Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: It's good about Gaddis and Grand Teton's fishing. Our guest
Speaker 2: today Tracy Alloy Catcher of the Fish.
Speaker 1: Let me tell you, Tom, I have strong opinions on
Speaker 1: euro nymphing, which we.
Speaker 3: Can talk about.
Speaker 2: Impressive.
Speaker 3: I had never heard that term until Tracy and I
Speaker 3: went fishing, but that eu nymphing is a thing, so
Speaker 3: google it.
Speaker 1: Folks, also finfluencers, people who are on Instagram impressively catching
Speaker 1: fish but also cheating in the way they're doing it.
Speaker 3: Did you have you done any fly fishing?
Speaker 4: Tom?
Speaker 2: Very little. We had a close friend, close family friend
Speaker 2: who has had a research for Eastman Kodak. Really important
Speaker 2: in the chemistry of developing all the films that we
Speaker 2: know and use was Jack Penny. Basically he worked so
Speaker 2: he could fly fish, and I would sit there and watch.
Speaker 1: Mister everyone has to work for something that sounds and
Speaker 1: make the flies.
Speaker 2: That's about as close as I got.
Speaker 3: I did a deadlift one two Jimmy Okay, gony uh barges.
Speaker 3: This isn't after school special, except.
Speaker 1: I've decided I'm going to base my entire personality going
Speaker 1: forward on campaigning for a strategic pork reserve in the US.
Speaker 3: Where's the best with in pasta?
Speaker 1: These are the important question is that robots taking over
Speaker 1: the world.
Speaker 2: No.
Speaker 5: I think that like in a couple of years, the
Speaker 5: AI will do a really good job of making the
Speaker 5: Odd lotch podcast, And people say, I don't really need
Speaker 5: to listen to Joe and Tracy anymore.
Speaker 4: We do have.
Speaker 3: The perfect welcome to lots More when we catch up
Speaker 3: with friends about what's going on.
Speaker 1: Right now, because even when Odd Lots is over, there's
Speaker 1: always lots more.
Speaker 3: And we really do have the perfect guest. Can we
Speaker 3: talk a little monitory?
Speaker 1: Yeah, let's do it. Okay, So one thing I'm curious
Speaker 1: to hear your opinion on Tom You've been at multiple
Speaker 1: Jackson Hole economic symposiums at this point. What's the vibe
Speaker 1: of this year, especially compared to you know, two years
Speaker 1: ago Powell basically stood up and said, like it might
Speaker 1: be painful to bring down inflation. Then last year they
Speaker 1: were very much talking about progress on inflation and maybe
Speaker 1: complications from the real world economy. And then fast forward
Speaker 1: to today and it's all about the labor market.
Speaker 2: I was in Davos a million years ago. I was
Speaker 2: standing with three Nobel Prize winners, and they're blah blah blah,
Speaker 2: blah blah. And one of their wives said after me,
Speaker 2: this is in the heart of the crisis. She said, Tom,
Speaker 2: they're just bewildered. And I think there's a lot of
Speaker 2: bewilderment here about the future of America, witnessing the Milwaukee
Speaker 2: and Chicago and that what we got today, which I
Speaker 2: was blown away by the speech. I literally will go
Speaker 2: back and read, trust me, I never do that is
Speaker 2: this was a real statement by Powell about the bewilderment
Speaker 2: that's out there, and clearly was it this Jackson hole
Speaker 2: this year.
Speaker 3: One of the things just on the like sort of
Speaker 3: pure macro front that struck me is right up top
Speaker 3: saying we're not going to tolerate any more labor market weakness.
Speaker 4: And I found that.
Speaker 3: Really striking, and you saw it in the market reaction.
Speaker 3: By the way, we're talking with Tom Kane of Bloomberg
Speaker 3: TV is just the Tom Kane just in case, I
Speaker 3: guess we haven't formally introduced me. But you know, clearly
Speaker 3: everyone sort of expected right that this speech would be
Speaker 3: used to announce something about the September rate cut cycle.
Speaker 3: But there's still been in the chat the FED Chad
Speaker 3: over the last couple of weeks. Still this seeming like
Speaker 3: not total sure. Maybe this sort of willingness to say,
Speaker 3: like we could rise into the high four percent unemployment
Speaker 3: and that's still be sort of consistent with what we're
Speaker 3: going for. And I sort of feel like the market
Speaker 3: reaction and was to like, know, we're done with letting
Speaker 3: the labor market weakness. And he added another line, it's
Speaker 3: not just normalization. By some measures, the labor market is
Speaker 3: worse than pre COVID and you see that in things
Speaker 3: like the hiring rate. So I found that to be
Speaker 3: pretty powerful.
Speaker 2: Yeah, as we talked about as we walked over here
Speaker 2: to hear luxurious about, I mean, it's incredible. You know,
Speaker 2: the view is stunning. And you know, I think that
Speaker 2: the unemployment right chart, I think Kolby Smith had it
Speaker 2: in the FT. It's curve linear, it's what we call convex.
Speaker 2: We're showing an accelerative tendency. And I asked any number
Speaker 2: of guests today, I said, Okay, where's the number that hurts.
Speaker 2: I don't think it's four point nine percent or even
Speaker 2: five five point one percent. I think it's much more
Speaker 2: towards four seven. What that four seven is a big
Speaker 2: number for a lot of America.
Speaker 1: Joe, do you remember Tom Keane used to write some
Speaker 1: commentary pieces for Bloomberg dot com and I used to
Speaker 1: edit that. Oh yeah, and there's one that always sticks
Speaker 1: in my mind. You mentioned convexity just then, Tom, and
Speaker 1: I remember you had one. It might have been about
Speaker 1: the yield curve, but I think the headline was just
Speaker 1: slope flatters.
Speaker 2: Slow batters.
Speaker 3: This is a Tom King, This is a Tom King
Speaker 3: signature line.
Speaker 2: Well, it is a signature line, but it's really really important,
Speaker 2: and I'll go through it right now because it's great
Speaker 2: that you have the time of odd lots interviews instead
Speaker 2: of you got thirty seconds. We're going, Okay, here's the
Speaker 2: way it works. The core financial equation is FV equals
Speaker 2: PV one plus ard of the t that's a discrete
Speaker 2: or in a continuous function, f V the future value
Speaker 2: equals a present value times e to the rt ease
Speaker 2: in the exponential function. And the answer across that that
Speaker 2: is so so important is what you do in the
Speaker 2: phrase that we all learned in school. As you go
Speaker 2: to logs, you go to logs and The way you
Speaker 2: do it on a chart is you have a semilog
Speaker 2: chart with a log y axis, and that gives you
Speaker 2: the first derivative is the slope. So if you go
Speaker 2: to log on any given financial series is a rule
Speaker 2: of thumb, you can look at the slope. You can
Speaker 2: say it matters. And here's what Chairman Powell would say,
Speaker 2: he would say, and then the change of the slope
Speaker 2: really matters. And that's the confidence you got today that
Speaker 2: move the markets.
Speaker 3: And this is of course you know when we talk
Speaker 3: We talked to claudiasam recently and everyone's talked about the
Speaker 3: same rule and they get really hung up on like well, like, oh,
Speaker 3: you know the exact the.
Speaker 4: Exact measurement, exact point.
Speaker 3: Well really, and that's fine, and maybe that's a good guy.
Speaker 3: But the real embedded wisdom or insight is that before
Speaker 3: you have a big increase in the unemployment rate, you
Speaker 3: have a small increase. Or to put it in another way,
Speaker 3: historic history tells us that every time you have a
Speaker 3: modest rise in the unemployment rate, it leads to a
Speaker 3: large it's exponential.
Speaker 2: Yeah. But the key thing here is the financial media
Speaker 2: loves point estimates. What's going to be for one point
Speaker 2: two percent, and you two have been really historic in
Speaker 2: developing a conversation about the rate of change or the
Speaker 2: rate of change or the radia change. The word we
Speaker 2: use is dynamics, the dynamics of the moment, and I
Speaker 2: thought Paul today was just great on the dynamics of
Speaker 2: the moment.
Speaker 1: So speaking of the dynamics of the moment, one thing
Speaker 1: that has clearly changed is like the emphasis of what
Speaker 1: the market and investors are looking at has is shifting
Speaker 1: in real time from inflation to the labor market data.
Speaker 1: And one thing I'm wondering is the FED has emphasized
Speaker 1: its data dependency so much at this point that it
Speaker 1: feels like suddenly that job's number becomes even more important
Speaker 1: than ever. And part of me is wondering what happens
Speaker 1: if we get a stronger than expected jobs number between
Speaker 1: now and September seventeenth.
Speaker 2: That's out there. And Adam Posen, who we had on
Speaker 2: today at the Peterson Institute, his FT essay two days ago,
Speaker 2: I think was blistering on that where this embedded idea
Speaker 2: that we're in a dissinflationary mode. One report, two reports
Speaker 2: can upset the apple. Yeah, and no one's predicting that
Speaker 2: you guys know the standard e or like anyone else.
Speaker 2: But the answer to the certitude of disinflation now is
Speaker 2: probably suspect.
Speaker 3: I mean, and of course that's what sort of royaled
Speaker 3: the market and Q one of this year, which is
Speaker 3: there was a similar feeling of certitude and then we
Speaker 3: did get those how to then expected inflation. You know,
Speaker 3: I think one of the things and we talked about
Speaker 3: this on TV just a few minutes ago, that I've
Speaker 3: been wondering to think about, and something we talk a
Speaker 3: lot about the business memory that price increases are a
Speaker 3: thing you can do. Is I think it'd be a
Speaker 3: really interesting question maybe for like the next decade, the
Speaker 3: memory of twenty twenty two that actually sometimes you can
Speaker 3: raise prices, you know, you don't lose market share per se,
Speaker 3: Whether that will keep a sort of like floor on
Speaker 3: the rate of inflation for a while. That's sort of
Speaker 3: because that sort of like muscle memory of price increases
Speaker 3: is still there. I think an interesting question.
Speaker 2: It's a political moment right now. The least, what I
Speaker 2: will say, my study of this, and this goes back
Speaker 2: to England, to Clement Attlee England. It's really hard to
Speaker 2: lower prices. Yeah, you sit there, you sit there with
Speaker 2: a dozen eggs, and you go, let's bring the price down.
Speaker 1: Let's not you know, you mentioned political moment just then,
Speaker 1: and I feel like this is the other thing that
Speaker 1: maybe is shifting a little bit, because, you know, maybe
Speaker 1: six weeks ago, there was a lot of talk about
Speaker 1: how the FED can't cut in September because it will
Speaker 1: be seen to be politically motivated. That conversation, for the
Speaker 1: most part, seems to have gone away. It feels like.
Speaker 2: I thought his voice changed in the last press conference.
Speaker 2: You listen for that. His voice changed, And I thought
Speaker 2: the last paragraph today beautifully captured their humility and somewhat indirectly,
Speaker 2: the statement they're just not going to get involved in
Speaker 2: the politics.
Speaker 1: Tom, here's the really important question. Are you coming with
Speaker 1: us to the million dollar Cowboy bar tonight?
Speaker 2: No, I have to jet back. Paul Sweeny says, they've
Speaker 2: got to be there Monday morning.
Speaker 3: His private jet is on the right now, and so
Speaker 3: we should.
Speaker 2: Paint a picture of this. We really if we have time. Yeah,
Speaker 2: you fly to Jackson hoy And on the confidence building
Speaker 2: plane Amazon. It was like right out of the movie
Speaker 2: Airplane to comedy both and the guy was the pilot
Speaker 2: was great about it. We've got two captains. We've got
Speaker 2: more gold bars on shoulders than any airplane I've ever
Speaker 2: been on. And they're co certifying each other to land
Speaker 2: at six thousand feet like they're doing like their required certification.
Speaker 2: That was a confidence builder. So you come in and
Speaker 2: you're coming in from north to south. You land, it's
Speaker 2: this lovely little airport and you turn, you go by yeah,
Speaker 2: super short running with the brakes, come on fast, yes,
Speaker 2: And you turn and you'll go by the wall of Jackson, Wyoming,
Speaker 2: lear jets, Gulf streams and the rest. It looks like Davos.
Speaker 2: It looks like Zurich, you know, in a smaller scale.
Speaker 3: At some point, we're going to do an episode about
Speaker 3: the economics of Jackson, Wyoming because it's fascinating and yeah,
Speaker 3: it's wild.
Speaker 2: Yeah.
Speaker 1: There's a really good book called Billionaire Wilderness that I
Speaker 1: recommend to everyone listening to this podcast. It's sort of
Speaker 1: a mix of economics and anthropology and this guy studying
Speaker 1: like the billionaires who are building massive houses in Jackson
Speaker 1: and then the maids and the cooks and the drivers
Speaker 1: that work for them, and it was very interesting. I'm
Speaker 1: looking forward to the rodeo.
Speaker 3: So you already went to the rodeo.
Speaker 4: Ones. We went to the rodeo on Wednesday night. There
Speaker 4: is never enough rodeo.
Speaker 3: Yeah, for those who are listening and not watching, which
Speaker 3: is everyone, because there's not a video. Mike McKee is
Speaker 3: truly our most Western. He's in a full cowboy hat,
Speaker 3: western shirt. It's very natural because.
Speaker 1: You're in his natural You're.
Speaker 3: Not one of the just you know, billionaires hair playing
Speaker 3: dress up.
Speaker 4: No, I wish I were a billionaire, but no, I
Speaker 4: grew up in Colorado, so this is natural and normal.
Speaker 1: Is it true that you travel with a hat box
Speaker 1: for your hats?
Speaker 4: It is not true. I wear that on the plane.
Speaker 1: Someone told me once that you had a hat box.
Speaker 4: No, well, I have a hat box that I'd never use,
Speaker 4: which it could use if I wanted to bring out
Speaker 4: multiple hats.
Speaker 3: No, it would be a little much. So what did
Speaker 3: you think of the speech?
Speaker 4: I thought it was a little more direct that I
Speaker 4: anticipated in his flat out statement it's time to adjust policy.
Speaker 4: But beyond that, it was pretty much as expected. And
Speaker 4: then he didn't say by how much. He did drop
Speaker 4: the idea of we've got to wait for more data.
Speaker 4: So markets are reacting to that because they anticipated that
Speaker 4: he would be a little more cautious.
Speaker 1: You mentioned he didn't provide much guidance on the pace
Speaker 1: of rate cuts. I'm kind of wondering at this point
Speaker 1: if it even really matters if the market's already pricing
Speaker 1: in one hundred bits of easing, doesn't matter if that's
Speaker 1: like two fifty bases point cuts or if it's three
Speaker 1: twenty five bases point cuts, or like it's more there
Speaker 1: already pretty yeah.
Speaker 4: It's more in the optics. If you do fifty, then
Speaker 4: maybe people think there's something wrong. And if you do
Speaker 4: fifty off the top, the markets are going to kind
Speaker 4: of expect you to do it again and then look
Speaker 4: back at the rate increase cycle and say, well, they
Speaker 4: did twenty five, then they did fifty, then they did
Speaker 4: seventy five. And they don't want to create that impression,
Speaker 4: and they don't feel they need to that the economy
Speaker 4: is strong enough, in good enough shape that they can
Speaker 4: bring down rates gradually. And when you talk to the
Speaker 4: Fed bank presidents, they say all the CEOs in their
Speaker 4: regions all want a predictable path for interest rates so
Speaker 4: they can plan going.
Speaker 3: Forward say more about that. Actually, you know, we talked
Speaker 3: a lot about what hiking cycles have historically looked like,
Speaker 3: what do cutting cycles is that I hadn't thought about
Speaker 3: this idea that if you start off with fifty then
Speaker 3: people might ex inspect the next move to be fifty
Speaker 3: at all, which is again, you know, I know there's
Speaker 3: still a lot of data to come, but is that
Speaker 3: sort of like the norm where if you start off
Speaker 3: with that, then people expect that pace to continue.
Speaker 4: Well, there's no real norm. There's not a lot of
Speaker 4: historical record because we haven't had that many recessions that
Speaker 4: you could say this is a particular pattern. But what
Speaker 4: we have seen is basically twenty five basis points at
Speaker 4: a time, and that once they start, they do at
Speaker 4: least three before they stop. And that's about the only
Speaker 4: historical record we have because every recession and the following
Speaker 4: economy are different, Yeah, and so they're reacting in different ways.
Speaker 4: The only time they really cut by fifty basis points
Speaker 4: or more is when there's a crisis, and there's no
Speaker 4: crisis now, so there's no reason to think they would
Speaker 4: do that.
Speaker 1: So, Mike, you're one of the journalists who is actually
Speaker 1: in the room of the symposium, And for those who
Speaker 1: don't know how Jackson Hall works, there is a limited
Speaker 1: number of journalists that are allowed in the room where
Speaker 1: the policy and central bankers are all speaking. What is
Speaker 1: that like and what's the I guess scuttle But between
Speaker 1: all the presentations, what are people gossiping about? Or what's
Speaker 1: on everyone's mind?
Speaker 2: Reason?
Speaker 3: I only get to hang out in the lobby. Yeah,
Speaker 3: give us a little insight.
Speaker 4: You know, get I get asked that all the time.
Speaker 4: And what are people talking about there? Well, during the
Speaker 4: coffee breaks and before the sessions, they're talking about their kids,
Speaker 4: they're talking about their vacations. They're normal people like everybody else.
Speaker 4: There is some talk of about the papers that are presented,
Speaker 4: and once they've been presented, you know, you people go
Speaker 4: back and chat about them in the room. It's an
Speaker 4: academic conference if you're at all familiar with that. People
Speaker 4: listening out there, somebody gets up and presents econometrics DNSE
Speaker 4: paper on economic theory, a discussing comes up and tells
Speaker 4: what they think about it, and then the audience can
Speaker 4: ask questions or offer comments. There's not a sense of
Speaker 4: we're trying to figure out a problem here, and we're
Speaker 4: going to come up with a solution. It's just presentation
Speaker 4: of papers so that these central bankers can learn something
Speaker 4: about economic theory.
Speaker 3: And the theme for this year's conference is, you know, basically,
Speaker 3: how does monetary policy transmission actually work? And I think
Speaker 3: even though we did sort of get this, you know,
Speaker 3: qualiti declaration of victory from Powell this morning, you know,
Speaker 3: there's this mix, and he said a big chunk of
Speaker 3: it was the fact that although it took longer than
Speaker 3: expected pandemic related distortions plus the war, it took longer
Speaker 3: to adjust than expected, and the role that monetary policy
Speaker 3: played in reducing aggregate demand. But like that mix, no
Speaker 3: one really knows.
Speaker 4: Nobody really knows that every recession is different. This time
Speaker 4: we had some really unusual situations that are being addressed,
Speaker 4: many of them by the papers that are being presented here. Normally,
Speaker 4: when lu FED is raising or lowering interest rates, they
Speaker 4: affect the housing market a lot because it's interest rates sensitive.
Speaker 4: But this time everybody had refinanced interest rates at about
Speaker 4: two to three percent, so when the Fed raised rates,
Speaker 4: nobody wanted to move, and so that killed off the
Speaker 4: housing market for a couple of years, and that's just
Speaker 4: kind of a really weird situation for them. Also, the
Speaker 4: lags we talk about long and variable lags when monetary
Speaker 4: policy hits. Because of Bloomberg and other people who provide
Speaker 4: data instantly to everyone, we all know what the FED knows,
Speaker 4: So there's a feeling that lags might be shorter and
Speaker 4: work on the economy in a different timeframe. So there's
Speaker 4: a lot of things that have been exposed by this
Speaker 4: cycle here that the FED is going to try to understand.
Speaker 1: But speaking of lags and also the housing market, is
Speaker 1: kind of interesting that even with the recent decline in
Speaker 1: mortgage rates, activity hasn't really picked up. And I kind
Speaker 1: of wonder, like that's another There are so many instances
Speaker 1: of the business cycle of the past few years not
Speaker 1: behaving the way you would expect it to. This feels
Speaker 1: kind of like the latest one, like another one to
Speaker 1: add onto the pile.
Speaker 4: It is a bit bizarre. Talking to the FED bank
Speaker 4: presidents about their regions, they have told me that they
Speaker 4: see mortgage activities starting to pick up, especially they're talking
Speaker 4: to bankers who are making loans and things like that.
Speaker 4: It's not roaring yet, but it is starting to come back.
Speaker 4: People have there's pent up demand to move that young
Speaker 4: people with families want bigger houses. But to the people
Speaker 4: who own the bigger houses have retired and moved out
Speaker 4: because they can get a lower mortgage, they're not going
Speaker 4: to get that, so they anticipate that the market will
Speaker 4: get back into something of an equilibrium once rates get
Speaker 4: low enough. Now that's the key question. What psychological rate
Speaker 4: after hearing all your neighbors brag about their two and
Speaker 4: a half percent mortgage, what psychological rate do you have
Speaker 4: to get to before people really go out and start
Speaker 4: taking out mortgage applications.
Speaker 1: Okay, here's my other question. We're all at this lodge together.
Speaker 1: One of the cool things about this event is everyone
Speaker 1: is just kind of obviously some are locked away in
Speaker 1: the room, but after the presentations, everyone comes out to
Speaker 1: the bar. They go outside and admire the view. When
Speaker 1: you inevitably run into Powell, what question are you going
Speaker 1: to ask him?
Speaker 4: Well, I've already run into him, and I asked him
Speaker 4: if I if he had been in Salt Lake City
Speaker 4: because I saw somebody at the airport that looked like
Speaker 4: and he said no. But we don't talk policy in
Speaker 4: these informal situations. It's a chance to get to know
Speaker 4: people on a more personal basis, and we know a
Speaker 4: little bit about their family, they know a little bit
Speaker 4: about ours, so we chat like that, and it makes
Speaker 4: it easier to do your job going forward because there's
Speaker 4: more trust between the interviewer and interviewee.
Speaker 3: Do we know whether Powell has seen dead and Co
Speaker 3: at the sphere?
Speaker 4: That's Joe asking, is the question, Okay, if I can
Speaker 4: give a new answer to I'll say that's the question.
Speaker 4: I'll ask him. I don't think so, but it is possible,
Speaker 4: and I didn't see him.
Speaker 3: How many times have you did you go to see
Speaker 3: four four?
Speaker 4: I went once.
Speaker 3: I would have gone more if I'd had the time.
Speaker 4: I thought it was incredible. It was I mean, the
Speaker 4: sphere is definitely a bucket list item, and you could
Speaker 4: see the dead there, then that's even better.
Speaker 3: Lots More is produced by Carmen Rodriguez and dash Ol Bennett,
Speaker 3: with help from Moses Onam and kil Brooks.
Speaker 1: Our sound engineer is Blake Maples. Sage Bauman is the
Speaker 1: head of Bloomberg Podcasts.
Speaker 3: Please rate, review, and subscribe to Odd, Lots and Lots
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