WEBVTT - Danielle DiMartino Booth on What’s Wrong With the Fed 0:00:02.240 --> 0:00:06.800 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:07.280 --> 0:00:09.760 This week on the podcast, I have a special guest. 0:00:09.840 --> 0:00:13.160 Her name is Danielle Di Martino Booth, and full disclosure, 0:00:13.560 --> 0:00:16.720 we know each other for way too long. We've spent 0:00:16.760 --> 0:00:21.640 way too much time fishing, debating economics, markets, the Fed, 0:00:22.280 --> 0:00:26.079 which Cabernet is better, making fun of some some mutual 0:00:26.520 --> 0:00:29.920 acquaintances who shall go nameless. And I brought her on 0:00:29.960 --> 0:00:32.120 the show this week to talk about her book fed Up, 0:00:32.520 --> 0:00:36.360 as well as to discuss and debate economic policy, the Fed, 0:00:36.440 --> 0:00:39.960 the markets, and honestly, I had way too much fun. 0:00:40.159 --> 0:00:42.519 If it sounds like we're arguing, it's because we just 0:00:42.560 --> 0:00:45.440 know each other too well and it's practically shorthand. So 0:00:45.560 --> 0:00:48.839 if you're at all interested in everything from the Federal 0:00:48.840 --> 0:00:53.120 Reserve to REPO markets to Alan Greenspan, you're gonna find 0:00:53.120 --> 0:00:56.600 this to be an absolutely fascinating conversation. So, with no 0:00:56.680 --> 0:01:00.600 further ado, my discussion with Danielle de Mark, you know both. 0:01:03.120 --> 0:01:07.680 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:01:08.280 --> 0:01:11.520 My special guest this week is Danielle Di Martino Booth. 0:01:11.880 --> 0:01:15.800 She is the CEO and chief strategist of Quill Intelligence, 0:01:16.200 --> 0:01:20.960 a research and analytics firms, where she authors commentary with 0:01:21.240 --> 0:01:26.440 actually fairly rabid following. Previously, she served nine years at 0:01:26.440 --> 0:01:30.319 the Federal Reserve Bank of Dallas, where she was chief 0:01:30.400 --> 0:01:35.520 advisor and Wall Street liaison to President Richard Fisher. She 0:01:35.760 --> 0:01:38.800 is the author of fed Up, an insider's taken on 0:01:38.840 --> 0:01:41.959 why the Federal Reserve is bad for America. As well 0:01:41.959 --> 0:01:45.480 as somebody I've known for ten years in a decade, 0:01:46.040 --> 0:01:49.520 Danielle di Martino. Welcome to Bloomberg. It's awesome to be here. 0:01:49.760 --> 0:01:51.800 So you and I have known each other for a 0:01:51.800 --> 0:01:55.960 long time, and it's weird asking you questions that I 0:01:56.000 --> 0:01:59.120 asked you a decade ago. But for the sake of 0:01:59.160 --> 0:02:03.120 the audience, I'm gonna pretend we hardly know each other 0:02:03.160 --> 0:02:06.480 and start with so, Danielle, how did you begin your 0:02:06.520 --> 0:02:09.640 career on Woolf Street. Well, it was something of a 0:02:09.680 --> 0:02:13.040 secuitous route. I was born to be a writer. I 0:02:13.120 --> 0:02:16.040 was accepted at the n y U scholars Program. I 0:02:16.080 --> 0:02:18.520 was going to travel, I was going to be an 0:02:18.680 --> 0:02:22.440 esteemed very poor journalist. And my covering what what sort 0:02:22.480 --> 0:02:25.520 of things interested you? In your my forte when I 0:02:25.560 --> 0:02:29.400 was younger with sportswriting real things. People would never guess 0:02:29.440 --> 0:02:31.119 about me. Put that right up there at the top, 0:02:32.120 --> 0:02:35.760 the huge fan of sports and cars. But anyways, my 0:02:35.800 --> 0:02:39.440 parents ended up splitting up around then. My father told 0:02:39.440 --> 0:02:41.679 me that he hadn't paid his taxes for the better 0:02:41.680 --> 0:02:43.760 part of the last decade, and good luck with the 0:02:43.760 --> 0:02:47.440 financial scholarship financial aid that I needed for the other 0:02:47.480 --> 0:02:49.920 half that wasn't covered by this great big scholarship to 0:02:49.919 --> 0:02:52.160 go to n Y You. So I found myself at 0:02:52.160 --> 0:02:55.800 San Antonio College. So I am the product of a 0:02:55.919 --> 0:02:59.560 community college where I started. I went off to the 0:02:59.600 --> 0:03:02.840 local University of Texas, moved my way up after a 0:03:02.840 --> 0:03:06.200 few years, became the collar business scholar. Just study, study, study. 0:03:06.360 --> 0:03:08.120 That was all that I could do to to figure 0:03:08.120 --> 0:03:09.600 out how to get back to where I thought I 0:03:09.639 --> 0:03:11.280 was starting when I was getting out of high school 0:03:11.280 --> 0:03:13.480 and my misremembering, didn't you get an NBA from the 0:03:13.560 --> 0:03:17.160 University of Boston, got very very respected school. I've got 0:03:17.160 --> 0:03:19.359 my NBA and finance there the year that E. D. 0:03:19.600 --> 0:03:22.920 S actually opened up a trading floor. One of my 0:03:23.120 --> 0:03:27.880 great mentors, Dr Keith, He's the person I literally earmark 0:03:28.000 --> 0:03:30.839 money to the finance department, even though he made me. 0:03:31.280 --> 0:03:33.160 He made me pull apart the black shoals and then 0:03:33.160 --> 0:03:35.560 showed me how to put it on my calculator. It 0:03:35.600 --> 0:03:38.920 took me a few years really to forgive him for that. 0:03:38.960 --> 0:03:40.839 But in any event, so so wait, when you say 0:03:40.880 --> 0:03:43.600 e d S, you're talking Russ Perro's electronic data system. 0:03:43.640 --> 0:03:46.760 That there was way back inside the business school. We 0:03:46.760 --> 0:03:48.600 had our own trading floor, and we had our own 0:03:48.800 --> 0:03:50.640 fund and it was fun, and I mean it was 0:03:50.680 --> 0:03:53.160 actual money. Oh god, what's more fun than being a 0:03:53.200 --> 0:03:55.240 trader in the eighties? Come on, well, when you're in 0:03:55.280 --> 0:03:58.120 your early twenties and coming sure, so how do you 0:03:58.240 --> 0:04:01.000 end up going from there to Credit Swiss and d LJ. 0:04:01.600 --> 0:04:04.160 Some guy at Solomon Brothers came to one of these 0:04:04.240 --> 0:04:07.440 informational interview type things on campus, and what do you 0:04:07.480 --> 0:04:09.280 had to say was stand up? Pretty interesting to me, 0:04:09.400 --> 0:04:11.240 said come on up any time you like. I said, 0:04:11.280 --> 0:04:14.280 how's next week worked for you? So that's I looked 0:04:14.280 --> 0:04:16.560 out on the Solomon Brothers trading floor, which was two 0:04:16.600 --> 0:04:19.400 stories tall, started at Sally No. No, that was the 0:04:19.400 --> 0:04:21.839 first time I've ever seen anything on Wall Street anything, 0:04:22.160 --> 0:04:24.200 And I looked out and there were probably like four 0:04:24.640 --> 0:04:27.520 guys and like three girls, and that was it, and 0:04:27.560 --> 0:04:29.960 I went to look at the ratio. That's really interesting 0:04:30.040 --> 0:04:33.600 for two reasons. One is I had a similar experience 0:04:33.920 --> 0:04:36.279 very very early in my career. You wanted to become 0:04:37.240 --> 0:04:40.919 interviewing at the Merrill Lynch trading floor, which was a 0:04:40.960 --> 0:04:46.360 football field, but it was the same ratio. All white dudes. Yeah, 0:04:46.360 --> 0:04:48.440 oh yeah, absolutely. You know what, it's the first and 0:04:48.520 --> 0:04:51.000 last time in my entire life, I've had credit card debt, 0:04:51.160 --> 0:04:53.200 first and last time when you moved to the city, 0:04:53.440 --> 0:04:58.240 banging on doors on wall streets, Lehman Brothers, Goldman, Sachs, Morgan, Stanley, 0:04:58.279 --> 0:05:00.919 bear Sterns, you name it, dodge a few bullets in 0:05:00.960 --> 0:05:04.120 that list. Hey, look, Arthur Anderson wanted to keep me 0:05:04.160 --> 0:05:07.640 after business school and fast tracked me to becoming, you know, 0:05:07.960 --> 0:05:11.320 an auditor and and then become a strategist of some kind. 0:05:11.400 --> 0:05:13.200 And they were working with this big company in Houston 0:05:13.240 --> 0:05:16.799 called I'm like, and my mom's like, you'd be staying 0:05:16.800 --> 0:05:18.560 in Texas, honey, And I'm like, i am so out 0:05:18.560 --> 0:05:20.640 of here. She's like, d l J d l J. 0:05:21.560 --> 0:05:24.120 What is that? Like? A transportation company? I'm like, no, mother, 0:05:24.200 --> 0:05:28.440 it's not DHL, it's d l J. And when that 0:05:28.560 --> 0:05:30.360 was your first gig out of business school, that was 0:05:30.400 --> 0:05:32.200 my first kid got out of business school. It was 0:05:32.560 --> 0:05:35.320 the best place to work. I mean, the entire firm 0:05:35.360 --> 0:05:39.919 at first Christmas year fit in the rainbow room. Crazy 0:05:39.960 --> 0:05:42.599 stuff went on back, so that before all divisions, that 0:05:42.680 --> 0:05:46.000 was pre purchase right, oh way, prepurchase way way way. 0:05:46.040 --> 0:05:48.599 And when did they get bought? Tony James and his 0:05:48.640 --> 0:05:51.680 infinite wisdom saw the peak and sold the firm at 0:05:51.680 --> 0:05:54.200 the very top of the bubble. This was like, oh, 0:05:54.839 --> 0:05:58.159 I mean credit see just finished writing off a few 0:05:58.200 --> 0:06:01.839 billion extra dollars from the deal J purchase recently. Oh yeah, 0:06:01.839 --> 0:06:03.839 you know, No, No, I mean, I mean they wrote 0:06:03.880 --> 0:06:06.000 off billions of dollars for years. So what did you 0:06:06.000 --> 0:06:09.039 do at d l J. I sold all kinds of 0:06:09.080 --> 0:06:12.320 things to all kinds of people, bonds, equities, contact, what 0:06:12.360 --> 0:06:14.760 I did. I did share buy backs. I did a 0:06:14.839 --> 0:06:18.719 lot of debt retirement, working with the former Drexel boys 0:06:19.320 --> 0:06:23.640 who dlj's junk bond desk had absorbed. They were so mischievous, 0:06:23.680 --> 0:06:25.479 that's the nicest word I can come up with. But 0:06:25.520 --> 0:06:27.840 I had mutual fund companies, I had some high net 0:06:27.880 --> 0:06:31.320 worth investors, but it was really the debt retirement, the 0:06:31.400 --> 0:06:34.360 junk bond, the private equity. I mean, like I said, 0:06:34.360 --> 0:06:36.320 Tony James sold the firm and then obviously he went 0:06:36.360 --> 0:06:38.320 on too Blackstone in a great career. But Leon black 0:06:38.360 --> 0:06:41.640 walk the halls. I mean, DLJ had a beautiful merchant 0:06:41.680 --> 0:06:45.080 bank before private equity was a thing. So how do 0:06:45.120 --> 0:06:49.400 you do the transition from the bleeding edge of capitalism 0:06:49.440 --> 0:06:51.840 to I know, I'll go in the house of the 0:06:51.880 --> 0:06:54.640 government and work for the Fed. Well, okay, so the 0:06:54.680 --> 0:06:57.560 Swiss were not near as much fun as d l J. 0:06:57.880 --> 0:07:00.839 By the way, overseas investors always to top tick the 0:07:00.920 --> 0:07:04.640 market or bottom ticket if they're sellers, so not a surprise. 0:07:05.240 --> 0:07:07.640 How long did you stay with Credit Swiss? For eighteen 0:07:07.720 --> 0:07:11.400 whole long months? And so that gets us to around 0:07:11.480 --> 0:07:13.520 And by the way, I was getting my second masters 0:07:13.520 --> 0:07:15.600 at the time, because I you know, I'm Italian, I 0:07:15.640 --> 0:07:17.680 hold a grudge, so I but instead of n y U, 0:07:17.760 --> 0:07:20.760 I went to Columbia, the best journalism school at night 0:07:20.880 --> 0:07:23.920 and got my second degree in journalism. Finally finally got 0:07:23.920 --> 0:07:27.040 my lifetime dream. I never knew that about you, who 0:07:27.120 --> 0:07:29.360 was the dean while you were there. Gosh, now you 0:07:29.400 --> 0:07:31.720 got me because it was only there. He was only 0:07:31.720 --> 0:07:33.600 there for one year and then he left, but it 0:07:33.640 --> 0:07:36.960 was now He's one of the most transformative moments of 0:07:37.000 --> 0:07:39.640 my life. Was I graduated in December of oh one. 0:07:40.200 --> 0:07:41.840 Was not being able to go to work on Wall 0:07:41.880 --> 0:07:45.000 Street after nine eleven, but having to report to campus 0:07:45.040 --> 0:07:47.640 the next day Wednesday. Well it's the other direction. So 0:07:49.120 --> 0:07:52.920 but being in journalism school on nine eleven, and I 0:07:52.920 --> 0:07:55.000 mean I was the oldest, you know, part time student 0:07:55.000 --> 0:07:58.560 they'd ever seen. You were also on an institutional trading 0:07:58.600 --> 0:08:01.280 desk when the dot com moms were imploding. What was 0:08:01.280 --> 0:08:05.720 that experience? Like? Well, so you know it was really 0:08:06.480 --> 0:08:10.400 it was the Enron experience and the dyna gy and 0:08:11.000 --> 0:08:13.679 all of the You could tell that these were shady deals. 0:08:13.760 --> 0:08:15.560 It's like, why do you keep your end on price 0:08:15.600 --> 0:08:19.480 target at forty Stock hadn't done anything in forever. I mean, 0:08:19.640 --> 0:08:22.040 you know, one analyst is raking away. You know, a 0:08:22.040 --> 0:08:26.520 couple of million dollars per debt deals to be done, 0:08:26.680 --> 0:08:29.160 So we're going to keep our price target high. Look 0:08:29.200 --> 0:08:31.680 that's where we are. Oh wait today, So but but 0:08:32.360 --> 0:08:35.000 the Enron and the dynages of the world kind of 0:08:35.040 --> 0:08:38.320 set us up for recognizing the Internet bubble when it 0:08:38.400 --> 0:08:42.040 was staring you in the face. So what led you 0:08:42.200 --> 0:08:46.400 to the move from the bleeding edge of capitalism to 0:08:46.520 --> 0:08:50.319 going in house at the Dallas Federal Reserve? So that 0:08:50.559 --> 0:08:53.640 was eleven. Nine eleven was a big turning point for 0:08:53.679 --> 0:08:58.200 me personally. Uh, shortly thereafter a few weeks after nine eleven, 0:08:58.240 --> 0:09:01.800 I met my current husband and we started long distance 0:09:01.920 --> 0:09:05.040 dating between Dallas, Texas, and New York. And when the 0:09:05.040 --> 0:09:07.320 time came, I said, well, just move on up here 0:09:07.360 --> 0:09:09.199 to Manhattan. And he said, you go out six nights 0:09:09.200 --> 0:09:11.880 a week and think it's normal. So that was that. 0:09:11.920 --> 0:09:14.160 I ended up moving to Dallas. I signed a non 0:09:14.240 --> 0:09:18.040 compete and agreed to leave the industry. I called the 0:09:18.040 --> 0:09:20.640 publisher of the Dallas Morning News and I said, I'll 0:09:20.640 --> 0:09:24.600 work for free. I'm retired. They just credit see wrote 0:09:24.600 --> 0:09:27.080 me a big check to leave, and basically the book 0:09:27.120 --> 0:09:31.320 went to the junk bond test um. So I, you know, 0:09:31.320 --> 0:09:37.200 I tootled away with a you know that's right. You 0:09:34.360 --> 0:09:39.360 were you know, did you have me Bill Diner over there? 0:09:39.400 --> 0:09:45.600 And I did, Yes. I was rarely in the newsroom 0:09:45.640 --> 0:09:48.040 per se because I kind of walked in and wrote 0:09:48.080 --> 0:09:51.680 my own rules because I could. You don't need a salary, 0:09:51.679 --> 0:09:53.400 you don't want to like, I'm working for free. Here 0:09:53.480 --> 0:09:55.920 here's what I'm doing. But within within a few months, 0:09:55.920 --> 0:09:59.240 I actually was the first daily columnist that they've ever 0:09:59.280 --> 0:10:01.160 had in the history of the paper. So I was 0:10:01.160 --> 0:10:03.760 writing a daily about the markets. And I was just 0:10:03.800 --> 0:10:07.320 as happy as happy to impassibly be quite fascinating. So 0:10:07.520 --> 0:10:11.319 you finally have your dream job in journalism, working at 0:10:11.400 --> 0:10:14.160 what's the paper in Dallas? Dallas Morning News, Dallas Morning News? 0:10:14.360 --> 0:10:17.920 And what has you leave? A job you had always 0:10:18.000 --> 0:10:23.640 wanted to go into? This crazy semi government told the FED. 0:10:23.800 --> 0:10:26.520 So I start writing about things that had bothered me 0:10:26.679 --> 0:10:30.520 on Wall Street, like the first c d O, for example, 0:10:30.600 --> 0:10:33.080 that was sold at Credit Sweets. I'm like, would buy 0:10:33.080 --> 0:10:35.719 that equity tronch? But this is a one oh two. Oh, 0:10:35.800 --> 0:10:37.720 that's a good equity tronch. Did you see the vig 0:10:37.720 --> 0:10:42.400 attached to that had some fat commissions? Yeah, exactly. But 0:10:42.440 --> 0:10:45.400 I started wondering about these things. I started writing about 0:10:45.440 --> 0:10:48.720 the national debt, got the attention of Warren Buffett, so 0:10:48.720 --> 0:10:51.320 he invited me out to oh Maha. Actually spent a 0:10:51.360 --> 0:10:57.040 lot more time with Charlie Munger at azing. He basically 0:10:57.040 --> 0:10:58.720 said that the efficient Frontier is going to go the 0:10:58.720 --> 0:11:03.320 way the Dodo bird, the pension advisory industry doesn't change 0:11:03.320 --> 0:11:06.360 its ways, and the Federal Reserve continues to be overly intrusive. 0:11:06.400 --> 0:11:09.079 I just condensed the thirty minute conversation that I had 0:11:09.080 --> 0:11:11.199 with him. But he's right, and he's getting right er 0:11:11.280 --> 0:11:13.600 every day, and he might not live to see the change, 0:11:13.600 --> 0:11:16.400 but he is right. I would push back and say, 0:11:16.920 --> 0:11:19.600 so far he's been completely wrong because all the bad 0:11:19.640 --> 0:11:22.880 things that people have predicted about that have yet to 0:11:22.920 --> 0:11:24.960 come true, well, they've definitely yet to come true. But 0:11:25.000 --> 0:11:27.840 what he said was it might not happen in my lifetime. 0:11:29.160 --> 0:11:32.160 So that's not saying exactly he's he's but but I 0:11:32.160 --> 0:11:35.000 don't think that he saw passive coming in the way 0:11:35.040 --> 0:11:38.959 that it's come. When Passive Investing and J Powell walk 0:11:39.040 --> 0:11:41.559 into a bar, it's a beautiful thing. You don't fight him, 0:11:41.920 --> 0:11:44.120 You let them run hand in hand. I don't want 0:11:44.160 --> 0:11:45.880 to get off on something. We'll talk about that more 0:11:45.880 --> 0:11:48.679 because it's a fascinating topic. It is how did you 0:11:48.800 --> 0:11:52.240 end up at the Dallas fit? So I started working 0:11:52.240 --> 0:11:55.840 some with Jonas, and he was working on Goldman's Economist, 0:11:55.840 --> 0:11:58.240 but he was just a rookie back then, and he 0:11:58.320 --> 0:11:59.960 was doing a lot of great work on what Alan 0:12:00.000 --> 0:12:03.080 Greenspan had been working on mortgage actively withdrawal. So I 0:12:03.080 --> 0:12:07.640 started writing intensely about the housing crisis, and at one 0:12:07.679 --> 0:12:11.000 point the publisher was like, do you know what systemic 0:12:11.080 --> 0:12:12.840 risk is? And I'm like, actually I do. He's like, 0:12:12.840 --> 0:12:15.000 you're saying that this is going to be global and 0:12:15.120 --> 0:12:18.960 systemic in nature. This is oh five, and he's like, 0:12:19.000 --> 0:12:21.400 you're nuts. And if you looked in the right place, 0:12:21.640 --> 0:12:24.040 there was an overwhelming amount of data, but if you 0:12:24.200 --> 0:12:28.040 looked in the usual place, everything was absent. Who knew 0:12:28.040 --> 0:12:30.760 what a German lands bank was? I didn't know until 0:12:30.920 --> 0:12:33.680 Lateman blew up. In any event, I did get a 0:12:33.679 --> 0:12:36.520 call one day from Richard Fisher, and he took me 0:12:36.559 --> 0:12:40.079 to lunch and said, look, you're you're you're wasting your talent. 0:12:40.120 --> 0:12:41.920 You should beat the Wall Street Journal, the economists. What 0:12:41.920 --> 0:12:43.440 are you doing here in Dallas, Texas? And I'm like, 0:12:43.440 --> 0:12:45.640 if you couldn't tell him, I do have my shoes on, 0:12:45.679 --> 0:12:48.560 but I'm very pregnant. In any event, within a few 0:12:48.559 --> 0:12:51.600 months he asked me to come join and the FED 0:12:51.920 --> 0:12:54.160 and what was your title? Oh gosh. I started off 0:12:54.200 --> 0:12:57.520 as like, you know, a dishwashers as a writer in 0:12:57.720 --> 0:13:01.920 the research not a research assistant. I came in as 0:13:01.960 --> 0:13:04.880 somebody to help with his speech writing. Okay, so you 0:13:04.920 --> 0:13:07.360 were an aide to the president of the Dallas FED. 0:13:07.559 --> 0:13:10.880 And it evolved into the more he got his sea 0:13:10.920 --> 0:13:14.559 legs and realized that the New York Fed markets intelligence, 0:13:14.600 --> 0:13:17.680 which you're kind of obligated to take if you're running 0:13:17.760 --> 0:13:21.920 a district. The New York Fed Markets Desk conducts intelligence 0:13:21.920 --> 0:13:25.040 with the broker dealer community. It's actually an inc on 0:13:25.080 --> 0:13:28.760 their website. So, as jo Q president, whether it be 0:13:29.280 --> 0:13:32.520 Minneapolis or Cleveland or Dallas, Texas, you're sister, take all 0:13:32.520 --> 0:13:35.080 of your market intelligence from the New York Markets Desk, 0:13:35.280 --> 0:13:38.200 which kind of reads like cell side research, which Richard 0:13:38.240 --> 0:13:41.800 figured out really quickly because economics neither of mine. We're 0:13:41.800 --> 0:13:44.000 both nbas and financial. So let's talk about something you 0:13:44.120 --> 0:13:46.120 sort of snuck in there, which is until he got 0:13:46.120 --> 0:13:49.000 his sea legs, because I was one of several people 0:13:49.080 --> 0:13:51.480 pretty critical of him in the early days, and I 0:13:51.520 --> 0:13:53.720 want to throw some stuff at you and have you 0:13:53.760 --> 0:13:57.720 either defend him or we're not. June two thousand and five, 0:13:58.280 --> 0:14:01.800 Richard Fisher told CNBC, we are clearly in the eighth 0:14:01.840 --> 0:14:04.440 inning of a tightening cycle, and we have the ninth 0:14:04.480 --> 0:14:07.200 inning coming up at the end of June. Lots of 0:14:07.200 --> 0:14:10.400 people began calling him a thanning Fisher. I'll take a 0:14:10.400 --> 0:14:14.160 little uh blame for that as as well. Why did 0:14:14.200 --> 0:14:16.960 he think that we were so far along in the 0:14:17.000 --> 0:14:20.120 tightening cycle when it was clear green Span had a 0:14:20.160 --> 0:14:23.920 different agenda. Green Span did have a different agenda, There 0:14:24.040 --> 0:14:26.880 was nothing macro prudential going on. Green Span at the 0:14:26.880 --> 0:14:31.920 time said that because the FED only technically regulated of 0:14:32.000 --> 0:14:34.200 mortgage lending in America, that's the only thing that the 0:14:34.200 --> 0:14:36.840 FED was responsible for policing. There were a few other 0:14:36.840 --> 0:14:39.160 people inside the institution who were of a different opinion, 0:14:39.240 --> 0:14:41.440 because in the event that there was a falling knife 0:14:41.440 --> 0:14:44.360 and something went wrong with this supreme explosion, the FED 0:14:44.440 --> 0:14:47.480 might be catching the entire falling knife before we even 0:14:47.520 --> 0:14:50.080 get to the subprime issue, which I think you and 0:14:50.120 --> 0:14:53.120 I are very much an agreement of oh five. We 0:14:53.200 --> 0:14:56.920 had already seen gold takeoff, we had seen inflation take off. 0:14:57.360 --> 0:15:03.280 Oil was probably halfway on its way to one fifty milk, beef, 0:15:03.320 --> 0:15:06.920 food stuffs, everything was moving up. It was pretty clear 0:15:07.040 --> 0:15:10.880 that there was a lot of inflation in the system 0:15:10.920 --> 0:15:13.520 even as the dollar got weaker and weaker and weaker. 0:15:14.160 --> 0:15:17.240 So that's the question is was he just a little 0:15:17.680 --> 0:15:22.000 green and naive or did he simply not see what 0:15:22.160 --> 0:15:26.240 I described as rampant inflation everywhere except the statistics. I 0:15:26.280 --> 0:15:29.880 think he saw the inflation, but I think more importantly 0:15:30.000 --> 0:15:32.480 what he saw too early on. And this is a 0:15:32.600 --> 0:15:34.800 lesson I think a lot of people who have been 0:15:34.920 --> 0:15:38.320 inside the FED and lived to tell learn it's that 0:15:39.360 --> 0:15:45.320 easy monetary policy can elongate any cycle, for sure, any cycle. 0:15:45.680 --> 0:15:49.480 And right now we're in the longest elongation. So even 0:15:49.520 --> 0:15:53.440 when the longest elongation and the longest elongation, it's been 0:15:53.480 --> 0:15:55.280 lower for longer than it ever has. That's going to 0:15:55.360 --> 0:15:59.840 be my first tattoo. That's pretty That's pretty interesting. So 0:16:00.560 --> 0:16:04.560 was he just unaware of how they thought that because 0:16:04.560 --> 0:16:06.720 he had Wall Street contacts, and because he was speaking 0:16:06.720 --> 0:16:08.720 to hedge funds, and because he knew that there was 0:16:08.720 --> 0:16:13.360 a d LTV toxic garbage that was trading hands, that 0:16:13.440 --> 0:16:16.720 surely this had to give. Well, it had some more 0:16:16.800 --> 0:16:19.240 gas in the tank, before it a whole lot more. 0:16:19.280 --> 0:16:22.400 So let me give you another question, another quote. We're 0:16:22.440 --> 0:16:24.880 going to fast forward to two thousand and eight, and 0:16:24.920 --> 0:16:26.800 bear in mind we didn't always agree with each other. 0:16:27.160 --> 0:16:31.560 I know that about you generally, but knowing your economic 0:16:31.600 --> 0:16:35.000 world forew and your politics, I could see you respectfully 0:16:35.000 --> 0:16:38.160 disagreeing with them and then getting to say I told 0:16:38.160 --> 0:16:42.640 you so afterwards in a very polite different verbiage. If 0:16:42.640 --> 0:16:46.440 you're listening, I'm still waiting for the opportunity. So two 0:16:46.480 --> 0:16:49.880 thousand and eight, the crisis is expanding. There's an FOMC 0:16:50.040 --> 0:16:52.760 meeting in June and then another one in August. The 0:16:52.840 --> 0:16:56.520 Fed had left rates at two percent. At both meetings 0:16:56.920 --> 0:17:00.680 there was one dissenter one Richard Fish, president of the 0:17:00.760 --> 0:17:04.440 Dallas Fed. The sole dissentier was Richard Fisher, who had 0:17:04.520 --> 0:17:08.520 both meanings quote preferred an increase in the target for 0:17:08.560 --> 0:17:11.920 the federal funds rate unquote. This is in the middle 0:17:11.960 --> 0:17:17.280 of two What was he smoking again? He is much 0:17:17.359 --> 0:17:22.719 more of an inflation boogeyman Wymar Republic, speaks fluent German, 0:17:22.800 --> 0:17:26.919 gives speeches in Germany and German. He's much more of 0:17:26.960 --> 0:17:29.720 that generation than I am. I've learned from Lacey Hunt 0:17:30.560 --> 0:17:33.480 that the more debt you create, as long as that 0:17:33.560 --> 0:17:36.520 debt is going to be absorbed by whatever the system is, 0:17:36.600 --> 0:17:39.520 because you've got reserve currency status. The only thing that 0:17:39.520 --> 0:17:42.560 that incremental dollar of debt is going to potentially create 0:17:42.600 --> 0:17:45.720 a deflation because you're taking away money that you would 0:17:45.760 --> 0:17:48.160 otherwise spend on something else in order to service the debt. 0:17:49.400 --> 0:17:52.640 So there's always going to be a deflationary impetus if 0:17:52.680 --> 0:17:55.960 you're allowed to grow your debt two levels that Richard 0:17:56.000 --> 0:17:58.880 would have thought would have created hyper inflation. That makes sense. 0:17:58.960 --> 0:18:02.760 You have a giant mon terry activity should be somewhat 0:18:02.760 --> 0:18:07.480 deflationary versus a giant fiscal activity which should be more inflationary. 0:18:07.560 --> 0:18:09.920 And I was also of the opinion at the time. Again, 0:18:10.000 --> 0:18:12.199 he and I were not, and you know we're an 0:18:12.240 --> 0:18:18.320 agreement on a two percent floor. I'll say that out right, yes, period, 0:18:19.119 --> 0:18:21.720 forever and ever. I think that we had we stopped 0:18:21.720 --> 0:18:24.000 at two percent, we would have a much different world 0:18:24.080 --> 0:18:26.560 today than we do. I wouldn't disagree with you at all. 0:18:26.840 --> 0:18:29.120 It was it was liquidity. It was the alphabet soup 0:18:29.160 --> 0:18:31.439 of god knows what acronyms that I was involved in 0:18:31.480 --> 0:18:33.960 helped the New York Markets desk set up for the 0:18:33.960 --> 0:18:37.720 asset back securities market, and you name the market. It 0:18:37.760 --> 0:18:41.119 was liquidity that was frozen. The price of credit was 0:18:41.440 --> 0:18:45.000 meaningless at the time to any investment. That nobody was 0:18:45.040 --> 0:18:48.560 extending credit at any price it was. It was a 0:18:48.560 --> 0:18:53.000 function of everything being frozen and unavailable, not expensive. We 0:18:53.040 --> 0:18:55.240 did not have to go to the zero bound. So 0:18:55.240 --> 0:18:58.679 so here's the here's the big question. Right, You've been 0:18:58.680 --> 0:19:01.280 a pretty big FED critic for a long time. I 0:19:01.320 --> 0:19:06.160 think you and I both agree the there's some overlap. 0:19:06.240 --> 0:19:09.680 I think the FEDS ultra low rates and I wrote 0:19:09.680 --> 0:19:13.240 this embail nation is one of many causes of the 0:19:13.280 --> 0:19:16.600 financial crisis. I think you put more weight on that. 0:19:17.440 --> 0:19:20.040 Uh and fed up you really say that is where 0:19:20.040 --> 0:19:23.080 it all begins and ends. Here's what we disagree, and 0:19:23.119 --> 0:19:25.960 this is what I'm fascinated about. As much as I 0:19:26.000 --> 0:19:29.439 give them an F for all their actions leading up 0:19:29.440 --> 0:19:32.800 to the crisis, I give them a B plus following 0:19:32.840 --> 0:19:36.280 the crisis. What sort of ranking would you give them? 0:19:36.560 --> 0:19:40.000 By the way, that's just during an immediately after normalizing 0:19:40.119 --> 0:19:43.080 rates over the past decade. I think they're way behind 0:19:43.080 --> 0:19:45.600 the curve. But we'll come back to that, how would 0:19:45.640 --> 0:19:50.719 you grade the FED for their response immediately to the 0:19:50.760 --> 0:19:54.159 crisis in let's call it oh eight oh nine, and 0:19:54.240 --> 0:19:58.600 even I would probably give them not an F but 0:19:58.640 --> 0:20:01.480 I would probably give them a C minus for adhering 0:20:01.520 --> 0:20:04.960 to the Bernanke doctrine which was agreed upon at Jackson 0:20:05.000 --> 0:20:08.840 Hole in two thousand seven with a very small group 0:20:08.920 --> 0:20:10.879 of f o MC members, by the way, which was 0:20:11.119 --> 0:20:14.479 kind of against the rules um but in that meeting 0:20:15.320 --> 0:20:19.000 it was decided that a precondition to growing the balance sheet, 0:20:19.080 --> 0:20:22.359 if the time came right, this is August of oh seven, 0:20:22.760 --> 0:20:25.160 if the time markets still haven't even made their high, 0:20:25.320 --> 0:20:29.080 which doesn't show up till October seven exactly, so, if 0:20:29.160 --> 0:20:32.080 it came to pass that they needed to start growing 0:20:32.080 --> 0:20:35.439 the balance sheet, quantitative easing, heading to Japan, whatever you 0:20:35.480 --> 0:20:38.520 want to call it, the Bernanke doctrine dictated the interest 0:20:38.600 --> 0:20:42.600 rates must go to the zero bound first. That's that's 0:20:42.600 --> 0:20:45.240 why I given the C minus as opposed to be 0:20:45.400 --> 0:20:48.200 as opposed to stopping at had they stopped at two, 0:20:48.320 --> 0:20:50.960 I would have given them a B plus because of all, 0:20:51.359 --> 0:20:54.560 because of the Pandora's box that was opened by going 0:20:54.600 --> 0:20:57.520 to the zero bound. In later years, So here's where 0:20:57.720 --> 0:21:01.720 I think you and I will find more common ounds post. 0:21:02.240 --> 0:21:07.520 Let's just call it eleven through. I've been waiting for 0:21:07.560 --> 0:21:10.960 them to normalize rates. And I know some people think 0:21:11.000 --> 0:21:15.160 this is the quote greatest economy ever, But why if 0:21:15.160 --> 0:21:17.800 this is such a good economy, haven't rates returned to 0:21:17.920 --> 0:21:24.240 a more normal level instead of what's still incredibly accommodative. 0:21:24.280 --> 0:21:27.440 And I know we could blame where's the thirty year? 0:21:27.600 --> 0:21:30.439 The ten years? Like one five the day before we 0:21:30.480 --> 0:21:34.800 recorded this, So you could blame the bond market, but really, 0:21:34.840 --> 0:21:39.359 shouldn't the Fed have been further along the normalization process 0:21:39.440 --> 0:21:43.000 and off emergency footing? Or am I just crazy? Look? 0:21:43.160 --> 0:21:46.360 Kiri two and Que three were outright mistakes in my opinion. 0:21:46.960 --> 0:21:51.000 Would we have suffered a mild and shallow recession? It's 0:21:51.040 --> 0:21:54.960 impossible to look in any rear view mirror, But we 0:21:55.119 --> 0:21:58.760 knew at the time that we were creating zombies. I 0:21:58.800 --> 0:22:02.720 wrote zombie banks to zombie people. No, No, well we 0:22:02.800 --> 0:22:05.919 and I mean I mean like politicians and others, the 0:22:06.040 --> 0:22:10.960 saving of zombie banks, that's different. I'm talking about giving 0:22:11.000 --> 0:22:14.320 birth to zombie corporations. I did an entire briefing on 0:22:14.359 --> 0:22:16.919 what the potential ramifications would be in the future of 0:22:16.960 --> 0:22:19.520 cutting a default rate cycle in the high yield market 0:22:19.560 --> 0:22:22.640 in half. So I have to stop you here and 0:22:22.680 --> 0:22:26.240 go over each of those zombie banks and zombie corporations 0:22:26.640 --> 0:22:28.760 zombie banks. So let's do first, because I think that's 0:22:28.760 --> 0:22:32.840 the easy one. Zombie banks are banks that and again, 0:22:32.880 --> 0:22:35.239 tell me where we disagree. I think there's a lot 0:22:35.280 --> 0:22:37.840 of daylight between us. Hey, if you're a city bank 0:22:37.960 --> 0:22:40.760 or a Bank of America or whoever, and you have 0:22:40.840 --> 0:22:42.680 all these really good assets and you have all these 0:22:42.680 --> 0:22:46.160 really bad debts, Well there's this lovely building downtown of Manhattan. 0:22:46.160 --> 0:22:49.000 It's got these beautiful columns, and it's called the Federal 0:22:49.000 --> 0:22:53.199 Bankruptcy Cord. And if you are bankrupt, for lack of 0:22:53.200 --> 0:22:55.040 a better term, you go down there and you do 0:22:55.080 --> 0:22:58.719 a Chapter eleven reorg and you take the good parts 0:22:58.720 --> 0:23:01.200 of the bank and you spin it out, and you 0:23:01.280 --> 0:23:04.160 take the debt. There's no such thing as toxic debt. 0:23:04.240 --> 0:23:07.399 There's just toxic prices. This junk at at a dollar 0:23:07.480 --> 0:23:12.760 or nine eighty is fabulous at fifteen or twenty or dollar. 0:23:12.840 --> 0:23:15.680 John Thane, there you go. So you turn around, and 0:23:15.760 --> 0:23:18.919 now you're ripping the band aid off, and maybe we 0:23:19.040 --> 0:23:21.399 end up at Dow five thousand. But now you have 0:23:21.440 --> 0:23:25.000 a clean, healthy Bank America's my favorite example. Here's Bank 0:23:25.040 --> 0:23:27.119 of him. Here's Mary Lynch spinning out. Here's Bank of 0:23:27.160 --> 0:23:29.920 America's spinning out. Here's who else did they acquire in 0:23:29.960 --> 0:23:33.399 the last couple of years before the year's countryroid mortgage? 0:23:33.440 --> 0:23:36.640 So you end up with all these good So am 0:23:36.680 --> 0:23:39.360 I and I'm talking way too much, but um, I'm 0:23:39.400 --> 0:23:43.399 literally talking my book. But is that how you avoid 0:23:43.480 --> 0:23:47.600 zombie banks? The how you would have avoided zombie banks 0:23:47.680 --> 0:23:50.679 and you wouldn't have institutionalized too big to be failed 0:23:50.680 --> 0:23:54.680 with stupid legislation. I was trying to find a polite word. 0:23:55.359 --> 0:23:58.800 And you wouldn't have let them go downtown to the 0:23:58.880 --> 0:24:01.679 other place downtown, the other fed on Liberty Street, and 0:24:01.760 --> 0:24:04.919 instead just go knock, knock, knock. I need to see somebody. 0:24:04.960 --> 0:24:10.080 I've got a problem. So the second question is zombie corporations. 0:24:10.240 --> 0:24:13.480 What is a zombie corporation? So a zombie corporation is 0:24:13.520 --> 0:24:16.920 a corporation. Our mutual friend Jim Bianco, who started fishing 0:24:16.920 --> 0:24:19.359 the same year we did, He's written a lot of 0:24:19.359 --> 0:24:21.600 great things. I think about fourteen percent of the US 0:24:21.640 --> 0:24:25.119 stock markets are considered to be zombie corporations. They couldn't 0:24:25.200 --> 0:24:28.480 last like one or two if the coronavirus doesn't go away, 0:24:28.560 --> 0:24:31.439 we're going to have a handful of companies that go 0:24:31.560 --> 0:24:33.919 poof into the night because they can't handle one or 0:24:33.960 --> 0:24:38.600 even two quarters of operating themselves because they're so in debt. 0:24:38.640 --> 0:24:45.320 It meaning, so, now, what is the normal zombie corporation 0:24:45.680 --> 0:24:50.560 overly leveraged, too much debt ratio? Typically if it's fourteen percent, Now, 0:24:51.080 --> 0:24:53.159 what was it in the eighties, what wasn't in the nineties? 0:24:53.680 --> 0:24:59.879 It's of of of stocks in America are zombies. So 0:25:00.080 --> 0:25:02.159 four is it? When you say fourteen cent stocks? Is 0:25:02.200 --> 0:25:06.800 it of the companies in America the publicly traded? Okay, 0:25:06.920 --> 0:25:10.560 so so what has that been historically? Well, if you 0:25:10.600 --> 0:25:12.560 look at it over time, it's it's been in the 0:25:12.680 --> 0:25:16.359 single digits. We've always wounded. So it's double what it 0:25:16.480 --> 0:25:19.760 usually is. And and ultra low rates goes to the 0:25:19.840 --> 0:25:23.479 argument allows them to refinance cheaply. And so companies that 0:25:23.680 --> 0:25:27.360 should again, other companies that should find that pretty building 0:25:27.760 --> 0:25:32.240 with the dead rock, take out the yucky capacity, make 0:25:32.320 --> 0:25:35.600 room for new entrance to put in efficient capacity, you 0:25:35.640 --> 0:25:39.399 get innovation, and uh so this is about double what 0:25:39.480 --> 0:25:42.240 it historically has been. If if I'm reading you correctly, 0:25:42.440 --> 0:25:45.240 if I'm if I'm quoting Jim correctly, Yes, all right, Jim, 0:25:45.240 --> 0:25:47.840 we'll get you on the show to follow up and 0:25:47.920 --> 0:25:52.400 do another version and continue this conversation. My special guest 0:25:52.480 --> 0:25:55.639 is Danielle di Martino Booth. She is the author of 0:25:55.760 --> 0:25:59.120 fed Up, an insider's take on why the Federal Reserve 0:25:59.720 --> 0:26:02.560 is Bad for America. So I gotta call you out 0:26:02.600 --> 0:26:05.880 on the title right away, The Federal Reserve is bad 0:26:05.920 --> 0:26:09.280 for America. I mean, they've made some mistakes. Are they 0:26:09.359 --> 0:26:12.720 really all that bad for America? Well, when when J. 0:26:12.880 --> 0:26:17.240 Powell first gave his first congressional testimony when he said 0:26:17.280 --> 0:26:19.879 it's not the Fed's job to backstop the stock market, 0:26:19.920 --> 0:26:21.480 I went, you know what, we might have to go 0:26:21.480 --> 0:26:24.000 back and fix that subtitle because it looks like we 0:26:24.040 --> 0:26:27.080 have an adult in the room right now. A lot 0:26:27.119 --> 0:26:32.360 of this could be described as Alan Greenspan, an acolyte 0:26:32.400 --> 0:26:38.280 of Iron Rand who believed in as little government intervention 0:26:38.320 --> 0:26:42.280 into the economy in the marketplace as possible, was constantly 0:26:42.720 --> 0:26:46.200 changing rates and doing what Wall Street wanted him to do. 0:26:47.240 --> 0:26:50.760 Aren't you really complaining that Greenspan was not a great 0:26:51.280 --> 0:26:54.680 FED chief? It for me at least, and you can 0:26:54.680 --> 0:26:59.640 talk to people about the era in between. Way, McChesney 0:26:59.720 --> 0:27:02.560 Martin my absolute favorite FED chair of all time, and 0:27:02.600 --> 0:27:06.520 the only other one I liked er my second to 0:27:06.600 --> 0:27:09.760 favorite one. They're they're my two favorites because they were 0:27:09.840 --> 0:27:12.240 really the only two who they had to go to 0:27:12.280 --> 0:27:14.320 hell button. They just hit it. Go to hell, go 0:27:14.400 --> 0:27:16.560 to hell, go to hell, and they did what they 0:27:16.560 --> 0:27:20.400 needed to do for the country. In his biography, I mean, 0:27:20.440 --> 0:27:23.360 there was somebody like living with him for two years 0:27:23.400 --> 0:27:27.640 practically to write this big Alan Greenspan biography, the guy 0:27:27.680 --> 0:27:30.520 admits that he enjoyed being popular for the first time 0:27:31.080 --> 0:27:33.920 did He was like, Wow, I'm like really really popular 0:27:33.960 --> 0:27:37.200 with these politicians. They're paying attention to everything I say. 0:27:37.320 --> 0:27:39.479 All they want for the stock market to keep going up. 0:27:40.000 --> 0:27:41.800 Surely I can figure that out. And so he had 0:27:41.840 --> 0:27:45.439 a briefing on his desk every single morning. Some shmow 0:27:45.520 --> 0:27:47.280 had to wake up and write it at five thirty 0:27:47.280 --> 0:27:49.439 in the morning, and he had his stock market briefing 0:27:49.880 --> 0:27:52.560 every single day. I think he is the first FED 0:27:52.640 --> 0:27:55.399 chief with a Bloomberg terminal on his desk would not 0:27:55.440 --> 0:27:58.359 surprise me. It would not surprise me. Look, I always 0:27:58.359 --> 0:28:00.879 tell people they're like, when did your anger starting. I'm like, October, 0:28:02.720 --> 0:28:05.120 So go back to that, because that's kind of fascinating. 0:28:05.760 --> 0:28:11.639 He came in in the summer, and following the crash, 0:28:12.040 --> 0:28:16.080 which was really as much plumbing and other issues. Following 0:28:16.080 --> 0:28:19.640 a huge recovery from AD two to eighty seven, he 0:28:19.840 --> 0:28:23.760 cuts rates and basically my pet theory has been the 0:28:23.960 --> 0:28:28.080 audience applause just washed over him and it felt so good. 0:28:28.119 --> 0:28:33.080 He wanted another hit of that. Absolutely. On October, instead 0:28:33.119 --> 0:28:35.840 of presenting in Dallas, Texas, he got on an airplane 0:28:36.320 --> 0:28:39.600 flew back to Washington. D C released a statement that said, 0:28:39.600 --> 0:28:43.320 the Federal Reserve and my new popular life is now 0:28:43.400 --> 0:28:46.920 going to backstop the banking and financial systems. Okay, the 0:28:46.960 --> 0:28:49.440 middle part I put in there, but the banking and 0:28:49.480 --> 0:28:52.760 financial systems were part of a very short statement that 0:28:52.800 --> 0:28:55.760 the Fed released the day after the stock market crash, 0:28:55.840 --> 0:28:58.640 which is quite shocking. This was the hardest thing to 0:28:58.640 --> 0:29:01.479 get past the lawyers for the books in the days 0:29:01.520 --> 0:29:04.160 and the weeks and the months that followed. He's got 0:29:04.200 --> 0:29:07.440 the guys on the New York Markets desk, calling bond 0:29:07.480 --> 0:29:11.560 desks all across the street and saying, we're about to 0:29:11.600 --> 0:29:14.920 inject liquidity just so you know, wink wink, get out 0:29:14.920 --> 0:29:17.840 of the way. So their front running the Fed. They've 0:29:17.840 --> 0:29:20.240 been taught since the weeks and the months that followed 0:29:21.320 --> 0:29:25.040 that they can front run the fetist. So here's the pushback. Hey, 0:29:25.200 --> 0:29:29.080 isn't it easier if the Fed gets Wall Street traders 0:29:29.120 --> 0:29:30.680 to do their business and now they could be a 0:29:30.760 --> 0:29:33.800 little less interventionists. They don't have to make the injection 0:29:33.880 --> 0:29:36.280 is big because the bond traders are doing their work 0:29:36.360 --> 0:29:39.000 for them. Yeah, good luck with that. People have said 0:29:39.040 --> 0:29:40.920 that many many times. I hear all the best on 0:29:41.240 --> 0:29:43.400 what basis. I mean, look what happened with this repo 0:29:43.560 --> 0:29:49.120 thing recently. Yeah, that's a few huge banks basically throwing 0:29:49.120 --> 0:29:52.080 their weight around the financial system. And by the way, 0:29:52.120 --> 0:29:54.080 when I was researching my book, I was shocked to 0:29:54.200 --> 0:29:57.520 learn that the FED chief had the power to raise 0:29:57.560 --> 0:30:00.760 your lower rates on his own the phone see clipped 0:30:00.760 --> 0:30:04.000 his wings because he was doing it way too much. 0:30:04.560 --> 0:30:09.040 So how much of nothing corrupts like power. That's exactly 0:30:09.080 --> 0:30:11.280 where it's going to go. How much of the current 0:30:12.240 --> 0:30:16.840 criticism of the FED traces back to Alan Greenspan as 0:30:16.880 --> 0:30:20.840 a deeply flawed chairman. Well, it wasn't so much Alan 0:30:20.880 --> 0:30:24.400 Greenspan the deeply flawed chairman, had he not had two 0:30:24.480 --> 0:30:30.520 successors in his wake who adopted identical philosophies. It's just 0:30:30.880 --> 0:30:34.880 each iteration of successor was even more afraid of their 0:30:34.920 --> 0:30:39.200 shadow than the prior. How do you describe what should 0:30:39.240 --> 0:30:42.920 be the proper role of a central bank in a 0:30:42.960 --> 0:30:46.320 country like the United States? I would think that the 0:30:46.400 --> 0:30:49.880 best role for the FED to play is making sure 0:30:49.960 --> 0:30:52.280 that the dollar you pull out of your wallet, Ay, 0:30:52.400 --> 0:30:54.640 you can still pull out of your wallet, Sorry, Ken Rogolf, 0:30:54.920 --> 0:30:58.600 but b is worth the same amount of money tomorrow 0:30:58.640 --> 0:31:02.080 that it is today. The dollar is very strong lately. 0:31:02.200 --> 0:31:06.320 We're the cleanest shirt in the hamper relative to the end, 0:31:06.720 --> 0:31:09.959 the Euro, the pound, sterling. Wherever you look in the world, 0:31:10.400 --> 0:31:12.800 the dollar is. But even the one isn't really doing 0:31:12.840 --> 0:31:17.000 a whole lot of much. So after a decade of 0:31:17.240 --> 0:31:20.400 quei one to three plus twist and all this other stuff, 0:31:20.800 --> 0:31:24.080 you still have a very robust US currency. Doesn't that 0:31:24.120 --> 0:31:29.080 suggest the FED hasn't damaged that purchasing power? Well, there 0:31:29.200 --> 0:31:31.680 is that second mandate that has caused the FED to 0:31:31.840 --> 0:31:35.960 completely go off the rails, and that is minimizing the 0:31:36.000 --> 0:31:40.080 unemployment rate or maximizing employment that was given to them 0:31:40.160 --> 0:31:49.680 in by Congress in the middle of a huge yemment. Yes, yes, yes, 0:31:49.760 --> 0:31:53.520 misery index was through the roof, I get it. But nevertheless, 0:31:53.680 --> 0:31:57.960 that was a crucial error made on the part of Congress. 0:31:58.480 --> 0:32:01.400 And people are like, you know, you'll never be able 0:32:01.400 --> 0:32:03.200 to get Congress to say that the FED can do 0:32:03.240 --> 0:32:05.959 negative interest rates or by corporate bonds or by stocks. 0:32:05.960 --> 0:32:08.080 And I'm like, when push comes to show, have Congress 0:32:08.080 --> 0:32:10.560 a vote for anything, especially in a panic, there are 0:32:10.560 --> 0:32:13.560 no actually in a panic, there are no atheists and foxholes, 0:32:13.600 --> 0:32:18.600 and there are no hard dollar monitus at the FED 0:32:18.640 --> 0:32:22.160 in the middle of a panic. But that second employment 0:32:22.160 --> 0:32:27.120 mandate is what has caused the fed's mission creep and 0:32:27.440 --> 0:32:30.320 the lower for longer. They're trying to pull that one 0:32:30.680 --> 0:32:34.400 last employee in off the sidelines. Really at the expense 0:32:34.560 --> 0:32:38.080 of going, Oh, that financial stability thing, we don't know 0:32:38.120 --> 0:32:40.160 that until it hits us in the head. So so 0:32:40.880 --> 0:32:42.680 let me push back a little bit of it. I 0:32:43.280 --> 0:32:45.200 find it hard to believe that the FED is really 0:32:45.200 --> 0:32:51.520 concerns very concerned about unemployment, with unemployment levels at sixty 0:32:51.600 --> 0:32:56.560 year lows. At the same time, this third mandate of 0:32:56.680 --> 0:33:01.080 back stopping the markets seems to be their biggest priorities. 0:33:01.880 --> 0:33:03.880 Or so some people say, what what are your thoughts 0:33:03.880 --> 0:33:06.840 on that? So, look, I think that there's there's a 0:33:07.000 --> 0:33:13.680 little bit of confusion here. Look when you are when 0:33:13.680 --> 0:33:18.560 you are, when you're facilitating Uncle Sam to quietly blow 0:33:18.640 --> 0:33:24.000 up debt and and debt throughout the Obama administration grew quickly. 0:33:24.680 --> 0:33:27.680 A lot of this was in order to fund fiscal spending. 0:33:28.160 --> 0:33:32.160 But if you're if you're teaching the lesson to your 0:33:32.960 --> 0:33:36.720 to the to the powerful politicians that run the country 0:33:36.720 --> 0:33:39.840 that there are absolutely no ramifications for you can run 0:33:39.960 --> 0:33:41.880 up as much debt as you please because it's going 0:33:41.920 --> 0:33:45.640 to be just about free. Okay, then you're going to 0:33:46.040 --> 0:33:52.120 cause a sclerosis an atrophying in the labor force. So 0:33:52.160 --> 0:33:55.440 it doesn't matter how hard the Fed tries to pull 0:33:55.600 --> 0:33:58.560 somebody off the sidelines, if they're not qualified to fill 0:33:58.600 --> 0:34:01.000 the position, it's not going to be field. So what 0:34:01.040 --> 0:34:02.760 does one thing have to do with the other. Why 0:34:02.960 --> 0:34:07.760 does debt cause Well, you have this massive expansion of 0:34:07.760 --> 0:34:11.520 the social safety net such that in this country or 0:34:11.600 --> 0:34:14.160 you talking about Obamacare. No, I'm talking about in this 0:34:14.200 --> 0:34:17.560 country in a more in a more general sense, there's 0:34:17.600 --> 0:34:19.760 been some good I don't know if I call that massive. 0:34:19.920 --> 0:34:22.120 I mean, you've seen you've seen creep. There's been a 0:34:22.160 --> 0:34:28.600 big uptick in people claiming disability on Medicaid and social Security. 0:34:29.520 --> 0:34:32.440 You asked the average one of these people who are 0:34:32.480 --> 0:34:35.319 basically living off the government, how much would you have 0:34:35.400 --> 0:34:38.959 to have an entry position job pay you in order 0:34:39.000 --> 0:34:41.239 for you to come off the sidelines and work. And 0:34:41.239 --> 0:34:42.839 it's a heck of a lot more money than they 0:34:42.840 --> 0:34:45.400 would be getting as a starting salary. Well, it's entry 0:34:45.520 --> 0:34:50.920 because that pays very little. It's but again, so if 0:34:50.920 --> 0:34:53.200 you get thirty thousand dollars without working with thirty thousand 0:34:53.200 --> 0:34:58.839 dollars worth working economic incentives, say why would you work? Exactly? 0:34:59.440 --> 0:35:02.480 But how does as long as you keep government debt 0:35:02.719 --> 0:35:05.960 super super super cheap, then you can keep these programs 0:35:05.960 --> 0:35:10.920 alive and well. As opposed to removing you and making 0:35:10.960 --> 0:35:13.279 it a job of the private sector. I mean, it 0:35:13.400 --> 0:35:17.160 is time to make vocational training great again in this country. 0:35:17.440 --> 0:35:20.160 I don't think anybody's going to disagree with you about that. 0:35:20.360 --> 0:35:23.200 But where they will disagree with you about is that 0:35:23.280 --> 0:35:28.360 the FED has enabled federal debt because you've seen federal 0:35:28.400 --> 0:35:32.120 debt go in one direction for World War two forward. 0:35:32.440 --> 0:35:34.520 You have, but you've also seen the duration of the 0:35:34.560 --> 0:35:37.640 treasury holdings of the United States until this twenty year 0:35:38.040 --> 0:35:40.680 bond issuance that was recently announced. You've seen the duration 0:35:40.719 --> 0:35:43.440 of treasuries come way in while the United Kingdom has 0:35:43.440 --> 0:35:46.680 gone the absolute opposite way. Because if we were to 0:35:46.800 --> 0:35:50.640 be borrowing money at the maturities where we should be borrowing, 0:35:52.480 --> 0:35:56.520 you name it, if we'd been borrowing way out there, 0:35:56.520 --> 0:35:58.120 then our interest expense would be a hell of a 0:35:58.160 --> 0:36:02.480 lot higher um. And nobody wants that anything. I don't 0:36:02.480 --> 0:36:05.120 know if it would be them, of course it would 0:36:05.160 --> 0:36:07.160 be higher. Listen, the thirty year and the ten year 0:36:07.200 --> 0:36:09.480 of spitting distance apart. I think you do the fifty 0:36:09.520 --> 0:36:15.520 year and and and this is this is it. This 0:36:15.560 --> 0:36:19.000 has been a fifteen year trend of reducing the maturity 0:36:19.040 --> 0:36:23.800 profile of treasuries. So this is this changing the shape 0:36:23.840 --> 0:36:29.560 of the duration and borrowing much shorter, shorter to fund. Yes, 0:36:29.920 --> 0:36:33.000 but it's a good way to kind of hide the 0:36:33.440 --> 0:36:37.759 evils of having tri whatever the debt clock says, downtown 0:36:38.000 --> 0:36:40.839 trillion accounting of national debt. All right, so now let 0:36:40.840 --> 0:36:43.839 me push back to you on that. So let's what's 0:36:43.920 --> 0:36:47.439 rounded up to trillion. Okay, we can forgive all student debt. 0:36:47.840 --> 0:36:51.200 Well before we even do that, here's what a lot 0:36:51.239 --> 0:36:56.680 of people, here's what some analysts and economists and strategists 0:36:56.680 --> 0:37:01.040 have brought forth as a counter argument. Hey, we have 0:37:01.080 --> 0:37:03.640 our own printing press, and we have a standing army, 0:37:03.960 --> 0:37:06.920 and we have the reserve currency. We can print all 0:37:07.000 --> 0:37:09.680 the debt we want, and we aren't going to have 0:37:09.719 --> 0:37:14.440 the same problem that Japan had. Oh and ps, Japan's 0:37:14.640 --> 0:37:18.560 credit rating is fine and the their tenure bond is 0:37:19.160 --> 0:37:22.719 you know when it's not negative, it's you know, fraction. 0:37:23.520 --> 0:37:26.400 Why does should we think that our debt isn't going 0:37:26.440 --> 0:37:29.680 to be any different than Japan's debt? Well, we are 0:37:29.800 --> 0:37:34.360 beholden to foreign ownership of our treasuries. Why why do 0:37:34.400 --> 0:37:37.080 we care about that? We care about it because we don't. 0:37:37.360 --> 0:37:40.479 We don't have the same latitude that Japan has because 0:37:40.560 --> 0:37:45.680 Japan's um sovereigns are mostly owned by the Japanese internally 0:37:45.760 --> 0:37:48.480 inside the country. Right, So what Japan did is printed 0:37:48.560 --> 0:37:50.520 up a whole bunch of bonds and put it in 0:37:50.600 --> 0:37:53.279 their right pocket and then have their left pocket by it. 0:37:53.600 --> 0:37:57.080 They completely created money out of thin air. Why can't 0:37:57.080 --> 0:37:59.799 we do that? There's a theory that we can do that, 0:37:59.840 --> 0:38:03.040 but again we all we are. Don't make me say 0:38:03.040 --> 0:38:07.360 them M I prefer modern meritocracy theory. I call it 0:38:07.400 --> 0:38:11.880 Bernie's theory MMT. But the thing about mm T is 0:38:11.960 --> 0:38:14.040 he again go back to the fact that we do 0:38:14.080 --> 0:38:16.359 have reserve currency status, but we can't piss all over 0:38:16.400 --> 0:38:19.080 it because we are have been. We have been, but 0:38:19.280 --> 0:38:21.479 that does not mean that foreign buyers of our debt 0:38:21.520 --> 0:38:24.840 have completely stepped back. Now, now I will say that 0:38:24.920 --> 0:38:29.000 China has methodically and for years been reducing the maturity 0:38:29.040 --> 0:38:32.480 of US treasuries with no negative impact on rates or anything, 0:38:32.640 --> 0:38:35.239 no negative impact. Despite the warnings of a lot of 0:38:35.239 --> 0:38:38.200 crazy it doesn't matter. If China is in a preparation 0:38:38.320 --> 0:38:43.520 mode to do anything they've they're they're doing it actively, right, 0:38:43.560 --> 0:38:45.360 And they play a much longer game than us, and 0:38:45.360 --> 0:38:47.359 they think in terms of decades. They do, and they 0:38:47.400 --> 0:38:50.200 have ten year plans. And I wish we were as 0:38:50.280 --> 0:38:55.920 savvy when it came to industrial power, industrial um policy 0:38:56.040 --> 0:38:58.080 and long term planning is them. We just kind of 0:38:58.080 --> 0:39:01.719 wing it, we do. And trillion you're throwing out there 0:39:01.760 --> 0:39:04.279 has nothing to do with modern monetary theory at all. 0:39:04.640 --> 0:39:06.640 That's what we're going to have, like an eighteen months 0:39:06.640 --> 0:39:09.000 for God's sake, as quickly as the deficit is growing. 0:39:09.480 --> 0:39:12.160 But what they're talking about is something more that's that's upwards, 0:39:12.200 --> 0:39:16.400 up closer to fifty. Is Trump a modern monetary trillion? 0:39:16.719 --> 0:39:19.520 Oh gosh, I think he doesn't seem to care about 0:39:19.520 --> 0:39:22.400 the debt at all. He doesn't, and Mitch McConnell doesn't 0:39:22.400 --> 0:39:25.560 care about it, and Paul Ryan tended to care about it. 0:39:25.800 --> 0:39:29.320 So we're the responsible adults when it comes to managing 0:39:29.360 --> 0:39:34.719 debt outside the belt Way anywhere anywhere there. I I 0:39:34.840 --> 0:39:36.640 still care about the debt. I think there are some 0:39:36.760 --> 0:39:39.279 Americans who still care about the debt. Oh no, there 0:39:39.280 --> 0:39:42.440 are a lot of people do, but none within who 0:39:42.520 --> 0:39:44.800 can actually do something about it within the powers of 0:39:45.880 --> 0:39:49.520 But again, to look out at a crowd, as President 0:39:49.560 --> 0:39:52.200 Trump did recently, and to say to Kevin worsh you know, 0:39:52.239 --> 0:39:54.360 if you were there right now, at least I'd have 0:39:54.440 --> 0:39:57.200 negative interest rates just like Germany, and I'd be getting 0:39:57.239 --> 0:39:59.319 paid for my debt. I mean, these are the things. 0:39:59.440 --> 0:40:02.359 These a billion economic theorist. You've got to give him that. Okay, 0:40:02.400 --> 0:40:05.120 my hair was on fire when he said that. But 0:40:05.160 --> 0:40:07.000 other than that, it was great. I mean that the 0:40:07.000 --> 0:40:10.760 whole rest of the play, it was fine. Negative interest 0:40:10.840 --> 0:40:15.880 rates come, negative interest rates come to America. And aside 0:40:15.920 --> 0:40:19.520 from that, what did you think of the plays? But again, 0:40:19.560 --> 0:40:21.919 if you're talking about universal basic income, if you're talking 0:40:21.960 --> 0:40:24.880 about health care for all, if you're talking about student 0:40:25.120 --> 0:40:29.040 loan forgiveness, forget the pony part. You're still talking about 0:40:29.080 --> 0:40:32.719 doubling the debt quickly. Alright, So so let's be so 0:40:32.800 --> 0:40:36.920 here's because, by the way, social Security and Medicare are 0:40:36.960 --> 0:40:41.640 no longer actuarial theories. Their cash flow issues over the 0:40:41.640 --> 0:40:44.319 next few years. So let's discuss that because I find 0:40:44.320 --> 0:40:48.840 that fascinating. So social Security we could we it's capped 0:40:48.840 --> 0:40:51.799 at about a hundred and ten thousand dollars salaries where 0:40:51.840 --> 0:40:55.120 your FICA tops out. I think if you raise it 0:40:55.160 --> 0:40:59.320 to something like two three four thousand, you buy another 0:41:00.000 --> 0:41:03.120 in your forty years. So I'm not worried about Social Security, 0:41:03.320 --> 0:41:07.480 Medicare and Medicaid. You have runaway prices of prescriptions. You 0:41:07.560 --> 0:41:10.759 have medical tourism because you go to Tiajuana and for 0:41:10.840 --> 0:41:14.520 two thousand dollars get three thousand dollars worth of surgery. 0:41:14.760 --> 0:41:19.960 The United States is quite literally the only industrialized developed 0:41:20.080 --> 0:41:24.439 nation without some form of a universal health care which 0:41:24.480 --> 0:41:32.239 allows a cap on many prescription and procedure costs. And 0:41:32.280 --> 0:41:35.000 if we do that, you'll have this very lovely too 0:41:35.040 --> 0:41:39.319 tier system where here's basic coverage for everybody, here's high 0:41:39.400 --> 0:41:42.719 end coverage for anyone who can afford to buy insurance, 0:41:43.200 --> 0:41:46.279 and the entire cost structure comes way way down, or 0:41:46.320 --> 0:41:50.040 so goes the theory. What's what's wrong with that before? 0:41:50.160 --> 0:41:53.959 And forget forgiving school dad, and forget basic income for now, 0:41:54.440 --> 0:41:59.320 let's just get of the US economy wrestled into submission 0:41:59.760 --> 0:42:04.279 by fixing the healthcare system. I'm not opposed to what 0:42:04.360 --> 0:42:09.040 you just described, and there's certain rationale as long as 0:42:09.080 --> 0:42:13.040 we can keep the quality up. But you did at 0:42:13.080 --> 0:42:16.200 some point asked me why I wrote this book. Yes, well, 0:42:16.200 --> 0:42:19.280 that actually takes us right back to Medicare and Medicaid. 0:42:20.840 --> 0:42:26.160 The Federal Reserve uses the PC as its inflate consumer 0:42:26.200 --> 0:42:29.279 price equivalent for lack of a better yes, it's it's 0:42:29.320 --> 0:42:32.040 a substitute for the for the CPI, for the consumer 0:42:32.080 --> 0:42:35.759 Price Index, and which has it's. Both of them have them. 0:42:35.960 --> 0:42:38.359 Both of them have their problems, but one has a 0:42:38.400 --> 0:42:42.080 lot bigger worth than the other because they both understate housing. 0:42:42.440 --> 0:42:45.640 Both of them, well, the owner's equivalent rent is very 0:42:45.680 --> 0:42:51.640 problematic because when home prices are going up, paradoxically, the 0:42:51.640 --> 0:42:56.959 the residency, the shelter portion of inflation paradoxically goes down. 0:42:57.400 --> 0:43:00.279 It's totally backwards. And right now rents are going at 0:43:00.320 --> 0:43:02.520 such a fast pace and we haven't captured that in 0:43:02.560 --> 0:43:04.440 the CPI, and we could talk about that all day now. 0:43:04.440 --> 0:43:06.440 The pushback to that is, well, that's because we have 0:43:06.520 --> 0:43:11.760 this nimby restriction on building UM denser multi family units 0:43:11.760 --> 0:43:15.080 and apartment buildings and areas that open that up see 0:43:15.440 --> 0:43:20.200 much more competitive prices for renters UM. And as long 0:43:20.239 --> 0:43:22.480 as we have this NIMBYism, places like New York and 0:43:22.480 --> 0:43:25.440 San Francisco are going to be really problematic when it 0:43:25.440 --> 0:43:28.319 comes to renters. Hashtag acinine, But why did I write 0:43:28.320 --> 0:43:31.719 the book? Is that a real hashtag? Can I? Can 0:43:31.760 --> 0:43:34.839 I go to Twitter and function that in UM? So 0:43:34.920 --> 0:43:37.760 why did you write the book. Well, so Stanley Fisher 0:43:37.840 --> 0:43:42.239 was vice chairman of the FED for a while, UM 0:43:42.320 --> 0:43:45.880 Jim Bianco one afternoon we spent an entire afternoon fishing 0:43:45.920 --> 0:43:49.320 trying to debate why on earth the godfather or Central Banking, 0:43:49.360 --> 0:43:51.440 who Ben BERNANKEI had on speed dial in case he 0:43:51.520 --> 0:43:54.520 had an existential crisis, why this legend of central banking 0:43:54.520 --> 0:43:59.520 would come out of retirement to be vice chairman. So 0:44:00.239 --> 0:44:04.719 very first f MC meeting, Fisher says, I only have 0:44:04.880 --> 0:44:08.200 one question, why on earth do you use this convoluted 0:44:08.600 --> 0:44:13.800 PC in my life? At least it's a minimum headline 0:44:13.840 --> 0:44:17.200 CP I. Why don't we have something more realistic and 0:44:17.320 --> 0:44:21.920 reasonable that we're following. So some trepidacious FED staffer in 0:44:21.920 --> 0:44:24.320 the back of the room in the Echoes Building raised 0:44:24.360 --> 0:44:26.840 his hand and said, well, if we don't use it, 0:44:26.840 --> 0:44:29.920 our models are going to break. So you gotta fix 0:44:30.000 --> 0:44:32.279 your models. So at which point Jim Bollard, who knew 0:44:32.280 --> 0:44:34.600 he had a sense of humor, raises his hand and says, 0:44:34.640 --> 0:44:36.000 let me get this straight. This is how we make 0:44:36.040 --> 0:44:40.360 monetary policy in America. Crap in, crap out. That's the 0:44:40.400 --> 0:44:44.040 gist of it. Because the PC uses as an input 0:44:44.040 --> 0:44:47.200 in Medicare and Medicaid reimbursement rates, which is an absolute 0:44:47.280 --> 0:44:50.640 insult to every American who's actually paying for real over 0:44:50.719 --> 0:44:54.360 priced healthcare. So it's it's it's it's the shield that 0:44:54.440 --> 0:44:57.680 the FED hides behind. I'm almost finished. So in two 0:44:57.680 --> 0:45:03.200 thousand nine, internal debate occurs. Everybody inside the FED is like, 0:45:03.360 --> 0:45:05.840 we might not have you know, we might not have 0:45:05.920 --> 0:45:08.600 the right inflation metric. We might have seen this crisis 0:45:08.680 --> 0:45:11.400 coming had we incorporated something like, oh, I don't know, 0:45:11.520 --> 0:45:14.760 real estate and financial asset prices into some inflation metric. 0:45:15.200 --> 0:45:17.239 So it was decided that something had to be done 0:45:17.280 --> 0:45:20.560 because it was broken. And then they did nothing, And 0:45:20.600 --> 0:45:22.560 then I got really piste off and wrote fed up. 0:45:23.000 --> 0:45:25.880 So here's the pushback. I've heard the PC and the 0:45:25.960 --> 0:45:30.719 CPI arguments, and and let let me just disclose my 0:45:31.120 --> 0:45:34.400 bonefit ese um. In the two thousand's, I was screaming 0:45:34.400 --> 0:45:37.400 about inflation. I used to mock what I called inflation 0:45:37.560 --> 0:45:40.200 X inflation. We're going to report inflation, but we're gonna 0:45:40.200 --> 0:45:42.480 take out food and energy. Oh so you're only going 0:45:42.520 --> 0:45:46.160 to report the things that aren't going up in price. Fantastic. However, 0:45:47.120 --> 0:45:51.239 the pushback that I find persuasive is uh M I 0:45:51.360 --> 0:45:55.160 T has this project called the Billion Price Projects where 0:45:55.360 --> 0:45:58.600 they use the Internet to track literally millions and millions 0:45:58.640 --> 0:46:03.120 of product prices. And when you overlay the Billion Price 0:46:03.239 --> 0:46:07.320 Project on top of cp I, they're not perfect, but 0:46:07.520 --> 0:46:11.200 they're pretty close. I mean, when the Billion Price Project 0:46:11.320 --> 0:46:15.279 says inflation is ticking higher, you see it in cp I, 0:46:15.400 --> 0:46:17.040 and when it flattens out, you see it in c 0:46:17.160 --> 0:46:20.400 p I. It's not perfect, but what it says is 0:46:21.280 --> 0:46:25.200 there is modest inflation out there. You have a lot 0:46:25.280 --> 0:46:29.439 of inflation and things like healthcare and education UM, both 0:46:29.520 --> 0:46:32.719 of which one is a free market disaster, the other 0:46:32.880 --> 0:46:36.239 is a government disaster. Uh and you don't have a 0:46:36.320 --> 0:46:41.520 lot of inflation and things like UM technology and software 0:46:41.800 --> 0:46:45.440 and uh and and we're as real estate and rents 0:46:45.480 --> 0:46:48.040 have gone up a lot. A big chunk of that 0:46:48.400 --> 0:46:51.080 is driven by ultralow mortgage rates because you can buy 0:46:51.160 --> 0:46:53.360 that much more. So you could lay that at the 0:46:53.400 --> 0:46:57.320 feet of the Fed. But overall, we've had modest inflation 0:46:57.440 --> 0:47:01.000 for the past ten years, nothing like what we saw 0:47:01.040 --> 0:47:05.120 in the two thousands or the nineteen seventies. I would 0:47:05.200 --> 0:47:09.920 agree with that, but what we've we've had twenty three months. 0:47:09.960 --> 0:47:12.720 Of course, cp I north of the two percent target. 0:47:13.920 --> 0:47:15.960 If you were to make one tweak to the PC, 0:47:16.320 --> 0:47:19.600 the FED would have long since started to normalize rates. 0:47:20.239 --> 0:47:23.160 They're literally hiding behind a metric that they know and 0:47:23.280 --> 0:47:28.719 recognize is broken. I'm fine. I'm fine with it because 0:47:28.760 --> 0:47:32.200 we would have been normalizing a long time ago. I 0:47:32.280 --> 0:47:34.400 don't think they would have even if, even if they 0:47:34.440 --> 0:47:37.120 would have shown more inflation. Well, I think they're too 0:47:37.160 --> 0:47:38.920 afraid to. But that's a whole another That is a 0:47:38.960 --> 0:47:41.040 whole another story. And that's what happened with KI two, 0:47:41.080 --> 0:47:43.200 and that's what happened with QUI three, is that it 0:47:43.360 --> 0:47:46.440 was time to begin normalizing and the fear factor kicked in. 0:47:46.760 --> 0:47:49.320 Quite fascinating. I want to throw a quote at you 0:47:49.480 --> 0:47:53.240 and have you discuss it. Quote. The FED is injecting 0:47:53.320 --> 0:47:56.440 billions of dollars into this market and that's why everything 0:47:56.600 --> 0:47:59.800 is going up. Discuss the FED is about a hundred 0:47:59.840 --> 0:48:02.799 billion dollars a month run rate as things stand right now. 0:48:03.280 --> 0:48:06.920 Commercial industrial lending is at the largest banks is negative 0:48:06.960 --> 0:48:09.480 on a year over year basis, which is shocking. Well, 0:48:09.560 --> 0:48:12.200 it is kind of shocking because so is global trade. 0:48:12.320 --> 0:48:15.680 There are several other metrics that have never coexisted without 0:48:15.760 --> 0:48:20.360 being in recession. So something is intervening to make everything 0:48:20.480 --> 0:48:23.680 better right now. If the money that's being pumped into 0:48:23.719 --> 0:48:26.960 the system is not going into any kind of lending 0:48:27.040 --> 0:48:30.239 of any sort, because it's not, then it's it's has 0:48:30.320 --> 0:48:33.760 to find a home. So let me stop there first. 0:48:34.200 --> 0:48:37.400 Say what you will about the economy. It's fairly robust. 0:48:37.520 --> 0:48:40.480 We have lots of economic activity. It's not three or 0:48:40.520 --> 0:48:43.960 four percent, it's two percent. You have unemployments at three 0:48:44.040 --> 0:48:47.880 and change. Well told, this is not a terrible economy. 0:48:48.239 --> 0:48:49.680 We don't see a whole lot of R and D. 0:48:49.920 --> 0:48:52.120 We don't see a whole lot of capex spening to 0:48:52.719 --> 0:48:56.000 We're not seeing that. And industrial is already in a recession. 0:48:56.040 --> 0:49:00.160 Manufacturing is already in recession. But still it's not a 0:49:00.320 --> 0:49:04.560 terrible economy. It's not a terrible economy yet. So given that, 0:49:04.760 --> 0:49:08.520 why aren't we seeing more lending? Because I think banks, 0:49:09.160 --> 0:49:11.600 especially the large banks, can see the writing on the wall. 0:49:12.239 --> 0:49:15.000 So you think this is a conscious decision. We're not 0:49:15.040 --> 0:49:17.960 going to do more loans because we think looker of 0:49:18.040 --> 0:49:21.560 CFOs in America came into saying we're in a cost 0:49:21.600 --> 0:49:25.080 cutting mode. We saw that also late in ten, they 0:49:25.160 --> 0:49:28.360 had were thraveling. We don't expect to increase capex mending, 0:49:29.000 --> 0:49:33.960 and and that was right into a market correction. The 0:49:34.080 --> 0:49:37.320 surprising thing is that CFO survey, I think that's the 0:49:37.400 --> 0:49:41.560 Duke survey, continued straight through twenty nine. There was even 0:49:41.600 --> 0:49:44.560 as the market started moving higher and recovering that loss, 0:49:45.000 --> 0:49:47.600 there was no change in sentiments. So you think these 0:49:48.080 --> 0:49:51.600 CFOs are genuinely concerned about an impending recession, Well, I 0:49:51.760 --> 0:49:54.760 think that you have seen some very strange things happen. 0:49:55.239 --> 0:50:00.040 So we we follow at quill not seasonally adjust it, 0:50:00.840 --> 0:50:05.040 continuing unemployment claims, because just because you apply for unemployment 0:50:05.080 --> 0:50:07.719 insurance doesn't mean you're going to get it right. So 0:50:07.840 --> 0:50:10.120 we follow a not seasonally adjusted number because it's just 0:50:10.239 --> 0:50:12.920 raw data. Are you looking at year over year numbers? 0:50:13.000 --> 0:50:14.960 Is that what you know bother the seasonal adjustments, So 0:50:15.040 --> 0:50:18.520 we're looking at a year over year so beginning in Octo. 0:50:18.600 --> 0:50:20.359 By the way, I love that, and that I found 0:50:20.400 --> 0:50:23.719 that enormously helpful in the financial crisis to look at 0:50:23.800 --> 0:50:27.000 you over year existing home sales and it told the 0:50:27.040 --> 0:50:30.840 whole story. So I love that methodology as opposed to 0:50:31.440 --> 0:50:34.640 all the seasonal adjustments and everything else. But hold that aside. 0:50:35.000 --> 0:50:37.760 We look at that number, we follow it very closely, 0:50:37.880 --> 0:50:40.080 and it is off of the lowest base you can 0:50:40.160 --> 0:50:46.480 imagine because plus percent of people who qualify for unemployment insurance. 0:50:46.560 --> 0:50:48.840 Now some states have made it a lot harder and 0:50:48.960 --> 0:50:51.239 more expensive, and they've up the premiums on these. So 0:50:51.320 --> 0:50:53.680 Moody's has done some good work showing that you don't 0:50:53.719 --> 0:50:57.040 even have the same percentage of Americans on unemployment insurance 0:50:57.120 --> 0:50:59.719 right now, which is why you know they came to 0:50:59.760 --> 0:51:03.600 the lusion that jobless claims are inherently understated because in 0:51:03.640 --> 0:51:06.560 the aftermath of the crisis, a lot of states made 0:51:06.600 --> 0:51:10.160 it harder and or shortened the time that you could 0:51:10.200 --> 0:51:13.760 be on unemployment insurance as part of the I forgot 0:51:13.840 --> 0:51:19.160 the acronym. The modest fiscal response to the crisis was 0:51:19.200 --> 0:51:21.479 really broken into three parts. I think it was about 0:51:21.480 --> 0:51:24.560 seven billion dollars. A third of it went to infrastructure, 0:51:24.600 --> 0:51:26.800 which is really nothing. A third of it went to 0:51:26.880 --> 0:51:28.719 a temporary tax break, and a third of it went 0:51:28.800 --> 0:51:34.200 to temporarily extending unemployment. And that ended a long time ago. 0:51:34.960 --> 0:51:39.520 So your your position is, but some states, like North Carolina, 0:51:39.880 --> 0:51:43.480 they're they're they're a handful of states that permanently shortened 0:51:43.520 --> 0:51:46.360 the length of time that you can collect unemployment insurance. 0:51:46.400 --> 0:51:50.000 Some states made up for the extra expense by raising 0:51:50.040 --> 0:51:53.000 the premiums that employers had to pay for unemployment insurance 0:51:53.040 --> 0:51:56.839 within their states. So so you're saying the looking at 0:51:56.960 --> 0:52:00.880 the unemployment roles today is a little leading, It is 0:52:00.920 --> 0:52:04.919 a little misleading. Set that aside. Set that aside, We've 0:52:05.000 --> 0:52:09.120 still seen starting in October, four consecutive months of year 0:52:09.239 --> 0:52:14.200 over year increases in non seasonally adjusted continuing claims. That is, 0:52:14.280 --> 0:52:17.279 the number of Americans collecting unemployment insurance on a year 0:52:17.360 --> 0:52:21.040 over year clean basis has been increasing since October. What 0:52:21.120 --> 0:52:23.560 does that mean historically if you see that increase in 0:52:23.800 --> 0:52:26.760 the first time that we've seen this since O nine. Alright, 0:52:26.840 --> 0:52:29.759 well O nine, clearly a different situation go previous to that. 0:52:30.000 --> 0:52:33.320 Is this a recession indicator or is this a softening 0:52:33.360 --> 0:52:36.680 of GDP indicators should be a recession indicator. But you're 0:52:36.719 --> 0:52:39.840 saying the Fed is preventing that from spiraling out of control. 0:52:39.960 --> 0:52:43.719 You've never seen global debt right now, We've seen year 0:52:43.880 --> 0:52:47.120 over year. There's a Netherlands global debt monitor. The next 0:52:47.160 --> 0:52:49.359 one for its very lag The next one's coming out 0:52:49.400 --> 0:52:53.560 in December. But you've seen that going down on a 0:52:53.680 --> 0:52:57.080 year over year basis since I believe May of twenty nine, 0:52:57.320 --> 0:53:01.439 meaning less dead or low equality of debt, when world trade, 0:53:01.520 --> 0:53:05.239 world trade, world trade volumes have been declining on a 0:53:05.360 --> 0:53:08.600 year over year basis. And my friend, now, how much 0:53:08.600 --> 0:53:10.400 of that is coronavirus and how much of that is 0:53:10.680 --> 0:53:15.040 all corona? Really this is made through November. We only 0:53:15.200 --> 0:53:19.440 have a small snapshot because it's extremely lag data. Forget coronavirus. 0:53:19.480 --> 0:53:21.400 This thing is going to fall off a cliff. But 0:53:22.040 --> 0:53:25.080 my buddy Lacy Hunt taught me that you had go 0:53:25.200 --> 0:53:28.080 back to your recession starting in eight. If a US 0:53:28.120 --> 0:53:32.760 recession is accompanied by contracting world trade, it's a nasty recession. 0:53:32.800 --> 0:53:38.600 It's a global recession. No contrasts in world trade. Was 0:53:38.680 --> 0:53:41.600 that even a real recession or was that just a 0:53:41.719 --> 0:53:45.440 mild real estate something going on there? And then two 0:53:46.160 --> 0:53:49.120 well you had f y I, we had seven. You 0:53:49.320 --> 0:53:51.960 had the crash, the Fed responded to it, You had 0:53:51.960 --> 0:53:55.799 a temporary blip in housing, and and then it fell 0:53:55.960 --> 0:53:58.800 pretty much off a cliff. If you bought a co 0:53:59.040 --> 0:54:03.280 opera condo in New York following the eighties seven crash 0:54:03.440 --> 0:54:06.320 and a drop in rates. You ended up not getting 0:54:06.320 --> 0:54:08.200 back to break even for like six or eight years, 0:54:08.239 --> 0:54:11.759 which is New York on the East. In New York specifically, 0:54:11.800 --> 0:54:15.560 that was a terrible real estate recession because driven in 0:54:15.680 --> 0:54:19.640 some part by Green Spans panic. So that's a good 0:54:19.680 --> 0:54:21.600 title for a book. There you go. I want to 0:54:21.640 --> 0:54:25.280 bring this back to the market. Two one, No global 0:54:25.320 --> 0:54:29.399 trade contraction, not a bad recession, right, that was too 0:54:29.440 --> 0:54:31.880 O one was a short what was that March to 0:54:32.000 --> 0:54:34.480 November with September eleven right in the middle of it. 0:54:35.200 --> 0:54:38.360 By the time eleven hit, we were much closer to 0:54:38.440 --> 0:54:40.560 the end than the beginning of the two thousand nine 0:54:40.880 --> 0:54:45.800 ugly contraction in world trade, ugly recession. And here we 0:54:45.920 --> 0:54:50.359 are with this phenomena we're staring at so have rising 0:54:50.800 --> 0:54:54.080 continuing jobless claims and contracting world trade and buck kiss 0:54:54.120 --> 0:54:56.880 going on in the economy. So I would argue the 0:54:57.000 --> 0:54:59.560 O nine to ten, or really the oh seven to 0:54:59.640 --> 0:55:03.200 oh nine in recession was driven by the market, not 0:55:03.400 --> 0:55:07.480 the economy itself. Contracting the market caused a disaster and 0:55:07.600 --> 0:55:11.600 then that led into a whole bunch of systematic problems. 0:55:11.960 --> 0:55:16.840 But let's talk about today you've discussed and I'm paraphrasing, 0:55:17.360 --> 0:55:19.959 the FED has gone into the market. They've exchanged short 0:55:20.040 --> 0:55:23.600 dated government bonds for reserves already held at the FED. 0:55:24.120 --> 0:55:26.840 Government bonds are the most liquid asset in the world. 0:55:27.440 --> 0:55:30.799 How does that end up impacting equities? Because I think 0:55:30.920 --> 0:55:35.000 that's where the debate about the FED sort of schisms 0:55:35.000 --> 0:55:38.439 into two camps. So I'll tell a really quick story 0:55:38.960 --> 0:55:40.920 because it's not the stock market you have to be 0:55:41.000 --> 0:55:44.080 directly concerned with. It's keeping the bond market open. That's 0:55:44.080 --> 0:55:46.319 what's most important. And Jardine has done some good work. 0:55:47.320 --> 0:55:50.359 Over half of share by backs are financed with debt, 0:55:51.560 --> 0:55:54.600 even more than that. Okay, so um, I'm going based 0:55:54.640 --> 0:55:57.840 off that. What happened on Halloween two thousand and eighteen 0:55:57.960 --> 0:56:01.800 when Moody's downgrade at General Electrics debt was what was 0:56:01.840 --> 0:56:04.319 the game changer for j Pal. J Pal still doesn't 0:56:04.360 --> 0:56:07.400 give a damn about the stock market, but he cannot 0:56:07.560 --> 0:56:09.680 not care about the bond market, which is whatever. It 0:56:09.719 --> 0:56:13.879 is almost ten trillion dollars GDP non financial debt, all 0:56:13.960 --> 0:56:17.000 time record high in this country. So Halloween g E 0:56:17.120 --> 0:56:20.080 debt gets downgraded. And remember the fourteenth, two thousand eighteen, 0:56:20.320 --> 0:56:23.640 the highyeld bond market shuts down. Goodbye, goodnight, Irene for 0:56:23.760 --> 0:56:28.239 forty one record days. You've got redemptions on high yield 0:56:28.320 --> 0:56:29.880 E t F. You have the I m F, the 0:56:29.960 --> 0:56:34.120 B I S, all these global entities are like J. J. Pale, 0:56:34.160 --> 0:56:37.120 You've got a problem on your hands. The collateral backing 0:56:37.200 --> 0:56:40.120 these fixed income uh E t F s was trading 0:56:40.160 --> 0:56:43.719 by appointment only. Spreads were gapping out, yields were going 0:56:43.760 --> 0:56:47.000 through the roof. And you have this quiet at first, 0:56:47.080 --> 0:56:50.399 and it got really loud chorus of CFOs on Wall 0:56:50.480 --> 0:56:53.799 Street saying we're gonna behave and stop buying back our 0:56:53.920 --> 0:56:56.400 stock because we're gonna have to pay attention to our 0:56:56.520 --> 0:57:00.799 balance sheets. They were lying, they were lying, but they 0:57:00.880 --> 0:57:04.279 didn't have to lie for long because the meltdown in 0:57:04.360 --> 0:57:08.600 the market, catalyzed by the shutdown in the credit markets, 0:57:09.320 --> 0:57:13.080 shut down shared by backs, people got afraid enough. In 0:57:13.280 --> 0:57:18.280 Q four of Scared J. Powell, J. Powell knows one thing, 0:57:18.560 --> 0:57:23.160 October two thou twelve, f O m C transcript, q 0:57:23.440 --> 0:57:26.960 E is blowing a fixed income duration bubble across the 0:57:27.160 --> 0:57:32.640 entire credit spectrum. That's a quote, so so here's the 0:57:32.680 --> 0:57:36.960 pushback I've read and heard, and some of which resonates, 0:57:37.000 --> 0:57:40.480 some of which doesn't. It goes something like this, First, 0:57:41.400 --> 0:57:44.120 junk bonds are supposed to default. That's what junk bonds 0:57:44.160 --> 0:57:46.760 do not in America, they're called junk for a reason. 0:57:47.160 --> 0:57:50.680 And when the spread between quality corporates and junk gets 0:57:50.720 --> 0:57:53.920 too small, that's how you know you're in a frothy 0:57:54.240 --> 0:57:59.760 at best, bubble at worst situation. Seconds. Yeah, there's been 0:57:59.800 --> 0:58:02.240 some problems in the repo market, and there's been some 0:58:02.320 --> 0:58:05.240 problems in the credit market, but it's mostly plumbing, just 0:58:05.400 --> 0:58:09.800 like seven was a plumbing problem, and the equity market 0:58:09.880 --> 0:58:13.360 hadn't caught up technologically, they was still doing paper. Hey, 0:58:13.520 --> 0:58:17.520 these are relatively young markets, these repo markets, and they're 0:58:17.560 --> 0:58:21.320 certainly not you know, like Japanese rice markets and around 0:58:21.360 --> 0:58:25.240 for centuries, and so this is just a plumbing problem 0:58:25.320 --> 0:58:28.720 and we'll figure it out. What's your what's your response 0:58:28.760 --> 0:58:31.520 to that pushback? I would like to see the markets 0:58:31.560 --> 0:58:36.800 figure it out without having the pacifier than being being 0:58:37.680 --> 0:58:40.880 the federal We only had a two percent portfolio insurance 0:58:40.920 --> 0:58:45.840 position against the stock market capitalization. That was just two 0:58:46.920 --> 0:58:49.240 The risk parity trades only about ten percent. So let's 0:58:49.280 --> 0:58:51.080 just let's just throw it up against the wall. Let's 0:58:51.080 --> 0:58:54.320 see what happens. Let's let credit credit volatility come unhinged 0:58:54.520 --> 0:58:57.800 and see what happens. So I'm one of these crazy 0:58:57.960 --> 0:59:02.040 free market people who think if something goes belly up 0:59:02.120 --> 0:59:05.080 like long term capital um, well maybe that's a bad 0:59:05.120 --> 0:59:08.240 example because the FED actually greenspan road to the rescue. No, 0:59:08.600 --> 0:59:11.720 because that's the one where gold Green Smid didn't wass 0:59:11.760 --> 0:59:14.000 bang a bunch of heads together and said, hey, you 0:59:14.200 --> 0:59:18.040 private banks, you go work this out yourself without the 0:59:18.160 --> 0:59:21.880 FED being very involved, because if we get involved where 0:59:22.080 --> 0:59:25.480 you're not gonna be happy. So so the question one 0:59:25.520 --> 0:59:27.800 gentleman from bear Stearns told him where to fly. So 0:59:28.320 --> 0:59:31.320 here's the that's right. Who was who was? By the way, 0:59:31.440 --> 0:59:35.560 one of the biggest counterparties to LTCM. But hold that 0:59:35.800 --> 0:59:38.360 and by the way, the whole rescue was a dry 0:59:38.480 --> 0:59:41.120 run for a decade later for what we ended up doing. 0:59:41.520 --> 0:59:44.600 But hold that aside. What would happen if the FED 0:59:45.080 --> 0:59:49.600 wasn't intervening in the repo market or wasn't providing liquidity 0:59:50.360 --> 0:59:54.360 when there were frictions and and some freezes in some 0:59:54.560 --> 1:00:00.480 of these smaller backwater credit markets with short from interest 1:00:00.560 --> 1:00:03.040 rates pushing double digits? What would have happened? No, No, 1:00:03.120 --> 1:00:06.120 what would happen today? If the FED says, all right, 1:00:06.200 --> 1:00:08.560 you know, we're done intervening here. You guys figure it out. 1:00:08.680 --> 1:00:11.000 The free market can work this out. What's the net 1:00:11.040 --> 1:00:14.200 result of that? I don't think we know, Verry. I 1:00:14.320 --> 1:00:16.360 think that we would see rates be a lot higher 1:00:16.440 --> 1:00:18.600 than they are. It's a little problematic when you're running 1:00:18.640 --> 1:00:21.200 trillion dollar deficits. So when you say a lot higher 1:00:21.320 --> 1:00:24.720 four or five, six or n I don't I do. 1:00:24.880 --> 1:00:27.120 I don't know that the market would end up at 1:00:27.320 --> 1:00:29.400 nine or ten percent, But I know that if the 1:00:29.480 --> 1:00:31.440 market was to end up at four or five percent, 1:00:31.920 --> 1:00:35.400 given that the FED wants to put a new replacement 1:00:35.440 --> 1:00:39.720 for libor out there, it would be the worst possible development. Alright, So, 1:00:40.760 --> 1:00:43.440 given all that, and the fed's about to cut rates 1:00:43.440 --> 1:00:46.160 again because of the coronavirus, that was my next question. 1:00:46.320 --> 1:00:49.080 You you beat me to the question. Given that, what 1:00:49.240 --> 1:00:51.720 do you think the FED is going to do over 1:00:51.800 --> 1:00:54.640 the next four meetings? Real? And by the way, does 1:00:54.680 --> 1:00:57.600 the castors don't fight the FED? But there's one cohort 1:00:57.680 --> 1:00:59.720 out there that doesn't fight the FED harder than the 1:01:00.000 --> 1:01:01.840 who don't fight the FED. And that's the FED itself. 1:01:02.360 --> 1:01:04.880 The FED never fights itself. It never fights the market, 1:01:04.960 --> 1:01:08.320 It never fights w I R P. New type it 1:01:08.360 --> 1:01:12.280 into your Bloomberg. It never fights expectations of rate cuts, 1:01:12.640 --> 1:01:16.320 and it never even fights expectations of FED moves. When 1:01:16.400 --> 1:01:19.800 it came to Ben Bernanky was completely guided in terms 1:01:19.840 --> 1:01:22.400 of the size of the tapering of quantitative easing way 1:01:22.440 --> 1:01:24.800 back when by what the survey from the New York 1:01:24.840 --> 1:01:28.760 Fed was saying. The FED is guided by the financial markets, 1:01:28.800 --> 1:01:30.840 and it will do what they tell it to do. 1:01:31.320 --> 1:01:32.800 Can you stick around a bit? I got a bunch 1:01:32.880 --> 1:01:36.160 more questions for you. Of course, we have been speaking 1:01:36.280 --> 1:01:39.560 with Danielle di Martino Booth. She is the founder and 1:01:39.680 --> 1:01:44.320 chief strategist of Quill Intelligence and author of fed Up, 1:01:44.480 --> 1:01:47.400 an insider's take on why the Federal Reserve is bad 1:01:47.480 --> 1:01:50.680 for America. If you enjoy this conversation, well, be sure 1:01:50.720 --> 1:01:53.360 and check out the podcast extras, where we keep the 1:01:53.440 --> 1:01:56.960 tape rolling and continue discussing all things FED related. You 1:01:57.080 --> 1:02:02.360 can find that at iTunes, Spotify, Google podcast, overcast, stitchers, 1:02:02.600 --> 1:02:06.280 wherever your final podcasts are sold. We love your comments, 1:02:06.360 --> 1:02:10.560 feedback in suggestions right to us at m IB podcast 1:02:10.600 --> 1:02:14.040 at bloomberg dot net. Check out my weekly column on 1:02:14.160 --> 1:02:17.880 Bloomberg dot com. Follow me on Twitter at rit Halts. 1:02:18.280 --> 1:02:21.280 I'm Barry Ri Halts. You're listening to Masters in Business 1:02:21.760 --> 1:02:28.720 on Bloomberg Radio. Welcome to the podcast, Danielle. Thank you 1:02:28.840 --> 1:02:31.440 so much for doing this. I'm afraid that people are 1:02:31.480 --> 1:02:34.520 gonna hear us on the radio and not here this 1:02:34.680 --> 1:02:36.920 part of the discussion, and the gonna say, hey, man, 1:02:37.000 --> 1:02:38.520 what are you giving her such a hard time for 1:02:39.640 --> 1:02:41.880 I'm like, no, no, you understand. We kind of know 1:02:42.080 --> 1:02:45.440 each other. For we've been doing this for a decade, right, 1:02:45.640 --> 1:02:47.760 is it that long? It is? The day I'm at 1:02:47.840 --> 1:02:49.920 you is the day I met Jim Bianco, walked into 1:02:49.960 --> 1:02:53.000 the fishing lodge. There you were. This is up in Maine, 1:02:53.160 --> 1:02:55.600 up in Maine. Always the first person there at the 1:02:55.680 --> 1:02:57.640 lodge so you can suck up all the band with 1:02:57.840 --> 1:02:59.919 and turn your Bloomberg on. That's early in the morning. 1:03:00.200 --> 1:03:03.560 I do my morning reads and I found well, now 1:03:04.560 --> 1:03:10.240 you actually right, actually now there is some bandwidth in 1:03:10.360 --> 1:03:13.120 each of the room, each of the cabins, but the 1:03:13.200 --> 1:03:16.000 best band with is in the dining hall and I 1:03:16.120 --> 1:03:19.640 get listen, I'm an early riser. Uh, the early bird 1:03:19.680 --> 1:03:23.080 gets the worm and the early blogger gets the band 1:03:23.120 --> 1:03:26.800 with that's the that's the thesis up there. Um, and 1:03:26.920 --> 1:03:31.919 we've we've had a number of fascinating debates and discussions 1:03:32.000 --> 1:03:35.600 and experiences and Maine is really a blast. Camp Ko 1:03:35.720 --> 1:03:40.520 talk is always delightful. I can't wait. It wasn't last year, 1:03:40.520 --> 1:03:43.160 it was the previous year. Someone said how long you've 1:03:43.160 --> 1:03:45.120 been coming here? And I've been saying, I know, five 1:03:45.160 --> 1:03:47.840 six years for a few years. And someone said, well, 1:03:47.880 --> 1:03:49.960 when was your first year? And I had to figure 1:03:49.960 --> 1:03:52.520 it out and I'm like, oh, it's been a decade. 1:03:52.560 --> 1:03:54.640 Oh my god, it's crazy. I think this. I don't 1:03:54.640 --> 1:03:56.800 know if this year is eleven or twelve years ten 1:03:56.920 --> 1:04:00.240 for me. So you skipped a year. I've have a sreek. 1:04:00.280 --> 1:04:02.320 I haven't missed one. I skipped here. I was in 1:04:02.360 --> 1:04:06.120 the middle of writing a book. But yes, um, yeah, 1:04:06.200 --> 1:04:08.800 but it's a weekend. Come on, you could you could 1:04:08.800 --> 1:04:11.400 take a weekend off from book. It's okay. It's Dallas, 1:04:11.560 --> 1:04:15.040 Texas to to nowhere in Maine versus New York to 1:04:15.200 --> 1:04:17.320 nowhere in Maine. It's a little bit different calculus. So 1:04:17.400 --> 1:04:20.920 it's like an hour flight up to Bangor and then 1:04:21.000 --> 1:04:23.600 you drive about two and a half hours. Like the 1:04:23.920 --> 1:04:26.040 from the time I leave my house till the time 1:04:26.080 --> 1:04:29.000 I get in the car, and Bangor is more time 1:04:29.120 --> 1:04:32.760 than the time I leave Bangor and get to get 1:04:33.480 --> 1:04:36.880 Lean's Lodge, unless I stopped for a lobster roll at 1:04:36.920 --> 1:04:40.760 the Eagles Nest. I must stack on a four hour 1:04:41.760 --> 1:04:47.720 flight in from Dallas usually am and change changing terminals 1:04:47.760 --> 1:04:49.800 and getting to that damn bang Or flight, but I 1:04:49.880 --> 1:04:52.760 get there. There are lots of places I would consider 1:04:52.880 --> 1:04:57.000 living outside of New York. Dallas happens to be pretty nice. 1:04:57.120 --> 1:05:00.360 And Austin is just such a party town when you 1:05:00.440 --> 1:05:03.440 went to school there. When you're to grad school like today, 1:05:03.520 --> 1:05:07.480 Austin is a full blown hipster. Someone described it as 1:05:07.600 --> 1:05:11.720 the blueberry in the middle of the raspberry pie that 1:05:11.960 --> 1:05:16.200 is Texas, which I find hilarious. But what was Austin 1:05:16.280 --> 1:05:17.720 like when you went to school? There was it a 1:05:17.760 --> 1:05:20.280 big party town? It was. It's always been a big 1:05:20.320 --> 1:05:22.880 party town. It's always been huge for live music, I 1:05:22.960 --> 1:05:28.440 mean institutional level of music. Uh, you know, Sixth Street 1:05:28.520 --> 1:05:32.520 was around then. But the age, the aging of of Austin. 1:05:32.600 --> 1:05:34.600 And now you have Fifth Street, which is where people 1:05:34.720 --> 1:05:36.360 my age go because they don't want to go on 1:05:36.480 --> 1:05:38.640 Sixth Street because germs are no longer for sharing at 1:05:38.680 --> 1:05:44.560 our age. So you know, there are more roof bars 1:05:44.960 --> 1:05:47.640 in Austin today than I think any city I've ever 1:05:47.760 --> 1:05:50.640 been in. And they've they've really just opened some very 1:05:50.760 --> 1:05:54.080 nice hotels. There's plenty of room for the tourists. But 1:05:54.280 --> 1:05:57.000 go downtown. Stay downtown for heaven's sake. Don't get stuck 1:05:57.040 --> 1:06:00.080 in that traffic, to say the least. So there's a 1:06:00.200 --> 1:06:03.560 ton of questions I didn't get to that. I want 1:06:03.600 --> 1:06:06.480 to circle back, and I don't have you here all day. 1:06:06.640 --> 1:06:12.080 But we've been talking long enough. Um, So here's here's 1:06:12.160 --> 1:06:17.760 the the really interesting discussion, which all this comes right 1:06:17.800 --> 1:06:20.880 from your book. What do you mean by the FED 1:06:21.040 --> 1:06:23.680 is bad for America? That seems like a pretty harsh 1:06:23.760 --> 1:06:28.160 statement there. They've made mistakes, they're certainly an important entity. 1:06:28.760 --> 1:06:30.560 I don't think either of us are in the ron 1:06:30.680 --> 1:06:33.600 pole in the FED. No, you know, like that's like 1:06:33.760 --> 1:06:37.720 unilateral nuclear disarmament. But plus, I mean, look at what 1:06:37.800 --> 1:06:40.680 the Chinese have done for everybody who always says, God, 1:06:40.720 --> 1:06:42.200 you've got to end the FED. Just get rid of 1:06:42.320 --> 1:06:44.520 I'm like, look at what the Chinese can do with 1:06:44.600 --> 1:06:47.840 our intellectual property, right, okay, now put it on steroids 1:06:47.920 --> 1:06:49.640 and see what they can do to our financial system. 1:06:49.960 --> 1:06:55.000 Just leave the thing, please, it's it's it's ridiculous. Pole 1:06:55.080 --> 1:06:56.920 was out of his mind with that nonsense. It is 1:06:57.120 --> 1:06:59.840 and some of that's hyperbolic just for him to make 1:06:59.880 --> 1:07:02.400 a point, But I think he truly believe that, and 1:07:02.760 --> 1:07:06.560 his son believes it also. Look, it's just it's not practical, 1:07:06.720 --> 1:07:08.640 not in the world we live in. It. We can 1:07:08.720 --> 1:07:12.720 deglobalize all we want, but we're never going to un globalize. 1:07:13.200 --> 1:07:15.840 There's there's a difference between the two. So so that 1:07:16.120 --> 1:07:19.880 raises the question, how should the FED set interest rates? 1:07:21.080 --> 1:07:24.640 The FED should set interest rates more a the FED 1:07:24.760 --> 1:07:28.640 needs to let these markets somehow, some way normalize. If 1:07:28.680 --> 1:07:30.360 you talk to people who say that the FED is 1:07:30.400 --> 1:07:33.080 going to blow up the balance sheet to ten trillion dollars, 1:07:33.480 --> 1:07:36.919 it's going to ease into the next recession, ease even 1:07:37.000 --> 1:07:39.800 more through the next re session, and eventually we'll have 1:07:39.920 --> 1:07:43.200 a debt jubilee and sing Kumbaya and walk off into 1:07:43.240 --> 1:07:45.280 the side. I have a lot of cars I want 1:07:45.320 --> 1:07:48.560 to buy that are beyond my budget, I'll just borrow 1:07:48.600 --> 1:07:51.920 against it. And if we do student loan forgiveness, maybe 1:07:51.960 --> 1:07:56.240 we could do Biblical times before you had a banking 1:07:56.320 --> 1:07:58.200 system to just say, oh, it's gonna be really easy. 1:07:58.240 --> 1:08:02.120 Let's just debt jubilee. Somebody say private debt markets, Oh god, 1:08:02.160 --> 1:08:04.000 what are we going to do with those? It's more 1:08:04.160 --> 1:08:07.680 complicated than than what it's made out to be. And 1:08:07.840 --> 1:08:11.320 I think somebody at the Fed, somebody has got to 1:08:11.400 --> 1:08:14.760 deal with having the beginning and the end of a recession. Right. 1:08:14.880 --> 1:08:16.800 So in other words, if we want to stick with 1:08:16.840 --> 1:08:20.679 the biblical theme, seven fat years, seven lean years, things 1:08:20.760 --> 1:08:24.880 are cyclical. Not just you mentioned this is ten year expansion, 1:08:24.960 --> 1:08:29.760 the elongated expansion um Australia went what twenty seven years 1:08:29.840 --> 1:08:31.800 and they still haven't had a recession twenty seven years? 1:08:31.840 --> 1:08:34.839 And how far can this has been twenty years incounting, 1:08:34.880 --> 1:08:38.360 but we have not had a benefactor named China. I 1:08:38.840 --> 1:08:41.439 had a speech in Australia. I was there for twelve days. 1:08:42.040 --> 1:08:45.000 Just about everything is not made in China but owned 1:08:45.040 --> 1:08:48.840 by China were exported to China, to China or imported 1:08:48.920 --> 1:08:51.360 from China. I would argue we have had a benefactor 1:08:51.439 --> 1:08:54.000 named China because they make all our crap cheap and 1:08:54.320 --> 1:08:56.760 there where we make every manufacture everything. But they don't 1:08:56.800 --> 1:09:00.040 own our biggest port. They don't have a tick a 1:09:00.080 --> 1:09:02.360 year lease on our biggest port in Melbourne. They don't 1:09:02.400 --> 1:09:04.840 own an island. I went on on the own the 1:09:04.920 --> 1:09:07.800 island on the Great Barrier Reef. They haven't put up 1:09:07.800 --> 1:09:10.839 all of these skyscrapers that, by the way, are wrapped 1:09:10.920 --> 1:09:15.120 with something that is extremely flammable. Um so it's oh 1:09:15.479 --> 1:09:18.519 something something that is literally extremely flammable. So now there's 1:09:18.520 --> 1:09:21.600 certain high rise buildings in Melbourne and in Sydney that 1:09:21.680 --> 1:09:24.479 you kind of know not to buy at some guy 1:09:24.920 --> 1:09:27.559 dropped a cigarette and the whole three floors going up 1:09:27.600 --> 1:09:31.439 before Anyways, anyways, all I'm saying is that that that 1:09:32.200 --> 1:09:35.880 Australia is an aberration, but in a good sense of 1:09:35.920 --> 1:09:39.080 the word. They never went to the zero bound, and 1:09:39.200 --> 1:09:42.360 that was our fatal flaw. The Bernankee doctrine was the 1:09:42.479 --> 1:09:45.720 fatal flaw, the idea that we absolutely had to go 1:09:45.840 --> 1:09:49.680 to the zero bound. I think that J. Powell is 1:09:50.240 --> 1:09:54.040 so correct in pushing back against negative interest rates. I 1:09:54.240 --> 1:09:56.920 even hope he stops at one. So now let me 1:09:57.920 --> 1:10:02.560 throw out an alternative um scenario, a counter factual, but 1:10:02.680 --> 1:10:05.120 it's really based on reality. It's not a counter factual. 1:10:05.880 --> 1:10:08.720 Normally we have a regular playbook, and whenever there is 1:10:08.760 --> 1:10:12.120 a financial crisis. You learn this from long Keen Lord 1:10:12.400 --> 1:10:15.960 Kanes way long ago. What you end up doing is 1:10:16.080 --> 1:10:21.400 you cut taxes, you increase fiscal spending. You temporarily replace 1:10:21.560 --> 1:10:25.960 the collapse and demands from businesses and households with government. 1:10:26.400 --> 1:10:29.080 Then the economy begins to recover. You start to take 1:10:29.200 --> 1:10:31.880 that back and you normalize things. And if there's a 1:10:31.960 --> 1:10:37.679 little bit of monetary policy assistance, great, But in twenty 1:10:38.000 --> 1:10:41.040 eight and two thousand eight and two thousand nine, there 1:10:41.160 --> 1:10:44.240 was almost no real I mean, I mean it seems 1:10:44.240 --> 1:10:47.920 weird to say, yes, seven eight five billion dollars is nothing, 1:10:48.320 --> 1:10:52.559 but given the size of the financial crisis, that should 1:10:52.600 --> 1:10:56.680 have been a three four five trillion dollar multi year stimulus. 1:10:57.240 --> 1:11:00.439 Bernanke looked out at Congress and he had of meetings 1:11:00.520 --> 1:11:03.080 and he said, you guys have to do fiscal stimulus 1:11:03.200 --> 1:11:06.439 or we're going to hell. And they said, look, we'll 1:11:06.560 --> 1:11:09.280 give you carte blanche to do whatever you want, but sorry, 1:11:09.640 --> 1:11:13.439 it's not coming from us, right. What should the FED 1:11:13.520 --> 1:11:15.679 have done in response to that? Should Their response should 1:11:15.680 --> 1:11:17.519 have been, Hey, you guys are on your own. I'm 1:11:17.560 --> 1:11:19.680 gonna let the whole thing go to hell. You'll all 1:11:19.720 --> 1:11:22.360 get voted out of office because you will have screwed up, 1:11:22.800 --> 1:11:24.760 and then when the next crop comes in, I'll work 1:11:24.840 --> 1:11:27.200 with them, but this is on you, guys. M Jesse 1:11:27.360 --> 1:11:29.519 Martin or Paul Vulker would have told them to do 1:11:29.720 --> 1:11:32.920 just that jump jump in act. That would have been that, right, 1:11:33.360 --> 1:11:36.280 either you save the economy or it's the world's greatest 1:11:36.320 --> 1:11:39.000 recession and every one of you is unemployed and living 1:11:39.040 --> 1:11:41.559 in For me, first, first, I've written a weekly every 1:11:41.600 --> 1:11:43.640 single week since I left the FED in June of 1:11:43.680 --> 1:11:46.080 two thou fifteen. The very first thing that I wrote 1:11:46.200 --> 1:11:51.120 was how Congress abdicated to its authority to the Federal reserve, 1:11:52.080 --> 1:11:55.080 time for fiscal authorities to do their damn job. So 1:11:55.720 --> 1:11:59.720 what should the now Here we are in the elongated 1:12:00.080 --> 1:12:05.719 pansion and nine ten years following the eight or nine debacle, 1:12:06.160 --> 1:12:08.040 we get a giant tax cut, we get a giant 1:12:08.120 --> 1:12:13.240 fiscal stimulus. Is that just pro cyclical instead of countercyclical? 1:12:13.320 --> 1:12:15.880 Should that is that what we trillion dollars, what we 1:12:15.920 --> 1:12:18.680 should have done in oh nine or oh ten. Well, 1:12:18.720 --> 1:12:23.760 it was a little after the fact. What so what 1:12:24.000 --> 1:12:27.000 should be taking place on a basis that was that 1:12:27.120 --> 1:12:29.439 was blatantly political, and of course, of course it was 1:12:29.560 --> 1:12:33.280 as is the one that was just right just floated. Um, 1:12:33.439 --> 1:12:35.200 I have no idea what the hell that was? As 1:12:35.320 --> 1:12:37.880 is the one that was just floated for the summer. Oh, 1:12:37.960 --> 1:12:39.360 let's find a way to get more money into the 1:12:39.400 --> 1:12:42.559 stock market, and let's do a middle class tax cut. 1:12:43.000 --> 1:12:47.959 Obviously August July of a of an election year, that's political, 1:12:48.120 --> 1:12:50.720 and obviously politics is that's never gonna get. I don't 1:12:50.720 --> 1:12:53.280 even know hows get on the island because there are 1:12:53.400 --> 1:12:55.920 some potholes here in New York that are big enough 1:12:56.000 --> 1:12:58.200 that they could swallow a small car. I mean, you 1:12:58.280 --> 1:13:02.519 want to spend money infrastruction, sake, spend it on infrastructure. Everybody, 1:13:03.120 --> 1:13:05.400 everybody agrees. Why can't we do that? And by the way, 1:13:05.479 --> 1:13:08.160 it puts a lot of blue collar workers to our 1:13:08.880 --> 1:13:11.840 years stastic for years at a time. This is great. 1:13:12.400 --> 1:13:16.240 This is what we've been seeing. What we saw in 1:13:16.320 --> 1:13:21.479 the automobile sector worldwide as China urbanized, which was just 1:13:21.640 --> 1:13:24.400 a huge boom to the current recovery. That's what we 1:13:24.439 --> 1:13:28.519 saw with fracking, is it put blue collar people to work. 1:13:29.080 --> 1:13:31.360 Let me push back at you on that, well, at 1:13:31.400 --> 1:13:33.080 least in the state of Texas. I mean, you're making 1:13:33.080 --> 1:13:37.400 a hundred thousand dollars a year and fast. Read Saudi 1:13:37.560 --> 1:13:42.639 America by Bethany McClain, who basically says the entire low 1:13:42.800 --> 1:13:45.720 rate regime of the Federal Reserve is the only thing 1:13:45.800 --> 1:13:49.840 that's made fracking competitive with everything else because it's so 1:13:49.960 --> 1:13:52.559 capital intensive and it's all borrowed money. Oh gosh, it's 1:13:52.560 --> 1:13:54.400 all borrowed money. No, no, no no. I just wrote 1:13:54.439 --> 1:13:56.680 a recent paper on this, the the the growth of 1:13:56.720 --> 1:13:59.639 the Fed's balance. She literally moves in blockstep in block 1:13:59.720 --> 1:14:02.040 step with the growth of the energy industry. I didn't 1:14:02.080 --> 1:14:04.520 say it was free to build. I said it employed. 1:14:05.280 --> 1:14:09.680 It employed people who don't have college degrees. So it infrastructure, 1:14:09.760 --> 1:14:13.680 so does automobile. So here's a debate that I know 1:14:14.200 --> 1:14:17.040 you love to engage in on Twitter, and I just 1:14:17.160 --> 1:14:21.080 kinda watch from Afar. I engage in much dumber debates 1:14:21.120 --> 1:14:26.439 on Twitter. The repo market is what's driving the FED 1:14:26.840 --> 1:14:30.640 activity to inject more liquidly and that's spilling over to 1:14:30.720 --> 1:14:33.240 the equity markets, and that's why stocks are going higher. 1:14:33.479 --> 1:14:38.519 We look, we've discussed this again. You can try and 1:14:38.720 --> 1:14:41.599 see what happens if rates rise, if you step back, 1:14:41.920 --> 1:14:44.680 don't go to ten percent on overnight, go to four 1:14:44.760 --> 1:14:50.080 or five and see what happens. See how I don't 1:14:50.080 --> 1:14:53.679 even think that that would fly given the sensitivity, given 1:14:53.760 --> 1:14:57.160 the wall. Look, every time there's been a wall of refinancing, 1:14:57.400 --> 1:14:59.479 you would blow up what's left of the shale patch 1:14:59.600 --> 1:15:02.280 right now because there's so much paper that has to 1:15:02.320 --> 1:15:04.720 be refinanced this year and God help us next year. 1:15:04.920 --> 1:15:07.400 For the next five years, it's like seventy one billion 1:15:07.720 --> 1:15:10.000 sixties or four percent of shail debt has to be 1:15:10.080 --> 1:15:12.800 refinanced in the next five years. I was gonna say, 1:15:12.960 --> 1:15:16.360 isn't there like a wildly disproportionate amount of corporate debts 1:15:16.520 --> 1:15:20.720 associated with fracking? Like just so far it was invaded 1:15:20.800 --> 1:15:24.120 by you know, living in Texas, I'm like, what is 1:15:24.200 --> 1:15:27.519 this Greenwich private equity firm doing down here? Well, they 1:15:27.600 --> 1:15:31.040 got in the rain, had some money. I mean, they 1:15:31.120 --> 1:15:34.080 were going to build the tallest skyscraper in Midland, O 1:15:34.160 --> 1:15:36.240 Desk that was gonna be the tallest thing between Dallas 1:15:36.280 --> 1:15:39.679 and Los Angeles. But I mean thank that that funding 1:15:39.800 --> 1:15:41.880 was pulled. We would have ended up just about as 1:15:41.960 --> 1:15:45.280 good as the late nineteen eighties Rolls Royce Dealership in 1:15:45.360 --> 1:15:48.360 Midland O Desk. Do you remember in the eighties the 1:15:48.560 --> 1:15:51.400 sea through buildings in Dallas? They put up all these 1:15:51.560 --> 1:15:55.600 in Houston, they put up all these office buildings and 1:15:55.960 --> 1:15:58.479 they were unoccupied. You literally could see straight through from 1:15:58.479 --> 1:16:00.519 one of them. Today, every time I here a central 1:16:00.560 --> 1:16:03.479 banker talk about how much that the sanctity of the 1:16:03.520 --> 1:16:06.200 financial system and how much stronger our banks are, I'm like, 1:16:06.920 --> 1:16:10.200 you might want to reference your own data Federal Reserve 1:16:10.400 --> 1:16:14.479 on commercial real estate loans, on bank balance sheets, see 1:16:14.600 --> 1:16:17.519 and see that they've gone through the roof because of 1:16:17.600 --> 1:16:21.920 regulatory costs that we were associated with. Dodd Frank. Small 1:16:21.960 --> 1:16:23.880 and mid sized banks in this country are not in 1:16:24.000 --> 1:16:26.960 good shape. Small and mid sized banks are not in 1:16:27.040 --> 1:16:29.800 good shape. And why is there are there still small 1:16:29.840 --> 1:16:32.479 and midsized banks? Biball not know. Well, there's been a 1:16:32.520 --> 1:16:35.880 hell of a lot of consolidation. Asking the question, non bank, 1:16:36.040 --> 1:16:39.400 if you look at the holdings of both assets and 1:16:39.720 --> 1:16:43.880 loans of the top let's call it ten banks. It's 1:16:43.960 --> 1:16:46.200 like one and two and a half times what it 1:16:46.400 --> 1:16:51.280 was twenty years ago. It's it's really become wildly top heavy. 1:16:52.240 --> 1:16:56.240 So now we've had is impossibly big defense. So so 1:16:56.360 --> 1:16:58.439 now that we've had all this consolidation, what does that 1:16:58.520 --> 1:17:01.639 mean for the small and midsize It means it's not good. 1:17:01.760 --> 1:17:04.280 It means that. And this was something that was again 1:17:04.400 --> 1:17:07.640 internally debated at the FED. If you want to impose 1:17:07.880 --> 1:17:12.560 these capital requirements, if you want to impose these compliance requirements, 1:17:12.960 --> 1:17:15.040 do it for the big banks. But for god's sake, 1:17:15.120 --> 1:17:17.320 don't do it for small and midsized lenders. If you do, 1:17:17.720 --> 1:17:19.600 they're gonna go away out on the risk spectrum and 1:17:19.720 --> 1:17:23.040 make the crazy commercial real estate loans that they've got 1:17:23.120 --> 1:17:25.160 that they've got right now. And to be fair, they 1:17:25.400 --> 1:17:29.479 have set up different tiers of requirements for but this, 1:17:31.120 --> 1:17:33.720 I mean this, this happened long after the loans were made. 1:17:33.800 --> 1:17:35.560 All right, am I left? Before I get to my 1:17:35.640 --> 1:17:38.120 favorite questions, I have one question I have to ask you, 1:17:39.000 --> 1:17:41.759 what would it take to make you bullish on stocks? 1:17:44.600 --> 1:17:48.720 I'm not embarrished on stocks, alright, So your clients are 1:17:49.000 --> 1:17:51.920 very often investors and not just corporate entities and others. 1:17:52.120 --> 1:17:53.800 I say, as long as the as long as the 1:17:53.840 --> 1:17:57.080 FED is printing, they cannot be fought. So that's my 1:17:57.240 --> 1:18:01.559 biggest mistake in my entire career was that I knew 1:18:01.960 --> 1:18:05.800 when I left the FED with PTSD in a bad way. 1:18:06.520 --> 1:18:09.240 I knew in my guts that as long as they 1:18:09.360 --> 1:18:12.120 printed enough that they were going to hold up risky 1:18:12.120 --> 1:18:16.280 asset prices, it didn't matter what valuations were. That hasn't changed. 1:18:16.400 --> 1:18:18.080 I had to learn it the hard way. So as 1:18:18.160 --> 1:18:21.120 long as the FED is accommodative, and as long as 1:18:21.200 --> 1:18:25.800 they are not either reversing quee doing, unless there's a 1:18:25.800 --> 1:18:29.599 glaive tightening, unless there's a global calamity that is big 1:18:29.720 --> 1:18:32.360 enough to put the world in recession, I'm not. I'm not. 1:18:32.760 --> 1:18:35.400 I'm not somebody who thinks that we can completely decouple 1:18:35.760 --> 1:18:38.680 the entire Canadian yield curve is inverted, all of it, 1:18:38.920 --> 1:18:41.439 all the way at to thirty years. Mexico, where I'm 1:18:41.479 --> 1:18:44.280 presenting at the Bank of Mexico Bonxico next week. They're 1:18:44.320 --> 1:18:47.280 in recession. They're not getting out of recession anytime soon. 1:18:47.560 --> 1:18:50.839 We've never not been in recession. If Canada goes Germany 1:18:51.040 --> 1:18:54.800 for sure is in recession, has been for a good year, 1:18:54.800 --> 1:18:58.200 and they have flat whatever. Germany's in recession, and you 1:18:58.360 --> 1:19:03.720 just saw some really ugly employment data post pre coronavirus 1:19:03.840 --> 1:19:07.160 come out of Germany, so that industrial slowdowns and China 1:19:07.240 --> 1:19:11.680 is for sure whatever on a paper basis, at the 1:19:11.800 --> 1:19:15.240 very least, that's showing a giant drop in GDP, right, 1:19:15.360 --> 1:19:17.360 even if it's temporary, and even if they make up 1:19:17.439 --> 1:19:18.840 some of it. I mean, it's like all of a 1:19:18.880 --> 1:19:22.400 sudden and yelling because the favorite buzzword on Wall Street 1:19:22.439 --> 1:19:25.120 now is transitory. It's all transitory. It's all transitory. Hey, 1:19:25.280 --> 1:19:28.200 everything on this planet is transitory, including the planet. Well, 1:19:28.200 --> 1:19:29.800 and I get asked by people all the time, well, 1:19:30.400 --> 1:19:32.160 even if we go into recession, the FED can just 1:19:32.320 --> 1:19:34.439 keep printing. And even if we're going to recession, the 1:19:34.479 --> 1:19:37.280 stock market's going to stay up. And that's happened on 1:19:37.439 --> 1:19:41.000 rare occasions in the past. I'm not of the opinion, 1:19:41.040 --> 1:19:42.920 given where we are in the cycle, that that happens. 1:19:43.479 --> 1:19:46.519 I wouldn't disagree with you, So I'm curious if when 1:19:46.560 --> 1:19:49.400 people listen to this, how much they think you and 1:19:49.479 --> 1:19:51.280 I actually agree on and how much they think you 1:19:51.320 --> 1:19:54.479 and I disagree on because I'm asking questions very often 1:19:54.680 --> 1:19:58.479 playing a role and not necessarily. My job isn't to 1:19:58.560 --> 1:20:01.080 debate you. My job is to bring some of the 1:20:01.160 --> 1:20:03.799 questions other people have raised about some of the subjects 1:20:03.800 --> 1:20:06.519 you've talked about all people on planet Earth. You know, 1:20:06.640 --> 1:20:09.479 the person who wrote the expose A I had to 1:20:09.560 --> 1:20:12.120 learn after the fact, don't fight the Fed. Don't fight 1:20:12.160 --> 1:20:14.760 the Fed. So you're pretty constructive, and uh, what do 1:20:14.840 --> 1:20:19.519 you like leveraged on a long long how you're invested? 1:20:19.560 --> 1:20:21.960 I own a ton of municipal bonds on I own 1:20:22.040 --> 1:20:24.840 a ton of gold, and I'm not unhappy. Well, gold 1:20:24.960 --> 1:20:28.000 is approaching s I did well with gold in the 1:20:28.080 --> 1:20:31.519 two thousand's and once it, you know, peaked and reversed, 1:20:31.600 --> 1:20:33.120 I tapped out and said, I think you have to 1:20:33.200 --> 1:20:36.080 be bold, bold, bold in your asset allocations. I really 1:20:36.160 --> 1:20:39.800 really do. When there's as much global uncertainty as there is, 1:20:41.000 --> 1:20:42.960 central banks are the only game in town. Hell. I 1:20:43.040 --> 1:20:46.160 did well in Puerto Rico, but you have to be 1:20:46.280 --> 1:20:49.600 bold in your alleys. Gold should be no no no, no, 1:20:49.720 --> 1:20:51.559 no no no. Also, how much gold do you own 1:20:51.720 --> 1:20:53.840 relative to your portfolio? You should have, you should have 1:20:55.720 --> 1:20:59.240 in precious metals at a real time like this. Again, 1:20:59.280 --> 1:21:01.880 at a time like this, I tiptoed in about nine 1:21:02.000 --> 1:21:06.679 months ago. Wow, that is a bold And my Muni 1:21:06.720 --> 1:21:09.879 bonds have never I mean, throughout ups downs in betweens. 1:21:09.960 --> 1:21:13.800 Right now they're they're fat and there we've been, haven't 1:21:13.840 --> 1:21:15.960 we been in a forty year bond bull market. So 1:21:16.160 --> 1:21:19.599 whatever you own that's not junk has done pretty well. 1:21:20.000 --> 1:21:22.479 I wouldn't own a lot of corporate bonds in America 1:21:22.560 --> 1:21:25.479 to day. Huh, that's interesting. See, I break corporates into 1:21:25.600 --> 1:21:28.960 the you know, the B B plus and up, and 1:21:29.040 --> 1:21:32.240 then everything under that, even not the junk, even like 1:21:32.479 --> 1:21:34.920 the near junk, like I want. I don't want to 1:21:34.920 --> 1:21:37.320 own anything below B minus. I don't want to know. 1:21:37.680 --> 1:21:39.400 And a buddy of mine who used to work one 1:21:39.439 --> 1:21:43.200 of the big three credit rating agencies, the stories that 1:21:43.320 --> 1:21:46.320 I've heard right out of her mouth, the management is 1:21:46.439 --> 1:21:50.120 twisting arms to maintain investment grade ratings. I'm like, no, no, 1:21:50.320 --> 1:21:53.080 thank you, not in my portfolio. Does does anyone still 1:21:53.320 --> 1:21:57.200 really pay attention to the credit ratings after the debacle 1:21:57.880 --> 1:22:01.360 of A I G. And Lehman and I think, I think, 1:22:01.560 --> 1:22:04.920 and the whole financial crisis was the one lesson. There 1:22:04.960 --> 1:22:08.360 are many lessons, but the one lesson is, hey, credit agencies. 1:22:09.240 --> 1:22:11.880 They are like stock analysts whose job is to generate 1:22:11.960 --> 1:22:15.200 more syndicate business. They're not here for you, the bond buyer. 1:22:15.640 --> 1:22:19.240 There there for the bonds underwriter. We know that, but 1:22:20.280 --> 1:22:23.680 but shouldn't bond buyers know that Ianco has some insane 1:22:23.840 --> 1:22:27.719 numbers that he can trail out about the thousand firms 1:22:27.760 --> 1:22:31.920 and the fo thousand different registered investment advisors, and then 1:22:32.280 --> 1:22:35.439 millions of accounts that exist. They're all basically look like 1:22:35.560 --> 1:22:38.160 the same damn pie. One of the slices of that 1:22:38.280 --> 1:22:42.559 pie is an investment grade bondy TF that investment grade 1:22:42.720 --> 1:22:44.880 that makes mom and Dad sleep at night because they 1:22:44.960 --> 1:22:47.639 know it's money. Good. Well, guess what I would known 1:22:47.800 --> 1:22:50.320 half of whatever is in there? All right? So now 1:22:50.560 --> 1:22:52.360 I only have you here for another ten minutes. I 1:22:52.439 --> 1:22:55.559 have to get to my favorite questions because I know, um, 1:22:55.920 --> 1:22:59.120 there's some of your favorite questions. So let's uh on 1:22:59.240 --> 1:23:01.320 that happy note, let's jump right into these what what 1:23:01.479 --> 1:23:04.639 some people call our speed round. Um, and I'm gonna 1:23:04.800 --> 1:23:07.679 add a question. I'm gonna mix it up a little 1:23:07.720 --> 1:23:11.240 bit because I have to ask what was your first car. 1:23:14.320 --> 1:23:18.080 My first car was an Accura. It was a hatchback, 1:23:18.120 --> 1:23:21.720 but I can't remember the name of it. What year 1:23:21.880 --> 1:23:25.479 was it? Integra. Yeah, they had the little Integral car 1:23:26.360 --> 1:23:27.880 that you could get that with a five speed and 1:23:27.960 --> 1:23:32.479 toss it around. It was really based on a with 1:23:33.280 --> 1:23:36.679 with a transmission and tips. You just it's been tried 1:23:36.720 --> 1:23:38.760 a few times. Yeah, yeah, I mean, And don't get 1:23:38.760 --> 1:23:40.720 me wrong, like like I said recently, a bit of 1:23:40.800 --> 1:23:42.679 a car guy. Right to my first F one race, 1:23:42.840 --> 1:23:44.800 didn't want to leave. I'm like, no, no, you surely 1:23:44.800 --> 1:23:46.680 you can go a few more laps. I've been to 1:23:46.760 --> 1:23:49.479 the Daytona twenty four hours of Daytona. I left for 1:23:49.520 --> 1:23:53.120 two hours, came back. That's a tough race, you know what. 1:23:53.280 --> 1:23:55.920 But watching Italians cry in the rain when their engine 1:23:55.960 --> 1:24:00.280 blocks crack, there's something magical about That's if you you'll 1:24:00.280 --> 1:24:04.160 see more of that. Um what are you streaming? Listening to? Downloading? 1:24:04.200 --> 1:24:08.080 These days? So I'm not a big podcaster that? Um 1:24:08.320 --> 1:24:12.400 what about video? Amazon? Prime? Netflix? What are you watching? Um? So, 1:24:12.520 --> 1:24:15.200 I did just watch The Kaminsky Method, which I found 1:24:15.240 --> 1:24:22.120 so good, larious and perfectly It's like a two minute slice, right, 1:24:22.280 --> 1:24:25.519 It's great it's amazingly quick. Look serious radio. For me, 1:24:25.840 --> 1:24:29.240 I'm dating myself. It's just so awesome. If I'm in 1:24:29.320 --> 1:24:31.320 a particular mood, Hell, I can tell you eight on 1:24:31.439 --> 1:24:33.559 eighties or seventy on seventies or what are you listening? 1:24:33.640 --> 1:24:38.280 Sometimes I'm listening to Bruce for hours the Street Channel. Yeah, 1:24:38.560 --> 1:24:43.160 occasionally I'll even turn on Elvis. But I'm an alternative 1:24:43.200 --> 1:24:45.080 rock kind of a person. I'm I'm Channel thirty three. 1:24:45.960 --> 1:24:48.360 Uh So do you listen to Deep Cuts? Is that 1:24:48.479 --> 1:24:51.360 what that is? Or Vinyl Rewind? I don't know. Sometimes 1:24:51.400 --> 1:24:55.040 I do Vinyl Dot Classic rewind? And do you ever 1:24:55.080 --> 1:24:58.439 listened to comedy grades? No that I don't like nine 1:24:58.880 --> 1:25:02.479 and ninety seven? Check the note it's actually but I could, 1:25:02.520 --> 1:25:04.080 you know, but laughter is good for the soul, and 1:25:04.120 --> 1:25:06.680 I laugh very much being this huge FED critics. So 1:25:07.040 --> 1:25:11.360 I'm I'm going to find who are some of your 1:25:11.479 --> 1:25:17.120 early mentors who guided your career? So I would say that, um, 1:25:17.800 --> 1:25:22.360 the most important mentor was was Charlie excuse me, was 1:25:22.400 --> 1:25:26.360 Harvey Rosenblum. And Harvey took me under his wing. He 1:25:27.200 --> 1:25:29.920 was the director of research at the Dallas Fed. He 1:25:30.000 --> 1:25:35.880 was the right hand to Richard Fisher and um. He 1:25:36.120 --> 1:25:40.720 taught me how to be more accepting of of the 1:25:40.880 --> 1:25:44.040 school of economics and be less resentful. Even though my 1:25:44.160 --> 1:25:47.160 father may rest in peace. He taught economics and finance, 1:25:47.200 --> 1:25:49.519 and I said, never will I ever go there, But 1:25:49.960 --> 1:25:53.040 he here I am. He gave me a great respect 1:25:53.160 --> 1:25:55.439 for the school of economics, and I gave him a 1:25:55.479 --> 1:25:57.840 great respect for the financial markets. And it's been one 1:25:57.840 --> 1:26:01.599 of the loveliest collab collaborations of my career. Tell us 1:26:01.600 --> 1:26:03.439 about some of your favorite books. What are you reading? 1:26:03.520 --> 1:26:05.439 What sort of books do you like to read? So 1:26:05.760 --> 1:26:09.840 I like to read books that are almost off in 1:26:10.000 --> 1:26:13.640 their brilliance. The book that's had the greatest impact on 1:26:13.720 --> 1:26:16.800 my career is The Lords of Finance, hands down, lie 1:26:16.880 --> 1:26:21.840 Quad and I believe that one the Politzer Prize. I'm 1:26:21.840 --> 1:26:24.639 pretty sure it did. Yeah, it's wonderful, wonderful books about 1:26:24.680 --> 1:26:29.080 the four fed chiefs from the US, Germany, and France, 1:26:29.120 --> 1:26:33.040 and the parallels between pre crisis and pre World War 1:26:33.120 --> 1:26:37.960 One are just They're stunning, and it's well written, really 1:26:38.000 --> 1:26:41.000 well written, really really and I had no idea who 1:26:41.040 --> 1:26:43.080 he was until that book came out. You know, if 1:26:43.080 --> 1:26:46.799 it's for pleasure, you know, the last year's a quirky 1:26:46.880 --> 1:26:49.000 book that had history and it off of a Greek 1:26:49.040 --> 1:26:52.439 island called The Destroyers. That was fun. The Destroyers who 1:26:52.479 --> 1:26:55.080 wrote that, Oh gosh, I have no idea, The Destroyers, 1:26:55.160 --> 1:26:58.639 that's really interesting. And then and then Goldfinch. Thank god 1:26:58.720 --> 1:27:01.800 I didn't watch the movie. That's all I have to say, Goldfinch. 1:27:02.040 --> 1:27:06.559 Goldfinch is probably one of the best written books out 1:27:06.600 --> 1:27:11.040 there period endow. So if you've not read either of 1:27:11.120 --> 1:27:13.840 those who wrote Goldfinch, and I have no idea, I 1:27:13.880 --> 1:27:18.559 don't do authors. The Destroyers a novel by Christopher Boland, yep, 1:27:18.720 --> 1:27:21.840 that's it. Wow. And then let's see what Goldfinch has. 1:27:22.240 --> 1:27:24.280 Who wrote that? I think it's Goldfinch that when the 1:27:24.320 --> 1:27:29.920 pullets are actually uh The Goldfinch by Donna Tart and 1:27:30.120 --> 1:27:34.320 David Donna Tart. Wow. Alright, so that's three books. That's great. 1:27:35.840 --> 1:27:40.160 Lords of Finance, Gold Finch, and The Destroyers tell us 1:27:40.200 --> 1:27:42.720 about a time you failed and what you learned from 1:27:42.760 --> 1:27:47.280 the experience. Well, I learned not to fight the FED, 1:27:47.800 --> 1:27:51.000 even though I did it internally for nine years. But 1:27:51.400 --> 1:27:55.560 after I left the FED, I have learned how important 1:27:55.840 --> 1:27:59.000 liquidity is to the financial markets. I'm going to quote 1:27:59.439 --> 1:28:04.599 current Dallas uh FED president Robert Kaplan and say, let's 1:28:04.640 --> 1:28:08.720 see what happens if you take the liquidity away. So 1:28:08.800 --> 1:28:11.439 I've learned to not fight the FED. Quite interesting. What 1:28:11.520 --> 1:28:12.920 do you do for fun? What do you do when 1:28:12.960 --> 1:28:17.639 you're not UH in the office writing? I travel? I travel. 1:28:18.640 --> 1:28:21.040 I travel. I travel for fun almost as much as 1:28:21.080 --> 1:28:25.080 I travel for UM for work. And I'd always try 1:28:25.160 --> 1:28:27.200 when I'm traveling for work to have a little bit 1:28:27.240 --> 1:28:29.759 of fun in there, whether it's one of my favorite 1:28:29.760 --> 1:28:32.639 restaurants in New York or if I'm in London seeing 1:28:32.720 --> 1:28:34.600 something that I would never see when I when I 1:28:34.680 --> 1:28:37.320 had this big speech in Australia, Wow, it was life 1:28:37.439 --> 1:28:40.439 changing to see that beautiful country. Unfortunately, you know, before 1:28:40.479 --> 1:28:45.479 the big wildfires and um. Alright, so I don't know 1:28:45.520 --> 1:28:48.160 whether SS about the FED or general. I'll give you 1:28:48.280 --> 1:28:51.479 the option, what are you most optimistic about today and 1:28:51.600 --> 1:28:57.639 what are you most pessimistic about? So I'm clearly most 1:28:57.680 --> 1:29:01.719 pessimistic about the printing press running twin four seven, making 1:29:01.840 --> 1:29:08.600 us even more reliant on the largesse of the FED. Optimistic. 1:29:09.000 --> 1:29:12.559 I am optimistic because I'm close enough to my children 1:29:12.640 --> 1:29:15.719 and watching them get an education and learning about charter 1:29:15.840 --> 1:29:20.480 schools to begin thinking that there's some kind of grassroots 1:29:21.479 --> 1:29:24.800 desire to begin education reform, which I think is so 1:29:25.040 --> 1:29:28.240 much more important than anything else in this country. Is 1:29:28.560 --> 1:29:33.479 reforming education interesting? Uh? Speaking of education, a recent college 1:29:33.560 --> 1:29:35.600 grad came to you and said, I'm interested in a 1:29:35.720 --> 1:29:41.240 career in either filling the blank, journalism, economics, Wall Street. 1:29:41.320 --> 1:29:43.360 What sort of advice would you give them? So I'm 1:29:43.439 --> 1:29:46.559 going to switch it to being a recent high school graduate. 1:29:47.520 --> 1:29:49.880 I would tell them to go to college, fight the 1:29:49.920 --> 1:29:52.959 bullet and get an engineering degree. And after the engineering 1:29:53.040 --> 1:29:56.719 degree they can get a higher advanced degree in whatever 1:29:56.880 --> 1:30:00.160 they want. But to get an engine engineering to agree, 1:30:00.160 --> 1:30:02.360 there's many different forms of engineering in this world, many 1:30:02.400 --> 1:30:06.800 different stripes, but get that as your base. When I 1:30:06.960 --> 1:30:09.080 was in business school, when I got my NBA and finance, 1:30:09.120 --> 1:30:11.400 it was always those damn engineers who threw the curve, 1:30:12.439 --> 1:30:16.519 but they were there their raging successes later on in life. Huh. 1:30:17.240 --> 1:30:19.439 I don't care if it's law school or to become 1:30:19.439 --> 1:30:23.200 a doctor. After start with an engineering degree. I gotta say, Uh, 1:30:23.800 --> 1:30:27.000 I think that's pretty good advice. And our final question, 1:30:27.200 --> 1:30:31.240 what do you know about the world of monetary policy, 1:30:31.439 --> 1:30:35.880 Federal Reserve crisis management today that you wish you knew 1:30:36.120 --> 1:30:40.639 twenty years ago. I wish I would have known about 1:30:41.000 --> 1:30:45.080 the Group of thirty prior to joining the FED, meaning 1:30:45.280 --> 1:30:48.600 the nation Group of thirty. It is a group of 1:30:48.680 --> 1:30:53.320 thirty of the world's most powerful central bankers and financiers. 1:30:54.280 --> 1:30:56.360 I wish I would have known that that that existed, 1:30:56.439 --> 1:30:59.800 because it took me too long to figure out that 1:31:00.320 --> 1:31:03.120 all central bankers appear to be cut from the same stripe. 1:31:03.760 --> 1:31:07.280 And the reason that it is so difficult to extricate ourselves, 1:31:07.360 --> 1:31:12.080 it's because everybody around the world is using the same 1:31:12.600 --> 1:31:16.560 guide book. It's the same playbook. Quite fascinating. We have 1:31:16.800 --> 1:31:19.880 been speaking to Danielle de Martino Booth. She is the 1:31:19.920 --> 1:31:22.240 author of fed Up, an insider's take on why the 1:31:22.280 --> 1:31:26.480 Federal Reserve is bad for America. If you enjoy this conversation, 1:31:27.240 --> 1:31:28.680 be sure and look up an Inch or down an 1:31:28.720 --> 1:31:31.120 Inch on Apple iTunes and you could see any of 1:31:31.200 --> 1:31:35.160 the previous three or so such conversations we've had over 1:31:35.200 --> 1:31:38.240 the past five years. We love your comments, feedback in 1:31:38.400 --> 1:31:43.120 suggestions right to us at m IB podcast at Bloomberg 1:31:43.160 --> 1:31:45.960 dot net. Go to Apple iTunes and please give us 1:31:46.000 --> 1:31:49.040 a review. Be sure and check out my weekly column 1:31:49.160 --> 1:31:52.479 on Bloomberg dot com. Follow me on Twitter at rit Holtz. 1:31:52.840 --> 1:31:55.760 Sign up for the Daily Reads at rid Holtz dot com. 1:31:56.560 --> 1:31:58.439 I would be remiss if I did not thank the 1:31:58.560 --> 1:32:04.400 Crack staff helps me put this little conversation together each week. 1:32:05.080 --> 1:32:11.200 Mark Siniscalchi is my audio engineer. Sam Chivraj is my producer. 1:32:11.760 --> 1:32:15.919 Michael Batnick is my head of research. I'm Barry Ritolts. 1:32:16.280 --> 1:32:19.880 You've been listening to Master's in Business on Bloomberg Radio