WEBVTT - Intl. Women's Day with Abby Joseph Cohen 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. 0:00:13.480 --> 0:00:17.560 Daily we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.360 Bloomberg dot com, and of course on the Bloomberg What 0:00:33.440 --> 0:00:36.440 a joy it has been through surveillance this morning to 0:00:36.479 --> 0:00:39.480 speak to any number of women who have been out 0:00:39.520 --> 0:00:44.680 front with academic courage and uh professionalism within the industry, 0:00:44.720 --> 0:00:47.839 including Julia Cornado with us earlier and now for the 0:00:48.000 --> 0:00:50.920 entire hour. Thrilled to bring you Abby Joseph Cohen, who's 0:00:50.920 --> 0:00:53.920 had a wonderful commitment to my work at Bloomberg on 0:00:53.960 --> 0:00:57.160 the economy and Bloomberg Surveillance, and that she would commit 0:00:57.200 --> 0:01:01.040 an hour to us this morning is greatly appreciated. Abby. Um, 0:01:01.160 --> 0:01:04.360 you are the permeable, but the pros who know you 0:01:04.400 --> 0:01:09.119 know you're not. And you have shifted over the last 0:01:09.319 --> 0:01:13.240 number of months. Why have you shifted from a real 0:01:13.319 --> 0:01:18.040 optimism on the stock market and on making money over 0:01:18.080 --> 0:01:21.679 the long term to something that is more cautious. What 0:01:21.800 --> 0:01:24.520 brought about that shift? Well, thank you very much for 0:01:24.760 --> 0:01:28.480 including me in your programming today. I'm flattered to be 0:01:28.560 --> 0:01:32.400 given this much time. In response to your question, I'm 0:01:32.440 --> 0:01:36.479 going to quote Lord Maynard Kines, who one asked why 0:01:36.560 --> 0:01:40.800 he had changed this forecast. He said, when the facts change, 0:01:41.040 --> 0:01:44.720 I changed my mind. What do you do? And as 0:01:44.760 --> 0:01:47.440 I take a look at things right now, UM, we 0:01:47.560 --> 0:01:52.840 have this very mixed picture. It's almost bipolar, uh, in 0:01:52.960 --> 0:01:56.840 terms of one extreme versus the other. On the one hand, 0:01:57.120 --> 0:02:00.720 the fundamentals of the U S economy looks lalid. The 0:02:00.760 --> 0:02:04.520 economy is growing well, g d P is rising, the 0:02:04.600 --> 0:02:08.840 unemployment rate is moving lower, corporate profits moving up. All 0:02:08.840 --> 0:02:11.799 of that looks great. And this is against a backdrop 0:02:11.880 --> 0:02:15.880 in which inflation interest rates are rising only in a 0:02:16.000 --> 0:02:20.040 very modest way. But what are the concerns? I'll start 0:02:20.080 --> 0:02:24.800 with valuation. You know, if something good is already priced in, 0:02:25.240 --> 0:02:28.800 where are the surprises likely to come from? And I 0:02:28.840 --> 0:02:32.359 would say that what is priced into bonds right now 0:02:32.880 --> 0:02:37.800 is that inflation um will stay extremely quiescent, and that 0:02:38.000 --> 0:02:42.400 demand for US bonds will stay extremely robust. And I 0:02:42.440 --> 0:02:46.840 think if anything we are making as a marketplace, UM, 0:02:46.880 --> 0:02:49.520 we we're all too complacent about that. I think rates 0:02:49.520 --> 0:02:53.520 are rising, and I am concerned that demand for treasury securities, 0:02:53.760 --> 0:02:59.880 particularly among non American investors, may in fact be declining somewhat. 0:03:00.720 --> 0:03:03.440 The second thing I would point to is the following. 0:03:03.960 --> 0:03:07.720 We are all creatures of our arithmetic. We run the 0:03:07.840 --> 0:03:11.880 valuation models. We have numbers for earnings, numbers for g 0:03:12.000 --> 0:03:15.440 d P, numbers for job gains. What we have a 0:03:15.480 --> 0:03:19.360 harder time building into our models are some of the 0:03:19.520 --> 0:03:23.480 other things, the other factors. And right now I think 0:03:24.040 --> 0:03:29.240 we're looking at notable changes in government policy, and some 0:03:29.400 --> 0:03:32.240 of these are not for the better. You know. Just 0:03:32.320 --> 0:03:35.080 a few moments ago, Mario drag when he was asked 0:03:35.120 --> 0:03:40.400 about the European outlook, which is improving, growth is accelerating there. 0:03:40.800 --> 0:03:43.320 When asked what he was concerned about, he says, the 0:03:43.440 --> 0:03:47.880 number one risk was trade protectionism in the world, and 0:03:48.000 --> 0:03:51.280 I am concerned about that, particularly since the United States 0:03:51.600 --> 0:03:54.640 UH seems to have thrown down the gauntlet and thrown 0:03:54.680 --> 0:03:58.520 down the gauntlet in a in an ill considered manner, 0:03:58.600 --> 0:04:01.320 So that to me is a risk. I also think 0:04:01.360 --> 0:04:03.920 there are risks in terms in terms of some of 0:04:03.960 --> 0:04:07.760 the other policies that have already been implemented UH that 0:04:07.880 --> 0:04:10.280 I think there were errors made, for example, in the 0:04:10.360 --> 0:04:13.280 tax policy, but there are also errors in terms of 0:04:13.280 --> 0:04:16.400 the things we're not doing, And we could spend a 0:04:16.400 --> 0:04:19.919 whole hour on this, but basically, long term growth of 0:04:20.040 --> 0:04:25.240 any economy is tried arithmetically to two things. Number one, 0:04:25.720 --> 0:04:28.640 how many workers do you have and is there growth 0:04:28.640 --> 0:04:32.719 in that labor force? And secondly, how productive are each 0:04:32.720 --> 0:04:36.080 of those workers the labor productivity? And when I take 0:04:36.080 --> 0:04:40.200 a look at policy initiatives that, for example, number one, 0:04:40.640 --> 0:04:44.640 may reduce the pace of growth in our workforce because 0:04:44.680 --> 0:04:48.400 of the changes in immigration, that is concerning. And number two, 0:04:48.720 --> 0:04:52.360 when we take a look at are we investing sufficiently 0:04:52.440 --> 0:04:55.719 in the future to bolster the productivity of all of 0:04:55.760 --> 0:04:59.520 our workers, Um, it's not looking as propitious as it 0:04:59.600 --> 0:05:02.640 normally does. In the United States, there have been cutbacks, 0:05:02.680 --> 0:05:07.480 for example, in government funding for research in R and D, 0:05:08.160 --> 0:05:11.160 and it's still early innings here, I know. But when 0:05:11.160 --> 0:05:14.279 we take a look at what corporations are doing with 0:05:14.520 --> 0:05:19.280 their prodigious cash positions and cash that will be increasing 0:05:19.560 --> 0:05:22.840 because of the reduction in the corporate tax rate, so far, 0:05:23.279 --> 0:05:26.919 the number one use of those funds seems to be 0:05:27.040 --> 0:05:31.480 scare we purchased rather than doing things like raising wages 0:05:31.600 --> 0:05:34.200 or in terms of long term investment, putting it back 0:05:34.200 --> 0:05:38.760 into the company in the form of Capex. Having Joseph Corner, 0:05:38.839 --> 0:05:40.839 I just want you to comment on when you went 0:05:40.880 --> 0:05:43.440 to Cornell. I believe that it was one of the 0:05:43.440 --> 0:05:46.120 few Ivy League schools that admitted women into the into 0:05:46.160 --> 0:05:50.480 the study of economics and science. And I'm wondering if 0:05:50.560 --> 0:05:53.080 that has changed to such an extent that the way 0:05:53.080 --> 0:05:55.760 we view markets and investing has changed money. If you 0:05:55.760 --> 0:05:59.320 could just give us your thoughts on that historical change. Well, 0:05:59.320 --> 0:06:02.160 you know that's a great question, UM and takes us 0:06:02.160 --> 0:06:05.440 back many years. The answer is yes. When Cornell was 0:06:05.480 --> 0:06:09.840 found in eighteen sixty five as the land Grant College 0:06:10.040 --> 0:06:14.640 UM for New York State, it accepted women immediately, but 0:06:15.040 --> 0:06:17.240 it was harder for women to be accepted than for 0:06:17.320 --> 0:06:20.600 men for a whole variety of reasons. That has now changed. 0:06:20.680 --> 0:06:23.080 If we take a look at Cornell or any number 0:06:23.120 --> 0:06:26.839 of other schools, we now see greater balance in things 0:06:26.880 --> 0:06:31.640 like engineering, applied science UM and in the medical college 0:06:31.680 --> 0:06:36.279 at Cornell more than half of our female half of 0:06:36.320 --> 0:06:39.040 our students or women. So yes, there has been an 0:06:39.160 --> 0:06:42.920 enormous change over this one generation. And I would say 0:06:43.320 --> 0:06:47.040 good news, not just for the women, but also for 0:06:47.120 --> 0:06:51.520 our population. Good news for our country overall. Well, let's 0:06:51.520 --> 0:06:54.200 come back at Joseph Cohen with us here for the 0:06:54.760 --> 0:06:56.719 A lot of things we'll do Central banking here next, 0:06:56.720 --> 0:06:59.520 with huge changes at the fount of course, Mr Drug 0:06:59.839 --> 0:07:06.320 so terse statements today on multilateral and unilateral trade dynamics 0:07:06.600 --> 0:07:12.880 as well. Abby. We have a new vice chairman, Richard Clarida, who, well, 0:07:12.920 --> 0:07:15.280 at least we believe he will be appointed. I guess 0:07:15.280 --> 0:07:17.840 that's where we are in the mix. Who will be 0:07:18.200 --> 0:07:22.880 a monetary economist to assist Jay Powell? Explain to our 0:07:22.920 --> 0:07:27.080 audience how someone of the academic abilities of Richard Clarida 0:07:27.400 --> 0:07:31.080 dovetails with a Wall Street veteran like Jerome Powell. How 0:07:31.120 --> 0:07:35.800 does that work? Well, I think it's a wonderful question Tom, 0:07:35.840 --> 0:07:39.720 and really raises a broader issue, and that is the 0:07:39.840 --> 0:07:42.440 members of the Board of Governors of the Settle Reserve 0:07:42.880 --> 0:07:47.400 are supposed to be diverse in their backgrounds, and when 0:07:47.520 --> 0:07:50.560 the ft was originally put together, the idea was diverse 0:07:50.680 --> 0:07:54.920 in their business backgrounds and also their regional backgrounds, which 0:07:54.960 --> 0:07:58.200 is why you have the various regional banks around the 0:07:58.200 --> 0:08:01.600 Federal Reserve system. For the Board of Governors itself. I 0:08:01.600 --> 0:08:07.480 think it's critical to have people with business experience, banking experience, 0:08:07.720 --> 0:08:12.000 but also the academic economic experience. We saw just how 0:08:12.080 --> 0:08:16.600 valuable that was under the last two FED chairman. So, 0:08:16.720 --> 0:08:21.920 for example, Ben Bernankee, his academic expertise was in the 0:08:22.160 --> 0:08:26.000 Great Depression of the nineteen thirties, and so when the 0:08:26.040 --> 0:08:29.760 financial crisis hit here um and around the world in 0:08:29.800 --> 0:08:32.680 two thousand and eight two thousand nine, there was probably 0:08:32.920 --> 0:08:37.240 nobody better informed than Mr Bernankee to think about what 0:08:37.520 --> 0:08:42.240 could be done going forward. And similarly, when Janet Yellen 0:08:42.960 --> 0:08:46.280 was chair of the Board of Governors, her expertise was 0:08:46.320 --> 0:08:49.080 in labor markets. And if you think about where the 0:08:49.160 --> 0:08:52.680 stresses and strains have been in our economy, it has 0:08:52.720 --> 0:08:56.320 been with regard to the workforce facing both cyclical and 0:08:56.400 --> 0:09:00.280 structural issues. These have been her areas of experts ease. 0:09:00.520 --> 0:09:04.079 So I think it's very appropriate to have somebody with 0:09:04.200 --> 0:09:08.679 academic expertise come onto the Board of Governors, whether if 0:09:08.679 --> 0:09:11.160 it's not going to be the chairperson, at least there 0:09:11.240 --> 0:09:14.040 is that strength there. And let's not forget the very 0:09:14.080 --> 0:09:18.560 capable staff that supports the Board of Governors in Washington Abby, 0:09:18.720 --> 0:09:22.080 Joseph Cohen, what kind of guidance or perspective can you 0:09:22.160 --> 0:09:26.320 offer individuals, whether they be professional investors or people that 0:09:26.400 --> 0:09:30.240 are concerned about their retirement, paying for healthcare, caring for 0:09:30.320 --> 0:09:32.440 members of their family, or even I dare say it, 0:09:32.480 --> 0:09:36.640 paying for tuition. What can you offer them in terms 0:09:36.640 --> 0:09:39.679 of a new federal reserve governor what is important for 0:09:39.720 --> 0:09:42.199 them to understand that would affect the way that they 0:09:42.280 --> 0:09:46.000 plan for their financial future. Well, there are so many 0:09:46.040 --> 0:09:49.440 different elements that one needs to take into consideration. And 0:09:49.559 --> 0:09:52.200 let me begin with one group that you mentioned, and 0:09:52.280 --> 0:09:56.520 that would be individual investors. I think that many individuals 0:09:56.600 --> 0:10:00.120 really should begin with a financial plan. Uh. You know, 0:10:00.200 --> 0:10:04.280 I've spent my career working primarily with institutional investors, but 0:10:04.480 --> 0:10:08.080 individual investors need to take into consideration many of the 0:10:08.160 --> 0:10:11.440 factors to which you just alluded. So, for example, what 0:10:11.600 --> 0:10:15.160 are their long term goals with regard to education for 0:10:15.240 --> 0:10:18.760 their children, their own retirement, but also what is their 0:10:18.840 --> 0:10:22.920 tax situation? Uh? And are they saving appropriately? I think 0:10:22.960 --> 0:10:26.560 as a nation we are facing some problems and that 0:10:26.640 --> 0:10:30.240 we are finding that many families are not saving adequately, 0:10:30.800 --> 0:10:33.240 and we really need to start there. So before we 0:10:33.320 --> 0:10:37.439 even get to the individual investment decisions. Let's make sure 0:10:37.840 --> 0:10:42.080 that households are saving enough of their current income to 0:10:42.240 --> 0:10:45.520 plan for their future needs. Okay, So in that context, 0:10:45.520 --> 0:10:48.520 if you went around Goldman Sacks or any big institution 0:10:48.559 --> 0:10:50.760 and you ask people to raise their hands to say 0:10:50.800 --> 0:10:52.960 how many people have six months worth of what it 0:10:53.000 --> 0:10:54.880 takes for them to live in cash? Do you think 0:10:54.920 --> 0:10:57.520 you get a lot of hands raised. Well, I'll give 0:10:57.559 --> 0:11:01.000 you an example from Goldman Sachs because you specifically asked 0:11:01.000 --> 0:11:05.640 about it. We do, in fact provide access to financial 0:11:05.679 --> 0:11:09.319 planning advice. So you would think that so many people 0:11:09.320 --> 0:11:12.559 who are involved in the investment business would not need 0:11:12.720 --> 0:11:15.760 or want that kind of assistance. In fact, they do 0:11:16.360 --> 0:11:18.680 um because even in a firm like ours, you know, 0:11:18.760 --> 0:11:21.599 more than a third of our employees are in technology, 0:11:21.679 --> 0:11:25.360 they're not really investment people per se. And we give 0:11:25.440 --> 0:11:29.040 people access to others who can help them on these 0:11:29.080 --> 0:11:32.000 issues about how much they should be saving, what the 0:11:32.040 --> 0:11:34.880 tax issues are in terms of long term saving and 0:11:34.960 --> 0:11:37.800 preparing for these long term goals. I don't think there 0:11:37.880 --> 0:11:40.880 is anyone exempt from needing this sort of assistance and 0:11:41.000 --> 0:11:46.200 help abby with then, where we are right now and 0:11:46.240 --> 0:11:48.440 within the central banks, well, let's do this. Let's come 0:11:48.480 --> 0:11:50.920 back and do this right. We're thrilled, Dave abbe Joseph 0:11:50.960 --> 0:11:53.679 Cohen for a lengthy time and instead of cutting her 0:11:53.720 --> 0:11:56.520 off here as we move to the market openings, let's 0:11:56.559 --> 0:11:59.319 do this right and come back. That means Joseph Cohen 0:11:59.400 --> 0:12:02.320 on central banking, and I really want to talk to 0:12:02.320 --> 0:12:05.480 her also about the state of her global Wall Street 0:12:05.800 --> 0:12:21.839 as well. Mrs Joseph Cohen is with Golden Sack. What 0:12:22.000 --> 0:12:25.480 a joy, Abby, Joseph Cohen with us. We've been talking 0:12:25.480 --> 0:12:28.120 about the equity markets, a little bit on central banks 0:12:28.120 --> 0:12:31.319 and some of the dynamics that we saw from Mr Droggy, 0:12:31.920 --> 0:12:34.000 Abby Pim and I would like to talk to you 0:12:34.240 --> 0:12:37.080 about the evolution we've seen. You've been hugely active within 0:12:37.120 --> 0:12:42.040 the c f A Institute program, writing trenched uh financial 0:12:42.160 --> 0:12:47.080 articles with some heavy duty mathematics to it. I would suggest, 0:12:47.559 --> 0:12:50.400 unlike the gloom in this country about a brain drain 0:12:50.520 --> 0:12:54.520 or a dumbness, the industry gets smarter and smarter and 0:12:54.720 --> 0:12:59.120 smarter and smarter. How much smarter are we now than 0:12:59.160 --> 0:13:00.760 when I did the sea if A are you to 0:13:00.880 --> 0:13:04.320 the c f A, Tom, I think that as a 0:13:04.360 --> 0:13:08.959 profession we have gotten smarter because we have better tools. Um, 0:13:09.000 --> 0:13:12.960 and I think that the average professional investor is now 0:13:13.120 --> 0:13:16.920 much more quant savvy, knows where the data are, knows 0:13:16.960 --> 0:13:19.360 how to use it and so on. And one of 0:13:19.400 --> 0:13:22.439 the things I am concerned about as we look intermediate 0:13:22.440 --> 0:13:25.720 to long term is that we become too complacent because 0:13:25.760 --> 0:13:28.920 they become so focused on those models. And what we 0:13:29.000 --> 0:13:31.960 have to ask ourselves are the models to use the 0:13:31.960 --> 0:13:36.719 statistician's expression? Are the models properly specified? That is, are 0:13:36.760 --> 0:13:40.280 the equations correct? Are there other factors out there that 0:13:40.320 --> 0:13:43.720 we're not yet taking into consideration? I mean, I look 0:13:43.720 --> 0:13:47.440 at this Pim Fox and can you imagine Ms Joseph 0:13:47.520 --> 0:13:53.439 Cohen that Goldman sex She shows up the first day? Well, 0:13:53.440 --> 0:13:55.880 tell us about it, Joseph Calm. What was it like 0:13:56.360 --> 0:13:59.199 walking in the door at Goldman Sachs when you first 0:13:59.440 --> 0:14:04.280 arrived there? Um, it was a delight because quite frankly, 0:14:04.320 --> 0:14:07.440 I have been recruited to Goldman. Uh. They knew what 0:14:07.480 --> 0:14:10.319 they were getting and that's what they wanted. Um. They 0:14:10.360 --> 0:14:16.560 wanted somebody who had background in quantitative analysis and also economics. 0:14:16.600 --> 0:14:19.960 And this was fairly new because at that point, portfolio 0:14:20.080 --> 0:14:23.320 strategy was often done by pardon me for saying this, 0:14:23.880 --> 0:14:27.600 UM a mature gentleman, UM, not a Goldman. But at 0:14:27.640 --> 0:14:32.880 other places, uh, sitting back smoking a pipe, perhaps pontificating 0:14:32.920 --> 0:14:36.880 about markets and the Goldman. Excuse me, you're you're describing 0:14:36.920 --> 0:14:43.880 Bloomberg surveillance at the softball Go for it. Continue. So 0:14:44.560 --> 0:14:47.880 what we basically have UM at Goldman is this focus 0:14:47.960 --> 0:14:51.560 on let's really do the homework. Let's dig into the 0:14:51.680 --> 0:14:56.480 data on economics, on corporate performance, work the valuation models 0:14:56.600 --> 0:15:00.800 and use that as a critical portion of our theme 0:15:01.280 --> 0:15:03.600 uh and our conclusions. And we always start with that 0:15:03.720 --> 0:15:07.479 as the base, uh, be at fixed income or equities, 0:15:07.720 --> 0:15:10.920 US or non US markets. And then I think the 0:15:11.080 --> 0:15:14.800 art form UH that's involved here is to say what 0:15:14.840 --> 0:15:19.440 are we missing what's not included in those models? And 0:15:20.200 --> 0:15:22.440 one of the things that we are focused on right 0:15:22.480 --> 0:15:27.920 now are policy switches of somewhat inconsistent nature that are 0:15:27.960 --> 0:15:31.320 occurring right now. UM. What would be the largest one 0:15:31.480 --> 0:15:33.920 that that that you think people are not paying attention to? 0:15:33.960 --> 0:15:36.480 What would you tell them to focus on? Well, there 0:15:36.480 --> 0:15:39.760 are two right now. One is the tax cut. The 0:15:39.840 --> 0:15:43.640 short term aspects of the shortcut are favorable. We see 0:15:43.680 --> 0:15:46.080 that corporate profits in cash flow or moving up and 0:15:46.120 --> 0:15:50.000 so on. But long term, what that tax cut has 0:15:50.040 --> 0:15:52.800 done has basically been to take away a lot of 0:15:52.800 --> 0:15:57.280 the seed corn that would normally be used for future investment. 0:15:57.680 --> 0:16:00.280 And that's of concern in terms of what this means 0:16:00.280 --> 0:16:03.080 for longer term economic growth. What does it mean in 0:16:03.200 --> 0:16:07.720 terms of increasing the deficit, interest rates, treasury borrowing, and 0:16:07.760 --> 0:16:10.320 so on. The second one, which of course is still 0:16:10.440 --> 0:16:15.520 up in the air because the President's statements are changing, uh, 0:16:15.560 --> 0:16:18.320 literally from hour to hour, is what are we doing 0:16:18.440 --> 0:16:22.760 with regard to trade policy? Uh. Mario Draggy, the US 0:16:22.840 --> 0:16:26.600 Chamber of Commerce, many others just over the last twenty 0:16:26.600 --> 0:16:30.560 four hours have said that they believe that this movement 0:16:30.600 --> 0:16:36.520 towards potential movement towards protectionism would endanger global economic growth. 0:16:36.880 --> 0:16:40.160 The United States would not win a trade war. Nobody 0:16:40.200 --> 0:16:43.240 wins a trade war. It basically is not a zero 0:16:43.360 --> 0:16:48.320 sum sort of thing. Uh. Protectionism and trade friction basically 0:16:48.680 --> 0:16:53.280 reduces economic activity globally, as was seen in the nineteen thirties. 0:16:53.800 --> 0:16:56.320 So I think that that is the single biggest concern 0:16:56.440 --> 0:16:58.400 I would have, you know, I take a look at 0:16:58.440 --> 0:17:01.720 the analysis that's being done, because we have to do 0:17:01.800 --> 0:17:04.600 something in terms of working numbers to see, you know, 0:17:04.760 --> 0:17:08.000 on the margin, which industries would be helped, which countries 0:17:08.080 --> 0:17:10.679 might be helped, and so on. That's only part of 0:17:10.720 --> 0:17:12.840 the pictures. Okay, but let let's say, can you just 0:17:12.880 --> 0:17:14.840 give us the global g d P. Can you give 0:17:14.920 --> 0:17:18.679 us worst case scenario for someone or an institution that 0:17:18.880 --> 0:17:21.399 is using an exchange traded fund that invests, say in 0:17:21.400 --> 0:17:25.360 the SMP five worst case scenario for let's go backwards 0:17:25.560 --> 0:17:28.440 to start with trade policy and tax cuts. What happens 0:17:28.480 --> 0:17:33.439 to that SMP five portfolio. Um, the valuation work that 0:17:33.520 --> 0:17:36.720 we do, which assumes a modest rise and interest rates 0:17:36.720 --> 0:17:40.159 and inflation, assumes that the fair value for the SMP 0:17:40.320 --> 0:17:44.199 five hundred is roughly so that's the level which is 0:17:44.240 --> 0:17:48.600 supported by the strong underlying fundamentals right now in the 0:17:48.680 --> 0:17:51.840 United States. Um, what we did see when there was 0:17:52.080 --> 0:17:55.840 the first beginning of talk about trade problems and so on, 0:17:56.240 --> 0:17:59.280 is that we backed off level which is where we 0:17:59.280 --> 0:18:04.320 were a few week weeks ago. And normally, normally volatility 0:18:04.359 --> 0:18:07.399 is typically within the ten percent range. I'm not making 0:18:07.400 --> 0:18:10.720 a forecast. I'm just saying historically that's what it's been. 0:18:11.080 --> 0:18:14.480 But the other thing to look at is risks, potential 0:18:14.560 --> 0:18:18.920 risk to the upside, potential risks to the downside, potential 0:18:19.000 --> 0:18:22.520 risk to the upside. Could the economy be much better 0:18:22.800 --> 0:18:27.119 and corporate performance much better than what's already priced in. Perhaps, 0:18:27.200 --> 0:18:30.520 but it's not a high probability event. Could there be 0:18:30.760 --> 0:18:36.359 these unpleasant policy surprises UM to the downside? Yes, And 0:18:36.440 --> 0:18:39.680 my personal view is we're more skewed to the downside 0:18:39.880 --> 0:18:43.080 at this point than the upside. Well within that caution, 0:18:43.240 --> 0:18:46.320 skewed to the downside. Does that be Joseph Cohen believe 0:18:46.440 --> 0:18:52.280 cash is an asset. When we UM advise institutional clients, 0:18:52.280 --> 0:18:57.119 which again is my primary UH conversation level, we are saying, 0:18:57.200 --> 0:19:01.080 you know, take a look at a little bit of cash, 0:19:01.119 --> 0:19:04.119 a little bit of dry powder, because if we have 0:19:04.200 --> 0:19:08.159 a situation where volatility in the markets just returns to 0:19:08.280 --> 0:19:12.000 normal UH, there could be some interesting opportunities to get 0:19:12.040 --> 0:19:15.960 back into assets which are long term agreeable UM, but 0:19:16.119 --> 0:19:19.000 at lower prices. So the answer is, yes, a little 0:19:19.000 --> 0:19:21.760 bit of cash on the sideline not a bad idea. 0:19:22.240 --> 0:19:25.800 And our biggest concern TOM with regard to valuation is 0:19:25.840 --> 0:19:29.919 not equities, it's really fixed income. UH. Interest rates in 0:19:29.960 --> 0:19:33.280 the United States are likely to rise, we don't think 0:19:33.400 --> 0:19:36.800 very much. On the other hand, inflation we believe has 0:19:36.840 --> 0:19:40.080 bottomed in the United States. The said is likely to 0:19:40.160 --> 0:19:43.840 raise short term rates four times. And we are concerned 0:19:43.920 --> 0:19:47.240 about the demand from foreign investors. You know, at this 0:19:47.320 --> 0:19:51.240 point they have typically owned well more than of U. S. Treasuries. 0:19:51.720 --> 0:19:55.720 If the dollar becomes something that is not needed as 0:19:55.800 --> 0:20:00.880 much because it's no longer as important in trade, that's initiative. 0:20:00.920 --> 0:20:04.479 Correct with the savvy Joseph cohe of golden sacks at 0:20:04.480 --> 0:20:06.720 generous hour, and that's allowed us to go deeper here 0:20:06.760 --> 0:20:10.439 than we usually do. Abby, I interrupted you so rudely 0:20:10.480 --> 0:20:13.560 there as we went to break and Um, we're talking 0:20:13.600 --> 0:20:16.360 about if we get a week dollar, what are those 0:20:16.480 --> 0:20:20.280 ramifications if we get you know, I guess with some 0:20:20.400 --> 0:20:24.360 higher inflation and some dynamics of fiscal policy, the surprise 0:20:24.400 --> 0:20:27.679 of a week dollar, what will that mean for investors? 0:20:29.119 --> 0:20:33.200 That is a whole big area of discussion, Tom, because 0:20:33.240 --> 0:20:37.280 there are also the technical aspects of supply and demand 0:20:37.640 --> 0:20:41.400 for U. S. Treasuries. Um, not that long ago foreign 0:20:41.520 --> 0:20:46.280 investors owned about of the U. S. Treasury market. They're 0:20:46.320 --> 0:20:50.480 down to now. Some of that was a portfolio decision, 0:20:50.560 --> 0:20:54.320 some of the money has gone into higher yielding corporate bonds. 0:20:54.359 --> 0:20:57.520 But we have to keep in mind the following technical aspect. 0:20:58.320 --> 0:21:04.160 Not all trade UH involving dollars involves the United States. Okay, So, 0:21:04.440 --> 0:21:08.320 for example, in Asia, more than half the trade is 0:21:08.359 --> 0:21:12.080 actually denominated in dollars, even though dramatically less than that, 0:21:12.359 --> 0:21:16.120 maybe ten or fift involves the United States. And over 0:21:16.160 --> 0:21:19.399 the last few years, we've seen that the Chinese have 0:21:19.600 --> 0:21:25.640 moved aggressively to try to denominate trade contracts in Redmond 0:21:25.640 --> 0:21:30.080 b rather than dollars. And if that happens, there's less 0:21:30.359 --> 0:21:35.240 foreign demand for U S treasuries. Consider, for example, that 0:21:35.720 --> 0:21:39.840 decomposition of who does China really trade with. What we 0:21:40.000 --> 0:21:44.359 see is that about fifty percent of Chinese exports go 0:21:44.440 --> 0:21:48.280 to the nations of the new Trans Pacific Partnership. This 0:21:48.359 --> 0:21:52.920 is the trading block that the Trump administration pulled us 0:21:52.960 --> 0:21:56.399 out of as one of the very first policy actions 0:21:56.480 --> 0:22:01.040 when they came into office. So fifty of UH Chinese 0:22:01.040 --> 0:22:04.440 exports go to t p P and sixty of Chinese 0:22:04.480 --> 0:22:08.280 imports come from those TPP nations. Almost all of that 0:22:08.400 --> 0:22:11.760 is now denominated in dollars. It's very possible with the 0:22:11.880 --> 0:22:14.840 us not being part of that trade pact, We're going 0:22:14.920 --> 0:22:19.760 to see less demand for the dollar as that denominating 0:22:19.880 --> 0:22:24.080 currency in foreign trade. And of course, if our policy 0:22:24.160 --> 0:22:28.560 becomes increasingly uncertain in the eyes of others around the world, 0:22:29.040 --> 0:22:32.800 the dollar loses some of its aura as a safe haven. 0:22:33.400 --> 0:22:37.080 Our belief at Goldman Sachs is a decline in the dollar, 0:22:37.480 --> 0:22:40.760 which began in the autumn of two thousand and sixteen, 0:22:40.800 --> 0:22:45.280 will continue. That's an interesting uh called pimp. Well, I 0:22:45.320 --> 0:22:47.920 just want to get your thoughts on comment that was 0:22:48.000 --> 0:22:51.480 made by Daniel Pinto. He is the JP Morgan Chase 0:22:51.520 --> 0:22:54.199 executive and he warned that equity markets could fall as 0:22:54.280 --> 0:22:59.560 much as in the next two to three and the 0:22:59.600 --> 0:23:03.960 media picked up on but it was that banned. Well, okay, 0:23:04.040 --> 0:23:09.240 let's say that's still a big, a big gap. Could 0:23:09.280 --> 0:23:13.160 this Do you believe that this deep correction could happen? Um. 0:23:13.200 --> 0:23:15.480 I've had the opportunity to look at least at the 0:23:15.520 --> 0:23:19.840 Bloomberg coverage of his statement, and he said something ahead 0:23:19.880 --> 0:23:23.520 of that possible correction, and that is markets look good 0:23:24.000 --> 0:23:26.919 for the next year or two UM. So that intermediate 0:23:26.960 --> 0:23:30.240 to long term forecast is something that I suspect everyone 0:23:30.320 --> 0:23:33.800 would want to be well, how do the facts on 0:23:33.840 --> 0:23:37.200 the ground actually develop in the meantime and what will 0:23:37.240 --> 0:23:39.600 the valuation look like? UM. If we look at the 0:23:39.680 --> 0:23:43.520 valuation right now, UM, I would say that equities are 0:23:43.560 --> 0:23:49.080 pricing in a realistic positive scenario. UM. And that's why 0:23:49.119 --> 0:23:53.040 our teams think is fair value for the SMP five 0:23:53.080 --> 0:23:56.639 hundreds this year. UM. It is the credit markets UH 0:23:56.800 --> 0:23:59.840 that look overvalued UM. And that is something that we 0:24:00.080 --> 0:24:03.600 probably need to be focused on sooner than that two 0:24:03.600 --> 0:24:05.879 to three year horizon. And let me go back to 0:24:05.920 --> 0:24:08.080 a point PIM that you raised earlier, and that is 0:24:08.119 --> 0:24:11.199 what about individual investors? UM. We have seen over the 0:24:11.280 --> 0:24:14.720 last ten years that individual investors, particularly those who have 0:24:14.800 --> 0:24:18.000 lost their defined benefit pension programs and have gone into 0:24:18.080 --> 0:24:20.919 define contribution and are now running more and more of 0:24:20.920 --> 0:24:24.439 their own retirement money, they have skewed much more towards 0:24:24.440 --> 0:24:27.959 sixth income equity. And I think that there is a 0:24:28.000 --> 0:24:31.600 false sense of security that these are safe investments. If 0:24:31.640 --> 0:24:34.200 interest rates go up, the value of those assets will 0:24:34.240 --> 0:24:37.000 go down. But have you a cardinal rule here that's 0:24:37.040 --> 0:24:42.440 so important to Pim's comments is you can't invest unless 0:24:42.440 --> 0:24:49.320 you're stealed for a twenty five or decline somewhere along 0:24:49.320 --> 0:24:53.800 the road. It's going to happen. And I would suggest 0:24:53.800 --> 0:24:59.520 a generation or two have lost that understanding. They're clearly 0:24:59.600 --> 0:25:02.760 has been in a sense of complacency now with a 0:25:02.920 --> 0:25:06.520 very low volatility, both in equities and fixed income. And 0:25:06.520 --> 0:25:09.359 it's not just in the US, it's around the world. Um. 0:25:09.440 --> 0:25:12.480 And when we take a look at surveys of individual investors, 0:25:12.920 --> 0:25:17.240 they nevertheless believe that fixed income is much safer than equities. 0:25:17.600 --> 0:25:21.240 And I would argue it depends upon the valuation. Um. 0:25:21.320 --> 0:25:25.320 What is priced into bonds to me is unrealistic um 0:25:25.400 --> 0:25:28.439 And and therefore I would be more concerned there. But 0:25:28.480 --> 0:25:32.840 you're absolutely right. We have a generation of investors who 0:25:33.000 --> 0:25:35.919 have been burned by the equity market, not by the 0:25:36.000 --> 0:25:38.760