Speaker 1: Brought to you by Bank of America. Merrill Lynch seeing
Speaker 1: what others have seen, but uncovering what others may not.
Speaker 1: Global Research that helps You Harness disruption voted top global
Speaker 1: research firm five years running. Merrill Lynch, Pierce, Fenner and
Speaker 1: Smith Incorporated. This is Masters in Business with Barry Riddoles
Speaker 1: on Bloomberg Radio this weekend. On the podcast, I bring
Speaker 1: an old friend into the studio to chat about all
Speaker 1: things economics. Martin Barnes is the chief economist at bc
Speaker 1: A Research, where he has been a senior editor, managing
Speaker 1: partner and essentially grand popa more or less for the
Speaker 1: past thirty years. I know Martin for a long time.
Speaker 1: He's a fishing buddy. He's somebody I've been friendly with
Speaker 1: um personally for for a while. I am not only
Speaker 1: entranced by his thick scott his brogue. I wish I
Speaker 1: could have gotten him to eurse uh. It is hilarious
Speaker 1: when you hear him dropped the occasional bomb uh in
Speaker 1: a heavy Scottish accents. It's he wants to be taken
Speaker 1: seriously when he curses, but it's just so hilarious when
Speaker 1: you hear it. If you're a friend of here is
Speaker 1: and you managed to make him curse, We just fall
Speaker 1: off our seats laughing. He is an incredibly insightful person
Speaker 1: when it comes to the inner workings of the Federal Reserve.
Speaker 1: He has been, if not an insider, so certainly someone
Speaker 1: with the inside track as to the thought process of
Speaker 1: various FED governors and various FED chair people. Uh. He
Speaker 1: is just one of those folks that has been around
Speaker 1: long enough and and been in the right place at
Speaker 1: the right time to have really learned a lot of things.
Speaker 1: So if you are interested in various economic thoughts, if
Speaker 1: you're interested in what drives the FED and and perhaps
Speaker 1: what the that should be doing instead of what they
Speaker 1: are doing, Martin Barnes is your guy. With no further ado,
Speaker 1: my conversation with Martin Barnes. This is Masters in Business
Speaker 1: with Barry Ridholds on Bloomberg Radio. My special guest today
Speaker 1: is Martin Barnes. He is the chief economist at bc
Speaker 1: A Research, which he joined in eighteen of those years
Speaker 1: was as the managing editor of the well regarded Bank
Speaker 1: Credit Analyst, which is their flagship publication. Uh. Martin Barnes,
Speaker 1: Welcome to Bloomberg Thank you, Barry. Pleasure to be with you.
Speaker 1: This is your first time in this building, it is
Speaker 1: my first time. Very exciting building. So so let's jump
Speaker 1: right into your background. You began your career as an
Speaker 1: economist for British Petroleum for BP. Is that right? What
Speaker 1: was that? That means I've been working as an economist
Speaker 1: for forty three years, which means time. I've very confused person.
Speaker 1: I was going to say, after forty three years, you
Speaker 1: should be pretty good at it. You got in the
Speaker 1: other direction, you go in the other direction, all right,
Speaker 1: So so what was the job at BP? Like, what
Speaker 1: did you do? Well? I joined their forecasting division, which
Speaker 1: is part of their corporate planning department, trying to figure
Speaker 1: out where global economic growth was going and then forecasting
Speaker 1: energy demand and within that oil demand of course, and
Speaker 1: that was a key and put into BPS planning process.
Speaker 1: But of course I joined in January ninety three. Oil
Speaker 1: was three dollars a barrel, had been for a long time,
Speaker 1: and of course all future projections were based on the
Speaker 1: assumption that oil would be three dollars a barrel, and
Speaker 1: by the end of three guess what happened? We had
Speaker 1: an oil embargo. When I recall oil spiked something like
Speaker 1: mind and after twelve whatever, so everything was turned upside down.
Speaker 1: So that was a wonderful learning experience, to say the least.
Speaker 1: And then a few years later in nine d seven
Speaker 1: you came to North America. No I. Then I was
Speaker 1: with BP for five years and then I moved to
Speaker 1: a brookeradge firm in the UK of Wall Street firm.
Speaker 1: I was an economist with a UK broker firm, which
Speaker 1: actually got me back to Scotland, which was nice because
Speaker 1: their research was based in Edinburgh, so it would be
Speaker 1: like moving from London, sorry, from New York to Boston
Speaker 1: kind of thing. So how did you go from from
Speaker 1: London to Scotland to Vancouver and here in North America? Well,
Speaker 1: so five years in London with BP, then I came
Speaker 1: across this opportunity to join this firm called Wood Mackenzie,
Speaker 1: which was a brokerage firm research based in Edinburgh though
Speaker 1: they traded in London. Was with them for ten years
Speaker 1: and was headhunted by b C A chance to gosh,
Speaker 1: come to Canada. Why the heck would I want to
Speaker 1: do that? But after thinking about it, took the move
Speaker 1: and never looked back. Really and you made that move
Speaker 1: in was that anywhere near the eighty seven crash? Well,
Speaker 1: I accepted the job before the crash. I accepted the
Speaker 1: job job in August. The last piece of research I
Speaker 1: wrote for my previous employer with Mackenzie was called after
Speaker 1: the crash what would happen? And then I moved to
Speaker 1: Canada in November, So just one month after the crash,
Speaker 1: the seven Black Monday? Did it interfere? Did you say maybe?
Speaker 1: I had? No, No, no, not at all. They were
Speaker 1: excited about it. Yeah. Sure and um so so let's
Speaker 1: talk a little bit about the work you've been doing
Speaker 1: for bc A research for thirty years. You spent eighteen
Speaker 1: years being the editor of the Bank Credit Analysts. Tell
Speaker 1: us about that publication. Well, b c A is a
Speaker 1: very interesting I think it's pretty unique firm. It's almost
Speaker 1: unlikely firm because it's based in Montreal, which is of
Speaker 1: course a financial backwater, but it's been a right since nine.
Speaker 1: It's a pure research firm, doesn't manage money, doesn't trade,
Speaker 1: there's no proprietary stuff going on. All we're selling this research.
Speaker 1: So it's focused on trying to figure out where the
Speaker 1: markets are going. And it's a pretty intense place. When
Speaker 1: I joined, it was tiny. I was employee number fourteen.
Speaker 1: Were more than ten times bigger that in terms of employees.
Speaker 1: But the focus is still the same. We're still trying
Speaker 1: to still thirty years later, still trying to figure out
Speaker 1: where the markets are going. So so who are the
Speaker 1: clients of BC, who's the typical describe what the typical
Speaker 1: client is is. We're pretty much challenged to still these days,
Speaker 1: which was not the case when I joined. When I joined,
Speaker 1: maybe a third of the clients were behind it worth.
Speaker 1: They're kind of been priced out of adopted a different
Speaker 1: business model. So we're kind of institutional now. And it's
Speaker 1: range everything from finger snapping hedge funds hiking you make
Speaker 1: me money this afternoon to slow moving state pension funds,
Speaker 1: know and everything in between. So that sounds interesting. So
Speaker 1: and I'm very global, by the way, I should point out,
Speaker 1: although we're based in Canada for historical reasons, that's just
Speaker 1: where the company began and there's a very powerful force
Speaker 1: and we just stayed there. But you know, half of
Speaker 1: our client base is probably outside North America. Come for
Speaker 1: the high taxes, stay for the miserable winters. That's the
Speaker 1: that's the the marketing campaign for although where you are
Speaker 1: I know live in Victoria Bridge, Columbia, but my spec
Speaker 1: is still based in Montreal and that's where my job
Speaker 1: is based. Your climate is quite delightful. You're you have
Speaker 1: a very similar climate to Seattle and Portland's less rain,
Speaker 1: less rain and just just as opposed to Scotland where
Speaker 1: planning of rain you said you were You don't know
Speaker 1: the day you were the exact whether of the day
Speaker 1: you were born, but it's a fair case it was raining.
Speaker 1: So what's the what's the your favorite part of your job?
Speaker 1: What do you like that you what do you like
Speaker 1: to do the most as part of BCA research? Oh gosh,
Speaker 1: I mean I look, I've been there twenty nine years
Speaker 1: and if there was anything I really didn't like, I
Speaker 1: would have left a long time ago. So I write,
Speaker 1: and that's always cool when you can come up with
Speaker 1: a new angle on something. I enjoy writing. I enjoy speaking.
Speaker 1: Standing up in front of a crowd of people giving
Speaker 1: my views is is fun. Traveling, visiting, talking with clients.
Speaker 1: I can't see this any part of it. I don't like.
Speaker 1: I'm Barry Ridhults. You're listening to masters in Business on
Speaker 1: Bloomberg Radio. My special guest today is Martin Barnes. He
Speaker 1: is the chief economist at BC, a research affirm he's
Speaker 1: been working at for let's round it up and call
Speaker 1: it thirty years. Uh, and let's let's talk a little
Speaker 1: bit about the global economy. So where are we? If
Speaker 1: you have to pick one, is it inflation, deflation or disinflation? Well,
Speaker 1: showing that I'm a true economist, I'm going to have
Speaker 1: to give either the it depends out, sir, you know.
Speaker 1: I mean, if you're in you know, the manufacturing sector,
Speaker 1: or you're a taxi driver, you would say it's deflation
Speaker 1: because it's tough, it's competitive, and prices in your business
Speaker 1: are falling and in some cases may have been falling
Speaker 1: for a while. Um. If you're a parent, um, you know,
Speaker 1: paying for your kids kids college education, or you've got
Speaker 1: a lot of health care expenses. You know, you you
Speaker 1: just see the world as horrendously inflationary. And if your
Speaker 1: wife is like my wife, she'll just laugh at you
Speaker 1: any suggestion as deflation because she'll beat you up and
Speaker 1: tell you how much everything is going up in price
Speaker 1: since last time she went to the grocery store. So
Speaker 1: it's different. We're not looking an aggregate, we are not
Speaker 1: in a deflationary we don't have absolute deflation, but it
Speaker 1: feels deflationary in a lot of places, and there's a
Speaker 1: little pockets of of inflation. But it's a very different
Speaker 1: world from the inflationary seventies. Of course. Sure, the joke
Speaker 1: I've heard is we have inflation and the things we need,
Speaker 1: and we have deflation and the things we want, which
Speaker 1: I thought was kind of it. So it was like,
Speaker 1: kind of got a cute way of putting it. Another
Speaker 1: way of thinking about it is that the things that
Speaker 1: we spend money on day to day or week to week,
Speaker 1: month to month tend to have inflation, and the things
Speaker 1: that we only buy occasion occasionally fallen price. You know,
Speaker 1: so refrigerators, TVs. So you don't notice that, but you
Speaker 1: sure as heck notice if you're parking fees are going up.
Speaker 1: This so their small amounts of money to compared to
Speaker 1: the price of refrigerators. So let's talk a little bit
Speaker 1: about commodities. So two years ago the price of oil
Speaker 1: was over a hundred bucks, and now here we are
Speaker 1: with OPEC having a conversation and oil can barely maintain
Speaker 1: a forty hands all. What's the commodity story? Is that
Speaker 1: a dollar story or is that a supply story or
Speaker 1: something else. One of the first lecguiliarity economics at school is,
Speaker 1: you know, it's a supply demand curve, and you know,
Speaker 1: increased supply alter to demand and price falls and vice versa.
Speaker 1: So we have comi more than anything else. You know,
Speaker 1: the respond to to price signals. Raise the price of week,
Speaker 1: water farmer is going to do. They'll grow so much
Speaker 1: week they'll be giving away in street corners after the
Speaker 1: nick harvest. Some commodities, the cycles are a bit longer
Speaker 1: because if you have to find the stuff and dig
Speaker 1: the mines, et cetera, maybe it takes a few years.
Speaker 1: But commodities respond to prices, and you know, we had
Speaker 1: and sometimes these cycles are really long. So we had
Speaker 1: a twenty year bear market, if you like, in in commodities,
Speaker 1: from the early eighties into the early two thousands, to
Speaker 1: the point where prices got so low, you know, open
Speaker 1: a couper minor you nuts. So we starved to come
Speaker 1: out the resource sector of resources. Who wants to be
Speaker 1: a mining engineer when you can be an investment banker
Speaker 1: who wants to open a copper mind. So when demand
Speaker 1: picked up, particularly driven by China, the supply we just
Speaker 1: wasn't there priced. So then we had this powerful bull market,
Speaker 1: ten year blue market. Guess what that's prices went. It
Speaker 1: became more attractive to find the stuff, so the supply
Speaker 1: responded as it always does, and then we ended up
Speaker 1: with too much supply and then prices went down. The
Speaker 1: bull markets tend to be much shorter than the bear market,
Speaker 1: so we had ten ten year bull market followed by
Speaker 1: twenty year bear market. Historically has kind of been like that,
Speaker 1: and if that is still true, um prices there were
Speaker 1: only pretty early stage of a bear face. There's still
Speaker 1: quite a lot of supply out there. Oil is a
Speaker 1: little bit different, still a ton of supply fracts, still
Speaker 1: the same. You you have a g political overlay with
Speaker 1: oil that you don't have with other products, but it's
Speaker 1: still the same story. And of course because of shale,
Speaker 1: it's changed things. We believe, I guess most people you
Speaker 1: know believe that once you get into the fifties, fifty
Speaker 1: five and above, shale becomes very competitive again and turn
Speaker 1: you can turn sheal on and off much more quickly
Speaker 1: than deep water oil. So oil's capped. Shale puts a
Speaker 1: cap a price cap on, so you don't see oil
Speaker 1: going over sixty dollars a barrel anytime in the next
Speaker 1: couple of some short term geo political stuff. And what
Speaker 1: about natural gas, which it seems that we're just finding
Speaker 1: endlessly supplies? Yeah, what was it a few weeks ago,
Speaker 1: a couple of months ago. Wasn't they finally enormous reserves
Speaker 1: in Texas? The biggest fuel Just it just seems like
Speaker 1: it's an almost inexhaustible It's the whole shale technology hasn't
Speaker 1: really been exploited aggressively outside the US. We're still early
Speaker 1: stages of that. So so I wouldn't be a bull
Speaker 1: of commodities. No, they're not going to fall forever, and
Speaker 1: you can have short term moves, but you know the
Speaker 1: very long term and b C. We love long term stuff. Um,
Speaker 1: you know, you do a two hundred year chart of
Speaker 1: real commodity prices and that just trends steadily down and
Speaker 1: any spikes are short lived wars supply disruption. So is
Speaker 1: that a story of of improving technology and exploration? So
Speaker 1: your reference China earlier, I have to ask how significant
Speaker 1: is China to the demand for commodities and when they
Speaker 1: begin to cool off, how impactful is China on falling
Speaker 1: commodity prices. It's not hugely impactful for oil, but has
Speaker 1: been massively significant for medals, where some cases fifty of
Speaker 1: global demand has come from China. Now the standard story
Speaker 1: for MINA is it has to and has begun to
Speaker 1: orientals orient itself away from manufacturing construction war towards services.
Speaker 1: This is a long, slow process, but they still half
Speaker 1: the country working on the farms, right some crazy should
Speaker 1: I mean, their growth model should be a less commodity
Speaker 1: intensive growth model going forward than it's been in the past,
Speaker 1: but it will continue to be a big player. And
Speaker 1: you've got India, You've got a bunch of other remerging
Speaker 1: economies all want to industrialize more. So the commodity story
Speaker 1: is an m story for sure, not just China. UM
Speaker 1: and things like auto ownership, homeownership, things that are commodity
Speaker 1: intensive are still at pretty little levels. And a lot
Speaker 1: of countries like Vietnam, and then they are compared to
Speaker 1: the Western levels, and you've got to assume, you know,
Speaker 1: they want to get to where we are, So commodity
Speaker 1: demand will go up. The issue is supply. You know,
Speaker 1: there is a big moves in supply that that causes,
Speaker 1: you know, the big moves in in commodity prices, not
Speaker 1: demand as much more steady. We had that crazy train
Speaker 1: of boom, but you know we're not going to have
Speaker 1: that again. I'm Barry Ridholts. You're listening to Masters in
Speaker 1: Business on Bloomberg Radio. My guest today is Martin Barnes.
Speaker 1: He is the chief economist at b c A Research,
Speaker 1: a pure research shop located up in Montreal, Canada, but
Speaker 1: really they are a global institutional shop. Let's talk a
Speaker 1: little bit about the state of the labor market here
Speaker 1: in the United States. By the time this comes out,
Speaker 1: we will have just had yet another non farm payrolls report. Um.
Speaker 1: What do you see as the state of the labor
Speaker 1: market in North America and globally? Well, it's pretty good.
Speaker 1: In North America. Well, the US particularly, you've created, We've
Speaker 1: created a lot of jobs. Unemployment rate is back down
Speaker 1: to what most people would have called fool employment anytime
Speaker 1: within the last ten years. Um. But if the labor
Speaker 1: market was really tight, you would have expected wages to
Speaker 1: be growing much more strongly than they have been, so
Speaker 1: that suggests that there we're not there yet in terms
Speaker 1: of a tight labor market. So I guess uncomfortably, I
Speaker 1: have to side with Janet Yellen on this one um,
Speaker 1: which is something I know you don't like to do.
Speaker 1: So I want to get to wages. But before we
Speaker 1: get two wages, I have to ask a related question.
Speaker 1: So this The traditional measure of unemployment is you three
Speaker 1: word at four point nine. The broader measure is you six,
Speaker 1: which is around ten per and that's the measure of underemployment,
Speaker 1: which which leads to this question how much underemployment meaning
Speaker 1: either people working part time who want to work full
Speaker 1: time or people taking low paying jobs when they're really
Speaker 1: more qualified for a higher paying job. UB how underemployed
Speaker 1: are we here in America? Your question that you know
Speaker 1: gives the answer in a sense that broader unemployment rate
Speaker 1: is still very high. Ten unemployment rate implies that there's
Speaker 1: a lot of underemployment, you know, so you have a
Speaker 1: lot of people who would like to be working full time,
Speaker 1: who would like better paying jobs. So there is still
Speaker 1: slack in the labor market, and underemployment is one component
Speaker 1: of slack and I think you have a of a
Speaker 1: large number of people who have been forced to take
Speaker 1: jobs that are below their skill well blow blow with
Speaker 1: what they would like. So you referenced a lack of
Speaker 1: wage pressure UM. That seems to be a little bit
Speaker 1: of a mixed picture. We had the Census Bureau report
Speaker 1: not too long ago that showed so or a five
Speaker 1: point three percent increase in wages. Even with that record
Speaker 1: setting one year increase, we're still below wages and the
Speaker 1: median income media family incomes. That's not wages, that's that
Speaker 1: takes out. So how do you reconcile those two the
Speaker 1: increase in wages and the median family income UM, we're
Speaker 1: still being so far below where we were fifteen. It's
Speaker 1: fifteen years and we're still not back to where we
Speaker 1: were right. So again that's consistent with the slowest recovery
Speaker 1: on record. And although we have created a lot of
Speaker 1: jobs and brought the unemployment ratedown, a lot of these
Speaker 1: jobs presumably are lower wage jobs, or people shifting from
Speaker 1: high wage jobs do lower wage jobs full time to
Speaker 1: part time, and that's kept family incomes depressed, not even
Speaker 1: not and a more typically economic cycle. If you had
Speaker 1: looked at what the unemployment rate had done, what overall employment,
Speaker 1: and you would have fought median family incomes would have
Speaker 1: done much better than they had. As you pointed out,
Speaker 1: we're still below levels of ten years ago. So yeah,
Speaker 1: they picked up last year. Great, that's one year. That's
Speaker 1: one year. So let's let's let me ask the question differently.
Speaker 1: So Ryan Hart and rogue Off in this time is different,
Speaker 1: don't you use the financial folly make a distinction between
Speaker 1: the usual um economic cycle and financial recessions. A credit
Speaker 1: crisis gets a very different type of recovery. You agree
Speaker 1: with their perspective, Yes, absolutely this, but it's actually been
Speaker 1: worse than that. So this isn't just so. Rougoff was
Speaker 1: the chief economis that the IMF for a while and
Speaker 1: he did that. They did that research while still at
Speaker 1: the IMF, so they actually published stuff on financial recessions
Speaker 1: are different. Recoveries are weak. They knew that at the
Speaker 1: IMF long before the right right right, So the I
Speaker 1: m F cut bought into the idea that recoveries are
Speaker 1: after for actual recessions. One of the charts I love
Speaker 1: to show. I use it every time I give a
Speaker 1: speech to as it clients, and it's a total damnation
Speaker 1: of my profession, if you like. And I don't have
Speaker 1: a copy with it with me to show you, but
Speaker 1: it's incredible. You look at what the I m F
Speaker 1: was forecasting for global growth in September twenty eleven. They
Speaker 1: do their big forecasting grounds twice a year, but the
Speaker 1: big one is in the fall to coincide with the
Speaker 1: IMF beatings. So September twenty eleven global growth was they
Speaker 1: were saying it's around four percent at the moment, and
Speaker 1: it's going to get steadily better. So by now it
Speaker 1: was going to be five. They were forecasting close to
Speaker 1: five percent for so it's basically a line going up.
Speaker 1: And look at their latest projections and we'll get some
Speaker 1: new ones in a couple of weeks, and basically it's
Speaker 1: a line that goes straight down. There now saying three
Speaker 1: percent for this year, and it looks like the jaws
Speaker 1: of death, you know what I mean. And it's not
Speaker 1: just a one year forecast there, They've got every year
Speaker 1: raw so you can plot all the intervening forecast and
Speaker 1: it's just got every year was provided down, down down,
Speaker 1: So it's the most egregious forecasting era I could ever
Speaker 1: imagine because it persisted for five years, and you can
Speaker 1: blame lots of one off things, euro crisis, earthquakes in Japan, laborship,
Speaker 1: the government shutdown to the US, etcetera, um. But this
Speaker 1: has been an absolutely awful, awful global recovery and I
Speaker 1: think you can explain it. So and this is the
Speaker 1: I m f knowing that recoveries were week after for
Speaker 1: the actual recession, but they still got it horribly wrong.
Speaker 1: And nobody in September twenty living by the way, was
Speaker 1: saying time, if oh, you guys are too optimistic, you'll
Speaker 1: know it's never going to be that good. That was
Speaker 1: a box standard consensus view. So what's the problem. We
Speaker 1: underestimated the dead weight of debt, We underestimated just the
Speaker 1: legacy of that bad financial downturn, um, we underestimated how
Speaker 1: cautious businesses would be about capital spending. And I guess
Speaker 1: we had a lot of fiscal austerity plus the whole
Speaker 1: series of shocks like the euro crisis. So the bottom
Speaker 1: line is they really did a terrible job. Despite having
Speaker 1: rogue Off warning them, hey, this is going to be
Speaker 1: a really soft recovery. The whole profession did I wouldn't
Speaker 1: focus just you see the FED, the U E c D,
Speaker 1: and most private sector economists. I'm Barry rid Halts. You're
Speaker 1: listening to Masters in Business on Bloomberg Radio. My guest
Speaker 1: today is Martin Barnes. He is the chief economist at
Speaker 1: b c A Research. They are the publishers of the
Speaker 1: Bank Credit Analyst, highly regarded and well respected research shop.
Speaker 1: Let's start talking about the Federal Reserve. You have been
Speaker 1: visiting the FED for quite a long time. I think
Speaker 1: I first started visiting FED people in LinkedIn seventy nine.
Speaker 1: I was still living in in the UK at the time,
Speaker 1: but part of my job was to follow the US,
Speaker 1: of course, so I just started coming over to the
Speaker 1: US and visiting the FED. And I was fortunate enough,
Speaker 1: strangely to get to go to Jackson Hole eighteen times.
Speaker 1: I think it's not too many people managed that. And
Speaker 1: I used to go and visit governors. I got fairly
Speaker 1: close to people like Dong Koan, etcetera. And I pretty
Speaker 1: early on talking to the FED. Visiting the FED, I
Speaker 1: I learned something that was made me feel good and
Speaker 1: bad at the same time. You know we have this
Speaker 1: the FED, is this aura of of you know omnipotence
Speaker 1: around them. You know that got all these smart people,
Speaker 1: they know what's going on. Um, yeah, well they used
Speaker 1: to have that image anyway, So that you go to
Speaker 1: the FED and there's so much more knowledgeable and smarter
Speaker 1: than you. Well, I learned pretty early on that actually
Speaker 1: that is not the case. They may have a lot
Speaker 1: inside information and micro stuff, but when it comes to
Speaker 1: the really big questions, you know, whence housing going to
Speaker 1: peak or why our businesses, they have no more idea
Speaker 1: than you or I. And that's kind of cool because
Speaker 1: it means that your view is just as good as
Speaker 1: their view, and they're actually quite interested to know what
Speaker 1: you think. So I thought that was good. It kind
Speaker 1: of levels the playing field so I could I could
Speaker 1: have conversations with the FED and my views were just
Speaker 1: as good as their's. But then I thought, oh my god,
Speaker 1: this is not good because I don't know what's going on.
Speaker 1: I need them to know. And the fact that they
Speaker 1: don't know any more than me, but yeah, they're controlling
Speaker 1: monetary policy was really scary. And I think we have
Speaker 1: learned that their forecasting record has not been great. It's
Speaker 1: been terrible. But then again, what economists forecasting, but we
Speaker 1: need short of that, we need our monetary policy makers
Speaker 1: to do better than us. We're we're not raising a
Speaker 1: lowering interest rates. They are, So I would like them
Speaker 1: to know more than me. So more important than their forecasting,
Speaker 1: what how curate is their assessment of what's happening right now?
Speaker 1: Do they have a good read on the here and now? Look,
Speaker 1: nobody knows what a year looks like out in the future,
Speaker 1: but well, their views on what's going on right now
Speaker 1: should be as good as anybody else's, should be better
Speaker 1: because they know, you know, these regional presidents talk to
Speaker 1: their local business contacts, etcetera, etcetera. Um. The problem is
Speaker 1: that the models that they have relied on have led
Speaker 1: them astray. And that goes back to what I said
Speaker 1: about the I m F forecasts. That's just a model.
Speaker 1: You know, the world the past is not is not
Speaker 1: as good a guid to the future as it used
Speaker 1: to be in models are all based on the past.
Speaker 1: So they've been led astray by the models. I think
Speaker 1: they wrongly bought into this forward guidance commitment strategy. I
Speaker 1: think that's been a mistake. I think that is in
Speaker 1: that transparency and communication. Look I remember the day, maybe
Speaker 1: you do, when the FED never even used to tell
Speaker 1: you and it changed policy. Right, you would find out
Speaker 1: rates and because the market, the whole industry economist analyzing
Speaker 1: the weekly money supply numbers to what the FED was doing.
Speaker 1: So that was to a paque, I mean, no sense.
Speaker 1: But they have gone way too far in the other direction.
Speaker 1: I don't think they should be publishing these dots. The
Speaker 1: dad plots are a waste of time. I think they're
Speaker 1: just wrong to do that. I think they talked too much.
Speaker 1: They in their effort to create transparency and guide markets,
Speaker 1: have just created confusion. So you think a little mystery
Speaker 1: would actually help the markets. I would like to think
Speaker 1: that they should be able to say, look, you know,
Speaker 1: this is what we want to do. We're trying to
Speaker 1: get inflation at two your decent economy, we will we
Speaker 1: will keep policy at the appropriate level for as long
Speaker 1: as necessary, and then just shut up. Really so, so
Speaker 1: let me so when you set these we won't raise
Speaker 1: rachel till the unemployment rate hit six and a half percent. Now,
Speaker 1: how dumb was that? And now it's four point nine percent? Exactly,
Speaker 1: why do you constrain yourself with these commitments? So much
Speaker 1: uncertainty in the world. So let me ask you a question.
Speaker 1: You've used the phrase financial repression in some of your writings. Yes,
Speaker 1: for for some of the listeners who may not be
Speaker 1: familiar with that brands of criticism, what is financial repression?
Speaker 1: I've used it in a context of of, oh, of
Speaker 1: how do we deal with high levels of debt? You know,
Speaker 1: b c A. Over the years, debt has been a
Speaker 1: big part of what we write about. We we I
Speaker 1: think we were the ones that created the debt supercycle term.
Speaker 1: You know. I joined in eighty seven, we'd already been
Speaker 1: using it for probably ten years at least before that,
Speaker 1: and the debt supercycle was just a story about ever
Speaker 1: rising levels of debt, etcetera, etcetera. I think that is
Speaker 1: over now, but I still get asked, probably more than
Speaker 1: any other question. When I was at client, it's how
Speaker 1: what's the endgame here of all this debt? Well, it's
Speaker 1: private debt, government debt. How do we ever get rid
Speaker 1: of it? And it is interesting that debt two GDP
Speaker 1: ratios have continued to rise pretty much everywhere, even though
Speaker 1: people are trying to de leverage. You cannot easily deleverage
Speaker 1: when growth is weak. Um, So what's the end game?
Speaker 1: Is it default? Is it inflation? Can you grow out
Speaker 1: of it? Um? I think it's gonna be hard to
Speaker 1: grow out of it. Nobody wants to default, unless your Greece. Perhaps, um,
Speaker 1: maybe inflation is the end game, but mm hmm, nobody
Speaker 1: really wants to truly inflate it away. So if you
Speaker 1: if you can't get rid of your debt, you just
Speaker 1: make it easy to live with. And how do you
Speaker 1: make it easy to live with your very low interest rates?
Speaker 1: And you can you can sustain extraordinary higher levels of
Speaker 1: debt for a very long time if your debt, if
Speaker 1: your interest rates as close to zero. So financial pressure
Speaker 1: is really about keeping the costs of your debt down,
Speaker 1: and perhaps through regulatory pressure is forcing people to buy
Speaker 1: your debt as well. In terms of sovereign debt, so
Speaker 1: you can do that by forcing painted funds or banks
Speaker 1: to buy government debt higher capital ratios, So for ntural
Speaker 1: pressure is artificially keeping down interest rates. We're speaking with
Speaker 1: Martin Barnes of BCA Research. You mentioned GDP to debt ratio. Nobody,
Speaker 1: at least no, no solvent government has a higher debt
Speaker 1: to GDP ratio than Japan now over two, and yet
Speaker 1: people are lending to them at negative interest rates. They
Speaker 1: have no problem borrowing what seems like an infinite amount
Speaker 1: of cash. How do you reconcile those two, Well, you're
Speaker 1: not lending to them, and I'm not lending to well,
Speaker 1: somebody is. So the pad fractual system is effectively closed
Speaker 1: in a way in the sense that it doesn't rely
Speaker 1: on foreigners because I'm not sure any foreigners would buy
Speaker 1: it UM, So it's just in its internally financed. What
Speaker 1: the Bank of Japan has actually been buying all the
Speaker 1: net issuance. They've got a very aggressive qui program that
Speaker 1: they're buying. But prior to that, UM, you know, their
Speaker 1: Postal Savings Bank was buying pretty much huge numbers of bonds,
Speaker 1: and they're real bond yields. Of course, they've had mild deflation,
Speaker 1: so they're real bond yields were higher than their nominal yields,
Speaker 1: So bonds actually weren't as unattractive as their low nominal
Speaker 1: yields would have suggested. UM and the stock market crash
Speaker 1: in Japan, I mean the nick I peeked at close
Speaker 1: to forty you know, so here we are many years
Speaker 1: later that so the the retailer vistas of Japan. I've
Speaker 1: been out of the stock market for a very long time,
Speaker 1: so they're probably happier owning bonds than than these risky
Speaker 1: things called equities, even they know they've had no trouble
Speaker 1: financing their deficits so at all. So let's stay in
Speaker 1: that same part of the world. We look at China,
Speaker 1: where a lot of people are suggesting is the next
Speaker 1: dead bomb to blow up? How bad is the situation
Speaker 1: in terms of China's being so heavily leveraged and carrying
Speaker 1: some much What people are worried about in the case
Speaker 1: of China is the very rapid increase in their corporate
Speaker 1: debt re show. The b I S have warned about it,
Speaker 1: the I M F of worried about it. It's not
Speaker 1: that the level of debt even as is that how
Speaker 1: I mean, there's other countries. Overall debt in China is
Speaker 1: still notice hig as it is another country. It's just
Speaker 1: going up so fast so quickly. So the question there
Speaker 1: is um how much of it is kind of within
Speaker 1: the quasi public sector because you were a lot of
Speaker 1: state owned enterprises, A lot of it is local authorities UM,
Speaker 1: related to local authorities, activities in the real estate sector.
Speaker 1: It could all be socialized. Very Chinese government has the
Speaker 1: capacity to socialize at all. I mean they can absorb
Speaker 1: the just treated it as all as one big giant
Speaker 1: public sector, and their overall public sector debt is actually
Speaker 1: quite low in China. So so let me let me
Speaker 1: bring this back to the FED UM, and let me
Speaker 1: let me ask you a counter factual. What would the
Speaker 1: US economy, what would the global economy look like if
Speaker 1: there wasn't the FEDS program of quantitative using and there
Speaker 1: wasn't zero interest rate policy, what would the world look
Speaker 1: like today? Well, most people would pat them on the back,
Speaker 1: and I would to for for their actions during the downturn.
Speaker 1: You know, if they if if credit intermediation that is
Speaker 1: totally frozen, you know, the globe just shuts down. And
Speaker 1: it did. You know. You also the stories about the
Speaker 1: ships backed up at the Singapore Harbor that could be
Speaker 1: unloaded because there was no trade, credit, etcetera, etcetera. So
Speaker 1: they had to do whatever was necessary to free to
Speaker 1: free up the credit system. UM, and they did that.
Speaker 1: So que one absolutely, que two maybe a little less,
Speaker 1: a little less, but you know, the economy was kind
Speaker 1: of still looking a bit dodgy, and yeah, that was
Speaker 1: probably okay. Q Que three not so much. I think
Speaker 1: that was probably not necessary. Um twists you have twist
Speaker 1: after that. Yeah, they've been in central backs generally, and
Speaker 1: I wouldn't just pick out the FED obviously, the ECB
Speaker 1: saying just getting increasingly desperate to to try and get
Speaker 1: economic growth higher and doing more and more desperate things.
Speaker 1: It's unfortunate. And I'm one of those who would agree
Speaker 1: that monetary policy has been asked to do more than
Speaker 1: it should have been asked to do. And it's meaning
Speaker 1: that there should have been some fiscal policy at a
Speaker 1: certain point taking over from Congress should have stepped in
Speaker 1: and said, okay, we got it from here, Federal Reserve,
Speaker 1: you've done your share. I mean, that's a sort of
Speaker 1: hair shirt part of me that would argue. I think that, Look,
Speaker 1: we had thirty years, three decades of rapid credit growth,
Speaker 1: and I'm talking to the private secty years, which in
Speaker 1: a sense stole growth from the future, and this is
Speaker 1: payback time. Um, so we've got this slow recovery, but
Speaker 1: it is any kind of recovery. We're kind of growing
Speaker 1: at trend and to try and force force it higher
Speaker 1: by creating, you know, distortions and asset markets. Trying to
Speaker 1: restart a credit cycle when debt levels already still too
Speaker 1: high might not be the right thing to do, and
Speaker 1: maybe we should just accept Look, we're in a slow recovery.
Speaker 1: That doesn't mean that government shouldn't do anything and just
Speaker 1: set back. We've got issues of an equality and as
Speaker 1: parts of the economy they're depressed. There's a lot we
Speaker 1: could do in the US and overseas to make policy
Speaker 1: about growth friendly without relying on monetary policy. Taxes, tax
Speaker 1: reform obviously, I think regulations have become a big burden
Speaker 1: on a lot of small businesses. So we could do
Speaker 1: things to try and get a better economic outcome without
Speaker 1: just continuing to rely so much of monit policy to
Speaker 1: finracial markets and economists generally are way too obsessed with
Speaker 1: monet to policy. If there's anything that drives me nuts
Speaker 1: these days, among many things do, but it's just this
Speaker 1: obsession with with when the federal raise rates and if
Speaker 1: the nuance of every utterance that comes out of these
Speaker 1: policymakers mouse, it doesn't matter that much. We've been speaking
Speaker 1: with Martin Barnes. He's the chief economist at b c
Speaker 1: A Research. If you enjoy this conversation, be sure and
Speaker 1: stick around for our podcast extras, where we keep the
Speaker 1: tape rolling and continue chatting about all things regarding the economy.
Speaker 1: Be sure and check out my daily column on Bloomberg
Speaker 1: View dot com. You can follow me on Twitter at
Speaker 1: rid Halts. I'm Barry Rid Halts. You've been listening to
Speaker 1: Masters in Business on Bloomberg Radio, brought to you by
Speaker 1: Bank of America. Merrill Lynch committed to bringing higher finance
Speaker 1: to lower carbon named the most innovative investment bank for
Speaker 1: climate change and sustainability by the Banker. That's the power
Speaker 1: of Global Connections. Bank of America North America Member f
Speaker 1: D I C. Welcome to the podcast extra. I'm I'm
Speaker 1: actually here with somebody who I think I know you
Speaker 1: for a decade. Right. You've been going to Camp Coo
Speaker 1: Talk up in Maine since I've been going since oh six,
Speaker 1: you have to have been going be seven or something, So,
Speaker 1: I mean that's where I first met you. I think
Speaker 1: it was the first year you and I want first
Speaker 1: years were there where we're there together, that's always a
Speaker 1: ton of a ton of fun um before we get
Speaker 1: into our standard questions. I have a handful of um things.
Speaker 1: I have to uh, I have to get that that
Speaker 1: I missed. Um on QUEI. So you said QUEWI one
Speaker 1: and maybe QUI two was successful. Beyond that it was
Speaker 1: it's been diminishing returns from monetary stimulus generally. I think
Speaker 1: we're at the point here, yeah, where whatever problems are
Speaker 1: out there facing the global economy or the U S economy,
Speaker 1: I don't believe it's anything to do with the level
Speaker 1: of interest rate. So when do you see those rates
Speaker 1: returning to normal? And what would you describe normal? Well, um, yeah, gosh,
Speaker 1: we used to think in the old days that five
Speaker 1: four five was normal for the funds rate. How about
Speaker 1: the ten years? Maybe it's two to three. Well, the
Speaker 1: all rule of thumb was ten year plus inflation just
Speaker 1: the normal nominal growth of the nominal GDP growth was
Speaker 1: kind of a ballpark. And if trained growth was two
Speaker 1: and a half and two to half percent fla there
Speaker 1: for four to four and a half fish would would
Speaker 1: be the right level for bone eels. Um, Well, growth
Speaker 1: is lower now, maybe we might still get the two
Speaker 1: percent flation eventually. Um, But it's probably you know, three
Speaker 1: and a half to four or even or even three. Yeah,
Speaker 1: And so let me put you on the spot, because
Speaker 1: you're in the forecasting business. So what's the date when
Speaker 1: when the FED funds rate hits three nine? How far
Speaker 1: out do you see that happening? Well, let me ask
Speaker 1: you different this way. Are we gonna see an increase
Speaker 1: before the years over we're having this? This is late September.
Speaker 1: Is it going to be uh? I mean I think
Speaker 1: they should. Percially, I don't think it matters a whole
Speaker 1: lot of twenty five basis point halfe is neither here
Speaker 1: nor there. The economy doesn't really need it. I think
Speaker 1: they should do it just just to get it over
Speaker 1: with so well. I mean, unfortunately, if if they do,
Speaker 1: we'll still have the will they won't really just appreciate
Speaker 1: they've got to um break this perception of their slaves
Speaker 1: to the market. Yes, and of the market's not discounting it.
Speaker 1: We can't do it, and they've got to get over that.
Speaker 1: That traces back to green Span, and I think it's
Speaker 1: a huge mistake the FED mad and they've enough dissension
Speaker 1: within the FED I think just in terms of keeping
Speaker 1: some of the discontents happy to do it that way
Speaker 1: as well. I think they're a little bit out of
Speaker 1: control U in terms, Janet has lost control of the
Speaker 1: the group. Just because there were three descents. That's that.
Speaker 1: That looks like healthy generally, just about talking goes on
Speaker 1: and different opinions. This would never happen with Vulker, well
Speaker 1: now he pa, and it wouldn't even have happened with
Speaker 1: Ben BERNANKI actually, and what about green Span? What it
Speaker 1: happened with green Span? Remember green Span? I mean there
Speaker 1: was a big difference between Greenspan's first half first half
Speaker 1: of his term. In the second half there was a
Speaker 1: reasonable number of descents. So the first half, second half
Speaker 1: of them, you did not dare contradict the maestro. They
Speaker 1: became very anti democratic, and I think Burnanky changed that
Speaker 1: for the better. But Burnanky wasn't as democratic as many
Speaker 1: people think. I mean, I was chatting, we just had
Speaker 1: our conference here and we had a former Fed governor
Speaker 1: there and he was Burnanky ruled the Fed with a
Speaker 1: much stronger film than is the popular perception. That's very interesting.
Speaker 1: A lot of people are unaware that member green Spin
Speaker 1: started in eight summer of eighty seven, and I think
Speaker 1: was either ninety or nine one. In between meetings on
Speaker 1: his own, he raised he lowered interest rates. That was
Speaker 1: something the FED chair was allowed to do, and the
Speaker 1: f O m C slapped his wrist and removed that authority. Uh.
Speaker 1: That was very early in his career. As you said
Speaker 1: in the latter half, he was the maestro and no
Speaker 1: one challenge was on such a high pedestal, which was
Speaker 1: unjustified by the way. I completely agree, highly highly overrated.
Speaker 1: So let me ask you a related question. Who do
Speaker 1: you think was the most effective FED chair and who
Speaker 1: do you think is the is the person who really
Speaker 1: understood the job the best? Well you have to see Vulcari,
Speaker 1: I don't, but I want you to. I agree with
Speaker 1: he did the hard work. He did the hard work.
Speaker 1: We're gonna crank up rates, cause a recession, break the
Speaker 1: back of inflation, and begin a thirty year bondman. I
Speaker 1: just spent an hour into having this kind of chat
Speaker 1: with him actually at our conference which we had earlier
Speaker 1: this week. And I mean, he is a product of
Speaker 1: his time, and any inflation at all to him is
Speaker 1: still anathema. Absolutely, and also to the idea that the
Speaker 1: center back should raise their inflation targets from two now
Speaker 1: to three or four. He thinks it's just crazy. Negative
Speaker 1: interest rates don't make any sense to him, So for him,
Speaker 1: inflation is still evil. Um. I don't have quite as
Speaker 1: a stronger view as he does, but he he was
Speaker 1: the guy that said in motion a sea change in
Speaker 1: in the global economic environment for the better. So so
Speaker 1: let's let's follow up on that. We we've seen both
Speaker 1: in the United States and especially in the UK and
Speaker 1: parts of Europe, the austerity movement movement. I think it
Speaker 1: precisely the wrong time where where there's a need, when
Speaker 1: private sector demand is soft, as as Lord Kin's had
Speaker 1: has taught us, the government should step in and replace
Speaker 1: that demands, and when it's strong, the government should step
Speaker 1: out of the way. Do you agree with that? Do
Speaker 1: you think the Austerians had it all wrong? And have
Speaker 1: they been a drag on the economic recovery in some places?
Speaker 1: But don't forget we had massive stimulus during the downturn
Speaker 1: nine so the austerity in the sense was just pulling
Speaker 1: back from that dream levels of stimulus that we had
Speaker 1: in terms of the Eurozone. Yeah, absolutely, it was bad. Yes,
Speaker 1: I mean, knew made a bad situation worse. You know,
Speaker 1: when countries are already on their knees, you know, just
Speaker 1: trying to to to force a sterity on them just
Speaker 1: takes a bad situation, have they Has anybody in Europe learned? So?
Speaker 1: I think? So, I mean the Europe. Yeah, the Europe
Speaker 1: has now loosened the constraints on fiscal policy to some degree.
Speaker 1: So I think we've turned the corner on that. I mean,
Speaker 1: we're not radio anywhere really to launch massive fiscal stimulus,
Speaker 1: but we're past the austerity for sure. Alright, So now
Speaker 1: let's jump into my favorite podcast questions that I asked
Speaker 1: all my guests, and I have people prep for so,
Speaker 1: so tell us about some of your early mentors, who
Speaker 1: who guided your career along. Well this might be a
Speaker 1: slightly strange way to answer, but in a sense, my
Speaker 1: mentors were more events than people. And by that I mean,
Speaker 1: you know, I had a lot of Look, I've been
Speaker 1: do this for over forty years, so I've been through
Speaker 1: a lot of regime shifts in various areas where even
Speaker 1: the people that might have been my mentors experienced people
Speaker 1: were struggling along with everybody else what this all meant.
Speaker 1: So it was new for everybody. So you know, we
Speaker 1: talked earlier about how I joined BP in nineteen seventy three.
Speaker 1: So going through that first oil crisis when everything had
Speaker 1: to be shifted was there was nobody the technic to
Speaker 1: mentor me through that because they hadn't been through themselves either.
Speaker 1: That was a received shift. Living through the inflation of
Speaker 1: the UK in the seventies UM where the unions were
Speaker 1: running them up. We had the so called Winter of Discotheque.
Speaker 1: There was strikes constantly. Even the labor government that was
Speaker 1: empowered had lost control. That was a lesson in the
Speaker 1: evils of steak your excessive socialism, if you like. And
Speaker 1: then living through the Vulcar Thatcher years where we saw
Speaker 1: a complete reversal. That's very interesting. You call it bringing
Speaker 1: inflation back down again. You call it the Vulcar Thatcher years.
Speaker 1: Everybody usually calls those the Reagan Thatcher years. You're giving
Speaker 1: more credit to Vulcan than I guess I. I don't
Speaker 1: disagree with you. I just think it's interesting. I never
Speaker 1: hear people describe it that way. Who else was Look,
Speaker 1: I've been lucky over the years, and it's partly because
Speaker 1: b c A is a very well respected firm for
Speaker 1: a very long time, to have met many, many smart people.
Speaker 1: You know the Henry cow legends, if you like the
Speaker 1: Henry Kaufman's Biggs is. I've met all these people who've
Speaker 1: had them speaking our conferences. I've learned from them. I
Speaker 1: guess if I had to pick one person, I mean,
Speaker 1: obviously I've learned from lots of people. Tony Beck, who
Speaker 1: was the principle of b c A, he's a guy
Speaker 1: that hired me almost thirty years ago. What did I
Speaker 1: learn from him? Well, BCS focus has always been, you know,
Speaker 1: helping our clients. There's a big difference working for a
Speaker 1: firm that's selling research to working from a broker which
Speaker 1: just turns out bits of paper. So you have to
Speaker 1: add value when people are paying hard cash for what
Speaker 1: you're you're doing, and you have to pass the soapwat
Speaker 1: because a lot of economists just write stuff just for
Speaker 1: the sake of talking about the economy, as if the
Speaker 1: economy is the end point? Who cares what the economy
Speaker 1: is doing if there's no market significance to it. So
Speaker 1: I very much learned to try and always have some
Speaker 1: market implications of everything we wrote about, not necessarily short
Speaker 1: term could be very long term, but bring it make
Speaker 1: it relevant and I that's very much a lesson I
Speaker 1: learned a b. C. A. So what son't you? So
Speaker 1: you give an economic analysis and if the client says, so,
Speaker 1: what test and if there there isn't a good answer,
Speaker 1: then that's a bad analysis. Yeah that's not that's not
Speaker 1: not maybe great analysis, it's just not value added. Yeah
Speaker 1: what do I do with this? How doesn't help me
Speaker 1: make my investment decisions? So that that was a good
Speaker 1: lesson that from B. C. A. So let's talk about investors.
Speaker 1: When investors do you admire and have influenced the way
Speaker 1: you think? Um? Okay, look I'm very conservative. Um maybe
Speaker 1: it's big Scottish whatever, um so I I'm not a
Speaker 1: momentum high flying following fads. Get a guy, So I'm
Speaker 1: watch more attracted to the the old style Peter Lynch
Speaker 1: kind of view of investing, you know, investing for the
Speaker 1: long term. While you um, so people with that perspective,
Speaker 1: you know, I guess you would put warm Buffett in
Speaker 1: that category much more than the short term. Very clever traders.
Speaker 1: John Paulson making a killing in the mortgage back wonderful.
Speaker 1: I'd love to be able to do that. But it's
Speaker 1: not gonna happen. But what happened. So let's let's shift
Speaker 1: gears a little bit and talk about your favorite books,
Speaker 1: whether it's investing, were lated or not, fiction or not fiction?
Speaker 1: What books, um do you enjoy? What books would you recommend?
Speaker 1: I was brought up with in a household where books
Speaker 1: were everywhere, so I've always enjoyed reading um trash as
Speaker 1: as well as inter quality stuff. So give us an example. Well,
Speaker 1: forget the trash, but I mean, you think my favorite
Speaker 1: book from going back to the most serious investment stuff
Speaker 1: that I think anybody going into our business should should read.
Speaker 1: It was written quite a while ago now as Charles
Speaker 1: gound Berger's Manias, Panics and Crashes. Sure, it's a wonderful
Speaker 1: read and just describing, you know, how these market overshoots
Speaker 1: and crashes occurred. It wonderful anecdotes, It's easy to read.
Speaker 1: It's not a huge home he said to reading. That's
Speaker 1: one of my favorites. Another kind of freely obscure book
Speaker 1: that nobody paid any attention to when it first came out.
Speaker 1: It kind of got popular a few years ago when
Speaker 1: Quee started was buy an obscure Scottish guy called Adam Fergus.
Speaker 1: He wrote this book called When Money Dies, and it
Speaker 1: was about German hyper inflation. Yes, I again, not particularly
Speaker 1: well written actually, but wonderful anecdotes. Um, I actually have
Speaker 1: them on my bookshelf and I've never read it. It's
Speaker 1: it's got great anecdotes. Yeah, as it's not. He wasn't
Speaker 1: a gifted writer, but it's it's not a big book.
Speaker 1: But in terms of understanding the destructiveness of inflation, um, yeah,
Speaker 1: that's good. I think in terms of what we've been
Speaker 1: we went through the crash. There's so many books about
Speaker 1: the crash, and of course somebody called Barrier It Holds
Speaker 1: wrote one about bailouts Bailout Nation. Yes I've heard of that,
Speaker 1: but yeah, you've heard of that one. But I liked
Speaker 1: David Wessel's book and Fed We Trust in terms of
Speaker 1: again it's a very easy read. It kind of takes
Speaker 1: you into what it must have been like at the
Speaker 1: FED during that period, with a sleepless night and the
Speaker 1: panic and every day you go into the office and
Speaker 1: something some other ghastly thing has happened. So that's I
Speaker 1: find that's a good way of capturing what it must
Speaker 1: have been like to be in affair at that time.
Speaker 1: A very recent one that I read is Mervin King,
Speaker 1: the most recent governor of the Bank of England. It's
Speaker 1: called End of Alchemy. The only in it's a little
Speaker 1: bit self serving. Um. I think it's a good, good book.
Speaker 1: But I wish he had kind of said those things
Speaker 1: publicly when he was Governor of the Bank England. Why
Speaker 1: is he seeing them now? I mean it's kind of
Speaker 1: written as if he had always known this stuff. And
Speaker 1: if he did always know this stuff, he didn't certainly
Speaker 1: act on a part of it. It's supposed to be
Speaker 1: a good breed too. It's good. It's good little ms
Speaker 1: of non I guess you know. In the UK they
Speaker 1: have this wonderful thing called desert Desert Island discs. If
Speaker 1: you have to go to the island, so you could
Speaker 1: say that a Desert Island book for me. I suppose
Speaker 1: it would be Catched twenty two Joseph Heller. That's some catch.
Speaker 1: That catch just a good way of capturing the insanity
Speaker 1: of life. Sometimes you just can't win in life, the
Speaker 1: insanity of war, of military organizations, of large institutions. The
Speaker 1: only way to get out is you're insane. But if
Speaker 1: you see you're insane as a way of getting out,
Speaker 1: then you're obviously not insane for figuring that one out.
Speaker 1: So you're screwed. Part I'm not supposed to say that. Well,
Speaker 1: now we're in the podcast, so we could get a
Speaker 1: little O. The FCC limits what we can say on
Speaker 1: the broadcast portion. But since used that word, very bad. Um,
Speaker 1: actually that was mild. We've had people O. My reading
Speaker 1: tastes are very clctic much. A slightly bizarre trilogy is
Speaker 1: called the Gorman Gas Trilogy by Mervin Peak Gorman Gas.
Speaker 1: I've never even heard. It's a kind of slightly fantasy.
Speaker 1: I was gonna say it's sound sci fi. It's not
Speaker 1: sci fi, but it's fantasy that the less. It's a
Speaker 1: sort of medievally kind of. I think that the descriptive
Speaker 1: writing is hard to beat. I mean, you're almost feel
Speaker 1: as if you're there. But he describes scenes and environments
Speaker 1: and character her is. It's the most brilliant descriptive really,
Speaker 1: and it's kind of a it's a gripping thing to
Speaker 1: read as well, very obscure. Um, that's probably enough books.
Speaker 1: All right, I'm gonna ask you a question. I don't
Speaker 1: get to ask many guests, what are your favorite Netflix
Speaker 1: shows that you've been watching? Just finished watching the second season.
Speaker 1: And Arcles, which is you know, Pablosco Bar, which I
Speaker 1: thought everybody seems to love. That is very well done.
Speaker 1: There's violence in there, but I don't think it's protuitous,
Speaker 1: because that's what happened, you know, like that. There's some
Speaker 1: great BBC or British um detectively kind of ones. Is
Speaker 1: one called Happy Valley, which is superb excellent series. Uh,
Speaker 1: Swedish Danish co production called The Bridge. There's three seasons
Speaker 1: of it. Bridge. It's called The Bridge. Is that they
Speaker 1: might have done a US remake of it. I don't know.
Speaker 1: I would watch the original. It's subtitles, but the characters
Speaker 1: are so fantastic. There's a principal woman characters that she's
Speaker 1: amazing and it's a great gripping story to very watchable.
Speaker 1: The Bridge is that Netflix or Amazon Prime. Netflix. There's
Speaker 1: three seasons of that. Give me give me one more,
Speaker 1: um god, one more Silk. There's another British one about Lawyer. Uh.
Speaker 1: You know it's funny you mentioned um Happy Valley. When
Speaker 1: I moved out of the city to Suburbia. I don't know.
Speaker 1: Fifteen years ago, I was aghasted that the local cable
Speaker 1: company did not carry BBC America. So and I was
Speaker 1: a big fan of Doctor Who when I was a
Speaker 1: big fan. So everybody knows about top gear today, but
Speaker 1: fifteen years ago, other than a few Anglophiles, most Americans
Speaker 1: didn't know what top gear was. So I started hunting
Speaker 1: for how the heck can I get top gear? And
Speaker 1: it turned out that Dish Satellite Networks offord top gear.
Speaker 1: So as long once I moved out of Manhattan, I've
Speaker 1: had satellite TV. And now I think you get BBC
Speaker 1: America just about everywhere, but for a long time it
Speaker 1: wasn't available of American Well, I see Star Trekkers on it,
Speaker 1: but but there's a ton of science fiction and there's
Speaker 1: a ton of really interesting stuff on it. And half
Speaker 1: of the United States television is influenced by There was
Speaker 1: a show that was so funny called Coupling. I don't
Speaker 1: know if you recall that. It was like it was Friends,
Speaker 1: but funnier and so hilarious. By the way, I mean,
Speaker 1: the Netflix in Canada is different. We don't get the
Speaker 1: same content, much less content, So I assume that the
Speaker 1: series I mentioned are available in the US. Obviously Narcos is.
Speaker 1: But so so let's let's turn back to your career
Speaker 1: for the last few questions. What what is the most
Speaker 1: significant change you see in economics since you joined the
Speaker 1: information overload data overload? Look, when I started, so when
Speaker 1: I was in BP DE sivties and even when I
Speaker 1: was in with Mackenzie in the eighties, I had to
Speaker 1: follow the U S economy. Um there was no Internet,
Speaker 1: of course, the data we had to do, the forecasts
Speaker 1: and analys we had to wait for stuff to come
Speaker 1: into mail. Really called the Survey of Current Businesses by
Speaker 1: the Department of Commerce with all the GDP data in it,
Speaker 1: which is forms the basis of any understanding of the
Speaker 1: economy that came out in the mail with an enormous lag,
Speaker 1: enormous lag, you know, in terms of the monthly inflation data,
Speaker 1: employment data. Didn't really focus too much on that. You
Speaker 1: might get some headlines from the from the newspapers, but
Speaker 1: there's no way of getting all the detail of that. UM.
Speaker 1: So now now we're just BESIEG. You can get any
Speaker 1: data you want from anywhere in the world instantly, in
Speaker 1: more detail than you can get time to analyze. And
Speaker 1: I would ask you this, has our understanding of how
Speaker 1: the economy works improved or are the quality of our
Speaker 1: forecast any better despite having all this data, And I
Speaker 1: would say unequivocally absolutely not. And I spoke earlier about
Speaker 1: this egregious policy era over the last few years. So
Speaker 1: we're having all this data and that's all this information.
Speaker 1: In some industries, big data allows you helps you do
Speaker 1: things better. It's not obvious in the world of forecasting
Speaker 1: that we have done a better job despite because we've
Speaker 1: become so short term. People will spend more time parsing
Speaker 1: the employment data than thinking about what are the really
Speaker 1: important big issues here. So we've become way too short term,
Speaker 1: way too focused on micro analyzing data, and not enough
Speaker 1: focused on catching the big, secular structural shifts of what's
Speaker 1: going on. And I think that applies to policy makers,
Speaker 1: applies to economists, and it's too bad. And I'm not
Speaker 1: confident that that's ever going to change now because we've
Speaker 1: created this big data world and that's that's what it is.
Speaker 1: I don't doubt that you might be right. I'm hoping
Speaker 1: that that comprehension is simply coming with big lag, so
Speaker 1: that will eventually adapt to the era of big data
Speaker 1: with some understanding. But it's it's great. I love data
Speaker 1: as I set up a junkie data and in some industries,
Speaker 1: you know the retail industry, if you've got a minute
Speaker 1: by minute information on what's selling and what's not great.
Speaker 1: But in the research side, just like a deluge of numbers,
Speaker 1: you spend all your time pouring over all these numbers
Speaker 1: instead of just pushing them to the side and sitting
Speaker 1: back and actually just thinking about things a bit more.
Speaker 1: I'm with you on that. You know my thoughts on
Speaker 1: non farm payroll. I think it's wildly overrated. And every
Speaker 1: month we have the spasm and then a month later
Speaker 1: than numbers are just it's just that we have access
Speaker 1: to whatever this data times all over the world, so
Speaker 1: if it's there, you gotta look at it and spend
Speaker 1: all your time just looking at data and not enough
Speaker 1: time thinking about stuff. Let me let me change up
Speaker 1: gears a little bit on you. This is a question
Speaker 1: that that comes from a couple of readers. Have you
Speaker 1: know I asked the same eight or nine questions to
Speaker 1: all my guests, and then a couple of readers have
Speaker 1: come up with some suggestions and these are Uh, this
Speaker 1: question I thought was interesting enough that I've worked it
Speaker 1: into our regular questions. And so what do you do
Speaker 1: to relax? What do you do when you're not in
Speaker 1: the office looking at a numbers. I like being outdoors,
Speaker 1: which is great given that I live on the Pacific Northwest,
Speaker 1: so I try not to fall off. I did fall
Speaker 1: off two years ago and broke my hip, but I
Speaker 1: remember that's another story. I mean to hiking and biking.
Speaker 1: Um taking up bridge again, which I would play pretty badly,
Speaker 1: but I'm getting slowly better. Don't know if you could
Speaker 1: play with Bill Gates and warm but league. And I've
Speaker 1: started playing this game which you don't I think no about,
Speaker 1: called pickle ball, but some of your listeners will know
Speaker 1: what this is. It's actually one of the fastest growing
Speaker 1: games in North America. And it's played with it like
Speaker 1: a cross between table tennis and real tennis. And it's
Speaker 1: played indoors, outdoors with a bat and a bat not
Speaker 1: a rattle. Yeah, a bat or paddle if you like. Um,
Speaker 1: So we have that a whiffle kind of a whiffle ball,
Speaker 1: and it's basically getting the ball over the net and
Speaker 1: win the points. But it's it's less a head, it's
Speaker 1: not as fast moving as tedor so it's for aging
Speaker 1: people like me. It's easier on your body, but it's
Speaker 1: still demanding. It's fun. Pickleball, pickleball. All right, we'll have
Speaker 1: to check it out. We'll have to take a look
Speaker 1: at that traveling. I've got four grandkids. Now that's you know,
Speaker 1: so you take your mind off the market. Where where
Speaker 1: are your grandkids? What parts of the world? A married
Speaker 1: son in Toronto with two and a married daughter in Edinburgh,
Speaker 1: Scotland with with two. You are you back and forth
Speaker 1: to Scotland frequently? Yeah? She only relocated there from Switzerland
Speaker 1: at the beginning of this year. So I will be
Speaker 1: going back, yes, absolutely. And you you went to school
Speaker 1: not in Nninburgh, glass in Glasgow, so that's where I'm
Speaker 1: from originally was born in Glasgow. Yeah, So how often
Speaker 1: you get back to Scotland? Well, I will be going
Speaker 1: back at least twice a year, I would thinks there.
Speaker 1: So my last two questions and and these are my
Speaker 1: two favorites. I've saved for best for last. So if
Speaker 1: a millennial or recent college graduate came to you and
Speaker 1: said I'm interested in a career in economics, What sort
Speaker 1: of advice would you give them? Well, the profession has changed. Um,
Speaker 1: you know a lot of corporations have done away with
Speaker 1: the economics departments, and but you know that's still a
Speaker 1: good job, and go for it. But UM, be curious,
Speaker 1: don't be so short term, you know, don't get spent
Speaker 1: all your time poring over the employment data. Try and
Speaker 1: figure out what the big friends are. Be disciplined, read
Speaker 1: a lot, don't get locked, don't get locked into a view.
Speaker 1: Don't think you've got it figured out, because you haven't.
Speaker 1: I've been doing this for over forty years and I
Speaker 1: certainly haven't got it figured out. That that sounds like
Speaker 1: some pretty stupid advice. And our last question, what is
Speaker 1: it that you know about out economics and investing today
Speaker 1: that you wish you knew forty years ago when you
Speaker 1: were beginning. Oh gosh, well in terms of investing. Um,
Speaker 1: a simple one, I guess, And I know it's out
Speaker 1: there anyway. But keep your winners and get rid of
Speaker 1: your losers. And I remember we had a one of
Speaker 1: our conferences in and we had at least two speakers
Speaker 1: talking about tech h and they blew me away. They
Speaker 1: were just all the exciting things going on in tech
Speaker 1: and cell phones, and I thought, wow, this is really
Speaker 1: really cool stuff. I completely bought into it. I went
Speaker 1: out as soon as the conference was over and I
Speaker 1: bought Nokia, Microsoft and a O L. So you're almost
Speaker 1: back to break, even a Microsoft smart move. You're almost
Speaker 1: back to break. It was really smart. You went up
Speaker 1: in nine, you know, after I bought them, and more
Speaker 1: in ninety six and ninety seven they kept going up.
Speaker 1: And I can't remember when. In ninety seven in the
Speaker 1: first half, I thought, wow, they're going up a lot
Speaker 1: and made a bit of money here, so I sold them.
Speaker 1: I sold them before the real big game. I mean
Speaker 1: they went parabolic. Now I probably would never have been
Speaker 1: smart enough to get out at the top, but I
Speaker 1: just because I had made a a bit I sold.
Speaker 1: You should have held him another. I should have held
Speaker 1: them for longer. So keep your winners. I mean speak
Speaker 1: obviously sensitive to sides that things are changing. You can
Speaker 1: put technical stop losses and things and and you I
Speaker 1: have been in the past guilty of getting attached to losers.
Speaker 1: Oh well, maybe they'll come back. I've already lost so
Speaker 1: much as honestly, which is stupid again, not being disciplined.
Speaker 1: Nobody wants to admit that they're wrong, so they hold
Speaker 1: on to them. So I've been guilty of that classic problem,
Speaker 1: not being disciplined enough. And what about why I give
Speaker 1: most of my body to outside money management for him
Speaker 1: to look after because they do a better job than me.
Speaker 1: So what about on the economic side? What have you
Speaker 1: learned on the economic side that you wish you knew
Speaker 1: when you began? M hmm, that's a harder one to answer. Um,
Speaker 1: will wait, well, just again, uh would you say after
Speaker 1: that to your early question? Not to get locked into
Speaker 1: a view. Um, you know, forecasting is kind of all
Speaker 1: about looking to the past for guidance of you know,
Speaker 1: you're looking for sip piers or that look vaguely similar.
Speaker 1: This is what happened, then you assume, well, maybe that's
Speaker 1: what happened next time. And models are all based on
Speaker 1: past relationships. But we've been through such incredible structural shifts
Speaker 1: over the years that the past isn't a very good
Speaker 1: guide to the future, and that's why the models have
Speaker 1: all broken down. So be more sensitive to the fact
Speaker 1: that we're rapidly changing world and relying too much on
Speaker 1: what worked in the past is a mistake. I think
Speaker 1: that's a great answer, Martin. Thank you so much for
Speaker 1: being so generous with your time. I hope this wasn't
Speaker 1: all we have been speaking with Martin Barnes. He is
Speaker 1: the chief economist at bc A Research. He is also
Speaker 1: an amateur fisherman and a professional eel skinner. If you
Speaker 1: enjoy these conversations, be sure and look up an Inch
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