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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with

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Speaker 1: David Gura. Daily we bring you insight from the best

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Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance

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Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course

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Speaker 1: on the Bloomberg William Lee joining us now. He's the

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Speaker 1: chief economist at the Milk And Institute. He's our Bloomberg

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Speaker 1: Studios in Washington, DC. Bill, Great to speak with you

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Speaker 1: once again. Hey, Devora, let's start with that with this

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Speaker 1: parlor game. Given the news that we've gotten at the

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Speaker 1: President scheduled to meet with Janet Yelle a bit later

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Speaker 1: this week. What have we learned about what the presidents

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Speaker 1: and interested in in a future fed cheer from who

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Speaker 1: we've seen passed through the doores of the White House

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Speaker 1: over these last few weeks. I think like, unlike his

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Speaker 1: own behavior, I think Trump really wants someone he can

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Speaker 1: count on and is reliable and predictable, and so with

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Speaker 1: Janet Yellen, he's seen her performance, but then she's also

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Speaker 1: flip flopped a little bit, and since that, she was

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Speaker 1: a dog before and and and reluctant to to normalize

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Speaker 1: and now she's insistent on normalizing even though the data

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Speaker 1: are not coming in to support the two percent UH inflation.

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Speaker 1: Of course, the excuses what I've always called faith based forecasting,

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Speaker 1: which is I have a lot of faith in the

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Speaker 1: filter curve. I know it's gonna kick in, so trust me,

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Speaker 1: it's gonna come and we better start normalizing now. I

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Speaker 1: think the alternative for he, kind of like like John Taylor,

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Speaker 1: is that that we have a He presents a framework

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Speaker 1: and it's the Taylor rule, and the I think that

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Speaker 1: know Nothings on Wall Street says, oh my god, he's

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Speaker 1: such a hawkway going to get incredibly high interest rates.

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Speaker 1: And I think the one thing that we know about

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Speaker 1: John Taylor is that he's a sophisticated economist. He knows

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Speaker 1: when it is that he should not follow a rule,

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Speaker 1: uh exactly, even his own rule. And so with with John,

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Speaker 1: what we have is a more predictable framework that we

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Speaker 1: know he bases his decisions on. But he also takes

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Speaker 1: into account what's going on in the world. And the

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Speaker 1: key is he tells you how he gonna take into

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Speaker 1: account what's going on in the world and when he's

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Speaker 1: gonna get off the rule. So given the two choices, I,

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Speaker 1: of course was favorite John um and and And The

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Speaker 1: difficulty with yelling um in the language of the FOMC

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Speaker 1: right now is that a lot of it is based

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Speaker 1: on faith, and the faith that Wall Street and the

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Speaker 1: financial markets just don't have anymore, which is, we don't

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Speaker 1: believe inflation really is going to reach that two percent

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Speaker 1: in the near term. With respect to there's no nothings

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Speaker 1: you mentioned on on Wall Street, what would this mean

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Speaker 1: to to the markets? The implementations of more rules bathed

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Speaker 1: less faith based approach to monetary policy? Well so so,

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Speaker 1: so what's happening to the long race versus short rates? Um?

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Speaker 1: If you really believe that the FIT is gonna normalize

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Speaker 1: to the near three percent level, you have to ask

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Speaker 1: yourself what does that mean for inflation in the in

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Speaker 1: the in the long run, if you don't believe inflation

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Speaker 1: is gonna kick in, that means you're gonna get a

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Speaker 1: a flattening of that. You cerve the short race will

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Speaker 1: go up, but the long race of souls to be

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Speaker 1: nailed because there's no inflation and because the real rate,

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Speaker 1: the neutral real rate, is still near zero given that

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Speaker 1: we have no productivity growth. If you believe that, for example,

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Speaker 1: the tax increases will get to raise prouctivity and all

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Speaker 1: that kind of stuff. Uh, and our star is going

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Speaker 1: to start to rise. Then indeed, you will have a longer,

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Speaker 1: a longer, long run interest rate that's gonna be starting

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Speaker 1: to creep up. Now, now, what what was the fetchair

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Speaker 1: doing that circumstance, Well, the fet chair should be encouraging

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Speaker 1: those productivity increases. But that's that's going to come from

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Speaker 1: tax policy and quite frankly, from innovation, and that she

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Speaker 1: has no control over. The one thing you can do

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Speaker 1: is make market expectations go in incredible fashion to where

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Speaker 1: you really believe they're gonna go and and and right now,

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Speaker 1: given the amount of slack in the economy, even though

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Speaker 1: the unemployment rate is so low, and the unemployment rates

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Speaker 1: allows you measure slack, we know this slack because there's

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Speaker 1: a lot of there's no inflation, and there's also been

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Speaker 1: a lot of innovations supply shocks that have helped to

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Speaker 1: keep prices from going up. That is pricing power that

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Speaker 1: we have among producers, especially service producers, even are not

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Speaker 1: as strong as they used to be. So the likelihood

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Speaker 1: of rising inflation UH is also going to be very

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Speaker 1: low in the near term and and in the media

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Speaker 1: medium term. I mentioned a few moments ago Morgan Stanley's

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Speaker 1: latest numbers reporting the third quarter earnings for just a

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Speaker 1: few minutes ago, and I look at fixed sales and

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Speaker 1: trading beating estimates. I look at the investment banking beating

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Speaker 1: estimates as well. Going back to last week at the

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Speaker 1: banks reported, then we see um a lot of reporting

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Speaker 1: in line with expectations. Banks doing fairly well here in

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Speaker 1: the third quarter. What what is the role of rates,

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Speaker 1: the role of this conversation about fans and and what

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Speaker 1: we the fan and what we're seeing here from the

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Speaker 1: banks that last week and this weak I think you're

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Speaker 1: starting to see a shift in the role of banks.

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Speaker 1: And that's one of the things that we have milk

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Speaker 1: and are trying to to incentivize in our research agenda,

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Speaker 1: which is, let's consider what the role of banks and

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Speaker 1: intermediation is in a world where rates of return are low.

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Speaker 1: Public markets are trading at very low rates of return,

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Speaker 1: and investors are going into the private markets, private equity

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Speaker 1: and adventure capital, and these non traded markets are a

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Speaker 1: place where the large banks have a role of trying

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Speaker 1: to hook investors into and how they do that is

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Speaker 1: going to be the key to making money in the future,

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Speaker 1: whether it's bank lending or by way of starture products

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Speaker 1: to try to get the bank lending into the hands

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Speaker 1: of pension funds, insurance companies and longer term investors. So

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Speaker 1: the role of a bank and how a bank operates

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Speaker 1: in the future, that business model is going to have

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Speaker 1: to change to accommodate this new world of low inflation,

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Speaker 1: low real returns UM and and possibly more leverage UM.

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Speaker 1: One of the things that we always worry about, and

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Speaker 1: especially for someone like me from the I m F

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Speaker 1: where I used to be in charge of the the

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Speaker 1: analytic chapters of the Global Financial Stability Report, We're always

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Speaker 1: concerned that leverage is going to bring about weaknesses in

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Speaker 1: financial stability. But if you have a persistent low rate environment,

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Speaker 1: low inflation environment, then you could have more leverage that

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Speaker 1: could sustain the investment. William Lee with this, William Lee

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Speaker 1: of the Milk and Institute. Of course you've for him

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Speaker 1: for years at the City Group. I'm Bloomberg Surveillance. Good morning,

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Speaker 1: David Gerin, Tom Keene thrilled the you're with us UH

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Speaker 1: this morning Billy, I'm looking at sort of the mix

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Speaker 1: of our economics and our markets. And also I should

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Speaker 1: point out Pound Sterling, David Gurrow South on Governor Kearney's

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Speaker 1: comments on oh too, that's a significant drop. There was

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Speaker 1: a Swiss strength here, Swiss frank strength of the comments

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Speaker 1: as well. But you know, Billy, I I look at

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Speaker 1: all this discussion and as you mentioned, the new business model,

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Speaker 1: which means technology financial technology. Absolutely it was a it

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Speaker 1: was a backstory at i m F World Bank, which

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Speaker 1: is the total mystery we have of the technological impact

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Speaker 1: and effect on all of our listeners. It's extraordinary, isn't it. Absolutely?

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Speaker 1: And I think one of the things that that we're

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Speaker 1: misjudging is that, um, you know, I often have said

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Speaker 1: to you, you you know, I think the shadow economy, that

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Speaker 1: new economy, the sharing economy, is really quite small, because

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Speaker 1: Alan Kruger's estimate it shows that it's about one percent

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Speaker 1: of GDP. So you can say, oh my god, we

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Speaker 1: should ignore that. But the pricing power influence of AIRPNB

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Speaker 1: and and and and uber really is very pervasive. And

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Speaker 1: I think that's the thing what most economist are underestimating,

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Speaker 1: the positive supply shocks that are coming from these innovative

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Speaker 1: ways of getting services and goods to people. And that's

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Speaker 1: a glorial phenomenon. But Mr Alper's wonderful book on the

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Speaker 1: supply side economy and the supply shock is you put it,

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Speaker 1: there's the supply shock mean a new adjustment in our

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Speaker 1: traditional economics because there's too much stuff out there literally

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Speaker 1: because of technology. Well, I think what what this new

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Speaker 1: technology is giving is free entry. And if you have

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Speaker 1: free entry, that means that you don't have the kind

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Speaker 1: of monopolistic pricing power that people use in trade profit margins.

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Speaker 1: And so so it's really not so much that we

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Speaker 1: have too much stuff out there, but but the stuff

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Speaker 1: that we have. If if we really like one particular thing,

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Speaker 1: five competitors are gonna come and give us that same

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Speaker 1: thing very easily. And that's the key to the difference

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Speaker 1: in this new world versus what we had before. And

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Speaker 1: that's why the filmed current model has to be adjusted. Billy,

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Speaker 1: thank you so much. With the Milk and Institute, you

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Speaker 1: pick up Foreign Affairs magazine and usually you're angry because

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Speaker 1: you immediately see on the cover that this is going

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Speaker 1: to be brilliant. It's on current politics, or international relations.

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Speaker 1: And then David, you pick it up and the covers

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Speaker 1: America's forgotten wars. I'm like, what, why am I looking

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Speaker 1: at this? It's like, I don't get it. And then

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Speaker 1: from the first page, which is a heartbreaking analysis of Afghanistan,

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Speaker 1: it is every page of value, including a huge history

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Speaker 1: David Gura of Stalin and Hitler, which I found just riveting.

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Speaker 1: Taking through the rest, there's a rock, there's Syria. Gidding

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Speaker 1: Rose joins us now he's the editor of foreign affairs

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Speaker 1: magazine Choice US in our Blomberg eleven three oh studios.

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Speaker 1: It strikes, but we don't have a good sense at

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Speaker 1: how wars end these days. Yes they're forgotten, but they

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Speaker 1: don't end in the same way I did in the past.

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Speaker 1: When you look at Afghanistan, say, what's the the end game?

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Speaker 1: Is their consensus about how that conflict is going to

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Speaker 1: come to a close? Well, the best way to think

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Speaker 1: about that is war is a military action to achieve

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Speaker 1: some political result. And we tend to think, as Americans

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Speaker 1: in particular, about the military side of things, and so

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Speaker 1: we think that wars are about fighting and about bombs

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Speaker 1: and about guns and the generals and so forth, and

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Speaker 1: beating up the enemy like as if it's some boxing

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Speaker 1: match in a large scale when the fight ends when

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Speaker 1: you knock the other guy out, But in reality it's

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Speaker 1: a political gesture. This was klauss whole point. And the

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Speaker 1: goal of the war is not just a better piece

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Speaker 1: like a Catholic social doctrine, but a stable political situation.

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Speaker 1: So the way to end a war is to create

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Speaker 1: a polity after the fact that can survive on its own,

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Speaker 1: or to take the territory and bring it into yourself

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Speaker 1: and conquer it. Now, the basic problem that we had

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Speaker 1: in Iraq and in Afghanistan and many of these other

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Speaker 1: conflicts that were engaged in is we don't have a

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Speaker 1: path to creating a stable country to leave behind after

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Speaker 1: we leave, and so we kind of don't really know

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Speaker 1: what to do because if we walk away everything, we'll

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Speaker 1: go back to Hell in a hand basket. But if

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Speaker 1: we stay, it's kind of difficult. So that's the fundamental challenge.

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Speaker 1: There's no good easy answer. And what this package really

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Speaker 1: is about is how American strategic officials, how people who

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Speaker 1: seriously take foreign policy with the respect that it deserves

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Speaker 1: and military policy are trying to think through what US

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Speaker 1: policy should be in a variety of context Afghanistan, Syria, Iraq,

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Speaker 1: dealing with the Russian Eastern Front, cyber count homeland security,

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Speaker 1: and so forth. So it's an attempt to say this

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Speaker 1: is what serious professionals would be talking about if we

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Speaker 1: were actually having the conversation on American national security that

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Speaker 1: we should be having. Stanley with Crystal retired General Stanley

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Speaker 1: of Crystal writing with a former lieutenant colonel from the

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Speaker 1: Afghan Special Operations for US as he worked with while

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Speaker 1: he was in Afghanistan. What did you hear from the

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Speaker 1: President when he spoke about the future of Afghanistan a

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Speaker 1: few months ago? Now, he wasn't completely praised for for

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Speaker 1: what he had to say, but there were many who

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Speaker 1: thought he was delivering a serious speech, thinking seriously about

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Speaker 1: the future of that that conflict. What did you hear

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Speaker 1: from him as he addressed the troops. I thought the

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Speaker 1: Afghanistan speech was okay. It was less segregious than some

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Speaker 1: of the other ones. Um, it was written for him

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Speaker 1: and he said some of the right words. Um. I

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Speaker 1: we have a real problem now with the President because

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Speaker 1: we've never had a situation in which the most important

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Speaker 1: player in the world is somebody whose words can't be

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Speaker 1: taken seriously. And so, uh, we actually have a piece

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Speaker 1: coming up in a future issue that I'm thinking of

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Speaker 1: when the working title after credibility. But it really is

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Speaker 1: an interesting question. So I tend not to look at

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Speaker 1: the president's speeches at this point, and I think most

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Speaker 1: world leaders and most other people don't because he says

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Speaker 1: different things different days. Doesn't really clam to understand what

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Speaker 1: he's saying. And so it's better to watch US foreign

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Speaker 1: policy as if it's a TV with the sound turned off,

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Speaker 1: to whom were you're listening. Then if the sound has

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Speaker 1: turned off and you've got the radio one, I'm not listening.

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Speaker 1: I'm actually watching. And so what you see is again

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Speaker 1: essentially like what happened with Obamacare, which is the President

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Speaker 1: and some of his advisors have clearly decided they would

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Speaker 1: like to disrupt, destroy, and overturn the existing American farm

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Speaker 1: policy structure. Unfortunately, they don't have the power to do that,

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Speaker 1: and they don't have any idea of what to replace

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Speaker 1: it with. So having tried to screw it up and failed,

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Speaker 1: because the professionals and other allies and so forth have

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Speaker 1: kept the basic structure intact, the President is now petulantly

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Speaker 1: trying to destroy it through unilateral action, the same way

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Speaker 1: he's doing Obamacare. So basically, the Iran Deal decertification is

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Speaker 1: exactly the same kind of move as the loss of

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Speaker 1: the subsidies for Obamacare. It's a kind of spiteful attempt

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Speaker 1: to screw up a decent program that was actually potentially working,

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Speaker 1: even though he can't g rid of it with something better. Gidding,

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Speaker 1: thank you so much for being with us today on

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Speaker 1: television and radio. Can't say enough about Foreign Affairs magazine.

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Speaker 1: Whatever your politics, um, just article to article, just terrific reading.

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Speaker 1: I might point out the book review Joshua Green Mr

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Speaker 1: Bannon in the back of the book talks about the

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Speaker 1: importance of Mr Bannon and the drive forward. He'll be

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Speaker 1: on with me yet today on TV as well. Mr

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Speaker 1: Bannon will be Mr Creed. There you go, Coast to coast.

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Speaker 1: Good morning, Bloomberg one or six one FM Boston. This

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Speaker 1: is Bloomberg Doug cast with us. And because we're gonna

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Speaker 1: be with them for substantial time, we start with the

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Speaker 1: Joy and Douglas casts. Life of lining up a Dodgers

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Speaker 1: Yankees room. Could that happen? Doug Cass Oh yeah, I

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Speaker 1: think that. I think that they were a bit spent.

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Speaker 1: I know I was, and a lot of the fans

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Speaker 1: were after the Cleveland series coming back from the top

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Speaker 1: of it, and what how exciting would it be for

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Speaker 1: everyone if they came back from the two zero deficit

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Speaker 1: in this series. I think I just think they were exhausted. Yes,

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Speaker 1: they was a great game, and they finally broke out

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Speaker 1: and hitting, and that's what what was missing in the

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Speaker 1: first two games. You mean, I think I think the

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Speaker 1: world is looking for uh you know my background, but

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Speaker 1: I do believe that the world is looking forward to

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Speaker 1: a Dodger Yankee series. I was I can't get cast

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Speaker 1: ever been on with this for I mean, I mean,

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Speaker 1: it's like six unreal doug one more thing on baseball

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Speaker 1: To me, the Yankees pitching staff is almost Dodgers, like

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Speaker 1: from another time and place. I mean, they don't have

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Speaker 1: a weak picture. They make you know, there's levels of

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Speaker 1: them in that. But I think it's been way under sold.

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Speaker 1: Don't look at the last three games when they give

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Speaker 1: up to three rounds. Yeah right, okay, nothing. I just

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Speaker 1: needed the hitting too, and that's what happens. Jim Palmer

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Speaker 1: there and if the judge gets hot along with yes,

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Speaker 1: indeedy we got something going for us. Okay, yes, we

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Speaker 1: have to explain that to our global audience. Mr Gregorius

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Speaker 1: filled the biggest shoes in sports this year of one Djter,

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Speaker 1: Mr Gregorius has done better than good. And also a

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Speaker 1: shout out to James Palmer of Baltimore Orioles, who just

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Speaker 1: predicted it. He nailed the Houston Call earlier this year

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Speaker 1: with Douglas Cass. Okay, Doug Onto Investment, you've been a

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Speaker 1: pinata for being short down two six. I want you

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Speaker 1: to review, and Doug is such a class act he'll

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Speaker 1: do this clearly. I want you to review how a

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Speaker 1: short survives in a bullmarket. Well. In preparation for this interview,

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Speaker 1: as important as it is to me, I was speaking

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Speaker 1: yesterday um with of our mutual acquaintances, Richard Fisher, the

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Speaker 1: former Dallas Fed president, and he reminded me of something

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Speaker 1: his mother inculcated into his head when he was a kid.

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Speaker 1: She said, skepticism is the chastity of the intellect. It's

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Speaker 1: not to be surrendered lightly. Uh rich is mom, whose

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Speaker 1: name was Babe Fisher, was a stoic Norwegian South African

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Speaker 1: woman and mother and very smart, much like my bronx

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Speaker 1: wise Grandma Kovac. So my advice is you might not

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Speaker 1: want to listen to my cautious advice, but one would

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Speaker 1: be wise to listen to mother Fisher's advice to stay

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Speaker 1: chased and dog. And this goes to another great short

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Speaker 1: James Chanos. When you have skepticism, skepticism like that you

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Speaker 1: the answer on position sizing is you bet small amounts

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Speaker 1: of money. That's really, as we discussed in our last

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Speaker 1: segment about well five weeks ago, the key to um

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Speaker 1: maintaining your investment health as a short biased investor the

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Speaker 1: way Jim and I are is to keep positions small,

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Speaker 1: to have remarkably uh strict risk disciplines consistent with one's

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Speaker 1: time frames and risk profile or risk appetite, and to take,

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Speaker 1: to be quite honest, a lot of very small losses

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Speaker 1: to prepare yourself what is inevitably going to be a

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Speaker 1: rather large decline. You remember Warren Buffet's famous quote, A

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Speaker 1: ball market is like sex. It feels the best right

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Speaker 1: near the appropriate Radio Ken. I got to go to

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Speaker 1: our chief technical director, Ken Failure. Is this appropriate for

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Speaker 1: radio anything? Warren Buffett says, it's appropriate. Okay, David, jump

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Speaker 1: in here and save the interview. Let me we've been

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Speaker 1: talking a little bit about technology, the role of changing technology,

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Speaker 1: Dug And I know you've written about Tesla in recent

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Speaker 1: weeks looking at that company for US yesterday with the

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Speaker 1: announcement of a number of layoffs at that company. The

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Speaker 1: company is behind them producing it's it's it's model three.

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Speaker 1: What do you observe from Elon one of Elon Musk's

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Speaker 1: company over these recent weeks? I still, you know, I

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Speaker 1: I have a one of the getting back to your

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Speaker 1: prior question, you know, how do you survive as a

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Speaker 1: short short seller? You know market advance that has no

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Speaker 1: dips um? Is that one of the things is a

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Speaker 1: non starters. You stay away from shorts that you might

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Speaker 1: believe are shorts like Netflix and Tesla where the short

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Speaker 1: interest as measured by the number of shorts divided by

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Speaker 1: the float, which is the outstanding shares less insider holdings.

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Speaker 1: Is when that is when the short ratio is large,

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Speaker 1: or when the short interest as a percentage of the

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Speaker 1: average daily volume is large. That's a non starter to

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Speaker 1: me because I prefer I prefer to short companies that

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Speaker 1: sell widgets. I understand whose business model UM is being

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Speaker 1: misinterpreted by the bullish consensus. So you stay away from

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Speaker 1: shorts like that, we're short interest. In this way, you

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Speaker 1: get you're not involved in short squeezes, which is the

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Speaker 1: which is basically the death knel to most amateur short sellers.

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Speaker 1: And uh, you know you mentioned Netflix. Did anything change

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Speaker 1: about your perspective yesday? In light of the earnings that

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Speaker 1: we got, the fact that this company still you know,

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Speaker 1: added five million new subscribers over the last quarter. What

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Speaker 1: are the what are the warning signs? What is it?

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Speaker 1: What's what's the alarm that you see with that company? Now? Well,

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Speaker 1: I'm actually writing something up right now for UM the

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Speaker 1: Street and Real Money pro UM. And the issue there

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Speaker 1: is valuation. We know evaluation as well as investor's sentiment

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Speaker 1: is particularly poor timing tool. But when you have you know,

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Speaker 1: a hundred and twenty three multiple two last twelve months

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Speaker 1: trailing ibbitda um it and it makes your hair stay

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Speaker 1: end up on your neck, you should be concerned. So

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Speaker 1: I call on Netflix. I'm actually writing a piece right

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Speaker 1: now called sell Netflix, don't short Netflix. But the problem

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Speaker 1: with the markets UM, as I've mentioned, is technology from

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Speaker 1: two standpoints. The fangs f A Engine save Netflix. To me,

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Speaker 1: UH face a situation where their technologies have advanced much

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Speaker 1: more rapidly than regulations, particularly anti antitrust regulations. So they

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Speaker 1: face this this existential political and antitrust risk which overnight

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Speaker 1: could diminish their um, their profit growth, profit and then

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Speaker 1: top line sales growth forecasts. So this is why I

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Speaker 1: would avoid all the thanks in terms of technology away

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Speaker 1: from it. We um. You know, there's a number of

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Speaker 1: things that that you know, makes makes me think that

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Speaker 1: we live in headshaking times and the role of technology

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Speaker 1: on the market. I've been writing about the last week

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Speaker 1: or so, which is very important. True, Douglas Castle Seabree's investment.

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Speaker 1: We've gotten the baseball out of the way as much

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Speaker 1: as you can, um, Doug. One of the really downsides

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Speaker 1: of this October has been having an intern who's a

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Speaker 1: Dodgers fan. It's it's proven very stressful. She is in

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Speaker 1: the National League ball and all that, and we we've

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Speaker 1: talked maybe we'll get some time here we can talk

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Speaker 1: about the d H as well. Right now, let's talk

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Speaker 1: about the alpha in investment, which is dead out there,

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Speaker 1: you know. Doug Reminiscence the classic book. When it's boring,

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Speaker 1: you go away, except we're not. It's a long time

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Speaker 1: boring here. What do you do in a boring market? YEA, well,

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Speaker 1: I we are in this virtuous cycle and this is

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Speaker 1: to me the root of my concern. Um. We've had

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Speaker 1: this bull market in complacency which has been mulated by

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Speaker 1: obviously the excess liquidity provided by central bankers around the world.

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Speaker 1: This has served up the virtuous cycle of fund flows

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Speaker 1: into ever popular e t s that by not when

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Speaker 1: stocks are cheap, but when inflows are readily flowing. And

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Speaker 1: then we have the dominance of technology which I mentioned

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Speaker 1: to day before, the dominance of risk parity, volatility trending

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Speaker 1: who worship at the altar price momentum brought on by

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Speaker 1: those e t s who are agnostic to value to

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Speaker 1: balance shes to income statements. And then finally we have

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Speaker 1: the reduced role of active investors like edge funds. So

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Speaker 1: all the slack is picked up by the quants in

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Speaker 1: the e T F and this is created an almost

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Speaker 1: systemic buy and the mentality and conditioning and give you

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Speaker 1: two stats that I'm sure you don't know about. Uh,

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Speaker 1: this is also being exacerbated this conditioning and this consistent

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Speaker 1: buying by the fact that in there was sevent listed

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Speaker 1: securities individual securities not ets. Today there are thirty nine

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Speaker 1: hundred UM. De listing takeovers have reduced it is secondly

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Speaker 1: of the remaining shares companies that are listed, those undred

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Speaker 1: seventeen of their shares in those public companies that remain

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Speaker 1: have been retired through buybacks. So all this has created

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Speaker 1: as favorable supply and demand and UM. It's coupled with

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Speaker 1: this precarious positioning by speculators, by speculators who have profited

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Speaker 1: by shorting volatility and have gotten so one sided by

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Speaker 1: shorting the vixed futures that any quick market sell off

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Speaker 1: is going to be exacerbated into a flash crash, much

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Speaker 1: like portfolio insurance's role in the previous lodge down draw

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Speaker 1: down in October. And in turn, if this occurs and

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Speaker 1: I would say it's occurring, David and Tom, but the

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Speaker 1: probability of it is growing exponentially, in turn will force

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Speaker 1: the very leverage quant funds, those risk parodies UM to

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Speaker 1: de risk and to reduce the chances of a fast

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Speaker 1: upturn back in the markets. All end by saying the

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Speaker 1: virtuous cycle could end if et F start to sell,

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Speaker 1: who is left to buy? David, what's the role Dug

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Speaker 1: that the economy is playing in your thesis at this point?

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Speaker 1: And we've been talking awful lot here about who might

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Speaker 1: be the next to FED share with the macroeconomic landscape,

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Speaker 1: But looks like, how do you fold that into to

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Speaker 1: what you're looking at and what you're investing in. Well,

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Speaker 1: you know, I believe that history doesn't repeat itself, but

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Speaker 1: it rhymes. And since post World War Two we've had

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Speaker 1: thirteen FED rate hiking cycles. UM ten had landed into recession.

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Speaker 1: So to me, the question is next year, will you know,

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Speaker 1: in the face of a mature economic recovery with a

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Speaker 1: lot of UM political and regular regulatory UM black swans

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Speaker 1: over the horizon, are we gonna have a recession or

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Speaker 1: we're gonna have a soft landing. I don't remember the

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Speaker 1: last time we had subpar growth of say two to

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Speaker 1: and a quarter percent real g d P and had

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Speaker 1: an economic downturn. But there's little room for era. I

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Speaker 1: do know. If you read the Baron's Big Money poll

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Speaker 1: over the weekend, seven percent of investors think the market

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Speaker 1: will be higher in twelve months. So to me, they're

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Speaker 1: betting on tax reform, which looks increasingly problematic. And then

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Speaker 1: obviously there's the message of the bond market. And if

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Speaker 1: you look at the two tens curve with the five

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Speaker 1: thirty curve, they're about eighty basis points and eight basis points, respectively.

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Speaker 1: And these are essentially at ten year lows, and they're

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Speaker 1: talking there's giving you a message on growth. Do Cass?

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Speaker 1: Thank you so much? How did the Dodgers look against

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Speaker 1: the yesties of the Yankees? Um? I think that the

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Speaker 1: Yankees will beat the Dodges in six? Well what about

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Speaker 1: the Astros? Who? And we'll leave it there. Doug Cass

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Speaker 1: with Seabrees, thank you so much. We say good morning

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Speaker 1: in Houston, sirius XM Channel one nineteen. I think we lost,

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Speaker 1: you know, think like like you know, we had a

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Speaker 1: big audience down to Texas. You think they just all

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Speaker 1: hung update Well, they would stay with us. I'm just saying,

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Speaker 1: Dug Cass bleeds Yankee blue. Do you realize we got

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Speaker 1: through that entire two blocks without once mentioning the red

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Speaker 1: sox of boss? Very true? Doug cast are Citrus League

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Speaker 1: correspondent with him in the very season, which is the

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Speaker 1: off season for him, but yeah, okay, Doug Castries Partners.

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Speaker 1: He's been very cautious on the market to short and

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Speaker 1: it has been sport because he has very clearly stated

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Speaker 1: out on his different writings and different appearances as well.

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Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

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Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

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00:27:15,600 --> 00:27:19,119
Speaker 1: platform you prefer. I'm on Twitter at Tom Keene. David

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Speaker 1: Gura is at David Gura. Before the podcast, you could

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Speaker 1: always catch us World one. I'm Bloomberg Radio