Episode 1: Tom Keene on Mathiness and His Favorite Guitar

to have than Tom Kin, my guinea pig. You're the guinea pig. Tom King, as everyone should know, is the host of Bloomberg Surveillance on TV and radio here Bloomberg. He knows more about markets and economics and world events than just about anyone else in the room. He's a

very eclectic background in music and mathematics. And I wanted to have wanted to have Tom Keene on the show because Tom is always interviewing people, but he'd never answering questions and never behind try to avoid it like the plagues. So we're gonna doing this for you, Joe. I'm doing this for Tracey. Everybody knows that, but um, who are you Tom? Why are you here? How did you get

to be Tom Keane? Who? Everybody? I get it a lot, And what I would suggest is it's one part short term stuff, one part long term stuff, and one part blind luck. The long term thing is is being acutely aware when I was a kid, and evermore every day knowing how twisted the early years where I found something like bet stan Freeburg record and you don't know Stan Freeburg is he was a great comedian. He just died

this year. And then recently it was about the privilege of running into Matt Winkler and basically Matt and I, with the support of l Mayers who runs Bloomberg Media, and Ted Fine who runs TV, they're the ones that made all this happen. Matt win Clair, for our listeners who don't know, is the guy who founded Bloomberg News. Essentially, so you got lucky. You met Matt win Clair, you just hired me because the bow tie. But to make a long story short, you get lucky and I met

Matt and we basically invented what you see. That's that's a safe statement. What were you doing before then? Because when I think of you, I think you projected, or of someone who's been doing radio for decades. But what were you doing before you did radio and TV? Well, before the media thing. I was in the investment business. But there's a whole side car thing in music and an entertainment um for example. And I gauge it off my oldest child's age. I used to hold him in

my arms and do the stock report in Boston. And this is the vanilla days, not cross asset, the dal Jones industrial average up forty two points today, eight forty two, blah blah blah. You know that. And so I did a little bit of investment stuff back then, but a lot of it was just the music business as well, which is the show business aspect, which a lot of people in business media try to ignore every day, and they're wrong. I mean, the f T s pink. It's

pink for a reason. It's pink. It's like what you did. I mean, you invented the modern headline in modern business journalism. So it's just you know that Wisenthal wrote that headliner. You just know that how has her investment experience informed your career? A huge, huge um, it's a massive type two and that you learn so much enjoying losing money. Um, it's it's for those of you gaus see and it's log normal. Uh, you learn way more on the downside

and the upside. Lots of fat tail risks. There's fat tail risk, but that's not that that's over emphasized. It's the joy of losing money within the fat tails, which is I think that's you learn factors more losing money than making money factors. But I can tell you that the way I learned to lose money was enjoying losing money in the options market. And then so when you're doing the show, whether on radio or TV, how do you apply that the fact that you learned so much

more when you lost money. When you think about it, it's a humility show. It's a it's a humility thing of knowing every day how dumb you are and trying to always work at getting smarter, laughing at your mistakes. There's a there's a lot there's less now after the financial crisis, but there's lots of people strutting around with a certain intellectual arrogance about economics, finance, investment. Right now

nobody has arrogance and international relations. Did you have to learn how much you don't know, Like, where's the point earlier in your career where you thought you knew it all? And then you know certitude of yeah, you you you learn from a wide set of mistakes and cycles, which gives you a humility which forces you to get smarter. For example, I went to a wedding this weekend and half the wedding was from Uruguay. I know nothing about Montevideo except one of my kids. Friends all went down

there because it couldn't get a job in America. And I read seven articles this weekend in Uruguay just to to begin to I have no clue about Uruguay. There's that kind of madness, but compounded over I know nothing about Uruguay. I know nothing about Montevideo. Is a great humble bread because you slide in how easily you knew the capital. Now I have to ask you talk about certitude on Wall Street and in addition to having a

musical background, you also have a mathematical background. And it seems like one of the areas in markets where people start to get really certain and have that certain mathematical swagger is when it comes to models, and you love talking about models, how does your experience in mathematic nex feed in. Yeah, that the background there was growing up

with it. I have the clearest memories of gooding up on my tiptoes and looking over my father's desk as he did very sophisticated triple integration of space satellites and I would literally play on the floor with the French curves is a million years ago and like like think spot Nick and I g y and all that, and all of that became a mathewiness which culminated in Max

peters fabulous program at the University of Colorado. Max Peters was a highly decorated Italian infantryman up the spine of Italy and World War Two, and he went out to Colorado and put together, uh, the mother of all grinds in engineering academics. And I was extremely fortunate to parachute into that for a couple of years. So you take, you know, what I get in math and what I don't get, and trust me, is a lot I don't get. And then you overlay that into some of the certitude

of quantitative finance and you get a massive humility. I think the math overlay is a it's a massive type one. You've got it, but what it really is, and I see it every day, and it's getting worse. It's a little better in a couple of last couple of years. Is the math phobia within economics, finance, investments just stunning,

It's just breathtaking. You see rampant math phobia. Because other people have argued that it's just the opposite, that economics and finances become too mathy, to the point where people can't explain in clear English what they're talking about. Yeah, well, let me part that debate. You're absolutely right, Joe. The basic idea is there was an era, particularly coming out of World War Two, of of math, too much math,

math anxiety, etcetera, etcetera. And then at the undergraduate level, not at the PhD, not at the doctor trek level of the graduate level, but at the undergraduate level, a vast majority of people don't have the dynamics in their head to do even basic martiality and microeconomics or you know, name the flavor of macro you want to do. The British are very different. In the French they have much better, as a rule of thumb, undergraduate mathematics than we do.

If I, if I talked to British students. Their knowledge of first order difference equations off the chart honors undergraduate programs in the US. Some of them they have no clue what what that is. I'm pleased to say I've I've forgotten almost all the mathematics I learned in college. However, however,

I want to know. So when you see something like the events of August when the market sold off and a lot of people were talking about mathematical formulas and model based equations and risk parody at the center of that sell off, what do you think I think some of it was extremely valid this time around. Uh I, I think that the modtle fatigue is much more in

the macro area. The work Olivia Blanchard did at the i m F with Joe Stiglson others really important to ask the non sophisticated and the very sophisticated differential equation models that pro PhDs use, and I don't pretend to be fluent in them. They're very suspect after what we went through in August of oh seven. Stepping back, so you have this interest in lifelong interest in mathematics in music,

which I was also want to get to. But then how did that when did it click that markets and investments where they were in the earliest memories, earliest it was permeating in my house. My my grandfather knew a w CO and the point and figure guy. He did point and figure charts. My mother did point and figure charts, totally totally permeating investment theory and investment analysis, you know,

just original Graham, Don and Coddle up on. So in addition to everything else you were always interested in, you always knew that this was something you wanted to know. You know, I didn't know, it just was there. It was just there kind of thing. I'm also, I don't think a lot of people know about your musical background. But why do you give us the sixteed and here's Tom King's music? The ninety second version is real simple. At eight years old, I walked into a place called Stutsman's,

which is legendary and the acoustic music business. With my father. There were six Grutch White Falcons lined up and where Rochester, New York Kodak and my father bought me a forty two dollar you know, acoustic guitar, and then I just began grinding away and there were three or four iterations of it. But to make a long story short, I ended up doing the New England singer songwriter thing, juggling a bunch of other stuff. There's a place in Nashville

called the Blueberg Cafe, which is magical Bloomberg. You know. It was just the New England folks and it was sort of you know in terms of artists around it. Uh, it was post Tracy Chapman, um Susan Vega was really happening with Luca and Solitude standing and then a whole host of people came on, really jumped, started by a guy named David Wilcox who did an album called Either Hurricane for A and M Records, which just there was like this mini folk boom and what was so cool?

We knew when we this is before the internet. That's a key statement. Even we had no idea what was coming in digital, but we knew how lucky we were to do it. When we were doing it, we knew it couldn't last. What was the greatest guitar you've ever owned? The one I got now with the greatest guitar my my concert Gibson J one hundred, which was picked out by Eric Schoenberg up in Boston was stolen and I got it back four years ago. I told Dave Drummond

and Google. I got it off Google Images. There was my guitar and Google images. But that and I've got some others now. But I think that's you know, I guess the best ones that when my father had, but that's been lost. So with your very very idiosyncratic background in mathematics, it's almost like Joe Wisenthal an investment. When you do your show today at Bloomberg and you look around the world, what do you see as the most important story going on right now? Um, I think the

number one stories. One of my kids said to me, Daddy, when does this get got to be fun? And I think there's a massive understanding by people of a certain vintage that the kids don't have. They have lots of wonderful digital stuff and medical stuff, etcetera, etcetera, but the optimism has been shattered. And the answer Jeff emmel I was with two years ago, I'm guessing and he said, look, all we need is three point two percent GDP and that solves a lot of problems. That's a very smart

comment by the applied mathematician from Dartmouth. We don't have that. The the younger people, people under about thirty two, have never known normal. So when you look at the world, you don't necessarily see problems of inequality, you see generational problems. No, I think they're both there, but I think in two thousand and fifteen that the generational issues are less spoken, which to an extent speaks of the anger into politics today. When do you think it wasn't normal? Or when was

it was? Well, you know, you stand on the floor of the Republican convention. Ex conventions are going you go, well this is surreal or the Democratic doesn't matter which part party. But the answer is we are programmed for certain nominally real GDP that ain't happened. There's a quarter here, at quarter there, Macroeconomic Advisor is right now, hiss, third quarter at one. The next quarter is a little bit better.

But we we have not had the run rate of GDP that provides base psychological comfort to a lot of people, whether it's over educated torps like my kids, or you know, people really struggling millions of Americans. Do you think I mean?

I remember thinking in and when we had the Raging Dead ceiling debate, and I think that was the first time that we saw this huge I would say, the crisis and the economy seeming to really spill over into politics, and we had this start division the Tea Party and leadership. But it hasn't faded as much as I would have guessed, given how far unemployment has dropped. I mean, the economy is much better than it was in eleven, but we still have look at Donald Trump and leading in the polls,

and we have rise of more radical politicians everywhere. Do you think it's something beyond economics. It has to do with the media environment, the Internet. It has to do the media, and it has to do with speed of trans Twitter and all. I mean the Cypress crisis alone with Twitter was surreal that Saturday morning when Cyperus drew up. How the Twitter dialogue changed the discussion. But what I would what is under emphasized from a Newtonian mechanics standpoint

is inertial force and the word chronic. And the answer is you totally right about ten and eleven. And what's different now is it may not be forced masure like it was then, but there's just this chronic weight of gridlock in Washington. This chronic sense of g d P under performing even while unemployment supposedly gets better. And that goes back to productivity. You know, we could board everybody with three ratio productivity analysis just act productivity in the

media is uh appallingly reported. There's capital, there's labor, and there's a separate ray show wrapped around something called total factor productivity or TFP. And the pros know all that and they sort of just, you know, when we talk about productivity, gloss over it. But the answers laboring happening. And certainly for a part of America, this Angus Deaton winning the Nobel Prize a big deal, big big deal.

This is the death of aggregate aggregation, of summoning everything together and that that's a really big deal that I talked to Shower today and I chance to talk about it. Well, that brings us to again to your show. When you go out and talk to people, what makes some good interviews and who are the best interviewees that you think you've had. It's a it's a chemistry. It's a mixture,

uh And there's always exceptions. There's hyper academic people that fail, and and I do think it's a chemistry We keep very careful track of who we like and who we don't like. And I would say the third rail is we don't want people that are scripted or consulted. That was the rage to three five years ago. There's less of that now. We have less and less people on talking points, which is where a consultant comes in and tells them four things to say. That's going away. But

mostly it's you know, it's a media phrase. Pop. They've gotta have Pop, particularly in radio is critical. So we talked about these sort of big general generational issues that you see is the main thing? What about this moment specifically when you look at financial markets? What are the big things that you're watching. We're going to get into prediction season soon for what do you? What do you? What do you have your on? What would you What are the charts that you look at first thing in

the morning. My chart of the year's inflation adjusted come out of these back sixty seventy years. I've shown it in TV probably ten times. You can steal. It's a great chart, great great chart, and it looks like a persistent decline in commodity prices over many years. And then there's a China aberration, and we are, off the top of my head, two thirds to three quarters of our way back to normal, which is commodity long term commodity deflation. So you don't think the long term, we're not. It's

not over yet. If we're going to return to normal, I would suggest not that it's not over. I'm not going to make a prediction. I would say the people predicting it is over ore on tenuous ground. That's Thomas media experience coming through that, refusing to make a prediction. Do you think one thing I feel is like everyone's talking about deflation and central banks around the world failing to hit their policies and how are they going to reflate?

They can't do it, And then you see these conversations the Phillips curve, this idea that the employment and the inflation ratear inversely related, and how that's dead and broken. Do you think we could be getting to an extreme in the other direction where everyone is just thrown in the towel on any sort of inflation coming back and anything like that, and no to get wonky on you within a classic I SLM matrix Johnny Hicks thirty nine

and Krugman's written about this beautifully. What I would suggest is there's a total underestimation of real economy effects. Everybody's over in the bank. What's yelling gonna do, what's karneiy gonna do? Which is fine, I mean, that's what keeps us some point, all rio's but the real economy effects have been grossly underrated from day one of the crisis August of oh seven. And the other thing I would suggest is the interest rate transmission between the real economy

and the bank side of things. The l M curve is totally broken at the zero bound. And these there's things we don't understand that are going on in the interest rate sphere right now that are there. There's a mystery here. I can't believe we've gotten this far in the segment without talking about your bow ties and the fact that the bow t high was almost entirely responsible for bringing you to Bloomberg. Since Mr Matt Winkler also

in choice wearing those. I found a picture of my grandfather, my mother's father, five years ago, holding me and he had a bow tie on. I have no recollection of my grandfather having a bow tech um. It started when I was sort of sort of kind of like premed and I was in emergency rooms and they wouldn't let you wear a normal tie because they're afraid the patient will grab you with a regular tie. So I was forced to wear a bow tech uh, doing what was

called extern This is a million years ago. This is before anesthesia and uh uh you know it sort of started with that. I'm assuming back then they weren't amazed ties though as they they were not. No, they weren't. We did the clip on thing minimally. I must admit that that was like, no, I don't want to do that. Do you have a favorite tie? Doesn't mean something? No, not really. This one's actually very old. This is like one of the original it's an orange tie for those.

Thank you very much for joining us. That was a phenomenal Discuy Shin. I learned a lot about you and podcasts is really cool. You know we did in years ago and I totally agree with a new um enthusiasm podcast. Thank you for being our guinea pig. Tom, Thank you, thank you for joining us on the first episode of Odd Lots. We'll be doing this every week and you can find it on Bloomberg dot com, iTunes, SoundCloud and just about anywhere else. You can follow us on Twitter

at at the Stalwart, for Me, at Tracy Ellaway. For Tracy will obviously be tweeting out the links. And thanks again to Tom Keene for joining us and being our guinea pig on this first episode, and thank you for listening