WEBVTT - Interview With Martin H. Barnes: Masters in Business (Audio) 0:00:00.120 --> 0:00:03.159 Brought to you by Bank of America. Merrill Lynch seeing 0:00:03.160 --> 0:00:06.120 what others have seen, but uncovering what others may not. 0:00:06.519 --> 0:00:10.280 Global Research that helps You Harness disruption voted top global 0:00:10.320 --> 0:00:13.880 research firm five years running. Merrill Lynch, Pierce, Fenner and 0:00:13.920 --> 0:00:21.800 Smith Incorporated. This is Masters in Business with Barry Riddoles 0:00:22.000 --> 0:00:25.560 on Bloomberg Radio this weekend. On the podcast, I bring 0:00:25.600 --> 0:00:28.880 an old friend into the studio to chat about all 0:00:29.000 --> 0:00:34.400 things economics. Martin Barnes is the chief economist at bc 0:00:34.440 --> 0:00:38.919 A Research, where he has been a senior editor, managing 0:00:38.960 --> 0:00:42.560 partner and essentially grand popa more or less for the 0:00:42.600 --> 0:00:45.640 past thirty years. I know Martin for a long time. 0:00:45.680 --> 0:00:48.599 He's a fishing buddy. He's somebody I've been friendly with 0:00:49.320 --> 0:00:52.640 um personally for for a while. I am not only 0:00:52.920 --> 0:00:58.720 entranced by his thick scott his brogue. I wish I 0:00:58.760 --> 0:01:02.240 could have gotten him to eurse uh. It is hilarious 0:01:02.280 --> 0:01:07.640 when you hear him dropped the occasional bomb uh in 0:01:07.720 --> 0:01:11.119 a heavy Scottish accents. It's he wants to be taken 0:01:11.160 --> 0:01:15.720 seriously when he curses, but it's just so hilarious when 0:01:15.760 --> 0:01:17.720 you hear it. If you're a friend of here is 0:01:17.800 --> 0:01:20.360 and you managed to make him curse, We just fall 0:01:20.440 --> 0:01:25.520 off our seats laughing. He is an incredibly insightful person 0:01:25.560 --> 0:01:28.959 when it comes to the inner workings of the Federal Reserve. 0:01:29.160 --> 0:01:33.479 He has been, if not an insider, so certainly someone 0:01:33.560 --> 0:01:37.600 with the inside track as to the thought process of 0:01:37.800 --> 0:01:42.280 various FED governors and various FED chair people. Uh. He 0:01:42.440 --> 0:01:45.160 is just one of those folks that has been around 0:01:45.240 --> 0:01:49.000 long enough and and been in the right place at 0:01:49.040 --> 0:01:52.600 the right time to have really learned a lot of things. 0:01:52.640 --> 0:01:55.960 So if you are interested in various economic thoughts, if 0:01:55.960 --> 0:01:59.520 you're interested in what drives the FED and and perhaps 0:01:59.600 --> 0:02:01.800 what the that should be doing instead of what they 0:02:01.800 --> 0:02:05.360 are doing, Martin Barnes is your guy. With no further ado, 0:02:05.720 --> 0:02:14.000 my conversation with Martin Barnes. This is Masters in Business 0:02:14.080 --> 0:02:18.480 with Barry Ridholds on Bloomberg Radio. My special guest today 0:02:18.720 --> 0:02:22.360 is Martin Barnes. He is the chief economist at bc 0:02:22.520 --> 0:02:27.639 A Research, which he joined in eighteen of those years 0:02:27.720 --> 0:02:31.720 was as the managing editor of the well regarded Bank 0:02:31.760 --> 0:02:36.520 Credit Analyst, which is their flagship publication. Uh. Martin Barnes, 0:02:36.560 --> 0:02:38.960 Welcome to Bloomberg Thank you, Barry. Pleasure to be with you. 0:02:39.080 --> 0:02:41.280 This is your first time in this building, it is 0:02:41.360 --> 0:02:45.560 my first time. Very exciting building. So so let's jump 0:02:45.680 --> 0:02:49.840 right into your background. You began your career as an 0:02:49.840 --> 0:02:54.960 economist for British Petroleum for BP. Is that right? What 0:02:55.000 --> 0:02:57.840 was that? That means I've been working as an economist 0:02:57.840 --> 0:03:01.280 for forty three years, which means time. I've very confused person. 0:03:01.639 --> 0:03:03.320 I was going to say, after forty three years, you 0:03:03.320 --> 0:03:05.360 should be pretty good at it. You got in the 0:03:05.360 --> 0:03:07.480 other direction, you go in the other direction, all right, 0:03:07.600 --> 0:03:10.480 So so what was the job at BP? Like, what 0:03:10.520 --> 0:03:14.640 did you do? Well? I joined their forecasting division, which 0:03:14.680 --> 0:03:17.519 is part of their corporate planning department, trying to figure 0:03:17.520 --> 0:03:22.639 out where global economic growth was going and then forecasting 0:03:22.720 --> 0:03:25.720 energy demand and within that oil demand of course, and 0:03:25.800 --> 0:03:28.680 that was a key and put into BPS planning process. 0:03:29.320 --> 0:03:33.040 But of course I joined in January ninety three. Oil 0:03:33.440 --> 0:03:36.160 was three dollars a barrel, had been for a long time, 0:03:36.240 --> 0:03:38.600 and of course all future projections were based on the 0:03:38.600 --> 0:03:41.600 assumption that oil would be three dollars a barrel, and 0:03:42.040 --> 0:03:45.280 by the end of three guess what happened? We had 0:03:45.280 --> 0:03:48.680 an oil embargo. When I recall oil spiked something like 0:03:48.840 --> 0:03:53.760 mind and after twelve whatever, so everything was turned upside down. 0:03:53.800 --> 0:03:57.040 So that was a wonderful learning experience, to say the least. 0:03:57.280 --> 0:04:00.600 And then a few years later in nine d seven 0:04:01.080 --> 0:04:05.160 you came to North America. No I. Then I was 0:04:05.200 --> 0:04:08.800 with BP for five years and then I moved to 0:04:08.920 --> 0:04:12.600 a brookeradge firm in the UK of Wall Street firm. 0:04:12.640 --> 0:04:15.320 I was an economist with a UK broker firm, which 0:04:15.520 --> 0:04:18.640 actually got me back to Scotland, which was nice because 0:04:18.920 --> 0:04:21.320 their research was based in Edinburgh, so it would be 0:04:21.360 --> 0:04:24.480 like moving from London, sorry, from New York to Boston 0:04:24.600 --> 0:04:27.560 kind of thing. So how did you go from from 0:04:27.600 --> 0:04:32.560 London to Scotland to Vancouver and here in North America? Well, 0:04:32.640 --> 0:04:37.040 so five years in London with BP, then I came 0:04:37.080 --> 0:04:39.680 across this opportunity to join this firm called Wood Mackenzie, 0:04:39.760 --> 0:04:43.479 which was a brokerage firm research based in Edinburgh though 0:04:43.480 --> 0:04:46.040 they traded in London. Was with them for ten years 0:04:46.520 --> 0:04:51.479 and was headhunted by b C A chance to gosh, 0:04:51.560 --> 0:04:53.279 come to Canada. Why the heck would I want to 0:04:53.279 --> 0:04:57.840 do that? But after thinking about it, took the move 0:04:57.920 --> 0:05:00.720 and never looked back. Really and you made that move 0:05:00.800 --> 0:05:05.599 in was that anywhere near the eighty seven crash? Well, 0:05:05.640 --> 0:05:08.840 I accepted the job before the crash. I accepted the 0:05:08.920 --> 0:05:12.120 job job in August. The last piece of research I 0:05:12.160 --> 0:05:16.359 wrote for my previous employer with Mackenzie was called after 0:05:16.400 --> 0:05:19.320 the crash what would happen? And then I moved to 0:05:19.360 --> 0:05:21.920 Canada in November, So just one month after the crash, 0:05:22.839 --> 0:05:27.080 the seven Black Monday? Did it interfere? Did you say maybe? 0:05:27.120 --> 0:05:30.520 I had? No, No, no, not at all. They were 0:05:30.520 --> 0:05:34.360 excited about it. Yeah. Sure and um so so let's 0:05:34.440 --> 0:05:36.719 talk a little bit about the work you've been doing 0:05:36.760 --> 0:05:41.120 for bc A research for thirty years. You spent eighteen 0:05:41.200 --> 0:05:45.520 years being the editor of the Bank Credit Analysts. Tell 0:05:45.600 --> 0:05:49.000 us about that publication. Well, b c A is a 0:05:49.200 --> 0:05:54.279 very interesting I think it's pretty unique firm. It's almost 0:05:54.360 --> 0:05:57.320 unlikely firm because it's based in Montreal, which is of 0:05:57.360 --> 0:06:01.599 course a financial backwater, but it's been a right since nine. 0:06:01.920 --> 0:06:05.679 It's a pure research firm, doesn't manage money, doesn't trade, 0:06:05.760 --> 0:06:10.800 there's no proprietary stuff going on. All we're selling this research. 0:06:10.880 --> 0:06:13.960 So it's focused on trying to figure out where the 0:06:14.000 --> 0:06:17.640 markets are going. And it's a pretty intense place. When 0:06:17.640 --> 0:06:20.200 I joined, it was tiny. I was employee number fourteen. 0:06:21.080 --> 0:06:24.840 Were more than ten times bigger that in terms of employees. 0:06:25.360 --> 0:06:28.080 But the focus is still the same. We're still trying 0:06:28.080 --> 0:06:30.640 to still thirty years later, still trying to figure out 0:06:30.640 --> 0:06:33.000 where the markets are going. So so who are the 0:06:33.040 --> 0:06:36.880 clients of BC, who's the typical describe what the typical 0:06:36.920 --> 0:06:40.680 client is is. We're pretty much challenged to still these days, 0:06:40.680 --> 0:06:42.920 which was not the case when I joined. When I joined, 0:06:43.960 --> 0:06:46.240 maybe a third of the clients were behind it worth. 0:06:46.320 --> 0:06:48.919 They're kind of been priced out of adopted a different 0:06:48.960 --> 0:06:51.400 business model. So we're kind of institutional now. And it's 0:06:51.839 --> 0:06:56.200 range everything from finger snapping hedge funds hiking you make 0:06:56.240 --> 0:06:59.640 me money this afternoon to slow moving state pension funds, 0:07:00.040 --> 0:07:05.280 know and everything in between. So that sounds interesting. So 0:07:05.400 --> 0:07:07.360 and I'm very global, by the way, I should point out, 0:07:07.600 --> 0:07:11.040 although we're based in Canada for historical reasons, that's just 0:07:11.080 --> 0:07:14.080 where the company began and there's a very powerful force 0:07:14.080 --> 0:07:18.080 and we just stayed there. But you know, half of 0:07:18.080 --> 0:07:21.080 our client base is probably outside North America. Come for 0:07:21.160 --> 0:07:24.040 the high taxes, stay for the miserable winters. That's the 0:07:24.360 --> 0:07:27.760 that's the the marketing campaign for although where you are 0:07:28.760 --> 0:07:31.960 I know live in Victoria Bridge, Columbia, but my spec 0:07:32.160 --> 0:07:34.120 is still based in Montreal and that's where my job 0:07:34.240 --> 0:07:37.880 is based. Your climate is quite delightful. You're you have 0:07:37.960 --> 0:07:41.480 a very similar climate to Seattle and Portland's less rain, 0:07:41.880 --> 0:07:46.000 less rain and just just as opposed to Scotland where 0:07:46.640 --> 0:07:48.880 planning of rain you said you were You don't know 0:07:48.920 --> 0:07:51.080 the day you were the exact whether of the day 0:07:51.080 --> 0:07:53.720 you were born, but it's a fair case it was raining. 0:07:55.160 --> 0:07:58.880 So what's the what's the your favorite part of your job? 0:07:58.960 --> 0:08:00.960 What do you like that you what do you like 0:08:01.000 --> 0:08:06.000 to do the most as part of BCA research? Oh gosh, 0:08:06.120 --> 0:08:08.520 I mean I look, I've been there twenty nine years 0:08:08.520 --> 0:08:10.240 and if there was anything I really didn't like, I 0:08:10.240 --> 0:08:13.320 would have left a long time ago. So I write, 0:08:13.720 --> 0:08:16.000 and that's always cool when you can come up with 0:08:17.360 --> 0:08:21.680 a new angle on something. I enjoy writing. I enjoy speaking. 0:08:21.840 --> 0:08:24.480 Standing up in front of a crowd of people giving 0:08:24.560 --> 0:08:28.040 my views is is fun. Traveling, visiting, talking with clients. 0:08:28.920 --> 0:08:31.120 I can't see this any part of it. I don't like. 0:08:31.600 --> 0:08:35.240 I'm Barry Ridhults. You're listening to masters in Business on 0:08:35.320 --> 0:08:39.080 Bloomberg Radio. My special guest today is Martin Barnes. He 0:08:39.200 --> 0:08:42.959 is the chief economist at BC, a research affirm he's 0:08:43.000 --> 0:08:45.600 been working at for let's round it up and call 0:08:45.640 --> 0:08:48.520 it thirty years. Uh, and let's let's talk a little 0:08:48.559 --> 0:08:52.679 bit about the global economy. So where are we? If 0:08:52.679 --> 0:08:59.320 you have to pick one, is it inflation, deflation or disinflation? Well, 0:09:01.200 --> 0:09:03.560 showing that I'm a true economist, I'm going to have 0:09:03.600 --> 0:09:05.600 to give either the it depends out, sir, you know. 0:09:05.840 --> 0:09:08.600 I mean, if you're in you know, the manufacturing sector, 0:09:08.760 --> 0:09:11.600 or you're a taxi driver, you would say it's deflation 0:09:11.800 --> 0:09:16.720 because it's tough, it's competitive, and prices in your business 0:09:16.880 --> 0:09:19.720 are falling and in some cases may have been falling 0:09:20.400 --> 0:09:25.240 for a while. Um. If you're a parent, um, you know, 0:09:25.240 --> 0:09:29.160 paying for your kids kids college education, or you've got 0:09:29.160 --> 0:09:32.360 a lot of health care expenses. You know, you you 0:09:32.480 --> 0:09:35.559 just see the world as horrendously inflationary. And if your 0:09:35.600 --> 0:09:37.880 wife is like my wife, she'll just laugh at you 0:09:37.920 --> 0:09:41.400 any suggestion as deflation because she'll beat you up and 0:09:41.440 --> 0:09:43.839 tell you how much everything is going up in price 0:09:44.520 --> 0:09:46.599 since last time she went to the grocery store. So 0:09:46.679 --> 0:09:50.360 it's different. We're not looking an aggregate, we are not 0:09:50.520 --> 0:09:55.800 in a deflationary we don't have absolute deflation, but it 0:09:55.880 --> 0:09:58.840 feels deflationary in a lot of places, and there's a 0:09:58.840 --> 0:10:03.400 little pockets of of inflation. But it's a very different 0:10:03.480 --> 0:10:07.760 world from the inflationary seventies. Of course. Sure, the joke 0:10:07.840 --> 0:10:11.120 I've heard is we have inflation and the things we need, 0:10:11.559 --> 0:10:14.280 and we have deflation and the things we want, which 0:10:14.320 --> 0:10:16.400 I thought was kind of it. So it was like, 0:10:16.480 --> 0:10:19.000 kind of got a cute way of putting it. Another 0:10:19.040 --> 0:10:20.880 way of thinking about it is that the things that 0:10:20.920 --> 0:10:25.840 we spend money on day to day or week to week, 0:10:25.880 --> 0:10:28.680 month to month tend to have inflation, and the things 0:10:28.679 --> 0:10:33.080 that we only buy occasion occasionally fallen price. You know, 0:10:33.160 --> 0:10:37.320 so refrigerators, TVs. So you don't notice that, but you 0:10:37.400 --> 0:10:40.040 sure as heck notice if you're parking fees are going up. 0:10:40.080 --> 0:10:43.360 This so their small amounts of money to compared to 0:10:43.360 --> 0:10:45.800 the price of refrigerators. So let's talk a little bit 0:10:45.800 --> 0:10:50.600 about commodities. So two years ago the price of oil 0:10:50.640 --> 0:10:53.440 was over a hundred bucks, and now here we are 0:10:53.520 --> 0:10:57.680 with OPEC having a conversation and oil can barely maintain 0:10:58.000 --> 0:11:01.720 a forty hands all. What's the commodity story? Is that 0:11:01.800 --> 0:11:04.600 a dollar story or is that a supply story or 0:11:04.640 --> 0:11:10.080 something else. One of the first lecguiliarity economics at school is, 0:11:10.640 --> 0:11:13.320 you know, it's a supply demand curve, and you know, 0:11:13.960 --> 0:11:17.880 increased supply alter to demand and price falls and vice versa. 0:11:18.320 --> 0:11:21.440 So we have comi more than anything else. You know, 0:11:21.559 --> 0:11:25.360 the respond to to price signals. Raise the price of week, 0:11:25.400 --> 0:11:27.240 water farmer is going to do. They'll grow so much 0:11:27.240 --> 0:11:29.400 week they'll be giving away in street corners after the 0:11:29.480 --> 0:11:33.200 nick harvest. Some commodities, the cycles are a bit longer 0:11:33.240 --> 0:11:35.880 because if you have to find the stuff and dig 0:11:35.880 --> 0:11:38.160 the mines, et cetera, maybe it takes a few years. 0:11:38.520 --> 0:11:44.120 But commodities respond to prices, and you know, we had 0:11:44.720 --> 0:11:48.439 and sometimes these cycles are really long. So we had 0:11:48.440 --> 0:11:52.280 a twenty year bear market, if you like, in in commodities, 0:11:53.600 --> 0:11:56.520 from the early eighties into the early two thousands, to 0:11:56.600 --> 0:12:00.200 the point where prices got so low, you know, open 0:12:00.200 --> 0:12:03.000 a couper minor you nuts. So we starved to come 0:12:03.000 --> 0:12:05.200 out the resource sector of resources. Who wants to be 0:12:05.200 --> 0:12:07.640 a mining engineer when you can be an investment banker 0:12:07.679 --> 0:12:10.800 who wants to open a copper mind. So when demand 0:12:10.880 --> 0:12:13.960 picked up, particularly driven by China, the supply we just 0:12:14.080 --> 0:12:17.080 wasn't there priced. So then we had this powerful bull market, 0:12:17.240 --> 0:12:21.560 ten year blue market. Guess what that's prices went. It 0:12:21.600 --> 0:12:25.440 became more attractive to find the stuff, so the supply 0:12:25.600 --> 0:12:28.120 responded as it always does, and then we ended up 0:12:28.120 --> 0:12:30.840 with too much supply and then prices went down. The 0:12:30.840 --> 0:12:33.560 bull markets tend to be much shorter than the bear market, 0:12:33.640 --> 0:12:36.600 so we had ten ten year bull market followed by 0:12:36.600 --> 0:12:39.640 twenty year bear market. Historically has kind of been like that, 0:12:40.520 --> 0:12:47.160 and if that is still true, um prices there were 0:12:47.200 --> 0:12:50.560 only pretty early stage of a bear face. There's still 0:12:51.080 --> 0:12:54.160 quite a lot of supply out there. Oil is a 0:12:54.240 --> 0:12:58.080 little bit different, still a ton of supply fracts, still 0:12:58.080 --> 0:13:00.319 the same. You you have a g political overlay with 0:13:00.360 --> 0:13:02.360 oil that you don't have with other products, but it's 0:13:02.360 --> 0:13:05.280 still the same story. And of course because of shale, 0:13:05.840 --> 0:13:11.120 it's changed things. We believe, I guess most people you 0:13:11.160 --> 0:13:14.319 know believe that once you get into the fifties, fifty 0:13:14.400 --> 0:13:19.080 five and above, shale becomes very competitive again and turn 0:13:19.360 --> 0:13:21.560 you can turn sheal on and off much more quickly 0:13:21.600 --> 0:13:25.679 than deep water oil. So oil's capped. Shale puts a 0:13:25.720 --> 0:13:28.960 cap a price cap on, so you don't see oil 0:13:29.000 --> 0:13:31.800 going over sixty dollars a barrel anytime in the next 0:13:31.800 --> 0:13:34.880 couple of some short term geo political stuff. And what 0:13:34.960 --> 0:13:38.040 about natural gas, which it seems that we're just finding 0:13:38.280 --> 0:13:43.080 endlessly supplies? Yeah, what was it a few weeks ago, 0:13:43.160 --> 0:13:46.000 a couple of months ago. Wasn't they finally enormous reserves 0:13:46.000 --> 0:13:49.520 in Texas? The biggest fuel Just it just seems like 0:13:49.600 --> 0:13:56.920 it's an almost inexhaustible It's the whole shale technology hasn't 0:13:57.000 --> 0:14:01.120 really been exploited aggressively outside the US. We're still early 0:14:01.160 --> 0:14:04.160 stages of that. So so I wouldn't be a bull 0:14:04.720 --> 0:14:06.800 of commodities. No, they're not going to fall forever, and 0:14:06.840 --> 0:14:09.920 you can have short term moves, but you know the 0:14:10.240 --> 0:14:13.280 very long term and b C. We love long term stuff. Um, 0:14:13.720 --> 0:14:15.680 you know, you do a two hundred year chart of 0:14:15.720 --> 0:14:20.280 real commodity prices and that just trends steadily down and 0:14:20.360 --> 0:14:24.720 any spikes are short lived wars supply disruption. So is 0:14:24.760 --> 0:14:29.240 that a story of of improving technology and exploration? So 0:14:29.360 --> 0:14:33.800 your reference China earlier, I have to ask how significant 0:14:34.000 --> 0:14:39.280 is China to the demand for commodities and when they 0:14:39.320 --> 0:14:43.040 begin to cool off, how impactful is China on falling 0:14:43.040 --> 0:14:49.080 commodity prices. It's not hugely impactful for oil, but has 0:14:49.200 --> 0:14:54.920 been massively significant for medals, where some cases fifty of 0:14:55.000 --> 0:14:59.720 global demand has come from China. Now the standard story 0:14:59.760 --> 0:15:02.720 for MINA is it has to and has begun to 0:15:03.960 --> 0:15:09.920 orientals orient itself away from manufacturing construction war towards services. 0:15:09.960 --> 0:15:14.080 This is a long, slow process, but they still half 0:15:14.080 --> 0:15:17.160 the country working on the farms, right some crazy should 0:15:17.280 --> 0:15:19.760 I mean, their growth model should be a less commodity 0:15:19.760 --> 0:15:23.200 intensive growth model going forward than it's been in the past, 0:15:23.200 --> 0:15:25.760 but it will continue to be a big player. And 0:15:25.760 --> 0:15:28.240 you've got India, You've got a bunch of other remerging 0:15:28.280 --> 0:15:34.320 economies all want to industrialize more. So the commodity story 0:15:34.480 --> 0:15:39.080 is an m story for sure, not just China. UM 0:15:39.720 --> 0:15:45.400 and things like auto ownership, homeownership, things that are commodity 0:15:45.440 --> 0:15:47.640 intensive are still at pretty little levels. And a lot 0:15:47.680 --> 0:15:50.280 of countries like Vietnam, and then they are compared to 0:15:50.320 --> 0:15:52.960 the Western levels, and you've got to assume, you know, 0:15:53.800 --> 0:15:56.359 they want to get to where we are, So commodity 0:15:56.400 --> 0:16:01.120 demand will go up. The issue is supply. You know, 0:16:01.200 --> 0:16:04.160 there is a big moves in supply that that causes, 0:16:04.760 --> 0:16:07.960 you know, the big moves in in commodity prices, not 0:16:08.360 --> 0:16:11.520 demand as much more steady. We had that crazy train 0:16:11.600 --> 0:16:13.680 of boom, but you know we're not going to have 0:16:13.720 --> 0:16:17.720 that again. I'm Barry Ridholts. You're listening to Masters in 0:16:17.800 --> 0:16:21.440 Business on Bloomberg Radio. My guest today is Martin Barnes. 0:16:21.800 --> 0:16:25.800 He is the chief economist at b c A Research, 0:16:26.320 --> 0:16:30.600 a pure research shop located up in Montreal, Canada, but 0:16:30.680 --> 0:16:34.960 really they are a global institutional shop. Let's talk a 0:16:34.960 --> 0:16:37.560 little bit about the state of the labor market here 0:16:37.560 --> 0:16:39.960 in the United States. By the time this comes out, 0:16:40.000 --> 0:16:46.040 we will have just had yet another non farm payrolls report. Um. 0:16:46.080 --> 0:16:47.760 What do you see as the state of the labor 0:16:47.800 --> 0:16:52.040 market in North America and globally? Well, it's pretty good. 0:16:52.400 --> 0:16:57.000 In North America. Well, the US particularly, you've created, We've 0:16:57.040 --> 0:17:01.120 created a lot of jobs. Unemployment rate is back down 0:17:01.200 --> 0:17:04.679 to what most people would have called fool employment anytime 0:17:04.760 --> 0:17:08.440 within the last ten years. Um. But if the labor 0:17:08.520 --> 0:17:12.040 market was really tight, you would have expected wages to 0:17:12.080 --> 0:17:14.959 be growing much more strongly than they have been, so 0:17:15.000 --> 0:17:18.400 that suggests that there we're not there yet in terms 0:17:18.440 --> 0:17:21.320 of a tight labor market. So I guess uncomfortably, I 0:17:21.400 --> 0:17:24.359 have to side with Janet Yellen on this one um, 0:17:24.920 --> 0:17:26.680 which is something I know you don't like to do. 0:17:28.000 --> 0:17:30.240 So I want to get to wages. But before we 0:17:30.280 --> 0:17:32.640 get two wages, I have to ask a related question. 0:17:33.080 --> 0:17:37.000 So this The traditional measure of unemployment is you three 0:17:37.400 --> 0:17:41.520 word at four point nine. The broader measure is you six, 0:17:41.600 --> 0:17:46.600 which is around ten per and that's the measure of underemployment, 0:17:47.000 --> 0:17:51.600 which which leads to this question how much underemployment meaning 0:17:51.640 --> 0:17:53.920 either people working part time who want to work full 0:17:53.960 --> 0:17:58.040 time or people taking low paying jobs when they're really 0:17:58.119 --> 0:18:02.320 more qualified for a higher paying job. UB how underemployed 0:18:02.440 --> 0:18:05.959 are we here in America? Your question that you know 0:18:06.400 --> 0:18:09.760 gives the answer in a sense that broader unemployment rate 0:18:09.840 --> 0:18:14.840 is still very high. Ten unemployment rate implies that there's 0:18:14.880 --> 0:18:17.560 a lot of underemployment, you know, so you have a 0:18:17.560 --> 0:18:20.800 lot of people who would like to be working full time, 0:18:21.000 --> 0:18:24.640 who would like better paying jobs. So there is still 0:18:25.720 --> 0:18:29.320 slack in the labor market, and underemployment is one component 0:18:30.000 --> 0:18:32.520 of slack and I think you have a of a 0:18:32.600 --> 0:18:34.880 large number of people who have been forced to take 0:18:34.960 --> 0:18:38.760 jobs that are below their skill well blow blow with 0:18:38.800 --> 0:18:43.119 what they would like. So you referenced a lack of 0:18:43.240 --> 0:18:46.760 wage pressure UM. That seems to be a little bit 0:18:46.760 --> 0:18:49.760 of a mixed picture. We had the Census Bureau report 0:18:49.840 --> 0:18:53.520 not too long ago that showed so or a five 0:18:53.600 --> 0:18:57.760 point three percent increase in wages. Even with that record 0:18:57.800 --> 0:19:03.119 setting one year increase, we're still below wages and the 0:19:03.240 --> 0:19:06.800 median income media family incomes. That's not wages, that's that 0:19:06.840 --> 0:19:10.280 takes out. So how do you reconcile those two the 0:19:10.359 --> 0:19:13.720 increase in wages and the median family income UM, we're 0:19:13.760 --> 0:19:17.040 still being so far below where we were fifteen. It's 0:19:17.080 --> 0:19:19.000 fifteen years and we're still not back to where we 0:19:19.000 --> 0:19:26.680 were right. So again that's consistent with the slowest recovery 0:19:26.800 --> 0:19:29.359 on record. And although we have created a lot of 0:19:29.480 --> 0:19:32.920 jobs and brought the unemployment ratedown, a lot of these 0:19:33.000 --> 0:19:37.560 jobs presumably are lower wage jobs, or people shifting from 0:19:37.680 --> 0:19:41.520 high wage jobs do lower wage jobs full time to 0:19:41.680 --> 0:19:46.800 part time, and that's kept family incomes depressed, not even 0:19:46.920 --> 0:19:49.800 not and a more typically economic cycle. If you had 0:19:50.000 --> 0:19:54.600 looked at what the unemployment rate had done, what overall employment, 0:19:54.600 --> 0:19:57.119 and you would have fought median family incomes would have 0:19:57.119 --> 0:19:59.920 done much better than they had. As you pointed out, 0:20:00.240 --> 0:20:03.440 we're still below levels of ten years ago. So yeah, 0:20:03.480 --> 0:20:06.360 they picked up last year. Great, that's one year. That's 0:20:06.359 --> 0:20:09.880 one year. So let's let's let me ask the question differently. 0:20:09.920 --> 0:20:12.840 So Ryan Hart and rogue Off in this time is different, 0:20:13.000 --> 0:20:16.960 don't you use the financial folly make a distinction between 0:20:17.119 --> 0:20:23.600 the usual um economic cycle and financial recessions. A credit 0:20:23.640 --> 0:20:28.159 crisis gets a very different type of recovery. You agree 0:20:28.200 --> 0:20:33.359 with their perspective, Yes, absolutely this, but it's actually been 0:20:33.400 --> 0:20:37.760 worse than that. So this isn't just so. Rougoff was 0:20:37.800 --> 0:20:40.760 the chief economis that the IMF for a while and 0:20:42.000 --> 0:20:44.639 he did that. They did that research while still at 0:20:44.640 --> 0:20:48.800 the IMF, so they actually published stuff on financial recessions 0:20:48.800 --> 0:20:51.560 are different. Recoveries are weak. They knew that at the 0:20:51.560 --> 0:20:55.679 IMF long before the right right right, So the I 0:20:55.880 --> 0:21:00.000 m F cut bought into the idea that recoveries are 0:21:00.200 --> 0:21:03.400 after for actual recessions. One of the charts I love 0:21:03.480 --> 0:21:06.000 to show. I use it every time I give a 0:21:06.080 --> 0:21:09.879 speech to as it clients, and it's a total damnation 0:21:09.920 --> 0:21:13.000 of my profession, if you like. And I don't have 0:21:13.040 --> 0:21:14.520 a copy with it with me to show you, but 0:21:14.560 --> 0:21:17.280 it's incredible. You look at what the I m F 0:21:17.520 --> 0:21:22.359 was forecasting for global growth in September twenty eleven. They 0:21:22.400 --> 0:21:24.760 do their big forecasting grounds twice a year, but the 0:21:24.760 --> 0:21:26.800 big one is in the fall to coincide with the 0:21:26.800 --> 0:21:30.479 IMF beatings. So September twenty eleven global growth was they 0:21:30.520 --> 0:21:33.480 were saying it's around four percent at the moment, and 0:21:33.520 --> 0:21:36.520 it's going to get steadily better. So by now it 0:21:36.560 --> 0:21:38.240 was going to be five. They were forecasting close to 0:21:38.240 --> 0:21:41.320 five percent for so it's basically a line going up. 0:21:42.440 --> 0:21:45.480 And look at their latest projections and we'll get some 0:21:45.520 --> 0:21:47.439 new ones in a couple of weeks, and basically it's 0:21:47.480 --> 0:21:49.480 a line that goes straight down. There now saying three 0:21:49.520 --> 0:21:53.000 percent for this year, and it looks like the jaws 0:21:53.040 --> 0:21:55.760 of death, you know what I mean. And it's not 0:21:55.800 --> 0:21:59.000 just a one year forecast there, They've got every year 0:21:59.800 --> 0:22:02.399 raw so you can plot all the intervening forecast and 0:22:02.480 --> 0:22:05.000 it's just got every year was provided down, down down, 0:22:05.359 --> 0:22:10.320 So it's the most egregious forecasting era I could ever 0:22:10.400 --> 0:22:14.239 imagine because it persisted for five years, and you can 0:22:14.280 --> 0:22:18.879 blame lots of one off things, euro crisis, earthquakes in Japan, laborship, 0:22:19.560 --> 0:22:23.000 the government shutdown to the US, etcetera, um. But this 0:22:23.119 --> 0:22:28.080 has been an absolutely awful, awful global recovery and I 0:22:28.080 --> 0:22:31.960 think you can explain it. So and this is the 0:22:32.040 --> 0:22:35.199 I m f knowing that recoveries were week after for 0:22:35.240 --> 0:22:38.240 the actual recession, but they still got it horribly wrong. 0:22:38.400 --> 0:22:40.919 And nobody in September twenty living by the way, was 0:22:41.040 --> 0:22:43.640 saying time, if oh, you guys are too optimistic, you'll 0:22:43.720 --> 0:22:45.320 know it's never going to be that good. That was 0:22:45.359 --> 0:22:50.000 a box standard consensus view. So what's the problem. We 0:22:50.160 --> 0:22:55.800 underestimated the dead weight of debt, We underestimated just the 0:22:56.080 --> 0:23:01.880 legacy of that bad financial downturn, um, we underestimated how 0:23:01.920 --> 0:23:07.359 cautious businesses would be about capital spending. And I guess 0:23:07.359 --> 0:23:10.760 we had a lot of fiscal austerity plus the whole 0:23:10.760 --> 0:23:15.000 series of shocks like the euro crisis. So the bottom 0:23:15.040 --> 0:23:19.000 line is they really did a terrible job. Despite having 0:23:19.760 --> 0:23:21.960 rogue Off warning them, hey, this is going to be 0:23:21.960 --> 0:23:25.560 a really soft recovery. The whole profession did I wouldn't 0:23:25.560 --> 0:23:28.159 focus just you see the FED, the U E c D, 0:23:28.440 --> 0:23:32.200 and most private sector economists. I'm Barry rid Halts. You're 0:23:32.320 --> 0:23:35.800 listening to Masters in Business on Bloomberg Radio. My guest 0:23:35.840 --> 0:23:39.120 today is Martin Barnes. He is the chief economist at 0:23:39.200 --> 0:23:42.880 b c A Research. They are the publishers of the 0:23:42.920 --> 0:23:47.680 Bank Credit Analyst, highly regarded and well respected research shop. 0:23:48.480 --> 0:23:52.960 Let's start talking about the Federal Reserve. You have been 0:23:53.080 --> 0:23:56.280 visiting the FED for quite a long time. I think 0:23:56.320 --> 0:24:00.800 I first started visiting FED people in LinkedIn seventy nine. 0:24:00.840 --> 0:24:03.320 I was still living in in the UK at the time, 0:24:03.400 --> 0:24:05.640 but part of my job was to follow the US, 0:24:05.720 --> 0:24:08.840 of course, so I just started coming over to the 0:24:08.960 --> 0:24:12.960 US and visiting the FED. And I was fortunate enough, 0:24:13.240 --> 0:24:15.919 strangely to get to go to Jackson Hole eighteen times. 0:24:15.960 --> 0:24:18.840 I think it's not too many people managed that. And 0:24:18.880 --> 0:24:21.600 I used to go and visit governors. I got fairly 0:24:21.680 --> 0:24:25.280 close to people like Dong Koan, etcetera. And I pretty 0:24:25.320 --> 0:24:29.040