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Fed Should Cut Rates Now: Narayana Kocherlakota · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
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  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
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  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. You know, Lisa, the market's just
• 0:20
  Speaker 1: you're just kind of looking at They were holding onto
• 0:22
  Speaker 1: some gains here just a few minutes ago. Then they
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  Speaker 1: just rolled over. We've got the SMP down twenty and
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  Speaker 1: the Dow off two hundred. They were again for that
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  Speaker 1: first hour of the market kind of holding those small
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  Speaker 1: gains but uh not enough. Yeah, we're looking right now
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  Speaker 1: than has dacked down in tens of a percent, really
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  Speaker 1: tanking around. Uh you know, ten fifteen ten ten am.
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  Speaker 1: Would try to figure out what the catalyst was there,
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  Speaker 1: which headline it was for everyone to push the cell button.
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  Speaker 1: I'd sell it's a perfect set up for next guest.
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  Speaker 1: Narianna cultural Lakota, former Minneapolis Fed president and Bloomberg opinion columnists,
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  Speaker 1: is also the professor of economics at the University of
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  Speaker 1: Rochester based in Rochester. Now, Rihanna, you wrote a really
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  Speaker 1: interesting column for or Bloomberg just yesterday kind of talking
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  Speaker 1: about how the FED should be aggressive not wait, maybe
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  Speaker 1: think about some pre emptive rate cuts to kind of
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  Speaker 1: get ahead of this coronavirus. I guess the question is
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  Speaker 1: would that even help? Would that matter given how low
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  Speaker 1: rates are right now? Oh yeah, and thanks for having
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  Speaker 1: me on. Actually, I think given how low rates are
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  Speaker 1: right now, I'll really um makes the case even stronger
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  Speaker 1: for a preemptive move. UM. You know the basics thinking
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  Speaker 1: about UM let's emerged the last ten to fifteen years
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  Speaker 1: about what central banks should do when they're so close
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  Speaker 1: to the zero or bround, that is, when they're so
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  Speaker 1: close to being odd of tools, is to try to
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  Speaker 1: keep the economy as healthy as possible when faced with
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  Speaker 1: the risk of a downturn or adverse shock. And I
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  Speaker 1: think the coronavirus is exactly an example that My benchmark
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  Speaker 1: outlook is one where UM, the the U S economy
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  Speaker 1: remains resilient, but there's downside risk, and the FED should
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  Speaker 1: I think the very sensitive that downside risk, given given
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  Speaker 1: how low rates are already, meaning given how little ammunition
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  Speaker 1: they have. Um, they really should be moving right now
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  Speaker 1: to try to keep the economy as healthy as possible. Ariana,
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  Speaker 1: I just want to bring you this because we did
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  Speaker 1: note a real rollover in equity markets, and I asked
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  Speaker 1: Men Signerella, our macro strategist here at Bloomberg, and he
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  Speaker 1: was saying, there are a number of headlines about the virus,
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  Speaker 1: the coronavirus, hitting mainland Spain and Barcelona, as well as
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  Speaker 1: in Switzerland. So this idea that it's becoming more widespread
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  Speaker 1: throughout the euro continent. I'm just wondering, from your perspective,
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  Speaker 1: the fact that this makes the case even more for
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  Speaker 1: the Federal Reserve to cut rates. What will that actually do,
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  Speaker 1: given the fact that it won't necessarily make people more
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  Speaker 1: incentivized to go out and spend money. I mean, if
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  Speaker 1: they're just pulling up and trying not to get sick. Uh. No,
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  Speaker 1: I think that what you you do by um, by
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  Speaker 1: cutting rates is uh in the in the in the
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  Speaker 1: US is special. I think what you see when we've
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  Speaker 1: seen the last couple of days is flights to save havens.
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  Speaker 1: What that ends up doing is uh, the U S
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  Speaker 1: dollar is one of those safe havens. It pushes up
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  Speaker 1: the value of the dollar. And even if the US
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  Speaker 1: itself ends up not being affected greatly by the coronavirus,
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  Speaker 1: that appreciation of the dollar pulls the FED further away
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  Speaker 1: from its goals of UM two percent inflation. On the
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  Speaker 1: employment front, UH, if we can, if we by cutting rates,
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  Speaker 1: the FED can get more Americans to spend. That offsets
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  Speaker 1: the falling demand for US goods and services that we
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  Speaker 1: will be seeing from overseas. So I think that this
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  Speaker 1: is all about trying to keep the U s economy
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  Speaker 1: as healthy as possible. Given this. Uh, given this negative shock,
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  Speaker 1: would fiscal stimulus be a better option um than more
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  Speaker 1: rate cuts? Do you think? Well? You know, I'm completely
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  Speaker 1: supportive of what I heard from FED speakers last week
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  Speaker 1: who were putting out the case for Look, the FED
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  Speaker 1: doesn't have that many tools in the in the toolkit,
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  Speaker 1: so physical policy should be ready to roll if we
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  Speaker 1: were to get into, um a recessionary state or a
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  Speaker 1: negative negative demand shock of some kind. UM. I don't
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  Speaker 1: think Congress is in that situation right now, but I
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  Speaker 1: certainly agree with my former FED colleagues who were laying
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  Speaker 1: out this case that, look, the FED only has a limited,
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  Speaker 1: limited tool kit would be great if physical policy UM
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  Speaker 1: it was clearly going to step in to make up
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  Speaker 1: for that slack. Marianna, I would say that the bond
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  Speaker 1: market currently agrees with you that the Federal Reserve will
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  Speaker 1: or should be cutting rates potentially even three times by
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  Speaker 1: early next year, although perhaps disagrees in that there is
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  Speaker 1: a very dimnimous chance that they're going to cut rates
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  Speaker 1: on the March eighteenth meeting. The great cuts really are
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  Speaker 1: priced in to begin in June. I'm just wondering what
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  Speaker 1: you said about incentivizing consumers to spend. Is that sort
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  Speaker 1: of the last tool because we're not necessarily seeing corporations
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  Speaker 1: borrow that much more despite record low borrowing costs. Is
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  Speaker 1: it really aimed at the consumer levering up to go
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  Speaker 1: buy cars or microwaves or whatever else. Yeah, I mean, uh,
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  Speaker 1: we incentivized consumers to buy UM through monetary policy, partly
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  Speaker 1: through by making borrowing cheap, but also by making savings unattractive.
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  Speaker 1: So through both of those instruments, you're trying to incentivized spending.
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  Speaker 1: I've been disappointed by investment on the on the corporate side.
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  Speaker 1: I'm I'm not alone in that. Uh, that's really, um,
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  Speaker 1: you need some notion of I think better expectations about
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  Speaker 1: the long run than than the corporations appear to have,
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  Speaker 1: either in the US or in Europe, or in in
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  Speaker 1: China and Japan. I think that um it's long run
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  Speaker 1: diminished expectations are really keeping the lid on on corporate evolve.
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  Speaker 1: With all due respect, though, I have to wonder if
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  Speaker 1: you say that in making savings less advantageous, does that
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  Speaker 1: just push people into risk your assets, risk your debt
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  Speaker 1: that's already treating at highly elevated prices, into equities that
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  Speaker 1: already are at historically high levels. There's going to be
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  Speaker 1: some of that on the there's someone set it to
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  Speaker 1: do that. Although as you just pointed out, I mean
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  Speaker 1: equities are very expensive, um Um, So that that that
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  Speaker 1: that the fact that equities are so expensive should say
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  Speaker 1: to people, look, UM, I don't want to buy stocks.
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  Speaker 1: I might as well spend my money instead. So I
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  Speaker 1: think on on the margin, UM, all of this is
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  Speaker 1: on the margin, you are going to be able to
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  Speaker 1: stimulate spending and that will generate higher employment and um
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  Speaker 1: keep the FED closer to it's it's in inflation target.
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  Speaker 1: So it's interesting now Jana, the FED open market can
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  Speaker 1: mid he holds its next meeting March or eighteen. Do
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  Speaker 1: you think they will wait till then or do you
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  Speaker 1: think they will act preemptively? Well, um, my column was
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  Speaker 1: a should column. It wasn't the scription what the Fed
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  Speaker 1: will actually do? Um? So I I thought that the
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  Speaker 1: Fed should move preemptively. I don't anticipate that they will. Um.
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  Speaker 1: I share the skepticism that they will move in in March.
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  Speaker 1: I I think the Feeding yet again, has boxed itself
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  Speaker 1: into a quarter by saying, look, things are great, We're
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  Speaker 1: not gonna We're in a great position, and it means
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  Speaker 1: that by locking themselves in, by talking so much about that,
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  Speaker 1: it means a loss of face, a loss of quote
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  Speaker 1: unquote credibility of some kind for them to start to move,
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  Speaker 1: to move right in either direction. We're speaking with Marianna
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  Speaker 1: Kutula Quota, former Minneapolis FED President, professor of economics at
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  Speaker 1: the University of Rochester, a Bloomberg opinion columnist, about his
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  Speaker 1: column that called for a preemptive rate cup by the
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  Speaker 1: FED to reserve. We should just mention that right now
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  Speaker 1: we are seeing a sell off inequities, although off earlier
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  Speaker 1: lows after starting the day positive with the losses led
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  Speaker 1: by the SMP down a little bit more than six
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  Speaker 1: tenths of a percent. Arianna, I'm curious about the actual
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  Speaker 1: fundamental US economy in the state of it. We got
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  Speaker 1: some p m MY data on Friday that how to
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  Speaker 1: do with services in particular, that highlighted a degree of
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  Speaker 1: weakness that was really unexpected by economists and market players alike.
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  Speaker 1: I'm wondering what you make of that. Is there perhaps
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  Speaker 1: less momentum behind the US consumer than some people expect.
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  Speaker 1: I think they're, you know, as usual when you read
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  Speaker 1: the tea leaves. I think there's some some strong positives
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  Speaker 1: of the labor market remains a real source of good news. UM.
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  Speaker 1: On the other hand, UM market tends to be a
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  Speaker 1: little bit backward looking at Maybe there's things you can
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  Speaker 1: see that that are more forward looking at that, UM
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  Speaker 1: give you cause, would give ones cause for concern. My
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  Speaker 1: own benchmark outlook is remains that. UM. You know, I'd
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  Speaker 1: like to see more growth, but I think we're gonna
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  Speaker 1: see about two growth in this year. UM. That point, though,
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  Speaker 1: is when you're making policy, it's really not so much
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  Speaker 1: about your benchmark outlook as it is about the risks
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  Speaker 1: that outlook. And that's especially true when you're as close
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  Speaker 1: as you are to the zeroal are abound. All right.
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  Speaker 1: So just last thing, you know, we're always thinking about
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  Speaker 1: this feed is being data dependent. I wonder what day
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  Speaker 1: do you think they might be looking at now as
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  Speaker 1: it relates to the coronavirus. That might be a little
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  Speaker 1: different than what they've done in the past. Yeah, I mean,
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  Speaker 1: I I think that's a tough question. I you know,
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  Speaker 1: I think that one of the things I'll be looking at,
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  Speaker 1: I suspect is what's going on in markets. I think
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  Speaker 1: that you see UM fear in markets, you see the
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  Speaker 1: imprint of fear in markets, and UM that fear is
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  Speaker 1: be a drag on the economy. And so I think
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  Speaker 1: that the FED will be looking at that in terms
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  Speaker 1: of actual hard numbers on on on the economic front.
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  Speaker 1: I really hope they don't wait to see those. And
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  Speaker 1: I think last year they moved it away. UM. Their
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  Speaker 1: their interest rate cuts were less motivated by what was
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  Speaker 1: going on in the economy as opposed to a perception
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  Speaker 1: of risk the economy. That's exactly what I'm urging in
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  Speaker 1: the context of the coronavirus as well, and I hope
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  Speaker 1: they do that. Um. As I said, they again, I
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  Speaker 1: feel like they've used language to box themselves into a
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  Speaker 1: corner where it's hard. They're going to find it hard.
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  Speaker 1: They're gonna feel that it's hard for them to move
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  Speaker 1: interest rates either up or down. Naranna cultural Lakota, former
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  Speaker 1: Minneapolis Fed President, Thank you so much for being with us.
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  Speaker 1: Uh Naryana is a professor of economics at the University
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  Speaker 1: of Rochester and a Bloomberg opinion columnist. Paul, we really
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  Speaker 1: noticed a market turnaround from what had been a positive
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  Speaker 1: start to the day. Yeah. And I think, as you
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  Speaker 1: mentioned earlier, it looks like seeing some reporting of some
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  Speaker 1: cases you know now not just Italy, but perhaps Spain
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  Speaker 1: as well. Um. And so I think that just raises
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  Speaker 1: the concerns that a lot of investors have about how
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  Speaker 1: much of a potential is this to be a global
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  Speaker 1: pandemic which could impact global GDP. And I think that's
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  Speaker 1: kind of the risk we're seeing in the bond market. Um.
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  Speaker 1: You know, yields grinding lower in than the equity markets
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  Speaker 1: rolling over here. Yeah, this is just to be very clear,
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  Speaker 1: the who has not the World Health Organization has not
• 11:30
  Speaker 1: deemed this yet. A pandemic, it is required that an
• 11:32
  Speaker 1: international agency like that give it that designation. However, we
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  Speaker 1: are seeing it spread beyond the borders of China and
• 11:40
  Speaker 1: Japan and Korea, uh and Italy now to Switzerland, which
• 11:43
  Speaker 1: is confirmed and also reports in Spain as well. The
• 11:47
  Speaker 1: question is do you buy this dip? And Jim Pulson,
• 11:50
  Speaker 1: chief investment strategistic Luthhold Group, has been watching closely and
• 11:53
  Speaker 1: joins us now on the phone, Jim, do you buy here? Well?
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  Speaker 1: I uh, I think if you've been underweighted dramatically, you
• 12:03
  Speaker 1: might want to buy a little bit. But otherwise I
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  Speaker 1: think I'd stand pat here and let the let the
• 12:08
  Speaker 1: fear sort of burn itself out here, uh for a
• 12:12
  Speaker 1: few more days. You know. I think the coronavirus was
• 12:15
  Speaker 1: the catalyst here, but I think this market would have
• 12:18
  Speaker 1: found some catalyst. I mean, we've just had a tremendous
• 12:22
  Speaker 1: run over the last year, and really we have not
• 12:25
  Speaker 1: had a tempera set correction. We certainly could have here
• 12:29
  Speaker 1: who knows, um, and that would not be at all
• 12:33
  Speaker 1: you know, uh surprising. Probably at some point would have
• 12:37
  Speaker 1: found some catalysts to do that. Um. You know, and
• 12:41
  Speaker 1: when you have these Steve drops. You know, the fear
• 12:44
  Speaker 1: really escalates and the stories get get pretty scary. Uh personally,
• 12:50
  Speaker 1: who knows. I'm no pandemic expert by any means, so
• 12:54
  Speaker 1: it could be a horrific outcome. I don't really know,
• 12:58
  Speaker 1: but odds I think strong only favor that probably this
• 13:03
  Speaker 1: epidemic will will start to fade a little bit here
• 13:07
  Speaker 1: over the next several months, and and probably a lot
• 13:11
  Speaker 1: of the spending that has been paused because of this,
• 13:16
  Speaker 1: like in places like China, will catch up. And I
• 13:19
  Speaker 1: still think that's the most likely outcome. It's not shocking
• 13:23
  Speaker 1: to me that we have incidents in other parts of
• 13:25
  Speaker 1: the world. Heck, we had long before last week. We
• 13:28
  Speaker 1: had incidents here in the United States and several other
• 13:30
  Speaker 1: places in the world, so we knew, uh it was spreading.
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  Speaker 1: I just I'll be surprised, though, to some extent, if
• 13:37
  Speaker 1: it gets nearly as bad elsewhere as it did in China,
• 13:41
  Speaker 1: simply because China, you know, that was the outbreak and
• 13:43
  Speaker 1: no one really knew what it was, and no one
• 13:46
  Speaker 1: expected that it was as bad as it was. Everywhere
• 13:49
  Speaker 1: knows what this is from a standpoint that it's serious,
• 13:52
  Speaker 1: and you know before it even gets bad, they've taken majors.
• 13:56
  Speaker 1: I think that makes a difference, UM, where people have
• 14:00
  Speaker 1: some warning to this as opposed to when it broken China. UM.
• 14:04
  Speaker 1: So I you know, who knows, but you've never known
• 14:07
  Speaker 1: these things. But I think underneath this, going into this
• 14:10
  Speaker 1: UM coronavirus, we had an up tick in world economic growth.
• 14:16
  Speaker 1: Manufacturing was recovering around the world, growth in general was recovering. UM.
• 14:21
  Speaker 1: We had r I s M pop backup of fifty.
• 14:24
  Speaker 1: We had the s M and China pop backup of fifty.
• 14:27
  Speaker 1: Right now, economic surprises have been on the positive side
• 14:31
  Speaker 1: in most places around the world, including China, Emerging World,
• 14:35
  Speaker 1: in the United States. So we had positive momentum going
• 14:38
  Speaker 1: into this, which I think is a very good thing,
• 14:41
  Speaker 1: as opposed to negative momentum that we might have had
• 14:45
  Speaker 1: last year of this hit. Ye. I certainly don't know,
• 14:48
  Speaker 1: but but I would try to avoid uh, you know,
• 14:53
  Speaker 1: panicking here. I think this whole is more a correction
• 14:56
  Speaker 1: than the end of the cycle. Just to give you
• 14:58
  Speaker 1: an update. Right now, all three major US equity indusicries
• 15:02
  Speaker 1: down nearly one percent as Spain isolates a thousand people
• 15:06
  Speaker 1: at an island hotel with the concern that there could
• 15:10
  Speaker 1: be the spread of coronavirus, Switzerland confirming its first case. Meanwhile,
• 15:14
  Speaker 1: you're seeing in the bond market thirty year yields down
• 15:17
  Speaker 1: uh to new loads of one point eight percent at
• 15:21
  Speaker 1: one point seven percent now actually uh, and you're seeing
• 15:25
  Speaker 1: rate cut bets increasing, with a lot of people speculating
• 15:29
  Speaker 1: the FED could cut rate three times by the beginning
• 15:33
  Speaker 1: of next year. That's exactly where I wanted to go, Lisa, Jim,
• 15:35
  Speaker 1: what do you think the FED should do could do? Uh?
• 15:39
  Speaker 1: In response to some of the concerns that the coronavirus. Well,
• 15:44
  Speaker 1: you know, it's uh, the market continues to go down.
• 15:48
  Speaker 1: You know, I think the FED will probably come in
• 15:50
  Speaker 1: and with the rate cut. Um. You know what does
• 15:53
  Speaker 1: that do though, Well, I think it doesn't do much
• 15:56
  Speaker 1: directly fundamentally um that we've already done. But I take
• 16:00
  Speaker 1: does help confidence to some degree. One thing it would
• 16:03
  Speaker 1: do is help take the inversion out of the yield curve,
• 16:06
  Speaker 1: which would help Wall Street confidence to some degree. I think, Um,
• 16:11
  Speaker 1: you know, I I also think so that in many
• 16:13
  Speaker 1: ways that coronavirus is you know, the understanding of the
• 16:17
  Speaker 1: story here, that's the narrative. I really think a big
• 16:20
  Speaker 1: part of what's going on is is the bond market
• 16:23
  Speaker 1: and the fact that the thirty year yield broke to
• 16:26
  Speaker 1: new lows last week and the ten year is doing
• 16:30
  Speaker 1: so now or is very close. I think that's scaring
• 16:33
  Speaker 1: a lot of traders and investors more even than the coronaviruses.
• 16:37
  Speaker 1: Is the breakdown and yields. What what does the bond
• 16:40
  Speaker 1: market know that the stock market doesn't and and the
• 16:43
  Speaker 1: fields break low below those levels? Is our yields in
• 16:47
  Speaker 1: the United States headed negative? Like here's here's here's the
• 16:50
  Speaker 1: sort of condundrum. Right. A lot of people say that
• 16:52
  Speaker 1: the lower yields go on bonds in the United States,
• 16:54
  Speaker 1: the more of a relative valuation case there is for equities.
• 16:58
  Speaker 1: And yet there is this sort of confidence factor where
• 17:00
  Speaker 1: if bond yields head south, price up, yield down, especially
• 17:04
  Speaker 1: at these levels, it indicates a flight to safety and
• 17:07
  Speaker 1: a fear trade that makes people risk averse. So which
• 17:11
  Speaker 1: is it, right? I mean, which signal can you get
• 17:13
  Speaker 1: that you're getting a better relative valuation and equities the
• 17:15
  Speaker 1: lower that yields go, or that the bond market is
• 17:18
  Speaker 1: telling you something kind of scary that you keep you
• 17:20
  Speaker 1: away from risk assets well, the bond market has been
• 17:24
  Speaker 1: telling is you know, uh, something scary for really since
• 17:29
  Speaker 1: the end of two thousand eighteen, and it's also told
• 17:32
  Speaker 1: us something scary in two thousand sixteen, and it also
• 17:35
  Speaker 1: told us something scary in two thousand eleven and two
• 17:37
  Speaker 1: thousand thirteen. I mean, the bond market has been telling
• 17:40
  Speaker 1: a scary story throughout this bowl market and uh, you know,
• 17:45
  Speaker 1: it hasn't really been right in a lot of those.
• 17:47
  Speaker 1: Now it could be right at some point, there's no
• 17:49
  Speaker 1: doubt about that. But the fact that we've got a
• 17:51
  Speaker 1: scary story coming from the stock market is nothing new
• 17:53
  Speaker 1: in the last decade um, where it's been professionally setting
• 17:57
  Speaker 1: new lows and suggesting something sinis or is underneath the surface. Um,
• 18:02
  Speaker 1: and we're doing that again. But you know, we did
• 18:05
  Speaker 1: that at the end of the last manufacturing recession in
• 18:07
  Speaker 1: two thousand sixteen as well, and the yields are about
• 18:10
  Speaker 1: where they were, you know, and following it at this
• 18:13
  Speaker 1: point then as well. So it's hard to know. I mean,
• 18:16
  Speaker 1: the bottomark could be right, I'm not saying that, but
• 18:19
  Speaker 1: it's not. It's not like this is a one off
• 18:21
  Speaker 1: event that's never happened before. The bond market has been uh,
• 18:25
  Speaker 1: you know, yelling fire for quite some time. Um, and
• 18:29
  Speaker 1: you know who knows who who is right. I just
• 18:32
  Speaker 1: think it connotes fear more than anything else right now.
• 18:35
  Speaker 1: And to me, I wouldn't necessarily run from that. I'm
• 18:39
  Speaker 1: not sure i'd buy into it. I'd let's see a
• 18:41
  Speaker 1: few days, see if this can find a bottom, But
• 18:44
  Speaker 1: I wouldn't necessarily panic along with everyone else. Hey, Jim,
• 18:48
  Speaker 1: thanks so much for joining us. We appreciate your thoughts
• 18:51
  Speaker 1: and commentary. Jim Paulson, Chief investment STRATEGI just for the
• 18:54
  Speaker 1: Lithhole Group, joining us on the phone from Minneapolis. Presidential
• 19:11
  Speaker 1: election is ramping up, and the concern remains from seen
• 19:15
  Speaker 1: about the vulnerability of the campaigns and of the election
• 19:19
  Speaker 1: itself to outside influences, most notably certainly from from Russia.
• 19:24
  Speaker 1: To get a sense of kind of where we are
• 19:26
  Speaker 1: today versus, we welcome Admiral James Turvidas. He's a columnist
• 19:30
  Speaker 1: for Bloomberg Opinion, retired U S. Navy admiral and of course,
• 19:33
  Speaker 1: former military commander of NATO. Adams Strevidis. Thank you so
• 19:37
  Speaker 1: much for joining us. We know you are busy. Let's
• 19:39
  Speaker 1: start with the presidential election. Clear evidence that the election
• 19:44
  Speaker 1: was influence, was hacked by the Russians. Is that risk
• 19:48
  Speaker 1: still there today? In the entire U S intelligence community,
• 19:55
  Speaker 1: all seventeen elements of it had attested to that in
• 19:59
  Speaker 1: front of Congress, most recently in a somewhat controversial briefing. Uh.
• 20:04
  Speaker 1: It is clearly a threat. And I'll give you three
• 20:07
  Speaker 1: quick things we got to focus on. One is local manipulation,
• 20:12
  Speaker 1: actually going in and trying to work on balloting procedures.
• 20:16
  Speaker 1: This is perhaps the most undefended portion of this that
• 20:19
  Speaker 1: won't be manifest until November. Of course. Number two is
• 20:23
  Speaker 1: going after the campaigns the way the Russians did in
• 20:29
  Speaker 1: getting into emails, revealing insider detail to embarrass and deter campaigns.
• 20:35
  Speaker 1: And then number three what you alluded to, Paul, attempting
• 20:38
  Speaker 1: to influence the campaigns by getting on social media social networks,
• 20:43
  Speaker 1: creating thoughts that drive social media campaigns. So there are
• 20:48
  Speaker 1: layer upon layer of ways in which Russia, Ken and
• 20:52
  Speaker 1: I would suspect, will try and attack these elections. Admiral,
• 20:56
  Speaker 1: given your experience within the military and the the security
• 21:01
  Speaker 1: forces all around, how good is our defense to these
• 21:05
  Speaker 1: types of attacks now? Compared to two thousand sixteen. At least,
• 21:09
  Speaker 1: I wish I could say it's, uh, it's much much better.
• 21:13
  Speaker 1: I cannot. I would say that we are somewhat better
• 21:16
  Speaker 1: because our technology and our tools coming out of the
• 21:19
  Speaker 1: National Security Agency n s A are better, Our big
• 21:25
  Speaker 1: banks are financials are telecom have improved. And then thirdly,
• 21:31
  Speaker 1: a plus is that we're more aware of the threat
• 21:35
  Speaker 1: than we were in But having said all of that,
• 21:40
  Speaker 1: I would say our defenses are a C plus at best.
• 21:45
  Speaker 1: I wouldn't say they are going to get us in
• 21:47
  Speaker 1: a or even to be and you know, in elections,
• 21:51
  Speaker 1: that's our democracy. You only want to get an A
• 21:54
  Speaker 1: grade on the conduct of your democracy. So ad were
• 21:58
  Speaker 1: one of the things that's been a theme for the
• 22:00
  Speaker 1: Trump administration is generally not supportive of major parts of
• 22:04
  Speaker 1: our intelligence community and apparatus, and you know, constant attacks
• 22:08
  Speaker 1: on individuals as well as the UH the entities themselves
• 22:12
  Speaker 1: have those as that position by the administration materially weakened
• 22:16
  Speaker 1: US defenses as it relates to UM, you know, kind
• 22:19
  Speaker 1: of cybersecurity and just overall intelligence UH support it has, unfortunately,
• 22:26
  Speaker 1: and it manifests in two different ways. Paul One is
• 22:30
  Speaker 1: internally it's extremely discouraging to the intelligence community when they're denigrated,
• 22:35
  Speaker 1: dilluded a moment ago to a brief being done behind
• 22:39
  Speaker 1: closed doors, classified briefing up on the Hill, conducted by
• 22:43
  Speaker 1: the intelligence community about concerns of the election coming forward. Um,
• 22:49
  Speaker 1: this was attacked by the president. That's not helpful. If
• 22:53
  Speaker 1: the president has views on this, you have to get
• 22:55
  Speaker 1: behind closed doors with the intelligence community. But um, it
• 22:59
  Speaker 1: starts to buckle the morale inside the intelligence community when
• 23:03
  Speaker 1: they perceive they're being attacked by the commander in chief.
• 23:06
  Speaker 1: And then secondly, our allies are partners and our friends
• 23:10
  Speaker 1: are watching this, and even worse, the Russians are watching this,
• 23:14
  Speaker 1: and the Chinese and the Iranians and the North Koreans,
• 23:18
  Speaker 1: and it gives them more license, more optimism that they
• 23:24
  Speaker 1: can intrude in these elections if they see a split
• 23:27
  Speaker 1: between the executive branch and the intelligence community itself. So uh,
• 23:32
  Speaker 1: not helpful. I wish the President would take his concerns,
• 23:36
  Speaker 1: which may be legitimate at times, do it behind closed doors,
• 23:39
  Speaker 1: don't do it in a way that reveals these kind
• 23:42
  Speaker 1: of divisions. Admiral I want to just broaden out here.
• 23:45
  Speaker 1: We have certainly the election coming up this November. The
• 23:49
  Speaker 1: Democratic debates will be held tonight at a p m. Eastern.
• 23:53
  Speaker 1: But on a broader level, I'm wondering about the U.
• 23:56
  Speaker 1: S IS alliances right now, especially as head towards potentially
• 24:01
  Speaker 1: a more disruptive period of time, from a health perspective
• 24:04
  Speaker 1: or an economic perspective. How close is the US to
• 24:08
  Speaker 1: its allies versus say, two years ago. We have drifted
• 24:12
  Speaker 1: away from UH some of our allies, most notably our
• 24:17
  Speaker 1: European allies and NATO. That creaking sound you hear from
• 24:21
  Speaker 1: time to time, we is the Transatlantic bridge which is
• 24:25
  Speaker 1: under allowed stress and strain as between the United States
• 24:29
  Speaker 1: on one side and NATO on the other. I think,
• 24:32
  Speaker 1: in fairness, we're still very very close to the Israelis
• 24:36
  Speaker 1: to the Saudiast, were quite close with the Japanese. Are
• 24:40
  Speaker 1: South Korean alliance has had some stresses. I think the
• 24:44
  Speaker 1: one I worry about the most is that US European relationship,
• 24:49
  Speaker 1: because the Europeans matter collectively, that's the largest economy in
• 24:54
  Speaker 1: the world, the European Union. Now with Great Britain leaving it,
• 24:58
  Speaker 1: it's somewhat small oler than it was, but it's still
• 25:01
  Speaker 1: an enormous economic and military capability. So as we look
• 25:06
  Speaker 1: at challenges around the world, the military one certainly the
• 25:10
  Speaker 1: cyber ones. And you're absolutely correct. If this coronavirus continues
• 25:15
  Speaker 1: to accelerate, we're going to need all hands on deck
• 25:18
  Speaker 1: globally to deal with it. It's not a good time
• 25:20
  Speaker 1: to be drifting away from our principal pool of allies,
• 25:24
  Speaker 1: partners and friends, and that's Europe. And we'll just quickly,
• 25:27
  Speaker 1: you know, on the election, simple question, why hasn't the
• 25:30
  Speaker 1: US improved its election security just seems like it wouldn't
• 25:34
  Speaker 1: be that difficult. I think the simple answer to the
• 25:38
  Speaker 1: question is because it is bifurcated between different elements of governance.
• 25:44
  Speaker 1: So there are municipal and local elements, there are state elements,
• 25:49
  Speaker 1: there are national elements to it. And then secondly, a
• 25:53
  Speaker 1: continuing flaw in the US government is our inter agency
• 25:57
  Speaker 1: still does not work together as well as it should.
• 26:00
  Speaker 1: Department of Homeland Security, Department of Justice, Department of Defense,
• 26:05
  Speaker 1: National Security Agency. We haven't found a way to collectively
• 26:09
  Speaker 1: bring them together. Last point, we have nobody in the
• 26:12
  Speaker 1: cabinet of the United States who focuses on cybersecurity. We
• 26:16
  Speaker 1: have a Department of agriculture. I'm sure that's useful, but
• 26:20
  Speaker 1: we need a focus at the cabinet level that can
• 26:23
  Speaker 1: bring all these stove pipes together. That's what's lacking. Paul.
• 26:27
  Speaker 1: Admiral James steffrid Is, thank you so much for being
• 26:29
  Speaker 1: with us, columnist for Bloomberg Opinion or retired U S.
• 26:32
  Speaker 1: Navy admiral and former military commander of NATO joining us.
• 26:37
  Speaker 1: He's also the author of a book that was out
• 26:39
  Speaker 1: last year, Sailing True North Ten Admirals and the Voyage
• 26:44
  Speaker 1: of Character. H. Dina Meritus, also of the Fletcher School
• 26:47
  Speaker 1: of Law and Diplomacy at Tufts University. One stock that
• 26:55
  Speaker 1: is not falling is Home Depot, although off its earlier highs,
• 26:58
  Speaker 1: up now only one point three percent after beating estimates,
• 27:03
  Speaker 1: and we want to dig into whether this is simply
• 27:05
  Speaker 1: an interest rate story that has given a boost to
• 27:08
  Speaker 1: the housing market, or if there is a message that
• 27:11
  Speaker 1: we can take about the broader consumer and will wrap
• 27:13
  Speaker 1: in Macy's as well joining us now to help do that.
• 27:16
  Speaker 1: As Craig Johnson, president of Customer Growth Partners, Craig, I
• 27:19
  Speaker 1: want to start with Home Depot, the shares off earlier
• 27:22
  Speaker 1: highs but still positive, which is remarkable on a day
• 27:25
  Speaker 1: like today. How much do you think the story here
• 27:28
  Speaker 1: is interest rates and how much is this organic demand
• 27:31
  Speaker 1: for housing? Well, UM, this is the two companies important
• 27:36
  Speaker 1: to our iconic names in retail, but they're clearly going
• 27:40
  Speaker 1: in different directions UM Home Depot. We think the interest
• 27:43
  Speaker 1: rate element is a part of the picture, but the
• 27:46
  Speaker 1: more important thing is the front. Changing and improving fundamentals
• 27:50
  Speaker 1: in the housing market is the big driver UM. And
• 27:53
  Speaker 1: the two key metrics we look at as UH home
• 27:57
  Speaker 1: pricing and then home turnover existing home and over, and
• 28:00
  Speaker 1: both of those are up. Prices are up six point
• 28:03
  Speaker 1: eight percent year of a year at the latest read,
• 28:06
  Speaker 1: and home turnover is up over nine about nine and
• 28:10
  Speaker 1: a half percent. Those are exceptionally good numbers and represent
• 28:13
  Speaker 1: a sequential improvement over each of the last couple of months.
• 28:17
  Speaker 1: And it's those two factors expectations of rising prices and
• 28:21
  Speaker 1: secondly rising home turnover. Those are the key triggers to
• 28:25
  Speaker 1: spending in terms of home improvement. And that's what that's
• 28:28
  Speaker 1: what we think is driving to home deep performance. All right,
• 28:31
  Speaker 1: let's switch gears to Macy's. UM. You know, another tough quarter,
• 28:35
  Speaker 1: stocks off three and a half percent here, the stocks
• 28:37
  Speaker 1: down for this year and the past twelve months here,
• 28:41
  Speaker 1: So it kind of goes back to that conundrum for
• 28:43
  Speaker 1: these UH department stores led by the iconic name Macy's,
• 28:48
  Speaker 1: what can they do to survive well UM Macy's challenge.
• 28:53
  Speaker 1: This is true across the department store retailers. There's lagging
• 28:57
  Speaker 1: organic growth in the overall concept of a department show,
• 29:01
  Speaker 1: which really hasn't the format hasn't really changed that much
• 29:04
  Speaker 1: from when R. H. Maizie and Marshall Field created the
• 29:07
  Speaker 1: concept of hundred and seventy years ago. And the demand
• 29:11
  Speaker 1: for department store shopping is simply down by the range
• 29:15
  Speaker 1: of about UM of about one percent year of a year,
• 29:19
  Speaker 1: and and so so we look at we look at
• 29:22
  Speaker 1: what's happening is UH a decline in market share, department
• 29:28
  Speaker 1: shares down to one percent, UH decline of one percent,
• 29:33
  Speaker 1: And what we're seeing is that Macy's UM is trying
• 29:38
  Speaker 1: to catch up to have his new operational pilaris concept
• 29:42
  Speaker 1: where it tries to match cut its costs, so it's
• 29:45
  Speaker 1: in reduced capacity, so it matches the UH, so it
• 29:50
  Speaker 1: matches the supply with demand, and so it's announced cutting
• 29:54
  Speaker 1: of stores and questions, it's done this a little, it's
• 29:56
  Speaker 1: a dollar late and a dollar short. Can we take
• 29:59
  Speaker 1: any broader UH takeaway from the data that we've been
• 30:04
  Speaker 1: getting out of Macy's. Not maybe Home Deepokes that's a
• 30:06
  Speaker 1: particular story, but Macy's and some of the other retailers
• 30:10
  Speaker 1: about the state of the US consumer, well, we think
• 30:13
  Speaker 1: that the underlying state of the U s consumer is
• 30:16
  Speaker 1: is essentially healthy. To challenge for department stores is that's
• 30:20
  Speaker 1: a segment of the market that is that it's it's
• 30:23
  Speaker 1: in decline and it's been in decline for full generation.
• 30:26
  Speaker 1: You go back to the late nineteen eighties, department stores
• 30:29
  Speaker 1: comprised a full ten percent of the retail market. Now
• 30:33
  Speaker 1: it's down to one one. It's it's exceptional. So it's
• 30:36
  Speaker 1: you don't want to you don't you don't want to
• 30:39
  Speaker 1: estimate the number coming out of just Macy's. So we
• 30:43
  Speaker 1: look at the overall UH picture, and you know, we
• 30:45
  Speaker 1: just issued our our annual forecaster, and the overall forecast
• 30:52
  Speaker 1: calls for growth at four point one percent, which is
• 30:55
  Speaker 1: quite good, not spell it, but quite good. But you
• 30:58
  Speaker 1: look at the department store sector and we're forecasting that
• 31:00
  Speaker 1: is down about again about one percent decline. So, Craig,
• 31:05
  Speaker 1: given that you know backdrop that outlook, one of the
• 31:08
  Speaker 1: concepts that I'm fascinated with is the concept of the
• 31:10
  Speaker 1: US is still overstored. Um, despite the fact that we
• 31:14
  Speaker 1: see Macy's and others closing stores by what magnitude do
• 31:18
  Speaker 1: you think the industry still has to shrink. It's a
• 31:21
  Speaker 1: physical footprint. Uh, we're guessing for the department store sector
• 31:26
  Speaker 1: by about another This is a large number. It's simply
• 31:32
  Speaker 1: the sector is still way over capacity. There's a lot
• 31:35
  Speaker 1: of stores that you don't need. There's markets in Necutter
• 31:38
  Speaker 1: you don't need ten stores and made many major faulting
• 31:41
  Speaker 1: areas you can get by with five, six, seven, and
• 31:45
  Speaker 1: the same thing in smaller to mid sized markets. You
• 31:47
  Speaker 1: don't need the number stores because the demand simply isn't there.
• 31:50
  Speaker 1: And in Masa's case, just like the other department stores,
• 31:53
  Speaker 1: you have too many retail square feet chasing too few
• 31:57
  Speaker 1: customer fee and that's the core pro problem, got it um,
• 32:01
  Speaker 1: And it's exacerbated as is online grows, which keeps growing
• 32:05
  Speaker 1: year after year. Craig Johnson, thanks so much for joining us.
• 32:08
  Speaker 1: We really appreciate your thoughts here on all Things Retail.
• 32:12
  Speaker 1: Thanks for listening to the Bloomberg pen L podcast. You
• 32:14
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts or
• 32:17
  Speaker 1: whatever podcast platform you prefer. I'm Paul Sweeney, I'm on
• 32:20
  Speaker 1: Twitter at pt Sweeney. I'm Lisa abram Woyds. I'm on
• 32:22
  Speaker 1: Twitter at Lisa A. Bram Woyds. One Before the podcast,
• 32:25
  Speaker 1: you can always catch us worldwide on Bloomberg Radio