WEBVTT - Single Best Idea with Tom Keene: Ed Hyman and Paul Donovan

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Single best idea is

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<v Speaker 1>six seven minutes. So we're trying to keep a short podcast.

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<v Speaker 1>We know you listen to like two, three, four podcasts.

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<v Speaker 1>You have to listen to David Gura and the Big Take,

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<v Speaker 1>and what is there it's like twenty eight minutes or

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<v Speaker 1>eighteen minutes or you know, it's like it's like a

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<v Speaker 1>it's like it's like one of those old time movies

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<v Speaker 1>with intermission. It's like The Godfather, you know, and you

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<v Speaker 1>have to have an intermission. You have to have an

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<v Speaker 1>intermission in the middle of the Big Take. It's so

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<v Speaker 1>much ginormous. We're not doing that. We're doing a podcast

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<v Speaker 1>six minutes. Quick thought. You move on within your day,

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<v Speaker 1>and we thank you. Were thrilled it the way we're

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<v Speaker 1>moving up the charts, particularly in business News. Really really

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<v Speaker 1>appreciate all the initial interest, but what it's really about

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<v Speaker 1>the guests today. To pick two guests, we could have

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<v Speaker 1>done like six different single best ideas. Paul Donovin is

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<v Speaker 1>visible out on LinkedIn. He is wonderful at ubs. He's

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<v Speaker 1>acutely smart and always with a balanced look at probability

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<v Speaker 1>and the view out there. Every once in a while,

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<v Speaker 1>Donovan loses it. Here is Paul Donovin of UBS scathing

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<v Speaker 1>un the Fed. Let's listen.

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<v Speaker 2>The issue I think with Powell is, first we're getting

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<v Speaker 2>very very superficial analysis. So Pale saying, you know, inflation

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<v Speaker 2>is taking longer than expected to get to two percent.

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<v Speaker 2>That's not really true. Owner's equivalent rent, an obscure price

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<v Speaker 2>that no one actually pays, is taking longer than expected

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<v Speaker 2>to get to two percent. Everything else is in distincreation territory.

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<v Speaker 2>And the real problem I think with the Powell Fed

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<v Speaker 2>generally is there's no philosophy there. There's no medium term

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<v Speaker 2>framework in which policy is being done. So what we're

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<v Speaker 2>getting is we're data dependent. Well, firstly that's backwards looking. Secondly,

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<v Speaker 2>that's looking at unreliable real time data. We know data

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<v Speaker 2>quality has deteriorated significantly in the last decade. I'm Pal saying, no,

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<v Speaker 2>I'm just looking backwards. I'm not looking forwards. I'm not

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<v Speaker 2>going to give you a framework in which to think

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<v Speaker 2>about policy. That's why we've got, in my view, unnecessary

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<v Speaker 2>volatility in the market.

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<v Speaker 1>Paul Donovan and UBS, we want to touch on one

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<v Speaker 1>thing there that I think is important and that's the

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<v Speaker 1>British phrase. Medium term is a general rule in economics

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<v Speaker 1>in America. There's short term and long term. That's codified

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<v Speaker 1>within any textbook you want to look at. The British

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<v Speaker 1>have a holdover from ages ago where they look at

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<v Speaker 1>short term, medium term, and long term, and you'll get

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<v Speaker 1>some real, real, close argued discussions of this. I had

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<v Speaker 1>the clearest memory of a discussion with the Laureate of

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<v Speaker 1>Columbia Edmund Phelps Ned Phelps on this where he just said, look,

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<v Speaker 1>we're not going to do medium term time. I'm looking

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<v Speaker 1>at short term, whether it's marshally and microeconomics or at

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<v Speaker 1>something bigger, broader fed policy, the Taylor rule whatever. That's

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<v Speaker 1>a huge divide in economics between Paul Donovan out of

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<v Speaker 1>Oxford over in London looking at short term, medium term

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<v Speaker 1>and long term versus anybody in America that's like medium term,

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<v Speaker 1>come out, We're not going to do that. Someone who's

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<v Speaker 1>not going to do that is ed Heeyman. What a

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<v Speaker 1>joy to mister Hyman come in and visit with us

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<v Speaker 1>today Inner Studios here at seven point thirty one Lexington

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<v Speaker 1>ed Heeiman invented market economics, and I'm going to go

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<v Speaker 1>back with a major shout out to ed Yard Denny

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<v Speaker 1>and that CJ. Lawrence years ago pretty much invented chart

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<v Speaker 1>paragraph chart. I'll give a shout out to Lockman, Oxyton

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<v Speaker 1>and ECRI who was doing the same thing, very different economics.

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<v Speaker 1>But what Edheiman did at CJ. Lawrence was not iconic

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<v Speaker 1>at codified market economics. He still does that today in

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<v Speaker 1>his research note this morning. Yes, there was discussion of

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<v Speaker 1>the BAA spread and discussion of disinflation like we heard

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<v Speaker 1>FED policy, like what Paul Donovan talked about, but there

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<v Speaker 1>was also uncertainty of edheim and looking at the X

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<v Speaker 1>number of recessions he's been through and saying, do I

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<v Speaker 1>really know what's going on now?

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<v Speaker 3>I'm really struggling with this. I don't think it's different

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<v Speaker 3>this time. It's always different when you look back at it.

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<v Speaker 3>I've been through seven recessions. Everyone has been associated with

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<v Speaker 3>an inverted deal curve and there have been no fall signals,

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<v Speaker 3>hands down credit spreads. When I do a lot of

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<v Speaker 3>econometric work, they scream at you, and when they go down,

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<v Speaker 3>it says things are pretty good, and when they go up,

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<v Speaker 3>it says things are pretty bad. And right now, spreads

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<v Speaker 3>are tightening up, they're coming down, and so at the

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<v Speaker 3>moment it's beginning to be sprying here in the Tristate

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<v Speaker 3>area and everything's looking pretty good.

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<v Speaker 1>Ed Heimen there on credit spreads, one of the things

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<v Speaker 1>we try to do is get away from the jargon.

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<v Speaker 1>I fail at that to keep the interview going. And

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<v Speaker 1>we're worried about Lisa Mantal getting enough time or Michael

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<v Speaker 1>bar getting You know Michael Barr. You should see him

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<v Speaker 1>if he loses thirty six thirty seconds of airtime total tantrum,

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<v Speaker 1>I mean a complete cow. So you know we got

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<v Speaker 1>to be careful about that. I'm kidding, Eric, I'm kidding.

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<v Speaker 1>But you know the idea here is we can't always

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<v Speaker 1>translate the jargon. What's a spread? A spread is the

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<v Speaker 1>relationship of a corporate bond to a full faith in

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<v Speaker 1>credit government bond, something you can trust, like a treasury

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<v Speaker 1>The ten year treasury note is just one example. So

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<v Speaker 1>think of it in yield. When the yield comes down,

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<v Speaker 1>the price goes up in the yield comes down on

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<v Speaker 1>a corporate bond more than the government. Dynamic spreads narrow

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<v Speaker 1>the yield of a Colgate Palmala bond comes down closer

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<v Speaker 1>to the full faith in credit that spreads narrowing. I

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<v Speaker 1>hope that was somewhat clear. Was that even close? Eric?

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<v Speaker 1>I went down in flames? There didn't I got C minus. Anyways,

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<v Speaker 1>ed Heiman and Paul Donovan single best idea today. We're

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<v Speaker 1>out on Apple car Plight. Thank you so much for that.

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<v Speaker 1>Just amazed at YouTube. Just I don't know where this

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<v Speaker 1>YouTube thing's going, but we're building it out. Each and

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<v Speaker 1>every day you go to YouTube, you search Bloomberg Podcasts.

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<v Speaker 1>I'm shocked at how many people are watching this at home.

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<v Speaker 1>They're not on their cell phones. They're like watching YouTube

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<v Speaker 1>at home, which is very very cool. And thank you

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<v Speaker 1>to Apple and Apple Podcasts. This is single bets Idea

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<v Speaker 2>Seven