1 00:00:00,120 --> 00:00:02,920 Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in 2 00:00:03,000 --> 00:00:07,840 Speaker 1: local communities, economies and a sustainable future. That's the power 3 00:00:08,080 --> 00:00:12,360 Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 4 00:00:12,760 --> 00:00:27,400 Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,840 --> 00:00:31,520 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:31,560 --> 00:00:36,600 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:37,000 --> 00:00:41,600 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 8 00:00:41,680 --> 00:00:49,080 Speaker 1: of course on the Bloomberg Son Bringing Adam Parker now 9 00:00:49,080 --> 00:00:51,239 Speaker 1: he's chief US Equity Strategy that Morgan Stanley, director of 10 00:00:51,280 --> 00:00:53,760 Speaker 1: quantitative research there as well. Adam, great to have you 11 00:00:53,800 --> 00:00:56,160 Speaker 1: with us here in the studio. Thanks thanks for having me. 12 00:00:56,320 --> 00:00:58,800 Speaker 1: Let me just start with with this news about Mexico. 13 00:00:59,160 --> 00:01:02,400 Speaker 1: The specter here, uh, a new a new tax tax 14 00:01:02,640 --> 00:01:05,200 Speaker 1: that introduced by the Press Secretary yesterday. Does that have 15 00:01:05,240 --> 00:01:07,759 Speaker 1: any interplay with the equity markets? Said? Just the specter 16 00:01:07,880 --> 00:01:11,120 Speaker 1: of that, that kind of a new tax um. You know, look, 17 00:01:11,160 --> 00:01:13,520 Speaker 1: I think it's potentially confusing. So we have it as 18 00:01:13,560 --> 00:01:15,959 Speaker 1: two offsetting forces. On the one hand, we do think 19 00:01:15,959 --> 00:01:17,880 Speaker 1: corporate earnings can go up here in the near term. 20 00:01:18,240 --> 00:01:19,960 Speaker 1: On the other hand, I think ultimately people are gonna 21 00:01:20,000 --> 00:01:21,800 Speaker 1: pay a lower multiple for those earnings, So I think 22 00:01:21,800 --> 00:01:24,320 Speaker 1: those are the kind of pros and cons of how 23 00:01:24,720 --> 00:01:27,240 Speaker 1: the markets laying it out right now. Investors aren't really 24 00:01:27,360 --> 00:01:29,520 Speaker 1: that concerned about it because until it starts hitting the 25 00:01:29,520 --> 00:01:32,280 Speaker 1: earnings numbers and have more certainty on it, it's really 26 00:01:32,280 --> 00:01:33,680 Speaker 1: hard to position for it. And that's why you've seen 27 00:01:33,680 --> 00:01:35,880 Speaker 1: the market do pretty well despite the news. These are 28 00:01:36,000 --> 00:01:38,560 Speaker 1: interesting times. Looking at your most recently, you said our 29 00:01:38,600 --> 00:01:40,720 Speaker 1: view of the world has dramatically changed over the last 30 00:01:40,720 --> 00:01:43,680 Speaker 1: several weeks with the focus on equities. What's the most 31 00:01:43,720 --> 00:01:47,600 Speaker 1: seismic of those changes been, I'd say twofold one corporate earnings. 32 00:01:47,600 --> 00:01:50,560 Speaker 1: Prior to the Republican Suite, we'd assumed earnings would grow 33 00:01:51,120 --> 00:01:55,400 Speaker 1: around six percent cumulably in seventeen and eighteen over those 34 00:01:55,400 --> 00:01:58,240 Speaker 1: two years. We now have the growing eighteen percent. The 35 00:01:58,240 --> 00:02:00,800 Speaker 1: biggest drivers of that, of course, are lower corporate taxes, 36 00:02:00,840 --> 00:02:03,840 Speaker 1: a stimulus program, repatriation of non US cast So that's 37 00:02:03,840 --> 00:02:06,920 Speaker 1: in our base case numbers, and it certainly was not 38 00:02:07,160 --> 00:02:09,280 Speaker 1: in early November, so the earnings are a one in. 39 00:02:09,320 --> 00:02:11,360 Speaker 1: The second thing would be for the first time in 40 00:02:11,360 --> 00:02:13,639 Speaker 1: several years were forecasting you're gonna pay a lower multiple, 41 00:02:13,720 --> 00:02:16,519 Speaker 1: lower price to earnings ratio for those earnings owing to 42 00:02:16,560 --> 00:02:19,639 Speaker 1: the fact I think there'll be a more hawkish distribution 43 00:02:19,680 --> 00:02:22,560 Speaker 1: to the outcomes from the FED end. You certainly have 44 00:02:23,040 --> 00:02:25,280 Speaker 1: more volatility and uncertain das as you guys have been 45 00:02:25,320 --> 00:02:27,840 Speaker 1: highlighting on the show this morning. Just a little bit 46 00:02:27,880 --> 00:02:29,960 Speaker 1: of investment one oh one. Do I want to be 47 00:02:30,000 --> 00:02:33,760 Speaker 1: in something now, Matthew that has a tight our square 48 00:02:33,800 --> 00:02:36,320 Speaker 1: to the SMP five hundred, or I want to be original? 49 00:02:36,400 --> 00:02:39,079 Speaker 1: Do I want an index like approach? Or is it 50 00:02:39,160 --> 00:02:43,239 Speaker 1: a time to have originality in my Adam Parker wisdom? Look, 51 00:02:43,280 --> 00:02:45,200 Speaker 1: I mean, so there's two ways to answer that question. 52 00:02:45,280 --> 00:02:47,400 Speaker 1: The first on the first one would be ascid allocation wise, 53 00:02:47,400 --> 00:02:49,720 Speaker 1: you always want to have as as uncorrelated at a 54 00:02:49,840 --> 00:02:52,120 Speaker 1: portfolio as you can. And the challenge has been that 55 00:02:52,480 --> 00:02:54,040 Speaker 1: we had a risk on trade and everything goes up, 56 00:02:54,040 --> 00:02:55,919 Speaker 1: and then we have a risk trade everything goes down 57 00:02:55,919 --> 00:02:57,800 Speaker 1: over the last you know, since the financial crisis, So 58 00:02:57,840 --> 00:03:00,360 Speaker 1: getting that diversity from us we has been tough. And 59 00:03:00,360 --> 00:03:02,160 Speaker 1: then secondly, the way I think about it is always 60 00:03:02,200 --> 00:03:04,200 Speaker 1: going to be how do I beat that index? So 61 00:03:04,240 --> 00:03:06,840 Speaker 1: we're always focused on you know, hey, if we're we 62 00:03:06,880 --> 00:03:08,919 Speaker 1: have a big exposure to banks in the portfolio, while 63 00:03:08,919 --> 00:03:10,919 Speaker 1: we're overweight utility because that's the sector with the lowest 64 00:03:10,919 --> 00:03:13,160 Speaker 1: correlation to the banks. We're always trying to figure out 65 00:03:13,160 --> 00:03:16,400 Speaker 1: how to not uh you know, Texas hedge, so to speak, 66 00:03:16,600 --> 00:03:20,000 Speaker 1: Tom the watch words. So much as there have been 67 00:03:20,040 --> 00:03:22,320 Speaker 1: that reflation trade here over the last few weeks, how 68 00:03:22,320 --> 00:03:24,839 Speaker 1: are you regarding that right now? So we've been really 69 00:03:24,840 --> 00:03:27,120 Speaker 1: working on what we call the fade gauge. You know, 70 00:03:27,240 --> 00:03:30,080 Speaker 1: how are we gonna time when to fade that reflation rally. 71 00:03:30,840 --> 00:03:33,720 Speaker 1: I think the most egregious parts of that chain are 72 00:03:33,760 --> 00:03:37,880 Speaker 1: probably the infrastructure industrial stocks. We've had a big overweight 73 00:03:37,880 --> 00:03:41,320 Speaker 1: in that last year. We downgraded that group recently. The 74 00:03:41,320 --> 00:03:43,160 Speaker 1: thing is just that that stimulus is probably not a 75 00:03:43,160 --> 00:03:45,320 Speaker 1: first hundred day priority, and a number of the stocks 76 00:03:45,320 --> 00:03:47,720 Speaker 1: that have let's call it five to ten percent revenue 77 00:03:47,720 --> 00:03:53,080 Speaker 1: exposure to a infrastructure stimulus program or up since November eight. 78 00:03:53,120 --> 00:03:54,680 Speaker 1: So if you're if you're thinking of stuff you want 79 00:03:54,680 --> 00:03:57,760 Speaker 1: to fade the reflation trade a little bit, maybe it's Washington, 80 00:03:57,840 --> 00:04:01,160 Speaker 1: Goodlock or whatever. I think that's probably most egregious part 81 00:04:01,160 --> 00:04:03,760 Speaker 1: of the of the chain, Adam. One more question. I 82 00:04:03,760 --> 00:04:06,240 Speaker 1: know you've got to get onto a Morgan Stanley day 83 00:04:06,320 --> 00:04:09,800 Speaker 1: small MidCap, large cap. I'm always a lover of mid cap. 84 00:04:09,840 --> 00:04:12,320 Speaker 1: There's a lot of academic research on that. But which 85 00:04:12,320 --> 00:04:14,040 Speaker 1: way is the way you play if you've got to 86 00:04:14,080 --> 00:04:16,920 Speaker 1: play right now? So look, I mean we're talking about 87 00:04:16,920 --> 00:04:19,559 Speaker 1: the reflation trade, and the last question, sure, the small 88 00:04:19,640 --> 00:04:22,520 Speaker 1: cap rally was also a bit of a reflation trade. 89 00:04:22,839 --> 00:04:25,320 Speaker 1: To me, it's a little bit less onerous than that 90 00:04:25,640 --> 00:04:29,000 Speaker 1: industrial industrial trade. So I'd rather stay long small caps 91 00:04:29,040 --> 00:04:32,200 Speaker 1: here in case we get some more positive news on 92 00:04:32,400 --> 00:04:35,320 Speaker 1: on taxes where you know the small caps could benefit 93 00:04:35,320 --> 00:04:38,080 Speaker 1: more or their currency exposures left as we talked about 94 00:04:38,080 --> 00:04:41,159 Speaker 1: on your television program, you know small caps will do 95 00:04:41,200 --> 00:04:42,719 Speaker 1: better on the earnings front of the dollar strength. And 96 00:04:42,760 --> 00:04:45,240 Speaker 1: so I think that's probably okay still, and I'm gonna 97 00:04:45,279 --> 00:04:47,880 Speaker 1: start fading the reflation trade. That wouldn't be necessarily the 98 00:04:47,880 --> 00:04:51,680 Speaker 1: first part I would Nam Park. Thank you so much, Stanley. 99 00:04:52,200 --> 00:05:08,960 Speaker 1: I greatly appreciate your time. What an interesting day, joining 100 00:05:09,040 --> 00:05:11,680 Speaker 1: style Mika Zenko or the console foreign relations and just 101 00:05:11,720 --> 00:05:14,800 Speaker 1: to give you a window and how good see if 102 00:05:14,839 --> 00:05:18,680 Speaker 1: our is he's actually within screaming distance of the acclaimed 103 00:05:18,680 --> 00:05:22,839 Speaker 1: Elizabeth economy. Who truly wants to see if our's strongest 104 00:05:22,880 --> 00:05:25,880 Speaker 1: assets on China and and she and I'm sure Mika 105 00:05:25,960 --> 00:05:29,679 Speaker 1: Zenk will go back and forth on the Russia China access. Michael, 106 00:05:29,680 --> 00:05:32,960 Speaker 1: your expertise is on our defense systems and how we 107 00:05:33,360 --> 00:05:36,960 Speaker 1: integrate with Russia. When you see the media flow on 108 00:05:37,040 --> 00:05:40,520 Speaker 1: the Pentagon, when you see the media flow on Poutin, 109 00:05:41,040 --> 00:05:43,640 Speaker 1: what does the media most get wrong right now? I 110 00:05:43,720 --> 00:05:46,679 Speaker 1: think what it most gets wrong is that the Russia 111 00:05:46,760 --> 00:05:49,480 Speaker 1: poses this unique existential threat to the United States as 112 00:05:49,480 --> 00:05:52,200 Speaker 1: of today. Of course, since about the late nineties sixties, 113 00:05:52,200 --> 00:05:55,080 Speaker 1: the United States could have destroyed America multiple times over 114 00:05:55,200 --> 00:05:58,560 Speaker 1: as America can destroy multiple times over Russia. We have 115 00:05:58,720 --> 00:06:02,560 Speaker 1: a long term relationship understanding about our clear redlines, what 116 00:06:02,760 --> 00:06:05,400 Speaker 1: areas of geography we care about what we're willing to defend, 117 00:06:05,880 --> 00:06:09,520 Speaker 1: and to a large extent, uh those are well established 118 00:06:09,520 --> 00:06:12,040 Speaker 1: between Moscow and Washington. The problem is that Vladimir Putin 119 00:06:12,160 --> 00:06:15,000 Speaker 1: wants to push all these boundaries, both in the Baltics 120 00:06:15,040 --> 00:06:16,760 Speaker 1: and in the Middle East and with the US allies 121 00:06:16,800 --> 00:06:19,839 Speaker 1: like Turkey, and that's where there's a lot of incoherence 122 00:06:19,960 --> 00:06:23,360 Speaker 1: and unclarity. Good, it's incoherence week here will the new 123 00:06:23,400 --> 00:06:26,400 Speaker 1: president of the United States allow the redlines to be 124 00:06:26,560 --> 00:06:30,800 Speaker 1: nudged west? While the President has said that unless these 125 00:06:30,839 --> 00:06:33,560 Speaker 1: countries quote pay up, I'm not sure what that means. 126 00:06:33,560 --> 00:06:35,600 Speaker 1: If it means they have to increase their defense spending 127 00:06:35,600 --> 00:06:38,719 Speaker 1: to supercent a GDP, which is a nominal natal goal, 128 00:06:38,960 --> 00:06:41,840 Speaker 1: or whether they have to physically transfer their currency into 129 00:06:41,880 --> 00:06:44,320 Speaker 1: the U. S treasury, or the US will remove its 130 00:06:44,400 --> 00:06:47,159 Speaker 1: artillery and UH and infantry forces from the Baltics, which 131 00:06:47,200 --> 00:06:49,040 Speaker 1: serve as a sort of trip wire from Russia from 132 00:06:49,040 --> 00:06:55,440 Speaker 1: invading or or using below sort of conventional warfare level interference. UM. So, 133 00:06:55,520 --> 00:06:59,280 Speaker 1: that level of of mistrust and uncertainty is growing because 134 00:06:59,320 --> 00:07:02,040 Speaker 1: General Maddis says NATO is a critical alliance. If we 135 00:07:02,080 --> 00:07:04,159 Speaker 1: didn't have we have to invent it today and the 136 00:07:04,160 --> 00:07:07,000 Speaker 1: Commander in chief has said repeatedly that it is obsolete. 137 00:07:07,320 --> 00:07:10,480 Speaker 1: Help us with understanding the problem with mid level personnel 138 00:07:10,840 --> 00:07:12,560 Speaker 1: in Washington right now. A few weeks back, we talked 139 00:07:12,560 --> 00:07:15,239 Speaker 1: with retire animal James Tefreed US now the Fletchery School 140 00:07:15,240 --> 00:07:17,760 Speaker 1: of Tufts, and he said he's concerned, but not worried. 141 00:07:17,800 --> 00:07:19,240 Speaker 1: Yet he's gonna give us a few more weeks to 142 00:07:19,240 --> 00:07:21,360 Speaker 1: see if they can staff up the NSC and other 143 00:07:21,400 --> 00:07:23,680 Speaker 1: mid level positions of the State Department the Defense Department. 144 00:07:23,920 --> 00:07:26,240 Speaker 1: There was this piece in the New York Times yesterday, uh, 145 00:07:26,280 --> 00:07:28,880 Speaker 1: and then another outlets about how a number of career 146 00:07:29,040 --> 00:07:31,000 Speaker 1: Foreign Service officers were asked to to leave the State 147 00:07:31,000 --> 00:07:33,200 Speaker 1: bar high level career foreign Service officers for has to lead. 148 00:07:33,400 --> 00:07:35,240 Speaker 1: How worrisome is this to you now as we get 149 00:07:35,480 --> 00:07:37,760 Speaker 1: further and further into the Trump administration. Well, you need 150 00:07:38,440 --> 00:07:40,640 Speaker 1: you know, professional with a lot of experience, and but 151 00:07:40,760 --> 00:07:43,520 Speaker 1: more than that, you need clear guidance because right now 152 00:07:43,560 --> 00:07:45,640 Speaker 1: you have a president and a Secretary of State and 153 00:07:45,680 --> 00:07:49,480 Speaker 1: a Secretary of Defense saying different things. Uh. Guidance from 154 00:07:49,480 --> 00:07:53,040 Speaker 1: the most senior levels broker inter agency disputes, and they 155 00:07:53,080 --> 00:07:56,120 Speaker 1: provide the principles that everyone is supposed to adhere to 156 00:07:56,720 --> 00:07:58,880 Speaker 1: right now. For example, in the South China, see we 157 00:07:58,960 --> 00:08:02,559 Speaker 1: have Rex Tillerson who has made an incredibly new claim 158 00:08:02,640 --> 00:08:04,960 Speaker 1: that China will quote not be allowed to build on 159 00:08:05,040 --> 00:08:07,640 Speaker 1: its disputed as tolls that it has militarized forces on. 160 00:08:08,160 --> 00:08:11,320 Speaker 1: And then the White House spokesperson said that it is 161 00:08:11,320 --> 00:08:15,000 Speaker 1: now US policy to defend international areas from countries trying 162 00:08:15,000 --> 00:08:18,240 Speaker 1: to take them over. International areas which include the atolls 163 00:08:18,240 --> 00:08:21,120 Speaker 1: which we don't recognize as belonging in any countries. That's 164 00:08:21,200 --> 00:08:24,360 Speaker 1: the surface of the earth. Uh, this should be incredibly alarming. 165 00:08:24,400 --> 00:08:26,200 Speaker 1: If I'm a military planner, what do I what does 166 00:08:26,200 --> 00:08:27,679 Speaker 1: this mean? What do I have to do to actually 167 00:08:27,760 --> 00:08:30,520 Speaker 1: to sure this happens? So the mid level people are 168 00:08:30,560 --> 00:08:34,719 Speaker 1: waiting for the seniors to become appointed, so they then 169 00:08:34,760 --> 00:08:37,560 Speaker 1: provide the guidance so they implement and actually carry out 170 00:08:37,600 --> 00:08:39,880 Speaker 1: foreign policy day to day. We see the president's fondness 171 00:08:39,960 --> 00:08:44,280 Speaker 1: for generals. I think of Secretary Madis, Secretary Kelly. Do 172 00:08:44,640 --> 00:08:46,720 Speaker 1: they change their thinking their way of acting when they're 173 00:08:46,720 --> 00:08:48,480 Speaker 1: out of uniform? Do you expect them to act differently 174 00:08:48,480 --> 00:08:50,760 Speaker 1: than they did? Or is the ethos very much the 175 00:08:50,800 --> 00:08:53,079 Speaker 1: same now that they're in civilian positions. Sure, if you're 176 00:08:53,080 --> 00:08:55,800 Speaker 1: a general officer like Mike Flynn or Jim mattis user 177 00:08:55,960 --> 00:08:58,200 Speaker 1: for thirty six to thirty eight to forty years. So 178 00:08:58,240 --> 00:09:01,320 Speaker 1: it's hard to save to shake that once. I mean, 179 00:09:01,360 --> 00:09:04,000 Speaker 1: you come through the professional military education system, you receive 180 00:09:04,080 --> 00:09:07,240 Speaker 1: common set of principles. You would go to the same schools, 181 00:09:07,280 --> 00:09:08,800 Speaker 1: you have the same doctor, and you tend to have 182 00:09:08,800 --> 00:09:12,200 Speaker 1: the same worldview, but it's a very different job. The 183 00:09:12,280 --> 00:09:14,480 Speaker 1: General Madis is now a retired general. He is a 184 00:09:14,559 --> 00:09:17,200 Speaker 1: senior civilian appointee running the Pentagon. He's not there to 185 00:09:17,200 --> 00:09:20,120 Speaker 1: provide professional military advice to the to the president. That 186 00:09:20,200 --> 00:09:21,480 Speaker 1: is the job of the Chairman of the Joint Chiefs 187 00:09:21,480 --> 00:09:25,160 Speaker 1: of Staff. So uh, getting these people reacclimated to civilian 188 00:09:25,200 --> 00:09:28,960 Speaker 1: policymaking is going to be different than this has been brilliant. 189 00:09:29,080 --> 00:09:31,160 Speaker 1: All I ask is two things. You gotta come back 190 00:09:31,160 --> 00:09:34,040 Speaker 1: here with all the news flowers seeing and if ever 191 00:09:34,280 --> 00:09:38,120 Speaker 1: again possibly Russia and China lineup in the news, we 192 00:09:38,160 --> 00:09:41,400 Speaker 1: will drag you and doctor economy and here and we'll 193 00:09:41,440 --> 00:09:46,600 Speaker 1: have a Zenco Economy hour. Would that be good? Look 194 00:09:46,679 --> 00:09:49,400 Speaker 1: for a printer we learned, Yeah, that would be good. 195 00:09:49,440 --> 00:09:53,120 Speaker 1: Mika Zenko with the console and foreigner relations as senior fellow, 196 00:09:53,520 --> 00:09:55,480 Speaker 1: they're just brilliant. Third, and that's what we're trying to do, 197 00:09:55,520 --> 00:10:00,640 Speaker 1: folks within the incredible news flow is just bring you experts. 198 00:10:00,679 --> 00:10:03,199 Speaker 1: You may agree and may disagree with them, but at 199 00:10:03,280 --> 00:10:09,199 Speaker 1: least it gets away from some of the collegial hysterity, hysterity, Yes, 200 00:10:09,240 --> 00:10:14,600 Speaker 1: that right, hysterity, hysterical. It's Friday. I can't talk. What 201 00:10:14,640 --> 00:10:25,240 Speaker 1: do you want? Brought you by Bank of America Mary Lynch, 202 00:10:25,360 --> 00:10:29,640 Speaker 1: dedicated to bringing our clients insights and solutions to meet 203 00:10:29,640 --> 00:10:33,120 Speaker 1: the challenges of a transforming world. That's the power of 204 00:10:33,160 --> 00:10:38,960 Speaker 1: global connections, Mary Lynch, Pierce Federan Smith Incorporated, Member s 205 00:10:39,040 --> 00:10:44,920 Speaker 1: I p C. What a wonderful guest to speak to 206 00:10:45,080 --> 00:10:47,319 Speaker 1: right now. I can't think of a boy I'd rather 207 00:10:47,360 --> 00:10:49,760 Speaker 1: talk to you right now than Charles duma Is a 208 00:10:49,840 --> 00:10:54,480 Speaker 1: Prime minister comes to um the White House, Charles, good morning. 209 00:10:55,200 --> 00:10:58,640 Speaker 1: Is America diverging from the rest of the world in 210 00:10:58,840 --> 00:11:04,080 Speaker 1: economic growth, in higher interest rates, in a Trump reflation, 211 00:11:04,600 --> 00:11:07,480 Speaker 1: in a strong US dollar? Or is that a way 212 00:11:07,559 --> 00:11:12,599 Speaker 1: overweight for January this year? I think that's a slight exaggeration. 213 00:11:12,640 --> 00:11:15,960 Speaker 1: I gotta say. The fact is, Tom, that we've got 214 00:11:16,000 --> 00:11:20,320 Speaker 1: pretty good growth going in Britain and on the continent. Um. 215 00:11:20,400 --> 00:11:22,840 Speaker 1: So I think the reflation is global actually not just 216 00:11:23,040 --> 00:11:25,040 Speaker 1: a not that's the U s and norm them. But 217 00:11:25,080 --> 00:11:27,640 Speaker 1: the US is ahead in terms of position on the 218 00:11:27,679 --> 00:11:31,559 Speaker 1: cycle and and and certainly of course this discal stimulus 219 00:11:31,600 --> 00:11:34,680 Speaker 1: adds something, Charles, do I help us understand the motivations 220 00:11:34,720 --> 00:11:36,720 Speaker 1: for Theresa make coming to you at the US right now. 221 00:11:36,720 --> 00:11:39,440 Speaker 1: There's the special relationship, of course, but when it comes 222 00:11:39,480 --> 00:11:42,960 Speaker 1: to brokering a trade deal, what's she hoping for? Well, 223 00:11:43,000 --> 00:11:46,480 Speaker 1: I mean, this whole meeting is about guys who sort 224 00:11:46,480 --> 00:11:49,600 Speaker 1: of need one another, really, isn't it. I mean, trumping 225 00:11:49,720 --> 00:11:52,720 Speaker 1: that doesn't have an enormous quantity of good friends in 226 00:11:52,760 --> 00:11:54,679 Speaker 1: the world, and given the way sort of swaying his 227 00:11:54,760 --> 00:11:56,920 Speaker 1: way to run, I mean, Chinese probably don't love him, 228 00:11:56,960 --> 00:12:00,480 Speaker 1: Mexicans don't love him. He's been pretty rude about the Euros, 229 00:12:00,600 --> 00:12:03,680 Speaker 1: so you know they don't love him either. So he 230 00:12:03,800 --> 00:12:07,160 Speaker 1: needs a friend somewhere. And this is May needs to 231 00:12:07,480 --> 00:12:11,160 Speaker 1: needs a friend pretty badly too, because in other Euros 232 00:12:11,880 --> 00:12:14,960 Speaker 1: explaining to her how she's Britain is a lot smaller 233 00:12:14,960 --> 00:12:19,080 Speaker 1: than the rest of the Eurozone put together the European Union, 234 00:12:19,400 --> 00:12:22,920 Speaker 1: and so you know, they better get real about negotiating 235 00:12:22,960 --> 00:12:29,120 Speaker 1: a trade agreements. Well, obviously it looks much less one 236 00:12:29,200 --> 00:12:33,720 Speaker 1: sided if if she's already got something up her sleeves 237 00:12:34,200 --> 00:12:36,960 Speaker 1: with the United States. I could cite a thousand articles 238 00:12:36,960 --> 00:12:40,040 Speaker 1: here in the press today which analogizes her to Margaret 239 00:12:40,040 --> 00:12:43,000 Speaker 1: Thatcher Donald Trump to to Ronald Reagan. Is that analogy 240 00:12:43,000 --> 00:12:44,559 Speaker 1: good as you see it? Do you think that there 241 00:12:44,600 --> 00:12:49,240 Speaker 1: there there is something to that? Well, I mean in 242 00:12:49,320 --> 00:12:53,160 Speaker 1: that in a sort of broad brush kind of relationships 243 00:12:53,160 --> 00:12:57,440 Speaker 1: sent Yes, in terms of the nature of the two people, 244 00:12:57,520 --> 00:13:01,520 Speaker 1: not particularly No, And in terms of the situation. Um, 245 00:13:01,720 --> 00:13:04,719 Speaker 1: I would say not that either. I mean the I 246 00:13:05,000 --> 00:13:08,000 Speaker 1: don't think Reagan was ever engaged in a in a 247 00:13:08,080 --> 00:13:15,040 Speaker 1: sort of concept of everyone victimizing the United States or 248 00:13:15,800 --> 00:13:20,160 Speaker 1: in kind of a trade war approach to the world 249 00:13:20,200 --> 00:13:25,640 Speaker 1: at large. And massive confrontation is confrontation was strategic with 250 00:13:26,160 --> 00:13:29,360 Speaker 1: Soviet Union as it then was. She delivers this big 251 00:13:29,360 --> 00:13:32,360 Speaker 1: speech yesterday in front of Republican lawmakers in Philadelphia. She 252 00:13:32,400 --> 00:13:34,320 Speaker 1: gave a big speech on breaks. I think it was 253 00:13:34,400 --> 00:13:36,280 Speaker 1: last Tuesday that the news flow has been so extreme. 254 00:13:36,400 --> 00:13:39,000 Speaker 1: I'm losing track of time. Delivered another speech and Davos 255 00:13:39,040 --> 00:13:41,320 Speaker 1: on the heels of that. Is your message getting clearer? 256 00:13:41,400 --> 00:13:43,600 Speaker 1: Is it getting more refined when it comes to Brexit, 257 00:13:43,640 --> 00:13:47,120 Speaker 1: when it comes to trade post Brexit? Yeah, it is. 258 00:13:47,280 --> 00:13:50,480 Speaker 1: It's getting clearer. Not in the sense that it's much 259 00:13:50,520 --> 00:13:53,200 Speaker 1: clearer than it ever was. It's simply it's now clear 260 00:13:53,280 --> 00:13:59,679 Speaker 1: that yes, um, we are happy to contemplate the fact 261 00:13:59,720 --> 00:14:02,680 Speaker 1: that may not be in agreement with the Arizone or 262 00:14:02,679 --> 00:14:07,120 Speaker 1: the European Union, and that, um, you know, that wouldn't 263 00:14:07,120 --> 00:14:10,559 Speaker 1: be a disaster. Um. And people are sort of actually 264 00:14:10,559 --> 00:14:13,480 Speaker 1: got over the shock of Brexit, because for a lot 265 00:14:13,520 --> 00:14:16,160 Speaker 1: of people it was just a sort of a trauma 266 00:14:16,280 --> 00:14:20,880 Speaker 1: really in Britain, the remainders, and and they're getting over 267 00:14:20,920 --> 00:14:23,520 Speaker 1: the shock, and they're realizing the world to an end, 268 00:14:23,640 --> 00:14:25,960 Speaker 1: you know, and so on one way and another. I 269 00:14:25,960 --> 00:14:29,360 Speaker 1: think things are settling down, Charles. Your world is a 270 00:14:29,400 --> 00:14:33,480 Speaker 1: world of immovable forces. In the flow world. It is 271 00:14:34,520 --> 00:14:37,760 Speaker 1: in the flow world. It is about capital flows clicking 272 00:14:37,760 --> 00:14:42,640 Speaker 1: in at some point even as we analyze relative interest rates. 273 00:14:43,040 --> 00:14:46,720 Speaker 1: Are we at a point where capital flow analysis clicks 274 00:14:46,720 --> 00:14:50,440 Speaker 1: in with a vengeance with some of these currency pairs, Well, 275 00:14:50,480 --> 00:14:54,440 Speaker 1: I think the capital flows, Um. I mean it's a 276 00:14:54,560 --> 00:14:58,360 Speaker 1: it's a tricky one to answer that because, first of all, um, 277 00:14:59,200 --> 00:15:01,480 Speaker 1: capital flows are not the only flows. You've got current 278 00:15:01,520 --> 00:15:05,040 Speaker 1: count flows, and the Eurozone has current count serpents are 279 00:15:05,080 --> 00:15:07,840 Speaker 1: half a trillion dollars, the US has the current count 280 00:15:07,840 --> 00:15:11,120 Speaker 1: deaths is larger than that, So that's a natural flow 281 00:15:11,560 --> 00:15:16,520 Speaker 1: that sustains the euro and makes this business of interest differential. 282 00:15:16,640 --> 00:15:19,400 Speaker 1: Is not the only game in town um, and so 283 00:15:19,440 --> 00:15:21,800 Speaker 1: far it has been to the great Greeba in the 284 00:15:21,880 --> 00:15:26,120 Speaker 1: game in town. But I'm not so massively optimistic about 285 00:15:26,640 --> 00:15:29,560 Speaker 1: a dollar going up if if if that is an 286 00:15:29,560 --> 00:15:34,200 Speaker 1: optimistic view in the current situation. And the place where 287 00:15:34,200 --> 00:15:38,320 Speaker 1: I think capital flows will carry exchange right up is 288 00:15:38,360 --> 00:15:43,400 Speaker 1: probably the pound actually, because you're looking at a pound 289 00:15:43,440 --> 00:15:47,280 Speaker 1: sterling where the interest rates are at a quarter percent 290 00:15:47,400 --> 00:15:50,520 Speaker 1: because the Bank of England got in a panic about Brexit. 291 00:15:50,640 --> 00:15:53,440 Speaker 1: But actually, what we have in the full employment economy 292 00:15:53,440 --> 00:15:57,080 Speaker 1: with a substantial devaluation of big surge of import prices 293 00:15:57,120 --> 00:15:59,600 Speaker 1: and everyone's expecting inflation to be two and a half 294 00:15:59,640 --> 00:16:03,040 Speaker 1: to three e sent well in that scenario, can you 295 00:16:03,080 --> 00:16:06,920 Speaker 1: really possibly envisage interest rate staying anywhere near a quarter 296 00:16:06,920 --> 00:16:09,160 Speaker 1: of the centum? And them is certainly going to be 297 00:16:09,160 --> 00:16:12,480 Speaker 1: going up a long way. So you know, if capital 298 00:16:12,520 --> 00:16:15,280 Speaker 1: flowers are going to swing anything, it will probably sterling upwards. 299 00:16:15,680 --> 00:16:17,920 Speaker 1: Charles will learn something more about the relationship between the 300 00:16:17,960 --> 00:16:20,160 Speaker 1: President the Prime Minister today. What are you learning about 301 00:16:20,920 --> 00:16:24,040 Speaker 1: President Trump's perspective on on trade from the way that 302 00:16:24,040 --> 00:16:27,000 Speaker 1: he is engaging with shall we say, the Mexican government 303 00:16:27,080 --> 00:16:31,400 Speaker 1: right now. Well, I mean I think that Trump sort 304 00:16:31,400 --> 00:16:34,000 Speaker 1: of sees things from a standpoint of taking a very 305 00:16:34,000 --> 00:16:38,600 Speaker 1: tough and negotiating position. And what we haven't yet seen 306 00:16:38,760 --> 00:16:42,000 Speaker 1: is what he's like when he moves to settle something 307 00:16:42,080 --> 00:16:46,800 Speaker 1: rather than the sort of stake out a position. Um. 308 00:16:46,960 --> 00:16:51,760 Speaker 1: I can remember the days when for JP Morgan and 309 00:16:52,040 --> 00:16:57,160 Speaker 1: Trump became the world's negative billionaire, and he negotiated a 310 00:16:57,200 --> 00:16:59,280 Speaker 1: very good deal with the banks who had lent in money, 311 00:16:59,360 --> 00:17:04,159 Speaker 1: which is of banking and Bangos justin cause um and 312 00:17:04,280 --> 00:17:08,159 Speaker 1: the handle negotiations very well. So we'll see. But at 313 00:17:08,200 --> 00:17:11,240 Speaker 1: the moment we've just seen the staking out position. Charles 314 00:17:11,280 --> 00:17:14,160 Speaker 1: helped me here with trade one on one. I get 315 00:17:14,200 --> 00:17:18,800 Speaker 1: the idea that there's US Mexican trade, But then how 316 00:17:18,880 --> 00:17:21,960 Speaker 1: much of it is not just simply the case of 317 00:17:22,040 --> 00:17:25,080 Speaker 1: corona that John Tucker is going to get from Mexico 318 00:17:25,640 --> 00:17:29,879 Speaker 1: coming over. If it's something more more complex than a 319 00:17:29,920 --> 00:17:33,600 Speaker 1: case of corona, like a car, there's a lot of 320 00:17:33,640 --> 00:17:37,040 Speaker 1: back and forth, isn't there in the manufacturing of that 321 00:17:37,119 --> 00:17:41,359 Speaker 1: one unit? Yeah, I think the business of supply change 322 00:17:41,480 --> 00:17:45,080 Speaker 1: is probably the area where this whole trade policy he's 323 00:17:45,160 --> 00:17:48,600 Speaker 1: thinking through a bit more carefy as you say that. 324 00:17:49,800 --> 00:17:52,439 Speaker 1: And there are a whole lot of things you might 325 00:17:52,480 --> 00:17:55,199 Speaker 1: be buying from Mexico which have a whole lot of 326 00:17:55,200 --> 00:17:58,440 Speaker 1: stuff in them which could be made in China, could 327 00:17:58,440 --> 00:18:02,000 Speaker 1: be made in down the corner in the United States. 328 00:18:02,080 --> 00:18:04,520 Speaker 1: And so the guys who are making those bits and 329 00:18:04,560 --> 00:18:06,600 Speaker 1: then go out and have a little bit added to 330 00:18:06,600 --> 00:18:09,000 Speaker 1: them in Mexico and then come back to the US market, 331 00:18:09,359 --> 00:18:12,400 Speaker 1: they're not gonna be too happy about having that cut off. 332 00:18:13,280 --> 00:18:17,080 Speaker 1: So um, And that's a that's a broad problem with 333 00:18:17,840 --> 00:18:22,679 Speaker 1: any anything other than straightforward import duties or the effect 334 00:18:22,760 --> 00:18:26,199 Speaker 1: of exchange late change. It begs questions about complexity here, 335 00:18:26,240 --> 00:18:28,199 Speaker 1: about how long it would take to adjust if we 336 00:18:28,240 --> 00:18:30,760 Speaker 1: saw more protectionism, if we saw the kind of teiffs 337 00:18:30,760 --> 00:18:34,400 Speaker 1: and posts that President Trips Press secretary suggested yesterday. Give 338 00:18:34,480 --> 00:18:38,720 Speaker 1: us some sense of the complication here, well, I think, 339 00:18:39,240 --> 00:18:41,600 Speaker 1: I mean the complication very much depends on the scale 340 00:18:41,600 --> 00:18:43,240 Speaker 1: of the whole thing. I mean, we've heard about this 341 00:18:43,359 --> 00:18:46,919 Speaker 1: border tax idea. For example, if you look at the numbers, 342 00:18:46,960 --> 00:18:51,879 Speaker 1: you find that if you if you wanted to yield 343 00:18:51,960 --> 00:18:56,080 Speaker 1: half the yield of the federal corporation tax um. That 344 00:18:56,160 --> 00:19:02,080 Speaker 1: would be two billion dollars, and that would be import 345 00:19:02,160 --> 00:19:06,360 Speaker 1: duty without if you had no exceptions to any imports. 346 00:19:07,080 --> 00:19:11,800 Speaker 1: But of course it would impact very differently people who 347 00:19:11,800 --> 00:19:15,720 Speaker 1: were who who were in the different situations we've just 348 00:19:15,840 --> 00:19:19,520 Speaker 1: discussed in terms of supply chains um. But you know, 349 00:19:20,000 --> 00:19:23,640 Speaker 1: if that's that's about the limit of what one could 350 00:19:23,680 --> 00:19:27,720 Speaker 1: imagine being feasible. When people start talking about twenty or 351 00:19:27,840 --> 00:19:31,320 Speaker 1: thirty or forty five percent import duties, I mean, it 352 00:19:31,359 --> 00:19:36,080 Speaker 1: would be such a shattering effect, but I don't think 353 00:19:36,240 --> 00:19:38,560 Speaker 1: it would have a chance actually of getting passed through 354 00:19:38,560 --> 00:19:40,760 Speaker 1: the Congress. And you've got to remember that all this 355 00:19:40,840 --> 00:19:42,919 Speaker 1: stuff is basically going to add to the cost of 356 00:19:43,000 --> 00:19:46,720 Speaker 1: living and potentially therefore hurt some of the people who 357 00:19:47,560 --> 00:19:51,600 Speaker 1: were most enthusiastic voters for the Republicans. Charles, we're awaiting 358 00:19:51,720 --> 00:19:53,920 Speaker 1: numbers from the Commerce Department here in the US on 359 00:19:53,920 --> 00:19:55,760 Speaker 1: on growth in the US at the end of last year. 360 00:19:55,800 --> 00:19:58,680 Speaker 1: We got figures in the UK yesterday experience to point 361 00:19:58,760 --> 00:20:00,720 Speaker 1: six percent of the last three months of two thousand 362 00:20:01,160 --> 00:20:03,280 Speaker 1: sixteen fold that into what's going on with the Bank 363 00:20:03,280 --> 00:20:06,000 Speaker 1: of England right now. How are they interpreting those figures 364 00:20:06,000 --> 00:20:07,320 Speaker 1: and what's your sense of when we could see a 365 00:20:07,359 --> 00:20:10,640 Speaker 1: right rise. Well, I think the Bank of England's problem 366 00:20:10,720 --> 00:20:12,960 Speaker 1: is that it had a forecast about what was going 367 00:20:13,000 --> 00:20:15,800 Speaker 1: to happen as a result of exit, which is way 368 00:20:15,800 --> 00:20:18,480 Speaker 1: out of line with what's actually happened. And so far 369 00:20:18,520 --> 00:20:21,040 Speaker 1: we've just had the short term being had of line 370 00:20:21,080 --> 00:20:25,320 Speaker 1: and their their view remains, their fundamental view remains that 371 00:20:25,400 --> 00:20:27,720 Speaker 1: there will be a lot of people who, in one 372 00:20:27,760 --> 00:20:31,400 Speaker 1: form or another just sort of shy off investing in Britain. Well, 373 00:20:31,640 --> 00:20:34,160 Speaker 1: we don't think that's true, and the extent it is true, 374 00:20:34,480 --> 00:20:36,560 Speaker 1: it will probably be outweighed by the fact that the 375 00:20:36,640 --> 00:20:40,440 Speaker 1: very cheap exchange it makes the country to attractive location 376 00:20:40,480 --> 00:20:43,600 Speaker 1: and very profitable. So well mine another. I think the 377 00:20:43,640 --> 00:20:45,720 Speaker 1: Bank of England is going to be caught on the 378 00:20:45,720 --> 00:20:47,560 Speaker 1: wrong foot and it's going to have to tighten fitty 379 00:20:47,560 --> 00:20:49,960 Speaker 1: shaftly during the course of this year. Charles, Thank you 380 00:20:50,000 --> 00:21:05,960 Speaker 1: so much. Charles. To Lombard Street Research one James Glassman 381 00:21:06,000 --> 00:21:10,840 Speaker 1: of JP Morgan, Um, it's unfair jib Do to slice 382 00:21:10,840 --> 00:21:13,760 Speaker 1: and dice a first look and have you do that 383 00:21:13,840 --> 00:21:16,720 Speaker 1: one minute and forty seconds into the report anyone could 384 00:21:16,760 --> 00:21:18,520 Speaker 1: though he'd be he'd be the one to do it. 385 00:21:19,119 --> 00:21:22,199 Speaker 1: But it does speak of a dampened first look at 386 00:21:22,200 --> 00:21:25,920 Speaker 1: fourth quarter, a dampened animal spirit. What is the state 387 00:21:25,960 --> 00:21:30,040 Speaker 1: of our animal spirit right now? Well, the looking backwards 388 00:21:30,040 --> 00:21:32,280 Speaker 1: in the rear view of mirror, which this number does. 389 00:21:32,640 --> 00:21:34,480 Speaker 1: It's not been great, right, But you get a sense 390 00:21:34,520 --> 00:21:38,160 Speaker 1: when you look at some of the more recent things that, uh, 391 00:21:38,160 --> 00:21:41,360 Speaker 1: there's a little more optimism is showing up in CAPEX surveys. 392 00:21:41,400 --> 00:21:44,160 Speaker 1: The manufacturing trends are starting to pick up a little bit. 393 00:21:44,520 --> 00:21:47,440 Speaker 1: Propleisly doing a little better. I think the real value 394 00:21:47,440 --> 00:21:49,600 Speaker 1: of GDP it's stead of telling you a story that 395 00:21:49,640 --> 00:21:52,000 Speaker 1: we've you know, trying to help understand why the things 396 00:21:52,040 --> 00:21:54,560 Speaker 1: bill so squishy, it's telling you the story that we 397 00:21:54,640 --> 00:21:57,560 Speaker 1: know that we said, of know what's been going on. 398 00:21:57,920 --> 00:22:00,200 Speaker 1: Through two thousand fourteen. We were doing pretty well, and 399 00:22:00,200 --> 00:22:02,239 Speaker 1: then all of a sudden we hit a britty and 400 00:22:02,280 --> 00:22:04,200 Speaker 1: it was the energy sector and you saw a business 401 00:22:04,240 --> 00:22:09,439 Speaker 1: construction activity plunging. Then that cascaded into CAPEX down and 402 00:22:09,480 --> 00:22:12,200 Speaker 1: then for the last you know, for this past year 403 00:22:12,320 --> 00:22:13,879 Speaker 1: two thousand and sixteen, it was really more of an 404 00:22:13,880 --> 00:22:17,280 Speaker 1: inventory adjustment in reaction to that. So this is all 405 00:22:17,359 --> 00:22:19,840 Speaker 1: about the oil adjustment. And you know, consumers have been 406 00:22:19,880 --> 00:22:22,679 Speaker 1: doing okay, not great, but okay. And it's the business 407 00:22:22,680 --> 00:22:25,600 Speaker 1: sector that's really been going through this big absorption that 408 00:22:25,760 --> 00:22:28,200 Speaker 1: feels like it's coming to an end. Even even aside 409 00:22:28,240 --> 00:22:30,800 Speaker 1: from the changing of the garden Washington, it felt to 410 00:22:30,840 --> 00:22:33,080 Speaker 1: me like things are beginning to shift because the inventory 411 00:22:33,080 --> 00:22:36,240 Speaker 1: adjustment is over. And that's why you're seeing manufacturing activity 412 00:22:36,240 --> 00:22:40,120 Speaker 1: picking up in these h s M surveys and buried 413 00:22:40,280 --> 00:22:43,920 Speaker 1: in this is a lousy net exports number negative one 414 00:22:43,920 --> 00:22:47,760 Speaker 1: point seven, which is a big, fat, ugly number. So 415 00:22:47,920 --> 00:22:50,119 Speaker 1: guys like me and Jim, you're gonna explain this to 416 00:22:50,160 --> 00:22:55,680 Speaker 1: our audience. Go to real final sales, which is actually 417 00:22:55,720 --> 00:23:00,439 Speaker 1: a pretty good number, exactly explaining real final sales versus 418 00:23:00,440 --> 00:23:04,600 Speaker 1: the export import creator that we witness. What real finals 419 00:23:04,760 --> 00:23:07,560 Speaker 1: This is more a story about what we're buying, what 420 00:23:07,680 --> 00:23:10,680 Speaker 1: consumers are buying. How what we buy though, whether it 421 00:23:10,720 --> 00:23:14,000 Speaker 1: comes from abroad or domestic, that's what affects GDP. So 422 00:23:14,040 --> 00:23:16,640 Speaker 1: if we're buying a lot of stuff, but it's buying 423 00:23:16,680 --> 00:23:19,800 Speaker 1: we're buying more important things things to abroad, then that 424 00:23:19,840 --> 00:23:25,520 Speaker 1: tends to translate into slower GDP. But but broadly, you know, 425 00:23:25,600 --> 00:23:28,840 Speaker 1: strong demand is a good sign for everything because because 426 00:23:28,840 --> 00:23:31,360 Speaker 1: we also interconnected, there's so many things made all over 427 00:23:31,359 --> 00:23:35,199 Speaker 1: the world that the stronger demand by Americans means that 428 00:23:35,240 --> 00:23:37,880 Speaker 1: we're lifting everybody and eventually it kind of comes back 429 00:23:37,920 --> 00:23:40,000 Speaker 1: to us. So the more we help others, the more 430 00:23:40,040 --> 00:23:43,080 Speaker 1: we help ourselves. That's the basic idea. David Garoud point 431 00:23:43,080 --> 00:23:45,360 Speaker 1: out quickly here investment is really not all that bad. 432 00:23:45,480 --> 00:23:49,480 Speaker 1: I mean, you know that's starting to shift because all 433 00:23:49,520 --> 00:23:51,920 Speaker 1: that all that energy activity is starting to that's that 434 00:23:52,040 --> 00:23:54,320 Speaker 1: much of that justice behind us to We're already seeing 435 00:23:54,640 --> 00:23:57,320 Speaker 1: rick counts up dramatically. We're probably going to see more 436 00:23:57,680 --> 00:24:00,520 Speaker 1: upside on that in the next quarter to last. And 437 00:24:00,520 --> 00:24:02,960 Speaker 1: help us with a long term perspective here, there's a 438 00:24:03,000 --> 00:24:05,360 Speaker 1: meth quality to these numbers of the last what six 439 00:24:05,359 --> 00:24:08,800 Speaker 1: seven years? Now, what does that say to you? And 440 00:24:08,840 --> 00:24:11,440 Speaker 1: what does it say about going forward? You know, people 441 00:24:11,440 --> 00:24:13,880 Speaker 1: are surprised. If you asked me back in two thousand nine, 442 00:24:14,200 --> 00:24:15,840 Speaker 1: what kind of recovery we're going to have if we 443 00:24:15,880 --> 00:24:18,080 Speaker 1: grow two percent, which is what we've been doing. I 444 00:24:18,119 --> 00:24:20,399 Speaker 1: would and much of my peers would say that's not 445 00:24:20,480 --> 00:24:23,520 Speaker 1: a recovery. Two percent growth is not what we're used 446 00:24:23,560 --> 00:24:26,720 Speaker 1: to for for recovery, so I think the way. But 447 00:24:27,000 --> 00:24:28,400 Speaker 1: and yet, when you look at all those things about 448 00:24:28,400 --> 00:24:31,200 Speaker 1: the economy, except for growth, we're looking at all normal. 449 00:24:31,359 --> 00:24:33,720 Speaker 1: The economy seems to be normal, and we're getting back 450 00:24:33,720 --> 00:24:35,640 Speaker 1: on our feet. We're not quite there yet, but we're 451 00:24:35,640 --> 00:24:38,119 Speaker 1: seeing a lot of normal things happening that normally that 452 00:24:38,200 --> 00:24:40,679 Speaker 1: happened in the recovery. And the reason that's happening is 453 00:24:40,720 --> 00:24:44,320 Speaker 1: because our demographic in the background. The FAT has a 454 00:24:44,359 --> 00:24:47,600 Speaker 1: bunch of analysis on this. The working age population is 455 00:24:47,640 --> 00:24:50,679 Speaker 1: slowing down, has slowed down quite a bit, and what 456 00:24:50,760 --> 00:24:53,000 Speaker 1: that means is we don't have to grow as rapidly 457 00:24:53,000 --> 00:24:55,400 Speaker 1: as we're used to thinking in order to get back 458 00:24:55,400 --> 00:24:58,960 Speaker 1: on our feet. So two percent growth seems kind of unimpressive. 459 00:24:59,400 --> 00:25:02,320 Speaker 1: And yet and you look at everything else about our recovery, 460 00:25:02,480 --> 00:25:06,800 Speaker 1: it's pretty pretty impressive. Fifteen million jobs up, unemployment down, 461 00:25:07,240 --> 00:25:11,440 Speaker 1: construction activity everywhere doing well, the fiscal budget coming back down, 462 00:25:11,760 --> 00:25:14,800 Speaker 1: the underwater problem gone, the valuation of the stock markets 463 00:25:14,880 --> 00:25:17,840 Speaker 1: come back to normal. This is pretty incredible that this 464 00:25:17,920 --> 00:25:22,920 Speaker 1: is happening seven to eight years after a real serious downturn. 465 00:25:23,000 --> 00:25:25,399 Speaker 1: Back in two thousand eight nine. It's a quick question here, 466 00:25:25,400 --> 00:25:27,240 Speaker 1: fold us into the to the numbers we've gotten on 467 00:25:27,240 --> 00:25:31,159 Speaker 1: the housing market this week. You know, the housing markets 468 00:25:31,240 --> 00:25:33,399 Speaker 1: very ball, so we're in the ball's time of the 469 00:25:33,440 --> 00:25:37,720 Speaker 1: month of the year. Housing activity has been the slowest 470 00:25:37,720 --> 00:25:40,880 Speaker 1: to recover because, frankly, the reason is because a lot 471 00:25:40,920 --> 00:25:43,600 Speaker 1: of our young people who really are on the margin, 472 00:25:43,680 --> 00:25:46,359 Speaker 1: they're the ones that need new housing. And young people 473 00:25:46,520 --> 00:25:48,560 Speaker 1: have been slow to come back into the job market 474 00:25:48,560 --> 00:25:50,720 Speaker 1: because it was a difficult market for them. So the 475 00:25:50,760 --> 00:25:54,239 Speaker 1: whole housing sector it's recovering, but we're not quite there yet. 476 00:25:54,240 --> 00:25:57,520 Speaker 1: It's probably the last sector to fully recover on a 477 00:25:57,640 --> 00:25:59,960 Speaker 1: change GDP basis. And I'm gonna come back and talk 478 00:26:00,040 --> 00:26:04,080 Speaker 1: about this with with May and Trump, uh greeting today. 479 00:26:04,200 --> 00:26:06,560 Speaker 1: Am I right that the United Kingdom fourth quarter g 480 00:26:06,680 --> 00:26:09,880 Speaker 1: DP is a bigger number two point two percent Jim 481 00:26:09,880 --> 00:26:15,760 Speaker 1: Glass versus our one? Is that really impressive? Yeah? I 482 00:26:15,760 --> 00:26:17,560 Speaker 1: think you know to me, you're seeing you're seeing the 483 00:26:17,600 --> 00:26:19,520 Speaker 1: same kind of thing, by the way in the European regions, 484 00:26:20,800 --> 00:26:22,600 Speaker 1: and I think that's telling Okay, Jim, we're gonna we're 485 00:26:22,600 --> 00:26:24,159 Speaker 1: gonna run out of time, We're gonna come back with 486 00:26:24,240 --> 00:26:27,560 Speaker 1: Jim Glass when I talk about this today. Let me 487 00:26:27,600 --> 00:26:29,879 Speaker 1: ask you here, Jim, about how you process all of 488 00:26:29,880 --> 00:26:32,280 Speaker 1: this in light of having a new administration and Watchton, 489 00:26:32,320 --> 00:26:34,400 Speaker 1: a new administration that is promising to do so much, 490 00:26:34,480 --> 00:26:37,560 Speaker 1: change so much, uh, changing so much without promising to 491 00:26:37,560 --> 00:26:39,119 Speaker 1: do it even as well as we saw yesterday with 492 00:26:39,119 --> 00:26:42,399 Speaker 1: the announcement of this border adjusted tax. How much import 493 00:26:42,480 --> 00:26:44,880 Speaker 1: do you give the numbers like the ones we got today. Well, 494 00:26:44,880 --> 00:26:46,840 Speaker 1: I mean the airport important because they're giving you some 495 00:26:46,920 --> 00:26:50,680 Speaker 1: insight into the dynamics that's playing through the US economy. 496 00:26:50,800 --> 00:26:52,840 Speaker 1: And I think you had there not been a change 497 00:26:52,920 --> 00:26:55,680 Speaker 1: in changing of the guard, we probably would be a 498 00:26:55,760 --> 00:26:59,000 Speaker 1: little more cautious about the outlook where twoth hasn't seventeen. 499 00:26:59,359 --> 00:27:01,240 Speaker 1: But but you, I think what you can say looking 500 00:27:01,240 --> 00:27:04,840 Speaker 1: at GDP is that the bulk of the drag from 501 00:27:04,840 --> 00:27:07,800 Speaker 1: the energy adjustment is probably behind us. What's passing. We're 502 00:27:07,800 --> 00:27:09,800 Speaker 1: starting to see a shift in capex picking up. We 503 00:27:09,800 --> 00:27:11,879 Speaker 1: see that in the surveys you saw in the durable 504 00:27:11,880 --> 00:27:13,480 Speaker 1: goods before it this morning. By the way, you're looking 505 00:27:13,480 --> 00:27:16,680 Speaker 1: behind the headlines, the shipment the non the capital goods 506 00:27:16,680 --> 00:27:19,760 Speaker 1: area was quite good. Actually, so I think you know, 507 00:27:19,880 --> 00:27:22,159 Speaker 1: GP is important if it tells you what's in the 508 00:27:22,200 --> 00:27:24,720 Speaker 1: re view mirror. The thing is, we're kind of uncertain 509 00:27:25,000 --> 00:27:27,920 Speaker 1: about how to think about what's coming with the Trump administration. 510 00:27:27,960 --> 00:27:30,480 Speaker 1: But I think the general idea of driving the market 511 00:27:30,560 --> 00:27:32,560 Speaker 1: is that we're going to get more focused on the economy. 512 00:27:32,600 --> 00:27:34,240 Speaker 1: That's you know, sort of the message coming out of 513 00:27:34,280 --> 00:27:39,000 Speaker 1: the election, and more focused on more business focus, you know, 514 00:27:39,240 --> 00:27:42,040 Speaker 1: time out for regulation and and you can sort of 515 00:27:42,080 --> 00:27:45,040 Speaker 1: see this showing up in the in the Capex surveys. 516 00:27:45,080 --> 00:27:47,240 Speaker 1: So you know, one thing, in a way, we don't 517 00:27:47,280 --> 00:27:49,119 Speaker 1: know what's gonna happen right there's a lot of un certainty, 518 00:27:49,160 --> 00:27:51,119 Speaker 1: a lot of a lot of debate about the text 519 00:27:51,480 --> 00:27:54,480 Speaker 1: reform plan they've got, but the equity market is responding 520 00:27:54,520 --> 00:27:58,879 Speaker 1: in a way that monetizes those expectations. The equity markets 521 00:27:58,880 --> 00:28:02,480 Speaker 1: of almost two million dollars since early November, and that 522 00:28:02,600 --> 00:28:05,200 Speaker 1: does have an effect on consumer spending in the course 523 00:28:05,200 --> 00:28:06,520 Speaker 1: of the year. So we don't have to know a 524 00:28:06,520 --> 00:28:08,840 Speaker 1: lot of the details of what's coming as long as 525 00:28:08,880 --> 00:28:12,440 Speaker 1: what's happening is sort of in line was the optimistic view. 526 00:28:12,480 --> 00:28:15,119 Speaker 1: But that's driving the market. Pull back the current a 527 00:28:15,160 --> 00:28:17,320 Speaker 1: little bit more on those gable good numbers if you 528 00:28:17,440 --> 00:28:18,760 Speaker 1: if you would, I know we had a lot of 529 00:28:18,760 --> 00:28:23,760 Speaker 1: commercial aircraft bookings recently. Yeah, son, So the headlines noisy, yea, 530 00:28:23,840 --> 00:28:25,639 Speaker 1: the headlines always noisy. The thing that we e conmers 531 00:28:25,680 --> 00:28:29,479 Speaker 1: tend to focus on is non defense capital spending. So 532 00:28:29,680 --> 00:28:33,600 Speaker 1: orders were up big time and shipments, which is about 533 00:28:33,600 --> 00:28:36,600 Speaker 1: current production. That's what's showing up in all these in 534 00:28:36,640 --> 00:28:39,440 Speaker 1: the GDP figures, which had a little better capex spending, 535 00:28:39,880 --> 00:28:43,160 Speaker 1: it's it's shipments and orders of non defense capital goods 536 00:28:43,160 --> 00:28:45,560 Speaker 1: that are the kind of the most important part of 537 00:28:45,560 --> 00:28:48,560 Speaker 1: this report. And those trends are all picking up, and 538 00:28:48,600 --> 00:28:50,920 Speaker 1: that sort of that sort of lines up with the 539 00:28:50,960 --> 00:28:53,880 Speaker 1: surveys we're seeing from the feder Reserve banks that show 540 00:28:54,000 --> 00:28:58,840 Speaker 1: that capex intentions are picking up really quite significantly. Maybe 541 00:28:58,840 --> 00:29:02,080 Speaker 1: that's partly sentiments because of the change in Washington, but 542 00:29:02,120 --> 00:29:04,240 Speaker 1: it's I think there's something real going on in there too. 543 00:29:04,840 --> 00:29:09,080 Speaker 1: From the depths of fourteen, fifteen, and sixteen, our animal 544 00:29:09,240 --> 00:29:13,600 Speaker 1: spirit Jim Glassman is up to a cracking three point five. 545 00:29:15,320 --> 00:29:17,760 Speaker 1: I have a moving average study, folks. I'll feature this 546 00:29:17,840 --> 00:29:20,080 Speaker 1: on Facebook Live, I'll get it out on Twitter, and 547 00:29:20,560 --> 00:29:22,720 Speaker 1: I probably will end up doing this on television on 548 00:29:22,800 --> 00:29:26,720 Speaker 1: Monday if they let me in the building again, And Jim, 549 00:29:26,880 --> 00:29:30,960 Speaker 1: I look at the four year presidential moving average, I 550 00:29:31,000 --> 00:29:35,440 Speaker 1: look at the ten year forty quarter moving average. We're 551 00:29:35,440 --> 00:29:38,880 Speaker 1: not getting it done. Are we at a point where 552 00:29:38,880 --> 00:29:43,800 Speaker 1: we must inflate, give up any real growth optimism, and 553 00:29:43,880 --> 00:29:48,280 Speaker 1: just give the illusion of money inflation to jump start 554 00:29:48,320 --> 00:29:51,360 Speaker 1: this puppy. I don't think so. I mean, we still 555 00:29:51,440 --> 00:29:55,160 Speaker 1: have hidden pockets of unemployment. They're still, as somebody put it, 556 00:29:55,200 --> 00:29:58,520 Speaker 1: we're not really up at our potential yet. So there's 557 00:29:58,640 --> 00:30:00,800 Speaker 1: merit and trying to figure out how to re energize 558 00:30:00,800 --> 00:30:03,920 Speaker 1: the economy. And frankly, the more important reason to do 559 00:30:04,000 --> 00:30:07,360 Speaker 1: this is it's very it's burdens I'm on the working 560 00:30:07,360 --> 00:30:12,120 Speaker 1: population to finance the the government's income support programs. That 561 00:30:12,200 --> 00:30:14,160 Speaker 1: we can't figure out how to get the economy moving faster, 562 00:30:14,520 --> 00:30:16,720 Speaker 1: We're going to run it to big challenges. It's gonna 563 00:30:16,720 --> 00:30:19,480 Speaker 1: put more and more on young people. I keep bringing 564 00:30:19,480 --> 00:30:21,400 Speaker 1: this up, I've runt it up throughout the week. But 565 00:30:21,440 --> 00:30:23,320 Speaker 1: I go back to that question from the press briefing 566 00:30:23,320 --> 00:30:26,280 Speaker 1: on Monday about what's the unemployment rate in the US, 567 00:30:26,320 --> 00:30:28,640 Speaker 1: And I'm just eager to hear your your perspective. Jim 568 00:30:28,640 --> 00:30:31,160 Speaker 1: Glassman on how big an issue that's gonna be here 569 00:30:31,240 --> 00:30:33,360 Speaker 1: measurement of the labor market here in the year two 570 00:30:33,400 --> 00:30:36,480 Speaker 1: thousand seventeen. You know, it's always challenging. I really think 571 00:30:36,480 --> 00:30:39,280 Speaker 1: the official on a plumber rate is a useful starting point. 572 00:30:39,640 --> 00:30:42,040 Speaker 1: But the truth is, in this cycle, there's been a 573 00:30:42,040 --> 00:30:45,200 Speaker 1: couple of populations of people who are we know are unemployed, 574 00:30:45,240 --> 00:30:48,000 Speaker 1: and they're just not in those numbers. Part timers, people 575 00:30:48,000 --> 00:30:50,840 Speaker 1: who are working part time involuntarily they don't show up, 576 00:30:50,880 --> 00:30:53,760 Speaker 1: is unemployed. That's been a real big challenge in this cycle. 577 00:30:54,040 --> 00:30:56,800 Speaker 1: And the other problem is that young people twenties and 578 00:30:56,800 --> 00:30:59,400 Speaker 1: thirty year olds, they dropped out and when a lot 579 00:30:59,440 --> 00:31:02,200 Speaker 1: of them went back to school, there's about two million 580 00:31:02,240 --> 00:31:04,320 Speaker 1: of them still out. So the way I look at it, 581 00:31:04,640 --> 00:31:06,520 Speaker 1: I don't really know what's happening to people in their 582 00:31:06,520 --> 00:31:09,280 Speaker 1: fifties who might have lost a job and are giving up. 583 00:31:09,520 --> 00:31:10,760 Speaker 1: But if you look at the people who are in 584 00:31:10,800 --> 00:31:13,680 Speaker 1: their prime working years and you and you take account 585 00:31:13,680 --> 00:31:15,800 Speaker 1: of this part time issue, I think you could make 586 00:31:15,840 --> 00:31:18,400 Speaker 1: a claim that the unemployment rates from down to about 587 00:31:18,440 --> 00:31:22,200 Speaker 1: six which which it's making progress. But We're not quite 588 00:31:22,240 --> 00:31:25,800 Speaker 1: there yet. I'm looking at the decade moving average of 589 00:31:25,840 --> 00:31:31,040 Speaker 1: our animal spirit from two thousand six, nominal g d 590 00:31:31,200 --> 00:31:36,520 Speaker 1: P is declined forty five from nominal g d P 591 00:31:36,720 --> 00:31:40,440 Speaker 1: Jim Glassman a five point six percent to a run 592 00:31:40,560 --> 00:31:45,680 Speaker 1: rate of about three that that decline tells me wage 593 00:31:45,680 --> 00:31:50,640 Speaker 1: growth could be problematic. Do you see signs of wage growth? 594 00:31:51,760 --> 00:31:54,360 Speaker 1: It's picking up a little. Uh, And no surprise that 595 00:31:54,360 --> 00:31:56,360 Speaker 1: I've taken this long to get your point, but we are. 596 00:31:56,520 --> 00:31:58,640 Speaker 1: We are starting to see something, and I think it's 597 00:31:58,640 --> 00:32:00,840 Speaker 1: gonna get harder. We're gonna this is going to find 598 00:32:00,840 --> 00:32:02,920 Speaker 1: it harder and harder to find people, and we're gonna 599 00:32:02,920 --> 00:32:05,600 Speaker 1: start to see pockets of you know, people doing much better. 600 00:32:06,160 --> 00:32:10,760 Speaker 1: So that's my expectation. Last question, you're just about energy. 601 00:32:10,880 --> 00:32:12,640 Speaker 1: You alluded to it earlier. The role that it's playing 602 00:32:12,640 --> 00:32:15,360 Speaker 1: here in the numbers that we got today. Give us 603 00:32:15,360 --> 00:32:17,960 Speaker 1: a sense of where you think oil oil is headed here, Jim, 604 00:32:18,760 --> 00:32:20,560 Speaker 1: You know, I think where we are, We've we've got 605 00:32:20,560 --> 00:32:22,600 Speaker 1: a lot of potential. There's a lot of supply that 606 00:32:22,720 --> 00:32:26,280 Speaker 1: this shale technology has opened given us access to. So 607 00:32:26,320 --> 00:32:28,560 Speaker 1: I really think that people in the industry think that 608 00:32:29,080 --> 00:32:32,120 Speaker 1: we're probably gonna hang around the current levels forty six level. 609 00:32:32,160 --> 00:32:33,440 Speaker 1: I don't I doubt we're gonna go back to a 610 00:32:33,480 --> 00:32:36,440 Speaker 1: hundred dollars because there's so much out there that we've 611 00:32:36,520 --> 00:32:38,800 Speaker 1: learned how to tap if prices go up. And look, 612 00:32:38,960 --> 00:32:41,320 Speaker 1: look what's going on now. Oil prices recovered to about 613 00:32:41,320 --> 00:32:44,240 Speaker 1: fifty and also you're seeing drilling activity picking up, which 614 00:32:44,280 --> 00:32:47,719 Speaker 1: tells you, um, there's the we were very sensitive to this. 615 00:32:47,760 --> 00:32:51,120 Speaker 1: There's a capacity to open up new supplies if oil 616 00:32:51,160 --> 00:32:53,560 Speaker 1: prices do better. So I kind of think in this 617 00:32:53,760 --> 00:32:56,440 Speaker 1: range for a year or so and maybe eventually up 618 00:32:56,480 --> 00:32:59,160 Speaker 1: to the sixty dollar range just sort of makes sense. 619 00:33:00,400 --> 00:33:02,560 Speaker 1: Is here very quickly here, Jim Glassman, do you have 620 00:33:02,560 --> 00:33:05,720 Speaker 1: an optimum level of animal spirit of nominal? Do we 621 00:33:05,840 --> 00:33:08,480 Speaker 1: just have to get it above four percent? I think so. 622 00:33:08,560 --> 00:33:10,480 Speaker 1: I think it's I think in the next couple of 623 00:33:10,560 --> 00:33:12,840 Speaker 1: years we may get it because we are getting some 624 00:33:12,960 --> 00:33:16,840 Speaker 1: new focus on capex and maybe some of this push 625 00:33:17,120 --> 00:33:19,560 Speaker 1: the elections have got us focus more on economic issues. 626 00:33:19,600 --> 00:33:21,520 Speaker 1: We may get up there, but I really think you 627 00:33:21,560 --> 00:33:23,640 Speaker 1: need to see gross up in that range. You need 628 00:33:23,680 --> 00:33:27,480 Speaker 1: to see something more like growth nominal. Yeah, I got 629 00:33:27,520 --> 00:33:29,480 Speaker 1: this chart, folks. I'll put it on on social and 630 00:33:29,480 --> 00:33:33,080 Speaker 1: I'll have it from Monday on television. David is just 631 00:33:33,080 --> 00:33:37,080 Speaker 1: just absolutely remarkable. I'm gonna take nominal g GDP back 632 00:33:37,120 --> 00:33:39,720 Speaker 1: to when a young Lassman was at Northwestern end of 633 00:33:39,720 --> 00:33:44,040 Speaker 1: the tutelage of Mr Gordon Jim Glassman. Very valuable. Thank 634 00:33:44,080 --> 00:33:46,640 Speaker 1: you so much. We'll miss you. Job's day uh this 635 00:33:46,720 --> 00:33:58,440 Speaker 1: time around. Thanks for listening to the Bloomberg Surveillance Podcast. 636 00:33:58,800 --> 00:34:03,920 Speaker 1: Subscribe to listen to interviews on iTunes, SoundCloud, or whichever 637 00:34:04,040 --> 00:34:08,480 Speaker 1: podcast platform you prefer. I'm out on Twitter at Tom Keene. 638 00:34:08,560 --> 00:34:12,360 Speaker 1: David Gura is at David Gura. Before the podcast, you 639 00:34:12,400 --> 00:34:28,680 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio, brought you 640 00:34:28,719 --> 00:34:32,399 Speaker 1: by Bank of America Mary Lynch. 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