WEBVTT - Viktor Shvets on How the Fed Has Become a Prisoner of Its Own Making 0:00:03.120 --> 0:00:16.360 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:20.520 --> 0:00:23.720 Hello and welcome to another episode of the Odd Blots podcast. 0:00:23.840 --> 0:00:25.200 I'm Tracy Alloway. 0:00:24.920 --> 0:00:26.079 And I'm Joe Wisenthal. 0:00:26.480 --> 0:00:29.640 Joe, did you watch the FOMC presser recently? 0:00:29.880 --> 0:00:30.000 No? 0:00:30.200 --> 0:00:32.519 I did not, because we were recording an episode of 0:00:32.560 --> 0:00:34.920 the Odd Lots podcast. Yeah, that happened, So I know 0:00:35.000 --> 0:00:37.199 that you didn't watch it either, unless you watch it 0:00:37.240 --> 0:00:39.680 on video afterwards, in which case you are a better 0:00:39.840 --> 0:00:40.720 journalist than I am. 0:00:40.880 --> 0:00:43.360 I didn't. Just to clear that up. What I did 0:00:43.680 --> 0:00:46.960 was I read a bunch of analysis of the FED 0:00:47.000 --> 0:00:50.400 meeting and a bunch of news summaries of what happened. 0:00:50.600 --> 0:00:52.640 And I have to say there was one term that 0:00:52.720 --> 0:00:55.080 I really liked, one description. I think it was in 0:00:55.120 --> 0:00:57.480 the ft and they sort of described the FED as 0:00:57.520 --> 0:00:59.600 a monument to stasis. 0:01:00.040 --> 0:01:01.760 I mean that could be a good thing. First of all. 0:01:01.760 --> 0:01:03.920 By the way, plug, there's a really the other thing 0:01:03.960 --> 0:01:05.840 you can do if you miss a pressor on the 0:01:05.880 --> 0:01:08.920 Bloomberg terminal and I forget the code right now, but 0:01:09.040 --> 0:01:12.200 they produce transcripts very fast, and the transcripts aren't published 0:01:12.520 --> 0:01:14.759 of the press conferences like they don't appear anywhere, so 0:01:15.080 --> 0:01:17.800 plug for our terminal here. But yes, look, it's been 0:01:17.800 --> 0:01:20.840 a weird year for the FED, right, because I mean, 0:01:21.400 --> 0:01:24.319 inflation continue at least through Q one of the year, 0:01:24.360 --> 0:01:26.880 inflation hot to then expect it, all these expectations of 0:01:26.959 --> 0:01:31.080 cuts keep getting priced out. Everyone's higher for longer. It's 0:01:31.160 --> 0:01:34.160 unclear whether the sort of simple models that we use, like, 0:01:34.400 --> 0:01:36.160 I mean, I think everyone sort of knows this. Nobody 0:01:36.200 --> 0:01:39.520 really knows how inflation works. But did everything seems to 0:01:39.600 --> 0:01:40.280 be okay, right. 0:01:40.520 --> 0:01:42.520 I think one of the issues that the FED might 0:01:42.560 --> 0:01:46.039 be facing is they put so much emphasis on data 0:01:46.080 --> 0:01:50.800 dependency that it kind of means that like every monthly 0:01:50.920 --> 0:01:55.880 reading of CPI can generate a completely different response. So 0:01:55.920 --> 0:02:00.240 when CPI comes in stronger than expected, everyone starts panicking 0:02:00.520 --> 0:02:04.280 about the lack of rate cuts, and maybe even you 0:02:04.360 --> 0:02:07.000 get a rate hike at some point. When it comes 0:02:07.000 --> 0:02:09.600 in weaker than expected, you know, as it was doing 0:02:09.720 --> 0:02:14.360 up until fairly recently, everyone gets very excited and we 0:02:14.400 --> 0:02:17.639 get that kind of goldilocks moment inequities. 0:02:17.360 --> 0:02:20.480 There does seem to be like this weird tension between 0:02:20.800 --> 0:02:23.720 I know, they don't use like formal forward guidance anymore, 0:02:23.720 --> 0:02:25.600 but in a way the dots sort of serve that 0:02:25.720 --> 0:02:29.120 purpose and sort of imply the FED so called reaction function, 0:02:29.560 --> 0:02:31.240 And so we're supposed to sort of take all of 0:02:31.280 --> 0:02:35.480 these data points, plug them into this black box reaction function, 0:02:35.800 --> 0:02:38.519 and then sort of implicitly see what that means for policy. 0:02:39.000 --> 0:02:41.400 But it does seem like things move a lot from 0:02:41.480 --> 0:02:44.760 data point to data point, so it becomes very present oriented. 0:02:44.840 --> 0:02:46.920 Man. Yes, that's a great way of putting it. And 0:02:46.960 --> 0:02:49.160 then the other thing I would say is, in addition 0:02:49.320 --> 0:02:52.560 to all the complexity around what's going on with the 0:02:52.639 --> 0:02:56.160 US economy, and it's kind of phenomenal in many ways, 0:02:56.200 --> 0:02:59.960 that we're still having intellectual arguments about what the impact 0:03:00.080 --> 0:03:02.880 of higher interest rates actually is and whether or not 0:03:02.960 --> 0:03:06.480 it actually does anything to bring down inflation. But beyond that, 0:03:06.600 --> 0:03:09.079 the other thing that's starting to happen is we are 0:03:09.120 --> 0:03:12.840 seeing international consequences and we've been talking about them on 0:03:12.919 --> 0:03:16.360 the Show of the Higher for a longer stance. So 0:03:16.480 --> 0:03:19.519 the dollar has been rising. I think the spot dollar 0:03:19.600 --> 0:03:22.800 index is up almost four percent so far this year, 0:03:23.120 --> 0:03:27.160 and then against specific currencies like the Japanese yen, it's 0:03:27.200 --> 0:03:30.200 surged even more. And so we are seeing those tensions 0:03:30.280 --> 0:03:35.200 between strength in the US economy, you know, ongoing inflationary pressures, 0:03:35.640 --> 0:03:40.160 higher rates for longer, potentially kind of meet emerging markets 0:03:40.240 --> 0:03:43.720 and also developed economies in the wider world totally. 0:03:43.960 --> 0:03:46.840 You know. We had that interview recently with Hugh Hendry. 0:03:47.080 --> 0:03:50.160 Extremely colorful character to say the least. But one of 0:03:50.200 --> 0:03:52.800 the points that I found very interesting was like, we're 0:03:52.840 --> 0:03:56.800 not really used to an environment in which it's the 0:03:56.960 --> 0:04:00.400 US that's out, that's lapping everyone else, growing much faster 0:04:00.520 --> 0:04:03.840 than G seven or G ten or G whatever. Peers 0:04:03.880 --> 0:04:06.760 sort of powering ahead all this domestic investment, and so 0:04:06.840 --> 0:04:11.280 we get this upward pressure, higher rates, higher dollar stress elsewhere. 0:04:11.800 --> 0:04:13.040 It's an interesting environment. 0:04:13.360 --> 0:04:16.360 G whatever is a good term. 0:04:16.600 --> 0:04:19.159 Can coin that, yeah, because I know Ian Brember has 0:04:19.200 --> 0:04:23.040 the G zero, but like I don't, I like G whatever. 0:04:23.200 --> 0:04:25.880 The G whatever summit that should be a thing. 0:04:26.200 --> 0:04:27.520 Okay, any country can come. 0:04:29.279 --> 0:04:32.239 Okay, But when we want to connect the dots between 0:04:32.360 --> 0:04:35.760 what's happening with central banks around the world, between the 0:04:35.839 --> 0:04:40.480 US economy and the FED, and the global macro situation, 0:04:41.040 --> 0:04:43.960 there's one person that we like to call in particular. 0:04:44.040 --> 0:04:47.200 So today we are bringing back Victor Schwetz. He is, 0:04:47.240 --> 0:04:50.600 of course a strategist over at McCrory, and we love 0:04:50.640 --> 0:04:52.599 talking to him. So Victor, thank you so much for 0:04:52.640 --> 0:04:53.720 coming back on all thoughts. 0:04:54.279 --> 0:04:56.880 Thank you for having me remind. 0:04:56.520 --> 0:05:00.160 Us before we begin, it's not just us, right, the 0:05:00.560 --> 0:05:04.400 data dependency of the Fed. They have emphasized that a 0:05:04.520 --> 0:05:07.360 number of times, and to some extent it seems like 0:05:07.600 --> 0:05:09.920 it is coming back to haunt them whenever there is 0:05:09.960 --> 0:05:13.400 a stronger than expected inflation print. And then we had 0:05:13.400 --> 0:05:17.839 payrolls since CPI, and payrolls came in lower than expected 0:05:17.839 --> 0:05:20.200 for the first time in ages and everyone got really 0:05:20.240 --> 0:05:21.600 excited about that. 0:05:22.480 --> 0:05:26.000 You're absolutely right, Tracy, that what essentially we have is 0:05:26.040 --> 0:05:28.799 a federal reserve is a prisoner of policies they start 0:05:28.839 --> 0:05:32.120 putting in a couple of years ago, which is essentially 0:05:32.160 --> 0:05:36.320 being extremely data dependent rather than forward looking. There is 0:05:36.360 --> 0:05:39.240 another problem, and that's the dots, one of the most 0:05:39.400 --> 0:05:44.039 destructive instruments from Bernaki era. So it's not anything to 0:05:44.080 --> 0:05:44.480 do with j. 0:05:44.680 --> 0:05:45.040 Powell. 0:05:45.040 --> 0:05:47.920 I think if he could, he would have good rid 0:05:48.000 --> 0:05:51.040 of dots today. The problem he has is that the 0:05:51.120 --> 0:05:54.479 volatility getting rid of dots probably will be greater than 0:05:54.520 --> 0:05:58.279 the volatility dots themselves are creating. So you're trying to 0:05:58.360 --> 0:06:04.320 denigrate it by arguing that dots degenerate almost immediately as 0:06:04.320 --> 0:06:06.400 soon as they are published, So he's trying to take 0:06:06.400 --> 0:06:08.960 our attention away from dots. But as long as they 0:06:08.960 --> 0:06:11.200 have published, they are the materials. So you've got a 0:06:11.279 --> 0:06:14.760 data dependency on the one side, which is basically dependency 0:06:14.760 --> 0:06:18.440 on a backward looking or at best contemporaneous numbers that 0:06:18.560 --> 0:06:21.080 you have. You also have a lot of faulty numbers, 0:06:21.360 --> 0:06:25.640 whether it is how you determine shelter expenses or ornery 0:06:25.640 --> 0:06:30.320 equivalent rent, how do you relate secondhand cup prices, how 0:06:30.360 --> 0:06:33.880 do you measure insurance policy or financial markets. But there's 0:06:33.920 --> 0:06:36.960 also major problems with Bureau label statistics. I mean, I'm 0:06:36.960 --> 0:06:40.760 glad that they've increased or revised hours work last week, 0:06:40.880 --> 0:06:44.440 which basically showed the productivity miracle wasn't really there. So 0:06:44.520 --> 0:06:47.720 you have quite a faulty numbers both from Bureau of 0:06:47.800 --> 0:06:51.600 Labor statistics. On a labor market, you have mostly backward 0:06:51.640 --> 0:06:55.200 looking or contemporaneous numbers. In terms of inflation, and if 0:06:55.240 --> 0:07:00.000 you become data dependent, you starting to create exceptional volatility 0:07:00.560 --> 0:07:04.000 because you basically like a deer in a in alarmed 0:07:04.400 --> 0:07:07.159 in a light. You are stuck. You are you cannot 0:07:07.200 --> 0:07:09.520 move to the left, you cannot move to the right. Now, 0:07:09.560 --> 0:07:13.000 what I think jerrem Pal is doing quite well is 0:07:13.160 --> 0:07:17.200 trying to introduce some degree of forward guidance. So essentially, 0:07:17.240 --> 0:07:20.000 what he's saying, and what he said last week is 0:07:20.080 --> 0:07:22.720 that if I think of the shelter expenses, they're not 0:07:22.840 --> 0:07:25.800 quite as bad as the numbers look. And he's absolutely 0:07:25.920 --> 0:07:30.800 right if he talks about other service oriented numbers again, 0:07:30.960 --> 0:07:34.000 whether it's insurance or anything else, he kept emphasizing they're 0:07:34.000 --> 0:07:36.880 not as bad as what they appear, BOSS and CPI 0:07:36.960 --> 0:07:40.160 and PCEE, and he's been quite vocal that the labor 0:07:40.240 --> 0:07:44.960 market actually a lot loser than what Bureau Labor statistics highlights. 0:07:45.120 --> 0:07:49.280 But the problem is tracy. If you are a prisoner 0:07:49.360 --> 0:07:52.960 of data dependency and dots, the chances of committing a 0:07:53.000 --> 0:07:56.320 policy error increases. And so one of the questions I 0:07:56.320 --> 0:07:59.360 struggle with whether in fact it matters if at a 0:07:59.400 --> 0:08:01.320 reserve does commit a policy error. 0:08:01.880 --> 0:08:04.600 I feel like we could have a whole episode just 0:08:04.680 --> 0:08:06.680 on the dots, and the problem with this is a 0:08:06.720 --> 0:08:10.800 communication strategy. Maybe we will, but anyway, it's interesting you 0:08:10.840 --> 0:08:13.239 said this just I guess it was either today, earlier today, 0:08:13.320 --> 0:08:18.280 or yesterday. Minneapolis Fed Neil kesh Curry ended his speech 0:08:18.360 --> 0:08:21.360 the final section of his speech shout out to our 0:08:21.360 --> 0:08:24.560 old colleague Lukawa for flagging this. This is also a 0:08:24.560 --> 0:08:28.960 communication challenge for policymakers. In my own summary of economic projections, 0:08:29.000 --> 0:08:31.440 except the formal name for the dots submission, I have 0:08:31.480 --> 0:08:34.200 only modestly increased my longer run nominal neutral funds rate. 0:08:34.240 --> 0:08:37.040 Blah blah blah. This step does not provide a simple 0:08:37.080 --> 0:08:39.600 way to communicate the policy that the neutral rate might 0:08:39.640 --> 0:08:41.319 be at least temporarily elevated. 0:08:41.720 --> 0:08:42.559 De codet. 0:08:42.640 --> 0:08:46.240 What is the issue as you see it with the dots. 0:08:46.559 --> 0:08:49.160 Well, well, there are a couple of these shoes, Okay, 0:08:49.240 --> 0:08:52.720 one of them. Dots work very well. If everything is plus, 0:08:52.720 --> 0:08:55.720 it not a problem. Whenever you have a high degree 0:08:55.840 --> 0:09:00.480 volatility ISAAC externally or internally driven dots really don't tell 0:09:00.520 --> 0:09:04.880 you anything because it's really a personal opinion of several governors. 0:09:05.240 --> 0:09:07.720 Some are voting, some are not voting right now, and 0:09:07.800 --> 0:09:10.960 it's not linked to either federal policy. It's not vetted, 0:09:11.040 --> 0:09:14.200 it's not researched. There is nothing in it so long 0:09:14.360 --> 0:09:18.320 as the line of sight is relatively stable thoughts are 0:09:18.360 --> 0:09:20.960 absolutely fine. As soon as you get the volatility, they 0:09:20.960 --> 0:09:24.360 are not. And I think Philipplow, who was who retired 0:09:24.559 --> 0:09:28.000 as a governor of Reserve Bank of Australia late last 0:09:28.040 --> 0:09:30.720 year put it the best way. He said, central banks 0:09:30.760 --> 0:09:35.040 will never see again inflation contained in a narrow range. 0:09:35.360 --> 0:09:38.480 Now what it basically means that this idea that you 0:09:38.559 --> 0:09:42.160 have relatively flatish outlaw and you try to manage it 0:09:42.200 --> 0:09:45.679 on a margin, is becoming irrelevant. So for example, Federal 0:09:45.720 --> 0:09:47.840 Reserve at the end of last year, on a number 0:09:47.840 --> 0:09:51.280 of variables, they went past their mandate. In fact, they've 0:09:51.320 --> 0:09:54.440 overachieved their amendate. And if you look at what subsequent 0:09:54.480 --> 0:09:56.880 three or four months, suddenly they were ahead of their mandate. 0:09:57.080 --> 0:09:59.839 And that's what Philip Law was highlighting that from now 0:09:59.880 --> 0:10:02.439 on you're going to have a great deal of volatility 0:10:02.480 --> 0:10:05.920 of those numbers. And I think the dots by themselves 0:10:05.960 --> 0:10:10.480 magnify that volatility rather than creating a gretic sort of 0:10:10.559 --> 0:10:12.600 clarity for market participants. 0:10:12.920 --> 0:10:15.920 So why do you say that a FED policy error 0:10:16.000 --> 0:10:18.840 might not matter? And I should caveat this with you know, 0:10:18.920 --> 0:10:21.719 Joe and I spend a lot of time online and 0:10:21.800 --> 0:10:24.960 coing pie some of the you know social media discourse. 0:10:25.520 --> 0:10:28.360 The world basically revolves around whether or not the Fed's 0:10:28.360 --> 0:10:30.560 going to make a policy error. And the bias is 0:10:30.600 --> 0:10:33.760 always the FED is doing something wrong in one way 0:10:33.920 --> 0:10:35.760 or another. But why do you think it might not matter? 0:10:36.040 --> 0:10:40.080 Well? I usually say to people, Look, we had terrific tightening, 0:10:40.160 --> 0:10:43.000 we had some withdrawal of liquidity. Could you explain to 0:10:43.080 --> 0:10:46.960 me how high yield spreads only about three percent, which 0:10:46.960 --> 0:10:49.319 is the lowest. Ever, how could you explain to me 0:10:49.440 --> 0:10:52.000 it's a double b bad debt is trading at only 0:10:52.040 --> 0:10:55.240 two percent spreads? How can you explain to me that 0:10:55.320 --> 0:10:58.480 despite a very significant rise in US dollar, which both 0:10:58.520 --> 0:11:01.679 of you have just highlighted, the basis swaps are only 0:11:01.720 --> 0:11:04.000 five BIPs. They should be more like fifty BIPs are 0:11:04.000 --> 0:11:07.640 above and so to me, the advantage of our era 0:11:08.080 --> 0:11:10.320 is that, first of all, we have too much capital. 0:11:10.520 --> 0:11:13.120 In other words, the idea of scarcity of capital that 0:11:13.320 --> 0:11:17.600 underlines thinks like DCF calculation or underlines most of the 0:11:17.640 --> 0:11:21.320 investment decision do not apply when you have too much capital. 0:11:21.559 --> 0:11:25.360 Now it is not evenly or fairly distributed by any means, 0:11:25.640 --> 0:11:27.960 But there is plenty of capital. And the way you 0:11:28.000 --> 0:11:31.000 can measure it is essentially, what is the value of 0:11:31.080 --> 0:11:36.199 all your financial instruments globally against real underlying economies and 0:11:36.400 --> 0:11:39.200 what do you find? Depending how you do all balance 0:11:39.240 --> 0:11:41.880 it commitments, how you do derivatives, you could be looking 0:11:41.960 --> 0:11:45.280 five to ten times larger than the underlying economies. So 0:11:45.720 --> 0:11:48.280 we have plenty of capital. What it basically means, no 0:11:48.320 --> 0:11:50.880 matter what Federal Reserve does, it's very hard to tighten 0:11:51.160 --> 0:11:55.199 because that capital just keeps circulating looking for diminishing returns. 0:11:55.600 --> 0:11:58.280 The second thing we have, and Bloomberg plays a great 0:11:58.360 --> 0:12:02.560 role in it, is that we have instantaneous repricing. So anybody, 0:12:02.600 --> 0:12:06.040 any word in the market, it's instantaneously gets repriced. And 0:12:06.080 --> 0:12:08.480 the third thing we have is that central banks are 0:12:08.559 --> 0:12:12.240 rolling out policies and an incredible speed. They're not even 0:12:12.320 --> 0:12:15.760 debating what is the outcome of those policies or what 0:12:15.800 --> 0:12:18.880 are the implications of what we're doing. Usually something happens 0:12:18.880 --> 0:12:21.920 on Thursday and Friday, and by Monday it's all fixed. 0:12:22.640 --> 0:12:25.320 And so are we going to have new policies for 0:12:25.960 --> 0:12:29.040 private capital or private debt equivalent to what we have 0:12:29.200 --> 0:12:32.200 for Silicon Valley Bank? Are we going to have special 0:12:32.280 --> 0:12:35.400 policies for perity trade basis trade from some of some 0:12:35.440 --> 0:12:37.400 of the niches in a high yield market. Of course 0:12:37.400 --> 0:12:40.160 we are so if you have too much capital, if 0:12:40.200 --> 0:12:45.080 you're repricing instantaneously, and if central banks are willing and 0:12:45.120 --> 0:12:49.360 prepared to plug the holes almost instantaneously, this is a 0:12:49.360 --> 0:12:51.560 world of no risk. In other ways, the way I 0:12:51.640 --> 0:12:54.600 put it, if the risk is everywhere, the risk is nowhere, 0:12:55.520 --> 0:12:59.080 and if the risk is nowhere, then you can explain speculation. 0:12:59.200 --> 0:13:02.160 You can explain goal price of bitcoin. You can explain 0:13:02.720 --> 0:13:05.960 why high yields will be trading at only three percent 0:13:06.000 --> 0:13:09.160 spreads because there is no risk. And the reason central 0:13:09.160 --> 0:13:12.000 banks are doing it not because they're greedy for power 0:13:12.120 --> 0:13:15.319 anything else. There is no shadow, you know, deep state 0:13:15.440 --> 0:13:18.360 or anything like that. The reason they're doing it is 0:13:18.400 --> 0:13:20.760 because of the dangers of not doing it. If you 0:13:20.840 --> 0:13:23.360 sink of dot Com, that was only one asset price 0:13:23.440 --> 0:13:26.480 going wrong. If you think of GFC, that's really a 0:13:26.960 --> 0:13:30.319 bigger asset, but only one Today. You know, land mines 0:13:30.320 --> 0:13:33.280 are everywhere, and those land mines, each one of them, 0:13:33.280 --> 0:13:37.360 could be bigger than the original GFC. And so the 0:13:37.400 --> 0:13:40.320 result is central banks really don't have a choice. So 0:13:40.559 --> 0:13:43.960 even if Federal Reserve does commit a policy error, which 0:13:44.040 --> 0:13:47.160 is possible, they can unwind it in split second. The 0:13:47.200 --> 0:13:49.240 way I describe it in my notes is to say, 0:13:49.400 --> 0:13:51.439 let's assume you get up, get in the morning, say 0:13:51.440 --> 0:13:52.880 oh my god, it's going to be a terrible day. 0:13:53.000 --> 0:13:55.440 By lunchtime, I know it's okay. And by evening, let's 0:13:55.440 --> 0:13:58.120 have a dinner, and the whole thing just evaporated. Now 0:13:58.160 --> 0:14:01.160 the key question, however, to ask what price do we 0:14:01.280 --> 0:14:04.679 pay for it? And the price we pay for it 0:14:04.720 --> 0:14:08.320 is a volatility of inflation rates. Is this volatility? It 0:14:08.400 --> 0:14:10.760 is volatility of the neutral rates. In other words, the 0:14:10.760 --> 0:14:14.319 way describe it, risk does not disappear. It just migrates. 0:14:14.559 --> 0:14:16.840 So if you keep the market plus it, which is 0:14:16.840 --> 0:14:20.760 what we're doing, risks simply migrates somewhere else. It migrates 0:14:20.760 --> 0:14:25.280 into politics, it migrates into social sphere, it migrates into geopolitics. 0:14:25.640 --> 0:14:28.360 And so we do pay a price. We do pay 0:14:28.360 --> 0:14:31.240 a price for this. But to argue that central bank 0:14:31.360 --> 0:14:34.240 is committing an error furniture must be broken is wrong. 0:14:34.400 --> 0:14:37.320 Even if they commit the error, which is possible, they 0:14:37.320 --> 0:14:50.920 can unwind it in thirty seconds. 0:14:55.320 --> 0:15:00.000 I want to get into maybe migrate the conversations geopolitics 0:15:00.040 --> 0:15:02.360 and this migration of risks, because you write a lot 0:15:02.560 --> 0:15:04.480 very well on that, but just sort of real quickly 0:15:04.480 --> 0:15:07.640 before we do that. In your view, you describe this 0:15:07.800 --> 0:15:11.280 world of like so much capital relative to GDP. You 0:15:11.320 --> 0:15:14.120 know people, you know, they blame q E for stuff 0:15:14.120 --> 0:15:17.880 like this or whatever. Is there like an original policy sin? 0:15:18.360 --> 0:15:19.240 And I don't even know if. 0:15:19.120 --> 0:15:20.320 It's a same Paul Walker? 0:15:20.920 --> 0:15:23.440 Okay, explain, So what is this sort of original sin 0:15:23.520 --> 0:15:24.680 that created this world. 0:15:24.440 --> 0:15:26.720 Of a Bundy? Well, if you say of Paul Walker, 0:15:26.760 --> 0:15:30.560 he mostly known of course for squashing inflation, but if 0:15:30.600 --> 0:15:32.560 you go back in time, I think his much bigger 0:15:32.640 --> 0:15:37.520 legacy is creating that system of global recycling of capital 0:15:38.200 --> 0:15:44.160 and addiction to dead and addiction to asset prices prior tonight. Well, essentially, 0:15:44.280 --> 0:15:48.560 what happened. We've deregulated the financial sphere. We've deregulated the 0:15:48.640 --> 0:15:53.200 regulating capital flow. The idea was that United States will 0:15:53.200 --> 0:15:55.760 take the money from other people and stimulate consumption, and 0:15:55.840 --> 0:15:58.600 those other people will be buying treasury bones, for example, 0:15:58.880 --> 0:16:01.400 in order to get return to lower the cost for 0:16:01.520 --> 0:16:05.280 US consumers, but also to reduce their currency and make 0:16:05.360 --> 0:16:08.720 themselves more competitive. Now, Paul Walker was expecting that currency 0:16:08.720 --> 0:16:12.720 eventualist will recalibrate this process, but they never did because 0:16:12.920 --> 0:16:16.520 nobody ever wanted to have an appreciating currency, and so 0:16:16.600 --> 0:16:20.280 we're stuck in the world of accumulating against disparities between 0:16:20.320 --> 0:16:23.920 savings and spending. In other words, US and the UK 0:16:24.160 --> 0:16:30.080 consistently net spender, Germany, Netherlands, China career, Japan consistently net saber, 0:16:30.320 --> 0:16:33.440 and we've never really rebalanced it properly. So one of 0:16:33.480 --> 0:16:36.320 the side effects of that was that it become easier 0:16:36.440 --> 0:16:39.840 and easier to borrow, easy and easier to bring future 0:16:39.880 --> 0:16:43.320 consumption to the present to maintain your lifestyle. It became 0:16:43.520 --> 0:16:46.560 easy and easier to multiply credit. Instead of having one 0:16:46.600 --> 0:16:50.280 instrument parasset, we can now have five instrument parasets ten 0:16:50.640 --> 0:16:53.040 in each one of those instruments can be leveraged yet 0:16:53.080 --> 0:16:55.880 again and yet again, and so all of that created 0:16:56.320 --> 0:16:58.560 massive amount of capital. I mean, if you think of 0:16:58.800 --> 0:17:02.000 the financial stability, or they tried to calculate the overall 0:17:02.080 --> 0:17:05.480 level of financialization, they're usually behind time. They only have 0:17:05.720 --> 0:17:08.680 twenty twenty two numbers. But essentially what they were showing 0:17:08.720 --> 0:17:12.119 about five hundred trillion dollars, and that's based on the 0:17:12.280 --> 0:17:16.320 net derivatives and not including any of balance IT commitments 0:17:16.400 --> 0:17:20.200 or major ones, and so that's effectively was five times 0:17:20.359 --> 0:17:23.360 global GDP. So that's what started. So if you were 0:17:23.400 --> 0:17:27.120 to ask one person or one time when that happened, 0:17:27.359 --> 0:17:31.480 it's really Paul Walker who created our debt and asset 0:17:31.520 --> 0:17:35.280 based culture now green spent in late eighties, or he did. 0:17:35.400 --> 0:17:38.440 He took Walker's idea and brought it to logical conclusion, 0:17:38.720 --> 0:17:41.200 and that's was a green spent put which Bernark and 0:17:41.320 --> 0:17:43.200 Yellen subsequently maintained. 0:17:44.440 --> 0:17:47.080 Yeah, it is interesting. I think I might have written 0:17:47.560 --> 0:17:49.760 a little bit about this in the All Lots newsletter 0:17:49.840 --> 0:17:52.880 or kind of thought out loud about it. It feels 0:17:52.880 --> 0:17:56.719 like we're internalizing the idea that the supply of credit 0:17:56.840 --> 0:17:59.960 can expand even as the cost of money goes up 0:18:00.200 --> 0:18:03.520 via benchmark rates, which might not necessarily be a new 0:18:03.600 --> 0:18:06.080 dynamic as you just described, but like one that was 0:18:06.160 --> 0:18:07.760 probably underappreciating. 0:18:07.880 --> 0:18:08.360 Intuitive. 0:18:08.520 --> 0:18:11.960 Yeah, unintuitive and underappreciated until this very moment in time. 0:18:12.240 --> 0:18:14.120 I want to ask one more thing on the US 0:18:14.200 --> 0:18:16.679 economy and the FED before we maybe broaden out the 0:18:16.720 --> 0:18:20.840 conversation to geopolitics and pressures in other parts of the world. 0:18:21.320 --> 0:18:23.760 But I remember one of the things I really liked 0:18:23.800 --> 0:18:27.360 about your framing of the post pandemic period was, unlike 0:18:27.480 --> 0:18:29.840 a lot of other pundits, you did not go back 0:18:29.880 --> 0:18:33.919 to the nineteen seventies as your preferred historical analogy. You 0:18:34.000 --> 0:18:37.920 went back to the nineteen eighteen Spanish flu, which resulted 0:18:38.040 --> 0:18:40.919 in a big run up in inflation, but then a 0:18:40.960 --> 0:18:45.520 pretty rapid deflationary bust. And I'm curious, you know, here 0:18:45.560 --> 0:18:49.800 we are in twenty twenty four. Inflation is still relatively strong. 0:18:49.920 --> 0:18:53.760 We haven't seen interest rate cuts at all, and as 0:18:53.800 --> 0:18:56.840 expected maybe back in late twenty twenty two, going into 0:18:56.840 --> 0:18:58.560 twenty twenty three, there are a lot of people who 0:18:58.560 --> 0:19:01.080 predicted we'd see cuts and recessions, and I think you 0:19:01.119 --> 0:19:02.800 might have been one of them. But have you been 0:19:02.880 --> 0:19:08.199 surprised by I guess, the stubbornness of inflation and the 0:19:08.280 --> 0:19:11.679 higher for longer scenario in the US. And how is 0:19:11.720 --> 0:19:14.640 that stacking up against that nineteen eighteen parallel. 0:19:15.119 --> 0:19:17.399 Well, the way I look at it, my argument was, 0:19:17.600 --> 0:19:20.200 there will be no recessions in the US. There will 0:19:20.240 --> 0:19:23.439 be no recession globally, because we don't have recession, there 0:19:23.480 --> 0:19:27.159 is nothing to recover from, so don't expect any significant recovery. 0:19:27.440 --> 0:19:30.359 That's why my global growth rates always pitched that around 0:19:30.400 --> 0:19:32.480 two two and a half percent, which is at least 0:19:32.520 --> 0:19:35.320 seventy five basis points less than what we used to 0:19:35.400 --> 0:19:38.119 have with the previous decade, and about one hundred basis 0:19:38.119 --> 0:19:40.160 points less than what we used to have in the pause. 0:19:40.640 --> 0:19:43.480 My view, as you correctly said that as you have 0:19:43.800 --> 0:19:47.439 sort of misilocation of demanded supply curves, as we have 0:19:47.520 --> 0:19:52.080 destabilization of demanded supply curves, gradually winds down, inflation should 0:19:52.119 --> 0:19:55.240 come out. No need for recession, no need for unemployment, 0:19:55.560 --> 0:19:57.399 but there is a price we pay, and the price 0:19:57.440 --> 0:19:59.920 we pay, there will be no recovery, and there will 0:20:00.200 --> 0:20:03.880 more or less a circular stagnation argument. Globally, some countries 0:20:03.920 --> 0:20:06.280 will grow a little bit faster than others, and that 0:20:06.320 --> 0:20:10.880 will be primarily driven by primary deficits, because overall deficits 0:20:10.880 --> 0:20:14.600 don't matter. Primary deficits doue and the US happened to 0:20:14.640 --> 0:20:17.760 have the highest deficits. US is now running about three 0:20:17.880 --> 0:20:20.960 three and a half percent of GDP primary deficits. Europe 0:20:21.000 --> 0:20:23.679 is less than one. Japan is less than two. So 0:20:23.720 --> 0:20:26.240 if you have a higher primary deficits, you push up 0:20:26.320 --> 0:20:30.280 your neutral rates higher compared to for example, European Monetary 0:20:30.400 --> 0:20:34.720 Union or Japan. Now, this inflationary trend in the global 0:20:34.840 --> 0:20:38.400 is still continuing. Now. If you sink of G five CPI. 0:20:38.520 --> 0:20:41.440 For example, when we were here last time in sort 0:20:41.440 --> 0:20:44.040 of late twenty two early twenty three, the number was 0:20:44.080 --> 0:20:46.760 five percent. In March it was two point four. Now 0:20:46.800 --> 0:20:49.840 two point four. It's only twenty thirty BIPs higher than 0:20:49.880 --> 0:20:53.159 it was over the previous twenty five years. But the 0:20:53.240 --> 0:20:56.000 leadership changed. If you sing up the second half of 0:20:56.040 --> 0:20:59.640 twenty three, this inflation in the US was extremely strong, 0:21:00.119 --> 0:21:03.640 but inflation in Europe, UK and Japan actually was climbing, 0:21:03.760 --> 0:21:06.679 not down. What you saw over the last four months 0:21:07.160 --> 0:21:10.080 is it inflation start breaking in the UK, start breaking 0:21:10.080 --> 0:21:13.879 at Eurozone, start breaking in Japan. This inflation got stronger 0:21:14.000 --> 0:21:17.000 in China as we progress, but in the US it's 0:21:17.040 --> 0:21:19.879 stuck and actually gone up a bit. Now the question 0:21:20.119 --> 0:21:23.440 is whether that's something unique to United States a weather. 0:21:23.520 --> 0:21:25.840 In fact, in the second half of twenty four, we're 0:21:25.840 --> 0:21:28.200 going to relieve what we had in the second half 0:21:28.240 --> 0:21:31.159 of twenty three and the United States will join the 0:21:31.160 --> 0:21:34.359 rest of the world in a disinflationary trend. That's my 0:21:34.600 --> 0:21:40.000 base case. Now what underpins it is neutral rates and productivity. Now, 0:21:40.240 --> 0:21:43.520 my view is that neutral rate has not changed. Neutral 0:21:43.600 --> 0:21:47.040 rate is a long term process. That's why almost all 0:21:47.080 --> 0:21:49.600 models are still showing that neutral rates in the US 0:21:49.720 --> 0:21:52.320 are fifty to one hundred basis points real, which means 0:21:52.359 --> 0:21:54.919 policy rates should be closer to three, not five and 0:21:54.920 --> 0:21:57.880 a half on that basis. But in a short term 0:21:57.960 --> 0:22:01.000 you can have a spike in those neutrals rates. Now 0:22:01.040 --> 0:22:03.560 I do sing neutral rate spike, despite the fact that 0:22:03.640 --> 0:22:06.320 models don't show it. I think it did spike. Now 0:22:06.359 --> 0:22:09.280 the question is whether it's already coming off or whether 0:22:09.440 --> 0:22:12.160 somehow we can keep neutral rate at a much higher level. 0:22:12.480 --> 0:22:15.480 One of the key elements there is productivity. Now, I'm 0:22:15.520 --> 0:22:18.440 not a buyer that there will be any productivity improvements. 0:22:18.680 --> 0:22:22.159 In other words, labor productivity or multi factor productivity is 0:22:22.200 --> 0:22:24.760 not going to recover for at least ten years, possibly 0:22:24.800 --> 0:22:27.040 even twenty years. Now, if you take a view that 0:22:27.119 --> 0:22:29.800 productivity is not going to drive it, then either you 0:22:29.880 --> 0:22:33.840 have to have much higher primary deficits continuing, or you 0:22:33.960 --> 0:22:36.200 have to have some other form of shocks in the 0:22:36.320 --> 0:22:39.480 system in order to drive it up. So if I'm 0:22:39.560 --> 0:22:42.680 correct that neutral rates have not changed and it's still 0:22:42.720 --> 0:22:46.000 fifty to one hundred bases points real, then it must 0:22:46.080 --> 0:22:48.880 be coming off. As it comes off, deflator comes off 0:22:49.119 --> 0:22:52.000 normenal GDP drops from In the US, it's already down 0:22:52.040 --> 0:22:54.720 from twelve percent to five point four. As it starts 0:22:54.760 --> 0:22:58.399 dropping towards four percent. You can't keep policy rates at 0:22:58.400 --> 0:23:00.840 five and a half unless so you want to have 0:23:00.880 --> 0:23:03.439 a recession. That's the only reason to have it. So 0:23:03.600 --> 0:23:06.520 I'm still in the same camp, except as desynchronized or 0:23:06.520 --> 0:23:09.359 going back to the Reserve Bank of Australia. It's violent 0:23:09.680 --> 0:23:12.440 how it moves. Also, on more point, in the US, 0:23:12.480 --> 0:23:17.000 inflation is really in pockets. In twenty two or twenty one, 0:23:17.000 --> 0:23:18.920 even in early twenty three it was all over the place. 0:23:19.520 --> 0:23:22.280 Right now is just in pockets. So all you need 0:23:22.320 --> 0:23:25.359 to do is to bring those pockets down to a 0:23:25.400 --> 0:23:25.920 low level. 0:23:26.680 --> 0:23:28.880 I mean, we could also just talk for an hour 0:23:29.080 --> 0:23:31.440 about why it don't take twenty years before we see 0:23:31.440 --> 0:23:34.960 a productivity boom, but let's talk a little geopolitics. So 0:23:35.040 --> 0:23:38.040 this idea risk has been taken out of the financial 0:23:38.080 --> 0:23:41.800 system and it migrates elsewhere. Maybe the politics, maybe the 0:23:41.840 --> 0:23:45.320 geopolitics were obviously in a moment, and you can just 0:23:45.320 --> 0:23:47.640 see it by all the trips people in the administration 0:23:47.800 --> 0:23:49.960 take to trips to China, where there was a significant 0:23:49.960 --> 0:23:55.800 amount of anxiety about China geopolitically, military to military communication, 0:23:56.280 --> 0:24:00.400 cooling the temperature, coupled with industrial anxiety. Are they going 0:24:00.440 --> 0:24:03.080 to own the EV market for the entire world, et cetera. 0:24:03.840 --> 0:24:07.040 Draw that line for us, maybe start there, Draw that 0:24:07.240 --> 0:24:10.159 line for us between the sort of taking out of 0:24:10.600 --> 0:24:13.400 financial risk and that migration and how that fits into 0:24:13.440 --> 0:24:14.159 the China phasis. 0:24:14.359 --> 0:24:18.120 Sure. Well, one of the things I disagreed with almost 0:24:18.160 --> 0:24:20.600 everyone over the last two or three years. Remember the 0:24:20.680 --> 0:24:23.320 view was that China is running out of people and 0:24:23.359 --> 0:24:27.520 so China will be exporting inflation. Now, my argument all 0:24:27.520 --> 0:24:31.640 along was China cannot export inflation. Their major export of disinflation, 0:24:32.200 --> 0:24:35.119 and the reason for that is very simple. China, just 0:24:35.160 --> 0:24:39.240 like Japan's seventies eighties, has a very high national saving rates. 0:24:39.240 --> 0:24:42.280 I RUNIC at about forty five percent, just like Japan 0:24:42.320 --> 0:24:45.000 and seventies eighties. Could have put policies in place to 0:24:45.080 --> 0:24:48.679 consume it, but they didn't, neither have China. And so 0:24:48.800 --> 0:24:51.320 the result is they must invest at least forty two 0:24:51.359 --> 0:24:53.680 to forty three percent of GDP sink of the numbers. 0:24:53.880 --> 0:24:57.520 That's an equivalent of nine to ten trillion dollars invested 0:24:57.640 --> 0:25:01.639 every year. It's double of GDP of Japan invested every 0:25:01.680 --> 0:25:04.800 single year. Now, if you invest in that sort of money, 0:25:04.880 --> 0:25:07.879 it doesn't really matter what you invest in. You create 0:25:08.040 --> 0:25:11.960 massive over capacities. And if you go into niches sayings 0:25:12.160 --> 0:25:18.400 like what Chi shipping calls productive forces, seeings like electric vehicles, robotics, automation, 0:25:18.960 --> 0:25:22.440 solar industry, if you go onto smaller niches, you almost 0:25:22.520 --> 0:25:26.560 automatically create three times global demand, if not more. Now, 0:25:26.600 --> 0:25:30.840 at that point they have very limited choices. Either they 0:25:31.040 --> 0:25:35.800 change their pivot, their policies, dramatically send checks to people 0:25:35.840 --> 0:25:37.360 instead of building another factory. 0:25:37.600 --> 0:25:39.960 You know, raise social safety. 0:25:40.040 --> 0:25:44.000 Now, raise universal basic income. They already have universal basic 0:25:44.040 --> 0:25:46.960 income in China. Just raise it and equalize it across 0:25:47.080 --> 0:25:49.640 across the country. So you either do that, But if 0:25:49.640 --> 0:25:52.120 you're not willing to do that, which they're not, then 0:25:52.280 --> 0:25:54.760 the only way you can do it is except that 0:25:54.840 --> 0:25:58.320 you lost the capital and close the factories and we 0:25:58.359 --> 0:26:01.800 will discover China potentially much smaller country than what we 0:26:01.880 --> 0:26:05.280 thought it was, or the other alternative dump that access 0:26:05.320 --> 0:26:09.719 capacity onto other countries. But given the amounts of money involved, 0:26:10.000 --> 0:26:13.040 there is not much you can dumb on Kazakhstan that 0:26:13.080 --> 0:26:18.639 there is only UK, European Monetary Union or EU, United States, Japan. 0:26:18.680 --> 0:26:22.000 There's very few places that can take that sort of capacity. 0:26:22.760 --> 0:26:26.160 And so what's happening those countries are putting up barriers now. 0:26:26.160 --> 0:26:29.440 The reason they're putting up barriers is that China also 0:26:29.520 --> 0:26:32.520 wants to change the world. They want to redesign everything, 0:26:32.640 --> 0:26:35.320 whether it's human rights information, whether it's the role of 0:26:35.320 --> 0:26:38.680 state versus individual, whether it's the role of state subsidies, 0:26:38.880 --> 0:26:41.680 trade rules. They want to change everything. So if China 0:26:41.760 --> 0:26:44.720 did not try to change the world, I think the 0:26:44.800 --> 0:26:47.520 extent to which the barriers would have come up would 0:26:47.560 --> 0:26:50.680 not have been as aggressive. But now China has a 0:26:50.760 --> 0:26:54.240 catch twenty two barriers will come up, which means it's 0:26:54.280 --> 0:26:57.720 harder to sell that access capacity. You don't want to 0:26:57.720 --> 0:27:01.000 recognize the loss of the capital, and what you're trying 0:27:01.000 --> 0:27:03.200 to do is to go on a charm offensive. That's 0:27:03.200 --> 0:27:06.600 why a Chinese president is in Europe right now. From 0:27:06.600 --> 0:27:10.080 a US perspective, what US is trying to do is 0:27:10.240 --> 0:27:14.680 gradually grind China out of the Western system, but without 0:27:14.720 --> 0:27:20.159 dislocating refrigerator prices or without dislocating things that housewives are using. 0:27:20.560 --> 0:27:22.879 And the way you do it is starting from the top, 0:27:23.000 --> 0:27:25.199 starting from the high tag, and just keep moving and 0:27:25.320 --> 0:27:29.320 slowly grinding them out, slowly retarding their gross rates at 0:27:29.400 --> 0:27:32.600 least relative to what you can do, but without triggering 0:27:33.000 --> 0:27:36.040 a real conflict. So to me, that's a cold war. 0:27:36.119 --> 0:27:39.760 You're walking at tritrop between degrading as much as you 0:27:39.840 --> 0:27:44.800 can your opponent without triggering something really nasty. And I think, 0:27:44.840 --> 0:27:47.639 so far, to be fair, whether it's Jenet Yellen, whether 0:27:47.720 --> 0:27:50.600 it's Blinking, whether it's Sullivan, I think they've done pretty 0:27:50.600 --> 0:27:54.680 good job of actually achieving that balance. Whether that can 0:27:54.760 --> 0:27:59.119 be maintained, however, depends extent to which Chinese economy and 0:27:59.200 --> 0:28:02.040 society perform to some extent, I mean, it also depends 0:28:02.080 --> 0:28:04.199 what happens in the US, of course, but if you 0:28:04.320 --> 0:28:06.959 just look at China, it depends on that because remember 0:28:07.000 --> 0:28:10.439 normenal GDP in China already fallen from ten percent to 0:28:10.600 --> 0:28:14.080 four now. In other words, as you create more disinflation 0:28:14.160 --> 0:28:17.080 as you saw in Japan. It is really norminal GDP 0:28:17.359 --> 0:28:20.200 that tells you the extent of the pressure. Now, if 0:28:20.280 --> 0:28:24.959 economy and society a geared towards a double digit normal GDP, 0:28:25.440 --> 0:28:29.480 if you can't raise it, inevitably pressure starts rising. And 0:28:29.520 --> 0:28:32.320 so the question is extent to which the pressure rises. 0:28:32.560 --> 0:28:36.280 What is China's response, both in terms of in terms 0:28:36.280 --> 0:28:39.080 of geopolitics, in terms of politics, but also in terms 0:28:39.120 --> 0:28:41.400 of economic policies, and how are you going to change them? 0:28:41.520 --> 0:28:43.760 Well, this is kind of what I don't get, and 0:28:43.800 --> 0:28:45.520 this came up in the episode we did with Hugh 0:28:45.560 --> 0:28:48.480 Henry recently as well, where he was talking about the 0:28:48.600 --> 0:28:53.000 old traditional Chinese export model for reasons that you just 0:28:53.080 --> 0:28:55.960 laid out as well, just isn't going to work anymore, 0:28:56.080 --> 0:28:58.920 because you know, Europe is not going to accept a 0:28:58.920 --> 0:29:02.440 flood of cheap electric vehicles coming in from China. And 0:29:02.480 --> 0:29:05.240 so I guess I'm a little bit confused exactly what 0:29:05.480 --> 0:29:09.240 China is planning here, because the resistance from the rest 0:29:09.240 --> 0:29:13.520 of the world seems so glaringly obvious. When China first 0:29:13.560 --> 0:29:18.520 started talking about building up, you know, technological independence in 0:29:18.560 --> 0:29:24.240 things like semiconductors or strategically important technologies. I was under 0:29:24.240 --> 0:29:26.800 the impression that, like some of the idea there was 0:29:26.880 --> 0:29:30.800 to sell it into the domestic population so that you 0:29:30.880 --> 0:29:33.520 don't have to worry about the US suddenly cutting you 0:29:33.600 --> 0:29:37.200 off from important chips. You would have your own supply 0:29:37.520 --> 0:29:39.040 and then you could do with it what you will. 0:29:39.560 --> 0:29:44.200 But as you've laid out, like boosting domestic consumption doesn't 0:29:44.200 --> 0:29:46.400 actually seem to be a priority right now, they still 0:29:46.400 --> 0:29:49.600 seem to be very focused on exports. So I guess 0:29:49.680 --> 0:29:52.040 I just don't get it, because to me, the problem 0:29:52.080 --> 0:29:54.760 with that strategy seems so obvious. 0:29:55.760 --> 0:29:58.400 One of the ways I describe it is a way 0:29:58.440 --> 0:30:01.040 I look at cheshipping and the well look at Chinese 0:30:01.120 --> 0:30:04.120 leadership right now. It's sort of a mixture very stern, 0:30:04.280 --> 0:30:09.760 paternalistic attitude. You know, being soft is bad, suffering is good. 0:30:09.880 --> 0:30:12.160 That's one side of it. The other side of it is 0:30:12.320 --> 0:30:16.680 very classical economics and Marxist economics. They effectively harping back 0:30:16.720 --> 0:30:20.720 to the day of Quinsy, David Ricardo, Adam Smith, cal 0:30:20.760 --> 0:30:23.640 Marx and those people were not thinking of prices, that 0:30:23.720 --> 0:30:27.720 were thinking of value. Now, since late nineteenth century economy 0:30:27.760 --> 0:30:30.280 is abundant value. So we only look at the prices. 0:30:30.280 --> 0:30:32.320 So if you're a billionaire, you must have add value 0:30:32.320 --> 0:30:35.480 because price is telling us you have Classical economy says no, 0:30:35.640 --> 0:30:39.440 this guy just captured somebody else's value. He didn't create value. 0:30:39.760 --> 0:30:43.080 And so if you take that mindset, who is creating value? 0:30:43.080 --> 0:30:46.720 Who is destroying value? If you ask David Ricarda does 0:30:46.760 --> 0:30:50.640 he think financial markets or capital markets value creative? The 0:30:50.760 --> 0:30:53.200 answer would have be no. The best thing you can argue, 0:30:53.200 --> 0:30:55.800 they're relocated, but they don't don't create it. Who is 0:30:55.840 --> 0:30:59.560 creating value? And so for Ricardo or Adam Smith, or 0:30:59.600 --> 0:31:03.600 even before that, the argument people who produce stuff, whether 0:31:03.640 --> 0:31:07.240 it was agriculture early on, whether it's manufacturing, whether it's technology, 0:31:07.520 --> 0:31:10.640 and so the emphasis seemed to be much more In supply, 0:31:11.040 --> 0:31:14.320 the emphasis seemed to be much more production. The emphasis 0:31:14.840 --> 0:31:17.680 is to start to strengthen as Chi Chi Pink calls 0:31:17.680 --> 0:31:21.720 it productive forces, which is a classic Marxist argument productive 0:31:21.840 --> 0:31:26.680 versus unproductive. Strengthen them, put obstacle in front of people 0:31:26.720 --> 0:31:30.120 who you don't regard as productive, and they're incredibly suspicious 0:31:30.200 --> 0:31:32.240 of capital markets and finance. 0:31:32.520 --> 0:31:36.280 So the disorderly expansion that's right, what. 0:31:36.240 --> 0:31:39.560 Carl Marx used to call fictitious capital, capital that multiplies 0:31:39.600 --> 0:31:42.920 for its own sake without doing anything good to anybody else. 0:31:43.240 --> 0:31:45.280 And so if you take that mindset, then that is 0:31:45.320 --> 0:31:47.680 not the mindset of Western economists. But if you take 0:31:47.720 --> 0:31:51.640 that mindset, the sort of stern, paternalistic attitude and the 0:31:51.680 --> 0:31:54.960 emphasis of what he described productive forces, you understand why 0:31:54.960 --> 0:31:59.440 they're reluctant to actually do anything about it. Now. Eventually, 0:31:59.480 --> 0:32:02.040 as I said early on, the precious has to rise 0:32:02.680 --> 0:32:04.560 and they will have to pivot. And we saw this 0:32:04.760 --> 0:32:09.200 COVID in late October early November twenty twenty two, that 0:32:09.560 --> 0:32:12.320 he can pivot very very quickly. That's why there was 0:32:12.360 --> 0:32:15.400 a disorderly opening after COVID. And so there is a 0:32:15.400 --> 0:32:19.080 possibility that there will be that moment when you actually 0:32:19.120 --> 0:32:23.280 will have the change. But the longer he waits, the 0:32:23.320 --> 0:32:25.640 worst it gets. And the reason is very simple. China 0:32:25.720 --> 0:32:28.200 is not Japan. Japan had an open capital account and 0:32:28.240 --> 0:32:31.680 fluctuating currency and convertible currency. So when Japan run into 0:32:31.720 --> 0:32:35.959 the wall, they just collapse overnight. China has close capital account, 0:32:36.240 --> 0:32:39.640 currency is not convertible, central bank is not independent, actually 0:32:39.800 --> 0:32:42.360 lost all the power pretty much commercial banks are not 0:32:42.400 --> 0:32:44.920 commercial and private sector is not really private. So when 0:32:44.960 --> 0:32:49.040 you're operating behind the wall garden, you can't have Minski moments. 0:32:49.080 --> 0:32:51.400 You can't just hit the wall and collapse. But what 0:32:51.560 --> 0:32:55.840 you can do you can basically add increasing headwinds as 0:32:55.880 --> 0:32:59.320 you keep going. So if Japan operated Chinese system in 0:32:59.400 --> 0:33:01.640 nineteen ninety, they didn't have to go down. They could 0:33:01.680 --> 0:33:05.000 have survived until ninety six or ninety seven. But the 0:33:05.120 --> 0:33:08.239 longer you go with that, the worse it gets, and 0:33:08.320 --> 0:33:11.600 so they need to recalibrate. So recalibration, which is needed. 0:33:11.960 --> 0:33:16.640 Change your policy settings quite dramatically. Number two, change your 0:33:16.680 --> 0:33:20.600 geopolitical stance quite dramatically. In a sense, stop trying to 0:33:20.640 --> 0:33:25.160 rebuild the world and change the world and change domestic politics. 0:33:25.200 --> 0:33:28.120 In other words, give a little bit of freedom for people, 0:33:28.160 --> 0:33:32.200 both businesses and consumers and households. If there is is 0:33:32.680 --> 0:33:35.520 pivot change, you still have to pay a price. Because 0:33:35.560 --> 0:33:39.000 one of the things I highlight is capital stock. IMF 0:33:39.040 --> 0:33:42.120 calculates it. And if you think of two thousand and four, 0:33:42.400 --> 0:33:45.720 China had capital stock of I forgot like four trillion dollars. 0:33:45.800 --> 0:33:48.960 India had one in twenty twenty eight, they will have 0:33:48.960 --> 0:33:52.760 one hundred and five trillion dollars. US for example, will 0:33:52.760 --> 0:33:55.360 have seventy seventy five India will only have six. So 0:33:55.520 --> 0:33:59.880 China absorbed over one hundred trillion dollars of depreciated capital 0:34:00.160 --> 0:34:03.240 in a couple of decades. When you absorb so much capital, 0:34:03.240 --> 0:34:06.160 which is entire world GDP, when you absorb so much 0:34:06.240 --> 0:34:10.719 capital so quickly, inevitably, you have an indigestion period. So 0:34:11.040 --> 0:34:13.680 that indigestion period will be with you even if you 0:34:13.800 --> 0:34:17.080 make a policy pivot today. But what will happen if 0:34:17.120 --> 0:34:20.759 they do that? Risk premia will improve because China is 0:34:20.800 --> 0:34:23.160 the only market in the world, and the only acid 0:34:23.200 --> 0:34:25.880 in the world where risk premier over the last several 0:34:26.000 --> 0:34:30.080 years have gone up almost everywhere risk premier actually for. 0:34:46.560 --> 0:34:49.960 I want to push on two specific things you said. 0:34:50.000 --> 0:34:53.080 So one is you talked about Chinese dumping, and I 0:34:53.160 --> 0:34:56.920 sort of understand conceptually the idea of dumping in a 0:34:56.960 --> 0:35:00.520 commodity like steel or they're you know, produce bonds you 0:35:00.560 --> 0:35:02.719 can't use it all at home, or maybe even like 0:35:02.840 --> 0:35:05.160 solar or something like that. But a lot of the 0:35:05.239 --> 0:35:09.560 Chinese exports success seems to be in making high quality 0:35:09.640 --> 0:35:13.560 non commodities that are just very competitive for cost reasons 0:35:13.600 --> 0:35:17.160 and in some arguably quality reasons. One example would be 0:35:17.880 --> 0:35:19.880 people saying that the shell me phone now has a 0:35:19.920 --> 0:35:22.319 better camera, say than the iPhone. So that's one thing. 0:35:22.360 --> 0:35:24.480 And then the other thing is you say you credit 0:35:24.560 --> 0:35:29.239 yelling and blink in for maintaining something reasonably. Well, this 0:35:29.320 --> 0:35:34.040 attempt to degrade China, but not necessarily provoke something stronger. 0:35:34.320 --> 0:35:37.240 What have they actually done substantively? Because I see the trips, 0:35:37.239 --> 0:35:39.440 and I see the talk and the anxiety and the 0:35:39.520 --> 0:35:42.480 you know, the ft columns about jumping and all that stuff, 0:35:42.520 --> 0:35:45.920 but I don't really understand or can't quite internalize what 0:35:46.120 --> 0:35:47.960 substantively they have accomplished. 0:35:48.239 --> 0:35:52.320 Well, what do you need to avoid is very dramatic moves. Okay, 0:35:52.640 --> 0:35:55.279 So in other words, the last thing you want is 0:35:55.320 --> 0:35:59.400 to stop slapping terraffs on very primitive products. But I 0:35:59.440 --> 0:36:04.640 remember mostly actually does law great stuff. People focused on cameras, etc. 0:36:05.040 --> 0:36:08.360 But a lot of China is basic chemicals, it's toys, 0:36:08.680 --> 0:36:12.200 It's that sort of stuff. So try to avoid displacing 0:36:12.280 --> 0:36:15.640 that trade as much as possible. Try to focus on 0:36:15.760 --> 0:36:19.279 the areas that are important for you strategically, And that's 0:36:19.320 --> 0:36:21.719 what Trump started to do but very chaotically, and what 0:36:21.800 --> 0:36:25.520 Biden administration have done very systematically over the last four 0:36:25.600 --> 0:36:29.839 years now, except that China trade will get rerouted. Now, 0:36:29.880 --> 0:36:33.200 the fact that suddenly Mexico and Vietnam became major partners 0:36:33.200 --> 0:36:35.279 of the United States have very little to do with 0:36:35.360 --> 0:36:38.120 capacity of those countries to actually produce it. It's a 0:36:38.160 --> 0:36:41.319 lot of Chinese trade gets rerouted through those places, and 0:36:41.400 --> 0:36:44.120 accept that because you're getting some of the benefit of that, 0:36:44.760 --> 0:36:49.160 including sometimes better quality law prices that consumers and businesses 0:36:49.200 --> 0:36:52.000 in the United States can benefit from. At the same time, 0:36:52.080 --> 0:36:55.000 what you're trying to do is re establish as much 0:36:55.120 --> 0:36:59.799 contact as you possibly can, because as Defense Secretary was 0:36:59.800 --> 0:37:02.440 saying back in Singapore when Chinese refused to talk to 0:37:02.520 --> 0:37:05.120 him eighteen months ago, he said, with the Soviets, we 0:37:05.200 --> 0:37:08.439 never agreed on anything, but we talked. And the same 0:37:08.520 --> 0:37:11.400 is here. You need to maintain the lines of conversation 0:37:11.880 --> 0:37:14.759 so that you know how far you can go, where 0:37:14.880 --> 0:37:17.640 you cannot go, how far you can push, how high 0:37:17.640 --> 0:37:19.880 you can bring it back. So what you try to 0:37:19.920 --> 0:37:22.520 avoid is a chaos. What you try to avoid just 0:37:22.520 --> 0:37:25.760 slapping stuff all over the place, trying to avoid pushing 0:37:25.880 --> 0:37:29.120 China too far and at the same time gradually, as 0:37:29.160 --> 0:37:32.080 I said, degrading it. Now there is a possibility, and 0:37:32.120 --> 0:37:34.560 it is a small possibility right now, but there is 0:37:34.600 --> 0:37:38.439 a possibility that something horrible is going to happen, either 0:37:38.480 --> 0:37:41.759 in Russia Ukraine, or something horrible might happen across down 0:37:41.800 --> 0:37:45.280 One Straits, and the whole thing will start escalating beyond 0:37:45.480 --> 0:37:48.400 what you're trying to do. And at that point we 0:37:48.480 --> 0:37:52.239 could potentially see zeroing out even of Chinese and Hong 0:37:52.320 --> 0:37:55.480 Kong assets. You can even see US Department of Treasury 0:37:56.080 --> 0:37:59.080 arguing that they don't recognize, for example, the currency in 0:37:59.120 --> 0:38:01.960 Hong Kong dollar. Extreme you can have a very extreme 0:38:02.000 --> 0:38:06.760 outcomes which I think are not likely so long as 0:38:06.800 --> 0:38:09.879 there is no as I said, disasters occurring along the way. 0:38:11.040 --> 0:38:12.840 So we just have a few minutes left, and I 0:38:12.880 --> 0:38:15.680 want to go back to what you said earlier, where 0:38:15.719 --> 0:38:19.120 you were talking about the idea of financial risks migrating 0:38:19.520 --> 0:38:23.240 into I guess, the real world, into the political sphere 0:38:23.239 --> 0:38:26.000 in one way or another. And you are actually the 0:38:26.040 --> 0:38:29.640 only Cell side analyst I know of who has mentioned 0:38:29.719 --> 0:38:33.120 the Columbia protests specifically. We're here in New York. Columbia 0:38:33.160 --> 0:38:35.680 is not that far from us. Talk to us a 0:38:35.719 --> 0:38:40.920 little bit about how that kind of political discontent plays 0:38:40.960 --> 0:38:43.560 out in your world, in the world of you know, 0:38:43.680 --> 0:38:47.319 investment and macro and things like that. Why is that 0:38:47.400 --> 0:38:48.080 on your radar? 0:38:48.480 --> 0:38:53.560 Well, Usually when you have generational replacement and everything is fine, 0:38:53.719 --> 0:38:57.280 like economies are fine, finance is fine, technology is fine, 0:38:57.400 --> 0:39:01.719 there is no displacement politically or geopolitic, then one generation 0:39:01.920 --> 0:39:05.640 just slips into another almost unnoticed. That's what happened to 0:39:05.680 --> 0:39:08.719 Baby Boomers and X generation. But whenever you have. 0:39:08.719 --> 0:39:12.320 An X generation, we never were. We slipped out before 0:39:12.360 --> 0:39:16.880 we were even in are you no, No, I'm eighty, 0:39:17.160 --> 0:39:17.600 I'm X. 0:39:18.520 --> 0:39:21.719 I go. But but whenever you have whenever you have 0:39:22.200 --> 0:39:27.360 a major technological financial disruption, what happens is that you 0:39:27.480 --> 0:39:31.200 have or whenever circumstances change massively for the better for 0:39:31.239 --> 0:39:35.359 the worst, one generation cannot slip into another generation. That's 0:39:35.360 --> 0:39:39.200 what happened to Baby Boomers. Compared to a silent and 0:39:39.480 --> 0:39:42.799 GI generation. The Baby Boomers could not relate to their 0:39:42.840 --> 0:39:46.680 parents or to their grandparents. They had verdically different views 0:39:47.000 --> 0:39:49.640 what they wanted to do, and so the younger generation 0:39:49.760 --> 0:39:53.120 anybody born sort of after sort of early eighties onwards 0:39:53.760 --> 0:39:56.400 have a very different view of the world. And the 0:39:56.440 --> 0:39:58.560 reason they have very different view of the world because 0:39:58.600 --> 0:40:01.879 they did not experience a world where jobs were plentiful, 0:40:02.320 --> 0:40:05.560 where you've gone to college, you automatically had a good job. 0:40:05.960 --> 0:40:10.120 They found that the jobs degrade, They found the professional 0:40:10.160 --> 0:40:13.920 lives degrede They found that technology gives you many tools, 0:40:13.960 --> 0:40:17.040 but it also degrades both your pricing power and marginal 0:40:17.080 --> 0:40:22.200 pricing power. They found that politics become disoriented as that occurs. 0:40:22.600 --> 0:40:27.160 They found that democratic policies cannot solve the problem extreme polarization. 0:40:27.680 --> 0:40:32.080 So they're in the mixture of technological, financial, and political revolution. 0:40:32.640 --> 0:40:37.080 And when you have that change, that generation sinks very differently, 0:40:37.400 --> 0:40:40.600 and eventually they become a very large cohort. And when 0:40:40.680 --> 0:40:43.680 they become a large cohort, they demanded change. Now, what 0:40:43.800 --> 0:40:47.400 Baby Boomas were asking for is not what this generation 0:40:47.560 --> 0:40:50.360 is asking for, But they're asking for change. And my 0:40:50.520 --> 0:40:53.680 view the change all the surveys that come out, the 0:40:53.760 --> 0:40:57.680 change they're asking is very much community based, is very 0:40:57.760 --> 0:41:01.920 much community of equals, is very much governments supported. In 0:41:01.960 --> 0:41:06.600 other words, harping to their grand grandparents who lived in 0:41:06.719 --> 0:41:10.600 nineteen forties and nineteen fifties rather than to their parents 0:41:10.600 --> 0:41:14.560 and grandparents. And so usually it starts with those types 0:41:14.560 --> 0:41:17.560 of demonstration. Doesn't really matter what the excuses, whether it's 0:41:17.560 --> 0:41:20.120 the civil rights, whether it's a Cold War, whether it's 0:41:20.200 --> 0:41:25.120 Vietnam War, whether it's inequalities, whatever, that is something triggers it. 0:41:25.640 --> 0:41:27.640 But then as they get big and bigger part of 0:41:27.680 --> 0:41:31.839 the population, they really drive the policy. So today late 0:41:31.880 --> 0:41:35.040 millenniums in Z already almost fifty percent of the population, 0:41:35.320 --> 0:41:38.080 but they are only about thirty nine percent of the adults. 0:41:38.239 --> 0:41:40.560 They only twenty five percent of the voters. 0:41:40.239 --> 0:41:40.800 In the US. 0:41:41.120 --> 0:41:44.759 Mathematically, by twenty eight twenty nine, there will be majority 0:41:45.040 --> 0:41:48.359 of adults, and by earlier to mid twenty thirties there 0:41:48.400 --> 0:41:52.120 will be absolute majority of both voting and the adults. 0:41:52.280 --> 0:41:57.280 And so the question is what type of policies, economic policies, political, 0:41:57.480 --> 0:42:01.280 social policies would they demand. People must want it freedom, 0:42:01.800 --> 0:42:05.400 free enterprise, personal responsibility. You give me the rope and 0:42:05.440 --> 0:42:07.480 I can hang myself with it, or I can succeed 0:42:08.080 --> 0:42:11.719 this guy's asking for something else, And so how would 0:42:12.200 --> 0:42:14.839 all of those policies change? And I'm thinking they're going 0:42:14.880 --> 0:42:18.439 to bring us back to nineteen fifties, that probably will 0:42:18.480 --> 0:42:21.160 be a more likely outcome rather than sort of nineteen 0:42:21.239 --> 0:42:22.279 nineties two thousands. 0:42:22.560 --> 0:42:25.240 I like how conceptually we've sort of come full circle 0:42:25.280 --> 0:42:29.680 because we're back to I guess demographic changes driving potentially 0:42:29.760 --> 0:42:34.200 higher deficits over the long term, fueling US exceptionalism in 0:42:34.239 --> 0:42:37.480 some ways. Maybe, Yeah, let's take it. Victor Schwetz, thank 0:42:37.480 --> 0:42:39.200 you so much for coming back on odd Lots. 0:42:39.520 --> 0:42:40.800 Thank you. I appreciate it. 0:42:40.880 --> 0:42:41.719 That was great. 0:42:41.960 --> 0:42:56.120 As always, Joe. 0:42:56.040 --> 0:42:59.880 I feel like any mention of generations always leads to 0:43:00.400 --> 0:43:01.839 over the cutoff points. 0:43:02.120 --> 0:43:03.799 Well, I may have said, I don't know if I've 0:43:03.840 --> 0:43:05.640 ever said on air, So I'll just say that I 0:43:05.680 --> 0:43:09.640 have a very simple test for the dividing line between 0:43:10.080 --> 0:43:12.120 X and millennial because some people say seventy nine or 0:43:12.160 --> 0:43:12.600 eighty one or. 0:43:12.640 --> 0:43:14.480 Yeah i've heard nineteen eighty and above. 0:43:14.719 --> 0:43:16.400 Yeah I've heard that too. But I think there's a 0:43:16.480 --> 0:43:18.200 very simple test to do it, which is, did you 0:43:18.239 --> 0:43:20.839 have Facebook in college? Because that gets you in that 0:43:20.920 --> 0:43:27.160 ballpark automatically, yeah, but also that's generationally transformative. Social media 0:43:27.719 --> 0:43:30.520 is like clearly a dividing line. I did not have 0:43:30.600 --> 0:43:32.640 Facebook when I was in college. I got my first 0:43:32.680 --> 0:43:34.919 account I don't know, like twenty two. It was after 0:43:34.960 --> 0:43:37.480 I graduated by a couple of years. You apparently did, 0:43:37.480 --> 0:43:40.720 so I'm X your millennial. That makes a lot of sense, 0:43:40.880 --> 0:43:44.080 Thank you. I think it's a test and apparently, I 0:43:44.120 --> 0:43:46.719 guess it's probably rolled out to people in Harvard earlier. 0:43:46.960 --> 0:43:50.719 The implication is that people at Harvard became millennial before 0:43:50.760 --> 0:43:51.720 the rest of everyone else. 0:43:51.840 --> 0:43:53.880 Well, yeah, I was at LSE and I think we 0:43:53.880 --> 0:43:56.400 were one of the first, yeah, so international universities to 0:43:56.440 --> 0:43:58.560 get it. I have to say part of me kind 0:43:58.560 --> 0:44:01.480 of misses the college era of Facebook, where like we 0:44:01.600 --> 0:44:04.839 just spent an inordinate amount of time like poking each other. 0:44:04.920 --> 0:44:07.440 I don't know if you remember that. Anyway, back to Macro, 0:44:07.719 --> 0:44:09.879 there's so much to pull out of that conversation. It's 0:44:09.880 --> 0:44:12.880 always great talking to Victor. I guess one of the 0:44:12.920 --> 0:44:17.120 things that strikes me is, you know, he highlighted the 0:44:17.360 --> 0:44:21.960 I guess unexpectedly loose financial conditions, and to me, it 0:44:22.000 --> 0:44:24.120 does feel like that is a key part of what's 0:44:24.160 --> 0:44:26.759 happening in markets right now, and it kind of goes 0:44:26.800 --> 0:44:29.040 back to that point I was making earlier, where I 0:44:29.040 --> 0:44:31.520 don't think anyone expected the cost of money to go 0:44:31.640 --> 0:44:35.960 up so much viz. Benchmark rates and the FED rate hikes, 0:44:36.520 --> 0:44:40.080 while the supply of credit continues to expand. And that, 0:44:40.160 --> 0:44:41.840 to me is sort of like the key to a 0:44:41.840 --> 0:44:44.319 lot of what's going on in asset prices. Why we 0:44:44.400 --> 0:44:48.000 haven't seen that huge default cycle that people were predicting, 0:44:48.040 --> 0:44:51.000 Why we haven't necessarily seen as many layoffs as a 0:44:51.040 --> 0:44:52.960 lot of people were predicting, and things like that. 0:44:53.280 --> 0:44:55.719 Yeah, totally Like we can easily point to a few 0:44:55.760 --> 0:45:00.400 different categories, like aspects of real estate and which. Sure, No, 0:45:00.480 --> 0:45:02.759 it's totally true that it's sort of a puzzle, and 0:45:02.760 --> 0:45:05.720 I don't think anyone is a great answer for why. 0:45:06.440 --> 0:45:08.719 You know, people talk about refinancing and everyone has a 0:45:08.760 --> 0:45:11.280 third year fixed. Maybe that has something to do with it. Still, 0:45:12.040 --> 0:45:14.880 it's not entirely intuitive why that hasn't had a larger 0:45:14.920 --> 0:45:18.399 compressing effect on asset prices. You know, there's so much 0:45:18.400 --> 0:45:21.960 to pull out of that conversation and every conversation with Victor. 0:45:22.120 --> 0:45:23.799 Like I said, we could have talked for like an 0:45:23.840 --> 0:45:26.600 hour on the problem with the dots, and maybe we 0:45:26.640 --> 0:45:28.720 should do that, because it does seem like that's getting 0:45:28.760 --> 0:45:31.080 more attention to sort of being handcuffed by the dots 0:45:31.080 --> 0:45:34.040 perhaps you know, obviously, and we'll do more China episodes. 0:45:34.080 --> 0:45:36.520 But is it really possible? And I guess I have 0:45:36.600 --> 0:45:38.920 my doubts. But what do I know, like to degrade 0:45:39.320 --> 0:45:41.800 China's cutting edge capacity in such a way that doesn't 0:45:41.840 --> 0:45:47.080 provoke actual geopolitical conflict something more mild, big questions there? 0:45:47.680 --> 0:45:51.480 Dots seem so innocuous to me. It's so it's it's funny, 0:45:51.520 --> 0:45:53.319 Well what we're talking about them? As last? 0:45:53.400 --> 0:45:53.520 Wait? 0:45:53.560 --> 0:45:55.520 Can I give it confession? And I always do my 0:45:55.600 --> 0:45:59.880 confessions at the end because I hope that no one's listening. 0:46:00.480 --> 0:46:03.279 I always turn off turn off laws right here. I 0:46:03.320 --> 0:46:07.920 always forget whether the dots are what the individual FOMC 0:46:08.120 --> 0:46:12.880 member thinks should be the optimal path of monetary policy 0:46:12.920 --> 0:46:17.120 going forward versus what that FMC member thinks the policy 0:46:17.440 --> 0:46:21.080 will be going forward. And I like, I know there's 0:46:21.080 --> 0:46:23.120 a right intern one, but I always forget which is which. 0:46:23.160 --> 0:46:25.279 Oh I hate stuff like this because it makes me 0:46:25.800 --> 0:46:27.480 It's one of those things like you just talk about 0:46:27.560 --> 0:46:30.560 kind of naturally without thinking about what you're actually looking at. 0:46:30.560 --> 0:46:33.200 But I think it might be what they think appropriate 0:46:33.360 --> 0:46:34.920 monetary policy should be. 0:46:35.160 --> 0:46:36.960 No, you're right, I just as I was saying, I 0:46:37.040 --> 0:46:40.279 also pulled up the Bloomberg dots explainer anyway. 0:46:40.040 --> 0:46:43.840 Which I mean also you would expect it to be that, right, Yeah, right, well, 0:46:43.920 --> 0:46:47.399 I mean yeah, bring back the boe fan charts. That's 0:46:47.440 --> 0:46:50.520 what I say. Let go of the dots and let's 0:46:50.600 --> 0:46:53.600 just do a range of probabilities for interest rates and 0:46:53.640 --> 0:46:56.400 we can have either fan charts or those hair charts, 0:46:56.480 --> 0:46:59.120 the hairy charts, the MEDUSA charts, which I love, or. 0:46:59.800 --> 0:47:01.879 Just go back to the old days where they don't 0:47:01.880 --> 0:47:04.239 even tell you what rate that they sent and the 0:47:04.239 --> 0:47:06.680 market has to figure it out because of the overnight rate. 0:47:06.760 --> 0:47:08.600 That would probably be fine too. I don't think we 0:47:08.640 --> 0:47:11.480 need all this communication. I appreciate it. I like the speeches. 0:47:11.520 --> 0:47:14.160 They're interesting, but we don't even we went for years 0:47:14.200 --> 0:47:14.560 without that. 0:47:14.880 --> 0:47:18.120 It would be very interesting, to Victor's point about sort 0:47:18.120 --> 0:47:21.600 of real time repricing, to see what a system like 0:47:21.680 --> 0:47:24.560 that would would mean for financial markets right now, maybe 0:47:24.600 --> 0:47:26.560 it would be better. Let's all slow down. 0:47:26.600 --> 0:47:27.440 I think it's possible. 0:47:27.480 --> 0:47:28.600 All right, shall we leave it there? 0:47:28.680 --> 0:47:29.399 Let's leave it there. 0:47:29.560 --> 0:47:32.239 This has been another episode of the All Thoughts podcast. 0:47:32.320 --> 0:47:35.440 I'm Tracy Alloway. You can follow me at Tracy Alloway and. 0:47:35.400 --> 0:47:37.960 I'm Joe Wisenthal. You can follow me at the Stalwart, 0:47:38.320 --> 0:47:41.560 follow our producers Carman Rodriguez at Kerman Ermann Dash, Ol 0:47:41.560 --> 0:47:45.080 Bennett at Dashbot and Kilbrooks at Kilbrooks. Thank you to 0:47:45.120 --> 0:47:48.000 our producer Moses ONEm. For more odd Lags content, go 0:47:48.080 --> 0:47:50.879 to Bloomberg dot com slash odd lotfere. We have transcripts, 0:47:50.880 --> 0:47:53.560 a blog, and a newsletter comes out every Friday, and 0:47:53.600 --> 0:47:56.640 you can chat with fellow listeners in our discord chat 0:47:56.680 --> 0:47:59.600 room twenty four to seven. Talk about all these topics 0:48:00.120 --> 0:48:03.240 scor dot gg slasht blots and if. 0:48:03.120 --> 0:48:05.920 You enjoy all blots, if you like it when we 0:48:06.040 --> 0:48:08.239 try to figure out what the dot plot actually is, 0:48:08.360 --> 0:48:11.000 then please leave us a positive review on your favorite 0:48:11.000 --> 0:48:14.640 podcast platform. And remember, if you are a Bloomberg subscriber, 0:48:14.760 --> 0:48:17.800 you can listen to all of our episodes absolutely ad free. 0:48:18.120 --> 0:48:20.600 All you need to do is connect your Bloomberg account 0:48:20.760 --> 0:48:39.040 with Apple Podcasts. Thanks for listening.