The transcript from this week’s, MiB: Jon Hilsenrath, Serpa Pinto Advisory on the Fed, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
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This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
Barry Ritholtz: This week on the podcast, another extra special guest, John Hilson Wrath, was a reporter for the Wall Street Journal, covering everything from September 11th to the Federal Reserve for 26 years. His coverage at, at the Journal of the Fed got him nicknamed the Fed Whisperer for his many, many page one scoops. He’s now running Serpa Pinto Advisory, multiple pulitz surprise nomination, author of a book about Janet Yellen. Just a whirlwind of information about the economy, markets and the Fed. I thought the conversation was absolutely fascinating, and I think you will also, with no further ado, my conversation with the Wall Street Journals, Jon Hilsenrath.
Jon Hilsenrath: It is my extra special honor to be here.
Barry Ritholtz: Does it, does it feel like you’re in the enemy’s territory? Competitive?
Jon Hilsenrath: No, I’ve crossed over, I’ve crossed over.
Barry Ritholtz: You’re now on the private side, right?
Jon Hilsenrath: Yeah, yeah. I’m, yeah. Yeah. So I want to talk and I, I, I should say on the Wall Street Journal page one story is, I’m a former editor too. I had that many, I don’t have that many anymore. ’cause I’ve, I left the journal well, years ago…
Barry Ritholtz: But those, those headlines, so like, that
Jon Hilsenrath: Number isn’t growing anymore.
Barry Ritholtz: Right. But it’s it, but it’s not going down either. That number is true. A prominent record. That’s true. Yeah. I appreciate that. So you appreciate that you, you have that many, you know, that many poll positions and you’re, you’re good to go.
Jon Hilsenrath: And there were that many battles with editors at the Wall Street Journal over how structure that story and what headline to put on it.
Barry Ritholtz: That’s a whole nother conversation we’re gonna get to. Yeah. I, I am constantly reminding people, Hey, you know, the writer, they don’t get to pick the headline. That’s the editor. And people seem shocked by that.
Jon Hilsenrath: Yeah. It’s a process. Let’s just, let’s say that to say the very least, say that. It’s definitely a process.
Barry Ritholtz: Before we get to your writing and editing, let’s talk a little bit about your background. Duke University undergrad, eventually an MBA from Columbia. What was the career plan?
Jon Hilsenrath: The career plan for me was always journalism. I, I actually like you, I’m a Long Island boy. Are you from Long Island or…
Barry Ritholtz: From sixth grade on, from Plainview,
Jon Hilsenrath: I grew, I grew up there. Where? What town? Manhasset? Long Island.
Barry Ritholtz: That’s, we could play Jewish geography. That’s 15, 20 minutes from me.
Jon Hilsenrath: Although Manhasset was a Catholic town, but yes, very much so. I, but like, the career plan for me was always journalism. I started writing for the Manhasset Press when I was 16 years old. I was, I started out as a sports writer. The original plan was sports writer. Ah, and then the, the next plan was war correspondent. And then somehow I ended up becoming an economics writer. But I stuck to the plan of journalism.
Barry Ritholtz: So if journalism was always the plan, why an MBA, why not a journalism degree?
Jon Hilsenrath: Well, so I about, excuse me, about five years into my journalism career, I went back and did a fellow, I, when I decided I wanted to do economics in finance, I went back and did a fellowship at Columbia. It was called a Knight Bagehot Fellowship. Yep. Great program. And what they did is they took a few working journalists, and then they put them through the business school for a year. That’s interesting. And then after a year of that, I decided to do a few extra courses and, and get the MBA. But I was really there for the fellowship to kind of, to, basically what I wanted to do was learn how a balance sheet worked. Right. You know, learn how corporate finance worked. I had spent a bunch of years covering like macro, but I didn’t understand anything about what made Wall Street go. So that was why I went back there.
Barry Ritholtz: So what was it that drew you to journalism?
Jon Hilsenrath: Oh, wow. I just, you know, so I hated English class in high school. I don’t know how you felt, but, but you know, these four, and they’re still teaching it the same way, by the way. Right. These four paragraph essays of, you know, introduction, supporting paragraph one, supporting paragraph
00:04:08 [Speaker Changed] That was never a problem is s subject predicate, what’s an adverb? Why do I need
00:04:13 [Speaker Changed] To know what an advert is? And then it’s like, why am I tr, you know, why am I learning to do literary reviews of To, to Kill A Mockingbird? Anyway, I never thought I would have anything to do with writing. But then I got involved in covering the local sports teams and I was like, this is really interesting. This is fun. I’m like right in the middle of the action, and like right on the sideline and people are paying attention and they care about it. And it just felt, it was just, I had, I had, I had fun. And I’ve come to see over my career that, like, the great thing about journalism and like here we are on the Bloomberg newsroom is like, you’re always surfing right on the edge of history. Right. And so that’s really what ended up drawing it to me. I mean, there’s the reporting aspect and the writing aspect, but just the, the idea of being like right in the middle of things as they’re happening and trying to make sense of them and explain them was an addiction that I didn’t get over for a long time.
Barry Ritholtz: And, and right outta Columbia, straight to the Wall Street Journal. Was that your first gig?
Jon Hilsenrath: Well, so I started out as at a Newswire service in, in the early 1990s. Here we are back in Bloomberg it was called, right. Knight Riter Financial News. Oh, sure. Yeah.
Barry Ritholtz: Any relationship to the Knight Bagehot Fellowship?
Jon Hilsenrath: No, there was no, there was no relationship except for the fact that the Knight family was really rich and could fund something like that. But Bloomberg was like up and coming at the time, and people weren’t taking it as seriously as they should have. But I did that a few years, moved to Hong Kong with a newlywed on an ex with my newlywed on the ex on an exchange program with Columbia. And then I signed up with the journal over there.
Barry Ritholtz: How long were you in Hong Kong for?
Jon Hilsenrath: Five years. About five years.
Barry Ritholtz: That was a great, this was when the UK was running the city and before China took over
Jon Hilsenrath: I was there Right. For the handover. Oh, really? So, you know, so like, it, it is, I mean, this is another great thing about journalism is wherever I went, it seemed like stuff started blowing up. Right. So I started with the Wall Street Journal in Hong Kong in July of 1997. That was the week that the UK handed the, the city over to China. And it was also the week that the T devalued and started the Asian financial crisis. So I got in there and I was like, flying from day one on these stories. It turned out that the Asian financial crisis, particularly in, given what I was doing, was a much bigger event than the handover. The, the handover was, had much, had long term implications, obviously, but yeah. So I was there for all of it. So,
Barry Ritholtz: So how long after the handover did you start seeing the heavier hand of China in day-to-day life in Hong Kong? You know,
Jon Hilsenrath: I think it’s been a very slow and corrosive process. And frankly, the, when I was there from 96 through 2000, it, it was really the economic events that were driving the city at the time. So the first one was the Asian financial crisis and a property crisis that swept through Asia. One of my formative experiences as a journalist was covering an investment bank called Peregrine Investments. That blew up. And I learned some really important lessons that came back to help me in 2008 about how banks explode and, you know, were implode.
Barry Ritholtz: So when you came back, you, to tell you it was Peregrine start. Start.
Jon Hilsenrath: Yeah. So one of the formative experiences of my career in Hong Kong was covering the collapse of an investment bank called Peregrine Investments. And, you know, I saw, you know, why banks collapse and what causes these kinds of runs. It came in really handy 10 years later when Bear Stearns and Lehman Brothers were blowing up. And I, I had insights that kind of got me ahead of those stories in ways that surprised some people at the Journal. I would, you know, when, I don’t know if you remember when those Bear Stearns hedge funds blew up?
Barry Ritholtz: Oh, I remember!
Jon Hilsenrath: I told my, I told my colleague, Kate Kelly, who was all over that story, I said, they’re gonna blow up this weekend. We need to have a two third, 2000 word story ready to go Saturday. She’s like, you’re overreacting. I was like, watch. ’cause I saw what happens when creditors of banks get nervous. And I learned all that in Asia. The, the other big event in Asia in the late 1990s was, of course the handover. But for people in Hong Kong, it’s a very entrepreneurial city, they were thinking, well, how do we get money? How do we make money off of this? You know, how do we tire, you know, the Chinese economy had been booming. It was a growth story. And so people were looking for ways to advance themselves economically. I think what we’ve seen happen to Hong Kong since, and this is perhaps a lesson, is that, you know, these attacks on democracy have been, and, and free speech and all that have been slow and corrosive. And it’s a different city today than it was 25 years ago. But after the handover, it was just people trying to make better lives for themselves.
Barry Ritholtz: Really, really fascinating. How do you get from Hong Kong to DC?
Jon Hilsenrath: Well, there was a stop in the middle in, in New York. So I was in Hong Kong for five years, moved back to the US in early 2001, right in time for the tech bubble to burst. And of course, nine 11 again, where wherever I went, it seemed like terrible things were going on. You,
Barry Ritholtz: You seem to be an unlucky charm.
Jon Hilsenrath: I, you know, and I used to joke that like, wall Street should just pass its hat around to retire me because, you know, then I just get out of everybody’s bad news. But yeah, came back, was in the New York office for seven years writing about economics. I was our markets editor during the credit bubble and the credit bust. And learned a lot in that experience about the interactions of economics and finance.
Barry Ritholtz: Where Was your office in 2001? Our office
Jon Hilsenrath: Across the street [from the towers]
Barry Ritholtz: The Fox Wall Street Journal office on Sixth Avenue.
Jon Hilsenrath: Moved up there after Murdoch took over.
Barry Ritholtz: That’s right. This was, you guys were right in the middle of it. We were,
Jon Hilsenrath: Yeah. So what, so, so we were across the street in the World Financial Center, the southern Most Tower, I guess that was World Financial Center three. So I would walk a across the West Side Highway on this land bridge every day
Barry Ritholtz: Right next to the Palm Court, if I recall correctly, that big glass enclosure,
Jon Hilsenrath: Yeah, yeah, yeah. We were across the street from that too. Anyway, I happened to be in early that morning trying to finish a story and I was heading over to the World Trade Center for NA, NABE conference. And, you know, journal reporters tended to get in a little bit after nine because we tended to have late deadlines. I was in early, was there for the first plane to hit, and then I ran out into the street with a notebook. Second plane flew right over my head.
Barry Ritholtz: Wow. And were you interviewing people? What, like what did you do that day? So,
Jon Hilsenrath: Well, so I’ll tell you exactly what I did. The first thing I did when I saw the Inferno from the first plane is I ran downstairs to, I was, where the reporters were stationed. I knew that top editors were down a floor. So I ran down there to see who was here and who was organi organizing things. I ran to Paul Steiger, oh, I recall, was the managing editor of the paper. I said, Hey, I’m here, I’m here early, you know, I’m on it. Whatever, what do you want me to do? And his advice was, go figure out what happened and don’t get yourself killed. Right. So, like, he immediately understood that something serious was at hand. So I grabbed a notebook and ran over that pedestrian bridge, saw a lot of carnage in the street, and started kind of writing. And, well, the next thing I did was call my wife to let her know that there was a fire and I was okay.
’cause I figured it was gonna be on the news within a matter of minutes. Right. And she knew where I was, so I called her to let her know I was okay. And then a few minutes later, as I’m in the street, the cops are trying to clear me out. They’re saying, you can’t be here. This is a dangerous place. So they’re trying to move me outta the street. I walk and then as I’m walking kind of to follow the police’s orders, the second plane flies right over my head. And, you know, I stuck around and interviewed witnesses and bystanders and it was a pretty harrowing day. Yeah.
Barry Ritholtz: To say, to say the very least. Let, let’s bring it back to something a little less harrowing or, or more traditional. You have a really unusual career trajectory at the Wall Street Journal. You start, you know, fairly green and eventually you are running what’s probably the hottest desk in economics, which is covering the fed, showing up at meetings, interviewing fed governors, fed presidents, and the chair of the FOMC tell, what was that process like to get there?
Jon Hilsenrath: Well, you know, like my, my goal at the journal was always I, well, I just wanted to write good stories, right? And the journal back when I started at the place was ironical, you think of it as a finance economics markets kind of paper. And that’s how I, you know, I grew up reading the New York Times and watching my dad read the Wall Street Journal. And I like that stuff just didn’t interest me. But what I discovered over time was that the, you had to be able to write long feature stories to succeed. Page one stories, we called them leaders. So like, that’s what I was focused on doing. What, what happened was, by 2008, I had, I had learned a lot basically in part from my experiences in, in Asia, you know, where I covered these banks collapsing and I saw a financial crisis. And I kind of felt like I had a roadmap for how it worked. And then obviously in 2008, I mean, the US markets were imploding. It was very complicated. It was credit, it was credit driven. Our star fed reporter left the paper that summer to go to the Economist magazine, Greg ip. He was a legend. Yep. And the, the, the guy that, that, that, that my future boss really wanted for the paper had just moved to London. A guy named Mark Whitehouse, who’s a Bloomberg opinion editor
Barry Ritholtz: Yep. I know that name for sure
Jon Hilsenrath: Brilliant, brilliant guy. And he was, I think seen as the heir apparent, but he had just moved to London, so they had no one else. And like I had learned a lot about markets. I had been writing about economics, I was just well placed. So they asked me to go to move down to Washington in the summer of 2008 to cover the Fed. And my first week on the job, Lehman Brothers blew up. So I, I’m, I’m on the phone that weekend with the top leadership of the Fed trying to understand, you know, when Tim Geitner is talking to me about foam on the runway after like these, a day of intense meetings collapsed, you know, some of these officials wanted to talk to reporters to kind of keep us informed because the next day was gonna be a big deal. And they just kind of wanted to have their story out there. So I was talking to top people six days into the job, and
Barry Ritholtz: You, you are the perfect person to ask this question that I have never gotten a good answer to, which was why was it that a IG was saved and Lehman was not. I have my own theory. Yeah. But I haven’t spoken to very many Fed officials in real time.
Jon Hilsenrath: I think it was sequential. I mean, remarkably, right. So, I mean, what they were telling me Sunday night was that they hoped that they had enough of these facilities, rescue facilities in place. You know, boy, I can’t even remember all the acronyms in right. Anymore. But, you know, the, the liquidity that they were pumping into the other investment banks, and they hoped that they had enough of these facilities in place in order to keep the system stable the next day. You know, people forget the Fed had a policy meeting on Tuesday. They didn’t cut interest rates two days later. Like Bernanke had a view that he thought that he had the situation under control. And they, they realized, you know, before a IG on Tuesday, on Monday, there was the, the, the money market mutual funds that broke the box. That’s right. And then all hell broke loose. And they realized that if they didn’t do something, that things were gonna get much worse. So I, so it was, the markets were in a panic, and I think the policymakers panicked. And at that point, they, they just were doing whatever they could to put out fires, whatever they could.
Barry Ritholtz: I have two pet theories on Lehman. I’m, and I wanna run them by you. One is they looked at the balance sheets, the whole repo 105 and moving money [risk] off. Someone looked at the balance sheets and said, Hey, you could rescue these guys, but they’re insolvent. [Right]. And not just a little insolvent. Yeah. They’re tens of billions of dollars insolvent. Yeah. So that was the Lehman Brother issue. Bear Stearns, it’s like they weren’t insolvent, they just had too much money tied up in illiquid assets. It was a liquidity issue, not a solvency issue.
Jon Hilsenrath: Yeah. And the rules that the Fed was trying to abide by at the very edge of its authority was that they had to lend against good collateral. Right. And, and if it was bad collateral, they couldn’t do it. And then the other problem that weekend was that they, they were starting to worry about who was gonna be the next one to fail …
Barry Ritholtz: AIG.
Jon Hilsenrath: A lot of cascades once, you know, if, if they bailed out Lehman, then the market’s target was gonna point to Merrill Lynch. Right. Right. So like, so they were just happy to get Merrill Lynch bought that weekend. Right, right. That’s right. So the thing was
Barry Ritholtz: John Thain, that was a great last minute deal. He pulled off and it worked out well for them
Jon Hilsenrath: And they, and, and, and they survived. So, you know, it was coming at them fast and furious. And I mean, what’s kind of remarkable is that they had all summer to prepare for it, and it still blew up in everybody’s face.
Barry Ritholtz: The the other, the other thing that I would’ve loved to be a fly on the wall for was, at one point in time, Warren Buffet reached out to Dick Fuld at Lehman Brothers, and we don’t really know the details, but it kind of looks like Buffet made an offer to Lehman and he kind of to fold and he kind of turned up his nose at a low ball offer. Yeah. Eventually Buffet makes the similar offer to Goldman Sachs and Goldman was smart enough to take it. Yeah. So you can imagine how, how Bernanke was thinking, wait, they, they turned down Buffet. Why do we have to get involved?
Barry Ritholtz:Jon Hilsenrath: Well, I mean, I think a lot matters in kind of when at what price. Right. Right. So they, I I know that they were working very hard all summer to raise capital and Right. A number of deals, including with Korean investors failed to develop. So, so
Barry Ritholtz: We mentioned 319 page one bylines. Yeah. What stands out as some of your favorite pieces?
Jon Hilsenrath: Well, I am most attached to those longer magazine feature stories. One of my favorites was a piece I wrote in 2005, the spring of 2005. I actually had just been beaten badly by the New York Times on another story, and was a little frustrated and disappointed with myself that, that I had gotten beaten. What
Barry Ritholtz: Was the topic that you were beaten on?
Jon Hilsenrath: Oh, that’s a, I mean, that’s, that, that’s a long story. It was about an academic economist with an unusual background that it’s, it’s, it’s too complicated to get into. Alright. I mean, I, if you want to, we can get into it, but it’s a,
Barry Ritholtz: All right, well, I’ll take your word for it.
Jon Hilsenrath: It’s a long story. But anyway, I, I worked on a story with a colleague in Thailand about how there was a global housing boom going on that was being funded by a global credit boom. An increasingly complex credit, not, not just through banks, but through more sophisticated vehicles and sophisticated investor groups. And I quoted Robert Schiller in it, this is in June, maybe of 2005, saying this was gonna end in a global recession. So, and it connected the dots on something that was, that was building. And it took a couple more years for it to really develop. I did another story, and the, the stories I love were the ones that were kind of looking around corners. But I did a piece, I think it was maybe 2003, 2004, looking at US China trade. I had figured out, an economists had told me, you know, everyone’s talking about all these imports coming from China and how damaging it is for the us. You should look at what the US is exporting to China. China, our exports to China are booming. And you should do a story about that agriculture.
Jon Hilsenrath: So, I looked at what was booming, and it turned out that our number three export in value and our number one export in volume was trash. We were the Saudi Arabia. What purpose? Well, we were sending them recycled paper. We were sending them recycled plastic. We were sending them recycled metal, and they were turning that into the boxes in containers and packaging that all the toys and books and microwave, microwave ovens came back in. Wow. And I kind of pieced this together and, and, and actually used a little boy’s piece of trash to tell the story. I found, I went to a recycling facility in New Jersey where the, I still remember their name, the Zaro Brothers in New Jersey, right near the chipping containers. They had a container of recycled paper that was going off to China that let me pick through it, find a little boy’s homework assignment that I made a photocopy of. I put the homework assignment back in the container where it belonged, and I tracked the kid down. And then I was able to track this one boy’s homework assignment from the Zaro Brothers backwards, and then all the way to a paper pap, a newsprint facility in China. And I kind of used this boy’s homework assignment to tell how global trade was, was, was changing the face of the economy.
00:22:06 [Speaker Changed] Coming up, we continue our conversation with John Hilson Wrath, former Chief economics correspondent for the Wall Street Journal. Today he runs Serpa Pinto Advisory, discussing his Wall Street Journal experience and Serpa Pinto. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is John Senath. He is the former Chief economics correspondent for the Wall Street Journal, where he was dubbed the Fed Whisperer for all his many scoops on the Fed. So, so let’s talk about that you were thought of as the Fed Whisperer. What does that mean? How do you get that nickname?
00:23:07 [Speaker Changed] Well, it’s funny you ask, it actually used to really bother me when people said that. ’cause I, I thought, you know, my feeling when I was covering the Fed is it kind of trivializes what we’re trying to do here. And the, the, the hard reporting that went into getting stories out of the institution and, you know, following the journalistic mission. So maybe I was a little righteous about being called the Fed Whisperer back then. You know, wall, wall Street loves to attach these kind of two word names to everything. So when I was covering the Fed, it was like the Taper tantrum, right. And QE Infinity. This
00:23:45 [Speaker Changed] Year we had the tariff tan,
00:23:46 [Speaker Changed] The Fed, and the Fed pivot. And, you know, so for me it was the Fed Whisperer. But, you know, since I left journalism and started my own business, now I’ll use whatever I can to my advantage. So, so now I’m like, yeah, I’ll, you can call me the Fed Whisperer, I’ll take that. But yeah, back in the day when people said, I was like, ah, I’m
00:24:02 [Speaker Changed] Fed reporter. I don’t think Fed Whisperer is as trivial as something like, do you remember the Greenspan briefcase indicator? How thick or thin hit? It was just a dumb thing. Yeah. I don’t remember if CBC started it, somebody started it, and it was just one of those dumb, like, really, are we really doing this? But you were the one that was getting all the Fed scoops that when they wanted to publicize something, they had a variety of outlets that they would reach out to. So 10 outlets would all get the same story, but one outlet would have a much more in depth personal, all right, here’s details, Barry. Here’s
00:24:39 [Speaker Changed] Where we gotta demystify some.
00:24:40 [Speaker Changed] Okay. So let’s hear.
00:24:42 [Speaker Changed] Yeah, I mean, we, we could talk for, for a long time about that, but I wouldn’t say that that was exactly the way it worked. So, you know, for, and this is kind of why I had, you know, was a little uppity about the Fed Whisperer thing, is it wasn’t like there was some bat phone sitting at my desk, and like the phone rang and it was like, oh, yes, chairman Bernanke, what, what would you like me to say today? There was, you know, and, and my successor Nick TIMOs is, is, is great at this. There was a lot of reporting that went into this. A lot of work,
00:25:11 [Speaker Changed] A lot of
00:25:12 [Speaker Changed] It wasn’t, it wasn’t like a spoonfeeding kind of process. It was a very kind, it was a process is a key word, and it was dynamic and, and, and complex. So, I mean, we could, we could talk in some more detail about that. But it wasn’t the, it wasn’t the kind of thing that, well, first of all, they only started doing press conferences sometime after I, I guess it was around was 2012. It
00:25:39 [Speaker Changed] Was post oh nine, right? Four years,
00:25:41 [Speaker Changed] Four years into the beat. Maybe it was 2010, I can’t even remember anymore. But what went into the process of writing a Fed story was like, you, you had to do a lot of reporting, a lot of triangulation. You had to figure out where the debate was going inside the room and put enough pieces of the puzzle together in order to say, this is what they’re likely to do. And it was also very important, you know, people used to say, oh, how could his, how could his stories always be Right? He’s clearly being spoonfed stuff. Well, there’s like, there’s a reason for that because I didn’t report stuff I didn’t know. So, you know, you had to do a lot of reporting to get to a point where you could say, all right, this is where they are and what they’re going, and, and where you could say, you know, this is what we know about the kind of state of the debate, or how cer, you know, there were some meetings where they weren’t sure what they were doing going into it, and I wasn’t gonna get over my skis on that stuff.
00:26:33 So it was, you know, so there was reporting that went into that. There was understanding the institution. I became very good friends with the New York Giants Beat Rep. I’m a big football fan, New York Giants beat reporter in those years. And we used to compare notes. Like I saw my job in some way similar to what she was doing. Like I needed to know what was going on in the locker room. Right. Right. And I needed to know kind of who the players were, what the game plans were, who the trainers were, like every angle of the, of the locker room in order to get a whole picture and in order to say with authority what I thought was happening and what was gonna go on next. So that, you know, by game day was an FOMC meeting by then, I had already done the hard reporting. It was just a matter of saying, all right, here’s what happened on the Field
00:27:20 [Speaker Changed] Fed reporting as a sports analogy.
00:27:23 [Speaker Changed] Well, I started out as a sports writer. So yeah,
00:27:25 [Speaker Changed] It, it makes perfect sense. So, so let’s talk a little bit about the Fed today versus when you were covering them. Now you’re covering them as a researcher and an analyst. Yeah. Then you’re covering them as, as a reporter. You wrote the era of consensus and comedy at the US Central Bank is ending. Yeah. Explain.
00:27:47 [Speaker Changed] Well, so, I mean, the Fed is a very consensus driven institution. When I was covering the Fed back in the financial crisis period, 2008, 2009, 2010, there was actually a lot of disagreement at the time. The disagreement was internal and mostly in the regional Fed banks. So I actually spent a lot of time talking to these regional Fed Bank hawks to understand what their case was against programs like QE and interest rate s and things like that,
00:28:21 [Speaker Changed] Financial
00:28:21 [Speaker Changed] Repression. And I mean, there were, there were a lot of unknowns for sure. There were a lot of unknowns. So, and Bernanke and Yellen, and then Powell spent a lot of time trying to building processes to build consensus around their decisions. What’s happening now is, is it’s the, the disagreement and division is politically driven. Right? We all know that. But what the, the president has a clear view of where he wants interest rates going. He wants all interest rates going down. It’s, I, I’m afraid, a little more complicated than what he perhaps thinks he’s gonna get out of that, because he might cut short-term interest rates and get higher long-term interest rates. So,
00:29:03 [Speaker Changed] Which, which happened very recently, the last, the last 00:29:06 [Speaker Changed] September cut, it happened when the Feds cuts last year. And so, you know, he’s putting on people in the institution who were, you know, he expects to be loyal to him. Steven Mirin is the latest. So we’re, and there, there’s a lot at stake. So, and there’s turnover happening at the Fed right now. There’s, we all know there’s gonna be a new chairman appointed by the president next year. There are tests of loyalty. The really big issue is if the president gets four people who are loyal or even closely loyal to his views, he has an opportunity to remake the entire system. Because with a majority on the Fed board, there’s seven board governors with a majority of four on the Fed board. The, then the board can start firing and restructuring the regional banks that might oppose some of the policies that the president wants to pursue. So there’s a lot at State right now on two levels. One with the succession of Jay Powell and two, with the construction of who the other govern governors are gonna be on the Fed board and how loyal they’ll be to the President’s vision of how monetary policy should be run in the United States. So,
00:30:12 [Speaker Changed] So let’s talk about that. You wrote a piece early in the summer of 2025, the fourth seat, meaning once the president gets ahold of that fourth seat, he is essentially running the supposedly independent fed. Tell us a little bit about that and will eventually talk about Lisa Cook. Yeah. And what this pretense firing really looks like an attempt to get an early grab at that fourth seat.
00:30:39 [Speaker Changed] Yeah. Yeah. And I’m actually gonna go straight into Lisa Cook in a moment. But, so there’s the, the president appointed Chris Waller, he’s a Fed governor. He might get the chairman’s job. He appointed Michelle Bowman. These were in his first terms, and she was given a promotion to vice chair of supervision. He’s now appointed Steven Mirin, who’s made the president’s case for much lower interest rates just last week. And so he’s in theory one seat away from having four governors in a majority on the board, and an opportunity to move the Fed in a whole new direction. And what, what’s happened, it looked like that fourth governor job might be Jay Powell’s job next year when his chairmanship ends. But what happened is, now, and this gets a little complicated, but the, the, the chair of the FHFA is accusing the Federal Home Finance administration or agency is accusing Lisa Cook another fed governor of fraud and mortgage applications that she submitted to her banks in 2021. It’s an unproven allegation, but if they, they, they’re trying to remove her for cause the president has effectively announced that he’s firing her for cause. And she’s challenging that. It could be in the Supreme
00:31:58 [Speaker Changed] Court. Now, now there’s a whole concept of Fed independence. Right. And the Fed Board can fire someone from, cause there doesn’t seem to be any precedent for the president fire. Let’s hold the side effect, wink, wink, nudge, nudge. We all know that this mortgage thing is nonsense and it’s just a pretense. Let’s just hold that aside. We’re talking about governmental power. Who has the power to hire and fire fed governors?
00:32:28 [Speaker Changed] Oh, the, the, the president has power, the power to fire a Fed governor for cause. Right. Then we get to, it hasn’t happened. No president has tried. But then you get to, our question was of, well, how, A, how do you define cause and B, do you have to prove it first? What is the process, right. For defining cause and then going through the process of firing a Fed governor. This is all unchartered ground and it’s moving to the Supreme Court to make some decisions. Now, there, there are a whole other set of decisions the Supreme Court has made where it has found that the President can fire heads of other agencies at his discretion. And one of the questions is whether firing a Fed official for cause is held to a higher standard than, you know, firing the, a participant in the National Labor Relations Board. Right. And the Supreme Court, for reasons I can’t say I fully understand, seems to be ready to draw a circle around the Fed. But there are big questions of how do you define cause and what’s the process? And we don’t know where they’re gonna go with it. They might kick it back to lowers not,
00:33:32 [Speaker Changed] It’s not, it’s not just putting out something on social, on a, any social media order. You actually have to have a process.
00:33:39 [Speaker Changed] Well, I don’t know. I mean, the Supreme Court might decide that the president can do it at his discretion on X.
00:33:47 [Speaker Changed] So if it’s at discretion,
00:33:48 [Speaker Changed] But as a, but, but, but, but then
00:33:50 [Speaker Changed] What is me
00:33:51 [Speaker Changed] Lisa Cook’s argument is that, well, so there’s definition of, of for cause and I, I don’t have the specific language in front of me, but it has to be for discreet malfeasance or neglect on the job. And one of her one, one of her defenses is that he isn’t accusing me of doing anything wrong on the job. These were applications I submitted years ago or, and, but then there’s some fuzzy language that, you know, or, or, or the like, or something to that effect. And so there’s a question of whether there’s enough gray area for the president to define what for cause means on the first two things of, you know, you know, malfeasance on the job or neglect on the job. They don’t seem to hold up. But there’s some gray area on the third piece of that, you know, and that’s, that that’s kind of legal precedent that’s been said over many
00:34:41 [Speaker Changed] Years. It, it, it’s fascinating because the government, when they were defending the tariffs kind of said, well, a EPA says emergency, they don’t say anything about tariffs. What’s an emergency in the government’s position was whatever the president says it is. Yeah. All these words that theoretically have actual meaning once you start saying it’s subjective at the president’s discretion. Yeah. For cause emergency, things like that go out the window. Right. It’s gonna be interesting to see if the Supreme Court contorts themselves to acquiesce to the president or follows what we think of as traditional legal theory.
00:35:21 [Speaker Changed] It’s, it’s, it’s another big year Yeah. Of the Supreme Court For sure. And, and I mean, if you wanna get really philosophical and pull the lens way back, I mean, I personally think we’re living through revolutionary times agreed. Akin to the French Revolution, the American Revolution. And one of the things we know is that in revolutionary times, standards and norms get thrown into the air and redefined which
00:35:47 [Speaker Changed] Came first. Did, did the throwing of the norms away lead to the revolution? Or was the revolutionary setup in place and norms, or just collateral damage?
00:36:01 [Speaker Changed] The revolution has been building for years. And I I, I’ll take this back to my fed beat, it’s a little off the subject, but when, when I was covering the Fed by 20 13, 20 14, I was regularly getting emails from really angry readers who saw the Fed as being at the Center of America’s problems. An example of an elite Wall Street institution hurting the little guy in favor of rich guys, an insider’s game. And they saw me as a reporter at the Wall Street covering the institution as carrying their water as po Yeah. As carrying their water. And, and I routinely got emails from people saying, there’s a revolution coming. And like they told me, and like, as a warning, they said, there’s a revolution coming. And when we come, you’re gonna be one of the people we string up on, on, you know, on pitchforks.
00:36:56 [Speaker Changed] That’s field day
00:36:57 [Speaker Changed] On pitchforks. They were, they used imagery of the French Revolution. I was seeing this back in 2014. It actually led me to write a series, a collection of stories with actually the most prolific Wall Street Journal, page one reporter of all time, a guy named Bob Davis about the economic roots of what the, what we call the economic roots of political discontent by 2016, by 2015, like I was getting death threats. And we saw that there was like something going on in the country that was kind of deeper than your normally agitated reporter. And so we went out and wrote a bunch of stories called The Great Unraveling in 2016. I recall
00:37:35 [Speaker Changed] That, I recall
00:37:36 [Speaker Changed] That, that that it, it was all about how kind of trade had gone the wrong way for many Americans. How finance had gone the wrong way for many Americans and technology. And that people were angry and they were angry at the elites. And, and so, so to answer your question, the revolution started a long time ago. And I think we’re, we’re pretty well into it. And you know, I think a lot of this revolution has been, you know, we, we have digital guillotines now, right. Where like Yeah. Cancel. We’re we’re We’ll cut off your, your head by your reputation, but sadly and disturbingly, it’s now getting somewhat bloody.
00:38:17 [Speaker Changed] Yeah, no. To say the very least, you know, it’s kind of fascinating. When I was writing Bailout Nation, one of the things that kept coming up, when you look at the history of who is Treasury secretary, they seem to be pulled, pulled from two different groups. They were either pulled from Wall Street and banking, or they were pulled from manufacturing and industry. And throughout history, if you had an industrialist as treasury secretary, when things hit the fan, well a whole bunch of banks are gonna have to go under, sorry, flip that. When you have someone from Wall Street, well then we’re gonna rescue the banks. And ironically, I I don’t, I don’t disagree with anything you said about the history. I think some of the anger is misplaced. ’cause it wasn’t, the Fed basically stepped in when Congress threw their hands up and said, we, we can’t do anything.
00:39:16 [Speaker Changed] Well, and it was a financial crisis Right. To say, say the, and it is the lender of last resort, so
00:39:21 [Speaker Changed] Right. It’s their role. They were supposed to do that. That’s
00:39:24 [Speaker Changed] Where they were created in 1913.
00:39:25 [Speaker Changed] That that’s right. What, what didn’t happen during a normal financial crisis is fiscal stimulus along with monetary stimulus. Yeah. Monetary stimulus benefits the holders of capital, you own stocks, bonds, real estate rates go down. You do great. When the government does a big fiscal stimulus that tends to land on the middle class, Hey, we’re gonna build an interstate commerce system. An interstate highway system. We’re gonna, you know, create weaponized sings and, and build up defense that tended in the past to find its way Yeah. To the middle class. What happened in the 2010s were you had all that monetary stimulus, very little fiscal stimulus at least until the pandemic. Yeah. And for a brief period of time, it looked like the middle class was bought off. Yeah.
00:40:17 [Speaker Changed] Well, there’s, I mean there’s a lot of economics in history here. What, what I’ll say is, I, I agree with you. We got fiscal policy exactly 180 degrees wrong after the financial crisis Yep. In the sense that what we needed was, and there was some fiscal stimulus right after the fact, but it wasn’t sustained. We went, you know, we, we went to fiscal austerity within a year or two. What we needed was short-term stimulus. Right. And long term fiscal investment austerity in order to get the budget under control. And what they did was short term austerity and nothing about the long term. Right. And I’m still waiting, by the way, for the bond market to recognize this. And it doesn’t seem to do that.
00:41:00 [Speaker Changed] It, it’s kind of fascinating that the bond vigilantes, I, I keep hearing those names come up and they don’t really seem to exist anymore.
00:41:08 [Speaker Changed] They, they, they seem to flutter their eyes and wake up and then go back to sleep again.
00:41:12 [Speaker Changed] So I, I have a pet theory that there’s just a shortage of quality sovereign paper. And so even a damaged high debt United States is still gonna make good on its debts. So there’s still appetite.
00:41:25 [Speaker Changed] Right. And I think that helps to explain why spreads are so tight right now. Right. Because people will buy whatever paper they can get.
00:41:31 [Speaker Changed] Right. Right. That absolutely true. Hey,
00:41:33 [Speaker Changed] I know that you have a bunch more things you wanna ask about the Fed. Yeah. Can I, you, you were asking a few minutes ago about the, about covering the Fed and being the fed whisperer Right. And being spoon fed, so to speak. Right.
00:41:46 [Speaker Changed] That you didn’t, I you didn’t know. No shoe leather, no heavy research, no one investigative journalism. Yeah. There, they just handed you your stories
00:41:53 [Speaker Changed] Written. Right. And, and I pushed back and said, there’s a lot, there’s a lot of, there’s a lot of reporting that went into those stories. I just wanted to say, and I don’t know if this was among the things you wanted to ask, but I just wanted to describe for a second like what my mentality was about like what my job was. Right, right. So, and I’ve used to preach this to, to colleagues all the time. As a beat reporter, I felt like this is really important to me. I had three responsibilities. One responsibility was to break stories. Right. That was those fed scoops. And it mattered, you know, if, if people were gonna pay to subscribe to the Wall Street Journal, they want something different in there. The other responsibility I had was to explain a complicated world. There were a lot of complicated things going on when I was covering the Fed with QE and zero interest rates.
00:42:39 And I had to understand it and try to explain it to people. But then the third piece was holding powerful people and institutions accountable. And, you know, I think that from the outside, maybe people would look at this and say, oh, he is getting spoonfed these scoops and he’s pulling his punches. He is not holding them accountable. But that third part was important to me. And I mean, I’d be happy to talk about stuff that we did on that front. And, and you know, what, what, what we did to try to hold the fed accountable in a
00:43:09 [Speaker Changed] Moment. Well, let’s zoom out.
00:43:10 [Speaker Changed] And, and there’s also this sense that those, that those two things are in conflict, right. That, well, you know, if you’re holding their feet to the fire, they’re not gonna, you know, they’re not gonna give you the next scoop. And my response is, first of all, they weren’t spoonfeeding these scoops. I had to work to get the information and put them in positions where they would tell me things that didn’t happen by accident. I had to leverage information how I could, but also you, you know, I had a responsibility to do the accountability stuff and I couldn’t let, you know, fear get in my way of doing that, that it was gonna undermine. And, you know, there were times when I made them uncomfortable and I just had to do that. So,
00:43:46 [Speaker Changed] So let’s, let’s zoom out and, and take like a 10,000 foot view. Okay.
00:43:52 A fed chair has a story he wants to inform the market of. And, and that’s always been my thought process. When the Fed is communicating, it’s not about image or pr. They want the market to do some of their work for them, or at least not shock or surprise the market. Yeah. They want, they want the market to understand what’s coming and, and be prepared for it. So, so how would a Bernanke or a Yellen go about communicating, Hey, you guys don’t understand. There are, after you left in 2022, there was a bunch of increases coming, but let’s stick with the 2010s. Yeah. Hey, rates are gonna, are low and they’re gonna stay low for the next Right. For the foreseeable future. Right. How does that get disseminated out to the public and then to the bond traders so that the street knows what’s coming up next, right?
00:44:48 [Speaker Changed] Yeah. Okay. So there are a lot of pieces to this. The first one is you’re, you’re right. There’s, there, there are two really important imperatives from their perspective, especially in the 2010s because the short term interest rate had gotten to zero. What they realized was the only way they’re gonna like affect financial conditions in a way that helps the economy is if they convince the markets that they’re gonna keep interest rates really low for a long time, then you get long-term rates down in, in addition. And so projecting a stance of dovish ness for a long time became part of the mission. Right. And that, that was part of what they wanted to do to influence the economy and financial conditions. But then the other thing, as you said is they don’t want to freak the markets out. ’cause that causes in their mind unnecessary turbulence that can be really damaging.
00:45:36 And they’re still haunted to this day. By 1994 when Greenspan raised rates, I think by three quarters of a point in the market started pricing and its succession of three quarter point increases. And then the next thing you know, orange County, California blew up and Mexico blew up. Right. So like they, they, they want their view of the world to be understood. And they do a lot of different things along those lines. They give speeches, they’ve become more, you know, back in the early nineties when I started on this beat, the Fed didn’t tell anybody anything.
00:46:10 [Speaker Changed] Right. Right. There wasn’t, it’s so funny, I’ve told people this, you get an announcement, we’ve raised rates. The only way you knew the Fed did something was from the open market activity in the bond market. Right. Oh, the Fed must have done something, what’s going on? Yeah. Right.
00:46:23 [Speaker Changed] Yeah. That was that. I was gonna say like, they weren’t putting out announcements in 1989 when they did something. You, you had Fed Watchers. That’s what the original term Fed Watcher had. Right. You had people in the markets who looked at what were going on with money market rates and the Fed injected X billion dollars and they’re like, oh, they just pushed up interest rates and then it took you three days to figure out if that was their intention or an accident. And then, so over a course of 30 plus years, they’ve become more and more transparent. Right? So they started, Greenspan started putting out statements. Oh, and by the way, you know, Alan Greenspan just delighted in how obscure he could be and what he said. ’cause he wanted to confuse people. And they came to see over time that there was a benefit to just being clear.
00:47:07 So they put out statements, they, you know, they put out minutes, obviously they started doing press conferences. Is there interaction between fed officials and reporters that doesn’t show up? You know, like on Yes. Fed officials talk to reporters on background in certain circumstances. And so like, yeah, we did talk to Fed officials, you know, with not for attribution, but it was part of a very dynamic process. When I say, you know, like when I was writing stories about, for instance, QE two stands out to me. Like that was a a, that, that was a situation where like they were moving towards making a decision about QE two over several months. It took ’em like six to nine months to get there. And that was a case where I was putting pieces very kind of, I was putting pieces of a, of a puzzle together to be able to figure out how they, they didn’t even know where they were going at the time. And so there was a lot of reporting that had to go into understanding what was going on behind the scenes and which words that they used matter mattered and how they, and how they used
00:48:15 [Speaker Changed] Them. My, my recollection of QE two, and this is 10 plus years ago, was, I think it was before where I even launched my own firm. We had maybe it was a double line bond fund that was primarily mortgage backed. And it used to be 90% mortgage backed and then it was 80% and then it was 70%. And what was going on is the fed was just sucking up all of the mortgage backed bonds out there. Yeah. That the private sector had very little of it. And eventually this went from a substantially mortgage backed fund to just another treasury fund. And that was
00:48:56 [Speaker Changed] Qet. It was exactly what they wanted it to happen. It, it’s
00:49:00 [Speaker Changed] Kind of crazy guys.
00:49:01 [Speaker Changed] ’cause it brought, it, it took down risk-free rates. 00:49:03 [Speaker Changed] Right? They wanted you to
00:49:05 [Speaker Changed] Raise risk capital. They then, so I don’t know if you or others, inve other investors in your funds decided, all right, well if we want to get a return, we gotta move further out on the risk curve. That was exactly what they were trying, you just, you just explained QE to an action, like Right. The way they wanted to do it.
00:49:21 [Speaker Changed] And, and the ironic thing is, the first person who said that to me about risk capital was Jim Bianco summer of oh nine in a canoe. Maybe it was 10 in Maine.
00:49:37 [Speaker Changed] No, you were, you were at the David Ock fishing. That’s 00:49:39 [Speaker Changed] Right. Yeah. And, and he had said the purpose of quantitative easing is to get people out of the safe, all of the risk aversion that people develop during the financial crisis flooding into money market and bonds. Yeah. Hey, in order for the economy to work, we need this money to move
00:49:56 [Speaker Changed] And, and, and up the risk. And by the way, the purpose, this is another thing is like, I I was always amused by how like people on Wall Street reacted to stories because they very often thought the stories were foreign about them. But the purpose wasn’t to get the, like the end goal wasn’t to get you guys to move out the risk curve. It was to ease financial conditions in a way that economic activity that was being put off for five years from now would take place now instead. Right. It, it was to get people to, it was to generate economic activity today that was being deferred. ’cause people were so underwater or uncertain.
00:50:33 [Speaker Changed] So it’s funny you use the word underwater. I, I always assumed that the way to recover from a crisis is the mistake wasn’t letting Lehman Brothers collapse. The mistake was many more banks should have been allowed to collapse. Right. Tear the bandaid off. Have the, have the government provide debtor in possession financing. So all these companies, you know, the, the joke was there’s no such thing as toxic paper, only toxic prices at the right price. Yeah. These pools of bad mortgages had value. That’s,
00:51:06 [Speaker Changed] That’s, that’s the, that’s the age old debate in finance. Right. Is it, you know, if, if you bail ’em out, you’re putting off all these hard decisions. Right. But basically, and I, I remember talking to Bill Dudley about this, but you know, basically what you’re doing is trying to smooth, smooth out the curve so that there isn’t as much damage today. Right. You’re bringing forward some activity, but by, by, by design, you’re actually putting off some of the damage for the future. The alternative is you tear the bandaid off, you get to the right price. But the worry at the Fed at the moment was that they were replaying the Great Depression. And in the Great Depression, what happened was the, the price didn’t correct and readjust the whole process of destruction fed on itself. And it became its own self-feeding equilibrium that took a decade to get out. And so that’s the choice they made, was that they, they didn’t, they didn’t want to go down this path where banks start collapsing. There’s no credit. Businesses start collapsing. People get laid off. People have no money to spend more banks collapse more. You know, so like they were trying to short circuit that kind of process.
00:52:13 [Speaker Changed] Although obviously we have the FDIC, we have all these other structures in place to prevent a
00:52:19 [Speaker Changed] Replay. But that, but that wasn’t enough. Lehman Brothers was an FDIC insurer. Right. That was, so here’s my analogy,
00:52:24 [Speaker Changed] But Citi Chase, Wells Fargo go through all the list. There were plenty of banks. Chase was fine, but Wells Fargo ran its trouble. And banking IG Yeah. Well, but they’re an insurer, not a bank. Right. But
00:52:37 [Speaker Changed] That’s what I’m, that’s what I’m saying. The, the, the thing what they, what they recognized was that they were replaying the, potentially the Great Depression, but the old story of a bank run had been, had, had been altered. And now we were dealing with very exotic instruments and institutions that didn’t fall under the institutions that were, that didn’t fall under the umbrellas categories Yeah. That were created during the Great Depression and, you know, they were potentially going back
00:53:06 [Speaker Changed] There. So, so as we were speaking earlier, and it’s a
little ironic they avoided the Great Depression, but sort of an unintended
consequence was they helped lead us to the French Revolution.
00:53:18 [Speaker Changed] Well, yeah, yeah. In fact, you know, I remember a
conversation I had with, with Bernanke way back then where, you know, he said like,
he expected a populous blowback.
00:53:27 [Speaker Changed] Really? Yeah.
00:53:28 [Speaker Changed] He expected
00:53:29 [Speaker Changed] A populous blow. Not, not as far as it went.
00:53:30 [Speaker Changed] Well, I mean, I think he was surprised by where it came from. Right. I, I don’t think he would’ve expected it to have come from the Right, well, that
00:53:37 [Speaker Changed] Whole Rick Sandel, you know, tea party nonsense. Yeah, no,
00:53:41 [Speaker Changed] I, I had my own run in with Rick during that whole thing.
00:53:43 [Speaker Changed] I mean, wait, we’re bailing out banks to the tunes of tens of billions of dollars, but the people who applied for mortgages, you’re just gonna cut them loose. That seemed to be
00:53:54 [Speaker Changed] What took place. Well, yeah. And yeah. And, and there were a lot of consequences for that. It is funny you mentioned Rick. ’cause Rick, I, I went on with Rick on CNBC and he lectured me that I needed to be more opinionated in my questions at press conferences and reporting. I was like, it’s
00:54:10 [Speaker Changed] Like you don’t understand what a journal that’s
00:54:12 [Speaker Changed] Not exactly
00:54:12 [Speaker Changed] Right. Exactly. It’s like you miss, you seem to think. I,
00:54:15 [Speaker Changed] I, I’ll give you one little analogy since we’re talking about the dep. My analogy for Ben Bernanke is imagine that you are a Civil War historian at, at, at Wake Forest University, and you’re an expert on the battlefields of the Civil War. Actually, let’s call it University of Virginia. ’cause Virginia was more center place and you’re an expert on the artillery and the battlefields and the personnel, and you knew everything about the Civil War. And then you got a job as a consultant at the, at the Pentagon. And you did such a good job as a consultant at the Pentagon that they made you the Defense secretary and then a new civil war broke out, but it was being fought with drones. Right. And laser guided Miss. That’s what happened to Ben Bernanke. He was a great depression historian who knew about all the battles and wrote decisive histories of it. And then he got the job at the Fed and it, and he, and, you know, he was fighting, he was refighting what he thought was a de great depression moment, but he was doing it with these really high tech financial instruments like credit default swaps and credit, you know, collateralized debt obligations and, and the like.
00:55:25 [Speaker Changed] Coming up, we continue our conversation with John Hilson Wrath, former Wall Street Journal reporter and current research advisor at Serpa Pinta Advisory, discussing rates, politics, and the Fed today. I’m Barry Riol. You’re listening to Masters in Business on Bloomberg Radio. I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio, and some of you are watching us on YouTube. My extra special guest today, John Hilson Wrath, former Chief economics correspondent and Fed Whisperer for the Wall Street Journal. Now an analyst and researcher at his own shop, Serpa Pinto Advisory. So, so let’s talk about where we are today in the world, starting with a quote of yours. The old normal is dead. The new normal is here. What does that mean?
00:56:30 [Speaker Changed] Wow. I’ll be honest with you, I don’t even remember writing that.
00:56:33 [Speaker Changed] All right. So let me, let me remove that. And
00:56:35 [Speaker Changed] So, but, but I mean, we could, but, but let, let me redefine that. Okay. We can go back to our French Revolution story. Sure. Which is, I think there’s a new old normal setting in which is that, you know, I mean, I think we’re, we’re, we’re living through historically changing times on, on several levels. So one of those is just, is information. Right. And this brings me, again, I’ve become, I’ve been obsessed with the French Revolution ever since people started telling me they were gonna stick my head in a guillotine. But, but you know, there was an information revolution happening during the French Revolution too. There were printing presses everywhere, relatively new. There were pamphleteers. I mean, the printing press had been around for a couple of centuries, but it wasn’t being mass produced. And in every village and, and every, you know, neighborhood in Paris, but
00:57:27 [Speaker Changed] Loggers of the 18th century,
00:57:28 [Speaker Changed] When you read histories, if you read histories of the French Revolution, there were Pamphleteers everywhere giving their version of events on every street corner. And they were basically tearing down the old institutions of the church and the aristocracy who defined the story for the public as they saw fit. And you know, the United States too, the, the, the Declaration of Independence was a pamphlet. They signed the thing in Philadelphia. They fled because the British were coming, found their way to a printing facility in Baltimore and started mass producing the Declaration of Independence. So, you know, I think we’re going through something like that now where the old institutions of, of power in the media are, are being redefined. I mean, for goodness sake, podcasters had a bigger influence on the last election than CNN did. It’s amazing to me.
00:58:21 [Speaker Changed] Yeah, no, no doubt about
00:58:22 [Speaker Changed] It. So I, so I think that, you know, that’s an old normal, but the new normal is, you know, there, this technological revolution in my mind is mind boggling. I mean it, I’m happy to sit at the table with a contemporary, when you and I were young men, if you wanted to take a picture, you know, you had
00:58:39 [Speaker Changed] To get a camera, you had
00:58:40 [Speaker Changed] A black box called a camera with something called film, a canister called film in it. And then, you know, you would take 36 snaps and then you had to take it to a store or
00:58:50 [Speaker Changed] A photo mat, a little yellow boot. Yeah.
00:58:52 [Speaker Changed] Yeah. And, and, and it had to get dev, you know, it took a, a week in the store to get developed and you had to pay some amount of money if you wanted to do research, you went to a library. If you wanted to write a letter, you wrote it with a piece of pen on a paper, you stuck it in an envelope, put a stamp on it, put in a blue box, and waited a month for a, all of that stuff is now instantaneous, infinite, and practically costless. And so, you know, and like I ride the subway in New York, you look like every, every, you know, three out of every four people sitting next to you is staring at their phones. Right. I think, I mean the, the information we’re living through right now, I is quantums of magnitude of what they were going through. I think they in the French Revolution. So it’s an interesting time to be alive doing what
00:59:42 [Speaker Changed] We to say nothing about bad information, misinformation, propaganda, a whole nother thing.
00:59:49 [Speaker Changed] Oh, bad in bad information. The word libel has its root in part in the French word lee, be, which were these scandalous pamphlets that were being put out about Marie Antoinette on, I think it was called Grub Street in London. So yeah, an abundance of information includes an abundance of really bad information and misinformation. So we’re living through all of that right now.
01:00:11 [Speaker Changed] So, so let’s talk about what,
01:00:12 [Speaker Changed] It’s not quite the Central Bank stuff you’re talking about,
01:00:14 [Speaker Changed] It’s not quite, but let’s talk about what all this means for the economy, which as you have noted, has proven to be much more resilient than most forecasters have predicted. Yeah. So where are we in the economy today? What sort of job does the Fed have to do balancing their dual mandate in the, in the post pandemic economy we are living through?
01:00:39 [Speaker Changed] Yeah, I, I mean, I think, I think the, the, the Fed is in a tough spot and is prone to making some costly mistakes right now. Do
01:00:48 [Speaker Changed] You think they make mistakes or are they just always late to the party?
01:00:51 [Speaker Changed] No, I think they mis, I think they make mistakes. They clearly made a mistake after COVID. And I understand keeping low. I understand what happened. Keeping so, so this is the thing, like people attack the QE programs that Bernanke did, I think, you know, in the moment that he implemented them, they, they were of, they, the, the net benefits were greater than, than net costs. In those moments, what happened, I think was we went into another shock after COVID, and I think, you know, Jay Powell made a mistake. He’s, he’s, frankly, he’s not an economist, and he misread a supply shock to the economy as a potential demand shock. So we took all these tools off the shelves that Bernanke and Yellen had created and threw them at the COVID shock, which was a supply shock, overstimulated demand, and we got inflation. So you, so yes, that was a mistake. That
01:01:39 [Speaker Changed] Was, you’re putting more of that on the Fed than the massive fiscal stimulus from Cares Act one and two under Trump Cares Act three and all the various spending bills under Biden. You think that was more monetary than fiscal?
01:01:52 [Speaker Changed] I think it was all of these things combined. Okay. That’s fair. It was, and, and, and by the way, the other thing that, that the Fed and the Trump administration did intentionally was decided we’re not just gonna bail out the banks this time, we’re gonna bail out the little guys. That’s why everybody got those checks. Everyone was reliving the trauma of the 2008 financial crisis when they made these decisions that created a whole new trauma. The, my, my mom was a historian and she talked about the kaleidoscope of history. So the, the configuration is constantly turning and growing out of whatever last configuration, right? We were in the feds made a mistake, a discreet mistake. And the mistake in 2000, I’m sorry, 20 20, 20 21, was overstimulating in the face of a supply shock. But to get, to come more to, you know, and I think one of the problems that economists have is they, they call certain things like a law or a rule, and they think when they, once it’s called a law or rule, then it must always be true. Right? The, so the, the som rule, Claudia Som brilliant economist, wonderful person, you know, she noticed a correlation between that, you know, at certain moments when the unemployment rate rises a certain amount, I think a half percentage point over a six month period, right. It tends to keep going up. That’s like in histor in a historical observation. It’s not a law written into Right. The rules of economics
01:03:13 [Speaker Changed] And never from a 0% interest rate and a, and a sub 4% unemployment rate. Like when you Yeah. Where the som rule didn’t work was coming from levels that historically had never existed. Yeah. So, so yes, correlation,
01:03:28 [Speaker Changed] Right? Have to look, you have to look at the situation you’re in right now and these rules of thumb, and people do, you know, they’re like, oh, GDP contracted, you know, we’re close to a risk. I I think you have to look at the situation you’re in and make the most sense of it that you can. So where are we right now? So, growth is proven to be more resilient than a lot of people expected, but employment is slowing down. Inflation is above the fed’s 2% target. What ha what sense do I make of this? I think that the economy has slowed down a little bit, but coinciding with all this uncertainty from the tariff shock is we’re going through an investment boom. We’re going through a, you know, a, a technology driven investment boom right now. Which by the way, could hurt labors and workers in the long run.
01:04:15 And maybe we’re seeing some of that as we speak. By the way, I also think that if the demand for capital is rising for investment in AI and data centers, higher demand for capital should mean a higher equilibrium interest rate, a higher cost of capital, right? If the demand for capital is higher, then the price for capital should be higher. And, you know, but the Fed is being asked to respond to a labor market that’s softening my, you know, my, my own concern is that the Fed is that the fed is going to ease into the slowdown in the job market when it, when the financial markets are on fire, when it thinks the co the, the risk-free rate is lower than it actually is. And when there’s still an inflation problem, and they’re gonna light even more of a fire into these markets, which might feel good for a few months for, you know, as we saw in the early two thousands, late nineties go on for years. But those situations often don’t end well. So,
01:05:15 [Speaker Changed] So you, I I wanna combine two of the things you said. You mentioned we’re above the fed’s 2% inflation target. But why is that a rule? If you look at the two thousands, two thousands, 10 tens era, 2% was an upside monetary target. Yeah. From below. Now we’ve kind of pivoted into a fiscal stimulus era. Yeah. And 2% is a downside target. Yeah. Should you have the same inflation target in the 2020s that you had in the two thousands and 2000 tens? Yes,
01:05:50 [Speaker Changed] A hundred percent. It should be immutable. So
01:05:52 [Speaker Changed] It should always be 2%. It should
01:05:54 [Speaker Changed] It because it is now, and it’s in everybody’s interest to keep it there. And here’s why. So we have a fiat currency, right? And so, you know, if you go back 200 years, 300 years, the anchor for that currency was, was gold. You know, people would say your money is as good as gold. If you, if you had a dollar today, you could buy X number of ounces with that dollar today. That was the anchor for the currency. Gold doesn’t work as an anchor for the currency, in my humble opinion. Do you know that Americans spend, about the last time I looked at this, about as much money every year on dry cleaning as they spend on gold? Yeah,
01:06:33 [Speaker Changed] No, that makes sense. And
01:06:34 [Speaker Changed] And do you know that the, that the, that the largest producers of gold in the world include countries like Russia and South Africa and Venice, not the most stable producers. So like, so why would we anchor our currency to, to an idea like, like gold, what you wanna have an anchor now? So the inflation target in, in what inflation is, is an anchor that, you know, your dollar is gonna be worth a known and set amount every single year. It is the, the, the 2% inflation target is the gold standard of the past. And in my mind it’s a more sensible gold standard. ’cause it touches a wider array of what it costs us to live. So then the question becomes, well, why 2%? Right? Well, so the answer is because that’s what they chose. Because, and you know, and this actually, I, I go through this in my book about Yellen, but you know, well, why shouldn’t it be zero?
01:07:30 Well, the fear is, the fear was that if your anchor is zero, then interest rates are always very low. And, and we, when you get to a point where the economy is slow, is slowing down like a depression or a recession, unemployment is rising. The central bank can’t do anything exactly what we lived through in the oh eight period. You need to have the inflation number a little bit above zero. We want, you want it low, but you wanted something above zero so that the Fed has a little wiggle room to support the economy in a crisis. I, that’s the idea. So you could say, well, it should have been 3%, it should have been 4%. Okay. But we chose 2%. And once you’ve chosen it, then it’s very hard to say, like, we choose something else. Now, I,
01:08:11 [Speaker Changed] I read a paper by former Fed vice chair Roger Ferguson about the 2% target. And Ferguson said, it’s a random number that came out of New Zealand Mm. Where someone just happened to be talking about inflation in the 1980s and they tossed out 2%. And that’s the history of it. It traces to a New Zealand banker discussion first, first 50 years
01:08:36 [Speaker Changed] Ago, first mover advantage. There was, yeah, there was, there was certainly an element to it. But I wanna say something else about it. ’cause people sometimes make this argument that, you know, why should you accept any inflation? We’re, we’re debasing our currency. The currency today is worth 5% of what it was worth. That 2% of what it was worth in, you know, in 1913 when the Fed was creative. But like you, like in my mind, what matters is the purchasing power of, of an hour of your labor, right? So Exactly. Yeah. If inflation is going up 2% a year, okay, that’s one thing. If you’re earning 3% a year for your labor of you’re earning ahead, earning 5% a year for your capital, then you’re, you’re getting ahead. And it, I, it would be impossible for anyone to argue to me that the human condition is, I mean, on many levels, maybe psychological, I can’t make this case, but the human condition is, is is worse today than it was in 1913. Of course. You know, like America became a world superpower in 19. Like, so it’s just, it doesn’t make sense to me when people say you’re debasing the currency. You’re, I like what I wanna say is a a against what measure. Here’s another, like when I was covering the Fed, fed
01:09:45 [Speaker Changed] The dollar is not supposed to be a permanent store of value. It’s a medium of exchange. If you’re holding onto a dollar for a century, you’ve made some financial errors. Yeah. That’s not what you’re supposed to do.
01:09:57 [Speaker Changed] People used to always say to me, and I used to hear them say when I was covering the Fed, that the Fed is destroying the value of the dollar. Right. And like, I spent a lot of time, this gets to something I think we’re gonna think about. Like, well, so what does that mean when the fed, like one of my principles for writing was like, I need to be able to break things down to their, to their, like their, their core meaning like what does it mean when you say that the, the, the Fed is destroying the value of, of the currency. They’re
01:10:24 [Speaker Changed] Debasing it. I love that, but like, it’s a metal, a
precious metal.
01:10:28 [Speaker Changed] But you know, so you couldn’t say that like kind of relative to other currencies. ’cause the dollar was going up and while it’s, you know, the purchasing power of a dollar today was going down, the purchasing power of your income Exactly. Is long. And, and this again brings me back to the revolution. ’cause this is also a technological revolution. A lot of working class Americans got left behind during this era of technology and globalization. Absolutely. And what happened was the purchasing power of their labor declined. It wasn’t the fed that did that from inflation. Inflation was very stable. The purchasing power of the labor declined because they were competing against, you know, low wage workers in Mexico and China. And because they were competing against machines that were replacing them in the workplace. And so it is true, it is a fact. We, and this is another part of the revolution, which is related and potentially intensifying.
01:11:20 We’re li we’ve lived, we’re 25 years into this kind of post-industrial information driven economy. And what we know about this is that it, it exaggerates inequality. It concentrates wealth among very few people. And a lot of people are being left behind. And the question is, and how do you like preserve the value of the dollar? It’s how do you preserve the value of an hour of your work? You know, how do you find work that’s gonna keep you, keep your family fed and get your kids through school and, you know, get you your trip to Disneyland every year? You,
01:11:56 [Speaker Changed] You know, the federal government dropped the ball and we, we see it in some specific industries. Like if you’re shutting coal mines in West Virginia, well you have to retrain those people to do something else. Yeah. And if you work in a furniture factory, a garment factory, any of the low end manufacturing businesses that all left, those people have to be retrained in.
01:12:20 [Speaker Changed] Well, but so yeah. So I mean actually, and you kind of dropped the bullet. I wrote, I wrote a lot about this and, and we did, but it’s not, it, it wasn’t as if we didn’t recognize we, I mean I, all right, I’ll just say it. The elites who were driving the bus didn’t recognize that there was a challenge there. You know, there, there was a trade adjustment act. Right, right. There, there were facilities that were meant to get people retrained. And then, and there was an, a vast American community college system, right. Which was meant to be a vehicle to get people retrained. But I talked to people from manufacture, you know, from furniture plants in Hickory, which is one of my favorite analogies for America. ’cause Hickory North Carolinas right next to Charlotte. One’s a banking center, right? One was a furniture center, one went one way, one went red, one went blue, one did better, one did worse.
01:13:10 Anyway, yeah. I talked to people in these plants in Hickory and they’re like, you know, I didn’t finish high school. Now you’re telling me to go out. I’m 50 years old. I gotta, I gotta go and reeducate myself. And then like for the people who actually went through it and did it, you’re like, I was making $25 an hour with Ben with, with a pension and health benefits. Now I’m a phlebotomist. You know, I’m pulling blood outta people’s veins, making $12 an hour at a hospital. It didn’t work for them. And the, you know, this was the, one of the great errors of the economics and economic policy profession over the last 25 years is they didn’t think that stuff through, and the politics didn’t really, weren’t conducive to addressing that problem. But it, and this is my, this is one of my kind of warning signs, warnings for politicians say, I don’t see how anyone is fixing that underlying problem that we live in a post-industrial economy that bifurcates wealth and income. And frankly, I don’t think it’s realistic to expect we’re gonna re industrialize this country. Even if
01:14:17 [Speaker Changed] We do it. It’ll all be automated
01:14:19 [Speaker Changed] Robotics. It’s be exactly, it’s, it’s, it’s, it’s gonna be machines and we’re moving out of an industrial year. You know, so the, so the, so my question is like, how do you, I talked to an economist, David Au Otter, who’s thought a lot about this stuff. He wrote the papers about the China shock. You know, our work is, is not only a source of kind of fulfillment and income, but, but the way we work is also the way we distribute wealth and income. And so if the whole nature of work is changing because of technology, then like, are we thinking about how we’re gonna manage the distributional effects of that? And I’m not like saying this as some kind of, you know, screaming, bleeding, heart liberal. I mean, it, it, it, Donald Trump actually got elected because of the disaffected American working class. And I don’t think either party has, has actually gotten their hands around it. I wrote a book about Janet, Ellen and I talked a lot of time, spent a lot of time talking to Democrats about this. I don’t think any of these people have gotten their hands around how do we navigate this, like this revolution that we’re going through the, the economic post-industrial revolution.
01:15:25 [Speaker Changed] So, so I have one last question I’m want to ask you before we get to our favorite questions. We ask all guests. Okay. But you’ve been alluding at it, so feel free to go back to a previous conversation. What do you think investors are not talking about, but should be? It it could be a, a policy issue, an asset class, a data point. That,
01:15:47 [Speaker Changed] That that’s it.
01:15:48 [Speaker Changed] We, but I think it’s, yeah, that,
01:15:49 [Speaker Changed] Thats why I, it’s the, it’s the, it’s the inequality issue because, and, and, but this is around, and what I’ve been, I don’t wanna use, I don’t wanna use the word inequality in like the kind of conventional, politically divisive way. What I, what I mean is that, you know, an economy creates income and wealth and how that income and wealth is distributed, distributed across the population is a result of the way. And, and by the way, there is,
01:16:14 [Speaker Changed] I’m looking for a chart on this exact thing. There, there is
01:16:17 [Speaker Changed] This no law, there is no rule and economics that says that wealth and income will be distributed in a fixed or predictable way. You know, the agricultural era wa wa did did not create an economic system or that that distributed wealth and income equally. It was very unequal. You had kings and queens and peasants, right? It just so happened that the industrial economy distri, you know, created a vast middle class. ’cause you needed people attached to machines to make the stuff that made our lives more comfortable. But there’s no rule that I see that says moving into a post-industrial high-tech world, that this whole new world is gonna distribute income and wealth in the same way. And so my question is, what are we doing about that? And by the way, I think the institutions, we’ve talked about norms before, the institutions that we’ve created over the last 200 years, were built for an industrial economy. Our tax base, our voting systems, everything is built for an industrial, you know, so to me, the big existential question is, you know, how are we gonna manage the distributional effects of, of income and wealth creation in a high tech, high information economy?
01:17:36 [Speaker Changed] I saw a table this morning, I can’t, I can’t find it now, but it basically shows a number of industrialized countries and what percentage of their workforce is below the median income. And the US and the UK are, are substantially, I think it’s something like 23, 20 4% substantially below. You look at other countries like Japan, the difference between the mean and the median isn’t that big. And when you have a very skewed distribution like you’re describing, that gap gets bigger and bigger. So I I, I’ll dig up that table.
01:18:17 [Speaker Changed] Well, you said it to me. I’d love
01:18:18 [Speaker Changed] To see it. Yeah, I’ll, I’ll say, I’ll share it with you and I’ll, I’ll I’ll post it when we, when we this goes live. But it’s kind of fascinating ’cause you don’t think of the country that way. And when you look at, what was it, the Z one flow of funds that the Fed puts out. Good one. You can see that gap Yeah. Getting bigger and bigger. Especially since the nineties. We, I mentioned unintended consequences. Some legislation passed by the Clinton administration to cap executive compensation at, I wanna say it was a million dollars or $2 million, right. That just led to massive equity compensation. Right. Helped drive a lot
01:18:55 [Speaker Changed] Of this. And by and by the way, accounting fraud.
01:18:57 [Speaker Changed] That’s right. That’s right. So not only did you, were you driving people to hyperfocus on the quarterly calls leading to some quarterly earnings leading to some monkey business, but people were getting paid in equity. Were making Yeah. Tens
01:19:10 [Speaker Changed] Of millions of dollars. And so the, so the, from political perspective for Republicans, how are you gonna take care of the work in class? Are, are these promises about Reindustrialization? Can you realize them? And for the Democrats, how are you gonna win people back? ’cause they lost them. Donald Trump took them from him.
01:19:27 [Speaker Changed] Well, the question is
01:19:28 [Speaker Changed] The, and by the way is in terms of the Fed, all the Fed can ever do is make a mistake. It’s like his job is to prevent, prevent financial crises and keep inflation stable. Like, people love to attack the Fed because, you know, you only notice it when it’s screwing something up. So, and, and by the way, one of the no
01:19:45 [Speaker Changed] Credit for getting things right.
01:19:46 [Speaker Changed] One other, one other thing about the Fed is, you know, I live, I live in Washington, DC it’s this place where like people, like 90% of people, what they’re doing, you know, 90% of the time is spinning you and trying to get you to believe a story that’s in their personal or institutional or economic interest. The Fed is out there trying to tell people what it thinks it’s gonna do. Like you could give them a hard time for making mistakes. I’ve just said, I think Jay Powell made mistakes, but like, at least they’re trying to be honest about what they’re up to. I gotta ask you question. When so many other people in Washington are trying to mislead you, you know, I, I admire them for trying to be straight.
01:20:28 [Speaker Changed] I I gotta ask you a question. You’ve lived in New York, you’ve lived in Washington dc Which town is more transactional?
01:20:35 [Speaker Changed] Oh, oh, that’s a good question. I didn’t think you were going in that. They’re both transactional, but the difference is in New, New York is a transactional town, and everyone’s looking out for their own interests. And they’re, and, and not pretending knows. Everybody knows that. Right. And everybody knows that and accepts that as like the rules of the game. Right? In Washington, it’s all transactional and everyone’s out for their own interests, but they’re trying to make you believe that they’re doing it for you. And, and, and, and that’s why it all looks so hip, so hypocritical because like they’re, yes, they’re totally transactional and they’re totally trying to advance their party or their power or their, their, you know, fundraising, but they’re trying to make you believe that they’re doing it for you to help you so that your children will be better off. Right. And it’s, I’m sorry, I’ve got, I’ve grown a little cynical about this. No, I I I much, I much prefer being a New Yorker.
01:21:25 [Speaker Changed] I I asked that question ’cause I had a feeling you were gonna go that way. New York, there’s no pretending. Yeah. It’s transactional because it’s the center of us capitalism DC is something else entirely. Yeah.
01:21:38 [Speaker Changed] And like New York is traitors and it always has been. Washington is lawyers. Here’s my other New York Washington analogy. You, if you, you’re driving down the street in New York, although you can’t anymore, ’cause there’s so much traffic. If you kind of move in and outta one lane, if you kind of overstep your bounds, someone will honk the horn, give you the finger and keep driving. Right? Right. If you do that in Washington, instead of giving you their middle finger, they’ll point their pointing finger, they’ll wag their finger at you and tell you you broke a rule. And then like threaten to turn you in. And then by the way, there’s speed cameras everywhere. It’s a, it’s, it’s a little bit more oppressive over place, I think.
01:22:14 [Speaker Changed] Really amusing. Yeah. All right. So I only have you for a certain amount of time. Let’s jump to our favorite questions. We ask all of our guests, starting with, who are your mentors who helped shape your career?
01:22:27 [Speaker Changed] Well, so I’d have to say one of my most ior important mentors at the Journal was a guy named David, we, who covered
01:22:33 [Speaker Changed] The fame. I remember David Wessell
01:22:35 [Speaker Changed] Absolutely covered the Fed in the 1990s was just like an institution in economics and economic policy coverage. He gave me chances and he was usually nice to me. So yeah, he is a tough boss too. But David Wessell was a great guy and my, my best friend of the journal, all those, all those years was a, a guy named Bob Davis. Gentleman, good guy, great reporter
01:22:58 [Speaker Changed] Number one in terms of page one bylines.
01:23:01 [Speaker Changed] Yep. And I, and, and by the way, Nick, Tim Rose is gonna pass me pretty Oh, real soon. I’m sure I have. I don’t know the numbers, but I’m Nick. Nick is my successor covering the Fed. He’ll pass me, but I don’t know if he is gonna catch Bob Davis.
01:23:15 [Speaker Changed] That’s amazing. Let’s talk about books. What are some of your favorites? What are you reading? Well,
01:23:19 [Speaker Changed] I’ve been reading, I’ve alluded to this, I’ve been reading a bunch about the French Revolution. I’m also reading the book Sapiens by, I can’t remember his full name. Harari
01:23:28 [Speaker Changed] Yuval. Yeah.
01:23:29 [Speaker Changed] Yuval Harari. It’s a pretty bleak perspective on humanity. Yeah, very. I think I, I, I think I, I’m a little more optimistic about our species and it’s intentions, but there’s an interesting insights in there. Like I, I, the reason I picked it up is I think that humans have these kind of primitive brains with primitive McDowell and emotion centers. We have an industrial era, era, economic and political structures. And we’re living with 23rd century technology. And I’m just trying to understand the primitive parts and how that might interact with all this other stuff.
01:24:09 [Speaker Changed] You keep bringing stuff up. I have chapters in a book for you that you’re gonna love. Good. What do you remember the name of the French Revolution book?
01:24:18 [Speaker Changed] You now you’re putting me on the spot
01:24:19 [Speaker Changed] Email it to me. I’ll, I’ll dig it up. And you cracked me up comparing DC to a city of lawyers versus New York as a city of traders. I’m gonna share a book title with you called Breakneck China’s Rush to Build the Future by Dan Wang. And he compares China versus the us the US as a country of lawyers, China as a country of engineers, which is why they could put up as much stuff as they do as fast as they do. Yeah. But
01:24:53 [Speaker Changed] We’re also a country of entrepreneurs for sure.
01:24:55 [Speaker Changed] Yeah, for sure. And we’re not just lawyers and not a state DIC dictate, although I was gonna say not a state dictated industrial policy, but that’s changed.
01:25:03 [Speaker Changed] Well, so, you know, so this is another thing that I just have having a hard time getting my head around. So like China’s economy’s really struggling right now. They definitely pushed us. They challenged us. You know, we, we were, our, our workers were hurt by the incursion of China imports. But we’re, you know, on many measures, you know, we’re, we’re still doing all right and winning, but we basically conceded to China’s economic model. It’s like we’re we’re moving, we’re moving towards the state run capital is bizarres run capitalism. Which is, you know, it’s, it’s hard for me to get my head around the idea that we’ve given up on a, a system and a project of democratic capitalism and that that’s actually, lemme democratic, is this a permanent change, I should say democratic free market capitalism? You know, we, we seem to be having our doubts about it. I, I guess what, what I would hope is that we don’t give up on it too fast.
01:25:57 [Speaker Changed] I, I’m curious, is this a permanent pivot or is this, Hey, let let the president have his 10% of intel, but he’s, this is his second term and he’s almost 80 and this is an permanent change. I don’t, I don’t like, I’ve heard that sort of vibe from people and I don’t know how serious they’re, I
01:26:15 [Speaker Changed] I think, I think he and his followers and his le the, the leaders who are working with him are vulnerable on the issue of inflation and the cost of living. Because he got, he got in there in part, in part because people were angry about the inflation of the post COVID period.
01:26:31 [Speaker Changed] Back then it was X. Now it’s,
01:26:32 [Speaker Changed] We’re doing a lot of, we’re doing a lot of things right now. It’s not just tariffs, but with monetary policy pushing. I guarantee you, if we get the interest rate down to where the president wants it, we’re gonna have inflation. And if we don’t get inflation, there’s gonna be an asset price boom. Where again, this inequality thing, there’s a few people, it’s gonna get worse who are gonna make a lot of money off of that. So I mean, I, I I think that, that they have a little bit of an achilles heel on that issue.
01:26:58 [Speaker Changed] Let’s talk about streaming. What are you listening to in terms of podcasts or watching on Netflix or Amazon Prime?
01:27:05 [Speaker Changed] Watched a, a really cool show called Tehran, which was about Israeli moad agents infiltrating teran. It was put out a couple, two, three years ago in infiltrating Ron to blow up their nu nuclear reactors. I watched it like a couple months before they went and blew up their Nu Nuclear, you know, so that was really interesting. I’m also just, I’m a sports fanatic, so I don’t really more watching. Well, I don’t have, I, I’ll tell you what, I’ve stopped watching cable television after being participating in it for a long time. But if there’s a game on ’em, I’m there. You’re right there. Yeah. I’m a I’m a football fanatic.
01:27:46 [Speaker Changed] Fi final two questions. What advice would you give a recent college grad interested in a career in financial journalism?
01:27:54 [Speaker Changed] Financial journalism? All right, so I, I’ve had this talk, this is getting back to the whole printing press French revolution thing. I mean, I, I think it’s, it’s clear that, that the journalism is going through a period of exceptional disruption right now. Right? And so the choices that I was looking at when I was coming into the field of like, you know, how do I get to the Wall Street Journal? How do I get to the New York Times? Like, it’s a different set of choices. And if you use the kind of pamphleteers analogy, you know, and if you see what’s going on, look at you. You know, you start at a podcast and you know, this has become this great thing for you. I I, I say this to young people all the time. Be think expansively and creatively about where these interests might take you.
01:28:43 You know, the, the, the core skillset of getting information, distilling and making sense of the information and conveying information, like that’s the core of journalism. That’s like, that’s more essential than ever. But the, the the, the way you’re gonna practice those skills is gonna be different than, than what I, I did. And, you know, like I had a, a young student that I was working with and talking to at Duke a few years ago. You know, she was going down the whole newspaper route. She’s now doing a true crime podcast in the Midwest. Wow. And so, you know, I I think that there’s a lot of opportunity out there for people who are willing to kind of take chances and be nimble. And it’s scary, but there’s a lot of opportunity for people who can be flexible and find the opportunities and go for it.
01:29:28 And, and I love being a journalist. I, I would not take you, there’s this ritual that journalists go through where like experienced journalists are constantly trying to tell young journalists, don’t do this. It’s a terrible field. It’s a dying profession. And go become a lawyer, you know, blah, blah. I had a great experience. Like, I’m never gonna tell someone not to pursue that, that that dream or that interest because it was so good to me. But you’ve gotta be willing to, you know, kind of take chances and go down some roads you might not expect to go down.
01:29:58 [Speaker Changed] Right. Recognize how the business model has changed. Yeah. And, and our final question, what do you know about the world of economics, finance central banks today? Might have been helpful 25 or so years ago when you were starting out 30 years ago. Well,
01:30:12 [Speaker Changed] I mean, I guess the basic thing is just that it’s so much more interesting than I expected. I didn’t wanna get into economics writing. I did, I did by accident. And I, I stayed in it. I wanted to be a war correspondent. And what I came to see was that like, or a sports writer that the great battlefields and the great arenas that really affected the human condition were in markets and economics. So I, I guess what I would tell myself now was to go into it with even more conviction, because it turned out to be so fascinating. Hmm.
01:30:48 [Speaker Changed] Really, really interesting. Thank you, John, for being so generous with your time. We have been speaking with John Hilson Wrath, former chief economics correspondent for the Wall Street Journal. Today he runs Serpa Pinto Advisory. If you enjoy this conversation, check out any of the 567 we’ve done over the past 11 years. You can find those at Bloomberg, iTunes, Spotify, YouTube, wherever you find your favorite podcast. Be sure to check out my new book, How Not to Invest the ideas, numbers, and behaviors that destroy wealth and how to avoid them, how not to invest at your favorite bookseller. Now, I would be remiss if I didn’t thank the crack team that helps with these conversations together each week. Alexis Noriega is my video producer, Anna Luke is my audio producer. Sean Russo is my head of research. Sage Bauman is the head of podcast here at Bloomberg. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.
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McLemore has taken over the stewardship of the Opportunity Equity strategy, which she now manages solely following Miller’s retirement. She is also Chief Investment Officer of Patient Capital Management, and a recognized leader in value investing.
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