1 00:00:00,040 --> 00:00:02,640 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:02,680 --> 00:00:07,040 Speaker 1: their trust and independent registered investment advisors to the two 3 00:00:07,040 --> 00:00:10,680 Speaker 1: and four trillion dollars. Why learn more at find your 4 00:00:10,760 --> 00:00:26,360 Speaker 1: Independent Advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:26,760 --> 00:00:30,480 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:30,520 --> 00:00:35,560 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:35,960 --> 00:00:40,559 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 8 00:00:40,640 --> 00:00:48,920 Speaker 1: of course on the Bloomberg. Alberto Gallo was at RBS 9 00:00:48,960 --> 00:00:51,680 Speaker 1: now at Algebras and we want to dive into the 10 00:00:51,720 --> 00:00:54,520 Speaker 1: market view right now with Alberto. Bring up the chart, Anthony, 11 00:00:54,560 --> 00:00:56,440 Speaker 1: if you would. This is a chart we showed four 12 00:00:56,560 --> 00:00:59,279 Speaker 1: or five years ago about three times a day. This 13 00:00:59,360 --> 00:01:03,640 Speaker 1: is the Spanish German spread, the difference in yield between 14 00:01:03,680 --> 00:01:06,120 Speaker 1: Spain and Germany. And all you need to know is 15 00:01:06,160 --> 00:01:09,080 Speaker 1: albert O Galla loaded the boat right there and did 16 00:01:09,240 --> 00:01:12,520 Speaker 1: better than good in trying to game how race would 17 00:01:12,560 --> 00:01:16,720 Speaker 1: come down for Spain, Italy, Greece and the rest of them. 18 00:01:16,800 --> 00:01:20,319 Speaker 1: And the major question, Alberto is we're down here now 19 00:01:20,959 --> 00:01:24,280 Speaker 1: and what does that symbolize for the old and the 20 00:01:24,360 --> 00:01:28,040 Speaker 1: new levels of Spain. Is it a new regime for Spain? 21 00:01:28,560 --> 00:01:33,200 Speaker 1: Is it all clear for Spain? It's a law and 22 00:01:33,280 --> 00:01:37,399 Speaker 1: you're supposed to be cautious. Spain fortunately has a stable 23 00:01:37,520 --> 00:01:41,320 Speaker 1: political situation. But generally what we're gonna see in Europe 24 00:01:41,520 --> 00:01:44,399 Speaker 1: is the emergence of the same populous wave that we 25 00:01:44,480 --> 00:01:47,480 Speaker 1: are that we have seen in the UK and the US. 26 00:01:48,040 --> 00:01:51,000 Speaker 1: I think the next week points the next vulnerable countries 27 00:01:51,000 --> 00:01:54,480 Speaker 1: are Italy and France. So that's the areas where we're 28 00:01:54,520 --> 00:01:57,960 Speaker 1: more worried about the rising eilds and in spreads. Italy 29 00:01:58,000 --> 00:01:59,960 Speaker 1: goes to vote a referendum on the fourth of the 30 00:02:00,000 --> 00:02:04,920 Speaker 1: December about simplifying the constitution and simplifying the government. But 31 00:02:05,080 --> 00:02:07,560 Speaker 1: this vote has been painted by the opposition as a 32 00:02:07,600 --> 00:02:10,400 Speaker 1: way to kick out the current government, a little bit 33 00:02:10,400 --> 00:02:12,679 Speaker 1: like Brexit was painted as a way to kick the 34 00:02:12,840 --> 00:02:15,600 Speaker 1: former UK government. And then you have in France the 35 00:02:15,720 --> 00:02:21,639 Speaker 1: risk of le pan um rising. While the current leading 36 00:02:21,840 --> 00:02:24,880 Speaker 1: center right candidate is very harsh on economic policy is 37 00:02:24,919 --> 00:02:29,440 Speaker 1: a general statement and Marty Feldstein was on yesterday talking 38 00:02:29,480 --> 00:02:35,119 Speaker 1: about asset bubbles. Professor Feldstein with real concern about elevated markets. 39 00:02:35,400 --> 00:02:39,440 Speaker 1: Do you agree with that our markets frothy or is 40 00:02:39,480 --> 00:02:42,640 Speaker 1: there value there in the galo bonds space or for 41 00:02:42,760 --> 00:02:47,280 Speaker 1: that matter, the non galo equity space. We have been 42 00:02:47,440 --> 00:02:50,280 Speaker 1: cautious on bonds. We've been calling for this bubble to 43 00:02:50,639 --> 00:02:54,200 Speaker 1: deflate for many months, and particularly you know, we're worried 44 00:02:54,200 --> 00:02:57,320 Speaker 1: about Italian bonds, were worried about French bonds and about 45 00:02:57,480 --> 00:02:59,960 Speaker 1: UK bonds. You know, here in the UK inflation expect 46 00:03:00,000 --> 00:03:02,840 Speaker 1: stations are three and a half. You're getting one point 47 00:03:02,919 --> 00:03:06,160 Speaker 1: four percent on Guild ten year yields. So there is 48 00:03:06,200 --> 00:03:08,680 Speaker 1: no value in bonds. You've got to be in a 49 00:03:08,880 --> 00:03:12,639 Speaker 1: type of investment which is positioned for a rising inflation 50 00:03:12,720 --> 00:03:15,840 Speaker 1: or environment and a rising bond yield environment. And currently 51 00:03:15,880 --> 00:03:19,120 Speaker 1: bond funds are not set for that environment because they 52 00:03:19,120 --> 00:03:21,240 Speaker 1: were all long, they were all in a lot of 53 00:03:21,240 --> 00:03:25,080 Speaker 1: btfs where all positive strategies, and as an investor in 54 00:03:25,120 --> 00:03:28,520 Speaker 1: those funds, you're sitting doc right. But Alberto, we need 55 00:03:28,639 --> 00:03:31,320 Speaker 1: risk back on the markets right. What DTV has done 56 00:03:31,320 --> 00:03:33,640 Speaker 1: it rightly so is to give time for fiscal spending 57 00:03:33,720 --> 00:03:35,560 Speaker 1: so you don't price risk when when you look at 58 00:03:35,600 --> 00:03:38,000 Speaker 1: bond yields anymore. This has to come back if we're 59 00:03:38,000 --> 00:03:40,200 Speaker 1: going to keep in check so some kind of populous 60 00:03:40,200 --> 00:03:44,880 Speaker 1: measures which are counterproductive. Yeah, but you know, risk buying 61 00:03:44,880 --> 00:03:47,320 Speaker 1: bonds is not really a risk trade. It's it's when 62 00:03:47,360 --> 00:03:50,560 Speaker 1: you think at the moment. Yeah, if you think growth 63 00:03:50,600 --> 00:03:52,480 Speaker 1: is low and and central banks are going to keep 64 00:03:52,520 --> 00:03:54,520 Speaker 1: the world from falling apart, you buy bonds. If you 65 00:03:54,560 --> 00:03:56,760 Speaker 1: actually think that there is some growth and fiscal spending, 66 00:03:57,040 --> 00:03:59,480 Speaker 1: then you start buying. Either you buy high yield bonds, 67 00:03:59,560 --> 00:04:02,440 Speaker 1: or you buy stocks or your position for a steeper 68 00:04:02,480 --> 00:04:05,160 Speaker 1: yield curve. You buy banks and insurance companies. You buy 69 00:04:05,160 --> 00:04:07,600 Speaker 1: all those things that people were not looking at because 70 00:04:07,600 --> 00:04:10,520 Speaker 1: they were linked to growth. Remember, even inequities. People were 71 00:04:10,520 --> 00:04:13,760 Speaker 1: buying utilities and telecoms, which was a dividend trade. It 72 00:04:13,880 --> 00:04:17,400 Speaker 1: wasn't a growth trade. So we're seeing a huge rotation now, right. 73 00:04:17,440 --> 00:04:19,600 Speaker 1: But you remember, probably as much as I do, there 74 00:04:19,680 --> 00:04:21,839 Speaker 1: there was a point when berluscing Sylvia Brosco and it 75 00:04:21,839 --> 00:04:24,159 Speaker 1: was in charge. There was no growth. But actually the 76 00:04:24,200 --> 00:04:27,240 Speaker 1: real opposition wasn't political. It was a bond market that 77 00:04:27,320 --> 00:04:30,040 Speaker 1: kicked him out right, and we had a technocratic government. 78 00:04:30,120 --> 00:04:33,440 Speaker 1: We don't have that anymore. We don't have that. But 79 00:04:33,520 --> 00:04:37,400 Speaker 1: you know, you know, drug is living in January. If 80 00:04:37,440 --> 00:04:39,440 Speaker 1: we have a no vote in Italy, and if we 81 00:04:39,480 --> 00:04:42,159 Speaker 1: have lepan rising in France, you know, do whatever it takes. 82 00:04:42,200 --> 00:04:44,880 Speaker 1: Pledge is not gonna work as well. So we could 83 00:04:44,880 --> 00:04:48,680 Speaker 1: still see Italy spread going above two hundred against boons 84 00:04:48,800 --> 00:04:51,919 Speaker 1: and France spread going around the hundred against boons if 85 00:04:51,960 --> 00:04:54,039 Speaker 1: there is a no vote at the referendum in Italy, 86 00:04:54,600 --> 00:04:58,080 Speaker 1: which is possible, or if there is a chance of 87 00:04:58,160 --> 00:05:00,559 Speaker 1: lepan higher than thirty percent, which is and to become 88 00:05:00,600 --> 00:05:03,039 Speaker 1: true and and and this this is the real issue, 89 00:05:03,080 --> 00:05:06,880 Speaker 1: inequality leading to population. Monetary policy hasn't solved the problem. 90 00:05:07,080 --> 00:05:09,280 Speaker 1: I want to send this up with economics here, Alberto, 91 00:05:09,320 --> 00:05:11,400 Speaker 1: I think this is just absolutely critical. Let's bring up 92 00:05:11,400 --> 00:05:14,479 Speaker 1: the Francy and the quadrart. This is nominal GDP in 93 00:05:14,560 --> 00:05:17,240 Speaker 1: Francis Italy and it's not a pretty story. There is 94 00:05:17,279 --> 00:05:20,960 Speaker 1: the presidential four year moving average of the animal spirit 95 00:05:20,960 --> 00:05:24,680 Speaker 1: of Italy and it ain't there. Do you see and 96 00:05:24,720 --> 00:05:28,360 Speaker 1: with with davidy Sarah, do you see albert O Gallo 97 00:05:28,560 --> 00:05:33,400 Speaker 1: any indication of economic growth or does Mr Trump and 98 00:05:33,480 --> 00:05:36,520 Speaker 1: Chancellor Miracle and others have to work within a no 99 00:05:36,640 --> 00:05:41,520 Speaker 1: growth analysis. I think it's very different. I think the 100 00:05:41,560 --> 00:05:44,520 Speaker 1: US we're gonna see a stronger growth because sound of 101 00:05:44,520 --> 00:05:47,240 Speaker 1: fiscal policies will have an impact. In particular, if you 102 00:05:47,320 --> 00:05:50,840 Speaker 1: do infrastructure spending, you spend a dollar, you increase GDP 103 00:05:51,040 --> 00:05:53,560 Speaker 1: by around a dollar or maybe even more. If you 104 00:05:53,640 --> 00:05:56,240 Speaker 1: cut taxes to the one percent, then you don't have 105 00:05:56,320 --> 00:05:59,839 Speaker 1: that same effect. But infrastructure spending is good. In the UK, 106 00:06:00,080 --> 00:06:02,440 Speaker 1: you're probably gonna see the same although inflation is going 107 00:06:02,480 --> 00:06:05,880 Speaker 1: to outpace GDP because the pound is weak and there's 108 00:06:05,920 --> 00:06:09,440 Speaker 1: a lot of uncertainty. So but in Europe, show ball. 109 00:06:09,520 --> 00:06:11,800 Speaker 1: The German finance minister yesterday said we're going to double 110 00:06:11,839 --> 00:06:13,800 Speaker 1: the incer plan. The inucor plan is only zero point 111 00:06:13,839 --> 00:06:16,760 Speaker 1: one percent of GDP, so you actually need to to 112 00:06:17,160 --> 00:06:19,919 Speaker 1: make it ten times eager to have an impact in Europe, 113 00:06:20,080 --> 00:06:22,960 Speaker 1: there's a problem. Yeah, that factor analysis is important. Let's 114 00:06:23,000 --> 00:06:24,800 Speaker 1: finally look at the euro here and I look at 115 00:06:24,800 --> 00:06:27,680 Speaker 1: the markets, folks with Alberto Gala, Alberto, do you just 116 00:06:27,839 --> 00:06:32,040 Speaker 1: sum a dashed through parody? Once twice, three four times? 117 00:06:32,279 --> 00:06:35,719 Speaker 1: We've made the dash to parity is a weaker yro 118 00:06:36,200 --> 00:06:41,839 Speaker 1: the solution for all these different issues. I think it helps, 119 00:06:42,720 --> 00:06:45,640 Speaker 1: but we it's not the solution. It helps, and we're 120 00:06:45,640 --> 00:06:48,640 Speaker 1: gonna see another dash to party. I agree with you 121 00:06:48,800 --> 00:06:52,480 Speaker 1: as you suggested, but I think the Europe the weak 122 00:06:52,560 --> 00:06:56,120 Speaker 1: ero helps Germany, helps some countries, some businesses that export, 123 00:06:56,440 --> 00:06:59,720 Speaker 1: but you really need inclusive growth policies, so you need 124 00:06:59,800 --> 00:07:02,560 Speaker 1: some spending in infrastructure, You need some spending in the 125 00:07:02,600 --> 00:07:05,840 Speaker 1: periphery countries. I have done austerity like Greece or you know, 126 00:07:06,000 --> 00:07:10,000 Speaker 1: or Spain or Italy. Because now the dividing growth between Germany, 127 00:07:10,520 --> 00:07:12,800 Speaker 1: which benefits the most by the week euro versus the 128 00:07:12,840 --> 00:07:15,440 Speaker 1: other countries, you know, it is too large. And if 129 00:07:15,520 --> 00:07:18,040 Speaker 1: the other countries all vote for populist governments, then there's 130 00:07:18,040 --> 00:07:21,920 Speaker 1: no more Europe. Europe parody with the dollar will ever happen. Yeah, 131 00:07:21,960 --> 00:07:24,160 Speaker 1: I think your party is in the cards, especially if 132 00:07:24,200 --> 00:07:27,200 Speaker 1: you see a no vote at the Italian referenum, or 133 00:07:27,200 --> 00:07:30,040 Speaker 1: if you see lepen rising in France. All these trends 134 00:07:30,280 --> 00:07:33,480 Speaker 1: are going to weaken the Europe definitely and and increased 135 00:07:33,480 --> 00:07:36,559 Speaker 1: spreads in peripheral bonds. All right, there you go, Berta 136 00:07:36,600 --> 00:07:40,160 Speaker 1: Gallus saying your parody tom possibly in the cards, depending 137 00:07:40,200 --> 00:07:43,240 Speaker 1: of course, on the outcome of this referendomnity December four. 138 00:07:54,920 --> 00:07:56,760 Speaker 1: It's a great pleasure to have with a small Street Coumar, 139 00:07:56,800 --> 00:07:59,400 Speaker 1: president of Street Umar Global Strategies. Here in are Bloomberg 140 00:07:59,440 --> 00:08:01,320 Speaker 1: eleven three or is it years? And New york'sre great 141 00:08:01,360 --> 00:08:05,840 Speaker 1: to see. Let's start with the dollar against slightly weaker today, 142 00:08:06,000 --> 00:08:08,040 Speaker 1: but this has been a strong dollar story at least 143 00:08:08,200 --> 00:08:10,200 Speaker 1: since the election. How long do you do you expect 144 00:08:10,240 --> 00:08:13,560 Speaker 1: that to persist? And what's driving it? I have been 145 00:08:13,600 --> 00:08:16,240 Speaker 1: a dollar bull for quite some time. I think this 146 00:08:16,480 --> 00:08:18,720 Speaker 1: is the start. For instance, if you were to look 147 00:08:18,760 --> 00:08:22,240 Speaker 1: in terms of where the dollar euro exchange rate is going, 148 00:08:23,160 --> 00:08:25,480 Speaker 1: I have been saying two clients that we should expect 149 00:08:25,640 --> 00:08:28,560 Speaker 1: the euro to go to parody. We are now talking 150 00:08:28,600 --> 00:08:30,560 Speaker 1: about one or six, one or seven, so we have 151 00:08:30,640 --> 00:08:33,960 Speaker 1: a little bit further to go. What propels it, David, 152 00:08:34,960 --> 00:08:37,840 Speaker 1: is the fact that one you have a FED hike, 153 00:08:37,920 --> 00:08:40,920 Speaker 1: which was will they hike in December? Won't they hike 154 00:08:41,000 --> 00:08:42,959 Speaker 1: in December? And as you just said a couple of 155 00:08:43,040 --> 00:08:46,440 Speaker 1: minutes ago, you now have a hundred percent probability according 156 00:08:46,520 --> 00:08:50,640 Speaker 1: to the marketer. And I think the Trump election and 157 00:08:50,760 --> 00:08:53,199 Speaker 1: the fact that he has said that he will not 158 00:08:53,440 --> 00:08:57,920 Speaker 1: renominate Janet Yellen to the chairmanship when her term expires 159 00:08:58,040 --> 00:09:03,040 Speaker 1: in January tween means that the Fed essentially has no pull. 160 00:09:03,520 --> 00:09:05,240 Speaker 1: She's not going to get if she's not going to 161 00:09:05,320 --> 00:09:08,000 Speaker 1: be renominated, she might as well do what is necessary 162 00:09:08,080 --> 00:09:11,400 Speaker 1: and hike. And I'm looking for at least two hikes 163 00:09:11,440 --> 00:09:13,520 Speaker 1: next year, which is again a switch from what I 164 00:09:13,600 --> 00:09:16,760 Speaker 1: thought before the elections. So the elections have changed it 165 00:09:16,880 --> 00:09:18,600 Speaker 1: quite a bit. You're going to have quite a few 166 00:09:18,640 --> 00:09:22,680 Speaker 1: more rate hikes and that boost the dollar. In addition, 167 00:09:23,200 --> 00:09:26,240 Speaker 1: if there is anything like a trade restriction taking place 168 00:09:26,400 --> 00:09:28,520 Speaker 1: on the part of Trump, I hope not. I hope 169 00:09:28,559 --> 00:09:31,920 Speaker 1: it's more on the fiscal stimulus side rather than trade restrictions. 170 00:09:32,559 --> 00:09:35,800 Speaker 1: But if restrictions come into force, that is going to 171 00:09:35,920 --> 00:09:39,959 Speaker 1: strengthen the dollar as well. It increases global uncertainty, it 172 00:09:40,080 --> 00:09:44,199 Speaker 1: increases increases global risk, and global investors bring money into 173 00:09:44,240 --> 00:09:46,839 Speaker 1: the United States. When that happens, all of that is 174 00:09:46,880 --> 00:09:49,800 Speaker 1: going to be good for the dollar. And the side 175 00:09:50,120 --> 00:09:53,760 Speaker 1: point to what you asked, David, as that happens, I 176 00:09:54,000 --> 00:09:57,400 Speaker 1: have started to say that the two thirty five ten 177 00:09:57,480 --> 00:09:59,360 Speaker 1: year yield we saw in the last couple of days 178 00:09:59,400 --> 00:10:02,000 Speaker 1: and today it's just below two thirty, it's just not 179 00:10:02,240 --> 00:10:05,640 Speaker 1: sustainable because you have such a we have more than 180 00:10:05,679 --> 00:10:09,560 Speaker 1: a two percent spread with the German tenure Buld. It's 181 00:10:09,640 --> 00:10:13,880 Speaker 1: the highest we have had since nine and this is 182 00:10:14,080 --> 00:10:16,839 Speaker 1: just unsustainable. At what I think it means is that 183 00:10:16,920 --> 00:10:19,800 Speaker 1: the bond vigilantes have gone a bit too far in 184 00:10:19,960 --> 00:10:23,040 Speaker 1: terms of selling the treasury. So it's a treasury yields 185 00:10:23,120 --> 00:10:26,160 Speaker 1: come down and the dollar continues to strengthen. What you're 186 00:10:26,200 --> 00:10:27,760 Speaker 1: you're implying there, I guess, is that you have a 187 00:10:27,800 --> 00:10:31,000 Speaker 1: father's politically aware, not necessarily political as a as an institution. 188 00:10:31,040 --> 00:10:33,520 Speaker 1: They would fiercely say that that they're not, but there 189 00:10:33,600 --> 00:10:35,680 Speaker 1: was some awareness here that that they could doing something 190 00:10:35,720 --> 00:10:38,000 Speaker 1: at the last meeting, could have done something with regard 191 00:10:38,040 --> 00:10:40,880 Speaker 1: to to the election. How politically cognizant is this Federal Reserve? 192 00:10:40,960 --> 00:10:44,840 Speaker 1: Do you think? Well, we have one again in controvertible fact, 193 00:10:45,120 --> 00:10:49,840 Speaker 1: And that is according to the Federal Election Commission. Lyle Brainard, 194 00:10:49,880 --> 00:10:53,439 Speaker 1: who is a permanent voter and a member of the 195 00:10:53,520 --> 00:10:56,120 Speaker 1: FED Board of Governors. She was a contributor to the 196 00:10:56,200 --> 00:10:58,679 Speaker 1: Hillary Clinton campaign, rumored to be in the running for 197 00:10:58,960 --> 00:11:03,839 Speaker 1: Treasury secretary in a Clinton administration, and the responses this 198 00:11:04,080 --> 00:11:06,480 Speaker 1: is properly legal. But the question to you and me 199 00:11:06,720 --> 00:11:09,520 Speaker 1: is does it. How does it look whether it is 200 00:11:09,600 --> 00:11:12,120 Speaker 1: legal or not. So I think it puts the whole 201 00:11:12,240 --> 00:11:17,120 Speaker 1: question of political independence into into issue. And we have 202 00:11:17,280 --> 00:11:20,520 Speaker 1: had a long history in this country, David, of presidents 203 00:11:20,559 --> 00:11:23,760 Speaker 1: from time to time bullying the FED. One of the 204 00:11:25,240 --> 00:11:29,360 Speaker 1: star instances I think of is my the former chairman 205 00:11:29,440 --> 00:11:33,160 Speaker 1: of my economics department at Columbia, Author Burns, who became 206 00:11:33,200 --> 00:11:37,200 Speaker 1: the chairman in the early seventies, essentially was bullied into 207 00:11:37,320 --> 00:11:41,120 Speaker 1: increasing the money supply in n seventy two to finance 208 00:11:41,360 --> 00:11:45,200 Speaker 1: Richard Nixon's Vietnam War, and so it has been done. 209 00:11:45,360 --> 00:11:50,239 Speaker 1: So the FED does not have a history of continued independence. 210 00:11:50,440 --> 00:11:53,600 Speaker 1: Paul Wolker, if anything, was probably an exception to the rule. 211 00:11:54,040 --> 00:11:56,680 Speaker 1: What was Arthur Burns like to review for our young 212 00:11:57,440 --> 00:12:04,040 Speaker 1: number ones here today? There was Cherry chairman, Bernanke, Chairman Greenspan, 213 00:12:04,240 --> 00:12:08,240 Speaker 1: huge uproar when we went from Greenspan Bernankey, and before 214 00:12:08,360 --> 00:12:12,360 Speaker 1: that there were selected others. But Arthur Burns defined a 215 00:12:12,520 --> 00:12:16,319 Speaker 1: kind of economics. Could he do economics today? In the 216 00:12:16,400 --> 00:12:19,520 Speaker 1: need for transparency today? I mean, would we accept him 217 00:12:19,559 --> 00:12:22,679 Speaker 1: pipe smoking in the House of the Senate, Humphrey Hawkins, 218 00:12:22,840 --> 00:12:25,040 Speaker 1: just as one idea, I think the world has changed. 219 00:12:25,200 --> 00:12:28,319 Speaker 1: I think your your question is spot on, Tom, because 220 00:12:28,400 --> 00:12:33,480 Speaker 1: I don't see the author Burns kind of pipe smoking 221 00:12:34,520 --> 00:12:40,960 Speaker 1: uh omp chat economist, contemplative thinking hard right. I mean, David, 222 00:12:41,040 --> 00:12:42,600 Speaker 1: this is a serious deal because if you go back 223 00:12:42,640 --> 00:12:46,839 Speaker 1: and look, Arthur Burns wasn't measured. He wasn't measured. I 224 00:12:46,880 --> 00:12:50,040 Speaker 1: mean they made serious jumps in yields when they chose 225 00:12:50,080 --> 00:12:54,559 Speaker 1: to and of course not to forget one more, David, 226 00:12:54,600 --> 00:12:58,240 Speaker 1: since you asked a question about political independence. We had 227 00:12:58,360 --> 00:13:02,679 Speaker 1: a very little remembered FED chairman called g William Miller 228 00:13:03,040 --> 00:13:06,599 Speaker 1: who lasted in his job for exactly one year, in 229 00:13:08,360 --> 00:13:13,319 Speaker 1: challenging to say the last when when when you look 230 00:13:13,400 --> 00:13:17,400 Speaker 1: at that we bought the show to a complete Arthur 231 00:13:18,280 --> 00:13:24,040 Speaker 1: once again with three commands, I fell asleep, No, no, 232 00:13:24,080 --> 00:13:26,960 Speaker 1: no three. When you when you look at the future 233 00:13:27,000 --> 00:13:29,000 Speaker 1: of this FED over the next twelve months eighteen months, 234 00:13:29,559 --> 00:13:31,880 Speaker 1: Donald Trump the president, let us have a huge opportunity 235 00:13:31,960 --> 00:13:34,439 Speaker 1: here to reshape it, whether we're not not even necessarily 236 00:13:34,480 --> 00:13:36,320 Speaker 1: by bullying. He's going to have a lot of personnel 237 00:13:36,400 --> 00:13:38,920 Speaker 1: changes that that that he can make. What does a 238 00:13:39,200 --> 00:13:41,160 Speaker 1: Donald Trump FED look like? And we've been talking about 239 00:13:41,200 --> 00:13:43,680 Speaker 1: past chairman what what is the the ideal Donald Trump, 240 00:13:43,760 --> 00:13:46,719 Speaker 1: Chairman of the Fan. That's a great question, David. I 241 00:13:46,960 --> 00:13:49,959 Speaker 1: would characterize the FED policy that we have had in 242 00:13:50,000 --> 00:13:52,920 Speaker 1: the last few years as essentially seat of the pants 243 00:13:53,200 --> 00:13:57,719 Speaker 1: policy making. You look at the latest data point that 244 00:13:57,840 --> 00:14:00,480 Speaker 1: you get and then decide whether to hike or not 245 00:14:00,640 --> 00:14:03,280 Speaker 1: to hike. If there is the slightest bit of a 246 00:14:03,440 --> 00:14:06,880 Speaker 1: problem elsewhere, you decide to postpone. And that was the 247 00:14:07,640 --> 00:14:10,560 Speaker 1: That's what happened. For instance, in September of twenty fifteen, 248 00:14:11,120 --> 00:14:14,240 Speaker 1: when there was in the Jackson Hole a month prior, 249 00:14:14,880 --> 00:14:18,120 Speaker 1: the FED had essentially Janet Ellen seemed to indicate a 250 00:14:18,200 --> 00:14:21,360 Speaker 1: September eight hike which never happened groundworkers there, and so 251 00:14:22,120 --> 00:14:24,680 Speaker 1: that is what we had. So the markets have been 252 00:14:24,800 --> 00:14:28,040 Speaker 1: pushed up, held back by what the FED is going 253 00:14:28,120 --> 00:14:31,000 Speaker 1: to do. So the change I would like to see, 254 00:14:31,160 --> 00:14:34,000 Speaker 1: and I think many of the conservative people advising the 255 00:14:34,080 --> 00:14:37,800 Speaker 1: President elect come from that camp, is more rules based. 256 00:14:38,440 --> 00:14:41,360 Speaker 1: For instance, another one of my professors in my PhD 257 00:14:41,520 --> 00:14:45,080 Speaker 1: dissertation was John Taylor, famous for his tailor rule, who 258 00:14:45,160 --> 00:14:48,800 Speaker 1: is now at Stanford University. And in terms of what 259 00:14:48,960 --> 00:14:52,520 Speaker 1: it is my cap by my calculation, the tailor rule 260 00:14:52,560 --> 00:14:54,880 Speaker 1: would call for a federal funds rate of about plus 261 00:14:55,040 --> 00:14:58,040 Speaker 1: one and a half percent today, which shown also about 262 00:14:58,080 --> 00:15:02,320 Speaker 1: the let's talk to you now, Rules versus discretion. Sherman 263 00:15:02,360 --> 00:15:06,360 Speaker 1: Greenspan says more discretion. John Taylor Stanford says more rules, 264 00:15:06,440 --> 00:15:10,200 Speaker 1: which works. Three. Absolutely. I'm in favor of rules because 265 00:15:10,280 --> 00:15:13,880 Speaker 1: I think discretion gives rise to all kinds of subjectivity 266 00:15:13,920 --> 00:15:17,480 Speaker 1: which you do not want. The market gets certainty as 267 00:15:17,520 --> 00:15:20,600 Speaker 1: a result of rules. In other words, the problem there, 268 00:15:20,720 --> 00:15:24,480 Speaker 1: Tom is not rules versus discretion as much as the 269 00:15:24,560 --> 00:15:28,360 Speaker 1: fact that a rule space policy makes it unnecessary to 270 00:15:28,520 --> 00:15:32,600 Speaker 1: have these twelve members voting on the Federal Reserve decisions. 271 00:15:32,960 --> 00:15:35,520 Speaker 1: You and I can guess exactly what the fit should 272 00:15:35,520 --> 00:15:38,520 Speaker 1: be doing, and the market has certainty. Street Commar with 273 00:15:38,640 --> 00:15:41,080 Speaker 1: Us from Street Commar Global Strategy is one of the 274 00:15:41,120 --> 00:15:44,440 Speaker 1: great joys of having doctor uh Commar in with us 275 00:15:44,640 --> 00:15:47,960 Speaker 1: is the idea of eighteen things to talk about. Let 276 00:15:48,040 --> 00:15:50,440 Speaker 1: me go to the emotion of our listeners, which is, 277 00:15:50,480 --> 00:15:54,200 Speaker 1: where's the next pay raise, whether it's them, their kids, whatever. 278 00:15:55,040 --> 00:15:58,720 Speaker 1: So if I get a Trumpian inflation, do you just 279 00:15:58,880 --> 00:16:01,880 Speaker 1: assume I get be in growth with that? Or is 280 00:16:01,920 --> 00:16:05,560 Speaker 1: the worst outcome here? I get a higher inflation without 281 00:16:05,600 --> 00:16:08,880 Speaker 1: the growth that drives wage growth, which is I think 282 00:16:09,480 --> 00:16:13,280 Speaker 1: you are going to have some inflation pickup, Tom, if 283 00:16:13,360 --> 00:16:16,960 Speaker 1: you have a significant increase in physical spending and before 284 00:16:17,080 --> 00:16:20,760 Speaker 1: that has an impact on productivity. The spending alone is 285 00:16:20,840 --> 00:16:24,120 Speaker 1: likely to push up prices. Now, whether you get a 286 00:16:24,280 --> 00:16:29,080 Speaker 1: salary increase or not compared with that inflation is going 287 00:16:29,160 --> 00:16:32,160 Speaker 1: to depend very much in terms of what kind of 288 00:16:32,280 --> 00:16:35,960 Speaker 1: work that person is doing. For instance, the low wage 289 00:16:36,520 --> 00:16:40,120 Speaker 1: or manufacturing jobs where the competitors happened to be in 290 00:16:40,240 --> 00:16:44,440 Speaker 1: Mexico or China or other countries, those jobs are gone forever. 291 00:16:44,720 --> 00:16:47,840 Speaker 1: I don't think trade restrictions are threats by the new 292 00:16:47,920 --> 00:16:53,280 Speaker 1: president Electrump do for those people you just describe who 293 00:16:53,320 --> 00:16:57,280 Speaker 1: were his core constituency. We have a lesson there from 294 00:16:57,360 --> 00:17:00,680 Speaker 1: what happened in Germany in two thousand three, Tom. What 295 00:17:00,880 --> 00:17:04,399 Speaker 1: they had was known as the Hearts Reforms, which cost 296 00:17:04,520 --> 00:17:08,159 Speaker 1: the Den Chancellor Gerhard Schreuder to be thrown out of office. 297 00:17:08,200 --> 00:17:11,320 Speaker 1: In two thousand five, Angela Merkel came in, but it 298 00:17:11,520 --> 00:17:14,760 Speaker 1: essentially said workers need to be retrained, they need to 299 00:17:14,840 --> 00:17:18,399 Speaker 1: be educated in jobs which have a greater demand. And 300 00:17:18,560 --> 00:17:21,680 Speaker 1: as you go for an education, as you accept the training, 301 00:17:21,880 --> 00:17:25,400 Speaker 1: you will get some form of salary to keep you going, 302 00:17:26,000 --> 00:17:28,280 Speaker 1: and in the future you will be self sustaining as 303 00:17:28,320 --> 00:17:30,960 Speaker 1: a result of better skills. But if you're going to 304 00:17:31,080 --> 00:17:33,200 Speaker 1: stay with your skill level and you want to be 305 00:17:33,280 --> 00:17:36,280 Speaker 1: supported and you want to get a job, you cannot 306 00:17:36,359 --> 00:17:40,320 Speaker 1: prevent the Chinese, Indians and Mexicans from competing with you. 307 00:17:40,920 --> 00:17:43,120 Speaker 1: Do you think that it's a certitude here that we're 308 00:17:43,160 --> 00:17:45,720 Speaker 1: going to get a big fiscal stimulus package, that we're 309 00:17:45,720 --> 00:17:47,560 Speaker 1: going to get the kind of infrastructure spending the Donald 310 00:17:47,560 --> 00:17:50,720 Speaker 1: Trump was talking about on the campaign trail. Uh? And 311 00:17:50,880 --> 00:17:52,760 Speaker 1: and and if that's the case, what are the lessons 312 00:17:52,840 --> 00:17:54,679 Speaker 1: learned from back in two thousand and eight two thousand nine, 313 00:17:54,680 --> 00:17:56,639 Speaker 1: how do you make this package more effected than the 314 00:17:56,680 --> 00:18:00,119 Speaker 1: one back then? Uh? I'll answer you into a three 315 00:18:00,200 --> 00:18:03,200 Speaker 1: parts because you have a number of questions that I think, yes, 316 00:18:03,320 --> 00:18:06,720 Speaker 1: there is going to be fiscal stimulus. The easy part 317 00:18:06,840 --> 00:18:10,720 Speaker 1: of the fiscal stimulus is to give tax cuts. Rather 318 00:18:10,840 --> 00:18:13,360 Speaker 1: than decide how to build a bridge and where you're 319 00:18:13,359 --> 00:18:15,160 Speaker 1: going to spend the money, that's going to take quite 320 00:18:15,200 --> 00:18:18,359 Speaker 1: a bit longer to get done. So the tax cuts 321 00:18:18,440 --> 00:18:21,440 Speaker 1: themselves are immediately going to give some form of a 322 00:18:21,520 --> 00:18:24,119 Speaker 1: flip in terms increase on the growth rate in the 323 00:18:24,200 --> 00:18:27,760 Speaker 1: short term. Give a temporary stimulus. Now, how much of 324 00:18:27,880 --> 00:18:32,000 Speaker 1: benefit that has depends on where the tax cut is structured. 325 00:18:32,600 --> 00:18:34,520 Speaker 1: If it is structed, if it is structured to give 326 00:18:34,560 --> 00:18:37,360 Speaker 1: it only at the highest income levels, it's not going 327 00:18:37,440 --> 00:18:41,160 Speaker 1: to percolate down to the core Trump supporters who brought 328 00:18:41,240 --> 00:18:43,920 Speaker 1: him to office. And that's not going to work. And 329 00:18:44,119 --> 00:18:47,399 Speaker 1: in terms of what needs to be done subsequently is 330 00:18:47,480 --> 00:18:52,240 Speaker 1: you need to have these fiscal stimulus programs on infrastructure 331 00:18:52,320 --> 00:18:56,040 Speaker 1: to be well set. You need the participation of the 332 00:18:56,160 --> 00:18:58,640 Speaker 1: private sector. For instance, you can have a toll road 333 00:18:58,720 --> 00:19:01,600 Speaker 1: where the private sector in est has the benefit in 334 00:19:01,640 --> 00:19:04,520 Speaker 1: the tones being used. Then you have less expenditure on 335 00:19:04,600 --> 00:19:07,119 Speaker 1: the part of the public. All of those are important 336 00:19:07,320 --> 00:19:09,760 Speaker 1: and they're going to take time. That's why I don't 337 00:19:09,800 --> 00:19:12,680 Speaker 1: think you're going to have a big bust and growth immediately. 338 00:19:12,960 --> 00:19:15,240 Speaker 1: Three and I'm depressed. Yea. I came out of the 339 00:19:15,320 --> 00:19:18,719 Speaker 1: building yesterday. Folks were next to Bloomingdale's here on Lexington Avenue. 340 00:19:18,720 --> 00:19:22,840 Speaker 1: On there the windows are open, rest of lights and 341 00:19:22,880 --> 00:19:25,920 Speaker 1: the holiday windows, and they said, should I walk home? 342 00:19:26,840 --> 00:19:30,720 Speaker 1: And it's four blocks, I mean three four city blocks. 343 00:19:31,560 --> 00:19:35,399 Speaker 1: There's a photo on on Twitter folks of young David Gura. David, 344 00:19:35,440 --> 00:19:38,160 Speaker 1: you live just this side of the Hampton's. How long 345 00:19:38,359 --> 00:19:42,560 Speaker 1: is it you walk on ourt? That's about six that's 346 00:19:42,560 --> 00:19:49,880 Speaker 1: about six miles, but six miles, Yeah, I've never done. 347 00:19:49,920 --> 00:19:51,959 Speaker 1: That's like a marathon. There you go. Let me get 348 00:19:51,960 --> 00:19:54,760 Speaker 1: a headline in the headline here crossing the turbo from 349 00:19:54,800 --> 00:19:57,680 Speaker 1: MSNBC which says President elect Donald Trump will not pursue 350 00:19:58,040 --> 00:20:01,520 Speaker 1: an investigation into Hillary Clinton. Again, this is report from 351 00:20:01,640 --> 00:20:04,160 Speaker 1: MSNBC that's not been confirmed by Bloomberg, saining Donald Trump 352 00:20:04,160 --> 00:20:07,919 Speaker 1: will not pursue an investigation into Hillary Clinton. Remember during 353 00:20:07,920 --> 00:20:09,680 Speaker 1: the campaign he often pledged to do that if he 354 00:20:09,720 --> 00:20:11,919 Speaker 1: were to be elected. He launched an investigation over her 355 00:20:12,280 --> 00:20:14,719 Speaker 1: usage of personal email, so he appears to be reversing 356 00:20:14,760 --> 00:20:17,160 Speaker 1: course on that. Again, an unconfirmed report here from MSNBC. 357 00:20:17,200 --> 00:20:19,600 Speaker 1: And will bring you more details on that as we 358 00:20:19,640 --> 00:20:21,320 Speaker 1: get the most of The New York Times responding Michael 359 00:20:21,320 --> 00:20:23,680 Speaker 1: Barr mentioning the fact that Donald Trump canceled his meeting 360 00:20:24,080 --> 00:20:26,440 Speaker 1: with The New York Times today, The New York Times 361 00:20:26,440 --> 00:20:28,800 Speaker 1: saying it first became aware of that when it when 362 00:20:28,920 --> 00:20:31,000 Speaker 1: the editor where they saw the tweet from Doc Donald 363 00:20:31,040 --> 00:20:33,240 Speaker 1: Trump this morning while we're looking at the news flow 364 00:20:33,920 --> 00:20:38,080 Speaker 1: NBC saying that Mr Giuliani Mayor Giuliani considered for Trump 365 00:20:38,240 --> 00:20:43,640 Speaker 1: National Intelligence director, sort of the stream of consciousness. It's 366 00:20:43,680 --> 00:20:46,080 Speaker 1: it's a whole new world day. Yeah, more meetings today 367 00:20:46,080 --> 00:20:48,119 Speaker 1: a Trump tower before he heads to to Florida. I 368 00:20:48,160 --> 00:20:51,119 Speaker 1: think for the president in two or three or four terms, 369 00:20:51,440 --> 00:20:55,520 Speaker 1: do they use Snapchat? What platform is next? What's the 370 00:20:55,560 --> 00:21:00,359 Speaker 1: next president chatting American public? I don't know. It's a 371 00:21:00,440 --> 00:21:04,800 Speaker 1: brave new world. We're thrilled you're with us worldwide Bloomberg surveillance. 372 00:21:04,880 --> 00:21:17,120 Speaker 1: This is Bloomberg. Who you put your trust in matters. 373 00:21:17,280 --> 00:21:21,920 Speaker 1: Investors have put their trust in independent registered investment advisors 374 00:21:22,240 --> 00:21:24,959 Speaker 1: to the two and of four trillion dollars. Why they 375 00:21:25,040 --> 00:21:28,280 Speaker 1: see their roles to serve, not sell. That's why Charles 376 00:21:28,359 --> 00:21:32,760 Speaker 1: Schwab is committed to the success over seven thousand independent 377 00:21:32,880 --> 00:21:38,640 Speaker 1: financial advisors who passionately dedicate themselves to helping people achieve 378 00:21:38,960 --> 00:21:43,840 Speaker 1: their financial goals. Learn more and find your independent advisor 379 00:21:44,280 --> 00:21:52,240 Speaker 1: dot com. Write what I said at the top of 380 00:21:52,280 --> 00:21:54,280 Speaker 1: the show, the w I r P function on the 381 00:21:54,280 --> 00:21:57,879 Speaker 1: bloomber looking at fed at funds future showing a probability 382 00:21:57,880 --> 00:22:01,640 Speaker 1: of a race went probably like, come on, I must 383 00:22:01,680 --> 00:22:07,240 Speaker 1: have like astonished. I have not seen that before, but 384 00:22:07,640 --> 00:22:10,000 Speaker 1: indeed it's been that way since yesterday afternoon. I want 385 00:22:10,000 --> 00:22:12,560 Speaker 1: to bring Kim show Holts, Professor of Management Practice in 386 00:22:12,600 --> 00:22:14,760 Speaker 1: the Economics Department n y U Sturring School of Business, 387 00:22:14,800 --> 00:22:17,240 Speaker 1: form a global chief economist at City Group. It's great 388 00:22:17,240 --> 00:22:18,879 Speaker 1: to have you with us. And we were talking to 389 00:22:19,080 --> 00:22:21,960 Speaker 1: to Sri Kumar a few minutes ago about the the 390 00:22:22,160 --> 00:22:24,560 Speaker 1: the pluses and minuses of a rules based system for 391 00:22:24,760 --> 00:22:27,200 Speaker 1: for the FED Reserve. This is something that Congress is 392 00:22:27,200 --> 00:22:29,720 Speaker 1: actively chewing over. It seems like there is a possibility 393 00:22:29,760 --> 00:22:31,960 Speaker 1: we could see this happen here in the new term 394 00:22:32,160 --> 00:22:34,280 Speaker 1: walkerster as you see at the the the pluses and 395 00:22:34,320 --> 00:22:37,840 Speaker 1: minuses of a system like that the Fords and the against. Well, 396 00:22:38,000 --> 00:22:41,000 Speaker 1: let's start with where we are. We currently have a 397 00:22:41,080 --> 00:22:45,320 Speaker 1: system in which Congress monitors the Fed and judges their 398 00:22:45,359 --> 00:22:49,040 Speaker 1: performance against a mandate. The mandate is price stability and 399 00:22:49,359 --> 00:22:55,000 Speaker 1: keeping unemployment close to some low sustainable level. And on 400 00:22:55,160 --> 00:22:58,000 Speaker 1: that basis, the Fed has done a reasonably good job, 401 00:22:58,200 --> 00:23:02,000 Speaker 1: and especially considering the enormous scale of the recent crisis, 402 00:23:02,160 --> 00:23:05,560 Speaker 1: inflation has been relatively low and stable, in fact, if anything, 403 00:23:05,640 --> 00:23:10,120 Speaker 1: a little bit too low. Um so uh. I think 404 00:23:10,200 --> 00:23:12,639 Speaker 1: that that has turned out to be a successful system. 405 00:23:13,200 --> 00:23:17,000 Speaker 1: What's being proposed is that Congress switched to monitoring the 406 00:23:17,119 --> 00:23:20,920 Speaker 1: operational tools that the FED users, namely conventional interest rates, 407 00:23:21,400 --> 00:23:24,359 Speaker 1: and they want to set their The proposal has been 408 00:23:24,440 --> 00:23:27,680 Speaker 1: to set up a policy rule, the Tailor rule, as 409 00:23:27,720 --> 00:23:31,520 Speaker 1: a benchmark against which the FED could create its own rule, 410 00:23:31,560 --> 00:23:33,880 Speaker 1: but would still be measured not only against its own 411 00:23:33,960 --> 00:23:37,320 Speaker 1: rule but against the tailor rule. And while that has 412 00:23:37,400 --> 00:23:41,479 Speaker 1: some benefits, it does tend to constrain FED discretion more 413 00:23:41,560 --> 00:23:43,760 Speaker 1: than what we observe today. They could also have some 414 00:23:43,880 --> 00:23:47,720 Speaker 1: real downsides. And in particular, any simple rule that we 415 00:23:47,840 --> 00:23:50,480 Speaker 1: can think of is often going to need to be 416 00:23:50,640 --> 00:23:54,600 Speaker 1: violated in practice, and basically because it just can't take 417 00:23:54,640 --> 00:23:56,720 Speaker 1: account of the complexity of the world we're in that 418 00:23:56,920 --> 00:23:59,159 Speaker 1: it sounds like the proposed legislation would would allow for 419 00:23:59,320 --> 00:24:01,400 Speaker 1: some flexibility there. I think there will be those who 420 00:24:01,440 --> 00:24:03,920 Speaker 1: wonder about the counter factual here, if you look back 421 00:24:03,960 --> 00:24:06,119 Speaker 1: over the last ten fifteen years, how things would be 422 00:24:06,200 --> 00:24:08,320 Speaker 1: different or might be different if a rule like this 423 00:24:08,400 --> 00:24:11,359 Speaker 1: we're in place. Well, it's it's hard to say. I mean, 424 00:24:11,720 --> 00:24:16,080 Speaker 1: one of the questions is, uh, would the Federal Reserve 425 00:24:16,200 --> 00:24:20,040 Speaker 1: be more um obliged to try and stick to a 426 00:24:20,240 --> 00:24:22,520 Speaker 1: rule or stay close to a rule even if they 427 00:24:22,560 --> 00:24:26,200 Speaker 1: thought that wasn't the optimal policy. So, for example, they're 428 00:24:26,280 --> 00:24:30,800 Speaker 1: often very sharp changes in financial conditions, equity market crashes, um, 429 00:24:31,320 --> 00:24:35,560 Speaker 1: big crises that we've observed, and they don't show up 430 00:24:35,640 --> 00:24:39,080 Speaker 1: instantaneously in a rule, typically not a simple one like 431 00:24:39,160 --> 00:24:42,920 Speaker 1: the tailor rule. So have the Fed waited to respond 432 00:24:43,359 --> 00:24:45,920 Speaker 1: to those kinds of shocks until it shows up in 433 00:24:46,080 --> 00:24:49,760 Speaker 1: GDP and inflation? That could have been a real big problem. Now, 434 00:24:49,960 --> 00:24:53,280 Speaker 1: on the other hand, to be fair, um, having a 435 00:24:53,400 --> 00:24:58,280 Speaker 1: rule probably reduces the chances of really large errors. So UM, 436 00:24:58,760 --> 00:25:01,040 Speaker 1: the question is how do you judge the last thirty 437 00:25:01,119 --> 00:25:03,320 Speaker 1: years from the Fed? I think a lot of people 438 00:25:03,400 --> 00:25:06,520 Speaker 1: would say, aside for the financial crisis, they got the 439 00:25:06,640 --> 00:25:09,600 Speaker 1: basics of keeping inflation low and stable. Right, let's go 440 00:25:09,800 --> 00:25:14,080 Speaker 1: ned phelps on everyone nehru and a I R you 441 00:25:14,480 --> 00:25:16,320 Speaker 1: is one of the plug ins of the tailor rule. 442 00:25:16,800 --> 00:25:19,200 Speaker 1: I would suggest if you get six economists in a room, 443 00:25:19,440 --> 00:25:22,440 Speaker 1: you're gonna get fourteen opinions. On Nehru. How can we 444 00:25:22,520 --> 00:25:24,600 Speaker 1: have a tailor rule where we don't know what one 445 00:25:24,640 --> 00:25:28,160 Speaker 1: of the major plugins is, Tom, I couldn't agree more. Actually, 446 00:25:28,400 --> 00:25:31,000 Speaker 1: I think you'll find out that there would be even 447 00:25:31,080 --> 00:25:34,960 Speaker 1: more disagreement about measuring potential GDP, which is another way 448 00:25:35,240 --> 00:25:38,280 Speaker 1: another element of a different formulation of the tailor rule, 449 00:25:38,640 --> 00:25:41,119 Speaker 1: and the one about which there is the most disagreement 450 00:25:41,560 --> 00:25:43,960 Speaker 1: is the natural rate of interest. That first number that 451 00:25:44,040 --> 00:25:47,359 Speaker 1: appears in the tailor rule. UM. Taylor used the number two. 452 00:25:47,520 --> 00:25:49,960 Speaker 1: It seemed reasonable at the time because it was the 453 00:25:50,000 --> 00:25:52,400 Speaker 1: average for the short term real interest rate he'd observed. 454 00:25:52,840 --> 00:25:54,879 Speaker 1: Today they are estimates that that number should be as 455 00:25:54,920 --> 00:25:59,040 Speaker 1: low as zero UM, and that that source of uncertainty 456 00:25:59,040 --> 00:26:01,640 Speaker 1: about what the right love all the races is just enormous. 457 00:26:01,720 --> 00:26:04,359 Speaker 1: So I don't think any simple rule can account for that. 458 00:26:05,760 --> 00:26:08,040 Speaker 1: Kim schoen holts with us as we are. You gonna 459 00:26:08,080 --> 00:26:10,719 Speaker 1: tweet out today so everybody can know what you're doing. UM. 460 00:26:11,080 --> 00:26:13,920 Speaker 1: You know the new n y U distribution system. This 461 00:26:14,119 --> 00:26:17,200 Speaker 1: is great. UM. I actually don't tweet under my own name, 462 00:26:17,800 --> 00:26:23,000 Speaker 1: but Steve Chacketty and I write a blog exactly Money 463 00:26:23,000 --> 00:26:26,960 Speaker 1: and Banking dot Com, and we every time we do postum, 464 00:26:27,040 --> 00:26:29,560 Speaker 1: which is usually on Monday mornings, we tweet out the 465 00:26:29,640 --> 00:26:33,040 Speaker 1: message that we've done a post It's under real Stephen Chacketty, 466 00:26:35,320 --> 00:26:38,760 Speaker 1: an esteemed economist. I'm accept no invitation work at b 467 00:26:38,920 --> 00:26:41,880 Speaker 1: I S in Switzerland. Chrima sen Holtz with it's professor 468 00:26:41,960 --> 00:26:45,480 Speaker 1: shoen Holtz, Dr. Schoen Holts of New York University. What 469 00:26:45,720 --> 00:26:48,960 Speaker 1: was the shift like to go from market big bank 470 00:26:49,080 --> 00:26:52,200 Speaker 1: economics to academics. When you go into classroom for the 471 00:26:52,280 --> 00:26:56,840 Speaker 1: first time to teach, I mean, did you take the pharmaceutical? 472 00:26:56,920 --> 00:26:59,600 Speaker 1: Did you were you sit? What do you do? You know? 473 00:27:00,119 --> 00:27:01,840 Speaker 1: I tell it the other way Tom. You know, in 474 00:27:01,880 --> 00:27:04,159 Speaker 1: the twenty years I was a market economist, I was 475 00:27:04,240 --> 00:27:07,320 Speaker 1: doing economics one oh one for clients all the time, 476 00:27:07,840 --> 00:27:11,479 Speaker 1: trying to teach them applied macroeconomics and evaluating asset prices. 477 00:27:11,600 --> 00:27:14,240 Speaker 1: So I just brought that to the classroom, uh and 478 00:27:14,600 --> 00:27:17,600 Speaker 1: felt pretty much right at home. What do NBA students 479 00:27:17,840 --> 00:27:20,480 Speaker 1: want and folks? Full disclosure here. N y u Stern 480 00:27:20,680 --> 00:27:24,359 Speaker 1: was literally my first supporter when we did Bloomberg on 481 00:27:24,400 --> 00:27:28,200 Speaker 1: the Economy. They're the first people, along with sector spiders, 482 00:27:28,240 --> 00:27:30,280 Speaker 1: who stood up and said, yeah, we're going to sponsor 483 00:27:30,359 --> 00:27:34,720 Speaker 1: this program. What do the NBA students want from academics 484 00:27:34,840 --> 00:27:38,800 Speaker 1: like you? Look, I think they want several things. First, 485 00:27:38,840 --> 00:27:40,760 Speaker 1: they want a broad understanding of the world so they 486 00:27:40,840 --> 00:27:42,639 Speaker 1: can do their jobs, not just now, but in the 487 00:27:42,720 --> 00:27:45,480 Speaker 1: long run. They want to have careers, not just first jobs. 488 00:27:45,840 --> 00:27:47,639 Speaker 1: But second, they want to set of skills that are 489 00:27:47,640 --> 00:27:50,520 Speaker 1: going to prepare them for the for the workplace today, 490 00:27:51,040 --> 00:27:54,399 Speaker 1: and those skills are changing. UM. Big example of that 491 00:27:54,640 --> 00:27:59,040 Speaker 1: is financial technology, UM, which is changing the way people 492 00:27:59,119 --> 00:28:02,600 Speaker 1: operating finance. How do you teach the ambiguity that you 493 00:28:02,720 --> 00:28:06,119 Speaker 1: and I know from microeconomics. The the what I find 494 00:28:06,280 --> 00:28:09,480 Speaker 1: so challenging is for people it's not on the one hand, 495 00:28:09,520 --> 00:28:15,400 Speaker 1: on the other hand, it's the mathemamatically ambiguous dynamics within 496 00:28:15,600 --> 00:28:18,720 Speaker 1: every economic discussion. How do you teach ambiguity? You know? 497 00:28:19,440 --> 00:28:22,200 Speaker 1: My I think, in practical sense, Tom, the best way 498 00:28:22,240 --> 00:28:24,360 Speaker 1: to do it is actually put people in the position 499 00:28:24,400 --> 00:28:26,920 Speaker 1: of thinking about a decision they have to make. It's 500 00:28:27,160 --> 00:28:29,959 Speaker 1: it's a bit bit like game playing or a war 501 00:28:30,080 --> 00:28:32,240 Speaker 1: game in some sense, and you have to challenge them 502 00:28:32,280 --> 00:28:34,399 Speaker 1: to think about, how do you make this decision? What 503 00:28:34,480 --> 00:28:36,679 Speaker 1: are the factors that are going to influence your decision 504 00:28:36,720 --> 00:28:39,520 Speaker 1: what do you need to know? And then when you drive, 505 00:28:39,640 --> 00:28:41,560 Speaker 1: when you drill down, you find out what are the 506 00:28:41,640 --> 00:28:43,440 Speaker 1: things you can you can know and what are the 507 00:28:43,520 --> 00:28:46,120 Speaker 1: things you can't. I think that's actually the most practical. 508 00:28:46,120 --> 00:28:49,280 Speaker 1: It was sort of David like Harvard football last weekend. 509 00:28:50,560 --> 00:28:52,920 Speaker 1: They had to figure out the ambiguous outcome. Yes it 510 00:28:53,040 --> 00:28:55,920 Speaker 1: was not ambiguous outcome. Do you get students who are 511 00:28:55,960 --> 00:28:58,120 Speaker 1: interested in going into government at this point? Is that 512 00:28:58,160 --> 00:29:01,840 Speaker 1: an attractive career path? Talking about going to to to government? Economics? 513 00:29:01,920 --> 00:29:07,000 Speaker 1: For you have to take tweet one O one. It's 514 00:29:07,040 --> 00:29:10,280 Speaker 1: a minority and I but you know, for you know, 515 00:29:10,320 --> 00:29:12,280 Speaker 1: I think in many ways they think. To keep in 516 00:29:12,360 --> 00:29:13,960 Speaker 1: mind is if you ask how do you change the 517 00:29:14,040 --> 00:29:16,440 Speaker 1: world today? You may be able to do that better 518 00:29:16,560 --> 00:29:19,560 Speaker 1: through creating a new business and changing the technologies that 519 00:29:19,640 --> 00:29:23,840 Speaker 1: are available to us than entering government. So um entrepreneurial 520 00:29:23,920 --> 00:29:27,080 Speaker 1: activity big plus. We we encourage people to do that. 521 00:29:27,360 --> 00:29:29,360 Speaker 1: It's reading your most recent notes and you write a 522 00:29:29,400 --> 00:29:32,200 Speaker 1: lot about the problems with how we measure inflation. You 523 00:29:32,280 --> 00:29:34,960 Speaker 1: bring up the new frontier their financial technology, how about 524 00:29:34,960 --> 00:29:37,680 Speaker 1: the new new terrain of of forecasting? Are we getting 525 00:29:37,680 --> 00:29:40,040 Speaker 1: any better at getting a sense of how the economy 526 00:29:40,120 --> 00:29:43,920 Speaker 1: is doing. Um, we're we're okay, but we're not good 527 00:29:44,240 --> 00:29:46,600 Speaker 1: and uh. And it's partly because you know, there are 528 00:29:46,760 --> 00:29:50,760 Speaker 1: certain things about the economy that are inherently unfecastable. People 529 00:29:50,840 --> 00:29:53,760 Speaker 1: form expectations about the future, sometimes in ways we do 530 00:29:53,880 --> 00:29:57,520 Speaker 1: not understand, and those expectations have a huge influence on 531 00:29:57,600 --> 00:30:00,680 Speaker 1: the way they behave on whether they invest, whether they save, 532 00:30:00,840 --> 00:30:04,440 Speaker 1: whether they spend more, um, whether they're willing to pay 533 00:30:04,480 --> 00:30:07,200 Speaker 1: a higher price. Um. So there are a lot of 534 00:30:07,240 --> 00:30:09,360 Speaker 1: things about which we need to learn more. The good 535 00:30:09,440 --> 00:30:12,000 Speaker 1: news is there's a lot more microeconomic work that's being 536 00:30:12,080 --> 00:30:15,480 Speaker 1: done to inform what we think about the macroeconomy. And 537 00:30:15,600 --> 00:30:18,080 Speaker 1: I have good I have hopes that ten or twenty 538 00:30:18,120 --> 00:30:20,560 Speaker 1: years from now that will actually improve our way of 539 00:30:20,680 --> 00:30:22,680 Speaker 1: thinking about the world. Taking this back to what we 540 00:30:22,760 --> 00:30:24,680 Speaker 1: were talking about a few minutes ago, a more rules 541 00:30:24,720 --> 00:30:27,520 Speaker 1: based system. Tom was asking about ambiguity of mathematics and 542 00:30:27,560 --> 00:30:31,000 Speaker 1: the micro economics space. How big a hurdle is that 543 00:30:31,080 --> 00:30:33,880 Speaker 1: to overcome there? The ambiguity that central bankers face on 544 00:30:33,960 --> 00:30:37,240 Speaker 1: a daily basis. Look, they have to make decisions, they're 545 00:30:37,360 --> 00:30:40,160 Speaker 1: they're in the game. They can't Uh, it's a little 546 00:30:40,200 --> 00:30:43,280 Speaker 1: bit like you know, when when you you face uncertainty. 547 00:30:43,720 --> 00:30:46,120 Speaker 1: They're a bit like an airline pilot. They're already up 548 00:30:46,120 --> 00:30:48,040 Speaker 1: in the air and if there's a challenge, they have 549 00:30:48,160 --> 00:30:50,120 Speaker 1: to figure out how to land the plane, not to 550 00:30:50,320 --> 00:30:53,920 Speaker 1: stop and say, let's think about this as an academic exercise. 551 00:30:54,400 --> 00:30:56,840 Speaker 1: So from their point of view, getting the plane down 552 00:30:56,920 --> 00:31:00,600 Speaker 1: safely is the big challenge. A brilliant model. The brilliant model, 553 00:31:00,680 --> 00:31:05,120 Speaker 1: the dynamics the institutions and policymakers have to work. And 554 00:31:05,200 --> 00:31:08,520 Speaker 1: I go, we mentioned Rick Michigan before on this, but 555 00:31:09,120 --> 00:31:13,600 Speaker 1: the basic idea of the dynamics. Do you observe that 556 00:31:13,680 --> 00:31:18,320 Speaker 1: the people around the presidential president elect can move him 557 00:31:18,600 --> 00:31:21,640 Speaker 1: from Trump incertitude, which we all know and I think 558 00:31:21,640 --> 00:31:25,000 Speaker 1: of Mr Trump, thank you. I know, but but but 559 00:31:25,120 --> 00:31:28,080 Speaker 1: if you have Trump incertitude, can he amend that to 560 00:31:28,200 --> 00:31:31,760 Speaker 1: a dynamic analysis? You know, I can't say with any 561 00:31:31,840 --> 00:31:34,600 Speaker 1: degree of certainty. You know probably better than I do, 562 00:31:35,080 --> 00:31:39,320 Speaker 1: but I do. I did think that President Obama added 563 00:31:39,400 --> 00:31:42,280 Speaker 1: some insight into this the other day when he said, 564 00:31:42,480 --> 00:31:44,640 Speaker 1: when you get into the Oval office, it changes the 565 00:31:44,720 --> 00:31:47,040 Speaker 1: way you see the world exactly. And I think that, 566 00:31:47,280 --> 00:31:50,520 Speaker 1: you know, we'll see how that works out after January. David, 567 00:31:50,520 --> 00:31:52,680 Speaker 1: I'll be honest here, I'm sort of optimistic about it, 568 00:31:52,800 --> 00:31:59,240 Speaker 1: because every president is overcome by events, every single one. Yeah, yes, invariably. 569 00:31:59,720 --> 00:32:01,400 Speaker 1: I was struck. They're reading that piece in New York 570 00:32:01,440 --> 00:32:04,640 Speaker 1: Times over the weekend by Maggie Haberman about uh, Donald 571 00:32:04,680 --> 00:32:06,720 Speaker 1: Trump after that meeting in the Oval Office, how he 572 00:32:06,800 --> 00:32:08,640 Speaker 1: was sort of back to his old old routine and 573 00:32:08,720 --> 00:32:10,840 Speaker 1: didn't do We've seen the tweets this morning, so yes, 574 00:32:10,920 --> 00:32:13,800 Speaker 1: maybe we're waiting for that, that event or those events. 575 00:32:13,920 --> 00:32:17,200 Speaker 1: He's not there yet. I was going to go over 576 00:32:17,240 --> 00:32:19,360 Speaker 1: to the Gucci store yesterday and I gave up. Couldn't 577 00:32:19,360 --> 00:32:21,960 Speaker 1: get through it. He couldn't fight through the crowds. He 578 00:32:22,120 --> 00:32:26,760 Speaker 1: just was going over to look weekly window shopping. Now, 579 00:32:26,800 --> 00:32:28,640 Speaker 1: why you and our producer folks, why you and he 580 00:32:28,720 --> 00:32:30,960 Speaker 1: wants the he wants the little loafers with a fur 581 00:32:31,040 --> 00:32:35,880 Speaker 1: around the edges, snake tops of this Christmas list? Let 582 00:32:35,920 --> 00:32:38,240 Speaker 1: me ask you. You know, we're talking about our introspection 583 00:32:38,680 --> 00:32:41,080 Speaker 1: president elect, coming to terms with the gravity of his office. 584 00:32:41,640 --> 00:32:43,560 Speaker 1: We've seen that in the central banking space as well. 585 00:32:43,600 --> 00:32:45,680 Speaker 1: You've written about this, this to the Bank of Japan, 586 00:32:46,440 --> 00:32:50,360 Speaker 1: becoming introspective reevaluating its policies. UH, is this going to 587 00:32:50,440 --> 00:32:52,600 Speaker 1: become more widespread? Do you think we've seen central banks 588 00:32:52,680 --> 00:32:55,320 Speaker 1: learning along the way here? But the BJ did take 589 00:32:55,320 --> 00:32:57,520 Speaker 1: a real pause to take speak they've had to. I mean, 590 00:32:57,600 --> 00:33:00,840 Speaker 1: this is necessity is the mother of invention. They've tried 591 00:33:00,880 --> 00:33:04,080 Speaker 1: a lot of different things and they're not working that well. Um. 592 00:33:04,320 --> 00:33:06,480 Speaker 1: Their goal is to try and get an inflation target 593 00:33:06,520 --> 00:33:09,320 Speaker 1: of two and they're far below it, and the odds 594 00:33:09,400 --> 00:33:11,200 Speaker 1: of them hitting it are not that good in the 595 00:33:11,320 --> 00:33:15,000 Speaker 1: next couple of years. So UM, I admire their willingness 596 00:33:15,040 --> 00:33:19,800 Speaker 1: to to review their UH performance, to think about new 597 00:33:19,840 --> 00:33:22,280 Speaker 1: ways of approaching the problem, and to try things that 598 00:33:22,600 --> 00:33:26,120 Speaker 1: other central banks just haven't done. Having said that, they're 599 00:33:26,200 --> 00:33:30,280 Speaker 1: on a pretty risky path and there's no no certainty 600 00:33:30,360 --> 00:33:32,480 Speaker 1: that what they're trying now will work, and it puts 601 00:33:32,560 --> 00:33:35,360 Speaker 1: them at some risk. One final question, if we could 602 00:33:35,440 --> 00:33:38,000 Speaker 1: within the last press conference, which seems light years ago, 603 00:33:39,000 --> 00:33:42,960 Speaker 1: I was thunderstruck about chair yelling, struggled with an ex 604 00:33:43,040 --> 00:33:47,440 Speaker 1: post x anti before the fact After the fact analysis, 605 00:33:47,920 --> 00:33:50,240 Speaker 1: it seems like it's an institution that wants to get 606 00:33:50,280 --> 00:33:53,560 Speaker 1: out front with a crystal ball, but understands every bit 607 00:33:53,600 --> 00:33:57,200 Speaker 1: of History says they're reactive by definition. They are an 608 00:33:57,280 --> 00:34:01,120 Speaker 1: ex post after the fact institution, aren't they. You know, 609 00:34:01,400 --> 00:34:04,680 Speaker 1: if they could see the future, they would anticipate it 610 00:34:04,760 --> 00:34:08,839 Speaker 1: in bejo behave accordingly. But like most of us mortals there, 611 00:34:08,960 --> 00:34:11,640 Speaker 1: they have limits in their ability to foresee what will happen. 612 00:34:11,760 --> 00:34:14,600 Speaker 1: So the best they can really do toime is tell 613 00:34:14,680 --> 00:34:18,480 Speaker 1: you how they will behave when the events create shocks. 614 00:34:18,920 --> 00:34:21,600 Speaker 1: And if you know that, you can anticipate their behavior 615 00:34:21,680 --> 00:34:25,080 Speaker 1: in advance, and you actually make policy more effective because 616 00:34:25,160 --> 00:34:28,680 Speaker 1: what you do in markets responds before they do. Kim 617 00:34:28,760 --> 00:34:30,719 Speaker 1: john Olds, thank you so much. With Stern School, New 618 00:34:30,800 --> 00:34:34,400 Speaker 1: York University of course, assisting on economics this day of 619 00:34:34,440 --> 00:34:37,960 Speaker 1: a likelihood of a December rate rise, I don't know 620 00:34:38,000 --> 00:34:39,920 Speaker 1: if you've ever seen that before, but there it is. 621 00:34:42,480 --> 00:34:44,359 Speaker 1: I thought so yesterday, But I mean I made a joke. 622 00:34:44,440 --> 00:34:59,920 Speaker 1: Do we go to a hundred ten percent right play? 623 00:35:00,000 --> 00:35:03,440 Speaker 1: You're to bring Jim Paulson, strategist, Wells Capital Management, Jim, 624 00:35:03,480 --> 00:35:06,400 Speaker 1: good morning, Good morning. Let's let's pick up here with 625 00:35:06,440 --> 00:35:08,920 Speaker 1: where we were we just we're talking to Jane Foley 626 00:35:09,520 --> 00:35:13,439 Speaker 1: about how sorry Tom Keane inter Jackson, please the only 627 00:35:13,480 --> 00:35:16,120 Speaker 1: reason Paulson's on as the Vikings are playing the Lions 628 00:35:17,680 --> 00:35:22,279 Speaker 1: PM Thanksgiving Day dinner before or after Jim, I went 629 00:35:22,360 --> 00:35:24,359 Speaker 1: to Rachel Worsban and I said, we got to talk 630 00:35:24,400 --> 00:35:27,920 Speaker 1: to Paulson about Vikings Lions. I mean, that's why Thanksgiving 631 00:35:28,160 --> 00:35:31,360 Speaker 1: the Pilgrims looked at the Lions play. Yeah, that's the 632 00:35:31,600 --> 00:35:35,239 Speaker 1: NFC North title is on the line. I'm gonna be uh, 633 00:35:35,360 --> 00:35:37,719 Speaker 1: I'm gonna be eating late tom after the game. I 634 00:35:37,840 --> 00:35:39,960 Speaker 1: think very good to come. We got that out of 635 00:35:40,000 --> 00:35:42,720 Speaker 1: the way. Continued to dispensed with, dispensed with these important 636 00:35:42,760 --> 00:35:46,360 Speaker 1: as Jim Jane Foley talking about how how correlated everything 637 00:35:46,480 --> 00:35:48,200 Speaker 1: is right now. You look at the equity space, you're 638 00:35:48,200 --> 00:35:50,359 Speaker 1: looking also at FX, you're looking at commodities as well. 639 00:35:50,520 --> 00:35:55,120 Speaker 1: You agree with that we're a time of high correlation. Well, um, 640 00:35:55,320 --> 00:35:57,400 Speaker 1: I'm not sure I totally do. I mean, I certainly 641 00:35:57,440 --> 00:36:02,879 Speaker 1: get risk on is correl and risk off is correlated. Um, 642 00:36:03,080 --> 00:36:06,920 Speaker 1: you know, you certainly got u. Um. You know a 643 00:36:07,000 --> 00:36:09,960 Speaker 1: completely different relationship of lady between bond yields and the 644 00:36:10,000 --> 00:36:12,520 Speaker 1: stock market, for example, different than has been in much 645 00:36:12,560 --> 00:36:15,920 Speaker 1: of this recovery, with stocks and yields going you know, 646 00:36:16,080 --> 00:36:20,840 Speaker 1: directly higher, certainly got the dividend aristocrats and bon surrogate 647 00:36:20,920 --> 00:36:25,520 Speaker 1: stocks and low ball consumer stocks you know, significantly underperforming, 648 00:36:25,640 --> 00:36:29,000 Speaker 1: while the cyclical areas in the market you know, are 649 00:36:29,120 --> 00:36:31,480 Speaker 1: doing doing much better. So, if anything, I think there's 650 00:36:31,520 --> 00:36:35,680 Speaker 1: been uh less correlation than then there has been over 651 00:36:35,880 --> 00:36:38,920 Speaker 1: much of this recovery, although I agree that a lot 652 00:36:39,000 --> 00:36:42,480 Speaker 1: of the risk on parts are uh, you know, small caps. 653 00:36:42,600 --> 00:36:45,640 Speaker 1: You know, there's there's a broader participation in this rally 654 00:36:45,680 --> 00:36:48,840 Speaker 1: than we've had in earlier ones. What was the u 655 00:36:49,480 --> 00:36:51,800 Speaker 1: the catalyst for what we saw yesterday, the records that 656 00:36:51,840 --> 00:36:54,880 Speaker 1: we saw yesterday, Well, I think that, you know, I 657 00:36:55,000 --> 00:36:57,440 Speaker 1: think a lot of this the catalyst to this market 658 00:36:57,480 --> 00:36:59,880 Speaker 1: has been building most of the year, you know. I 659 00:37:00,280 --> 00:37:02,680 Speaker 1: I think we came off the loads of eighteen hundred 660 00:37:02,719 --> 00:37:07,840 Speaker 1: back in February because of the expectation global growth picking 661 00:37:07,920 --> 00:37:10,000 Speaker 1: up a little bit. And I think a lot of 662 00:37:10,080 --> 00:37:12,400 Speaker 1: the trends that we saw since the election, for example, 663 00:37:12,440 --> 00:37:15,760 Speaker 1: that people have attributed to Trump, I think we're in place, 664 00:37:15,880 --> 00:37:18,520 Speaker 1: starting at least in the summer. I mean, if you 665 00:37:18,600 --> 00:37:22,240 Speaker 1: look at the underperformance of you know, bond surrogate defensive 666 00:37:22,280 --> 00:37:26,200 Speaker 1: stocks that started in the summer, the outperformance of more 667 00:37:26,280 --> 00:37:30,000 Speaker 1: cyclical started then as well. The yield curve started steeping 668 00:37:30,120 --> 00:37:33,160 Speaker 1: then a little bit and accelerated the early fall uh 669 00:37:33,239 --> 00:37:37,480 Speaker 1: inflation expectations started to climb UH then. And I think 670 00:37:37,760 --> 00:37:39,879 Speaker 1: the big canaist to me is if you think about 671 00:37:39,920 --> 00:37:43,799 Speaker 1: it prior, prior to the third quarter, we had sub 672 00:37:44,560 --> 00:37:48,160 Speaker 1: real GDP growth in the United States for quite a while, 673 00:37:48,400 --> 00:37:51,080 Speaker 1: and we also had negative year on year earnings growth. 674 00:37:51,239 --> 00:37:53,799 Speaker 1: Going on now in the third quarter would happen as 675 00:37:53,840 --> 00:37:57,120 Speaker 1: we shot up to almost three GDP growth and we're 676 00:37:57,120 --> 00:37:59,879 Speaker 1: looking now the GDP Atlanta fed now number is three 677 00:38:00,000 --> 00:38:04,040 Speaker 1: points six percent for the fourth quarter, and also in 678 00:38:04,120 --> 00:38:06,800 Speaker 1: the third quarter, year on your earnings growth went positive 679 00:38:06,840 --> 00:38:09,200 Speaker 1: for the first time in more than a year, and 680 00:38:09,320 --> 00:38:11,600 Speaker 1: it looks to be even stronger in the fourth quarter. 681 00:38:12,120 --> 00:38:14,600 Speaker 1: In addition to that, in the third quarter, you had 682 00:38:14,719 --> 00:38:18,799 Speaker 1: a notable pickup and overseas growth. So China reports got 683 00:38:18,920 --> 00:38:22,840 Speaker 1: decided little better. Look at Japan posting a two plus 684 00:38:23,080 --> 00:38:27,160 Speaker 1: gd real GDP number in the latest quarter. The United Kingdom, 685 00:38:27,239 --> 00:38:30,680 Speaker 1: which was feared to fall apart, is actually improved. So 686 00:38:31,280 --> 00:38:34,680 Speaker 1: I think we went from you know, very sluggish growth 687 00:38:34,719 --> 00:38:37,480 Speaker 1: throughout the world, negative year on your earnings to suddenly 688 00:38:37,520 --> 00:38:40,120 Speaker 1: going to an accelerated growth in the United States and 689 00:38:40,200 --> 00:38:43,520 Speaker 1: abroad and the return of positive earnings, and I think 690 00:38:43,560 --> 00:38:47,600 Speaker 1: that's set off a move towards risk on assets, which 691 00:38:47,640 --> 00:38:50,600 Speaker 1: even got exacerbated by the election. How many chapters are 692 00:38:50,680 --> 00:38:54,799 Speaker 1: left here in the story of the strengthening dollar. Well, 693 00:38:55,440 --> 00:38:57,680 Speaker 1: that's where I differ a little bit with consensus um. 694 00:38:58,600 --> 00:39:01,120 Speaker 1: You know, I know that the dollar indexes at a 695 00:39:01,200 --> 00:39:04,719 Speaker 1: fourteen year high or whatever, um, But I think the 696 00:39:04,800 --> 00:39:07,799 Speaker 1: reality is it's it's pretty close to the top end 697 00:39:07,840 --> 00:39:09,759 Speaker 1: of a trading range it's been in since the start 698 00:39:09,800 --> 00:39:12,760 Speaker 1: of January two fifteen. If you go back to January fifteen, 699 00:39:13,440 --> 00:39:16,000 Speaker 1: the dollars about the same then as it is right now. 700 00:39:16,320 --> 00:39:18,200 Speaker 1: I think it's peaking. I think the dollar is gonna 701 00:39:18,239 --> 00:39:20,360 Speaker 1: come down over the next couple of years, and that 702 00:39:20,400 --> 00:39:22,960 Speaker 1: will be the biggest surprise I think in the markets. 703 00:39:23,400 --> 00:39:26,439 Speaker 1: If there's one one way consensus trade at the moment, 704 00:39:26,480 --> 00:39:28,840 Speaker 1: it's the dollars on a freight train north, and I 705 00:39:28,960 --> 00:39:30,799 Speaker 1: think it's gonna go the other way. This is an 706 00:39:30,840 --> 00:39:33,840 Speaker 1: important outlier call, folks, and we're hearing this from a 707 00:39:33,960 --> 00:39:37,360 Speaker 1: number of our guests, really trying to push against this 708 00:39:37,600 --> 00:39:41,279 Speaker 1: massive uh consensus to you, Jim, I want to come 709 00:39:41,320 --> 00:39:45,680 Speaker 1: back and talk about how our listeners should adapt and 710 00:39:45,800 --> 00:39:49,759 Speaker 1: adjust too. And I say this with respect for those 711 00:39:49,840 --> 00:39:53,480 Speaker 1: cautious the doom and gloom view frame for us, the 712 00:39:53,640 --> 00:39:58,760 Speaker 1: level of doomish and gloomish Now, how bad is it? Well, 713 00:39:59,120 --> 00:40:02,520 Speaker 1: you know it's and there's a question, tom Um, it's 714 00:40:02,600 --> 00:40:06,920 Speaker 1: some sense with the market breaking the new highs UM 715 00:40:07,160 --> 00:40:09,879 Speaker 1: and with yields starting to move higher. I think it's 716 00:40:09,880 --> 00:40:13,080 Speaker 1: sort of improved some of those outlooks you know, we've had, 717 00:40:13,200 --> 00:40:16,120 Speaker 1: and maybe maybe the Trump election too, but we've had 718 00:40:16,200 --> 00:40:19,160 Speaker 1: some big voices that have turned more bullish on the 719 00:40:19,239 --> 00:40:22,799 Speaker 1: outlook for things. UM. I think to some extent there's 720 00:40:22,800 --> 00:40:26,680 Speaker 1: still a barrish undertow there. There's no doubt in that, UM, 721 00:40:27,000 --> 00:40:29,279 Speaker 1: But I think if anything, it's turned a little more 722 00:40:30,360 --> 00:40:34,640 Speaker 1: positive of late. We're taking a broader correlated view today. 723 00:40:34,680 --> 00:40:38,200 Speaker 1: We're talking to people about their special abilities, but also 724 00:40:38,280 --> 00:40:40,800 Speaker 1: to our good guests about how everything blends in together. 725 00:40:40,920 --> 00:40:44,279 Speaker 1: Jim Paulson, with his capital management, he has been a 726 00:40:44,320 --> 00:40:47,640 Speaker 1: resilient optimist. He has been on board his markets have 727 00:40:47,760 --> 00:40:50,960 Speaker 1: moved higher. Jim, Um, you know I had Saint his 728 00:40:51,080 --> 00:40:54,279 Speaker 1: relatives that we you know, some of them are up 729 00:40:54,320 --> 00:40:57,439 Speaker 1: for sainthood. Uh and put up with me who read 730 00:40:57,520 --> 00:41:01,399 Speaker 1: Joe Grahamville religiously. And there's always every generation there's somebody 731 00:41:01,440 --> 00:41:04,239 Speaker 1: who's a little bit cautious, a little bit gloomy. I've 732 00:41:04,320 --> 00:41:07,000 Speaker 1: never seen the doom and gloom now, particularly on Friday's 733 00:41:07,640 --> 00:41:11,719 Speaker 1: across the internet, across the bandwidth that all of our 734 00:41:11,800 --> 00:41:15,920 Speaker 1: listeners read. It's like every Friday, go to cash? Is 735 00:41:16,000 --> 00:41:19,399 Speaker 1: this primal screen? How do you deal with that? How 736 00:41:19,440 --> 00:41:22,800 Speaker 1: do you rationalize staying in your four oh n K, 737 00:41:23,640 --> 00:41:28,319 Speaker 1: staying investments when you're buffeted by all this gloom? Yeah, 738 00:41:28,480 --> 00:41:31,920 Speaker 1: that's been a constant theme, I think ever since two 739 00:41:31,960 --> 00:41:34,759 Speaker 1: thousand and eight. In my view, this this recovery, to me, 740 00:41:35,000 --> 00:41:38,920 Speaker 1: will always be remembered as you know, climbing a perpetual 741 00:41:38,960 --> 00:41:42,240 Speaker 1: wall worry like no other recovery I remember. And indeed, 742 00:41:42,960 --> 00:41:45,040 Speaker 1: despite the fact that we're up, you know, more than 743 00:41:45,120 --> 00:41:48,600 Speaker 1: threefold in the stock market, despite the fact that we've 744 00:41:48,680 --> 00:41:52,720 Speaker 1: created uh uh, you know, record setting numbers of jobs 745 00:41:52,760 --> 00:41:55,960 Speaker 1: and the unemployer rates come down below five a lot 746 00:41:56,040 --> 00:41:58,920 Speaker 1: of good profitability under the bridge, and I could go on. 747 00:41:59,480 --> 00:42:02,799 Speaker 1: Despite all that, this is this recovery has never generated 748 00:42:02,880 --> 00:42:06,360 Speaker 1: confidence in the future. It really has been absent that 749 00:42:06,400 --> 00:42:08,800 Speaker 1: we have never really seen the full out of animal 750 00:42:08,840 --> 00:42:12,640 Speaker 1: spirit behaviors that you normally associate with this long of 751 00:42:12,719 --> 00:42:17,120 Speaker 1: a renewed expansion. And um, I think confidence has been 752 00:42:17,160 --> 00:42:20,640 Speaker 1: our biggest challenge in this country. You know, certainly demographics 753 00:42:20,960 --> 00:42:23,440 Speaker 1: have held as our growth rate back. That's a problem 754 00:42:24,239 --> 00:42:27,600 Speaker 1: proactivities and issue, but I would put confidence up there 755 00:42:27,680 --> 00:42:30,840 Speaker 1: with with with those issues is probably the most important 756 00:42:30,840 --> 00:42:34,560 Speaker 1: economic issue. And I think leadership, including the Federal Reserve, 757 00:42:35,200 --> 00:42:38,920 Speaker 1: needs to think more about treating confidence as opposed to 758 00:42:39,000 --> 00:42:42,400 Speaker 1: just treating balance sheets and income flows. Um. And and 759 00:42:42,560 --> 00:42:45,479 Speaker 1: that's why I'm a bit excited that for the first time, 760 00:42:45,560 --> 00:42:47,960 Speaker 1: with yields going up and with the Fed showing every 761 00:42:47,960 --> 00:42:51,719 Speaker 1: indication that's going to raise yields, that might start to 762 00:42:51,880 --> 00:42:56,040 Speaker 1: do more good for animal spirit behaviors that we're getting 763 00:42:56,120 --> 00:42:59,680 Speaker 1: towards normalization again in a way from zero interest rates. 764 00:43:00,400 --> 00:43:03,360 Speaker 1: Then the higher rates will do bad for balance sheeting 765 00:43:03,400 --> 00:43:07,320 Speaker 1: income flus. I think treating confidence might be one of 766 00:43:07,400 --> 00:43:11,120 Speaker 1: the biggest things that could benefit the broadness of this 767 00:43:11,239 --> 00:43:15,080 Speaker 1: economic recovery going forward. You're proposing training confidence directly, how's 768 00:43:15,080 --> 00:43:18,400 Speaker 1: the FED going to do that? Well? I think that 769 00:43:19,200 --> 00:43:23,040 Speaker 1: I think the Fed by maintaining a crisis like policy 770 00:43:23,920 --> 00:43:26,960 Speaker 1: far beyond any kind of sense of crisis. The crisis 771 00:43:27,040 --> 00:43:29,719 Speaker 1: probably ended with an eighteen to twenty four months of 772 00:43:29,800 --> 00:43:36,080 Speaker 1: the recovery start, the work continuing to practice unconventional massive 773 00:43:36,680 --> 00:43:40,200 Speaker 1: monetary stimulus along with you know, zero interest rate structures, 774 00:43:40,280 --> 00:43:43,439 Speaker 1: and far past the crisis point. I think, without saying 775 00:43:43,480 --> 00:43:47,600 Speaker 1: a word, every day, it's actions scream we're very scared 776 00:43:47,640 --> 00:43:49,799 Speaker 1: and you should be scared too. And I would say 777 00:43:49,800 --> 00:43:51,759 Speaker 1: a lot of our leaders have done the same kind 778 00:43:51,800 --> 00:43:55,640 Speaker 1: of thing, uh in this sentry, rather than rather than 779 00:43:55,760 --> 00:43:59,239 Speaker 1: maybe show some confidence, if they showed some confidence the 780 00:43:59,280 --> 00:44:03,480 Speaker 1: private sector, what are they scared of? Well, there's just 781 00:44:03,600 --> 00:44:06,279 Speaker 1: been an overwhelming sense that, you know, ever since oh eight, 782 00:44:06,320 --> 00:44:08,520 Speaker 1: that we're this close to the second coming of the 783 00:44:08,600 --> 00:44:12,239 Speaker 1: Great Depression and the deflationary global of this. Don't you 784 00:44:12,480 --> 00:44:16,680 Speaker 1: suggest that they are scared of the bi part America, 785 00:44:17,080 --> 00:44:20,280 Speaker 1: which is the haves and they have not the inner 786 00:44:20,360 --> 00:44:23,800 Speaker 1: quality of opportunity. Yeah, there's certainly some of that, and 787 00:44:23,840 --> 00:44:26,560 Speaker 1: there has been a warping on the income distribution since 788 00:44:26,640 --> 00:44:30,800 Speaker 1: we've hit disinflation, since the night. I think, um, the 789 00:44:30,880 --> 00:44:33,000 Speaker 1: best thing for that time, in my view, would be 790 00:44:33,120 --> 00:44:35,880 Speaker 1: if we could improve productivity in this country and that 791 00:44:36,440 --> 00:44:38,360 Speaker 1: that could that could go a long ways. If we 792 00:44:38,400 --> 00:44:42,719 Speaker 1: could resurrect some private capital spending, and that takes confidence. 793 00:44:43,040 --> 00:44:46,880 Speaker 1: If we could, if we could get confidence among corporations 794 00:44:46,960 --> 00:44:50,880 Speaker 1: they take that massive excess cash hoards they have and 795 00:44:51,000 --> 00:44:54,520 Speaker 1: put it into capital expansions and more capital for labor. 796 00:44:54,960 --> 00:44:57,640 Speaker 1: And I think we did that, productivity arise and the 797 00:44:57,760 --> 00:45:01,040 Speaker 1: share of labor's take of national come would also do better. 798 00:45:01,800 --> 00:45:03,960 Speaker 1: How is this next administration going to do that? We 799 00:45:04,120 --> 00:45:08,720 Speaker 1: we here floated here, tax cuts, tax reform, infrastructure spending. 800 00:45:09,640 --> 00:45:11,759 Speaker 1: What strides is that going to make here? Getting us 801 00:45:11,800 --> 00:45:15,520 Speaker 1: to to a more confident consumer, more confident economy. Well, 802 00:45:16,520 --> 00:45:18,960 Speaker 1: if it actually happens. I think one of the things 803 00:45:19,000 --> 00:45:22,719 Speaker 1: I think the market is over estimating the pace and 804 00:45:22,880 --> 00:45:24,920 Speaker 1: the degree of change it's going to happen under the 805 00:45:24,960 --> 00:45:28,480 Speaker 1: Trump presidency. This idea the way the markets moving that 806 00:45:28,600 --> 00:45:30,520 Speaker 1: within the first hundred days, we're gonna have a massive 807 00:45:30,640 --> 00:45:33,840 Speaker 1: rose of elding like capital spending program, We're going to 808 00:45:33,920 --> 00:45:36,120 Speaker 1: build a wall around the country. We're gonna repeal violent 809 00:45:36,200 --> 00:45:42,719 Speaker 1: care in place it. I think Minnesota, that's a writer 810 00:45:42,840 --> 00:45:46,439 Speaker 1: in there. I I think that I think it's gonna 811 00:45:46,520 --> 00:45:48,440 Speaker 1: be far slower. I think there's gonna be a lot 812 00:45:48,520 --> 00:45:52,160 Speaker 1: of gridlock even among Trump and the Republicans, let alone 813 00:45:52,200 --> 00:45:54,560 Speaker 1: on the Democratic side of the aisle as well. And 814 00:45:55,040 --> 00:45:57,000 Speaker 1: I don't expect we're going to get a lot of 815 00:45:57,120 --> 00:45:59,719 Speaker 1: fiscal change until the next recession. I think in the 816 00:45:59,800 --> 00:46:02,680 Speaker 1: next recession we may get a bigger fiscal spending program, 817 00:46:03,200 --> 00:46:05,239 Speaker 1: but I don't look for a lot of change until then. 818 00:46:05,640 --> 00:46:07,680 Speaker 1: Where do you see opportunity here? Quickly? I know you've 819 00:46:07,719 --> 00:46:09,560 Speaker 1: liked materials in the past. In light of what we've 820 00:46:09,600 --> 00:46:11,239 Speaker 1: seen here over the last two weeks, is that is 821 00:46:11,280 --> 00:46:15,879 Speaker 1: that oversold? I think on the first thing I'd say 822 00:46:15,920 --> 00:46:18,719 Speaker 1: is I think that i'd look international right now that 823 00:46:18,840 --> 00:46:22,160 Speaker 1: has lagged here in this most recent rally, both emerging 824 00:46:22,239 --> 00:46:26,200 Speaker 1: in international markets and away from the United States. I'd secondly, 825 00:46:26,320 --> 00:46:29,840 Speaker 1: with the sectors right now, I like the materials and 826 00:46:30,040 --> 00:46:35,160 Speaker 1: energy UH sectors overall in technology UM that are I 827 00:46:35,320 --> 00:46:37,840 Speaker 1: think on the industrial producer capital goods sort of the 828 00:46:37,880 --> 00:46:41,000 Speaker 1: equation that's gonna do well and the rest of this recovery, 829 00:46:41,280 --> 00:46:45,960 Speaker 1: But those have trailed for example, the small cap stocks 830 00:46:46,040 --> 00:46:48,440 Speaker 1: that have done real well of late, or the industrials 831 00:46:48,480 --> 00:46:51,480 Speaker 1: that have done real well of late. UH and the financials. 832 00:46:51,960 --> 00:46:54,160 Speaker 1: I like those as well, but I think those stocks 833 00:46:54,160 --> 00:46:55,879 Speaker 1: are a little ahead of themselves right now, and I'd 834 00:46:55,920 --> 00:47:01,320 Speaker 1: look more at the materials, energy, UH areas of the marketplace. 835 00:47:01,560 --> 00:47:04,640 Speaker 1: Jim Paulson, Thank you so much, Jim paul Thanks Capital 836 00:47:05,600 --> 00:47:11,200 Speaker 1: manageming some wisdom there within the parson of his optimism. 837 00:47:18,600 --> 00:47:22,800 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 838 00:47:23,040 --> 00:47:28,080 Speaker 1: listen to interviews on iTunes, SoundCloud, or whichever podcast platform 839 00:47:28,200 --> 00:47:31,719 Speaker 1: you prefer. I'm out on Twitter at Tom Keene. David 840 00:47:31,800 --> 00:47:35,440 Speaker 1: Gura is at David Gura. Before the podcast, you can 841 00:47:35,600 --> 00:47:51,680 Speaker 1: always catch us worldwide. I'm Bloomberg Radio. Who you put 842 00:47:51,760 --> 00:47:54,680 Speaker 1: your trust in? Matters? Investors have put their trust and 843 00:47:54,880 --> 00:47:59,480 Speaker 1: independent registered investment advisors to the two and four trillion dollars. 844 00:47:59,640 --> 00:48:04,120 Speaker 1: Why learn more and find your independent adviser dot com