1 00:00:03,279 --> 00:00:07,600 Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio. 2 00:00:08,119 --> 00:00:12,160 Speaker 1: This week on the podcast we have one Mohammed Allarion, 3 00:00:12,400 --> 00:00:14,840 Speaker 1: and I have to tell you this was really a 4 00:00:14,920 --> 00:00:21,360 Speaker 1: delightful conversation about all sorts of things related to central banks, economics, investing. 5 00:00:21,880 --> 00:00:25,239 Speaker 1: There are few people in the world of finance as 6 00:00:25,320 --> 00:00:30,000 Speaker 1: thoughtful and articulate as Mohammed Hllarian is. I have been 7 00:00:30,080 --> 00:00:32,600 Speaker 1: chasing him down for the better part of a year 8 00:00:33,040 --> 00:00:37,080 Speaker 1: before I finally cornered him and managed to wrangle him 9 00:00:37,240 --> 00:00:41,240 Speaker 1: into submission, and he couldn't have been more charming or delightful. 10 00:00:41,960 --> 00:00:43,680 Speaker 1: We only had him for an hour, so this is 11 00:00:43,680 --> 00:00:47,440 Speaker 1: going to be a relatively quick, uh podcast. It's less 12 00:00:47,440 --> 00:00:50,920 Speaker 1: than an hour, but it is. I promise you will 13 00:00:50,920 --> 00:00:53,360 Speaker 1: listen to this more than once. It is full of 14 00:00:53,440 --> 00:00:57,320 Speaker 1: insight and depth and really just just a tour to 15 00:00:57,400 --> 00:01:03,440 Speaker 1: force conversation about the way to think about thinking about 16 00:01:03,480 --> 00:01:07,120 Speaker 1: finance and investing. So, with no further ado, our conversation 17 00:01:07,200 --> 00:01:14,080 Speaker 1: with Mohammed Larion. This is Masters in Business with Barry 18 00:01:14,160 --> 00:01:18,200 Speaker 1: Ridholts on Bloomberg Radio. My special guest this week is 19 00:01:18,280 --> 00:01:22,800 Speaker 1: Mohammed al Arian. He is the chief Economic advisor to Alliance. 20 00:01:22,920 --> 00:01:27,040 Speaker 1: They're large insurance company with trillions and assets. They also 21 00:01:27,520 --> 00:01:31,119 Speaker 1: owned Pimco and a number of other significant assets. I'm 22 00:01:31,160 --> 00:01:34,400 Speaker 1: only going to give you the short version of our 23 00:01:34,440 --> 00:01:37,600 Speaker 1: guests uh CV because the whole version will take up 24 00:01:37,640 --> 00:01:42,040 Speaker 1: the full first segment. Cambridge and Oxford ultimately ends up 25 00:01:42,080 --> 00:01:45,720 Speaker 1: as Managing director at City Group in London. Spent fifteen 26 00:01:45,800 --> 00:01:49,640 Speaker 1: years at the International Monetary Funds in Washington, d C. 27 00:01:49,840 --> 00:01:53,960 Speaker 1: Where he served as Deputy Director uh chair of the 28 00:01:54,000 --> 00:01:58,960 Speaker 1: President's Global Development Council. Named to Foreign Policies, Top one 29 00:01:59,040 --> 00:02:02,560 Speaker 1: hundred Global Anchors and one of the five most Powerful 30 00:02:02,600 --> 00:02:06,280 Speaker 1: People on the planet. Named one of twenty five most 31 00:02:06,360 --> 00:02:11,560 Speaker 1: Influential People's List to Investment Advisor's annual survey. Author of 32 00:02:11,560 --> 00:02:14,240 Speaker 1: When Markets Collide, a New York Times in Wall Street 33 00:02:14,320 --> 00:02:17,760 Speaker 1: Journal bestseller, the book one Financial Times Book of the Year, 34 00:02:17,800 --> 00:02:20,840 Speaker 1: and the Goldman Sachs Book of the Year Award. His 35 00:02:20,919 --> 00:02:25,520 Speaker 1: latest book, The Only Game in Town, Central Banks, Instability 36 00:02:25,560 --> 00:02:30,480 Speaker 1: and Avoiding the Next Collapse. Muhammad Alarian, Welcome to Bloomberg. 37 00:02:30,600 --> 00:02:33,280 Speaker 1: Thank you. I'm delighted to be here. I'm I'm very 38 00:02:33,320 --> 00:02:36,680 Speaker 1: excited to have you here. Also, um, there's so much 39 00:02:36,720 --> 00:02:39,840 Speaker 1: stuff I want to go over, But I have to 40 00:02:39,960 --> 00:02:44,560 Speaker 1: start with with your upbringing, which is really kind of fascinating. 41 00:02:44,639 --> 00:02:47,360 Speaker 1: You're born in New York City, you spend some time 42 00:02:47,400 --> 00:02:52,360 Speaker 1: in Egypt. Ultimately your father becomes ambassador to France and 43 00:02:52,400 --> 00:02:55,720 Speaker 1: you spend a number of years living in France. Given 44 00:02:55,760 --> 00:02:59,880 Speaker 1: this international upbringing, how did that shape your view of 45 00:02:59,880 --> 00:03:02,960 Speaker 1: the world. It had a very important influence on me 46 00:03:03,160 --> 00:03:07,079 Speaker 1: because I got exposed two different cultures at a very 47 00:03:07,080 --> 00:03:11,960 Speaker 1: early age. It wasn't easy. Changing not just friends and schools, 48 00:03:12,000 --> 00:03:15,280 Speaker 1: but countries and languages was quite hard. You speak a 49 00:03:15,360 --> 00:03:18,360 Speaker 1: number of languages, don't you. I speak some, um, But 50 00:03:18,440 --> 00:03:21,200 Speaker 1: I tell you as I got older, UM, I found 51 00:03:21,200 --> 00:03:23,320 Speaker 1: it harder. And I asked my father ultimately to send 52 00:03:23,320 --> 00:03:26,480 Speaker 1: me to boarding school because I couldn't change countries and 53 00:03:26,600 --> 00:03:30,000 Speaker 1: languages and friends every two to three years. That's amazing, 54 00:03:30,040 --> 00:03:33,359 Speaker 1: And given that background, I would have pegg you for 55 00:03:33,400 --> 00:03:38,360 Speaker 1: a career in either public policy or international diplomacy. What 56 00:03:38,360 --> 00:03:41,200 Speaker 1: what attracted you to finance? So that's why I started 57 00:03:41,320 --> 00:03:45,200 Speaker 1: in terms of the international under refund. It was global, 58 00:03:45,480 --> 00:03:49,640 Speaker 1: it was policy oriented. Um, it was based on economics, 59 00:03:49,720 --> 00:03:53,000 Speaker 1: and when I was turning forty, I realized that I 60 00:03:53,040 --> 00:03:55,200 Speaker 1: had never tried to private sector, that I had spent 61 00:03:55,240 --> 00:03:57,920 Speaker 1: fifteen years at the IMF, that I had never tried 62 00:03:57,960 --> 00:04:00,600 Speaker 1: to private sector. So I took it to you leave 63 00:04:00,880 --> 00:04:03,200 Speaker 1: from the IMF and I joined what was at the 64 00:04:03,240 --> 00:04:06,720 Speaker 1: time Solomon Brothers that then became Solomon Smith Bonnie then 65 00:04:06,720 --> 00:04:11,280 Speaker 1: became City and I wanted a taste of the private sector. 66 00:04:11,720 --> 00:04:13,600 Speaker 1: And I can tell you barried was quite a change, 67 00:04:14,280 --> 00:04:17,280 Speaker 1: I can imagine, to say the least. So you were 68 00:04:17,360 --> 00:04:19,880 Speaker 1: let's let's start with that public policy works. So you 69 00:04:19,920 --> 00:04:23,600 Speaker 1: were the I m F for fifteen years. What were 70 00:04:23,680 --> 00:04:26,039 Speaker 1: some of the biggest lessons you learned there? And what 71 00:04:26,120 --> 00:04:28,920 Speaker 1: do you think the future role of the I m 72 00:04:29,000 --> 00:04:32,560 Speaker 1: F should be in the global economy. So the amazing 73 00:04:32,600 --> 00:04:35,240 Speaker 1: thing about the IMF is that at a very young 74 00:04:35,320 --> 00:04:41,120 Speaker 1: age you get exposed to policymaking. You're part of discussions 75 00:04:42,720 --> 00:04:46,599 Speaker 1: in crisis economies, countries facing crises, and they have to 76 00:04:46,640 --> 00:04:50,400 Speaker 1: make really difficult policy choices, and you realize very early 77 00:04:50,440 --> 00:04:54,400 Speaker 1: on how difficult that is. These aren't academic debates where 78 00:04:54,440 --> 00:04:56,600 Speaker 1: people are trying to figure out how many angels can 79 00:04:56,680 --> 00:04:58,800 Speaker 1: dance on the head of a pin. These are real 80 00:04:58,880 --> 00:05:03,080 Speaker 1: countries in the midst real either fiscal or other forms 81 00:05:03,120 --> 00:05:06,640 Speaker 1: of crisis. How does that affect the process by which 82 00:05:07,279 --> 00:05:11,600 Speaker 1: policies are made? It seems like everything is an emergency footing, correct, 83 00:05:11,640 --> 00:05:13,240 Speaker 1: and you don't want to get there. So the whole 84 00:05:13,240 --> 00:05:14,720 Speaker 1: point of the I m F is to make sure 85 00:05:14,800 --> 00:05:16,960 Speaker 1: that you don't get there, and you don't get there 86 00:05:17,000 --> 00:05:20,479 Speaker 1: by having an annual checkup is called the article for surveillance. 87 00:05:21,200 --> 00:05:24,599 Speaker 1: But at some point quite a few countries get there. 88 00:05:24,640 --> 00:05:27,000 Speaker 1: And I was there when there were all sorts of 89 00:05:27,080 --> 00:05:30,240 Speaker 1: crisis going on UM and I was lucky enough to 90 00:05:30,720 --> 00:05:34,760 Speaker 1: have UM a front row seat in that, and you 91 00:05:34,839 --> 00:05:38,719 Speaker 1: learned very quickly that you have to make compromises. That 92 00:05:38,800 --> 00:05:41,640 Speaker 1: a lot of the time policy makers are making decisions 93 00:05:41,640 --> 00:05:44,840 Speaker 1: within complete information and they don't control the politics of it. 94 00:05:45,200 --> 00:05:48,279 Speaker 1: So for me it was an amazing eye opener because 95 00:05:48,320 --> 00:05:51,200 Speaker 1: I came from the academic world and I realized it's 96 00:05:51,279 --> 00:05:54,560 Speaker 1: much more complicated in practice. So so you're dealing with 97 00:05:54,640 --> 00:05:58,920 Speaker 1: real world conditions, you're dealing with politics, and that's before 98 00:05:58,960 --> 00:06:02,080 Speaker 1: we even get to how do you assemble a policy 99 00:06:02,560 --> 00:06:05,600 Speaker 1: on that sort of footing? So what surprised you most 100 00:06:05,640 --> 00:06:09,280 Speaker 1: of all the various emergencies, the I m I had 101 00:06:09,279 --> 00:06:11,760 Speaker 1: to deal with. What what was the one thing that 102 00:06:11,800 --> 00:06:14,560 Speaker 1: you witnessed that said, that's amazing. I never would have 103 00:06:14,600 --> 00:06:18,080 Speaker 1: imagined either a this happening in the first place, or 104 00:06:18,160 --> 00:06:21,080 Speaker 1: be this sort of response to it. So so what 105 00:06:21,160 --> 00:06:25,599 Speaker 1: amazed me in the beginning is how misunderstood financial markets were. 106 00:06:25,760 --> 00:06:28,200 Speaker 1: So I'll give an example. This is the mid eighties. 107 00:06:28,720 --> 00:06:35,000 Speaker 1: Mexico had almost declared bankruptcy. Latin America was hit and 108 00:06:35,120 --> 00:06:37,840 Speaker 1: they decided to send a team of US to New 109 00:06:37,920 --> 00:06:41,880 Speaker 1: York to talk to the financial sector. And, believe it 110 00:06:41,960 --> 00:06:44,200 Speaker 1: or not, at the time, that was very, very unusual. 111 00:06:44,640 --> 00:06:46,000 Speaker 1: So a group of US went and we went to 112 00:06:46,000 --> 00:06:48,880 Speaker 1: see an asset manager and we asked the question, what's 113 00:06:48,920 --> 00:06:52,000 Speaker 1: the first thing you did when you heard that Mexico 114 00:06:52,200 --> 00:06:55,599 Speaker 1: was having difficulty facing and paying its debt? And that 115 00:06:55,680 --> 00:06:59,400 Speaker 1: financial asset manager said something that was very surprising to me. 116 00:06:59,640 --> 00:07:02,960 Speaker 1: He said, I sold Chili. Now, as the economist in me, 117 00:07:03,000 --> 00:07:05,279 Speaker 1: I thought, what a city thing to do. Why would 118 00:07:05,320 --> 00:07:07,599 Speaker 1: you ever sell chili? Chili is a well managed economy 119 00:07:07,640 --> 00:07:10,480 Speaker 1: out there. It is not Venezuela, it is not Argentina. 120 00:07:10,800 --> 00:07:13,680 Speaker 1: You keep Chili, And I said, so I reacted, why 121 00:07:13,680 --> 00:07:17,040 Speaker 1: would you do that? Thinking, wow, he are irrational markets, 122 00:07:17,360 --> 00:07:20,040 Speaker 1: And he explained it in a way that makes total 123 00:07:20,080 --> 00:07:22,960 Speaker 1: sense to me now having seen the market the market side, 124 00:07:23,320 --> 00:07:27,360 Speaker 1: which is that he expected redemptions from his Latin American 125 00:07:27,440 --> 00:07:32,240 Speaker 1: funds because the Mexican news would lead to redemption. He 126 00:07:32,560 --> 00:07:35,800 Speaker 1: needs to sell across the board and what hadn't been 127 00:07:35,920 --> 00:07:38,440 Speaker 1: hit hard as yet was Chili. So he sold Chili. 128 00:07:38,880 --> 00:07:42,480 Speaker 1: And for me, that was a realization that economists needed 129 00:07:42,520 --> 00:07:46,200 Speaker 1: to understand the financial markets much better. I'm very hults. 130 00:07:46,240 --> 00:07:49,480 Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My 131 00:07:49,560 --> 00:07:54,040 Speaker 1: special guest this week is Muhammad Alarian. He is the 132 00:07:54,080 --> 00:07:58,320 Speaker 1: economic advisor to Alians, a contributing editor to the FT, 133 00:07:58,840 --> 00:08:03,320 Speaker 1: and a calumnist Bloomberg View. Let's jump right into a 134 00:08:03,400 --> 00:08:07,760 Speaker 1: phrase that you were coined back in oh nine, the 135 00:08:07,880 --> 00:08:11,360 Speaker 1: new normal? What is the new normal? So the context 136 00:08:11,640 --> 00:08:15,360 Speaker 1: was coming out of the crisis. PIMCO was in a 137 00:08:15,440 --> 00:08:18,320 Speaker 1: much better position than others because we had navigated the 138 00:08:18,360 --> 00:08:23,040 Speaker 1: crisis relatively well and had protected our clients assets, and 139 00:08:23,080 --> 00:08:25,920 Speaker 1: we could look forward and ask the question what comes next? 140 00:08:27,080 --> 00:08:30,880 Speaker 1: And starting in January, we realized that this was not 141 00:08:31,320 --> 00:08:34,800 Speaker 1: your typical cyclical crisis. This wasn't like an elastic band 142 00:08:34,800 --> 00:08:37,880 Speaker 1: you stretched and comes back. That this was a structural 143 00:08:38,000 --> 00:08:43,320 Speaker 1: and secular phenomenon. And we debated how best to communicate 144 00:08:43,840 --> 00:08:47,760 Speaker 1: to our own people and to the outside world that 145 00:08:47,880 --> 00:08:50,440 Speaker 1: this is not business as usual, that we have to 146 00:08:50,679 --> 00:08:54,839 Speaker 1: think differently, And after lots of different permutation, we came 147 00:08:54,880 --> 00:08:57,040 Speaker 1: up with the concept of the New Normal as a 148 00:08:57,080 --> 00:09:02,320 Speaker 1: way of signaling that it not be a cyclical recovery, 149 00:09:02,360 --> 00:09:05,840 Speaker 1: but instead we would face a prolonged period of low 150 00:09:05,920 --> 00:09:09,520 Speaker 1: growth and structural challenges. So there are a couple of 151 00:09:09,520 --> 00:09:14,680 Speaker 1: other people who have described this era similarly. Larry Summers 152 00:09:14,720 --> 00:09:18,280 Speaker 1: famously called it the secular Stagnation? Is that all that 153 00:09:18,400 --> 00:09:21,480 Speaker 1: different from the New Normal? No, it's very much the 154 00:09:21,559 --> 00:09:23,880 Speaker 1: same thing. I mean. The irony here Berry is that 155 00:09:24,200 --> 00:09:26,400 Speaker 1: when we went public with it in May of two 156 00:09:26,400 --> 00:09:29,200 Speaker 1: thousand and nine, it got very little attraction. In fact, 157 00:09:29,280 --> 00:09:32,199 Speaker 1: I remember a policymaker telling me it was an idiotic 158 00:09:32,240 --> 00:09:36,120 Speaker 1: concept that the West lives cyclically and it's the emerging 159 00:09:36,200 --> 00:09:40,640 Speaker 1: world that lives secularly and structurally. Makes sense with time 160 00:09:40,720 --> 00:09:44,000 Speaker 1: when it became evident that we were having difficulty growing, 161 00:09:44,480 --> 00:09:46,840 Speaker 1: when it became evident that the forecasts were all being 162 00:09:46,880 --> 00:09:51,800 Speaker 1: revised one side downwards. This notion started to gain acceptance 163 00:09:52,720 --> 00:09:54,960 Speaker 1: in two thousand and fourteen. The I. M. F called 164 00:09:54,960 --> 00:10:00,480 Speaker 1: it the new mediocre, and then familiar, and then um 165 00:10:00,559 --> 00:10:04,640 Speaker 1: Larry Summers came up with the phrase this is seculist tegnation. 166 00:10:04,679 --> 00:10:06,680 Speaker 1: But it speaks to the same thing, which is a 167 00:10:06,720 --> 00:10:11,080 Speaker 1: prolonged period of low growth. The irony Berry is that 168 00:10:11,240 --> 00:10:13,800 Speaker 1: now the conventional wisdom has gotten to the new normal. 169 00:10:14,440 --> 00:10:16,560 Speaker 1: As I argue with my book, I don't think it's 170 00:10:16,720 --> 00:10:20,240 Speaker 1: any more a powerful concept for describing what's ahead of us. 171 00:10:20,280 --> 00:10:22,240 Speaker 1: I think we're going to tip one way or the other. 172 00:10:22,640 --> 00:10:25,400 Speaker 1: So in their book ran Hunt will go Off this 173 00:10:25,440 --> 00:10:29,000 Speaker 1: time it's different. Eight centuries of financial folly. They talk 174 00:10:29,080 --> 00:10:35,280 Speaker 1: about what is normal following a financial crisis subpart GDP, 175 00:10:36,160 --> 00:10:41,520 Speaker 1: weak job creation, mediocre retail sales, but surprisingly pretty robust 176 00:10:41,880 --> 00:10:46,480 Speaker 1: equity markets off of the lows. Um That seems pretty 177 00:10:46,480 --> 00:10:49,560 Speaker 1: consistent with with new normal as well. How much of 178 00:10:49,600 --> 00:10:53,800 Speaker 1: the new normal is a function of us living in 179 00:10:53,840 --> 00:10:58,640 Speaker 1: a post financial crisis world a huge part, And there's 180 00:10:58,640 --> 00:11:01,320 Speaker 1: two elements to it. One, as as Ryan had and 181 00:11:01,400 --> 00:11:05,400 Speaker 1: Rogoff pointed out when you have a massive balance sheet issue. 182 00:11:05,520 --> 00:11:08,720 Speaker 1: It takes you time to work through it, and you 183 00:11:08,800 --> 00:11:13,880 Speaker 1: basically have four choices. You can either default, which is 184 00:11:14,000 --> 00:11:17,040 Speaker 1: very very costly. You can grow your way out of it. 185 00:11:17,120 --> 00:11:23,360 Speaker 1: What that's really difficult. You can try and have a 186 00:11:23,520 --> 00:11:28,120 Speaker 1: voluntary structuring. Alternatively, you can go through financial repression, and 187 00:11:28,160 --> 00:11:32,400 Speaker 1: that is central banks pushing interest rates down in order 188 00:11:32,760 --> 00:11:37,440 Speaker 1: to tax creditors and subsidize theaters. And that's what we've had. 189 00:11:37,920 --> 00:11:41,760 Speaker 1: We've had financial repression. We've had central banks use both 190 00:11:41,920 --> 00:11:46,760 Speaker 1: interest rates and their balance sheets to push down interest 191 00:11:47,320 --> 00:11:50,600 Speaker 1: um costs and try and promote risk taking in order 192 00:11:50,600 --> 00:11:54,920 Speaker 1: to recapitalize the system. So you call this financial repression. 193 00:11:55,240 --> 00:11:59,520 Speaker 1: Ray Dalio of Bridgewater calls it the beautiful deleveraging. There 194 00:11:59,520 --> 00:12:03,040 Speaker 1: are some lightful phrases to describe what is a not 195 00:12:03,200 --> 00:12:07,400 Speaker 1: so delightful era that that we've been coming out of. 196 00:12:07,800 --> 00:12:10,480 Speaker 1: And I have to ask, I know that something like 197 00:12:10,520 --> 00:12:16,280 Speaker 1: sixty or sixty baby boomers are retiring every day, how 198 00:12:16,360 --> 00:12:20,199 Speaker 1: much of this new normal and the secular stagnation is 199 00:12:20,360 --> 00:12:23,840 Speaker 1: a question of just demographics. So part of it is 200 00:12:24,080 --> 00:12:27,160 Speaker 1: there certainly are demographic elements to it, and they are 201 00:12:27,200 --> 00:12:30,400 Speaker 1: also politicular elements, but there's lots of economics elements to it. 202 00:12:31,280 --> 00:12:35,080 Speaker 1: I think the major issue, vary for anybody retiring or 203 00:12:35,120 --> 00:12:39,320 Speaker 1: anybody at all, is that part of the response to 204 00:12:39,320 --> 00:12:41,880 Speaker 1: the new normal has been to borrow growth from the 205 00:12:41,920 --> 00:12:45,920 Speaker 1: future and borrow financial returns from the future. As a result, 206 00:12:46,480 --> 00:12:48,760 Speaker 1: as you point out, equity markets have done very well 207 00:12:48,880 --> 00:12:51,640 Speaker 1: while fundamentals heaven. So we have a big gap. And 208 00:12:51,679 --> 00:12:55,600 Speaker 1: the big question facing us today is two fundamentals, improve 209 00:12:55,679 --> 00:12:59,360 Speaker 1: and validate asset prices and push them higher. Alternatively to 210 00:12:59,600 --> 00:13:03,120 Speaker 1: to ask prices come down towards fundamentals and overshoot and 211 00:13:03,160 --> 00:13:06,760 Speaker 1: pull the fundamentals down. That is the t junction facing 212 00:13:06,880 --> 00:13:12,680 Speaker 1: us today as we navigate the consequences of having relied 213 00:13:12,760 --> 00:13:17,400 Speaker 1: too much on financial repression. So given that, what what's 214 00:13:17,440 --> 00:13:22,440 Speaker 1: the biggest surprise of the post crisis financial repression era? 215 00:13:22,760 --> 00:13:24,840 Speaker 1: What what has happened in the past let's call it 216 00:13:24,880 --> 00:13:28,800 Speaker 1: eight years that stands out as nobody really expected that 217 00:13:28,880 --> 00:13:31,800 Speaker 1: to occur. Oh, I can give you a whole list 218 00:13:31,920 --> 00:13:35,960 Speaker 1: of improbables and unthinkable. I mean, think of the fact 219 00:13:35,960 --> 00:13:39,400 Speaker 1: that we have negative nominal interest rates. How many people 220 00:13:39,440 --> 00:13:42,080 Speaker 1: would have predicted that would have negative nominal interest rates. 221 00:13:42,160 --> 00:13:45,800 Speaker 1: People were forecasting rising rates, hyperinflation, and collapse of the dollar. 222 00:13:45,880 --> 00:13:48,000 Speaker 1: None of that came. None of that came to. Who 223 00:13:48,080 --> 00:13:52,640 Speaker 1: would have predicted that this frustration with low growth would 224 00:13:52,760 --> 00:13:58,520 Speaker 1: lead to the emergence of non establishment and an anti establishment, 225 00:13:58,679 --> 00:14:02,079 Speaker 1: non traditional political forces on both side of the Atlantic, 226 00:14:02,160 --> 00:14:04,680 Speaker 1: and that we see it. We see it in America clearly, 227 00:14:04,720 --> 00:14:08,480 Speaker 1: the Trump Sanders phenomena is reaction to something that's going on, 228 00:14:09,000 --> 00:14:11,160 Speaker 1: no doubt about that. And in Europe, and we see 229 00:14:11,160 --> 00:14:13,440 Speaker 1: it in Europe with the emergence of UK with the 230 00:14:13,440 --> 00:14:16,160 Speaker 1: emergence of the various parties in Germany, and of course 231 00:14:16,200 --> 00:14:19,160 Speaker 1: the natural front in France. Who would have predicted that 232 00:14:19,200 --> 00:14:22,200 Speaker 1: we'd have a lot of risk taking in finance and 233 00:14:22,360 --> 00:14:26,840 Speaker 1: very little risk taking in corporations. Corporations are still sitting 234 00:14:26,920 --> 00:14:29,200 Speaker 1: on a massive amoun amount of cash even though it's 235 00:14:29,200 --> 00:14:31,880 Speaker 1: earning zero and now they're being forced to give it 236 00:14:31,880 --> 00:14:35,120 Speaker 1: back rather than invested. Who would have thought that we'd 237 00:14:35,160 --> 00:14:37,680 Speaker 1: have this big divergence, and yet we have the list 238 00:14:37,720 --> 00:14:40,200 Speaker 1: of unthinkable Who would have thought we would have such 239 00:14:40,200 --> 00:14:43,680 Speaker 1: a worsening in income, wealth, inequality, so that at least 240 00:14:43,720 --> 00:14:46,000 Speaker 1: to an inequality of opportunity. I can give you the 241 00:14:46,040 --> 00:14:49,960 Speaker 1: whole list of unthinkables and improbables that have occurred because 242 00:14:49,960 --> 00:14:53,600 Speaker 1: we've been living this artificial world. But I stress it's 243 00:14:53,640 --> 00:14:56,400 Speaker 1: coming to an end. I'm very Ridhults. You're listening to 244 00:14:56,560 --> 00:14:59,840 Speaker 1: Masters in Business on Bloomberg Radio. My special guest today 245 00:15:00,080 --> 00:15:04,880 Speaker 1: is Muhammad Alarian. He is an economic consultant to financial 246 00:15:04,920 --> 00:15:08,920 Speaker 1: giant Alliance, a contributing editor to the FT, writes a 247 00:15:09,000 --> 00:15:12,840 Speaker 1: column where I do also at at Bloomberg View dot com, 248 00:15:12,880 --> 00:15:16,120 Speaker 1: and has has really been named one of the hundred 249 00:15:16,200 --> 00:15:20,760 Speaker 1: most important or influential global thinkers by Foreign Policy and 250 00:15:20,760 --> 00:15:27,800 Speaker 1: and generally an all around eloquent person describing the complex 251 00:15:27,800 --> 00:15:32,320 Speaker 1: and occasionally chaotic world of finance. And I wanna use 252 00:15:32,400 --> 00:15:36,160 Speaker 1: that eloquence to jump right in to your current book. 253 00:15:36,480 --> 00:15:41,360 Speaker 1: The only game in town central banks instability and avoiding 254 00:15:41,360 --> 00:15:45,000 Speaker 1: the next collapse. So let's talk about the FED. Are 255 00:15:45,040 --> 00:15:48,840 Speaker 1: they the only game in town? Yes, they are, as 256 00:15:48,920 --> 00:15:52,920 Speaker 1: is the ECB, the Bank of Japan, the People's Bank 257 00:15:52,920 --> 00:15:56,680 Speaker 1: of China. The list is long. Um central banks have 258 00:15:56,840 --> 00:16:02,040 Speaker 1: taken on enormous responsibility. The first phase made sense whether 259 00:16:02,240 --> 00:16:08,360 Speaker 1: they had to step in and normalize very dysfunctional financial markets. 260 00:16:08,360 --> 00:16:11,560 Speaker 1: But then starting in the case of the FED and 261 00:16:12,360 --> 00:16:14,080 Speaker 1: in the case of the e c V, they took 262 00:16:14,080 --> 00:16:18,480 Speaker 1: on the responsibility for delivering macroeconomic outcomes, and they did 263 00:16:18,520 --> 00:16:23,400 Speaker 1: so not by choice, but by necessity because other policymakers 264 00:16:23,480 --> 00:16:27,040 Speaker 1: weren't stepping up to the plate. You know, Nixon famously said, 265 00:16:27,120 --> 00:16:30,320 Speaker 1: we're all Keynsians now, and that has led to a 266 00:16:30,400 --> 00:16:34,280 Speaker 1: pretty standard manual for what to do. Following a recession, 267 00:16:34,840 --> 00:16:38,680 Speaker 1: private sector demand plummets, the government steps in with some 268 00:16:38,760 --> 00:16:42,600 Speaker 1: sort of fiscal stimulus, whether it's repairing bridges and roads 269 00:16:42,720 --> 00:16:46,600 Speaker 1: or some other big policy statement. The government steps in 270 00:16:46,880 --> 00:16:50,880 Speaker 1: that substitutes for a short period of time that missing demand, 271 00:16:51,120 --> 00:16:54,760 Speaker 1: and then eventually the private sector catches up and the 272 00:16:54,800 --> 00:16:57,360 Speaker 1: public sector can step out of the way. That seems 273 00:16:57,400 --> 00:17:00,320 Speaker 1: to be missing this cycle is that part of the 274 00:17:00,400 --> 00:17:04,960 Speaker 1: reason you say the federal Reserve had no choice. So 275 00:17:05,600 --> 00:17:10,119 Speaker 1: it happened, but it didn't happen big enough, and most importantly, 276 00:17:10,119 --> 00:17:14,280 Speaker 1: it happened isolation of three other things that needed to happen, 277 00:17:15,160 --> 00:17:18,119 Speaker 1: and therefore it was not as effective and you didn't 278 00:17:18,119 --> 00:17:23,439 Speaker 1: get the handoff that you're talking about. So what was missing? First, 279 00:17:23,840 --> 00:17:26,760 Speaker 1: we invested in the wrong growth models, go back ten 280 00:17:26,800 --> 00:17:29,720 Speaker 1: to fifteen years we somehow fell in love with finance 281 00:17:30,080 --> 00:17:33,400 Speaker 1: and believed that it could promote economic growth. We even 282 00:17:33,480 --> 00:17:35,280 Speaker 1: changed the name. We used to call it the financial 283 00:17:35,320 --> 00:17:38,040 Speaker 1: service industry because we had this notion that it served 284 00:17:38,119 --> 00:17:41,240 Speaker 1: the real economy. But then ten to fifteen years ago 285 00:17:41,320 --> 00:17:43,840 Speaker 1: we changed this notion and it became a standalone. I 286 00:17:43,840 --> 00:17:46,640 Speaker 1: remember people talking that it was the next level of capitalism, 287 00:17:46,920 --> 00:17:51,679 Speaker 1: agricultural industry, manufacturing services, and if you're really lucky, you 288 00:17:51,760 --> 00:17:55,600 Speaker 1: get to financial services. So we invested in the wrong 289 00:17:55,840 --> 00:18:00,600 Speaker 1: growth model, and we stopped investing in infrastructure, in pro growth, 290 00:18:00,800 --> 00:18:04,520 Speaker 1: tax reforms, in labor retooling. The second problem is we 291 00:18:04,520 --> 00:18:08,760 Speaker 1: didn't deal with the lessons of past debt crisis. You 292 00:18:08,800 --> 00:18:11,880 Speaker 1: mentioned Ryan Hard and Rogoff earlier. They point out that 293 00:18:11,960 --> 00:18:14,640 Speaker 1: when you start with excessive indebtedness, if you don't deal 294 00:18:14,640 --> 00:18:18,560 Speaker 1: with it quickly, not only does it crush those who 295 00:18:18,560 --> 00:18:21,520 Speaker 1: are over indebted, but it stops new capital from coming 296 00:18:21,560 --> 00:18:25,920 Speaker 1: and you get no new oxygen, fresh oxygen into the system. 297 00:18:26,000 --> 00:18:28,480 Speaker 1: And then finally we forgot how in the dependent the 298 00:18:28,480 --> 00:18:31,639 Speaker 1: world we live in is, and we didn't step up 299 00:18:31,680 --> 00:18:35,600 Speaker 1: with global policy coordination, except for one instant in April 300 00:18:35,640 --> 00:18:38,520 Speaker 1: two thousand and nine at the London G twenty. So 301 00:18:38,880 --> 00:18:42,320 Speaker 1: the problem is that while we had a stimulus, it 302 00:18:42,400 --> 00:18:46,720 Speaker 1: wasn't big enough, and most critically, it wasn't accompanied by 303 00:18:46,720 --> 00:18:50,320 Speaker 1: these three other things, and therefore the handoff never occurred, 304 00:18:50,880 --> 00:18:55,399 Speaker 1: which pulls central banks deeper and deeper into taking on 305 00:18:55,600 --> 00:19:00,600 Speaker 1: too many policy obligations with too few instruments. So so 306 00:19:00,680 --> 00:19:03,520 Speaker 1: let's bring this back to the only game in town, 307 00:19:03,880 --> 00:19:05,960 Speaker 1: um the new book, and we'll talk a little bit 308 00:19:06,000 --> 00:19:08,600 Speaker 1: about the FED. In the book, you point out something 309 00:19:08,640 --> 00:19:13,439 Speaker 1: that I found fascinating, Matt O'Brien writes in the Washington Post, 310 00:19:13,600 --> 00:19:16,560 Speaker 1: and he did a I love this word count way 311 00:19:16,600 --> 00:19:19,880 Speaker 1: of looking at FED transcripts to figure out what they're 312 00:19:19,880 --> 00:19:23,000 Speaker 1: talking about. And in two thousand and eight, as we 313 00:19:23,000 --> 00:19:25,960 Speaker 1: were heading to the crisis, was the FED worried about 314 00:19:26,040 --> 00:19:31,520 Speaker 1: systemic risk? Well, according to O'Brien, and you passed this along, Uh, 315 00:19:31,560 --> 00:19:34,399 Speaker 1: they were much more concerned with inflation. And if you 316 00:19:34,440 --> 00:19:38,119 Speaker 1: think about the June meeting, the word count four hundred 317 00:19:38,160 --> 00:19:41,800 Speaker 1: and sixty eight mentions of inflation, only thirty five of 318 00:19:42,280 --> 00:19:46,639 Speaker 1: either systemic risk or crisis. In August, that ratio was 319 00:19:46,680 --> 00:19:50,800 Speaker 1: three two to nineteen and then the September six, two 320 00:19:50,840 --> 00:19:53,199 Speaker 1: thousand and eight, meaning and let me point out this 321 00:19:53,359 --> 00:19:56,919 Speaker 1: was immediately after the collapse of Lehman Brothers. It was 322 00:19:56,960 --> 00:19:59,879 Speaker 1: still a hundred and twenty nine mentions of inflation for 323 00:20:00,040 --> 00:20:04,040 Speaker 1: US is just four of either systemic risk or crisis. 324 00:20:04,640 --> 00:20:07,399 Speaker 1: What does this tell us about the FED? So I 325 00:20:07,400 --> 00:20:10,320 Speaker 1: think it tells you something much bigger and and and 326 00:20:11,119 --> 00:20:14,480 Speaker 1: I ended up by going along and looking at behavioral 327 00:20:14,480 --> 00:20:17,679 Speaker 1: science to understand decision making and why it is that 328 00:20:17,800 --> 00:20:20,760 Speaker 1: we tend to frame things in a backward looking manner, 329 00:20:20,760 --> 00:20:22,880 Speaker 1: because that's what the FED did. It tells it it's 330 00:20:23,040 --> 00:20:26,120 Speaker 1: very hard to pivot your thinking from what you're comfortable 331 00:20:26,200 --> 00:20:31,880 Speaker 1: with to what is happening and is new, and it's understandable. 332 00:20:31,880 --> 00:20:34,120 Speaker 1: We don't like doing it. We we as humans don't 333 00:20:34,119 --> 00:20:37,679 Speaker 1: like doing it. We have an inclination to always go 334 00:20:37,760 --> 00:20:40,240 Speaker 1: back to comforting things. So either we are in denial 335 00:20:40,400 --> 00:20:44,200 Speaker 1: the so called blind spots, or we reframe um issues 336 00:20:44,560 --> 00:20:46,159 Speaker 1: so that we are more comfortable. And that's what the 337 00:20:46,160 --> 00:20:49,160 Speaker 1: FED was doing. I'm very helps you're listening to Masters 338 00:20:49,160 --> 00:20:52,320 Speaker 1: in Business on Bloomberg Radio. My special guest today is 339 00:20:52,440 --> 00:20:56,560 Speaker 1: Muhammad Alarian. He is the economic consultants and adviser to 340 00:20:57,160 --> 00:21:01,560 Speaker 1: global financial giant Alliance UH and writes for both the 341 00:21:01,640 --> 00:21:05,560 Speaker 1: Ft and Bloomberg View. You know, in the previous segment, 342 00:21:05,600 --> 00:21:10,960 Speaker 1: we were discussing UH some of the more fascinating impacts 343 00:21:11,200 --> 00:21:15,719 Speaker 1: of of the FED fighting the last last battle, and 344 00:21:15,920 --> 00:21:19,040 Speaker 1: I have a quote that I have to start this 345 00:21:19,119 --> 00:21:22,600 Speaker 1: segment off with you. What all of this speaks to 346 00:21:22,760 --> 00:21:27,400 Speaker 1: is the repeated ability of central banks to decouple asset 347 00:21:27,480 --> 00:21:32,280 Speaker 1: prices from fundamentals. What does that mean. It's very simple. 348 00:21:32,320 --> 00:21:34,800 Speaker 1: If you have a printing press in the basement and 349 00:21:34,880 --> 00:21:38,120 Speaker 1: you're willing to use it, and you're willing to engage 350 00:21:38,280 --> 00:21:42,919 Speaker 1: in asset purchases, you can have any immediate influence on 351 00:21:42,960 --> 00:21:47,000 Speaker 1: asset prices. It's that simple. And that's why we say, 352 00:21:47,359 --> 00:21:51,800 Speaker 1: you say asset prices decouple from fundamentals, correct for quite 353 00:21:51,840 --> 00:21:55,679 Speaker 1: a while. You can decouple asset prices by increasing the 354 00:21:55,760 --> 00:21:59,879 Speaker 1: demand and by changing risk preferences, and that's what central 355 00:22:00,000 --> 00:22:02,639 Speaker 1: acts have done. Now, this is a bet that makes 356 00:22:02,680 --> 00:22:08,840 Speaker 1: sense if you also manage to trigger better fundamentals so 357 00:22:08,840 --> 00:22:13,359 Speaker 1: that ultimately the fundamentals validate the asset prices. If you don't, 358 00:22:13,840 --> 00:22:18,040 Speaker 1: you cannot maintain for whatever this wedge between artificially high 359 00:22:18,080 --> 00:22:21,879 Speaker 1: financial assets and sluggish fundamentals. So here we are on 360 00:22:21,920 --> 00:22:25,200 Speaker 1: the first quarter of six and it looks like stock 361 00:22:25,240 --> 00:22:29,520 Speaker 1: prices are coming down to weak fundamentals. We're gonna get 362 00:22:29,560 --> 00:22:32,359 Speaker 1: into the issue of what else can be done to 363 00:22:32,440 --> 00:22:35,600 Speaker 1: stimulate the fundamentals. But but let's talk a little bit 364 00:22:35,640 --> 00:22:40,080 Speaker 1: about the global state of the economy. Why did market 365 00:22:40,200 --> 00:22:45,280 Speaker 1: suddenly discover it seems like after having ignored the fundamentals 366 00:22:45,280 --> 00:22:48,240 Speaker 1: for a number of years, why did they suddenly decide 367 00:22:48,320 --> 00:22:51,120 Speaker 1: that maybe we have to pay attention to a weak 368 00:22:51,200 --> 00:22:55,040 Speaker 1: economic growth because of the perfect storm? You know, there's 369 00:22:55,040 --> 00:22:57,440 Speaker 1: notion of a perfect storm is three things come together 370 00:22:58,040 --> 00:23:01,040 Speaker 1: and what you get is not just a holatility, but 371 00:23:01,119 --> 00:23:03,840 Speaker 1: to get the improbable as well. So what has been 372 00:23:04,320 --> 00:23:07,320 Speaker 1: the perfect storm? The elements of the perfect storm. First, 373 00:23:07,720 --> 00:23:13,320 Speaker 1: we are questioning like never before global economic fundamentals. We 374 00:23:13,359 --> 00:23:16,119 Speaker 1: are worried about China. We are worried about the slowdown 375 00:23:16,840 --> 00:23:20,280 Speaker 1: that's happening around in emerging the emerging world. Europe has 376 00:23:20,359 --> 00:23:23,879 Speaker 1: cut its growth forecast. There's even talk of the possibility 377 00:23:23,880 --> 00:23:26,840 Speaker 1: of a recession in the US. So suddenly, the first 378 00:23:26,840 --> 00:23:30,800 Speaker 1: element of the perfect storm is concerns about fundamentals. The 379 00:23:30,880 --> 00:23:34,679 Speaker 1: second element about of the perfect storm is the last 380 00:23:34,840 --> 00:23:39,560 Speaker 1: of trust in central bank effectiveness. Two reasons for that. 381 00:23:39,680 --> 00:23:42,800 Speaker 1: One is we have divergent monetary policies. Now central banks 382 00:23:42,800 --> 00:23:45,359 Speaker 1: are no longer on the same side. We have the 383 00:23:45,400 --> 00:23:48,760 Speaker 1: FED that has exited Quei and that has started hiking 384 00:23:48,760 --> 00:23:52,960 Speaker 1: interest rates, so it is taking its foot off the accelerator. Meanwhile, 385 00:23:53,000 --> 00:23:57,480 Speaker 1: the e c B, the People's Bank of China, and 386 00:23:57,600 --> 00:24:00,359 Speaker 1: the Bank of Japan are going the other way. This 387 00:24:00,480 --> 00:24:05,160 Speaker 1: divergent central bank context, it's very different from what we've 388 00:24:05,160 --> 00:24:07,800 Speaker 1: had before, and it has raised doubts about the effectiveness 389 00:24:07,800 --> 00:24:12,200 Speaker 1: of central banks in repressing volatility. And then the third 390 00:24:12,240 --> 00:24:15,560 Speaker 1: element is the lack of patient capital. There is no 391 00:24:15,720 --> 00:24:20,000 Speaker 1: big balance sheet with quote permanent capital that can step 392 00:24:20,040 --> 00:24:24,640 Speaker 1: in now and act countercyclically. In fact, liquidity is challenged 393 00:24:24,680 --> 00:24:28,120 Speaker 1: because the broken dealer's appetite for countercyclical risk has has 394 00:24:28,160 --> 00:24:31,919 Speaker 1: been reduced. So put these three things together and you 395 00:24:32,000 --> 00:24:37,919 Speaker 1: get this volatility, enormous volatility um that then causes its 396 00:24:37,960 --> 00:24:40,400 Speaker 1: own dynamic. Now, the good news bery is that so 397 00:24:40,480 --> 00:24:45,680 Speaker 1: far this has been a financial event, It hasn't contaminated 398 00:24:46,160 --> 00:24:49,199 Speaker 1: the wheel economy and that is the major call for 399 00:24:49,320 --> 00:24:54,639 Speaker 1: two thousands sixteen. Will this continued financial volatility contaminate the 400 00:24:54,680 --> 00:24:58,000 Speaker 1: real economy? Or is the real economy resilient enough to 401 00:24:58,080 --> 00:25:02,480 Speaker 1: be able to continue it's gradual healing process. That's that's 402 00:25:02,560 --> 00:25:07,160 Speaker 1: quite fascinating. Let's let's talk about this divergence amongst central banks, 403 00:25:07,680 --> 00:25:10,719 Speaker 1: because if you look at it in a chronological order, 404 00:25:11,160 --> 00:25:15,000 Speaker 1: it doesn't so much look like they're diverging as much 405 00:25:15,000 --> 00:25:18,120 Speaker 1: as they're out of phase. The US under Ben Bernanki 406 00:25:18,240 --> 00:25:21,280 Speaker 1: was very aggressive in the O eight oh nine crisis, 407 00:25:21,920 --> 00:25:25,760 Speaker 1: zero interest rate policy, quantitative easing, operation twist. They threw 408 00:25:25,800 --> 00:25:29,800 Speaker 1: a lot of stuff and it had an impact. Europe 409 00:25:29,840 --> 00:25:32,640 Speaker 1: was a little more stand or office and Japan had 410 00:25:32,680 --> 00:25:35,560 Speaker 1: been trying all sorts of things over the years. It 411 00:25:35,600 --> 00:25:40,160 Speaker 1: looks like Japan saw the US was succeeding and said, okay, 412 00:25:40,200 --> 00:25:43,480 Speaker 1: we'll try quantitative easing as well. And then a few 413 00:25:43,560 --> 00:25:47,080 Speaker 1: years after that Europe finally said, well everything else we've tried, 414 00:25:47,240 --> 00:25:50,600 Speaker 1: this austerity thing ain't working. It looks like the US 415 00:25:50,640 --> 00:25:53,600 Speaker 1: and Japan's QUEI is working on don't we follow them? 416 00:25:53,640 --> 00:25:56,080 Speaker 1: Are they as much divergence as just kind of out 417 00:25:56,080 --> 00:25:58,080 Speaker 1: of phase, out of out of step with each other. 418 00:25:58,440 --> 00:26:01,960 Speaker 1: So you're absolutely right about the super and sing absolutely right, 419 00:26:02,080 --> 00:26:05,880 Speaker 1: and you're absolutely right that each country was pursuing its 420 00:26:05,880 --> 00:26:11,440 Speaker 1: domestic objectives taking into account its domestic conditions. The problem 421 00:26:11,600 --> 00:26:14,760 Speaker 1: is we live in an interdependent world. So let me 422 00:26:14,760 --> 00:26:17,280 Speaker 1: give you the image of an orchestra. You have the 423 00:26:17,280 --> 00:26:21,640 Speaker 1: different sections in the orchestra. They have music, and they 424 00:26:21,680 --> 00:26:24,639 Speaker 1: decide to play from different parts of the music, and 425 00:26:24,680 --> 00:26:27,040 Speaker 1: then they look up and there was in a conductor. 426 00:26:27,600 --> 00:26:31,840 Speaker 1: On a stand alone basis, each section will sound okay, 427 00:26:31,880 --> 00:26:34,320 Speaker 1: but you're not listening to it on a standalone basis. 428 00:26:34,359 --> 00:26:36,960 Speaker 1: You're listening to the whole orchestra, and the whole orchestra 429 00:26:37,119 --> 00:26:41,000 Speaker 1: is incoherent. And that's why I went earlier in our discussions. 430 00:26:41,040 --> 00:26:44,000 Speaker 1: I said, I've never seen such low level of global 431 00:26:44,080 --> 00:26:47,879 Speaker 1: policy coordination. So yes, it's true that it's been sequential. 432 00:26:47,920 --> 00:26:51,440 Speaker 1: It's true that every country has responded to domestic conditions. 433 00:26:51,480 --> 00:26:53,400 Speaker 1: The problem is that we live in a world that's 434 00:26:53,520 --> 00:26:56,840 Speaker 1: very interconnected in the deependent, so it has to add 435 00:26:56,920 --> 00:27:00,040 Speaker 1: up and so and and it's not adding up of 436 00:27:00,160 --> 00:27:02,840 Speaker 1: the lack of conductor being an issue. Who do you 437 00:27:02,880 --> 00:27:06,159 Speaker 1: see as playing that role? Is it the leaders of 438 00:27:06,200 --> 00:27:08,200 Speaker 1: the United States, is that the I m F. Is 439 00:27:08,240 --> 00:27:11,440 Speaker 1: it the U N who should step in and help 440 00:27:11,520 --> 00:27:17,240 Speaker 1: to coordinate global central bank monetary policy. It should be 441 00:27:17,400 --> 00:27:19,840 Speaker 1: the I m F for both positive and negative reasons. 442 00:27:19,840 --> 00:27:23,320 Speaker 1: The positive reason is that it has universal membership, hunting 443 00:27:23,359 --> 00:27:28,600 Speaker 1: in eight eight countries, It has amazing staff, very high expertise, 444 00:27:29,200 --> 00:27:33,160 Speaker 1: and it has the mechanism to consult with different countries um. 445 00:27:33,320 --> 00:27:36,040 Speaker 1: The negative reason is is that nothing else works. The 446 00:27:36,119 --> 00:27:39,840 Speaker 1: G seven is no longer representative of the global economy, 447 00:27:40,000 --> 00:27:43,080 Speaker 1: the G twenty doesn't have a permanent secretariat, and the 448 00:27:43,160 --> 00:27:47,200 Speaker 1: G one The United States has been so inward focused 449 00:27:47,240 --> 00:27:50,520 Speaker 1: because of our dysfunctional politics that it's not playing the 450 00:27:50,640 --> 00:27:53,320 Speaker 1: role of conductors. So for both positive and negative reason, 451 00:27:53,640 --> 00:27:55,800 Speaker 1: it needs to be the IMF. But for that to happen, 452 00:27:56,440 --> 00:28:00,720 Speaker 1: you need to deal with some pretty legitimate I m 453 00:28:00,800 --> 00:28:06,560 Speaker 1: F credibility and governance issues. Is there any likelihood that 454 00:28:06,560 --> 00:28:08,680 Speaker 1: we're going to see that happen. They've been criticized for 455 00:28:09,000 --> 00:28:13,840 Speaker 1: some of their less UH president forecast, They've been criticized 456 00:28:14,119 --> 00:28:16,679 Speaker 1: about some of the emergency measures they've put in place. 457 00:28:16,880 --> 00:28:19,359 Speaker 1: Can the I m F fulfill that role? So I 458 00:28:19,359 --> 00:28:22,640 Speaker 1: think it can if Europe is willing to give up 459 00:28:22,680 --> 00:28:26,840 Speaker 1: some of its historical entitlements, particularly when it comes to 460 00:28:26,920 --> 00:28:30,720 Speaker 1: voting power and representation on the board and and and 461 00:28:30,760 --> 00:28:34,959 Speaker 1: provide that to the emerging world. Until that happens, countries 462 00:28:35,080 --> 00:28:39,080 Speaker 1: like China will build little pipes around the I m 463 00:28:39,120 --> 00:28:40,479 Speaker 1: F and the World Bank. We've seen them do this 464 00:28:40,560 --> 00:28:44,320 Speaker 1: with the Asian Infrastructure Investment Bank and with various bilateral 465 00:28:44,360 --> 00:28:47,000 Speaker 1: swap arrangements. So you really do need to deal with 466 00:28:47,040 --> 00:28:50,640 Speaker 1: governance issues. Let's let's shift gears a little bit and 467 00:28:50,720 --> 00:28:54,920 Speaker 1: talk about oil. So you have oil now at about 468 00:28:55,000 --> 00:28:58,000 Speaker 1: thirty dollars a barrel. That's down from well over a 469 00:28:58,080 --> 00:29:02,000 Speaker 1: hundred less than two years ago. It's a drop. What's 470 00:29:02,040 --> 00:29:04,600 Speaker 1: the impact of this on the economy and what does 471 00:29:04,640 --> 00:29:07,800 Speaker 1: this suggest about future growth? Is this just a supply 472 00:29:07,880 --> 00:29:12,200 Speaker 1: issue or is this also a demand issue. It's a 473 00:29:12,320 --> 00:29:16,720 Speaker 1: supply issue, it's a demand issue. And what has caused 474 00:29:16,720 --> 00:29:19,800 Speaker 1: the overshoot? In other ways, I'm saying that oil prices 475 00:29:19,840 --> 00:29:23,280 Speaker 1: today cannot be justified by just supplying demand issues. If 476 00:29:23,320 --> 00:29:25,960 Speaker 1: they were, oil will be higher. What has caused the 477 00:29:26,000 --> 00:29:31,360 Speaker 1: overshoot is that oil has changed operating modalities. It no 478 00:29:31,440 --> 00:29:35,000 Speaker 1: longer can rely on OPEC as a swing producer on 479 00:29:35,040 --> 00:29:40,080 Speaker 1: the downside, and the minute you take the safety net away, 480 00:29:40,280 --> 00:29:43,400 Speaker 1: oil will overshoot. And we are right now overshooting on 481 00:29:43,440 --> 00:29:45,440 Speaker 1: the downside. And it's going to take time for the 482 00:29:45,440 --> 00:29:47,920 Speaker 1: old market to find its footing because it has lost 483 00:29:47,960 --> 00:29:53,160 Speaker 1: its swing producer. Um the irony we we talked about improbables. 484 00:29:53,200 --> 00:29:55,880 Speaker 1: If I was sitting with you two years ago and 485 00:29:55,960 --> 00:29:59,000 Speaker 1: told you oil, what prices will collapse? You would say 486 00:29:59,040 --> 00:30:00,560 Speaker 1: to me, and I would have said you, that's great 487 00:30:00,600 --> 00:30:03,760 Speaker 1: for the economy. That's right, because it is an immediate 488 00:30:03,760 --> 00:30:07,120 Speaker 1: tax cut. It leaves cash in the pocket of people, 489 00:30:07,560 --> 00:30:11,600 Speaker 1: and it is particularly beneficial for lower income people who 490 00:30:11,640 --> 00:30:16,040 Speaker 1: have a higher modinal propensing to consume. But ironically, oil, 491 00:30:16,240 --> 00:30:19,280 Speaker 1: the low oil price is viewed as a negative thing. 492 00:30:19,320 --> 00:30:21,680 Speaker 1: It has gone from a blessing to a curse. Why. 493 00:30:21,960 --> 00:30:24,560 Speaker 1: The only good reason is because the US now also 494 00:30:24,600 --> 00:30:29,680 Speaker 1: produces energy. The bad reason is that oil market volatility 495 00:30:29,720 --> 00:30:33,920 Speaker 1: is being blamed as a course for equity market volatility. 496 00:30:34,080 --> 00:30:36,680 Speaker 1: People not don't realize that the two are due to 497 00:30:36,760 --> 00:30:40,520 Speaker 1: something much bigger, which is this change in in in 498 00:30:41,120 --> 00:30:44,000 Speaker 1: the perfect storm that we talked about earlier. But it 499 00:30:44,120 --> 00:30:48,760 Speaker 1: is ironic that the biggest tax cut is being viewed 500 00:30:48,880 --> 00:30:51,360 Speaker 1: as a curse and not a blessing. We've been speaking 501 00:30:51,400 --> 00:30:56,520 Speaker 1: with muhammadal Ayan of ALIAS of Financial Times and Bloomberg View. 502 00:30:57,040 --> 00:31:00,000 Speaker 1: If you enjoy this conversation, be sure and hang around 503 00:31:00,160 --> 00:31:03,240 Speaker 1: for our podcast extras, where we keep the tape rolling 504 00:31:03,280 --> 00:31:07,160 Speaker 1: and continue the conversation. You could check out more of 505 00:31:07,240 --> 00:31:12,480 Speaker 1: Mohammed's writings at both FT and Bloomberg View dot com. 506 00:31:12,640 --> 00:31:16,760 Speaker 1: His most recent books, which I'm holding right here, uh, 507 00:31:16,840 --> 00:31:20,680 Speaker 1: When Markets Collide was named FT and Goldman Sachs Book 508 00:31:20,680 --> 00:31:23,640 Speaker 1: of the Year. The new one is Mohammed Allarians The 509 00:31:23,720 --> 00:31:27,920 Speaker 1: Only game in Town, Central Banks, Instability and Avoiding the 510 00:31:27,960 --> 00:31:31,160 Speaker 1: Next Collapse. Mohammedarian, thank you so much for for hanging 511 00:31:31,200 --> 00:31:33,560 Speaker 1: around with us. This has been terrific, great pleasure. Thank 512 00:31:33,600 --> 00:31:35,720 Speaker 1: you very much. Be sure and check out my daily 513 00:31:35,760 --> 00:31:38,760 Speaker 1: column on Bloomberg View dot com. Follow me on Twitter 514 00:31:38,960 --> 00:31:41,960 Speaker 1: at Rid Halts. I'm Barry Ridhults. You've been listening to 515 00:31:42,120 --> 00:31:45,720 Speaker 1: Masters in Business on Bloomberg Radio. Mohammed, thank you so 516 00:31:45,800 --> 00:31:47,880 Speaker 1: much for doing this. This is uh my great pleasure, 517 00:31:47,960 --> 00:31:50,240 Speaker 1: really fascinating. I have to tell you my my head 518 00:31:50,280 --> 00:31:52,920 Speaker 1: of research is Mike bat Nick, and he has called 519 00:31:53,000 --> 00:31:57,720 Speaker 1: you the most eloquent thinker on financial matters. He says, 520 00:31:57,800 --> 00:32:01,080 Speaker 1: no matter what he is talking about, it always comes 521 00:32:01,120 --> 00:32:06,479 Speaker 1: across as just interesting and erudite and makes you enjoy 522 00:32:06,600 --> 00:32:12,080 Speaker 1: debating abstract financial discussions. He's very kind, and this is 523 00:32:12,160 --> 00:32:14,400 Speaker 1: his book, which you're going to sign a sign for 524 00:32:14,480 --> 00:32:16,960 Speaker 1: him later. So let's let's go through a few questions 525 00:32:17,280 --> 00:32:19,160 Speaker 1: which we didn't get to, and then I want to 526 00:32:19,200 --> 00:32:21,960 Speaker 1: ask you some of my standard questions I asked all 527 00:32:22,040 --> 00:32:26,160 Speaker 1: my guests. So your colleague at PIMCO, Paul McCulley, is 528 00:32:26,200 --> 00:32:28,440 Speaker 1: a friend. I go fishing with him every summer up 529 00:32:28,480 --> 00:32:31,959 Speaker 1: in Maine in August, and he was a big timan 530 00:32:32,040 --> 00:32:36,640 Speaker 1: Minsky fan. Obviously, the book refers the mention of instability, 531 00:32:36,680 --> 00:32:43,920 Speaker 1: refers to Minsky's great thesis, which is stability breeds instability. 532 00:32:43,960 --> 00:32:47,320 Speaker 1: So he's a Minsky fan, you're a Minsky fan. I'm 533 00:32:47,320 --> 00:32:51,360 Speaker 1: curious as to how this developed internally. Who influenced too? 534 00:32:51,800 --> 00:32:54,720 Speaker 1: So I think we both influenced each other. And Paul 535 00:32:54,760 --> 00:32:58,040 Speaker 1: has had a huge influence on me um and his 536 00:32:58,120 --> 00:33:02,600 Speaker 1: friendship is something at I have valued enormously. You know, 537 00:33:02,640 --> 00:33:11,120 Speaker 1: Paul has this ability two translate complex issues into simple 538 00:33:11,200 --> 00:33:14,280 Speaker 1: phrases that are very powerful. The Minsky moment is Pouls. 539 00:33:14,360 --> 00:33:17,800 Speaker 1: The shadow banking system is Paul, and both of us 540 00:33:18,160 --> 00:33:23,040 Speaker 1: love a particular chapter in Kiness General Theory, and that 541 00:33:23,160 --> 00:33:26,719 Speaker 1: is chapter twelve. Chapter twelve is very different from the 542 00:33:26,760 --> 00:33:29,400 Speaker 1: rest of the general theory as this chapter twenty two 543 00:33:29,400 --> 00:33:33,520 Speaker 1: because it speaks about human behavior. He speaks about what 544 00:33:33,680 --> 00:33:37,280 Speaker 1: tends to happen um, and this whole concept of animal 545 00:33:37,320 --> 00:33:41,680 Speaker 1: spirits and overshoots, and that was really at the origin 546 00:33:41,840 --> 00:33:45,360 Speaker 1: of Minsky and this notion that you can get instability 547 00:33:45,400 --> 00:33:49,959 Speaker 1: from stability. It makes perfect sense. People start to become complacent, 548 00:33:50,520 --> 00:33:54,160 Speaker 1: they start to be more greedy and less fearful, and 549 00:33:54,240 --> 00:33:57,560 Speaker 1: that leads to further instability. Yes it does. And and 550 00:33:57,600 --> 00:34:00,880 Speaker 1: also policymakers become more complacent. And I think we saw 551 00:34:00,920 --> 00:34:04,160 Speaker 1: this um. You know, go back to the mid two 552 00:34:05,160 --> 00:34:09,680 Speaker 1: the mid nineties, the mid two thousand's, when when policymakers 553 00:34:09,760 --> 00:34:15,319 Speaker 1: became convinced that we no longer had cycles, the great 554 00:34:15,320 --> 00:34:20,120 Speaker 1: moderation right, that it was goldilocks, and that the financial 555 00:34:20,160 --> 00:34:23,920 Speaker 1: system could regulate itself. And we know we know how 556 00:34:23,960 --> 00:34:26,640 Speaker 1: well that came worked out. Let's let's talk a little 557 00:34:26,640 --> 00:34:29,880 Speaker 1: bit about currencies which seemed to be in turmoil whereat 558 00:34:29,920 --> 00:34:33,040 Speaker 1: something like twelve year highs for the dollar despite all 559 00:34:33,040 --> 00:34:37,040 Speaker 1: the predictions of a collapsing dollar. What does the turmoil 560 00:34:37,160 --> 00:34:40,680 Speaker 1: in currencies tell us about the economy and what does 561 00:34:40,719 --> 00:34:44,120 Speaker 1: it tell us about central banks actions? So we are 562 00:34:44,160 --> 00:34:51,799 Speaker 1: going through an important transition in currencies. Up to the 563 00:34:51,840 --> 00:34:59,360 Speaker 1: beginning of February, currencies were basically reflecting differential monetary policy. 564 00:34:59,520 --> 00:35:03,000 Speaker 1: So when the US embarked on its que, first the 565 00:35:03,080 --> 00:35:08,839 Speaker 1: dollar weakened, the euro strong strengthened, and then when the 566 00:35:08,840 --> 00:35:12,359 Speaker 1: Eurozone and Japan embarked on their que the opposite happen, 567 00:35:12,440 --> 00:35:15,560 Speaker 1: and as you point out, the dollar strengthened. But we 568 00:35:15,680 --> 00:35:18,239 Speaker 1: have switched regimes, and it'll be interesting to see how 569 00:35:18,280 --> 00:35:21,560 Speaker 1: long we switched regimes. Now that there's question marks about 570 00:35:21,560 --> 00:35:27,239 Speaker 1: the effectiveness of central bank policies, we are seeing currencies 571 00:35:27,280 --> 00:35:30,200 Speaker 1: start to reflect more fundamental So look at the end. 572 00:35:30,800 --> 00:35:34,920 Speaker 1: The end has tryngthened, notably against the dollar in February. 573 00:35:34,920 --> 00:35:38,640 Speaker 1: Why because people have stopped wearying about negative interest rates 574 00:35:38,680 --> 00:35:41,319 Speaker 1: in Japan and about quei and have started looking at 575 00:35:41,360 --> 00:35:44,360 Speaker 1: the balance street of Japan. Very strong about the ability 576 00:35:44,360 --> 00:35:48,520 Speaker 1: of the private sector to repatriate capital and a pretty 577 00:35:48,520 --> 00:35:53,560 Speaker 1: good current account situation. So we are on the cusp 578 00:35:54,160 --> 00:35:56,960 Speaker 1: of a transition in paradigms, and the question is going 579 00:35:56,960 --> 00:36:01,719 Speaker 1: to be whether that that continues or not. Let's let's 580 00:36:01,719 --> 00:36:03,799 Speaker 1: go to some of my favorite questions, because I know 581 00:36:03,880 --> 00:36:06,719 Speaker 1: I only have you for a little while longer. Um, 582 00:36:06,760 --> 00:36:10,920 Speaker 1: who are some of your earlier mentors? So my father 583 00:36:10,960 --> 00:36:13,280 Speaker 1: played a very important role, and there was a particular 584 00:36:13,360 --> 00:36:18,719 Speaker 1: moment um we were in Paris, and I questioned why 585 00:36:18,760 --> 00:36:21,439 Speaker 1: it is that we got four different newspapers every day. 586 00:36:21,840 --> 00:36:23,640 Speaker 1: I thought that that was a complete waste of money. 587 00:36:23,680 --> 00:36:26,920 Speaker 1: And why did we get what else? We got? Lament 588 00:36:27,640 --> 00:36:33,319 Speaker 1: the fig we got Francis, and then we got one 589 00:36:33,640 --> 00:36:36,440 Speaker 1: from the right, which will come back to me in 590 00:36:36,440 --> 00:36:40,279 Speaker 1: a second. Oh no, we got Luin lumin from the left. 591 00:36:40,560 --> 00:36:42,040 Speaker 1: And I asked him why is it that we need 592 00:36:42,040 --> 00:36:44,800 Speaker 1: his phone newspapers? After all, news is news news reporting, 593 00:36:44,800 --> 00:36:47,080 Speaker 1: his news reporting. Why are we wasting our money on 594 00:36:47,160 --> 00:36:49,880 Speaker 1: phone newspapers? And he said to me, you've got to 595 00:36:49,920 --> 00:36:54,120 Speaker 1: understand that people interpret things differently, and you've got to 596 00:36:54,160 --> 00:36:57,640 Speaker 1: be open to different interpretations. No one has a monopoly 597 00:36:58,200 --> 00:37:02,319 Speaker 1: over the right interpretation. And by encouraging you to read 598 00:37:02,440 --> 00:37:06,280 Speaker 1: four different newspapers every day, you will realize that different 599 00:37:06,320 --> 00:37:09,880 Speaker 1: people interpret the same facts differently, and you've got to 600 00:37:09,920 --> 00:37:13,719 Speaker 1: understand that. And that for me was very influential, and 601 00:37:13,760 --> 00:37:16,759 Speaker 1: it has helped me keep an open mind at a 602 00:37:16,840 --> 00:37:19,759 Speaker 1: time when it's been very easy to slip back into 603 00:37:19,760 --> 00:37:24,040 Speaker 1: the familiar. That's that's quite fascinating. Um. How about some 604 00:37:24,120 --> 00:37:26,360 Speaker 1: favorite books other than your own? What are some of 605 00:37:26,400 --> 00:37:29,600 Speaker 1: your favorite reads over the years. So my own are 606 00:37:29,640 --> 00:37:33,640 Speaker 1: not favorites. In fact, I do not read what I've written. 607 00:37:34,080 --> 00:37:36,520 Speaker 1: I'm neither too. Will I listen to this podcast, believe 608 00:37:36,560 --> 00:37:39,240 Speaker 1: it or not? No, No, I I really don't enjoy 609 00:37:39,320 --> 00:37:42,600 Speaker 1: doing that, um at all. You know, I've been influenced 610 00:37:42,640 --> 00:37:44,520 Speaker 1: by by loss and loss of books, and I've been 611 00:37:44,560 --> 00:37:47,239 Speaker 1: lucky for the last few years to be on the 612 00:37:47,280 --> 00:37:50,400 Speaker 1: financial time jury for book of the Year, which exposes 613 00:37:50,480 --> 00:37:52,279 Speaker 1: me to books that I don't have the discipline to 614 00:37:52,280 --> 00:37:55,400 Speaker 1: read otherwise. That's why I keep on doing it. Um. 615 00:37:55,440 --> 00:37:59,879 Speaker 1: I'm very struck recently by books that talk about fundamental transformations, 616 00:38:00,040 --> 00:38:04,560 Speaker 1: but that the ability of disruptors to disrupt you even 617 00:38:04,560 --> 00:38:07,920 Speaker 1: though they don't know much about your sector. Airbnb I'll 618 00:38:07,920 --> 00:38:11,160 Speaker 1: give you a simple statistic. Berry, it took Hilton a 619 00:38:11,280 --> 00:38:14,960 Speaker 1: hundred years to provide seven hundred thousand rooms to its clients. 620 00:38:15,800 --> 00:38:18,800 Speaker 1: It took ABNB six years to provide a million rooms, 621 00:38:19,400 --> 00:38:21,439 Speaker 1: and a BnB didn't build a single hotel. They don't 622 00:38:21,440 --> 00:38:23,920 Speaker 1: manage a single hotel, and they do with six hundred people. 623 00:38:24,640 --> 00:38:27,440 Speaker 1: Look what Uber has done to that. I am fascinated 624 00:38:27,440 --> 00:38:30,560 Speaker 1: by these disruptions. And there's been a number of books 625 00:38:30,560 --> 00:38:34,040 Speaker 1: written about the disruptors, especially in the music industry. The 626 00:38:34,120 --> 00:38:38,440 Speaker 1: music industry has been disrupted beyond anything. Any standout books 627 00:38:38,480 --> 00:38:42,160 Speaker 1: you want to mention by title, so um I would 628 00:38:43,640 --> 00:38:46,080 Speaker 1: The one book I would mention in particular is The 629 00:38:46,160 --> 00:38:49,960 Speaker 1: Disruptive Role of Robots um is by Martin Ford. It 630 00:38:50,120 --> 00:38:52,560 Speaker 1: is a very provocative book. You may or may not 631 00:38:52,680 --> 00:38:56,600 Speaker 1: agree with his policy recommendations, but you better realize that 632 00:38:56,680 --> 00:39:00,640 Speaker 1: we are in the next phase of a transformation. Machine 633 00:39:00,719 --> 00:39:04,000 Speaker 1: learning is an incredibly powerful disrupter. This is rise of 634 00:39:04,080 --> 00:39:07,040 Speaker 1: the robots, right, This is like number three in my queue. 635 00:39:07,600 --> 00:39:09,440 Speaker 1: I want to move it up, move it up. Really, 636 00:39:09,520 --> 00:39:12,000 Speaker 1: it's it's right, But then I'll be right behind Sapiens 637 00:39:12,080 --> 00:39:14,800 Speaker 1: is number one, and like you, what, what else? Stands 638 00:39:14,800 --> 00:39:20,880 Speaker 1: out as an interesting book. You mentioned Um Keynes clearly, 639 00:39:20,920 --> 00:39:24,160 Speaker 1: so Kanes. For me. I was lucky enough to go 640 00:39:24,239 --> 00:39:27,640 Speaker 1: to Cambridge for for my undergraduate and I never opened 641 00:39:27,640 --> 00:39:31,239 Speaker 1: a textbook. Really, they didn't use textbooks. We always have 642 00:39:31,520 --> 00:39:35,520 Speaker 1: all iPods, right, it was, it was we all went 643 00:39:35,560 --> 00:39:38,439 Speaker 1: to the library and went to the original work and 644 00:39:38,920 --> 00:39:41,280 Speaker 1: I read Canes also that has had a huge influence 645 00:39:41,320 --> 00:39:44,640 Speaker 1: on me. Um and chapter twenty two and chapter twelve, 646 00:39:44,680 --> 00:39:49,120 Speaker 1: as we mentioned before, in particular Um John Robinson UM 647 00:39:49,160 --> 00:39:52,480 Speaker 1: has had a huge influence on me. Herold And and 648 00:39:53,560 --> 00:39:56,480 Speaker 1: the various biographies of Kines have had a huge influence 649 00:39:56,520 --> 00:39:59,040 Speaker 1: on me. Um. So I put that, but but I 650 00:39:59,080 --> 00:40:03,400 Speaker 1: wouldn't recommend, and that necessarily to two young people. Recommend, 651 00:40:03,400 --> 00:40:07,520 Speaker 1: for example, the book How Music Got Free? Okay, again, 652 00:40:07,640 --> 00:40:11,799 Speaker 1: encourage people to think differently, be willing to question conventional 653 00:40:11,800 --> 00:40:16,040 Speaker 1: wisdom because we're going through massive transformations. Joan Robinson stands 654 00:40:16,040 --> 00:40:18,160 Speaker 1: out because there's a quote of hers that I just 655 00:40:18,200 --> 00:40:20,560 Speaker 1: adore and use all the time, which is we study 656 00:40:20,680 --> 00:40:23,839 Speaker 1: economics not to learn about the economy, but so as 657 00:40:23,880 --> 00:40:26,839 Speaker 1: to not be fooled by the economists. And I find 658 00:40:26,880 --> 00:40:29,920 Speaker 1: that quite quite fascinating. Perspectives. So let me give you 659 00:40:30,000 --> 00:40:34,200 Speaker 1: my my wake up call. Um. I was asked for 660 00:40:34,239 --> 00:40:38,160 Speaker 1: an interview at Cambridge, and my teacher at school gave 661 00:40:38,200 --> 00:40:40,160 Speaker 1: me a book that had just come out and said, 662 00:40:40,239 --> 00:40:42,600 Speaker 1: read this book, and I don't care what you do, 663 00:40:43,520 --> 00:40:45,360 Speaker 1: but mentioned it in an interview because they're going to 664 00:40:45,400 --> 00:40:47,799 Speaker 1: be really impressed that you read it. I knew my 665 00:40:47,840 --> 00:40:50,560 Speaker 1: interview was forty five minutes. I went up there in 666 00:40:50,560 --> 00:40:54,440 Speaker 1: in minute forty two. I hadn't had an opportunity to 667 00:40:54,480 --> 00:40:57,040 Speaker 1: mention the book, and I was panicking. At that point, 668 00:40:57,640 --> 00:41:01,319 Speaker 1: I pivoted completely from what we were talking about and said, oh, 669 00:41:01,400 --> 00:41:03,760 Speaker 1: this reminds me of the book. I was being interviewed 670 00:41:03,800 --> 00:41:05,760 Speaker 1: by two people, one person who had been taking notes 671 00:41:05,960 --> 00:41:07,720 Speaker 1: and the other person had been asking the question. Suddenly 672 00:41:07,760 --> 00:41:10,600 Speaker 1: the person taking notes smiled, and I should have realized 673 00:41:10,600 --> 00:41:13,319 Speaker 1: that that was a warning sign. Put down his note 674 00:41:13,360 --> 00:41:15,319 Speaker 1: and asked me tell me about the book. And I 675 00:41:15,360 --> 00:41:20,320 Speaker 1: went very into a perfectly prepared monologue, and my confidence 676 00:41:20,360 --> 00:41:23,560 Speaker 1: was rising, and I finished thinking this is great, I've 677 00:41:23,680 --> 00:41:26,640 Speaker 1: nailed it. And then he asked me a single question 678 00:41:26,719 --> 00:41:30,920 Speaker 1: that demolished the whole thesis of the book, and I 679 00:41:31,000 --> 00:41:33,719 Speaker 1: was speechless. He then got up. It was his room, 680 00:41:34,239 --> 00:41:37,279 Speaker 1: went to his bookshelf, pulled off an off print and 681 00:41:37,320 --> 00:41:39,560 Speaker 1: gave it to me. It was his review of the book. 682 00:41:40,239 --> 00:41:43,640 Speaker 1: And he said to me, Mohammed, just because it's published, 683 00:41:44,160 --> 00:41:47,960 Speaker 1: it doesn't mean it's right. And then I realized, it's 684 00:41:48,000 --> 00:41:50,880 Speaker 1: not what you think, but how you think. And for me, 685 00:41:50,960 --> 00:41:55,160 Speaker 1: that was a really important moment. That's that's quite a lesson. 686 00:41:55,440 --> 00:41:58,360 Speaker 1: So in the last few minutes, I have two favorite 687 00:41:58,440 --> 00:42:02,800 Speaker 1: questions I love to ask because we always get fascinating answers. 688 00:42:02,880 --> 00:42:06,759 Speaker 1: The first is, if you were speaking to a millennial 689 00:42:06,960 --> 00:42:10,600 Speaker 1: or a recent college grad and they asked you for 690 00:42:10,680 --> 00:42:14,959 Speaker 1: some career advice, what would you tell them. I would 691 00:42:14,960 --> 00:42:19,960 Speaker 1: tell them sequence your career correctly, take risks early on, 692 00:42:20,560 --> 00:42:22,759 Speaker 1: because as you get older you'll find it harder to 693 00:42:22,800 --> 00:42:27,480 Speaker 1: take risk. Be willing to join startups. There's a lot 694 00:42:27,520 --> 00:42:31,959 Speaker 1: of exciting things happening. Be willing to fail because most 695 00:42:32,000 --> 00:42:34,520 Speaker 1: of the people who have succeeded in life did that 696 00:42:34,600 --> 00:42:39,320 Speaker 1: after failing. Right, and don't go into a conventional career 697 00:42:39,360 --> 00:42:43,760 Speaker 1: too early. Sounds like very good advice. My last question 698 00:42:44,080 --> 00:42:48,120 Speaker 1: is sort of related. What do you know today about 699 00:42:48,239 --> 00:42:52,759 Speaker 1: investing or finance or industry, or or anything really that 700 00:42:52,840 --> 00:42:55,880 Speaker 1: you wish you knew when you started your career thirty 701 00:42:55,960 --> 00:43:00,680 Speaker 1: years ago. So I wish I had questioned earlier on 702 00:43:01,520 --> 00:43:05,600 Speaker 1: the conventional wisdom that cash has no role to play 703 00:43:05,680 --> 00:43:09,919 Speaker 1: in asset allocation. That is a conventional wisdom that cash 704 00:43:09,960 --> 00:43:13,520 Speaker 1: has absolutely no role to play. But when you enter 705 00:43:14,360 --> 00:43:18,600 Speaker 1: into artificial world, an artificial world where central banks are 706 00:43:18,640 --> 00:43:22,480 Speaker 1: not just your referee, but they also on the field, 707 00:43:23,320 --> 00:43:27,160 Speaker 1: cash gives you three things that are most valuable. One 708 00:43:27,239 --> 00:43:31,600 Speaker 1: resilience you can afford to make mistakes elsewhere you will 709 00:43:31,640 --> 00:43:35,759 Speaker 1: not be forced out of positions that quickly. Second, it 710 00:43:35,760 --> 00:43:39,680 Speaker 1: gives you optionality. You can change your mind. With liquidity diminishing, 711 00:43:40,120 --> 00:43:44,280 Speaker 1: optionality becomes really important. And thirdly, it gives you agility. 712 00:43:44,520 --> 00:43:48,400 Speaker 1: Because when you get volatility, you get price contagent, you 713 00:43:48,440 --> 00:43:53,560 Speaker 1: get price overshoots, and good companies get hammered by what's 714 00:43:53,600 --> 00:43:56,239 Speaker 1: happening to bad companies. So the one thing I would say, 715 00:43:56,280 --> 00:43:59,880 Speaker 1: and I would say today, is is this conventional wisdom 716 00:43:59,880 --> 00:44:01,960 Speaker 1: that cash has no part to play in an acid 717 00:44:01,960 --> 00:44:04,520 Speaker 1: allocation should be we visited. And I wish I had 718 00:44:04,520 --> 00:44:08,920 Speaker 1: realized that earlier. On fascinating fascinating stuff Mohammed, thank you 719 00:44:09,000 --> 00:44:12,200 Speaker 1: so much for being so generous with your time. UH, 720 00:44:12,480 --> 00:44:15,239 Speaker 1: be sure and if you enjoy this conversation, be sure 721 00:44:15,280 --> 00:44:17,480 Speaker 1: and look up an inch or down an inch on 722 00:44:17,560 --> 00:44:20,319 Speaker 1: Apple iTunes and you could see the other seventy eight 723 00:44:20,400 --> 00:44:25,120 Speaker 1: or so such conversations we've had. I would be remiss 724 00:44:25,200 --> 00:44:28,400 Speaker 1: if I failed to thank Mike bat Nick, uh, my 725 00:44:28,520 --> 00:44:33,120 Speaker 1: head of research, and Charlie Volmer, my recording engineer for 726 00:44:33,160 --> 00:44:36,360 Speaker 1: the day, as well as Tella Riggs, who produces and 727 00:44:36,760 --> 00:44:40,040 Speaker 1: books the show. I'm Barry Ridholts. You've been listening to 728 00:44:40,160 --> 00:44:42,520 Speaker 1: Masters in Business on Bloomberg Radio.