1 00:00:00,080 --> 00:00:12,960 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jai Ley. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:34,479 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. The 5 00:00:34,479 --> 00:00:37,920 Speaker 1: big data point, the big trading queue for markets worldwide 6 00:00:37,920 --> 00:00:41,800 Speaker 1: comes in ninety minutes time. It's US inflation data, which 7 00:00:41,880 --> 00:00:44,839 Speaker 1: drops alongside US retail sales. And I'm really pleased to 8 00:00:44,880 --> 00:00:47,440 Speaker 1: walk us through it. We've got John Riding, the founder 9 00:00:47,479 --> 00:00:50,400 Speaker 1: of ourt Q Economics, with us around a table in 10 00:00:50,479 --> 00:00:53,400 Speaker 1: New York. Is it the most important inflation print ever? 11 00:00:53,479 --> 00:00:56,600 Speaker 1: John Riding in a word note, in a word note, 12 00:00:56,800 --> 00:01:00,800 Speaker 1: And honestly as concerned as I am in the medium 13 00:01:00,920 --> 00:01:05,240 Speaker 1: term about the inflation potential with trillion dollar fiscal deficits 14 00:01:05,280 --> 00:01:09,640 Speaker 1: and policy monitary policy is still too easy. This backup 15 00:01:09,680 --> 00:01:13,919 Speaker 1: in bond deals has not been primarily an inflation story. 16 00:01:14,360 --> 00:01:18,120 Speaker 1: We've moved up um five eighths of the move up 17 00:01:18,360 --> 00:01:22,040 Speaker 1: in bond heels has been on higher real yields, not 18 00:01:22,240 --> 00:01:25,200 Speaker 1: on inflation break even. As an inflation break evens is 19 00:01:25,240 --> 00:01:28,720 Speaker 1: still below the Fed's inflation target at two point eight 20 00:01:28,760 --> 00:01:33,640 Speaker 1: percent on cp I. So the story, the story that 21 00:01:33,640 --> 00:01:35,880 Speaker 1: this this whole problems in the market has been this 22 00:01:36,120 --> 00:01:39,479 Speaker 1: fear about inflation. To me, it seems fundamentally wrong. And 23 00:01:39,560 --> 00:01:43,199 Speaker 1: therefore and and the number this morning, you know, probably 24 00:01:43,160 --> 00:01:48,520 Speaker 1: show inflation receding slightly because of difficult comparisons in January 25 00:01:48,520 --> 00:01:50,440 Speaker 1: of last year. Some people are just reflecting on the 26 00:01:50,440 --> 00:01:52,600 Speaker 1: payrolls number of a couple of weeks ago and saying 27 00:01:52,600 --> 00:01:54,600 Speaker 1: that that's the thing that started all of this, the 28 00:01:54,640 --> 00:01:58,480 Speaker 1: wage figure that came in above expectations. Right now, you know, 29 00:01:58,520 --> 00:02:02,400 Speaker 1: it's funny because everyone's been asking for higher wages. But 30 00:02:02,560 --> 00:02:07,640 Speaker 1: we have been for two years outlining the arithmetic that 31 00:02:07,720 --> 00:02:12,839 Speaker 1: if you have higher wages without faster productivity growth, that 32 00:02:12,880 --> 00:02:16,040 Speaker 1: creates cost issues for companies that if they don't get 33 00:02:16,120 --> 00:02:20,360 Speaker 1: higher pricing a k a. Higher inflation, their profit margins 34 00:02:20,360 --> 00:02:22,320 Speaker 1: will be squeezed and that will be a problem for 35 00:02:22,360 --> 00:02:24,840 Speaker 1: the equity market. At Saint A toom earlier, we're in 36 00:02:24,840 --> 00:02:29,200 Speaker 1: the midst of writing that last Monday, between paragraph three 37 00:02:29,200 --> 00:02:32,520 Speaker 1: and paragraph for the equity market drop points on the 38 00:02:33,000 --> 00:02:36,960 Speaker 1: on the doubt, yes, higher wages is maybe a problem 39 00:02:37,000 --> 00:02:40,040 Speaker 1: for the market, but that doesn't necessarily mean higher inflation, 40 00:02:40,040 --> 00:02:44,000 Speaker 1: and we have to break the two things apart. Higher 41 00:02:44,040 --> 00:02:46,440 Speaker 1: wages are a problem for the equity market if not 42 00:02:46,520 --> 00:02:50,040 Speaker 1: accompanied by higher productivity growth. So let's walk through the 43 00:02:50,040 --> 00:02:52,080 Speaker 1: way the market is position right now ahead of the 44 00:02:52,160 --> 00:02:55,040 Speaker 1: numbers a little bit later. Is this a market that's 45 00:02:55,080 --> 00:02:58,040 Speaker 1: more primed over the last couple of weeks for potential 46 00:02:58,040 --> 00:03:00,799 Speaker 1: inflation surprises or if we're not seen adjustment that many 47 00:03:00,800 --> 00:03:03,919 Speaker 1: people think we have. I think I don't think we're 48 00:03:03,919 --> 00:03:06,440 Speaker 1: gonna get an inflation and surprise, but if we were, 49 00:03:06,840 --> 00:03:09,600 Speaker 1: that would probably be an issue for the market. But 50 00:03:09,680 --> 00:03:12,200 Speaker 1: it turns out, you know, while we're getting a market, 51 00:03:12,280 --> 00:03:16,040 Speaker 1: it's good for economists, and you know, to have a 52 00:03:16,080 --> 00:03:18,760 Speaker 1: market that is actually responding to economic data at last, 53 00:03:18,760 --> 00:03:21,239 Speaker 1: which it hadn't done for years because for years that 54 00:03:21,560 --> 00:03:23,480 Speaker 1: we knew what the Fed was going to do, regardless 55 00:03:23,520 --> 00:03:27,280 Speaker 1: of the economic numbers, despite the lip service to data dependency, 56 00:03:27,440 --> 00:03:29,440 Speaker 1: the real numbers and the real position the matter, it 57 00:03:29,480 --> 00:03:33,519 Speaker 1: was positioning on volatility. And I think about volatility is 58 00:03:33,720 --> 00:03:35,560 Speaker 1: you know it's too low. You just don't know when 59 00:03:35,560 --> 00:03:38,400 Speaker 1: it's going to blow up. Okay, I'll go with that, 60 00:03:38,520 --> 00:03:40,880 Speaker 1: But you just said something really important. As we knew 61 00:03:40,920 --> 00:03:43,520 Speaker 1: what the FED would do, Does that imply that we 62 00:03:43,600 --> 00:03:46,240 Speaker 1: do not know what the FED will do now? Well, 63 00:03:46,280 --> 00:03:47,920 Speaker 1: I still think we know what the FED is going 64 00:03:47,960 --> 00:03:51,840 Speaker 1: to do at the March meeting. But if you were 65 00:03:51,960 --> 00:03:58,560 Speaker 1: truly data dependent, exactly depending, if you're dependant, you don't 66 00:03:58,560 --> 00:04:02,520 Speaker 1: know what the FED is going to do over this 67 00:04:02,640 --> 00:04:04,760 Speaker 1: year and next year because you don't know what the 68 00:04:04,880 --> 00:04:06,920 Speaker 1: data is going to be. If you know what the 69 00:04:06,920 --> 00:04:09,600 Speaker 1: FED is going to do, then they're not data dependent. 70 00:04:11,000 --> 00:04:12,760 Speaker 1: I still go back to you know, there's like those 71 00:04:12,800 --> 00:04:15,720 Speaker 1: three headlines of a given year. Yeah, one of those 72 00:04:15,760 --> 00:04:19,520 Speaker 1: headlines was Governor Kearney blinking at the Bank of England. 73 00:04:19,560 --> 00:04:22,000 Speaker 1: He just said, look, here's what we want to do, 74 00:04:22,040 --> 00:04:24,760 Speaker 1: but we can't do it because we're data dependent. But 75 00:04:24,839 --> 00:04:27,360 Speaker 1: let's be really clear about something. The reason that data 76 00:04:27,400 --> 00:04:29,320 Speaker 1: dependence didn't matter so much to the market and the 77 00:04:29,320 --> 00:04:32,039 Speaker 1: reason things were so predictable because the volatility of the 78 00:04:32,120 --> 00:04:36,719 Speaker 1: data was so low, The data itself was incredibly predictable. John, 79 00:04:36,760 --> 00:04:38,400 Speaker 1: and I think that's the difference as we come into 80 00:04:39,400 --> 00:04:41,680 Speaker 1: some people are starting to look at the data projections 81 00:04:42,480 --> 00:04:46,240 Speaker 1: and saying, this isn't as predictable as it was, and therefore, 82 00:04:46,680 --> 00:04:50,400 Speaker 1: as a consequence, federal reserve policy is also more unpredictable. 83 00:04:50,600 --> 00:04:53,280 Speaker 1: I don't think the data is anymore or less predictable 84 00:04:53,360 --> 00:04:55,880 Speaker 1: this year than last year. I actually think it's the 85 00:04:56,000 --> 00:04:59,760 Speaker 1: FED and a transition to a new FED chair and 86 00:05:00,080 --> 00:05:03,719 Speaker 1: bit of a more hawkish voting membership on the informency, 87 00:05:04,440 --> 00:05:08,599 Speaker 1: and we're moving into territory where we don't know what 88 00:05:08,760 --> 00:05:11,880 Speaker 1: the economic There's no accepted view about what happens when 89 00:05:11,960 --> 00:05:14,480 Speaker 1: you go to a trillion dollar deficit in a fully 90 00:05:14,520 --> 00:05:18,480 Speaker 1: employed economy with interest rates that are still that are 91 00:05:18,520 --> 00:05:21,039 Speaker 1: still low, and so people have revised and if used, 92 00:05:21,080 --> 00:05:23,960 Speaker 1: the few of the inflation stays low forever an interest 93 00:05:24,040 --> 00:05:28,080 Speaker 1: rates you can't go up very far? Is no? Were 94 00:05:28,080 --> 00:05:29,800 Speaker 1: the years you and I have known each other the 95 00:05:29,800 --> 00:05:32,240 Speaker 1: way that you invented the concept of the putting green 96 00:05:32,320 --> 00:05:35,200 Speaker 1: and the putting greens moved on the golf course. It's 97 00:05:35,240 --> 00:05:37,960 Speaker 1: almost like a par five in that I guess the 98 00:05:38,000 --> 00:05:41,120 Speaker 1: third or fourth shot is awfully important versus the first shot, 99 00:05:41,520 --> 00:05:46,080 Speaker 1: first shot. This is not linear. When does the quadratic nature, 100 00:05:46,160 --> 00:05:50,200 Speaker 1: the accelerative nature of these FED rate increases click in? 101 00:05:50,560 --> 00:05:52,320 Speaker 1: Is it this year or do we even have to 102 00:05:52,320 --> 00:05:55,640 Speaker 1: wait out to two thousand nineteen before the power of 103 00:05:55,680 --> 00:05:58,160 Speaker 1: their restriction clicks in. Well, I don't think the Fed 104 00:05:58,240 --> 00:06:02,320 Speaker 1: of titaned yet. If you lose a most indicators, including 105 00:06:02,360 --> 00:06:05,839 Speaker 1: the equity market, compared to what we were in December 106 00:06:05,880 --> 00:06:09,320 Speaker 1: of fifteen when the Fed made its first interest rate move, 107 00:06:10,080 --> 00:06:13,960 Speaker 1: then most indicators show greater financial ease. So the whole 108 00:06:14,040 --> 00:06:19,800 Speaker 1: point about raising rates is to make policy less accommodative, 109 00:06:20,000 --> 00:06:23,279 Speaker 1: to tighten if you like, and that has happened, so 110 00:06:23,920 --> 00:06:27,560 Speaker 1: you know, a tightening effect can't click in until policy 111 00:06:27,600 --> 00:06:31,240 Speaker 1: actually gets tighter. Is are they tightening in the United Kingdom? 112 00:06:31,440 --> 00:06:34,640 Speaker 1: I don't see it. They're starting to raise rates, they're 113 00:06:34,640 --> 00:06:38,400 Speaker 1: starting to normalize policies. It was a year. I mean 114 00:06:38,400 --> 00:06:40,480 Speaker 1: they've gone once, but if they go another two times 115 00:06:40,480 --> 00:06:43,720 Speaker 1: projected over the next to Alurn, arter Burns would say 116 00:06:43,760 --> 00:06:47,560 Speaker 1: we got five. But it depends what you define as tightening. 117 00:06:47,560 --> 00:06:51,200 Speaker 1: I think, for to John's point, they've hiked interest rates, 118 00:06:51,200 --> 00:06:55,599 Speaker 1: but financial conditions have not tightened. They've actually loosened, counterintuitively, 119 00:06:56,080 --> 00:06:57,880 Speaker 1: and John, I would just wonder whether this is a 120 00:06:57,960 --> 00:07:01,080 Speaker 1: year that that's a problem for Chairman Pal, whether actually 121 00:07:01,080 --> 00:07:02,719 Speaker 1: he wants to get interest rights out, but he also 122 00:07:02,760 --> 00:07:06,440 Speaker 1: wants to see financial conditions titan right, and I think so. 123 00:07:06,880 --> 00:07:09,720 Speaker 1: And you know what's interesting is that if you're now 124 00:07:09,880 --> 00:07:12,040 Speaker 1: go around they talk to economists, the number of people 125 00:07:12,120 --> 00:07:15,120 Speaker 1: who at least before the equity market dropped last Monday, 126 00:07:15,240 --> 00:07:18,520 Speaker 1: we're writing in four rate hikes for this year and 127 00:07:18,920 --> 00:07:21,800 Speaker 1: for we were mavericks that think if you go back 128 00:07:21,840 --> 00:07:23,960 Speaker 1: three or four months, we're talking about four rate hikes 129 00:07:24,000 --> 00:07:26,840 Speaker 1: for for eighteen. And I think this has been a 130 00:07:26,920 --> 00:07:30,800 Speaker 1: sort of moved moved towards it, so um the FED 131 00:07:31,080 --> 00:07:35,640 Speaker 1: have to at some point embrace there in their policy 132 00:07:35,920 --> 00:07:39,280 Speaker 1: the response to the fiscal stimulus. And for a FED 133 00:07:39,360 --> 00:07:41,480 Speaker 1: that's been, you know, the only game in town, the 134 00:07:41,480 --> 00:07:44,320 Speaker 1: fiscal stimulus. We we were now getting at the stage 135 00:07:44,320 --> 00:07:48,720 Speaker 1: of the economy. I think it's pretty much unprecedented. So 136 00:07:48,760 --> 00:07:51,120 Speaker 1: we'll how does monetary policy response doesn't really have the 137 00:07:51,120 --> 00:07:55,000 Speaker 1: same monetary policy that that narrative has to come out. 138 00:07:55,760 --> 00:07:57,880 Speaker 1: Very good generating, Thank you so much, look forward to 139 00:07:58,160 --> 00:08:00,880 Speaker 1: particularly get the March twenty one. Look forward to speaking 140 00:08:00,880 --> 00:08:03,600 Speaker 1: to you again. John writing for years helping us out 141 00:08:03,640 --> 00:08:06,960 Speaker 1: at Bloomberg on the economy of Bloomberg surveillance with some 142 00:08:07,120 --> 00:08:24,560 Speaker 1: terrific perspective. He is with r d Q Economics a 143 00:08:24,680 --> 00:08:27,520 Speaker 1: monthly visit with Gideon Rose of Foreign Affairs of magazine. 144 00:08:27,560 --> 00:08:30,720 Speaker 1: The title this month letting go Trump America in the World, 145 00:08:30,840 --> 00:08:32,800 Speaker 1: John Farrell, I want you to bring in, Gideon what 146 00:08:32,920 --> 00:08:36,200 Speaker 1: I love about Foreign Affairs. Besides, the font is adult 147 00:08:36,280 --> 00:08:38,720 Speaker 1: and you can actually read it, John, when you're a 148 00:08:38,760 --> 00:08:42,880 Speaker 1: fossil like me, is it is article after articles will 149 00:08:42,920 --> 00:08:46,800 Speaker 1: make you humble about the knowledge that is necessary forever, 150 00:08:46,920 --> 00:08:50,560 Speaker 1: making a smelter adam posing among others. John Farrell in 151 00:08:50,600 --> 00:08:52,559 Speaker 1: this issue, I always look forward to catching out a 152 00:08:52,559 --> 00:08:55,200 Speaker 1: Gideon and getting rise of course, the Foreign Affairs magazine editor, 153 00:08:55,320 --> 00:08:59,600 Speaker 1: the front page, the headline letting go Trump, America and 154 00:08:59,679 --> 00:09:02,079 Speaker 1: the World, getting your point a little bit more subtle 155 00:09:02,280 --> 00:09:05,400 Speaker 1: than that. It's a slow motion letting go. It's happening 156 00:09:05,480 --> 00:09:08,280 Speaker 1: underneath the surface. It's not happening in clear sight. Walk 157 00:09:08,320 --> 00:09:10,680 Speaker 1: me through it, okay. So basically what you have is, 158 00:09:10,679 --> 00:09:15,000 Speaker 1: if you squint from far away, it looks almost like 159 00:09:15,120 --> 00:09:19,520 Speaker 1: a somewhat conventional Republican administration when it comes to foreign policy. 160 00:09:19,600 --> 00:09:23,320 Speaker 1: Even you could argue in domestic policy they're backing the depth. 161 00:09:23,480 --> 00:09:25,800 Speaker 1: You know, they're backing deficits, pending to give taxes to 162 00:09:25,960 --> 00:09:30,760 Speaker 1: rich people and businesses. They're cutting social programs domestically, they're 163 00:09:31,240 --> 00:09:35,680 Speaker 1: uh boosting the military, and they're not necessarily you know, 164 00:09:36,280 --> 00:09:39,240 Speaker 1: getting involved in foreign aid and things like that. Okay, 165 00:09:39,280 --> 00:09:44,840 Speaker 1: but the closer you look, the forms and structures of policy, 166 00:09:44,920 --> 00:09:49,280 Speaker 1: whether domestically or internationally, are being hollowed out, with the 167 00:09:49,360 --> 00:09:53,160 Speaker 1: substance and purpose draining away. So we're still maintaining all 168 00:09:53,160 --> 00:09:55,040 Speaker 1: of our very. People are worrying about things like the 169 00:09:55,520 --> 00:09:58,280 Speaker 1: leaving the Paris Accord or uh something like that, but 170 00:09:58,360 --> 00:10:01,480 Speaker 1: in practice, for the major agreements were staying in them. 171 00:10:01,480 --> 00:10:04,200 Speaker 1: They haven't yet overturned and AFTA, they haven't yet junk 172 00:10:04,240 --> 00:10:06,160 Speaker 1: the Iran deal, they haven't done a whole bunch of 173 00:10:06,160 --> 00:10:08,120 Speaker 1: other things they said they were going to do. But 174 00:10:08,200 --> 00:10:12,160 Speaker 1: they've drained the sense that the US actually cares about 175 00:10:12,160 --> 00:10:15,719 Speaker 1: the words it's saying out of things, So there's no 176 00:10:15,760 --> 00:10:20,600 Speaker 1: longer any real concern for human rights or domestic political principles. Um. 177 00:10:20,640 --> 00:10:24,320 Speaker 1: Everybody now knows that essentially the US is a complete 178 00:10:24,400 --> 00:10:27,320 Speaker 1: hypocrite when they talk about things like human rights because 179 00:10:27,320 --> 00:10:29,320 Speaker 1: they don't actually care. When you go around and hug 180 00:10:29,400 --> 00:10:32,000 Speaker 1: the do terrtes and ccs of the world and say 181 00:10:32,000 --> 00:10:35,560 Speaker 1: everything's fine. Um. And when you yourself due to your 182 00:10:35,720 --> 00:10:39,200 Speaker 1: justice department, what everybody else does? Um? By the way, 183 00:10:39,200 --> 00:10:41,880 Speaker 1: I would say, the big story right now, it's really interesting. 184 00:10:41,920 --> 00:10:44,640 Speaker 1: The big story is we're getting a global lesson in 185 00:10:44,720 --> 00:10:49,760 Speaker 1: comparative politics because across the world you have leaders who 186 00:10:49,800 --> 00:10:55,320 Speaker 1: are being essentially held accountable potentially by their publics for 187 00:10:55,559 --> 00:10:59,920 Speaker 1: corruption for long time, its service that is now long 188 00:11:00,120 --> 00:11:03,360 Speaker 1: or needed, etcetera. And how different systems deal with that, 189 00:11:03,440 --> 00:11:06,280 Speaker 1: whether it's in Israel or South Africa or the US, 190 00:11:06,360 --> 00:11:10,199 Speaker 1: whether it's parliamentary or presidential, will show us how the 191 00:11:10,240 --> 00:11:13,600 Speaker 1: strength of institutions plays out versus individual and the money 192 00:11:13,720 --> 00:11:18,679 Speaker 1: question for all of our listeners, Republican Democrat, whatever is 193 00:11:18,800 --> 00:11:22,720 Speaker 1: within letting go Trump America in the world. Is it 194 00:11:22,760 --> 00:11:27,000 Speaker 1: a moment that is a one off or not? So 195 00:11:27,400 --> 00:11:31,400 Speaker 1: this is the question burns work five years from now. 196 00:11:31,480 --> 00:11:33,560 Speaker 1: This is the question and that we thought would be 197 00:11:33,640 --> 00:11:38,000 Speaker 1: answered a year from now, and they're what we really 198 00:11:38,040 --> 00:11:40,240 Speaker 1: are saying is, UM, well, you know what, check back 199 00:11:40,280 --> 00:11:42,959 Speaker 1: because we're still not sure the big picture it one 200 00:11:43,080 --> 00:11:46,920 Speaker 1: year is we still don't know whether the disruptive force 201 00:11:47,000 --> 00:11:50,920 Speaker 1: of Trump, the anti institutionalist, the policy revolutionary and so 202 00:11:51,000 --> 00:11:56,120 Speaker 1: forth will win out over the uh conventionality of the 203 00:11:56,160 --> 00:11:59,599 Speaker 1: structural process of all the weight of inertia everywhere in 204 00:11:59,600 --> 00:12:01,480 Speaker 1: the world. And a perfect example of this would be 205 00:12:01,520 --> 00:12:05,440 Speaker 1: the Iran nuclear deal. Anybody who says right now that 206 00:12:05,480 --> 00:12:08,480 Speaker 1: they know whether the Iran Nuclear Deal will succeed or 207 00:12:08,559 --> 00:12:11,319 Speaker 1: fail is kidding you, because at what we have is 208 00:12:11,360 --> 00:12:14,960 Speaker 1: a temporary prolongation of things that are obviously working fine, 209 00:12:15,000 --> 00:12:17,560 Speaker 1: and it should continue. But a president who has pledged 210 00:12:17,800 --> 00:12:20,360 Speaker 1: not to continue it. And so we all thought that 211 00:12:20,440 --> 00:12:24,520 Speaker 1: things like the Jerusalem emscy move or NAFTA in previous administrations, 212 00:12:24,520 --> 00:12:26,080 Speaker 1: those are the kind of things you promised during the 213 00:12:26,120 --> 00:12:29,560 Speaker 1: campaign and then forgot about in practice. Once in a while, 214 00:12:29,679 --> 00:12:31,960 Speaker 1: these guys do those kinds of things, and so you 215 00:12:32,040 --> 00:12:34,000 Speaker 1: never can be sure they're not going to do them. 216 00:12:34,120 --> 00:12:37,360 Speaker 1: But until now, they haven't actually overturned trade deals, they 217 00:12:37,400 --> 00:12:40,679 Speaker 1: haven't gone to war. I'm petrified about Korea, but they 218 00:12:40,720 --> 00:12:43,600 Speaker 1: haven't yet done anything truly crazy young career. So what's 219 00:12:43,600 --> 00:12:47,000 Speaker 1: the biggest issue for American foreign policy? Isolationism or are 220 00:12:47,040 --> 00:12:49,480 Speaker 1: actually being active? Because most people have the last decade 221 00:12:49,480 --> 00:12:52,200 Speaker 1: would have said the latter, not the former. So I 222 00:12:52,240 --> 00:12:55,240 Speaker 1: think the real question now is everybody around the world 223 00:12:55,280 --> 00:12:57,880 Speaker 1: that I talked to recognizes that we're in this truly 224 00:12:57,960 --> 00:13:01,080 Speaker 1: bizarre historical moment, UH, in which the leader of the 225 00:13:01,120 --> 00:13:04,000 Speaker 1: free world quote unquote what used to be called UH 226 00:13:04,240 --> 00:13:06,520 Speaker 1: is somebody who's not particularly fit for the office, not 227 00:13:06,600 --> 00:13:10,400 Speaker 1: particularly able to carry out its duties. And the real 228 00:13:10,480 --> 00:13:13,640 Speaker 1: question then is what is the United States going to do? 229 00:13:13,800 --> 00:13:16,240 Speaker 1: And so the question here is and this is the 230 00:13:16,320 --> 00:13:18,960 Speaker 1: real backdrop to the things about John Kelly. It's not 231 00:13:19,040 --> 00:13:25,360 Speaker 1: the White House staff secretary have It's it's the institutional structure. 232 00:13:25,360 --> 00:13:27,160 Speaker 1: Are the adults in the room? Are the serious people 233 00:13:27,160 --> 00:13:29,480 Speaker 1: are going to constrain the person at the top and 234 00:13:29,520 --> 00:13:32,199 Speaker 1: allow the world in American foreign policy to run properly 235 00:13:32,280 --> 00:13:34,440 Speaker 1: at the time, Gideon Rose, thank you so much. Letting 236 00:13:34,480 --> 00:13:37,120 Speaker 1: go Trump America in the world. I can't say enough 237 00:13:37,559 --> 00:13:53,400 Speaker 1: about a subscription to Foreign Affairs magazine. Francis Donald with 238 00:13:53,520 --> 00:13:55,400 Speaker 1: Samanuel Like Francis, I want to spend a little more 239 00:13:55,400 --> 00:13:58,600 Speaker 1: time on what inflation means. I mean, for a lot 240 00:13:58,679 --> 00:14:02,280 Speaker 1: of our listeners, college tuition year over year up two 241 00:14:02,280 --> 00:14:06,240 Speaker 1: point two ye okay, elementary in a high school tuition 242 00:14:06,440 --> 00:14:11,200 Speaker 1: up three point seven, up more than college tuition, and 243 00:14:11,200 --> 00:14:15,480 Speaker 1: then you get the oddities like tomatoes up fift year 244 00:14:15,559 --> 00:14:19,200 Speaker 1: over year inflation. I guess I didn't know that or 245 00:14:19,920 --> 00:14:25,360 Speaker 1: chair Yelling would talk about wireless telephone services negative ten 246 00:14:27,280 --> 00:14:32,280 Speaker 1: huge deflation and wireless phone service. Why does chair yelling 247 00:14:32,400 --> 00:14:37,000 Speaker 1: focus on wireless phones is a mystery for our central bank. 248 00:14:38,480 --> 00:14:42,960 Speaker 1: So school prices, tomatoes, cell phones, all things I don't 249 00:14:42,960 --> 00:14:46,040 Speaker 1: think the FED can really target at all. Canny tom 250 00:14:46,120 --> 00:14:49,200 Speaker 1: that's epcially what you're alluding to. Why is the Fed 251 00:14:49,240 --> 00:14:52,640 Speaker 1: looking at things like this, Well, they're looking forward distortions 252 00:14:52,640 --> 00:14:56,880 Speaker 1: that pull off of the underlying inflationary trend. That tells 253 00:14:56,960 --> 00:15:00,120 Speaker 1: us how much slack is remaining in the economy. You 254 00:15:00,160 --> 00:15:03,240 Speaker 1: want the number that said's probably really looking at his 255 00:15:03,800 --> 00:15:07,000 Speaker 1: core X shelter. That's the number that they have a 256 00:15:07,040 --> 00:15:09,200 Speaker 1: little bit more focused on. That tells us it's a 257 00:15:09,200 --> 00:15:12,480 Speaker 1: better signal of where the economy is. And guess what, 258 00:15:12,560 --> 00:15:16,200 Speaker 1: it's creeping higher. It's zero point eight percent year over year. 259 00:15:16,240 --> 00:15:19,400 Speaker 1: That's better than the zero point five percent from August, 260 00:15:19,920 --> 00:15:22,640 Speaker 1: nowhere near the over one percent from the middle of 261 00:15:23,840 --> 00:15:27,400 Speaker 1: But that's a better indicator, particularly services X shelter of 262 00:15:27,400 --> 00:15:30,840 Speaker 1: where the economy is. So many central banks will be clear. 263 00:15:31,160 --> 00:15:33,280 Speaker 1: We don't look at month over month inflation. The Bank's 264 00:15:33,320 --> 00:15:36,360 Speaker 1: Canada very clear. If we looked at inflation every month, 265 00:15:36,360 --> 00:15:38,040 Speaker 1: we'll be looking in the rear view mirror. What is 266 00:15:38,080 --> 00:15:40,880 Speaker 1: the said looking at to understand price pressures? Probably the 267 00:15:40,920 --> 00:15:43,400 Speaker 1: output gap. And this is what's been so important about 268 00:15:43,440 --> 00:15:45,680 Speaker 1: the last few weeks. As we know from GDP data, 269 00:15:45,920 --> 00:15:48,840 Speaker 1: the United States has now gone from really critical shift 270 00:15:49,120 --> 00:15:52,040 Speaker 1: of excess slack the output gap being open, to output 271 00:15:52,040 --> 00:15:55,080 Speaker 1: gap being closed. For ten years people have been asking 272 00:15:55,080 --> 00:15:57,880 Speaker 1: me where is the inflation and my response for ten 273 00:15:58,160 --> 00:16:01,040 Speaker 1: years has been, we will not see inflation until we 274 00:16:01,080 --> 00:16:03,760 Speaker 1: see the output gap closed. The output gap is now 275 00:16:03,800 --> 00:16:06,200 Speaker 1: closed as of Q four of last year. This is 276 00:16:06,200 --> 00:16:09,680 Speaker 1: a necessary but not sufficient condition to see inflation moving forward. 277 00:16:09,720 --> 00:16:13,800 Speaker 1: Because that's necessary but not sufficient. Which is the name 278 00:16:13,840 --> 00:16:17,240 Speaker 1: of Francis Donald's boat up in the St. Lawrence Seaway. 279 00:16:18,000 --> 00:16:21,800 Speaker 1: Francis is I look at the cottage industry of inflation measurements, 280 00:16:21,800 --> 00:16:24,240 Speaker 1: and I think anybody that follows me knows I've got 281 00:16:24,240 --> 00:16:27,720 Speaker 1: a huge affection for the simplicity and clarity of the 282 00:16:27,800 --> 00:16:32,760 Speaker 1: Cleveland cp I for December, not now two point four percent, 283 00:16:32,800 --> 00:16:34,960 Speaker 1: which maybe is a lot more how people feel than 284 00:16:35,480 --> 00:16:39,200 Speaker 1: some of the numbers that are lower Atlanta Federals or 285 00:16:39,240 --> 00:16:43,600 Speaker 1: Bank of Atlantic Francis Donald has a wonderful course sticky 286 00:16:43,800 --> 00:16:49,120 Speaker 1: cp I excluding shelter, and it's sort of disinflation area 287 00:16:49,200 --> 00:16:51,880 Speaker 1: over the last five years. You're really calling for a 288 00:16:51,920 --> 00:16:55,400 Speaker 1: shift there. I'm not calling for a shift there. I 289 00:16:55,480 --> 00:16:58,440 Speaker 1: think we're still in a low inflationary type environment, but 290 00:16:58,480 --> 00:17:01,680 Speaker 1: we're going to see things move up steadily. We're talking 291 00:17:01,680 --> 00:17:05,720 Speaker 1: about decimal points. It's a process. Inflation is a process. 292 00:17:05,800 --> 00:17:08,159 Speaker 1: It might be more linear than non winning. What the 293 00:17:08,200 --> 00:17:10,360 Speaker 1: market appears to be doing right now is thinking we're 294 00:17:10,359 --> 00:17:13,280 Speaker 1: going to get a sudden acceleration in that trend. We 295 00:17:13,400 --> 00:17:16,080 Speaker 1: just don't buy it. I think some of what we've 296 00:17:16,080 --> 00:17:19,600 Speaker 1: been seeing people calling for secular stagnation has been conflating 297 00:17:19,600 --> 00:17:22,800 Speaker 1: the idea of excess slack with secular stagnation. There's some 298 00:17:22,920 --> 00:17:25,240 Speaker 1: of that going on, but we'd be really fool for 299 00:17:25,359 --> 00:17:28,600 Speaker 1: dismiss the idea that pricing power is strong. You went there, 300 00:17:28,640 --> 00:17:30,919 Speaker 1: so I'm going to rip up the script and do it. 301 00:17:31,040 --> 00:17:34,359 Speaker 1: Francis Donald, with her great read of economics of course, 302 00:17:34,400 --> 00:17:37,800 Speaker 1: alluding to the former Secretary of Treasury and Harvard President 303 00:17:37,880 --> 00:17:41,479 Speaker 1: Lawrence Summers and the idea of secular stagnation. I mean, 304 00:17:41,560 --> 00:17:44,880 Speaker 1: Larry has written some really good essays recently where he said, 305 00:17:44,880 --> 00:17:47,240 Speaker 1: you know what, we seem to be pulling out of 306 00:17:47,320 --> 00:17:51,480 Speaker 1: this uh as we are, And I would suggest Professor 307 00:17:51,520 --> 00:17:55,000 Speaker 1: Sommers would say, great, but why can't we wait till 308 00:17:55,080 --> 00:18:00,000 Speaker 1: we see the data, show that inflation, show that wage growth. 309 00:18:00,200 --> 00:18:03,359 Speaker 1: How do you respond, Francis Donald to the age old 310 00:18:03,400 --> 00:18:07,200 Speaker 1: and maybe debbish view, why can't we wait to see 311 00:18:07,200 --> 00:18:10,679 Speaker 1: the data, because then it's too late and you have 312 00:18:10,880 --> 00:18:14,280 Speaker 1: too much money chasing too few assets. There is no 313 00:18:14,400 --> 00:18:16,560 Speaker 1: economist that's going to argue or very few that are 314 00:18:16,560 --> 00:18:18,400 Speaker 1: going to say that the current level of interest rates 315 00:18:18,400 --> 00:18:20,760 Speaker 1: is appropriate for the U S economy. The same could 316 00:18:20,760 --> 00:18:23,600 Speaker 1: be true for many developed countries. Right now. The SET 317 00:18:23,640 --> 00:18:25,919 Speaker 1: is not trying to fight inflation. The SET is not 318 00:18:25,960 --> 00:18:28,560 Speaker 1: afraid of an overheating economy, but just trying to get 319 00:18:28,640 --> 00:18:31,520 Speaker 1: us back to neutral, or at least closer to neutral. 320 00:18:31,760 --> 00:18:35,399 Speaker 1: We're not fighting or afraid or worried. This is just 321 00:18:35,480 --> 00:18:38,240 Speaker 1: about trying to get to a better normal economy that 322 00:18:38,320 --> 00:18:41,359 Speaker 1: prevents asset price bubbles, or at least contains them a 323 00:18:41,400 --> 00:18:44,760 Speaker 1: little bit more than what we have been within. This 324 00:18:44,840 --> 00:18:46,560 Speaker 1: is what to do with the market. Now. I know 325 00:18:46,600 --> 00:18:49,000 Speaker 1: you're not a strategist. You're not going to tell us 326 00:18:49,000 --> 00:18:51,280 Speaker 1: when to buy the plugs that we've seen recently, but 327 00:18:51,359 --> 00:18:55,359 Speaker 1: we've certainly consolidated at this level. You're not going to 328 00:18:55,440 --> 00:18:58,000 Speaker 1: make a call based on one data point of inflation 329 00:18:58,680 --> 00:19:02,119 Speaker 1: two data points including retail sales. But there's a point, 330 00:19:02,160 --> 00:19:04,680 Speaker 1: as John Writing said earlier today, where you have to say, 331 00:19:04,800 --> 00:19:08,040 Speaker 1: is this an inflation driven economy or is it a 332 00:19:08,160 --> 00:19:13,000 Speaker 1: real growth driven economy? Francis, which is it? Well? I 333 00:19:13,040 --> 00:19:14,840 Speaker 1: may not be a strategist, but I sit next to 334 00:19:14,920 --> 00:19:16,200 Speaker 1: a bunch of them, and all I did in the 335 00:19:16,320 --> 00:19:18,640 Speaker 1: last five minutes was throwing what are you seeing here 336 00:19:18,640 --> 00:19:21,040 Speaker 1: into my IB chats And the word that keeps coming 337 00:19:21,119 --> 00:19:24,359 Speaker 1: back is confirming, confirmation. This confirms it for us. So 338 00:19:24,400 --> 00:19:26,400 Speaker 1: it does appear as though there were some hold as 339 00:19:26,400 --> 00:19:28,760 Speaker 1: who had yet to believe that we are seeing a 340 00:19:28,760 --> 00:19:30,840 Speaker 1: little bit of a move up and inflation. They may 341 00:19:30,880 --> 00:19:32,760 Speaker 1: be shaking out of the market right now. So that's 342 00:19:32,800 --> 00:19:35,600 Speaker 1: the word of the day. I will say, however, pay 343 00:19:35,640 --> 00:19:38,960 Speaker 1: attention to retail sales number. That retail sales is bothering 344 00:19:39,000 --> 00:19:41,440 Speaker 1: me over the last half an hour. I'm worried about it. 345 00:19:41,560 --> 00:19:44,679 Speaker 1: There is some hurricane energy effects here, cars down, building 346 00:19:44,720 --> 00:19:48,040 Speaker 1: supplies down, like gas stations up. But a control group 347 00:19:48,040 --> 00:19:50,680 Speaker 1: at zero percent that stings your g d P number. 348 00:19:50,680 --> 00:19:54,440 Speaker 1: You're going to see some exactly no, but you're dead on. 349 00:19:54,560 --> 00:19:56,240 Speaker 1: I'm so glad you went there because I just I 350 00:19:56,280 --> 00:19:59,520 Speaker 1: didn't notice this until pen Fox told me the control 351 00:19:59,560 --> 00:20:02,080 Speaker 1: group is zero point zero. But that was an ugly 352 00:20:02,160 --> 00:20:05,159 Speaker 1: revision from the buoyancy of zero point four to a 353 00:20:05,200 --> 00:20:08,400 Speaker 1: control group well barely above zero point zero zero point one. 354 00:20:08,600 --> 00:20:11,680 Speaker 1: This is two months in a row where it hasn't happened. Yeah, 355 00:20:11,880 --> 00:20:14,840 Speaker 1: it's not a happy number. And here we are really 356 00:20:14,880 --> 00:20:18,760 Speaker 1: thinking about when when market strategists, when our pms come 357 00:20:18,800 --> 00:20:21,880 Speaker 1: to economists and ask us questions, what they're really trying 358 00:20:21,880 --> 00:20:23,879 Speaker 1: to get from the economic data is where are we 359 00:20:23,920 --> 00:20:26,680 Speaker 1: in this economic cycle? And the crux of our view 360 00:20:26,720 --> 00:20:29,160 Speaker 1: has been you are going to lose out on that consumer. 361 00:20:29,200 --> 00:20:31,840 Speaker 1: We are getting late cycle, and you need business investment 362 00:20:31,880 --> 00:20:34,280 Speaker 1: to come in. The strength of that business investment is 363 00:20:34,320 --> 00:20:37,280 Speaker 1: going to determine whether we extend this cycle. Further, I 364 00:20:37,359 --> 00:20:40,600 Speaker 1: see an indicator of that or is it just deployment 365 00:20:40,640 --> 00:20:44,879 Speaker 1: of cash back to shareholders. So far it looks like 366 00:20:44,960 --> 00:20:48,280 Speaker 1: the ladder. But we do see investment intentions, business surveys 367 00:20:48,320 --> 00:20:51,920 Speaker 1: looking very strong. We have seen very good business investment 368 00:20:51,960 --> 00:20:54,680 Speaker 1: in equipment and the energy patch. I want to see 369 00:20:54,720 --> 00:20:57,960 Speaker 1: an extent out of the energy patch into broad business investment. 370 00:20:58,200 --> 00:21:00,320 Speaker 1: But now after I've seen that control group member and 371 00:21:00,400 --> 00:21:04,400 Speaker 1: that bad revision to last months investment even more. One 372 00:21:04,440 --> 00:21:08,199 Speaker 1: final question, Francis Donald to the Canadians of Montreal, do 373 00:21:08,280 --> 00:21:10,119 Speaker 1: they have to clean house or do they do a 374 00:21:10,200 --> 00:21:15,480 Speaker 1: managed to rebuild of their horrendous season. Hardest question of 375 00:21:15,520 --> 00:21:18,240 Speaker 1: the day, Tom, I say, we need to rebuild there, 376 00:21:18,560 --> 00:21:20,520 Speaker 1: but come back to me. I need more data points 377 00:21:20,560 --> 00:21:22,560 Speaker 1: on that one too. The data point is they have 378 00:21:22,600 --> 00:21:24,880 Speaker 1: to blow it up. Francis Donald, thank you so much. 379 00:21:24,920 --> 00:21:28,240 Speaker 1: From one die hard Montreal Canadians fan to another, it 380 00:21:28,480 --> 00:21:32,320 Speaker 1: is ugly in Montreal. She is, of course in charge 381 00:21:32,320 --> 00:21:36,640 Speaker 1: of statistical analysis and economics for Manual Life, the venerable 382 00:21:36,680 --> 00:21:52,800 Speaker 1: Firm of Montreal. Him I want you to bring in 383 00:21:52,800 --> 00:21:57,200 Speaker 1: our next guest, because it's always funny with Mr Rhodes. 384 00:21:57,680 --> 00:22:00,520 Speaker 1: But I would suggest anybody that wants to figure out 385 00:22:01,080 --> 00:22:03,920 Speaker 1: how we move forward to this nation, they may want 386 00:22:03,920 --> 00:22:07,000 Speaker 1: to look at the summer reading list for Northfield Mount 387 00:22:07,040 --> 00:22:14,520 Speaker 1: Herman School, which wanders out to five PDF pages across 388 00:22:14,560 --> 00:22:17,760 Speaker 1: like two hundred books and the kids get to choose 389 00:22:17,760 --> 00:22:21,000 Speaker 1: one from each category and that kind of thing. But 390 00:22:21,680 --> 00:22:25,159 Speaker 1: that's pretty good. That's that's a pretty good place to 391 00:22:25,240 --> 00:22:27,800 Speaker 1: start with. What we need to do is get kids 392 00:22:27,840 --> 00:22:30,920 Speaker 1: back reading again, reading your Rhodes did long ago in 393 00:22:31,040 --> 00:22:36,240 Speaker 1: far away yes, Massachusetts. Okay, so let you know what 394 00:22:36,320 --> 00:22:38,639 Speaker 1: I think. We just do it. Bill Rhodes, author of 395 00:22:38,720 --> 00:22:41,600 Speaker 1: Banker to the World Leadership Lessons from the Global front 396 00:22:41,600 --> 00:22:44,920 Speaker 1: Lines of Global Finance Leadership. That's a pretty good way 397 00:22:44,960 --> 00:22:47,320 Speaker 1: to just describe Bill Rhodes, because you are a leader 398 00:22:47,359 --> 00:22:51,439 Speaker 1: in speaking about the equity markets and about inflation. We 399 00:22:51,440 --> 00:22:54,160 Speaker 1: were speaking to you, I believe it was just last week, 400 00:22:54,359 --> 00:22:57,120 Speaker 1: two weeks ago, before we had the big sell off 401 00:22:57,119 --> 00:22:59,239 Speaker 1: in the equity markets, and Bill, I want you to 402 00:22:59,280 --> 00:23:01,400 Speaker 1: describe maybe of those that didn't hear what you had 403 00:23:01,440 --> 00:23:04,360 Speaker 1: to say, what did you say? And then um, when 404 00:23:04,400 --> 00:23:07,119 Speaker 1: did you say it? Well, actually I came out with 405 00:23:07,160 --> 00:23:12,600 Speaker 1: this piece, uh, and our ed on the eighteenth of January, 406 00:23:12,640 --> 00:23:17,240 Speaker 1: and I basically pointed out that the market was overbought, 407 00:23:18,040 --> 00:23:22,240 Speaker 1: UH and UH that there were some really fundamental problems. UH. 408 00:23:22,400 --> 00:23:26,840 Speaker 1: Number one, I think that what we're seeing is what 409 00:23:26,920 --> 00:23:29,320 Speaker 1: I like to call a great accommodation, which the central 410 00:23:29,320 --> 00:23:32,159 Speaker 1: banks the FED started in two thousand and eight to 411 00:23:32,160 --> 00:23:35,359 Speaker 1: get us out of the Great Recession has run its course. 412 00:23:36,080 --> 00:23:39,560 Speaker 1: And UH, I think we're we're gonna be in in 413 00:23:39,680 --> 00:23:42,399 Speaker 1: an era where we see a regular increase in interest 414 00:23:42,480 --> 00:23:45,400 Speaker 1: rates because if not, UH, inflation is going to get 415 00:23:45,400 --> 00:23:47,600 Speaker 1: out of hand. And of course, when people talk about 416 00:23:47,640 --> 00:23:51,280 Speaker 1: inflation UH today, they don't remember what we went through 417 00:23:51,320 --> 00:23:53,720 Speaker 1: under the days of Paul Volker. So I think the 418 00:23:53,760 --> 00:23:55,520 Speaker 1: FED is going to be very sensitive. We have a 419 00:23:55,520 --> 00:23:58,240 Speaker 1: new head of the Fed, but even Janet Yellen when 420 00:23:58,280 --> 00:24:03,000 Speaker 1: she left was warning pull, uh, you know about this possibility. 421 00:24:03,320 --> 00:24:06,800 Speaker 1: So I think we're gonna see four rate increases this year. 422 00:24:07,440 --> 00:24:12,560 Speaker 1: I think that in addition to the UH the winding 423 00:24:12,640 --> 00:24:15,960 Speaker 1: down of the of of the quantitative easing, which got 424 00:24:16,000 --> 00:24:20,320 Speaker 1: up to almost four point five trillion dollars UH, you 425 00:24:20,400 --> 00:24:23,359 Speaker 1: might actually see an acceleration of that depending on what 426 00:24:23,480 --> 00:24:26,320 Speaker 1: happens in UH inflation. And then added to all of 427 00:24:26,320 --> 00:24:31,080 Speaker 1: this is this tremendous rocket fuel that the administration has 428 00:24:31,119 --> 00:24:36,280 Speaker 1: pushed in uh with the tax bill. In addition, I 429 00:24:36,320 --> 00:24:42,120 Speaker 1: think we're gonna see uh increasing push with the budget 430 00:24:42,160 --> 00:24:44,879 Speaker 1: that was announced. So here we are in a period 431 00:24:44,920 --> 00:24:49,159 Speaker 1: where we were really coming back, finally getting out of 432 00:24:49,600 --> 00:24:51,359 Speaker 1: a great recession, and what do we do? We had 433 00:24:51,440 --> 00:24:54,920 Speaker 1: rocket fuel with those two roads, with that nice summary 434 00:24:55,160 --> 00:24:57,159 Speaker 1: of what we've got with your rocket fuel. In your 435 00:24:57,200 --> 00:25:01,639 Speaker 1: astrophysics of our political economics, there are a set of 436 00:25:01,720 --> 00:25:05,119 Speaker 1: assumptions that go along with those beliefs, and one of 437 00:25:05,160 --> 00:25:08,439 Speaker 1: them is economic growth. Do you believe we have a 438 00:25:08,480 --> 00:25:13,199 Speaker 1: sustained economic growth to pay for the rocket fuel? I 439 00:25:13,200 --> 00:25:15,800 Speaker 1: think that's a basic question, uh, Tom, and I have 440 00:25:15,920 --> 00:25:18,920 Speaker 1: my doubts. I think that uh, you know, you got 441 00:25:18,920 --> 00:25:21,000 Speaker 1: the Atlanta Feds. They want to get five point four 442 00:25:21,040 --> 00:25:23,880 Speaker 1: percent in the first quarter based on the low inventory level. 443 00:25:23,960 --> 00:25:26,240 Speaker 1: Not clear when you take a look at sales that 444 00:25:26,320 --> 00:25:30,800 Speaker 1: we saw announced today. Um, but I think we're probably 445 00:25:31,200 --> 00:25:33,600 Speaker 1: going to reverse the last three years in the first quarter, 446 00:25:33,720 --> 00:25:36,280 Speaker 1: which were miserable, with something in the order of at 447 00:25:36,359 --> 00:25:38,960 Speaker 1: least two point eight to three. But I think for 448 00:25:39,000 --> 00:25:43,159 Speaker 1: the year, the idea of the supply siders is that 449 00:25:43,200 --> 00:25:45,760 Speaker 1: we're going to get a tremendous surge in growth between 450 00:25:45,800 --> 00:25:49,439 Speaker 1: three and four percent UH to cover uh, you know 451 00:25:49,640 --> 00:25:53,440 Speaker 1: the problems caused by this UH you know, these tax 452 00:25:53,520 --> 00:25:57,760 Speaker 1: measures and UH and UH and inflationary measures being taken 453 00:25:57,760 --> 00:26:00,639 Speaker 1: by the government. I think is too optimist. So I 454 00:26:00,640 --> 00:26:02,480 Speaker 1: think we're gonna we're gonna have a real problem. The 455 00:26:02,560 --> 00:26:05,760 Speaker 1: Fed is gonna have a real problem of confronting inflation 456 00:26:05,840 --> 00:26:07,840 Speaker 1: and how it's gonna do it. And I think that's 457 00:26:07,840 --> 00:26:10,040 Speaker 1: gonna spread to Europe because I don't think the Germans 458 00:26:10,080 --> 00:26:13,600 Speaker 1: are gonna allow Mario Draggy to continue on with quantitative 459 00:26:13,640 --> 00:26:17,680 Speaker 1: easing UH much pass much past September. So I think 460 00:26:17,680 --> 00:26:19,960 Speaker 1: it's not just gonna be a phenomenon in the United States. 461 00:26:20,040 --> 00:26:21,840 Speaker 1: I'm gonna I think we're gonna start seeing it move 462 00:26:21,880 --> 00:26:24,679 Speaker 1: over to Europe and eventually my friend Corona may be 463 00:26:24,760 --> 00:26:27,520 Speaker 1: forced to cut back a little bit on his UH 464 00:26:27,640 --> 00:26:31,520 Speaker 1: stimulus over in Japan. All right, So what do you 465 00:26:31,560 --> 00:26:34,280 Speaker 1: do with your money other than by expensive briefcases? And 466 00:26:34,560 --> 00:26:36,800 Speaker 1: I'm just telling you the joke, because of course Bill 467 00:26:36,840 --> 00:26:39,560 Speaker 1: Rhodes always shows up with his most expensive briefcase, which 468 00:26:39,600 --> 00:26:42,240 Speaker 1: is a brown paper bag, and it's not something fancy 469 00:26:42,240 --> 00:26:45,280 Speaker 1: from Bloomingdale's across the street. No, no, And I think 470 00:26:45,280 --> 00:26:47,639 Speaker 1: it's the same paper bag he's been carrying around for 471 00:26:47,680 --> 00:26:49,800 Speaker 1: the last ten years. So that's what we like in 472 00:26:49,800 --> 00:26:51,760 Speaker 1: a bank or someone who actually knows the value of 473 00:26:51,800 --> 00:26:54,119 Speaker 1: at least a dollar. Well, I started out as a 474 00:26:54,160 --> 00:26:58,440 Speaker 1: simple banker and I've never changed uh along the way. 475 00:26:58,680 --> 00:27:02,600 Speaker 1: Uh that's the problem, Uh with banks in general. They 476 00:27:02,600 --> 00:27:06,480 Speaker 1: sort of lost their culture and the trust of the community, 477 00:27:06,560 --> 00:27:09,000 Speaker 1: which hopefully we're we're getting back now. Okay, But Bill, 478 00:27:09,080 --> 00:27:10,760 Speaker 1: this is critical. This is the heart of the matter. 479 00:27:10,880 --> 00:27:13,119 Speaker 1: If we and this is for everybody out there, whatever 480 00:27:13,119 --> 00:27:16,200 Speaker 1: they believe in the fiscal affairs. Have we lost our 481 00:27:16,359 --> 00:27:20,840 Speaker 1: culture of prudence? Is Robert Samuelson and the Washington Post 482 00:27:20,920 --> 00:27:23,879 Speaker 1: called it earlier this week. I think that is a 483 00:27:23,920 --> 00:27:27,520 Speaker 1: real problem, Tom, and I think that we've kind of 484 00:27:27,560 --> 00:27:30,200 Speaker 1: forgotten a lot of this over the last few years, 485 00:27:31,160 --> 00:27:35,080 Speaker 1: because we've forgotten, for instance, uh, what my office made 486 00:27:35,080 --> 00:27:39,080 Speaker 1: Paul Wolker, Uh I had to do back in the 487 00:27:39,400 --> 00:27:42,480 Speaker 1: late nineteen seventies, early nineteen eighties, because we get carried 488 00:27:42,480 --> 00:27:45,199 Speaker 1: away and we let inflation get out of hand. And 489 00:27:45,240 --> 00:27:48,040 Speaker 1: of course you mentioned inflation and everyone laughs. But I 490 00:27:48,080 --> 00:27:50,000 Speaker 1: think the new head of the FETE is going to 491 00:27:50,080 --> 00:27:53,000 Speaker 1: have to be very concerned about that because we really 492 00:27:53,040 --> 00:27:56,679 Speaker 1: are in an overstimulated economy coming at a period of 493 00:27:56,720 --> 00:27:59,520 Speaker 1: time when we were finally getting things moving. So I 494 00:27:59,520 --> 00:28:02,840 Speaker 1: think that the markets are going to be very sensitive, uh, 495 00:28:02,880 --> 00:28:05,520 Speaker 1: to where inflation goes. And I think if you're if 496 00:28:05,560 --> 00:28:09,080 Speaker 1: you're planning your businesses et cetera, you're gonna have to 497 00:28:09,080 --> 00:28:11,119 Speaker 1: take that into account. So what do you do with 498 00:28:11,160 --> 00:28:15,439 Speaker 1: your money? Well, I think what you're having, well, I 499 00:28:15,440 --> 00:28:18,600 Speaker 1: think that you've got to make sure that you understand 500 00:28:18,640 --> 00:28:20,879 Speaker 1: what you're investing in. Because one of the major problems 501 00:28:20,880 --> 00:28:22,720 Speaker 1: we've had over the last few years is we've had 502 00:28:23,240 --> 00:28:26,840 Speaker 1: this tremendous accommodation, which has pushed a reach and search 503 00:28:26,920 --> 00:28:30,720 Speaker 1: for yield. And I think people have gone overboard on 504 00:28:30,920 --> 00:28:34,119 Speaker 1: investing because they didn't want to get left behind. And 505 00:28:34,160 --> 00:28:37,480 Speaker 1: so I think, uh, you know, as Warren Buffett says, 506 00:28:37,520 --> 00:28:40,120 Speaker 1: you know, when you when the tide goes out, and 507 00:28:40,160 --> 00:28:42,600 Speaker 1: if you don't have swimming trunks, and you're gonna get caught. 508 00:28:42,960 --> 00:28:45,680 Speaker 1: And I think unfortunately a number of people could get 509 00:28:45,680 --> 00:28:49,480 Speaker 1: caught here. So keep some cash. I think, uh, you 510 00:28:49,560 --> 00:28:51,680 Speaker 1: have to be very balanced and know what you're investing in. 511 00:28:51,720 --> 00:28:54,040 Speaker 1: But the idea of just the search and reach for yield. 512 00:28:54,400 --> 00:28:57,480 Speaker 1: Every time I've seen it over my whole career, it 513 00:28:57,560 --> 00:29:00,440 Speaker 1: comes back to haunt you see the way up Chris said. 514 00:29:00,440 --> 00:29:04,080 Speaker 1: It talks about that very you know, leaves it in 515 00:29:04,080 --> 00:29:06,080 Speaker 1: the hand of the customer a little bit. Mr Rose, 516 00:29:06,120 --> 00:29:15,360 Speaker 1: Thank you so much, Banker to the World. Thanks for 517 00:29:15,440 --> 00:29:19,840 Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to 518 00:29:20,000 --> 00:29:25,720 Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 519 00:29:26,280 --> 00:29:29,640 Speaker 1: I'm on Twitter at Tom Keene before the podcast. You 520 00:29:29,640 --> 00:29:33,040 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.