North Island chairman Glenn Hutchins on state of the economy, Fed's rate path and sports streaming

Our next guest is here on set to talk about everything from the economy to the Fed to technology in the NBA playoffs. We want to welcome North Island Co founder and chairman Glenn Hutchins. Glenn he is, by the way, Good morning. Happy to see you guys. No, it’s been too long a time. You’re winning. It’s fun to be here. Big fat ring on your finger. Yes. They asked me to wear that championship ring, 2008. I got room on my hand for others. Do you get that from Putin? You know, I. But I kept him from taking it. We’ll talk NBA playoffs and maybe some of these rights issues in just a little bit. But why don’t we start off talking about the Fed and what we’re hearing. We just had this conversation with with with Steve. He’s growing up to see Kashkari and Goolsby. But the real question that starts to come up with these things is what happens next. Kashkari this week made some news when he said he’s not taking a rate hike off the table. Like not forget about rate cuts. A rate hike is not off the table. Stan Druckenmiller was here this week. He thinks the Fed should raise rates. What do you think? Look, by the way, I thought your interview with With The Stand was terrific. Well done. I listened very carefully to that. So I’ve said pretty consistently, Becky, that don’t expect the Fed to reduce interest rates until it gets to its 2% target, full stop. Any other forecast in the market that doesn’t take that into account? I think it’s just wrong. I don’t listen to it. I’ve also been concerned about the last part of inflation being sticky and that it might take longer to get to the to the 2% target than the market was seen to be forecasting right now. I think the the lots of issues for why it’s sticky. You talked earlier today about the fiscal stance which is important but I think the real issue right now is very broadly described. Prices have gone up about 18 to 20% of the cycle, wages up about 13 to 15%. There’s a 5% cost of living gap that’s left which creates continues to create a lot of wage pressure. Wages are increasing by 4% on a relatively consistent basis now and until I think we’ve caught up with the increase in prices, there’s going to continue to be that wage push, inflation. I think that’s the main thing going on right there right now. Absent a reduction in inflation, you should not expect to see the Fed cut rates. And if inflation spikes up, I wouldn’t be surprised to see them with, with one exception, The only reason, The only way I would see the Fed reducing rates without seeing inflation down was if there was a spike in unemployment. But that would have to be a real spike, something really bad. Something really bad in which, yeah, the interesting thing for me and the more interesting thing is, well, how the economy has tolerated these higher rates, which we didn’t expect. Economies, operation has been really good. Unemployment, consumer spending, capital spending, corporate earnings, stock prices, low VIX, the whole thing is, is pretty much of A Goldilocks scenario even though we have these high rates. And I think there are two kind of things going on. But go ahead Joe, I was just getting worried because 2% might be hard to actually get there and to do the things necessary to get there. There’s always the worry that you could do too much in overshoot and even be the last thing we want is deflation or something like that after we saw Japan. So but to get I mean to just nail that at at exactly 2%, I mean we could be waiting for two years before we could get to 2% we could be Joe, but and it’s a really good and important point. But if you think about the nature of the recession that might be in front of us as a consequence of overshooting a little bit, it looks more like 1999 two thousand which was an interest rate cycle rather than 2008 which was a balance sheet problem. And in those situations, reducing interest rates, turning the auction to flow back onto the economy historically has worked pretty quickly. So I think the dangers of overshooting in an interest rate cycle recession are different than a balance. You need to be willing to move your goal posts and you say you’re maybe, maybe I don’t think we’re when do you think honest to God that we actually get to 2%, a real 2%? I don’t do it. I don’t make forecasts. But I said the, the issue, Joe, is think about how well the economy is doing the pressure to reduce rates. From a policy point of view, I can understand why market players might want to see rates reduce rates for the purposes of their portfolios. But from from a economic performance point of view, there’s no reason now except that that’s the major issue except that there’s a question about young people who are trying to buy a home. All of those, well, they’re issues, they’re real issues. And and by the way, it’s impacting the political landscape in terms of how Americans feel about what they think is actually going on. And I think going on, I think the feeling issue is more around this loss of purchasing power. But the two things I think are really interesting to think about it. But by the way that’s a huge, it’s a huge, but that’s not if everybody feels that they have lost their, their purchasing power, you can’t fix it by lowering, you can’t fix it by lowering. I agree that’s exactly the point. But the other I think one thing we need to take into account is that the higher interest rates, these aren’t really high interest rates by you know historical perspectives and we’re having it provide produces a much healthier allocation of capital right now than we had at those low interest rates when money was basically free. And I think having a positive price for money is a really positive thing. You see capital, yeah and so but you see capital being allocated to projects that are healthy and it can generate a a realistic rate of return. But the second thing I think is going on in this economy which we’re not taking account of. I think we are seeing a productivity revolution, a pre AI productivity revolution which is there was one of the conundrum of the last 10 years was why was all this technology investment companies were making not being not generating productivity gains. And I think what we’re seeing is those technology investments now being paired with business processes that are really being used in companies. You see a CEOCEO comes on this set and talks about what they’re doing inside their companies and younger tech savvy often digital native executives who are running those companies now and implementing those technologies rather than the older generation of the past. Well, I think we’re seeing before the implement widespread implementation of AIA productivity revolution, which is driving results in our economy and which is part of it, Let’s just jump from what you said, where people are making more rational decisions about how they allocate capital. You have to see a profit and a way to profitability. You can’t rely on this free money for forever. I think that plays into the streaming wars and the lack of money that’s being spent or allocated or how all of these big companies are now looking at streaming differently, trying to figure out how to make it make sense. And that plays into the NBA rights we’ve got. There we go. That was a good transition. Well done. Exactly. Well, it did. It clicked in my brain at that moment. The reason Wall Street no longer looks at this and says you can spend to the sky is because they want to see some return on these things. We’re no longer willing to fund it with free dollars. So now you have the battle playing out for the NBA rights. It matters as a partial owner to the Celtics, right? What do you think should happen here? Who do you want to see when this bid? What makes sense? As you know I don’t have a dog in the hunt. I I think having the best price with a company that they can deliver the results over a longer period of time is the right answer. But to go back to your your the underlying question here the the companies have companies and industries have problems when two or three things come together, not just one thing. So what we have here is not just a sort of macroeconomic set of issues or an issue around streaming or an issue around the cost of capital for streaming. But you’ve also got this rapid decline in linear television much more rapidly than any of us expected. And the collapse in values of anything other than news and sports in in broadcast television. You were talking about earlier about breaking up the bundle. This, during this past year, I’ve been, I’ve been favoriting the channels that I watch on a regular basis. I’ve got four. You’re one of them, by the way. Thank you. Yeah, you’re one of them. But. But. So I don’t need the bundle. I’ve got 700 channels, of which I use 4. The fifth one is the NBA TV, which I can get on the NBA app. Right. So I don’t see why I would I I I need that bundle anymore. That’s the problem.