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And always great to have a chance to speak with Wharton Emeritus Professor Jeremy Segal,
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who is also a Senior Financial Advisor at WisdomTree. Jeremy, great to have you with us,
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and I guess let's start out with Alan Greenspan, who just recently passed away. Give us your
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thoughts on his legacy and his place in U.S. history. Yeah, truly amazing at the age of 100,
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and I mean, he was sharp almost to the very end. And wow, what a life. I mean, an appreciation for, I mean, he lived through all the ups and downs, all the recessions,
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all the inflations that meant for many of us, we're just reading books. But I remember,
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because I'm not as old as him, 20 years younger, but you know, his scope is just amazing.
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His forecasting ability was the best I think of any fad. Now, we're all very limited, let's face
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it. Anyone's forecasting ability in the economy is limited. But Townsend Greenspan, which is
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he, for me, was one of the most successful for a long time. I mean, his legacy in terms of
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early on, you know, recognizing that the burst of productivity that we saw at the end of the
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1990s, would allow him to keep interest rates lower for longer, was certainly good. He did
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warn about the bubble in the economy, we did have that dot-com bubble, and then we had a
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short recession afterwards. But I mean, his span of first Council of Economic Advisors,
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then Fed Chair is quite amazing. The big blemish, and we have to, we must address it,
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was clearly he missed the great financial crisis. And now he was not chairman during the great
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financial crisis. You know, he handed it off to Ben Bernanke right before that. But he missed it.
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And he admitted before Congress that he missed it. And he actually admitted that it was probably
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one of the biggest shocks of his life, that these firms would have loaded themselves up with such
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risky bets. And that really shook some of his faith in some aspects of free market capitalism,
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of which he was a big supporter, as we know. Because didn't he say also, in understanding
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that he missed it, that his belief was that the banking system would kind of police itself,
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correct? Yeah, well, he thought that, you know, this and that, you know, you think free markets
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police themselves, and he believes in free markets, and they didn't. I mean, you know,
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I've written extensively on what caused it. A lot of it was the misrating of these mortgage bonds,
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and then you do it, I do it, everyone does it. And, you know, it was just a sequence of events
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that, you know, was like the perfect storm. Each one of them was a small probability, but
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it did happen. But nonetheless, he, you know, he did not look at the balance sheets of these banks,
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because let me look at, you take a look at Lehman Brothers, I mean, this is a firm that existed,
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you know, for 150 years, through depressions and through crises that were far worse,
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and then finds itself in a position of, you know, liquidation is shocking. I mean,
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if you survived the Great Depression in the 1930s, which Lehman Brothers did, and many other crises that were actually far worse than the great financial crisis that we had in
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2008-9, you know, you realize that, you know, the game had changed, and we can discuss why, but
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you had faith in them doing the right thing, as they had done for 150 years, but they did not do
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them. We've obviously talked a little bit about Alan Greenspan. Let me switch gears and talk
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about Kevin Warsh. The first FOMC meeting with Warsh as the Fed chair just completed. No move
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on rates, but that's not a surprise, I think, to anybody. What were your thoughts, though,
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on some of the comments by Warsh after the fact? Yeah, I liked his news conference. I thought he
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was very deftly done, very well done. Let me combine that a little bit with current view.
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One of the things that he's setting up five commissions, and that's going to take to the
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end of the year. There's going to be no change in procedure until the end of the year. Then
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they're going to discuss it, and changes in procedure will happen in early 27. So, you know,
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as far as that's concerned. One of the things that he addressed, which is something I've always
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addressed, is that the Fed is always looking at backward-looking indicators. For instance,
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we're going to get the PCE deflator later this week, and that's going to be for the month of
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May. We're going to look year over year, so that's 12 months before. You need to be more
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forward-looking. Part of the things he talked about, we need more indicators that are much
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more current. Let me address how important that is. We know that the dot plot was very aggressive
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that he showed with almost half the FOMC members. I think half of them thinking at least one
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rise this year. But that was based before oil dropped to $73 a barrel, which it is as we're
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recording. This is even way below what I thought would happen. Prices are coming down. In my
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opinion, unless the war starts again, unless we can't rule out any sort of, you know, this has
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been an up-and-down procedure, but I'm not going to rule it out with any certainty. But if the
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Hormuz largely remains open and oil prices come down and other prices are coming down the way
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they are, I don't see any way that Warsh can really raise rates in the second half of this
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year. I mean, it could. Not necessarily lower them because we're going to have to see core go down,
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but raise them I think may not happen if we keep oil down and other commis down in the area that
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they are right today as we speak. You know, it's interesting when in reading and watching some of
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his comments, the words price stability were used, you know, by Warsh quite a bit. And so between
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that and I guess a lot of the commentary about easy money days being over is that we truly are
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looking at maybe a next kind of generation of the Fed. You mentioned about the commissions that
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he's putting together, and we'll see action on that next year, that we are kind of transitioning
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into what the next Fed is going to look like. Yeah, and the next Fed, I mean, I think the
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dot plots are going to be very reformed, even the SEP, which is Survey of Economic Projections.
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At this point, he didn't mark a difference in the news conferences before. Powell, it used to be
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only on the quarterly, not on all eight of them. He didn't signal that, but that could also change.
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We already saw one change, and that was that the statement was dramatically shorter
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than it had been in the past. And I approve that. A lot of the other was just filler and repeat
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and not really all that necessary. Although his news conference was almost as long as Powell's,
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not quite, but it's his first news conference, so I think he wanted to stay on. So there's going
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to be changes. How much are really going to be important about the way... I think the most
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important is getting forward-looking data and building that in, reforming the dot plot. We
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don't see if it's anywhere near far ahead to put down those dots the way it is. It's got to be
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modified dramatically. And I think he also is going to examine how important the dot plot is
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versus the balance sheet. This is another factor. But that again, all those factors,
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these are not really going to be decided until 2027. But what are some of the things that
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he is probably going to have to consider when you're thinking about getting the right data
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subsets looking forward so that we can truly have an understanding of what the economy is at this
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moment in time, rather than, as we talked about before, looking back 30 days or longer than that?
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Yeah, I mean, there are a number of different data sets that are much more current,
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taken from online prices and market prices and commodity prices that move every day, that move
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every hour, and other projections of what happens even in used cars prices and others. We need to
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have more of the current market projections that are forward-looking. And for instance,
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the year-over-year now is going to include... I mean, until the oil prices come down, the big bump
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that the oil prices and related come, but that is definitely going to start coming down. I mean,
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oil prices and even gasoline prices, oil is within 20% of the pre-war level. And if gasoline
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is within 20% of the pre-war level, which is three, and now that we're talking about 350
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or 340 actually, I mean, so as a result, there really could be a big decline. And we got to
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take those into account rather than just say, oh, we're waiting for the PCE deflator, which is
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already two months old and all the rest. I think he wants more current market-determined data.
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But again, let's face it, CPI still is CPI and social security and billions of dollars of
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contracts, labor and otherwise are on the CPI. So we're not giving up that. There's a lot of talk
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about him moving to a trim mean, another mean and all that. That will be discussed and analyzed.
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I'm not as enthusiastic about some of those other ones because they still are based on
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somewhat backward looking data, but nonetheless, a whole array of different indexes need to be
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monitored. One last thing to discuss with you, Jeremy, this popped up on my radar the other day.
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It's been a decade since Brexit. And a lot of people thought that that was going to be the
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be all end all for the UK. It's been a decade. What were your thoughts back then when it occurred?
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And how have you kind of viewed the last decade? Well, I like economic integration. I think it
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was too heavy handed. And there was a lot of regulations that were sort of not as necessary.
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There's a lot of debate. I mean, I see specials coming out. Some experts say GDP in Britain is
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eight percent lower. A recent poll says if they were to vote today by a narrow margin, they would
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say, let us stay in it. However, at the same time, we get The Economist magazine in Britain and
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the premier finance economic magazine from Britain says that everyone thought London would be dead.
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London is not dead. And London is a financial center. You know, people said Paris was going
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to take over. Paris is not taking over. And and for Frankfurt, is that taking over Berlin,
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I would say now? I mean, so in a way, London has maintained a lot of financial heft,
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although clearly, you know, that the trade agreements are far more complicated now than
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they were. Jeremy, always great to talk to you. Thanks very much for your time. Thank you, Dan. See you next time.
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You got it. Professor Emeritus here at the Wharton School, Jeremy Siegel.