1 00:00:10,039 --> 00:00:13,720 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Always 2 00:00:14,000 --> 00:00:17,560 Speaker 1: with Michael McKee. Daily we bring you insight from the 3 00:00:17,560 --> 00:00:22,800 Speaker 1: best in economics, finance, investment, and international relations. Find Bloomberg 4 00:00:22,840 --> 00:00:27,240 Speaker 1: Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course, 5 00:00:27,760 --> 00:00:34,320 Speaker 1: on the Bloomberg Richard Hass of the Constant Foreign Relations 6 00:00:34,360 --> 00:00:36,800 Speaker 1: is in busy wrapping up a book due out January 7 00:00:37,280 --> 00:00:40,800 Speaker 1: uh tent, and we're gonna talk here about the disarrays 8 00:00:41,040 --> 00:00:44,960 Speaker 1: among our international relations. You were mentioning to get together 9 00:00:45,000 --> 00:00:49,440 Speaker 1: with the young Turks, David Rockefeller, Henry kissing your George Schultz. 10 00:00:50,080 --> 00:00:53,040 Speaker 1: I know what you think of our international relations. What 11 00:00:53,120 --> 00:00:57,080 Speaker 1: a gentleman of that vintage think of the zaney nous 12 00:00:57,400 --> 00:01:01,200 Speaker 1: of our American international relations. Well, I won't speak for them, 13 00:01:01,200 --> 00:01:02,960 Speaker 1: but I simply say is when I talk to people 14 00:01:03,000 --> 00:01:06,600 Speaker 1: like them and others, there's real concern that things that 15 00:01:06,680 --> 00:01:09,920 Speaker 1: we thought Tom that were given that we could assume, 16 00:01:10,240 --> 00:01:12,319 Speaker 1: they're not there anymore. We didn't think we were going 17 00:01:12,360 --> 00:01:13,920 Speaker 1: to wake up in a country or in a world 18 00:01:14,000 --> 00:01:16,600 Speaker 1: where people are gonna question the basics of free trade, 19 00:01:17,160 --> 00:01:20,399 Speaker 1: the basics of US NATO commitment, U S relationship with 20 00:01:20,480 --> 00:01:26,200 Speaker 1: Japan and Korea, openness to immigration. So suddenly, almost like 21 00:01:26,240 --> 00:01:28,760 Speaker 1: the Brexit vote in Britain, things that we kind of 22 00:01:28,800 --> 00:01:32,360 Speaker 1: assumed are no longer. There's no givens anymore. If President 23 00:01:32,360 --> 00:01:36,319 Speaker 1: Trump forms a cabinet and affects a policy like some 24 00:01:36,480 --> 00:01:40,200 Speaker 1: of his statements, a lot of people Nick Burns, we 25 00:01:40,240 --> 00:01:43,319 Speaker 1: talked to at length yesterday about this, with his years 26 00:01:43,360 --> 00:01:46,080 Speaker 1: of public service, fuel there has to be a check 27 00:01:46,160 --> 00:01:50,920 Speaker 1: in a balance, because the legislature check and balance the 28 00:01:50,960 --> 00:01:54,000 Speaker 1: idea that Crimea is part of Russia very hard. Given 29 00:01:54,000 --> 00:01:57,440 Speaker 1: our constitution and our tradition to the executive branches much 30 00:01:57,480 --> 00:02:00,360 Speaker 1: more discretion in leeway when it comes to foreign policy 31 00:02:00,480 --> 00:02:02,600 Speaker 1: than it does when it comes to domestic policy. It 32 00:02:02,680 --> 00:02:05,280 Speaker 1: much more has to work through and with Congress. So 33 00:02:05,320 --> 00:02:07,160 Speaker 1: the President of the United States could say and do 34 00:02:07,280 --> 00:02:09,320 Speaker 1: things that really could on nerve allies and that could 35 00:02:09,360 --> 00:02:11,840 Speaker 1: lead to a world it basically allies don't believe they 36 00:02:11,840 --> 00:02:13,840 Speaker 1: can count on the United States. One or two things happen. 37 00:02:13,919 --> 00:02:17,320 Speaker 1: Either they essentially come to terms with their powerful neighbors 38 00:02:17,639 --> 00:02:21,280 Speaker 1: China or Russia version of a peacement what they basically say, 39 00:02:21,400 --> 00:02:23,520 Speaker 1: we're gonna do it ourselves and that would move to 40 00:02:23,560 --> 00:02:26,760 Speaker 1: a world in which alliances unravel and countries proliferate, and 41 00:02:26,760 --> 00:02:30,080 Speaker 1: the Japan's, the Korea Is and others start rethinking about whether, 42 00:02:30,080 --> 00:02:32,680 Speaker 1: for example, they need to have nuclear weapons themselves. This 43 00:02:32,720 --> 00:02:34,720 Speaker 1: is a much more dangerous world. One of the great 44 00:02:34,919 --> 00:02:37,120 Speaker 1: calls of the last ten years. And I guess I 45 00:02:37,160 --> 00:02:40,040 Speaker 1: could wrap it around Ken Rogoff, who is issue at 46 00:02:40,080 --> 00:02:43,760 Speaker 1: the constant foreign relations in Carmen Reinhardt, but many others 47 00:02:43,800 --> 00:02:45,679 Speaker 1: as well. Le Guard has been very good on this 48 00:02:45,720 --> 00:02:49,320 Speaker 1: is the society of global growth, isn't there? Is that 49 00:02:49,360 --> 00:02:52,960 Speaker 1: the main reason for our international relations tensions and that 50 00:02:53,040 --> 00:02:55,919 Speaker 1: there's just a dampening of global growth. It's a big 51 00:02:55,960 --> 00:02:58,200 Speaker 1: part of it. You're seeing it around the world that 52 00:02:58,240 --> 00:03:01,359 Speaker 1: you no longer have a rising tide and people are 53 00:03:01,360 --> 00:03:04,080 Speaker 1: feeling pressure. You no longer have quite the same amount 54 00:03:04,120 --> 00:03:07,160 Speaker 1: of upward mobility. So there's a greater fixation on inequality. 55 00:03:07,440 --> 00:03:09,519 Speaker 1: We're talking about it before. There's also the issue of 56 00:03:09,800 --> 00:03:14,360 Speaker 1: technology coming on innovation and job displacement, job elimination. So 57 00:03:14,400 --> 00:03:16,280 Speaker 1: it's not simply the lack of growth, but it's the 58 00:03:16,360 --> 00:03:19,720 Speaker 1: uncertainty about the future because jobs are disappearing and they're 59 00:03:19,760 --> 00:03:21,680 Speaker 1: not coming back. Do you just assume it does your 60 00:03:21,720 --> 00:03:24,000 Speaker 1: team and see if ursum TPP is dead in the 61 00:03:24,040 --> 00:03:27,400 Speaker 1: Atlantic agreement as well, that is strong. It's on life support. 62 00:03:27,560 --> 00:03:29,840 Speaker 1: It's an't going anywhere. Now. The real question I think 63 00:03:29,880 --> 00:03:32,360 Speaker 1: if Hillary Clinton wins the presidency, can you revive it? 64 00:03:32,480 --> 00:03:34,280 Speaker 1: My view of that is maybe. And what I would 65 00:03:34,320 --> 00:03:37,520 Speaker 1: recommend is not that you renegotiate it. That would be impossible, 66 00:03:37,760 --> 00:03:40,040 Speaker 1: but you could have a deal, a side deal between 67 00:03:40,040 --> 00:03:43,320 Speaker 1: Congress and the President which would set out certain understandings. 68 00:03:43,360 --> 00:03:44,840 Speaker 1: I think that would be the way to go after this. 69 00:03:44,960 --> 00:03:47,800 Speaker 1: Let me be clear here, not to renegotiate it, but 70 00:03:48,000 --> 00:03:52,080 Speaker 1: start over from scratches. Neither neither. You keep the agreement 71 00:03:52,120 --> 00:03:55,920 Speaker 1: as is, but then there would be certain associated understandings 72 00:03:56,080 --> 00:03:58,960 Speaker 1: between the President Congress. For example, what to do if 73 00:03:58,960 --> 00:04:03,320 Speaker 1: you saw a country consciously manipulating its currency, what what 74 00:04:03,400 --> 00:04:05,200 Speaker 1: sort of reactions to the United States. So this would 75 00:04:05,200 --> 00:04:08,680 Speaker 1: basically give you also have trade Adjustment Assistance worker AID. 76 00:04:09,000 --> 00:04:12,200 Speaker 1: You basically have a bunch of arrangements or understandings between 77 00:04:12,200 --> 00:04:14,280 Speaker 1: the White House and the Congress that would give people 78 00:04:14,320 --> 00:04:17,560 Speaker 1: political cover to vote for tp PAY. I'm writing down, folks, 79 00:04:17,600 --> 00:04:21,159 Speaker 1: I love this phrase. Associated understandings. I think that's how 80 00:04:21,200 --> 00:04:25,440 Speaker 1: you talk to college age children and August you have associated, 81 00:04:25,680 --> 00:04:28,640 Speaker 1: you have associated. This reflects my past. I used to 82 00:04:28,680 --> 00:04:31,880 Speaker 1: work on US Soviet arms control agreements and what Congress 83 00:04:31,920 --> 00:04:34,919 Speaker 1: often required before it would vote foreign agreement is the 84 00:04:34,960 --> 00:04:37,440 Speaker 1: executive branch would have to make certain commitments, for example 85 00:04:37,440 --> 00:04:40,599 Speaker 1: about missile or other types of nuclear modernization. What to 86 00:04:40,640 --> 00:04:43,160 Speaker 1: do if you found the Soviets and non compliance? And 87 00:04:43,200 --> 00:04:45,320 Speaker 1: that gave Congress the confidence. So if you want to 88 00:04:45,320 --> 00:04:47,719 Speaker 1: be more cynical the political cover to vote for a 89 00:04:47,760 --> 00:04:50,320 Speaker 1: controversial agreement, we are gonna need to come up with 90 00:04:50,360 --> 00:04:53,400 Speaker 1: a similar package to give people the political cover they 91 00:04:53,400 --> 00:04:55,880 Speaker 1: need to vote for TP pay the other current event theme. 92 00:04:55,920 --> 00:04:58,360 Speaker 1: We talked to animals Travitas about this. Flet your school, 93 00:04:58,400 --> 00:05:00,160 Speaker 1: and of course he who was shortlisted is a be 94 00:05:00,320 --> 00:05:04,480 Speaker 1: candidate for Secretary Clinton and it's a modest uproar. But 95 00:05:04,600 --> 00:05:07,800 Speaker 1: I think with your perspective and your public service, it fits. 96 00:05:08,240 --> 00:05:12,600 Speaker 1: Should generals speak at political conventions? Mr Dempsey was like, well, 97 00:05:12,640 --> 00:05:15,920 Speaker 1: I don't think so. Mr Allen was forceful and made 98 00:05:15,920 --> 00:05:19,240 Speaker 1: a big impact. As long as they retired generals, why 99 00:05:19,240 --> 00:05:21,680 Speaker 1: not their citizen guy name Eisenhower did it right, they 100 00:05:21,680 --> 00:05:24,200 Speaker 1: have that first Amendment applies to people who used to 101 00:05:24,240 --> 00:05:27,200 Speaker 1: wear the uniform. So why not. Okay, let's move on 102 00:05:27,279 --> 00:05:30,360 Speaker 1: to China and Japan in Asia. It's something that I 103 00:05:30,400 --> 00:05:34,160 Speaker 1: think has been off the surveillance radar recently. Is China 104 00:05:34,279 --> 00:05:38,240 Speaker 1: alone in our international relations world? Now? Are they a 105 00:05:38,720 --> 00:05:43,480 Speaker 1: loan actor or agent? Or do they have allies? When 106 00:05:43,520 --> 00:05:45,160 Speaker 1: they have they have allies, and they have a lot 107 00:05:45,200 --> 00:05:48,000 Speaker 1: of countries that are taking them into into account. They've 108 00:05:48,000 --> 00:05:51,080 Speaker 1: got they're they're a player. They've been quite effective at 109 00:05:51,160 --> 00:05:55,760 Speaker 1: regional economic initiatives. But whether it's in Central Asia, whether 110 00:05:55,800 --> 00:05:59,919 Speaker 1: it's in East Asia. So China doesn't have formal alliances. 111 00:06:00,040 --> 00:06:02,000 Speaker 1: But but China's a player and they have all sorts 112 00:06:02,000 --> 00:06:06,280 Speaker 1: of relationships economically, politically, to some extent militarily. Uh So, 113 00:06:06,400 --> 00:06:09,400 Speaker 1: then they're not alone. One other theme I guess of 114 00:06:09,440 --> 00:06:11,799 Speaker 1: current events, and I guess it goes to the Olympics 115 00:06:11,800 --> 00:06:15,479 Speaker 1: in Rio is well you have it's cfar. Some of 116 00:06:15,480 --> 00:06:20,440 Speaker 1: the best medical politics in medical study I've ever read. 117 00:06:21,120 --> 00:06:24,400 Speaker 1: She's exceptional to Lori Garrett, Lord Garrett, give us Lori 118 00:06:24,520 --> 00:06:28,200 Speaker 1: Garrett's update on the zeke of virus. Well, in the 119 00:06:28,279 --> 00:06:31,280 Speaker 1: last hours we have the news about that we now 120 00:06:31,320 --> 00:06:34,520 Speaker 1: have homegrown if you will, Zico. You now have travel 121 00:06:34,560 --> 00:06:37,440 Speaker 1: advisories for parts of Florida, something that you and I 122 00:06:37,480 --> 00:06:42,400 Speaker 1: are not familiar with. No. Look, more broadly, these Olympics 123 00:06:42,400 --> 00:06:46,200 Speaker 1: in Brazil are a disaster. You've got security issues, you've 124 00:06:46,240 --> 00:06:50,159 Speaker 1: got infrastructure issues, the facilities aren't there, the plumbing isn't working, 125 00:06:50,160 --> 00:06:52,440 Speaker 1: and then you've got this disease overlay. All by the way, 126 00:06:52,440 --> 00:06:56,800 Speaker 1: at a time, the Brazilian political system is an acute crisis. Uh, 127 00:06:56,920 --> 00:07:01,520 Speaker 1: you could not have imagined or developed a combination of events. 128 00:07:01,720 --> 00:07:04,440 Speaker 1: Olympics were meant to showcase the country. This is whatever, 129 00:07:04,480 --> 00:07:06,880 Speaker 1: the opposite of showcases. This is it. What does Lori 130 00:07:07,000 --> 00:07:10,080 Speaker 1: Garrett's prescription for Washington to deal with something that is 131 00:07:10,200 --> 00:07:13,880 Speaker 1: here and now it's not Ebolo. With great respect for 132 00:07:13,880 --> 00:07:16,920 Speaker 1: the courage it took just to quench that viral, but 133 00:07:17,000 --> 00:07:18,680 Speaker 1: we've been slow off the mark, the fact that we 134 00:07:18,720 --> 00:07:21,880 Speaker 1: haven't made certain outlays and investments at dealing with Zica 135 00:07:22,000 --> 00:07:24,760 Speaker 1: in terms of figuring out not just to eradicate, you know, 136 00:07:24,800 --> 00:07:27,400 Speaker 1: to deal with mosquitoes, but to come up with ways 137 00:07:27,440 --> 00:07:30,480 Speaker 1: of helping people who come down with it. We've been 138 00:07:30,520 --> 00:07:34,080 Speaker 1: slow to invest the money. This is this is another 139 00:07:34,200 --> 00:07:37,640 Speaker 1: example where we just have our priorities wrong and political 140 00:07:37,720 --> 00:07:40,680 Speaker 1: dysfunction has gotten in the way governments have obligations. One 141 00:07:40,720 --> 00:07:43,480 Speaker 1: of the reasons connecting this conversation, one of the reasons 142 00:07:43,480 --> 00:07:46,400 Speaker 1: we're seeing the hostility we're seeing towards the status quo 143 00:07:46,560 --> 00:07:49,480 Speaker 1: towards government is when government doesn't perform, and this is 144 00:07:49,520 --> 00:07:53,600 Speaker 1: an example of government not preferring, people get understandably angry. 145 00:07:53,600 --> 00:07:56,400 Speaker 1: This is where populism comes from. How should we adapt 146 00:07:56,400 --> 00:07:58,880 Speaker 1: and adjust? And we'll come back with Michael McKee and 147 00:07:58,960 --> 00:08:02,480 Speaker 1: look at Europe and and even continue the domestic discussion. 148 00:08:03,280 --> 00:08:07,040 Speaker 1: I'm fascinated by in your a political Let's see if 149 00:08:07,120 --> 00:08:12,200 Speaker 1: I understand that the Republican foreign policy elite is essentially 150 00:08:12,320 --> 00:08:17,360 Speaker 1: led the charge away from Mr Trump, how do you 151 00:08:17,480 --> 00:08:20,800 Speaker 1: observe that. What is the prism you see of people 152 00:08:20,840 --> 00:08:24,240 Speaker 1: just saying this is intolerable, we can't do this, and 153 00:08:24,280 --> 00:08:28,600 Speaker 1: they're overtly going to support Secretary Clinton. Well others follow 154 00:08:29,560 --> 00:08:31,480 Speaker 1: The showing answer is yes, you're beginning to see it 155 00:08:31,520 --> 00:08:33,560 Speaker 1: on the op ed pages. You're seeing it in various 156 00:08:33,559 --> 00:08:36,560 Speaker 1: pronouncements out of minimum. You're seeing the Republican foreign policy 157 00:08:36,559 --> 00:08:40,480 Speaker 1: elite distance itself essentially as far as it can and 158 00:08:40,600 --> 00:08:43,880 Speaker 1: probably privately voting for Hillary Clinton. And what you're beginning 159 00:08:43,920 --> 00:08:45,839 Speaker 1: to see those more more people in print or in 160 00:08:45,960 --> 00:08:48,760 Speaker 1: voice saying that they cannot support Donald Trump. And the 161 00:08:48,760 --> 00:08:51,320 Speaker 1: reason is Hillary Clinton. To use a sports analogy of 162 00:08:51,320 --> 00:08:54,199 Speaker 1: my apologies, she is squarely in the main stream. She's 163 00:08:54,280 --> 00:08:56,760 Speaker 1: within the forty yard lines on the football field right. 164 00:08:56,800 --> 00:08:59,560 Speaker 1: Donald Trump's in the end zone. So for the Republican 165 00:08:59,600 --> 00:09:03,400 Speaker 1: foreign let's establishment far safer to work with the Hillary 166 00:09:03,440 --> 00:09:05,760 Speaker 1: Clinton than it is with the Donald Trump. Michael McKee. 167 00:09:05,840 --> 00:09:11,200 Speaker 1: Populism is everywhere. I mean, I you have to almost 168 00:09:11,200 --> 00:09:14,040 Speaker 1: like to think, what nation is populism not there? That 169 00:09:14,040 --> 00:09:17,600 Speaker 1: would be a good topic for our guests. The world 170 00:09:17,600 --> 00:09:19,480 Speaker 1: as mad as hell and not going to take it anymore. 171 00:09:19,520 --> 00:09:23,600 Speaker 1: It's like they're going and and throw Yeah, if you're 172 00:09:23,600 --> 00:09:27,000 Speaker 1: old enough to have seen the movie. But um, Richard 173 00:09:27,040 --> 00:09:29,480 Speaker 1: Hasses is with us from the Council on Foreign Relations. 174 00:09:29,520 --> 00:09:32,560 Speaker 1: I'm curious we we we go through this cyclically. We 175 00:09:32,640 --> 00:09:36,640 Speaker 1: have these bouts of populism, most recently, I guess you 176 00:09:36,679 --> 00:09:39,920 Speaker 1: would put Ross Perro in that category. In the early nineties, 177 00:09:40,240 --> 00:09:42,760 Speaker 1: and then it seems to burn itself out for a while. 178 00:09:43,320 --> 00:09:46,079 Speaker 1: Do you see that happening again this time or is 179 00:09:46,120 --> 00:09:48,160 Speaker 1: there some sort of quantitative difference? And you go back 180 00:09:48,160 --> 00:09:51,600 Speaker 1: to the and you had William Jennings Bryan nominated three times, 181 00:09:51,600 --> 00:09:53,800 Speaker 1: so you got a twelve year cycle there, But other 182 00:09:53,800 --> 00:09:56,840 Speaker 1: times it doesn't seem to last quite as long. Someways 183 00:09:56,840 --> 00:10:00,679 Speaker 1: populism tends to burn out almost because of his own extremism, 184 00:10:00,800 --> 00:10:03,800 Speaker 1: its own dynamics, its own excess. But where is me 185 00:10:03,880 --> 00:10:07,840 Speaker 1: this time? Is that it could last despite the shall 186 00:10:07,880 --> 00:10:11,480 Speaker 1: we say, imperfections of some of its messengers. Uh. And 187 00:10:11,520 --> 00:10:15,360 Speaker 1: that's because we're probably facing a future of prolonged low growth, 188 00:10:15,679 --> 00:10:20,040 Speaker 1: and we're probably facing a future of technological innovation and 189 00:10:20,120 --> 00:10:25,520 Speaker 1: job displacement and elimination demographic pressures. Uh. So, if you 190 00:10:25,559 --> 00:10:28,480 Speaker 1: add all this up and potentially dysfunctional politics which makes 191 00:10:28,480 --> 00:10:32,359 Speaker 1: it hard to do things, the breeding grounds of populism 192 00:10:32,360 --> 00:10:35,000 Speaker 1: and also its cousin nationalism, it seems to me could 193 00:10:35,080 --> 00:10:38,960 Speaker 1: be longer than historically has has been the norm. Well, 194 00:10:39,000 --> 00:10:42,360 Speaker 1: are you saying within that that it's not possible for 195 00:10:42,360 --> 00:10:44,480 Speaker 1: somebody to come up with solutions or the people we 196 00:10:44,559 --> 00:10:48,000 Speaker 1: have out there will not come up with solutions. It's 197 00:10:48,040 --> 00:10:50,880 Speaker 1: possible to come up with solutions to problems getting solutions 198 00:10:50,960 --> 00:10:52,600 Speaker 1: and solutions is a big word, but it's possible come 199 00:10:52,640 --> 00:10:54,679 Speaker 1: up with things that would help, it's just getting them 200 00:10:54,720 --> 00:10:58,080 Speaker 1: through the political system. So in the United States right now, 201 00:10:58,200 --> 00:11:00,400 Speaker 1: if you gave me a few minutes and some people, 202 00:11:00,440 --> 00:11:02,160 Speaker 1: we could probably come up with a pretty good list 203 00:11:02,559 --> 00:11:04,880 Speaker 1: of things that that might be done in terms of 204 00:11:05,160 --> 00:11:09,480 Speaker 1: dealing with debt, dealing with infrastructure, dealing with immigration, UH, 205 00:11:09,600 --> 00:11:12,800 Speaker 1: dealing with certain political practices. The problem is that the 206 00:11:12,920 --> 00:11:16,280 Speaker 1: very forces that have made the political system the way 207 00:11:16,320 --> 00:11:19,000 Speaker 1: they are, the special interests and so forth, the kinds 208 00:11:19,000 --> 00:11:21,240 Speaker 1: of things that manser Olsen was writing about years ago, 209 00:11:21,559 --> 00:11:23,800 Speaker 1: those are the same political forces that make it difficult 210 00:11:23,800 --> 00:11:28,280 Speaker 1: to introduce reform. Reform always advantages some and disadvantages others. 211 00:11:28,320 --> 00:11:30,920 Speaker 1: So whether your issue is gun control or or debt, 212 00:11:31,160 --> 00:11:32,920 Speaker 1: groups like the n r A or the A A 213 00:11:33,120 --> 00:11:35,240 Speaker 1: r P in this country are gonna are gonna fight you. 214 00:11:35,600 --> 00:11:37,839 Speaker 1: So the ideas out there, I don't think it's it's 215 00:11:37,840 --> 00:11:41,319 Speaker 1: a paucity of ideas. I think it's simply limited political prosperct. 216 00:11:41,360 --> 00:11:43,560 Speaker 1: How did we get things through? When I mean Teddy 217 00:11:43,640 --> 00:11:48,360 Speaker 1: Roosevelt became a populist leader and passed a lot of 218 00:11:48,480 --> 00:11:51,319 Speaker 1: legislation that addressed many of the concerns that had arisen. 219 00:11:51,520 --> 00:11:54,719 Speaker 1: How did that happen? Then? Uh? He certainly had to 220 00:11:54,760 --> 00:11:57,080 Speaker 1: go up against the money trust, is he? But it 221 00:11:57,120 --> 00:12:00,800 Speaker 1: was a different society that not just much smaller population, 222 00:12:00,880 --> 00:12:06,480 Speaker 1: but less sclerosis in the political system. The special interests 223 00:12:06,480 --> 00:12:08,440 Speaker 1: were much less developed. And look at some of the 224 00:12:08,480 --> 00:12:11,959 Speaker 1: realities now of American politics, the way we fund our politics. 225 00:12:12,240 --> 00:12:16,120 Speaker 1: We've gone from broadcasting to narrow casting. Political parties have 226 00:12:16,200 --> 00:12:20,280 Speaker 1: been disintermediated. All of these things worst work against coalitions, 227 00:12:20,280 --> 00:12:24,160 Speaker 1: they work against uh Consenius. But I actually do think 228 00:12:24,200 --> 00:12:28,440 Speaker 1: there are qualitative changes that make it more difficult too 229 00:12:28,760 --> 00:12:32,280 Speaker 1: for the political system to work as intended. Just as 230 00:12:32,280 --> 00:12:34,240 Speaker 1: an aside, it's one of the reasons you saw in Britain, 231 00:12:34,360 --> 00:12:36,240 Speaker 1: you see in California. So if you see a greater 232 00:12:36,320 --> 00:12:39,000 Speaker 1: use of referenda, it's not a good idea, it's actually 233 00:12:39,040 --> 00:12:41,839 Speaker 1: a bad idea, but it's an end ron around dysfunctional 234 00:12:41,880 --> 00:12:44,880 Speaker 1: political processes. Let me drag into this for Red Zacharia, 235 00:12:45,280 --> 00:12:50,880 Speaker 1: who an August conservative commentator, went after this weekend, it 236 00:12:50,960 --> 00:12:55,880 Speaker 1: was a horrific language. On Twitter, Dr Zacharia has written 237 00:12:55,920 --> 00:12:58,600 Speaker 1: about our liberal education. He's also written about hub and 238 00:12:58,679 --> 00:13:03,439 Speaker 1: spoke for in Policy. Give us an update on America's 239 00:13:03,559 --> 00:13:07,640 Speaker 1: hub and spoke strategy. Is that a valid is that 240 00:13:07,720 --> 00:13:09,760 Speaker 1: where we are right now or we are the hub 241 00:13:09,800 --> 00:13:14,319 Speaker 1: and there are many spokes in our foreign policy. The 242 00:13:14,360 --> 00:13:17,839 Speaker 1: showing answer is yes, there's no other hub out there. 243 00:13:17,880 --> 00:13:20,319 Speaker 1: The alternative to an American hub in the world is 244 00:13:20,320 --> 00:13:22,600 Speaker 1: a world without a hub. And that is a world 245 00:13:22,600 --> 00:13:25,240 Speaker 1: that I think is increasingly off the rails. To use 246 00:13:25,280 --> 00:13:28,600 Speaker 1: an economics or finance metaphor, there's no invisible hand in 247 00:13:28,640 --> 00:13:32,880 Speaker 1: the geopolitical marketplace. So without the United States exerting a 248 00:13:32,960 --> 00:13:35,480 Speaker 1: visible hand, I think the world is in trouble. But 249 00:13:35,520 --> 00:13:37,520 Speaker 1: we can't do it alone. And that's where the hubs, 250 00:13:37,679 --> 00:13:39,760 Speaker 1: that's where the spokes come in. And whether it's NATO 251 00:13:39,800 --> 00:13:43,480 Speaker 1: in Europe, or Japan, Korea, Australian others in Asia, or 252 00:13:43,520 --> 00:13:46,920 Speaker 1: we work through institutions UH in the economic or political 253 00:13:47,000 --> 00:13:50,559 Speaker 1: space space or around the world. Are we fashion coalitions 254 00:13:50,559 --> 00:13:52,560 Speaker 1: of the willing. That is how we do it. It's 255 00:13:52,640 --> 00:13:56,640 Speaker 1: various forms of American led multilateralism. That is a process 256 00:13:56,679 --> 00:13:59,000 Speaker 1: that's actually worked for three quarters of a century. And 257 00:13:59,040 --> 00:14:02,920 Speaker 1: what worries me is people seem to underestimate the benefits 258 00:14:03,160 --> 00:14:06,199 Speaker 1: and to seem to underestimate the costs of moving away 259 00:14:06,200 --> 00:14:08,480 Speaker 1: from it. There's a kind of cavalierness, Tom that I 260 00:14:08,520 --> 00:14:11,880 Speaker 1: think is quite worrisome. The cavalier rarely captures the moment. 261 00:14:11,960 --> 00:14:15,480 Speaker 1: This has been extremely valuable. Richard hass Is with the 262 00:14:15,600 --> 00:14:32,480 Speaker 1: Council on Foreign Relations. Wages and salaries component of personal 263 00:14:32,560 --> 00:14:34,840 Speaker 1: income is a three tents, so it's better than the 264 00:14:35,400 --> 00:14:39,520 Speaker 1: overall number disposedbile income though only up two tenths. And 265 00:14:39,560 --> 00:14:41,760 Speaker 1: I know you've been following the savings rate it falls 266 00:14:41,800 --> 00:14:43,920 Speaker 1: to five point three. That helped with some of the 267 00:14:43,960 --> 00:14:48,080 Speaker 1: spending since incomes we're not up is high. Yeah. Yeah, 268 00:14:48,520 --> 00:14:51,640 Speaker 1: I'm gonna say not that much of a move. A 269 00:14:51,720 --> 00:14:55,160 Speaker 1: little move around here, but never there. It is. It's 270 00:14:55,200 --> 00:14:57,840 Speaker 1: our new modern economy. Yeah. Well, there are more numbers 271 00:14:57,840 --> 00:15:00,240 Speaker 1: coming out this week that people are going to care about. 272 00:15:00,240 --> 00:15:03,080 Speaker 1: Diana Slump being one of them. She's, of course, the 273 00:15:03,120 --> 00:15:06,600 Speaker 1: founder of d S and Associates out in Chicago. She 274 00:15:06,760 --> 00:15:10,600 Speaker 1: joins us. Now, uh, Diane, Um, this falls a little 275 00:15:10,600 --> 00:15:12,400 Speaker 1: bit into the category of old news, since it was 276 00:15:12,480 --> 00:15:16,520 Speaker 1: June but we do get jobs coming up and the 277 00:15:16,800 --> 00:15:19,280 Speaker 1: earnings component of that, and everybody'll be watching to see 278 00:15:19,320 --> 00:15:24,640 Speaker 1: if tight labor markets are indeed generating additional income for Americans. Well, 279 00:15:24,800 --> 00:15:27,400 Speaker 1: certainly will. And I'm not the data point. The job 280 00:15:27,480 --> 00:15:30,240 Speaker 1: data is the data point. But you did say I 281 00:15:30,320 --> 00:15:32,640 Speaker 1: was a data point. I thought you were the person 282 00:15:32,760 --> 00:15:36,880 Speaker 1: watching the data. Um. But yes, we're looking at a 283 00:15:36,920 --> 00:15:39,360 Speaker 1: hundred and seventy five thousand for the month of July, 284 00:15:39,840 --> 00:15:42,040 Speaker 1: and on the average hourly earnings component, it's a bit 285 00:15:42,080 --> 00:15:44,560 Speaker 1: of a stretch this month, depending on what the revisions are. 286 00:15:44,800 --> 00:15:46,720 Speaker 1: We need to see at least o point three percent 287 00:15:46,800 --> 00:15:48,920 Speaker 1: gains to hold on to that two point six percent 288 00:15:49,040 --> 00:15:52,760 Speaker 1: year over year in average hourly earnings. And I'm expecting 289 00:15:52,840 --> 00:15:56,040 Speaker 1: the unemployment rate to hold at four point nine for 290 00:15:56,080 --> 00:15:58,520 Speaker 1: the right reasons, and that's that we're going to see 291 00:15:58,520 --> 00:16:02,000 Speaker 1: participation in the labor four continue to improve or at 292 00:16:02,080 --> 00:16:04,280 Speaker 1: least hold at a higher level after we saw that 293 00:16:04,360 --> 00:16:07,880 Speaker 1: backtrack in the second quarter. That's really important because it 294 00:16:07,920 --> 00:16:10,000 Speaker 1: really gets to the issue of how much are we 295 00:16:10,040 --> 00:16:13,600 Speaker 1: re engaging workers that have been sidelined by the great 296 00:16:13,680 --> 00:16:18,280 Speaker 1: the Great Recession and the lackluster recovery that followed. One 297 00:16:18,320 --> 00:16:20,720 Speaker 1: of the interesting areas that we've been watching very closely, 298 00:16:20,760 --> 00:16:22,960 Speaker 1: and this gets into the tensions we're seeing in our 299 00:16:23,000 --> 00:16:27,440 Speaker 1: electric electoral cycle right now, and that is UM. Women 300 00:16:27,600 --> 00:16:30,520 Speaker 1: in the labor force are picking up their participation, particularly 301 00:16:30,520 --> 00:16:34,920 Speaker 1: among the twenty four to thirty four year old They're 302 00:16:34,960 --> 00:16:37,840 Speaker 1: doing better and they stayed in school longer, and UM 303 00:16:37,920 --> 00:16:40,120 Speaker 1: those UM we now know that you have a higher 304 00:16:40,200 --> 00:16:42,120 Speaker 1: chance of getting a college degree as a woman than 305 00:16:42,160 --> 00:16:44,240 Speaker 1: a man. Now that's a complete flip flop from much 306 00:16:44,240 --> 00:16:47,600 Speaker 1: of history UM in the United States, and that is 307 00:16:47,640 --> 00:16:50,520 Speaker 1: helping them to get re engaged and get entry level jobs. 308 00:16:50,800 --> 00:16:53,360 Speaker 1: We also are seeing and something we're gonna watch really closely, 309 00:16:53,400 --> 00:16:56,040 Speaker 1: as we've seen a real uptick since gas prices have 310 00:16:56,120 --> 00:16:58,800 Speaker 1: fallen over the last couple of years. UM, we've seen 311 00:16:58,840 --> 00:17:03,040 Speaker 1: an uptick in spending on daycare, which is further signs 312 00:17:03,120 --> 00:17:06,200 Speaker 1: that the labor market maybe healing. Where two income households 313 00:17:06,200 --> 00:17:08,840 Speaker 1: could once only afford one income, whether it be the 314 00:17:08,880 --> 00:17:11,960 Speaker 1: man or the woman, or man and man or woman 315 00:17:11,960 --> 00:17:14,000 Speaker 1: and woman, however we may cut it, but two income 316 00:17:14,000 --> 00:17:17,200 Speaker 1: households were unable to get that daycare and afford to 317 00:17:17,240 --> 00:17:21,000 Speaker 1: get a job. When UM we're generating only low age jobs. 318 00:17:21,280 --> 00:17:23,320 Speaker 1: We seem to be seen some kind of shift there, 319 00:17:23,320 --> 00:17:26,159 Speaker 1: and that's something we're watching really closely. And something you 320 00:17:26,200 --> 00:17:31,119 Speaker 1: know something about now Tom is getting the daycare help. Yeah, 321 00:17:31,520 --> 00:17:36,840 Speaker 1: to say the least, it's costly, right, Yeah, Diane, I've 322 00:17:36,960 --> 00:17:39,120 Speaker 1: I've been I've been watching a lot of Cubs baseball 323 00:17:39,119 --> 00:17:41,440 Speaker 1: in the last couple of days. Regular Field is gorgeous. 324 00:17:41,520 --> 00:17:44,880 Speaker 1: That's where my head is. Field is just just truly. 325 00:17:45,160 --> 00:17:47,800 Speaker 1: A ball got lost in the ivy last night. For 326 00:17:47,880 --> 00:17:50,760 Speaker 1: those of you worldwide, it's the only park in the 327 00:17:50,800 --> 00:17:53,880 Speaker 1: world with trees on the walls. So they hit the ball. 328 00:17:54,440 --> 00:17:57,240 Speaker 1: But yeah, the ball goes in and the fielder waves 329 00:17:57,240 --> 00:18:00,879 Speaker 1: his arms and everybody has to stop running, which is 330 00:18:01,119 --> 00:18:04,800 Speaker 1: I thought that was unique, uh, Diane, Speaking of that, Diane, 331 00:18:05,040 --> 00:18:08,159 Speaker 1: you know the concept of flyover. I was talking to 332 00:18:08,240 --> 00:18:11,199 Speaker 1: Richard has about this this morning. You got the elites 333 00:18:11,240 --> 00:18:14,119 Speaker 1: on the East coast, elites on the West coast, and 334 00:18:14,160 --> 00:18:18,840 Speaker 1: there's this concept of flyover. Do you buy that? You know, 335 00:18:19,160 --> 00:18:21,959 Speaker 1: it's been out there for a while and it is 336 00:18:22,160 --> 00:18:25,600 Speaker 1: you know, having living in the Second City, Chicago, UM, 337 00:18:26,000 --> 00:18:28,080 Speaker 1: we certainly have had to deal with it over the 338 00:18:28,119 --> 00:18:29,800 Speaker 1: years and I do think there is some of this 339 00:18:29,920 --> 00:18:33,680 Speaker 1: idea of sort of bubbles on two coasts. That said, 340 00:18:34,119 --> 00:18:35,560 Speaker 1: I think there's a lot of you know, there's just 341 00:18:35,600 --> 00:18:38,600 Speaker 1: a difference across the country and come inequalities or something 342 00:18:38,640 --> 00:18:42,760 Speaker 1: that rural versus non rural areas, urban versus non urban areas. 343 00:18:43,080 --> 00:18:45,359 Speaker 1: You know, you see it in the Chicago metropolitan area, 344 00:18:45,480 --> 00:18:48,240 Speaker 1: within the city versus outside of the city. Pockets within 345 00:18:48,280 --> 00:18:51,280 Speaker 1: the city, extremely poor pockets within the city. You know, 346 00:18:51,359 --> 00:18:54,879 Speaker 1: we're husing prices as far exceeded their previous highs, and 347 00:18:55,000 --> 00:18:58,720 Speaker 1: wealth is accumulating. So it really although yes, it's an 348 00:18:58,760 --> 00:19:01,919 Speaker 1: interesting way to simplify the income inequality concept and the 349 00:19:01,960 --> 00:19:03,960 Speaker 1: idea that we live in bubbles and we don't really 350 00:19:04,040 --> 00:19:07,000 Speaker 1: understand the breadth of what we're dealing with. Come on, 351 00:19:07,040 --> 00:19:10,280 Speaker 1: we've been talking about income inequalities since um, well for 352 00:19:10,320 --> 00:19:13,280 Speaker 1: a while actually since the nineteen eighties, as I recall it, 353 00:19:13,400 --> 00:19:16,520 Speaker 1: that's my career. And it got it got worse in 354 00:19:16,600 --> 00:19:18,280 Speaker 1: the nine nineties, and then we got a bit of 355 00:19:18,320 --> 00:19:20,840 Speaker 1: a reprieve because there really was a sense when unemployment 356 00:19:20,920 --> 00:19:24,440 Speaker 1: self so low that the tide came in for almost everyone. 357 00:19:24,520 --> 00:19:26,880 Speaker 1: Even though the income inequalities were there you at least 358 00:19:26,880 --> 00:19:29,440 Speaker 1: had a chance of getting a fairly good job, even 359 00:19:29,520 --> 00:19:32,240 Speaker 1: in fast food. In places like that, you've got bonuses 360 00:19:32,400 --> 00:19:34,360 Speaker 1: to get a job at McDonald's back in the late 361 00:19:34,400 --> 00:19:37,399 Speaker 1: nine nineties. Um, and that's what shifted is you know, 362 00:19:37,480 --> 00:19:40,160 Speaker 1: we once hit a cushion with this concept of income 363 00:19:40,200 --> 00:19:42,960 Speaker 1: inequalities where you could either use debt or you had 364 00:19:43,000 --> 00:19:44,879 Speaker 1: such a good economy that you got to ride the 365 00:19:44,880 --> 00:19:47,600 Speaker 1: wave at least for a little bit. Now there isn't 366 00:19:47,600 --> 00:19:50,000 Speaker 1: dead sense, and I think that's where it's coming from. 367 00:19:50,040 --> 00:19:52,639 Speaker 1: But you know, flyover is an easy way to say it, 368 00:19:52,680 --> 00:19:59,520 Speaker 1: but it's here too. DS Economics featuring tomorrow one of 369 00:19:59,520 --> 00:20:06,240 Speaker 1: my ancient charts on manufacturing employment adjusted for population, and 370 00:20:06,280 --> 00:20:09,240 Speaker 1: as you know, it's been a gradual decline since the forties. 371 00:20:09,920 --> 00:20:13,160 Speaker 1: And then it's just amazing the kinked nature of the curve, 372 00:20:13,320 --> 00:20:17,639 Speaker 1: the abruptness of the last decade. What happened in the 373 00:20:17,720 --> 00:20:22,240 Speaker 1: last decade to kink the trend to a dramatically lower 374 00:20:22,640 --> 00:20:27,639 Speaker 1: manufacturing employment. Well, everything from foreign competition, which is what 375 00:20:27,760 --> 00:20:31,480 Speaker 1: the election gets alludes to, but really it was automation. Um, 376 00:20:31,560 --> 00:20:34,040 Speaker 1: we saw a major automation. We actually produced a lot 377 00:20:34,080 --> 00:20:35,919 Speaker 1: of stuff here. I get the irritate and people say, 378 00:20:35,920 --> 00:20:37,600 Speaker 1: we don't produce anything here, and like, yes, we do, 379 00:20:37,840 --> 00:20:39,640 Speaker 1: we just do it with robots and we do what's 380 00:20:39,760 --> 00:20:42,000 Speaker 1: called behind the glass. You talked to any manufacturer in 381 00:20:42,000 --> 00:20:44,840 Speaker 1: the United States, and they hire people who work behind 382 00:20:44,840 --> 00:20:47,680 Speaker 1: the glass now not on the line. Um. That means 383 00:20:47,680 --> 00:20:50,520 Speaker 1: they operate computers and need a different skill set than 384 00:20:50,760 --> 00:20:53,080 Speaker 1: people who once worked on the line do, and that 385 00:20:53,240 --> 00:20:55,600 Speaker 1: changes the nature of production quite a bit. We've seen 386 00:20:55,840 --> 00:20:59,760 Speaker 1: major advances in productivity growth in the manufacturing sector over 387 00:20:59,760 --> 00:21:02,520 Speaker 1: the I think back to the nineteen seventies when I 388 00:21:02,560 --> 00:21:05,720 Speaker 1: was growing up in the Detroit area and GM was 389 00:21:05,760 --> 00:21:09,919 Speaker 1: the largest employer in the United States. Today Walmart is 390 00:21:09,920 --> 00:21:12,520 Speaker 1: the largest employer in the United States. So, you know, 391 00:21:12,680 --> 00:21:15,280 Speaker 1: that's a very simplistic way at looking at the changes 392 00:21:15,359 --> 00:21:18,240 Speaker 1: we've seen, but it really is a very different world 393 00:21:18,240 --> 00:21:21,199 Speaker 1: when it takes less people to make more things and 394 00:21:21,240 --> 00:21:26,720 Speaker 1: there's not really any future for people. I mean, we're 395 00:21:26,720 --> 00:21:28,800 Speaker 1: not going to add more people no matter what. We're 396 00:21:28,800 --> 00:21:31,560 Speaker 1: not going to add another million people to manufacturing employment, 397 00:21:31,560 --> 00:21:33,440 Speaker 1: which is kind of what some of the promises are 398 00:21:33,440 --> 00:21:36,119 Speaker 1: out there, and it really is a false promise and 399 00:21:36,359 --> 00:21:38,800 Speaker 1: it's a the idea that you can turn back behind 400 00:21:38,880 --> 00:21:42,040 Speaker 1: the hands of client of time is just a misnomer, 401 00:21:42,200 --> 00:21:45,280 Speaker 1: and you know, it's one that tends to happen regularly. 402 00:21:45,320 --> 00:21:47,320 Speaker 1: We get these cycles. We had one in the nineteen 403 00:21:47,359 --> 00:21:50,680 Speaker 1: twenties and the nineteen thirties as well as we hit industrialization, 404 00:21:50,760 --> 00:21:53,800 Speaker 1: and people got very frustrated with it. And these are 405 00:21:53,880 --> 00:21:57,399 Speaker 1: things that are the themes are the same, but every 406 00:21:57,440 --> 00:21:59,640 Speaker 1: time we come out of it, we evolve a different way. 407 00:21:59,640 --> 00:22:02,320 Speaker 1: And clearly we need to change some of how we 408 00:22:02,440 --> 00:22:05,480 Speaker 1: do with our economy and those who have been left behind. 409 00:22:05,520 --> 00:22:08,439 Speaker 1: We have not educated or invested in human capital. We 410 00:22:08,560 --> 00:22:10,639 Speaker 1: decided to leave that on the sidelines. And people have 411 00:22:10,640 --> 00:22:12,919 Speaker 1: been arguing that for decades. I mean, I don't I 412 00:22:12,920 --> 00:22:17,000 Speaker 1: don't think one presidential candidate up until recently that has 413 00:22:17,119 --> 00:22:20,160 Speaker 1: run has not said something about education. And I think, 414 00:22:20,240 --> 00:22:22,280 Speaker 1: you know, investing in human capital is really important. But 415 00:22:22,359 --> 00:22:24,880 Speaker 1: let's face it, in the United States, educational investments done 416 00:22:24,880 --> 00:22:26,639 Speaker 1: at the state and local level. It's hard to fix 417 00:22:27,040 --> 00:22:29,640 Speaker 1: at the federal level. And even if you started now, 418 00:22:29,680 --> 00:22:33,320 Speaker 1: it's only going to affect younger people. It's not exactly 419 00:22:33,359 --> 00:22:35,119 Speaker 1: and it takes and that's one of the reasons you 420 00:22:35,160 --> 00:22:36,960 Speaker 1: don't get it um is because by the time you 421 00:22:37,040 --> 00:22:40,080 Speaker 1: reap the benefits of major changes in education, the people 422 00:22:40,119 --> 00:22:42,159 Speaker 1: who put it in place are no longer around to 423 00:22:42,200 --> 00:22:44,520 Speaker 1: take the credit for it. Um. Although you know, I'm 424 00:22:44,520 --> 00:22:47,000 Speaker 1: always shocked is you know, people say there's nothing that 425 00:22:47,080 --> 00:22:49,000 Speaker 1: can be done, and you know, I happen to work 426 00:22:49,040 --> 00:22:52,560 Speaker 1: with several groups that actually do work in in neighborhoods 427 00:22:52,560 --> 00:22:54,919 Speaker 1: where you wouldn't expect people to be able to succeed in. 428 00:22:54,960 --> 00:22:58,600 Speaker 1: They're getting college degrees and they're getting educated and they're 429 00:22:58,640 --> 00:23:01,480 Speaker 1: able to get their skills over a gap. It takes 430 00:23:01,480 --> 00:23:02,960 Speaker 1: a lot of help, it takes a lot of work, 431 00:23:03,000 --> 00:23:04,679 Speaker 1: but they can do it. And the fact that they 432 00:23:04,720 --> 00:23:06,919 Speaker 1: can gives me hope that there is also a shorter 433 00:23:07,200 --> 00:23:10,399 Speaker 1: term um fixed to our problems. But we just don't 434 00:23:10,480 --> 00:23:12,760 Speaker 1: want to look at them because they they affect people 435 00:23:12,800 --> 00:23:15,040 Speaker 1: that a lot of people think don't vote or just 436 00:23:15,080 --> 00:23:18,280 Speaker 1: don't deserve a lot of attention. We do have the 437 00:23:18,359 --> 00:23:21,960 Speaker 1: job's report end of the week, and you were you're 438 00:23:22,119 --> 00:23:28,200 Speaker 1: in the camp that expects reasonable reasonable number and people 439 00:23:28,200 --> 00:23:30,280 Speaker 1: coming back into the labor force. How does that affect 440 00:23:30,280 --> 00:23:33,960 Speaker 1: the FED going towards now? Yeah, not much. You know, 441 00:23:34,119 --> 00:23:35,639 Speaker 1: you would think it should affect the fact. I mean, 442 00:23:35,680 --> 00:23:37,280 Speaker 1: if you go down the checklist of what the FED 443 00:23:37,359 --> 00:23:40,160 Speaker 1: originally said, you know, it would be its criterion data dependence, 444 00:23:40,359 --> 00:23:43,720 Speaker 1: which I believe has become event dependent. Um, you would 445 00:23:43,800 --> 00:23:45,760 Speaker 1: argue that if it should be raising rates now. But 446 00:23:45,840 --> 00:23:49,120 Speaker 1: I think the September meeting will be a hotly debated meeting. 447 00:23:49,160 --> 00:23:50,359 Speaker 1: But I don't think they're going to do it. I 448 00:23:50,359 --> 00:23:52,199 Speaker 1: don't think they're going to pull the trigger because of 449 00:23:52,240 --> 00:23:55,560 Speaker 1: the uncertainty and heads that f has. They really don't 450 00:23:55,560 --> 00:23:57,680 Speaker 1: want to go negative on rates. They really don't want 451 00:23:57,720 --> 00:24:01,719 Speaker 1: to do more unconventional policies. And in response to not 452 00:24:01,840 --> 00:24:04,600 Speaker 1: wanting to do that, if the economy falters, they'd rather 453 00:24:04,880 --> 00:24:08,280 Speaker 1: provide a cushion of additional easing um to be able 454 00:24:08,320 --> 00:24:10,840 Speaker 1: to get us through this period in time of a 455 00:24:10,880 --> 00:24:13,840 Speaker 1: global economy where central banks continue to ease and there's 456 00:24:13,880 --> 00:24:16,879 Speaker 1: a lot of fragilities that said, you know it is 457 00:24:16,960 --> 00:24:18,320 Speaker 1: it is a bit of a catch twenty two for 458 00:24:18,400 --> 00:24:20,760 Speaker 1: the FETE because you really do start wondering what are 459 00:24:20,760 --> 00:24:24,000 Speaker 1: the unintended consequences. I think we're already seeing them move 460 00:24:24,040 --> 00:24:27,439 Speaker 1: back into emerging markets. Um of people's reach for yield, 461 00:24:27,640 --> 00:24:29,480 Speaker 1: and this is you know, the SET is in a 462 00:24:29,520 --> 00:24:32,760 Speaker 1: bit of a conundrum in this situation because if they 463 00:24:32,840 --> 00:24:36,600 Speaker 1: raise rates, even though I think the domestic economy justifies it, 464 00:24:36,840 --> 00:24:39,840 Speaker 1: the international context in which we operate may not, and 465 00:24:40,000 --> 00:24:43,240 Speaker 1: the repercussions to that could be large enough that then 466 00:24:43,280 --> 00:24:45,240 Speaker 1: the SET has to do something different, and I think 467 00:24:45,560 --> 00:24:49,920 Speaker 1: that's left them frozen and paralyzed extent. Do you suggest 468 00:24:49,960 --> 00:24:54,800 Speaker 1: that right now the FED is ultra accommodative. Yes they are, 469 00:24:55,000 --> 00:24:57,439 Speaker 1: and we you know, we look at inflation is picking 470 00:24:57,520 --> 00:24:59,040 Speaker 1: up and it will come off a bit because all 471 00:24:59,160 --> 00:25:02,080 Speaker 1: parces have come. But you know, this is um. You know, 472 00:25:02,119 --> 00:25:05,280 Speaker 1: the things the FED had argued would be the major 473 00:25:05,359 --> 00:25:07,960 Speaker 1: things that would allow inflation to pick back up are 474 00:25:08,000 --> 00:25:11,840 Speaker 1: now occurring. The dollar has um not appreciate it anymore, 475 00:25:12,080 --> 00:25:15,320 Speaker 1: and that is helping us to see import prices level out, 476 00:25:15,400 --> 00:25:19,119 Speaker 1: no longer bring down overall inflation. And in the service sector, 477 00:25:19,160 --> 00:25:22,840 Speaker 1: where there is very little competition, we are seeing prices 478 00:25:22,960 --> 00:25:26,359 Speaker 1: edge up now nothing flaming, nothing flaring. But if you 479 00:25:26,400 --> 00:25:29,000 Speaker 1: look at the underlying you know, inflation picture, in the 480 00:25:29,080 --> 00:25:33,680 Speaker 1: underlying employment picture not perfect. Let's face it, it's it's 481 00:25:33,720 --> 00:25:37,560 Speaker 1: matt the FEDS criteria if they really want to be preemptive. Now, 482 00:25:37,760 --> 00:25:40,240 Speaker 1: there are many unde FED who would like to overshoot 483 00:25:40,320 --> 00:25:43,320 Speaker 1: on inflation and unemployment, and that is I think the 484 00:25:43,359 --> 00:25:45,760 Speaker 1: most important thing to understand as well. I think Sana 485 00:25:45,840 --> 00:25:48,280 Speaker 1: Yawn is in that camp. Diane, thank you so much 486 00:25:48,280 --> 00:26:03,560 Speaker 1: to Ansling, you noted this morning well as your partner 487 00:26:03,600 --> 00:26:08,120 Speaker 1: in crime. On Bloombergshiilence Television, Frenzy Lakwa had a great 488 00:26:08,200 --> 00:26:11,760 Speaker 1: chart of the move index bond market volatility and how 489 00:26:11,800 --> 00:26:17,159 Speaker 1: it has just evaporated. And uh, Rocky Fishman is with 490 00:26:17,359 --> 00:26:20,400 Speaker 1: Deutsche Bank and he keeps track of vall. I mean 491 00:26:20,480 --> 00:26:24,000 Speaker 1: he's the director of equity Derivatives and that that that 492 00:26:24,000 --> 00:26:25,960 Speaker 1: that was a bond market measure. But the same things 493 00:26:25,960 --> 00:26:29,760 Speaker 1: happened in the equity markets. It was right after Brexit. 494 00:26:30,600 --> 00:26:33,920 Speaker 1: Everything was kind of going crazy and then it stopped. 495 00:26:34,280 --> 00:26:37,199 Speaker 1: Did everybody just selling me and go away or or 496 00:26:37,240 --> 00:26:40,880 Speaker 1: is there something broader going on here? Yeah? Well it's 497 00:26:40,920 --> 00:26:44,000 Speaker 1: really been um one of the most historic drops and 498 00:26:44,080 --> 00:26:47,280 Speaker 1: volatility that we've ever seen. UM. All asset classes have 499 00:26:47,320 --> 00:26:51,200 Speaker 1: seen implied volatility, realized volatility dropped very quickly. UM, which 500 00:26:51,280 --> 00:26:54,080 Speaker 1: really means that markets have just stopped moving. But that 501 00:26:54,160 --> 00:26:57,640 Speaker 1: has been more exacerbated in equities and especial US equities 502 00:26:57,640 --> 00:27:00,840 Speaker 1: than any other UM asset class. UM. You know, we've 503 00:27:00,880 --> 00:27:03,359 Speaker 1: seen obviously seen the VIX drop into the twelves. It 504 00:27:03,359 --> 00:27:05,639 Speaker 1: could actually be lower than that. UM. If you just 505 00:27:05,720 --> 00:27:08,240 Speaker 1: look at the day to day moves on the SMP 506 00:27:08,400 --> 00:27:12,320 Speaker 1: five hundred UM, they have been exceptionally low. The last 507 00:27:12,359 --> 00:27:15,600 Speaker 1: thirteen trading days, we've been staying in a trading range 508 00:27:15,640 --> 00:27:18,120 Speaker 1: that's been less than two thirds of a percent. That's 509 00:27:18,160 --> 00:27:20,960 Speaker 1: pretty much the lowest trading range ever of a period 510 00:27:21,000 --> 00:27:23,960 Speaker 1: of that length. And this is just weeks after we 511 00:27:24,040 --> 00:27:26,960 Speaker 1: had a very very volatile period around the Brexit vote. 512 00:27:28,680 --> 00:27:31,119 Speaker 1: I think what it means is that, um, we're in 513 00:27:31,119 --> 00:27:34,440 Speaker 1: a new regime for volatility. The market is not going 514 00:27:34,480 --> 00:27:36,680 Speaker 1: to just behave in a certain way for an extended 515 00:27:36,680 --> 00:27:40,040 Speaker 1: period of time, but instead it'll change directions, not just 516 00:27:40,160 --> 00:27:42,960 Speaker 1: change directions, but change its behavior. It's day to day 517 00:27:43,320 --> 00:27:48,280 Speaker 1: patterns very quickly. See that Mike Bullard speaks and all 518 00:27:48,320 --> 00:27:54,719 Speaker 1: the you know, the multidegree start talking of regimes. Uh, well, 519 00:27:55,480 --> 00:27:58,920 Speaker 1: what brought it on? I mean? What? Well? I mean, 520 00:27:58,960 --> 00:28:01,120 Speaker 1: I think first of all, that important catalyst is out 521 00:28:01,119 --> 00:28:04,359 Speaker 1: of the way. Um, people are you know, clearly putting 522 00:28:04,359 --> 00:28:07,600 Speaker 1: off any views about the FED hiking for a little while. Um. 523 00:28:07,640 --> 00:28:11,400 Speaker 1: But also it's just people get more comfortable with equities 524 00:28:11,440 --> 00:28:13,639 Speaker 1: as volatility goes down, and it does create a bit 525 00:28:13,640 --> 00:28:16,200 Speaker 1: of a feedback loop in the market where you see 526 00:28:16,440 --> 00:28:20,119 Speaker 1: markets not being volatile, people get more comfortable investing. There 527 00:28:20,119 --> 00:28:24,160 Speaker 1: are also structured products that systematically will allocate back into 528 00:28:24,200 --> 00:28:27,560 Speaker 1: equities as equities get safer. I think that people are 529 00:28:27,680 --> 00:28:30,960 Speaker 1: more and more focused on safety and avoiding periods of 530 00:28:31,000 --> 00:28:33,520 Speaker 1: high risk, and when risk is going away, people get 531 00:28:33,520 --> 00:28:36,480 Speaker 1: more comfortable investing, and then markets just slow down. But 532 00:28:36,640 --> 00:28:38,680 Speaker 1: this wasn't what was supposed to happen. Tom and I 533 00:28:38,720 --> 00:28:41,480 Speaker 1: went over to the United Kingdom for the Brexit vote, 534 00:28:41,520 --> 00:28:45,920 Speaker 1: and when everybody voted to leave the EU, every analyst 535 00:28:45,960 --> 00:28:47,520 Speaker 1: in what, we're gonna have a lot of molatility now 536 00:28:47,560 --> 00:28:50,000 Speaker 1: because we don't know what's going to happen going forward. Well, 537 00:28:50,000 --> 00:28:52,160 Speaker 1: the amazing thing with the equity markets has been that 538 00:28:52,280 --> 00:28:55,760 Speaker 1: over the last couple of years, catalysts have typically been 539 00:28:55,840 --> 00:28:58,960 Speaker 1: disappointing people who are looking for volatility, usually when there's 540 00:28:58,960 --> 00:29:02,720 Speaker 1: a big FED meeting or other important seeming catalysts, markets 541 00:29:02,720 --> 00:29:05,200 Speaker 1: don't move as much as people are expecting going into 542 00:29:05,240 --> 00:29:07,840 Speaker 1: the event. Breggsit was the one big exception to that, 543 00:29:07,880 --> 00:29:10,560 Speaker 1: but it lasted for a very short time. Um, this 544 00:29:10,600 --> 00:29:12,840 Speaker 1: is an event that was so well anticipated. There was 545 00:29:12,880 --> 00:29:16,240 Speaker 1: nothing that could have happened that would have really rocked 546 00:29:16,280 --> 00:29:19,400 Speaker 1: people's worlds. People had planned out what ifs for both 547 00:29:19,440 --> 00:29:22,400 Speaker 1: the stay and the leave votes, um, and once the 548 00:29:22,480 --> 00:29:25,680 Speaker 1: leave actually happened, there were there was plenty of research, 549 00:29:25,720 --> 00:29:27,800 Speaker 1: plenty of analysis that was ready to go to help 550 00:29:27,800 --> 00:29:31,320 Speaker 1: people get comfortable with this new post Breggsit world. How 551 00:29:31,520 --> 00:29:33,600 Speaker 1: out of and I'm using this not skew as a 552 00:29:33,640 --> 00:29:37,600 Speaker 1: cross movement. How out does skew? Is the VIX right now? 553 00:29:38,240 --> 00:29:40,560 Speaker 1: Is it a valuable to I mean, I just looked 554 00:29:40,600 --> 00:29:44,480 Speaker 1: at the there's a fancy, fancy Bloomberg volatility surface of 555 00:29:44,520 --> 00:29:48,160 Speaker 1: the VIX which clearly shows that you would assume stocks 556 00:29:48,200 --> 00:29:52,240 Speaker 1: go down higher VIX. I get that, But how skewed? 557 00:29:52,320 --> 00:29:56,240 Speaker 1: How what's the belief of that bet right now? Well, 558 00:29:56,520 --> 00:29:59,400 Speaker 1: the VIX is not a perfect measure of volatility, and 559 00:29:59,440 --> 00:30:03,040 Speaker 1: it doesn't correlate a lot with where the market is going. 560 00:30:03,160 --> 00:30:06,080 Speaker 1: So when markets are rallying, the VIX is typically going down. 561 00:30:06,480 --> 00:30:09,720 Speaker 1: But that's connected with the fact that markets are rallying 562 00:30:09,800 --> 00:30:12,520 Speaker 1: when investors are getting more comfortable with the world. So 563 00:30:12,880 --> 00:30:15,920 Speaker 1: people are realizing that whatever risks are out there are 564 00:30:15,960 --> 00:30:19,320 Speaker 1: not as significant as perhaps people thought. Is that what's 565 00:30:19,320 --> 00:30:21,480 Speaker 1: happening right now? I mean, stocks go up and you're 566 00:30:21,480 --> 00:30:24,760 Speaker 1: telling me people are comfortable. I think people are getting 567 00:30:24,800 --> 00:30:28,280 Speaker 1: more comfortable. Yeah, with the fact that the big risks 568 00:30:28,320 --> 00:30:30,320 Speaker 1: that they saw a month ago, that the idea that 569 00:30:30,360 --> 00:30:33,520 Speaker 1: breaks it as a systemic risk, that's something that's starting 570 00:30:33,520 --> 00:30:36,120 Speaker 1: to fade away. People are getting more comfortable with this world. 571 00:30:36,400 --> 00:30:38,520 Speaker 1: I think at the same time, there's a lot of 572 00:30:38,520 --> 00:30:41,920 Speaker 1: nervousness that this could change, and investors know that for 573 00:30:41,960 --> 00:30:44,320 Speaker 1: the time being, stocks are not moving around a lot. 574 00:30:44,320 --> 00:30:46,840 Speaker 1: It feels like a safe environment. People are reallocating more 575 00:30:46,840 --> 00:30:49,720 Speaker 1: into equities that can change really quickly. We've seen more 576 00:30:49,760 --> 00:30:52,800 Speaker 1: and more over the last couple of years that volatility 577 00:30:52,840 --> 00:30:55,520 Speaker 1: itself can change directions very quickly. When you get into 578 00:30:55,520 --> 00:30:59,640 Speaker 1: sell offs, they unfold faster and faster than ever before. Mike, 579 00:30:59,680 --> 00:31:02,200 Speaker 1: I just want to bring up there's a technical study 580 00:31:02,240 --> 00:31:05,840 Speaker 1: in the Fisherman world at Deutsche Bank called a d 581 00:31:06,120 --> 00:31:10,000 Speaker 1: x D m I and it shows uh selling or 582 00:31:10,080 --> 00:31:15,800 Speaker 1: a dearth of selling versus a lot of buying of SMB. 583 00:31:16,360 --> 00:31:19,920 Speaker 1: Is that what it's about, a dearth on an asymmetric basis, 584 00:31:19,920 --> 00:31:23,640 Speaker 1: it's about a lack of sellers. I mean, the reality 585 00:31:23,720 --> 00:31:26,200 Speaker 1: is that volumes are light in both directions, but net 586 00:31:26,200 --> 00:31:27,920 Speaker 1: and that when the market is going up, I think 587 00:31:27,920 --> 00:31:31,080 Speaker 1: that it's just that there's more marginal buyers coming in. 588 00:31:31,240 --> 00:31:34,640 Speaker 1: So I think it's just there's not a lot of conviction. 589 00:31:35,120 --> 00:31:38,840 Speaker 1: And as markets stay more calm, as volatility stays low, 590 00:31:38,880 --> 00:31:41,560 Speaker 1: people get a little bit more comfortable every day with 591 00:31:41,880 --> 00:31:44,240 Speaker 1: getting into equities, at least for the short term. Just 592 00:31:44,440 --> 00:31:47,360 Speaker 1: had a very good email come in and it's something 593 00:31:47,360 --> 00:31:50,040 Speaker 1: that we take for granted along with Global Wall Street, 594 00:31:50,080 --> 00:31:53,720 Speaker 1: but for those of you that are not Wall Street sophisticates, 595 00:31:53,800 --> 00:31:57,360 Speaker 1: it's a great email. Can you talk to Rocky Fisherman 596 00:31:57,520 --> 00:32:02,440 Speaker 1: about Deutsche Bank? Mr? Fisherman is with Deutsche Bank, he 597 00:32:02,560 --> 00:32:05,840 Speaker 1: is in equities and derivatives. And the way it works 598 00:32:05,840 --> 00:32:10,440 Speaker 1: on Global Wall Street is with any institution, whether it's 599 00:32:10,480 --> 00:32:13,800 Speaker 1: a mutual fund company or a big a regional small bank, 600 00:32:14,600 --> 00:32:19,160 Speaker 1: only the executives of the institution really can speak about 601 00:32:19,200 --> 00:32:22,280 Speaker 1: the Bank, And in terms of any major bank, it's 602 00:32:22,320 --> 00:32:25,440 Speaker 1: usually only one or two people, including Mr. Crying. And 603 00:32:25,520 --> 00:32:29,960 Speaker 1: so even though Deutsche banks in the news, it's impolite 604 00:32:30,640 --> 00:32:34,440 Speaker 1: for me to waste the audiences time asking Rocky about 605 00:32:34,480 --> 00:32:37,040 Speaker 1: Deutsche Bank because Rocky is gonna go Tom I really 606 00:32:37,080 --> 00:32:39,960 Speaker 1: can't talk about that or whatever he memorized from his 607 00:32:40,080 --> 00:32:42,440 Speaker 1: legal counsel. So we're not going to talk to Rocky 608 00:32:42,480 --> 00:32:45,640 Speaker 1: Fisherman about his bank, or for that matter, any other 609 00:32:45,680 --> 00:32:48,000 Speaker 1: specific banks, because he'd be putting the time out here. 610 00:32:48,160 --> 00:32:50,400 Speaker 1: Was that clear enough that he could talk about it? 611 00:32:51,280 --> 00:32:55,040 Speaker 1: That's all. So anyways, we're gonna migrate back to Rocky 612 00:32:55,040 --> 00:32:58,800 Speaker 1: Fisherman and good questions about this market. Rocky, there's Greek 613 00:32:58,880 --> 00:33:02,840 Speaker 1: letters within the market, Alpha and beta. Let's roar through it. 614 00:33:03,120 --> 00:33:07,200 Speaker 1: Beta is a comparison to some index, right, Yeah, I mean, 615 00:33:07,240 --> 00:33:11,000 Speaker 1: it's just that simple. It's something every institution uses his 616 00:33:11,120 --> 00:33:15,000 Speaker 1: beta work. The last couple of years beta analysis, well, 617 00:33:15,040 --> 00:33:16,800 Speaker 1: I mean in the sense that when stocks have been 618 00:33:16,840 --> 00:33:18,680 Speaker 1: going up, a lot of stocks have been going up 619 00:33:18,720 --> 00:33:21,840 Speaker 1: together with them. Um, you know, stocks have tended to 620 00:33:21,840 --> 00:33:25,240 Speaker 1: be more correlated and the aggregate over the last several years, 621 00:33:25,280 --> 00:33:27,840 Speaker 1: and they were over the previous several years. Um, So 622 00:33:27,880 --> 00:33:30,520 Speaker 1: that's definitely part of the story. And and every individual 623 00:33:30,560 --> 00:33:33,160 Speaker 1: stock has exposure to the market. Yeah. And then another 624 00:33:33,240 --> 00:33:35,760 Speaker 1: Greek letter, which a lot of people know is alpha. 625 00:33:36,080 --> 00:33:40,000 Speaker 1: People want to make alpha. Hedge funds want to make alpha. 626 00:33:40,760 --> 00:33:45,080 Speaker 1: People flunk this UNSEEFA exams. What's alpha that's making the 627 00:33:45,160 --> 00:33:49,320 Speaker 1: difference over the benchmark? Is that close enough? Yeah? Alpha 628 00:33:49,440 --> 00:33:52,680 Speaker 1: is really about getting an edge as an investor, and 629 00:33:52,760 --> 00:33:56,120 Speaker 1: that's something that more jargon e than Matthew. Would we 630 00:33:56,160 --> 00:33:59,160 Speaker 1: agree on that, right, more jargony than Matthew. It's very 631 00:33:59,160 --> 00:34:02,320 Speaker 1: difficult to make sure. It's very difficult to observe alpha. 632 00:34:02,640 --> 00:34:06,200 Speaker 1: Even if an investor is having better returns and potentially 633 00:34:06,240 --> 00:34:08,920 Speaker 1: lower volatility, for example, than the market, it might not 634 00:34:08,960 --> 00:34:11,360 Speaker 1: be alpha. It might be that we're just measuring returns 635 00:34:11,360 --> 00:34:13,719 Speaker 1: of volatility in a way that's different. So it is 636 00:34:13,719 --> 00:34:16,400 Speaker 1: something that's elusive to measure. It's something that really you 637 00:34:16,440 --> 00:34:18,640 Speaker 1: need to watch for the long term rather than just 638 00:34:18,680 --> 00:34:21,000 Speaker 1: a short term. Two more Greek letters. Delta is the 639 00:34:21,040 --> 00:34:24,319 Speaker 1: core one. What is delta? Remind us why delta is 640 00:34:24,480 --> 00:34:28,560 Speaker 1: so important to global Wall Street? Well, delta is really 641 00:34:28,600 --> 00:34:34,520 Speaker 1: exposure to markets really, Yeah, And um. When markets are moving, 642 00:34:34,520 --> 00:34:37,000 Speaker 1: there are some products that have more or less exposure 643 00:34:37,040 --> 00:34:40,120 Speaker 1: to that market. Options will sometimes be very in the money, 644 00:34:40,120 --> 00:34:43,480 Speaker 1: they'll have be very high delta. Options sometimes are very 645 00:34:43,520 --> 00:34:46,760 Speaker 1: far from paying off and can have very low delta. Okay, 646 00:34:46,760 --> 00:34:49,040 Speaker 1: that was I'll give you a B plus on that. 647 00:34:49,200 --> 00:34:51,960 Speaker 1: Now where I wanted to go alpha excuse me, beta, 648 00:34:52,400 --> 00:34:57,279 Speaker 1: alpha delta to the second derivative, the accelerative forces of 649 00:34:57,280 --> 00:35:00,800 Speaker 1: the market, the speed, the sweat, the fear in rocky, 650 00:35:00,880 --> 00:35:04,120 Speaker 1: you know that's gamma. I mean people are out there 651 00:35:04,239 --> 00:35:07,680 Speaker 1: dying to find whether it's convexity and bonds which is 652 00:35:07,719 --> 00:35:11,960 Speaker 1: another name for this, that accelerative force. Can you do 653 00:35:12,040 --> 00:35:15,240 Speaker 1: that in the news flow of the markets right now? 654 00:35:15,440 --> 00:35:18,680 Speaker 1: Are the markets so leaden that you almost give up 655 00:35:18,680 --> 00:35:21,959 Speaker 1: with trying to make that big move? Yeah? It really 656 00:35:21,960 --> 00:35:25,040 Speaker 1: depends on market conditions right now. I think that you 657 00:35:25,080 --> 00:35:28,520 Speaker 1: can acquire that gamma, for example, by buying short term options, 658 00:35:28,600 --> 00:35:31,080 Speaker 1: and it looks very cheap on the screens. People can 659 00:35:31,280 --> 00:35:33,719 Speaker 1: put on bets that would pay off really well if 660 00:35:33,760 --> 00:35:36,520 Speaker 1: markets started to move. But I can get really expensive 661 00:35:36,600 --> 00:35:39,200 Speaker 1: when we have a period like this when markets are 662 00:35:39,200 --> 00:35:42,440 Speaker 1: moving as little as they've moved in years, if not decades. 663 00:35:43,520 --> 00:35:46,040 Speaker 1: There's a cost. There's a cost of structuring yourself to 664 00:35:46,120 --> 00:35:47,839 Speaker 1: have a lot of gamma in your invest Like this 665 00:35:47,880 --> 00:35:50,440 Speaker 1: is really really important, and to take the math is 666 00:35:50,520 --> 00:35:54,279 Speaker 1: down to the common English. It looks so enticing to 667 00:35:54,360 --> 00:35:57,680 Speaker 1: make a big bet, but if the market doesn't move, 668 00:35:58,000 --> 00:36:01,080 Speaker 1: you eat the cost of your bet, right yeah, yeah, 669 00:36:01,520 --> 00:36:04,040 Speaker 1: what you're paying for those bets has gone down a lot. 670 00:36:04,120 --> 00:36:06,319 Speaker 1: You can buy the same option a lot cheaper now 671 00:36:06,360 --> 00:36:09,200 Speaker 1: than you would have a month ago, But you can 672 00:36:09,239 --> 00:36:11,799 Speaker 1: go through a continuation of the last few weeks when 673 00:36:11,840 --> 00:36:15,080 Speaker 1: markets movement is so slow, and that bet will just 674 00:36:15,239 --> 00:36:18,319 Speaker 1: not work, and it's very difficult. One of the top 675 00:36:18,400 --> 00:36:22,200 Speaker 1: challenges for people using options right now is deciding how 676 00:36:22,280 --> 00:36:24,120 Speaker 1: much they want to put on the table in terms 677 00:36:24,160 --> 00:36:27,000 Speaker 1: of owning gamma. For example, to use the Greek term again, 678 00:36:27,040 --> 00:36:29,200 Speaker 1: how much do you want to be exposed to a 679 00:36:29,280 --> 00:36:31,400 Speaker 1: view that things will start to move in your favor 680 00:36:31,440 --> 00:36:33,400 Speaker 1: in the next few days or weeks. Like this is 681 00:36:33,480 --> 00:36:36,040 Speaker 1: so important, and it goes back to reminiscences of a 682 00:36:36,080 --> 00:36:38,200 Speaker 1: stock operator where two thirds of the way through a 683 00:36:38,200 --> 00:36:43,400 Speaker 1: book written in what ninety with no Greek letters, no gamma, 684 00:36:43,440 --> 00:36:46,000 Speaker 1: no beta, no alpha, the guy says, you know what, 685 00:36:46,040 --> 00:36:48,120 Speaker 1: it gets so slow? Your best thing used to go 686 00:36:48,160 --> 00:36:53,319 Speaker 1: to Florida. That's that's that's a not Greek definition. Well, 687 00:36:53,360 --> 00:36:55,600 Speaker 1: I'm sure to here having no idea what anything you know, 688 00:36:55,680 --> 00:36:58,359 Speaker 1: you guys are talking about. But this is why Tom 689 00:36:58,440 --> 00:37:01,920 Speaker 1: is so much smarter than me with doing doing Greek. 690 00:37:02,520 --> 00:37:05,239 Speaker 1: I'll do Greek food, You do Greek letters like that, 691 00:37:05,400 --> 00:37:08,440 Speaker 1: you've done that, you've been to Hathens. We'll do the 692 00:37:09,000 --> 00:37:12,400 Speaker 1: Greek food in the Greek letters. One on on the horizon, 693 00:37:12,400 --> 00:37:14,840 Speaker 1: not not theoretically, but what do you see, if anything, 694 00:37:14,920 --> 00:37:18,040 Speaker 1: it's gonna bring volatility back? You know, it's very easy 695 00:37:18,040 --> 00:37:20,600 Speaker 1: to point the specific catalysts that are going to bring 696 00:37:20,600 --> 00:37:23,880 Speaker 1: back volatility, but the exercise of doing that over the 697 00:37:23,960 --> 00:37:26,120 Speaker 1: last couple of years has more often than not been 698 00:37:26,520 --> 00:37:30,200 Speaker 1: I've all been wrong. Um Volatility usually comes about when 699 00:37:30,280 --> 00:37:34,960 Speaker 1: you have multiple events happening, usually some of them or 700 00:37:35,000 --> 00:37:39,040 Speaker 1: all of them unanticipated, and people lose confidence in the markets. 701 00:37:38,880 --> 00:37:41,680 Speaker 1: It starts to play out when people start to sell 702 00:37:42,080 --> 00:37:45,680 Speaker 1: because of maybe some unexpected event happens, or maybe nothing happens, 703 00:37:45,719 --> 00:37:48,640 Speaker 1: and certain investors start to sell, markets start to move 704 00:37:48,640 --> 00:37:52,880 Speaker 1: and volatility can come back in a hurry, anything that 705 00:37:53,480 --> 00:37:56,279 Speaker 1: you're worried about that's going to cause that in the 706 00:37:56,320 --> 00:37:59,080 Speaker 1: near future, or is it just such an unknown. I mean, look, 707 00:37:59,120 --> 00:38:04,480 Speaker 1: the two things that people talk about the Mostever, last year, 708 00:38:04,680 --> 00:38:08,520 Speaker 1: we certainly had an amazing explosion of volatility last August. 709 00:38:08,560 --> 00:38:11,200 Speaker 1: It's not clear what happened that caused that. You can 710 00:38:11,239 --> 00:38:13,560 Speaker 1: point to the yuan devaluation, but that happened a week 711 00:38:13,600 --> 00:38:16,879 Speaker 1: before the volatility really picked up um And so it's 712 00:38:16,920 --> 00:38:19,840 Speaker 1: not really at those moments when everybody is watching an event, 713 00:38:19,920 --> 00:38:22,280 Speaker 1: like even though we had a big pickup and volatility 714 00:38:22,320 --> 00:38:25,080 Speaker 1: around the brigsit event that went away very quickly just 715 00:38:25,160 --> 00:38:27,759 Speaker 1: because people were really well prepared for that event. It's 716 00:38:27,800 --> 00:38:30,799 Speaker 1: really when something happens that investors are not prepared for, 717 00:38:31,080 --> 00:38:33,440 Speaker 1: the volatility can really spiral out of control. So when 718 00:38:33,440 --> 00:38:36,080 Speaker 1: I talk about catalysts in the system, whether we talk 719 00:38:36,120 --> 00:38:38,719 Speaker 1: about the FED or we talk about the elections, these 720 00:38:38,719 --> 00:38:41,560 Speaker 1: are things that people are talking about preparing for, and 721 00:38:41,680 --> 00:38:45,160 Speaker 1: it seems unlikely that those become the major catalysts for 722 00:38:45,320 --> 00:38:47,880 Speaker 1: driving the big pick up in index volatility. You know, 723 00:38:48,000 --> 00:38:49,880 Speaker 1: and we do think that the SMP will become a 724 00:38:49,920 --> 00:38:52,560 Speaker 1: lot more volatile before the year is out at some point. 725 00:38:52,560 --> 00:38:55,399 Speaker 1: It may not last for the long term, but it's very, 726 00:38:55,480 --> 00:38:58,359 Speaker 1: very difficult to point to what catalyzes that. This has 727 00:38:58,400 --> 00:39:01,680 Speaker 1: been wonderful alphabet again and on we go Rocky Fisherman 728 00:39:01,719 --> 00:39:03,600 Speaker 1: with Deutsche Bank as we look at the vall or 729 00:39:03,719 --> 00:39:06,560 Speaker 1: lack of all in the market. Thanks for your money, 730 00:39:06,680 --> 00:39:08,440 Speaker 1: We've got a ton of mail and Rocky Fisherman's on 731 00:39:08,600 --> 00:39:12,680 Speaker 1: people are like talk about like the dynamics, the dynamics 732 00:39:12,719 --> 00:39:18,040 Speaker 1: of the market. Thanks for listening to the Bloomberg Surveillance podcast. 733 00:39:18,400 --> 00:39:23,480 Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever 734 00:39:23,640 --> 00:39:27,560 Speaker 1: podcast platform you prefer. I'm on Twitter at Tom Keane, 735 00:39:27,960 --> 00:39:31,920 Speaker 1: Michael McKee is at Economy before the podcast. You can 736 00:39:31,960 --> 00:39:35,240 Speaker 1: always catch us worldwide. I'm Bloomberg Radio.