Transcripts For BLOOMBERG Bloomberg Daybreak Asia 20240713

Can died here and we stocks. Famas relationship now extends five decades and led the beginning of difficult men shonal and Institutional Fund manager. They are coming out with a landmark paper and brand new stuff. The two recently sat down at the university of Chicago School of business. Widearranging conversations on a very special masters in business. During your last year at tufts you worked nor a professor who ran a stock market Forecasting Service and you did research for him, what sort of work did you do with this dock Forecasting Research . To beat the market. How did that work out . That worked out fine. [indiscernible]. That was a lesson how did that research into forecasting the stock Market Impact your thinking about whether or not the market could be beat . , i came here to Chicago Research indiscernible] put in context, it started because of computers. Before 1960s, we didnt have a computer to do data analysis. And statisticians had a new toy to play with and stock prices were easily available. That was one of the first things to study and the economists say how do you expect stock prices to behave if the world is acting properly, in other words. They werent using that term. But thats what they were after. And all kinds of theories proposed and had shortcomings to hem. You were in your senior year at tufts and applied here and never heard back if the school. Is this an usual and legend or is it true . Its true and i called the dean of students and dean met california answered. The dean of students didnt have a telephone. Way too important the. He answered the telephone and he said, we dont have your application. He said what kind of grades do you have . He said a scholarship, do you want it . [laughter] thats how i ended up here. So you come here as a student. You are finishing your work and miller says to you do you want to stick around and do the research you are doing . Is that how you became a professor here . Yeah. I had offers from other places but other places turned me down. I dont know what that meant actually. You know exactly what that means. Very rare to hire someone [indiscernible] david, you had a swo different experience and get a b. A. In economics and masters from the university of kansas, what made you decide to come to chicago . I did a little bit of reading finance and i had a finance professor there and he said it an xploding and emerging as academic and one of the epy centers is chicago and i thought that would be fun to be a andessor and i applied here took the class. Was the dean correct, was that literally 50 years ago . 50 years ago this fall. It was the first year that chicago had a Football Team in 34 years. And you had written about class erience taking a with gene and called it lifechanging and transformative. Life changing, it led to a career. Cant have a bigger change than that. But life changing and everybody here probably would like to think of themselves as having a public purpose. At the end of it all and get to be my age, you look back and think the world was better off for you having been here. These ideas that were coming out, the essence of efficient markets was well developed and already coipped the term. And this was enormous and useful and look the way money was managed 50 years ago, people were getting ripped off. Commissions were fixed by the government, about 10 times what they are today. Its free today, so its a lot more. Yeah. Yeah. I think there was a spirit that we can improve peoples lives and a real purpose to all of this. Gene more on the Research Side and i thought my role in all of this would be more on the application of the ideas. So you become genes teaching assistant, how did that come about . I pick the student in the class. Good student . He was the best in the class. You dont have to laugh at that. [laughter] so that student, professor teaching assistant, why not a career in academics . I could never compete with green. [laughter] really something that caused me to reflect and intermly of what am i about and what do i enjoy . And i thought this as a great opportunity to go out and play these ideas. Every new paper coming out was a landmark paper and it was all brand new stuff. We are going to come back to the application very shortly, but mentioned that all these new groundbreaking papers are coming out, professor, fama, your doctoral these is was the behavior of stock market prices and this sentence jumps right off the page, quote, short reading, though perhaps an interesting pasttime is of no real value to the stock market investor. This gets published in 1965, what sort of pushback do you get to the general concept that stocks are of no use past market walk is of no future predictability to what happens Going Forward . I got a lot of pushback from professionals. The academics looked at the data. And there was no respect among the academics. If you had to summarize the impact of all of this is what was going on in chicago then really changed the way people think about investing and thats been the team and he has changed the way people think. That is the preand post line . There is a sea change. They dont like the postfarm ave business. [laughter] meaning post publication. Right. [laughter] we not only have your doctoral these is and the efficient market paper. There are a number of very, very influential papers that david, if am i hearing you correctly it changed the finance forever . For the better. And in 2019, there is amongst students an antipathy. Nd they dont realize how much finances. Peoples lives have improved. Lower fees, better risk control and so forth. Truth is, prices are so volatile indiscernible] back in the days when active managers were dominant, inefficiencies could easily be found as well as 2 fees and professionals thought they were kind of sort of evently efficient. I doubt many of them would say that today. What do you think has changed to bring so many people over to the efficient market theory . Well, accumulation of performance evidence. Back then, there was no evidence [indiscernible] one of the first papers was the these is was mutual funds. D so that basically [indiscernible] now we know in behind sight, it has to be true. Ctive management is a zerosum game. They cant win from the passive managers. They dont have a response to what the active people do. There has to be another active manager on the other side. One wins and the others of other losers. Some of those are zero before costs. Not a proposition. It has to be true. For every winner there is a louiser. What about technology, how does that impact how fast for makes its way into prices . It should make it better. But, you know, the truth is places are so volatile. Markets are very efficient and dont look more efficient with the introduction with our technology. Information is spread much more quickly now than it was a few years ago. So quick. But we are seeing the data that quantum effect. We may not be able to see it explicitly in the data but when we look at hedge fund performance, they did very well before the financial crisis, since then, not as well. Expensive active towards inexpensive passive, it sounds like lots of investors are voting with their dollars and the market is efficient and we can defeat it. Doesnt it seem Like Technology is driving some of that . Because there used to be inefficiencies that a manager might have been able to find. It sounds harder to find those efficiencies today than 30 years ago . You have better information than i do. Its always been that way . Always been zerosum game. I have been in the business for 50 years and everyone says it will be a stock pickers market. So lets talk a little bit about index funds. Gene, you introduced david when he is finishing his m. B. A. And wants to go out into the world of work where wells fargo was developing an institutional product the first index fund. What made you think that was a good fit for david . Matthew, who was in charge of the unit indiscernible] into the new stuff. And so when it came time and david said i see it but i dont want to it. I called him and i said i have a really good student here. What was your experience like atwells fargo working on that index fund. Great exposure. I learned the importance of client work. I mean Investment Business is Part Technology or Investment Science and part client work. And as i told gene, i studied finance for two years and studying client work for the last 48. We got into all this stuff. The argument was, look, you ought to hold it large and small. So that was the sales pitch that put us on the map. Not to have a portfolio like an index fund. First we called it an index fund because it is similar with indexing with the final step being that we dont trade market on close like many index funds do. What that means is, we would be trading stocks throughout the day. That created a lot of skepticism, particularly among academics. You know you dont have any undiscounted information. People on the other side of your trade, largely institutions, think they know a lot of stock. They dont rip your eyes out. Whats the answer . A lot of things you can do to use the power of markets at your advantage that turns out, for example, if we want to buy a stock, lets say and an institution wants to sell it, our angstity is greater than ours. Their interest in trying to do a quick trade to our advantage and protect ourselves. And there is plenty of information plote floating about that you can protect yourself. We had the belief in markets, belief in how they worked, based on what we studied here and we can go out and trade these stocks. There were two species here and most of the academics did well in terms of the historical data. And tried to trade it that was [indiscernible] trading could do better with the prices and we could deliver. Previous to that, people werent what the academics learned. What we learned about clients along the way, in 1981, our initial clients were largest pension funds, Insurance Companies around the world. Nd they. And there was an argument, look, you ought to hold stocks in Large Companies and small. That was the really the sales pitch that put us on the map. The sales pitch starts to take off and dimensional out of your apartment gets bigger. Kind of an urban legend called new york telephone to add six phone lines and thought you were running a bookie joint, is that true . Model of brooklyn heights. We started on a shoestring and i was the Portfolio Manager running it out of the bedroom and needed more phone lines and i called new york telephone, which was a Telephone Company at the time and i needed telephone lines, six or eight and thought i was a bookie and wouldnt give me the lines. I had to call up the trader and can you call up some people here and went around the whole block and found six lines were available in the whole block based on their equipment and said, ok, you can have those six lines. And the lunchline is, he becomes a client. Yeah. So from day one, gene is a board member of dimensional funds from the day it launches . From the day before. , myidea they start the firm first call was to gene, look, been 10 years since i was in school. We have done a lot of research. We need to have access to new research and thinking. And would you be on one of the founders and since our eyes are on term of research and agreed to do it right away. Who else did you recruit . Eventually we wanted to create a mutual fund and it has to have an independent board of directors. And rex and i went over to the Business School and they still teach it. Yeah, ok. D we say, Small Company fund and said oh, sure. And walked out the door and down he hall and i said my ron, genes point, Business School is a lot smaller then. T to know the faculty pretty well. My ron agreed to join them. And until recently, all the independent directors of the mutual fund have taught at chicago. [indiscernible] gene you moved back and forth between academic theory and real world theories. Not a lot of people were able to bridge that gap. Here it is 40 years later and you continue to be reason i couldnt, had to set me up. He to and he didnt ever and rex never said could you do this. He said, you do what you do and figure out if we can use any of it. It was chicago. [indiscernible] what are you doing back there, junior . Since were obviously lost, im rescheduling my Xfinity Customer Service appointment. Ah, relax. I got this. Which gps are you using anyway . A Little Something called instinct. Been using it for years. Yeah, thats what im afraid of. He knows exactly where were going. My whole body is a compass. Oh boy. The my account app makes todays Xfinity Customer Service simple, easy, awesome. Not my thing. Let me nass forward a couple of decades to the mid2000s, david booth made the largest donation ever given to a Business School, which has been called a transformational gift. What made you decide in the middle of the financial crisis to say, i know, i want to make a donation to my school . It was a story we were talking about earlier. It got to be the stage where it is time to pay back. And i mean, i wouldnt have been anywhere without chicago. I said i want to give a big chunk of what i have mix of stocks and cash, is that correct . It was i didnt have a lot of cash at that time. [laughter] we just recently started to accumulate money and i had stock in the firm. So i gave them basically ownership of a big chunk of the stock that i had. Nd they were willing to take a bet on that. That comes with a dividend that used to pay its way to booth. Were you at all concerned that you were right in the middle of a financial crisis giving financial ownership of a firm. A lot of firms didnt make it through. What i learned from here and markets and how they work. It kind of keeps in the financial crisis and reminding people. Markets are where buyers and sellers come together and both sides of the trade have to feel they have a good deal or else they dont trade. There is a lot of trading ctivity and one of those markets were functioning the way they ought to function. Sometimes they go up, sometimes go up. Gene, how did davids gift impact the school of business . A big cash flow. Indiscernible] was this a naming gift. For the reasons i outlined, i wanted to make a gift and big part of what i have and this is what i want to do. Gosh, i have a naming gift for the Business School. This is a lot better than that. Ill name the school after you. I said ok, whatever. [laughter] , so, since then, the school has continued to grow in both reputation and number of students and offering here and fast forward five years after that, gene gets a phone call from sweden. Lets talk a little bit about that, what was your experience like . Did the phone call manage to reach you and tell us what that was like . Early in the morning . 1 00 back home. Really early in the morning, 5 00, 6 00. Never expect to get it. Dont expect it. The people somehow had i dont know why, there were newspaper people at my door. 10 minutes late after the call. And wanted to come to my house. And i said no way. [laughter] you were on your way to class. I had a class that morning. You skip class . I never missed a class. In 50 years. I wasnt going to let anybody in because the kids in the class are paying a lot of money to take that course. I didnt want to deprive the students. You ended up going to stockholm with gene. What was that experience like . Being chicagotrained. I have been to the ceremony before. So, you know, you are used to this. Third time is a charm. A said to gene, give me night to organize something special. They have a museum in stockholm and i talked to them in running the museum for the evening. Gene, he has four kids and i had eight grandkids and big music fans and a museum that has a lot of things you can do to help and and one is a big stage the four abba musicians and looks like you are singing with them. This went on and the kids went wild and i looked over at gene and i could see they were having fun and made it special for me. The whole thing some people described as surreal. The day after, they have events at the school. Really big event. Following me across the center and the big atrium. And we worked on the middle. And nobody looks up. And get to the other side and the television said nobody looked up. This is the university of chicago. Everything has been the s p 500 when we are looking at emerging markets and value and heaven forbid. It has been terrible, what sort of lessons should they take from this extended period of growth . The question you want to ask s is what you get. [indiscernible] really cant say anything. So there have been other periods of time where value has done poorly. Remember hearing in 1998 and 1999, warren buffett, he doesnt know what he is doing and when you hear that, it is towards the end of that period of underperformance. Youre suggesting we wont know for some period of time if the lue premium is gone or a regular cyclical performance. I dont think there is a real cycle to it. Just good and bad periods. And cant recognize nies them fter the fact or predict them. And david, we have seen a huge proliferation of factor funds, they are now hundreds identified. What does this mean for investors . Has the proliferation of all these new factors been good for investors or is it a nonevent . I think on balance, it has been overstate stated whatever it is. You know, i think research has identified factors that seem to explain differences in average returns, but cant be hundreds of factors. Probably at the end of the day, there are probably a few factors and gene and ken, they try to identify more and more factors and take the research that is out there and takes it down factors that matter. [indiscernible] give us an example. [indiscernible] and there are thousands out there who want to get tenure and have the opportunity to do that and searching through the data and stuff that may be there on a chance basis and wont be there as another sample. There is lots of work that needs to be on what we call robustness. We have been into robustness hen we found the 1992 paper, that data was founded in 196 nd collected the data. Pretty much the same thing verywhere. Whats your involvement. My good friend, richard im r who is the king the most important person in behavioral finance. You are . Yeah. Why is that . Its a critism of the financial markets. Without me, what do they got . [laughter] nchor you and dick are golf players. Do you argue across 18 holes . We agree on the facts. We disagree on the anticipation. For example, he thinks value premium is the result of Business Perception of what economy information looks like. It is all based on mis interpretation of information. You think it should go away and each people that have these [indiscernible] but they still have emotional reactions that sometimes they cant get by. Thats the thing about behavioral economics. People dont learn from xperience. Most people are stupid. Someone has to be on the wrong side of that trade. You guys agree more than you. Not the interpretation. No. There is no behavioral wait say that again. There is no behavioral finance. Really . With no evidence. [laughter] is dick here . [laughter] i think he would disagree with that. Not so sure. When i took the challenge to him he wrote a page and said, ok, you have been criticizing us, time for you to come up with a theory and see if it works or not. What was your response . Were still waiting. He presented that paper at ucla and gene walked in and said on the way over i was thinking about breaking my leg so i could catch some sympathy. When he won the nobody ell ize he admitted to win the money. He agrees with you on that. I wanted to ask about some of your comments on data. In 1993, you said data is dead. Do you still believe data is dead . The evidence basically says the relation between data is too flat to be explained. That is a real shame because that model is so simple. Would make rue it life simpler in many ways. If the market becomes truly efficient one day, what happens to all the management firms . That question assumes that markets arent truly efficient today, how do you respond to that . Whats the evidence . I think all of it is [indiscernible] you have to have some active investments to make it efficient. The problem is. We expect to be professional managers, the logic of being a good investor is you should be getting a high return. Capital. Human so [indiscernible] this is for both of you, what sort of opportunity for outperformance to do you see for private markets that information in that is so opaque than in Public Markets . A lot of good people are studying that. The lack of good data on people who live and people who die. Selfreported its not where they have to report it. And bias set of data. Depends on what business you go to. Look at panelingers who run the companies that they die. It is management value. 15 companies that have a good idea. Probably will have a lot of value added. But if you go to the guys doing it thats the downside. They take the profits out of it. Thats human capital. We didnt get to a question before i have to ask about bubbles and this goes back to bleep i dont know how to out the word bubble. What do you mean. Folks like taylor and shiller would describe a bubble as a period of excessive of market enthusiasm that leads prices to far outstrip their fem valuation. The way i interpret it is, the bubble would have to be predictable. Has to be measurable by a predefined set of parameters. O if we were to say [indiscernible] people cant identify bubbles that way until after the fact. Around about the early origins and went into the indiscernible] and he said these were active Commodity Prices and identify bubbles in the prices. To me, they all could. Heres a really broad estion, given the societal angst of a Business Education what is the value of your Business Education and how should we communicate this better to society . I think its incredibly valuable to society because if we are going to make lives better for people, part of the answer has to come from safer Financial Products and thats the reality and that has been the history. I look back on my career and working with gene and living part of the Movement Towards lower fees and better control, i find it irritating when we only advanced in the last 50 years was the a. T. M. Volckers quip. We have improved lives. We arent the only ones. I think it is much better than that. I would hate to have people not get into business or particularly financial services. You could have a good career in financial services. At the end of it, you could look back on it and look what you accomplished. That leads to the next question, what keeps both of you working. Neither of you have to work, why do you still go up and go to the office every day. Its fun. Its important. Seeing retired People Living betters a result of their ideas or send their kids to college. These are not ideas that dont have importance. You can get behind that kind of idea. [indiscernible] and we have time for one last question and im going to go with something about what do you think the future of chicago booth looks like . What is next in store for the school and this is for both of you . Since i have been in the faculty since 1963 and student since 1960. In the 1960s there was a good Economic Group and developing finance group and that was it. The rest of the school was junk. [laughter] i remember when i was recruiting as a student in college and not from here, people are saying why do you want to go to a Business School . They dont teach you anything. And that was true at the time. Not just finance but every other area has been academically become more successful. Accounting and statistics was always very good but never a Business School. But now we have frontranked faculty in every discipline and the school is high level competitive. And there is no relation to what it was 50 years ago. It is totally different professional place. On the student side there is a challenge and i have been complaining. You can still evaluate it. Ladies and gentlemen please eugene fama and david booth. [applause]. Coming up, the years most compelling conversations in the americas. Leading figures and financial , could the glass still be halffull . I would call it a goldilocks moment, not so bad, not so good. You have nothing to fear about a recession except the fear of a recession. Pivot was hardly smooth. We can be patient and flexible. The chairman is doing a good job. I dont think the feds job is to make sure there is never a recession. Independence often perplexes leaders, not just the white house i woul. I would like the bank to control inflation and think about growth as well. The outgoing and incoming heads of the imf had plenty to say to bloomberg about global trade. We need fair trade. We need reciprocated benefits in trade. We are talking about trade peace, not trade war. With aqs election looming in 2020, key figures in the political conversation but a lot for a wild ride. The economy is outperforming expectations, economic policies from the president are working. I think our capitalism has to be more inclusive. We believe in Free Expression and ads can be an important part of that. It is all straight ahead on the special edition of bloomberg best. Hello and welcome. I am Viviana Hurtado on this special edition of bloomberg best, we look back to 2019 in the americas, the most interesting interviews with newsmakers, policymakers, and ers in business, politics, and finance. We start with David Solomon in an interview in davos to set the scene for 2019. The Global Economy is in ok shape, the economy is. Our economists are talking 3. 5 growth, 2. 5 in the u. S. The economy itself is doing just fine. Slowedwth trajectory has , but the underlying economy is chugging along. There is a lot going on in the world at a high level. Whether it is to shut down in the u. S. , trade negotiations between the u. S. And china, brexit, just to name a few. Markets are watching these, and it is a lot to digest. That is the big thing people are focused on, how will these issues progress and what impact will they have on the underlying economic activity. You have made some waves. I have . David solomon of Goldman Sachs says 50 of recession in 2020. What does that mean . Lets put that into context. Our economist were talking about the chance of recession in the u. S. , and they thought 2019, 15 chance, 2020, 50 chance. It is hard to put into context what that means. I think the u. S. Economy is in good shape. I think there is the possibility in the latter part of 2020 that we see tightening as the fed continues to manage Monetary Policy, and we could see an economic slowdown, but we could economiccontinue and Growth Continues into 2021, so it is hard to predict those things in advance, but that is an indication we are closer to the end of the cycle. China is slowing to 6 . Thats what they say. Ok, 5 . Actually the cities are growing nicely. It is the outer region. China is expanding the same two phase economy, where one part is going well and one is slowing down. Populism,experience unrest issues in the future. Japan is 1 . Southeast asia is growing nicely , supply chains moving from china into the south asia region. Europe, compared to where we were in january and march of 2018, we were much more pessimistic. Im very worried about europe. That does not mean europe will butn recession and 2019, maybe it is a 1 growth, probably closer to zero. The u. S. , we had the sugar high the tax reforms, and we all anticipated that economy will slow down after the sugar high, and that is what is happening. Where is the u. S. Economy . 2. 5 , not so bad. Consumer confidence is good. And so i would almost call this a goldilocks moment, where it is not so bad, not so good. Centralbank behaviors are probably on the dovish side from where they were in the fourth aarter, so i would say it is time for investors to be a little more relaxed. I dont think we will go much higher than we are today. You mean stock prices . We will be fine. What i worry about is rising populism. What we are witnessing from rising populism, we are seeing shorterterm behaviors by governments. I talk quite a bit about longterm behaviors. It gets harder and harder when you see governments are becoming more and more shortterm. About a u. S. Rried recession in the next year or two . I havent been. Thes somewhat alone in fourth quarter. I dont know why there was this huge drumbeat. We did not see it with our companies. We have 200 companies. That part of the business, blackstone, and no seo thought we were going into recession. And they remain confident . They remain confident. It is not as good as it was a year ago, but it has a good footing at a lower growth level. Talk about Consumer Spending at bank of america through august 12, 1. 9 trillion was spent about our consumers on debit and credit cards, checks written, bill payments made, payments, 1. 9 trillion, up 5. 9 yeartodate through august 12, versus your today august 12, 2018. 2018 was up 8. 5 growth, and almost 6 growth, that means consumers are spending a lot of money. They are doing it across the board, experiences, going out to dinner, traveling. The nice things they are getting a lift from gas prices coming down, which provides a benefit going somewhere else in the economy. What happened to the bond market this week . The 30 year set a new record low. You have any number of indicators that would suggest there is something wrong. So what caused this . Outside thegely united states, and inside the night states around manufacturing. There hasnt been a lot of great news lately, whether the brexit situation, which doesnt seem to settle down. Europe is slowing down, the ecb sang we need to slow down. China is slowing down. The impact of the trade war, they have to restructure supply chains to avoid tariffs, which means they are spending money to move things, not producing products and new capability. More importantly, the debate about the debate. The old saying we have nothing to fear but fear itself, we have nothing to fear about a recession except for the fear of a recession. Still ahead on the year in conversation in the americas, more debate about the state of the u. S. Economy from two of the most influential figures in washington. I think the country has come around to the president s narrative. We just have to be thinking more than just trickle down or bubble level. Fed actions inspired reaction in 2019, a look back at the turbulent year in Monetary Policy. We are at a sort of equilibrium right now. Generally speaking, i would like to do more. This is bloomberg. This is bloomberg best. Am Viviana Hurtado we are revisiting the top interviews on Bloomberg Television in americas. The fed raised Interest Rates four times. Investors anticipated further hikes. Chairman powell phase pressure from wall street and the white house to reverse the tightening train. Chairman powell insisted the central bank would remain independent and state data dependent. His problem . The data was not telling a consistent story. We are in a place where we can be patient and flexible and wait and see what does evolve. For the meantime, we are waiting and watching. As long as inflation stays quiescent, the fed will be on hold. More pressure on resources, inflation would drift back up, so my best judgment is the fed is not done yet. How far do they go . At what point do you risk an accident . That is why they are being patient. They dont want to inadvertently cause a recession with inflation this low. The data we are seeing are not sending a signal which suggests moving in either direction for me, which is why we are being patient. I think the chairman has done a good job. It is a difficult job. It doesnt look like there will be a lot of policy activity through the year into 2020, but right now, the economy is chugging along. We think our policy stance is appropriate. We dont see a strong case for moving in either direction. When does the damage from the trade war, if it continues, people are not looking for anything to end quickly. If there is some deal made come the tariffs may stay in place, so when would it become severe enough. It is time to start looking at a possible rate cut. We have to keep assessing, evaluating what we are learning from the data in terms of those effects, but the broader fed developments. I dont think there is any threshold or specific point. It is assessing where we are in terms of articles. If we need to get it to 2 and keep it there, at the same time sustain the economic expansion as long as possible. Assess and evaluate. We think the markets are ahead of themselves thinking you have to do a great move one way or the other. They are betting on rate cuts. I am not in the position now where i think moving one direction or the other is more likely. Ifre are a lot of risks, they come to fruition, it might have the economy we can, then ken, and then a rate cut would be appropriate. Whichight get stronger, could suggest we might want to do a rate hike. Right now there is still uncertainty, so it is hard to say with the move will likely be, but im not at the case if you ask me how the scales are, i dont feel they are tilted more to the cut than the hike. I think we are in balance. Many participants believe some cut will be appropriate in this scenario they see is most likely. This of a week from now, will be the longest expansion in u. S. History. We had strong growth in the First Quarter north of 3 . We could see some moderation this year, but the baseline outlook is good, sustained growth, strong labor market and inflation near objective. Why are we speaking of cutting Interest Rates . In this environment the last six or eight weeks, there have been elevated uncertainties about the outlook, the economy is hitting crosscurrents, theres a marking down in Global Growth prospects, uncertainty about international trade. We are monitoring that closely and will act as appropriate to sustain expansion. Labor markets are strong, unemployment at a 50 hi your low, and still inflation below target by a preferred measure. Inflation expectation is deteriorating. Growth still ok looking backward, but forward, looks like a slow down with some downside risks. You have an inverted yield curve. It seems like this is a good chance to make an insurance rate cut and try to reach center inflation and Inflation Expectations at the 2 target. We have the g20 meeting this weekend in osaka. They will be sitting down and talking. Could you wait and see what happens there . What if there is a surprise . With that change your view. Would it be more prudent to wait and say you dont have to go now . The idea of recentering inflation and Inflation Expectations is not dependent on what happens in osaka. Most are downplaying what will come out of that. By not cutting, were putting high probability on the july meeting. I dont like that as a tactic, to say we will not do something this time, but dont worry, we will go next time. If you think the conditions are right today, you should go today. The fed has no basis to cut rates based on the economic data. If you say should they cut rates . The answer is i think they have to because they have set the market up that if they did not cut rates today, we would have a tantrum, so i think they have themselves boxed in. We decided to lower the target for the federal funds rate to 2. 25 . Economyook for the u. S. Remains favorable, and this is designed to support that outlook. We see it as a midcycle adjustment to policy. The fed can stimulate. Should it do so, is it the feds job properly i get the feeling you dont think it should. Should. t think it i dont think the feds job is to make sure there is never a recession. Relative to the unemployment and inflation, we are at an equilibrium right now. Seeing weakness or strength, maybe some kind of upside risks would cause me to think rate should be somewhere else. The biggest concern is when you talk to business leaders, cost of capital is prohibiting investment. That has been a drag on the economy, not the consumer. The consumer has been the hero of the american economy. If this is true and its nothing held back by the cost of capital , reducing Interest Rates will have no effect. What is holding it back is the uncertainty around policy, particularly trade policy. Is there anything for the fed to do at this moment . Are you feeling pressure to be the savior of the economy because you are the only game in town . We have to act as appropriate when we see the economy having a shock. I dont see that right now. Down, economy does turn then a more extensive sequence of rate cuts could be appropriate. We dont see that. It is not what we expect from a but we would act if it became appropriate. You were in favor of his your. 5 cut instead of 0. 25 cut. You think we still need a 0. 5 cut . But would like to do more, i dont want to prejudge the meeting. Lets get to the meeting and make a decision. The policy adjustments we made last year are providing and will continue to provide meaningful support to the economy. We believe Monetary Policy is in a good place. We have made adjustments in our rate and think they will give significant support to the economy. We have a favorable outlook for the economy. Lets talk about the outlook and the balance of risks. How would you describe the balance of risks . The balance of risks have been tilted to the downside, not so much the u. S. We have a global slowdown. We are in a good place. The composition is different than expected. We expected exports to be stronger. We didnt expect consumption to be so strong. The tariffs, the global slowdown, exports and business fixed investment was weaker, but consumption has picked up and we expected to continue. Do you think it would have been that way without the fed rate cuts . One of the challenges is thinking about the side effects of very low Interest Rates. Two side effects i continue to worry about. One is how much room we have if we get an actual slow down, as opposed to a concern about a slow down. In that case, we dont have room before shortterm Interest Rates would hit zero. The second concern is the stock market has been doing well, markets have been quite heavy lent, and the question is this the stage of the cycle, you want to have a little more push the financial markets. I would argue on not certain that is necessary. If developments emerge that cause a material reassessment of our outlook on the we will respond accordingly. Policy is not on a preset course. Viviana much more to come as we revisit the top interviews from bloombergs coverage of the americas in 2019. Later on, a candid conversation with bill gross. This year he retired. The bond king sharing a story he never told before. We are not the best when it comes to trying to figure out whether something is affecting it or not. Aniana straight ahead, exclusive interview with thecos president , how low bank should go to stingley growth. This is bloomberg. To stimulate growth. This is bloomberg. Viviana you are watching a special edition of bloomberg best. We are highlighting conversations from 2019 in the americas. Am Viviana Hurtado John Micklethwait traveled to mexico city and conducted an exclusive interview with the mexican president. The president said Interest Rates in his country have been too high. He explained how he would like the central bank to adjust its policy. Bank iike central would like the central bank to work on controlling inflation, but for it to be thinking about growth as well. Are talking about with the central bank is doing. They are more cautious about inflation. This is not a bad thing. Nope, this is not the wrong thing to do. Im not saying that. Lowert is important to the rate to encourage growth. This is an issue i am leaving for the Central Banks to decide. Trust we are not just going to be able to grow, but also develop. Not only growth, but development, because growth, that is what we want to change. And to create new paradigms. Growth is creating wealth, but not necessarily distributing wealth. Development is growing and distribute wealth. Through our administration, our government, what it is now doing better than before is then,buting income, so , thereh growth is scarce is a better distribution of wealth. That is, there is more wellbeing. Endana the Year Compensation in the americas continues. Coming up, a new era begins fbi am f. The outgoing and incoming director shared exclusive insight with bloomberg. Central banks have to cooperate on the basis of data. There is also in my view a risk of complacency. Upin 2019, regulators turned the heat on facebook, but Sheryl Sandberg said the social media giant does not have to change its Business Model. I think we have to help people understand that targeted ads and privacy are not at odds. Viviana this is bloomberg. Back. A welcome i am Viviana Hurtado. This is a special edition of bloomberg best. We are playing back the years top interviews in americas. International Monetary Fund warned of slowing Global Growth. ,ccording to Christine Lagarde trade tensions and a trend towards protectionism influence the forecast. In washington, Kristin Lagarde spoke with tom keene Francine Lacqua about the situation. Manyam convinced authorities around the world including President Trump are supportive of trade, but we need fair trade. We need to have reciprocated benefits in trade, and as a result, clearly things need to be fixed at the wto level, but also at the domestic level, where people should not be left to the side of the road. Statistic, is of President Trumps trade war with china . Of factors a series that impact our forecast. It has to do with many countries around the world. There are some specific factors. You look at the u. K. It is affected by brexit. You look at turkey. You look at argentina. It is coming out now that the Economic Situation where it was. You look at what happen at the end of 2018 on the part of the monetary authorities. All of that has had an impact. Trade tensions, if they are fixed, will actually help grow from 3. 3 to 3. 6 . How dangerous is trumps monkeying around with the fed . The fed around the world,hey are called for names, ecb Central Banks have to cooperate on the basis of data. They have a mandate, which was them. To hi there mandate will be either price stability, unemployment, price stability only, generally around 2 , but they have to numbers,ly on data, a on her data they collect. On data they collect. Healthy,t is that almost sanitized approach, that will give him credibility and agentsl economic anticipate what will happen, and as a result of a what they can do, where they can invest, where they can organize themselves. 2019,a in the summer of Christine Lagarde stepped down as imf managing director. She took the reins to become president of the ecb. At thesor fbi am f imf also emphasized the connection of free and fair trade to Global Growth. Down with anhe sat exclusive conversation with tom keene. The new imf chief also discussed the need to avert a deeper downturn later by taking Global Action now. Of course there is a big issue of trust. Risk is also in my view a of complacency. We are to celebrating. Decelerating. It is not that bad. And yet, unless we act now, we moreisking a potential massive slow down. You brought up the issue of trust. It is absolutely fundamental for trust to always think not only what isgood for me, but the new face . Constraint . Mystic domestic constraint . What are the challenges to you . Make decisionmaking that are bigger than us . I look at this issue of trade from the privileged position i sit in, it is titfortat, not only with the two nations, the usa and china, but as you , andoned switzerland everyone right now, this trade war. How do you find the trade for these meetings and what is your to do list to remove us from the titfortat . We are going to be talking about trade peace, not trade war. Is the obvious is that indirect impacts that really bite, loss of confidence. That is right where i wanted to go. Loss of productivity. Firms have to pay more for credits. With those in a westcase, so it is what need to see her on. Why . Zero on. Why . We know once confidence is undermined, it is hard to rebuild. We know from many, many decades of experience that the mother of all crises you mentioned confidence. Governancen mentions. Governance is about leadership. What is your leadership approach that will instill the confidence necessary to get towards your peace . What we have to do is show fairly as possible that everybody is a loser and a trade war, therefore everybody would be a winner in trade peace. ,nd make it clear that is lost may be higher on some countries and lower on others, but everybody is impacted, and then concentrate on rational behavior. Viviana still to come on this special edition of bloomberg best, how americans view the economy and how it could be the most important factor in the 2020 election. Up next, leaders from the two major parties put a very different frame of the economic picture. America is a happy place, when it is working. The American Worker still feel the stagnation. Viviana this is bloomberg. Viviana this is bloomberg best. Am Viviana Hurtado we are looking back at 2019 through the lens of the years best interviews. President trump and his administration pointed to strong employment numbers and a rising stock market as evidence of a rooming economy. At the same time booming economy. The whitee time, house downplayed economic tensions and a deceleration growth. Spoke withw bloombergs jonathan ferro. Here is what he said in early december, following a november report that beat analyst estimates. Despite a certain amount of pessimism, the economy is outperforming expectations. Economic policies from the president are working, and america is going back to work. I think that is crucial. You know what . I cant remember who wrote the book. My pal over at the American Enterprise institute, brooks. What was his name . Is a happy place when it is working. I mean that. America is a cranky place when it is not working. I think this rebuilding of the economy with new incentives from taxes, regulations, and protecting ourselves on trade, as the numbers come in and people come out of the woodwork, as production workers are anyway,higher wages, this is a country going back to work. I think it is a happier country as a result. Thing,ick up on one protecting us on trade. You think the current trade stances helping the u. S. Economy . Is there any reason to pull back these terrors, if that is the case tariffs, if that is the case . I had Something Different in mind. Trumpsone of president most important accomplishments in his first three years in office is to change and clarify the narrative on china, and that this country, the usa, cannot, cannot permit unfair trading practices either by our allies or our nonallies. Innovation, invention, application, this is the heart of the american economy. We have the freedom to create, and that freedom is what drives our economy forward at the fastest rate than any countries in the world for all these years. So here is my point. His job as he sees it is to defend america, protect the workers, farmers, manufacturers, people working in technology. That is his job. When i say people are happy, i think the country has come around to the president s narrative. We must be tough with china. And anybody else who thinks they , not justnilly steal our technology advances, but our godgiven creativity. Viviana from the other side of the political aisle, Speaker Pelosi pushed back against the white house message. This, as her Democratic Party tries to unseat President Trump and maintain its House Majority in the 2020 election. Speaking with david westin in new york, pelosi made the case that the republican view of the economy is too rosy. Make someou indications that the economy may be improving, and god willing it is, in the lives of American Workers, they feel stagnation of their wages, stagnation of their we haveity, so i know been having some constructive conversations about how we have an economy that works for everyone. An economy that recognizes we are a free market economy and we want everyone to participate more fully in our success. I always say to people, adam smith wrote two books, wealth the nations, and another book about our responsibilities to each other. It wasnt really a compassionate book, but it was a pragmatic book. He wrote one book to combine those two things. Again, when president bush ran conservative, it resonated well with the american people. I think our capitalism has to be more inclusive in terms of success. Taxationies, whether or whether it is appropriations in terms of budget or just policy, in terms of how we value, for example, the climate crisis, and what a job opportunity that is for many people who have not been in the higher ranks of our economy to have opportunity. We have to be thinking more than just trickle down or buckle up. As we look forward to 2020, the president ial election, the house of representatives, and the third of the senate of what is the democratic equivalent of compassionate conservatism . I think it is something we have to do together, because were talking about every aspect of the federal government in terms of taxation, budget spending, investment, etc. One thing in the last election that we continue with his for the people to Lower Health Care costs, lower the cost of prescription drugs, and guarantee preexisting conditions not barring you from health care, because that is the health of the american people, but also the financial health. Theyre concerned about making it possible for them to succeed. Prescription drugs are a big part of that. Viviana in the 2020 election cycle, democrats and republicans are competing to reach voters through social media. That effort has stirred up controversy. October, twitter announced it would ban all political advertisements on its platform. Politicalrsey said message reached should be earned, not bought. Despite facing criticism on his role in the ecosystem, facebook declined to follow suit. In an exclusive interview with caroline hyde, Sheryl Sandberg explain why. We are not doing it because of the money. This is less than 1 of our revenue. The revenue is not the controversy. Mark said we believe in Free Expression, political speech, and ads can be part of that. So yes, i think we are leading on transparency. We put out an ad library. We have an ad tracker that means you can see any at any one is running for political candidate anywhere in the u. S. And the world if it is not targeted at you, and that kind of transparency is important to peoples understanding. He also talked about investing in protection. One thing we talked about on our Earnings Call is the size of the investments we are making compared to 2020, working with elections commissions, hiring engineers, reviewers, doing what we can ensure people are kept safe. Was twitter goes the opposite direction, does that make you question your decision . We set on the call we thought about this for years. We are certainly thinking about it now. We fundamentally believe political ads are an important part of the dialogue, and can be important for incumbents. We also believe Free Expression across the board is something that would as a company. People all over the world are using that. Certainly politicians are using that, but people are using that. That is how you see our growth continuing. Lets talk more about politicians. It will be a tough year in terms of bigotry scrutiny. Do you worry about the Business Model being under attack . I think we really have to help people understand that targeted ads and privacy are not at odds. We can do both. If you are an advertiser, the biggest or smallest company, we have 7 million advertisers, 100 40 million businesses using our services, and you want to show an ad to women in their 50s who live in california, we take the add and show it to that person and give you back aggregated results. We can do very good ads targeting that makes ads good for people and really helps advertisers reach the right person without violating privacy, and that is something we need to do a much better job of explaining. The last words on this year in conversation, bond king bill gross reflects on his legendary professional career. He also shares a very personal story. Do you think i have asked burgers asked burgers disease . She said, oh yeah. Viviana this is bloomberg. Viviana welcome back to the special addition of bloomberg best. The gear inng up conversation with a focus on the americas. I am Viviana Hurtado. Bill gross announced his retirement. Bowed outder of pimco in april after 48 years as one of the biggest names in fixed income investing. In an exclusive interview with erik schatzker, he took the occasion to reflect on his career. Showed insights on markets and some information success. Past , i am ansonality asperger. They can compartmentalize, operate in different universes without it affecting them as much. I had a nasty divorce. I still have feelings about i did well in compartmentalizement. Work, it was all business. I dont think it affected me that much, but it is hard to know. Witnessnot your best when it comes to trying to figure out whether something is affecting you are not. That is a possibility. I didnt know you have aspergers. Is that what you meant in february 2016 . In one of your outlooks, you wrote about Michael Lewis and the big short, you said you shared an affliction with one of the heroes of that book, dr. Michael berry. A if you have a minute and half, it is a fascinating story. I read that book. Lewis is a great writer. Within that chapter about michael berry, he listed 10 things that aspergers have that michael had as well, and i read them and i read some of them, not being able to look somebody in the eye. Singular hobbies like stamp collecting, etc. I go, that is me. I took the book to my exwife and said, read this. She read it. I think i have aspergers. She said, you do. Not, you do . But you do. You did not know this about yourself . Not until i read it in the book. Not until you are in your early 70s . It explained a lot. Im proud of it. It explains a lot about me. Not all aspergers are geniuses. The intelligence thing is not necessarily a big part of it, behavior andal ability to relate to people. My singular hobby, stamp collecting. Do. Aybe i and so i did go to a psychiatrist. At the end of the first meeting, i said, do you think i have aspergers . And she said, oh yeah. Viviana you can see much more of that exclusive conversation with bill gross and many more compelling interviews of bloomberg. Com. That wraps up our special addition of bloomberg best. We hope you have enjoyed these conversation from Bloomberg Televisions coverage of business, finance, and politics in the americas during 2019. We look forward to bringing you more news, analysis, and interviews in the year ahead. Thanks for watching. I am Viviana Hurtado. This is bloomberg. Bloomberg best coming up on the years most compelling conversations on business, finance and politics in asia. Like a trade war. There was no escaping the trade tensions that cap china and the u. S. At odds. The negotiators need to come to the table and figure this out. The u. S. Is not the international police. They cannot manage the whole world. Areentral banks solve there all and as the regions economy slowed. Combined. The Important Message to give to the market is that these