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Speaker 2: All right, nobody does it? I gotta say, just listening
Speaker 2: to our Mike McKee, he's got to be the hardest
Speaker 2: working man in economics. Is cowboy hat and all love it?
Speaker 2: I do too, but just interview after interview, really trying
Speaker 2: to get to the heart of what's going on in
Speaker 2: the economy and what it means for US monetary policy.
Speaker 2: He has spoken with several members of the FED and
Speaker 2: FED Central Banks, if you will, or FED Regional I
Speaker 2: should say, in today alone. So let's get right to him.
Speaker 2: Because Bloomberg News International Economics and Policy correspondent Michael McKee
Speaker 2: sans hat what happened there at the Jackson Hall Economic
Speaker 2: Policy Symposium. Mike, good to have you here. I am
Speaker 2: in awe. I usually am anyway, but man, you've just
Speaker 2: been having one conversation after another. But let's start with
Speaker 2: Jay Powell. What sounded very familiar to you? What sounded
Speaker 2: that like, maybe it's some new news.
Speaker 3: I didn't think anything really sounded new. What he did
Speaker 3: was sort of restructure it what he has said before
Speaker 3: in an effort to sort of give it a hawkish tilt.
Speaker 3: It's sort of a message to the bond market, don't
Speaker 3: get carried away. We still have more work to do,
Speaker 3: and we're.
Speaker 4: Going to do it.
Speaker 3: And if we needed to raise rates again, and if
Speaker 3: we needed to risk a recession, we would do that.
Speaker 3: But right now it doesn't look like that. Things look
Speaker 3: pretty good.
Speaker 5: Was there anything he didn't say or leave out that
Speaker 5: you think is notable?
Speaker 3: No, But what I did think was interesting was when
Speaker 3: he said that we don't know what the neutral rate
Speaker 3: is and he said we are going to keep two
Speaker 3: percent as our target.
Speaker 4: That's not going to change.
Speaker 3: Those are two of the things that had been talked
Speaker 3: about on Wall Street Global Wall Street really as things
Speaker 3: that he might talk about or that the FED might change.
Speaker 3: And he was at pains to basically say I heard you,
Speaker 3: and you're wrong.
Speaker 4: And those were direct.
Speaker 3: Messages to people who think that the FED might be
Speaker 3: adjusting its policy.
Speaker 2: So no, two percent is it and we're going to
Speaker 2: get there. That's basically his point.
Speaker 3: That's basically his point, and they're going to keep the
Speaker 3: pressure on. Now what does that mean. Does it mean
Speaker 3: they have to raise rates again? They don't know, but
Speaker 3: he said they're prepared to if necessary. It could also
Speaker 3: just mean that they keep rates where they are for
Speaker 3: a very long time into twenty twenty four in order
Speaker 3: to ensure they're getting back down to two percent.
Speaker 6: Mike, what I.
Speaker 2: Wonder is at an event like this where there is
Speaker 2: obviously J. Powell and he's one of the stars, if
Speaker 2: you will, for lack of a better word, you've got
Speaker 2: Christine Lagard another one, and then of course you've got
Speaker 2: you know, the FED presidents that you've been speaking to
Speaker 2: and others. What are the kind of conversations that they
Speaker 2: have that you are aware of, Like, what is it
Speaker 2: that they are trying to learn from one another in
Speaker 2: an environment like today.
Speaker 3: Well, there's a lot of discussion about the unusual situation
Speaker 3: we find ourselves in the global economy, the idea that
Speaker 3: we are seeing inflation that went so high so fast
Speaker 3: because of supply disruptions. Now those supply disruptions are starting
Speaker 3: to normalize, but we are still seeing elevated inflation and
Speaker 3: no impact on unemployment. Labor markets are strong everywhere. I've
Speaker 3: been talking to a lot of the European central bankers
Speaker 3: and that's one of the first things they say is
Speaker 3: labor markets remain very tight, and that's not how it's
Speaker 3: supposed to work when central banks raise interest rates that high.
Speaker 3: So there's a lot of talk about what's going on
Speaker 3: in labor markets and why we're seeing what we're seeing.
Speaker 3: There's a kind of a gentle feeling that the pandemic reset.
Speaker 4: Expectations for workers.
Speaker 3: Some of them retired more early than they otherwise would.
Speaker 3: Some don't have the social safety net to enable them
Speaker 3: to get back to work, which means there are openings
Speaker 3: out there still, and that gives them hope that we're
Speaker 3: going to still see strong labor markets. But we're going
Speaker 3: to see and that'll mean strong growth, but we're not
Speaker 3: going to see it be inflationary.
Speaker 5: There's been so much chatter too about the debate within
Speaker 5: the Federal Reserve about where do we go from here.
Speaker 5: Based on your conversations with Federal Reserve officials, how divergent
Speaker 5: do their opinions seem to you?
Speaker 3: Well, I have to say that after Pile's speech, nobody
Speaker 3: changed their minds. We did speak with Patrick Harker, who
Speaker 3: thinks that things should be on hold, and Lorettamester, who
Speaker 3: thinks that things should they should have to raise rates again. Basically,
Speaker 3: it's a question of tactics. Do you raise rates a
Speaker 3: little bit more or do you just sit and wait
Speaker 3: and see what the impact of the lagged effects of
Speaker 3: what you've already done is. And that's what the debate
Speaker 3: is for them. But even those like Mester who think
Speaker 3: that probably another rate increase is justified, she said she's
Speaker 3: willing to change her mind if the data come in
Speaker 3: and show that inflation is still going down and they
Speaker 3: have these two inflation reports before we get to the
Speaker 3: next FED meeting.
Speaker 2: Hey, Mike, it was hard to pick a SoundBite from
Speaker 2: all the interviews incredible interviews you're doing, but we did
Speaker 2: do just that. Here's just a little snippet of Mike's
Speaker 2: conversation with Philadelphia Fed President Pat Harker, who definitely had
Speaker 2: a point of view when it comes to monetary policy.
Speaker 7: At this point, we really need to see inflation moving down,
Speaker 7: and we're seeing early signs of that, but I want
Speaker 7: to keep rates where they are right now, and then
Speaker 7: we'll decide later what we do all right.
Speaker 2: So that's Pat Harker obviously president of the Philadelphia Fed,
Speaker 2: so he wants to keep rates here. It's interesting, Matt,
Speaker 2: Mike Brother, how do you think about last year, the conversations,
Speaker 2: the themes that trends versus this year.
Speaker 3: It's kind of interesting because I've talked to a couple
Speaker 3: of central bankers who said the same thing. We're in
Speaker 3: a difficult situation for them because last year they could
Speaker 3: come here and say we're going to raise rates, no
Speaker 3: question about it. Markets don't price in any kind of easing.
Speaker 3: We've got a long way to go with inflation. Now
Speaker 3: you've got this ambiguous situation. Do we have to raise
Speaker 3: rates more or do we just sit where we are?
Speaker 3: And the economy is giving us mixed messages on that.
Speaker 3: So there is a big change in tone and emphasis
Speaker 3: here from last year. But there's also been a big
Speaker 3: change in the data. Inflation's come way down, unemployment hasn't moved,
Speaker 3: and growth, as the chairman said, is stronger than expected.
Speaker 2: You mentioned how much inflation has come down the past year.
Speaker 2: What about in Jackson Hall? Are things expensive? Are they
Speaker 2: cheaper than last year?
Speaker 8: What are you noticing.
Speaker 3: They are more expensive than last year. Somebody noticed that
Speaker 3: the Pioneered Grill, Tom Keane's favorite to stop here has
Speaker 3: raised its prices somewhat. Jackson is also kind of a
Speaker 3: more expensive place. It's become very much a tourist destination
Speaker 3: in the summer, so you do see that impact. But
Speaker 3: I think you're seeing here what you have seen everywhere.
Speaker 3: Prices went up. Now the question is do they keep
Speaker 3: going up or have they recouped costs and now they
Speaker 3: can keep things steady. I guess we'll just have to
Speaker 3: come back next year and find out.
Speaker 2: Managers, are you listening?
Speaker 5: And we do have obviously a batch of inflation coming up,
Speaker 5: as you know with the pc next week we have
Speaker 5: CPI on the thirteenth, But what do you think is
Speaker 5: is that enough? Depending on what that data tells us
Speaker 5: to make a divergent decision. Once we get that rate
Speaker 5: decision on September twentieth.
Speaker 4: We'll forget what we're expecting.
Speaker 3: It probably means the Fed pauses again, and those who
Speaker 3: think we need higher rates are probably.
Speaker 4: Willing to go along with that. They'll put their sites.
Speaker 3: On November we should see a slight rise in the
Speaker 3: CPI and the PCE because of base effects and energy
Speaker 3: prices going up. The interesting thing to look at is
Speaker 3: going to be the core pce X housing the J
Speaker 3: Powell Indicator, which he talked about today as still being
Speaker 3: too high. So do we see further progress in that
Speaker 3: coming down or does that level out or does that
Speaker 3: actually go up? That would be maybe a warning signal
Speaker 3: for November. But I think if we see very little change,
Speaker 3: even if it's up a little bit, we're not going
Speaker 3: to see much happen in the September meeting.
Speaker 2: Hey, Mike was a little funky when in conclusion in
Speaker 2: Jay Powell's prepared remarks, he said, as is often the case,
Speaker 2: we are navigating by the stars under cloudy skies. It
Speaker 2: just felt like a little woo wooed to me. Mohammed
Speaker 2: el Aian on Blomberg TV kind of brought you know,
Speaker 2: brought that out, but it was kind of pointing out
Speaker 2: there's a lot of things going on globally that are
Speaker 2: beyond our control.
Speaker 3: Yeah, this is one of those things like the Grateful Dead.
Speaker 4: If you have been a fan for a long time, yes,
Speaker 4: that line.
Speaker 3: That line came from his twenty eighteen speech here at
Speaker 3: Jackson Hole. His first speech here as chairman when he
Speaker 3: talked about the various star measures our star and U star,
Speaker 3: and he was making the point at that time that
Speaker 3: since we really don't have a way of knowing what
Speaker 3: those numbers are, it's kind of hard to set your
Speaker 3: policy by an our star. And so he's referring back
Speaker 3: to the same thing he said some time ago, six
Speaker 3: years ago now, I think, and for those of us
Speaker 3: who've been here for a long time, it was kind of.
Speaker 2: Funny, all right, hey, also kind of funny. I'm going
Speaker 2: through my social media on Twitter, x whatever you want
Speaker 2: to call it, you chatting with the fed chare hot
Speaker 2: and all. Did he like the hat? We we're putting
Speaker 2: it up on everybody on YouTube and Bloomberg originals. Did
Speaker 2: he like the hat?
Speaker 4: He liked the hat.
Speaker 3: And I offered him the hat for his speech today
Speaker 3: because I told him people were worried that if I'm
Speaker 3: wearing the hat on TV, they're looking at the hat
Speaker 3: instead of listening to what I'm saying.
Speaker 4: And I said that could work for you.
Speaker 3: Everybody talk about the hat Joy Powell was wearing, and
Speaker 3: they won't be worried about what you had to say.
Speaker 2: He declined, Well, listen, great stuff as always, You men
Speaker 2: have earned it this week in a big way. And
Speaker 2: for anybody who's missed any of Mike's conversations, all you
Speaker 2: have to do is head to Bloomberg Talks our podcast feed,
Speaker 2: download it wherever you get your podcast. Michael McKee, you're
Speaker 2: a jem hat no hat Bloomberg News International Economics and
Speaker 2: Policy correspondent, Michael McKee, safe travels joining us from Jackson, Whole, Wyoming.
Speaker 2: You are listening and watching Bloomberg Business Week on this Friday,
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Speaker 2: On the Bloomberg. Just came across a story today about
Speaker 2: how JP Morgan Chase basically weighing in on the crypto
Speaker 2: world today saying the recent sell off in crypto markets
Speaker 2: is likely near an end, with long position liquidations quote
Speaker 2: largely behind us. This was a research report by JP
Speaker 2: Morgan Chase, and yet they are making note that while
Speaker 2: regulatory and legal issues seem to be waning at least
Speaker 2: for now, still to come quote a new round of
Speaker 2: legal uncertainty for crypto markets. And so you know more
Speaker 2: on jpm's call, you can find it on the Bloomberg.
Speaker 2: But it's been a very interesting we know the carnage
Speaker 2: right that we saw certainly earlier in the year, certainly
Speaker 2: over the last year, and a real rethink on crypto.
Speaker 2: And one of the things that many would argue and
Speaker 2: point to is that we've got to figure out the
Speaker 2: regulatory side of everything.
Speaker 5: And that's always been the big question mark about what's
Speaker 5: ahead and how it does impact for twoicular companies that
Speaker 5: are in that industry and especially investors on where do
Speaker 5: you go from here when you're trying to invest in
Speaker 5: something so vulnerable.
Speaker 2: Well, yeah, you want transparency and you're right sure you
Speaker 2: understand the rules. So let's get into a little bit
Speaker 2: more of the regulatory side of crypto. Back with us
Speaker 2: is Mike Belshe, entrepreneur, scientist, one of the first ten
Speaker 2: engineers on the Google Chrome team, so really is a
Speaker 2: forward thinker, if you will, when it comes to our
Speaker 2: evolving tech space and just how tech is kind of
Speaker 2: invading everything we do early on in the more it
Speaker 2: developed crypto space as well. He's co founder and CEO Bitco.
Speaker 2: They provide security and operational support to global institution clients,
Speaker 2: so he's a good worldwide perspective. Joining us as we
Speaker 2: do every week at this time our weekly look at crypto.
Speaker 2: He is on Zoom in San Francisco. Mike, Hey, nice
Speaker 2: to have you back with us. How are you.
Speaker 9: Doing great? Thank you, Carol, Thanks triving me back. I
Speaker 9: appreciate it. Always good to talk to you.
Speaker 2: Well, we appreciate it as well. First of all, I
Speaker 2: just want to get an idea of remind everybody what
Speaker 2: you do, a kind of your vantage point. I always
Speaker 2: like to kind of set the stage for everybody, and
Speaker 2: I feel like those who are in it can describe
Speaker 2: it best. And then just kind of the level of
Speaker 2: activity and demand that you're seeing for your services in
Speaker 2: today's environment, and maybe how it compares to the peak
Speaker 2: of let's say bitcoin sixty eight thousand back in November
Speaker 2: of twenty twenty one. How has the perspective changed.
Speaker 9: Sure, Well, you introduced me as a technologist, which is true.
Speaker 9: That's my thirty year background all the way back to
Speaker 9: Netscape a long time ago, but these days actually technically,
Speaker 9: I guess I'm more of a banker. So Bitco is
Speaker 9: a digital asset custodian kind of the first of its
Speaker 9: kind that was built I think seven or eight years ago.
Speaker 9: We actually run four different trust companies across the globe today.
Speaker 9: We've got in New York DFS, We've got South Dakota
Speaker 9: in the US, We've got Switzerland. We've got a often
Speaker 9: regulated Nstey in Germany as well. So we run a
Speaker 9: lot of custody. And it started with a high tech
Speaker 9: wallet platform. We pioneered how to do secure storage digital
Speaker 9: assets long ago, eliminating single points of failure. And the
Speaker 9: reality is you can't build a reliable banking system if
Speaker 9: you don't have a great foundation. So that's what we
Speaker 9: aimed out to do in the In the beginning, we
Speaker 9: start up with technology, we moved into custody. This is
Speaker 9: where we take all the keys in are regulated qualified
Speaker 9: custodian bankruptcy remote way. And then these days we're actually
Speaker 9: moving on to the next level, which is really how
Speaker 9: do we build the market structure? And of course you
Speaker 9: hear about a lot of lawsuits going on in the
Speaker 9: industry from regulators against certain players that are already in play.
Speaker 9: You hear new proposals about how to regulate or how
Speaker 9: to structure the markets for crypto should be under the
Speaker 9: CFTC or the SEC. Bicco's trying to push on that too.
Speaker 5: Even despite some of the crypto regulatory concerns that are
Speaker 5: out there, you were still able to raise one hundred
Speaker 5: million dollars in seriess funding. How tough is it right
Speaker 5: now to try to raise funding.
Speaker 9: Well, I don't like to sound like a brag or anything,
Speaker 9: but it's brutal out there is probably the right answer.
Speaker 5: So why wasn't it brutal for you?
Speaker 9: Well, I hope to say that. You know, bicco's achieved
Speaker 9: a level of success and excitement kind of on the
Speaker 9: go forward basis. So look, our existing products have been
Speaker 9: working well. There's been a big flight to safety just
Speaker 9: given all the concerns of the last year. You know,
Speaker 9: there are a lot of failures on other parties in
Speaker 9: the ecosystem, so people are looking for somebody that's doing
Speaker 9: it right. BICKA has always taken a tried and true approach.
Speaker 9: We operate custody is the core of what we do.
Speaker 9: Custody is a different element than trading. You know, we
Speaker 9: tend to not have any issues like with what's going
Speaker 9: on with with other folks with with their entanglements with
Speaker 9: the SEC because what we're doing is holding assets on
Speaker 9: behalf of clients and then on the go forward basis.
Speaker 9: You know, people are excited about the market structure we're building.
Speaker 9: We announced this thing called the Go Network, which is
Speaker 9: basically introducing the first time where we can start to
Speaker 9: have a settlement distinct from trading, distinct from custody, so
Speaker 9: that you can start to have safe landing of assets,
Speaker 9: keep everything in cold Star origin, yet still have access
Speaker 9: to full equting.
Speaker 2: Well, then let me go back to how I started MIC.
Speaker 2: So what's what's the level of activity and demand? I
Speaker 2: get it, it's like the regular, you know, traditional financial system, right,
Speaker 2: you have your custodians that are out there for financial acids,
Speaker 2: if you will, And so I'm just curious what's the
Speaker 2: level of activity and demand for your services, specifically in
Speaker 2: the crypto world, and how it compares to I guess
Speaker 2: I'm using November of twenty twenty one as a peak
Speaker 2: because that's when bigcoin was so high, and maybe that's
Speaker 2: just a random point, but I'm just curious what you've seen.
Speaker 2: Where are we How would you kind of quantify it
Speaker 2: or describe it?
Speaker 9: Well, I mean the markets are a little bit down, right,
Speaker 9: So as a financial institution, I mean, you know, the
Speaker 9: market prices are down. So our assets under custody, you know,
Speaker 9: they were up. I think we advertised up over sixty
Speaker 9: four billion in a UC. I think it was at
Speaker 9: the end of twenty twenty one. Our assets are down
Speaker 9: today because their marks to a lower value against the
Speaker 9: US dollar. But we haven't lost the coins. The coins
Speaker 9: are all still in custody, so.
Speaker 2: It's just a value decline, not the actual coin itself.
Speaker 9: Right. As soon as you know Americans start measuring their
Speaker 9: wealth in BTC instead of a USD, we'll all be
Speaker 9: on the same page.
Speaker 5: Talk to us about who your customers are, because I
Speaker 5: was surprised also to see Nike on that list.
Speaker 9: Sure, I mean, we're a business to business and institutional players,
Speaker 9: so we don't hit retail a lot. There's some high
Speaker 9: network individuals, but you know, funds use US, exchanges use US,
Speaker 9: payment processors use US. And then when you mentioned Nike,
Speaker 9: you know corporates are using US now Nike in particular,
Speaker 9: they happen to be integrating with the NFT in some
Speaker 9: of the DeFi space. So soon as you start talking
Speaker 9: about digital assets, we're unlocking not just you know, cryptocurrency,
Speaker 9: not just token is securities, not just stable coins. But
Speaker 9: actually there's this other world as well of you know,
Speaker 9: non fungible tokens, which is basically digital property. And if
Speaker 9: you think about how technology has emerged, like with protecting
Speaker 9: you know, digital property rights over the last you know,
Speaker 9: twenty f five years, there's been a lot of different approaches,
Speaker 9: but I think NFTs are actually the first true digital
Speaker 9: acid property that they can be used. So anyway, Nike's
Speaker 9: big on that space that we're helping them with a
Speaker 9: number of number of efforts.
Speaker 2: Are more companies doing that? That's where I kind of
Speaker 2: get the blockchain and kind of digital world in terms
Speaker 2: of when you think about digital property and whether it's
Speaker 2: intellectual property or things that you really want to kind
Speaker 2: of have if you will, almost an address you know
Speaker 2: that goes with them constantly. And so there's no question,
Speaker 2: So are we seeing more companies like Nike tap into
Speaker 2: you specifically?
Speaker 9: There are, yes, there are a bunch of major brands
Speaker 9: that are all interested in figuring out how do they
Speaker 9: really show that the assets that they create are are
Speaker 9: bona fide and real. So you see this from top
Speaker 9: designer brands. There's been a number of initiatives where they
Speaker 9: are looking to use NFTs as wells say this is
Speaker 9: a true designer product as opposed to a knockoff. And
Speaker 9: then you've got you know, loyalty programs that are being built,
Speaker 9: You've got gaming programs that are being built. So there's
Speaker 9: been a lot of growth in the NFT space. So
Speaker 9: for Bicco, you know, as a custodian and a wallet provider,
Speaker 9: you know, a lot of times these early industries, like
Speaker 9: the value of the things that they're trading are relatively small,
Speaker 9: but as they grow those businesses and they grow their demand,
Speaker 9: it grows a lot. And you know, what does what
Speaker 9: does a bank do? What does a custodian do? Well,
Speaker 9: we're here to make sure that you give us the
Speaker 9: assets and we're going to give them back to you
Speaker 9: when you want them. And as the value goes up,
Speaker 9: you use higher and higher levels of security to protect it.
Speaker 9: So Bicco's building a full stack everywhere, from the bottom
Speaker 9: layer of pure technology security to the next layer of
Speaker 9: how do you cuss they in a regulated, safe way,
Speaker 9: and then above that building liquiditysources, you know, having insurance
Speaker 9: backups and things like that.
Speaker 2: So, Mike, when it comes to a regulatory environment, what
Speaker 2: is it that you are looking for. Is it a
Speaker 2: decision on spot bitcoin ETF? Is it the ripple decision?
Speaker 2: What is it for you that you think is significant?
Speaker 9: Well, what matters to all of us actually is safe
Speaker 9: understanding of the risks that will be being taken by
Speaker 9: the intermediaries, the banks you know that are in process,
Speaker 9: as well as basically the fundamental right that we always
Speaker 9: have access to money. And blockchain technology provides transparency to
Speaker 9: everything that's going on. You can't hide, you can't you
Speaker 9: can't be asking others to sell while you're buying when
Speaker 9: we use it properly, So we can use blockchain technology
Speaker 9: to increase transparency and reduce risk and frankly, instead of
Speaker 9: having to have these complicated, heavyweight, overbearing regulatory mechanisms, we
Speaker 9: can use technology to do those roles much more efficiently
Speaker 9: in a way that's then going to give the rest
Speaker 9: of us freedom of money, more reliable money. You put
Speaker 9: your money in the bank and you'll always get it
Speaker 9: back without having a concern about did that bank happen
Speaker 9: to put it into long term te bills when interest
Speaker 9: rates are rising and unexpected fashion. So we believe blockchain
Speaker 9: technology fundamentally changes the way we would build the financial system.
Speaker 9: It also connects us globally. Our job at Bicko, we think,
Speaker 9: is to make it so that everybody can ubiquitously access
Speaker 9: digital assets. That means businesses can access it. There's a
Speaker 9: lot of other companies to focus more on the retail side,
Speaker 9: but we want retail to be able to access it,
Speaker 9: and then once that's fully plumbed, we will see a
Speaker 9: better financial system.
Speaker 5: We only have about twenty seconds left, But what do
Speaker 5: you plan on using the funding money from in the
Speaker 5: latest round that you had.
Speaker 9: Look, we're building business globally, so we have some growth
Speaker 9: outside of the US that's going on. Other parts of
Speaker 9: it are just growing conservatively. We have been in the
Speaker 9: space for ten years at this point. We've managed our
Speaker 9: money very well. Even though one hundred million sounds like
Speaker 9: a lot, we've raised less money than almost anybody else,
Speaker 9: and that's because we've got a pretty good business that
Speaker 9: runs fairly solid. But we always want to have a
Speaker 9: balance sheet that our customers can count on.
Speaker 2: What's harder? Building Chrome are doing this real quickly.
Speaker 6: Oh?
Speaker 9: Absolutely, Digital acids are much harder.
Speaker 2: I kind of feel like I feel like I kind
Speaker 2: of knew the answer. Hey, Mike be Well, I have
Speaker 2: a great, great WEEKND Mike Belshie, as you know, co
Speaker 2: founder and CEO of Bidgo.
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Speaker 2: So, as we said, a very very timely story because
Speaker 2: a day when we were all were focused on fitzcher J.
Speaker 2: Powell's speech this morning from Jackson Hole. If we got
Speaker 2: the takeaway, we know, you know that they're ready to
Speaker 2: raise interest rates if needed until inflation is on that
Speaker 2: convincing path toward the FEDS two percent target. And we
Speaker 2: just talk with David Weston just about the concerns that
Speaker 2: certainly the former US Treasury Secretary of Larry Summers has
Speaker 2: when it comes to those rising deficits in government spending.
Speaker 2: But you know, add it all up, Jess, it's another
Speaker 2: component that as this Bloomberg Big take, this most read
Speaker 2: story and this story in the new issue of Bloomberg
Speaker 2: Business Week gets to could put more pressure on higher
Speaker 2: rates essentially and.
Speaker 5: Especially looking at this, especially seeing investors see a high
Speaker 5: spending new normal, keeping interest rates and inflation elevated. So
Speaker 5: this is really going to be really crucial, especially how
Speaker 5: that FED decision on September twentieth.
Speaker 2: All right, so let's get to it, because there's a
Speaker 2: trifecta or four No. One, two three, four people who
Speaker 2: wrote the story live Kavil McCormick, Eric Wawson, Chris Condon,
Speaker 2: and Alex Stansey. Liz of course, as you know, Bloomberg
Speaker 2: News chief correspondent for Global Macro Markets in studio with
Speaker 2: us along with the editor of Bloomberg Business Week, Jill Webber,
Speaker 2: talk about a timely story, mister Weber.
Speaker 8: No, it's almost like we've almost like we've planned.
Speaker 2: It, well done, well done.
Speaker 8: So this was one that I I was really interested
Speaker 8: in because it's that world where DC and.
Speaker 5: Markets and the cost of.
Speaker 8: Money everything kind of comes together. And what was surprising
Speaker 8: to me is how there is a bipartisan spirit in DC.
Speaker 8: Everybody likes to spend money, right.
Speaker 2: Liz Exactly.
Speaker 10: I was on earlier talking on TV saying, listen, it's
Speaker 10: both sides of the aisle.
Speaker 2: So we're not talking politics.
Speaker 10: Because neither of them are doing anything to kind of
Speaker 10: work on the deficit. And I was even saying in
Speaker 10: the Republican debate there was a lot of focus on
Speaker 10: the debt and the deficit, but not like that party.
Speaker 10: And even Nikki Haley said our side is raised debt too,
Speaker 10: you know, so it's a common problem.
Speaker 8: So what's different now though, because how much debt is
Speaker 8: too much? Debt, as we write, is a tale old
Speaker 8: as time, right, So what's different now?
Speaker 10: Yeah, And that's something Ben Holland one of our editors
Speaker 10: on this, and him and I were talking about and
Speaker 10: he's so smart and that he was saying, and I
Speaker 10: totally agree that what's different now is usually you have
Speaker 10: this wave of deficit spending when there's a recession, because
Speaker 10: we're trying to of course help everyone in the economy
Speaker 10: to you know, get back on their feet or a
Speaker 10: big financial crisis. And but what's happening now is this worsening.
Speaker 10: Deficit is happening even when we have growth, right, I mean,
Speaker 10: you know, I know there's been a lot of tightening,
Speaker 10: but growth, like you've guys talked, is resilient. So it
Speaker 10: seems like it's it's the juice that you know, our
Speaker 10: policy makers want to always use. And CBO's projections are that,
Speaker 10: you know, we're going to get to just about six
Speaker 10: percent a deficit of GDP and that's going to stay
Speaker 10: there for like ten years, you know, So it's not like, oh,
Speaker 10: then we're going to get our house in order. And
Speaker 10: I think that is what you know, Ben was saying,
Speaker 10: and I agree that's the real change that because I
Speaker 10: remember in grad school my class to twin deficits. And
Speaker 10: I won't tell you how long ago that was.
Speaker 4: So it's been around for a while.
Speaker 2: It was just yesterday, right, No, But it doesn't blow
Speaker 2: my mind that I think about how often every market
Speaker 2: conversation we used to have years ago dealt with the
Speaker 2: budget deficit and how much spending was going on, and
Speaker 2: then it went away, and so here we are, so
Speaker 2: how much debt and you asked this early on, or
Speaker 2: you know, how much debt is too much?
Speaker 1: Right?
Speaker 10: And I think honestly, no one knows the exact number.
Speaker 10: There's been a lot of different theories, but I think
Speaker 10: it's you know, some of the pieces of what's going
Speaker 10: on now, the fact that a lot of our revenue
Speaker 10: from taxes is going just to pay the interest on
Speaker 10: our debt, and it's an increasing number. Some of the
Speaker 10: folks in the story were saying it's you know, at
Speaker 10: like about fourteen percent. That's usually the number when you know,
Speaker 10: the red flags go up.
Speaker 4: And they're not.
Speaker 10: You know, so, you know, we we thought debt was
Speaker 10: a problem maybe a while ago. Now we've gone to
Speaker 10: thirty trillion, right, So I don't think it's hard to
Speaker 10: know the exact number. But the problem is it's not changing.
Speaker 10: And you know, again this is our you know, school theory,
Speaker 10: but it's true, and we have it in the story
Speaker 10: that it gets to be. What you worry about crowding
Speaker 10: out is if the government has to keep borrowing, those
Speaker 10: rates are going up, people are plowing money into there,
Speaker 10: then people you know, companies, et cetera, borrowing then they
Speaker 10: have to kind of pay up as well. So it's
Speaker 10: kind of a ripple effect through the economy. And like
Speaker 10: you said, Carol, I think that's the key, and I
Speaker 10: feel like we tried really hard to show it clearly
Speaker 10: in this story that this is a problem. But you're
Speaker 10: adding to that that it's a backdrop of uber high
Speaker 10: rates from the FED tightening so much, inflation being sticky,
Speaker 10: still a lot of uncertainty, and then you add to
Speaker 10: that this fiscal backdrop which isn't good and Fitch you know,
Speaker 10: of course just one thing, but Fitch downgraded us. That's
Speaker 10: not good. So it kind of all comes together as
Speaker 10: this amalgam of problems.
Speaker 4: Right.
Speaker 5: You also wrote about how typically when we see this
Speaker 5: kind of move, especially over the past ten months with
Speaker 5: the budget deficit, that's usually when the government is more
Speaker 5: in a recession fighting mode. But then how do you
Speaker 5: square it away with a lot of the strength that
Speaker 5: we've still seen in the economy.
Speaker 10: Exactly that recession which I guess is gonna eventually.
Speaker 6: Come, but it's not now.
Speaker 10: And of course we had and there were some arguments
Speaker 10: the last package of the pandemic spending, right, you know,
Speaker 10: everyone didn't agree on that, but it went through, so
Speaker 10: all those trillions, but yeah, it hasn't like changed. We
Speaker 10: had this huge battle over the debt limit, which came
Speaker 10: down to the wire. Now, like Eric Watson, who's on
Speaker 10: the story so smartly put in about we have a
Speaker 10: battle coming up in September where we might have a
Speaker 10: government shutdown because they can't agree on what they have
Speaker 10: to work out with this deal. So it's just not
Speaker 10: going away. Yeah, even though the economy is hugging along
Speaker 10: pretty good. Usually like when I'm doing better, making better
Speaker 10: money or whatever, I try to pay off some bills
Speaker 10: and stuff, listening to e.
Speaker 6: Lizabeth Carmit math government.
Speaker 8: Are you listening, Yeah, Okay, So let's let's bring it
Speaker 8: back to the bund market because bund market they're creaky.
Speaker 8: They're always crinky, you know, they're and sky is always
Speaker 8: going to fall. But like, what loo for the vigilantes.
Speaker 4: We've written.
Speaker 8: Like where where does this? How does this end for them?
Speaker 8: What do they specifically the most concerned about?
Speaker 10: Well, I think they're concerned that, Like I think the
Speaker 10: guests speaking to David Weston or maybe he himself was
Speaker 10: saying that. I mean, we're already seeing the Treasury Department
Speaker 10: this quarter announced notes and bonds, so the long term
Speaker 10: debt is rising for the first time in a couple
Speaker 10: of years. Dealers are saying they're going to do that
Speaker 10: next quarter and the next quarter, and who knows after that.
Speaker 10: So the investors are saying, you have this barrage of
Speaker 10: debt coming from all along the coupon curve. We know
Speaker 10: that the foreign accounts have not been buying, they're more
Speaker 10: selling their treasuries. So they're worried that what they call
Speaker 10: it like the wonky bond math, you need more.
Speaker 6: Of a term premium.
Speaker 10: You have to incentivize me to buy this long term debt.
Speaker 10: And that's why we've had what some people call like
Speaker 10: a unicorn, this what they call a bearish steepener when
Speaker 10: the long rates are going up more but all rates
Speaker 10: are going up, so it's like a bad thing. And
Speaker 10: that's what the bond market is kind of worried about
Speaker 10: more happening.
Speaker 8: But it's also bigger that, right, because as one of
Speaker 8: those we're says in the story, no asset class is
Speaker 8: really going to escape this entirely potentially, right. That's yeah,
Speaker 8: that's the quote.
Speaker 5: That quote.
Speaker 10: Yeah, I thought that was a very smart woman in
Speaker 10: the story, not that all the people aren't smart.
Speaker 2: Again, smart woman, and but yeah, that.
Speaker 10: She said, Liz, it's going to bleed into everything you know.
Speaker 10: I know, socks have so far been really doing well, yes,
Speaker 10: your world this year, but eventually if rates keep going on,
Speaker 10: it's kind of when you have debt rolling over like
Speaker 10: a lot of those they call it the maturity wall. Right,
Speaker 10: hasn't quite happened for corporations. They locked in rates for
Speaker 10: a while, but eventually it's going to bleed into everything.
Speaker 2: Can I ask you something that is there smart fiscal spend,
Speaker 2: smart government spending that leads to more productivity and better growth.
Speaker 10: Yes, yes, exactly, and that's you know many of course,
Speaker 10: we want to spend on things to my son's a
Speaker 10: civil engineer. We want to build roads and bridges and
Speaker 10: you know, better trains and all that that does help
Speaker 10: the economy grow. So, yeah, there is good spending. So
Speaker 10: that's why people are pointing out when more and more
Speaker 10: of the spending, you would not call it so good
Speaker 10: just to be paying the interest on your debt, right,
Speaker 10: that's not productive spending.
Speaker 8: Remember when a fiscal hawk was a thing anymore anymore?
Speaker 5: Just wait.
Speaker 8: When it suits.
Speaker 2: When it suits, It's an incredible story and it really
Speaker 2: is so timely considering all the conversations we had today.
Speaker 2: And yeah, governments keeping spending. It's just you know, you
Speaker 2: can just add that to your worry list exactly. And
Speaker 2: higher rates, higher rates, all right, Yeah, that's the story.
Speaker 10: Not fixing my deck yet.
Speaker 2: I'm fixing my deck right.
Speaker 7: This is McCormick.
Speaker 2: We love you, Jem as always, chief correspondent for global
Speaker 2: macro markets in our interactive Broker Studio along with the
Speaker 2: editor of Bloomberg Business Week, Joe Weber. Check out the
Speaker 2: new issue. This is in it on newsstand, on the
Speaker 2: Bloomberg and at Bloomberg dot com slash BusinessWeek. Don't go anywhere.
Speaker 9: This is Bloomberg.
Speaker 4: Marc a journal. How about you let me drive?
Speaker 1: No no drug, honey, please, how do the driving gravels?
Speaker 6: Excuse mate?
Speaker 2: I want to try it.
Speaker 1: It's a good question.
Speaker 9: This is the drive to the Globe dot com thing.
Speaker 11: Well by around each other.
Speaker 2: Down on Bloomberg Radio, We're still still thinking about our
Speaker 2: star and all the stars Sony stars of J. Powell
Speaker 2: and Company. Hey, everybody, Carol Master Law had just met
Speaker 2: and on this Friday, just of course in for Tim Stanovik,
Speaker 2: and we've just got under about seventeen and a half
Speaker 2: minutes left, getting ready to wrap up the Friday trade
Speaker 2: and the week over all, we've got stocks just coming off,
Speaker 2: as you heard from Charlie, their best levels of the session.
Speaker 2: And Jess, we did see us definitely a spike in
Speaker 2: rates earlier on. We've moved off of it, but nonetheless
Speaker 2: you get a two year that's above five percent right
Speaker 2: at it.
Speaker 5: Right and especially we've seen the move in the ten
Speaker 5: year as well, and a lot of my conversation go
Speaker 5: into how fast and the speed of that and what
Speaker 5: that can translate into moves in the broader stock market.
Speaker 5: I want to get straight to our next guest. Who
Speaker 5: better to chat with us about this than Nancy Tangler,
Speaker 5: chief investment officer at Laugher Tangler Investments. It's always really
Speaker 5: great speaking with you, Nancy, and I first want to
Speaker 5: start off because we did hear, as you know from
Speaker 5: fed shared Jerome Pale earlier this morning. What's sort of
Speaker 5: your takeaway from what he said and how do you
Speaker 5: think this could impact the stock market heading into what's
Speaker 5: typically the worst month of the year in September.
Speaker 11: Yeah, well, thanks for having me Jess on a Friday
Speaker 11: afternoon listen.
Speaker 6: I didn't hear anything new.
Speaker 11: I thought it was kind of yesterday's news and then
Speaker 11: there was this sort of hokey reference to navigating this,
Speaker 11: you know, this with the stars on a cloudy night.
Speaker 6: I mean, I think what we know.
Speaker 11: Is that the FED is closer to being done or
Speaker 11: is done, and that real rates if you go back
Speaker 11: and look historically, you know, we saw a spike in
Speaker 11: the in the five year tip after his comments, we
Speaker 11: got to like two point twenty six or something like that.
Speaker 11: But if you go back and look in the nineties,
Speaker 11: real rates kind of vacillated between two to four and
Speaker 11: a half percent, and yet we still had an environment
Speaker 11: where stocks did extraordinarily well. So I think that hopefully
Speaker 11: the FED is fading into the background as we focus
Speaker 11: on fundamentals. And that's really the question, you know, is,
Speaker 11: for example, the GDP now Atlanta FED number of almost
Speaker 11: six percent GDP growth for the third quarter.
Speaker 6: Is that real? Is that correct?
Speaker 2: Do you think it's real?
Speaker 4: Nancy?
Speaker 2: I'm so glad you went there and ur Mike mckea
Speaker 2: said these aren't reliable numbers, or you know, they move
Speaker 2: around a lot, but a lot of people keep pointing
Speaker 2: to it and saying, look, look what's happening.
Speaker 11: Yeah, well, I don't think so. Carol I don't think
Speaker 11: it's sustainable. Nonetheless, I mean, I think we know from
Speaker 11: earnings this last quarter that companies did a much better
Speaker 11: job than Wall Street expected in not only delivering earnings
Speaker 11: and revenue beats, but expanding margins, and so I think
Speaker 11: that that is important to keep in mind. But we
Speaker 11: actually think you're going to see a little bit of
Speaker 11: a spike in inflation and probably the PPI. We got
Speaker 11: the Ulta numbers today and they you know, their margins
Speaker 11: were lower than expected because of higher supply chain costs.
Speaker 11: And so I think we're going to start to see
Speaker 11: the higher oil prices, higher prices of copper, other commodities
Speaker 11: trickle back through and we're working off of low base
Speaker 11: effects as we move forward. So I don't think it's
Speaker 11: it's an end to the decline in inflation, but I
Speaker 11: do think I don't think.
Speaker 6: The market's prepared for it.
Speaker 11: Let's just go there, and so I think we'll get
Speaker 11: some sort of a reaction.
Speaker 5: I un months points this summer you were overweight technology,
Speaker 5: but you did take some profits to some high flying
Speaker 5: names like BROADCLM, Palo Alto, Amazon. What are you buying?
Speaker 5: What are you selling?
Speaker 11: So we've been adding to some of those short cycle cyclicals,
Speaker 11: so a name like Carrier, for example, but also just
Speaker 11: stick into our theme. Just I mean our theme has
Speaker 11: been old economy companies that are embracing the digital revolution
Speaker 11: and then the suppliers of the arms and the picks
Speaker 11: and shovels. So like if you look at a company
Speaker 11: like PepsiCo, which we swapped out Coke into Pepsi this summer,
Speaker 11: this is a company that says it's a technology company
Speaker 11: that just happens to sell snacks and beverages. And now
Speaker 11: you've seen their involvement in the Instacart deal, so that's.
Speaker 6: Something that we like very much.
Speaker 11: McDonald's for example, had more downloads four times as many
Speaker 11: downloads that they're digital app than Starbucks did last year,
Speaker 11: and that allows the company to expand margins in increased growth.
Speaker 11: So those are the kinds of names that we're adding
Speaker 11: to and looking at. But we still like technology and
Speaker 11: on weakness we will continue to add to names like
Speaker 11: Oracle or Broadcom or NXPI. We like the semispace of
Speaker 11: course very much.
Speaker 2: Our Nvidio.
Speaker 6: So waiting for my chance, we missed it.
Speaker 11: It was a bye for in our valuation work. Not
Speaker 11: so very long ago. But yeah, of course it's a
Speaker 11: once in a lifetime opportunity to own a big growth driver.
Speaker 11: This is analogous to Amazon early days.
Speaker 2: So do you think it's kind of crazy, like all
Speaker 2: of a sudden, is it? Mike Wilson and among others
Speaker 2: an envy?
Speaker 5: Yeah?
Speaker 2: Oh, you know, the rally is over, you know, like
Speaker 2: kind of throwing in the towel. Is that a little
Speaker 2: bit of an overreaction because look at how far in
Speaker 2: Vidia has come this year?
Speaker 11: Oh yeah, listen, the bears rarely get to be in charge,
Speaker 11: and so once they get on stage, it's their love
Speaker 11: to get off. It is not a flash in the pan.
Speaker 11: AI is not a bubble, and there's a lot of
Speaker 11: ways to play it, in video being the premiere way,
Speaker 11: of course. But you can own a name like Microsoft.
Speaker 11: You can own a name like Broadcom and or Oracle.
Speaker 11: These are names that are playing around the edges, but
Speaker 11: are critical and important players in the AI space. And
Speaker 11: eventually there will be other names that will come, you know,
Speaker 11: to the four IPOs. But right now we want to
Speaker 11: own the largest, cap most secure and reliable names in
Speaker 11: the space and also enjoy the convergence between cloud computing
Speaker 11: AI and digitization, that the secular tail wind behind this
Speaker 11: UH phenomenon or Fourth Industrial Revolution is is big and
Speaker 11: long lasting, and so you use dips to add to
Speaker 11: your holdings.
Speaker 5: What's the top question that you hear from your clients.
Speaker 11: I mean, I think people are still scared that at
Speaker 11: a client call me and say we're in a new
Speaker 11: we're in a bear market, and I was like, no, actually,
Speaker 11: we're in a bull market.
Speaker 6: But they're really focused.
Speaker 11: On volatility and the headlines, and they're spend a lot
Speaker 11: I think. So, I mean, we spend a lot of
Speaker 11: time educating our clients, staying in front of them during
Speaker 11: periods of negative stock performance. But this is just a
Speaker 11: correction in our view, and so we again, as I said,
Speaker 11: are using it to round out our holdings.
Speaker 6: I'll just say one more thing.
Speaker 11: Going into twenty twenty, we couldn't find any cheap, high
Speaker 11: quality companies, and so we put a hedge on our clients' portfolios.
Speaker 6: Because of the lack of breadth.
Speaker 11: In this rally, We're still finding really attractive names at
Speaker 11: attractive valuations, and so that to me tells us this
Speaker 11: thing has legs well.
Speaker 2: Fascinating and listency don't tell anybody, but we save our
Speaker 2: favorite market guests for Friday because we get.
Speaker 5: To tell you about the week overall.
Speaker 2: So thank you so much. Don't tell anybody. Don't tell anybody,
Speaker 2: Nancy Tangler, all right, right, we really appreciate it. Have
Speaker 2: a wonderful weekend. She's chief investment officer at Love Our
Speaker 2: Tangler Investments, author of The Women's Guide to Investing, Joining
Speaker 2: Us from Nevada. That book, by the way, already on
Speaker 2: Amazon's best selling pre order list. It will come out
Speaker 2: on September twenty ninth, but we're going to have her
Speaker 2: come back to and we'll talk a little bit more
Speaker 2: about it, especially when it is officially released. But yeah,
Speaker 2: I think that's kind of interesting because women sometimes get
Speaker 2: pushed to the wayside. Yes, it's like guys like, all right,
Speaker 2: what are you doing for your family? Right, It's important
Speaker 2: to think about women.
Speaker 5: And that's something she's really about too, that she really
Speaker 5: cares about in her spectrum. So I've known Nancy a
Speaker 5: long time. It's always a really great getting all of
Speaker 5: her insight in all things markets.
Speaker 2: Yeah, great perspective too, right, because she's seen a lot
Speaker 2: of cycles and understands euphoria and when to be a
Speaker 2: little bit nervous or when maybe it's on the money.
Speaker 2: Speaking of all the money folks, we get a rally
Speaker 2: underway on Wall Street and on track to see some
Speaker 2: gains overall for the week and some of those major
Speaker 2: equity averages. I think all of them in fact, stick around.
Speaker 2: This is Bloomberg.
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