Fed's Williams Is Trying to Clean Up Powell's Error (Podcast)

He brought his blood pressure medication with him because it's been that kind of that kind of weak. Um, so is this enough. It's a step in the right direction. I mean, we've seen this movie before. We we think we know how it ends. The beginning of October, Powell makes a rookie mistake saying we're a ways away from neutral in the market. That's when we started to roll over and I and then he has that special technical term. So then he has this the lunch at the New

York on November right. I was at that lunch along with my closest friends, and he did the right thing. He explained to us in a little bit more detail exactly what he meant, uh, we're very close to neutral. And and as I walked out of that meeting, having read his transcript, having listened to his speech, in my mind it was like, Okay, we're gonna get a hike in December. That's fine, We're gonna get one more hike

later in ten. I think we're gonna skip March because of the March first deadline with the China trade deal and breaks it coming at the end of March and ceiling debate, and exactly so. So in my mind, I walked out of that lunch in November saying, the Fed's got one, maybe two hikes left and then we're done.

And what did the market do? They rallied? Okay. So then we fast forward to fo MC meeting and everyone myself at the top of this list or expecting the FED to come in adjust the dot plots from what we saw at the September f MC meeting, literally pull in their horns. And then during the Q and A, we were expecting Powell to sort of put some some flesh on those bones and explain, all right, we just got a hike, We're probably gonna skip March for a couple of reasons. We've got one more hike next year

and then we're probably done. That's not what he did, and and that's why the market responded is violently to the downside, as they did the last couple of days. So fast forward to this morning. Uh, John Williams is is trotted out on Steve Leesman Show, and and he's trying to reset what what the chairman perhaps had intended to say with that answer? All right, let's let's roll

it to the balance sheet? What do you think the Fed is looking to do as it relates to, you know, quantitative tightening as we roll into do you think this is gonna play out? So I think we've got a pretty good beat on this that that the Fed's balance sheet peeked out about four and a half trillion dollars, up from a number below one trillion at the beginning. So they've got to pull that in and I think create dry powder. They need to prepare for the next recession,

which we don't think is next year. We still think two. And I think they need to pull that back to about the three trillion dollar level. Right now, they're rolling it off at a pace of about fifty billion dollars a month. So where we are right now I think is just a shade over four trillion dollars. We're gonna roll off six hundred billion next year. That gets us to about three four or so, and then if we rolled another six hundred billion off in twenty, that takes

us down about two point eight. Somewhere in there, somewhere between two eight and three four, you know, let's call it three three and a quarter or something like that. That's where I think the Fed stops. But when he got the question during the press conference, what are you doing with the balance sheet, he was like, Oh, we're on autopilot. Explain to us what that means. That Hold on a second. I think he did more than that. I think it wasn't just that we're on a pilot.

He seemed to dismiss the significance that quantitative tightening or letting the balance sheet roll off had on markets, that the reality is that the market is very concerned about that because we don't have a full sense. Are they going back to you know, a trillion dollars, are they going to zero, or were they going to some intermediate level at which everyone is comfortable I think some more discussion around that point would have been more helpful to

keep the market calm. Do you think Chairman pal has lost the market And by that I mean as he lost the confidence at market participants, And if so, what do we do? So? I was on Maria Bromo show Monday morning, and we were laughing over the rookie mistake that Ben Bernanke had made with her at a cocktail party, talking about stuff he shouldn't have been talking about. But he learned from that mistake and improved. Jenny Yellen made a mistake in her first year telling everyone they should

sell biotechnology stocks that obviously didn't work very well. So well had his rookie mistake in in October, he should have learned from that. And and you know, I, you know, speaking personally, and disappointed that we got the performance we got two days ago with three days ago, we should have gotten a better, tighter presentation. And I think that's why the Williams comment this morning was so important. Honestly, I could easily see somebody saying he gave us exactly

what he should have given us. He was saying that the economy looks pretty strong. Their data dependent they're convicting they have you know, right now it appears that things are going well. They don't want to respond too much to markets and use, you know, the stock market as a barometer of whether or not they should hike. What did you say that was that different? Number one and number two? You know, honestly, at a certain point, aren't we just seeing price discovery for the first time in

a decade? Lisa, You're you're a thousand percent correct that the context of the environment you're in is something that that he's oblivious to. The the S and P five hundreds down sixteen since the middle of September, rustles down twenty. We're sort of in a free fall here at a point in the seasonal cycle where the market should be going up. The economic that is pretty good, corporate earning is a pretty good GDP growth is pretty good. Yet

we're in a free fall. That suggested that the market is skittish, it's nervous, it's concerned, and and the Fed should have recognized that. And I think Williams sort of made that comment today. We we we we are looking at what the markets telling us. Where we're we're cognizant of what the market is telling us, and I think that the market perceived Wednesday that the Powell was sort

of oblivious to what's going on right now. So real quickly, given all of that, all that uncertainty that maybe have been contributed by the Fed, what are you telling your clients in Well, we're telling them that that when we once we get work our way through all of this noise and nonsense, there's gonna be a massive buying opportunity. And as we look at the fundamentals, and ultimately that's

what we're trying to do. And over the course of the next year, we think that corp earnings in twenty nine are going to be a hundred and seventy dollars off of a hundred and sixty dollars this year. Now that's only up five or six percent as opposed to five percent this year, So will there'll be a deceleration

and earnings growth? Yes. Multiples Price earnings ratios over the last three or four months have contracted from eighteen times earnings trading a little over fourteen times earnings right now, we've lost four multiple points. We believe that an eighteen multiple is the appropriate multiple given the relatively benign nature of both interest rates and inflation. So if that's right, and we're slapping an eighteen multiple on a hundred and

seventy dollars and earnings, that's thirty one the SMP. We're sitting here in what dred I mean that you're looking at at, you know, a twenty plus kind of return. But there's a lot of stuff that's got to happen in between now and declaring a bottom. And and the things I'd look at are going to happen next spring and or next March in terms of the Breggit deadline and our Trump and she gonna be able to successfully navigate the um you know, the trade and teriff situation. Yea.

So just wait for those politicians do come together and and then that'll be the time. Merry Christmas, Merry Christmas. Would love your Christmas time Fill Orlando. What a suspenders that are so good? Orlando, chief faculty markets strategist at Federated Investors, full on with the holiday gear. General Maddis, who has long been thought to be the ballast in the current White House administration, is set to retire. He

released a memo explaining why it was rather scathing. Did not mention President Trump by name once joining us now here in our Bloomberg Interactive Broker Studios is Clint Watt's Distinguished Research Fellow for Foreign Policy Research Institute, also a Senior Fellow at the Center for Cyber and Home and Security at the George Washington University. Former formerly an FBI Special Agent on a Joint Terrorism Task Force, served in the Army. He's joining me and Paul Sweeney, who is

filling in for Pim Fox. Clint, what do you make of General Madis's resignation. It's frightening, I think for just about anybody, Republican or Democrat, all the way up until now, there was some sort of comfort in knowing that General Madis was there. Very experienced, level headed executive can seem to communicate with President Trump and the rest of the executive branch. He's good in terms of building relationships. He's

got strong bipartisan support even on the Hill. And yet he leaves in a very precipitous way at a time where we've got a lot of foreign policy chaos, whether you look across the board, Russia, China, ran Syria with this rapid pull out, the creation of a space force, which kind of came out of nowhere. Just every day there seems to be a major foreign policy shift or move. Yesterday was withdrawing soldiers from Afghanistan after we were just

talking about, you know, staying there in the fight. And so it's hard for people in the executive branch, in the defensive department, I think, to execute any sort of a plan because it changes on the web based on a phone call or an impromptu meeting the president might have. And so I think that resignation letter uh sends a shock to to the rest of the executive branch and and to the legislative branches that we are in a

very troublesome space right now. So Clint tell us in your mind, how correlated was the resignation of General Mattis to Trump's announcement about pulling out of Syria, And related to that is is isis defeated, as the President claims, that would be news to a lot of people. I believe. Yeah. I'll start with the second one, which isis is not defeated. In President Trump has been so negative about President Obama Is handling where he said that essentially al Qaeda had

been defeated. That was going back into the last administration, which seemed very foolish as ISIS sort of rose out of the ashes of al Qaeda, out of nowhere and became such a more powerful threat, and we're seeing President Trump followed that same pattern. It's really crazy. There's a lot of detainees there, the Kurds to actually have a

lot of ISIS detainees. And this really goes to I think the Secretary Maddis decision, which is pulling out a Syria precipitously like that may have been a good strategy over a year or two, but you want to have a plan in place to do that, because otherwise you're releasing IIS back onto the battlefield. You're empowering a run of Russia, two of our you know, biggest adversaries at the moment, and we're not really getting anything in return.

And by the way, we're also turning our back on allies that have gone and done the fighting for US. Part of the Syria strategy to counter ISIS was to have a limited US footprint on the ground. We didn't want to send soldiers back into a rocket Syria. We we wanted to do it with just a series of special Forces operations and air power and we did took

a little bit longer than everybody wanted. But other people did the fighting on the ground force, the Rocky military, the Kurds, uh Syrian militias that we started to train, and we have just turned our backs on all of them. Uh. And I just really wonder that you know, how we move forward if anything ever pops up that we want to do. Who would stand with us after we've just

walked away from them? Well, but that's where I wanted to go with this, Clint, how permanent is a damage in your mind to the relationship of the U. S has with its allies. Our allies don't understand what our foreign policy is, and it sounds like sective madness doesn't understand it either. You know. In the letter he sort of said, you deserve a Secretary of Defense that you know supports and works towards your views. But I don't

think anyone really knows what that is. And so if you're an ally, you continue to look at the US and say, what are you about? What are you pursuing? You know what our interest? Because it pivots back and forth. Let's take a Afghanistan. We've seen President Trump take General McMaster's sort of strategy a year ago and implement, you know, say we're going to do this. Now he's already backtracking from it. So what does that tell people on the ground there? Look at Isis and Syria. You know, we

said we'll do one thing, then we do another. North Korea. We're going to denuclearise North creates as we want. You know, every one of these foreign policy matches that we've gone up against uh Vladimir Putin in Helsinki, we've come out the other side with no real understanding of what we've gained. What is America First Defense our strategy? But what do

we want to achieve? What we've done is alienate literally all of our allies to where the strength of US as a country over the past five six decades have been we've been able to leverage the entire world against

whatever evil that might arise. I don't think we can do that going forward, and I don't think any ally would want to engage with us in a sustained way when they can't know if we're really going to be in it for the long haul or what we actually believe in Clint, I just want to challenge you a little bit because a lot of people have been saying that the U s should not be fighting in the war in Syria and that the Afghanistan UH mission has

been badly handled, with deaths that really shouldn't be happening. So isn't isn't Trump right on that part. The part with Syria which is fascinating is the Obama administration took a very limited stands. They would not put US soldiers into Syria, if you remember, for that exact name reason. We don't want to be there permanently trying to solve serious problems. President Trump's one of his first actions of his administration was to send US soldiers and four straight

into Syria and into that combat zone. He actually took the reverse of that. So if if the strategy is to just deal with ISIS and also not get stuck in this quagmire, you have to do that in a very deliberate way. I think that's what the issue is with the Syria debate. People don't doubt that Iran and Russia we are mostly going to get their way over the long term. But what do we want in that fight? Because right now, Russia and Iran and anyone else, if

they don't take care of that ISIS fight. We'll have what we had in foreign fighters showing up around the world, terrorists checks and our strategy has always been fight them there, rather them fight them here. This goes to Afghanistan as well, So to make that bridge, the Afghan war has needed to wind down for a long long time. But the thing is that it's Hotel California. You you can check in,

but you can never leave. That's the problem in these counter terrorism fights is anytime we put ourselves in a footprint like that, we're going to have to be there or have a proxy or an ally or a surrogate someone help us keep that counter terrorism security mission going forever. And we don't have that plan hammered out in Afghanistan right now, So we don't have that that raises the risk of anything happening on our soil. Yes, over time,

I mean it won't happen instantaneously. These networks, you know, they tend to rise, they evolve, and they show up in other places and in other ways. I mean, we saw an attack in Morocco just this week where two women were brutally murdered by four ISIS supporters, which hasn't happened quite some time, and so what will tend to

happen is they will coalesce in a different way. I think another big challenge that we've got that we haven't thought through is state sponsored terrorism using these proxies, using these former foreign fighters around the world against the United States or Western interest shars me to death. Right now, we're unfortunately, we're gonna have to leave it there. A lot to talk about. We'll have to have you back on happy holidays, a lot to think about this year.

Clint Watt's Distinguished Research Fellow at the Foreign Policy Research Institute, also a former FBI Special Agent in the counter Terrorism Unit One as a class that has been absolutely pummeled. Paul has been bitcoin at least this year, and joining us now is somebody who is a believer in the blockchain technology, a believer, believer in crypto assets and has a lot of money invested in the securities. Daniel Masters, chairman of coin Shares Group, joining us now from London. Danny,

thank you so much for being with us. I thought it was really interesting a move that Switzerland made. It seems to give some edification to the Christian crypto acid world. Yes, him, nice to be with you again. It's been a very very interesting see days in crypto following what's been obviously a terrible year. Now, Switzerland might not be the most prominent nation from the US perspective, but it is the eighteenth largest economy in the world, bigger than Belgium and Argentina.

The Swiss Federal Council just issue that framework entitled the Legal Framework for Districted Lleged Technology and Blockchain UM and it's been issued by the Swiss Federal Council, the most senior office in that Swiss nature nation. This for Switzerland, in my opinion, is a new crypto constitution. It is a global precedent, and it reminds me a lot of

the US Jobs Act. So, Daniel, I guess when I read that about Switzerland, even though it is a relatively smaller economy from a banking perspective, it's been a global leader forever. So I kind of viewed it maybe as a validation, if you will, of the blockchain technology and cryptocurrencies, you know, giving the leadership position that Switzerland's kind of always had in financial services. You're correct, they are, indeed, who have been for many decades leaders in financial services

that makes this report that much more credible. The report itself is very substantial, colors a hundred and sixty two pages, over eight hund legal cross references, and what really drew our attention to it was that on my professional network this was viewed by over three hundred and seventy five thousand people that happened to correspond with the rally in crypto measured for example, in bitcoin between life than two hundred dollars and four thousand dollars. So I think this

is a meaningful development. Um. Yeah, So, Danny Um, your coin shares has combined one billion dollars of assets under management focused on cryptocurrencies and their crypto assets. And I'm just wondering what are you expecting next year? I mean, are we gonna be talking more about bitcoin as a viable long term asset class next year? And will it rally or is it going to be another difficult period

for for it? Well, you know, I think this, this report is actually possibly a catalyst for some interesting developments seen Cryptova were driven by non institutional investors. This current year end rally we're seeing in per our inflows and per information from our peers is institutionally driven. This is supported by the Swiss government stance because it's a sort

of encouragement the institutional investment committees can buy into. In terms of the likely shape of the rally that we may see next year, I think it will be much narrower than we saw in the past. The proliferation of tokens, many of which will fail, but from that wreckage, similar to what happened after the Mastack rash in two thousand one, I think we're going to see a narrow band of some protocol coins and some asset coins that are going to do quite well. Daniel, what else would the crypto

market broadley define like to see too? I guess further validate the technology and the potential use cases. Um, you know Switzerland, maybe one of those mile post What else do you think the market is really looking forward to provide some support for this technology discurrency? Yeah, you're right. I think that the the evolutionary big bang that we saw in crypto over the last few years has been largely aspirational. The technology companies that were directly involved with

are developing really interesting technology. It has been slow to come to the market, and that's what the market needs to see now. The head winds that these kind of technology companies actually face is being addressed by some of these Swiss government measures, so just quickly. Money laundering and

terrorist financing is always a concern. The Swiss have taken this an account, recognized its importance and said in their studies and tech detection, so far it's not been a big issue, so they're going to keep a watching lie but allow a more fluid environment. Banking has been a

headwind for these companies. This document actually talks about Swissland's should get this Swiss Bankers Association to buy into this initiative, and cleverly the way that the Swiss are looking at securities and physical assets which are usually represented in a in a de materialized form like trading rights for securities or depository seats for commodity, and they're looking at those

instruments to be digitized. Thank you so much for being with us, Jenny Masters, chairman of Chairman of Coin Shares Group in London. Right now we're going to turn our focus to healthcare. We've seen healthcare shares getting beaten up pretty badly as a result of this Texas judge basically overturning Obamacare, joining us now to talk about that and whatever else is facing the healthcare industry. Heading into Susan of Or, chief executive officer of Premier based in Charlotte,

but here with us today in our eleven three our studios. So, Susan, what did you make of this court ruling and how much does it make your life more difficult? You know, I think the court ruling is a short term headline. It'll go through the process. There have been multiple attempts to repeal, replace, or do something with oback Obamacare. The truth is you got seventeen million people who have access now.

And I think the regulators are going to continue to implement initiatives that really try to solve the core problems, which are the cost of healthcare, the quality and the outcomes of healthcare. And so I think I think this will just be a background theme while the rest of the regulators move forward. And what do you expect and what do you expect the rest of those regulators to do?

What's the I guess the theme for nineteen in terms of a regulatory perspective, because when I think about healthcare, it always starts and ends with the regulatory framework. Yes, there are a couple of themes. The first one is they want to move all hospitals and doctors to being paid based on a bonus or penalty system based on their outcomes, based on their costs, based on their complication rates. That will continue in full force. I think they're also

very focused on drug pricing. There are several initiatives that are underway around redesigning the way drug pricing happens um. I actually think not only in the public sector, but the private sector is very active. Employers are getting a lot more engaged in going directly to provider networks like a Premiere, where you have a large national footprint of providers and they're not satisfied with the value that insurance companies have been able to bring in truly changing the

outcomes in healthcare. How do you lower the costs and improve outcomes? What do you do? So it's complicated, right, we all know it's complicated now in healthcare, you have to have data, you have to have transparency, you have to have aggregation ability. So what Premiere does is actually aggregate their buying power, aggregate the data, find the root cause problems, measure it transparently reported. And I think the federal government, state government and insurance companies need to pay

based on that performance. One thing that I find interesting is we're hearing more about artificial intelligence and how it can be used in healthcare, and I'm wondering, when you talk about data, are you using either artificial intelligence programs to try to understand and predict outcomes better or move it forward? And also are you are you see any of the providers using things like chips that can help

people measure themselves and things like that. So absolutely, and we think it's a theme that will continue into two thousand nineteen. All the disruption around technology, the challenges. Everybody now has lots of big data. The challenges how do you turn that big data into small data so that when you're at the doctor and that doctor is interacting with you, he can be or she can be alerted to change the decisions that are being made based on quality,

based on safety, based on a new clinical trial. We Premier have just acquired a company called Stance and Health that helps physicians in real time, in the moment, change the way cares being delivered. And that's what we all have to get to. But at the at the hospital um experience, what are some of the trends there that can improve that lower the cost, make it more efficient. Um, because it seems like, um, you know that the hospital

experience is one that that needs to change as well. Yeah, so the hospital experience and the doctor experience, I think both need to change. One. They need data at their fingertips as opposed to these systems that couldn't be connected. You know, it's kind of like somebody has an Xbox, somebody as a PlayStation, they can't play the same game

because they're not on the same system. So with cloud based computing and all the technology and artificial intelligence, you have much more ability to get that data to the patient, to the doctor, to the hospital to improve what they're doing in real time. What's for that? The for profit hospitals, how what are the business trends bidden for them over the last several years and how do you expect that

to play out over the next couple of years. You know, the for profit hospitals compete in many of the same markets as not for profit hospitals. They all have the same problems, which is costs are growing too fast, they have they have bad debt charity care. Maybe the for profits have some less of that than the not for profits. They're trying to integrate the data, they're trying to adjust to these risk based payment models. They're trying to improve

quality and safety, a lot of the same issues. Actually, But if we could really implement some of what you're talking about, these sort of monitoring devices and computer programs that could aggregate and have predictive power, how many hospitals would go away? I mean how many? How many of the current how much of the current infrastructure that we

have our healthcare which we rendered obsolete. So there are some estimates that there is thirty percent ways still in the health care system, meaning overuse, duplication, all of that. You complicate that by all these other technologies and capabilities, right, and and then you complicated by the demographics of the population because twelve thousand people are entering Medicare every single day. We're living with chronic conditions longer. Healthcare systems aren't hospitals

anymore by themselves. They're actually integrated systems of doctors offices and surgery centers and retail pharmacies and hospitals and nursing homes. And I don't think the need for that that system goes away. I actually think As we live longer with chronic conditions, it increases. I think that the high cost settings, we may need fewer of those, and we may need to spend a lot more time and money preventing and dealing with chronic conditions in different ways. Susan Davore, thank

you so much for being with us. Happy holidays to you. Thank you YouTube. Susan Diavore is chief executive of Premiere. Coming to us here in our eleven three oh studios. Thanks for listening to the Bloomberg p m L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abram. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.