WEBVTT - Surveillance: Risk Tolerance Has Changed, Joseph Cohen Says 0:00:00.080 --> 0:00:13.040 Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:35.559 Bloomberg dot Com, and of course on the Bloomberg. If 0:00:35.600 --> 0:00:38.479 you wanted a quiet end to the year, I'm afraid 0:00:38.640 --> 0:00:41.080 you are not getting one. Joining us to discuss the 0:00:41.200 --> 0:00:44.400 legend of Wall Street, Abby Joseph Cowen Goldman Sachs Advisory 0:00:44.400 --> 0:00:48.120 Director and senior investment strategist, and she joins us, Now, 0:00:48.200 --> 0:00:50.960 good morning to you, Abby. Have we seen have we 0:00:51.120 --> 0:00:55.160 already seen the top of this bullmarket? Um? I think 0:00:55.200 --> 0:01:00.880 that we certainly reached stretched valuations in September or you know, 0:01:01.200 --> 0:01:05.039 based upon the arithmetic of earnings and economic growth and 0:01:05.160 --> 0:01:08.240 interest rates. We thought fifty for the S and P 0:01:08.400 --> 0:01:12.080 five hundred was fair value. We got a little bit higher, 0:01:12.360 --> 0:01:15.880 but we are of course having great difficulty holding that level. 0:01:15.959 --> 0:01:20.759 We've now moved down to the low ends of valuation ranges. UM. 0:01:20.959 --> 0:01:24.240 For all the obvious reasons, there's such uncertainty about the 0:01:24.280 --> 0:01:30.240 fundamental outlook and risk tolerance perhaps most importantly has changed. 0:01:30.440 --> 0:01:34.600 It's not that the arithmetic of earnings expectations or economic 0:01:34.680 --> 0:01:38.440 forecast have changed very much in recent weeks. What has 0:01:38.560 --> 0:01:43.200 changed is the perception of how willing investors are to 0:01:43.240 --> 0:01:47.880 write out this confusion about what's happening in Washington, and 0:01:47.920 --> 0:01:51.720 of course the deceleration we're seeing in other economies around 0:01:51.760 --> 0:01:54.320 the world. So we've had conversations about this through the week. 0:01:54.360 --> 0:01:58.320 The only certainty as we go into uncertainty, and as 0:01:58.400 --> 0:02:02.000 you touch on, it's the sentiment issue that really gets 0:02:02.000 --> 0:02:05.320 my attention. Sentiment appears to be totally battered, and I'm 0:02:05.320 --> 0:02:07.920 trying to understand where the comfort comes from. Is it 0:02:07.960 --> 0:02:10.400 the earnings, Will it be the data? Because even on 0:02:10.400 --> 0:02:12.359 the morning light this morning, when the Chinese come out 0:02:12.360 --> 0:02:15.919 and promise more tax cuts and signal looser monetary policy, 0:02:16.080 --> 0:02:19.560 this market abbey still can't catch a bit um. One 0:02:19.560 --> 0:02:21.960 of the issues, of course, is that we're dealing with 0:02:22.040 --> 0:02:27.079 this major change um with regard to risk tolerance, but 0:02:27.200 --> 0:02:31.040 it is being fueled and exacerbated by many of the 0:02:31.120 --> 0:02:35.080 decisions underway in Washington. And I'm not talking about the FED. 0:02:35.440 --> 0:02:38.840 I'm talking about the confusion having to do with government shutdown. 0:02:39.160 --> 0:02:42.520 I'm talking about the confusion um in the government, in 0:02:42.600 --> 0:02:46.560 the president's cabinet and so on, and perhaps most importantly 0:02:46.600 --> 0:02:51.040 for investors looking at economic policy, where the recognition is 0:02:51.320 --> 0:02:55.440 that that big fiscal stimulus through the tax cut really 0:02:55.680 --> 0:03:00.320 was perhaps only a sugar high um and trade policy 0:03:00.360 --> 0:03:03.040 is really at this point quite a erratic and I 0:03:03.080 --> 0:03:06.400 think that's what investors are concerned about. They're nervous that 0:03:06.520 --> 0:03:10.400 the arithmetic assumptions that they put into their models may 0:03:10.400 --> 0:03:13.639 be tossed up in the air. Add that to this 0:03:13.760 --> 0:03:16.400 change in risk tolerance, and I think you see the 0:03:16.480 --> 0:03:19.280 ugly mix that we've were now in. If you're just 0:03:19.360 --> 0:03:21.920 joining us John Farrell and Tom King with Abby Joseph 0:03:21.919 --> 0:03:24.360 Cohen of Goldman Sachs, we welcome all of you across 0:03:24.400 --> 0:03:27.840 this nation in worldwide. Abby, there is a thing called 0:03:27.919 --> 0:03:31.480 standard deviations, which is the price movement of gold is 0:03:31.480 --> 0:03:34.640 different than the price movement of general electric, is different 0:03:34.639 --> 0:03:38.760 than the price movement of sterling. I've noticed high yield 0:03:38.840 --> 0:03:42.160 is out to three point eight standard deviations price down, 0:03:42.400 --> 0:03:46.880 yield up. How do you define catharsis or panic in 0:03:46.920 --> 0:03:50.480 the market. Do you do it quantitatively or do you 0:03:50.480 --> 0:03:53.640 look at crystals and pyramids down at Goldman Sachs until 0:03:53.640 --> 0:03:58.400 you see it behaviorally. I've I've always been interested in crystallography, Tom, 0:03:58.440 --> 0:04:01.000 I didn't know that you were aware of that. UM. 0:04:01.040 --> 0:04:04.560 Clearly we are looking at things like UM standard deviation, 0:04:04.680 --> 0:04:08.680 but we always begin with the fundamentals and evaluations. And 0:04:08.960 --> 0:04:11.560 I hope I've been very clear every time I've spoken 0:04:11.600 --> 0:04:14.480 with you for more than the past two years that 0:04:14.640 --> 0:04:19.479 sixth incomes securities UH writ large were overpriced. UM. We 0:04:19.560 --> 0:04:23.440 saw that in treasuries that we thought were priced too low. Clearly, 0:04:23.560 --> 0:04:27.480 some of Chairman Powell's comments have indicated that where they 0:04:27.520 --> 0:04:30.159 feel they're just trying to get back to normal with 0:04:30.279 --> 0:04:35.479 regard to government yield. But the gaps the yield spreads 0:04:35.720 --> 0:04:40.560 have been so narrow UM in corporate securities and also 0:04:40.880 --> 0:04:45.160 it's been so narrow in term securities UM that this 0:04:45.279 --> 0:04:47.960 was a miss pricing in the sixth income market. So 0:04:48.240 --> 0:04:50.239 I think one of the things that happens when people 0:04:50.279 --> 0:04:53.000 get nervous is they take a look around and they said, 0:04:53.279 --> 0:04:56.960 we really have to price for the fundamental This is 0:04:57.000 --> 0:04:59.799 a problem. John Abby, Joseph Cohin's on the Y axis, 0:05:00.080 --> 0:05:02.440 going to drag her down on a Friday to an 0:05:02.680 --> 0:05:07.280 X axis analysis Abby, this is becoming chronic. We've had 0:05:07.360 --> 0:05:11.200 negative interest rates chronically forever. I spoke the Secretary Gightener 0:05:11.240 --> 0:05:16.159 about this eleven years ago. How do you perceive the 0:05:16.480 --> 0:05:20.920 X axis in the two thousand nineteen there's chronic nature 0:05:21.400 --> 0:05:26.039 of our fixed income distortions. Much of the distortion tom 0:05:26.080 --> 0:05:30.640 as you've already discussed previously, relates to not just the US, 0:05:30.640 --> 0:05:33.719 but to what's going on in other countries. Um if 0:05:33.760 --> 0:05:38.080 you look at interest rates, say two year government bonds 0:05:38.160 --> 0:05:41.039 for countries around the world, more than half of those 0:05:41.080 --> 0:05:45.440 developed countries have negative yields, and that of course drags 0:05:45.480 --> 0:05:49.559 down the yield on treasury securities. Because even if our 0:05:49.640 --> 0:05:53.120 mathematicians at Goldman Sachs say the yield on a US 0:05:53.200 --> 0:05:57.080 government bond should be fifty basis points higher or seventy 0:05:57.120 --> 0:06:00.799 five or whatever it might be based upon the term structure, 0:06:01.680 --> 0:06:06.880 there is international demand coming from other countries where those 0:06:06.960 --> 0:06:10.880 yields are dramatically lower. So we are in a world 0:06:10.960 --> 0:06:14.760 where there has been mispricing in fixed income, and that 0:06:14.920 --> 0:06:18.680 is part of the dilemma that we're now facing. Also 0:06:18.720 --> 0:06:21.040 in the world seemingly appy, where our tolerance for higher 0:06:21.160 --> 0:06:25.280 rates has diminished markedly over the last ten years. Leverages up, 0:06:25.320 --> 0:06:27.920 debt levels are up in our tolerance is down a lot. 0:06:28.160 --> 0:06:30.920 Appy Why every time we get to a one percent 0:06:31.000 --> 0:06:35.720 real yield and treasuries this market just creates why. What's 0:06:35.760 --> 0:06:39.760 fascinating is that the sensitivity is much more in markets 0:06:40.040 --> 0:06:43.400 than it is in the economy UM. And I think 0:06:43.440 --> 0:06:46.640 that though when the Fed makes decisions, they're thinking about 0:06:47.160 --> 0:06:51.479 just how sensitive um interest rate sensitive sectors will be 0:06:52.120 --> 0:06:55.320 UM in the real economy to the rise in interest rates. 0:06:55.520 --> 0:06:58.880 But you're right, markets are responding in a very dramatic way. 0:06:59.160 --> 0:07:04.160 I also think we may be overly concerned about corporate 0:07:04.200 --> 0:07:08.640 debt UM. We see so many corporations that are well runned, 0:07:09.080 --> 0:07:13.760 that are successful, have high returns on equity borrowing, and 0:07:13.840 --> 0:07:18.480 they're borrowing because they've been taking advantage of these extraordinarily 0:07:18.640 --> 0:07:21.160 low interest rates. You know, I sort of wonder why 0:07:21.160 --> 0:07:25.360 the Treasury didn't borrow for fifty years out um when well, 0:07:25.360 --> 0:07:28.200 why not, Peter Fisher that let me interrupt, that's a 0:07:28.360 --> 0:07:32.160 critical statement. Why can't we extenderation or do we have 0:07:32.240 --> 0:07:36.120 such a large deficit now and chronically down the road 0:07:36.160 --> 0:07:39.840 that we can't even get out to ten years I 0:07:39.880 --> 0:07:44.200 think that there has been this UH tendency at the 0:07:44.280 --> 0:07:47.400 Treasury UH to say, look, we're going to continue to 0:07:47.440 --> 0:07:51.160 do this sort of in a laddered function um and 0:07:51.160 --> 0:07:53.200 and and that has been the approach. That's been the 0:07:53.200 --> 0:07:57.280 cash management approach UM really for years and years. But 0:07:57.680 --> 0:08:02.280 corporations who have shall we say less pressure, people looking 0:08:02.280 --> 0:08:06.200 over their shoulders, etcetera, have been going extremely long and 0:08:06.240 --> 0:08:08.559 I think that's one of the reasons the debt levels 0:08:08.600 --> 0:08:11.840 are so high. Where I am concerned are companies that 0:08:11.880 --> 0:08:15.080 have raised their debt levels so that they could bolster 0:08:15.200 --> 0:08:18.640 their dividend payouts. That to me is a no win game. 0:08:18.880 --> 0:08:21.080 Good morning to all at General Electric this morning. Oh no, 0:08:21.120 --> 0:08:23.400 I didn't mean to say that, Abby, Joseph Cohen with us, 0:08:38.640 --> 0:08:40.719 with us right now, William Lee of the Milk and 0:08:40.800 --> 0:08:44.200 Institute for years at the International Monetary Fund and as 0:08:44.280 --> 0:08:47.120 City Group and Bill Lee. We look at the American economy, 0:08:47.480 --> 0:08:49.760 we see some revisions, but we see some negatives on 0:08:49.800 --> 0:08:52.520 the screen for durable goods at all. What is the 0:08:52.559 --> 0:08:56.520 animal spirit of business right now? You know it's been 0:08:56.600 --> 0:08:59.640 made even worse where they would have to really jolt 0:08:59.679 --> 0:09:01.719 the great optimism when trouble was elected, we had this 0:09:01.840 --> 0:09:04.480 big jolt of expectitious for investment coming in, and we 0:09:04.559 --> 0:09:09.440 see from these data that the uncertainty caused by the 0:09:09.480 --> 0:09:14.000 trade on confrontations with China, the unknowns about how China's 0:09:14.000 --> 0:09:16.439 go react, is causing everyone in the business world to say, 0:09:16.520 --> 0:09:19.520 let's pause, let's not do our investment plans. So all 0:09:19.559 --> 0:09:21.720 that tellne that we got is now being cut off 0:09:22.040 --> 0:09:24.560 by these headwinds of uncertainty caused by the trade that 0:09:24.600 --> 0:09:27.720 stuff in and that's really unfortunate because what we're hoping 0:09:27.760 --> 0:09:30.560 for was that the investment would really lead to a 0:09:30.600 --> 0:09:34.160 compositional change in GDP to give us the productivity gains 0:09:34.240 --> 0:09:36.360 that would allow us to grow at a fast pace 0:09:36.440 --> 0:09:39.240 without inflation. I think we've just got some really constructive 0:09:39.240 --> 0:09:41.360 news from China overnight. Bill, I don't want to let 0:09:41.400 --> 0:09:44.480 price set narrative too much. The idea that the policy 0:09:44.480 --> 0:09:46.640 makers are looking at supporting the economy a little bit more, 0:09:46.640 --> 0:09:50.120 cutting taxes, the idea that monety policy shifts away from 0:09:50.400 --> 0:09:53.200 neutral and maybe towards an easy bias. This is an 0:09:53.240 --> 0:09:56.120 important development. I think, Bill, do you share that view John, 0:09:56.280 --> 0:09:59.920 that that's absolutely the one hope that we have. That's 0:10:00.000 --> 0:10:02.800 blowing the wind is that China is hurting more than 0:10:02.840 --> 0:10:05.920 we are from all this trade confrontation. And China, I think, 0:10:06.000 --> 0:10:08.520 is ready to deal at whether they're really deal in 0:10:08.520 --> 0:10:11.400 a structural basis or it's just more rhetoric, that's the 0:10:11.440 --> 0:10:13.960 big unknown. And until that unknown is cleared up, I 0:10:13.960 --> 0:10:16.320 think American basses are not going to be investing. I 0:10:16.400 --> 0:10:20.120 have real trouble with the idea that we're gonna be 0:10:20.120 --> 0:10:23.200 better because they're gonna be worser to borrow, you know, 0:10:23.320 --> 0:10:27.480 sophisticated phrase for a guy like you. I mean, basically, 0:10:27.520 --> 0:10:30.920 what you're painting is a global slowdown, right, Oh, there's 0:10:30.920 --> 0:10:33.120 no questions. A global slowdown is whether we can come 0:10:33.120 --> 0:10:36.400 out of that slowdown or not. And China, because it's hurt, okay, 0:10:36.400 --> 0:10:38.640 they are more willing to deal at the table than 0:10:38.679 --> 0:10:41.120 they were six months ago. On the edge of surveillance, 0:10:41.200 --> 0:10:44.240 viral and break exclusive is William Lee speaking an hour 0:10:44.280 --> 0:10:49.000 ago calling Chairman Powell's performance pathetic? Is it pathetic because 0:10:49.080 --> 0:10:53.480 even if he raised rates, he didn't color a global slowdown. Well, 0:10:53.520 --> 0:10:56.880 you know the F and C instructions to the chairman, right, 0:10:56.880 --> 0:10:59.600 it was clear from the statement we're watching the world 0:10:59.640 --> 0:11:01.880 because of the global and certain game. We are lowering 0:11:01.960 --> 0:11:04.560 all of our forecasts of GDP and growth. How the 0:11:04.600 --> 0:11:08.000 hell did we go from there? Too? We're on autopilot 0:11:08.040 --> 0:11:11.360 with a balance sheet and we are looking to models 0:11:11.360 --> 0:11:14.200 to base our analysis. From a guy who denied models 0:11:14.200 --> 0:11:16.960 at Jackson Hall, this is a weird message, I have 0:11:17.040 --> 0:11:20.400 to say. And and not in the markets punished him 0:11:20.440 --> 0:11:22.520 for the doing of bad messaging. You know what, Bill, 0:11:22.520 --> 0:11:24.560 I'm tugging with you. I think the chairman had an 0:11:24.559 --> 0:11:27.080 absolute nightmare in that news conference. He was asked two 0:11:27.120 --> 0:11:31.920 really simple questions. You're forecasting another undershoot for inflation next year? 0:11:32.440 --> 0:11:35.240 Why you're raising interest rates? Gave a terrible answer. Jina 0:11:35.240 --> 0:11:37.520 smilt a bloombacks very I'm one of our finest reports. 0:11:37.520 --> 0:11:40.679 Some of the news conferences up it was Binion and Apple. 0:11:40.720 --> 0:11:44.640 Bob asked the question you're talking about if it's a 0:11:44.679 --> 0:11:47.760 symmetrical target, why are you allowing for a small overshoot 0:11:47.800 --> 0:11:50.320 after years of undershooting it now doesn't have an answer? 0:11:50.320 --> 0:11:54.640 Bell go ahead. All all you have to do is say, 0:11:54.800 --> 0:11:57.720 but we are pausing. We're seeing the data is causing 0:11:57.840 --> 0:12:00.839 us to lower the trajectory of interest rates and was 0:12:00.960 --> 0:12:04.680 slowing down the number of increases that we think it's appropriate. Bingo, 0:12:04.840 --> 0:12:08.040 that would have done it, but no, he said the balance. 0:12:08.080 --> 0:12:13.600 She's on pilot Friday Clinic William Lee. What do they 0:12:13.679 --> 0:12:17.959 mean by a symmetry? You know that they have yet 0:12:17.960 --> 0:12:20.360 to defined that. And the condition when he was there 0:12:20.679 --> 0:12:23.280 was trying to define a better communications for what the 0:12:23.280 --> 0:12:25.640 goals were. I don't think he did the job. And 0:12:25.679 --> 0:12:27.760 now it's up to Rich and I hope Rich is 0:12:27.800 --> 0:12:30.880 going to do a better job of coming from PIMCO 0:12:31.000 --> 0:12:33.679 and the not only a great academic career but also 0:12:33.840 --> 0:12:36.559 a market's career. He's got to have a better sense 0:12:36.600 --> 0:12:40.079 of what has to be communicated about the nature of symmetry. 0:12:40.200 --> 0:12:42.440 There was now day vice Chairman Clarada has done a 0:12:42.520 --> 0:12:45.280 much better job communicating to this market than the chairman 0:12:45.360 --> 0:12:48.719 himself has Tom And it's been a real problem if 0:12:48.760 --> 0:12:50.800 you change your view on what the chairman is saying 0:12:50.920 --> 0:12:53.040 three times in the space of two months, to go 0:12:53.120 --> 0:12:55.960 from Hawkes to divers to totally confused, then the problems 0:12:56.000 --> 0:13:00.319 with the chairman's communication in the vice chair in from 0:13:00.360 --> 0:13:03.880 the University of d s G. E. Fine, what's the 0:13:04.000 --> 0:13:08.920 symmetry asymmetry Is it inflation, is it jobs? Is it output? 0:13:09.400 --> 0:13:12.240 You know what? They have an egg salad sandwich. What's 0:13:12.280 --> 0:13:15.640 the symmetry asymmetry debate. I don't want to put words 0:13:15.640 --> 0:13:18.840 in Rich's mouth, but I'm guessing it kind of smells 0:13:18.880 --> 0:13:22.400 and looks like nominal GDP targeting, because that's that's the 0:13:22.480 --> 0:13:25.440 kind of place where you can get symmetry but at 0:13:25.440 --> 0:13:28.120 the same time get the looseness and and and and 0:13:29.520 --> 0:13:31.520 discretion you need to be able to put policy in 0:13:31.559 --> 0:13:34.800 place that is controversial. Williambe will be joining us here 0:13:34.840 --> 0:13:37.400 to a week or two and will continue this discussion 0:13:37.840 --> 0:13:54.880 country John H. Deck with us with Brookings. John, a 0:13:55.000 --> 0:13:59.920 single sentence from your note, the unstable behavior in erratic 0:14:00.120 --> 0:14:04.360 decision making is likely the biggest DC based issue to 0:14:04.440 --> 0:14:09.080 cause rockiness in markets in two thousand nineteen next year. 0:14:09.800 --> 0:14:13.840 That was penned by Brooking's quill dipped in ink before 0:14:13.880 --> 0:14:19.760 the Maddest resignation. Things changed yesterday, didn't they? Oh, things 0:14:19.760 --> 0:14:24.239 definitely changed yesterday. Although the Maddest resignation is certainly connected 0:14:24.320 --> 0:14:28.200 to that type of unstable behavior and erratic decision making 0:14:28.240 --> 0:14:32.920 I'm talking about. His resignation came in part because of 0:14:32.960 --> 0:14:35.600 the way that the President has been treating allies his 0:14:35.800 --> 0:14:40.360 decision making on Theoria and now possibly Afghanistan. And the 0:14:40.400 --> 0:14:43.680 President needs to recognize that these types of behaviors have 0:14:43.960 --> 0:14:47.800 ripple effects beyond just the one item he's talking about 0:14:47.920 --> 0:14:50.280 in that moment, and it's a real problem from market. 0:14:50.600 --> 0:14:54.720 One of your great expertise is the dialogue between institutions 0:14:54.720 --> 0:15:01.080 in Washington. Explain the ballet between the Pentagon in the Senate. 0:15:02.920 --> 0:15:06.080 You know, the Pentagon and the Senate have typically a 0:15:06.200 --> 0:15:11.160 very effective working relationship. These are two institutions that play 0:15:11.160 --> 0:15:16.680 extraordinary roles, not just in foreign policy, but in keeping 0:15:16.960 --> 0:15:20.640 really the entire administration on the same page in a 0:15:20.720 --> 0:15:24.320 variety of areas. The Defense Department touches a lot more 0:15:24.360 --> 0:15:27.760 than just the military. It touches issues around climate change 0:15:27.760 --> 0:15:31.760 and energy and a variety of topics. And oftentimes the 0:15:31.840 --> 0:15:34.640 Senate and the Pentagon are on the same page, whether 0:15:34.680 --> 0:15:37.280 they like to admit that or not. And I think 0:15:37.280 --> 0:15:41.800 we saw yesterday a Secretary of Defense stepping away and 0:15:41.960 --> 0:15:45.000 the Senate being shocked and really throwing their hands up 0:15:45.000 --> 0:15:47.320 in frustration at the President. And you know, folks, as 0:15:47.320 --> 0:15:48.960 you know, when I get bored, I either look at 0:15:48.960 --> 0:15:52.840 Red Sox Hot Stoves League Baseball, or I read the 0:15:52.880 --> 0:15:56.400 Congressional Budget Office and Johnny Hudak there it was a 0:15:56.480 --> 0:15:59.520 white paper, if you will, from the Congressional Budget Office, 0:16:00.160 --> 0:16:04.320 the cost of replacing two days Air Force Fleet. Now 0:16:04.360 --> 0:16:08.400 that's center tendency. General Maddis. I get that those dialogues 0:16:08.480 --> 0:16:12.120 don't end with a shock resignation, but what kind of 0:16:12.200 --> 0:16:15.520 Secretary of Defense are we going to have that could 0:16:15.600 --> 0:16:21.000 drive forward the day to day mundane discussion of billions 0:16:21.040 --> 0:16:25.280 of dollars of budgetary decision. Well, that's a great question. 0:16:25.320 --> 0:16:28.640 The president has a variety of choices, not just in 0:16:28.720 --> 0:16:32.480 terms of individuals, but sort of profiles of individuals. He 0:16:32.520 --> 0:16:35.480 could ask a current or reformer senator, he could ask 0:16:35.520 --> 0:16:39.480 another general. But it appears what this president wants as 0:16:39.520 --> 0:16:43.480 a sycophant and not a bureaucrat. And that's the real problem. 0:16:43.600 --> 0:16:46.720 A yes man in charge of the Defense Department is 0:16:46.840 --> 0:16:50.960 a recipe for disaster, not dust for the President's agenda, 0:16:51.000 --> 0:16:53.560 but for our military as well. I mean the first 0:16:53.600 --> 0:16:55.520 I want to read this first paragraph at all. It's 0:16:55.520 --> 0:16:58.720 a little nerdy, but folks, this is the real world. 0:16:59.200 --> 0:17:03.360 The US Air Force has about five thousand, six hundred aircraft, 0:17:03.880 --> 0:17:08.080 which range an age from just delivered to sixties six 0:17:08.200 --> 0:17:11.800 zero years old. Many of those aircraft, including the cost 0:17:11.880 --> 0:17:16.000 to replace F sixteen, fifteen fifty D E, C one 0:17:16.119 --> 0:17:19.240 thirty and B one B bombers, are nearing the end 0:17:19.359 --> 0:17:22.400 of their service life. Do you think that this president 0:17:22.600 --> 0:17:27.880 understands that there's a business to our military that has 0:17:27.920 --> 0:17:30.240 to be done day to day or is he just 0:17:30.280 --> 0:17:34.240 looking at whatever the latest debate is on Syria? Yeah? 0:17:34.240 --> 0:17:37.840 I don't think the president understands that there's a business 0:17:37.880 --> 0:17:41.840 on side to our military. Bureaucracy was invested in it, 0:17:41.920 --> 0:17:44.720 he would be, but he's not. And it's a real problem. 0:17:44.760 --> 0:17:46.480 You know. It's and it's not just our air Force, 0:17:46.520 --> 0:17:50.080 our Navy. We have ships that need to be replaced 0:17:50.160 --> 0:17:53.560 or repaired. There are enormous parts of our military that 0:17:53.720 --> 0:17:59.080 need resupply or need to be transformed for a modern 0:17:59.160 --> 0:18:02.800 military and in a modern world stage. And the President 0:18:03.000 --> 0:18:06.480 is behaving in ways that is turning away the best 0:18:06.600 --> 0:18:11.080 people equipped to help advance those interests. So how does 0:18:11.119 --> 0:18:13.560 this work out? Am I right? But I believe my 0:18:13.600 --> 0:18:16.880 colleague John Farrell mentioned this knowing more about American civics 0:18:16.880 --> 0:18:21.680 that I do. The Secretary Defense has to be confirmed, right, Yes, 0:18:21.760 --> 0:18:23.840 he has to be confirmed by the Senate. Yeah, here 0:18:23.920 --> 0:18:26.879 she has to be a confirmed Do you anticipate a 0:18:26.960 --> 0:18:28.920 brawl there are They just like, let's get a warm 0:18:28.960 --> 0:18:33.159 body and let's go. You know, Typically the Defense Secretary 0:18:33.200 --> 0:18:36.879 is a position that ends up not being terribly confrontational 0:18:36.960 --> 0:18:39.919 with the Senate, in part because the President and the 0:18:39.960 --> 0:18:43.040 Senate have a conversation about this um. But I think 0:18:43.320 --> 0:18:47.040 what was most surprising yesterday in a day full of surprises, 0:18:47.400 --> 0:18:51.000 was Mitch McConnell's response to the Maddest resignation. He essentially 0:18:51.080 --> 0:18:54.920 threw down a red line and said, you are going 0:18:54.960 --> 0:18:57.760 to pick someone who thinks like Jim Maddest and not 0:18:57.960 --> 0:19:00.240 someone who thinks like you. And I think it was 0:19:00.280 --> 0:19:02.920 a subtle threat to the White House that the confirmation 0:19:03.040 --> 0:19:05.720 is not just going to be automatic, but the Senate, 0:19:05.840 --> 0:19:08.840 especially Republicans in the Senate, are gonna look hard at 0:19:08.920 --> 0:19:12.160 what type of person the president. Then, thank you Anna 0:19:12.280 --> 0:19:15.879 Edgerton and Washington for our comments on that. Before let 0:19:15.960 --> 0:19:20.240 us talk pray tell within this news flow about the shutdown. 0:19:20.359 --> 0:19:22.240 I mean, I guess there's a shutdown in the media 0:19:22.359 --> 0:19:24.240 covers it, and there's a there's probably gonna be a 0:19:24.359 --> 0:19:30.960 countdown clock. Uh, I guess it's Friday night into Saturday tonight, 0:19:31.080 --> 0:19:33.320 and I see you in CNN. I'm looking here in 0:19:33.359 --> 0:19:36.120 our studios folks that I'm going to pick on CNN 0:19:36.480 --> 0:19:42.119 shutdown countdownturs six minutes, twenty one seconds. What are we 0:19:42.200 --> 0:19:46.840 counting down too? So what we're counting down to is 0:19:46.960 --> 0:19:52.720 appropriations running out for a group of federal agencies and 0:19:52.800 --> 0:20:00.400 departments that includes the Department of Justice, State Department, Homeland Security, Agriculture, Treasury. UM. 0:20:00.480 --> 0:20:03.440 Some of the government has been funded into next year, 0:20:03.920 --> 0:20:09.040 but there remains outstanding appropriations bills that not the office. 0:20:09.240 --> 0:20:12.760 They don't come into office Monday. Yeah, so actually the 0:20:12.760 --> 0:20:16.520 President has by executive order UM signed everyone to have 0:20:16.640 --> 0:20:19.560 Monday off. Of course, Monday would have been paid for 0:20:19.600 --> 0:20:21.840 those employees. John are we joined that at blue Here? 0:20:22.160 --> 0:20:24.680 Did you see a memo coming from mail from New Jersey? 0:20:24.760 --> 0:20:27.680 I will not be here's an executive on my shutdown 0:20:27.680 --> 0:20:31.560 begins at twelve, Johnny Deck, and I will be working 0:20:31.640 --> 0:20:35.880 on Monday. So really they shake that in Washington on Monday, right, Yeah, 0:20:35.960 --> 0:20:39.439 Monday will be shut down. Tuesday's Christmas, and so that 0:20:39.560 --> 0:20:44.640 Monday will be an unpaid holiday. UM. So so will Tuesday. Um, 0:20:44.720 --> 0:20:48.280 and then every day after that until Congress passes something, 0:20:48.280 --> 0:20:52.040 the President will signal employees at least in those departments 0:20:52.119 --> 0:20:54.720 will not come into work and they will not be paid. 0:20:55.000 --> 0:20:57.359 Tell me, okay, you sound like you're in the media, John. 0:20:57.560 --> 0:20:59.960 They're not going to be paid. But when they agree 0:21:00.160 --> 0:21:03.480 to agree again forward, they make up the pay right. 0:21:04.720 --> 0:21:07.920 Uh So that is Congress's discretion to do that. It's 0:21:07.960 --> 0:21:12.560 not a requirement. Congress has always done that. But but 0:21:12.640 --> 0:21:14.600 it's not a requirement. But that said, you're also not 0:21:14.640 --> 0:21:18.119 getting a paycheck during that time, and though if you 0:21:18.200 --> 0:21:21.840 have rent coming to no paycheck is coming in. Yeah, 0:21:22.280 --> 0:21:24.320 this has become a common feature. I mean, and are 0:21:24.359 --> 0:21:27.560 you this was a rare, rare discussion. But the President's 0:21:27.600 --> 0:21:32.000 really change that dialogue, hasn't he? He absolutely has, And 0:21:32.320 --> 0:21:34.320 I think, um, you know, one of the things that's 0:21:34.320 --> 0:21:37.280 flown under the radar this week is that there was 0:21:37.320 --> 0:21:40.800 actually quite a bit of cooperation between Mitch McConnell, Chuck Schumer, 0:21:40.840 --> 0:21:43.879 and Nancy Pelosi about a path forward, and it was 0:21:43.920 --> 0:21:46.640 the President and the Freedom Caucus who blew that up. 0:21:46.760 --> 0:21:49.320 I mean, how often is Nancy Pelosi and Mitch McConnell 0:21:49.320 --> 0:21:52.560 on the same page on a big budget decision. But 0:21:52.640 --> 0:21:55.400 they were here and they were ready to move forward 0:21:55.440 --> 0:22:00.480 with appropriations through February, and the President changed that overnight. 0:22:00.640 --> 0:22:03.639 One final question, then, I want to go into February 0:22:03.680 --> 0:22:07.040 into March, into April when the Red Sox redo their 0:22:07.080 --> 0:22:13.240 World Series new season, if you will, John, is this 0:22:13.320 --> 0:22:16.119 going to be legislative versus Trump? I mean, you mentioned 0:22:16.119 --> 0:22:19.560 the cooperation of Republicans and Democrats. Is that the new 0:22:19.640 --> 0:22:22.959 theme for next year? You know, I don't think so. 0:22:23.080 --> 0:22:24.560 I think there's still going to be a lot of 0:22:24.600 --> 0:22:27.560 partisan gridlock on Capitol Hill on a variety of issues. 0:22:28.040 --> 0:22:31.840 But there is a sort of opening, I think for 0:22:32.119 --> 0:22:36.040 members of Congress to start to recognize that they are 0:22:36.080 --> 0:22:38.600 the adults in the room, that it is incumbent upon 0:22:38.720 --> 0:22:42.080 them as a separate branch of government, a coequal branch, 0:22:42.480 --> 0:22:45.960 to be the ones who babysit the president. Um for 0:22:45.960 --> 0:22:48.800 for a long time Republicans and Congress and Democrats to 0:22:49.359 --> 0:22:52.159 sort of delegated that to some of the cabinet. But 0:22:52.160 --> 0:22:54.439 those cabinet members are gone now, or they're going to 0:22:54.520 --> 0:22:58.480 be gone soon, and I think Congress really needs there 0:22:58.480 --> 0:23:00.439 at a crossroads where they need to think about what 0:23:00.520 --> 0:23:02.920 kind of role they're going to play or whether they're 0:23:02.960 --> 0:23:05.560 going to abdicate that kind of authority. Jones, you Dieck, 0:23:05.640 --> 0:23:07.520 Thank you so much. What a terrific briefing. He is 0:23:07.560 --> 0:23:25.720 with Brookings and their governance study. Steve Gallow joins a 0:23:25.760 --> 0:23:29.880 Stephen Gallow with bemo capital Margaret, Steve, what's your calls 0:23:29.880 --> 0:23:31.639 the dollar? Let's get that out of the way. Is 0:23:31.680 --> 0:23:34.639 there ambiguity here? Are you going outlier dollar strength or 0:23:34.680 --> 0:23:38.639 do you go dollar weakness? Is dollar strength really an 0:23:38.680 --> 0:23:41.840 outlier view? Right now? We we um that's a question. 0:23:41.880 --> 0:23:45.320 I guess the the the cases that we started to 0:23:45.440 --> 0:23:47.240 we started to make a case for a stronger dollar 0:23:47.280 --> 0:23:50.040 around mid year. At the time, I think it was 0:23:50.080 --> 0:23:53.440 out of consensus. But now given the global backdrop, even 0:23:53.440 --> 0:23:55.480 though the FETE is turning a little bit more cautious, 0:23:55.760 --> 0:23:58.480 the global backdrop suggests that we're still going to we're 0:23:58.480 --> 0:24:01.560 still very much likely to get another like higher in 0:24:01.600 --> 0:24:04.119 the dollar in the first half of the year. I 0:24:04.160 --> 0:24:06.600 would say that the two biggest risks to that call, 0:24:06.680 --> 0:24:10.199 although we don't really see them materializing anytime soon. The 0:24:10.200 --> 0:24:13.240 two biggest risk to that call would be a significant 0:24:13.359 --> 0:24:17.879 mammoth uh stimulus package from China or a quick resolution 0:24:17.960 --> 0:24:20.639 of the of the U S China trade and pass. UM. 0:24:20.680 --> 0:24:23.600 We don't think those things will happen anytime soon or 0:24:23.760 --> 0:24:26.239 or at all. Indeed, So what do you how are 0:24:26.280 --> 0:24:30.040 all these the craziness we're seeing globally in a geopolitical realm, 0:24:30.080 --> 0:24:32.800