation and other

662
00:36:43,160 --> 00:36:46,360
Speaker 1: fat obligations, your treasury holdings are just about equal to

663
00:36:46,680 --> 00:36:49,120
Speaker 1: what you would need as an asset to hold against

664
00:36:49,200 --> 00:36:51,840
Speaker 1: your liabilities. Well, that's for the Federal Upper Market Committee

665
00:36:51,880 --> 00:36:54,560
Speaker 1: to decide, and we haven't made those decisions yet. UM,

666
00:36:54,600 --> 00:36:57,920
Speaker 1: does it make sense to focus on mortgages or is

667
00:36:57,920 --> 00:37:00,960
Speaker 1: there a problem with doing that because of you paid it? Look,

668
00:37:01,000 --> 00:37:03,239
Speaker 1: I think my own personal view, I don't. I don't

669
00:37:03,239 --> 00:37:06,960
Speaker 1: think it's there's a strong need to differentiate between mortgages

670
00:37:07,040 --> 00:37:09,120
Speaker 1: and treasures, just speaking for myself. But it's up to

671
00:37:09,120 --> 00:37:12,960
Speaker 1: the committee to decide. How do you envision conducting monetary

672
00:37:13,000 --> 00:37:14,960
Speaker 1: policy in the future. Do you go back to a

673
00:37:15,080 --> 00:37:18,440
Speaker 1: Fed funds rate? Uh? Do you continue with the current

674
00:37:18,480 --> 00:37:22,000
Speaker 1: system of interest on access reserves and repose in the

675
00:37:22,000 --> 00:37:24,680
Speaker 1: Fed funds rate? Trade somewhere in the middle of it? Um,

676
00:37:24,719 --> 00:37:26,799
Speaker 1: and when do you make a decision on that? Well,

677
00:37:26,840 --> 00:37:28,919
Speaker 1: we don't have to make that decision for quite quite

678
00:37:28,960 --> 00:37:31,160
Speaker 1: some time. But I would just emphasize that the current

679
00:37:31,200 --> 00:37:33,880
Speaker 1: system is working very well. Uh you know, there are

680
00:37:33,880 --> 00:37:36,040
Speaker 1: some questions, what what what would the Fed be able

681
00:37:36,080 --> 00:37:38,759
Speaker 1: to raise the Federal funds rate in a reliable and

682
00:37:38,800 --> 00:37:42,120
Speaker 1: predictable manner with such a large balance sheet? Uh so

683
00:37:42,200 --> 00:37:46,520
Speaker 1: we we we created the overnight reverse Repurchase Agreement to

684
00:37:46,560 --> 00:37:48,560
Speaker 1: set a floor, and we have the ability to pay

685
00:37:48,600 --> 00:37:51,200
Speaker 1: interest on access reserves as sort of the ceiling, and

686
00:37:51,239 --> 00:37:53,399
Speaker 1: the Federal funds rate has traded right in the middle

687
00:37:53,400 --> 00:37:55,560
Speaker 1: of that range. And when when we raise our target

688
00:37:55,560 --> 00:37:58,240
Speaker 1: by twenty five basis points, the Federal funds rate rises

689
00:37:58,280 --> 00:38:00,960
Speaker 1: by exactly twenty five basis points. So not from my

690
00:38:01,000 --> 00:38:05,799
Speaker 1: own perspective, having run the open market desk in two

691
00:38:05,800 --> 00:38:07,759
Speaker 1: thousand and seven, two thousand and eight when things were

692
00:38:07,760 --> 00:38:09,760
Speaker 1: a lot more turbulent than they are now, this system

693
00:38:09,800 --> 00:38:12,400
Speaker 1: works really well from my From my perspective. At the

694
00:38:12,480 --> 00:38:13,920
Speaker 1: end of this year, you'll have a bit of a

695
00:38:13,920 --> 00:38:17,080
Speaker 1: political problem in that the two leaders of the Federal

696
00:38:17,120 --> 00:38:19,200
Speaker 1: Reserve their terms are going to be up, and we

697
00:38:19,280 --> 00:38:21,800
Speaker 1: have to find out if they're going to be reappointed.

698
00:38:21,800 --> 00:38:23,560
Speaker 1: If Donald Trump were to come to you and say,

699
00:38:23,800 --> 00:38:27,840
Speaker 1: is Janet yelling? Is her policies? Are they my friend?

700
00:38:28,600 --> 00:38:30,360
Speaker 1: In what I'm trying to do for the U. S economy?

701
00:38:30,400 --> 00:38:32,799
Speaker 1: What would you say absolutely? I mean, the FED has

702
00:38:32,840 --> 00:38:37,239
Speaker 1: a very clear mandate from Congress maximum sustainable employment in

703
00:38:37,280 --> 00:38:40,279
Speaker 1: the context of price stability. How's the FED doing on

704
00:38:40,280 --> 00:38:43,120
Speaker 1: that mandate. We're at a four point seven percent unemploying rate.

705
00:38:43,440 --> 00:38:45,440
Speaker 1: Inflation is a little bit if you look at underlying

706
00:38:45,480 --> 00:38:47,440
Speaker 1: inflation is a little bit below our two percent objective,

707
00:38:47,480 --> 00:38:50,600
Speaker 1: but we're not really very far off. Those objectives were

708
00:38:50,600 --> 00:38:53,719
Speaker 1: adjusting Monterrey policy, I think in a very careful, measured way.

709
00:38:54,200 --> 00:38:57,840
Speaker 1: So I don't see any reason why, uh, people wouldn't

710
00:38:57,840 --> 00:39:01,120
Speaker 1: look at chair yelling and say, she's doing a really

711
00:39:01,120 --> 00:39:16,160
Speaker 1: great job. We're gonna go outside the box now. Uh.

712
00:39:16,320 --> 00:39:20,520
Speaker 1: He is prolific within the industry. His writing has been prodigious,

713
00:39:21,160 --> 00:39:24,120
Speaker 1: to say the least. And I find that with Dr

714
00:39:24,480 --> 00:39:27,720
Speaker 1: Arian there are always the same questions, what's the FED

715
00:39:27,840 --> 00:39:30,600
Speaker 1: gonna do? How many rates are they going to increase

716
00:39:30,719 --> 00:39:34,040
Speaker 1: this year? We would like to wax philosophical and what

717
00:39:34,200 --> 00:39:36,880
Speaker 1: Dr Larry in his world had claimed for, and that

718
00:39:37,040 --> 00:39:40,480
Speaker 1: is game theory. Mohammed, good morning, and we do so

719
00:39:41,080 --> 00:39:44,319
Speaker 1: in the backdrop of Anne Marie Slaughter's wonderful new book,

720
00:39:44,360 --> 00:39:48,319
Speaker 1: which opens with Thomas Shelling with her sitting in a

721
00:39:48,400 --> 00:39:52,560
Speaker 1: classroom with fooda jammy years ago with k In and

722
00:39:52,640 --> 00:39:56,279
Speaker 1: I the Powered Interpretent Defendants. I want to go back

723
00:39:56,320 --> 00:40:01,600
Speaker 1: to Cambridge in John Maynard smith Evolution in the theory

724
00:40:01,760 --> 00:40:07,880
Speaker 1: of games. This administration knows nothing about game theory. What

725
00:40:08,000 --> 00:40:10,240
Speaker 1: do they need to know about the theory of games?

726
00:40:10,560 --> 00:40:14,120
Speaker 1: What is the Trump administration need to know about the

727
00:40:14,160 --> 00:40:18,120
Speaker 1: game theory of chicken that you know so well? Yeah,

728
00:40:18,120 --> 00:40:20,240
Speaker 1: I don't know if they know nothing about game theory,

729
00:40:20,360 --> 00:40:24,799
Speaker 1: because they are exhibiting certain element of game theory in

730
00:40:25,200 --> 00:40:27,680
Speaker 1: the approach they're taking with the rest of the world.

731
00:40:28,040 --> 00:40:30,600
Speaker 1: You see this in particularly on trade, and they've come

732
00:40:30,640 --> 00:40:34,840
Speaker 1: out and they've warned that they're willing to do things

733
00:40:34,920 --> 00:40:37,560
Speaker 1: that may not be in the interest of the global

734
00:40:37,600 --> 00:40:41,040
Speaker 1: economy and not in the interest of the US with

735
00:40:41,160 --> 00:40:44,600
Speaker 1: a view to getting concessions. And I think you will

736
00:40:44,680 --> 00:40:48,000
Speaker 1: see quite a few concessions coming their way. I think

737
00:40:48,080 --> 00:40:51,080
Speaker 1: if you want to see typical game theory, look at

738
00:40:51,120 --> 00:40:54,520
Speaker 1: what's happening in the UK and the European Union over

739
00:40:54,600 --> 00:40:58,120
Speaker 1: break set. That is classic game theory right now. Within

740
00:40:58,239 --> 00:41:02,560
Speaker 1: that game of chicken is shells, conflict and strategy, the

741
00:41:02,680 --> 00:41:07,640
Speaker 1: artist strategy, Avonage. Just Avonage Dick said, what is your

742
00:41:07,960 --> 00:41:12,560
Speaker 1: art of strategy for Prime Minister Meg? So? I think

743
00:41:12,680 --> 00:41:16,319
Speaker 1: she is doing what I would do, which is she

744
00:41:16,520 --> 00:41:19,279
Speaker 1: is saying this is what we can achieve. She is

745
00:41:19,320 --> 00:41:25,120
Speaker 1: trying to define the benchmark for the negotiations and focusing

746
00:41:25,120 --> 00:41:30,200
Speaker 1: in particular on securing free trade with Britain outside the EU.

747
00:41:30,360 --> 00:41:34,200
Speaker 1: What's interesting is how quickly the EU came back and said,

748
00:41:34,640 --> 00:41:37,400
Speaker 1: oh no, that's not how it's going to work. Um.

749
00:41:37,480 --> 00:41:40,120
Speaker 1: So I think the EU also read the script. And

750
00:41:40,160 --> 00:41:41,759
Speaker 1: the question is going to be do they end up

751
00:41:41,760 --> 00:41:45,640
Speaker 1: in the prisoners dilemma where they cannot collaborate and they

752
00:41:45,760 --> 00:41:48,480
Speaker 1: both works off, or do they find a way to

753
00:41:49,320 --> 00:41:53,040
Speaker 1: iterate to something that makes them both better off? On

754
00:41:53,080 --> 00:41:55,360
Speaker 1: that note, what what's the what's the outcome of that

755
00:41:55,400 --> 00:41:57,359
Speaker 1: prisoner's dilemma? If we get it? We know of course

756
00:41:57,400 --> 00:41:58,840
Speaker 1: that if there's no trade deal by the end of

757
00:41:58,840 --> 00:42:00,560
Speaker 1: this two year period we go back to w t

758
00:42:00,719 --> 00:42:04,640
Speaker 1: O rules. How do you see this playing out? So

759
00:42:04,719 --> 00:42:08,799
Speaker 1: it's about David. It's about ultimately three things trade, money

760
00:42:08,840 --> 00:42:12,239
Speaker 1: and people, and the UK wants to get agreement on

761
00:42:12,360 --> 00:42:17,200
Speaker 1: trade first. Then minimize the money it will have to

762
00:42:17,239 --> 00:42:20,080
Speaker 1: pay and then hope that it can get an agreement

763
00:42:20,120 --> 00:42:23,239
Speaker 1: on people, which remember that's what really drove the Brexit vote,

764
00:42:23,239 --> 00:42:27,719
Speaker 1: the migration issue. Um the EU says, no, we're not

765
00:42:27,760 --> 00:42:31,160
Speaker 1: going to do this sequentially, We're going to do simultaneously, right,

766
00:42:31,200 --> 00:42:34,600
Speaker 1: and that's a big difference. So a prisoner's dilemma where

767
00:42:34,600 --> 00:42:38,680
Speaker 1: there is no collaboration between the two sides ends up

768
00:42:38,880 --> 00:42:43,840
Speaker 1: by hurting both Britain and the EU through lower trade.

769
00:42:43,880 --> 00:42:46,640
Speaker 1: That would be the major outcome, lower trade between the

770
00:42:46,680 --> 00:42:51,400
Speaker 1: biggest trading area in the world, the EU and G

771
00:42:51,560 --> 00:42:54,120
Speaker 1: seven economy, and that's not a good outcome for either side.

772
00:42:54,239 --> 00:42:56,440
Speaker 1: Of course. He's the chief Economic Advice with Alians, a

773
00:42:56,440 --> 00:42:59,040
Speaker 1: columnist for Bloomberg View. Mohammed, let me ask you about

774
00:42:59,040 --> 00:43:00,719
Speaker 1: what you heard from Donald to us when he spoke

775
00:43:00,760 --> 00:43:04,360
Speaker 1: on the heels of Theresa May's speech. He talked about unanimity,

776
00:43:04,400 --> 00:43:06,640
Speaker 1: He talked about the twenty seven remaining memories speaking with

777
00:43:06,719 --> 00:43:09,640
Speaker 1: one voice. As you travel through Europe, as you look

778
00:43:09,680 --> 00:43:13,200
Speaker 1: at the political and economic landscape in Europe, how rooted

779
00:43:13,200 --> 00:43:17,040
Speaker 1: in fact is what Mr tusks san It is rooted

780
00:43:17,040 --> 00:43:20,400
Speaker 1: and hope more than than fact right now. And that

781
00:43:20,600 --> 00:43:24,719
Speaker 1: is because the fundamental issue is the following, David. When

782
00:43:24,800 --> 00:43:29,080
Speaker 1: you run sophisticated market economies at low growth for a

783
00:43:29,080 --> 00:43:32,799
Speaker 1: long time, and when the benefits of that growth are

784
00:43:33,239 --> 00:43:37,160
Speaker 1: perceived to go to a small segment of the population,

785
00:43:37,360 --> 00:43:43,480
Speaker 1: things start to break. They break politically, institutionally, financially, and economically.

786
00:43:43,880 --> 00:43:47,120
Speaker 1: And that is a situation for Europe right now. It

787
00:43:47,160 --> 00:43:51,560
Speaker 1: has to be very careful because society is responding to

788
00:43:51,680 --> 00:43:55,040
Speaker 1: the lack of inclusive growth. So it's very hard to

789
00:43:55,080 --> 00:43:59,920
Speaker 1: get the sort of harmony as solidarity that EU politician

790
00:44:00,040 --> 00:44:01,960
Speaker 1: would like to get at this point. And that's got

791
00:44:01,960 --> 00:44:05,240
Speaker 1: to realize this To get back to John Maynard Smith.

792
00:44:05,560 --> 00:44:09,280
Speaker 1: Not John Maynard Kayesville, this is something different. Dr Larian.

793
00:44:09,719 --> 00:44:12,480
Speaker 1: Is Donald Trump or true hawk? I mean the classic

794
00:44:12,880 --> 00:44:17,560
Speaker 1: discussion in academics is hawk dove within the game of chicken,

795
00:44:17,600 --> 00:44:21,200
Speaker 1: the brinksmanship, of of of how we act. He loves

796
00:44:21,239 --> 00:44:25,279
Speaker 1: to the president loves to pursue to posture. Is a hawk?

797
00:44:25,520 --> 00:44:30,799
Speaker 1: Is he a true hawk? I think? First, um, we

798
00:44:31,040 --> 00:44:34,480
Speaker 1: I don't. I certainly don't have enough data point to respond,

799
00:44:34,840 --> 00:44:38,640
Speaker 1: But I would say the major issue is the balance

800
00:44:38,680 --> 00:44:43,799
Speaker 1: between tactical and strategic to what extent is the administration

801
00:44:43,880 --> 00:44:48,319
Speaker 1: pursuing hactical objectives, and how is is reconciling this with

802
00:44:48,680 --> 00:44:52,520
Speaker 1: the strategical protected objective for the most powerful economy in

803
00:44:52,560 --> 00:44:55,640
Speaker 1: the world. And that's going to be critical not just

804
00:44:55,800 --> 00:44:58,120
Speaker 1: for the well being of the US and the global economy,

805
00:44:58,360 --> 00:45:02,839
Speaker 1: but also for whether there asset prices can be validated

806
00:45:02,880 --> 00:45:05,560
Speaker 1: given where they are well. Then I go to brinksmanship.

807
00:45:05,640 --> 00:45:08,920
Speaker 1: Are you suggesting back the dullars fifty years ago? This

808
00:45:09,000 --> 00:45:11,400
Speaker 1: goes back to all the tensions folks that Dr Shelling

809
00:45:11,840 --> 00:45:14,440
Speaker 1: was acclaimed for. Is this a new Is it almost

810
00:45:14,480 --> 00:45:18,200
Speaker 1: the neo brinksmanship? All these tensions that we've seen in

811
00:45:18,239 --> 00:45:22,719
Speaker 1: the first eight days of this administration. It is maybe

812
00:45:22,760 --> 00:45:24,239
Speaker 1: the rest of the world. I think the rest of

813
00:45:24,239 --> 00:45:26,880
Speaker 1: the world now realizes that the US wants a better

814
00:45:26,920 --> 00:45:29,600
Speaker 1: deal and that the US will not be the global

815
00:45:30,480 --> 00:45:34,239
Speaker 1: police um at at at no cost to the rest

816
00:45:34,239 --> 00:45:37,240
Speaker 1: of the world. And and the rest of the world

817
00:45:37,480 --> 00:45:40,000
Speaker 1: is is seeing the U s flex its muscles in

818
00:45:40,040 --> 00:45:43,560
Speaker 1: a way that it hasn't before. The problem, and this

819
00:45:43,640 --> 00:45:47,120
Speaker 1: is really important, common David. The problem is that you

820
00:45:47,200 --> 00:45:50,480
Speaker 1: cannot replace something with nothing. So you have to be

821
00:45:50,680 --> 00:45:54,040
Speaker 1: clear as to what does the new world economic order

822
00:45:54,160 --> 00:45:56,960
Speaker 1: look like? And that's a question market. When I travel

823
00:45:57,000 --> 00:46:00,320
Speaker 1: outside the US, people are asking the same the sctions

824
00:46:00,400 --> 00:46:02,120
Speaker 1: over and over again. What is it gonna what is

825
00:46:02,120 --> 00:46:04,640
Speaker 1: it gonna be look like? Is it going to fragment economically,

826
00:46:05,000 --> 00:46:07,839
Speaker 1: in trade, in payments or not? And David, it brings

827
00:46:07,880 --> 00:46:10,120
Speaker 1: us up after what we saw on Anchor yesterday with

828
00:46:10,160 --> 00:46:13,200
Speaker 1: Secretary Tillerson. I don't know, you know is Dr Larian says,

829
00:46:13,239 --> 00:46:15,720
Speaker 1: what are we going to with Turkey? And to that question,

830
00:46:15,719 --> 00:46:17,759
Speaker 1: what does the new economic outlook look like? You had

831
00:46:18,080 --> 00:46:20,479
Speaker 1: President Shesh and Pink speaking in Davos trying to really

832
00:46:20,560 --> 00:46:23,200
Speaker 1: craft a new economic outlook, and certainly that's going to

833
00:46:23,239 --> 00:46:25,680
Speaker 1: come into crystalline focus next week when he meets with

834
00:46:25,719 --> 00:46:28,439
Speaker 1: President Trump at Mara Lago in Florida. Let's come back

835
00:46:28,880 --> 00:46:31,359
Speaker 1: with Dr a bit about that. I hope you joys.

836
00:46:31,600 --> 00:46:33,680
Speaker 1: I just made a decision, folks. It with Dr Larry

837
00:46:33,680 --> 00:46:35,480
Speaker 1: and we we wouldn't know what's the Fed, what's the

838
00:46:35,520 --> 00:46:38,560
Speaker 1: Fed going to do? Etcetera, that we'd really talk about

839
00:46:38,640 --> 00:46:42,200
Speaker 1: a lot of these theories behind the strategy and tactics

840
00:46:42,239 --> 00:46:45,200
Speaker 1: of this changing world. I know, Mohammed, you were lending

841
00:46:45,200 --> 00:46:46,960
Speaker 1: an ear to the interview that our colleague Michael McKee

842
00:46:47,040 --> 00:46:49,000
Speaker 1: just did with Bill Dudley, the president of the New

843
00:46:49,080 --> 00:46:50,719
Speaker 1: York Fan and I wonder what stood out to you.

844
00:46:50,920 --> 00:46:53,279
Speaker 1: We were listening here for some commentary on unwinding that

845
00:46:53,320 --> 00:46:57,640
Speaker 1: balance sheet. Yeah, that was a great interview by Mike McKee. UM,

846
00:46:57,640 --> 00:46:59,799
Speaker 1: two things stood out to me, one very specific and

847
00:46:59,800 --> 00:47:02,520
Speaker 1: one more general. The very specific, as you say, where

848
00:47:02,520 --> 00:47:05,719
Speaker 1: the balance sheet remarks, particularly that this could be a

849
00:47:05,800 --> 00:47:10,160
Speaker 1: late seventeen issue, and that they don't have strong feelings

850
00:47:10,160 --> 00:47:13,879
Speaker 1: as to the sequencing of balance sheet normalization. I think

851
00:47:13,920 --> 00:47:17,400
Speaker 1: that is the issue that the market would look most into,

852
00:47:17,920 --> 00:47:23,000
Speaker 1: But there's more general aspect. Until Dudley's comments today, most

853
00:47:23,040 --> 00:47:26,400
Speaker 1: of the Fed speak we heard this week was hinting

854
00:47:26,960 --> 00:47:29,960
Speaker 1: that the FED was getting more confident about the economy,

855
00:47:30,320 --> 00:47:34,719
Speaker 1: somewhat more assertive with markets, and was keeping an eye

856
00:47:34,800 --> 00:47:38,279
Speaker 1: on asset prices. UM, Dudley didn't go back to that.

857
00:47:38,400 --> 00:47:42,040
Speaker 1: Dudley was much more dovish than that. So it's interesting

858
00:47:42,080 --> 00:47:44,800
Speaker 1: to see that that you didn't get as much consistency

859
00:47:44,800 --> 00:47:48,319
Speaker 1: in signals as you've got ahead of the last fo

860
00:47:48,480 --> 00:47:52,719
Speaker 1: MC meeting when the FED really change market expectations. We've

861
00:47:52,719 --> 00:47:55,640
Speaker 1: had a conversation throughout the week about the relationship between

862
00:47:55,640 --> 00:47:58,359
Speaker 1: the soft data and the hard data to Bias left

863
00:47:58,400 --> 00:48:00,239
Speaker 1: Its earlier in the week saying he's looking at soft

864
00:48:00,320 --> 00:48:02,680
Speaker 1: data as a firm indicator of of what's happening with

865
00:48:02,719 --> 00:48:05,000
Speaker 1: the hard data. It's leading the hard data. How do

866
00:48:05,080 --> 00:48:06,920
Speaker 1: you see. It's something that Bill Dudley talked about this

867
00:48:06,920 --> 00:48:09,880
Speaker 1: morning with Michael McCain. Yeah, he and he said what

868
00:48:10,160 --> 00:48:13,439
Speaker 1: everybody has noticed so far, which is that the much

869
00:48:13,520 --> 00:48:19,319
Speaker 1: improved sentiment both for household and business indicators not yet

870
00:48:19,360 --> 00:48:22,279
Speaker 1: reflected in heart data. UM, I don't know whether it's

871
00:48:22,320 --> 00:48:26,240
Speaker 1: a firm leading indicator or whether it's a soft leading indicator.

872
00:48:26,320 --> 00:48:29,759
Speaker 1: It certainly will have an impact on behaviors, but I

873
00:48:29,760 --> 00:48:33,520
Speaker 1: wouldn't say it's a firm leading indicator. Mom, and let

874
00:48:33,560 --> 00:48:35,799
Speaker 1: me change gears here, and we thank you always for

875
00:48:35,840 --> 00:48:38,839
Speaker 1: your coverage, uh the soft data and the hard data.

876
00:48:38,920 --> 00:48:43,279
Speaker 1: The asset management business is coming to a thunderous end

877
00:48:43,320 --> 00:48:47,480
Speaker 1: of this quarter with restructurings at Fidelity, black Rock, etcetera,

878
00:48:47,840 --> 00:48:49,759
Speaker 1: and on and on. You are truly one of the

879
00:48:49,760 --> 00:48:53,040
Speaker 1: great experts on this year, work for years at PIMCO

880
00:48:53,160 --> 00:48:55,400
Speaker 1: and of course your work for Harvard Management, they've just

881
00:48:55,440 --> 00:48:59,279
Speaker 1: gone through their own active management restructuring. Can you tell

882
00:48:59,320 --> 00:49:01,960
Speaker 1: a kid at your Cambridge to go into active management

883
00:49:02,280 --> 00:49:06,520
Speaker 1: in two thousand seventeen, I would tell them, if you're

884
00:49:06,520 --> 00:49:09,480
Speaker 1: going to active management, make sure it's in the less

885
00:49:09,480 --> 00:49:12,520
Speaker 1: perfect asset classes. So don't go to active management on

886
00:49:12,680 --> 00:49:16,239
Speaker 1: US stocks, going to active management on high yield on

887
00:49:16,320 --> 00:49:20,160
Speaker 1: emerging markets, where a clear marketing perfections and where you

888
00:49:20,280 --> 00:49:26,480
Speaker 1: can be more confident about adding value. UM. I think

889
00:49:26,840 --> 00:49:29,399
Speaker 1: the whole passive versus active debate is going to get

890
00:49:30,000 --> 00:49:32,799
Speaker 1: much more sophisticated and people are going to realize it

891
00:49:32,840 --> 00:49:35,440
Speaker 1: depends on what asset class. But that is just one

892
00:49:35,680 --> 00:49:39,160
Speaker 1: of the big themes that's going to define asset management

893
00:49:39,200 --> 00:49:41,120
Speaker 1: for the next few years, and asset management is going

894
00:49:41,120 --> 00:49:44,799
Speaker 1: to change. Steve Weisman was with this earlier today, of

895
00:49:44,840 --> 00:49:47,880
Speaker 1: course the Great Investor, and he was acclaimed in the

896
00:49:47,920 --> 00:49:51,239
Speaker 1: movie The Big Short as well. Dr Larry and Steve

897
00:49:51,280 --> 00:49:54,160
Speaker 1: Weisman said, all of this debate is going to go away,

898
00:49:54,200 --> 00:49:57,400
Speaker 1: and what active management needs is an end to the

899
00:49:57,440 --> 00:50:01,239
Speaker 1: great distortion. They need to normalize fixed income in short

900
00:50:01,360 --> 00:50:04,720
Speaker 1: term paper market that's not there now. When we finally

901
00:50:04,840 --> 00:50:10,000
Speaker 1: normalize interest rates somewhere in our lifetime. Will that assist

902
00:50:10,200 --> 00:50:14,640
Speaker 1: active managers? Yes? I mean think of you being on

903
00:50:14,680 --> 00:50:18,440
Speaker 1: the field where the referee is also playing on the

904
00:50:18,440 --> 00:50:22,000
Speaker 1: other side. It makes life very complicated. And when the

905
00:50:22,040 --> 00:50:27,840
Speaker 1: referee is a central bank pursuing non commercial objectives using

906
00:50:28,200 --> 00:50:33,480
Speaker 1: market instruments, then it makes active management even more complicated.

907
00:50:34,440 --> 00:50:38,440
Speaker 1: And and and that's been the reality since the global financial crisis.

908
00:50:39,000 --> 00:50:42,000
Speaker 1: And for me, it's not a big surprise that quite

909
00:50:42,000 --> 00:50:46,200
Speaker 1: a few sophisticated hedge funds have decided to exit because

910
00:50:46,239 --> 00:50:48,040
Speaker 1: it's a world. It's a world where you've got to

911
00:50:48,040 --> 00:50:51,040
Speaker 1: predict non commercial decisions and that's really hard. Yeah, I

912
00:50:51,400 --> 00:50:53,880
Speaker 1: strongly support that. Do you see, girl, how l Arion

913
00:50:53,960 --> 00:50:56,560
Speaker 1: does that. He always brings in a New York Jets

914
00:50:56,600 --> 00:51:00,000
Speaker 1: model into a discussion of asset management where the Jets

915
00:51:00,080 --> 00:51:02,879
Speaker 1: lose because the referees on the other side. You see,

916
00:51:02,920 --> 00:51:06,239
Speaker 1: there you go, he let go, But Tom, Tom, with

917
00:51:06,280 --> 00:51:09,400
Speaker 1: all respect only you read this as a complaint about

918
00:51:09,400 --> 00:51:14,319
Speaker 1: the pace. Let me let me finish here with with

919
00:51:14,360 --> 00:51:16,839
Speaker 1: where we began. We have this meeting coming up next week.

920
00:51:16,840 --> 00:51:18,959
Speaker 1: Presidentiation Ping is going to be in West Palm Beach

921
00:51:18,960 --> 00:51:20,440
Speaker 1: with the President of the United States. We had a

922
00:51:20,440 --> 00:51:23,280
Speaker 1: conversation with a Marie Slaughter about, among other things, grand

923
00:51:23,320 --> 00:51:26,440
Speaker 1: strategy in the year two thousand and seventeen. What's it

924
00:51:26,480 --> 00:51:29,000
Speaker 1: gonna look like when we see Chinese grand strategy mixed

925
00:51:29,040 --> 00:51:32,080
Speaker 1: with whatever The diplomatic outlook is that President Trump is

926
00:51:32,320 --> 00:51:34,319
Speaker 1: pioneering in Washington, d C. What do you expect to

927
00:51:34,320 --> 00:51:35,840
Speaker 1: come out of that meeting? What's going to be central

928
00:51:35,880 --> 00:51:39,080
Speaker 1: to the conversations about the global economy there at mar Lago?

929
00:51:40,680 --> 00:51:42,640
Speaker 1: So I think it's it's first, it's important that they're

930
00:51:42,640 --> 00:51:46,240
Speaker 1: looking to put the executive Orders on trade out before

931
00:51:46,280 --> 00:51:50,160
Speaker 1: that meeting, because that's gonna define a little bit the

932
00:51:50,239 --> 00:51:54,799
Speaker 1: US getting tougher on this notion of bilateral deficits and

933
00:51:54,880 --> 00:52:01,160
Speaker 1: also on this notion of anti dumping UM penalties. I

934
00:52:01,200 --> 00:52:03,560
Speaker 1: haven't been collected. I think what you're gonna see is

935
00:52:03,560 --> 00:52:08,760
Speaker 1: going to be while they're more reconciliatory than anything else,

936
00:52:09,360 --> 00:52:12,080
Speaker 1: I think what you're going to see is two of

937
00:52:11,760 --> 00:52:18,520
Speaker 1: the two biggest trading partners coming together and signaling that

938
00:52:19,239 --> 00:52:21,440
Speaker 1: is in the joint interest of getting things together. I

939
00:52:21,480 --> 00:52:23,239
Speaker 1: don't think you're going to see fireworks with tell you

940
00:52:23,280 --> 00:52:26,239
Speaker 1: the truth, this has been fabulous folks. It will be

941
00:52:26,280 --> 00:52:30,319
Speaker 1: on our iTunes podcast. I can't say enough about really

942
00:52:30,320 --> 00:52:34,640
Speaker 1: listening to Muhammad l Arian on the brinksmanship in the

943
00:52:34,680 --> 00:52:37,440
Speaker 1: game of Chicken going on, and so much of our economics,

944
00:52:37,440 --> 00:52:41,160
Speaker 1: whether it's Brexit, UH, United Kingdom, the EU, or is

945
00:52:41,200 --> 00:52:43,760
Speaker 1: what we're observing out of Washington and for example China.

946
00:52:43,840 --> 00:52:54,759
Speaker 1: Dr Larrian is always thank you so much. Thanks for

947
00:52:54,840 --> 00:52:59,319
Speaker 1: listening to the Bloomberg Surveillance Podcast. Subscribe and listen to

948
00:52:59,440 --> 00:53:04,560
Speaker 1: interview on iTunes, SoundCloud, or whichever podcast platform you prefer.

949
00:53:05,280 --> 00:53:08,160
Speaker 1: I'm out on Twitter at Tom Keene. David Gura is

950
00:53:08,280 --> 00:53:12,080
Speaker 1: at David Gura. Before the podcast, you can always catch

951
00:53:12,120 --> 00:53:28,200
Speaker 1: us worldwide. I'm Bloomberg Radio, brought you by Bank of

952
00:53:28,239 --> 00:53:32,279
Speaker 1: America Mary Lynch. Dedicated to bringing our clients insights and

953
00:53:32,360 --> 00:53:36,520
Speaker 1: solutions to meet the challenges of a transforming world. That's

954
00:53:36,520 --> 00:53:40,160
Speaker 1: the power of global connections. Mary Lynch, Pierce, Feeder and

955
00:53:40,200 --> 00:53:43,600
Speaker 1: Smith Incorporated Member s I p C.