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

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Speaker 1: Jai Ley. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg So

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Speaker 1: emerging markets once again struggling to stop the rock the

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Speaker 1: routes showing no sign of letting go, with most currencies

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Speaker 1: weakening and an index of stocks nearing a bear market.

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Speaker 1: Joining us now to discuss from London is Alberta Gallo,

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Speaker 1: Algebra Investments, head of macro Strategies and partner. Good morning

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Speaker 1: to you, Albert, So walk us through what you're saying

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Speaker 1: in emerging markets this morning. Good morning John So. This

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Speaker 1: is the realization of a pen a long trend in

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Speaker 1: emerging market capital inflows reversing UM. Obviously, it's it's not

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Speaker 1: easy to make UM you know, one group out of

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Speaker 1: all the different countries. But what we have seen initially

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Speaker 1: is Turkey and Argentina, which are the weakest from a

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Speaker 1: deficit point of view, being abandoned by investors. In the

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Speaker 1: last few days, other um less fragile countries have joined

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Speaker 1: the trend. For example, Brazil, which faces faces elections next

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Speaker 1: month with two populace potentially going into the ballot um

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Speaker 1: you know, left wing had dad and right wing both scenario.

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Speaker 1: And South Africa as well has joined the sell off

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Speaker 1: with very high exposure to commodities in China and eventually

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Speaker 1: Asian economies, which have been the most resilient with Chinese

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Speaker 1: savings you know, and and and uh and you know

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Speaker 1: less market sensitivity remaining the bedrock of the Asian economies

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Speaker 1: are starting to also be weaker, with the in the

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Speaker 1: needs in particular UM. We think this is driven by

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Speaker 1: the FED tightening liquidity conditions, but also by the wave

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Speaker 1: of populace which is spreading across not just developed markets

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Speaker 1: but also Yeah, if you think about Turkey, Brazil, you know,

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Speaker 1: South Africa. In many countries you have um you know,

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Speaker 1: anti economic proposals being promised to the electorate. So I

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Speaker 1: bet so if this is the beginning of eight ten

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Speaker 1: year unwind, it suggests it's got a long way to go.

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Speaker 1: I do think that we are starting to see value

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Speaker 1: in some areas, but it's early to call it a bottom.

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Speaker 1: In m there are still many many areas which are

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Speaker 1: very expensive h Different countries have different debt problems, but

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Speaker 1: the the one common denominator is that the stock of

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Speaker 1: debt has not gone down in the last ten years.

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Speaker 1: So Turkey or South Africa or Brazil have a private

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Speaker 1: debt problem across companies and banks. Argentina has a sovereign

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Speaker 1: that probably a very complex sovereign that structure. If the

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Speaker 1: pace SO continues to depreciate external that GDP goes up

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Speaker 1: and and um and so on, so that there will

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Speaker 1: be opportunities. But we're barely at the long term. Marverage

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Speaker 1: and John, we see Brazilian real open what five is

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Speaker 1: eight thirty ish and then pay So supposed to open

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Speaker 1: at nine a little off the nineties, Yeah, something like that.

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Speaker 1: They're closed right now and the rest of them journey Alberto,

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Speaker 1: you're a bond guy. How do you use foreign exchange

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Speaker 1: in e M? I mean when you walk in and

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Speaker 1: as John and I know, you've got three Bloomberg logans,

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Speaker 1: you've got the usual ten twelve screens, how do you

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Speaker 1: actually use foreign exchange within your ability to not lose

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Speaker 1: money in bonds? So let's say you have you have

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Speaker 1: three instruments to to hedge. I mean, you have the ffects.

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Speaker 1: Then you have local interest rates for countries with a

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Speaker 1: local market, and then you have hard currency on Now,

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Speaker 1: countries that have a sovereign debt problem of sovereign that overhang,

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Speaker 1: like Argentina and are going to be particularly hurt in

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Speaker 1: their heart currency market. So dollar debt is now trading

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Speaker 1: at between sixty and seventy cents on the dollar. For countries,

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Speaker 1: for example, like Turkey, which have a private debt problem

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Speaker 1: a lot of private leverage across consumers, banks, corporates, you

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Speaker 1: have to think about the reaction function of the central bank.

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Speaker 1: So in Turkey, the currency has been hurt by outflows

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Speaker 1: from investors, but the central bank has not reacted. Also

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Speaker 1: because there's so much leverage in the in the economy

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Speaker 1: and President air dogund does not want to trigger a

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Speaker 1: domestic credit crunch, so interest rates have remained low and

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Speaker 1: the currency has taken most of the hit. In a

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Speaker 1: country like Russia, where the central bank is more independent

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Speaker 1: and has ammunition to fight inflation, local interest rates are

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Speaker 1: the ones that will go up. The currency will not

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Speaker 1: depreciate as much because the central bank is fighting against

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Speaker 1: the currency depreciation. So we use a mix of these

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Speaker 1: instruments too. To protect ourselves, and we have had a

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Speaker 1: net short position. We continue to have a net short

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Speaker 1: position across the m BET's not. The good news for

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Speaker 1: anyone with exposure to American assets is that the data

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Speaker 1: in the United States continues to stand up. I don't

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Speaker 1: want to closs over the fact that we had a

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Speaker 1: factory I s M yesterday the printed of fourteen year high.

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Speaker 1: I don't see any evidence outside of the anecdotal evidence

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Speaker 1: that gets presented to US now and then, that the U.

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Speaker 1: S economy has been hit by any of these troubles.

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Speaker 1: The U. S economy is in the first round of

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Speaker 1: of trade wars, and the first round is actually good

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Speaker 1: for the US economy because you're basically shifting demand from

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Speaker 1: foreign goods to domestic goods. You get domestic companies and

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Speaker 1: factories to produce goods that were otherwise imported by China

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Speaker 1: or other em So initially it's good. What we need

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Speaker 1: to understand is whether the trade war gets to a

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Speaker 1: to a global stage where you have a retaliation from China.

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Speaker 1: But you know, for the for the coming months, what

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Speaker 1: we see is still good data in the US. We

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Speaker 1: see a divergence between the US and the rest of

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Speaker 1: the world, you know, the opposite of last year's synchronized

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Speaker 1: growth environment. Also, European data is not doing that bad.

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Speaker 1: It's actually recovered in the last few months. But obviously

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Speaker 1: Europe is much more affected by e M sentiment. Okay,

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Speaker 1: but where's the profit opportunity in bonds on a simplistic

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Speaker 1: non Alberto Gallo basis, where can I get price up

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Speaker 1: yielded down in bonds? Okay? So the first thing that

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Speaker 1: continues to happen in our view is in currencies, is

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Speaker 1: the dollar continues to appreciate. In bonds, you have to

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Speaker 1: try to catch the bottom in bonds that have fallen

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Speaker 1: a lot. We think that you know, for em we're

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Speaker 1: not at the bottom yet. Even in Argentina our bonds

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Speaker 1: at six and there's still a lot there's still lungs

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Speaker 1: that are trapped in very sex. Where we think there's

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Speaker 1: some value though, is in some European countries which have

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Speaker 1: sold off in tandom with them, like Spain or or Italy.

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Speaker 1: You have higher bonds um double B single be rated

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Speaker 1: companies which have not too much M exposures. They're more

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Speaker 1: European and they're trading at seven eight in euros, which

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Speaker 1: is equivalent to in dollars. So these are two three

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Speaker 1: year maturity um bonds. So you're betting on the absence

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Speaker 1: of all of our refection to the absence about the

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Speaker 1: fault cycle in the next two three year which is

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Speaker 1: a reasonable bet even though the cycles blow down. But

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Speaker 1: we got to live there. We run out of time.

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Speaker 1: Always one more time with alberta Gala with Algebras this morning,

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Speaker 1: ten years on from Lehman, and we're sort of beginning

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Speaker 1: to dive into that with some look back, but far

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Speaker 1: more importantly to look forward. It is a wonderful time

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Speaker 1: to speak with John Taft. There have been what is it,

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Speaker 1: John Farrell, eight thousand books that have been written on

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Speaker 1: the crisis. I'm still counting. And there's been some jewels

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Speaker 1: along the way, and one of them was John taff Stewardship,

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Speaker 1: which showed up on my desk on in April where

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Speaker 1: I made up my book of the Summer and about

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Speaker 1: oh I think John. I looked at it for fifteen

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Speaker 1: minutes and it was a primal screen by you for

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Speaker 1: intelligent governance on Wall Street. What's the Taff scoreboard look like?

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Speaker 1: You're ten years on Wells, as you say, the book

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Speaker 1: was about what I felt were stewardship failures that contributed

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Speaker 1: to the financial crisis, and ironically today ten years later, uh,

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Speaker 1: my point of view is that what we were able

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Speaker 1: to do by way of response to the financial crisis.

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Speaker 1: When say we, I'm talking about societally, everything from presidents

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Speaker 1: to Congress, to regulators, to market participants, to secretaries of

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Speaker 1: the Treasury to FED chairman, what we were able to

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Speaker 1: do to reboot the US economy and to put the

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Speaker 1: financial system on safer, sounder, more stable footing is one

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Speaker 1: of the most significant stewardship success stories of my professional career.

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Speaker 1: So ten years out, we have converted stewardship failure to

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Speaker 1: stewardship success and I don't think that story is being

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Speaker 1: told enough. Uh. As we approach the tenth anniversary of

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Speaker 1: the Lehman bankruptcy, within that success and I go back

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Speaker 1: to an essay folks I'll put out on Twitter here

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Speaker 1: from Laureate Michael Spence of the risks of regulation, and

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Speaker 1: one of the risks of the brilliant Michael Spence essay

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Speaker 1: is trying to observe stuff that's unobservable. What's still unobservable

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Speaker 1: out there well that yeah. The more colloquial expression of

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Speaker 1: that is you never see the bullet that kills you

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Speaker 1: and um. One of the things that the financial UH

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Speaker 1: regulatory infrastructure changed after the financial crisis was to set

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Speaker 1: up a couple of groups by acronyms fsr F, SOCK

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Speaker 1: and others, the purpose of which was to scan the

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Speaker 1: horizon and try to identify in advanced excesses were building up. Well,

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Speaker 1: where might those be today? I think if you were

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Speaker 1: going to look anywhere today, you would look possibly at

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Speaker 1: the shadow banking system, because clamping down on regulated financial

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Speaker 1: institutions like bank we have merely squeezed risk over into

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Speaker 1: less regulated sectors, and we now see hedge funds and

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Speaker 1: asset managers engaging in direct lending making riskier loans. Then

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Speaker 1: quite frankly makes sense for banks to make today. So

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Speaker 1: our excess is building up there. Possibly certainly the dollar

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Speaker 1: value of loans being made by unregulated entities UH is

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Speaker 1: going up. And the other one that I worry about

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Speaker 1: a little bit is the world of e t s.

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Speaker 1: Massive flows Obviously into e t s they're safe and

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Speaker 1: sound for the most part, but where you have e

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Speaker 1: t fs invested in portfolios of the liquid securities. I

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Speaker 1: think you've got a mismatch that could be an issue.

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Speaker 1: This is more to do with fixed income and sanquities,

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Speaker 1: any any type of liquid asset. UH, it could be.

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Speaker 1: It could be various types of private equity, sub debt um,

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Speaker 1: anything that doesn't trade on an exchange, if owned by

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Speaker 1: an e t F that does trade on an exchange,

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Speaker 1: will set up a mismatch in liquidity. And then what

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Speaker 1: happens in a time of stress. Investors expect to be

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Speaker 1: able to go put in a price, get their trade executed.

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Speaker 1: The e t F can't sell the securities they own.

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Speaker 1: That's a potential source of stress. So who holds onto

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Speaker 1: the problem at the end of it. If that does

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Speaker 1: unraffle in the way that you worried, well, I think

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Speaker 1: we've seen that movie over and over. Ultimately, it's it's

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Speaker 1: the investor um. When Tom and I were talking on

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Speaker 1: the show this morning about the bullet that almost killed

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Speaker 1: us ten years ago, it was a tiny little fund

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Speaker 1: called the Reserve Money Market Fund, sixty billion dollars. It

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Speaker 1: broke the buck because it owned eight d million dollars

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Speaker 1: of Lehman Brothers commercial paper, and it wasn't able to

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Speaker 1: sell it at a price greater than zero, So shareholders

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Speaker 1: rushed to the gate and the fund directors suspended redemptions.

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Speaker 1: All appropriate, but what it did was prompt a crisis

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Speaker 1: and confident investors couldn't get their money out. They ended

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Speaker 1: up holding the bag. You could have looked at auction

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Speaker 1: rate securities during the financial crisis, same thing. So ultimately

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Speaker 1: it will be investors who end up holding the bag

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Speaker 1: if we have a liquidity problem with ETFs. Johan, thank

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Speaker 1: you so much. He is voicure a beard with us

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Speaker 1: this morning. Is Nathanson here to hook up my cable TV?

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Speaker 1: He might be. He might be, you know, maybe the

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Speaker 1: other half of them to hook up your cable TV.

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Speaker 1: You know, get the router thing and the modem thing going.

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Speaker 1: Is this about your move? Your big move? Martha was

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Speaker 1: coming over to you know, hook up the TV. He's

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Speaker 1: got a truck roll coming at it. Michael Nathanson drop

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Speaker 1: Invita Studio of Marfatt Nathanson, fanning partner and senior research analyst. Mike,

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Speaker 1: you know how people set this up? A grilling on

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Speaker 1: Capitol Hill Cheryl sand Burke and Jack Dawsey Latin in Washington,

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Speaker 1: d C. And Congress goes after that. It's not actually

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Speaker 1: what happens today. Know when I when I read what

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Speaker 1: Senator Warner looking to do today, he's looking for solutions.

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Speaker 1: You know, it's I think it's past the grilling point.

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Speaker 1: It's what are you gonna do for eighteen that you

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Speaker 1: can do for sixteen so that we have elections that

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Speaker 1: are legitimate and not not impacted by foreign actors? Right,

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Speaker 1: the grilling has been happening. Um, maybe I'll be some

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Speaker 1: political debate about are you centering you know, your right wing,

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Speaker 1: left wing commentary? But I think this is about Warner

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Speaker 1: looking for help on election elections in eighteen. Where's the humility?

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Speaker 1: Amilia has not been there yet? Yeah, I'm still waiting.

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Speaker 1: I mean, I'm not saying it won't happen. But it's

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Speaker 1: a bunch of guys out in San Francisco. They've all

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Speaker 1: made more money than God. They're all you know, earned it,

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Speaker 1: blah blah blah. But there's zero humility. I mean, it's

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Speaker 1: not This is not Rick Wagoner driving a Compact Ford

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Speaker 1: from Detroit or wherever, deer board wherever, down to Washington?

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Speaker 1: Is it right now? But you know you have different

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Speaker 1: you have two people on on stage today who have

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Speaker 1: not been there, so Jack Dorriston and Cheryl Samberg, and

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Speaker 1: they've not been in front of Senate, so and the house.

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Speaker 1: I feel I think they'll probably be a little bit

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Speaker 1: more contricte in how they how they see the world.

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Speaker 1: I want to talk about your most recent research and

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Speaker 1: why you've downgraded the stock. I'm talking about Facebook, of course.

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Speaker 1: I want to begin by talking a little bit about

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Speaker 1: Cheryl sandbergause she comes out at to Washington d C.

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Speaker 1: How would you great her performance this year? I think

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Speaker 1: you great she and the whole team with a with

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Speaker 1: a c R C minus. Right that the camerage analytical scandal,

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Speaker 1: it was really bad because it looked like they totally

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Speaker 1: disavowed what the FTC was asking them to do back

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Speaker 1: in two thousand and thirteen. Right, there was a settlement

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Speaker 1: after that to happen, and it happened back in fifteen. Really,

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Speaker 1: they knew this was going on for a while. And

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Speaker 1: I would say, and you guys talked about this around

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Speaker 1: the earning season. They're there, we don't know the street

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Speaker 1: doesn't know how truthful the company is when they did anymore, right,

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Speaker 1: So they've they played this game in the past couple

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Speaker 1: of years of guiding high on costs and coming low

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Speaker 1: and guying low and revenues coming in high. Right, So

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Speaker 1: there's a real lack of credibility, I'd say from the

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Speaker 1: streets you know, View and Facebook and when you talk

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Speaker 1: to the company prival, and you still don't get a

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Speaker 1: lot of great answers about what's actually happening, right and

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Speaker 1: for company and its industry really is a black box.

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Speaker 1: In this industry, you don't get a lot of details

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Speaker 1: on earnings calls or in the in the financials. Trust

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Speaker 1: has a big part of it. So I would give

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Speaker 1: them all c minuses, right, And that's you raise this

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Speaker 1: in your note, And I think it's really interesting. They

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Speaker 1: have not just guided us lower on revenue growth, they've

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Speaker 1: guided us wildly lower on margins as well. Do you

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Speaker 1: believe the guidance? Just as an analyst, do you believe

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Speaker 1: the guidance? I believe the guy into the next all months,

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Speaker 1: and that's how you die raet of the stock. Right,

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Speaker 1: So we think, what's gonna they have to do to

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Speaker 1: to Tom's point about what what they have to show Washington?

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Speaker 1: They have to show lower margins, right, They have to

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Speaker 1: say we now have twenty thousand human beings looking at

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Speaker 1: every single piece of content. Right, they have to show

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Speaker 1: all the regulators on the world that they take these

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Speaker 1: threats serious. Like that means spending more. They always have to.

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Speaker 1: They also have to spend on video. They are they've

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Speaker 1: spent money on video, but we've seen no evidence that

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Speaker 1: their investment live or watch has it really got anywhere, right,

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Speaker 1: so they have to spend more money the next twelve months.

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Speaker 1: At the same time, what surprisess was the revenue growth

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Speaker 1: guidance in Q three is actually real. The de cell

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Speaker 1: is real. If you look at twelve months from now,

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Speaker 1: you're gonna have lower margin and lower revenue growth, lower

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Speaker 1: profit moves. It's a fact. But they're not just spending

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Speaker 1: for the psychovits get marching slower. You'll saying that's the

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Speaker 1: structural shift in the business model. Heads so, well, it's

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Speaker 1: paying up for third party colt. Right, that was the thing.

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Speaker 1: You know, you're a big soccer fan, football fan, right,

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Speaker 1: you know, so they've been on the World Cup I

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Speaker 1: think is not over right, time hasn't ended officially, so

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Speaker 1: you know they've they've been on football rights. They bought

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Speaker 1: they bought law legal rights for India and they bought

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Speaker 1: Premier League rights for Southeast Asia. Those are not going

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Speaker 1: to return anything, right. They were biding for cricket rights

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Speaker 1: last year, so they're now showing themselves to be a

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Speaker 1: bigger bidder sports rights. You know, I look at this

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Speaker 1: and there's a gateways to go with you right now.

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Speaker 1: But you mentioned something, John, if you want to go

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Speaker 1: a different text here with Michael Nathans and tell me

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Speaker 1: you mentioned video and is it gonna make money? I've

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Speaker 1: seen endless articles did you day doing a wonderful series

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Speaker 1: of articles on Oh, by the way, we're not sure

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Speaker 1: it makes money. Does video make money? The the video

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Speaker 1: that's been using generating content obviously makes money. Right, So

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Speaker 1: the first first incarnational model is, of course you make

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Speaker 1: money because basically on YouTube and Facebook you're not paying

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Speaker 1: for any content. Right. It's it's a wonderful model when

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Speaker 1: when when the videos supply by other people. Yeah, we

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Speaker 1: you know, Tom, we think it's gonna be margins. It's

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Speaker 1: a degradation of margins, whether not makes money, it's all

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Speaker 1: about the micro economics of every single deal you've done.

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Speaker 1: But in general, it's a bad margin transfer for going

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Speaker 1: from free content exactly right, and that that's what hit us. Right.

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Speaker 1: We step back and he said, look, we we've had

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Speaker 1: this issue for like nine months now, which is when

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Speaker 1: we talked to people on the West Coast who are

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Speaker 1: selling content. They you say to us, Facebook doesn't have

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Speaker 1: much of a clue what they want to do in video,

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Speaker 1: which said to me, they're gonna have to overpay to

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Speaker 1: make a splash, right, and my overpaying it's going to

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Speaker 1: lead to margin negratation and John this this reminds me

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Speaker 1: of a O. L a million years ago. I used

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Speaker 1: to keep saying, I say to people, where's the spreadsheet

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Speaker 1: that shows me profit? Now? Well done the road? I

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Speaker 1: just don't see it in the video. I mean, I

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Speaker 1: just don't. So charts look really really good on radio.

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Speaker 1: I'm going to gay to imagine this charge. So it's

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Speaker 1: revenue growth percentage revenue growth. And over time at Facebook

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Speaker 1: it's started to look like, as you describe Michael Lack,

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Speaker 1: a valley and then you have this sort of switch

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Speaker 1: towards mobile and they come out of the other side

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Speaker 1: of the valley and revenue growth starts picking up again.

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Speaker 1: Now we're starting to paint this picture of dipping back

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Speaker 1: into a valley, what gets us out of the valley again, Well,

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Speaker 1: that that's exactly funny when radio That's exactly image I

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Speaker 1: tried to do in the research. I wanted to show

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Speaker 1: there are these waves, and the waves were more desktop

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Speaker 1: mobile then Instagram, So it keeps us out of value

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Speaker 1: in the your terms, probably Instagram keeps on going well,

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Speaker 1: and then for Tom's family there's a whole stories switched

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Speaker 1: to stories, so people are using their their Instagram to

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Speaker 1: actually put together a series of of of images that

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Speaker 1: becomes a story. Really yeah, yeah, so they're basically trying

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Speaker 1: to get you hooked on stories. So not because one

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Speaker 1: image like a day in the life, right, I should

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Speaker 1: point out to francing the uses this brilliantly. Yeah. So

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Speaker 1: stories are growing, but but to the real you know,

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Speaker 1: So that's our issue. We don't see a third act, right,

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Speaker 1: is a third act? What's app Is it going to

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Speaker 1: be payments? Right? And and is it gonna be videos?

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Speaker 1: So I don't see the third act and that's been

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Speaker 1: my problem for about a year now. I don't see

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Speaker 1: the third act coromact. So, as you point out, though

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Speaker 1: at the moment they are incredibly dominant, they have what

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Speaker 1: the foremost downloaded apps in the world on the planet.

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Speaker 1: How do they get those four rapps to stop looking

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Speaker 1: like four separate companies? Yeah, that's I don't think they do.

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Speaker 1: I don't think they do. So do they face the

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Speaker 1: break up question continually over the next several years if

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Speaker 1: they can't. That was one of our five risks that

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Speaker 1: that at some point the regulars will say, look, you

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Speaker 1: guys have owned four dominant apps. It's time to break

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Speaker 1: it up. And you know, there are people out there

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Speaker 1: have been saying that this this whole year. Mixing your

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Speaker 1: work with Craig Moffatt, what's the chord cutting trend? I

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Speaker 1: hear people trot out the phrase cord cutting, but usually

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Speaker 1: they're not informed inform us. Okay, thank you for that pivot.

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Speaker 1: So we've been ryme by this for for a while now.

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Speaker 1: Cord cutting is not as bad as you think. Because

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Speaker 1: of these virtual m v P d s, Direct TV, now, Hulu, Sling,

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Speaker 1: they're taking up the slack. They're picking up eight percent

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Speaker 1: of the true chord cutting. So the cord cutting rate

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Speaker 1: in America is less than one percent, less than one

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Speaker 1: percent because they're just going to alternatives, right. And then

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Speaker 1: there's a lot of discounting going on now. People will

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Speaker 1: say to us, our clients will say to us, well, Michael,

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Speaker 1: those bundles just name make no money whatsoever. So they're

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Speaker 1: great that they're picking up the slack, but there's no

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Speaker 1: economic model. You talk about. Facebook's moved to video, you know,

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Speaker 1: sling and directive now really don't make any money. So

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Speaker 1: even though they're they're cutting, they're slowing the grade of

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Speaker 1: chord cutting. They may they may not be long term solutions,

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Speaker 1: but we've been surprised that names are not nearly as

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Speaker 1: bad as the bears want to want to tell. Okay,

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Speaker 1: Michael Nathans, and thank you so much, really, really I

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Speaker 1: appreciate today getting us start a lot of good conversations.

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Speaker 1: This is a good and perfect time to speak to

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Speaker 1: Juliet Cornado macro policies perspective that the Cornado has been

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Speaker 1: hugely beneficial in giving us wisdom unfed and on the

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Speaker 1: American economy. Julian, your in your recent note once again

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Speaker 1: the shocking idea of two hundred thousand jobs that we

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Speaker 1: will see on Friday, and yet the clarion call of

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Speaker 1: all the mail that John Farrell gets and a little

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Speaker 1: bit of mail I get is where's the rage growth.

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Speaker 1: If I take wages and benefits e c I, healthcare

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Speaker 1: benefits rolling right into wages, we're really not back to

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Speaker 1: decent wage growth if you assume three percent inflation, we aren't.

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Speaker 1: We're seeing very subdued real wage gains for American workers.

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Speaker 1: And I think, Tom, the fact that we can add

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Speaker 1: two hundred thousand jobs a month, combined with subdued wage growth,

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Speaker 1: speaks to the fact that we're just not in a

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Speaker 1: tight labor market yet. But it's tightening. It's a good

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Speaker 1: labor market, it's becoming a better labor market. But there's

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Speaker 1: really no hiring constraints and evidence yet. How can you

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Speaker 1: say we're in a tight labor market. It's sub four

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Speaker 1: unemployment and you know it just anecdotally, I don't see it.

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Speaker 1: I mean, walking around the streets of New York, I

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Speaker 1: don't I see a lot of people that really really

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Speaker 1: would like a job or a better job. Yes, exactly.

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Speaker 1: So I think that despite the fact that the unemployment

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Speaker 1: rate is moving to historic lows, we still have people

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Speaker 1: that want to work and they're showing up and putting,

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Speaker 1: you know, putting their applications in. And that is one

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Speaker 1: of the forces holding down wage growth. Uh, so we've

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Speaker 1: got ways to go and that's good news for the FED.

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Speaker 1: That means they can go slow and be careful and cautious, uh,

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Speaker 1: and not flam on the brakes on this economy. And

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Speaker 1: that's good news. So, Jitny, are you essentially saying that

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Speaker 1: the one data point to really track whether this labor

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Speaker 1: market is title or not is wages and nothing else.

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Speaker 1: I think wages is taking front and center right now. Yes,

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Speaker 1: I mean, look, prices are everything, right, Prices are what

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Speaker 1: clears the market, and so if prices aren't rising, then uh,

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Speaker 1: then you don't. You still have some excess supply. So um,

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Speaker 1: I think that that's at the end of the day

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Speaker 1: where we're going to see real indications that the labor

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Speaker 1: market is tightening up, isn't. So there was a big

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Speaker 1: discussion about this over the weekend Jackson Hall took place

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Speaker 1: about whether the unemployment rate should guide monetary policy. What

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Speaker 1: are the flaws of that? Oh, there's huge flaws of at.

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Speaker 1: I mean the frictional unemployment that we call the natural

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Speaker 1: rate of unemployment. We don't know what it is, we

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Speaker 1: can't observe it. It changes over time depending on the

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Speaker 1: characteristics of the economy. There's every reason to think with

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Speaker 1: an older, more educated workforce and better technology to match

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Speaker 1: workers to jobs, that the natural rate of unemployment is

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Speaker 1: a lot lower than it was in the past. So again,

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Speaker 1: how will we know when we get there? Wage growth

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Speaker 1: will be one of the key indicators, Julia Robert Samulson

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Speaker 1: wrote a brilliant essay. He's always brilliant, but he wrote

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Speaker 1: a brilliant essay in the Washington Post this week. I'll

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Speaker 1: put it out on social folks. On healthcare is part

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Speaker 1: of our compensation. It is learned with statistics and all that,

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Speaker 1: but we really don't see the We don't psychologically see

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Speaker 1: the benefit packages that are out there, do we. Well.

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Speaker 1: The the employment cost index that you mentioned earlier does

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Speaker 1: try and capture the benefits that workers the value of

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Speaker 1: the benefits workers are getting from healthcare benefits and other

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Speaker 1: benefits like paid time off in four own case. And

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Speaker 1: that's also rising at a subdued pace. So it's not

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Speaker 1: like healthcare benefits are where workers are getting their compensation. Um,

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Speaker 1: those are more or less stable over time. We've seen

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Speaker 1: a little bit we've we've seen them get a little

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Speaker 1: bit more expensive lately um, but by and large it's

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Speaker 1: not like employers are peeking up benefits. The single sentence

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Speaker 1: from Robert Samon said, high private insurance premiums condemned millions

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Speaker 1: of workers to stagnant or falling incomes. Dr Cornado, thank

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Speaker 1: you so much, Julia Cornado, Macro Policy Perspectives. Thanks for

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

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Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

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Speaker 1: I'm on Twitter at I'm Keen before the podcast. You

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Speaker 1: can always catch us worldwide. I'm Bloomberg Radio