Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferroll and Lisa Brownowitz Jay Ley. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg
Speaker 1: dot Com, and of course on the Bloomberg Tournament we
Speaker 1: sharply digressed. David Rubinstein joins us the Carlisle grew up
Speaker 1: on fire with some recent interviews of course peer to
Speaker 1: peer conversations with Mr Rubenstein, and I really want to
Speaker 1: focus on the hockey player from Belmont Hill for those
Speaker 1: of you that are in the know, that is really
Speaker 1: good prep school hockey, and then onto Princeton and r OTC.
Speaker 1: David Rubenstein. The path of General Miley to the top
Speaker 1: of the Pentagon pecking mortar was most original, wasn't it.
Speaker 1: It was We've never had a person service Chairman of
Speaker 1: the Joint Chiefs of Staff who had an undergraduate degree
Speaker 1: from an Ivy League school. Um, he didn't expect to
Speaker 1: spend his entire career in the military, but it worked
Speaker 1: out that way, and he's from a military family. But interestingly,
Speaker 1: his father did not want him to go into the military.
Speaker 1: His father really tried to keep him out of the military.
Speaker 1: How has he colored in his service colored and infantry
Speaker 1: by the fact that his father truly was on the
Speaker 1: shores of yo Jima. Well, his father was a real
Speaker 1: combat veteran in the South Pacific in World War Two.
Speaker 1: But his father knew the horrors of military combat and
Speaker 1: he tried to keep his son from going to West Point. Uh.
Speaker 1: He went to Princeton on a Hockey scholarship effectively hockey scholarship,
Speaker 1: and but he got into r OTC and ultimately say
Speaker 1: stayed in the military. It's an unusual story. And he's
Speaker 1: obviously become one of the most visible of all the
Speaker 1: chairmans of Joint Chiefs of Staff because of things that
Speaker 1: happened during the Trump administration. David China was very much
Speaker 1: front and center with his interview, as it rightly should
Speaker 1: be a ringing too many people out there. What is
Speaker 1: the different nature of this rivalry, of this potential cold
Speaker 1: war given the fact that the strategic nature is China
Speaker 1: frankly provides so much the United States by way of goods.
Speaker 1: General Milly said that the biggest security threat to this
Speaker 1: country is China now Historically, when I was growing up,
Speaker 1: it was Russia, and Russia is still a threat, he said,
Speaker 1: In the course, there's North Korea. But in the end,
Speaker 1: China has the the money and the manpower and the
Speaker 1: technology skills to really be a complete rival to us.
Speaker 1: And he was very worried about the hypersonic missile, for
Speaker 1: which there was a test not long ago. Now we
Speaker 1: probably presumably are developing our own hypersonic sonic missile. It's
Speaker 1: not been discussed publicly, but this is a missile which
Speaker 1: could um launch a nuclear weapon on us without any
Speaker 1: real defense that we currently have. So how separate are
Speaker 1: the military concerns that the United States has with respect
Speaker 1: to China from the business concerns, especially as a growing
Speaker 1: number of corporations in America are trying to increase their
Speaker 1: footprints in Beijing in the mainland. While the business community,
Speaker 1: I think is interested in getting all those customers and
Speaker 1: developing relationships in China. But we have to be very
Speaker 1: careful in the business community because we recognize that China
Speaker 1: is now making more difficult for American companies to invest
Speaker 1: there or operate there, certainly more difficult than it was
Speaker 1: a couple of years ago. The military is more concerned
Speaker 1: about China as a threat and less interested in getting
Speaker 1: into China than making certain that China doesn't get into
Speaker 1: the United States. David, and talking to the general and
Speaker 1: also within your own international view, one of the great
Speaker 1: mis calls that you and I and everyone else had
Speaker 1: was our dearth of intelligence on Russia when the Soviet
Speaker 1: Union collapsed. Do we actually have good intelligence on the
Speaker 1: Chinese military? I think our intelligence is probably not as
Speaker 1: good as people would like it to be. I don't
Speaker 1: really know the intelligence communities assessment. I think our ability
Speaker 1: didn't know what's going on North Korea is very very limited.
Speaker 1: I think our ability to know what's going on in
Speaker 1: China is probably better, but not necessarily with the Chinese military,
Speaker 1: because it's difficult to infiltrate, and so you have to
Speaker 1: rely on on technology and things like that, and sometimes
Speaker 1: it's hard to get technology that's going to pick up
Speaker 1: exactly what's going on in China. As you point out,
Speaker 1: we underestimated exactly some things that were happening in Russia,
Speaker 1: and we overestimated other things are happening in Russia. And
Speaker 1: we've had a lot of technology failures in in in
Speaker 1: the Middle East, with the are in ability to know
Speaker 1: what was really going on in Iraq for example. And David,
Speaker 1: it's so important that Tom asked that question because it
Speaker 1: really dovetails the two issues of the business community and
Speaker 1: the military community. How do you get visibility? Well, there
Speaker 1: are people who are represent the United States in some way,
Speaker 1: shape or form on the ground there. How much is
Speaker 1: this a concern for business executives you speak with in
Speaker 1: terms of how much surveillance they're under, what type of
Speaker 1: regulation there might be from the United States government because
Speaker 1: of that suspicion that they are the note of information
Speaker 1: one way or another. While the business community has been
Speaker 1: warned that it as it operates in China, everything could
Speaker 1: be bugged and everything could be stolen away in terms
Speaker 1: of intellectual property, the Business Committee is wary about dealing
Speaker 1: in things in China. But on the other hand, there
Speaker 1: are a lot of customers there and there's a lot
Speaker 1: of businesses there, So people are warned. They try to
Speaker 1: be careful, but nobody can be perfect in terms of
Speaker 1: our ability to protect certain information. David, with your success
Speaker 1: and I and I mentioned this, folks, because this peer
Speaker 1: to peer conversation occurs in front of our three most
Speaker 1: important documents at the National Archive. David, you brought the
Speaker 1: Magna Carta to America, the twelve nineties seven document itself.
Speaker 1: Tell us a little bit about that quickly, What was
Speaker 1: it like to give to America the Magna Carta. While
Speaker 1: they're seventeen extant copies of the Magna Carta fifteen in
Speaker 1: British institutions, one of the Australian Parliament, this was the
Speaker 1: only one in private hands, and I put it there
Speaker 1: on permanent display and permanent loan. And essentially it's a
Speaker 1: document that was a warm runner of the Declaration of Independence,
Speaker 1: so it really in many ways had more impact in
Speaker 1: this country than ironically it did in England. That's why
Speaker 1: I thought it should stay here. Unbelievable to see that
Speaker 1: at the National Archive, and of course, folks, you can
Speaker 1: see it at the British Library. John, I know you've
Speaker 1: done that, the British Library Museum. Just extraord wonderful. Love it, David,
Speaker 1: Thank you, Thank you so much, David Rubinstein. That catch
Speaker 1: the full interview, A fascinating interview with the General Milly
Speaker 1: on the David Rumistice Show, Pit to pit conversations. But
Speaker 1: the Democrat a Republican. One thing I know for certain
Speaker 1: is later in the Trump administration all agreed that the gentleman,
Speaker 1: the movie producer from Goldman Sex rose to the occasion.
Speaker 1: He is the former Chancellor of the Exchequer of the
Speaker 1: United States and he is in Rio. Yusuf Kamal l
Speaker 1: Dean joins us now with a conversation with Chancellor Minution
Speaker 1: usef good morning, Hey Tom. I mean, for once, it's
Speaker 1: not all happening in New York. People all around the
Speaker 1: old CEOs and government officials come out here to read.
Speaker 1: And one of them, of course is Steven Newts, and
Speaker 1: he's the founder at Liberty Strategic Capital. Thank you very
Speaker 1: much for joining us. It's a secretary. Give me a
Speaker 1: bit of an overview then, all the kind of meetings
Speaker 1: you've been having and what have you been able to
Speaker 1: secure any new deals. Well, first of all, it's great
Speaker 1: to be with you, and it's great to be back
Speaker 1: in the region. Uh. My focus here is really to
Speaker 1: be supportive to the economic transformation in the region. Uh.
Speaker 1: It's it's very important, I think for economic stability that
Speaker 1: all these countries transform their economies and expand them away
Speaker 1: from just energy. You raised two point five billion dollars
Speaker 1: in private equity investments. Did some of it come from
Speaker 1: the likes of the public Investment Fund? Well, I can't
Speaker 1: really comment on our raising of funds. What I can
Speaker 1: comment on is what we're focused in doing. So our
Speaker 1: real focus is right now on technology, with a big
Speaker 1: emphasis on cybersecurity, national security, and data priv to see,
Speaker 1: which was an area I focused on when I was
Speaker 1: Treasury Secretary. I was responsible for cyber for all the
Speaker 1: financial services, and it's a very big risk. So we
Speaker 1: want to make sure that companies and governments are are
Speaker 1: taken care of and protected. Let's get to the macro
Speaker 1: story for a moment, because the last time you discussed inflation,
Speaker 1: you said you were worried. Now quite a bit more
Speaker 1: data has come through. How has that view evolved since? Well,
Speaker 1: I was worried because I thought we'd see inflation. We
Speaker 1: have seen it. I think you know, we're we're running
Speaker 1: probably in the four to five percent inflation. My guesses
Speaker 1: will stabilize closer to three and a half, but that's
Speaker 1: that's still a significant issue. For a long time, the
Speaker 1: Federal Reserve was concerned that we couldn't get inflation up
Speaker 1: to two percent, but now, just given the enormous amount
Speaker 1: of fiscal and monetary support, I am very concerned that
Speaker 1: we're going to see higher interest rates and the impact
Speaker 1: on consumers and antenue it treasury yields those still go
Speaker 1: to three point five because that's what you said last
Speaker 1: That's that's still my prediction. Okay. What about the ability
Speaker 1: of the United States to grew itself out of three
Speaker 1: and post pandemic debts and the massive amounts of money
Speaker 1: that it's borrowed. Well, look, there's no question that during
Speaker 1: this crisis we needed to have massive support. And I'm
Speaker 1: most proud of the fact that we passed to the
Speaker 1: two Cares bills to zero and a hundred to zero
Speaker 1: in the Senate. That was pretty extraordinary. Uh, we spend
Speaker 1: four trillion dollars. I never thought I'd be saying those
Speaker 1: words four trillion dollars. I think we needed to spend
Speaker 1: that money where we would have had a global depression,
Speaker 1: not recession. But the new administration has continued to spend
Speaker 1: another two trillion dollars, now more money. I'm very concerned
Speaker 1: about the size of the national debt at twenty a
Speaker 1: half trillion today, I worry it could go up to
Speaker 1: thirty two trillion on a twenty three trillion dollar economy.
Speaker 1: It's quite concerning. I want to stay with the fiscal
Speaker 1: sign of things for a moment because the Democratic tax
Speaker 1: plan has been controversial to some. Uh the billionaire taxes,
Speaker 1: it's also called. Do you think that the it's a
Speaker 1: good plan with a pass Congress. Well, let me just
Speaker 1: first say, I think now is the wrong time to
Speaker 1: raise taxes on anybody, whether it's billionaires or average consumers
Speaker 1: and spend. I think we've done plenty of spending. I
Speaker 1: think the problem with the billionaire taxes one, it probably
Speaker 1: won't raise much money since a lot of this money
Speaker 1: will be given away to foundations. Uh, so it won't
Speaker 1: be taxed. The other issue is it's probably unconstitutional. And
Speaker 1: the third issue is it creates very very bad incentive.
Speaker 1: How do you tax public securities and not private securities?
Speaker 1: Think about this. It's a complete disincentive to grow your business.
Speaker 1: To basically say every year the government will take a
Speaker 1: little bit more of your business away. That's not the
Speaker 1: right incentive for long term investing. A shout out to
Speaker 1: Tom Keene for this quest, and he is looking to
Speaker 1: find an answer on whether there's gonna be an opportunity
Speaker 1: for Republicans in twenty four to reassert a calmer policy
Speaker 1: out of the prison camps, out of what the present chaos. Well, uh,
Speaker 1: you know, well, we'll see. It's uh, it's it's politics,
Speaker 1: you know. My guess is a lot of things will
Speaker 1: change over the next couple of years. Again, my biggest
Speaker 1: concern right now is we need less spending and we
Speaker 1: need to worry about making sure we don't have inflation
Speaker 1: out of control and the national debt is sustainable. We've
Speaker 1: seen a US bend on a on a China telco
Speaker 1: in many ways. One would have thought that some of
Speaker 1: the tension between China and the United States would ease
Speaker 1: a little bit with a new administration and a new
Speaker 1: approach community. That hasn't happened as fast, was not happening
Speaker 1: at all. Have you been surprised about how this is evolved. Well,
Speaker 1: let me just say, Ambassador Leidheiser and I spent a
Speaker 1: lot of time going back and forth to China. I
Speaker 1: think we probably had twenty different meetings with the Vice Premier,
Speaker 1: and I think we're proud of the work we did
Speaker 1: on the Phase one trade agreement. My own opinion is
Speaker 1: a lot work, more work needs to be done, that
Speaker 1: there should be more dialogue as it relates to telecom. Look,
Speaker 1: I think there's certain areas that are national security areas
Speaker 1: at least as it relates to certain telecom equipment, and
Speaker 1: I'm not commenting on the specific of this. We want
Speaker 1: to make sure that our data integrity. On the other hand,
Speaker 1: these are two large economies that have to coexist, and
Speaker 1: I think the work work needs to continue to be done.
Speaker 1: On trade. China has always had the opportunity to have
Speaker 1: the US markets open, and we need to make sure
Speaker 1: we have the same reciprocal opportunities. We have to do
Speaker 1: it there. Thank you very much for the time. That's
Speaker 1: Steven Newton is the founder of Liberty Strategic Capital TAM
Speaker 1: and the rest of the team. Thank you, sir, Thank
Speaker 1: you very much as always, catching up with the fulm
Speaker 1: of trenchery. Secretary that step yeah, to find out what
Speaker 1: Industrial America is doing and what is so advantageous here
Speaker 1: is David Weston and I. We didn't look at the
Speaker 1: first generation corvette. We looked at the second generation corvette
Speaker 1: and said someday we'll own one of those. And there's
Speaker 1: a new one to you that I'm sitting at home.
Speaker 1: Thank you so much. To Tom Keane, we're delighted if
Speaker 1: you joined right now. By General Motors chair and CEO,
Speaker 1: Mary Barrow, they had their third quarter earnings out today, Mary,
Speaker 1: thank you for joining us. First of all, congratulations, you
Speaker 1: did a lot better than most people thought you'd do.
Speaker 1: I don't want to take anything away from that, but
Speaker 1: can you give us some sense how much of its
Speaker 1: core operations I don't have some financing because of used
Speaker 1: car sales that really were on a tear, and also
Speaker 1: reimbursement for that bolt recall. Well, I think it was
Speaker 1: it was all of those things. I mean, g MF
Speaker 1: is performed very strongly. We also saw, you know, in
Speaker 1: light of the current environment China, our China earning equity
Speaker 1: earnings were strong. But I think what the real story
Speaker 1: is is how how well we perform from trucks and
Speaker 1: full size SUVs. We're selling every vehicle we can make,
Speaker 1: and I think that along with uh uh, you know,
Speaker 1: the overall environment is what allowed us to have a
Speaker 1: beat for the quarter. And you know, I think it
Speaker 1: shows the strength of our underlying business. So I'm really
Speaker 1: proud of the team and everything that they accomplished. So
Speaker 1: the magic words there for me where everyone you can
Speaker 1: make because you can't necessarily make all the ones you'd
Speaker 1: like because of the supply chain problems. We've talked about
Speaker 1: it before. I know that it's continuing into next year.
Speaker 1: I guess my key question for you, Mary is is
Speaker 1: there anything at this point that can be done to
Speaker 1: speed up the time that you can get the microchips
Speaker 1: that you need. Well, you know, we're seeing improvements in
Speaker 1: fourth quarter. We had indicated that Q three would be
Speaker 1: the toughest for us, which is and that it was
Speaker 1: further impacted by COVID, But we're seeing strong, stronger performance.
Speaker 1: Now we'll have a Q one will be better than
Speaker 1: Q four. It will linger into next year and we're
Speaker 1: right now are are feeling as will be UH in
Speaker 1: a much better shape in the second half of two.
Speaker 1: And we're also taking steps over the medium term to
Speaker 1: make sure we're never seeing this kind of constraint, not
Speaker 1: only with chips, but with other you know, whether it's
Speaker 1: critical materials or just the overall supply chain. Because we
Speaker 1: have an aggressive growth strategy in front of us, and
Speaker 1: we're going to make sure that we can execute it.
Speaker 1: So it's a very it's a near term problem. Um
Speaker 1: that will work through in the meantime, Marerea, are there
Speaker 1: places you can save some costs? Let me give you
Speaker 1: one example advertising. If you can't sell as many vehicles,
Speaker 1: maybe you don't need to advertise as much. Well, you know, David,
Speaker 1: it's a great point. We are saving across the board. Uh.
Speaker 1: You know, we're we're seeing a strong pricing environment. Obviously
Speaker 1: we're adjusting what we're doing to match. Uh, you know
Speaker 1: the fact that we're selling over every vehicle that we can.
Speaker 1: But also through COVID and and through this crisis with semiconductors,
Speaker 1: we have found ways to make the business more efficient.
Speaker 1: We're working with our dealers to uh to drive an
Speaker 1: increase in profitability for them as well as improving our costs.
Speaker 1: And so across the word, we are always driving efficiencies
Speaker 1: and that that's an underlying, underlying strength of our organization
Speaker 1: and that supports the strong earnings. Mary, Let's talk about
Speaker 1: the perhaps longer term. That's electric vehicle something you've really embraced.
Speaker 1: You have some very aggressive goals for General Motors going
Speaker 1: out electric vehicles. We had some big news this week
Speaker 1: from arrival starts with a T won't necessarily name it.
Speaker 1: With some big fleet sales, particularly to HURT. I know
Speaker 1: in the past you've been I think a little dubious
Speaker 1: about fleet sales because the margins get down. Where are
Speaker 1: you on fleet sales for electric vehicles? Are they different
Speaker 1: because you really want to get broad acceptance? Are you
Speaker 1: looking at fleet sales for electric vehicles? Well, you know,
Speaker 1: if you look at bright Drop, you know the commercial fleet, uh,
Speaker 1: and what we can do from a light commercial vehicle
Speaker 1: perspective with bright Drop and and the whole ecosystem that
Speaker 1: will support I think is a huge opportunity, and that's
Speaker 1: some of the most profitable of fleet sales. We're looking
Speaker 1: at many different opportunities because with electric vehicles you can
Speaker 1: really kind of re reframe how the sales will be,
Speaker 1: and so we're looking at a number of opportunities. But
Speaker 1: I think you know what we've announced is around bright Drop.
Speaker 1: I'm very excited about that because that's just pure growth
Speaker 1: for us. But as I understand, we shouldn't rule out
Speaker 1: the possiblity that down the road, General Motors might have
Speaker 1: a deal similar Hurts deal. Well, you know, in the
Speaker 1: past we have limited our rental cars because that generally
Speaker 1: was the least profitable type of fleet sales. As UM,
Speaker 1: we reimagine how the business will look. We're not ruling
Speaker 1: anything out, okay. And finally, Mary, we've talked a lot
Speaker 1: about back to the office. Since we talked last, there
Speaker 1: have been more and more vaccine mandates. Is that affecting
Speaker 1: General Motors operations? Do you anticipate it will? I don't
Speaker 1: think it will. You know what will work? We continue
Speaker 1: to encourage our employees to get the vaccine we encourage,
Speaker 1: We continue to provide them the information, uh you know,
Speaker 1: from CDC and other UM like organizations around the globe.
Speaker 1: And we're going to work UM to understand how to
Speaker 1: implement the executive order from the President, but to do
Speaker 1: so in a way that our employees and our unions
Speaker 1: of agree to. So once we know the details, will
Speaker 1: work the execution plan. But I don't foresee it being
Speaker 1: an issue for General Motors as we look at our
Speaker 1: overall labor availability. You do have a obviously a very
Speaker 1: important relationship with the U A w C. I oh,
Speaker 1: as you talk with them, do you see resistance coming
Speaker 1: from the union side to vaccine mandates? Well, I think
Speaker 1: that's a better question to ask a S the U
Speaker 1: A W. We're just working with them to provide information
Speaker 1: and encourage encourage all of our employees to make the
Speaker 1: decision with the right information. And that's what we'll continue
Speaker 1: to do. And then again we'll look at what the
Speaker 1: specifics are of the mandate and figure out how to
Speaker 1: how to implement. At this point, we don't know where
Speaker 1: we are in the pandemic, but it seems like it's
Speaker 1: getting better again in the United States. Is it affecting
Speaker 1: GM operations either on the sales side or the production side. Actually, uh,
Speaker 1: you know we're the biggest impact. That's UH that's gating
Speaker 1: us right now. Is we talked about his semiconductors, but
Speaker 1: we've we've seen recovery from the impact in Q three
Speaker 1: from some of our supply eye base that caused UH
Speaker 1: a little bit deeper impact. So I'm I'm optimistic that
Speaker 1: we are through the worst of it. UM. We've shared
Speaker 1: our safety protocols with our supply base around the world,
Speaker 1: So that's what gives me confidence that we're going to
Speaker 1: see a stronger Q four and then a stronger Q
Speaker 1: one and even UH as we get to the second
Speaker 1: half of next year. UH continued improvement as you have
Speaker 1: that gating function as you refer to it, Mary, with
Speaker 1: the semiconductors, are you seeing inflation either in the cost
Speaker 1: you're paying for inputs or costs you can pass along
Speaker 1: the consumers. Well, we definitely are seeing commodity prices increasing
Speaker 1: as well as the cost of logistics, which I think is,
Speaker 1: you know, impacting almost every industry. We're working in managing
Speaker 1: that right now. And again because our product portfolio is
Speaker 1: so strong, I really believe it's the strongest car strucks
Speaker 1: and crossovers we've had in my forty year career here
Speaker 1: at General Motors, and that's that's what is allowing us
Speaker 1: to also have very strong pricing and because we have
Speaker 1: strong receptivity from the customers. Okay, very really appreciate you
Speaker 1: spend time and say that's Mary bar She's the General
Speaker 1: Motors chair and CEO. David thinks so much. We are
Speaker 1: looking at advanced goods trade balances that we've never imagined.
Speaker 1: We're out to a nineties six negative nineties six billion
Speaker 1: dollar statistic which I would respectively suggest Diane Swonker myself
Speaker 1: have never framed. Let's begin there. She is with Grant Thornton, Diane,
Speaker 1: we have not talked about net exports, exports, imports, but
Speaker 1: we have a goods trade balance unimaginable. What does that signal, Well,
Speaker 1: it's really strong demand in the United States relative to
Speaker 1: the rest of the world. That's just where we're at.
Speaker 1: And I think one of the interesting things is, of
Speaker 1: course that will subtract from growth in the third quarter,
Speaker 1: even as durable goods add to growth. In her investment
Speaker 1: that we're seeing out there is really the strongest and
Speaker 1: technology intellectual property that we've seen since the nineteen So
Speaker 1: we'll get some productivity growth, but it really is going
Speaker 1: to be the weakest growth of the quarter, which we'll
Speaker 1: get out tomorrow, will be the third quarter, the weakest
Speaker 1: growth since the onset of the pandemic recovery. But of
Speaker 1: course we're now starting to gain more traction again as
Speaker 1: the delta wave fades, and we're seeing that already in
Speaker 1: some of the credit card data coming in for the
Speaker 1: month of October and as we go into November. Of course,
Speaker 1: the biggest constraint we're going to face out there is
Speaker 1: shortages and price heights. Rebecca Patterson was on earlier and
Speaker 1: she would demand that we asked the economist Diane Swank,
Speaker 1: Are we in a demand shock or a supply sack?
Speaker 1: Rebecca Patterson of Bridgewater says, this is a demand shock.
Speaker 1: It's all of the above. I mean, there's no question
Speaker 1: there's a demand shock out there, and we've used at
Speaker 1: Jamaan chock with the last round of stimulus checks. We've
Speaker 1: got a lot of excess savings that's being drained down.
Speaker 1: Much depends on how much we get the pride sector
Speaker 1: to pick up the baton from the federal government as
Speaker 1: we get into the fourth quarter and into two and
Speaker 1: see job gains pick up again after the delta wave.
Speaker 1: I think that's going to happen, and that is hard
Speaker 1: for the FED because even as you're on your comparisons
Speaker 1: get to be more difficult, which means the inflation numbers
Speaker 1: should taper off a bit. In two. I think they're
Speaker 1: going to be residually higher than the FED is going
Speaker 1: to be comfortable with, and they're they're going to be
Speaker 1: in the tough position of determining whether or not the
Speaker 1: inflation that we're enduring in two is in fact going
Speaker 1: to be more um intracted get into the economy more.
Speaker 1: And I think that's something that they're going to have
Speaker 1: to act on. And my concern is that we do
Speaker 1: see companies out there doubling up on inventories, doubling up
Speaker 1: on orders to hedge against what are these supply chain shocks.
Speaker 1: But that won't abate inflation until we get well into
Speaker 1: three and that's just too long for the FED to
Speaker 1: wake Dan. Let's get into the politics of the economics,
Speaker 1: because that's where it's going in Washington, d C. The
Speaker 1: idea of the demand side shock versus the supply side
Speaker 1: shock is frankly squarely in the Republican talking points where
Speaker 1: they're saying it is because we passed these bills earlier
Speaker 1: in the year and last year that basically gave people
Speaker 1: checks that we're seeing the demand shock that we are seeing.
Speaker 1: How much is that really the issue versus just the
Speaker 1: difficulties and turning off an entire economy, turning it back
Speaker 1: on and expecting it to happen without friction. Well, I
Speaker 1: think you know it really is. This is you know,
Speaker 1: friction upon re entry as I call it, as a
Speaker 1: spaceship comes back in and you hope it doesn't bring
Speaker 1: um burn up and the heat shields hold. It really
Speaker 1: is a lot of frictions, frictions in the labor market.
Speaker 1: We've seen that. I think we're going to see more
Speaker 1: workers come back into the labor force in the fourth quarter.
Speaker 1: But the bottom line is you can't expect to turn
Speaker 1: off a global economy and then just ramp it back
Speaker 1: up overnight. And in fact, many producers expected when we
Speaker 1: turn the lights off back in March in the US
Speaker 1: at least some accompany countries before that, that it would
Speaker 1: take quite a while for us to ramp back up.
Speaker 1: And because we supported spending as we needed to, as
Speaker 1: we paid people to go home from work, that ended
Speaker 1: up creating in very unusual dynamic out there. And it's
Speaker 1: just not not to be surprised that we're going through this.
Speaker 1: That said, it's really hard to disentangle the politics from
Speaker 1: the economics. Economics are really all of the above. We
Speaker 1: are having a demand shock because consumers couldn't spend on
Speaker 1: certain things, and then when they can, they're all trying
Speaker 1: to run through the door. At the same time, you
Speaker 1: see searge pricing on hotels and airfares a minute consumers
Speaker 1: come back. We've had a lot of disruptions out there
Speaker 1: in addition to climate change and extreme weather events. Everyone
Speaker 1: forgets Hurricane Ida exacerbated the rise in prices at the
Speaker 1: pump in October and adding to all of this confusion.
Speaker 1: Day and you're talking about friction upon re entry. When
Speaker 1: do we know that we've entered right? When do we
Speaker 1: know what signals economic signals do you look at to
Speaker 1: know that we have reached some sort of new normal
Speaker 1: rather than just the waiting period for everything to equalize. Well,
Speaker 1: that's you know, the million dollar or a billion trillion
Speaker 1: dollar question. We have to keep going up on our numbers.
Speaker 1: I think quadrillion is the next one after this one.
Speaker 1: I actually had to look it up. But there's no
Speaker 1: question that what we're looking for is some kind of
Speaker 1: a sort of stabilizing in underlying inflation pressures um not
Speaker 1: as broad based inflation increases. I think one of the
Speaker 1: things we're gonna have to be dealing with two is
Speaker 1: the lags on shelter and that could add a half
Speaker 1: percent to underlying inflation measures alone. So even as some
Speaker 1: of the energy price and the surge pricing that we're
Speaker 1: seeing right now, as we get that friction going and
Speaker 1: the real heat that singes, that will cool down, but
Speaker 1: not enough to sort of leave the FED on the sidelines.
Speaker 1: I really don't think we're gonna see anything about what
Speaker 1: this economy really is like outside of a pandemic and
Speaker 1: into an endemic until we get into three because we're
Speaker 1: talking about not even being able to vaccinate the world,
Speaker 1: which is key here until well into Dane. What's so
Speaker 1: important here? And you've been you've really had truly national
Speaker 1: leadership on this is don't forget the Third coast. It's
Speaker 1: all about the East coast, the West coast, and there's
Speaker 1: one big flyover including Frankly O'Hara in Chicago, Dan Swak,
Speaker 1: that's a bunch of Bologny. What is the tech revolution
Speaker 1: right now in the third coast of America? Away from Amazon,
Speaker 1: away from Microsoft? What's the tech revolution? Look across the
Speaker 1: four time zones? You know, actually we are seeing a
Speaker 1: major tech spread out across the country. And this is
Speaker 1: really interesting to see what's going on. You're seeing tech
Speaker 1: hubs in places like Boise, you know, really real places
Speaker 1: to see it, Charlotte, Austin obviously, but we also have
Speaker 1: some in Chicago. It's really been stunning to see what's
Speaker 1: going on here and where the real high end building
Speaker 1: and high end housing is going up, and high end
Speaker 1: construction for office space is tech related, and so what
Speaker 1: you're seeing is some of that tech being spread across
Speaker 1: the nation. And what we've really seen is the pandemic
Speaker 1: acceleratate the digitization of the US economy. You're seeing that
Speaker 1: in the car industry, the electric cars coming out, not
Speaker 1: just from Tesla, but also from the traditional automakers with
Speaker 1: a lot more options out there, this movement is on.
Speaker 1: In fact, they're worried about how how they're going to
Speaker 1: get um dealers to sell electric vehicles. Well, it's not
Speaker 1: part of the model. The bottom line is demand is
Speaker 1: driving some of the movement on electric vehicles, and dealers
Speaker 1: models are being outdated as we've moved to now buy online,
Speaker 1: even cars and homes. It really is a different world.
Speaker 1: Of course, that digitization also creates big gaps and inequalities.
Speaker 1: People who are trying to apply for jobs aren't used
Speaker 1: to being able to apply having to apply totally online,
Speaker 1: which is where all the jobs are listed now, and
Speaker 1: they're in broadband dead zones. We really need to expand
Speaker 1: broadband to be able to increase the access of those
Speaker 1: people who need jobs and or match them up to
Speaker 1: where people who don't have to people who are looking
Speaker 1: for workers. That's difficult as well, both in urban and
Speaker 1: rural area. So this really is a massive change that
Speaker 1: the pandemic accelerated, and I think it will deliver a
Speaker 1: lot of productivity growth. The problem is it's not evenly distributed.
Speaker 1: The brilliant Dan Swunk of Grand Thornson looking forward to
Speaker 1: catching up again next week, hopefully around that fat decision. Dian,
Speaker 1: thank you joining us now. Without question, our interview of
Speaker 1: the day is a skeptic one. Douglas Cast of Sea
Speaker 1: Breeze Partners and Doug the class act. You are you
Speaker 1: not only quote Thomas Lee, who has nailed this bulmarket surge,
Speaker 1: but you say, look, this is where Tom Lee is,
Speaker 1: this is why Tom Lee's right, and boy have I
Speaker 1: been wrong? Now? What for Doug Cass. You know what
Speaker 1: the dude said in the big lebout sometimes you eat
Speaker 1: the bar, and well sometimes the bar each you. Yeah,
Speaker 1: but you're in the bright, Dug. I'm not going to
Speaker 1: mince words here. Everybody else is out there being quiet.
Speaker 1: You're like a pinata out on social because you've got
Speaker 1: the courage to be vocal invisible about your convictions. Now
Speaker 1: what I do. I'm very straightforward. Um, I would say that,
Speaker 1: you know, there's the English translation of a Chinese curse.
Speaker 1: May we live in interesting times? And I do believe
Speaker 1: that we live in the most interesting times of all. Um.
Speaker 1: You know, I embarrassed on the market. I think that
Speaker 1: the conditions that exist in the real economy or on
Speaker 1: Main Street have diverged widely from Wall Street. And it's
Speaker 1: happening at a time in which valuations based upon historical
Speaker 1: metrics such as my friend Robert Schiller's keep ratio or
Speaker 1: the market cap to g d P, which is Warren
Speaker 1: Buffett's favorite valuation metric, are all in the or even decile.
Speaker 1: And at the core of my parish market view is
Speaker 1: a notion that inflation and supply chains disruptions will be
Speaker 1: sustained for a lengthy period of time. Now I'm long
Speaker 1: and I'm buying cannabis stocks, but investors are smoking dope
Speaker 1: if they think the supply chain issues are easily solved, solvable,
Speaker 1: And as I said to John Farrow, a bunch of
Speaker 1: times pull market optimism abounds even though there has really
Speaker 1: been such a wide array of possible economic and market outcomes,
Speaker 1: and many of those outcomes are adverse and market unfriendly.
Speaker 1: But when I talk about interesting times, I'm talking about
Speaker 1: the gamification of the market. UM speculation is hot, hot, hot,
Speaker 1: and that is not good good good. UM. I'm sure
Speaker 1: robin Hood which is the premier gamer trading site, but
Speaker 1: when but it really has become a floating crap game
Speaker 1: for speculation and digital currencies, meme stocks and weekly option
Speaker 1: trading investing. It seems to meet us increasingly become hass a.
Speaker 1: Let's get Paul to jump in here with some securities analysis.
Speaker 1: Just wondering here, we're about almost two thirds away through
Speaker 1: the earnings reporting cycle here for the third quarter. What
Speaker 1: have you learned that's kind of reinforced or maybe cause
Speaker 1: you a question your call. I think that there's a
Speaker 1: lot of double ordering. UM. I think um uh rates
Speaker 1: are going to be rising. I think that the product
Speaker 1: price increases which are occurring at every single company that
Speaker 1: I interview um UM will lead to demand destruction. UM.
Speaker 1: You know, I find that I use the word slugflation
Speaker 1: sluggish economic growth and sustained inflation, not stay inflation. And
Speaker 1: that's what I think slug flash inflation lies ahead. UM.
Speaker 1: I recognize that I think that the UM expansion of
Speaker 1: negative real interest rates has been at the war of
Speaker 1: a lot of bullish arguments. I think you guys will
Speaker 1: both agree, and I recognize that negative real interest rates
Speaker 1: are a tail went to equities. But the fact is
Speaker 1: that expanding negative real interest rates cripple's main street by
Speaker 1: reducing real incomes. And there have been periods of time
Speaker 1: when negative real interest rates have led to market collapses.
Speaker 1: UM the U S stock market in the earlier mid
Speaker 1: seventies UM is a good example, when the nifty fifty
Speaker 1: collapsed and the SMP entered to bear market. Japan is
Speaker 1: another example in which real interest rates have been negative
Speaker 1: for several decades and investment returns have been poor. I've
Speaker 1: been wrong because I've unders understated the herd strength. I've
Speaker 1: understated the strength of FOMO and the inflow of money
Speaker 1: into mutual funds and UH equity mutual funds, as well
Speaker 1: as the changing market structure in which quant strategies that
Speaker 1: know everything about nothing about value. The FED a reserve.
Speaker 1: We've got Chairman Powell, you know, sticking to that inflation
Speaker 1: is transitorious. There's gonna be a problem for him and
Speaker 1: for this FED. I think it's a big problem. I
Speaker 1: think he's um put himself into a box. I think
Speaker 1: Powell's legacy seems to be moving in the wrong direction.
Speaker 1: In the months ahead, I expect him to walk back
Speaker 1: all the views of easing money and wanting high inflationer
Speaker 1: that he's so confidently espoused. And again, I think if
Speaker 1: you look at twos and thirties, there's clear message from
Speaker 1: the bond market. If you look at the five year
Speaker 1: break evans, which hit the highest level since two thousands five,
Speaker 1: the Fed is making a policy mist mistake. Already there
Speaker 1: have been over twenty rate hikes globally in Russia, Brazil, UK,
Speaker 1: New Zealand, Australia, Accounta, Mexico. Nothing from the Fed. UM
Speaker 1: So this is this is a danger dangerous precedent at
Speaker 1: a time in which I believe the rate of growth
Speaker 1: in economic activity is going to be the out of this.
Speaker 1: But this is a really important conversation. It's well known
Speaker 1: that has Cast gets the Robin Hood trade right, he
Speaker 1: will click in to be one of the seven billionaires
Speaker 1: in America. Doug, you live down in one of the
Speaker 1: fanciest parts of the planet. I mean, you know, I
Speaker 1: think you've got the littlest house within six miles, and
Speaker 1: you've got like square feet the shadow of the former presidents. Yeah,
Speaker 1: I mean, I mean literally, you live where we're talking
Speaker 1: about this billionaire's tax you and I know these guys
Speaker 1: are writing, as a generalization, big checks to hospitals, two schools, this, that,
Speaker 1: and the I wish they'd write me a check. But
Speaker 1: the bottom line is, Doug, what's your gut feeling the
Speaker 1: people you hang out with every day? We'll do if
Speaker 1: they're told they're gonna have confiscation of gains not taken,
Speaker 1: how's that going to play out? Well? UM, let's first
Speaker 1: start of the fact, let's look at the Elon Musk.
Speaker 1: I'm gonna ans you a question directly, but let me
Speaker 1: first mentioned that. Um, the speculation in Tesla is an
Speaker 1: example of the problem in this market. Um. To paraphrase
Speaker 1: Hyman Roth what he said in the Godfather movie Leon,
Speaker 1: excuse me, Elon Muskt is far bigger than us steel.
Speaker 1: His net work now exceeds that of Exxon Mobile, and
Speaker 1: as wealth is two and a half times that of
Speaker 1: Jeff Bezos my favorite stock, Amazon, And if Bill Gates
Speaker 1: and Mark Zuckerberg were married, their combined assets will be
Speaker 1: less than Musk's. And now I'm gonna give you an
Speaker 1: amazing stat Muskets made more money in the last nine
Speaker 1: months than Warren Buffett has made in ninety one years. UM.
Speaker 1: I shared now directly in response to your question, I
Speaker 1: shared an anecdote. I hope Lee Cooperman doesn't get piste
Speaker 1: off at me that I mentioned it. UM. I spent
Speaker 1: two and a half hours with Lee um in a
Speaker 1: research meeting of a company that we're both interested, who
Speaker 1: flew in overseas to see us yesterday. Lee lives in
Speaker 1: a very um tony community filled with Rose Royce's Ferraris
Speaker 1: and Bentley's. We move, We go out to get our cars.
Speaker 1: The parking intendant brings Lee's car. It's a six year
Speaker 1: old Nissan. Lee as a person that has just given
Speaker 1: one hundred million dollars to St. Barnabas Hospital in New Jersey,
Speaker 1: Lee justifiably would rather give the money to the charities
Speaker 1: and to the endeavors that he wants visa vi the government,
Speaker 1: which tends to spend uh. The money's poorly. So I'm
Speaker 1: a progressive. I'm a progressive Democrat, but I lean away
Speaker 1: from Elizabeth lawrence suggestion of a wealth taped. We're out
Speaker 1: of time. We could go on on this and of
Speaker 1: course market I want to thank you particularly for your
Speaker 1: comment on the bull Thomas Lee within the dougcast report
Speaker 1: this morning, Let's see Bres partners. This is the Bloomberg
Speaker 1: Surveillance Podcast. Thanks for listening. Join us live weekdays from
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