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