November 15, 2024 • 38 mins
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Bloomberg Surveillance hosted by Tom Keene and Paul SweeneyNovember 15th, 2024
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Featuring:
- Boston Fed President Susan Collins in conversation with Bloomberg's Michael McKee
- Jurrien Timmer, Director: Global Macro at Fidelity Management & Research, presents some charts on the current equity rally and economic cycle
- Gautam Mukunda, professor at Yale School of Management, on President-elect Trump's cabinet appointees and the balance of power in Washington
- Adair Morse, Conference keynote speaker and professor at UC-Berkeley's Business School, on the conference and some of her economic research
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. Catch us live weekdays
at seven am Eastern on Apple car Player, Android Auto
with the Bloomberg Business app. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 3 (00:26):
Now, are Michael McKee an important conversation with the President
of the Boston Fed, Susan Collins.
Speaker 4 (00:33):
I'm Michael McKee, the international economics and Policy correspondent for Bloomberg,
and we are at the Boston Federal Reserve Bank today.
Speaker 5 (00:40):
They're holding their sixty eighth.
Speaker 4 (00:41):
Annual Economics conference, and we're joined by the President of
the Boston Fed, Susan Collins. Thank you very much for
being with us today.
Speaker 6 (00:49):
It's delighted to be here. Thanks for being at the
Boston Fed.
Speaker 5 (00:52):
It's great. We tell everybody. It's a beautiful day. But
it's thirty nine degrees so winter is finally hit here.
Speaker 6 (00:58):
The seasons are wonderful.
Speaker 4 (01:00):
Oh, speaking of winter, December eighteenth, you have another FED meeting,
and at this point there seem to be some questions
about whether or not the Fed will be cutting rates again,
because this week we got some firm inflation news retail
sales were okay, but not particularly strong at this point.
Speaker 5 (01:19):
Are you thinking that.
Speaker 4 (01:20):
We should see a cut or is it better to
pause and wait?
Speaker 6 (01:24):
So I think it's important to say there's no preset path.
I do see rates as still in the restrictive range,
which means that over time some amount of easing will
be appropriate. But you know, the economy is in a
very good place right now, and inflation's coming back down
to target. The labor markets are healthy, we're seeing solid growth.
Speaker 5 (01:46):
The goal of policies.
Speaker 6 (01:47):
Really to sustain that healthy set of conditions, recognizing you know,
there are risks on both sides, and so I think
we're well positioned. I certainly wouldn't take another ease in
December off the table, But again we're not in a
preset path, and so we'll have to look carefully at
the data and see what makes sense when we get
(02:09):
to December eighteenth.
Speaker 4 (02:10):
Well, the data this week showed inflation a little bit
stronger than it had been in the CPI and the PPI,
and those who do the nerdy calculations for the PCE
say we're going to see.
Speaker 5 (02:20):
The same thing.
Speaker 4 (02:22):
Should you keep your foot on the brake a little
more then because inflation is not back down to your target.
Speaker 6 (02:28):
So you know, I don't focus too much on any
one data point. I think it's really important to look holistically.
And when I do that, what I see is that,
first of all, inflation has come down significantly. I focus
on the you know, a couple of month averages, and
(02:49):
if you take food, energy, and in particular shelter out,
the rest of inflation has actually been in the range
consistent with the two percent, exactly what we'd like to see.
What's really still elevated as shelter and that is taking
time to come back down, and a lot of that
(03:10):
really reflects shocks from the past. I'm not seeing evidence
of new price pressures, and so I think it's important
to stay the course. But that analysis of the data
is part of why I thought it was really appropriate
for us to begin easing in September, and to be
in an environment where we are really looking over time methodically,
(03:35):
perhaps patiently, to be normalizing policy, to maintain those healthy
conditions that I talked about a moment ago.
Speaker 5 (03:42):
Well, let's look at the other side of the mandate. Employment.
Speaker 4 (03:45):
We had a very strong employment report, and then we
had a very weak employment report, granted, affected by hurricanes
and strikes.
Speaker 5 (03:53):
So what's your judgment of.
Speaker 4 (03:55):
Where the labor market is when you look holistically at
all of the labor data and when I.
Speaker 6 (04:00):
Look at all of the data, and you're absolutely right,
there have been some stronger readings, there have been some
readings over time that were a bit weaker, and there are.
Speaker 5 (04:09):
A lot of special factors.
Speaker 6 (04:10):
So looking at averages over time, looking at the range
of information, what I see is a labor market that
looks similar to conditions that we've considered full employment, so
in terms of job openings and quit rates, and the
fact that wage growth has been coming down and given
(04:31):
the high productivity we've seen is consistent with the move
back down to two percent inflation and staying there. And
unemployment has stayed in a range that is near four
percent low by historical standards, so yes, higher than a
year ago. So all of that, to me says healthy
labor market conditions. Things to watch carefully and don't focus
(04:56):
too much on any one piece of data.
Speaker 7 (05:00):
Have to look at the whole picture.
Speaker 4 (05:01):
All right, healthy labor market. Inflation's coming down, even if
it's stalled a little bit, but it's in the twos
and the economy is stronger than people had forecasts. So
do you agree with Chairman Powell and saying there is
nothing telling you you have to cut rates very quickly?
Speaker 6 (05:20):
So I think that I don't. I agree that I
don't see a big urgency. At the same time, I
do think that preserving those healthy conditions, right, I mean,
that's what our mandate really is from Congress. Price stability
and maximum employment sustained over time, not just at some
point in time. And so as I said before, I
(05:42):
do see financial the policy stances being in a restrictive
place and over time, normalizing that I think is going
to be important. But we're well positioned to be really
careful in assessing the data and making decisions about the pace,
about the timing, and so that you know, that's how
I think about that.
Speaker 4 (06:03):
Let me ask about the elephant in the room, and
that is the new President elect of the United States.
His policies have not been fleshed out. Tremen Pol's made
it clear you don't know exactly what's going to happen.
But do you expect that something in whatever his fiscal
plans are will affect the economy and you will have
(06:26):
to take another look, say at what your economic projections
are and what the plot projections are for twenty twenty five.
Speaker 6 (06:33):
Now, as we get information about the economy, certainly that
includes about fiscal policy. Of course, it's really important to
factor that in. And there are lots of things we
look at. Fiscal policies certainly one of them, but I
don't want to speculate on what policies that haven't been
enacted or implemented might look like.
Speaker 4 (06:51):
Well, do you think that tariffs as an economic concept
add to inflation?
Speaker 6 (06:59):
They can, And again we would have to see if
there are tariffs that are implemented, more about the specifics
and the dynamics for those.
Speaker 4 (07:08):
Now, if there's a fiscal impulse in whatever the President
elect chooses to do, is the economy growing too fast
for that right now? Would that be a danger a worry?
Speaker 6 (07:20):
So again, I think there are lots of things that
determine how the economy evolves and grows over time. Fiscal
policy is certainly one of them and certainly does have
an impact on that, and we'd have to factor that
in and look through that. You know, I do think,
and Chair Powell has also said this that you know,
fiscal policy at the moment is on a path that's
(07:40):
not sustainable. But again, we when we make our policy
decisions to focus on our mandate from Congress, it's really
based on the data that we have available and the
analysis and the assessments that we can do on that basis.
Speaker 4 (07:55):
As far as I know, President like Trump has never
threatened to fire you.
Speaker 5 (08:00):
But I wanted to ask.
Speaker 4 (08:02):
What is in your mind the relationship between the Federal
Reserve and the executive branch.
Speaker 6 (08:09):
So what I would say is that the FED is
structured by Congress as an independent body, and that that
is important in terms of the ability for us to
do our job well. There's a lot of analysis that
shows that independent central banks are more effective at keeping
(08:32):
inflation low and stable, and we have really seen how
important it is to keep inflation low and stable in
terms of the impact the higher prices past inflation have had.
And so I think that is a very good structure
to enable us to do our jobs well.
Speaker 4 (08:50):
So the things that come across social media basically just
noise in the background to you as a policymaker.
Speaker 6 (08:55):
I am very focused on doing my job and there
is more than enough to keep me very focused and
very busy now.
Speaker 5 (09:03):
The people, well you can't see them.
Speaker 4 (09:04):
I could see them out there, all the traders on
their knees going tell us when you're going to.
Speaker 5 (09:08):
Do this sort of thing.
Speaker 4 (09:10):
Can we basically say, because of the potential changes that
are coming and the data that we have seen, that
the dot plot for twenty twenty five and the SEP
for twenty twenty five, those are kind of out the
window now and we should really wait until December or
even later to get a good idea of where you
think you're going to be and the economy is going
to be.
Speaker 6 (09:30):
All things I think always evolve, and so in about
a month or so, we will have a new SEP
and information from all of the policymakers about what they think.
And so I think it's always true that you know,
in the middle of the SEP information you don't want
(09:51):
to take too much from what might have been written down,
penciled in. I would say a number of weeks earlier,
a lot of the data evolves.
Speaker 4 (10:02):
What are the people in these tall buildings around us,
all the corporate leaders in your district telling you about
how they see the economy going forward and their plans.
Speaker 6 (10:12):
Yeah, and I appreciate you asking about that. I think
one of the really important things that I do, that
my colleagues do is talk to people across the economy
in lots of different sectors. So being out and about
throughout New England and what I'm hearing is pretty consistent
with what I said at the outset that people are
(10:33):
cautiously optimistic. They see an economy that seems resilient. Labor
markets have moved into much more normal conditions relative to
the unsustainable, more overheated conditions from a year or more ago,
and the price pressures really have abated considerably. So that's
(10:55):
all very consistent. But of course, you know, the aggregate
data masks a range of different specifis across individual firms
and sectors and regions, and it's really I think helpful
to hear all of that and pull the qualitative information
together with the statistics.
Speaker 4 (11:09):
One last question at your conference. It's on financial technology
this year and the Boston Fed's been in the middle
of financial technology and just coincidentally, coming up at the
top of the hour, we have our Bloomberg Technology Show.
Speaker 5 (11:22):
So let me ask you.
Speaker 4 (11:24):
A lot of tech talk over the last five, six,
seven years has been tech talk.
Speaker 5 (11:30):
How fast are we going to see some.
Speaker 4 (11:34):
Sort of impact on the average person from new payment systems.
I realize you have fed now in place, but how
fast are people going to say, hey, this is something different?
Speaker 5 (11:45):
And are we going to.
Speaker 4 (11:46):
See any kind of digital currency adoption, whether it's private
or government in the next few years.
Speaker 6 (11:55):
So, you know, the impacts of technology have many, many dimensions,
and I think we're already seeing some impacts in terms
of the roles that fintech are playing across our economy
in different ways. And the conference today and tomorrow is
intended to really bring experts together who have knowledge and
(12:17):
done analysis from different vantage points to see as we
put together the things we know, what are some of
the things we don't know and need to know better.
And so what we're really focusing on is a number
of different themes, including financial inclusion, what are some of
the implications of the innovations for access to financial services?
(12:40):
And then also what are some of the implications of
technological innovation for the transmission of monetary policy, for our
supervision and regulation of financial institutions, and also for financial stability.
So thinking about both the opportunities and the risks, and
I think we are already seeing some of those implications,
(13:00):
but it's still unfolding. It's complicated, and it's moving pretty quickly.
So that's what we're trying to better understand. And again
we're delighted that you're all here while we're in the
midst of a conference on an important topic.
Speaker 5 (13:14):
Well, thank you for having us.
Speaker 4 (13:15):
Susan Collins, the President of the Federal Reserve Bank of Boston.
Speaker 5 (13:19):
We'll send it back to you now.
Speaker 8 (13:21):
Hi, Michael McKee, thank you very much. Bloomberg's Michael McKey
speaking with Boston FED President Susan Collins here in Boston.
Speaker 2 (13:34):
You're listening to the Bloomberg Surveillance podcast. Catch us Live
weekday afternoons from seven to ten am. Easter Listen on
Apple car Play and Android Auto with a Bloomberg Business app,
or watch us live on YouTube.
Speaker 9 (13:47):
And commute this morning.
Speaker 3 (13:49):
It's very important on radio on Apple car Play and
Andrew Auto to talk to the number one chart guy
in the world.
Speaker 9 (13:55):
It really works on radio, maybe works better.
Speaker 3 (13:57):
On YouTube, but we're going to be chart free this
morn with Uri and Timmer. The title is Director Global
Macro at Fidelity Management, and you can see the miracle
of this work on LinkedIn, where he's very very visible.
Urine Timmer joins us now as he gets ready for
the charts of the weekend. How do you amend your charts?
(14:19):
When there was a news bulletin yesterday, the Bloomberg headline
that there's seven trillion dollars in cash laying out there,
how does that affect Will dan Off? How does that
affect Uri and Timmer?
Speaker 10 (14:33):
Well, so that's that's cash shitting in money market accounts.
Of course, we are the leading provider of money market
so we're intimately involved with that with that cash. But
my sense always has been that a lot of that
cash did not flee the stock market in a flight
to quality, which is kind of typically what you would expect,
(14:53):
and then when when people feel more comfortable, they bring
the cash back in. In this case, the cash came
out of the banks during the regional bank crisis, you
know a few years ago, when banks, you know, still
are paying half a percent on deposits, and they were then,
and the Fed was raising rates and providing alternatives. So
(15:14):
I don't quite see this as a powder keg of
cash waiting to chase stocks. And the metric I look
at is money market fund access assets as a percentage
of the market cap in the stock market, and there
it's more it's more normal, it's more normal. So that
money came out of the banks, my senses eventually will
go back into banks, but not necessarily stock.
Speaker 3 (15:36):
We need to go into the crown jewel secrets of fidelity.
And Abby, thank you so much for listening this morning
and giving us access to mister Timmer.
Speaker 9 (15:45):
I'm going to cut to the chase.
Speaker 3 (15:46):
What's the elasticity I've yield in money market flows? If
yields come down two decimal points or one decimal point
or a big figure, when does Paul get out of
his money market funds?
Speaker 10 (15:59):
Well, I think the FED is not going to cut
as much as many people have thought and continue to think.
So maybe it goes to four, it's at four and
five eighths. If that's the case, money market yields stay
around four or so, and I don't think that is
going to create a tsunami, you know, out of cash
into other assets, whether it's bombs or equities. So I
(16:24):
don't think we're going to have another sort of zerb
era where we go to zero or one and risk
premia in the bond market. Gets suppressed and then that
money flees into the risk market. So I don't think
we're going to get there, but it would be, it
would It would take you know, more than what we've
seen so far, for sure.
Speaker 8 (16:42):
You're in What do you make of the move we've
seen in financial markets since the election, big move of stocks,
yields pushing higher, dollars, stronger, Bitcoin at ninety thousand per token,
What do you make of all that?
Speaker 10 (16:55):
Yeah, so the markets are always in price discovery mode. Right,
Sometimes the new information comes in gradually, slowly, a company
reports earnings, the stock price adjusts, and sometimes the information
comes in all at once, as we had with the election. Right,
you can tell that people were sitting on their hands,
you know, it was supposedly too close to call, so
(17:16):
nothing really got done. And the market's brutally efficient in
discounting new information, and so on November sixth, it had
a lot of new information to discount, and that's what
it did. And that's what price discovery is. And so
the red wave trade right, small caps, less fed cuts
(17:37):
return of the term premium rotation into financials, energy industrial,
so broadening.
Speaker 9 (17:44):
That is the trade.
Speaker 10 (17:46):
And I think in twenty sixteen that trade was pretty
much sort of done by December, right, So it happens
very quickly. It's not like this is like the first
bat of the first inning, like it's done instantaneously.
Speaker 3 (18:00):
You have portfolios of Fidelity that are over fifty percent
in their top ten stocks and they're very mag seventy.
Speaker 9 (18:07):
Et cetera, et cetera. What do you see in your
chart work on the flows?
Speaker 3 (18:13):
Luisja Motto would say, the distributions in and out of
MEG seven right now? Are we selling? Are we buying?
What are we doing well?
Speaker 10 (18:22):
I think the good news for the MAG seven is
that they're not that expensive, right. I think I take
a broader brush. I look at the nifty to fifty,
the top fifty stocks, just because I have a data
sets all the way back to the sixties and eighteen
sixty and during the early seventies the original nifty to
fifty and the late nineties, the dot com era, those
(18:42):
fifty stocks were trading at twice the valuation multiple as
the bottom four fifty. Today, the top fifty are trading
at a twenty five percent premium. So you can't call
it a bubble if the valuation is not extreme. The
price movements have been extreme, but not the valuation. So
what we've seen over the past few months really since
the FED started cutting rates, is that this has been
(19:03):
a bullish broadening. So the market has broadened eighty percent
of stocks are above the two hundred moving average, but
it's not happening at the expense of the mega growers,
and in that sense, this cycle in a way has
kind of gone in reverse. It's like a Benjamin Button cycle,
where you know, usually a bull market starts very broad right,
(19:24):
because the junkie low price stocks that are obliterated in
the bear market come bouncing back, and then as the
cycle matures, it gets more narrow and the blue chips
are left standing at the end and you get those
breath divergences. This time, it's been the opposite. It started
with the Mac seven and then even during the rate
hiking cycle, those were the safe stocks to be in
(19:46):
because they were immune to the FED because they had
so much cash. And now they're holding their absolute performance.
But the market has broadened really since a year ago,
and so it's kind of the best that you can
hope for. Like are a more disorderly version of that
would be that the mag seven or the nifty to
(20:07):
fifty decline because money is moving from those stocks to
the broader market. Then the index, the S and P
would have trouble staying up just because of the weight
of those seven stocks. But we're not seeing that yet.
Speaker 8 (20:21):
Your titles director of Global Macro. Where do you see
the US versus non US right now?
Speaker 10 (20:27):
Well, so US, you know, excellence, you know has been
in place for a decade. And it's interesting, you know,
because we're always debating, you know, do we go outside
the US? I mean the US trading at twenty two x,
US is trading at fifteen PE, So the US is
sixty percent more expensive than the rest of the world,
whether it's em or EFA, you know, Japan, Europe. But
(20:50):
you need a catalyst, right, Evaluation is not alone. You
need relative earnings. Like if you go across the street
and you're in the halls of fidelity, there is price
follows earnings and relative price or relative performance follows relative earnings.
And so that is missing with between the US and
the rest of the world because US earnings continue to dominate.
Speaker 3 (21:11):
Price follows earning. Sounds like Bettina Dalton nineteen eighty. Okay,
let's go there. I got an election. I got a
belief nominal GDP's gonna pop. Do you, within the research
of the fundamental animals at Fidelity and what you're doing
with charts, agree that nominal is gonna pop. Revenues are
gonna pop, and that's earnings will sustain.
Speaker 10 (21:33):
Yes, So we are one year into an earning cycle.
Trailer earnings are up eight percent this year. Forward earnings
are off about twelve or so. The expectation is that
earnings will continue to grow next year. And if we
do get this nominal GDP pop and earnings are a
nominal thing, the earning cycle can continue. But the thing
I worry about is the return of the of the
(21:53):
fed model, you know, back in the green span in
days of the eighties. Bond yields kind of you know,
are causing indigestion again the rockvigilantes, And we've seen that
now repeatedly over the last few years, and I think
that is a risk for twenty twenty five.
Speaker 9 (22:09):
You gonna be in New York soon, I will be please.
Speaker 3 (22:12):
You got to come in because we got to talk
about Babson the global ranking.
Speaker 10 (22:16):
They just got yes, And while while you have me
on the air, I don't know what your schedule is,
but I would be like to invite you to come
look at our chart room after the show.
Speaker 9 (22:26):
Or it's like the Vatican, folks. You've got the golf
stream right, Oh, sure you can go over you're in.
I don't think I can do it. I think I
have to race to the airport.
Speaker 3 (22:36):
Okay, I'm sorry, but Paul's got the golf stone, so
we'll do it next time.
Speaker 11 (22:40):
You're in.
Speaker 3 (22:40):
Timmor, thank you so much with Fidelity there, and we're
efforting a number of their managers as well to talk
about this spectacular year we've seen in the markets world.
Speaker 2 (22:50):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on applecar Play and Android
Auto with the Bloomberg Business app. You can all so
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station just Say Alexa playing Bloomberg eleven.
Speaker 3 (23:07):
Joining us now Gotamcunda Yale University with other parchment along
the Charles River as well. He's given us such good
help here with the election. I want to talk and
this is a fancy technology seminary. Everybody here knows how
to use a cell phone a computer.
Speaker 9 (23:25):
They're back. They're using Fortran here at the boss.
Speaker 3 (23:28):
Okah, gout them as simple as this is a ludite
America where there's a huge in our polarization. There's a
huge body of people that just aren't in taking advantage
of technology and are almost anti technology.
Speaker 11 (23:44):
I mean, I think certainly there's a huge anti technology push,
but it's striking that some of the most deleite protect
people in the world.
Speaker 3 (23:52):
That's my second question. I got Elon Musk. As part
of the new administration, he defines entrepreneurship in technology, and
you got it. I got partially a ludeied America.
Speaker 9 (24:05):
Yeah.
Speaker 11 (24:05):
So you have sort of this icon of entrepretion technology
on the Musk, and you also have RFA Junior, possibly
the most anti science person in America, and apparently they're
going to be serving in the same administration. So it's
quite a contrast. And technology shocks, like China shocks, have
had big impacts on the labor market. We know that
they seem to be affecting people in lots of different ways.
We've seen the decrease in manufacturing employment at times, and
(24:28):
all of these things added up to create a level
of social ferment in this country that we're just starting
to see the implications of. But the flip side of
that is a lot of parties that have won landslide
that will won big election. So this was a decisive
victory by the Repobulmans, but not a landslide. I didn't
look anything on like two thousand and eight, for example,
had interpreted that as gigantic sweeping mandates for all of
(24:50):
their policies and found out that actually people were voting
on one issue and that was and in this case
almost certainly inflation. And they've then sort of leaned into
the overinterpreted their victory. How much of this anti technology
thing that you're talking about is a product of people
starting to overinterpret the victory And we don't know yet,
but it's pretty striking when we see this, and Paul.
Speaker 3 (25:12):
You see this with the technology reports we see like
Apple or Microsoft or in the video, it's like two
planets it is.
Speaker 8 (25:20):
It's just extraordinary. Galtem, I mean, we're these cabinet picture
coming fast and furious from President elect Trump and his campaign.
What's your takeaway so far?
Speaker 11 (25:30):
So in the first century AD, the mad Roman emperor
Caligulam decided to make his horse encinitatis a console of Rome.
That horse was still a better pick than Matt Gates
Attorney general. You know, you sort of see Republicans Democrats
we expect recall, but you can see Republicans recoiling that
(25:51):
in general. What does not expect that the Attorney general's
closest contact with the Justice Department before they get the
job is being investigated by the Justice Department for sexual
like that. That seems out of the ordinary.
Speaker 8 (26:02):
So it talk to us the role that Congress will
play in the confirmation process for some of these appointees.
Speaker 11 (26:09):
As large as they choose it to be. I think
of the set of appointees, they're the sort of the
normal appointees Burtom, Marco Rubio, who are going to get
the most Democrats will vote just you know, say thank
god we got him in fine. Stephanic at the UN
will probably get something some a little like that. But
the flip side is clearly Democrats are going to go
(26:30):
insane over the idea of the sort of Hegseth Tulsie
Gabbard at d and I that's the one that people
in the internet, and I'll say in the in the
in the National security community. People are simply going in
like that. They don't even know how to process that prospect,
you know, or if k Junior or at HHS, I don't.
I think people don't quite realize you. HHS has a
(26:51):
budget of almost two trillion dollars. So the scale of
what we're talking about wowing him there is just unimaginable.
And this is someone who, when he is running for president,
proposed that one of the things he wanted to do
was just stop all research and development on you drugs. So,
I mean, you know, four years no R and D
in the life sciences. I think people could probably object
to that.
Speaker 8 (27:12):
So what's the realistic of you in Washington? Just about
to what extent was some of these Republican senators in
effect go against their president by blocking some of these appointees.
Speaker 11 (27:25):
I think people are starting to think not that much.
It wouldn't shock me if Gates doesn't get confirmed, just
because he's made so many enemies in the Congress that
they might there'll be a reaction. But the others, I
think the betting is that the level of patronage that
Trump has and the level of sway he has over
the party he ran ahead of all of these people, right,
(27:46):
he got more votes than most of these people. In Michigan,
the Democrats held the Senate seat because tens of thousands
of people came in voted for Donald Trump and left
the rest of the ballot blank, yep, and so and so.
Speaker 8 (28:03):
Maybe if you're a Trump supporter, I think a lot
of those folks felt like he's doing exactly what we
wanted him to do, which is to be unconventional, you know,
kind of drain the swamp, to use a term from
the past cycle. Maybe there is public support for this.
Speaker 11 (28:19):
So I think there is certainly a base of Trump
supporters for whom this is exactly what they wanted, and
this is this is sort of they're extremely enthusiastic about that.
But my strong suspicion is that base is not fifty
percent of the country, and it's not anything close to
fifty percent of the country, And there are a lot
of people who probably did not vote to find out that,
you know, we're not going to be inventing new vaccines
(28:39):
for the next few years. And note it's not just
a four year problem.
Speaker 3 (28:43):
Right.
Speaker 11 (28:43):
When you eliminate these capabilities, you can't wave a magic
want and bring them back. It takes generations to build
the sort of scientific establishment that we have, and that
is now at RESK.
Speaker 9 (28:52):
This is going to be in your lectures.
Speaker 3 (28:54):
Yeah, it is Tom Nichols of Naval War College, all
of his work. Three times in the last two days
people have sent me Death of Expertise Tom Nichols book
that I interviewed him four years ago, The Death of Expertise?
Is it as grim now as it's ever been?
Speaker 11 (29:11):
Tom's great and I would say it might be grimmer
than even then. I think that even he expected. You know,
going into the election, you would talk to Democrats and Republicans,
and Democrats, even the ones, the ones who are really scared,
would talk about these sorts of appointments and you know,
you'd say, like, what.
Speaker 9 (29:27):
Did it not do?
Speaker 11 (29:28):
Get the worst case? Yeah, And Republicans would say, well,
you know, we'll just have a normal Trump, a normal
Republican administration with a guy who makes sense mean tweets.
So when you think about the spectrum of where people
thought they were going to end up, these appointments are
sort of the worst fears of Democrats, except not even that.
Nobody was saw that Matt Gate's coming. So yeah, there's
a profound death of expertise problem. But let's back out
(29:52):
from that. I think we we all as a society,
just haven't thought through. Let's back up for a second.
A lot of this is about new communication technology. We
talk about social media, things like that which make the
world more transparent. So we see that the experts were
never as great as they thought they as we thought
they were in their failures. That doesn't mean they're useless.
There's there're convenience stakes. When the printing press was invented, right,
(30:14):
the big foreign part, the big consequence of that that
historians go back is they say the Thirty Years War,
the worst war of europe history, that killed a third
of the population of Germany, was directly driven by the
event of the printing We're.
Speaker 3 (30:27):
Going to continue this discussion in New York, as I'm
sure we will with got him Conda. He's with Yale University.
Speaker 10 (30:33):
Here.
Speaker 2 (30:41):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on applecar Play and Android
Auto with the Bloomberg Business app. You can also watch
us live every weekday on YouTube and always on the
Bloomberg terminal.
Speaker 8 (30:56):
Dearn Morse Conference keynote speaker and professor at UC Berkeley's
up Business School out there. Thanks so much for joining
us here. You're a keynote speaker here today. What are
you going to be talking about.
Speaker 1 (31:07):
I'm gonna be talking about AI and the use in credit.
So thinking about not just in understanding AI, in terms
of deploying and getting better, better precise underwriting and.
Speaker 7 (31:20):
Knowing people's risk and this sort of stuff.
Speaker 1 (31:22):
That there's a general landscape of using AI for all
kinds of provision of lending to people, and then there's
some red flags, right, and so kind of putting the
landscape out there, we need to think about both sides.
We need to inform not just policy makers we're here
at the FED, but also the providers, right, so they
can think about things that they need to step up
(31:44):
and understand.
Speaker 8 (31:45):
We were back last time I was up here in Boston.
We were doing some work with the Boston Consulting Group
and they were saying, is they talked to their clients
across all industries about the use of AI. They want
to get a commitment that they will do it in
the correct way, you know, and really, because AI is
so powerful that you want to make sure that whoever
they're talking to, that they make a commitment to doing
it in the right way, the sustainable way. How does
(32:08):
that apply to finance?
Speaker 7 (32:10):
Right?
Speaker 1 (32:10):
So the problem is there's so many different aspects of
what correct means.
Speaker 7 (32:14):
Right.
Speaker 1 (32:14):
So if we think about AI, where where it's going
to be deployed, right, it's not just you know, it's
understanding credit risk and reaching more of the population in
ways that biases are hindering.
Speaker 7 (32:26):
So that's great.
Speaker 1 (32:27):
There's also targeting and marketing, there's monitoring, there's chatbots to
get information, authenticating fraud, right, all these sort of uses.
Along the other side, though, we have to think about
things like there's been research that finds it AI teaches
itself itself how to collude, right, which has all kinds
(32:50):
of your mind goes crazy when you start thinking about that.
And then AI can be deceptive and conveyance to get
an outcome at once.
Speaker 9 (32:58):
So this is a sequel to the matrix too or something.
Speaker 3 (33:00):
I mean, really, that's what reef shows up, right, right,
Paul can play Reeves. I can't play Reeves. Come on,
most of the public is scared stiff of this. Let's
begin with the timeline. Are you looking out to two
thousand and thirty or are you looking out to two
thousand and forty.
Speaker 7 (33:16):
Or twenty twenty five? Right?
Speaker 1 (33:19):
I mean AI is already being you Are we ready
for this? We're We're not ready, nor are the providers ready?
Speaker 9 (33:25):
Right?
Speaker 1 (33:25):
The providers themselves are concerned about the You know, there's
startups left and right right, and whether the startup's doing
and what inputs are we using? Do we let AI
go on all the data that's available about someone to profile?
Speaker 9 (33:39):
Heay?
Speaker 3 (33:39):
But do you flying to Park Avenue and you're gonna
talk to James Diamond and his team at JP Morgan.
Speaker 9 (33:43):
You're gonna bring Keen Green.
Speaker 3 (33:45):
Of Berkeley along just to impress everybody, and they're going
to go we need to trust this process. What's the
trust factor at this conference in Boston? To people trust AI?
Speaker 1 (33:56):
I think I don't. I don't know the answer to
do they trust? I don't think they know one way
or the other. I think where we are is that
right now? If we understand what inputs AI is using,
so you can control that right where where it's going,
what information it's using to make decisions. If you control
the inputs, you're able to put a bound on what
(34:19):
it can do. Right, You can tell it not to lie,
you can tell it only to use these days these
certain inputs that are non discriminatory and other things. Right now,
what the how that input use is getting deployed is
a black box?
Speaker 8 (34:35):
How from your research talking to providers of credit, how
are they using AI yet? Are they using AI? Or
is it still the loan officer that I got to
convince I'm a good credit.
Speaker 7 (34:46):
No?
Speaker 1 (34:46):
No, definitely they are using AI, right, I mean from
the you know, the simple way the chatbots right getting
information in right that that is, those are AI driven,
but also the processing and understanding under general parameters right
under you know, how would you maximize for for profitably
lending or how would you for profitably marketing new new.
Speaker 7 (35:10):
Products to people?
Speaker 8 (35:12):
Right?
Speaker 1 (35:12):
They are using there? Are they deploying underwriting at a
full scale using AI?
Speaker 8 (35:18):
No?
Speaker 7 (35:18):
Probably not. There are some exceptions to that.
Speaker 1 (35:21):
But but we're using it little bits here and there,
and it pretty soon the whole arena changes.
Speaker 3 (35:28):
Is America behind on this or are we leading the way? Ah?
Speaker 7 (35:33):
Probably leading? Leading?
Speaker 1 (35:36):
Is not you know the the there are other countries
that are also deploying.
Speaker 7 (35:41):
China's deploying.
Speaker 1 (35:43):
There's there's a whole movement in Europe and a law
in Europe regarding some of these things, and so it's
we are ahead, but we are with others in that
that lead.
Speaker 3 (35:53):
So Paul I got a credit rating of one hundred,
it's like so low. You know, they don't even talk
to me and I get email all the time. We'll
give you forty five thousand, We'll give you ten thousand.
Is that AI driven? Is it your fault?
Speaker 7 (36:06):
I don't know the answer to that question.
Speaker 1 (36:08):
But but that's where we are, right, that's where we
you know, there there are people that are you know,
they have credits course that maybe those credits course are
not right, and maybe AI helps right and and so,
and then there are other people that you know.
Speaker 8 (36:23):
Well, here's my concern is that small community banks, they're
not going to be able to make the technology investments.
Therefore that whatever benefits may be out there, and I
don't know if there are, bye by the way, you
have to convince me. I'm afraid that they're not going
to have the same capabilities to say a JP Morgan Chase.
Speaker 1 (36:38):
So I'm I'm a big fan of having a community
financial architecture. Banks, the lenders the CDFI's right, and the
reason it's so important is because in downturns, these the
research shows that these these local community facing lenders and banks,
they they're able to stick with their customers and when
(36:59):
they them the most. So so far, technology has not
replicated that. Now, whether AI becomes a localized lender because
its ability to act local is a question.
Speaker 7 (37:10):
We don't know.
Speaker 1 (37:12):
And how what does that mean for the financial architecture
of the United States is a complete unknown.
Speaker 8 (37:17):
So I mean, at the end of the day, if
I'm providing credit, I want to just I want a
good credit environment where I get paid back, where I'm
able to diverse, you know, distribute you know, debt into
my marketplace. But I want to get paid back. I
don't want to take undw credit risk. Ideally AI will
help me do that better.
Speaker 1 (37:35):
Ideally it will help you do that better, and also
to manage new products and new services for customers to
figure out where they might be exposed to risk or
where they might be evolving in their business or household.
Speaker 3 (37:47):
Thirty second question, We don't enough time. It's unfair Type
one Type two construct. Is AI in banking going to
help banks or help them not lose money.
Speaker 7 (37:58):
It's going to help them grow their business.
Speaker 8 (38:01):
That's kind of what they want to that's what they
want to hear at. Dear Morse, thank you so much
for joining us.
Speaker 5 (38:05):
A deare Moorese.
Speaker 8 (38:05):
She's professor of finance at the University of California at Berkeley.
Speaker 2 (38:10):
This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live each weekday,
seven to ten am Eastern on Bloomberg dot com, the
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can also watch us live every weekday on YouTube and
always on the Bloomberg terminal
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. Catch us live weekdays
at seven am Eastern on Apple car Player, Android Auto
with the Bloomberg Business app. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 3 (00:26):
Now, are Michael McKee an important conversation with the President
of the Boston Fed, Susan Collins.
Speaker 4 (00:33):
I'm Michael McKee, the international economics and Policy correspondent for Bloomberg,
and we are at the Boston Federal Reserve Bank today.
Speaker 5 (00:40):
They're holding their sixty eighth.
Speaker 4 (00:41):
Annual Economics conference, and we're joined by the President of
the Boston Fed, Susan Collins. Thank you very much for
being with us today.
Speaker 6 (00:49):
It's delighted to be here. Thanks for being at the
Boston Fed.
Speaker 5 (00:52):
It's great. We tell everybody. It's a beautiful day. But
it's thirty nine degrees so winter is finally hit here.
Speaker 6 (00:58):
The seasons are wonderful.
Speaker 4 (01:00):
Oh, speaking of winter, December eighteenth, you have another FED meeting,
and at this point there seem to be some questions
about whether or not the Fed will be cutting rates again,
because this week we got some firm inflation news retail
sales were okay, but not particularly strong at this point.
Speaker 5 (01:19):
Are you thinking that.
Speaker 4 (01:20):
We should see a cut or is it better to
pause and wait?
Speaker 6 (01:24):
So I think it's important to say there's no preset path.
I do see rates as still in the restrictive range,
which means that over time some amount of easing will
be appropriate. But you know, the economy is in a
very good place right now, and inflation's coming back down
to target. The labor markets are healthy, we're seeing solid growth.
Speaker 5 (01:46):
The goal of policies.
Speaker 6 (01:47):
Really to sustain that healthy set of conditions, recognizing you know,
there are risks on both sides, and so I think
we're well positioned. I certainly wouldn't take another ease in
December off the table, But again we're not in a
preset path, and so we'll have to look carefully at
the data and see what makes sense when we get
(02:09):
to December eighteenth.
Speaker 4 (02:10):
Well, the data this week showed inflation a little bit
stronger than it had been in the CPI and the PPI,
and those who do the nerdy calculations for the PCE
say we're going to see.
Speaker 5 (02:20):
The same thing.
Speaker 4 (02:22):
Should you keep your foot on the brake a little
more then because inflation is not back down to your target.
Speaker 6 (02:28):
So you know, I don't focus too much on any
one data point. I think it's really important to look holistically.
And when I do that, what I see is that,
first of all, inflation has come down significantly. I focus
on the you know, a couple of month averages, and
(02:49):
if you take food, energy, and in particular shelter out,
the rest of inflation has actually been in the range
consistent with the two percent, exactly what we'd like to see.
What's really still elevated as shelter and that is taking
time to come back down, and a lot of that
(03:10):
really reflects shocks from the past. I'm not seeing evidence
of new price pressures, and so I think it's important
to stay the course. But that analysis of the data
is part of why I thought it was really appropriate
for us to begin easing in September, and to be
in an environment where we are really looking over time methodically,
(03:35):
perhaps patiently, to be normalizing policy, to maintain those healthy
conditions that I talked about a moment ago.
Speaker 5 (03:42):
Well, let's look at the other side of the mandate. Employment.
Speaker 4 (03:45):
We had a very strong employment report, and then we
had a very weak employment report, granted, affected by hurricanes
and strikes.
Speaker 5 (03:53):
So what's your judgment of.
Speaker 4 (03:55):
Where the labor market is when you look holistically at
all of the labor data and when I.
Speaker 6 (04:00):
Look at all of the data, and you're absolutely right,
there have been some stronger readings, there have been some
readings over time that were a bit weaker, and there are.
Speaker 5 (04:09):
A lot of special factors.
Speaker 6 (04:10):
So looking at averages over time, looking at the range
of information, what I see is a labor market that
looks similar to conditions that we've considered full employment, so
in terms of job openings and quit rates, and the
fact that wage growth has been coming down and given
(04:31):
the high productivity we've seen is consistent with the move
back down to two percent inflation and staying there. And
unemployment has stayed in a range that is near four
percent low by historical standards, so yes, higher than a
year ago. So all of that, to me says healthy
labor market conditions. Things to watch carefully and don't focus
(04:56):
too much on any one piece of data.
Speaker 7 (05:00):
Have to look at the whole picture.
Speaker 4 (05:01):
All right, healthy labor market. Inflation's coming down, even if
it's stalled a little bit, but it's in the twos
and the economy is stronger than people had forecasts. So
do you agree with Chairman Powell and saying there is
nothing telling you you have to cut rates very quickly?
Speaker 6 (05:20):
So I think that I don't. I agree that I
don't see a big urgency. At the same time, I
do think that preserving those healthy conditions, right, I mean,
that's what our mandate really is from Congress. Price stability
and maximum employment sustained over time, not just at some
point in time. And so as I said before, I
(05:42):
do see financial the policy stances being in a restrictive
place and over time, normalizing that I think is going
to be important. But we're well positioned to be really
careful in assessing the data and making decisions about the pace,
about the timing, and so that you know, that's how
I think about that.
Speaker 4 (06:03):
Let me ask about the elephant in the room, and
that is the new President elect of the United States.
His policies have not been fleshed out. Tremen Pol's made
it clear you don't know exactly what's going to happen.
But do you expect that something in whatever his fiscal
plans are will affect the economy and you will have
(06:26):
to take another look, say at what your economic projections
are and what the plot projections are for twenty twenty five.
Speaker 6 (06:33):
Now, as we get information about the economy, certainly that
includes about fiscal policy. Of course, it's really important to
factor that in. And there are lots of things we
look at. Fiscal policies certainly one of them, but I
don't want to speculate on what policies that haven't been
enacted or implemented might look like.
Speaker 4 (06:51):
Well, do you think that tariffs as an economic concept
add to inflation?
Speaker 6 (06:59):
They can, And again we would have to see if
there are tariffs that are implemented, more about the specifics
and the dynamics for those.
Speaker 4 (07:08):
Now, if there's a fiscal impulse in whatever the President
elect chooses to do, is the economy growing too fast
for that right now? Would that be a danger a worry?
Speaker 6 (07:20):
So again, I think there are lots of things that
determine how the economy evolves and grows over time. Fiscal
policy is certainly one of them and certainly does have
an impact on that, and we'd have to factor that
in and look through that. You know, I do think,
and Chair Powell has also said this that you know,
fiscal policy at the moment is on a path that's
(07:40):
not sustainable. But again, we when we make our policy
decisions to focus on our mandate from Congress, it's really
based on the data that we have available and the
analysis and the assessments that we can do on that basis.
Speaker 4 (07:55):
As far as I know, President like Trump has never
threatened to fire you.
Speaker 5 (08:00):
But I wanted to ask.
Speaker 4 (08:02):
What is in your mind the relationship between the Federal
Reserve and the executive branch.
Speaker 6 (08:09):
So what I would say is that the FED is
structured by Congress as an independent body, and that that
is important in terms of the ability for us to
do our job well. There's a lot of analysis that
shows that independent central banks are more effective at keeping
(08:32):
inflation low and stable, and we have really seen how
important it is to keep inflation low and stable in
terms of the impact the higher prices past inflation have had.
And so I think that is a very good structure
to enable us to do our jobs well.
Speaker 4 (08:50):
So the things that come across social media basically just
noise in the background to you as a policymaker.
Speaker 6 (08:55):
I am very focused on doing my job and there
is more than enough to keep me very focused and
very busy now.
Speaker 5 (09:03):
The people, well you can't see them.
Speaker 4 (09:04):
I could see them out there, all the traders on
their knees going tell us when you're going to.
Speaker 5 (09:08):
Do this sort of thing.
Speaker 4 (09:10):
Can we basically say, because of the potential changes that
are coming and the data that we have seen, that
the dot plot for twenty twenty five and the SEP
for twenty twenty five, those are kind of out the
window now and we should really wait until December or
even later to get a good idea of where you
think you're going to be and the economy is going
to be.
Speaker 6 (09:30):
All things I think always evolve, and so in about
a month or so, we will have a new SEP
and information from all of the policymakers about what they think.
And so I think it's always true that you know,
in the middle of the SEP information you don't want
(09:51):
to take too much from what might have been written down,
penciled in. I would say a number of weeks earlier,
a lot of the data evolves.
Speaker 4 (10:02):
What are the people in these tall buildings around us,
all the corporate leaders in your district telling you about
how they see the economy going forward and their plans.
Speaker 6 (10:12):
Yeah, and I appreciate you asking about that. I think
one of the really important things that I do, that
my colleagues do is talk to people across the economy
in lots of different sectors. So being out and about
throughout New England and what I'm hearing is pretty consistent
with what I said at the outset that people are
(10:33):
cautiously optimistic. They see an economy that seems resilient. Labor
markets have moved into much more normal conditions relative to
the unsustainable, more overheated conditions from a year or more ago,
and the price pressures really have abated considerably. So that's
(10:55):
all very consistent. But of course, you know, the aggregate
data masks a range of different specifis across individual firms
and sectors and regions, and it's really I think helpful
to hear all of that and pull the qualitative information
together with the statistics.
Speaker 4 (11:09):
One last question at your conference. It's on financial technology
this year and the Boston Fed's been in the middle
of financial technology and just coincidentally, coming up at the
top of the hour, we have our Bloomberg Technology Show.
Speaker 5 (11:22):
So let me ask you.
Speaker 4 (11:24):
A lot of tech talk over the last five, six,
seven years has been tech talk.
Speaker 5 (11:30):
How fast are we going to see some.
Speaker 4 (11:34):
Sort of impact on the average person from new payment systems.
I realize you have fed now in place, but how
fast are people going to say, hey, this is something different?
Speaker 5 (11:45):
And are we going to.
Speaker 4 (11:46):
See any kind of digital currency adoption, whether it's private
or government in the next few years.
Speaker 6 (11:55):
So, you know, the impacts of technology have many, many dimensions,
and I think we're already seeing some impacts in terms
of the roles that fintech are playing across our economy
in different ways. And the conference today and tomorrow is
intended to really bring experts together who have knowledge and
(12:17):
done analysis from different vantage points to see as we
put together the things we know, what are some of
the things we don't know and need to know better.
And so what we're really focusing on is a number
of different themes, including financial inclusion, what are some of
the implications of the innovations for access to financial services?
(12:40):
And then also what are some of the implications of
technological innovation for the transmission of monetary policy, for our
supervision and regulation of financial institutions, and also for financial stability.
So thinking about both the opportunities and the risks, and
I think we are already seeing some of those implications,
(13:00):
but it's still unfolding. It's complicated, and it's moving pretty quickly.
So that's what we're trying to better understand. And again
we're delighted that you're all here while we're in the
midst of a conference on an important topic.
Speaker 5 (13:14):
Well, thank you for having us.
Speaker 4 (13:15):
Susan Collins, the President of the Federal Reserve Bank of Boston.
Speaker 5 (13:19):
We'll send it back to you now.
Speaker 8 (13:21):
Hi, Michael McKee, thank you very much. Bloomberg's Michael McKey
speaking with Boston FED President Susan Collins here in Boston.
Speaker 2 (13:34):
You're listening to the Bloomberg Surveillance podcast. Catch us Live
weekday afternoons from seven to ten am. Easter Listen on
Apple car Play and Android Auto with a Bloomberg Business app,
or watch us live on YouTube.
Speaker 9 (13:47):
And commute this morning.
Speaker 3 (13:49):
It's very important on radio on Apple car Play and
Andrew Auto to talk to the number one chart guy
in the world.
Speaker 9 (13:55):
It really works on radio, maybe works better.
Speaker 3 (13:57):
On YouTube, but we're going to be chart free this
morn with Uri and Timmer. The title is Director Global
Macro at Fidelity Management, and you can see the miracle
of this work on LinkedIn, where he's very very visible.
Urine Timmer joins us now as he gets ready for
the charts of the weekend. How do you amend your charts?
(14:19):
When there was a news bulletin yesterday, the Bloomberg headline
that there's seven trillion dollars in cash laying out there,
how does that affect Will dan Off? How does that
affect Uri and Timmer?
Speaker 10 (14:33):
Well, so that's that's cash shitting in money market accounts.
Of course, we are the leading provider of money market
so we're intimately involved with that with that cash. But
my sense always has been that a lot of that
cash did not flee the stock market in a flight
to quality, which is kind of typically what you would expect,
(14:53):
and then when when people feel more comfortable, they bring
the cash back in. In this case, the cash came
out of the banks during the regional bank crisis, you
know a few years ago, when banks, you know, still
are paying half a percent on deposits, and they were then,
and the Fed was raising rates and providing alternatives. So
(15:14):
I don't quite see this as a powder keg of
cash waiting to chase stocks. And the metric I look
at is money market fund access assets as a percentage
of the market cap in the stock market, and there
it's more it's more normal, it's more normal. So that
money came out of the banks, my senses eventually will
go back into banks, but not necessarily stock.
Speaker 3 (15:36):
We need to go into the crown jewel secrets of fidelity.
And Abby, thank you so much for listening this morning
and giving us access to mister Timmer.
Speaker 9 (15:45):
I'm going to cut to the chase.
Speaker 3 (15:46):
What's the elasticity I've yield in money market flows? If
yields come down two decimal points or one decimal point
or a big figure, when does Paul get out of
his money market funds?
Speaker 10 (15:59):
Well, I think the FED is not going to cut
as much as many people have thought and continue to think.
So maybe it goes to four, it's at four and
five eighths. If that's the case, money market yields stay
around four or so, and I don't think that is
going to create a tsunami, you know, out of cash
into other assets, whether it's bombs or equities. So I
(16:24):
don't think we're going to have another sort of zerb
era where we go to zero or one and risk
premia in the bond market. Gets suppressed and then that
money flees into the risk market. So I don't think
we're going to get there, but it would be, it
would It would take you know, more than what we've
seen so far, for sure.
Speaker 8 (16:42):
You're in What do you make of the move we've
seen in financial markets since the election, big move of stocks,
yields pushing higher, dollars, stronger, Bitcoin at ninety thousand per token,
What do you make of all that?
Speaker 10 (16:55):
Yeah, so the markets are always in price discovery mode. Right,
Sometimes the new information comes in gradually, slowly, a company
reports earnings, the stock price adjusts, and sometimes the information
comes in all at once, as we had with the election. Right,
you can tell that people were sitting on their hands,
you know, it was supposedly too close to call, so
(17:16):
nothing really got done. And the market's brutally efficient in
discounting new information, and so on November sixth, it had
a lot of new information to discount, and that's what
it did. And that's what price discovery is. And so
the red wave trade right, small caps, less fed cuts
(17:37):
return of the term premium rotation into financials, energy industrial,
so broadening.
Speaker 9 (17:44):
That is the trade.
Speaker 10 (17:46):
And I think in twenty sixteen that trade was pretty
much sort of done by December, right, So it happens
very quickly. It's not like this is like the first
bat of the first inning, like it's done instantaneously.
Speaker 3 (18:00):
You have portfolios of Fidelity that are over fifty percent
in their top ten stocks and they're very mag seventy.
Speaker 9 (18:07):
Et cetera, et cetera. What do you see in your
chart work on the flows?
Speaker 3 (18:13):
Luisja Motto would say, the distributions in and out of
MEG seven right now? Are we selling? Are we buying?
What are we doing well?
Speaker 10 (18:22):
I think the good news for the MAG seven is
that they're not that expensive, right. I think I take
a broader brush. I look at the nifty to fifty,
the top fifty stocks, just because I have a data
sets all the way back to the sixties and eighteen
sixty and during the early seventies the original nifty to
fifty and the late nineties, the dot com era, those
(18:42):
fifty stocks were trading at twice the valuation multiple as
the bottom four fifty. Today, the top fifty are trading
at a twenty five percent premium. So you can't call
it a bubble if the valuation is not extreme. The
price movements have been extreme, but not the valuation. So
what we've seen over the past few months really since
the FED started cutting rates, is that this has been
(19:03):
a bullish broadening. So the market has broadened eighty percent
of stocks are above the two hundred moving average, but
it's not happening at the expense of the mega growers,
and in that sense, this cycle in a way has
kind of gone in reverse. It's like a Benjamin Button cycle,
where you know, usually a bull market starts very broad right,
(19:24):
because the junkie low price stocks that are obliterated in
the bear market come bouncing back, and then as the
cycle matures, it gets more narrow and the blue chips
are left standing at the end and you get those
breath divergences. This time, it's been the opposite. It started
with the Mac seven and then even during the rate
hiking cycle, those were the safe stocks to be in
(19:46):
because they were immune to the FED because they had
so much cash. And now they're holding their absolute performance.
But the market has broadened really since a year ago,
and so it's kind of the best that you can
hope for. Like are a more disorderly version of that
would be that the mag seven or the nifty to
(20:07):
fifty decline because money is moving from those stocks to
the broader market. Then the index, the S and P
would have trouble staying up just because of the weight
of those seven stocks. But we're not seeing that yet.
Speaker 8 (20:21):
Your titles director of Global Macro. Where do you see
the US versus non US right now?
Speaker 10 (20:27):
Well, so US, you know, excellence, you know has been
in place for a decade. And it's interesting, you know,
because we're always debating, you know, do we go outside
the US? I mean the US trading at twenty two x,
US is trading at fifteen PE, So the US is
sixty percent more expensive than the rest of the world,
whether it's em or EFA, you know, Japan, Europe. But
(20:50):
you need a catalyst, right, Evaluation is not alone. You
need relative earnings. Like if you go across the street
and you're in the halls of fidelity, there is price
follows earnings and relative price or relative performance follows relative earnings.
And so that is missing with between the US and
the rest of the world because US earnings continue to dominate.
Speaker 3 (21:11):
Price follows earning. Sounds like Bettina Dalton nineteen eighty. Okay,
let's go there. I got an election. I got a
belief nominal GDP's gonna pop. Do you, within the research
of the fundamental animals at Fidelity and what you're doing
with charts, agree that nominal is gonna pop. Revenues are
gonna pop, and that's earnings will sustain.
Speaker 10 (21:33):
Yes, So we are one year into an earning cycle.
Trailer earnings are up eight percent this year. Forward earnings
are off about twelve or so. The expectation is that
earnings will continue to grow next year. And if we
do get this nominal GDP pop and earnings are a
nominal thing, the earning cycle can continue. But the thing
I worry about is the return of the of the
(21:53):
fed model, you know, back in the green span in
days of the eighties. Bond yields kind of you know,
are causing indigestion again the rockvigilantes, And we've seen that
now repeatedly over the last few years, and I think
that is a risk for twenty twenty five.
Speaker 9 (22:09):
You gonna be in New York soon, I will be please.
Speaker 3 (22:12):
You got to come in because we got to talk
about Babson the global ranking.
Speaker 10 (22:16):
They just got yes, And while while you have me
on the air, I don't know what your schedule is,
but I would be like to invite you to come
look at our chart room after the show.
Speaker 9 (22:26):
Or it's like the Vatican, folks. You've got the golf
stream right, Oh, sure you can go over you're in.
I don't think I can do it. I think I
have to race to the airport.
Speaker 3 (22:36):
Okay, I'm sorry, but Paul's got the golf stone, so
we'll do it next time.
Speaker 11 (22:40):
You're in.
Speaker 3 (22:40):
Timmor, thank you so much with Fidelity there, and we're
efforting a number of their managers as well to talk
about this spectacular year we've seen in the markets world.
Speaker 2 (22:50):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on applecar Play and Android
Auto with the Bloomberg Business app. You can all so
listen live on Amazon Alexa from our flagship New York
station just Say Alexa playing Bloomberg eleven.
Speaker 3 (23:07):
Joining us now Gotamcunda Yale University with other parchment along
the Charles River as well. He's given us such good
help here with the election. I want to talk and
this is a fancy technology seminary. Everybody here knows how
to use a cell phone a computer.
Speaker 9 (23:25):
They're back. They're using Fortran here at the boss.
Speaker 3 (23:28):
Okah, gout them as simple as this is a ludite
America where there's a huge in our polarization. There's a
huge body of people that just aren't in taking advantage
of technology and are almost anti technology.
Speaker 11 (23:44):
I mean, I think certainly there's a huge anti technology push,
but it's striking that some of the most deleite protect
people in the world.
Speaker 3 (23:52):
That's my second question. I got Elon Musk. As part
of the new administration, he defines entrepreneurship in technology, and
you got it. I got partially a ludeied America.
Speaker 9 (24:05):
Yeah.
Speaker 11 (24:05):
So you have sort of this icon of entrepretion technology
on the Musk, and you also have RFA Junior, possibly
the most anti science person in America, and apparently they're
going to be serving in the same administration. So it's
quite a contrast. And technology shocks, like China shocks, have
had big impacts on the labor market. We know that
they seem to be affecting people in lots of different ways.
We've seen the decrease in manufacturing employment at times, and
(24:28):
all of these things added up to create a level
of social ferment in this country that we're just starting
to see the implications of. But the flip side of
that is a lot of parties that have won landslide
that will won big election. So this was a decisive
victory by the Repobulmans, but not a landslide. I didn't
look anything on like two thousand and eight, for example,
had interpreted that as gigantic sweeping mandates for all of
(24:50):
their policies and found out that actually people were voting
on one issue and that was and in this case
almost certainly inflation. And they've then sort of leaned into
the overinterpreted their victory. How much of this anti technology
thing that you're talking about is a product of people
starting to overinterpret the victory And we don't know yet,
but it's pretty striking when we see this, and Paul.
Speaker 3 (25:12):
You see this with the technology reports we see like
Apple or Microsoft or in the video, it's like two
planets it is.
Speaker 8 (25:20):
It's just extraordinary. Galtem, I mean, we're these cabinet picture
coming fast and furious from President elect Trump and his campaign.
What's your takeaway so far?
Speaker 11 (25:30):
So in the first century AD, the mad Roman emperor
Caligulam decided to make his horse encinitatis a console of Rome.
That horse was still a better pick than Matt Gates
Attorney general. You know, you sort of see Republicans Democrats
we expect recall, but you can see Republicans recoiling that
(25:51):
in general. What does not expect that the Attorney general's
closest contact with the Justice Department before they get the
job is being investigated by the Justice Department for sexual
like that. That seems out of the ordinary.
Speaker 8 (26:02):
So it talk to us the role that Congress will
play in the confirmation process for some of these appointees.
Speaker 11 (26:09):
As large as they choose it to be. I think
of the set of appointees, they're the sort of the
normal appointees Burtom, Marco Rubio, who are going to get
the most Democrats will vote just you know, say thank
god we got him in fine. Stephanic at the UN
will probably get something some a little like that. But
the flip side is clearly Democrats are going to go
(26:30):
insane over the idea of the sort of Hegseth Tulsie
Gabbard at d and I that's the one that people
in the internet, and I'll say in the in the
in the National security community. People are simply going in
like that. They don't even know how to process that prospect,
you know, or if k Junior or at HHS, I don't.
I think people don't quite realize you. HHS has a
(26:51):
budget of almost two trillion dollars. So the scale of
what we're talking about wowing him there is just unimaginable.
And this is someone who, when he is running for president,
proposed that one of the things he wanted to do
was just stop all research and development on you drugs. So,
I mean, you know, four years no R and D
in the life sciences. I think people could probably object
to that.
Speaker 8 (27:12):
So what's the realistic of you in Washington? Just about
to what extent was some of these Republican senators in
effect go against their president by blocking some of these appointees.
Speaker 11 (27:25):
I think people are starting to think not that much.
It wouldn't shock me if Gates doesn't get confirmed, just
because he's made so many enemies in the Congress that
they might there'll be a reaction. But the others, I
think the betting is that the level of patronage that
Trump has and the level of sway he has over
the party he ran ahead of all of these people, right,
(27:46):
he got more votes than most of these people. In Michigan,
the Democrats held the Senate seat because tens of thousands
of people came in voted for Donald Trump and left
the rest of the ballot blank, yep, and so and so.
Speaker 8 (28:03):
Maybe if you're a Trump supporter, I think a lot
of those folks felt like he's doing exactly what we
wanted him to do, which is to be unconventional, you know,
kind of drain the swamp, to use a term from
the past cycle. Maybe there is public support for this.
Speaker 11 (28:19):
So I think there is certainly a base of Trump
supporters for whom this is exactly what they wanted, and
this is this is sort of they're extremely enthusiastic about that.
But my strong suspicion is that base is not fifty
percent of the country, and it's not anything close to
fifty percent of the country, And there are a lot
of people who probably did not vote to find out that,
you know, we're not going to be inventing new vaccines
(28:39):
for the next few years. And note it's not just
a four year problem.
Speaker 3 (28:43):
Right.
Speaker 11 (28:43):
When you eliminate these capabilities, you can't wave a magic
want and bring them back. It takes generations to build
the sort of scientific establishment that we have, and that
is now at RESK.
Speaker 9 (28:52):
This is going to be in your lectures.
Speaker 3 (28:54):
Yeah, it is Tom Nichols of Naval War College, all
of his work. Three times in the last two days
people have sent me Death of Expertise Tom Nichols book
that I interviewed him four years ago, The Death of Expertise?
Is it as grim now as it's ever been?
Speaker 11 (29:11):
Tom's great and I would say it might be grimmer
than even then. I think that even he expected. You know,
going into the election, you would talk to Democrats and Republicans,
and Democrats, even the ones, the ones who are really scared,
would talk about these sorts of appointments and you know,
you'd say, like, what.
Speaker 9 (29:27):
Did it not do?
Speaker 11 (29:28):
Get the worst case? Yeah, And Republicans would say, well,
you know, we'll just have a normal Trump, a normal
Republican administration with a guy who makes sense mean tweets.
So when you think about the spectrum of where people
thought they were going to end up, these appointments are
sort of the worst fears of Democrats, except not even that.
Nobody was saw that Matt Gate's coming. So yeah, there's
a profound death of expertise problem. But let's back out
(29:52):
from that. I think we we all as a society,
just haven't thought through. Let's back up for a second.
A lot of this is about new communication technology. We
talk about social media, things like that which make the
world more transparent. So we see that the experts were
never as great as they thought they as we thought
they were in their failures. That doesn't mean they're useless.
There's there're convenience stakes. When the printing press was invented, right,
(30:14):
the big foreign part, the big consequence of that that
historians go back is they say the Thirty Years War,
the worst war of europe history, that killed a third
of the population of Germany, was directly driven by the
event of the printing We're.
Speaker 3 (30:27):
Going to continue this discussion in New York, as I'm
sure we will with got him Conda. He's with Yale University.
Speaker 10 (30:33):
Here.
Speaker 2 (30:41):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on applecar Play and Android
Auto with the Bloomberg Business app. You can also watch
us live every weekday on YouTube and always on the
Bloomberg terminal.
Speaker 8 (30:56):
Dearn Morse Conference keynote speaker and professor at UC Berkeley's
up Business School out there. Thanks so much for joining
us here. You're a keynote speaker here today. What are
you going to be talking about.
Speaker 1 (31:07):
I'm gonna be talking about AI and the use in credit.
So thinking about not just in understanding AI, in terms
of deploying and getting better, better precise underwriting and.
Speaker 7 (31:20):
Knowing people's risk and this sort of stuff.
Speaker 1 (31:22):
That there's a general landscape of using AI for all
kinds of provision of lending to people, and then there's
some red flags, right, and so kind of putting the
landscape out there, we need to think about both sides.
We need to inform not just policy makers we're here
at the FED, but also the providers, right, so they
can think about things that they need to step up
(31:44):
and understand.
Speaker 8 (31:45):
We were back last time I was up here in Boston.
We were doing some work with the Boston Consulting Group
and they were saying, is they talked to their clients
across all industries about the use of AI. They want
to get a commitment that they will do it in
the correct way, you know, and really, because AI is
so powerful that you want to make sure that whoever
they're talking to, that they make a commitment to doing
it in the right way, the sustainable way. How does
(32:08):
that apply to finance?
Speaker 7 (32:10):
Right?
Speaker 1 (32:10):
So the problem is there's so many different aspects of
what correct means.
Speaker 7 (32:14):
Right.
Speaker 1 (32:14):
So if we think about AI, where where it's going
to be deployed, right, it's not just you know, it's
understanding credit risk and reaching more of the population in
ways that biases are hindering.
Speaker 7 (32:26):
So that's great.
Speaker 1 (32:27):
There's also targeting and marketing, there's monitoring, there's chatbots to
get information, authenticating fraud, right, all these sort of uses.
Along the other side, though, we have to think about
things like there's been research that finds it AI teaches
itself itself how to collude, right, which has all kinds
(32:50):
of your mind goes crazy when you start thinking about that.
And then AI can be deceptive and conveyance to get
an outcome at once.
Speaker 9 (32:58):
So this is a sequel to the matrix too or something.
Speaker 3 (33:00):
I mean, really, that's what reef shows up, right, right,
Paul can play Reeves. I can't play Reeves. Come on,
most of the public is scared stiff of this. Let's
begin with the timeline. Are you looking out to two
thousand and thirty or are you looking out to two
thousand and forty.
Speaker 7 (33:16):
Or twenty twenty five? Right?
Speaker 1 (33:19):
I mean AI is already being you Are we ready
for this? We're We're not ready, nor are the providers ready?
Speaker 9 (33:25):
Right?
Speaker 1 (33:25):
The providers themselves are concerned about the You know, there's
startups left and right right, and whether the startup's doing
and what inputs are we using? Do we let AI
go on all the data that's available about someone to profile?
Speaker 9 (33:39):
Heay?
Speaker 3 (33:39):
But do you flying to Park Avenue and you're gonna
talk to James Diamond and his team at JP Morgan.
Speaker 9 (33:43):
You're gonna bring Keen Green.
Speaker 3 (33:45):
Of Berkeley along just to impress everybody, and they're going
to go we need to trust this process. What's the
trust factor at this conference in Boston? To people trust AI?
Speaker 1 (33:56):
I think I don't. I don't know the answer to
do they trust? I don't think they know one way
or the other. I think where we are is that
right now? If we understand what inputs AI is using,
so you can control that right where where it's going,
what information it's using to make decisions. If you control
the inputs, you're able to put a bound on what
(34:19):
it can do. Right, You can tell it not to lie,
you can tell it only to use these days these
certain inputs that are non discriminatory and other things. Right now,
what the how that input use is getting deployed is
a black box?
Speaker 8 (34:35):
How from your research talking to providers of credit, how
are they using AI yet? Are they using AI? Or
is it still the loan officer that I got to
convince I'm a good credit.
Speaker 7 (34:46):
No?
Speaker 1 (34:46):
No, definitely they are using AI, right, I mean from
the you know, the simple way the chatbots right getting
information in right that that is, those are AI driven,
but also the processing and understanding under general parameters right
under you know, how would you maximize for for profitably
lending or how would you for profitably marketing new new.
Speaker 7 (35:10):
Products to people?
Speaker 8 (35:12):
Right?
Speaker 1 (35:12):
They are using there? Are they deploying underwriting at a
full scale using AI?
Speaker 8 (35:18):
No?
Speaker 7 (35:18):
Probably not. There are some exceptions to that.
Speaker 1 (35:21):
But but we're using it little bits here and there,
and it pretty soon the whole arena changes.
Speaker 3 (35:28):
Is America behind on this or are we leading the way? Ah?
Speaker 7 (35:33):
Probably leading? Leading?
Speaker 1 (35:36):
Is not you know the the there are other countries
that are also deploying.
Speaker 7 (35:41):
China's deploying.
Speaker 1 (35:43):
There's there's a whole movement in Europe and a law
in Europe regarding some of these things, and so it's
we are ahead, but we are with others in that
that lead.
Speaker 3 (35:53):
So Paul I got a credit rating of one hundred,
it's like so low. You know, they don't even talk
to me and I get email all the time. We'll
give you forty five thousand, We'll give you ten thousand.
Is that AI driven? Is it your fault?
Speaker 7 (36:06):
I don't know the answer to that question.
Speaker 1 (36:08):
But but that's where we are, right, that's where we
you know, there there are people that are you know,
they have credits course that maybe those credits course are
not right, and maybe AI helps right and and so,
and then there are other people that you know.
Speaker 8 (36:23):
Well, here's my concern is that small community banks, they're
not going to be able to make the technology investments.
Therefore that whatever benefits may be out there, and I
don't know if there are, bye by the way, you
have to convince me. I'm afraid that they're not going
to have the same capabilities to say a JP Morgan Chase.
Speaker 1 (36:38):
So I'm I'm a big fan of having a community
financial architecture. Banks, the lenders the CDFI's right, and the
reason it's so important is because in downturns, these the
research shows that these these local community facing lenders and banks,
they they're able to stick with their customers and when
(36:59):
they them the most. So so far, technology has not
replicated that. Now, whether AI becomes a localized lender because
its ability to act local is a question.
Speaker 7 (37:10):
We don't know.
Speaker 1 (37:12):
And how what does that mean for the financial architecture
of the United States is a complete unknown.
Speaker 8 (37:17):
So I mean, at the end of the day, if
I'm providing credit, I want to just I want a
good credit environment where I get paid back, where I'm
able to diverse, you know, distribute you know, debt into
my marketplace. But I want to get paid back. I
don't want to take undw credit risk. Ideally AI will
help me do that better.
Speaker 1 (37:35):
Ideally it will help you do that better, and also
to manage new products and new services for customers to
figure out where they might be exposed to risk or
where they might be evolving in their business or household.
Speaker 3 (37:47):
Thirty second question, We don't enough time. It's unfair Type
one Type two construct. Is AI in banking going to
help banks or help them not lose money.
Speaker 7 (37:58):
It's going to help them grow their business.
Speaker 8 (38:01):
That's kind of what they want to that's what they
want to hear at. Dear Morse, thank you so much
for joining us.
Speaker 5 (38:05):
A deare Moorese.
Speaker 8 (38:05):
She's professor of finance at the University of California at Berkeley.
Speaker 2 (38:10):
This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
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