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Nathan Sheets Discusses Fixed Income (Podcast) · Masters in Business

0:02
Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio.
0:07
Speaker 1: This week on the podcast, I have an extra special guest.
0:11
Speaker 1: His name is Nathan Sheets, and he comes to us
0:14
Speaker 1: by way of Pigum Fixed Income, a giant institutional shop.
0:19
Speaker 1: Their fixed income department alone seven hundred and forty three
0:22
Speaker 1: billion dollars in fixed income assets UM. Nathan has a
0:27
Speaker 1: unique background. He served in the Treasury Department. He was
0:31
Speaker 1: with the Federal Reserve for um eighteen or so years.
0:35
Speaker 1: He worked at City and then Prudential, and now he's
0:37
Speaker 1: been at Pigum for a while. He is uniquely situated
0:43
Speaker 1: to comment about, and analyze and discuss monetary policy, state
0:50
Speaker 1: of the economy, how best to analyze employment inflation, what
0:55
Speaker 1: it means for interest rates, what that means for fixed
0:58
Speaker 1: income investments. Uh. It really is a fascinating conversation filled
1:04
Speaker 1: with wonky goodness. So if you are at all remotely
1:07
Speaker 1: interested in any of those things, and you know I'm
1:10
Speaker 1: interested in all of those things, you will find this
1:13
Speaker 1: to be an utterly fascinating discussion. So, with no further ado,
1:17
Speaker 1: my conversation with Pijum Fixed Incomes Nathan Sheets. This is
1:25
Speaker 1: Master's in Business with Barry Ridholts on Bloomberg Radio. My
1:30
Speaker 1: special guest this week is Nathan Sheets. He is the
1:33
Speaker 1: chief economist and head of Global macro economic Research at
1:39
Speaker 1: PIJUM Fixed Income, which manages seven hundred and forty three
1:43
Speaker 1: billion dollars in assets. Previously, he was the Under Secretary
1:47
Speaker 1: of the Treasury for International Affairs UH. Prior to that,
1:51
Speaker 1: he worked at US Treasury Department, as well as the
1:55
Speaker 1: Federal Reserve, where he served as director of the Division
2:00
Speaker 1: International Finance. Previously he was at City Group. Did I
2:04
Speaker 1: get that right or room? How far off? Was? I
2:06
Speaker 1: think you nailed it all right? Nathan Sheets, Welcome to Bloomberg.
2:10
Speaker 1: Pleasure to be here. Thank you. So you have a
2:13
Speaker 1: fascinating background. You were now you're currently at PEJAM Fixed Income.
2:17
Speaker 1: Previously you were prudential at City Group, the U. S
2:22
Speaker 1: Treasury and the Federal Reserve. Was was this the plan?
2:26
Speaker 1: Was this the career path you had mapped out for yourself.
2:28
Speaker 1: I think it would have been impossible to foresee how
2:32
Speaker 1: things would evolve, But coming out of grad school, I
2:36
Speaker 1: did want a career in practical economics. I wanted to
2:40
Speaker 1: take the theory that I had learned and applied in
2:44
Speaker 1: a way that it might actually make a difference in
2:47
Speaker 1: in the lives of people. And hence all this public
2:50
Speaker 1: service at the Treasury Department and the Federal Reserves I envisioned.
2:53
Speaker 1: I envisioned public service. My first job was was at
2:58
Speaker 1: the Federal Reserve. But uh, I'm also you know, I
3:01
Speaker 1: think a practically minded guy, at least as practically as
3:04
Speaker 1: you can be and still be an economist, and I
3:06
Speaker 1: was interested in applying these kinds of principles in a
3:10
Speaker 1: in a private sector context as well. So I couldn't
3:14
Speaker 1: have predicted the path or how things would evolve. I've
3:17
Speaker 1: been very fortunate in the opportunities that I've had, but uh,
3:21
Speaker 1: I did very much want to do qualitatively these kinds
3:25
Speaker 1: of things. So so you come out of your PhD program,
3:28
Speaker 1: you say, I'm not going to go into academia, but
3:32
Speaker 1: the next best best thing is the Federal Reserve, who
3:35
Speaker 1: typically hires PhDs as researchers. What what was your first
3:39
Speaker 1: job at the Fed? Like the Federal Reserve, for me,
3:43
Speaker 1: especially in those first years, was a vigorous post doc.
3:48
Speaker 1: It allowed me to take, uh the theory and as
3:52
Speaker 1: I said, apply it in practical ways to real world issues.
3:56
Speaker 1: So my first assignment was to follow Rush UH and
4:00
Speaker 1: some of the other transitioning economies Poland, Hungary and so forth.
4:04
Speaker 1: I in the in the mid ninety nineties when they
4:08
Speaker 1: were transitioning from a centrally planned system into market based economies,
4:14
Speaker 1: and it was it was very exciting to see the
4:17
Speaker 1: interplay between politics and policy and economics and sociology through
4:24
Speaker 1: through that period. So Russia continues to struggle with corruption
4:28
Speaker 1: on its path to capitalism. Some of the outer block
4:32
Speaker 1: form of Soviet countries are doing much better. What's that
4:35
Speaker 1: transition like and are they still heading in the right direction.
4:39
Speaker 1: What we're finding is that the countries that had some
4:43
Speaker 1: tradition of capitalism are doing quite well. Most of those.
4:49
Speaker 1: Most of those are the Central Europeans. The Czech Republic
4:52
Speaker 1: is doing very well, Slovakia is is doing well. UH.
4:57
Speaker 1: Kind of the next wrong. You've got countries like like
5:00
Speaker 1: Gary and Romania, maybe not quite as well as as
5:04
Speaker 1: the Czech Republic and in the Slovak Republic, but they're
5:07
Speaker 1: they're proceeding. Uh. Russia, as you say, UH continues to struggle,
5:12
Speaker 1: and frankly, I think history will have a judgment as
5:15
Speaker 1: to whether we had opportunities there to help the Russians
5:19
Speaker 1: more effectively than we actually did. And then many of
5:23
Speaker 1: the UH former Soviet republics continue to struggle. They have
5:28
Speaker 1: very low levels of per capity income, and UH have
5:32
Speaker 1: a significant distance yet to go before they're really part
5:35
Speaker 1: of the global economy. Since your early days at the FED,
5:39
Speaker 1: the global monetary system has really evolved, some of it,
5:44
Speaker 1: certainly in response to the Great Financial Crisis. Where do
5:47
Speaker 1: you see the future of monetary policy UM from from
5:53
Speaker 1: your perspective at Pigium today. During the twenty five years
5:57
Speaker 1: when I've been a professional economist, the global economic and
6:02
Speaker 1: monetary system has absorbed two very large shocks or changes.
6:11
Speaker 1: I'd say the first one has been the ongoing integration
6:14
Speaker 1: of China. From a structural standpoint. Uh, the addition of
6:21
Speaker 1: one in a quarter billion Chinese into the global economy
6:26
Speaker 1: has been UH significant, and we're still dealing with the
6:29
Speaker 1: implications of that. Deflationary or inflationary or at times both.
6:35
Speaker 1: I think so far more deflationary or disinflationary that uh,
6:42
Speaker 1: most of those folks had lower wages than Western workers,
6:46
Speaker 1: and I think that's put downward pressure on wages throughout
6:50
Speaker 1: the world over the last twenty or twenty five years.
6:52
Speaker 1: And the second issue. You mentioned that second major issue
6:55
Speaker 1: is the global financial crisis, so China. The big actual issue,
7:01
Speaker 1: the global financial crisis, is the big cyclical issue. But
7:05
Speaker 1: the bottom line, and as it pertains to the international
7:09
Speaker 1: monetary system in particular, is that notwithstanding these two big shocks,
7:15
Speaker 1: the role of the dollar and the centrality of US
7:19
Speaker 1: markets has remained largely intact. The dollars still by far
7:24
Speaker 1: the world's leading reserve currency, the US financial markets are
7:29
Speaker 1: essentially unrivaled in the world. That that in many ways
7:33
Speaker 1: the world is more multipolar, but not so much in finance.
7:37
Speaker 1: Let's talk a little bit about your role at the
7:40
Speaker 1: Federal Reserve. How did you start, what did that evolve into,
7:45
Speaker 1: and how closely did you end up working with the
7:48
Speaker 1: board and its chairman so UH. I was at the
7:52
Speaker 1: Fed for eighteen years. UH. During the entirety of the time,
7:57
Speaker 1: I was in the Division of International Finance. UH. During
8:01
Speaker 1: the first fourteen of those years, I held a variety
8:04
Speaker 1: of roles. I mentioned Russia, and I was falling emerging
8:07
Speaker 1: markets in Japan and so forth. During the last four
8:11
Speaker 1: which started in two thousand and seven, I was the
8:14
Speaker 1: director of the International Finance Division as the global financial
8:18
Speaker 1: crisis emerged, and had the opportunity and the responsibility to
8:24
Speaker 1: work closely with Ben Bernanke and the Board and and
8:28
Speaker 1: and others and trying to respond to that that terrible
8:32
Speaker 1: set of economic conditions. So there's been a lot of
8:36
Speaker 1: revisionist Dick history. If you remember um early on in
8:41
Speaker 1: the in the financial crisis, the FED is going to
8:46
Speaker 1: be the ruin of all of us. They're gonna cause
8:48
Speaker 1: hyper inflation, They're going to destroy the dollar. They should
8:52
Speaker 1: just stand down. What sort of great do you give
8:54
Speaker 1: the Federal Reserve for the job they did both before, during,
9:00
Speaker 1: and after the financial crisis? So I'm probably a little biased. Uh,
9:06
Speaker 1: I would give the FED, I don't know, a B
9:10
Speaker 1: for a pre crisis. And I think the criticism there
9:14
Speaker 1: is not about monetary policy, which I think was about right.
9:17
Speaker 1: But the FED didn't do what it could have done
9:21
Speaker 1: in the regulatory space and allowed imbalances in the financial system.
9:25
Speaker 1: Relic and his work for sure, exactly exactly, and the
9:29
Speaker 1: FED was not unique, the FED was not alone. But
9:32
Speaker 1: I don't see I can give the Fed more than
9:35
Speaker 1: a B. Now during the heat of the crisis. UH,
9:40
Speaker 1: A vigorous response was absolutely necessary. As we were sitting
9:45
Speaker 1: in the Fed's building and those terrible facts were emerging. UH.
9:49
Speaker 1: It reminded me a bit of the Jack Nicholson line,
9:53
Speaker 1: you can't handle the truth. The truth was terrible, and
9:57
Speaker 1: UH Bernankee and guide here and then UH pulse and
10:01
Speaker 1: at the Treasury. They just worked through this and they
10:04
Speaker 1: had a set of a set of responses. I would
10:06
Speaker 1: give the FED an A for that period. Lehman obviously
10:12
Speaker 1: failed and no one saw the consequences of that. I
10:16
Speaker 1: think they were going to let somebody fail at some point.
10:18
Speaker 1: That's why I don't give them an UH an A plus.
10:21
Speaker 1: And then, frankly, since the financial crisis, I think the
10:24
Speaker 1: FED again has done a pretty good job keeping keeping
10:27
Speaker 1: inflation expectations well anchored and supporting UH growth in the
10:33
Speaker 1: US economy. When you look around the world, you know,
10:35
Speaker 1: we can't say things are growing gangbusters in the United States,
10:38
Speaker 1: but we're doing better than Europe and Japan and UH
10:42
Speaker 1: and many others. So let me push back a little bit.
10:45
Speaker 1: I don't think we're all that far apart, and in fact,
10:48
Speaker 1: I think revisionist history helps the fed's decision with Lehman
10:52
Speaker 1: Brothers because subsequently learned that Lehman Brothers had a negative
10:57
Speaker 1: net worth of minus a hundred and fifty billion dollars.
11:00
Speaker 1: Nobody could have taken Lehman Brothers on ps. Dick Folds
11:04
Speaker 1: turned down Warren Buffett when they needed some capital six
11:08
Speaker 1: months before they collapsed. At what point I just picture
11:12
Speaker 1: these meetings at the FED where someone says, this idiot
11:16
Speaker 1: said no to Buffett, how can we possibly bail him out?
11:18
Speaker 1: It's but here's where I disagree with you. So in
11:22
Speaker 1: the period leading up to the crisis, we're we're totally
11:28
Speaker 1: in sync about people like Ed Graham should have been
11:32
Speaker 1: listened to. He understood the regulatory lapses that were being
11:35
Speaker 1: taken advantage of by the private sector. But dear Lord,
11:39
Speaker 1: we had federal reserve rates um under two percent for
11:44
Speaker 1: three years and at one percent for a year. That
11:47
Speaker 1: really kicked off a giant inflationary spiral. I think Greenspan
11:51
Speaker 1: was far too accommodative post nine eleven. He was emotionally
11:55
Speaker 1: shaken up and did not normalize rates fast enough. I
11:59
Speaker 1: have heard people make the same complaints post crisis. The
12:03
Speaker 1: FED has not normalized rates fast enough. In each case,
12:07
Speaker 1: it both instances led to um income inequality and political instability.
12:13
Speaker 1: How far off is that criticism? So? UH, when I
12:18
Speaker 1: think about what a different path of policy rates might
12:23
Speaker 1: have looked like, I suppose you compare it to a
12:25
Speaker 1: benchmark like the Tailor rule. The FED was a little
12:30
Speaker 1: bit softer than the Tailor rule. But in my mind,
12:33
Speaker 1: the misses are a couple of rate hikes and a
12:36
Speaker 1: little bit in timing. It doesn't seem like, even if
12:39
Speaker 1: we think there should have been a more vigorous UH
12:44
Speaker 1: monetary policy response, that the difference between what they did
12:48
Speaker 1: and what one might envision was large enough to explain
12:52
Speaker 1: the imbalances UH and problems that erupted in the economy.
12:56
Speaker 1: My feeling really is that the mistakes were on the
13:00
Speaker 1: regulatory side, on the government side, in board rooms, amongst managers,
13:06
Speaker 1: amongst traders. I mean, there's a lot of blame to
13:08
Speaker 1: go around for the global faviss but I just don't
13:11
Speaker 1: think that the misses for monetary policy we're big enough
13:14
Speaker 1: to get really on the scoreboard relative those other mistakes.
13:18
Speaker 1: So let's let's play a counter factual game. Some people
13:23
Speaker 1: wanted the FED to do nothing during the crisis. Hey,
13:27
Speaker 1: it's Congress's responsibility. What would the world have looked like
13:31
Speaker 1: if the FED said we'd like to create uh um
13:36
Speaker 1: either QWI years up, but really it's up to the
13:39
Speaker 1: Senate in the House, we're gonna do nothing and follow
13:42
Speaker 1: their lead. What would the world have looked like then?
13:45
Speaker 1: So as it was, we saw the unemployment rate rise
13:49
Speaker 1: to ten percent. I honestly believe that if the Fed
13:52
Speaker 1: had done nothing and had just waited for Congress, we
13:57
Speaker 1: could have seen the unemployment rate twice that hot. That
14:01
Speaker 1: would have been more like what happened during the Great Depression.
14:05
Speaker 1: And h I think that if the FETE had been
14:08
Speaker 1: hands off, if they had said, that's not our responsibility,
14:11
Speaker 1: that uh, we could have had Great Depression two point
14:15
Speaker 1: oh right. And as it was, as it said, it
14:18
Speaker 1: was unimaginably terrible, but it could have been even worse. Um,
14:22
Speaker 1: I don't I don't disagree with that at all. Um.
14:26
Speaker 1: Lots of folks got the implications of KWIE wrong. Very famously.
14:30
Speaker 1: A number of people had a letter in the Wolf
14:33
Speaker 1: Street Journal to Ben Bernecki that said, I want to
14:36
Speaker 1: say this was, Hey, your quantitative easing is again, We're
14:42
Speaker 1: gonna see hyper inflation. We're going to see the collapse
14:44
Speaker 1: of the dollar. You're destroying the economy. And in fact
14:49
Speaker 1: none of the sort happened. Why did people get quantitative
14:54
Speaker 1: easing so long? Was it the fundamental understanding of economics?
14:59
Speaker 1: Was it bias or or we just haven't lived through
15:01
Speaker 1: anything like that? What excuses can these folks legitimately offered
15:05
Speaker 1: for being so wrong? So as the FED pursued quantitative easing,
15:11
Speaker 1: they were really pushing out the frontier of monetary policy
15:16
Speaker 1: and Fed, the markets and the rest of the world
15:20
Speaker 1: didn't know the full implications of what they were doing,
15:24
Speaker 1: and I think that's what kicked off some of these
15:26
Speaker 1: concerns and anxieties that you described. But I think that UH,
15:30
Speaker 1: Ben Bernanke and Jenny Yellen have been very effective at
15:34
Speaker 1: having their economic dashboard, and I would say at the
15:38
Speaker 1: center of that dashboard has been inflation expectations, where if
15:43
Speaker 1: they have one objective, it's to make sure that inflation
15:48
Speaker 1: expectations stay well anchored around two percent. And these various
15:53
Speaker 1: policies that the FED pursued, quantitative easing and the like,
15:56
Speaker 1: have pushed up UH inflation expectation sans some to keep
16:01
Speaker 1: them well anchored, but there hasn't been any overshooting. Let's
16:05
Speaker 1: talk a little bit about your current role. It seems
16:09
Speaker 1: like your backgrounds UH in international finance at the Treasury
16:14
Speaker 1: and everything you've done at the Federal Reserve pretty perfect
16:19
Speaker 1: preparation for being a head of research at a at
16:22
Speaker 1: a big fixed income shop. I feel like I learned
16:26
Speaker 1: global macro at the Fed and the Treasury during my
16:31
Speaker 1: time at City. I learned how to talk to investors
16:34
Speaker 1: about markets, and I'm able to draw on that background
16:38
Speaker 1: on a daily basis in my work at at PGAM
16:41
Speaker 1: Fixed Income. The new dimension is being closer to the
16:46
Speaker 1: portfolio allocation process and closer to the portfolio managers and
16:51
Speaker 1: getting a better sense of the real considerations that go
16:54
Speaker 1: into that decision of should we buy or sell a
16:57
Speaker 1: given asset. So your clients are essentially all big institutions, UM,
17:03
Speaker 1: how often do you get to interact with UH investors
17:08
Speaker 1: from these other institutions and and what are they concerned
17:10
Speaker 1: about today? So UH, the interaction with with our clients
17:15
Speaker 1: is frequent, UH and intensive. I travel extensively across the
17:21
Speaker 1: United States and also globally. We have lots of clients
17:24
Speaker 1: in Europe, Japan, Asia, and elsewhere. In terms of issues,
17:30
Speaker 1: I would say the short term issue that clients are
17:34
Speaker 1: the most interested in is how much steam does this
17:38
Speaker 1: expansion have left? Are we looking at a recession around
17:43
Speaker 1: the corner. It's been running for a while, We've been
17:45
Speaker 1: hearing warnings about that for two or three years. Exactly
17:49
Speaker 1: is this late cycle or not? The longer term issue
17:53
Speaker 1: that they're the most focused on is debt and demographics.
17:58
Speaker 1: What what does this kind of ad verse cocktail mean
18:02
Speaker 1: for our long term performance? So so let's talk about
18:05
Speaker 1: the first one about the length of the cycle. I
18:09
Speaker 1: have long since complained that most economists are using the
18:13
Speaker 1: wrong data set. It's not recessions, it's post credit crisis
18:18
Speaker 1: recoveries that they should be looking at, and they seem
18:20
Speaker 1: to be very different than the ordinary balance sheet recession.
18:24
Speaker 1: Explained that if you would yes, so uh a decade
18:28
Speaker 1: or so ago, uh Ken Rogoff and Carmen Reinhardt did
18:32
Speaker 1: some very interesting work where they looked at decades and
18:35
Speaker 1: decades of recessions and compared those that are driven by
18:40
Speaker 1: banking crises to those recessions that arise for other reasons.
18:45
Speaker 1: And what they found was that the recoveries from those
18:48
Speaker 1: banking crises were systematically slower, and that the slower pace
18:55
Speaker 1: of growth persisted for up to a decade. And when
18:58
Speaker 1: you look at the US experien ariants, it seems to
19:01
Speaker 1: be match Reinhardt and rogue Off almost almost almost precisely.
19:07
Speaker 1: It really is is quite extraordinary. Now, the one thing
19:11
Speaker 1: I would say that's on the other side of the
19:12
Speaker 1: ledger is that this has been slower as they predicted,
19:17
Speaker 1: but this has also been a uh an extraordinarily persistent expansion,
19:23
Speaker 1: where by July it will be the longest expansion in
19:28
Speaker 1: in US history. So it's been slower but also longer lived.
19:32
Speaker 1: So some people have given Reinhardt and rogue Off a
19:35
Speaker 1: little pushbacked um, this time is different. Eight Centuries of
19:39
Speaker 1: Financial Folly was the book they wrote post crisis. But
19:42
Speaker 1: what a lot of folks do not recall is that
19:46
Speaker 1: in December two thousand and seven they put out a
19:49
Speaker 1: white paper that looked at five crises. I want to
19:52
Speaker 1: say it was US, Mexico, Sweden, Japan one other that
19:57
Speaker 1: escapes my my recollection. So before or like literally as
20:01
Speaker 1: the market peaked, they put out a paper that said says,
20:04
Speaker 1: here's how financial crises are different and why the recoveries
20:08
Speaker 1: are different, also very prescient. Very few people really paid
20:12
Speaker 1: a lot of attention to that, but they were dead on,
20:14
Speaker 1: weren't they. They really were, you know, I'd say five
20:18
Speaker 1: years ago there was a debate as to what was
20:20
Speaker 1: going on, why was growth slower? And I think all
20:22
Speaker 1: the other explanations have kind of melted away and we
20:25
Speaker 1: just have to accept the fact this was deep. It
20:29
Speaker 1: hit our financial sector. There are significant headwinds to to
20:33
Speaker 1: to bank credit and lending, and probably also scars in
20:38
Speaker 1: terms of of of demand for credit in the corporate sector,
20:42
Speaker 1: which is translated not only into somewhat tighter credit conditions
20:46
Speaker 1: than would have prevailed, but also Uh, corporates have been
20:50
Speaker 1: hesitant to invest, and all of that has been a slower,
20:53
Speaker 1: slower recovery. You mentioned the longer term concerns of your
20:57
Speaker 1: institutional clients are the nation of debt and demographics. I'm
21:02
Speaker 1: assuming they mean sovereign debt or is it also corporate debt?
21:06
Speaker 1: How do those two play together? I would say, Uh,
21:09
Speaker 1: primarily it's sovereign debt, with an asterisk that the private
21:13
Speaker 1: debt in China is very high. Is it really private debt?
21:18
Speaker 1: Isn't it kinda sort of like what we did with
21:21
Speaker 1: Fannie and Freddie. Isn't there the full faith and credit
21:23
Speaker 1: of the Chinese government behind that private debt? Or am
21:26
Speaker 1: I overstating that in the first instance, it's it's private debt.
21:30
Speaker 1: But your point, you know, doesn't the Chinese government implicitly
21:34
Speaker 1: guarantee uh most of the debt in China? Is absolutely right,
21:39
Speaker 1: and so maybe you just think about that as a
21:41
Speaker 1: different form of of of of public debt um. But
21:46
Speaker 1: then the question is, as these debt levels rise, and
21:49
Speaker 1: as we know in the future, there are gonna be
21:53
Speaker 1: a fewer workers and uh fewer taxpayers, And how do
21:58
Speaker 1: these things interact with the each other. What are those
22:01
Speaker 1: tax rates uh in twenty or thirty years gonna look
22:04
Speaker 1: like uh in order to in order to make payment
22:08
Speaker 1: to even service this debt I? And will those tax
22:12
Speaker 1: rates have adverse implications for incentives to work? Alternatively, will
22:18
Speaker 1: will an older society be less prone to to to
22:24
Speaker 1: want to take risks and engage an entrepreneurship than a
22:27
Speaker 1: younger one, And if so, then that might mean you
22:30
Speaker 1: have a slur productivity growth. There are a number of
22:32
Speaker 1: concerns where these issues of dabt and Demographics Interact. I'm
22:37
Speaker 1: Barry rit Helts. You're listening to Masters in Business on
22:40
Speaker 1: Bloomberg Radio. My special guest today is Nathan Sheets. He
22:44
Speaker 1: is the chief economist and head of Global macroeconomic research
22:48
Speaker 1: at Pigeon Fixed Income, which manages seven hundred and forty
22:51
Speaker 1: three billion dollars in fixed income assets. Let's talk a
22:56
Speaker 1: little bit about the economic cycle and where we are.
22:59
Speaker 1: It's big in a decade since the Great Financial Crisis,
23:02
Speaker 1: we're still a sub three percent economy, maybe even a
23:07
Speaker 1: sub two percent economy now that the highs of the
23:12
Speaker 1: tax cuts seem to have faded. What's our growth outlook
23:17
Speaker 1: over the next couple of years and and why have
23:20
Speaker 1: we been so muddled over the past few years. So
23:23
Speaker 1: my baseline would be the growth this year is a
23:26
Speaker 1: little bit over two percent, and the growth next year
23:29
Speaker 1: as fiscal stimulus rolls off, will be a little bit
23:32
Speaker 1: under two percent. But two percent is kind of trend
23:36
Speaker 1: and that's not terrible. Mature economy compared again to many
23:40
Speaker 1: of our international competitive that looks that looks pretty good.
23:45
Speaker 1: Now underneath it, there's a really a rather deep and
23:49
Speaker 1: important question, and that is that it feels like in
23:53
Speaker 1: the economic data suggest the productivity growth has slowed significantly
23:58
Speaker 1: over the last say, enter twenty years. And and the
24:02
Speaker 1: question is, on the one hand, we see these data
24:05
Speaker 1: pointing to UH slower productivity. On the other hand, it
24:09
Speaker 1: feels like the world we're living in is a wash.
24:13
Speaker 1: And new technologies miniaturization and and machine learning and artificial
24:18
Speaker 1: intelligence and genomics and on and on and on, And
24:22
Speaker 1: the big question is when and if, but when do
24:27
Speaker 1: all of those those UH developments find their way into
24:33
Speaker 1: the national income accounts and into productivity girls. So so
24:36
Speaker 1: here's my pushback on this. And and people have told
24:39
Speaker 1: me that, well, you're in a sector that is very
24:43
Speaker 1: dependent on technology, so you're seeing productivity. But we were
24:47
Speaker 1: once a heavy manufacturing economy. We're now a service economy,
24:52
Speaker 1: which means every person in that value chain is using technology,
24:58
Speaker 1: is using computers and mobile one everything else. How much
25:02
Speaker 1: of that lack of so therefore there's a ton of
25:04
Speaker 1: productivity growth, at least I see it. So how much
25:07
Speaker 1: of that lack of productivity gains is really a measurement issue,
25:12
Speaker 1: not a lack of productivity issue. So this is something
25:15
Speaker 1: that I've explored. I've rebalanced the U S sectors and said,
25:21
Speaker 1: suppose that we had less services and more manufacturing more
25:25
Speaker 1: like what we had ten or twenty years ago, what
25:28
Speaker 1: would productivity look like? And it would still be down.
25:32
Speaker 1: So it doesn't seem like it's the services rebalancing that's
25:36
Speaker 1: driving it, but that that that could certainly certainly be
25:40
Speaker 1: part of it. I think another point that's important is
25:44
Speaker 1: there is some evidence that's what's happened so far is
25:47
Speaker 1: that the leading firms in various industries have adopted a
25:51
Speaker 1: lot of these new technologies. But these new technologies have
25:55
Speaker 1: not yet diffused them themselves deeply into various sectors, largely
26:02
Speaker 1: reflecting the investment as remain kind of lackluster. That a
26:06
Speaker 1: lot of this new technology, how are you going to
26:08
Speaker 1: get it as a firm? You're gonna get it by
26:10
Speaker 1: investing in firms have been hesitant to to put their
26:13
Speaker 1: resources on the table. Let's talk a little bit about
26:16
Speaker 1: full employment and what it should look like. We've been
26:20
Speaker 1: hovering around four percent for a while. Shouldn't we be
26:23
Speaker 1: seeing greater wage gains or is international competition tamping that down?
26:32
Speaker 1: If you had told me where the unemployment rate was,
26:34
Speaker 1: I would have guessed that wage growth would be more rapid.
26:38
Speaker 1: So I think this is uh, this is a puzzle.
26:41
Speaker 1: It's such surprise when I look at the economy. Why
26:44
Speaker 1: do I think is going on? Yep? I think technology
26:47
Speaker 1: is probably holding down wage growth. Certainly globalization is holding
26:52
Speaker 1: down wage growth. I think another key element, as I've mentioned,
26:58
Speaker 1: is that inflation X bytations are well anchored. And so
27:02
Speaker 1: if you really think that inflation is only going to
27:04
Speaker 1: be two percent and your boss offers you one and
27:07
Speaker 1: a half percent raise, you know, is it worth it
27:11
Speaker 1: to get to get agitated? And then that interacts with
27:14
Speaker 1: another key factor in the US labor market is we
27:18
Speaker 1: have very little collective bargaining. I was going to ask
27:21
Speaker 1: you about that. The unions are a fraction of what
27:24
Speaker 1: they were before. What does that do to the bargaining
27:28
Speaker 1: power of of individual employees, even highly sought after STEM employees. Yeah,
27:35
Speaker 1: so it means if you want to raise, you've got
27:37
Speaker 1: to go slam your fist down on your boss's desk
27:41
Speaker 1: and say, boss, I want to raise. And that's an
27:44
Speaker 1: uncomfortable conversation that if inflation was taking off, I think
27:49
Speaker 1: people would probably feel more comfortable having it. Now. I'd
27:55
Speaker 1: say the good news for American workers is we are
27:58
Speaker 1: seeing some acceleration way each gains are now over three
28:02
Speaker 1: which is less than I would have expected, but it's
28:05
Speaker 1: a little bit higher. And more importantly, we're also starting
28:08
Speaker 1: to see increased churn in the labor market, so people
28:11
Speaker 1: are leaving jobs and there are lots of jobs posted.
28:14
Speaker 1: And the way you get a raise in the US
28:16
Speaker 1: is to get an outside offer, and then you go
28:19
Speaker 1: to your boss and say, boss, they want more money,
28:21
Speaker 1: and the guy across the street is giving me a
28:23
Speaker 1: ten percent race. Quite interesting. So here we are, we're
28:28
Speaker 1: running bigger deficits than we ever had at this point,
28:32
Speaker 1: which is a bigger driver for the economy. Is it
28:34
Speaker 1: the fiscal policy or is it monetary policy? So I'll
28:37
Speaker 1: still give the nod to monetary policy as as being
28:42
Speaker 1: more important, but fiscal is increasingly giving it a run
28:47
Speaker 1: for its money, so to speak. Uh. In the short term,
28:50
Speaker 1: we've seen the power of fiscal policy in providing stimulus
28:54
Speaker 1: and and and supporting growth. In the long run, we
28:58
Speaker 1: have these very difficult issues of debt and deficits and
29:03
Speaker 1: how to manage those and what the implied tax rates
29:06
Speaker 1: are going to be. So uh, fiscal policy is becoming
29:10
Speaker 1: increasingly important. It really strikes me as we think of
29:14
Speaker 1: these two pillars of macro policy, how different they are
29:18
Speaker 1: in the way they're formulated. Do you have technocrats doing
29:21
Speaker 1: monetary policy and you have a very messy political process
29:25
Speaker 1: with with with fiscal You're being too kind, So, um,
29:30
Speaker 1: let's talk about what's been in the news a ton lately.
29:34
Speaker 1: Monetary theory has been making the rounds that essentially says,
29:40
Speaker 1: you know, you can run deficits, it's not the worst
29:42
Speaker 1: thing in the world. Look at Japan. Their demographics are terrible,
29:45
Speaker 1: They're running giant deficits relative to GDP, and their economy
29:49
Speaker 1: is moving along just fine. How do you respond to
29:52
Speaker 1: those claims? So my feeling is that modern monetary theory
29:59
Speaker 1: is dangerous. But also, and this is why it's particularly dangerous,
30:05
Speaker 1: is there is a grain of truth in it. We
30:08
Speaker 1: don't know what the limits are as to how much
30:10
Speaker 1: death the United States as a reserve currency can have.
30:13
Speaker 1: As you say, Japan has very high levels of public
30:17
Speaker 1: dat relative to GDP or over two of GDP. Uh
30:23
Speaker 1: And is there a good economic case that some economists
30:27
Speaker 1: have recently made when rates are very low to borrow
30:31
Speaker 1: and and do infrastructure there might have very high rates
30:34
Speaker 1: of return. So all of those things are true. But
30:38
Speaker 1: at the same time, to say there's really no constraints
30:42
Speaker 1: on fiscal policy, I consider it just not prudent. It's
30:46
Speaker 1: driving too close to the edge of the cliff. We
30:49
Speaker 1: don't know exactly where that edge is, but I sure
30:52
Speaker 1: don't want to find out. See what what you're supposed
30:55
Speaker 1: to do is lie and say these tax cuts will
30:59
Speaker 1: pay for themselves elves and then run giant deficits and
31:02
Speaker 1: by the time people figure it out, you've already retired
31:05
Speaker 1: to the bomb is in, You're you're out of office.
31:07
Speaker 1: That that, I think is the key, the key secret
31:10
Speaker 1: there um. But there is some truth to the fact
31:14
Speaker 1: that whether you're looking at monetary theory from the left
31:18
Speaker 1: or the right, and the same with fiscal theory, neither party,
31:23
Speaker 1: neither ideological wing UM has a monopoly on not running deficits.
31:30
Speaker 1: They both seem to run deficits. Although I have to
31:33
Speaker 1: give the Clinton administration a little credit for UM actually
31:37
Speaker 1: running a surplus one year, but the Obama administration and
31:40
Speaker 1: the Bush administration, they and now the Trump administration, they've
31:44
Speaker 1: all been running deficits. And I think the I think
31:46
Speaker 1: the point here is the right hates taxes, the left
31:52
Speaker 1: love spending and guess what both of those mean somewhat
31:57
Speaker 1: higher deficits. Where do we get fiscal restraint? We get
32:02
Speaker 1: fiscal restraint from the center, and uh, the political center,
32:06
Speaker 1: especially at present, is very hollowed out. So so let's
32:12
Speaker 1: talk a little bit about the center in terms of
32:16
Speaker 1: the nexus between the markets and the economy. Because the
32:20
Speaker 1: old joke is um economists have predicted nine of the
32:24
Speaker 1: previous four recessions. But in reality, when the economy begins
32:29
Speaker 1: to slow and when profits begin to get curtailed, you know,
32:33
Speaker 1: the market just happens to pick it up a little
32:35
Speaker 1: faster than the economic data because it's reported so much sooner.
32:39
Speaker 1: What what's that relationship between economics and and equity prices?
32:45
Speaker 1: So there's all sorts of theory about how uh equity
32:51
Speaker 1: prices are current expected value of future profits and uh,
32:56
Speaker 1: you know, all of those things are important. What we're
32:58
Speaker 1: expecting for for profitability, what we're expecting for rates, what
33:03
Speaker 1: we're expecting for growth. But the mapping is a very
33:08
Speaker 1: very noisy one. I'd love to be able to say, uh,
33:12
Speaker 1: if you give me the economy, I know the markets,
33:15
Speaker 1: but i'd also need to know a sentiment uh, and
33:19
Speaker 1: a lot of sociological and psychological elements. UH. So I
33:24
Speaker 1: would say macro is part of the story, but the
33:28
Speaker 1: best market commentators, the best strategists, deeply understand something in
33:35
Speaker 1: addition to the macro theory. So you you touched on sentiment.
33:39
Speaker 1: There you teed up my next question perfectly. How does
33:43
Speaker 1: sentiment vary over the course of a market cycle? How
33:47
Speaker 1: important are things like small business sentiment, consumer sentiment? Which
33:53
Speaker 1: does that drive the economy or does the economy drive sentiment?
33:57
Speaker 1: I think that the answer is both. That as sentiment
34:01
Speaker 1: uh deteriorates, that drags down the economy, But then as
34:06
Speaker 1: the economy gets worse, sentiment will respond to that. So
34:10
Speaker 1: it's very much a symbiotic self reinforcing uh kind of relationship.
34:18
Speaker 1: But UH, you know, if you press me, what's the
34:21
Speaker 1: first mover? I think sentiment typically moves before the economic data.
34:24
Speaker 1: We have been speaking with Nathan Sheets. He is the
34:27
Speaker 1: chief economist at PJIM Fixed Income. If you enjoy this conversation,
34:32
Speaker 1: we'll be sure to come back for the podcast extras,
34:35
Speaker 1: where we keep the tape rolling and continue discussing all
34:38
Speaker 1: Things Macro. You can find that wherever finer podcasts are
34:42
Speaker 1: sold Apple, iTunes, Stitcher, Overcast, Bloomberg dot com. We love
34:48
Speaker 1: your comments, feedback and suggestions right to us at m
34:53
Speaker 1: IB podcast at Bloomberg dot net. Check out my daily
34:58
Speaker 1: column on Bloomberg dot com slash Opinion. Follow me on
35:01
Speaker 1: Twitter at rit Halts. I'm Barry Hults. You're listening to
35:05
Speaker 1: Masters in Business on Bloomberg Radio. Welcome to the podcast, Nathan.
35:14
Speaker 1: Thank you so much for doing this. I'm really enjoying
35:16
Speaker 1: this conversation. You are right in the wonky sweet spot
35:21
Speaker 1: of of some of my favorite peas. I want to
35:25
Speaker 1: circle back to the financial crisis and some of the
35:28
Speaker 1: issues related to that. But you were discussing um wages
35:34
Speaker 1: not going up as fast as anyone would have suspected
35:38
Speaker 1: relative to full employment, and I have a theory I
35:40
Speaker 1: want to run by you. Employees have seen substantial wage gains,
35:47
Speaker 1: but they're not seeing it in dollars. They're seeing it
35:50
Speaker 1: in giant increases in healthcare costs going up eight nine
35:54
Speaker 1: percent a year. If you're paying for healthcare as an employer,
35:59
Speaker 1: and what it is five or ten percent, maybe even
36:02
Speaker 1: more for some employees of the healthcare is one of
36:06
Speaker 1: the biggest inflationary inputs. We see how much of that
36:10
Speaker 1: is dollars that otherwise might have gone to salary increases.
36:15
Speaker 1: I think the answer to that is is substantial amount
36:20
Speaker 1: could have gone into salary increases, and as you say,
36:23
Speaker 1: for many employees, healthcare is a very substantial part UH
36:29
Speaker 1: of their overall compensation. Now we do have broader measures
36:34
Speaker 1: of compensation that would include healthcare and other benefits, and
36:38
Speaker 1: they also have been going up somewhat more slowly than
36:41
Speaker 1: we would have expected. So very much true that it's
36:46
Speaker 1: an enormous cost, an enormous source of of of overhead
36:50
Speaker 1: for US firms that makes it less attractive to hire
36:53
Speaker 1: in the United States, But that alone doesn't explain this
36:57
Speaker 1: UH puzzle as to why wage growth hasn't time. I'm
37:00
Speaker 1: looking at that from a competitive standpoint of US manufacturers
37:05
Speaker 1: versus Germany, US manufacturers versus Japan. Given we what are
37:10
Speaker 1: They're like three or four hundred Democratic people in the
37:13
Speaker 1: presidential race already, and almost all of them are talking
37:16
Speaker 1: about some variation of universal healthcare. I would think the
37:21
Speaker 1: corporate sector would jump all over this and say, please
37:24
Speaker 1: take this off our backs. Why is it our responsibility?
37:28
Speaker 1: And I don't necessarily agree with this, but how has
37:31
Speaker 1: corporate America evolved to be responsible for healthcare and not
37:36
Speaker 1: the government? It seems so bizarre. It's uh, it's an
37:40
Speaker 1: interesting historical feature the way our labor market is evolved,
37:43
Speaker 1: as you said, in many other major economies in Europe
37:47
Speaker 1: and in Canada and elsewhere. Uh, it's dealt with very differently.
37:52
Speaker 1: I And it is a it is a drag on
37:57
Speaker 1: on wages and a responsibility that the corporate sector bears.
38:02
Speaker 1: And I think you're right. For someone to come and say,
38:05
Speaker 1: don't worry about that would be very welcome. Now, the
38:09
Speaker 1: flip side of that is it means the burden of
38:12
Speaker 1: paying for it gets gets transferred, and so the German
38:16
Speaker 1: corporates uh don't have to deal with it. But the
38:19
Speaker 1: overall level of taxation in Germany is much higher, so
38:23
Speaker 1: the government is larger relative to GDP nolunch. That's right,
38:26
Speaker 1: there's a piper to be paid someplace. Makes a lot
38:29
Speaker 1: of sense. One would wonder, um if salary were higher
38:33
Speaker 1: and corporate earnings were higher, but the tax burden would
38:36
Speaker 1: be higher as well. Exactly could could be kind of intriguing.
38:40
Speaker 1: So so let's bring it back to the pre financial
38:43
Speaker 1: crisis era. And I didn't want to push back too
38:46
Speaker 1: much during the broadcast portion, but I have to push
38:49
Speaker 1: back on And some of this is clearly with the
38:53
Speaker 1: benefit of hindsight. But I could go back and look
38:56
Speaker 1: at what I was writing in a one oh two
38:58
Speaker 1: oh three, and I could see, Gee, these rates seem
39:01
Speaker 1: to be really low. Green Span seems to be wildly
39:05
Speaker 1: overreacting to both the mild, to both the mild post
39:13
Speaker 1: dot com recession. All things considered, it wasn't that bad.
39:17
Speaker 1: And towards the end of that recession, September eleventh happened,
39:21
Speaker 1: and there that also seemed to engender a pretty substantial overreaction.
39:26
Speaker 1: In terms of monetary policy, I look at everything that
39:29
Speaker 1: was priced in either credit or dollars as just spiraling up.
39:34
Speaker 1: Gold went from four hundred to over a thousand. Home
39:38
Speaker 1: prices doubled in some parts of the country. Um, all
39:42
Speaker 1: the commodities spiraled up. The dollar actually did UM really
39:47
Speaker 1: take a pretty healthy whack it. It suffered. So you
39:52
Speaker 1: and I completely agree that the FED missed their opportunity
39:55
Speaker 1: in terms of acting as a regulator for the banking industry,
40:00
Speaker 1: but how much of that big spiral can trace its
40:03
Speaker 1: way back to rates under green Span? So I think
40:07
Speaker 1: that say that dot Com recession compared to what we
40:11
Speaker 1: had at the time of the Great Recession later in
40:15
Speaker 1: that decade, that dot Com recession did seem pretty mild.
40:18
Speaker 1: But when we were living through it, I don't think
40:20
Speaker 1: any of us would have described it that way, especially
40:23
Speaker 1: with NASDAC falling from and the FED did respond to that,
40:28
Speaker 1: and when one broke out. I remember being inside the building.
40:32
Speaker 1: People were very concerned about what that might mean for sentiment,
40:35
Speaker 1: which we've talked about and the economy exactly people inside
40:39
Speaker 1: the FED, so there were reactions to that, and then
40:42
Speaker 1: I think Greenspan was also worried about trying to make
40:46
Speaker 1: sure that inflation expectations stayed anchored and didn't start to fall.
40:51
Speaker 1: But your comments evoke another kind of criticism of the
40:56
Speaker 1: feeds policies through that period, and that is how aggress
41:00
Speaker 1: should monetary policy be in responding to perceived imbalances in
41:07
Speaker 1: financial markets? And uh, the Greenspan FED was loath to
41:13
Speaker 1: do that, and at the time, the argument was, we
41:16
Speaker 1: don't know where the tops are. We don't know what's
41:19
Speaker 1: the bubble? And instead of trying to kill things preemptively,
41:22
Speaker 1: it's better to clean them up after the fact. We
41:25
Speaker 1: learned that central banks do need to think hard about
41:29
Speaker 1: financial stability and whether asset markets are overvalued. And I
41:35
Speaker 1: think that many central banks now have an implicit mandate.
41:40
Speaker 1: It's not part of their explicit responsibilities, but an implicit
41:44
Speaker 1: mandate to ensure financial stability. And they spent a lot
41:46
Speaker 1: of resources doing that now. So it's not just full
41:50
Speaker 1: employment and keeping inflation contained. It's oh, and now you
41:54
Speaker 1: guys are responsible for the markets. So I always pushed
41:57
Speaker 1: back to the green Spans of fans on we are
42:01
Speaker 1: loath to intervene in the markets because of all people,
42:06
Speaker 1: green Span probably intervened in the markets more than any
42:11
Speaker 1: FED chair and memory. So forget that the eighty seven
42:15
Speaker 1: crash happened right after he began. It's like every new
42:19
Speaker 1: FED chief gets a baptism of fire, and he did
42:22
Speaker 1: what he always has does, is he cut rates. But
42:25
Speaker 1: I recall very specifically when doing some research for Bailout Nation,
42:30
Speaker 1: it was either in ninety or ninety one. I'm not positive.
42:33
Speaker 1: Early nineties. In between meetings green Span without the Board
42:39
Speaker 1: of governors lowered rates on his own in response to
42:42
Speaker 1: something going on in the markets, and the Board was
42:45
Speaker 1: so offended that they clipped his wings and prevented that
42:48
Speaker 1: from happening. They passed a rule that said the Fed
42:51
Speaker 1: chief can only raise the low rates with the approval
42:55
Speaker 1: of the Board. So I've heard that argument that, well,
42:59
Speaker 1: green Span was loath to do it except when he
43:02
Speaker 1: did it, and he did it quite frequently. Am I
43:05
Speaker 1: wildly off Am I just a green Span basher? Or
43:08
Speaker 1: is that a fair criticism? Well? I think that there
43:11
Speaker 1: were some instances like seven and after one where the
43:18
Speaker 1: Federal Reserve saw risks to market functioning and the capacity
43:24
Speaker 1: of markets to operate, and in response to that, the
43:27
Speaker 1: FED did respond very very vigorously. Now that said, uh,
43:33
Speaker 1: you know, the FED was aware of what was happening
43:36
Speaker 1: in financial markets. And I think that what I should
43:39
Speaker 1: say precisely is that the FED under green Span was
43:43
Speaker 1: was hesitant to try to say, a given markets in
43:47
Speaker 1: a bubble, let's go and prick that bubble. That's really
43:51
Speaker 1: the core of the green Span doctrine. We don't know
43:54
Speaker 1: a bubble. We're not sure, we could be surprised. We
43:58
Speaker 1: don't have good tools to do it. Let's do it
43:59
Speaker 1: on the other side. And I do think that's been roundly,
44:02
Speaker 1: roundly rejected at this point by central banks. Quite quite fascinating.
44:07
Speaker 1: The other issue that has come up about the Federal Reserve.
44:11
Speaker 1: By the way, I think that last issue about um
44:14
Speaker 1: rates being too low, too long. Here's my hindsight bias.
44:18
Speaker 1: What I'm about to say, and I will admit this
44:20
Speaker 1: is hindsin bias. At the time I flagged those ultra
44:25
Speaker 1: low rates as inflationary. With the benefit of hindsight, I
44:29
Speaker 1: wish the Fed would have said, either Post nine eleven
44:32
Speaker 1: or some other one off emergency, Hey, this is an emergency.
44:37
Speaker 1: We are for six months gonna take rates down. I
44:40
Speaker 1: think that cut rates fifty basis points. We're gonna implement
44:43
Speaker 1: a fifty basis point rate cut and in six months
44:47
Speaker 1: half of it will go away, and and in nine
44:49
Speaker 1: months the other half of it will go away. So
44:51
Speaker 1: that there would have prevented that while we're afraid, there
44:55
Speaker 1: were no expectations of of a r raise, and it's
44:58
Speaker 1: going to be problematic if it would have be built
45:00
Speaker 1: into this is an emergency action, but it will automatically unwind.
45:05
Speaker 1: I think they would have been better off again pure
45:07
Speaker 1: hindsight bias, and and I think that that is a
45:11
Speaker 1: very creative form of forward guidance which the FAD has experimented,
45:16
Speaker 1: particularly under Brankie, experimented with a lot of different forms
45:20
Speaker 1: of forward guidance. Uh. Typically it's been more of the
45:24
Speaker 1: form will keep rates where they are and not pre
45:27
Speaker 1: committing to future rate hikes. But it wouldn't surprise me
45:32
Speaker 1: at some point in the future to see some central
45:35
Speaker 1: bank around the world implement a policy that had the
45:40
Speaker 1: kind of forward guidance you just described. Look, we're responding
45:42
Speaker 1: to what we believe is an extraordinary circumstance. We expect
45:47
Speaker 1: that it's going to go away, and as our expectations
45:51
Speaker 1: are confirmed, then we very well maybe hiking rates look
45:56
Speaker 1: for emerging market central bank good stuff in the future.
46:00
Speaker 1: So you bring up Bernanke and what he did during
46:04
Speaker 1: his tenures, Chairman, I'm not in this camp, but some
46:08
Speaker 1: people have criticized him as too transparent. Back in the
46:12
Speaker 1: early days, you never knew what the Fed did. You
46:15
Speaker 1: would see the reaction in the bond market. Oh, bonds
46:17
Speaker 1: are tacking up. The Fed might have raised rates. They
46:20
Speaker 1: did have a meaning This week has the Federal Reserve
46:23
Speaker 1: become too transparent. This is this is a very important question,
46:28
Speaker 1: and it's it's corollary is doesn't FED talk too much?
46:32
Speaker 1: And a concrete question is, uh, you know, through every
46:38
Speaker 1: f long C cycle, we hear a variety of voices
46:42
Speaker 1: from Federal Reserve policymakers. All the Reserve Bank presents are
46:46
Speaker 1: talking various members of the board and so forth. And
46:50
Speaker 1: does that give markets more information? Does that allow investors
46:55
Speaker 1: to make better decisions and better understand what the Federal
46:59
Speaker 1: Reserve going to do? And if you press me, I
47:02
Speaker 1: guess I'd say, on balance, yes, that transparency and and
47:09
Speaker 1: perspectives are helpful. But it's also important that the FED
47:14
Speaker 1: not talked so much that it's saying things it's not
47:18
Speaker 1: really sure about. What people want to hear from the
47:21
Speaker 1: FED is what is its reaction function? Meaning as various
47:25
Speaker 1: economic events evolved, how is it going to respond? What
47:29
Speaker 1: does it expect about the future? And I think this
47:32
Speaker 1: is one of the risks with having press conferences after
47:35
Speaker 1: every meeting, that there may be times when j Pal
47:39
Speaker 1: is going to have to say something just because the
47:42
Speaker 1: question is asked, not because it's part of his preferred
47:47
Speaker 1: proactive communication strategy h quite quite interesting. The the whole
47:53
Speaker 1: idea of we're data driven and we're gonna wait and
47:56
Speaker 1: see what the economic data looks like. Is that a
47:59
Speaker 1: fair approach or is that still too squishing an ambiguous.
48:03
Speaker 1: So I think that that is a very fair approach.
48:07
Speaker 1: I think more or less that's what central banks have
48:09
Speaker 1: been saying for for generations. The the problem with it
48:16
Speaker 1: is markets urn for something more concrete, and if the
48:22
Speaker 1: FAD says, you know, we'll just see where the data
48:25
Speaker 1: take us, then the next question is, well, where do
48:27
Speaker 1: you think the data are going to take us? And
48:30
Speaker 1: uh so markets, markets are gonna want more. But ultimately
48:35
Speaker 1: the FAD does have to be data dependent that even
48:38
Speaker 1: if they say, you know, we're going to be flat,
48:41
Speaker 1: if ultimately the economy surprises on the upside, they're gonna
48:44
Speaker 1: have to hike, and if the economy surprises on the downside,
48:47
Speaker 1: they're gonna have to cut. And for them not to
48:50
Speaker 1: act in the future because of something they said in
48:53
Speaker 1: the past, would I think not be not not be
48:57
Speaker 1: good policy. So so let's talk about out the post
49:00
Speaker 1: crisis era. I was surprised at at lower for longer.
49:06
Speaker 1: I was surprised that at the length of time that
49:09
Speaker 1: we seem to have been on emergency footing, how fast
49:15
Speaker 1: should the FED return to a more normalized rate regime.
49:21
Speaker 1: Are we there yet? Are we halfway there yet? Um?
49:24
Speaker 1: Some people have said they're behind the curve. The President
49:27
Speaker 1: is saying they're choking off economic expansion. Where where are we?
49:31
Speaker 1: Two and a half percent, by by any measure, that's
49:34
Speaker 1: still fairly accommodative, isn't it. So? I think the Fed
49:38
Speaker 1: has has handled the rate hikes quite skillfully. This has
49:44
Speaker 1: been perhaps the slowest tightening cycle in the history of
49:49
Speaker 1: central banking. We've moved. We've moved a quarter percentage point
49:54
Speaker 1: every quarter, so a one percentage point a year. Back
49:59
Speaker 1: in the days of Greenspan, they were going twenty five
50:02
Speaker 1: basis points every meeting, and they thought they had go.
50:05
Speaker 1: We're going as slow as they could. That's still twice
50:07
Speaker 1: as fast. So the Fed has gone has gone very gradually,
50:11
Speaker 1: and they're now at a place where you know, they
50:14
Speaker 1: think neutral is two and a half three something like that,
50:19
Speaker 1: where they're on the lip of of of a neutral policy,
50:23
Speaker 1: and that gives them the lauxery of being able to
50:25
Speaker 1: watch and wait and see how some of these various
50:29
Speaker 1: risks unfold, does China do better? Does Europe pick up?
50:34
Speaker 1: What happens with the trade war and so forth. So
50:39
Speaker 1: if we look at inflation today also about two two
50:44
Speaker 1: and a half percent, is that the there are a
50:47
Speaker 1: million economic inputs, but is that you know, the two
50:50
Speaker 1: d dakapo is that the one that really matters? And
50:54
Speaker 1: if inflation stays around two, the FED doesn't feel any
50:58
Speaker 1: urgency to move off of these low rates. I think, uh,
51:03
Speaker 1: in this circumstance with rates policy rates around two and
51:07
Speaker 1: a half percent, that they probably are going to need
51:10
Speaker 1: to see inflation at or probably a little bit above
51:16
Speaker 1: two percent before they seriously start thinking about more rate hikes.
51:20
Speaker 1: The flip side is, I think the other variable that
51:22
Speaker 1: they're going to continue to watch closely is the unemployment rate.
51:26
Speaker 1: And I think that as long as the labor market
51:31
Speaker 1: looks looks tight and the unemployment rate is falling, they're
51:36
Speaker 1: not going to think that they need to they need
51:38
Speaker 1: to cut rates either. I think would require an increase,
51:42
Speaker 1: a marked increase in the unemployment rate before the fad
51:45
Speaker 1: would throw it into reverse. Now we've seen some modest
51:48
Speaker 1: increases the unemployment rate, but for the good reason meaning
51:52
Speaker 1: people who had left the labor force, we're coming back
51:55
Speaker 1: into it. And suddenly there's more people in that pool.
51:58
Speaker 1: And it looks it's not that are losing their jobs,
52:01
Speaker 1: is that more people are looking for their jobs. Obviously
52:04
Speaker 1: the FED understands that nuance. Are we going to continue
52:07
Speaker 1: to pull or let me rephrase that, what's it going
52:10
Speaker 1: to take to continue pulling more and more of these
52:13
Speaker 1: discouraged workers back into the labor pool. The increase in
52:17
Speaker 1: labor force participation that we've seen of late is an
52:21
Speaker 1: extremely constructive development. There's been more slack on the edges
52:27
Speaker 1: of the labor market than I would have expected, and
52:29
Speaker 1: then most economists would have expected. And I think what
52:32
Speaker 1: it's going to take to for this process to continue
52:36
Speaker 1: is for the US economy to continue to grow at
52:39
Speaker 1: a solid pace and for us to see some further
52:43
Speaker 1: upside pressure on wages as we see that additional uh,
52:48
Speaker 1: those additional wage gains, that's gonna be very attractive to
52:52
Speaker 1: workers on the sidelines and getting them back in the
52:54
Speaker 1: labor force. And once these folks are back in the
52:56
Speaker 1: labor force, they're developing skills and abilities, they're gonna help
53:00
Speaker 1: drive the economy through the years I had, so, so
53:04
Speaker 1: let me wax wonky a little bit. You brought up
53:07
Speaker 1: the tailor rule earlier. Has the tailor rule lost its power?
53:13
Speaker 1: Is it? Is it expired? And explain it before before
53:17
Speaker 1: we go too far into the weeds. So the tailor
53:21
Speaker 1: rule basically says that in setting monetary policy, the Federal
53:27
Speaker 1: Reserve should look at the unemployment rate relative to some
53:32
Speaker 1: UH equilibrium or some trend rate of unemployment, and it
53:37
Speaker 1: should also look at the inflation rate relative to its
53:40
Speaker 1: two percent target UH. And if if if inflation is
53:45
Speaker 1: low and unemployment is high, then the tailor rule would
53:48
Speaker 1: suggest you should have a very easy monetary policy. And
53:52
Speaker 1: I do think it's fair to say that UH many
53:57
Speaker 1: central banks around the world how sued policies in recent
54:02
Speaker 1: years that are much softer than what the tailor rule
54:05
Speaker 1: would suggest. But even so, I think if you talk
54:08
Speaker 1: to those central bankers that say, yeah, we're not really
54:11
Speaker 1: following the Taylor rule right now, but we like having
54:15
Speaker 1: it as a point of departure, it really gets into
54:19
Speaker 1: this powerful question of how far should you push theory?
54:23
Speaker 1: And it's it's good as a theoretical construct, but then
54:27
Speaker 1: from there we realize that there are a number of
54:29
Speaker 1: headwinds and other challenges our economy space that explain why
54:32
Speaker 1: we should be off it. But it's a good benchmark. Still,
54:35
Speaker 1: every cycle is different. If you try and apply the
54:38
Speaker 1: same rules to different cycles, you may not be happy
54:40
Speaker 1: with the results. And that's the problem in economics is
54:44
Speaker 1: in in thinking about our recommendations. We are driven by
54:48
Speaker 1: what the data say, but the data only cover the past,
54:52
Speaker 1: which then makes trying to figure out what the next
54:54
Speaker 1: one is gonna look like really hard, it says Yogi
54:57
Speaker 1: Berras said, Forecasting is really hard, especially when it's about
55:01
Speaker 1: the future. That summarizes my life is an economist per
55:05
Speaker 1: perfect way to sum it up. So I know only
55:09
Speaker 1: have you for a finite amount of time, and I
55:12
Speaker 1: want to get to my favorite questions that I asked
55:16
Speaker 1: um every guest. Let's let's start with the first one.
55:22
Speaker 1: Tell us the most important thing that people don't know
55:26
Speaker 1: about your background. So I would say, uh, it's that
55:30
Speaker 1: I just kind of uh wandered my way into economics
55:36
Speaker 1: and uh international economics. When I was in college, I
55:40
Speaker 1: couldn't decide whether I was gonna be a lawyer or
55:42
Speaker 1: go into business or being economists. They took all the exams,
55:45
Speaker 1: all the interest exams, and finally decided, well, I'll do economics.
55:48
Speaker 1: And then in grad school, Uh, I didn't know what
55:51
Speaker 1: I wanted to do, kind of looked around and international
55:55
Speaker 1: economics was an area where the faculty at m I
55:59
Speaker 1: T was great, but there weren't very many students my year.
56:03
Speaker 1: So I went there because I said, oh, I'll have
56:04
Speaker 1: less competition getting a job, and uh, everything everything worked
56:09
Speaker 1: out well. I was very, very fortunate to fall into
56:12
Speaker 1: international which I really have enjoyed and and M I t.
56:15
Speaker 1: S economics department is just a murderers row of rock stars.
56:20
Speaker 1: When you were there, who were some of the the
56:22
Speaker 1: names that that you got to work with, either as
56:25
Speaker 1: mentors or just professors. The three key folks that I
56:29
Speaker 1: interacted with were Stan Fisher, Rudy dorn Bush, who passed
56:34
Speaker 1: away some years ago but was really big and thinking
56:37
Speaker 1: about how do we apply economics in the real world?
56:40
Speaker 1: And Olivier Blanchard, who is extremely brilliant and fertile mind.
56:45
Speaker 1: And every time I talked to him, I learned something new.
56:48
Speaker 1: Any other mentors you want to mention who helped guide
56:51
Speaker 1: either your academic or professional career? Well? When I arrived
56:55
Speaker 1: at the Federal Reserve. I'd say two folks they had
56:57
Speaker 1: a big impact on me. One was a Federal Reserve
57:00
Speaker 1: governor who your listeners have probably heard of named Larry Meyer,
57:05
Speaker 1: who Larry was was interested in taking a very empirical
57:10
Speaker 1: view and using that to analyze where the global economy
57:16
Speaker 1: was headed. And another chap was my boss. His name
57:19
Speaker 1: was Ted Truman, and Ted was intense and focused on
57:24
Speaker 1: how do we get the right answer and best serve policymakers.
57:28
Speaker 1: So I'd say those two individuals had a big impact
57:32
Speaker 1: on my early career. So you're now working at PGIM
57:35
Speaker 1: Fixed Income, which is a giant fond shop. What investors
57:40
Speaker 1: influenced your way of looking at the world of interest
57:44
Speaker 1: rates and UH inflation and everything else that goes into investment.
57:49
Speaker 1: I would say that the investors that are having the
57:52
Speaker 1: most impact on my perspectives are frankly the ones that
57:56
Speaker 1: I'm working with now and UH. A number of these
58:01
Speaker 1: folks are what I would describe them as is very
58:04
Speaker 1: balanced in their worldviews. They're getting all the information they
58:09
Speaker 1: can and they're responding to it in a way it said, okay,
58:12
Speaker 1: we'll move a little here. Relative values a little more attractive.
58:15
Speaker 1: We're gonna move there. They're never off balanced, They're responding
58:18
Speaker 1: to what the world's uh throwing at them and uh
58:22
Speaker 1: and seeking the best returns, always always in comparing one
58:28
Speaker 1: asset to the other. So let's look about books. What
58:31
Speaker 1: are some of your favorite books, fiction, non fiction, economics
58:35
Speaker 1: related or not. What do you like to read? Well,
58:37
Speaker 1: I am a heavy reader of biographies. I really enjoy
58:44
Speaker 1: uh learning what others have gone through in their lives
58:50
Speaker 1: and there in their in their career paths and the like.
58:53
Speaker 1: I'd say along those lines, my favorite writer is is
58:58
Speaker 1: probably Ron Turno written some absolutely brilliant economic biographies, uh,
59:06
Speaker 1: and I think it's very very best was his biography
59:09
Speaker 1: on Alexander Hamilton's, which, as you read it, it really
59:13
Speaker 1: is quite extraordinary that challenges that Hamilton's was facing and
59:18
Speaker 1: helping Washington and others set up the Republic, and how
59:22
Speaker 1: we face in various ways, very similar challenges. And I
59:28
Speaker 1: think the Churnell just brings all of that to life
59:30
Speaker 1: and makes it very rich in fertile in helping us think, well,
59:33
Speaker 1: how how would how would Hamilton's respond to a global
59:36
Speaker 1: financial crisis? How would Hamilton's responded to a European deck crisis,
59:40
Speaker 1: plus running the whole thing in hip hop lyrics. That
59:43
Speaker 1: was really that that that was the extra moe but
59:45
Speaker 1: but true story. That's where Lynn Manuel Miranda discovered Hamilton's
59:50
Speaker 1: was Charnou's book. It's an astonishing that book has astonishing legs.
59:55
Speaker 1: Um give us some other books that you enjoy, So
59:59
Speaker 1: I would say, uh, just continuing, I've read uh wonderful
1:00:04
Speaker 1: biographies of Woodrow Wilson. Uh are progressive and are and
1:00:12
Speaker 1: notably a progressive who was arguing for free trade because
1:00:17
Speaker 1: it would bring down prices for the masses. It's really
1:00:20
Speaker 1: extraordinary the way the free trade debate has evolved over
1:00:25
Speaker 1: the last hundred years or devolved as the case maybe.
1:00:28
Speaker 1: UH read continuing in that kind of time and history.
1:00:33
Speaker 1: Love to read about Teddy Roosevelt, brilliant, brilliant individual, but
1:00:38
Speaker 1: in addition really focused on getting things done. Who wrote
1:00:42
Speaker 1: the Roosevelt bio? Because there are a ton of them?
1:00:44
Speaker 1: Which one did you like? You nailed me? I don't remember,
1:00:50
Speaker 1: so emailed to me and I'll add it to the
1:00:52
Speaker 1: info on this because there there are the problem with
1:00:55
Speaker 1: a lot of these bios is that there are so
1:00:58
Speaker 1: many of them. Yes, a friend recommended a Genghis Khan bio.
1:01:03
Speaker 1: This book is great, so I ordered on Amazon and
1:01:06
Speaker 1: I say to him, this was a great book, thanks
1:01:09
Speaker 1: for recommending it. And he looks at the book he goes, no, no,
1:01:12
Speaker 1: that's the wrong one. I'm like, dude, a thousand pages
1:01:15
Speaker 1: of Genghis Khan. I'm good. I don't need to read
1:01:18
Speaker 1: the second one. Have you gotten around to reading mcculla's
1:01:22
Speaker 1: Right Brothers book? No, I thought about it though I
1:01:24
Speaker 1: read it on vacations. It was just fascinating, like, you
1:01:28
Speaker 1: have no idea, or let me rephrase that, I had
1:01:32
Speaker 1: no idea who they were and how they became effectively
1:01:38
Speaker 1: the inventors of flight. It was if you like biography,
1:01:42
Speaker 1: especially you know early twentieth century, it's fascinating. They Hawk
1:01:48
Speaker 1: last sung. Yeah, it's really interesting. So they were They
1:01:54
Speaker 1: weren't from Kitty Hawk. Wrville had from right, that's right.
1:01:59
Speaker 1: And they had tagged somebody in the National Weather Service
1:02:02
Speaker 1: to say, where are their steady winds of ten to
1:02:06
Speaker 1: fifteen miles an hour, preferably not too rocky, And they
1:02:11
Speaker 1: gave him a couple of things and and Kitty Hook
1:02:13
Speaker 1: checked out as so, now you could get to Kitty
1:02:16
Speaker 1: Hook really easily. Back then it was an ordeal. It
1:02:20
Speaker 1: was a train and then a boat and then a
1:02:23
Speaker 1: giant trek to get there. If you like bio biographies,
1:02:27
Speaker 1: you're gonna love this book. That's my record. I can
1:02:30
Speaker 1: give you other books to now give you one more. Okay,
1:02:32
Speaker 1: let me let me give you another one. I think
1:02:35
Speaker 1: one of the most readable and interesting books that I've
1:02:39
Speaker 1: been exposed to is Outliers by Malcolm glad Sure, and
1:02:43
Speaker 1: that that book has a very interesting argument in it
1:02:47
Speaker 1: which resonates with me now because my son is going
1:02:50
Speaker 1: through the college admission process and he shows where the
1:02:54
Speaker 1: Nobel Prizes and chemistry got their undergrad degrees, and they
1:02:58
Speaker 1: are all solid in institutions, but they all didn't go
1:03:02
Speaker 1: to M I T or Princeton. It is all over
1:03:05
Speaker 1: the map. I'm glad. Will then makes the argument that
1:03:09
Speaker 1: that had they all gone to M I T, then
1:03:13
Speaker 1: most of them would not be Nobel laureates in chemistry.
1:03:16
Speaker 1: That there would have been someone else or someone's else
1:03:19
Speaker 1: in their uh in their intradoctory and early training that
1:03:23
Speaker 1: would have been better chemistry, and it would have discouraged
1:03:27
Speaker 1: them in their career in their trajectory of ultimately great creativity.
1:03:32
Speaker 1: So that you know where you go to school, uh matters,
1:03:38
Speaker 1: But what really matters is how much your work once
1:03:41
Speaker 1: you're there makes perfect sense to me. Um, So let's
1:03:46
Speaker 1: talk a little bit about a time you failed and
1:03:48
Speaker 1: what you learned from the experience. So, uh, this is
1:03:53
Speaker 1: my time at the U. S Treasury. I was part
1:03:57
Speaker 1: of the team on the administration that was managing US
1:04:02
Speaker 1: policy regarding China's proposed Asian Infrastructure and Investment Bank, the
1:04:09
Speaker 1: aii B. We had concerns about this institution, that it
1:04:13
Speaker 1: would not pursue good standards in its lending, and consistent
1:04:18
Speaker 1: with that, we expressed our concerns and lack of enthusiasm. Uh.
1:04:23
Speaker 1: Two countries across the world, but as you know, the
1:04:27
Speaker 1: Brits the UK joined the ai i B, and soon
1:04:31
Speaker 1: thereafter dozens of other countries joined. What do I learn
1:04:35
Speaker 1: from from this? I think I learned two things. One
1:04:39
Speaker 1: important policy implication is China's rise is gonna happen. There
1:04:44
Speaker 1: really is not a lot that we can do about it.
1:04:46
Speaker 1: We can slow it down, or we can support them
1:04:50
Speaker 1: and have it accelerated, but they're gonna rise. And I
1:04:53
Speaker 1: think the big question is once they've risen, are they
1:04:56
Speaker 1: going to look at at us as being their friend
1:05:00
Speaker 1: or their foe. Secondly, and this may be more in
1:05:03
Speaker 1: a personal basis, but I learned from that experience. When
1:05:07
Speaker 1: you have a message, it's got to be simple. And
1:05:10
Speaker 1: we had a we had a very sophisticated position that
1:05:13
Speaker 1: I think had a lot of analytoltical rigor associated with it,
1:05:17
Speaker 1: but I needed a thousand words to explain it to nuances.
1:05:20
Speaker 1: For most most positions when you go through life, you
1:05:24
Speaker 1: need to be able to put them on a bumper sticker. Really,
1:05:26
Speaker 1: if it if it's if it's more complicated than that,
1:05:29
Speaker 1: people's eyes start to glaze over. Even how to boil
1:05:33
Speaker 1: it down, Even in complex diplomatic trade negotiations, you still
1:05:37
Speaker 1: have to dumb it down to a bumper sticks I
1:05:39
Speaker 1: think you gotta. I think you've got to get it
1:05:41
Speaker 1: on a bumper sticker. So this administration has, you know,
1:05:45
Speaker 1: and I think they probably they have answered the question
1:05:47
Speaker 1: what are we trying to achieve? We're trying to break
1:05:50
Speaker 1: down barriers in China and make it fairer for US
1:05:54
Speaker 1: firms UH to to operate there. So if you could
1:05:57
Speaker 1: go back in time, and rejigger your message back when
1:06:01
Speaker 1: you were at Treasury. What would that look like if
1:06:04
Speaker 1: it was reduced to a bumper stick. Well, I think
1:06:06
Speaker 1: we would have had to do uh further uh further
1:06:11
Speaker 1: argumentation inside the administration and say are we for it
1:06:15
Speaker 1: or we against it? Because we were we were closer
1:06:19
Speaker 1: to being against it. It was perceived as being fully
1:06:21
Speaker 1: against what we really weren't. But we have to decide
1:06:24
Speaker 1: are we for it against it? And I think probably
1:06:27
Speaker 1: a clean position would have been look, for a number
1:06:29
Speaker 1: of reasons, we're not going to join, mainly political reasons.
1:06:33
Speaker 1: We're not going to join. We have these concerns, but
1:06:35
Speaker 1: you make your own decision. That would have been a
1:06:37
Speaker 1: cleaner position. Quite interesting. So what do you do for fun?
1:06:40
Speaker 1: What do you do to stay mentally or physically active
1:06:43
Speaker 1: when you're outside of the office. So for fun, I
1:06:47
Speaker 1: have four kids that keep me keep me fully engaged
1:06:51
Speaker 1: and energized. I'm also very active in my church congregation
1:06:58
Speaker 1: and uh. In terms of staying physically fit, about a
1:07:03
Speaker 1: year ago, I came to the conclusion that I needed
1:07:06
Speaker 1: to do more in that department. And since I've spent
1:07:09
Speaker 1: a lot of time on the treadmill, which actually have
1:07:12
Speaker 1: come to enjoy and found to be a place where
1:07:15
Speaker 1: I can reflect and and unwind. Quite interesting. So if
1:07:21
Speaker 1: a millennial or um a recent college grad came to
1:07:25
Speaker 1: you and said they were interested in a career in
1:07:29
Speaker 1: um economics or finance, what sort of advice would you
1:07:33
Speaker 1: give them? My my number one, UH piece of advice
1:07:38
Speaker 1: is find something that you are passionate about. When I
1:07:43
Speaker 1: talked to to graduates and people early in their careers,
1:07:47
Speaker 1: sometimes I feel like they're trying to turn themselves into
1:07:51
Speaker 1: the perfect candidate, the candidate that everyone will want to hire.
1:07:55
Speaker 1: That's not what I want to see. I want them
1:07:58
Speaker 1: to come in and tell me this is what I
1:08:00
Speaker 1: really care about. And uh, if they really care about it,
1:08:04
Speaker 1: if they're passionate about it them, they are going to
1:08:07
Speaker 1: be successful in these In these these these careers, particularly
1:08:12
Speaker 1: in finance and and policy, there are gonna be a
1:08:15
Speaker 1: lot of weekends, They're gonna be a lot of late nins.
1:08:18
Speaker 1: And if you don't fundamentally love what you're doing, it's
1:08:22
Speaker 1: going to drive you to distraction. You're not gonna be
1:08:25
Speaker 1: as a factor. Find why you love and what you
1:08:28
Speaker 1: care about. And our final question, what is it that
1:08:31
Speaker 1: you know today about macroeconomics, monetary policy, fixed income investing
1:08:38
Speaker 1: that you wish you knew thirty years or so ago
1:08:41
Speaker 1: when you were first getting started. So I think that
1:08:45
Speaker 1: the biggest thing I've learned is as one goes through
1:08:51
Speaker 1: these cycles. And this is true as an investor, uh,
1:08:55
Speaker 1: it's true as a policymaker. You have to have faith
1:09:00
Speaker 1: your instincts. You know, at the end of the day,
1:09:03
Speaker 1: all the analytics are great, bring them to bear, but
1:09:06
Speaker 1: I think ultimately, at the end of the day we
1:09:08
Speaker 1: have to we have to trust our guts and trust
1:09:10
Speaker 1: our instincts. Quite quite intriguing. We have been speaking with
1:09:15
Speaker 1: Nathan Sheets. He is the chief economist at PEJAM Fixed Income.
1:09:20
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1:09:33
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