WEBVTT - Surveillance: Sri-Kumar, Gartman, Maki 0:00:10.039 --> 0:00:13.720 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Always 0:00:14.000 --> 0:00:17.560 with Michael McKee daily we bring you insight from the 0:00:17.560 --> 0:00:22.760 best in economics, finance, investment, and international relations. Find Bloomberg 0:00:22.840 --> 0:00:27.240 Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course 0:00:27.760 --> 0:00:32.839 on the Bloomberg. You look at the markets, and you 0:00:32.880 --> 0:00:35.680 look at what is happening in the face of reported 0:00:35.720 --> 0:00:39.760 slow down across the world, the Brexit situation in the 0:00:39.840 --> 0:00:42.479 United States, and many have argued all this is going 0:00:42.520 --> 0:00:45.800 to end badly and over stimulated global economy running on 0:00:45.840 --> 0:00:49.440 central bank fumes. One of those who has argued most 0:00:49.600 --> 0:00:52.959 vociferously that we are headed for trouble is Camal Sri 0:00:53.120 --> 0:00:56.760 Kumar of Sri Kumar Global Strategies, and Camal, You've got 0:00:56.760 --> 0:00:58.600 to be shaking your head at the fact that we 0:00:58.720 --> 0:01:03.360 keep making new eyes on the stock markets and we're 0:01:03.480 --> 0:01:07.199 starting to see barnes get a little weaker and yields 0:01:07.240 --> 0:01:10.039 go up, and yet everybody's talking about cuts, cuts, cuts 0:01:10.040 --> 0:01:13.039 from the central banks. Yeah, Mike, I think what is 0:01:13.080 --> 0:01:16.520 happening today is the steepening of the yield curve. But 0:01:16.600 --> 0:01:19.520 we have seen the yield curve in the United states 0:01:19.600 --> 0:01:23.440 flattened before today, and I think we will return to 0:01:23.480 --> 0:01:27.880 the flattening yield curve. And specifically, you may remember that 0:01:27.959 --> 0:01:31.240 when I was on the radio program with you a 0:01:31.280 --> 0:01:34.240 couple of months ago, there was a caller who was 0:01:34.280 --> 0:01:36.520 going who called wrote to you to say that he 0:01:36.560 --> 0:01:39.000 would take the other side of my one percent ten 0:01:39.080 --> 0:01:41.560 year yield. Bet. I would really like to take that 0:01:41.640 --> 0:01:44.480 person on. I think we are headed to one percent, 0:01:44.600 --> 0:01:47.840 and I think we have still think so ninety basis points. 0:01:47.840 --> 0:01:50.480 I feel a lot stronger today than even when I 0:01:50.520 --> 0:01:53.480 was with you the last time. There is no growth 0:01:53.520 --> 0:01:58.040 in the economy, Mike, and inflation is non existent, and 0:01:58.080 --> 0:02:00.960 the central banks have nothing to do but to go 0:02:01.000 --> 0:02:04.120 on with more and more easing. I think the Federal 0:02:04.160 --> 0:02:07.520 Reserve is going to not only cut interest rates, but 0:02:07.640 --> 0:02:10.800 I wouldn't be surprised if we have negative federal funds 0:02:10.880 --> 0:02:15.720 rates sometime before the end of twenties seventeen. So why else, 0:02:15.919 --> 0:02:19.200 what else should equities do? They keep going up until 0:02:19.280 --> 0:02:22.080 some point in time you have a crash. I'm SUREE 0:02:22.160 --> 0:02:24.160 did I hear you just say negative rates? What do 0:02:24.160 --> 0:02:26.560 you mean by that? You mean like a negative two 0:02:26.639 --> 0:02:31.919 year yield? The effective federal funds rate, Tom, is about 0:02:32.040 --> 0:02:36.320 forty basis points. So, in other words, instead of the 0:02:36.480 --> 0:02:39.519 zero to twenty five basis points which we had before, 0:02:39.600 --> 0:02:42.640 we have gone to twenty five to fifty currently pass 0:02:42.639 --> 0:02:46.720 of December sixteen, and effectively we had at about forty. 0:02:46.800 --> 0:02:49.920 And I'm saying that forty goes to zero and goes 0:02:50.000 --> 0:02:52.040 below zero. That's what I think, Okay. I wanted to 0:02:52.040 --> 0:02:54.240 make that clear. The way that came out, I was like, 0:02:54.240 --> 0:02:57.360 whoa negative interest rates in the United States? Street comar. 0:02:57.480 --> 0:03:01.079 It's a big country, it's a diversified country. We are 0:03:01.120 --> 0:03:03.760 the United States of America. We're not the United States 0:03:04.120 --> 0:03:09.839 of Europe. Explain how Washington policy affects the West where 0:03:09.880 --> 0:03:13.840 Michael McKee is right now. It's not New York City, 0:03:14.240 --> 0:03:19.320 it's not Boston, San Francisco. It's a rural, mining, agriculture west. 0:03:19.680 --> 0:03:22.520 How do the free lunch affect those people? A very 0:03:22.560 --> 0:03:26.560 good question, Tom. The difference here is that if you 0:03:26.600 --> 0:03:29.760 were to look at an Italian, the French, and the German, 0:03:29.840 --> 0:03:32.880 even though they have a common currency, you don't have 0:03:33.040 --> 0:03:36.880 similar interest rates because the country risks are still present 0:03:36.960 --> 0:03:40.400 and they are very different. What you don't have between 0:03:40.440 --> 0:03:44.280 Wyoming and California and New York is the kind of 0:03:44.520 --> 0:03:48.240 divergence that you see in Europe. That's the first part. Second, 0:03:48.560 --> 0:03:51.280 if you live in whether you live in Wyoming at 0:03:51.440 --> 0:03:54.120 or whether you live in New York, you are still 0:03:54.160 --> 0:03:57.680 going to suffer the impact of the federal reserves essentially 0:03:57.800 --> 0:04:01.560 zero interest rate policy. I if you're a retiree in 0:04:01.680 --> 0:04:06.640 Wyoming enjoying the situation there, you still don't have a 0:04:06.680 --> 0:04:09.400 good retirement income coming. So that's a second way in 0:04:09.440 --> 0:04:12.400 which you are affected. The third is again if you 0:04:12.440 --> 0:04:15.320 go back and look at what happened with Hurricane Katrina 0:04:15.360 --> 0:04:18.479 in two thousand five, the whole country came to the 0:04:18.600 --> 0:04:22.560 defense of Louisiana as a result of it, and you 0:04:22.640 --> 0:04:26.560 will what you have today is Wyoming as also the 0:04:26.600 --> 0:04:30.400 other states of the United States work as one in 0:04:30.480 --> 0:04:33.320 case there is a situation of difficulty anywhere, which is 0:04:33.360 --> 0:04:37.440 I think a very commendable task for the single United 0:04:37.480 --> 0:04:41.440 States as opposed to the Disunited Europe. We have well 0:04:41.520 --> 0:04:46.000 in the United States, we have one monetary policy, but 0:04:46.160 --> 0:04:49.320 is it working as it should for the entire country 0:04:49.400 --> 0:04:52.240 or are we seeing the real gains go to the 0:04:52.240 --> 0:04:55.599 folks who live in New York and work in Manhattan. 0:04:56.160 --> 0:04:59.039 Good question, Mike. I think it is there. I wouldn't 0:04:59.040 --> 0:05:02.200 say that it's a re difference between Wyoming and New York. 0:05:02.279 --> 0:05:05.040 I think the differences between the rich and the poor. 0:05:06.040 --> 0:05:10.960 And consistently the policy followed by the Fed since September 0:05:11.000 --> 0:05:14.839 two eight has helped you. If you are an equity investor, 0:05:15.000 --> 0:05:17.800 which means you are typically higher income, you're able to 0:05:17.839 --> 0:05:21.359 take that risk and has hurt you badly. If you 0:05:21.360 --> 0:05:24.239 are a wage earner or you're at a lower income 0:05:24.320 --> 0:05:27.640 level in terms of looking for a job, You're working 0:05:27.640 --> 0:05:30.719 hours have been cut back, but from two thousand seven 0:05:30.800 --> 0:05:33.880 you have not had a decent salary increase in real terms. 0:05:34.320 --> 0:05:38.400 So the difference has been countrywide. Everybody suffers from it. 0:05:38.800 --> 0:05:42.720 But the difference is more based on income stratification, which 0:05:42.720 --> 0:05:45.680 is why you see that becoming such an important point 0:05:45.920 --> 0:05:49.040 in the elections this November. We are not fighting based 0:05:49.040 --> 0:05:53.479 on regional differences. We are competing based upon how people 0:05:53.520 --> 0:05:57.320 in different income groups have been differentially rewarded by the 0:05:57.400 --> 0:06:01.160 Federal Reserve, which shows no sign of changing its policy. 0:06:01.520 --> 0:06:05.799 Is this some more unequal America than it was before? 0:06:05.880 --> 0:06:09.480 Roubini's q E one q E two QUE three is 0:06:09.680 --> 0:06:15.159 QE forced our Genie coefficient to a more unequal point. 0:06:16.480 --> 0:06:20.039 The Genie coefficient, the measure of the inequality of income 0:06:20.120 --> 0:06:23.520 TOM I think has been worsening shift two thousands. It 0:06:23.600 --> 0:06:26.680 has shifted, It has worsened, and there's no sign it 0:06:26.800 --> 0:06:30.279 is going to change anytime soon. Again. You can see 0:06:30.279 --> 0:06:32.920 that in terms of the number of billionaires you had 0:06:32.960 --> 0:06:35.880 in two thousand eight compared with today. You can also 0:06:35.960 --> 0:06:39.120 look at it in terms of the labor force participation rate, 0:06:39.320 --> 0:06:42.920 which has steadily gone down, which means that people at 0:06:42.920 --> 0:06:44.920 the working level who would like to get a job 0:06:44.960 --> 0:06:47.120 are not getting it. Michael McKee and I are having 0:06:47.160 --> 0:06:50.200 fun the other day on Facebook Live. We sit down 0:06:50.279 --> 0:06:52.880 at eleven am New York time, and we should chat 0:06:52.880 --> 0:06:56.240 over four charts, and one of them was the tailor rule. 0:06:56.960 --> 0:06:59.359 There are two plug ins to the tailor rule, the 0:06:59.480 --> 0:07:02.400 neutral real rate and then the gues estimate of the 0:07:02.440 --> 0:07:06.240 best unemployment rate. Do we have a clue what the 0:07:06.279 --> 0:07:09.320 two plug ins are to the tailor rule? I think 0:07:09.360 --> 0:07:12.520 people have had plug in storm. But if you if 0:07:12.560 --> 0:07:15.360 you put in both of those, what we do know 0:07:15.520 --> 0:07:18.920 is you can disagree on what exactly the tailor rule 0:07:19.560 --> 0:07:23.120 suggested into a federal funds rate should be. But it 0:07:23.200 --> 0:07:26.480 is not twenty five to fifty basis points. It's the 0:07:26.680 --> 0:07:30.800 generally agreed figure is about one point five percent or 0:07:30.880 --> 0:07:34.440 so for the for the tailor rule, A prescribed interest 0:07:34.520 --> 0:07:37.480 rate perhaps higher, but we are not going to go 0:07:37.600 --> 0:07:40.880 there any time soon, not with this FED, which I 0:07:40.920 --> 0:07:43.200 don't think has much trust in the tailor rule, and 0:07:43.200 --> 0:07:45.360 they're not going to do it. Well, if you've got 0:07:45.400 --> 0:07:47.360 to do a tailor rule, you've got to have some 0:07:47.440 --> 0:07:51.480 sort of estimate for what the neutral rate is. Everybody 0:07:51.480 --> 0:07:54.920 basically seems to agree that it's come down a whole lot, 0:07:55.040 --> 0:07:57.280 and kind of the question at this point is where 0:07:57.320 --> 0:07:59.520 would you see it? Do you think it's negative? So 0:07:59.520 --> 0:08:01.880 a lot of people think it's it's gone negative. Well, 0:08:02.000 --> 0:08:06.680 the the neutral rate in the sustainable rate is probably 0:08:06.880 --> 0:08:10.080 somewhere at least one percent, Mike, I'm not going to 0:08:10.160 --> 0:08:12.200 say that it has gone negative. So I think the 0:08:12.280 --> 0:08:16.320 neutral rate is positive. It is clearly suggestive of of 0:08:16.360 --> 0:08:19.760 a move up. And if you're looking at also the unemployment, 0:08:20.640 --> 0:08:24.160 the unemployment figure is four point nine percent, but if 0:08:24.200 --> 0:08:27.760 you combine that with the labor force participation rate, the 0:08:27.880 --> 0:08:32.280 unemployment situation is actually worse than the rate alone would suggest, 0:08:32.440 --> 0:08:35.440 So I would go, I think, putting both together to 0:08:35.559 --> 0:08:37.840 somewhere between one and one and a half percent, if 0:08:37.920 --> 0:08:40.640 not higher. I look at where we are and translate 0:08:40.720 --> 0:08:44.760 this then into the American political process. Secretary Clinton today 0:08:44.800 --> 0:08:47.600 is going to get support from Sandra Sanders. Mr Trump 0:08:47.679 --> 0:08:49.880 is going to go to Cleveland, and they're looking at 0:08:49.920 --> 0:08:54.600 an economy which both of them suggest is unacceptable. You've 0:08:54.640 --> 0:08:58.360 been one of the great voices of this nation and saying, yes, 0:08:58.480 --> 0:09:01.559 g d P is unaccepted the boar, but is your 0:09:01.640 --> 0:09:05.719 unacceptable the new normal that the politicians are coming to 0:09:05.800 --> 0:09:08.960 grips with. I think both of them are coming to 0:09:09.080 --> 0:09:11.839 grips with that. And I think both of them are 0:09:11.880 --> 0:09:16.160 also coming together on one part. Tom not only that 0:09:16.200 --> 0:09:18.840 the growth rate is not high enough, it should be 0:09:18.920 --> 0:09:22.160 much better, which, as you know, you and Mike and 0:09:22.200 --> 0:09:24.440 I have been talking about this for the last six 0:09:24.520 --> 0:09:28.520 or seven years. It just hasn't changed after the financial crisis. 0:09:28.600 --> 0:09:32.559 But something more important is taking place. Both candidates are 0:09:32.600 --> 0:09:37.520 saying that the inequality has weakened, the inequality has increased. 0:09:37.559 --> 0:09:42.840 Excuse me, So from that viewpoint, the equality situation has worsened, 0:09:42.920 --> 0:09:46.160 and I think both Bernie Sanders and Hillary Clinton on 0:09:46.200 --> 0:09:50.440 the Democratic side, donald Trump on the Republican side, all 0:09:50.600 --> 0:09:52.679 would like to do something about it. They are that 0:09:52.800 --> 0:09:55.960 prescriptions are all very different. But it's interesting to me 0:09:56.120 --> 0:09:59.560 that the income inequality is playing such an important role, 0:10:00.080 --> 0:10:03.440 lot more important role than even the pace of growth 0:10:03.559 --> 0:10:06.560 of GDP. You mentioned the presidential candidates, so we've talked 0:10:06.559 --> 0:10:09.400 a lot about the FED bottom line tree. What would 0:10:09.440 --> 0:10:12.360 you do about it? And at the same time give 0:10:12.760 --> 0:10:15.560 us your advice to your clients, what should they do 0:10:15.559 --> 0:10:18.800 while they're waiting for these people to act? Well as 0:10:18.880 --> 0:10:21.160 you wait for the people to act, And you said, 0:10:21.200 --> 0:10:23.320 what would I say to my clients? What would I 0:10:23.360 --> 0:10:25.960 say to the investors? I would say, one, the bubble 0:10:26.080 --> 0:10:29.520 is going to become bigger in the equity side, perhaps 0:10:29.600 --> 0:10:33.520 for a few more months. But on that side, stay defensive, 0:10:33.880 --> 0:10:37.920 look at utilities, look at telecom, look at healthcare. Be 0:10:38.160 --> 0:10:41.840 more on the risk of equity rather than risk. On second, 0:10:42.240 --> 0:10:45.040 I would say high yield bonds have once again got 0:10:45.040 --> 0:10:49.000 a renewed pace of life because of all the monetary easing. 0:10:49.120 --> 0:10:52.640 No expectation of a FED tightening anytime soon. So if 0:10:52.679 --> 0:10:57.040 you are a very nimble investor, enjoy some high bond 0:10:57.080 --> 0:10:59.760 returns for the short period of time, be prepared to 0:11:00.120 --> 0:11:04.000 pout quickly before the market happens. Third, there is a 0:11:04.160 --> 0:11:09.160 lot more juice in the highest grade fixed income US treasuries, 0:11:09.360 --> 0:11:13.160 German buns, UK guilt. I have been one of those 0:11:13.160 --> 0:11:16.760 saying despite Brexit, the UK guilt yields will go down, 0:11:16.800 --> 0:11:19.520 and they'll go down further. The pound will go down, 0:11:19.720 --> 0:11:22.400 but so will the UK guilty yield Street Commar with 0:11:22.480 --> 0:11:25.120 us thank you so much, greatly appreciate it. With three 0:11:25.160 --> 0:11:39.520 Commar Global advisors, one d gartment has given us great 0:11:39.559 --> 0:11:44.839 assistance in the linkage of economics in the financial investment 0:11:45.160 --> 0:11:48.040 and we talked to him about being in cash, not 0:11:48.160 --> 0:11:51.760 being in cash and being whips Dennis, good morning, Good morning, Tom, 0:11:51.760 --> 0:11:54.880 Thanks for having me on all my my deepest sympathies 0:11:54.880 --> 0:11:56.800 to you. Somebody said to me the other day what 0:11:56.840 --> 0:11:58.440 would you do? When I said, well, I run a 0:11:58.480 --> 0:12:00.920 sovereign wealth fund, so I don't have to worry about 0:12:00.920 --> 0:12:04.840 being whipsode in this market. I know. The cheap question 0:12:05.000 --> 0:12:07.080 is have you ever seen anything like this? And the 0:12:07.120 --> 0:12:11.240 answer is no, we haven't. How do you work day 0:12:11.320 --> 0:12:17.600 today trying to here's the key phrase, folks, not lose money. 0:12:17.640 --> 0:12:20.480 How are you doing that? Uh? With with a great 0:12:20.520 --> 0:12:23.680 deal of non confidence. To be quite honest, the only 0:12:23.720 --> 0:12:26.240 thing that one can do too to keep the dangers 0:12:26.280 --> 0:12:28.640 aside is to make sure that one either has derivatives 0:12:28.640 --> 0:12:32.439 in place, or stop orders in place, or options in place, 0:12:32.760 --> 0:12:36.360 and simply does what I think. After forty years of 0:12:36.400 --> 0:12:38.720 being in the business, I've found the only rule of 0:12:38.760 --> 0:12:41.400 thumb to follow is doing more of that which is working, 0:12:41.440 --> 0:12:45.079 unless of that which is not. I've looked askance at 0:12:45.120 --> 0:12:48.200 the at the the temerity of the strength of this 0:12:48.280 --> 0:12:50.600 bull market, but it's still a bull market. Nonetheless, I've 0:12:50.600 --> 0:12:53.880 found myself always wanting to sell it short, and sometimes 0:12:53.920 --> 0:12:57.080 that's that's just been the wrong course of action to 0:12:57.120 --> 0:12:59.599 have taken. Stocks seem to be breaking up to the 0:13:00.640 --> 0:13:02.960 we are as overbought as I've ever seen. But it 0:13:03.000 --> 0:13:06.120 has been foolish to even attempt to be on the 0:13:06.120 --> 0:13:08.560 short side, and many of my I and many of 0:13:08.600 --> 0:13:10.640 my friends have tried that, and it's just proven to 0:13:10.640 --> 0:13:15.360 be wrong. Within the short call, let's extend that timeline 0:13:15.360 --> 0:13:18.520 out to most of our listeners is being in cash 0:13:18.800 --> 0:13:22.160 a bad thing in the gartment world. No, not at all. 0:13:22.240 --> 0:13:25.480 Being in cash is sometimes a very wise thing in 0:13:25.520 --> 0:13:30.080 anybody's world. My good friend Dougie Cass says, it's not 0:13:30.160 --> 0:13:33.599 a game of Tina. There there is no other alternative, 0:13:34.040 --> 0:13:37.560 but it's sena that cash is the only alternative, and 0:13:37.640 --> 0:13:40.440 sometimes cash is absolutely the proper place to be. One 0:13:40.480 --> 0:13:43.600 doesn't have to be fully invested at all times. In fact, 0:13:43.679 --> 0:13:47.080 I think there are rare times when one is fully invested. 0:13:47.120 --> 0:13:49.880 Cash is not a bad place to be a lot 0:13:49.920 --> 0:13:52.160 of times, and this might well be one of those times. 0:13:52.480 --> 0:13:55.760 If you distrust the breakout to the upside. What's wrong 0:13:55.800 --> 0:13:59.679 with cash? Cash doesn't wilt, cash doesn't lose value. Cash 0:13:59.760 --> 0:14:03.520 is cash. Tom, I'm gonna do something that will probably 0:14:03.559 --> 0:14:07.280 stun you. I'm going to ask about gold. Everybody knows 0:14:07.480 --> 0:14:09.880 my feelings about that, but we also know your feelings, Dennis, 0:14:09.880 --> 0:14:11.800 and you you like to buy it in other currencies, 0:14:11.840 --> 0:14:14.400 and you've made money on it. But I'm looking at 0:14:14.440 --> 0:14:17.600 the volatility in the gold market over the last couple 0:14:17.679 --> 0:14:20.920 of weeks, reflecting the ups and downs of the psychology 0:14:20.920 --> 0:14:23.360 of the markets, and the question I want to put 0:14:23.360 --> 0:14:25.960 to you is I know you buy it and end. 0:14:26.040 --> 0:14:27.440 But how do you buy it? Do you buy it 0:14:27.480 --> 0:14:29.520 as an E T F? Do you buy the physical gold? 0:14:29.520 --> 0:14:32.440 Do you buy forward contracts? What's the best way to 0:14:32.560 --> 0:14:36.760 avoid getting completely whipsawed by this kind of volatility when 0:14:36.800 --> 0:14:39.240 it really is a volatility play at the moment? Well, 0:14:39.400 --> 0:14:41.600 quite honestly, make the only the only way that one 0:14:41.640 --> 0:14:44.320 can reduce the volatility of the gold market is to 0:14:44.400 --> 0:14:47.120 you is to buy gold in non US dollar terms, 0:14:47.160 --> 0:14:50.880 because on balance, most people price gold in dollar terms. 0:14:51.240 --> 0:14:53.280 If the dollar gets strong, gold gets weak. If the 0:14:53.320 --> 0:14:56.520 dollar gets weak, gold gets stronger. If you want to 0:14:56.560 --> 0:14:59.840 ameliorate some of that risk, perhaps owning it in terms 0:14:59.840 --> 0:15:01.640 of the end or euro is the better place to 0:15:01.680 --> 0:15:05.000 do it. I've always viewed gold as being nothing more 0:15:05.040 --> 0:15:08.560 than another currency, and as a as an old foreign 0:15:08.600 --> 0:15:12.000 currency trader, we were always taught from from the outset 0:15:12.040 --> 0:15:14.440 to be a buyer of one currency as seller of another. 0:15:14.640 --> 0:15:16.440 So I tend to be a buyer of gold in 0:15:16.640 --> 0:15:18.480 in euro terms. I tend to be a buyer of 0:15:18.520 --> 0:15:21.240 gold in the end terms. And honestly, over the course 0:15:21.280 --> 0:15:24.120 the past several actually over the course the past several years, 0:15:24.120 --> 0:15:26.880 it's been a far better trade to have been involved in, 0:15:27.000 --> 0:15:30.680 and it reduces the daily volatility, it reduces the the 0:15:30.760 --> 0:15:34.560 abject movements of gold. Now, what's really important to understand 0:15:34.880 --> 0:15:38.320 if stocks move far more volatively individually than does gold. 0:15:38.320 --> 0:15:41.640 A one percent move in gold is, by normal standards, 0:15:41.640 --> 0:15:44.560 a very large move. A one percent move in almost 0:15:44.600 --> 0:15:48.080 any stock is relatively minor. So gold really, although it 0:15:48.120 --> 0:15:51.320 looks like it moves a lot in relationship to stock prices, 0:15:51.400 --> 0:15:53.960 it really doesn't move that much at all. But even 0:15:54.000 --> 0:15:56.840 in other currencies, it's been volatile the last couple of 0:15:56.840 --> 0:15:59.640 weeks because there's you know, certainly the euro in the end, 0:16:00.000 --> 0:16:01.680 I know we're here where they were at the end 0:16:01.680 --> 0:16:04.440 of June. Yes, no question. In the past several weeks 0:16:04.440 --> 0:16:07.880 because of the British referendum, all currencies have become far 0:16:07.960 --> 0:16:11.680 more volatile. In the foreign currency world, if gold movement 0:16:11.840 --> 0:16:15.080 is of one percent is large compared to a one 0:16:15.160 --> 0:16:17.600 or two or three percent movement in stock prices. In 0:16:17.640 --> 0:16:20.840 the foreign currency world, a movement of a core one 0:16:20.880 --> 0:16:23.600 currency to another is very large, and lately we've seen 0:16:23.680 --> 0:16:26.480 one and two percent movements, especially in the British pound 0:16:26.480 --> 0:16:29.400 sterling relative to almost anything else. So yes, there there's 0:16:29.440 --> 0:16:31.960 been any a particularly volatile period of time. I want 0:16:31.960 --> 0:16:34.760 to talk about Britain in the next section, Dennis Garment, 0:16:34.840 --> 0:16:37.560 but right now I think all of our audience would 0:16:37.600 --> 0:16:41.440 like you to explain the knock on effects to American 0:16:41.520 --> 0:16:46.000 banking of negative interest rates. Negative interest rates clearly are 0:16:46.040 --> 0:16:51.120 affecting European banking, I would say quietly, Japanese banking. The 0:16:51.200 --> 0:16:54.840 idea that we are removed from them is comedy. How 0:16:54.880 --> 0:16:58.520 will negative rates affect our banks? Well, first of all, 0:16:58.560 --> 0:17:00.680 I don't think that we're going to go to negative rates. 0:17:00.720 --> 0:17:02.680 I hope that we do not go to negative rates, 0:17:02.680 --> 0:17:05.480 because if you go to negative rates, as we've seen 0:17:05.640 --> 0:17:09.000 in Japan and as we're seeing in Europe, the banking 0:17:09.040 --> 0:17:12.520 system simply almost freezes up. It's, as I like to explain, 0:17:12.680 --> 0:17:15.560 negative rates have have the same effect upon banking and 0:17:15.640 --> 0:17:21.040 lending as absolute zero temperatures have upon physics. All the 0:17:21.119 --> 0:17:24.480 rules seem to change when you go to negative interest rates. 0:17:24.680 --> 0:17:27.080 Loans are not made. You think they would be, but 0:17:27.119 --> 0:17:29.880 they're not because deposits are not made. And when that happens, 0:17:30.080 --> 0:17:35.400 the reserve currents or the reserve bank lending circumstances loses 0:17:35.440 --> 0:17:40.600 its capabilities. You end up getting deflationary circumstances, not inflationary circumstances. 0:17:40.960 --> 0:17:43.639 You get money seeking other avenues. It's one of the 0:17:43.680 --> 0:17:45.960 reasons why the dollar has been stronger. I pray that 0:17:46.040 --> 0:17:49.280 we don't go to negative interstates here in the United States, 0:17:49.320 --> 0:17:52.960 because I think it would end up causing untold disturbances 0:17:53.000 --> 0:17:55.119 within the banking system, given that we are still the 0:17:55.160 --> 0:17:58.720 world's reserve currency. Mica Love talking to Dennis Gartment. Where 0:17:58.720 --> 0:18:02.280 else can you mix in vestment in thermodynamics. I don't 0:18:02.320 --> 0:18:04.440 know where else you could do that, like maybe out 0:18:04.440 --> 0:18:09.280 in Wyoming, Dennis. The markets are up. It seems on 0:18:09.920 --> 0:18:13.600 you know, this risk on feel about additional central bank stimulus, 0:18:13.640 --> 0:18:17.080 particularly in Japan. We have seen that over and over 0:18:17.119 --> 0:18:21.440 and over again. Why you know, when do people stop 0:18:22.040 --> 0:18:25.400 doing the same thing expecting a different result. To sort 0:18:25.400 --> 0:18:29.199 of paraphrase Einstein here, write this down. They'll stop when 0:18:29.240 --> 0:18:31.919 they stop, and not a minute before at least at 0:18:31.960 --> 0:18:35.679 this point, Mr Abe, who had had found himself in 0:18:35.720 --> 0:18:38.800 a very uncomfortable political position, finds himself in a much 0:18:38.840 --> 0:18:42.520 more comfortable political position and says, let's move forward with 0:18:42.560 --> 0:18:45.360 the three arrows policies that we put forth. They they're 0:18:45.400 --> 0:18:48.000 going to go ahead and to spend more money. They're 0:18:48.000 --> 0:18:50.520 going to go ahead and build more bridges to nowhere. 0:18:50.880 --> 0:18:53.960 They're probably going to build more railroads to nowhere. They'll 0:18:54.000 --> 0:18:56.919 put people to work. Will it work over time, probably not. 0:18:56.960 --> 0:18:59.560 Will it work in a short period yes, Will more 0:18:59.560 --> 0:19:02.200 money move being into the system before it finds its 0:19:02.200 --> 0:19:05.760 way into their projects, find its way into the capital markets, 0:19:05.760 --> 0:19:08.879 find its way into stock prices, absolutely so no reason 0:19:08.920 --> 0:19:11.360 to standards. Way then Nick wants to go higher right now. 0:19:12.040 --> 0:19:15.480 I want to digress here, Dennis, because yesterday I was 0:19:15.800 --> 0:19:20.120 in a conversation and I mentioned this most interesting thing 0:19:20.280 --> 0:19:23.960 of the kind of conservative that the new Prime Minister 0:19:24.080 --> 0:19:26.399 of the United Kingdom will be. This goes back to 0:19:26.480 --> 0:19:31.080 the middle nineteenth century in a one nation conservatism. I'm 0:19:31.080 --> 0:19:35.600 going to call it a more liberal conservatism of Mr Disraeli, 0:19:35.640 --> 0:19:39.159 and it's beautifully written up in Wikipedia. I was channeling you, 0:19:39.160 --> 0:19:41.960 you were channeling me. You wrote it up as well. 0:19:42.400 --> 0:19:46.960 Can Donald Trump be a one nation conservative? I'm not sure. 0:19:47.080 --> 0:19:49.159 I'm not a great fan of Mr Trump, and I'm 0:19:49.200 --> 0:19:51.840 not sure he can be a one nation conservative. I 0:19:52.240 --> 0:19:54.679 do actually like what I have read and what I 0:19:54.720 --> 0:19:58.480 have listened to, and heard of mismay. She seems to 0:19:58.520 --> 0:20:02.560 be um at least as she seems closer to Jack 0:20:02.640 --> 0:20:07.720 kempion like uh economics than did Mr Cameron. I'm actually 0:20:08.400 --> 0:20:10.639 I'm hoping that this will be a very good prime minister. 0:20:10.760 --> 0:20:14.320 She's she was not in favor of separation, she was 0:20:14.400 --> 0:20:18.000 not in favor of the referendum, and and perhaps that's 0:20:18.040 --> 0:20:20.800 that's a little in a little difficult position for her 0:20:20.840 --> 0:20:22.720 to be in. But she says she's going to push through. 0:20:22.880 --> 0:20:25.640 As she said, Brexit is Brexit. But from what I've 0:20:25.680 --> 0:20:27.680 readden what I understand, she's going to be a very 0:20:27.720 --> 0:20:32.000 interesting and I think a reasonably conservative for a European politician, 0:20:32.000 --> 0:20:34.200 and somebody that we can deal with, somebody more free 0:20:34.240 --> 0:20:37.320 market than we have grown accustomed to. But as I said, 0:20:37.720 --> 0:20:40.120 she's not Jack Kemp, she's not Ronald Reagan, and she's 0:20:40.160 --> 0:20:43.199 certainly not magg Thatcher. Well do you invest on the 0:20:43.240 --> 0:20:47.240 belief that Britain will actually go through with the exit? Oh? 0:20:47.280 --> 0:20:49.120 I think you have to. I I think that that 0:20:49.240 --> 0:20:52.439 is absolutely a given. I can't imagine that they're going 0:20:52.480 --> 0:20:56.160 to put themselves through the same trauma and have another referendum. 0:20:56.160 --> 0:20:59.240 That would seem to me anathema. It's it's possible, but 0:20:59.320 --> 0:21:01.080 I would put the of it at less than ten 0:21:01.119 --> 0:21:04.240 percent out of a ten percent. It can't be that high. 0:21:04.400 --> 0:21:06.240 So what do you see that through with the process 0:21:06.240 --> 0:21:08.520 of investing thinking that this is done? Where do you 0:21:08.560 --> 0:21:11.520 see that in the global economy going as this proceeds along, 0:21:11.600 --> 0:21:14.960 the general feeling seems to be either bad or muddling. 0:21:15.280 --> 0:21:18.160 But there's no good out of this. Oh. I think 0:21:18.160 --> 0:21:20.840 in the end, uh Mike, I think that there's going 0:21:20.880 --> 0:21:22.880 to be a great, good deal of good coming out 0:21:22.880 --> 0:21:25.720 of it. I think that this was a vote for independence, 0:21:25.720 --> 0:21:28.800 a vote for for a self assurance, a vote for 0:21:28.920 --> 0:21:31.560 freeer markets. They vote for smaller government. And I think 0:21:31.560 --> 0:21:34.040 in the end, two years, three years, four years down 0:21:34.040 --> 0:21:36.439 the road, that has to be good. If it's not good, 0:21:36.840 --> 0:21:40.560 then my whole ideas of free free market economics have 0:21:40.680 --> 0:21:43.080 to be thrown into the basket case. So I have 0:21:43.200 --> 0:21:45.240 to believe it's good in the next two weeks, in 0:21:45.280 --> 0:21:48.119 the next two months, is it? Can it be somewhat confusing? 0:21:48.119 --> 0:21:50.439 Can it be somewhat disconcerting? Of course it can, It 0:21:50.480 --> 0:21:54.320 probably shall be. Confusion is always a little disconcerting. But 0:21:54.640 --> 0:21:56.919 in the end, I think it's obviously a step in 0:21:56.920 --> 0:21:59.480 the right direction. Dennis. If you and I were doing 0:21:59.480 --> 0:22:01.280 one of hers aminars are I was talking to you 0:22:01.320 --> 0:22:03.000 for an hour, you know, a bunch of bunch of 0:22:03.040 --> 0:22:05.639 people late in the suminary, I'd say something like, what 0:22:05.800 --> 0:22:08.879 will our pension plans do? I can ask a smart 0:22:08.880 --> 0:22:12.760 alec question about Johnson and Johnson are other blue chips 0:22:12.800 --> 0:22:16.240 price to perfection? We all know bonds are priced absurdly 0:22:16.680 --> 0:22:20.600 right now. Everybody can agree on that. But what's the 0:22:20.680 --> 0:22:25.600 opposite of your trading regime? What do are actually assumed 0:22:26.080 --> 0:22:29.920 serious money? What do those people do right now? Well, 0:22:30.080 --> 0:22:32.320