WEBVTT - We Are Being Choked by Regulatory Environment, Stefanski Says 0:00:00.080 --> 0:00:02.040 P and L is brought to you by proper Cloth, 0:00:02.120 --> 0:00:05.120 a leader in men's custom shirts with proprietary smart sized 0:00:05.120 --> 0:00:08.720 technology and top rated customer service. Ordering a custom shirt 0:00:08.760 --> 0:00:11.680 has never been easier. Visit proper cloth dot com to 0:00:11.760 --> 0:00:19.960 order your first custom shirt today. Welcome to the Bloomberg 0:00:20.000 --> 0:00:22.599 P and L Podcast. I'm Pim Fox. Along with my 0:00:22.640 --> 0:00:25.759 co host Lisa Abramowitz. Each day we bring you the 0:00:25.800 --> 0:00:29.360 most important, noteworthy, and useful interviews for you and your money, 0:00:29.360 --> 0:00:31.640 whether you at the grocery store or the trading floor. 0:00:32.080 --> 0:00:35.479 Find the Bloomberg P and L Podcast on iTunes, SoundCloud 0:00:35.640 --> 0:00:45.440 and at Bloomberg dot com. A rising rate environment, what's 0:00:45.440 --> 0:00:48.680 that going to do to the real estate business to homeowners? 0:00:48.760 --> 0:00:51.760 Let's find out from Mark Stefanski. He's the chief executive 0:00:52.040 --> 0:00:55.360 of Third Federal Savings and Loan. Mark, thank you very 0:00:55.440 --> 0:00:57.800 much for being with us. Just start us off by 0:00:57.840 --> 0:01:00.560 telling people a little bit about a Third Federal Savings 0:01:00.800 --> 0:01:04.680 and Loan. Okay, yeah, good morning, Thank you for having 0:01:04.720 --> 0:01:08.959 me on the show. Uh yeah, My parents started Third 0:01:09.000 --> 0:01:12.399 Federal back in n My dad frantically invented the home 0:01:12.400 --> 0:01:17.160 mortgage business, and so I'm second generation. We do business 0:01:17.200 --> 0:01:19.959 in twenty three states. Now we have stores in Ohio 0:01:20.640 --> 0:01:24.240 and Florida. Uh. Yet we we do business in twenty 0:01:24.240 --> 0:01:26.600 three states via the Internet and direct mail, and we 0:01:26.680 --> 0:01:29.160 make more home mortgages than anyone else in the state 0:01:29.160 --> 0:01:33.200 of Ohio. We mark. We were talking earlier with our 0:01:33.280 --> 0:01:38.080 Bloomberg News colleague about some concerns among some congressmen that 0:01:38.640 --> 0:01:43.120 there are insufficient opportunities to provide credit for small and 0:01:43.160 --> 0:01:46.480 mid sized businesses. I'm wondering from your vantage point, you 0:01:46.560 --> 0:01:50.720 have a really good view into Middle America, do you 0:01:50.760 --> 0:01:54.040 feel that this is the case. Well, I do think 0:01:54.120 --> 0:01:59.040 that the regulatory environment is hampering uh those kinds of 0:01:59.080 --> 0:02:06.000 loans and that kind of expansion in the economy. Uh Uh, well, 0:02:06.320 --> 0:02:10.240 it's just DoD frank in itself requires Uh let's say, 0:02:10.320 --> 0:02:12.720 for a homeowner, if you own your own business, Uh, 0:02:13.080 --> 0:02:16.760 the ability to repay is a huge, huge issue because 0:02:16.800 --> 0:02:21.240 you have to show that you have uh W two's 0:02:21.320 --> 0:02:24.200 and you have to have tax returns to show your 0:02:24.200 --> 0:02:27.320 income to prove that you can pay for for the mortgages. 0:02:27.520 --> 0:02:30.200 And that's ten percent of our business. And it's really 0:02:30.240 --> 0:02:33.799 hard to get those people qualified because not everything is 0:02:33.840 --> 0:02:38.320 always shown on in a W twoe form or on 0:02:38.400 --> 0:02:42.720 their tax returns, and people who or their own businesses 0:02:42.919 --> 0:02:46.160 are very very uh stuck right now and trying to 0:02:46.160 --> 0:02:48.679 get home owns. And that's the middle class that's in 0:02:48.680 --> 0:02:50.840 Middle America that everyone's been saying, well, it has to grow, 0:02:50.880 --> 0:02:54.120 it has to grow, but specifically that Styman's the growth 0:02:54.680 --> 0:02:58.960 in in that particular area. Have you been able to 0:02:59.120 --> 0:03:01.960 I mean you're based in Ohio, as you said, I mean, 0:03:02.000 --> 0:03:05.680 have you been able to make your concerns and these 0:03:05.760 --> 0:03:11.160 challenges known to the officials that maybe could could affect 0:03:11.200 --> 0:03:18.760 some kind of change. Well, uh, right now, No, it 0:03:18.800 --> 0:03:25.480 doesn't matter because all those concerns fallen deaf ears. Uh yeah, 0:03:25.520 --> 0:03:29.720 because that Frank has has taken over the industry. And 0:03:29.960 --> 0:03:32.680 uh well, I think right now, I think everyone in 0:03:32.720 --> 0:03:34.800 the industry, and I think the general public is more 0:03:34.840 --> 0:03:39.920 optimistic given given the new president and the the push 0:03:40.000 --> 0:03:44.200 for a more of a are less emphasis on regulation. 0:03:44.280 --> 0:03:46.480 I think that that's going to be very helpful. But 0:03:47.040 --> 0:03:50.240 but to to try to appeal to the regulatory body, 0:03:50.360 --> 0:03:52.760 or to Congress, or to anybody, it's it's falls on 0:03:52.840 --> 0:03:55.000 deaf or has fallen on deaf ears, especially in the 0:03:55.080 --> 0:03:58.400 last eight years. Mark can you just sort of square 0:03:58.440 --> 0:04:01.040 something for me, because there I just want to contrast 0:04:01.080 --> 0:04:04.320 what you're talking about as far as credit conditions being 0:04:04.320 --> 0:04:08.480 too tight with a lot of fears of excessive froth 0:04:08.800 --> 0:04:11.040 in other parts of the credit market. You've seen that 0:04:11.080 --> 0:04:14.720 in corporate credit and uh, just this week the Federal 0:04:14.760 --> 0:04:18.760 Reserve eyeballed commercial real estate as a potential new area 0:04:18.880 --> 0:04:21.279 of froth. Do you think that that this is an 0:04:21.200 --> 0:04:25.840 accurate description of the sort of bigger credit markets or 0:04:25.839 --> 0:04:28.000 do you think that these are just completely bifurcated markets 0:04:28.040 --> 0:04:33.200 at this point? Well, I think that regulators, regulators, um, 0:04:33.680 --> 0:04:36.040 they don't know what they don't know, so they're always 0:04:36.120 --> 0:04:39.479 looking for the next next big thing to hit. And 0:04:39.480 --> 0:04:43.560 and I can't honestly say that one the regulatory environment 0:04:43.600 --> 0:04:46.320 has guessed, they've guessed right. It's usually they do a 0:04:46.440 --> 0:04:49.719 very good job of cleaning up the mess after something's happened. 0:04:50.279 --> 0:04:53.360 And uh, that's that's you know, that's what's happening with 0:04:53.440 --> 0:04:57.680 Don Frank. Yet there's unintended consequences where you know, big 0:04:57.680 --> 0:05:01.120 banks are basically the targets, but it's trickled down into 0:05:01.400 --> 0:05:04.040 all the banking and all the mid science banks, all 0:05:04.040 --> 0:05:07.240 the small banks. They're being choked. We are being choked 0:05:07.440 --> 0:05:10.800 by the regulatory environment. Uh. And it's to the detriment 0:05:10.839 --> 0:05:14.400 of the economy and detriment of people that once qualified 0:05:15.839 --> 0:05:19.040 at the third Federal for example, in qualify because we 0:05:19.080 --> 0:05:23.840 had a change our criteria based on the demand that 0:05:23.880 --> 0:05:29.520 you're seeing. Is the economy operating at a two g 0:05:29.720 --> 0:05:35.080 d p or is it operating at slower than current expectations. 0:05:35.800 --> 0:05:39.160 I think it's a little slower um. However, I think 0:05:39.240 --> 0:05:43.000 it is better. We were very very stagnant there for 0:05:43.040 --> 0:05:45.800 a long time. I think there's optimism in the air. 0:05:46.000 --> 0:05:50.280 I think the when the Fed moves on an interest rate, 0:05:50.279 --> 0:05:52.799 whether it be up or down, that gets people excited. 0:05:53.320 --> 0:05:56.760 And I think the anticipation of the Fed would like 0:05:56.800 --> 0:06:01.000 to see the Reserve raised interest rates three times this year. 0:06:01.640 --> 0:06:03.880 You know they could, and I don't think it's going 0:06:03.920 --> 0:06:08.680 to have a dramatic effect then on the on the 0:06:08.720 --> 0:06:12.240 market consumer. Really why is that? Well? I just think 0:06:12.240 --> 0:06:15.440 that psychologically people right now are in a real good place. 0:06:15.920 --> 0:06:19.480 People are very optimistic. So when when the raises rates 0:06:19.480 --> 0:06:21.480 a little bit against people more excited that they might 0:06:21.480 --> 0:06:23.760 go up further. So you get more volume coming in 0:06:24.240 --> 0:06:27.960 but frankly, I don't see how those those changes in 0:06:28.080 --> 0:06:32.479 interest rates going dramatically, you know, affected the consumer demand 0:06:32.560 --> 0:06:35.200 for for homes. I just don't think that it's going 0:06:35.240 --> 0:06:38.000 to move enough to put people that much out of 0:06:38.000 --> 0:06:41.040 the market. And think about it, when most of us 0:06:41.040 --> 0:06:44.280 were growing up, interest rates of seven eight nine percent 0:06:44.320 --> 0:06:47.560 were norm and I've been around long enough, I saw 0:06:47.680 --> 0:06:51.960 fifteen percent um that was horrific, and and now down 0:06:52.000 --> 0:06:54.240 to four percent. People are complaining that the right so 0:06:54.320 --> 0:06:56.359 might go up to four and a half or something 0:06:56.400 --> 0:06:58.760 for a thirty or fixth rate mortgage. That's not so bad. 0:06:59.360 --> 0:07:02.160 Although you know, some people have said that in the 0:07:02.800 --> 0:07:05.680 in the wake of these incredibly low interest rates that 0:07:05.720 --> 0:07:09.560 we've had since two thousand and eight, uh, that housing 0:07:09.640 --> 0:07:13.120 prices and commercial real estate prices have gotten away from themselves, 0:07:13.200 --> 0:07:16.280 and that as people, as the FED raises rates and 0:07:16.320 --> 0:07:18.960 as borrowing costs rise, we're going to see a sort 0:07:18.960 --> 0:07:21.880 of deflation of these bubbles. From your experience so far, 0:07:22.280 --> 0:07:25.320 do you observe a slowdown in demand or anything that 0:07:25.400 --> 0:07:29.080 suggests that there is a weakening in the housing market now? 0:07:29.240 --> 0:07:31.520 In fact, I think it's quite the opposite, because I 0:07:31.520 --> 0:07:34.360 think a lot of it, whether it be UM in 0:07:34.480 --> 0:07:37.560 any sector of the economy tends to feel to be 0:07:37.640 --> 0:07:42.480 feeled by UM UH perception UH and and consumer confidence. 0:07:42.640 --> 0:07:45.160 So I think the consumer confidence right now is pretty 0:07:45.200 --> 0:07:47.520 darn good, as good as it's been in the last 0:07:47.560 --> 0:07:50.640 eight to ten years. And I think that's going to 0:07:50.720 --> 0:07:52.480 go a long way. And of course we'll find out 0:07:52.560 --> 0:07:56.400 in the next four years how good that optimism will 0:07:56.560 --> 0:07:59.160 will hold. I want to thank you very much for 0:07:59.200 --> 0:08:02.800 spending time with us. Mark Stefanski is the chief executive 0:08:02.880 --> 0:08:07.600 of Third Federal Savings and Loan and you know, Lisa 0:08:07.680 --> 0:08:15.520 that his parents, Ben and Jerome they started fifth third 0:08:15.640 --> 0:08:20.480 Federal Savings alone. They started in nineteen thirty eight with 0:08:20.600 --> 0:08:36.000 just fifty dollars in initial capital. We've heard a lot 0:08:36.040 --> 0:08:41.600 of news overnight about President Trump's conversations with the Australian 0:08:41.720 --> 0:08:46.400 and Mexican UH leaders, and some of the language has been, 0:08:46.880 --> 0:08:50.600 uh sort of sort of incendiary, uh, to say the least. 0:08:50.640 --> 0:08:53.040 I want to bring in Marty Shanker, who heads the 0:08:53.040 --> 0:08:56.560 Washington bureau for Bloomberg News, and Marty, I want to 0:08:56.559 --> 0:09:00.800 start with, UH, what your take is on what we've 0:09:00.840 --> 0:09:05.360 heard overnight, is the US removing itself from its longest 0:09:05.400 --> 0:09:08.600 standing allies or is this just bluster? Well it would 0:09:08.600 --> 0:09:12.480 appear so. Um, but Donald Trump tweeted just a little 0:09:12.480 --> 0:09:14.920 while ago, you know, not to be concerned about his 0:09:15.040 --> 0:09:20.560 tough talks with our closest allies, and you know, uh, 0:09:20.600 --> 0:09:23.680 And Tim O'Brien has an interesting viewpiece today in which, 0:09:23.840 --> 0:09:27.400 you know, this notion of Trump having this grand plan 0:09:27.559 --> 0:09:30.000 and all of us in journalism trying to figure out 0:09:30.080 --> 0:09:33.240 just where everything fits. And he says, that's a fool's 0:09:33.360 --> 0:09:37.959 Errand this is coming from his gut. It's spontaneous. He 0:09:38.000 --> 0:09:40.880 feels he's doing the things he said he would do 0:09:41.040 --> 0:09:45.120 once he got elected. And he feels the US has 0:09:45.160 --> 0:09:47.280 been just too nice to the rest of the world, 0:09:47.480 --> 0:09:50.560 friends and foe alike. So he's going to do things 0:09:50.600 --> 0:09:55.040 his way. Hey, Marty of fair disclosure? How long have we? 0:09:55.200 --> 0:09:56.959 I mean, I I gotta say everything I learned. I 0:09:57.040 --> 0:09:58.839 think I learned that your knee at the Wall Street 0:09:58.880 --> 0:10:02.120 Journal I'm not not and I was just twelve years old, right, Yeah, 0:10:02.160 --> 0:10:05.280 well we were both in short pants. You know. It's 0:10:05.320 --> 0:10:09.959 been a long trip, Yes, it has, um what in 0:10:10.000 --> 0:10:12.240 your bones and your gut? All right? You talked about 0:10:12.440 --> 0:10:16.199 the president's gut. You're a journalist through and through in 0:10:16.640 --> 0:10:19.640 your gut, what what is going on and what needs 0:10:20.360 --> 0:10:22.880 I mean, you can't do this on a regular basis 0:10:23.040 --> 0:10:26.800 in twy not well, that's my question. In other words, 0:10:26.880 --> 0:10:30.880 something's got to give. Well, look there there, it's been 0:10:30.920 --> 0:10:33.680 like two weeks he's been president. He does he had 0:10:33.880 --> 0:10:37.160 very few members of his cabinet in place. That's being 0:10:37.640 --> 0:10:40.960 you know, we just saw Rex Tillerson at the State Department, 0:10:41.160 --> 0:10:45.120 and you know he was he's basically keeping the council 0:10:45.160 --> 0:10:49.920 of his closest adviser Steve Vannon, uh and others. Um. 0:10:50.200 --> 0:10:52.520 And he hasn't had the benefit of, you know, real 0:10:52.640 --> 0:10:57.559 time communication with people, with experienced people who are respected 0:10:57.600 --> 0:11:00.560 in their fields. And I think he has not been 0:11:00.600 --> 0:11:04.760 able to And he's always said he likes to hear 0:11:04.840 --> 0:11:09.600 dissident opinions, and by all accounts he's a great listener 0:11:09.720 --> 0:11:13.959 in private. And so I think that things can very 0:11:14.000 --> 0:11:19.000 easily be more moderate nature going forward. But I do 0:11:19.120 --> 0:11:24.600 think his impulsiveness will never go away. And um, for 0:11:24.640 --> 0:11:28.000 those of us who say to ourselves, this is going 0:11:28.040 --> 0:11:30.720 to slow down eventually, I think he got to guard 0:11:30.760 --> 0:11:34.040 against that. I think that he that he has decided 0:11:34.080 --> 0:11:36.920 this is the way he wants to communicate, and in fact, 0:11:36.960 --> 0:11:39.920 this is the way he wants to express policy, and 0:11:39.920 --> 0:11:42.000 he's going to continue to do that. What's the color 0:11:42.080 --> 0:11:46.760 that you're hearing from the Republican establishment in Congress and beyond, Well, 0:11:46.800 --> 0:11:51.320 they are steadfastly behind him. Uh, you know, I don't know. 0:11:52.040 --> 0:11:55.760 I have stated privately that I think that his support 0:11:55.960 --> 0:12:01.120 among the Republicans is razor thin um, and that he 0:12:01.520 --> 0:12:04.480 it's a tenuous relationship, but it is a solid one 0:12:05.000 --> 0:12:10.120 um for for now. I think the immigration uh proposals 0:12:10.120 --> 0:12:13.640 that he had tested that relationship and the Republicans lined 0:12:13.720 --> 0:12:18.560 up pretty solidly in favor of perhaps not the messaging 0:12:19.040 --> 0:12:23.240 but the policy itself. So and and the majority of 0:12:23.280 --> 0:12:27.320 Americans support it too. So I think the Republicans are 0:12:27.320 --> 0:12:30.360 going to stand by their president until such time as 0:12:30.400 --> 0:12:36.280 they themselves are threatened in terms of re election issues. Marty, 0:12:36.320 --> 0:12:39.320 can you just give us a reality check? Some people 0:12:39.440 --> 0:12:42.280 here the rhetoric of President Trump saying he's going to 0:12:42.320 --> 0:12:46.680 invade uh Mexico in a conversation that the White House 0:12:46.720 --> 0:12:50.240 now says was just a tough talk and a joke. Um, 0:12:51.920 --> 0:12:53.920 at what point, just taking this to its extreme. At 0:12:53.920 --> 0:12:57.640 what point does this lead to a real military altercation? Well, 0:12:57.679 --> 0:12:59.800 I think we're pretty far away from that. And I 0:13:00.000 --> 0:13:05.520 think Donald Trump got a stark example of what military 0:13:05.559 --> 0:13:10.520 confrontation means with the first death under his watch. And uh, 0:13:10.679 --> 0:13:13.079 you know, by all accounts, that is a very sobering 0:13:13.160 --> 0:13:17.880 moment for anyone, and especially a president who ultimately is 0:13:17.920 --> 0:13:21.880 responsible for all military activity. So I do think that 0:13:21.960 --> 0:13:24.680 a lot of these conversations, when they're put in print 0:13:24.760 --> 0:13:29.520 for in text, look a lot more vitriolic and our 0:13:29.640 --> 0:13:34.520 cast without context, without the nuance of actual conversation, and 0:13:34.559 --> 0:13:38.480 I think people tend to overreact to that. Let's turn 0:13:38.559 --> 0:13:42.040 to our allies for just a second. Phone calls with 0:13:42.520 --> 0:13:48.880 Prime Minister Turnbull in Australia. What's been your any details 0:13:49.040 --> 0:13:52.880 you can shed anything you can No, I mean, we 0:13:53.040 --> 0:13:55.680 have not been able to stand up that communication. You know, 0:13:55.720 --> 0:13:58.360 that was broken by the Washington Post in great detail. 0:13:58.640 --> 0:14:00.959 And you've got to assume someone who was privity to 0:14:01.000 --> 0:14:03.920 those conversations decided to leak it because they were concerned 0:14:03.920 --> 0:14:06.880 about it. Um. Just to be clear, it was a 0:14:06.920 --> 0:14:12.040 conversation where President Trump allegedly said, uh that it was 0:14:12.080 --> 0:14:14.480 the worst conversation that he had all day and basically 0:14:14.520 --> 0:14:17.080 threatened him with the refugee agreement that they had, that 0:14:17.160 --> 0:14:19.400 that the US previously came to with Australia, right and 0:14:19.600 --> 0:14:23.440 and and the Australian leader Turnbull later said, look, you 0:14:23.480 --> 0:14:26.120 know he was dismayed about the league and that the 0:14:26.280 --> 0:14:30.800 actually be the ending of that conversation was courteous, but 0:14:31.560 --> 0:14:34.840 be that as it may. Donald Trump came out and said, 0:14:34.960 --> 0:14:38.040 you know, don't worry about my tough talk. He has 0:14:38.200 --> 0:14:42.600 decided that he is keeping his promise. America comes first. 0:14:42.840 --> 0:14:46.160 He was very upset about this immigration deal and he 0:14:46.240 --> 0:14:48.880 was going to let turn Bill know, and he did. 0:14:51.400 --> 0:14:54.440 Got to affect businesses, yes, right, I mean you know 0:14:54.480 --> 0:14:56.160 you kind of I know, you stopped there on the 0:14:56.200 --> 0:14:58.600 political side, but then you gotta turn your attention and say, okay, 0:14:58.640 --> 0:15:01.120 so what are the effects here? Because you may be 0:15:01.200 --> 0:15:04.640 able to run a government as you just described it, 0:15:04.640 --> 0:15:06.760 but it's very hard to run a business. No, it's 0:15:06.840 --> 0:15:10.520 totally skill. And that's why this meeting with CEOs tomorrow 0:15:10.640 --> 0:15:14.440 is kind of in my task about it critically important. Well, 0:15:14.440 --> 0:15:17.000 this is his business council. These the people he asked 0:15:17.000 --> 0:15:21.520 to advise him. On policy and everybody from Jamie Diamond 0:15:21.520 --> 0:15:25.680 to Jane Metti, and it's very it's going to be 0:15:25.760 --> 0:15:29.320 very interesting. The tenor of what that meeting is going 0:15:29.360 --> 0:15:32.880 to be. Will they come in and say, Mr President, 0:15:32.920 --> 0:15:36.760 you're wrong on immigration, you're wrong on trade, you're wrong 0:15:36.880 --> 0:15:40.040 on taxes, or are they going to sit with hands 0:15:40.080 --> 0:15:42.840 folded and listen to Donald Trump say this is the 0:15:42.880 --> 0:15:45.840 way it's going to be. Um And you know they're 0:15:46.160 --> 0:15:49.480 from all parts of industry and banking and finance, so 0:15:49.600 --> 0:15:51.520 it's going to be interesting if they even have a 0:15:51.640 --> 0:15:54.720 unified message to give him. Well if if they do, 0:15:55.080 --> 0:15:56.760 or even if they don't, we're gonna be covering it. 0:15:56.840 --> 0:15:59.920 Marty Schanker, thank you very much, Senior Executive editor, Global 0:16:00.000 --> 0:16:12.800 Economics and Government for Bloomberg News. P and L is 0:16:12.800 --> 0:16:15.040 brought to you by proper Cloth, a leader in men's 0:16:15.080 --> 0:16:18.520 custom shirts. At proper cloth dot com, ordering custom shirts 0:16:18.600 --> 0:16:21.600 has never been easier. Create your custom shirt size by 0:16:21.600 --> 0:16:25.480 answering ten easy questions, select from over five fabrics to 0:16:25.520 --> 0:16:29.000 suit your personal taste. Shirts start from eighty five dollars 0:16:29.000 --> 0:16:31.880 and are delivered in just two weeks with proper Cloths 0:16:31.920 --> 0:16:35.880 perfect fit guarantee. Remakes are completely free and expert staff 0:16:35.920 --> 0:16:39.920 are standing by to help. For premium quality, perfect fitting shirts, 0:16:40.080 --> 0:16:50.720 visit proper cloth dot com custom shirts made Smarter. I 0:16:50.800 --> 0:16:53.200 want a story of innovation of how to look at 0:16:53.200 --> 0:16:55.520 the world today, makes sense of it, and then find 0:16:55.520 --> 0:16:59.080 an investment uh that is somewhat reliable. I want to 0:16:59.120 --> 0:17:02.120 bring in Paul more League, Global head of Market Economics 0:17:02.160 --> 0:17:07.119 and Chief Economist for North America at BNP. Pariba, Paul, 0:17:08.119 --> 0:17:11.800 where do you begin when you start with assessing your 0:17:11.800 --> 0:17:16.000 economic outlook? Beginning with the facts has a pretty good 0:17:16.119 --> 0:17:20.000 place to start. Where we've been and look at, you know, 0:17:20.320 --> 0:17:23.240 basically where the surveys are telling us we might go next, 0:17:23.320 --> 0:17:26.040 and what the settings of policy are. So you know 0:17:26.080 --> 0:17:29.919 the surveys currently look for the US look pretty perky. Well, 0:17:30.000 --> 0:17:31.800 let's look can we just like piece of the part 0:17:31.880 --> 0:17:33.560 just because I know tomorrow we're going to get the 0:17:33.600 --> 0:17:36.560 big payroll report number that will help people at least 0:17:36.640 --> 0:17:40.800 the confirm or deny their trajectory projections. You know, compare 0:17:40.840 --> 0:17:43.159 all that, but as an economist, just run through it. 0:17:43.200 --> 0:17:45.800 For US, GDP is running at at what we got 0:17:45.800 --> 0:17:47.800 a print at one point nine the last quarter on 0:17:48.440 --> 0:17:50.520 what are we running at now well, you know the 0:17:50.680 --> 0:17:53.600 Atlanta Fed he's saying for Q one day lateist GDP 0:17:53.720 --> 0:17:57.040 now forecast he's three point four. Okay, so we're three okay, 0:17:57.040 --> 0:18:00.880 So let's just say that Atlantage Fed GDP forecast three 0:18:00.880 --> 0:18:05.920 point four for Q one for unemployment four points where 0:18:06.000 --> 0:18:08.880 four point seven, and you know, we're pretty flat, maybe 0:18:08.920 --> 0:18:11.720 a bit of a downward trajectory for the unemployment rate 0:18:11.760 --> 0:18:16.199 going forward. Um, you know, labor participation rate moves or 0:18:16.280 --> 0:18:18.160 just I think I think it's going to be pretty 0:18:18.160 --> 0:18:21.000 flat more or less. But you know that if even 0:18:21.080 --> 0:18:23.560 if you've got growth of just two, that's above potential 0:18:24.440 --> 0:18:26.960 because the leather force is increasing by say half a 0:18:27.000 --> 0:18:30.080 point per year, productivity in the year to Q four 0:18:30.160 --> 0:18:33.119 was only one percent, so maybe productive potential is one 0:18:33.160 --> 0:18:35.719 and a half. So if we're running at two or above, 0:18:36.200 --> 0:18:40.280 unemployment should keep drifting down. Not very quickly because there 0:18:40.280 --> 0:18:42.359 are far fewer people out there than they used to be, 0:18:42.400 --> 0:18:44.199 but it should be drifting down, all right, and for 0:18:44.320 --> 0:18:45.919 and for at least I know, you want to know 0:18:46.000 --> 0:18:50.440 about inflation, because inflation is all about bonds. Yeah, I mean, well, 0:18:50.520 --> 0:18:53.280 I was just coming cost here. Well, yeah, I mean 0:18:54.760 --> 0:18:57.360 beyond that. I mean, but I'm trying to look into 0:18:57.359 --> 0:19:01.160 the crystal ball. Nobody can predict the future. I'm wondering, 0:19:01.720 --> 0:19:05.120 do you feel like you're less confident than you've ever 0:19:05.160 --> 0:19:07.520 been before with your predictions or do you think that 0:19:07.760 --> 0:19:11.240 people are overreacting to some of the macroeconomic and the 0:19:11.280 --> 0:19:15.199 political backdrop and that there is a very clear road ahead. 0:19:15.680 --> 0:19:17.919 I think people, you know, I think we've seen a 0:19:18.000 --> 0:19:21.800 tendency for the markets just after the November elections to 0:19:21.960 --> 0:19:25.359 one run off in one direction, and recently people are 0:19:25.440 --> 0:19:29.679 kind of extrapolating things in the other direction, because I 0:19:29.680 --> 0:19:32.960 think the technical term is they're walking back their estimates 0:19:33.640 --> 0:19:36.439 right here, driving with the rear view mirror. Maybe, but 0:19:36.560 --> 0:19:38.480 you know, it's difficult to come out with very firm 0:19:38.560 --> 0:19:41.320 expectations about where we're going to go on trade and 0:19:41.359 --> 0:19:44.600 physical and all these sort of things. So little spots 0:19:44.640 --> 0:19:47.280 of information that you get a very valuable because it's 0:19:47.280 --> 0:19:50.160 all you've got, but there's a tendency to extrapolate them. 0:19:50.160 --> 0:19:52.120 I think. So. Do you think that people have over 0:19:52.200 --> 0:19:56.159 inflated their expection expectations for inflation to your point, Pim, No, 0:19:56.320 --> 0:19:58.080 I don't think so. I think, you know, if you 0:19:58.119 --> 0:20:01.000 look globally where we're going on a inflation inflation is 0:20:01.040 --> 0:20:03.600 going up, and you see that in the producer price 0:20:03.600 --> 0:20:06.800 index in China, for example, You've seen it in Europe, 0:20:07.200 --> 0:20:09.720 you see it here. We've got a unique labor costs 0:20:09.760 --> 0:20:13.920 print just today of one point nine for the business sector, 0:20:14.280 --> 0:20:17.680 and the core measure of inflation that the FED likes 0:20:17.800 --> 0:20:20.280 is one point seven. So it's very likely to go up. 0:20:20.320 --> 0:20:21.960 And you know, one thing I would say about the 0:20:21.960 --> 0:20:25.600 Fed statement yesterday was that previously they said we believe 0:20:25.720 --> 0:20:31.359 inflation will rise, yesterday they said inflation will rise. So 0:20:31.400 --> 0:20:34.960 they sound more confident about their prediction of inflation. So 0:20:35.040 --> 0:20:36.920 what does that What does that mean for investors? Does 0:20:36.920 --> 0:20:39.120 that mean their bonds are are a bad better? Three 0:20:39.200 --> 0:20:43.440 rate hikes one rate, one rate hike a quarter. Well, 0:20:43.520 --> 0:20:45.359 I think you know, many people at the FED have 0:20:45.400 --> 0:20:47.240 said two or three rate hikes this year, and I 0:20:47.280 --> 0:20:51.800 think that's reasonable. The market is pricing about chance of march. 0:20:51.920 --> 0:20:54.800 I think that's probably too low, but I think the 0:20:54.840 --> 0:20:57.640 market will probably pricing a bigger chance, particularly we get 0:20:57.680 --> 0:21:00.679 strong pay rolls tomorrow, that probability he will go up. 0:21:01.000 --> 0:21:03.800 But I think the fade ideally would like to see 0:21:04.119 --> 0:21:07.840 what exactly are the fiscal plans, what exactly will growth be, 0:21:08.400 --> 0:21:10.359 And it won't get that to the second quarter. And 0:21:10.400 --> 0:21:13.680 that's why I'm a bit skeptical about March. Given this backdrop, 0:21:13.920 --> 0:21:16.399 what do you think is the one single best asset 0:21:16.400 --> 0:21:21.760 class for this year. I'm not an asset allocator. I'm 0:21:21.880 --> 0:21:26.280 just a humble economist. And so what's your biggest contrarian bet? Well, 0:21:26.359 --> 0:21:28.840 I think you know, the biggest contrarian bet is that 0:21:28.880 --> 0:21:32.520 we're going to see more more growth in the global 0:21:32.560 --> 0:21:35.480 economy and probably more growth in the US economy over 0:21:35.520 --> 0:21:38.360 the next two years than people expect. And I think 0:21:38.400 --> 0:21:42.200 that's partly becost the momentum coming into this year is 0:21:42.240 --> 0:21:46.960 pretty strong globally, and you know, US manufacturing looks very 0:21:47.000 --> 0:21:50.320 good despite the strong dollar, and we yet to see 0:21:50.359 --> 0:21:53.359 fiscal stimulus. Thank you very much for joining us. Poor 0:21:53.480 --> 0:21:56.160 mortem rely look forward to having you in the future. 0:21:56.200 --> 0:21:58.480 He is the head of Market Economics and the chief 0:21:58.520 --> 0:22:15.280 economists for Baten Pete Party Bop. Matt Levine Bloomberg View columnist. 0:22:15.359 --> 0:22:19.520 He wrote a really terrific column talking about how, first 0:22:19.520 --> 0:22:23.440 of all, a lot of people dismissed President Trump's rhetoric 0:22:23.840 --> 0:22:27.680 pre his election as simply talk and that he wouldn't 0:22:27.680 --> 0:22:31.040 actually come through on that, and that now people are realizing, well, 0:22:31.280 --> 0:22:34.320 perhaps they were mistaken. Um, first, can you just talk 0:22:34.400 --> 0:22:39.040 about what you've observed about how the reaction has been 0:22:39.640 --> 0:22:42.119 shockingly surprising when he's come through on a lot of 0:22:42.119 --> 0:22:44.880 what he said. Yeah, there's like, there's two things going 0:22:44.880 --> 0:22:47.000 on here right. One is that people listen to what 0:22:47.040 --> 0:22:49.240 he said and thought he didn't mean it. And so 0:22:49.560 --> 0:22:53.120 Trump talked about cracking down on trading immigration throughout the campaign. 0:22:53.359 --> 0:22:57.760 Those were his focuses, and people sort of assumed he 0:22:57.760 --> 0:22:59.920 would turn out to be a conventional Republican president and 0:23:00.080 --> 0:23:03.239 interested in economic growth and tax cuts and deregulation and 0:23:03.280 --> 0:23:06.400 things like that. And since the inauguration, it's been pretty 0:23:06.440 --> 0:23:08.639 clear where his focus is, and it's exactly where he 0:23:08.680 --> 0:23:10.719 said it was. So I think some of the business 0:23:10.800 --> 0:23:14.920 leaders who were expecting a very conventional, uh presidency are 0:23:15.000 --> 0:23:19.760 getting this very unconventional, anti trade, anti immigration presidency. Well, 0:23:19.800 --> 0:23:22.600 but why wouldn't potentially this end up being just as 0:23:22.640 --> 0:23:25.040 good for them as they thought if he does go 0:23:25.080 --> 0:23:28.560 ahead and follows through with cutting regulations and cutting taxes. 0:23:28.600 --> 0:23:30.960 I mean, why wouldn't this be a benefit. Well, one 0:23:31.000 --> 0:23:33.520 thing is that a lot of business groups were not 0:23:33.800 --> 0:23:37.160 um so happy about the trade stuff. You know that 0:23:37.480 --> 0:23:39.119 we live in a global economy and a lot of 0:23:39.119 --> 0:23:42.360 American businesses are multi national companies, and so they're going 0:23:42.400 --> 0:23:44.119 to lose that by the correctown and trade. But the 0:23:44.160 --> 0:23:46.320 other thing that's happening is that, you know, even if 0:23:46.359 --> 0:23:49.040 eventually we come through on the deregulation and tax cuts 0:23:49.080 --> 0:23:52.960 that businesses want, I think that they underestimated the risks 0:23:52.960 --> 0:23:56.439 of just sort of the instability of the Trump presidency. 0:23:56.680 --> 0:23:59.200 And you saw that with the executive order last weekend. 0:24:00.200 --> 0:24:02.399 It's one thing to say we're gonna cut back on 0:24:02.640 --> 0:24:05.200 or or even eliminate refugee programs, but what happened is 0:24:05.240 --> 0:24:08.639