Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Blots podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal.
Speaker 2: Joe, did you watch the FOMC presser recently?
Speaker 1: No?
Speaker 3: I did not, because we were recording an episode of
Speaker 3: the Odd Lots podcast. Yeah, that happened, So I know
Speaker 3: that you didn't watch it either, unless you watch it
Speaker 3: on video afterwards, in which case you are a better
Speaker 3: journalist than I am.
Speaker 2: I didn't. Just to clear that up. What I did
Speaker 2: was I read a bunch of analysis of the FED
Speaker 2: meeting and a bunch of news summaries of what happened.
Speaker 2: And I have to say there was one term that
Speaker 2: I really liked, one description. I think it was in
Speaker 2: the ft and they sort of described the FED as
Speaker 2: a monument to stasis.
Speaker 3: I mean that could be a good thing. First of all.
Speaker 3: By the way, plug, there's a really the other thing
Speaker 3: you can do if you miss a pressor on the
Speaker 3: Bloomberg terminal and I forget the code right now, but
Speaker 3: they produce transcripts very fast, and the transcripts aren't published
Speaker 3: of the press conferences like they don't appear anywhere, so
Speaker 3: plug for our terminal here. But yes, look, it's been
Speaker 3: a weird year for the FED, right, because I mean,
Speaker 3: inflation continue at least through Q one of the year,
Speaker 3: inflation hot to then expect it, all these expectations of
Speaker 3: cuts keep getting priced out. Everyone's higher for longer. It's
Speaker 3: unclear whether the sort of simple models that we use, like,
Speaker 3: I mean, I think everyone sort of knows this. Nobody
Speaker 3: really knows how inflation works. But did everything seems to
Speaker 3: be okay, right.
Speaker 2: I think one of the issues that the FED might
Speaker 2: be facing is they put so much emphasis on data
Speaker 2: dependency that it kind of means that like every monthly
Speaker 2: reading of CPI can generate a completely different response. So
Speaker 2: when CPI comes in stronger than expected, everyone starts panicking
Speaker 2: about the lack of rate cuts, and maybe even you
Speaker 2: get a rate hike at some point. When it comes
Speaker 2: in weaker than expected, you know, as it was doing
Speaker 2: up until fairly recently, everyone gets very excited and we
Speaker 2: get that kind of goldilocks moment inequities.
Speaker 3: There does seem to be like this weird tension between
Speaker 3: I know, they don't use like formal forward guidance anymore,
Speaker 3: but in a way the dots sort of serve that
Speaker 3: purpose and sort of imply the FED so called reaction function,
Speaker 3: And so we're supposed to sort of take all of
Speaker 3: these data points, plug them into this black box reaction function,
Speaker 3: and then sort of implicitly see what that means for policy.
Speaker 3: But it does seem like things move a lot from
Speaker 3: data point to data point, so it becomes very present oriented.
Speaker 2: Man. Yes, that's a great way of putting it. And
Speaker 2: then the other thing I would say is, in addition
Speaker 2: to all the complexity around what's going on with the
Speaker 2: US economy, and it's kind of phenomenal in many ways,
Speaker 2: that we're still having intellectual arguments about what the impact
Speaker 2: of higher interest rates actually is and whether or not
Speaker 2: it actually does anything to bring down inflation. But beyond that,
Speaker 2: the other thing that's starting to happen is we are
Speaker 2: seeing international consequences and we've been talking about them on
Speaker 2: the Show of the Higher for a longer stance. So
Speaker 2: the dollar has been rising. I think the spot dollar
Speaker 2: index is up almost four percent so far this year,
Speaker 2: and then against specific currencies like the Japanese yen, it's
Speaker 2: surged even more. And so we are seeing those tensions
Speaker 2: between strength in the US economy, you know, ongoing inflationary pressures,
Speaker 2: higher rates for longer, potentially kind of meet emerging markets
Speaker 2: and also developed economies in the wider world totally.
Speaker 3: You know. We had that interview recently with Hugh Hendry.
Speaker 3: Extremely colorful character to say the least. But one of
Speaker 3: the points that I found very interesting was like, we're
Speaker 3: not really used to an environment in which it's the
Speaker 3: US that's out, that's lapping everyone else, growing much faster
Speaker 3: than G seven or G ten or G whatever. Peers
Speaker 3: sort of powering ahead all this domestic investment, and so
Speaker 3: we get this upward pressure, higher rates, higher dollar stress elsewhere.
Speaker 3: It's an interesting environment.
Speaker 2: G whatever is a good term.
Speaker 3: Can coin that, yeah, because I know Ian Brember has
Speaker 3: the G zero, but like I don't, I like G whatever.
Speaker 2: The G whatever summit that should be a thing.
Speaker 3: Okay, any country can come.
Speaker 2: Okay, But when we want to connect the dots between
Speaker 2: what's happening with central banks around the world, between the
Speaker 2: US economy and the FED, and the global macro situation,
Speaker 2: there's one person that we like to call in particular.
Speaker 2: So today we are bringing back Victor Schwetz. He is,
Speaker 2: of course a strategist over at McCrory, and we love
Speaker 2: talking to him. So Victor, thank you so much for
Speaker 2: coming back on all thoughts.
Speaker 4: Thank you for having me remind.
Speaker 2: Us before we begin, it's not just us, right, the
Speaker 2: data dependency of the Fed. They have emphasized that a
Speaker 2: number of times, and to some extent it seems like
Speaker 2: it is coming back to haunt them whenever there is
Speaker 2: a stronger than expected inflation print. And then we had
Speaker 2: payrolls since CPI, and payrolls came in lower than expected
Speaker 2: for the first time in ages and everyone got really
Speaker 2: excited about that.
Speaker 4: You're absolutely right, Tracy, that what essentially we have is
Speaker 4: a federal reserve is a prisoner of policies they start
Speaker 4: putting in a couple of years ago, which is essentially
Speaker 4: being extremely data dependent rather than forward looking. There is
Speaker 4: another problem, and that's the dots, one of the most
Speaker 4: destructive instruments from Bernaki era. So it's not anything to
Speaker 4: do with j.
Speaker 5: Powell.
Speaker 4: I think if he could, he would have good rid
Speaker 4: of dots today. The problem he has is that the
Speaker 4: volatility getting rid of dots probably will be greater than
Speaker 4: the volatility dots themselves are creating. So you're trying to
Speaker 4: denigrate it by arguing that dots degenerate almost immediately as
Speaker 4: soon as they are published, So he's trying to take
Speaker 4: our attention away from dots. But as long as they
Speaker 4: have published, they are the materials. So you've got a
Speaker 4: data dependency on the one side, which is basically dependency
Speaker 4: on a backward looking or at best contemporaneous numbers that
Speaker 4: you have. You also have a lot of faulty numbers,
Speaker 4: whether it is how you determine shelter expenses or ornery
Speaker 4: equivalent rent, how do you relate secondhand cup prices, how
Speaker 4: do you measure insurance policy or financial markets. But there's
Speaker 4: also major problems with Bureau label statistics. I mean, I'm
Speaker 4: glad that they've increased or revised hours work last week,
Speaker 4: which basically showed the productivity miracle wasn't really there. So
Speaker 4: you have quite a faulty numbers both from Bureau of
Speaker 4: Labor statistics. On a labor market, you have mostly backward
Speaker 4: looking or contemporaneous numbers. In terms of inflation, and if
Speaker 4: you become data dependent, you starting to create exceptional volatility
Speaker 4: because you basically like a deer in a in alarmed
Speaker 4: in a light. You are stuck. You are you cannot
Speaker 4: move to the left, you cannot move to the right. Now,
Speaker 4: what I think jerrem Pal is doing quite well is
Speaker 4: trying to introduce some degree of forward guidance. So essentially,
Speaker 4: what he's saying, and what he said last week is
Speaker 4: that if I think of the shelter expenses, they're not
Speaker 4: quite as bad as the numbers look. And he's absolutely
Speaker 4: right if he talks about other service oriented numbers again,
Speaker 4: whether it's insurance or anything else, he kept emphasizing they're
Speaker 4: not as bad as what they appear, BOSS and CPI
Speaker 4: and PCEE, and he's been quite vocal that the labor
Speaker 4: market actually a lot loser than what Bureau Labor statistics highlights.
Speaker 4: But the problem is tracy. If you are a prisoner
Speaker 4: of data dependency and dots, the chances of committing a
Speaker 4: policy error increases. And so one of the questions I
Speaker 4: struggle with whether in fact it matters if at a
Speaker 4: reserve does commit a policy error.
Speaker 3: I feel like we could have a whole episode just
Speaker 3: on the dots, and the problem with this is a
Speaker 3: communication strategy. Maybe we will, but anyway, it's interesting you
Speaker 3: said this just I guess it was either today, earlier today,
Speaker 3: or yesterday. Minneapolis Fed Neil kesh Curry ended his speech
Speaker 3: the final section of his speech shout out to our
Speaker 3: old colleague Lukawa for flagging this. This is also a
Speaker 3: communication challenge for policymakers. In my own summary of economic projections,
Speaker 3: except the formal name for the dots submission, I have
Speaker 3: only modestly increased my longer run nominal neutral funds rate.
Speaker 3: Blah blah blah. This step does not provide a simple
Speaker 3: way to communicate the policy that the neutral rate might
Speaker 3: be at least temporarily elevated.
Speaker 5: De codet.
Speaker 3: What is the issue as you see it with the dots.
Speaker 4: Well, well, there are a couple of these shoes, Okay,
Speaker 4: one of them. Dots work very well. If everything is plus,
Speaker 4: it not a problem. Whenever you have a high degree
Speaker 4: volatility ISAAC externally or internally driven dots really don't tell
Speaker 4: you anything because it's really a personal opinion of several governors.
Speaker 4: Some are voting, some are not voting right now, and
Speaker 4: it's not linked to either federal policy. It's not vetted,
Speaker 4: it's not researched. There is nothing in it so long
Speaker 4: as the line of sight is relatively stable thoughts are
Speaker 4: absolutely fine. As soon as you get the volatility, they
Speaker 4: are not. And I think Philipplow, who was who retired
Speaker 4: as a governor of Reserve Bank of Australia late last
Speaker 4: year put it the best way. He said, central banks
Speaker 4: will never see again inflation contained in a narrow range.
Speaker 4: Now what it basically means that this idea that you
Speaker 4: have relatively flatish outlaw and you try to manage it
Speaker 4: on a margin, is becoming irrelevant. So for example, Federal
Speaker 4: Reserve at the end of last year, on a number
Speaker 4: of variables, they went past their mandate. In fact, they've
Speaker 4: overachieved their amendate. And if you look at what subsequent
Speaker 4: three or four months, suddenly they were ahead of their mandate.
Speaker 4: And that's what Philip Law was highlighting that from now
Speaker 4: on you're going to have a great deal of volatility
Speaker 4: of those numbers. And I think the dots by themselves
Speaker 4: magnify that volatility rather than creating a gretic sort of
Speaker 4: clarity for market participants.
Speaker 2: So why do you say that a FED policy error
Speaker 2: might not matter? And I should caveat this with you know,
Speaker 2: Joe and I spend a lot of time online and
Speaker 2: coing pie some of the you know social media discourse.
Speaker 2: The world basically revolves around whether or not the Fed's
Speaker 2: going to make a policy error. And the bias is
Speaker 2: always the FED is doing something wrong in one way
Speaker 2: or another. But why do you think it might not matter?
Speaker 4: Well? I usually say to people, Look, we had terrific tightening,
Speaker 4: we had some withdrawal of liquidity. Could you explain to
Speaker 4: me how high yield spreads only about three percent, which
Speaker 4: is the lowest. Ever, how could you explain to me
Speaker 4: it's a double b bad debt is trading at only
Speaker 4: two percent spreads? How can you explain to me that
Speaker 4: despite a very significant rise in US dollar, which both
Speaker 4: of you have just highlighted, the basis swaps are only
Speaker 4: five BIPs. They should be more like fifty BIPs are
Speaker 4: above and so to me, the advantage of our era
Speaker 4: is that, first of all, we have too much capital.
Speaker 4: In other words, the idea of scarcity of capital that
Speaker 4: underlines thinks like DCF calculation or underlines most of the
Speaker 4: investment decision do not apply when you have too much capital.
Speaker 4: Now it is not evenly or fairly distributed by any means,
Speaker 4: But there is plenty of capital. And the way you
Speaker 4: can measure it is essentially, what is the value of
Speaker 4: all your financial instruments globally against real underlying economies and
Speaker 4: what do you find? Depending how you do all balance
Speaker 4: it commitments, how you do derivatives, you could be looking
Speaker 4: five to ten times larger than the underlying economies. So
Speaker 4: we have plenty of capital. What it basically means, no
Speaker 4: matter what Federal Reserve does, it's very hard to tighten
Speaker 4: because that capital just keeps circulating looking for diminishing returns.
Speaker 4: The second thing we have, and Bloomberg plays a great
Speaker 4: role in it, is that we have instantaneous repricing. So anybody,
Speaker 4: any word in the market, it's instantaneously gets repriced. And
Speaker 4: the third thing we have is that central banks are
Speaker 4: rolling out policies and an incredible speed. They're not even
Speaker 4: debating what is the outcome of those policies or what
Speaker 4: are the implications of what we're doing. Usually something happens
Speaker 4: on Thursday and Friday, and by Monday it's all fixed.
Speaker 4: And so are we going to have new policies for
Speaker 4: private capital or private debt equivalent to what we have
Speaker 4: for Silicon Valley Bank? Are we going to have special
Speaker 4: policies for perity trade basis trade from some of some
Speaker 4: of the niches in a high yield market. Of course
Speaker 4: we are so if you have too much capital, if
Speaker 4: you're repricing instantaneously, and if central banks are willing and
Speaker 4: prepared to plug the holes almost instantaneously, this is a
Speaker 4: world of no risk. In other ways, the way I
Speaker 4: put it, if the risk is everywhere, the risk is nowhere,
Speaker 4: and if the risk is nowhere, then you can explain speculation.
Speaker 4: You can explain goal price of bitcoin. You can explain
Speaker 4: why high yields will be trading at only three percent
Speaker 4: spreads because there is no risk. And the reason central
Speaker 4: banks are doing it not because they're greedy for power
Speaker 4: anything else. There is no shadow, you know, deep state
Speaker 4: or anything like that. The reason they're doing it is
Speaker 4: because of the dangers of not doing it. If you
Speaker 4: sink of dot Com, that was only one asset price
Speaker 4: going wrong. If you think of GFC, that's really a
Speaker 4: bigger asset, but only one Today. You know, land mines
Speaker 4: are everywhere, and those land mines, each one of them,
Speaker 4: could be bigger than the original GFC. And so the
Speaker 4: result is central banks really don't have a choice. So
Speaker 4: even if Federal Reserve does commit a policy error, which
Speaker 4: is possible, they can unwind it in split second. The
Speaker 4: way I describe it in my notes is to say,
Speaker 4: let's assume you get up, get in the morning, say
Speaker 4: oh my god, it's going to be a terrible day.
Speaker 4: By lunchtime, I know it's okay. And by evening, let's
Speaker 4: have a dinner, and the whole thing just evaporated. Now
Speaker 4: the key question, however, to ask what price do we
Speaker 4: pay for it? And the price we pay for it
Speaker 4: is a volatility of inflation rates. Is this volatility? It
Speaker 4: is volatility of the neutral rates. In other words, the
Speaker 4: way describe it, risk does not disappear. It just migrates.
Speaker 4: So if you keep the market plus it, which is
Speaker 4: what we're doing, risks simply migrates somewhere else. It migrates
Speaker 4: into politics, it migrates into social sphere, it migrates into geopolitics.
Speaker 4: And so we do pay a price. We do pay
Speaker 4: a price for this. But to argue that central bank
Speaker 4: is committing an error furniture must be broken is wrong.
Speaker 4: Even if they commit the error, which is possible, they
Speaker 4: can unwind it in thirty seconds.
Speaker 3: I want to get into maybe migrate the conversations geopolitics
Speaker 3: and this migration of risks, because you write a lot
Speaker 3: very well on that, but just sort of real quickly
Speaker 3: before we do that. In your view, you describe this
Speaker 3: world of like so much capital relative to GDP. You
Speaker 3: know people, you know, they blame q E for stuff
Speaker 3: like this or whatever. Is there like an original policy sin?
Speaker 3: And I don't even know if.
Speaker 4: It's a same Paul Walker?
Speaker 3: Okay, explain, So what is this sort of original sin
Speaker 3: that created this world.
Speaker 4: Of a Bundy? Well, if you say of Paul Walker,
Speaker 4: he mostly known of course for squashing inflation, but if
Speaker 4: you go back in time, I think his much bigger
Speaker 4: legacy is creating that system of global recycling of capital
Speaker 4: and addiction to dead and addiction to asset prices prior tonight. Well, essentially,
Speaker 4: what happened. We've deregulated the financial sphere. We've deregulated the
Speaker 4: regulating capital flow. The idea was that United States will
Speaker 4: take the money from other people and stimulate consumption, and
Speaker 4: those other people will be buying treasury bones, for example,
Speaker 4: in order to get return to lower the cost for
Speaker 4: US consumers, but also to reduce their currency and make
Speaker 4: themselves more competitive. Now, Paul Walker was expecting that currency
Speaker 4: eventualist will recalibrate this process, but they never did because
Speaker 4: nobody ever wanted to have an appreciating currency, and so
Speaker 4: we're stuck in the world of accumulating against disparities between
Speaker 4: savings and spending. In other words, US and the UK
Speaker 4: consistently net spender, Germany, Netherlands, China career, Japan consistently net saber,
Speaker 4: and we've never really rebalanced it properly. So one of
Speaker 4: the side effects of that was that it become easier
Speaker 4: and easier to borrow, easy and easier to bring future
Speaker 4: consumption to the present to maintain your lifestyle. It became
Speaker 4: easy and easier to multiply credit. Instead of having one
Speaker 4: instrument parasset, we can now have five instrument parasets ten
Speaker 4: in each one of those instruments can be leveraged yet
Speaker 4: again and yet again, and so all of that created
Speaker 4: massive amount of capital. I mean, if you think of
Speaker 4: the financial stability, or they tried to calculate the overall
Speaker 4: level of financialization, they're usually behind time. They only have
Speaker 4: twenty twenty two numbers. But essentially what they were showing
Speaker 4: about five hundred trillion dollars, and that's based on the
Speaker 4: net derivatives and not including any of balance IT commitments
Speaker 4: or major ones, and so that's effectively was five times
Speaker 4: global GDP. So that's what started. So if you were
Speaker 4: to ask one person or one time when that happened,
Speaker 4: it's really Paul Walker who created our debt and asset
Speaker 4: based culture now green spent in late eighties, or he did.
Speaker 4: He took Walker's idea and brought it to logical conclusion,
Speaker 4: and that's was a green spent put which Bernark and
Speaker 4: Yellen subsequently maintained.
Speaker 2: Yeah, it is interesting. I think I might have written
Speaker 2: a little bit about this in the All Lots newsletter
Speaker 2: or kind of thought out loud about it. It feels
Speaker 2: like we're internalizing the idea that the supply of credit
Speaker 2: can expand even as the cost of money goes up
Speaker 2: via benchmark rates, which might not necessarily be a new
Speaker 2: dynamic as you just described, but like one that was
Speaker 2: probably underappreciating.
Speaker 3: Intuitive.
Speaker 2: Yeah, unintuitive and underappreciated until this very moment in time.
Speaker 2: I want to ask one more thing on the US
Speaker 2: economy and the FED before we maybe broaden out the
Speaker 2: conversation to geopolitics and pressures in other parts of the world.
Speaker 2: But I remember one of the things I really liked
Speaker 2: about your framing of the post pandemic period was, unlike
Speaker 2: a lot of other pundits, you did not go back
Speaker 2: to the nineteen seventies as your preferred historical analogy. You
Speaker 2: went back to the nineteen eighteen Spanish flu, which resulted
Speaker 2: in a big run up in inflation, but then a
Speaker 2: pretty rapid deflationary bust. And I'm curious, you know, here
Speaker 2: we are in twenty twenty four. Inflation is still relatively strong.
Speaker 2: We haven't seen interest rate cuts at all, and as
Speaker 2: expected maybe back in late twenty twenty two, going into
Speaker 2: twenty twenty three, there are a lot of people who
Speaker 2: predicted we'd see cuts and recessions, and I think you
Speaker 2: might have been one of them. But have you been
Speaker 2: surprised by I guess, the stubbornness of inflation and the
Speaker 2: higher for longer scenario in the US. And how is
Speaker 2: that stacking up against that nineteen eighteen parallel.
Speaker 4: Well, the way I look at it, my argument was,
Speaker 4: there will be no recessions in the US. There will
Speaker 4: be no recession globally, because we don't have recession, there
Speaker 4: is nothing to recover from, so don't expect any significant recovery.
Speaker 4: That's why my global growth rates always pitched that around
Speaker 4: two two and a half percent, which is at least
Speaker 4: seventy five basis points less than what we used to
Speaker 4: have with the previous decade, and about one hundred basis
Speaker 4: points less than what we used to have in the pause.
Speaker 4: My view, as you correctly said that as you have
Speaker 4: sort of misilocation of demanded supply curves, as we have
Speaker 4: destabilization of demanded supply curves, gradually winds down, inflation should
Speaker 4: come out. No need for recession, no need for unemployment,
Speaker 4: but there is a price we pay, and the price
Speaker 4: we pay, there will be no recovery, and there will
Speaker 4: more or less a circular stagnation argument. Globally, some countries
Speaker 4: will grow a little bit faster than others, and that
Speaker 4: will be primarily driven by primary deficits, because overall deficits
Speaker 4: don't matter. Primary deficits doue and the US happened to
Speaker 4: have the highest deficits. US is now running about three
Speaker 4: three and a half percent of GDP primary deficits. Europe
Speaker 4: is less than one. Japan is less than two. So
Speaker 4: if you have a higher primary deficits, you push up
Speaker 4: your neutral rates higher compared to for example, European Monetary
Speaker 4: Union or Japan. Now, this inflationary trend in the global
Speaker 4: is still continuing. Now. If you sink of G five CPI.
Speaker 4: For example, when we were here last time in sort
Speaker 4: of late twenty two early twenty three, the number was
Speaker 4: five percent. In March it was two point four. Now
Speaker 4: two point four. It's only twenty thirty BIPs higher than
Speaker 4: it was over the previous twenty five years. But the
Speaker 4: leadership changed. If you sing up the second half of
Speaker 4: twenty three, this inflation in the US was extremely strong,
Speaker 4: but inflation in Europe, UK and Japan actually was climbing,
Speaker 4: not down. What you saw over the last four months
Speaker 4: is it inflation start breaking in the UK, start breaking
Speaker 4: at Eurozone, start breaking in Japan. This inflation got stronger
Speaker 4: in China as we progress, but in the US it's
Speaker 4: stuck and actually gone up a bit. Now the question
Speaker 4: is whether that's something unique to United States a weather.
Speaker 4: In fact, in the second half of twenty four, we're
Speaker 4: going to relieve what we had in the second half
Speaker 4: of twenty three and the United States will join the
Speaker 4: rest of the world in a disinflationary trend. That's my
Speaker 4: base case. Now what underpins it is neutral rates and productivity. Now,
Speaker 4: my view is that neutral rate has not changed. Neutral
Speaker 4: rate is a long term process. That's why almost all
Speaker 4: models are still showing that neutral rates in the US
Speaker 4: are fifty to one hundred basis points real, which means
Speaker 4: policy rates should be closer to three, not five and
Speaker 4: a half on that basis. But in a short term
Speaker 4: you can have a spike in those neutrals rates. Now
Speaker 4: I do sing neutral rate spike, despite the fact that
Speaker 4: models don't show it. I think it did spike. Now
Speaker 4: the question is whether it's already coming off or whether
Speaker 4: somehow we can keep neutral rate at a much higher level.
Speaker 4: One of the key elements there is productivity. Now, I'm
Speaker 4: not a buyer that there will be any productivity improvements.
Speaker 4: In other words, labor productivity or multi factor productivity is
Speaker 4: not going to recover for at least ten years, possibly
Speaker 4: even twenty years. Now, if you take a view that
Speaker 4: productivity is not going to drive it, then either you
Speaker 4: have to have much higher primary deficits continuing, or you
Speaker 4: have to have some other form of shocks in the
Speaker 4: system in order to drive it up. So if I'm
Speaker 4: correct that neutral rates have not changed and it's still
Speaker 4: fifty to one hundred bases points real, then it must
Speaker 4: be coming off. As it comes off, deflator comes off
Speaker 4: normenal GDP drops from In the US, it's already down
Speaker 4: from twelve percent to five point four. As it starts
Speaker 4: dropping towards four percent. You can't keep policy rates at
Speaker 4: five and a half unless so you want to have
Speaker 4: a recession. That's the only reason to have it. So
Speaker 4: I'm still in the same camp, except as desynchronized or
Speaker 4: going back to the Reserve Bank of Australia. It's violent
Speaker 4: how it moves. Also, on more point, in the US,
Speaker 4: inflation is really in pockets. In twenty two or twenty one,
Speaker 4: even in early twenty three it was all over the place.
Speaker 4: Right now is just in pockets. So all you need
Speaker 4: to do is to bring those pockets down to a
Speaker 4: low level.
Speaker 3: I mean, we could also just talk for an hour
Speaker 3: about why it don't take twenty years before we see
Speaker 3: a productivity boom, but let's talk a little geopolitics. So
Speaker 3: this idea risk has been taken out of the financial
Speaker 3: system and it migrates elsewhere. Maybe the politics, maybe the
Speaker 3: geopolitics were obviously in a moment, and you can just
Speaker 3: see it by all the trips people in the administration
Speaker 3: take to trips to China, where there was a significant
Speaker 3: amount of anxiety about China geopolitically, military to military communication,
Speaker 3: cooling the temperature, coupled with industrial anxiety. Are they going
Speaker 3: to own the EV market for the entire world, et cetera.
Speaker 3: Draw that line for us, maybe start there, Draw that
Speaker 3: line for us between the sort of taking out of
Speaker 3: financial risk and that migration and how that fits into
Speaker 3: the China phasis.
Speaker 4: Sure. Well, one of the things I disagreed with almost
Speaker 4: everyone over the last two or three years. Remember the
Speaker 4: view was that China is running out of people and
Speaker 4: so China will be exporting inflation. Now, my argument all
Speaker 4: along was China cannot export inflation. Their major export of disinflation,
Speaker 4: and the reason for that is very simple. China, just
Speaker 4: like Japan's seventies eighties, has a very high national saving rates.
Speaker 4: I RUNIC at about forty five percent, just like Japan
Speaker 4: and seventies eighties. Could have put policies in place to
Speaker 4: consume it, but they didn't, neither have China. And so
Speaker 4: the result is they must invest at least forty two
Speaker 4: to forty three percent of GDP sink of the numbers.
Speaker 4: That's an equivalent of nine to ten trillion dollars invested
Speaker 4: every year. It's double of GDP of Japan invested every
Speaker 4: single year. Now, if you invest in that sort of money,
Speaker 4: it doesn't really matter what you invest in. You create
Speaker 4: massive over capacities. And if you go into niches sayings
Speaker 4: like what Chi shipping calls productive forces, seeings like electric vehicles, robotics, automation,
Speaker 4: solar industry, if you go onto smaller niches, you almost
Speaker 4: automatically create three times global demand, if not more. Now,
Speaker 4: at that point they have very limited choices. Either they
Speaker 4: change their pivot, their policies, dramatically send checks to people
Speaker 4: instead of building another factory.
Speaker 2: You know, raise social safety.
Speaker 4: Now, raise universal basic income. They already have universal basic
Speaker 4: income in China. Just raise it and equalize it across
Speaker 4: across the country. So you either do that, But if
Speaker 4: you're not willing to do that, which they're not, then
Speaker 4: the only way you can do it is except that
Speaker 4: you lost the capital and close the factories and we
Speaker 4: will discover China potentially much smaller country than what we
Speaker 4: thought it was, or the other alternative dump that access
Speaker 4: capacity onto other countries. But given the amounts of money involved,
Speaker 4: there is not much you can dumb on Kazakhstan that
Speaker 4: there is only UK, European Monetary Union or EU, United States, Japan.
Speaker 4: There's very few places that can take that sort of capacity.
Speaker 4: And so what's happening those countries are putting up barriers now.
Speaker 4: The reason they're putting up barriers is that China also
Speaker 4: wants to change the world. They want to redesign everything,
Speaker 4: whether it's human rights information, whether it's the role of
Speaker 4: state versus individual, whether it's the role of state subsidies,
Speaker 4: trade rules. They want to change everything. So if China
Speaker 4: did not try to change the world, I think the
Speaker 4: extent to which the barriers would have come up would
Speaker 4: not have been as aggressive. But now China has a
Speaker 4: catch twenty two barriers will come up, which means it's
Speaker 4: harder to sell that access capacity. You don't want to
Speaker 4: recognize the loss of the capital, and what you're trying
Speaker 4: to do is to go on a charm offensive. That's
Speaker 4: why a Chinese president is in Europe right now. From
Speaker 4: a US perspective, what US is trying to do is
Speaker 4: gradually grind China out of the Western system, but without
Speaker 4: dislocating refrigerator prices or without dislocating things that housewives are using.
Speaker 4: And the way you do it is starting from the top,
Speaker 4: starting from the high tag, and just keep moving and
Speaker 4: slowly grinding them out, slowly retarding their gross rates at
Speaker 4: least relative to what you can do, but without triggering
Speaker 4: a real conflict. So to me, that's a cold war.
Speaker 4: You're walking at tritrop between degrading as much as you
Speaker 4: can your opponent without triggering something really nasty. And I think,
Speaker 4: so far, to be fair, whether it's Jenet Yellen, whether
Speaker 4: it's Blinking, whether it's Sullivan, I think they've done pretty
Speaker 4: good job of actually achieving that balance. Whether that can
Speaker 4: be maintained, however, depends extent to which Chinese economy and
Speaker 4: society perform to some extent, I mean, it also depends
Speaker 4: what happens in the US, of course, but if you
Speaker 4: just look at China, it depends on that because remember
Speaker 4: normenal GDP in China already fallen from ten percent to
Speaker 4: four now. In other words, as you create more disinflation
Speaker 4: as you saw in Japan. It is really norminal GDP
Speaker 4: that tells you the extent of the pressure. Now, if
Speaker 4: economy and society a geared towards a double digit normal GDP,
Speaker 4: if you can't raise it, inevitably pressure starts rising. And
Speaker 4: so the question is extent to which the pressure rises.
Speaker 4: What is China's response, both in terms of in terms
Speaker 4: of geopolitics, in terms of politics, but also in terms
Speaker 4: of economic policies, and how are you going to change them?
Speaker 2: Well, this is kind of what I don't get, and
Speaker 2: this came up in the episode we did with Hugh
Speaker 2: Henry recently as well, where he was talking about the
Speaker 2: old traditional Chinese export model for reasons that you just
Speaker 2: laid out as well, just isn't going to work anymore,
Speaker 2: because you know, Europe is not going to accept a
Speaker 2: flood of cheap electric vehicles coming in from China. And
Speaker 2: so I guess I'm a little bit confused exactly what
Speaker 2: China is planning here, because the resistance from the rest
Speaker 2: of the world seems so glaringly obvious. When China first
Speaker 2: started talking about building up, you know, technological independence in
Speaker 2: things like semiconductors or strategically important technologies. I was under
Speaker 2: the impression that, like some of the idea there was
Speaker 2: to sell it into the domestic population so that you
Speaker 2: don't have to worry about the US suddenly cutting you
Speaker 2: off from important chips. You would have your own supply
Speaker 2: and then you could do with it what you will.
Speaker 2: But as you've laid out, like boosting domestic consumption doesn't
Speaker 2: actually seem to be a priority right now, they still
Speaker 2: seem to be very focused on exports. So I guess
Speaker 2: I just don't get it, because to me, the problem
Speaker 2: with that strategy seems so obvious.
Speaker 4: One of the ways I describe it is a way
Speaker 4: I look at cheshipping and the well look at Chinese
Speaker 4: leadership right now. It's sort of a mixture very stern,
Speaker 4: paternalistic attitude. You know, being soft is bad, suffering is good.
Speaker 4: That's one side of it. The other side of it is
Speaker 4: very classical economics and Marxist economics. They effectively harping back
Speaker 4: to the day of Quinsy, David Ricardo, Adam Smith, cal
Speaker 4: Marx and those people were not thinking of prices, that
Speaker 4: were thinking of value. Now, since late nineteenth century economy
Speaker 4: is abundant value. So we only look at the prices.
Speaker 4: So if you're a billionaire, you must have add value
Speaker 4: because price is telling us you have Classical economy says no,
Speaker 4: this guy just captured somebody else's value. He didn't create value.
Speaker 4: And so if you take that mindset, who is creating value?
Speaker 4: Who is destroying value? If you ask David Ricarda does
Speaker 4: he think financial markets or capital markets value creative? The
Speaker 4: answer would have be no. The best thing you can argue,
Speaker 4: they're relocated, but they don't don't create it. Who is
Speaker 4: creating value? And so for Ricardo or Adam Smith, or
Speaker 4: even before that, the argument people who produce stuff, whether
Speaker 4: it was agriculture early on, whether it's manufacturing, whether it's technology,
Speaker 4: and so the emphasis seemed to be much more In supply,
Speaker 4: the emphasis seemed to be much more production. The emphasis
Speaker 4: is to start to strengthen as Chi Chi Pink calls
Speaker 4: it productive forces, which is a classic Marxist argument productive
Speaker 4: versus unproductive. Strengthen them, put obstacle in front of people
Speaker 4: who you don't regard as productive, and they're incredibly suspicious
Speaker 4: of capital markets and finance.
Speaker 2: So the disorderly expansion that's right, what.
Speaker 4: Carl Marx used to call fictitious capital, capital that multiplies
Speaker 4: for its own sake without doing anything good to anybody else.
Speaker 4: And so if you take that mindset, then that is
Speaker 4: not the mindset of Western economists. But if you take
Speaker 4: that mindset, the sort of stern, paternalistic attitude and the
Speaker 4: emphasis of what he described productive forces, you understand why
Speaker 4: they're reluctant to actually do anything about it. Now. Eventually,
Speaker 4: as I said early on, the precious has to rise
Speaker 4: and they will have to pivot. And we saw this
Speaker 4: COVID in late October early November twenty twenty two, that
Speaker 4: he can pivot very very quickly. That's why there was
Speaker 4: a disorderly opening after COVID. And so there is a
Speaker 4: possibility that there will be that moment when you actually
Speaker 4: will have the change. But the longer he waits, the
Speaker 4: worst it gets. And the reason is very simple. China
Speaker 4: is not Japan. Japan had an open capital account and
Speaker 4: fluctuating currency and convertible currency. So when Japan run into
Speaker 4: the wall, they just collapse overnight. China has close capital account,
Speaker 4: currency is not convertible, central bank is not independent, actually
Speaker 4: lost all the power pretty much commercial banks are not
Speaker 4: commercial and private sector is not really private. So when
Speaker 4: you're operating behind the wall garden, you can't have Minski moments.
Speaker 4: You can't just hit the wall and collapse. But what
Speaker 4: you can do you can basically add increasing headwinds as
Speaker 4: you keep going. So if Japan operated Chinese system in
Speaker 4: nineteen ninety, they didn't have to go down. They could
Speaker 4: have survived until ninety six or ninety seven. But the
Speaker 4: longer you go with that, the worse it gets, and
Speaker 4: so they need to recalibrate. So recalibration, which is needed.
Speaker 4: Change your policy settings quite dramatically. Number two, change your
Speaker 4: geopolitical stance quite dramatically. In a sense, stop trying to
Speaker 4: rebuild the world and change the world and change domestic politics.
Speaker 4: In other words, give a little bit of freedom for people,
Speaker 4: both businesses and consumers and households. If there is is
Speaker 4: pivot change, you still have to pay a price. Because
Speaker 4: one of the things I highlight is capital stock. IMF
Speaker 4: calculates it. And if you think of two thousand and four,
Speaker 4: China had capital stock of I forgot like four trillion dollars.
Speaker 4: India had one in twenty twenty eight, they will have
Speaker 4: one hundred and five trillion dollars. US for example, will
Speaker 4: have seventy seventy five India will only have six. So
Speaker 4: China absorbed over one hundred trillion dollars of depreciated capital
Speaker 4: in a couple of decades. When you absorb so much capital,
Speaker 4: which is entire world GDP, when you absorb so much
Speaker 4: capital so quickly, inevitably, you have an indigestion period. So
Speaker 4: that indigestion period will be with you even if you
Speaker 4: make a policy pivot today. But what will happen if
Speaker 4: they do that? Risk premia will improve because China is
Speaker 4: the only market in the world, and the only acid
Speaker 4: in the world where risk premier over the last several
Speaker 4: years have gone up almost everywhere risk premier actually for.
Speaker 3: I want to push on two specific things you said.
Speaker 3: So one is you talked about Chinese dumping, and I
Speaker 3: sort of understand conceptually the idea of dumping in a
Speaker 3: commodity like steel or they're you know, produce bonds you
Speaker 3: can't use it all at home, or maybe even like
Speaker 3: solar or something like that. But a lot of the
Speaker 3: Chinese exports success seems to be in making high quality
Speaker 3: non commodities that are just very competitive for cost reasons
Speaker 3: and in some arguably quality reasons. One example would be
Speaker 3: people saying that the shell me phone now has a
Speaker 3: better camera, say than the iPhone. So that's one thing.
Speaker 3: And then the other thing is you say you credit
Speaker 3: yelling and blink in for maintaining something reasonably. Well, this
Speaker 3: attempt to degrade China, but not necessarily provoke something stronger.
Speaker 3: What have they actually done substantively? Because I see the trips,
Speaker 3: and I see the talk and the anxiety and the
Speaker 3: you know, the ft columns about jumping and all that stuff,
Speaker 3: but I don't really understand or can't quite internalize what
Speaker 3: substantively they have accomplished.
Speaker 4: Well, what do you need to avoid is very dramatic moves. Okay,
Speaker 4: So in other words, the last thing you want is
Speaker 4: to stop slapping terraffs on very primitive products. But I
Speaker 4: remember mostly actually does law great stuff. People focused on cameras, etc.
Speaker 4: But a lot of China is basic chemicals, it's toys,
Speaker 4: It's that sort of stuff. So try to avoid displacing
Speaker 4: that trade as much as possible. Try to focus on
Speaker 4: the areas that are important for you strategically, And that's
Speaker 4: what Trump started to do but very chaotically, and what
Speaker 4: Biden administration have done very systematically over the last four
Speaker 4: years now, except that China trade will get rerouted. Now,
Speaker 4: the fact that suddenly Mexico and Vietnam became major partners
Speaker 4: of the United States have very little to do with
Speaker 4: capacity of those countries to actually produce it. It's a
Speaker 4: lot of Chinese trade gets rerouted through those places, and
Speaker 4: accept that because you're getting some of the benefit of that,
Speaker 4: including sometimes better quality law prices that consumers and businesses
Speaker 4: in the United States can benefit from. At the same time,
Speaker 4: what you're trying to do is re establish as much
Speaker 4: contact as you possibly can, because as Defense Secretary was
Speaker 4: saying back in Singapore when Chinese refused to talk to
Speaker 4: him eighteen months ago, he said, with the Soviets, we
Speaker 4: never agreed on anything, but we talked. And the same
Speaker 4: is here. You need to maintain the lines of conversation
Speaker 4: so that you know how far you can go, where
Speaker 4: you cannot go, how far you can push, how high
Speaker 4: you can bring it back. So what you try to
Speaker 4: avoid is a chaos. What you try to avoid just
Speaker 4: slapping stuff all over the place, trying to avoid pushing
Speaker 4: China too far and at the same time gradually, as
Speaker 4: I said, degrading it. Now there is a possibility, and
Speaker 4: it is a small possibility right now, but there is
Speaker 4: a possibility that something horrible is going to happen, either
Speaker 4: in Russia Ukraine, or something horrible might happen across down
Speaker 4: One Straits, and the whole thing will start escalating beyond
Speaker 4: what you're trying to do. And at that point we
Speaker 4: could potentially see zeroing out even of Chinese and Hong
Speaker 4: Kong assets. You can even see US Department of Treasury
Speaker 4: arguing that they don't recognize, for example, the currency in
Speaker 4: Hong Kong dollar. Extreme you can have a very extreme
Speaker 4: outcomes which I think are not likely so long as
Speaker 4: there is no as I said, disasters occurring along the way.
Speaker 2: So we just have a few minutes left, and I
Speaker 2: want to go back to what you said earlier, where
Speaker 2: you were talking about the idea of financial risks migrating
Speaker 2: into I guess, the real world, into the political sphere
Speaker 2: in one way or another. And you are actually the
Speaker 2: only Cell side analyst I know of who has mentioned
Speaker 2: the Columbia protests specifically. We're here in New York. Columbia
Speaker 2: is not that far from us. Talk to us a
Speaker 2: little bit about how that kind of political discontent plays
Speaker 2: out in your world, in the world of you know,
Speaker 2: investment and macro and things like that. Why is that
Speaker 2: on your radar?
Speaker 4: Well, Usually when you have generational replacement and everything is fine,
Speaker 4: like economies are fine, finance is fine, technology is fine,
Speaker 4: there is no displacement politically or geopolitic, then one generation
Speaker 4: just slips into another almost unnoticed. That's what happened to
Speaker 4: Baby Boomers and X generation. But whenever you have.
Speaker 3: An X generation, we never were. We slipped out before
Speaker 3: we were even in are you no, No, I'm eighty,
Speaker 3: I'm X.
Speaker 4: I go. But but whenever you have whenever you have
Speaker 4: a major technological financial disruption, what happens is that you
Speaker 4: have or whenever circumstances change massively for the better for
Speaker 4: the worst, one generation cannot slip into another generation. That's
Speaker 4: what happened to Baby Boomers. Compared to a silent and
Speaker 4: GI generation. The Baby Boomers could not relate to their
Speaker 4: parents or to their grandparents. They had verdically different views
Speaker 4: what they wanted to do, and so the younger generation
Speaker 4: anybody born sort of after sort of early eighties onwards
Speaker 4: have a very different view of the world. And the
Speaker 4: reason they have very different view of the world because
Speaker 4: they did not experience a world where jobs were plentiful,
Speaker 4: where you've gone to college, you automatically had a good job.
Speaker 4: They found that the jobs degrade, They found the professional
Speaker 4: lives degrede They found that technology gives you many tools,
Speaker 4: but it also degrades both your pricing power and marginal
Speaker 4: pricing power. They found that politics become disoriented as that occurs.
Speaker 4: They found that democratic policies cannot solve the problem extreme polarization.
Speaker 4: So they're in the mixture of technological, financial, and political revolution.
Speaker 4: And when you have that change, that generation sinks very differently,
Speaker 4: and eventually they become a very large cohort. And when
Speaker 4: they become a large cohort, they demanded change. Now, what
Speaker 4: Baby Boomas were asking for is not what this generation
Speaker 4: is asking for, But they're asking for change. And my
Speaker 4: view the change all the surveys that come out, the
Speaker 4: change they're asking is very much community based, is very
Speaker 4: much community of equals, is very much governments supported. In
Speaker 4: other words, harping to their grand grandparents who lived in
Speaker 4: nineteen forties and nineteen fifties rather than to their parents
Speaker 4: and grandparents. And so usually it starts with those types
Speaker 4: of demonstration. Doesn't really matter what the excuses, whether it's
Speaker 4: the civil rights, whether it's a Cold War, whether it's
Speaker 4: Vietnam War, whether it's inequalities, whatever, that is something triggers it.
Speaker 4: But then as they get big and bigger part of
Speaker 4: the population, they really drive the policy. So today late
Speaker 4: millenniums in Z already almost fifty percent of the population,
Speaker 4: but they are only about thirty nine percent of the adults.
Speaker 4: They only twenty five percent of the voters.
Speaker 2: In the US.
Speaker 4: Mathematically, by twenty eight twenty nine, there will be majority
Speaker 4: of adults, and by earlier to mid twenty thirties there
Speaker 4: will be absolute majority of both voting and the adults.
Speaker 4: And so the question is what type of policies, economic policies, political,
Speaker 4: social policies would they demand. People must want it freedom,
Speaker 4: free enterprise, personal responsibility. You give me the rope and
Speaker 4: I can hang myself with it, or I can succeed
Speaker 4: this guy's asking for something else, And so how would
Speaker 4: all of those policies change? And I'm thinking they're going
Speaker 4: to bring us back to nineteen fifties, that probably will
Speaker 4: be a more likely outcome rather than sort of nineteen
Speaker 4: nineties two thousands.
Speaker 2: I like how conceptually we've sort of come full circle
Speaker 2: because we're back to I guess demographic changes driving potentially
Speaker 2: higher deficits over the long term, fueling US exceptionalism in
Speaker 2: some ways. Maybe, Yeah, let's take it. Victor Schwetz, thank
Speaker 2: you so much for coming back on odd Lots.
Speaker 5: Thank you. I appreciate it.
Speaker 2: That was great.
Speaker 5: As always, Joe.
Speaker 2: I feel like any mention of generations always leads to
Speaker 2: over the cutoff points.
Speaker 3: Well, I may have said, I don't know if I've
Speaker 3: ever said on air, So I'll just say that I
Speaker 3: have a very simple test for the dividing line between
Speaker 3: X and millennial because some people say seventy nine or
Speaker 3: eighty one or.
Speaker 2: Yeah i've heard nineteen eighty and above.
Speaker 3: Yeah I've heard that too. But I think there's a
Speaker 3: very simple test to do it, which is, did you
Speaker 3: have Facebook in college? Because that gets you in that
Speaker 3: ballpark automatically, yeah, but also that's generationally transformative. Social media
Speaker 3: is like clearly a dividing line. I did not have
Speaker 3: Facebook when I was in college. I got my first
Speaker 3: account I don't know, like twenty two. It was after
Speaker 3: I graduated by a couple of years. You apparently did,
Speaker 3: so I'm X your millennial. That makes a lot of sense,
Speaker 3: Thank you. I think it's a test and apparently, I
Speaker 3: guess it's probably rolled out to people in Harvard earlier.
Speaker 3: The implication is that people at Harvard became millennial before
Speaker 3: the rest of everyone else.
Speaker 2: Well, yeah, I was at LSE and I think we
Speaker 2: were one of the first, yeah, so international universities to
Speaker 2: get it. I have to say part of me kind
Speaker 2: of misses the college era of Facebook, where like we
Speaker 2: just spent an inordinate amount of time like poking each other.
Speaker 2: I don't know if you remember that. Anyway, back to Macro,
Speaker 2: there's so much to pull out of that conversation. It's
Speaker 2: always great talking to Victor. I guess one of the
Speaker 2: things that strikes me is, you know, he highlighted the
Speaker 2: I guess unexpectedly loose financial conditions, and to me, it
Speaker 2: does feel like that is a key part of what's
Speaker 2: happening in markets right now, and it kind of goes
Speaker 2: back to that point I was making earlier, where I
Speaker 2: don't think anyone expected the cost of money to go
Speaker 2: up so much viz. Benchmark rates and the FED rate hikes,
Speaker 2: while the supply of credit continues to expand. And that,
Speaker 2: to me is sort of like the key to a
Speaker 2: lot of what's going on in asset prices. Why we
Speaker 2: haven't seen that huge default cycle that people were predicting,
Speaker 2: Why we haven't necessarily seen as many layoffs as a
Speaker 2: lot of people were predicting, and things like that.
Speaker 3: Yeah, totally Like we can easily point to a few
Speaker 3: different categories, like aspects of real estate and which. Sure, No,
Speaker 3: it's totally true that it's sort of a puzzle, and
Speaker 3: I don't think anyone is a great answer for why.
Speaker 3: You know, people talk about refinancing and everyone has a
Speaker 3: third year fixed. Maybe that has something to do with it. Still,
Speaker 3: it's not entirely intuitive why that hasn't had a larger
Speaker 3: compressing effect on asset prices. You know, there's so much
Speaker 3: to pull out of that conversation and every conversation with Victor.
Speaker 3: Like I said, we could have talked for like an
Speaker 3: hour on the problem with the dots, and maybe we
Speaker 3: should do that, because it does seem like that's getting
Speaker 3: more attention to sort of being handcuffed by the dots
Speaker 3: perhaps you know, obviously, and we'll do more China episodes.
Speaker 3: But is it really possible? And I guess I have
Speaker 3: my doubts. But what do I know, like to degrade
Speaker 3: China's cutting edge capacity in such a way that doesn't
Speaker 3: provoke actual geopolitical conflict something more mild, big questions there?
Speaker 2: Dots seem so innocuous to me. It's so it's it's funny,
Speaker 2: Well what we're talking about them? As last?
Speaker 1: Wait?
Speaker 3: Can I give it confession? And I always do my
Speaker 3: confessions at the end because I hope that no one's listening.
Speaker 3: I always turn off turn off laws right here. I
Speaker 3: always forget whether the dots are what the individual FOMC
Speaker 3: member thinks should be the optimal path of monetary policy
Speaker 3: going forward versus what that FMC member thinks the policy
Speaker 3: will be going forward. And I like, I know there's
Speaker 3: a right intern one, but I always forget which is which.
Speaker 2: Oh I hate stuff like this because it makes me
Speaker 2: It's one of those things like you just talk about
Speaker 2: kind of naturally without thinking about what you're actually looking at.
Speaker 2: But I think it might be what they think appropriate
Speaker 2: monetary policy should be.
Speaker 3: No, you're right, I just as I was saying, I
Speaker 3: also pulled up the Bloomberg dots explainer anyway.
Speaker 2: Which I mean also you would expect it to be that, right, Yeah, right, well,
Speaker 2: I mean yeah, bring back the boe fan charts. That's
Speaker 2: what I say. Let go of the dots and let's
Speaker 2: just do a range of probabilities for interest rates and
Speaker 2: we can have either fan charts or those hair charts,
Speaker 2: the hairy charts, the MEDUSA charts, which I love, or.
Speaker 3: Just go back to the old days where they don't
Speaker 3: even tell you what rate that they sent and the
Speaker 3: market has to figure it out because of the overnight rate.
Speaker 3: That would probably be fine too. I don't think we
Speaker 3: need all this communication. I appreciate it. I like the speeches.
Speaker 3: They're interesting, but we don't even we went for years
Speaker 3: without that.
Speaker 2: It would be very interesting, to Victor's point about sort
Speaker 2: of real time repricing, to see what a system like
Speaker 2: that would would mean for financial markets right now, maybe
Speaker 2: it would be better. Let's all slow down.
Speaker 3: I think it's possible.
Speaker 2: All right, shall we leave it there?
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the All Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 3: I'm Joe Wisenthal. You can follow me at the Stalwart,
Speaker 3: follow our producers Carman Rodriguez at Kerman Ermann Dash, Ol
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