1 00:00:02,240 --> 00:00:06,800 Speaker 1: This is Masters in Business with very Ridholts on Bloomberg Radio. 2 00:00:09,640 --> 00:00:12,920 Speaker 1: This week on the podcast, I have an extra special guest. 3 00:00:13,280 --> 00:00:17,000 Speaker 1: His name is Torsten Slack, and he is uh the 4 00:00:17,120 --> 00:00:22,400 Speaker 1: chief economist at Deutsche Bank Securities. But more importantly, he's 5 00:00:22,440 --> 00:00:25,000 Speaker 1: someone I've been reading for I don't even know how 6 00:00:25,000 --> 00:00:29,479 Speaker 1: many years, and I consistently find his research and his 7 00:00:29,560 --> 00:00:35,120 Speaker 1: writing to be among the most interesting and useful and 8 00:00:35,440 --> 00:00:40,920 Speaker 1: contextualizing economic data um of pretty much anyone I've seen. 9 00:00:41,000 --> 00:00:45,960 Speaker 1: He is to me the modern incarnation of ed Hyman 10 00:00:46,720 --> 00:00:50,160 Speaker 1: of I s I. He he sees the world from 11 00:00:50,159 --> 00:00:54,760 Speaker 1: a very holistic perspective. He looks at the world of 12 00:00:54,840 --> 00:00:59,320 Speaker 1: markets and the economy just from a very very broad perspective, 13 00:00:59,320 --> 00:01:03,000 Speaker 1: and I just find um, he's one of the few 14 00:01:03,000 --> 00:01:06,080 Speaker 1: economists that I'll look at a chart and I'll look 15 00:01:06,120 --> 00:01:08,039 Speaker 1: at what he writes and I kind of scratched my 16 00:01:08,080 --> 00:01:10,959 Speaker 1: head and say, that's that's fascinating. How did how did 17 00:01:10,959 --> 00:01:14,319 Speaker 1: I not see that before? How do I not understand 18 00:01:14,959 --> 00:01:19,400 Speaker 1: this relationship between what otherwise is thought of as a 19 00:01:19,600 --> 00:01:24,040 Speaker 1: small little piece, a little corner of the economy, and 20 00:01:24,080 --> 00:01:26,320 Speaker 1: it turns out to be much more complicated, much more 21 00:01:26,319 --> 00:01:30,280 Speaker 1: sophisticated and much more interesting. I think you'll find this 22 00:01:30,360 --> 00:01:33,800 Speaker 1: a tour to force conversation not only on the world 23 00:01:33,840 --> 00:01:39,759 Speaker 1: of economics, but how economics intersects with markets, with stock investing, 24 00:01:39,800 --> 00:01:44,240 Speaker 1: with bond investing, and how we should think about uh, 25 00:01:44,280 --> 00:01:46,960 Speaker 1: what drives the economy and what drives the longer term 26 00:01:47,040 --> 00:01:51,360 Speaker 1: cycles that affect pretty much everything. So strap yourself in 27 00:01:51,480 --> 00:01:59,720 Speaker 1: get ready my conversation with Torsten Slock. My special guest 28 00:01:59,760 --> 00:02:03,760 Speaker 1: today is torched In Slock. He is the chief economist 29 00:02:03,840 --> 00:02:07,760 Speaker 1: at Deutsche Bank Securities, where he has been toiling away 30 00:02:07,800 --> 00:02:11,680 Speaker 1: since two thousand and five. The Deutsche Bank team, led 31 00:02:11,760 --> 00:02:15,760 Speaker 1: by Mr Slock, has been top ranked by Institutional Investor 32 00:02:16,120 --> 00:02:19,720 Speaker 1: for both fixed income and equities for the past five 33 00:02:19,800 --> 00:02:24,560 Speaker 1: years running. Previously, he worked at the Organization of Economic 34 00:02:24,919 --> 00:02:28,440 Speaker 1: Cooperation and Development in Paris and and before that he 35 00:02:28,520 --> 00:02:30,920 Speaker 1: was at UH the i m F. He is a 36 00:02:31,000 --> 00:02:35,720 Speaker 1: member of the Economic Club of New York. Educated at 37 00:02:35,720 --> 00:02:40,440 Speaker 1: both the University of Copenhagen and Princeton University. Torsten Slock, 38 00:02:40,800 --> 00:02:44,440 Speaker 1: Welcome to Bloomberg. Thanks for having me Berry. So your 39 00:02:44,480 --> 00:02:46,920 Speaker 1: background is really quite fascinating. You worked at the I 40 00:02:47,080 --> 00:02:48,640 Speaker 1: m F, you worked at the O E c D. 41 00:02:49,560 --> 00:02:54,480 Speaker 1: What was it like transitioning to Wall Street. Well, that's 42 00:02:54,520 --> 00:02:57,600 Speaker 1: a very important, very good question, and it was a 43 00:02:57,600 --> 00:03:01,760 Speaker 1: bit of a culture shock coming from the I m 44 00:03:01,840 --> 00:03:03,480 Speaker 1: F and the O c D, where you have a 45 00:03:03,520 --> 00:03:07,120 Speaker 1: lot of time to sit and think in close the 46 00:03:07,120 --> 00:03:10,520 Speaker 1: door office about very complicated problems, and you need to 47 00:03:10,560 --> 00:03:15,160 Speaker 1: write papers for committees, you need to write reports for 48 00:03:16,240 --> 00:03:19,919 Speaker 1: managers and for board meetings, and that process of really 49 00:03:19,960 --> 00:03:22,960 Speaker 1: having a lot of time and a lot of resources 50 00:03:23,000 --> 00:03:27,799 Speaker 1: available to investigate something. It was a real luxury review 51 00:03:27,840 --> 00:03:30,240 Speaker 1: today in the sense that you had in some cases 52 00:03:30,440 --> 00:03:33,200 Speaker 1: several months to come up with an answer to why 53 00:03:33,200 --> 00:03:35,480 Speaker 1: did you have a crisis, Why did home prices go 54 00:03:35,560 --> 00:03:37,520 Speaker 1: down in one country? Why did the healthcare system not 55 00:03:37,560 --> 00:03:40,280 Speaker 1: work in one country? So the short answer is that 56 00:03:40,360 --> 00:03:42,640 Speaker 1: then at the O c D and I MF you 57 00:03:42,800 --> 00:03:46,360 Speaker 1: really have time and energy and a lot of very 58 00:03:46,400 --> 00:03:49,600 Speaker 1: smart colleagues that you can debate things with. And getting 59 00:03:49,640 --> 00:03:54,760 Speaker 1: to Wall Street, of course, was quite a turnaround where 60 00:03:54,800 --> 00:03:57,920 Speaker 1: you suddenly have clients asking twenty seven questions that you 61 00:03:58,080 --> 00:04:00,840 Speaker 1: have to answer in a few sentences. So in that sense, 62 00:04:01,480 --> 00:04:04,640 Speaker 1: it was it was quite a different But in my 63 00:04:04,720 --> 00:04:07,160 Speaker 1: view and in my personal opinion. I found it incredibly 64 00:04:07,160 --> 00:04:10,560 Speaker 1: stimulating that you had to use what you learned and 65 00:04:10,600 --> 00:04:12,280 Speaker 1: what you were taught at these d n A I 66 00:04:12,360 --> 00:04:14,920 Speaker 1: m F to come up with answers to incredibly difficult 67 00:04:14,960 --> 00:04:18,240 Speaker 1: questions with a very few number of sentences, very very 68 00:04:18,320 --> 00:04:20,720 Speaker 1: so what I'm hearing from you is a very different 69 00:04:20,720 --> 00:04:26,359 Speaker 1: sense of urgency and a emphasis on brevity. So a 70 00:04:26,520 --> 00:04:31,000 Speaker 1: very busy fund manager trader fill in the blank can 71 00:04:31,120 --> 00:04:37,240 Speaker 1: digest the response quickly and then either add, subtract, or whatever, 72 00:04:37,320 --> 00:04:40,960 Speaker 1: change the portfolio based on your take exactly. Because the 73 00:04:40,960 --> 00:04:44,120 Speaker 1: whole problem is that the and this is really important 74 00:04:44,160 --> 00:04:47,960 Speaker 1: when you think about how the financial service industry is organized, 75 00:04:48,360 --> 00:04:53,839 Speaker 1: that the sales side is really offering services. And what 76 00:04:54,760 --> 00:04:56,960 Speaker 1: I do and we do in my group, is that 77 00:04:57,000 --> 00:04:58,680 Speaker 1: we offer the service of having a view on what 78 00:04:58,720 --> 00:05:00,680 Speaker 1: the economy will do, what mark it will do. And 79 00:05:00,680 --> 00:05:04,320 Speaker 1: we also have great colleagues I have in Deutsche Bank 80 00:05:04,360 --> 00:05:08,440 Speaker 1: who offer views on rates, effects equities. And the bottom 81 00:05:08,440 --> 00:05:10,160 Speaker 1: line of that is that there's just a lot of 82 00:05:10,200 --> 00:05:13,080 Speaker 1: competition for air space for customers. So clients get three 83 00:05:13,480 --> 00:05:16,800 Speaker 1: emails every day. So if you in some cases righte 84 00:05:16,839 --> 00:05:20,880 Speaker 1: long winded explanations that say there's fifty fifty change that 85 00:05:21,000 --> 00:05:24,240 Speaker 1: something might happen. Many customers will just not find that 86 00:05:24,320 --> 00:05:26,880 Speaker 1: particularly helpful. So in some cases we have to shop 87 00:05:26,880 --> 00:05:29,719 Speaker 1: in the pencil and come up with answers that are 88 00:05:29,760 --> 00:05:31,800 Speaker 1: particularly helpful for saying, what is it exactly that you're 89 00:05:31,800 --> 00:05:33,840 Speaker 1: asking about? And at all boys down at the end 90 00:05:33,839 --> 00:05:36,000 Speaker 1: of the tract, here is the answer. Are we buying 91 00:05:36,080 --> 00:05:38,680 Speaker 1: or are we selling? Which sometimes can be a frustrating process, 92 00:05:38,680 --> 00:05:40,760 Speaker 1: but nevertheless it turns out to be very important for 93 00:05:40,839 --> 00:05:43,880 Speaker 1: getting your message across to clients in terms of helping them. 94 00:05:43,960 --> 00:05:46,719 Speaker 1: And I get your research in my office and I 95 00:05:46,880 --> 00:05:51,240 Speaker 1: notice two specific things. Just about every day you put 96 00:05:51,279 --> 00:05:56,320 Speaker 1: out a specific chart, often not just here's the SMP 97 00:05:56,440 --> 00:06:01,400 Speaker 1: five dred, but typically it's a somewhat unusual will aspect 98 00:06:01,440 --> 00:06:04,840 Speaker 1: of the economy that also sheds a lot of light 99 00:06:05,040 --> 00:06:08,200 Speaker 1: on what's going on. And I'm always fascinated how you 100 00:06:08,240 --> 00:06:11,800 Speaker 1: find these really eclectic. Oh gee, I hadn't thought about 101 00:06:12,160 --> 00:06:15,960 Speaker 1: that sort of thing, but they're very interesting and they 102 00:06:16,000 --> 00:06:19,240 Speaker 1: make you stop and think, hey, what is what is 103 00:06:19,279 --> 00:06:23,200 Speaker 1: really going on at the thirty ft view level? As 104 00:06:23,200 --> 00:06:26,360 Speaker 1: opposed to kind of getting lost in the weeds and 105 00:06:26,720 --> 00:06:30,520 Speaker 1: getting too specific and and lacking the ability to show 106 00:06:30,560 --> 00:06:33,560 Speaker 1: the context. But you also do the big context pieces, 107 00:06:33,600 --> 00:06:37,479 Speaker 1: the big monthly and quarterly chart books. Tell us how 108 00:06:37,520 --> 00:06:41,960 Speaker 1: you developed that approach. Yah. Know, that's a very important issue. 109 00:06:42,160 --> 00:06:45,320 Speaker 1: I mean too. In my view, to be successful, you 110 00:06:45,400 --> 00:06:48,640 Speaker 1: need to you need to get people's attention, not by 111 00:06:48,720 --> 00:06:52,200 Speaker 1: saying I think this in pill go to some extreme level, 112 00:06:52,240 --> 00:06:55,720 Speaker 1: either higher or low, but rather to add some value 113 00:06:55,760 --> 00:06:58,600 Speaker 1: to the thought process. And how do you add value 114 00:06:58,640 --> 00:07:00,720 Speaker 1: to the thought process? If I just sent you a 115 00:07:00,800 --> 00:07:02,880 Speaker 1: chart saying, oh, the unemployment rate is going down, it's 116 00:07:02,880 --> 00:07:04,680 Speaker 1: four point one, you would say, okay, thank you very much. 117 00:07:04,680 --> 00:07:07,159 Speaker 1: I already know that, So why should I open this email? 118 00:07:07,240 --> 00:07:10,280 Speaker 1: If I already know that the inflation code CPI is 119 00:07:10,320 --> 00:07:12,240 Speaker 1: two point one and unemployment is four point one, so 120 00:07:12,560 --> 00:07:15,520 Speaker 1: why should I care? So some of the goal, and 121 00:07:15,520 --> 00:07:17,120 Speaker 1: I'm very pleased to hear what you're saying, some of 122 00:07:17,160 --> 00:07:19,679 Speaker 1: the goal with what I'm doing is that it's supposed 123 00:07:19,680 --> 00:07:21,880 Speaker 1: to be crazy. It's supposed to be a little bit 124 00:07:21,920 --> 00:07:24,840 Speaker 1: wild and unusual, because there's a lot of things going 125 00:07:24,880 --> 00:07:27,440 Speaker 1: on that actually are very relevant. If I only sent 126 00:07:27,560 --> 00:07:30,440 Speaker 1: you a chance with inflation unemployment, you would say, okay, 127 00:07:30,560 --> 00:07:32,840 Speaker 1: I already know those things, but there's so many other 128 00:07:32,880 --> 00:07:35,320 Speaker 1: things going on that are incredibly difficult to quantify and 129 00:07:35,360 --> 00:07:38,720 Speaker 1: incredibly difficult to assess. The nevertheless actually play a role 130 00:07:38,920 --> 00:07:41,880 Speaker 1: for whether markets are going up or down. So yes, 131 00:07:42,200 --> 00:07:45,320 Speaker 1: we try to have a mix of both, having things 132 00:07:45,320 --> 00:07:48,800 Speaker 1: that are sort of punchy and informative and sort of 133 00:07:48,800 --> 00:07:51,840 Speaker 1: factoys if you will, and tell you in a few sentences, 134 00:07:51,880 --> 00:07:53,600 Speaker 1: this went up, and you can then say, well, why 135 00:07:53,600 --> 00:07:55,800 Speaker 1: did this go up? And you could say this is obvious, 136 00:07:55,800 --> 00:07:57,360 Speaker 1: I already knew that, or you could say I didn't 137 00:07:57,360 --> 00:08:02,400 Speaker 1: know that. But that whole process of getting you stimulated 138 00:08:02,440 --> 00:08:04,760 Speaker 1: and getting some value to how you think about your 139 00:08:04,760 --> 00:08:08,000 Speaker 1: investment process in your firm, it turns out to be 140 00:08:08,280 --> 00:08:10,720 Speaker 1: quite important in terms of of the goal of what 141 00:08:10,760 --> 00:08:14,400 Speaker 1: we're doing. And you're also an economist who sort of 142 00:08:14,480 --> 00:08:16,960 Speaker 1: ventures into the worlds of equity and fixed income. A 143 00:08:16,960 --> 00:08:21,120 Speaker 1: lot of economists, certainly fixed income is more common, but 144 00:08:21,520 --> 00:08:24,360 Speaker 1: a lot of economists steer a bit clear. I could 145 00:08:24,360 --> 00:08:29,400 Speaker 1: think of three Rosenberg, Ordini, and ed Himan, But most 146 00:08:29,400 --> 00:08:33,160 Speaker 1: of the economists whose work I see, they really want 147 00:08:33,200 --> 00:08:36,680 Speaker 1: to talk about the economy and not necessarily the market. 148 00:08:36,760 --> 00:08:39,840 Speaker 1: So so what led you to focus to a large 149 00:08:39,880 --> 00:08:43,280 Speaker 1: degree on the intersection between markets and the economy. That 150 00:08:43,320 --> 00:08:46,160 Speaker 1: was a lot driven by understanding who your customer is. 151 00:08:47,440 --> 00:08:51,880 Speaker 1: So certainly we also have quote unquote customers from the 152 00:08:51,920 --> 00:08:53,319 Speaker 1: FIT and D E, C B and the I, M 153 00:08:53,400 --> 00:08:55,600 Speaker 1: F and O C D who read our research, and 154 00:08:56,440 --> 00:08:59,280 Speaker 1: all those of course have similar mindsets to when I 155 00:08:59,320 --> 00:09:02,800 Speaker 1: sat down in my chair in two thousand five. But 156 00:09:03,320 --> 00:09:07,200 Speaker 1: if the customer has to translate whatever we're saying about 157 00:09:07,200 --> 00:09:10,199 Speaker 1: the economy into something that's useful for are we buying stocks, 158 00:09:10,200 --> 00:09:12,560 Speaker 1: are we selling stocks? Are we buying rates or selling rates? 159 00:09:12,559 --> 00:09:14,120 Speaker 1: It is it's all a going up or down? Is 160 00:09:14,160 --> 00:09:16,680 Speaker 1: all the prices? Is any other commodity price going up 161 00:09:16,760 --> 00:09:19,600 Speaker 1: or down? I mean the input into that process. I 162 00:09:19,640 --> 00:09:23,319 Speaker 1: feel that you can stop short of not giving invested advice, 163 00:09:23,520 --> 00:09:26,520 Speaker 1: as much as that's very interesting on his own, because 164 00:09:26,559 --> 00:09:29,360 Speaker 1: the problem is that the economy is just not only 165 00:09:29,440 --> 00:09:31,760 Speaker 1: the driver or financial markets. There's so many other things 166 00:09:31,760 --> 00:09:34,920 Speaker 1: going on that are relevant. And just because our PSD 167 00:09:35,000 --> 00:09:38,199 Speaker 1: economics models as interesting as they are, just because they 168 00:09:38,320 --> 00:09:40,520 Speaker 1: are living their own life and have some limitations to 169 00:09:40,600 --> 00:09:42,760 Speaker 1: what they can do and what you can talk about, 170 00:09:43,160 --> 00:09:45,600 Speaker 1: that doesn't mean that that's the way that financial markets 171 00:09:45,600 --> 00:09:48,600 Speaker 1: are functioning. There's so many things outside those PSD and 172 00:09:48,679 --> 00:09:51,400 Speaker 1: fit models that actually it turns out to be quite important. 173 00:09:51,600 --> 00:09:54,520 Speaker 1: So to your good question, I think it's very important 174 00:09:54,559 --> 00:09:58,760 Speaker 1: to come up with additional value then just talk about 175 00:09:59,600 --> 00:10:02,480 Speaker 1: real bit the Psyger models or other complicated things. I mean, 176 00:10:02,559 --> 00:10:04,680 Speaker 1: if I it's no problem for me to tell you 177 00:10:04,760 --> 00:10:07,240 Speaker 1: something that's really complicated, but the whole challenge for me 178 00:10:07,280 --> 00:10:09,080 Speaker 1: really is to tell you something that's easier to understand 179 00:10:09,120 --> 00:10:11,080 Speaker 1: where you still will say wow. I actually find that 180 00:10:11,160 --> 00:10:13,400 Speaker 1: useful and also find that quite interesting. I want to 181 00:10:13,440 --> 00:10:15,920 Speaker 1: talk a little bit about the many factors that go 182 00:10:16,120 --> 00:10:20,200 Speaker 1: into the equity markets, but I have to lead with 183 00:10:20,320 --> 00:10:23,480 Speaker 1: something you wrote. Um, I think it was late last year, 184 00:10:24,559 --> 00:10:29,600 Speaker 1: thirty market risks for let's let's discuss that. Yeah, so 185 00:10:30,040 --> 00:10:32,920 Speaker 1: we try at the beginning of very year to think 186 00:10:32,920 --> 00:10:35,440 Speaker 1: hot about it. What are the risks both to the 187 00:10:35,440 --> 00:10:38,200 Speaker 1: economy but the risks more broadly that market participants should 188 00:10:38,240 --> 00:10:41,520 Speaker 1: be worrying about. And we have been making a list 189 00:10:41,960 --> 00:10:44,400 Speaker 1: for the last few years, and this year it actually 190 00:10:44,400 --> 00:10:46,000 Speaker 1: grew to thirty because we thought that there were so 191 00:10:46,000 --> 00:10:48,000 Speaker 1: many things going on and if we missed something out, 192 00:10:48,400 --> 00:10:52,280 Speaker 1: it would be a shamed But it's clear that those 193 00:10:52,400 --> 00:10:56,160 Speaker 1: risks can be categorized into different buckets. At one risk, 194 00:10:56,200 --> 00:10:58,599 Speaker 1: of course, which is the traditional risk, or call it 195 00:10:58,640 --> 00:11:01,160 Speaker 1: the organic risk, is it cannot make risks which have 196 00:11:01,320 --> 00:11:03,520 Speaker 1: to do with where are we in the business cycle? 197 00:11:03,920 --> 00:11:06,679 Speaker 1: Is the higher risk of overheating? Is the higher risk 198 00:11:06,720 --> 00:11:09,440 Speaker 1: of a recession. What sects us of the economy are 199 00:11:09,480 --> 00:11:12,400 Speaker 1: out of balance? Is consumption out of balances, topics out 200 00:11:12,400 --> 00:11:15,280 Speaker 1: of balance, our financial markets out of balances, the banking 201 00:11:15,320 --> 00:11:17,880 Speaker 1: sector is in the case that you have the housing 202 00:11:17,880 --> 00:11:20,160 Speaker 1: market out of balance, So that many of the risks 203 00:11:20,160 --> 00:11:22,440 Speaker 1: we had on our list, we're really focusing first and 204 00:11:22,480 --> 00:11:25,880 Speaker 1: of all on sort of the traditional old school macroeconomic 205 00:11:26,000 --> 00:11:28,120 Speaker 1: risks in terms of where are we in the cycle? 206 00:11:28,400 --> 00:11:31,920 Speaker 1: What's next over thecoming quarters? Is it overheating? Is it recession? 207 00:11:32,200 --> 00:11:34,320 Speaker 1: And the short answer to that first bucket was that 208 00:11:34,400 --> 00:11:37,560 Speaker 1: we were still today a lot more about overheating and 209 00:11:37,640 --> 00:11:41,600 Speaker 1: inflation than we were about recession. So those risks, of 210 00:11:41,640 --> 00:11:44,360 Speaker 1: course are still slowly playing out. The second part of 211 00:11:44,360 --> 00:11:46,040 Speaker 1: the list, well, let me let me stop you right 212 00:11:46,080 --> 00:11:49,640 Speaker 1: there before we get to the second part. So this 213 00:11:49,760 --> 00:11:52,960 Speaker 1: is now five months, four months later we see the 214 00:11:52,960 --> 00:11:57,079 Speaker 1: fattest saying um rates are going to continue to tick up, 215 00:11:57,160 --> 00:12:00,839 Speaker 1: that we have a variety of indicate aations that if 216 00:12:00,840 --> 00:12:04,760 Speaker 1: we're not at full employment, were certainly very very close 217 00:12:04,800 --> 00:12:08,040 Speaker 1: with unemployment, you know, four percent, we may even see 218 00:12:08,080 --> 00:12:12,480 Speaker 1: a three handle sometime coming soon exactly. And yet inflation, 219 00:12:12,800 --> 00:12:15,679 Speaker 1: while there are signs of inflation and slignes of signs 220 00:12:15,679 --> 00:12:20,880 Speaker 1: of some wage pressure, it's slight and we haven't seen 221 00:12:20,960 --> 00:12:25,440 Speaker 1: inflation tick up like you might imagine would happen in 222 00:12:25,520 --> 00:12:30,679 Speaker 1: a full employment on the verge of overheating economy. How 223 00:12:30,720 --> 00:12:33,160 Speaker 1: do you explain that? And what does that do to 224 00:12:33,240 --> 00:12:37,480 Speaker 1: the risk for of an overheating economy? Absolutely, this has 225 00:12:37,520 --> 00:12:39,600 Speaker 1: been one of the big mysteries of this expansion that 226 00:12:39,679 --> 00:12:43,760 Speaker 1: we have still not quite seen the inflationary upward pressure 227 00:12:43,760 --> 00:12:46,480 Speaker 1: that we've been waiting for for so long. So the 228 00:12:46,559 --> 00:12:49,400 Speaker 1: fit has been crying wolf, inflation is about to go up, 229 00:12:49,440 --> 00:12:51,880 Speaker 1: Rates about to go up in the market pricing and 230 00:12:51,880 --> 00:12:54,640 Speaker 1: fit fund futures, and mostly for that matter, what the 231 00:12:54,679 --> 00:12:57,040 Speaker 1: street expectations have been to long. Rates have also been 232 00:12:57,080 --> 00:12:59,040 Speaker 1: crying both and say rates are going rates are going up, 233 00:12:59,240 --> 00:13:01,439 Speaker 1: But race didn't go up for the last four or 234 00:13:01,480 --> 00:13:05,000 Speaker 1: five years as expected, So you could certainly ask the question, 235 00:13:05,000 --> 00:13:07,160 Speaker 1: why should we expect that to be now? Why are 236 00:13:07,160 --> 00:13:09,480 Speaker 1: we still saying that this is a risk. What makes 237 00:13:09,480 --> 00:13:13,400 Speaker 1: today different from a few years ago The following things. Maybe, 238 00:13:13,480 --> 00:13:17,000 Speaker 1: First of all, today the issue is that the unemployee 239 00:13:17,000 --> 00:13:18,880 Speaker 1: is now so low ready tour it was a few 240 00:13:18,920 --> 00:13:21,600 Speaker 1: years ago, So that's suggesting that we have an economy 241 00:13:21,640 --> 00:13:24,720 Speaker 1: that's close to overheating. Relative to the Congressional Budget Office, 242 00:13:25,000 --> 00:13:28,480 Speaker 1: we are at close to full capacity by some metrics, 243 00:13:28,520 --> 00:13:30,600 Speaker 1: were actually a little bit above full capacity. So that's 244 00:13:30,640 --> 00:13:33,439 Speaker 1: number one reason what's different today relative to a few 245 00:13:33,520 --> 00:13:36,080 Speaker 1: years ago. The second reason why also we see upward 246 00:13:36,080 --> 00:13:38,560 Speaker 1: pressure on inflation is that the dollar is actually going 247 00:13:38,640 --> 00:13:40,840 Speaker 1: down now. I remember, when the dollar goes down, you'll 248 00:13:40,840 --> 00:13:44,600 Speaker 1: see inflation goes up. So that's also a second reason. Certainly, 249 00:13:44,679 --> 00:13:47,400 Speaker 1: absolutely that's also adding to what's happening with the upward 250 00:13:47,400 --> 00:13:50,200 Speaker 1: pressure on inflation. The third reason why we still think 251 00:13:50,200 --> 00:13:52,040 Speaker 1: that we will have inflation in two thousand eighteen and 252 00:13:52,080 --> 00:13:54,520 Speaker 1: coming potentially already in the next few months, is that 253 00:13:54,559 --> 00:13:57,360 Speaker 1: we just did an enormous physical expansion, and the physical 254 00:13:57,360 --> 00:13:59,280 Speaker 1: expansion was also not something that we did a few 255 00:13:59,320 --> 00:14:01,800 Speaker 1: years ago. That's your also be putting some upwear pressure. 256 00:14:01,800 --> 00:14:04,480 Speaker 1: And the fourth and final argument now why now is 257 00:14:04,520 --> 00:14:06,600 Speaker 1: different and why we think the wolf will finally come, 258 00:14:07,160 --> 00:14:09,959 Speaker 1: is that we do believe that all the discussion about 259 00:14:09,960 --> 00:14:12,880 Speaker 1: trade war on tariffs will also be having some more 260 00:14:12,960 --> 00:14:15,679 Speaker 1: modest upwear pressure on prices. So if I add these 261 00:14:15,679 --> 00:14:18,680 Speaker 1: things together, off, we had full capacity, the dollars going down, 262 00:14:18,840 --> 00:14:21,400 Speaker 1: we did a physical expansion. The trade war on tariffs 263 00:14:21,480 --> 00:14:24,480 Speaker 1: talk is also lifting prices modestly. We do think that 264 00:14:24,560 --> 00:14:26,440 Speaker 1: by the end of this year, inflation and here we're 265 00:14:26,440 --> 00:14:29,880 Speaker 1: talking about core PC will be well above the FITS 266 00:14:29,920 --> 00:14:32,400 Speaker 1: two percent target. Because the FIT has a two percent 267 00:14:32,400 --> 00:14:34,800 Speaker 1: target and we've been below for the last five years. 268 00:14:34,840 --> 00:14:36,960 Speaker 1: So many people your medium rates say will be below 269 00:14:37,000 --> 00:14:39,520 Speaker 1: the target for so long. Why should we over shoot 270 00:14:39,720 --> 00:14:41,600 Speaker 1: where the risks are now that we could be getting 271 00:14:41,680 --> 00:14:43,600 Speaker 1: very close to that. The inflation data we just got 272 00:14:43,760 --> 00:14:46,440 Speaker 1: from core CPI, which is a different inflation indicator, was 273 00:14:46,480 --> 00:14:48,200 Speaker 1: two point one. But the bottom line is that the 274 00:14:48,200 --> 00:14:50,640 Speaker 1: trend is not your friend when you look at what's 275 00:14:50,640 --> 00:14:53,120 Speaker 1: happening on inflation. So we do get worried about the 276 00:14:53,200 --> 00:14:55,400 Speaker 1: FED actually raising rates as many times as they're saying, 277 00:14:55,400 --> 00:14:57,640 Speaker 1: and potentially also resulting in the steepening of the yield 278 00:14:57,640 --> 00:15:01,840 Speaker 1: curve later this year, which which would quiet down all 279 00:15:01,840 --> 00:15:04,560 Speaker 1: the people who were saying the flattening is causing recession. 280 00:15:04,600 --> 00:15:06,520 Speaker 1: But let's hold that and come back to it. I 281 00:15:06,560 --> 00:15:09,760 Speaker 1: want to push back on inflation, not because I necessarily 282 00:15:09,760 --> 00:15:13,160 Speaker 1: agree with this, but here's the here's the counter argument. 283 00:15:13,200 --> 00:15:16,200 Speaker 1: I want to hear your response. So three pieces. A. 284 00:15:16,920 --> 00:15:20,160 Speaker 1: We have full employment, but compare the current full employment 285 00:15:20,160 --> 00:15:22,720 Speaker 1: to twenty years ago and a lot of people who 286 00:15:22,800 --> 00:15:27,840 Speaker 1: lost good, high paying or middle class jobs have been 287 00:15:27,920 --> 00:15:34,520 Speaker 1: replaced with mediocre, low paying jobs in the hospitality industry, 288 00:15:34,640 --> 00:15:37,840 Speaker 1: food and beverage service, the low end of healthcare. So 289 00:15:37,920 --> 00:15:41,360 Speaker 1: while we have full employment, the wage picture has skewed 290 00:15:41,440 --> 00:15:45,160 Speaker 1: dramatically across most of the middle class. That's that's bullet 291 00:15:45,160 --> 00:15:48,360 Speaker 1: point one. And then two and three is you still 292 00:15:48,400 --> 00:15:51,640 Speaker 1: have technology driving the price down of everything. You have 293 00:15:51,760 --> 00:15:57,440 Speaker 1: automation making things faster, cheaper, better, um. And lastly, even 294 00:15:57,480 --> 00:16:00,960 Speaker 1: with the trade war, globalization can contain used to drive 295 00:16:01,040 --> 00:16:04,160 Speaker 1: prices down and drive labor costs down. As we have 296 00:16:04,200 --> 00:16:08,400 Speaker 1: a global labor arbitrage, how do you respond? And by 297 00:16:08,480 --> 00:16:10,440 Speaker 1: lets just off the top of my head. I'm sure 298 00:16:10,960 --> 00:16:15,800 Speaker 1: a real economist unlike myself who's a um follow economist, UH, 299 00:16:16,120 --> 00:16:20,080 Speaker 1: could give you even more. But how how credible is 300 00:16:20,120 --> 00:16:23,960 Speaker 1: the counter arguments to inflation? Well, the first observation is 301 00:16:24,000 --> 00:16:25,640 Speaker 1: that the FED is saying that they want to high 302 00:16:25,720 --> 00:16:27,800 Speaker 1: rate three times this year and four times next year. 303 00:16:28,280 --> 00:16:30,960 Speaker 1: You've gotta think really hard about what is their thought process. 304 00:16:31,040 --> 00:16:33,040 Speaker 1: Why are they saying that race needs took up so much? 305 00:16:33,400 --> 00:16:37,000 Speaker 1: If they were worried that all these forces from globalization 306 00:16:37,080 --> 00:16:40,359 Speaker 1: or Amazon other things could be holding inflation down more permanently, 307 00:16:40,600 --> 00:16:43,400 Speaker 1: then they wouldn't have this firm view among these incredibly 308 00:16:43,440 --> 00:16:45,720 Speaker 1: smart people on there from see that rates need to 309 00:16:45,720 --> 00:16:48,040 Speaker 1: go up so much over the next few years. I 310 00:16:48,040 --> 00:16:50,280 Speaker 1: think one thing that's really important to keep in mind 311 00:16:50,520 --> 00:16:52,280 Speaker 1: to your very good points is to remember what the 312 00:16:52,320 --> 00:16:56,800 Speaker 1: CPI is CPI inflation. The weight in the CPI two 313 00:16:56,880 --> 00:16:59,360 Speaker 1: goods is about a third, and the weight in the 314 00:16:59,400 --> 00:17:02,320 Speaker 1: CPI to services is about two thirds. So what's really 315 00:17:02,360 --> 00:17:04,520 Speaker 1: critical about that It is that it's true that China 316 00:17:04,680 --> 00:17:07,000 Speaker 1: is holding US inflation down, is true that Amazon is 317 00:17:07,040 --> 00:17:10,000 Speaker 1: holding US inflation down very modestly. But it's also true 318 00:17:10,040 --> 00:17:13,160 Speaker 1: that Mexico and other countries are having competitive pressure holding 319 00:17:13,160 --> 00:17:15,639 Speaker 1: inflation down in the US, but goods only make up 320 00:17:15,640 --> 00:17:17,679 Speaker 1: a third. In other words, tradeable goods only make up 321 00:17:17,720 --> 00:17:20,600 Speaker 1: a third of the index, whereas non tradeable stuff in 322 00:17:20,640 --> 00:17:23,560 Speaker 1: the index, meaning services, makes up two thirds. And what 323 00:17:23,720 --> 00:17:26,920 Speaker 1: is services that is, first of all housing and housing 324 00:17:27,040 --> 00:17:30,080 Speaker 1: is not under downward competitive pressure globally. Housing makes up 325 00:17:30,920 --> 00:17:33,720 Speaker 1: of the CPI overall cost CPI, so that means that 326 00:17:33,720 --> 00:17:35,760 Speaker 1: it actually is a very important part of our consumption. 327 00:17:36,119 --> 00:17:39,720 Speaker 1: Healthcare makes up about the CPI, so that's also not 328 00:17:39,840 --> 00:17:42,640 Speaker 1: something Healthcare costs also at the moment of now going up, 329 00:17:42,760 --> 00:17:46,000 Speaker 1: so also it's not under globalization pressures or Amazon pressures 330 00:17:46,000 --> 00:17:48,920 Speaker 1: as such. And finally, education costs also make up a 331 00:17:48,960 --> 00:17:51,920 Speaker 1: significant share of CPI. So they complain that you often 332 00:17:51,920 --> 00:17:55,000 Speaker 1: hear among heads funds and others that well, prices will 333 00:17:55,040 --> 00:17:59,200 Speaker 1: never go up except on healthcare, education and on housing. 334 00:17:59,240 --> 00:18:01,120 Speaker 1: Well wait a minute, but those components make up two 335 00:18:01,119 --> 00:18:03,240 Speaker 1: thirds of the CPI. So I think the reason why 336 00:18:03,280 --> 00:18:05,480 Speaker 1: if you look at the actually inflation rates for services 337 00:18:05,680 --> 00:18:07,640 Speaker 1: have been around two and a half three percent now 338 00:18:07,920 --> 00:18:11,080 Speaker 1: almost for the last decade, where as inflation for goods 339 00:18:11,280 --> 00:18:13,800 Speaker 1: has indeed been negative. So a very important part of 340 00:18:13,800 --> 00:18:16,680 Speaker 1: the arguments you you just listed on, a very critical 341 00:18:16,680 --> 00:18:18,959 Speaker 1: part of the discussion with customers about whether we'll ever 342 00:18:19,000 --> 00:18:22,120 Speaker 1: see inflation is that the weight to goods only being 343 00:18:22,160 --> 00:18:23,919 Speaker 1: a third. Think about how much of your money you 344 00:18:23,920 --> 00:18:27,800 Speaker 1: actually spent going to strip modes and going to Amazon 345 00:18:27,880 --> 00:18:30,320 Speaker 1: and going elsewhere and shopping. The share you spend on 346 00:18:30,400 --> 00:18:32,760 Speaker 1: goods is actually resively small compared to how much you 347 00:18:32,840 --> 00:18:34,480 Speaker 1: spend on your mortgage or your rent, how much you 348 00:18:34,560 --> 00:18:36,800 Speaker 1: spend on healthcare, so we'll you spend on education. So 349 00:18:36,840 --> 00:18:39,119 Speaker 1: what I'm hearing from you is deflation in the things 350 00:18:39,200 --> 00:18:41,800 Speaker 1: we want and inflation in the things we need. That's 351 00:18:41,840 --> 00:18:44,159 Speaker 1: a good way to put it. Let's jump into the 352 00:18:44,240 --> 00:18:48,760 Speaker 1: rest of your thirty market risks for we talked about 353 00:18:48,800 --> 00:18:52,520 Speaker 1: the economic risks before. What are some of the non 354 00:18:52,560 --> 00:18:57,520 Speaker 1: economic risks that you're considering um for for this year 355 00:18:57,560 --> 00:19:00,959 Speaker 1: to the market. Well, they basically fall in very big bucket, 356 00:19:01,000 --> 00:19:04,960 Speaker 1: which is called political risk or deal political risks. This 357 00:19:05,240 --> 00:19:08,440 Speaker 1: includes everything that we're talking about in markets and have 358 00:19:08,520 --> 00:19:12,000 Speaker 1: been talking about for a while, from what is happening 359 00:19:12,320 --> 00:19:16,040 Speaker 1: in US politics, what's happening in European politics, more recently 360 00:19:16,040 --> 00:19:18,920 Speaker 1: we also discussed quite intensively what's happening in Japanese politics. 361 00:19:19,359 --> 00:19:21,600 Speaker 1: We have also been debating for quite some time what's happening, 362 00:19:21,600 --> 00:19:24,480 Speaker 1: of course with North Korea. More recently we started debating 363 00:19:24,520 --> 00:19:29,080 Speaker 1: again the serious situation. All those risks are incredibly difficult 364 00:19:29,080 --> 00:19:32,000 Speaker 1: to quantify, but nevertheless turned out to be pretty important 365 00:19:32,040 --> 00:19:34,840 Speaker 1: for how markets are moving. So the the problem is 366 00:19:34,880 --> 00:19:38,359 Speaker 1: that nobody really has a great toolbox for political risks. 367 00:19:38,400 --> 00:19:40,240 Speaker 1: We have a great toolbox, we have a great light 368 00:19:40,240 --> 00:19:42,119 Speaker 1: post to give us a lot of light under the 369 00:19:42,160 --> 00:19:45,760 Speaker 1: economics problems. Therefore, we spend enormous amounts of time trying 370 00:19:45,760 --> 00:19:48,199 Speaker 1: to look at the individual economic indicators. But the end 371 00:19:48,200 --> 00:19:51,159 Speaker 1: of the day is certainly something very unquantifiable comes in 372 00:19:51,400 --> 00:19:54,240 Speaker 1: political risk from just left field, and we just didn't 373 00:19:54,240 --> 00:19:56,200 Speaker 1: expect it, and suddenly we need to have a view 374 00:19:56,200 --> 00:19:58,200 Speaker 1: on is this good news? Is a bad news? How 375 00:19:58,240 --> 00:20:00,320 Speaker 1: big is this story? Is it a big story? Is 376 00:20:00,320 --> 00:20:02,480 Speaker 1: it is most story? What can I quantify? Just like 377 00:20:02,600 --> 00:20:05,240 Speaker 1: more recently we've got the trade wall. Stuff has coming 378 00:20:05,280 --> 00:20:07,199 Speaker 1: to the radar screen. Is that a big deal? Is 379 00:20:07,200 --> 00:20:09,359 Speaker 1: that not a big deal? We have discusses with equity 380 00:20:09,359 --> 00:20:11,960 Speaker 1: investors who think that's a big deal. Rates investors think 381 00:20:12,000 --> 00:20:13,880 Speaker 1: this is not a big deal because the macro implications 382 00:20:13,880 --> 00:20:17,480 Speaker 1: are ready to be limited. So the whole non economic 383 00:20:17,800 --> 00:20:21,359 Speaker 1: list of risks that we have is just has the 384 00:20:21,480 --> 00:20:24,280 Speaker 1: distinguished features that we just don't really have a good 385 00:20:24,440 --> 00:20:27,440 Speaker 1: understanding and good way of really assessing this, which actually, 386 00:20:27,480 --> 00:20:29,919 Speaker 1: in some cases makes it very exciting to discuss. So 387 00:20:30,200 --> 00:20:34,000 Speaker 1: I completely agree with you, it's fascinating to discuss. But 388 00:20:34,240 --> 00:20:38,240 Speaker 1: I always find myself pushing back on the here the 389 00:20:38,240 --> 00:20:39,920 Speaker 1: political risk from the market, and I want to throw 390 00:20:39,960 --> 00:20:42,320 Speaker 1: a couple of ideas that you uh and get your 391 00:20:42,400 --> 00:20:46,439 Speaker 1: your thoughts on it. So two thousand and seventeen was 392 00:20:47,040 --> 00:20:51,840 Speaker 1: by most measures, the most politically violent year, certainly in 393 00:20:51,920 --> 00:20:55,159 Speaker 1: recent memory, certainly in my memory. Um, I don't I 394 00:20:55,400 --> 00:20:57,680 Speaker 1: didn't live through the thirties, I didn't live through War two, 395 00:20:57,720 --> 00:20:59,879 Speaker 1: so I can't tell you what the politics were like that. 396 00:21:00,600 --> 00:21:04,640 Speaker 1: Buteen was just a relent It was like the campaign 397 00:21:04,680 --> 00:21:08,440 Speaker 1: never ended and it just got louder and more volatile. 398 00:21:08,840 --> 00:21:13,959 Speaker 1: And yet at the same time, the market volatility was 399 00:21:14,000 --> 00:21:16,679 Speaker 1: the lowest we've seen in like thirty years. It was 400 00:21:16,760 --> 00:21:21,199 Speaker 1: just a slow, modest grind up every day and at 401 00:21:21,240 --> 00:21:24,480 Speaker 1: the end of the year, the SMP had gained um 402 00:21:24,520 --> 00:21:29,960 Speaker 1: all in including dividends. That's a huge, huge contradiction to 403 00:21:30,920 --> 00:21:35,360 Speaker 1: how we should contextualize politics and and markets. So so 404 00:21:35,520 --> 00:21:39,320 Speaker 1: if you could explain that, yeah, absolutely, I mean you're 405 00:21:39,440 --> 00:21:42,280 Speaker 1: right to say that there were many predictions ahead of 406 00:21:42,520 --> 00:21:45,280 Speaker 1: many elections, including the US election, that things would have 407 00:21:45,280 --> 00:21:48,240 Speaker 1: gone completely different than what actually happened. It just tells 408 00:21:48,320 --> 00:21:51,200 Speaker 1: you how difficult it is in some cases to get 409 00:21:51,240 --> 00:21:53,960 Speaker 1: some good quantification and assessment of what's actually going to happen. 410 00:21:54,359 --> 00:21:56,119 Speaker 1: I think what's very important to keep in mind that 411 00:21:56,160 --> 00:21:59,520 Speaker 1: from the economics broad a textbook, there are the politicians 412 00:21:59,560 --> 00:22:02,760 Speaker 1: who really are accountable for what generally speaking can be 413 00:22:02,800 --> 00:22:05,879 Speaker 1: called fiscal policy and structural policy. And then there is 414 00:22:05,920 --> 00:22:07,960 Speaker 1: the central bank, in this case the FIT, which is 415 00:22:08,000 --> 00:22:10,920 Speaker 1: basically only responsible for basically one thing, name the interest 416 00:22:11,000 --> 00:22:13,280 Speaker 1: rates and monetary policy, but really keeping interest rates at 417 00:22:13,320 --> 00:22:15,200 Speaker 1: a level that they think is relevant for where the 418 00:22:15,280 --> 00:22:17,359 Speaker 1: economy is. And what I think is the very important 419 00:22:17,400 --> 00:22:20,639 Speaker 1: backdrop also to what happened in two Husands seventeen is 420 00:22:20,680 --> 00:22:23,719 Speaker 1: that monetary policy has for many many years been very 421 00:22:23,800 --> 00:22:26,840 Speaker 1: very easy. So in some sense, what's driving markets. It 422 00:22:26,960 --> 00:22:29,679 Speaker 1: might not be fiscal policy or structural policy or just 423 00:22:29,840 --> 00:22:32,560 Speaker 1: what politicians are doing. It could be that the dominating 424 00:22:32,560 --> 00:22:34,640 Speaker 1: force for many, many years has actually been the FIT 425 00:22:34,920 --> 00:22:36,960 Speaker 1: and the ECB and the b o J, and maybe 426 00:22:36,960 --> 00:22:39,040 Speaker 1: that was the reason why stock market did so well 427 00:22:39,160 --> 00:22:42,159 Speaker 1: for so long since two thousand nine, essentially, equities have 428 00:22:42,200 --> 00:22:45,399 Speaker 1: done incredibly well simply because the amount of support that 429 00:22:45,440 --> 00:22:47,520 Speaker 1: has been coming not only from the FIT, also from 430 00:22:47,560 --> 00:22:49,800 Speaker 1: the easy B b o j s and b even 431 00:22:49,800 --> 00:22:53,520 Speaker 1: PBOC in China, we have seen significant money printing that 432 00:22:53,600 --> 00:22:56,560 Speaker 1: needed to find at home outside of fixed income in 433 00:22:56,560 --> 00:22:59,480 Speaker 1: many cases, and outside of fixed income basically in most 434 00:22:59,480 --> 00:23:02,959 Speaker 1: cases me equities and equities probably also benefited. And this 435 00:23:03,040 --> 00:23:06,160 Speaker 1: was the intention from the significant amount of money printing. 436 00:23:06,200 --> 00:23:10,760 Speaker 1: So maybe even when the FED was tightening and quantitative 437 00:23:10,760 --> 00:23:13,640 Speaker 1: easing was ending and their balance sheet was I don't 438 00:23:13,640 --> 00:23:15,399 Speaker 1: want to say it was getting, it was shrinking, but 439 00:23:15,440 --> 00:23:17,840 Speaker 1: it was certainly not expanding the way it had But 440 00:23:17,880 --> 00:23:20,640 Speaker 1: the Global Central Bank, that's true, You're right to say 441 00:23:20,680 --> 00:23:23,159 Speaker 1: that they FIT, it absolutely was pulling in liquidity. But 442 00:23:23,200 --> 00:23:25,119 Speaker 1: if you look at the Global Central Bank Balanty d 443 00:23:25,160 --> 00:23:27,760 Speaker 1: CP was still popularly speaking, printing money. The b o 444 00:23:27,840 --> 00:23:30,479 Speaker 1: J was still printing money. Also what happened again, and 445 00:23:30,760 --> 00:23:33,240 Speaker 1: China was also supporting the economy. So let me ask 446 00:23:33,280 --> 00:23:36,320 Speaker 1: you on that point. I apologize for interrupting, but this 447 00:23:36,520 --> 00:23:41,000 Speaker 1: cycle globally seemed to be very much with the major 448 00:23:41,080 --> 00:23:44,280 Speaker 1: economic centers very much out of step, out of sync 449 00:23:44,320 --> 00:23:48,360 Speaker 1: with each other. Normally it's a global everybody cuts rates together, 450 00:23:48,400 --> 00:23:51,080 Speaker 1: everybody races. But it seemed like the US did what 451 00:23:51,200 --> 00:23:54,840 Speaker 1: they did, and then Japan did albonomics, and Europe eventually 452 00:23:54,840 --> 00:23:57,359 Speaker 1: said hey, these guys seem to be onto something and 453 00:23:57,400 --> 00:24:00,520 Speaker 1: they started how unusual is that and what does this 454 00:24:00,600 --> 00:24:04,120 Speaker 1: mean for the economy and the markets going forward? Well, 455 00:24:04,119 --> 00:24:06,720 Speaker 1: what's really unusual about this cyclically, exactly to the way 456 00:24:06,760 --> 00:24:10,320 Speaker 1: you just outlined it and sequenced it, is that remember 457 00:24:10,480 --> 00:24:13,760 Speaker 1: that the central banks are now buying assets. Specifically, of course, 458 00:24:13,800 --> 00:24:15,440 Speaker 1: the US BE and the BOG still buying assets, and 459 00:24:15,440 --> 00:24:18,240 Speaker 1: they fit that this. For many years, they're buying basically 460 00:24:18,240 --> 00:24:20,560 Speaker 1: government bonds. I used to work at the I m 461 00:24:20,640 --> 00:24:22,359 Speaker 1: F where we would fly to two countries and say, 462 00:24:22,400 --> 00:24:25,320 Speaker 1: don't buy your own government bonds. That's crazy. Your money 463 00:24:25,320 --> 00:24:27,240 Speaker 1: science in your own debt, and the market will not 464 00:24:27,359 --> 00:24:28,760 Speaker 1: think that you're credible if you do it as a 465 00:24:28,760 --> 00:24:31,199 Speaker 1: central bank. And now the FATE has been buying their 466 00:24:31,240 --> 00:24:32,800 Speaker 1: own going bonds, the e CP has been buying their 467 00:24:32,840 --> 00:24:34,399 Speaker 1: own government bonds, the bug has been buying their own 468 00:24:34,400 --> 00:24:36,040 Speaker 1: conming bands. And now we all sit here and say, 469 00:24:36,119 --> 00:24:38,040 Speaker 1: oh yeah, now it's fine. They can get away with it. 470 00:24:38,240 --> 00:24:41,520 Speaker 1: So the issue is that it really is true that 471 00:24:41,680 --> 00:24:45,439 Speaker 1: markets are distorted by the very significant amount of asset 472 00:24:45,480 --> 00:24:48,359 Speaker 1: purchases or que that has been carried out by the 473 00:24:48,440 --> 00:24:51,520 Speaker 1: three major central banks. And therefore the exit, which is 474 00:24:51,600 --> 00:24:53,800 Speaker 1: what we're beginning slowly to go through with the FIT 475 00:24:53,920 --> 00:24:56,120 Speaker 1: raising rates next year, the eusy B will race rates 476 00:24:56,119 --> 00:24:58,520 Speaker 1: and eventually the BUJ will also raise rates. The exit 477 00:24:58,600 --> 00:25:02,280 Speaker 1: will be associated some unwinding of those distortions. So a 478 00:25:02,280 --> 00:25:04,800 Speaker 1: lot of my client discussions exactly about what you just 479 00:25:04,800 --> 00:25:08,080 Speaker 1: said named what kind of distortions were created, and that's 480 00:25:08,080 --> 00:25:11,600 Speaker 1: sequencing that we saw. What would the endgame be as 481 00:25:11,640 --> 00:25:14,000 Speaker 1: we get back to quote unquote a more normal situation, 482 00:25:14,040 --> 00:25:15,919 Speaker 1: and is it possible to get back to a more 483 00:25:15,960 --> 00:25:19,919 Speaker 1: normal situation where assetprises are not heavily distorted by central 484 00:25:19,920 --> 00:25:23,560 Speaker 1: bank as it purchases are QUI So you mentioned ECB 485 00:25:23,720 --> 00:25:27,120 Speaker 1: in the FED over in Japan, their central bank are 486 00:25:27,160 --> 00:25:30,239 Speaker 1: actually buying equities. We don't. We don't see that in 487 00:25:30,359 --> 00:25:32,320 Speaker 1: the US, and I don't believe we see a lot 488 00:25:32,359 --> 00:25:36,040 Speaker 1: of it in Europe. Absolutely. What is the Central Bank 489 00:25:36,080 --> 00:25:39,720 Speaker 1: of Japan doing and what is the impact on on 490 00:25:40,240 --> 00:25:44,680 Speaker 1: Japanese markets? Is albinomics working or is it just one 491 00:25:44,760 --> 00:25:47,639 Speaker 1: joint distortion and we can't tell. Yeah. So abonomics has 492 00:25:47,680 --> 00:25:51,159 Speaker 1: three arrows named monetary postsy, fiscal posts, and then structural posties, 493 00:25:51,200 --> 00:25:53,240 Speaker 1: which is an attempt to say, let's make the economy 494 00:25:53,280 --> 00:25:56,520 Speaker 1: more competitive, Let's make it easier to fire in Japan, 495 00:25:56,640 --> 00:25:59,159 Speaker 1: miss let's make it easier to hire, let's get more 496 00:25:59,200 --> 00:26:00,960 Speaker 1: women into the labor force, Let's try to get the 497 00:26:01,000 --> 00:26:04,200 Speaker 1: economy more flexible and dynamic. And the answer is that 498 00:26:04,280 --> 00:26:06,840 Speaker 1: on the fiscal side, the dead level is just enormous 499 00:26:07,080 --> 00:26:09,800 Speaker 1: monstery policy has now tried many different things and that 500 00:26:09,880 --> 00:26:13,760 Speaker 1: hasn't really created a significant amount of success stories. Unfortunately, 501 00:26:13,960 --> 00:26:17,840 Speaker 1: despite that, we're now almost twenty years and plus and counting, 502 00:26:17,880 --> 00:26:22,199 Speaker 1: and that's like to g DP something like that. This 503 00:26:22,240 --> 00:26:24,239 Speaker 1: is the dead to GDP level exactly, which makes them 504 00:26:24,320 --> 00:26:28,399 Speaker 1: very vulnerable to high interest rates. So the answer today 505 00:26:28,440 --> 00:26:31,159 Speaker 1: to your question is that it just hasn't really worked 506 00:26:31,280 --> 00:26:33,280 Speaker 1: quite yet, and of course it opens up a lot 507 00:26:33,320 --> 00:26:35,440 Speaker 1: of questions. Is the US also going down the road 508 00:26:35,440 --> 00:26:38,120 Speaker 1: of being Japan eventually? We don't think so at all, 509 00:26:38,160 --> 00:26:41,639 Speaker 1: because the problem in Japan is that the economy is 510 00:26:41,680 --> 00:26:44,560 Speaker 1: just not dynamic enough, and they are just some very 511 00:26:44,720 --> 00:26:48,399 Speaker 1: ingrained reasons why it's been very difficult to create inflation. Whereas, 512 00:26:48,440 --> 00:26:51,159 Speaker 1: as we spoke about earlier, we're already seeing some signs 513 00:26:51,160 --> 00:26:53,600 Speaker 1: of inflation in the US in the CPI and pc 514 00:26:53,840 --> 00:26:57,359 Speaker 1: it's only very small upward moves. But as I mentioned, 515 00:26:57,400 --> 00:26:59,040 Speaker 1: the list of reasons why we think that now is 516 00:26:59,080 --> 00:27:01,679 Speaker 1: a bit different. Also, the labor market is more dynamic 517 00:27:01,760 --> 00:27:03,360 Speaker 1: in the U S which is why the employment cost 518 00:27:03,400 --> 00:27:06,720 Speaker 1: in diction trading higher. We've seen media weekly learnings trending higher. 519 00:27:06,920 --> 00:27:09,080 Speaker 1: We've seen even UNI labor costs they've also started moving 520 00:27:09,119 --> 00:27:11,600 Speaker 1: up a bit. So I get it that average are 521 00:27:11,720 --> 00:27:14,360 Speaker 1: learnings hasn't really moved up as much, at least more recently. 522 00:27:14,560 --> 00:27:16,399 Speaker 1: But and then as they we do think that we 523 00:27:16,480 --> 00:27:18,960 Speaker 1: will get more wage pressure, we will get therefore get 524 00:27:18,960 --> 00:27:21,200 Speaker 1: a different situation in the US with higher rates, which 525 00:27:21,240 --> 00:27:23,720 Speaker 1: is why the FIT is hiking. And also a different 526 00:27:24,840 --> 00:27:27,360 Speaker 1: level of interest rates compared to what Japan has been with. 527 00:27:27,440 --> 00:27:30,040 Speaker 1: When you discussed the structural issues in Japan, are you 528 00:27:30,200 --> 00:27:34,720 Speaker 1: referring to the kuritsure, You're referring to their post office 529 00:27:34,840 --> 00:27:38,800 Speaker 1: essentially being their retirement accounts. What how How is Japan 530 00:27:39,400 --> 00:27:42,240 Speaker 1: so different than the US? We know it's very different, 531 00:27:42,440 --> 00:27:44,560 Speaker 1: So but what do you mean structure? What One extremely 532 00:27:44,560 --> 00:27:48,880 Speaker 1: important difference is demographics, that the Japanese population is aging, 533 00:27:49,240 --> 00:27:53,320 Speaker 1: and therefore you actually have a shrinking labor force, whereas 534 00:27:53,320 --> 00:27:55,480 Speaker 1: in the US we actually still have a growing labor force. 535 00:27:55,520 --> 00:27:57,920 Speaker 1: It may grow a little bit less quickly than it 536 00:27:58,000 --> 00:28:00,680 Speaker 1: did earlier, but we still have a significant of immigration, 537 00:28:00,680 --> 00:28:03,160 Speaker 1: we still population growth in the US. So one very 538 00:28:03,200 --> 00:28:06,679 Speaker 1: important structural, very in very simple terms structural difference is 539 00:28:06,720 --> 00:28:10,399 Speaker 1: that the amount of taxpayers in Japan is falling, whereas 540 00:28:10,400 --> 00:28:12,439 Speaker 1: in the US the amount of taxpayers is still growing 541 00:28:12,480 --> 00:28:14,600 Speaker 1: because we're adding in the labor force, more people that 542 00:28:14,640 --> 00:28:17,680 Speaker 1: pay taxes that can help for the aging population, help 543 00:28:17,760 --> 00:28:22,600 Speaker 1: for paying for retirement payments and transfers to older generations 544 00:28:22,600 --> 00:28:24,359 Speaker 1: and Medica and Medicaid, whereas you don't really have that 545 00:28:24,400 --> 00:28:26,520 Speaker 1: in Japan, which is really weighing both on the government 546 00:28:26,800 --> 00:28:30,159 Speaker 1: finances but also weighing on the economy more broadly. You know, 547 00:28:30,280 --> 00:28:32,000 Speaker 1: I want to talk a little bit about your career 548 00:28:32,040 --> 00:28:35,440 Speaker 1: because your path is somewhat um I don't want to 549 00:28:35,440 --> 00:28:40,520 Speaker 1: say unusual, because lots of people go from government institutions 550 00:28:40,520 --> 00:28:44,240 Speaker 1: and banks to Wall Street, but yours meandered through Europe, 551 00:28:44,240 --> 00:28:47,760 Speaker 1: through Paris to New York. Tell us right out of 552 00:28:48,000 --> 00:28:51,480 Speaker 1: graduate school that was Princeton, correct, Yeah, so I did 553 00:28:51,600 --> 00:28:53,760 Speaker 1: get my ps D from Copenhagen, but this spending in 554 00:28:53,800 --> 00:28:58,240 Speaker 1: Princeton where I got the americanized and opened up my 555 00:28:58,280 --> 00:29:01,640 Speaker 1: eyes for what this wonderful tree can do. So where 556 00:29:02,320 --> 00:29:04,880 Speaker 1: tell us about the career path. Did you go from 557 00:29:05,000 --> 00:29:07,680 Speaker 1: Copenhagen to the O E C D. Yeah, though, so, 558 00:29:07,800 --> 00:29:11,680 Speaker 1: first I did my PSD in Copenhagen, and as part 559 00:29:11,720 --> 00:29:14,360 Speaker 1: of the program in most European countries they ask you 560 00:29:14,400 --> 00:29:17,560 Speaker 1: to go to a U S university. Let's just say 561 00:29:17,600 --> 00:29:19,760 Speaker 1: the way it is that the quality of the PSD 562 00:29:19,800 --> 00:29:23,800 Speaker 1: programs in several European countries, if not most, is nowhere 563 00:29:23,840 --> 00:29:25,400 Speaker 1: near what you can get in the US. So that's 564 00:29:25,400 --> 00:29:27,480 Speaker 1: why they encourage people to say go and take a 565 00:29:27,560 --> 00:29:30,560 Speaker 1: year somewhere and the government said we'll pay the tuition, 566 00:29:30,760 --> 00:29:33,360 Speaker 1: will pay your room and board. Why don't you go this? 567 00:29:33,760 --> 00:29:37,800 Speaker 1: And I'm sorry, I'm sorry. Your tuition and room and 568 00:29:37,840 --> 00:29:41,280 Speaker 1: board was paid at graduate level, absolutely was paid by 569 00:29:41,520 --> 00:29:45,920 Speaker 1: Education is free and actually all Nordic countries. But what 570 00:29:46,000 --> 00:29:48,640 Speaker 1: else is free? County healthcare is also free? Its help 571 00:29:48,680 --> 00:29:52,600 Speaker 1: us off course are higher, but how much higher? So 572 00:29:52,720 --> 00:29:56,840 Speaker 1: average tax rates are roughly around the it's not that 573 00:29:57,480 --> 00:30:01,520 Speaker 1: it's about ten percent points high. Then here you do 574 00:30:01,600 --> 00:30:04,640 Speaker 1: get free healthcare, free education, which I was so lucky 575 00:30:04,680 --> 00:30:07,280 Speaker 1: to benefit from, which brought me Therefore in my one 576 00:30:07,360 --> 00:30:10,720 Speaker 1: year to New Jersey to Princeton, where I got to 577 00:30:10,760 --> 00:30:13,880 Speaker 1: work with the various professors. I worked with Michael Potle 578 00:30:13,920 --> 00:30:15,760 Speaker 1: who was visiting at the time. Barry I agree, was 579 00:30:15,760 --> 00:30:18,320 Speaker 1: actually also being there. I was a resources system for them, 580 00:30:18,560 --> 00:30:21,240 Speaker 1: and they basically said you should go and try and 581 00:30:21,280 --> 00:30:24,440 Speaker 1: get an internship at the I m F. And I said, okay, 582 00:30:24,440 --> 00:30:26,400 Speaker 1: that could be fun. And I did an internship at 583 00:30:26,400 --> 00:30:28,560 Speaker 1: the I m F the following summer, and I figure 584 00:30:28,560 --> 00:30:31,360 Speaker 1: out quicker than internships in this country is about figuring 585 00:30:31,360 --> 00:30:33,320 Speaker 1: out if you want to do that job more permanently, 586 00:30:33,360 --> 00:30:34,720 Speaker 1: if they want to keep you and I'm al so 587 00:30:34,800 --> 00:30:37,880 Speaker 1: lucky that they offered me a job. So I started 588 00:30:37,880 --> 00:30:40,560 Speaker 1: in the Economy's program with the PSP program at the 589 00:30:40,600 --> 00:30:42,680 Speaker 1: at the I m F. And by the way, if 590 00:30:42,680 --> 00:30:47,840 Speaker 1: memory serves, Princeton's Economics department was a powerhouse well at 591 00:30:47,840 --> 00:30:52,600 Speaker 1: the time of the department. And yeah, and you also 592 00:30:52,680 --> 00:30:55,360 Speaker 1: had Ken Rokoff was also there at the time, and 593 00:30:55,600 --> 00:30:58,280 Speaker 1: I didn't interact with them all the time, but I 594 00:30:58,280 --> 00:31:01,240 Speaker 1: mean they were there, and as you know, professors want 595 00:31:01,240 --> 00:31:03,960 Speaker 1: to talk to PSD students, which I was so incredibly 596 00:31:04,000 --> 00:31:06,880 Speaker 1: lucky that they also wanted to talk to me. So yeah, 597 00:31:06,920 --> 00:31:09,959 Speaker 1: that's true. It was a really interesting ground for just 598 00:31:10,040 --> 00:31:14,640 Speaker 1: getting again at academic overview of what's going on in 599 00:31:14,640 --> 00:31:17,280 Speaker 1: different areas and specializing in the in the areas that 600 00:31:17,320 --> 00:31:20,560 Speaker 1: I wrote about. So the I m F two O 601 00:31:20,720 --> 00:31:23,440 Speaker 1: E C D was at the next step. Yeah, I 602 00:31:23,480 --> 00:31:25,800 Speaker 1: did spend a year at the Bank of America here 603 00:31:25,800 --> 00:31:28,760 Speaker 1: in New York. But after that then I did go 604 00:31:28,800 --> 00:31:31,360 Speaker 1: to the ODE in Paris, and then there was Dan Paris. 605 00:31:31,360 --> 00:31:34,479 Speaker 1: Some of my former managers from the I m F 606 00:31:34,560 --> 00:31:38,000 Speaker 1: had moved to Deeutgia Bank, and specifically David fog Atlanta, 607 00:31:38,080 --> 00:31:39,840 Speaker 1: who I still have the pleasure of working with today, 608 00:31:40,680 --> 00:31:43,440 Speaker 1: and my great colleague being each other asked if I 609 00:31:43,440 --> 00:31:45,560 Speaker 1: wanted to come to work for Tougia Bank in New York, 610 00:31:45,600 --> 00:31:47,240 Speaker 1: and in two thousand and five I said yes to that, 611 00:31:47,560 --> 00:31:49,560 Speaker 1: And I've been sitting in that chair for the last 612 00:31:50,200 --> 00:31:52,720 Speaker 1: twelve thirteen years and counting and enjoying every moment of it. 613 00:31:53,200 --> 00:31:56,400 Speaker 1: So that's pretty fascinating. So you're now on Wall Street 614 00:31:56,560 --> 00:32:02,480 Speaker 1: for a dozen years. How different is it today than 615 00:32:02,520 --> 00:32:05,920 Speaker 1: it was when you joined right in the middle of 616 00:32:05,960 --> 00:32:08,880 Speaker 1: the credit and housing boom. Well, I think one very 617 00:32:08,880 --> 00:32:12,360 Speaker 1: important difference is that then in two thousand five and 618 00:32:12,400 --> 00:32:16,360 Speaker 1: two thousand six, obviously there was much fewer worries about 619 00:32:18,120 --> 00:32:21,360 Speaker 1: all the things that actually turned out to be really important. 620 00:32:22,360 --> 00:32:25,640 Speaker 1: We have gotten much more humble, first of all in 621 00:32:25,760 --> 00:32:29,640 Speaker 1: terms of our forecasting ability, but also in terms of 622 00:32:29,680 --> 00:32:31,160 Speaker 1: what is it actually that we need to look at, 623 00:32:31,640 --> 00:32:34,080 Speaker 1: which also gets back to why do I have my 624 00:32:34,120 --> 00:32:36,200 Speaker 1: little business model today of just sending a child in 625 00:32:36,240 --> 00:32:38,480 Speaker 1: a few sentences. Well, some of the idea is that 626 00:32:38,520 --> 00:32:41,280 Speaker 1: I cannot just only look at a certain small set 627 00:32:41,320 --> 00:32:43,760 Speaker 1: of indicators, because if I do that, I risk that 628 00:32:43,800 --> 00:32:46,040 Speaker 1: I'm missing something that actually could turn out to be 629 00:32:46,160 --> 00:32:51,080 Speaker 1: extremely important. So the straw that breaks the cameras back 630 00:32:51,120 --> 00:32:54,120 Speaker 1: here is not only necessarily inflation unemployment, but could be 631 00:32:54,160 --> 00:32:55,600 Speaker 1: something coming out of the blue that I had just 632 00:32:55,640 --> 00:32:58,640 Speaker 1: not appreciate it enough. So inflation risks can come from 633 00:32:58,680 --> 00:33:01,680 Speaker 1: different sources, but most important, recession risks can now come 634 00:33:01,760 --> 00:33:04,400 Speaker 1: from a whole range of difference. So also so I 635 00:33:04,440 --> 00:33:07,959 Speaker 1: would say that over the last at least decade, very 636 00:33:08,000 --> 00:33:11,320 Speaker 1: important change in the way and that the economics profession 637 00:33:11,360 --> 00:33:13,360 Speaker 1: on the street is working is that you've got to 638 00:33:13,400 --> 00:33:16,160 Speaker 1: open your eyes more too, risks that out there and 639 00:33:16,240 --> 00:33:19,480 Speaker 1: asking constantly are these risks important? How are these risks 640 00:33:19,480 --> 00:33:21,400 Speaker 1: playing out? Is this something I should be spending more 641 00:33:21,400 --> 00:33:23,640 Speaker 1: time on. So so let's delve in that into that 642 00:33:23,720 --> 00:33:26,440 Speaker 1: a little bit. What do you think I'm gonna ask 643 00:33:26,480 --> 00:33:28,959 Speaker 1: this question in a little bit of a skewed way. 644 00:33:29,520 --> 00:33:34,400 Speaker 1: What do you think are potential risks that much of 645 00:33:34,600 --> 00:33:40,360 Speaker 1: either the investor class or the economist class might be overlooking. Well, 646 00:33:40,400 --> 00:33:42,640 Speaker 1: I think that the sort of the number one organic 647 00:33:42,720 --> 00:33:44,480 Speaker 1: risk that we spoke about earlier is that there's some 648 00:33:44,560 --> 00:33:48,240 Speaker 1: upside risk to inflation. You can then say we economics 649 00:33:48,240 --> 00:33:50,320 Speaker 1: profession and also the fet have been crying both all 650 00:33:50,360 --> 00:33:52,240 Speaker 1: these years and inflation, why should it come now? So 651 00:33:52,320 --> 00:33:54,800 Speaker 1: maybe there's some uncertainty about that risk, but that too 652 00:33:54,880 --> 00:33:57,400 Speaker 1: also other risks that I think are very important. First 653 00:33:57,440 --> 00:34:00,920 Speaker 1: of all, the fiscal expansion requires lot of net issuance 654 00:34:00,920 --> 00:34:04,840 Speaker 1: of treasuries. And if you expand the amount of safe 655 00:34:04,920 --> 00:34:07,680 Speaker 1: assets in the world, if you expand the amount of 656 00:34:07,960 --> 00:34:12,400 Speaker 1: treasuries that are outstanding, you are basically beginning to compete 657 00:34:12,600 --> 00:34:16,239 Speaker 1: with the risk free asset with more risky assets. This 658 00:34:16,320 --> 00:34:18,440 Speaker 1: is exactly what we're seeing in some sense with the 659 00:34:18,440 --> 00:34:21,000 Speaker 1: T bill issuance that's competing with light BOLB, that's competing 660 00:34:21,000 --> 00:34:24,080 Speaker 1: with commercial paper, probably even competing with I G. That 661 00:34:24,160 --> 00:34:27,319 Speaker 1: if you suddenly offer to investors a lot more risk 662 00:34:27,400 --> 00:34:30,520 Speaker 1: free assets, meaning assets that have basically no risk associated 663 00:34:30,560 --> 00:34:33,680 Speaker 1: with them, in this case US treasuries, then investors will 664 00:34:33,680 --> 00:34:35,640 Speaker 1: of course, I would rather have a risk free asset 665 00:34:35,960 --> 00:34:38,000 Speaker 1: rather than have a risky acid with a credit risk 666 00:34:38,040 --> 00:34:40,319 Speaker 1: that has the worst credit rating. So the more that 667 00:34:40,360 --> 00:34:43,200 Speaker 1: the amount of risk free assets is expanded, the higher 668 00:34:43,280 --> 00:34:45,520 Speaker 1: ist the risk that investors will start to pick risk 669 00:34:45,560 --> 00:34:47,359 Speaker 1: free as is right to risky as. It may sound 670 00:34:47,440 --> 00:34:49,840 Speaker 1: very abstract, but what It means, in very practical terms, 671 00:34:50,000 --> 00:34:52,880 Speaker 1: is that if the U. S. Government needs to essentially 672 00:34:52,920 --> 00:34:56,279 Speaker 1: double the issuance of treasuries over the next eighteen months, 673 00:34:56,440 --> 00:34:58,480 Speaker 1: which is what is in the pipeline from two seventeen 674 00:34:58,480 --> 00:35:02,480 Speaker 1: two nineteen, the risks associated with that for risky acids 675 00:35:02,520 --> 00:35:06,600 Speaker 1: meaning i g. High yield loans, clos even mortgages. The 676 00:35:06,680 --> 00:35:09,240 Speaker 1: risk for those fixed income ass' is begin to increase 677 00:35:09,520 --> 00:35:12,720 Speaker 1: simply because there will be a crowding out of other 678 00:35:12,880 --> 00:35:15,400 Speaker 1: spread product fixed in commem asces readily to what's happening 679 00:35:15,400 --> 00:35:19,160 Speaker 1: in treasuries. There has been a line of thought that's 680 00:35:19,200 --> 00:35:23,239 Speaker 1: existed for a while that suggests there's been a shortage 681 00:35:23,719 --> 00:35:27,279 Speaker 1: of high quality sovereign debt over the past ten or 682 00:35:27,280 --> 00:35:30,960 Speaker 1: twenty years. Isn't this new set of issuance kind of 683 00:35:31,000 --> 00:35:34,920 Speaker 1: getting back to a more normal supply, And that seems 684 00:35:34,960 --> 00:35:39,640 Speaker 1: to be a theme normalizing rates, normalizing inflation, and normalizing 685 00:35:39,920 --> 00:35:44,279 Speaker 1: sovereign treasury supply. Absolutely, But think about it. Let's say 686 00:35:44,280 --> 00:35:46,759 Speaker 1: that the you and I were a pension fund or 687 00:35:46,960 --> 00:35:50,200 Speaker 1: an insurance company, and we have been begging for high 688 00:35:50,280 --> 00:35:53,359 Speaker 1: interest rates for many many years. Now, high interest rates 689 00:35:53,360 --> 00:35:56,279 Speaker 1: suddenly begin to appear because tenure. Treasury rates have moved 690 00:35:56,320 --> 00:35:59,160 Speaker 1: up modestly the consensus. If you look at your Bloomberg screen, 691 00:35:59,160 --> 00:36:01,879 Speaker 1: you'll see consensus expected to move through three later this year. 692 00:36:02,400 --> 00:36:05,160 Speaker 1: All this suggests that if the risk free assets suddenly 693 00:36:05,160 --> 00:36:07,799 Speaker 1: gives a high return, then the question becomes, well, how 694 00:36:07,800 --> 00:36:10,800 Speaker 1: does that crowd out the willingness to invest in investment 695 00:36:10,880 --> 00:36:13,480 Speaker 1: grade credit and other risk here assets. And therefore the 696 00:36:13,560 --> 00:36:15,920 Speaker 1: risk is in my view that yes, it's true that 697 00:36:15,960 --> 00:36:19,080 Speaker 1: we need to see some normalization. But in two thousands seven, 698 00:36:19,160 --> 00:36:22,840 Speaker 1: in round numbers, total US government dead was around nine trillion, 699 00:36:23,480 --> 00:36:25,800 Speaker 1: and we are going towards that the total amount of 700 00:36:25,840 --> 00:36:28,520 Speaker 1: government dead outstanding will be twenty one trillion, Meaning we 701 00:36:28,600 --> 00:36:32,000 Speaker 1: have expanded dramatically over the last decade the amount of 702 00:36:32,000 --> 00:36:34,400 Speaker 1: treasury is outstanding, and that's beginning again to compete. And 703 00:36:34,440 --> 00:36:36,960 Speaker 1: this is where you really will test the market. This 704 00:36:37,040 --> 00:36:39,759 Speaker 1: is really I m F Page one. Is there enough 705 00:36:39,800 --> 00:36:42,919 Speaker 1: demand for U? S treasuries? Will we get into some 706 00:36:44,200 --> 00:36:45,879 Speaker 1: so of course this is a bit extreme, but we'll 707 00:36:45,880 --> 00:36:48,959 Speaker 1: get into some situation like Venezuela or Zimbabwe or other 708 00:36:49,000 --> 00:36:54,080 Speaker 1: emerging markets where you certainly have problems financing your government finances. Obviously, 709 00:36:54,120 --> 00:36:56,600 Speaker 1: the US will nowhere near any of the problems that 710 00:36:56,600 --> 00:36:59,239 Speaker 1: many emerging markets have. But you really are beginning to 711 00:36:59,280 --> 00:37:01,840 Speaker 1: ask em s questions to the US, namean, what happens 712 00:37:01,840 --> 00:37:05,840 Speaker 1: to countries that expand the fiscal situation as much as 713 00:37:05,840 --> 00:37:07,680 Speaker 1: the US has been doing. What happens with the credit rating, 714 00:37:07,840 --> 00:37:09,520 Speaker 1: what happens to the exchange rate with the dollar go 715 00:37:09,600 --> 00:37:12,240 Speaker 1: down mall, what happens to interest rates, and what happens 716 00:37:12,239 --> 00:37:14,399 Speaker 1: for that matter, politically when you have a situation where 717 00:37:14,400 --> 00:37:17,920 Speaker 1: you're something needs to have such an incredible increase in 718 00:37:18,000 --> 00:37:20,399 Speaker 1: financing needs, and if you have a recession, of course 719 00:37:20,440 --> 00:37:22,480 Speaker 1: the financing needs will go up because then we also 720 00:37:22,560 --> 00:37:24,480 Speaker 1: need to pay more on unemployment. But if it's etcetera. 721 00:37:24,600 --> 00:37:26,799 Speaker 1: So so the short answer to your question is that 722 00:37:27,280 --> 00:37:29,840 Speaker 1: it's true that you want to see some normalization in 723 00:37:30,480 --> 00:37:33,239 Speaker 1: treasury issues and for that matter, and treasury yields, But 724 00:37:33,719 --> 00:37:36,480 Speaker 1: that normalization is now coming at the same time while 725 00:37:36,520 --> 00:37:38,359 Speaker 1: we're doing a big expansion, which I think is at 726 00:37:38,360 --> 00:37:41,040 Speaker 1: a very significant risk to financial markets over the coming quarters. 727 00:37:41,160 --> 00:37:44,960 Speaker 1: So earlier you referenced um possibility of a trade war. 728 00:37:45,480 --> 00:37:50,279 Speaker 1: Let's let's discuss these tariffs and and that issue. Lots 729 00:37:50,280 --> 00:37:52,800 Speaker 1: of folks have looked at these new tariffs on steel 730 00:37:52,840 --> 00:37:56,360 Speaker 1: and aluminum, and uh, the arguments back and forth with China, 731 00:37:57,160 --> 00:38:00,680 Speaker 1: almost as if it's a big surprise. But come on, 732 00:38:00,760 --> 00:38:06,560 Speaker 1: let's be honest. Then, Candidate Trump campaigned on protectionism. His 733 00:38:06,640 --> 00:38:11,160 Speaker 1: whole slogan, make America First, every whistle stop was We're 734 00:38:11,160 --> 00:38:13,440 Speaker 1: gonna erect tariffs, and we're gonna get rid of NAFTA, 735 00:38:13,440 --> 00:38:17,720 Speaker 1: and we're gonna throw out all of these trade agreements. Um, 736 00:38:18,280 --> 00:38:21,520 Speaker 1: can we really say we're surprised and we know this 737 00:38:21,560 --> 00:38:25,360 Speaker 1: process takes like a year to implement. Can we really 738 00:38:25,440 --> 00:38:30,239 Speaker 1: say the markets are surprised by a president who campaigned 739 00:38:30,239 --> 00:38:33,719 Speaker 1: on this, talked about it consistently, still talks about it constantly, 740 00:38:34,120 --> 00:38:36,640 Speaker 1: actually did what he said he was gonna do. I 741 00:38:36,680 --> 00:38:39,160 Speaker 1: completely agree with what you're saying. It's not a surprise 742 00:38:39,200 --> 00:38:43,920 Speaker 1: in the sense that globalization has been benefiting tremendously people 743 00:38:43,960 --> 00:38:47,440 Speaker 1: in China and Mexico and emerging markets because they benefited 744 00:38:47,440 --> 00:38:50,440 Speaker 1: tremendously from a more open use economy and a more global, 745 00:38:50,560 --> 00:38:54,360 Speaker 1: open trading system. You also saw tremendous benefits to consumers 746 00:38:54,400 --> 00:38:56,799 Speaker 1: and US living in the US who buy goods and 747 00:38:56,880 --> 00:38:59,560 Speaker 1: people in Europe who buy goods, and you saw cheaper 748 00:38:59,560 --> 00:39:01,600 Speaker 1: goods that what you who had ever seen before on 749 00:39:01,640 --> 00:39:04,800 Speaker 1: so many different fronts basically anywhere in anything that you 750 00:39:04,880 --> 00:39:07,200 Speaker 1: bought in the good spectrum. But what we also need 751 00:39:07,239 --> 00:39:09,439 Speaker 1: to recognize, and this, of course, what's very important part 752 00:39:09,600 --> 00:39:11,880 Speaker 1: of this, is that there were certainly some people in 753 00:39:11,920 --> 00:39:15,160 Speaker 1: West Virginia and in Pennsylvania and Ohio who basically lost 754 00:39:15,200 --> 00:39:18,439 Speaker 1: out because they didn't produce these goods anymore, they didn't 755 00:39:18,440 --> 00:39:21,840 Speaker 1: produce steal anymore. And this is what this political process 756 00:39:22,440 --> 00:39:26,560 Speaker 1: is now telling us and what we're going through. How 757 00:39:26,600 --> 00:39:29,040 Speaker 1: do you put up on the scale the benefits that 758 00:39:29,360 --> 00:39:31,799 Speaker 1: you might have had from cheaper goods and someone in 759 00:39:31,880 --> 00:39:33,720 Speaker 1: China who got a job because they had to produce 760 00:39:33,760 --> 00:39:38,480 Speaker 1: goods for us buying stuff redditive to the unfortunate situation 761 00:39:38,560 --> 00:39:41,200 Speaker 1: that many people in the US and in Europe lost 762 00:39:41,680 --> 00:39:46,040 Speaker 1: their jobs because of open trade and because of globalization. 763 00:39:46,480 --> 00:39:51,279 Speaker 1: So it's in some sense not a surprise that we've 764 00:39:51,320 --> 00:39:54,319 Speaker 1: gotten to where we are, and that's of course the 765 00:39:54,320 --> 00:39:57,560 Speaker 1: main problem that the politicians are struggling with. How do 766 00:39:57,600 --> 00:40:00,200 Speaker 1: we compensate those who lost out in the shame of 767 00:40:00,239 --> 00:40:02,440 Speaker 1: globalization in Europe and in the US and how do 768 00:40:02,520 --> 00:40:04,719 Speaker 1: we make sure that they don't fall through now that 769 00:40:04,800 --> 00:40:07,239 Speaker 1: we have gotten to a point where it looks like 770 00:40:07,280 --> 00:40:10,200 Speaker 1: it's point of no return. But politicians are doing everything 771 00:40:10,200 --> 00:40:12,040 Speaker 1: they can, not only the US but also in Europe 772 00:40:12,160 --> 00:40:16,279 Speaker 1: to try to find some solutions to making sure that 773 00:40:16,400 --> 00:40:18,960 Speaker 1: those who lost out in the global trading system that 774 00:40:19,040 --> 00:40:21,400 Speaker 1: was so open and benefiting so much in cheaper goods, 775 00:40:21,920 --> 00:40:24,720 Speaker 1: that that that was hurting them so much. I recently 776 00:40:24,719 --> 00:40:27,360 Speaker 1: had a conversation with someone who started their career in 777 00:40:27,360 --> 00:40:30,480 Speaker 1: the nineteen seventies, and I had to ask them, how 778 00:40:30,520 --> 00:40:35,480 Speaker 1: did that period scar them? In terms of uh inflation 779 00:40:35,840 --> 00:40:39,479 Speaker 1: and you know, low returns in the stock market and 780 00:40:39,920 --> 00:40:43,680 Speaker 1: spiking interest rates. So you started your career at least 781 00:40:43,680 --> 00:40:47,120 Speaker 1: on Wall Street, right in the midst of what would 782 00:40:47,200 --> 00:40:49,600 Speaker 1: later turn out to be a credit bubble and a 783 00:40:49,640 --> 00:40:53,040 Speaker 1: housing collapse. How has that colored your view of the 784 00:40:53,080 --> 00:40:56,640 Speaker 1: world or or has it not? Yeah, I would say 785 00:40:56,640 --> 00:40:58,960 Speaker 1: that going through now, having spent most of my time 786 00:40:59,719 --> 00:41:04,160 Speaker 1: on the street um in a period of crisis or 787 00:41:04,160 --> 00:41:06,759 Speaker 1: basically a period of trying to figure out what was 788 00:41:06,800 --> 00:41:08,880 Speaker 1: wrong with the economics textbook, what was wrong with the 789 00:41:08,920 --> 00:41:11,200 Speaker 1: financial system, what was wrong with the way that we 790 00:41:11,239 --> 00:41:14,920 Speaker 1: analyze things and why didn't why couldn't we predict this better? Um, 791 00:41:16,040 --> 00:41:19,520 Speaker 1: we did in Deutche Bank have a number of warning 792 00:41:19,560 --> 00:41:22,640 Speaker 1: pieces out ahead of the crisis, but the reality is 793 00:41:22,719 --> 00:41:26,600 Speaker 1: that there was really nobody anywhere who predicted this crisis 794 00:41:26,640 --> 00:41:28,799 Speaker 1: would be coming in, particularly not the force and the 795 00:41:28,840 --> 00:41:31,319 Speaker 1: magnitude of what actually happened. So a lot of the 796 00:41:31,360 --> 00:41:34,279 Speaker 1: way that we think about things, and a lot of 797 00:41:34,280 --> 00:41:37,520 Speaker 1: their agenda for how we think about things and how 798 00:41:37,600 --> 00:41:40,160 Speaker 1: we try to help clients think about what's going on 799 00:41:40,680 --> 00:41:44,520 Speaker 1: is very much colored by the fact that they there 800 00:41:44,719 --> 00:41:48,439 Speaker 1: cannot be as stone unturned. We have to make sure 801 00:41:48,480 --> 00:41:51,680 Speaker 1: that we lift every area, that we cover every base, 802 00:41:52,080 --> 00:41:55,719 Speaker 1: so we are actually absolutely sure that there's nothing in 803 00:41:55,880 --> 00:41:58,400 Speaker 1: terms of risks that we are missing out over the 804 00:41:58,440 --> 00:42:00,799 Speaker 1: waall that has also created, i mean, let's just say, 805 00:42:00,840 --> 00:42:03,719 Speaker 1: the way it is in markets, a much more stressed situation. 806 00:42:03,760 --> 00:42:05,839 Speaker 1: Also on the bye side, because people are now seeing 807 00:42:05,880 --> 00:42:09,879 Speaker 1: crisis everywhere constantly, someone is saying, oh my god, there's 808 00:42:09,880 --> 00:42:12,319 Speaker 1: something happening over here, and we've got to make sure 809 00:42:12,360 --> 00:42:15,120 Speaker 1: that this is not turning everything down and creating an 810 00:42:15,120 --> 00:42:18,440 Speaker 1: next recession. The older, the old expression is every general 811 00:42:18,520 --> 00:42:20,480 Speaker 1: fights the last war. And that's so true. And I 812 00:42:20,520 --> 00:42:22,839 Speaker 1: don't know how many times over the last ten years, 813 00:42:23,120 --> 00:42:25,240 Speaker 1: essentially the two thousand nine when we left the recession, 814 00:42:25,560 --> 00:42:27,560 Speaker 1: I have not received emails from clients saying, oh, the 815 00:42:27,600 --> 00:42:30,040 Speaker 1: next recess is just around the corner, And it wasn't 816 00:42:30,280 --> 00:42:32,200 Speaker 1: And now we're sitting here, well maybe you shouldn't. And 817 00:42:32,200 --> 00:42:34,440 Speaker 1: this is a really important invest in implications of in 818 00:42:34,440 --> 00:42:36,160 Speaker 1: my view of how you should think about things today, 819 00:42:36,239 --> 00:42:39,319 Speaker 1: is that the risks of overheating today are much higher 820 00:42:39,320 --> 00:42:41,640 Speaker 1: than the risk of recession, most importantly because of the 821 00:42:41,719 --> 00:42:44,799 Speaker 1: significant tail when from the fiscal expansion. So yes, we're 822 00:42:44,800 --> 00:42:47,040 Speaker 1: still watching, and to your question, we're still watching a 823 00:42:47,080 --> 00:42:49,480 Speaker 1: lot of different risks and I think we need as 824 00:42:49,480 --> 00:42:52,520 Speaker 1: investors to constantly monitor everything that's going on. But that's 825 00:42:52,560 --> 00:42:56,239 Speaker 1: just also created that much more confusing environment where we 826 00:42:56,360 --> 00:42:59,840 Speaker 1: just in some cases just don't have whatsoever any toolbox 827 00:42:59,880 --> 00:43:02,200 Speaker 1: for understanding that type of risk. We have been speaking 828 00:43:02,200 --> 00:43:05,600 Speaker 1: with Torsten Slack. He is the chief international economist for 829 00:43:05,640 --> 00:43:09,560 Speaker 1: Deutsche Bank Securities. If you enjoy this conversation, be sure 830 00:43:09,560 --> 00:43:12,640 Speaker 1: and check out the podcast extras, where we keep the 831 00:43:12,680 --> 00:43:17,520 Speaker 1: tape rolling and continue discussing all things economic wonkery. You 832 00:43:17,560 --> 00:43:22,320 Speaker 1: can find those wherever finer podcasts are sold iTunes, Bloomberg 833 00:43:22,400 --> 00:43:26,239 Speaker 1: dot com or overcast. We love your comments, feedback and 834 00:43:26,360 --> 00:43:30,839 Speaker 1: suggestions right to us at m IB podcast at Bloomberg 835 00:43:30,880 --> 00:43:34,040 Speaker 1: dot net. Be sure and check out my daily column 836 00:43:34,080 --> 00:43:36,720 Speaker 1: on Bloomberg dot com. You can follow me on Twitter 837 00:43:37,239 --> 00:43:41,120 Speaker 1: at rit Halts. I'm Barry Hults. You're listening to Masters 838 00:43:41,120 --> 00:43:58,160 Speaker 1: in Business on Bloomberg Radio. Welcome to the podcast, Torsten. 839 00:43:58,200 --> 00:43:59,719 Speaker 1: Thank you so much for doing this. I've been I've 840 00:43:59,719 --> 00:44:03,080 Speaker 1: been look and forward to having this conversation. I've mentioned 841 00:44:03,280 --> 00:44:05,240 Speaker 1: I'm a fan of your research. I have to figure 842 00:44:05,239 --> 00:44:07,600 Speaker 1: out a way with the new miffed rules, I'm only 843 00:44:07,600 --> 00:44:09,239 Speaker 1: getting some of it now. I have to figure out 844 00:44:09,280 --> 00:44:14,000 Speaker 1: a way to get back on the full Um, the 845 00:44:14,080 --> 00:44:18,359 Speaker 1: full plan. We'll talk about that afterwards. I have so 846 00:44:18,400 --> 00:44:22,640 Speaker 1: many questions, but I only have so much time. UM, 847 00:44:22,719 --> 00:44:24,719 Speaker 1: so let me let me choose the ones that I 848 00:44:24,760 --> 00:44:30,320 Speaker 1: think are really worthwhile. UM, tell us about your favorite 849 00:44:30,320 --> 00:44:35,000 Speaker 1: economic indicator. What do you think is most important? And 850 00:44:35,000 --> 00:44:37,239 Speaker 1: then I'll ask you what's most underrated? And what's what 851 00:44:37,360 --> 00:44:41,080 Speaker 1: what's most overrated? So I think the I M has 852 00:44:41,320 --> 00:44:46,400 Speaker 1: historically proven to be the highest correlation with GDP, so 853 00:44:46,520 --> 00:44:49,439 Speaker 1: I would say that from despite that is only every month, 854 00:44:49,520 --> 00:44:51,040 Speaker 1: it's a long time to go and wait for another 855 00:44:51,040 --> 00:44:53,880 Speaker 1: economic indicator. That's the definity at the top of the list, 856 00:44:54,320 --> 00:44:56,680 Speaker 1: of course, non fine payrolls and how many jobs were 857 00:44:56,719 --> 00:44:59,279 Speaker 1: creating and what the on plan right is doing is 858 00:44:59,320 --> 00:45:02,320 Speaker 1: a close I can in terms of the employment report 859 00:45:02,360 --> 00:45:04,799 Speaker 1: just has a wealth of information about what's going on 860 00:45:04,840 --> 00:45:07,120 Speaker 1: in the economy and what sextors are doing better, what 861 00:45:07,200 --> 00:45:09,719 Speaker 1: sextus are doing worse. So not the headline numbers, but 862 00:45:09,800 --> 00:45:12,000 Speaker 1: what's beneath the head I think there's more value. So 863 00:45:12,040 --> 00:45:13,759 Speaker 1: the headline has some value, but I think it has 864 00:45:13,760 --> 00:45:16,160 Speaker 1: more value underneath in terms of informing you about where 865 00:45:16,239 --> 00:45:20,040 Speaker 1: is the US economy going. And a third and finally indicator, 866 00:45:20,040 --> 00:45:22,120 Speaker 1: of course is the thing that we worry most about 867 00:45:22,120 --> 00:45:25,319 Speaker 1: at the moment, amy various indicators of inflation, specifically co PC, 868 00:45:25,880 --> 00:45:28,440 Speaker 1: which is the first preferred mention of inflation, because that 869 00:45:28,480 --> 00:45:32,239 Speaker 1: tells you are the indicators we spoke about first name 870 00:45:32,360 --> 00:45:35,520 Speaker 1: I S M unemployment, are they overheating? Do we need 871 00:45:35,560 --> 00:45:38,600 Speaker 1: more stimulus? Where are we in the business cycle? And 872 00:45:38,840 --> 00:45:40,719 Speaker 1: informing you about where you are in the cycle turns 873 00:45:40,719 --> 00:45:43,040 Speaker 1: out to be quite important. So from a pure macro perspective, 874 00:45:43,360 --> 00:45:45,680 Speaker 1: those we three areas and the three indicators that we 875 00:45:45,760 --> 00:45:48,160 Speaker 1: look most at. What do you think is an indicator 876 00:45:48,200 --> 00:45:51,919 Speaker 1: that people rely on too much and is probably overrated? Well, 877 00:45:51,960 --> 00:45:54,120 Speaker 1: I think that they. I mean there's a number of 878 00:45:54,160 --> 00:45:56,960 Speaker 1: things that people pay a lot of attention to. I 879 00:45:56,960 --> 00:46:03,040 Speaker 1: mean one area at least, the general is speaking where 880 00:46:03,080 --> 00:46:07,239 Speaker 1: people pay maybe too much attention, as jobless claims. Some 881 00:46:07,320 --> 00:46:11,080 Speaker 1: indicators like jobless claims are really derived of how many 882 00:46:11,080 --> 00:46:13,920 Speaker 1: people show up, which is what jobless claims measures. A 883 00:46:13,920 --> 00:46:15,920 Speaker 1: new jobless claims is how many people show up at 884 00:46:15,920 --> 00:46:19,120 Speaker 1: the unemployment office this week and ask for claims for 885 00:46:19,120 --> 00:46:22,440 Speaker 1: the first time. As that is that affected by weather, 886 00:46:22,560 --> 00:46:24,719 Speaker 1: is that affected by holidays? Many things drives to that. 887 00:46:24,840 --> 00:46:27,320 Speaker 1: But I mean the general trend and that is generally helpful. 888 00:46:27,360 --> 00:46:32,239 Speaker 1: But I still think that it does get a good 889 00:46:32,280 --> 00:46:34,319 Speaker 1: deal of attention, mainly because it's high frequency. But I 890 00:46:34,320 --> 00:46:37,160 Speaker 1: still think that it doesn't have anywhere near the amount 891 00:46:37,160 --> 00:46:40,160 Speaker 1: of wealth of information that you get in the employment report. 892 00:46:40,239 --> 00:46:42,200 Speaker 1: So I'm willing to wait for another month to see 893 00:46:42,200 --> 00:46:44,719 Speaker 1: where the economy is. Maybe it's just my long term 894 00:46:44,719 --> 00:46:47,200 Speaker 1: patience as an economy is relative to someone who is 895 00:46:47,200 --> 00:46:51,920 Speaker 1: managing money. So so let's talk about equities a little bit. Um. 896 00:46:51,960 --> 00:46:56,279 Speaker 1: You mentioned, uh, you look in the world as a 897 00:46:56,320 --> 00:47:01,080 Speaker 1: continuous cycle. Where are we in the mark cycle? Yeah, 898 00:47:01,080 --> 00:47:04,680 Speaker 1: so it's clear that first of all, the business cycle 899 00:47:04,760 --> 00:47:08,640 Speaker 1: is indeed getting old. The problem with that argument is 900 00:47:08,680 --> 00:47:11,359 Speaker 1: that the business side doesn't run on the clock. It's 901 00:47:11,360 --> 00:47:14,520 Speaker 1: not the case that after six years or ten years, 902 00:47:14,520 --> 00:47:16,719 Speaker 1: then the business side starts to die out. For the 903 00:47:16,760 --> 00:47:19,239 Speaker 1: business i ecle to slow down, you need some imbalanced 904 00:47:19,280 --> 00:47:23,320 Speaker 1: to roll over, and the normal three imbalances that starts 905 00:47:23,480 --> 00:47:25,600 Speaker 1: recessions and starts the business sidus will slow down and 906 00:47:25,600 --> 00:47:27,840 Speaker 1: therefore starts to have a big impact on equities. Is 907 00:47:27,880 --> 00:47:30,600 Speaker 1: either because we have too much consumption or because we 908 00:47:30,640 --> 00:47:34,200 Speaker 1: have too much capics meaning imbalances the consumption, imbalances in 909 00:47:34,320 --> 00:47:37,680 Speaker 1: capics or imbalances in financial markets. And if you look 910 00:47:37,719 --> 00:47:40,320 Speaker 1: at consumption at the moment, we don't really have much imbalance. 911 00:47:40,400 --> 00:47:43,000 Speaker 1: In the contrary, we really don't understand why consumption is 912 00:47:43,000 --> 00:47:46,000 Speaker 1: still on the more weak side. Likewise, with topics and 913 00:47:46,000 --> 00:47:48,959 Speaker 1: business fixed investment meaning private investment for companies, we don't 914 00:47:48,960 --> 00:47:52,560 Speaker 1: really have imbalances there either. And finally, for financial markets, 915 00:47:52,600 --> 00:47:55,480 Speaker 1: the big question, which essentially what you're asking about, is 916 00:47:55,480 --> 00:47:58,160 Speaker 1: do we have imbalances and equities to have imbalances in 917 00:47:58,320 --> 00:48:00,400 Speaker 1: rates to having busances in credit, or do we have 918 00:48:00,440 --> 00:48:03,680 Speaker 1: imbalances in effects. Generally speaking, I think the answer to 919 00:48:03,719 --> 00:48:05,759 Speaker 1: that is no, and I think that the fact that 920 00:48:05,760 --> 00:48:08,520 Speaker 1: we've got a huge fiscal tale with more recently suggest 921 00:48:08,560 --> 00:48:10,879 Speaker 1: that we should see solid GDP growth for the rest 922 00:48:10,880 --> 00:48:12,920 Speaker 1: of this year. We should see solid consumption growth for 923 00:48:12,960 --> 00:48:15,160 Speaker 1: the rest of this year. We should see solid capex 924 00:48:15,200 --> 00:48:18,440 Speaker 1: growth because capics also got incentivized by the designer of 925 00:48:18,440 --> 00:48:22,040 Speaker 1: the fiscal package to also grow continuously. So the answer 926 00:48:22,040 --> 00:48:24,839 Speaker 1: to your question is that we still think equities will 927 00:48:24,880 --> 00:48:27,320 Speaker 1: do well. We still think rates will slowly go higher, 928 00:48:27,360 --> 00:48:30,480 Speaker 1: the FED will gradually high rates. We think because of 929 00:48:30,480 --> 00:48:33,040 Speaker 1: all these problems we spoke about earlier with trade, because 930 00:48:33,040 --> 00:48:36,640 Speaker 1: of some of the issues generally on the reads, the 931 00:48:36,760 --> 00:48:38,840 Speaker 1: value of of assets in the U S. And we 932 00:48:38,880 --> 00:48:41,920 Speaker 1: do think the dollar will go down, but the generally speaking, 933 00:48:42,280 --> 00:48:45,680 Speaker 1: equities should continue to do well. The Peero show got 934 00:48:45,760 --> 00:48:48,680 Speaker 1: some adjustment more recently do the downside, so there's definitely 935 00:48:48,680 --> 00:48:50,880 Speaker 1: still more room for equities to rise from here, mainly 936 00:48:50,920 --> 00:48:53,719 Speaker 1: because the economy is not about to answer research and 937 00:48:53,800 --> 00:48:55,920 Speaker 1: if anything, the risks are that they can the economy 938 00:48:56,000 --> 00:48:59,200 Speaker 1: is about to overheat. So I heard trade wars are 939 00:48:59,200 --> 00:49:01,160 Speaker 1: a good thing and they're easy to win. I don't 940 00:49:01,200 --> 00:49:03,600 Speaker 1: recall where I read that, but I read that somewhere recently. 941 00:49:04,040 --> 00:49:06,600 Speaker 1: How how true is that? And what does the trade 942 00:49:06,600 --> 00:49:09,640 Speaker 1: war with China or a possible trade war with China, 943 00:49:10,120 --> 00:49:13,439 Speaker 1: what what might that mean? The risk from a market 944 00:49:13,480 --> 00:49:17,080 Speaker 1: perspective is really interesting because a trade war is putting 945 00:49:17,120 --> 00:49:20,800 Speaker 1: on essentially higher prices on either things that you import 946 00:49:21,120 --> 00:49:23,480 Speaker 1: or higher prices on things that you export if the 947 00:49:24,000 --> 00:49:26,440 Speaker 1: in this case, the Chinese retaliate. But think about what 948 00:49:26,520 --> 00:49:29,200 Speaker 1: that means. That means first of all, that if prices 949 00:49:29,200 --> 00:49:31,319 Speaker 1: of things that you import start to go up, and 950 00:49:31,320 --> 00:49:33,919 Speaker 1: if you don't know where they're going, then what does 951 00:49:33,960 --> 00:49:38,680 Speaker 1: the whole question become for corporates is well, what does 952 00:49:38,719 --> 00:49:40,759 Speaker 1: the playing feel look like in the future, What are 953 00:49:40,760 --> 00:49:42,719 Speaker 1: the prices of my inputs? What are the prices of 954 00:49:42,719 --> 00:49:45,640 Speaker 1: the products I'm selling? What kind of inputs can I buy? 955 00:49:45,760 --> 00:49:47,799 Speaker 1: And kind of substitute for things that might have gone 956 00:49:47,840 --> 00:49:52,040 Speaker 1: up because of terrorists? Coming in, So the uncertainty associated 957 00:49:52,080 --> 00:49:56,200 Speaker 1: with we don't know which kinds of terrorists are coming next, 958 00:49:56,480 --> 00:49:58,280 Speaker 1: and even if we do know the list of terrorists 959 00:49:58,320 --> 00:50:00,520 Speaker 1: that already are coming, we don't know what they italiation 960 00:50:00,560 --> 00:50:04,560 Speaker 1: will be. And all that is probably for companies, meaning 961 00:50:04,600 --> 00:50:06,720 Speaker 1: that they're holding back with a little bit with hiring, 962 00:50:06,960 --> 00:50:09,320 Speaker 1: holding back a little bit with investment as a result 963 00:50:09,320 --> 00:50:11,759 Speaker 1: of uncertainty. What does the playing feel look like for 964 00:50:11,800 --> 00:50:14,120 Speaker 1: me as I plan ahead as a corporate? So the 965 00:50:14,200 --> 00:50:18,040 Speaker 1: downside to trade wars really is that equities and particularly 966 00:50:18,040 --> 00:50:22,360 Speaker 1: equity names when it comes to airplanes, cars, soybeans, you 967 00:50:22,440 --> 00:50:26,920 Speaker 1: suddenly have very specific names in equities that benefit and 968 00:50:26,920 --> 00:50:29,880 Speaker 1: some who doesn't benefit. So from an equity perspective, it 969 00:50:29,880 --> 00:50:33,200 Speaker 1: makes sense that equities go down when trade wars come in. 970 00:50:33,520 --> 00:50:36,040 Speaker 1: But what's also important about that is that remember that 971 00:50:36,120 --> 00:50:40,360 Speaker 1: the size of terrorist is about fifty and total imports 972 00:50:40,360 --> 00:50:42,680 Speaker 1: in the US is about two point two trillion, So 973 00:50:42,719 --> 00:50:46,200 Speaker 1: the total magnitude of terrorists actually ratively small from macro perspective, 974 00:50:46,239 --> 00:50:48,680 Speaker 1: So that's probably why rates haven't moved. That's probably also 975 00:50:48,719 --> 00:50:51,480 Speaker 1: why and some says the dollar hasn't moved as much 976 00:50:51,640 --> 00:50:55,000 Speaker 1: simply because rates really don't move much because it's only 977 00:50:55,040 --> 00:50:57,400 Speaker 1: the macro economic conditions that would have to change for 978 00:50:57,480 --> 00:50:59,640 Speaker 1: race to move. So it makes sense in my view 979 00:51:00,080 --> 00:51:04,080 Speaker 1: in summary, that equities are not liking trade walls, whereas 980 00:51:04,440 --> 00:51:06,680 Speaker 1: you're not really seeing much movement on the rates front. 981 00:51:06,680 --> 00:51:08,759 Speaker 1: Meeting interest rates really haven't moved much because the macro 982 00:51:08,880 --> 00:51:11,399 Speaker 1: impact of terrifs is probably going to be racively small. 983 00:51:11,719 --> 00:51:15,000 Speaker 1: And you mentioned earlier that PE ratios are coming down, 984 00:51:15,200 --> 00:51:18,879 Speaker 1: which makes me ask, we're at pretty much record high 985 00:51:19,000 --> 00:51:23,640 Speaker 1: corporate profits. Is that sustainable? Why are profits so high? 986 00:51:24,000 --> 00:51:26,960 Speaker 1: How much of it should be credited to really low 987 00:51:27,040 --> 00:51:31,200 Speaker 1: borrowing costs. What do you see the future of corporate 988 00:51:31,280 --> 00:51:34,600 Speaker 1: profits are looking like over the next couple of quarters. Yeah, 989 00:51:35,000 --> 00:51:38,160 Speaker 1: Companies have become extremely efficient in so many ways since 990 00:51:38,200 --> 00:51:41,160 Speaker 1: the financial crisis, and we have seen significant amounts of 991 00:51:41,160 --> 00:51:43,600 Speaker 1: cost cutting, which has been a very important part of 992 00:51:43,600 --> 00:51:46,480 Speaker 1: why they have becomes so efficient, so across sectors in 993 00:51:46,480 --> 00:51:51,000 Speaker 1: the s increased efficiency in the form of cost cutting 994 00:51:51,320 --> 00:51:55,200 Speaker 1: basically making things more lean and mean and generally more competitive, 995 00:51:55,239 --> 00:51:59,160 Speaker 1: both domestically Newest but also globally have certainly benefited corporate 996 00:51:59,160 --> 00:52:01,680 Speaker 1: America tremendously. So a very important first angwer to your 997 00:52:01,719 --> 00:52:03,920 Speaker 1: question is that costs have come down and companies have 998 00:52:04,000 --> 00:52:07,319 Speaker 1: become more efficient. So looking ahead, of course now with 999 00:52:07,400 --> 00:52:09,680 Speaker 1: the tail wind of the Trump text cut that we 1000 00:52:09,760 --> 00:52:13,239 Speaker 1: got in December for corporates, that's gonna boost earnings even 1001 00:52:13,280 --> 00:52:17,040 Speaker 1: more so if we from the In fact, we just 1002 00:52:17,040 --> 00:52:20,160 Speaker 1: saw that in in a lot of the early earnings 1003 00:52:20,200 --> 00:52:22,040 Speaker 1: that have been released over the past few weeks makes 1004 00:52:22,040 --> 00:52:26,880 Speaker 1: complete sense. Big surprise like I wasn't expecting a upside 1005 00:52:26,920 --> 00:52:30,600 Speaker 1: surprise for Bank of America, or there's a hand the 1006 00:52:30,680 --> 00:52:32,759 Speaker 1: financial seems to be doing well. A number of other 1007 00:52:32,800 --> 00:52:36,600 Speaker 1: companies seem to um be doing much better than expected, 1008 00:52:36,719 --> 00:52:39,839 Speaker 1: and a lot of that goes to the the new 1009 00:52:39,880 --> 00:52:42,640 Speaker 1: lower corporate rate. Absolutely very because we just lowered the 1010 00:52:42,719 --> 00:52:48,040 Speaker 1: corporate race to from thirty five at a high level 1011 00:52:48,080 --> 00:52:50,919 Speaker 1: that we just had been struggling with for many years. 1012 00:52:51,280 --> 00:52:53,919 Speaker 1: So in that sense, we've gotten into a situation where 1013 00:52:53,960 --> 00:52:57,520 Speaker 1: corporates are both benefiting from being incredibly efficient and lean 1014 00:52:57,880 --> 00:53:00,480 Speaker 1: and now also getting a huge tail wind from higher 1015 00:53:00,480 --> 00:53:02,759 Speaker 1: profits and on top of that, of course repatriation and 1016 00:53:02,800 --> 00:53:06,000 Speaker 1: incentivizing them to invest. So the key conclusion is earning 1017 00:53:06,000 --> 00:53:08,120 Speaker 1: his growth to continue to be strong at least for 1018 00:53:08,160 --> 00:53:10,920 Speaker 1: the rest of this year. Wow, that that's quite a statement. 1019 00:53:10,920 --> 00:53:14,399 Speaker 1: All right, let me jump to my favorite questions. Uh, 1020 00:53:14,440 --> 00:53:17,239 Speaker 1: these are what we ask all of our guests and 1021 00:53:18,600 --> 00:53:21,399 Speaker 1: it creates a sort of interesting frame of reference when 1022 00:53:21,400 --> 00:53:25,759 Speaker 1: we look across a variety of different people. So what's 1023 00:53:25,800 --> 00:53:32,120 Speaker 1: the most important thing that most people don't know about you? Um? Well, 1024 00:53:32,160 --> 00:53:34,799 Speaker 1: one very important secret to what I do is that 1025 00:53:34,840 --> 00:53:37,359 Speaker 1: we have a team in India that actually produces all 1026 00:53:37,400 --> 00:53:41,680 Speaker 1: the charts and all the work that I do. Business perspective, 1027 00:53:42,440 --> 00:53:45,880 Speaker 1: this has been extremely efficient and extremely helpful. When I 1028 00:53:45,920 --> 00:53:48,080 Speaker 1: go to bed every evening, I think about what should 1029 00:53:48,080 --> 00:53:50,560 Speaker 1: the chat be, what should I write about tomorrow? I 1030 00:53:50,600 --> 00:53:52,640 Speaker 1: send an email to the team in India, and when 1031 00:53:52,640 --> 00:53:54,239 Speaker 1: I wake up and look at my phone and I 1032 00:53:54,280 --> 00:53:56,560 Speaker 1: see the chat right there. In most cases it looks perfect. 1033 00:53:56,560 --> 00:53:58,080 Speaker 1: In some cases I need to work a little bit more. 1034 00:53:58,160 --> 00:54:00,799 Speaker 1: But when I get to the office is really right there, 1035 00:54:01,440 --> 00:54:03,880 Speaker 1: ready to send out. And that's, at least from a 1036 00:54:03,880 --> 00:54:08,360 Speaker 1: business perspective, something that has been incredibly helpful and very efficient. 1037 00:54:08,520 --> 00:54:10,399 Speaker 1: That they work in a different time zone. Are these 1038 00:54:10,440 --> 00:54:13,719 Speaker 1: are these things done? Are these economists, data analysts or 1039 00:54:13,880 --> 00:54:16,200 Speaker 1: chart people or everything? Five people on our team and 1040 00:54:16,239 --> 00:54:18,839 Speaker 1: they have master's degree in economics. We even have people 1041 00:54:18,880 --> 00:54:21,480 Speaker 1: that have PSD in economics from the Daily School of Economics, 1042 00:54:21,520 --> 00:54:24,080 Speaker 1: and they are incredibly helpful. So if they're listening here, 1043 00:54:24,120 --> 00:54:26,840 Speaker 1: thank you very much. Guys. It's hugely appreciated what you 1044 00:54:26,880 --> 00:54:29,120 Speaker 1: do every day. That that's what I did not know 1045 00:54:29,160 --> 00:54:32,400 Speaker 1: that about you, and that's quite fascinating. Um, tell us 1046 00:54:32,440 --> 00:54:38,440 Speaker 1: about your mentors who helped shape your career. So, I 1047 00:54:38,480 --> 00:54:42,799 Speaker 1: mean your adviser, if on on the PSD thesis would 1048 00:54:42,800 --> 00:54:44,640 Speaker 1: always be someone who is very important in my case 1049 00:54:44,960 --> 00:54:47,560 Speaker 1: professor and Copenhagen called Nils Tigison. But when I came 1050 00:54:47,600 --> 00:54:50,840 Speaker 1: to Princeton, of course I got hugely inspired by Ken Rogoff. 1051 00:54:51,360 --> 00:54:55,200 Speaker 1: Also I didn't communicate much with Ben Bananke, but a 1052 00:54:55,280 --> 00:54:58,439 Speaker 1: number of the prince and professors where just the way 1053 00:54:58,480 --> 00:55:00,319 Speaker 1: that they spoke about things and the way that they 1054 00:55:00,320 --> 00:55:04,080 Speaker 1: discuss things that most importantly very generally speaking. And now 1055 00:55:04,120 --> 00:55:06,520 Speaker 1: I may offend someone in Europe, but in Europe a 1056 00:55:06,600 --> 00:55:10,279 Speaker 1: lot of the PSD economics programs are fairly theoretical and 1057 00:55:10,320 --> 00:55:12,640 Speaker 1: conceptual and live their own life in models that are 1058 00:55:12,960 --> 00:55:17,239 Speaker 1: somewhat disconnected from the data, whereas in USPSD programs. The 1059 00:55:17,280 --> 00:55:20,200 Speaker 1: effort is constantly to try to make it relevant. In 1060 00:55:20,239 --> 00:55:22,480 Speaker 1: many cases you don't succeed, but at least you try 1061 00:55:22,520 --> 00:55:25,240 Speaker 1: constantly to plug it into what is exactly the problem 1062 00:55:25,239 --> 00:55:28,000 Speaker 1: that you see on your Bloomberg screen, on your Bloomberg website, 1063 00:55:28,000 --> 00:55:30,600 Speaker 1: and how can I try to understand these things better. 1064 00:55:30,960 --> 00:55:34,560 Speaker 1: So those people, including people also at the i m 1065 00:55:34,680 --> 00:55:37,640 Speaker 1: F Mike Mussa and a guy called Fleming Lassen who 1066 00:55:37,640 --> 00:55:39,560 Speaker 1: have been also very helpful, and of course at the 1067 00:55:39,600 --> 00:55:42,319 Speaker 1: Deutsche Pink Pink each other and day before Atlanta, have 1068 00:55:42,400 --> 00:55:46,520 Speaker 1: really been very informative for me in terms of how 1069 00:55:46,520 --> 00:55:49,160 Speaker 1: do you succeed and how do you adjust whatever you're 1070 00:55:49,160 --> 00:55:52,440 Speaker 1: doing to be more successful and refine your own skills 1071 00:55:52,440 --> 00:55:54,560 Speaker 1: and constantly learn and get better and better at what 1072 00:55:54,600 --> 00:55:58,160 Speaker 1: you do. What about investors who influence influenced your thought 1073 00:55:58,160 --> 00:56:02,279 Speaker 1: processes about the markets? So the issue is that in 1074 00:56:02,360 --> 00:56:05,719 Speaker 1: my job I have about four client meetings every year, 1075 00:56:06,080 --> 00:56:08,040 Speaker 1: so I sit down and discuss the outlook and also 1076 00:56:08,040 --> 00:56:11,440 Speaker 1: on conference calls with people every day constantly, both in 1077 00:56:11,480 --> 00:56:14,560 Speaker 1: the US, Europe, Asia, Latin America, so I meet a 1078 00:56:14,560 --> 00:56:16,839 Speaker 1: lot of very very smart people also people that are 1079 00:56:16,840 --> 00:56:19,279 Speaker 1: not known at all. Some people want to fly under 1080 00:56:19,280 --> 00:56:22,080 Speaker 1: the radar screen. So that's a number because they don't 1081 00:56:22,120 --> 00:56:26,200 Speaker 1: They don't have any ambition in terms of getting even 1082 00:56:26,239 --> 00:56:28,319 Speaker 1: on the front pit of any Wall Street journal of 1083 00:56:28,400 --> 00:56:31,319 Speaker 1: that matter, on as a top story in Bloomberg. They 1084 00:56:31,360 --> 00:56:33,120 Speaker 1: basically want to be very good at what they do 1085 00:56:33,280 --> 00:56:35,279 Speaker 1: and they want to discuss these things that are going on. 1086 00:56:35,640 --> 00:56:39,600 Speaker 1: But that's a number of people who shall remain unnamed 1087 00:56:40,239 --> 00:56:43,319 Speaker 1: in the investment community who are extremely skilled, including at 1088 00:56:43,520 --> 00:56:46,440 Speaker 1: a number of hedge funds, and of course most importantly 1089 00:56:46,480 --> 00:56:49,319 Speaker 1: here in Manhattan and in London, who are really really 1090 00:56:49,320 --> 00:56:51,919 Speaker 1: good at what they do, but just just have very 1091 00:56:51,920 --> 00:56:55,520 Speaker 1: little ambition in terms of becoming public names. Totally understandable. 1092 00:56:56,080 --> 00:56:58,360 Speaker 1: Let's talk about books. What are your favorite books, be 1093 00:56:58,440 --> 00:57:02,040 Speaker 1: they finance non finance, fiction non fiction. What are you 1094 00:57:02,080 --> 00:57:04,279 Speaker 1: reading now and what have you really enjoyed reading in 1095 00:57:04,280 --> 00:57:06,279 Speaker 1: the past. Well, one book that humped me a lot 1096 00:57:06,400 --> 00:57:10,759 Speaker 1: was Super Forecasting by Tetlow, who basically told you that 1097 00:57:10,800 --> 00:57:14,160 Speaker 1: you gotta update your prize and update your forecast constantly, 1098 00:57:14,600 --> 00:57:17,480 Speaker 1: which is also again in a a humbling experience, because that 1099 00:57:17,840 --> 00:57:20,200 Speaker 1: is basically telling you that you've gotta revise constantly as 1100 00:57:20,200 --> 00:57:24,040 Speaker 1: new information comes in what your forecast is. Sometimes it's 1101 00:57:24,080 --> 00:57:27,560 Speaker 1: tempting for seal side analysts to just have a forecast 1102 00:57:27,600 --> 00:57:30,320 Speaker 1: and stick with that for a long long time. But 1103 00:57:30,760 --> 00:57:33,960 Speaker 1: as investors and again helping customers, think about what will 1104 00:57:34,000 --> 00:57:36,720 Speaker 1: equities do well. I can't just walk around and say, oh, 1105 00:57:36,760 --> 00:57:38,880 Speaker 1: equities will go up, and then play golf for twelve 1106 00:57:38,880 --> 00:57:40,280 Speaker 1: months and come back and see if they went up 1107 00:57:40,360 --> 00:57:44,680 Speaker 1: or down. I gotta have constant evaluation, constant thinking every day, 1108 00:57:45,040 --> 00:57:47,280 Speaker 1: what is the reasons why I'm right? What are the 1109 00:57:47,280 --> 00:57:49,800 Speaker 1: reasons that have come in today why I'm wrong? So 1110 00:57:50,320 --> 00:57:54,120 Speaker 1: books around forecasting and books around what's happening on, how 1111 00:57:54,120 --> 00:57:57,360 Speaker 1: do you refine your forecasting skills? It turns out to 1112 00:57:57,400 --> 00:57:59,720 Speaker 1: be very very important. At least that's been very important 1113 00:57:59,760 --> 00:58:02,720 Speaker 1: spy for me. Any of the books, anything else you 1114 00:58:02,720 --> 00:58:05,280 Speaker 1: want to mention. Unfortunately I don't have as much time 1115 00:58:05,600 --> 00:58:08,360 Speaker 1: to read the fiction as I really wanted to. But 1116 00:58:09,560 --> 00:58:11,320 Speaker 1: I would say that that's the main thing that I've 1117 00:58:11,400 --> 00:58:12,960 Speaker 1: been and and of course I spent a lot of 1118 00:58:12,960 --> 00:58:16,919 Speaker 1: time reading newspapers and again Bloomberg stories and everything that's 1119 00:58:16,920 --> 00:58:19,720 Speaker 1: going on, but it's not as much as I I 1120 00:58:19,760 --> 00:58:21,880 Speaker 1: wish I used to read the Kicker Guard, which as 1121 00:58:21,920 --> 00:58:24,240 Speaker 1: you know, is a very important Danius philosopher. But sure 1122 00:58:24,240 --> 00:58:26,080 Speaker 1: I haven't done that then now for a little while. 1123 00:58:26,360 --> 00:58:28,680 Speaker 1: But sometimes it is important to think really hard about 1124 00:58:28,680 --> 00:58:30,360 Speaker 1: what is it that we do, you and I in 1125 00:58:30,360 --> 00:58:33,000 Speaker 1: our finance industry, and think about what is it exactly 1126 00:58:33,000 --> 00:58:35,680 Speaker 1: the psychology behind what we're doing, because it is really 1127 00:58:35,680 --> 00:58:38,640 Speaker 1: not rocket science. It really is just stories that come around. 1128 00:58:38,680 --> 00:58:41,520 Speaker 1: And as those stories come around, the question becomes how 1129 00:58:41,560 --> 00:58:43,520 Speaker 1: important is this story? Why is this story getting so 1130 00:58:43,600 --> 00:58:46,440 Speaker 1: much weight? And the stories come and go. Sometimes it 1131 00:58:46,520 --> 00:58:48,320 Speaker 1: is important to lean back and think about what is 1132 00:58:48,360 --> 00:58:50,640 Speaker 1: the story? And it's almost sounds like fiction, But what 1133 00:58:50,760 --> 00:58:52,959 Speaker 1: is the story that we're telling each other at the moment. 1134 00:58:52,960 --> 00:58:54,920 Speaker 1: What are the questions that we're asking each other and 1135 00:58:54,920 --> 00:58:58,400 Speaker 1: those other things that get the most attention. That's that's fascinating. 1136 00:58:58,600 --> 00:59:02,120 Speaker 1: One of the things that I'm was impressed with in 1137 00:59:02,160 --> 00:59:07,960 Speaker 1: the Tetlock book is questioning what your assumptions are and 1138 00:59:08,040 --> 00:59:11,600 Speaker 1: questioning what you already know that might apply to figuring 1139 00:59:11,640 --> 00:59:14,440 Speaker 1: out um some sort of forecast. As you know, and 1140 00:59:14,520 --> 00:59:16,920 Speaker 1: some of your former guests have also said that the 1141 00:59:17,520 --> 00:59:21,000 Speaker 1: most significant skill you can have as a market participant 1142 00:59:21,480 --> 00:59:25,440 Speaker 1: is that you gotta be willing to change your mind. Absolutely, 1143 00:59:25,480 --> 00:59:27,760 Speaker 1: and if you just stick to a view this is 1144 00:59:27,800 --> 00:59:30,320 Speaker 1: so tempting, both as a sales side analyst and also 1145 00:59:30,320 --> 00:59:31,960 Speaker 1: on the buy side. Stick to you that something is 1146 00:59:31,960 --> 00:59:33,960 Speaker 1: going up, It's gotta go up, it's gotta go up. 1147 00:59:34,160 --> 00:59:36,680 Speaker 1: If it's not happening, you've gotta back down and say 1148 00:59:36,680 --> 00:59:38,560 Speaker 1: this is not happening. I gotta revise and I gotta 1149 00:59:38,640 --> 00:59:41,000 Speaker 1: change my mind why this is not going on? So 1150 00:59:41,200 --> 00:59:43,200 Speaker 1: what excites you right now? What are you looking at 1151 00:59:43,200 --> 00:59:47,080 Speaker 1: in the world and saying this is just amazing, Well, 1152 00:59:47,200 --> 00:59:49,440 Speaker 1: one of the other than inflation, which we've spoken about 1153 00:59:49,440 --> 00:59:52,280 Speaker 1: now at great length. And I do still think that 1154 00:59:52,360 --> 00:59:55,720 Speaker 1: this very broad concept of what is it that we 1155 00:59:55,840 --> 00:59:58,280 Speaker 1: just have been through? If you really take a cup 1156 00:59:58,320 --> 00:59:59,960 Speaker 1: of coffee and sit in your chair, as you all 1157 01:00:00,040 --> 01:00:02,080 Speaker 1: ways say, and think hard about what is it that 1158 01:00:02,080 --> 01:00:03,800 Speaker 1: we've been through in terms of what central banks have 1159 01:00:03,880 --> 01:00:06,880 Speaker 1: been doing? What is the endgame to this? And I 1160 01:00:06,920 --> 01:00:09,160 Speaker 1: know it sounds very fluffy and like hot air arm 1161 01:00:09,240 --> 01:00:11,200 Speaker 1: wavy stuff to say, what do you mean by endgame? 1162 01:00:11,600 --> 01:00:14,760 Speaker 1: But how do we get out of easy money? How 1163 01:00:14,760 --> 01:00:17,280 Speaker 1: can they fit race interest rates? What are the implication 1164 01:00:17,320 --> 01:00:19,760 Speaker 1: of these distortions that were made by negative insust rates 1165 01:00:19,760 --> 01:00:21,960 Speaker 1: in the your area, which should never have happened, that 1166 01:00:22,080 --> 01:00:25,400 Speaker 1: created an enormous amount of distortions. How can we reverse this? 1167 01:00:25,720 --> 01:00:28,400 Speaker 1: And can we just snapping around and say, okay, you 1168 01:00:28,400 --> 01:00:30,320 Speaker 1: know what, we'll just go to positive industrates and we'll 1169 01:00:30,320 --> 01:00:33,600 Speaker 1: just stop doing quee or will there be more profound implications? 1170 01:00:33,840 --> 01:00:35,960 Speaker 1: So I spent a lot of time at a very 1171 01:00:36,520 --> 01:00:39,320 Speaker 1: thirty feet level thinking about what what are the implications 1172 01:00:39,320 --> 01:00:41,240 Speaker 1: in terms of the exit? And how should I think 1173 01:00:41,240 --> 01:00:43,440 Speaker 1: about acid classes? What was docs do? What race do? 1174 01:00:43,480 --> 01:00:45,800 Speaker 1: What will effects do as we get closer to the exit, 1175 01:00:45,840 --> 01:00:47,560 Speaker 1: when the easy p will be raising race next year 1176 01:00:47,720 --> 01:00:49,800 Speaker 1: and the BOG ultimately also will be raising rates. What 1177 01:00:49,800 --> 01:00:52,160 Speaker 1: would the new economy, meaning what would the economy and 1178 01:00:52,160 --> 01:00:54,600 Speaker 1: the global financial market picture look like on the other 1179 01:00:54,600 --> 01:00:56,720 Speaker 1: side of that exit. That is a really difficult question 1180 01:00:57,360 --> 01:01:00,240 Speaker 1: and quite fascinating. Tell us about a time time you 1181 01:01:00,360 --> 01:01:04,960 Speaker 1: failed and what you learned from the experience. So this 1182 01:01:05,040 --> 01:01:10,320 Speaker 1: is really tough. But I mean anyone of course, who 1183 01:01:10,960 --> 01:01:14,880 Speaker 1: not only in the financial service industry, but anyone who 1184 01:01:15,080 --> 01:01:17,560 Speaker 1: works hard and works in what you and I do 1185 01:01:17,680 --> 01:01:19,960 Speaker 1: very well. Of course, at some point realize, well, there's 1186 01:01:19,960 --> 01:01:22,600 Speaker 1: only twenty four hours a day. So you come to 1187 01:01:22,640 --> 01:01:25,040 Speaker 1: the conclusion, am I spending too much work on the 1188 01:01:25,120 --> 01:01:27,480 Speaker 1: right things? Should I be working as much as I do? 1189 01:01:27,520 --> 01:01:30,720 Speaker 1: Should I be working harder? So everything that has to 1190 01:01:30,760 --> 01:01:34,280 Speaker 1: do and what I have done in my career with 1191 01:01:34,480 --> 01:01:37,560 Speaker 1: the right work life balance. And I have been through 1192 01:01:39,000 --> 01:01:43,080 Speaker 1: a number of different jobs who have seen a number 1193 01:01:43,120 --> 01:01:45,280 Speaker 1: of different things. At the O c D and the 1194 01:01:45,320 --> 01:01:48,240 Speaker 1: I m F, things were relatively slow paced and you 1195 01:01:48,360 --> 01:01:49,840 Speaker 1: had a lot of time to think about things. So 1196 01:01:49,880 --> 01:01:53,800 Speaker 1: there's a different set of problems in terms of how 1197 01:01:53,840 --> 01:01:56,720 Speaker 1: you spend your time and what you do. For the 1198 01:01:56,800 --> 01:02:00,160 Speaker 1: last two or thirteen years in the job I have today, 1199 01:02:00,200 --> 01:02:02,200 Speaker 1: it's tempting to say this guy is the limit. I 1200 01:02:02,240 --> 01:02:04,520 Speaker 1: can travel around the world and do something twenty five 1201 01:02:04,560 --> 01:02:08,680 Speaker 1: hours a day, But I would say the failure would 1202 01:02:08,720 --> 01:02:11,000 Speaker 1: be and what I also have done myself is that 1203 01:02:11,040 --> 01:02:15,560 Speaker 1: if you spend too much time on your job and 1204 01:02:15,840 --> 01:02:18,160 Speaker 1: too little time on other things, which can be and 1205 01:02:18,320 --> 01:02:20,960 Speaker 1: I'm not the only talking about family and and spouse 1206 01:02:21,040 --> 01:02:25,680 Speaker 1: and children likewise, but also on friends and sports and 1207 01:02:25,800 --> 01:02:28,200 Speaker 1: doing things that are fun. It's very important and one 1208 01:02:28,280 --> 01:02:31,680 Speaker 1: very important lesson that has taken me some time to learn. 1209 01:02:31,720 --> 01:02:33,560 Speaker 1: Is that you've gotta have a balanced life. It's not 1210 01:02:33,600 --> 01:02:36,160 Speaker 1: only a balanced diet, but also a balanced life in 1211 01:02:36,240 --> 01:02:38,800 Speaker 1: terms of what do I think is fun? Because I 1212 01:02:38,840 --> 01:02:41,320 Speaker 1: love talking about inflation, on employment and markets. But I 1213 01:02:41,360 --> 01:02:44,160 Speaker 1: can't do that like you and we have these conversations often, 1214 01:02:44,200 --> 01:02:46,440 Speaker 1: you and I, but we can't do that like all 1215 01:02:46,520 --> 01:02:48,560 Speaker 1: day long. You've got to do other things and sometimes 1216 01:02:49,440 --> 01:02:52,080 Speaker 1: you also gotta go and I play soccer once a 1217 01:02:52,080 --> 01:02:55,160 Speaker 1: week on Brooklyn Bridge Pre five. That was my next question. 1218 01:02:55,200 --> 01:02:57,280 Speaker 1: So what do you do for fun? I tried to 1219 01:02:57,480 --> 01:03:00,360 Speaker 1: have fun with some good friends and go and do 1220 01:03:00,440 --> 01:03:04,440 Speaker 1: something else just freshen your mind. You're playing full contact 1221 01:03:04,520 --> 01:03:08,120 Speaker 1: soccer once a week. Yeah, so it is. We're completely hopeless, 1222 01:03:08,400 --> 01:03:10,280 Speaker 1: but it is fun and where we played to win, 1223 01:03:10,320 --> 01:03:13,520 Speaker 1: I should say that, But but it is to get 1224 01:03:13,560 --> 01:03:15,880 Speaker 1: some exercise, to hang out with some good friends and 1225 01:03:15,920 --> 01:03:17,800 Speaker 1: get to do something else that I think is a 1226 01:03:17,800 --> 01:03:21,040 Speaker 1: lot of fun other than just otherwise. I mean, I'm 1227 01:03:21,040 --> 01:03:23,200 Speaker 1: not kidding. I get emails seven I wake up in 1228 01:03:23,240 --> 01:03:25,080 Speaker 1: the morning. I respond to emails from people in Asia 1229 01:03:25,080 --> 01:03:27,400 Speaker 1: and Europe. We want to discuss things. Sometimes I just 1230 01:03:27,440 --> 01:03:30,320 Speaker 1: respond with a sentence or two. But that constant flow. 1231 01:03:30,400 --> 01:03:33,640 Speaker 1: You could look at your phone literally seven and that's 1232 01:03:33,680 --> 01:03:36,600 Speaker 1: just no end to to how many people want to 1233 01:03:36,640 --> 01:03:38,600 Speaker 1: talk about whether inflation is going up, whether the fit 1234 01:03:38,640 --> 01:03:40,400 Speaker 1: were high rates, or whether the dollar is going down. 1235 01:03:40,760 --> 01:03:43,320 Speaker 1: So for a recent college grad or a millennial came 1236 01:03:43,400 --> 01:03:46,440 Speaker 1: up to you and said, I'm thinking about pursuing a 1237 01:03:46,520 --> 01:03:49,640 Speaker 1: career in economics, what sort of advice might you give them? 1238 01:03:49,720 --> 01:03:53,800 Speaker 1: I would say, which would be general career advice, not 1239 01:03:53,840 --> 01:03:57,200 Speaker 1: only for economics. You've gotta get good at something that 1240 01:03:57,240 --> 01:04:00,760 Speaker 1: you are just really good at. Once you're really good, 1241 01:04:00,800 --> 01:04:03,640 Speaker 1: like you at investing, once you're really good at whatever, 1242 01:04:03,880 --> 01:04:06,000 Speaker 1: if it's playing saga, Once you're really good at a 1243 01:04:06,040 --> 01:04:08,640 Speaker 1: certain type of economics, then you just got to figure 1244 01:04:08,680 --> 01:04:11,520 Speaker 1: out how can I translate this skill into something that 1245 01:04:12,160 --> 01:04:14,440 Speaker 1: I both find its interesting but also someone else might 1246 01:04:14,480 --> 01:04:17,880 Speaker 1: find valuable. I could sit in my chair and close 1247 01:04:17,960 --> 01:04:20,480 Speaker 1: my door and say, oh, I'm so smart, you can 1248 01:04:20,520 --> 01:04:22,680 Speaker 1: ask me any question. But if I didn't get out 1249 01:04:22,680 --> 01:04:25,080 Speaker 1: on the dance floor myself and try to reach out 1250 01:04:25,120 --> 01:04:29,240 Speaker 1: to people and talk about things and discustings and have 1251 01:04:29,320 --> 01:04:31,400 Speaker 1: an approach of saying, let me be open minded to 1252 01:04:31,840 --> 01:04:33,320 Speaker 1: what it is that I'm good at and how I 1253 01:04:33,360 --> 01:04:38,080 Speaker 1: can maneuver at in a changing world, then I wouldn't 1254 01:04:38,080 --> 01:04:41,520 Speaker 1: be doing well. So the answer to your question is, 1255 01:04:41,880 --> 01:04:44,640 Speaker 1: as as again difficult as it is to respond directly 1256 01:04:44,680 --> 01:04:48,280 Speaker 1: to that kind of discussion, is still find out what 1257 01:04:48,280 --> 01:04:51,000 Speaker 1: you're really good at and do that really, really well, 1258 01:04:51,160 --> 01:04:53,760 Speaker 1: and then find out who can use the skill. How 1259 01:04:53,800 --> 01:04:55,880 Speaker 1: can I get this skill translated into something that I 1260 01:04:55,960 --> 01:04:57,720 Speaker 1: think it's fun for the rest of my life, and 1261 01:04:57,760 --> 01:05:00,080 Speaker 1: also that others might be willing to even pay me 1262 01:05:00,080 --> 01:05:02,840 Speaker 1: a salary form? And then lastly, what is it that 1263 01:05:02,880 --> 01:05:08,520 Speaker 1: you know about the world of markets, economics, investing today 1264 01:05:08,560 --> 01:05:11,640 Speaker 1: that you wish you knew twenty plus years or so 1265 01:05:11,680 --> 01:05:14,640 Speaker 1: ago when you first started your career. I think that 1266 01:05:14,760 --> 01:05:19,520 Speaker 1: they on the financial crisis, I wish I had understood 1267 01:05:19,560 --> 01:05:23,880 Speaker 1: better in two thousand eight and nine the significant importance 1268 01:05:24,080 --> 01:05:27,240 Speaker 1: of what the central banks were doing. In other words, 1269 01:05:27,280 --> 01:05:30,360 Speaker 1: asset prizes for the last since two thousand nine, for 1270 01:05:30,400 --> 01:05:33,400 Speaker 1: the last nine years in particular, including also equities, but 1271 01:05:33,480 --> 01:05:37,120 Speaker 1: rates in particular have been driven very, very importantly by 1272 01:05:37,160 --> 01:05:39,640 Speaker 1: central bank action, which is why this issue of the 1273 01:05:39,680 --> 01:05:43,080 Speaker 1: exit becomes so important. So I wish that I had 1274 01:05:43,120 --> 01:05:46,000 Speaker 1: spent less time, if you will, on my old school 1275 01:05:46,000 --> 01:05:49,640 Speaker 1: economic sex books and has spent more time reading literally 1276 01:05:49,720 --> 01:05:52,080 Speaker 1: Rokov's books. This time is different because this time is 1277 01:05:52,120 --> 01:05:54,880 Speaker 1: not different. This was exactly the same thing. What's difference 1278 01:05:55,200 --> 01:05:58,480 Speaker 1: was that the sheer size of easing, the sheer size 1279 01:05:58,480 --> 01:06:00,400 Speaker 1: of money printing that central banks were winning to throw 1280 01:06:00,440 --> 01:06:03,880 Speaker 1: at the system just happened to be absolutely, by far 1281 01:06:03,960 --> 01:06:06,920 Speaker 1: the most important driver of stock prices, interest rates, and 1282 01:06:07,040 --> 01:06:09,720 Speaker 1: exchange rates for a very very long period. And that's 1283 01:06:09,760 --> 01:06:12,880 Speaker 1: what we're exiting now. And that's why that issue of 1284 01:06:13,000 --> 01:06:15,520 Speaker 1: the power of what central banks did, it turned out 1285 01:06:15,560 --> 01:06:18,320 Speaker 1: to be a much more significant drive off markets, and 1286 01:06:18,360 --> 01:06:22,200 Speaker 1: I wish I had appreciated that earlier. Quite quite fascinating. 1287 01:06:22,880 --> 01:06:25,520 Speaker 1: We have been speaking with Torsten Slock. He is the 1288 01:06:25,640 --> 01:06:30,600 Speaker 1: chief international economist at Deutsche Bank Securities. If you enjoy 1289 01:06:30,680 --> 01:06:33,000 Speaker 1: this conversation, be sure to look up an inch or 1290 01:06:33,040 --> 01:06:36,920 Speaker 1: down an inch on Apple iTunes or overcast Bloomberg dot 1291 01:06:37,000 --> 01:06:39,680 Speaker 1: com and you could see any of the other two 1292 01:06:39,760 --> 01:06:43,440 Speaker 1: hundred or so such interviews that we've conducted over the 1293 01:06:43,480 --> 01:06:48,760 Speaker 1: past four years. We love your comments, feedback and suggestions 1294 01:06:49,400 --> 01:06:53,800 Speaker 1: right to us at m IB podcast at Bloomberg dot net. 1295 01:06:54,360 --> 01:06:56,400 Speaker 1: I would be remiss if I did not thank the 1296 01:06:56,480 --> 01:07:00,280 Speaker 1: Crack staff who helps to put together this podcast each week. 1297 01:07:00,640 --> 01:07:03,640 Speaker 1: Michael bat Nick is my head of research. Taylor Riggs 1298 01:07:04,160 --> 01:07:09,800 Speaker 1: is my booker, producer Medina Parwana is our producer engineer. 1299 01:07:10,440 --> 01:07:14,000 Speaker 1: I'm Barry Ritults. You've been listening to Masters in Business 1300 01:07:14,280 --> 01:07:15,400 Speaker 1: on Bloomberg Radio.