1 00:00:00,080 --> 00:00:12,960 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Leie. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:33,440 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg for 5 00:00:33,520 --> 00:00:36,400 Speaker 1: the Market sent for the economy. We look ahead and 6 00:00:36,440 --> 00:00:38,199 Speaker 1: as a Brit I try and work out while we 7 00:00:38,240 --> 00:00:42,400 Speaker 1: play this um deficit game and this government shutdown game 8 00:00:42,760 --> 00:00:46,160 Speaker 1: every single year. And to help me do that today 9 00:00:46,280 --> 00:00:48,880 Speaker 1: is the former chairman of the Council of Economic Advisors. 10 00:00:48,920 --> 00:00:51,919 Speaker 1: The current professor of the Practice of Economic Policy at 11 00:00:51,920 --> 00:00:55,320 Speaker 1: Harvard is Jason Furman, and he joins us. Now, Jason, 12 00:00:55,360 --> 00:00:57,440 Speaker 1: can you help out a brit Why do we do this? 13 00:00:57,760 --> 00:01:00,320 Speaker 1: Why do we do this every year? I think some 14 00:01:00,400 --> 00:01:02,840 Speaker 1: of the self inflicted wounds we set up on ourselves 15 00:01:02,920 --> 00:01:06,160 Speaker 1: it takes more than a Harvard degree to to understand them. Uh. 16 00:01:06,240 --> 00:01:08,480 Speaker 1: The debt limit, you know, no other country in the 17 00:01:08,520 --> 00:01:11,080 Speaker 1: world has a Denmark sort of does, but not really. 18 00:01:11,720 --> 00:01:14,320 Speaker 1: And you know, for most countries, when you worry about 19 00:01:14,319 --> 00:01:17,720 Speaker 1: a country defaulting, you worry that people don't want to 20 00:01:17,800 --> 00:01:20,320 Speaker 1: lend to them anymore. The United States is the only 21 00:01:20,360 --> 00:01:22,720 Speaker 1: country that we worry it's going to default because it 22 00:01:22,720 --> 00:01:25,839 Speaker 1: won't allow itself to borrow, except the markets don't seem 23 00:01:25,880 --> 00:01:28,360 Speaker 1: to worry about it. It's any more. So. Yeah, the 24 00:01:28,400 --> 00:01:30,440 Speaker 1: way we set up these annuals, and it's just a 25 00:01:30,520 --> 00:01:33,240 Speaker 1: terrible way to run government. I mean, it's just as 26 00:01:33,280 --> 00:01:36,280 Speaker 1: somebody that ran a really really small government agency about 27 00:01:36,319 --> 00:01:39,320 Speaker 1: thirty five people, that you would get your funding for 28 00:01:39,520 --> 00:01:42,000 Speaker 1: two weeks and then for a month, and then another 29 00:01:42,080 --> 00:01:44,360 Speaker 1: month after that. It made it hard for me. I 30 00:01:44,360 --> 00:01:47,480 Speaker 1: can't imagine how the pentagon Um deals with this type 31 00:01:47,480 --> 00:01:50,400 Speaker 1: of So you've been in government as a Democrat, the 32 00:01:50,440 --> 00:01:52,960 Speaker 1: Republicans are in now, When is everyone going to get 33 00:01:52,960 --> 00:01:56,320 Speaker 1: together and just stop doing it? Is the bipartisan support 34 00:01:56,360 --> 00:01:59,520 Speaker 1: to end this nonsense on a yearly basis. I think 35 00:01:59,520 --> 00:02:02,000 Speaker 1: there's some I wrote not bed earlier this year with 36 00:02:02,440 --> 00:02:04,840 Speaker 1: a Republican that I used to negotiate the debt limit, 37 00:02:04,880 --> 00:02:07,720 Speaker 1: and we said, we've both been through these negotiations. We 38 00:02:07,800 --> 00:02:10,600 Speaker 1: think that this has outlived its usefulness and it should 39 00:02:10,639 --> 00:02:14,440 Speaker 1: should end. Government spending is another part of it. Some 40 00:02:14,480 --> 00:02:16,040 Speaker 1: people have the idea that maybe we should do two 41 00:02:16,080 --> 00:02:19,320 Speaker 1: year budgets and so you put more effort into figuring 42 00:02:19,320 --> 00:02:22,120 Speaker 1: out the spending levels you budget over two years. I 43 00:02:22,120 --> 00:02:25,960 Speaker 1: could see some logic for that UM as well. It's 44 00:02:26,000 --> 00:02:28,400 Speaker 1: just you know, these two week budgets, that's what there's 45 00:02:28,400 --> 00:02:30,240 Speaker 1: no logic for. So let's get to the big issue. 46 00:02:30,320 --> 00:02:31,799 Speaker 1: And I know Tom Kaine is going to jump in 47 00:02:32,040 --> 00:02:35,000 Speaker 1: very shortly and get excited about this. The prospective only 48 00:02:35,040 --> 00:02:38,560 Speaker 1: one trillion dollar deficit in the United States of America. 49 00:02:38,680 --> 00:02:40,600 Speaker 1: What is the significance of that, Jason, Yeah, I turn 50 00:02:40,680 --> 00:02:42,480 Speaker 1: not to scare people, So I talked about a five 51 00:02:42,520 --> 00:02:46,720 Speaker 1: percent of GDP deficit. But no, no, but a trillion 52 00:02:46,720 --> 00:02:50,160 Speaker 1: dollars five percentage GDP Either way, it's I I think 53 00:02:50,160 --> 00:02:52,440 Speaker 1: it's nuts. I really think it's nuts. I mean, we 54 00:02:52,480 --> 00:02:57,480 Speaker 1: have four percent unemployment rate. We don't need a fiscal 55 00:02:57,480 --> 00:03:01,680 Speaker 1: stimulus right now. We're getting a big school stimulus that's 56 00:03:01,720 --> 00:03:05,440 Speaker 1: going to have impact in financial markets as the Fed 57 00:03:05,520 --> 00:03:10,400 Speaker 1: seeks to offset it. It's going to um bring our 58 00:03:10,440 --> 00:03:13,480 Speaker 1: deficit to a place where, even with a strong economy, 59 00:03:13,960 --> 00:03:16,240 Speaker 1: we're going to have this huge deficit. Imagine if the 60 00:03:16,240 --> 00:03:19,320 Speaker 1: economy weakens, what it'll go up to. UM. You know, 61 00:03:19,360 --> 00:03:21,280 Speaker 1: we're going to be dealing with this and digging out 62 00:03:21,280 --> 00:03:23,680 Speaker 1: of it for the next decade. Really honor that Jason 63 00:03:23,720 --> 00:03:26,120 Speaker 1: Furman could come with us for a substantial amount of 64 00:03:26,120 --> 00:03:28,480 Speaker 1: time on this Friday. I'm just on it turned up 65 00:03:28,520 --> 00:03:33,799 Speaker 1: on the Friday before Christmas time. Welcome and bonus d 66 00:03:33,840 --> 00:03:38,240 Speaker 1: it's sober as well that you'll tide spirit of the 67 00:03:38,240 --> 00:03:41,880 Speaker 1: Bloomberg surveyity. It's it's amazing. What a case of Pats 68 00:03:41,880 --> 00:03:46,240 Speaker 1: blue ribbon and it's still I've got to say, you're 69 00:03:46,320 --> 00:03:49,320 Speaker 1: look in the touch hungover. I think a couple of 70 00:03:49,360 --> 00:03:55,200 Speaker 1: martinis were consumed some Happy Christmas in England. They do happy. 71 00:03:55,560 --> 00:03:58,200 Speaker 1: You don't say Happy Christmas. We say Mary, you say Mary. 72 00:03:58,360 --> 00:04:01,080 Speaker 1: I think we used them in to changeably James John 73 00:04:01,280 --> 00:04:05,880 Speaker 1: John needs Bing Crosby and Danny Kay White Christmas. Sure. 74 00:04:06,240 --> 00:04:08,680 Speaker 1: I think he needs a viewing at White Christmas Uh 75 00:04:08,840 --> 00:04:11,840 Speaker 1: this holiday season to get him in a holiday cheer. 76 00:04:11,840 --> 00:04:15,240 Speaker 1: We say good morning. Bloomberg Surveillance brought you by Investco. 77 00:04:15,720 --> 00:04:19,080 Speaker 1: Learn how Investco is pure focused on investing, diversity, thought 78 00:04:19,160 --> 00:04:21,680 Speaker 1: and passion to exceed. Can I help you get more 79 00:04:21,720 --> 00:04:24,800 Speaker 1: out of life? Visit investco dot com slash more out 80 00:04:24,839 --> 00:04:27,719 Speaker 1: of Life your advantage down Bloomberg Radio and that we 81 00:04:27,720 --> 00:04:30,640 Speaker 1: can have a conversation with Dr Furman and then drive 82 00:04:30,680 --> 00:04:34,479 Speaker 1: it forward here. We talked an hour ago about the 83 00:04:34,520 --> 00:04:39,200 Speaker 1: shadows and the memory of the early nineties Reagan Stockmen. 84 00:04:39,839 --> 00:04:42,800 Speaker 1: There were, you know, to be not critical of Mr Stockman, 85 00:04:43,080 --> 00:04:46,599 Speaker 1: not critical of the late president. There were certitudes or 86 00:04:46,640 --> 00:04:49,760 Speaker 1: beliefs about what would happen with tax cuts, and as 87 00:04:49,800 --> 00:04:52,880 Speaker 1: you pointed out, oops, we had to have a period 88 00:04:53,360 --> 00:04:57,240 Speaker 1: of tax increases. You're predicting that again, Do I have 89 00:04:57,320 --> 00:05:00,719 Speaker 1: that right? Yeah? And you know I'm predicting it for 90 00:05:00,800 --> 00:05:02,880 Speaker 1: next year. I mean with the Reagan tax cuts, he 91 00:05:02,960 --> 00:05:05,680 Speaker 1: had a big tax cut in one, you had a 92 00:05:05,720 --> 00:05:10,080 Speaker 1: correction in two, just a year later, and then you 93 00:05:10,160 --> 00:05:13,279 Speaker 1: had several more. That's why that correction came about. Was 94 00:05:13,320 --> 00:05:15,880 Speaker 1: it a dearth of GDP? If Gary Cone can go 95 00:05:15,920 --> 00:05:19,920 Speaker 1: out and say three four GDP? Did Reagan stockmen? They 96 00:05:19,920 --> 00:05:24,120 Speaker 1: have to make that correction because of actually not to 97 00:05:24,160 --> 00:05:26,680 Speaker 1: correcty Town, but the president's top economic adviser said we'd 98 00:05:26,720 --> 00:05:30,400 Speaker 1: get to four percent easily. He said four. Excuse me, John, 99 00:05:30,440 --> 00:05:33,920 Speaker 1: that was a surveillance. Can you know? I wish we're 100 00:05:33,920 --> 00:05:35,760 Speaker 1: on TV so we could make a big red headline 101 00:05:35,800 --> 00:05:40,040 Speaker 1: banner that Jason Film and just corrected Tom King right. 102 00:05:40,040 --> 00:05:41,600 Speaker 1: I mean, as a white house set in the bar 103 00:05:42,080 --> 00:05:45,359 Speaker 1: at four percent for next year, and yeah, if that 104 00:05:45,400 --> 00:05:48,720 Speaker 1: four percent growth doesn't materialize, we're going to see the 105 00:05:48,760 --> 00:05:53,279 Speaker 1: deficit go up. I wouldn't expect this administration to reverse itself, 106 00:05:53,600 --> 00:05:56,560 Speaker 1: but just as a mathematical fact, we are on an 107 00:05:56,600 --> 00:05:59,480 Speaker 1: unsustainable course. When you're on an unsustainable course, we are 108 00:05:59,520 --> 00:06:02,840 Speaker 1: either to raise revenue or cut spending. I suspect we're 109 00:06:02,839 --> 00:06:04,680 Speaker 1: going to do a bit of both. I want John 110 00:06:04,680 --> 00:06:06,640 Speaker 1: to get in your very quickly. I believe we go 111 00:06:06,680 --> 00:06:09,960 Speaker 1: from six sixty six billion up to one trillion something 112 00:06:10,000 --> 00:06:12,920 Speaker 1: in twenty four months. Are you worried about a trillion 113 00:06:12,920 --> 00:06:16,200 Speaker 1: dollar deficit or you're worried about the rate of changing 114 00:06:16,279 --> 00:06:19,279 Speaker 1: getting there the magnitude of the movement. What I'm worried 115 00:06:19,320 --> 00:06:23,200 Speaker 1: about is in good economic times, that's when you should 116 00:06:23,200 --> 00:06:27,000 Speaker 1: be bringing your deficit down. And we're in good economic times, 117 00:06:27,040 --> 00:06:29,680 Speaker 1: but our deficit is going up. That's the opposite of 118 00:06:29,680 --> 00:06:32,800 Speaker 1: what you'd like to see. I'm actually not a huge 119 00:06:32,839 --> 00:06:37,440 Speaker 1: deficit hawk, but the idea that you know, what, what 120 00:06:37,560 --> 00:06:39,360 Speaker 1: I think we should be doing is having our debt 121 00:06:39,440 --> 00:06:41,920 Speaker 1: on a sustainable course, which I view is falling as 122 00:06:41,960 --> 00:06:44,480 Speaker 1: a share of GDP. If we could get our deficits 123 00:06:44,720 --> 00:06:47,040 Speaker 1: to about two and a half three percent to GDP, 124 00:06:47,839 --> 00:06:50,839 Speaker 1: I'd feel okay with that. At five percent of GDP, 125 00:06:51,600 --> 00:06:54,560 Speaker 1: that's where you're on the unsustainable side of this, and 126 00:06:54,600 --> 00:06:56,880 Speaker 1: it's only going to get worse. The demography is only 127 00:06:56,920 --> 00:06:59,440 Speaker 1: going to get worse. Growth is only going to get 128 00:06:59,440 --> 00:07:03,440 Speaker 1: more channel lounging. And so we're at the easiest part 129 00:07:03,520 --> 00:07:06,320 Speaker 1: of our fiscal lives for the next coming decades. And 130 00:07:06,320 --> 00:07:08,360 Speaker 1: if we can't do better than five percent of GDP, 131 00:07:08,480 --> 00:07:11,000 Speaker 1: now where are we going to be a decade from now? Jason, 132 00:07:11,040 --> 00:07:13,280 Speaker 1: here's the right Daliot take. While the tax bill will 133 00:07:13,280 --> 00:07:15,560 Speaker 1: stimulate growth in the short term, we won't get much 134 00:07:15,600 --> 00:07:18,120 Speaker 1: long term. Miley chat of it in comparison to pass 135 00:07:18,120 --> 00:07:20,600 Speaker 1: to direct stimulus spending to areas that hit the core 136 00:07:20,640 --> 00:07:25,320 Speaker 1: issues holding back US productivity. Why are we not doing 137 00:07:25,400 --> 00:07:29,880 Speaker 1: something on the debt side to address US productivity? It 138 00:07:29,920 --> 00:07:31,600 Speaker 1: seems to me that if there was anywhere where you 139 00:07:31,640 --> 00:07:33,960 Speaker 1: needed to borrow to invest in, it was to do 140 00:07:34,040 --> 00:07:36,480 Speaker 1: something about the productivity question in the United States. Why 141 00:07:36,520 --> 00:07:38,320 Speaker 1: are we not even thinking about it? Right? Well, let's 142 00:07:38,320 --> 00:07:40,640 Speaker 1: just talk about one part of our productivity. Let's think 143 00:07:40,640 --> 00:07:43,600 Speaker 1: of California and Silicon Valley. That's one of the most 144 00:07:43,640 --> 00:07:46,880 Speaker 1: economically successful places in the world. It didn't get that 145 00:07:46,920 --> 00:07:50,680 Speaker 1: way through low taxes and low regulation. It got that 146 00:07:50,720 --> 00:07:54,080 Speaker 1: way because there's a great university there. Um. I don't 147 00:07:54,080 --> 00:07:55,360 Speaker 1: think this is the only thing we need to do 148 00:07:55,400 --> 00:07:58,000 Speaker 1: for our productivity. And as someone who teaches at Harvard, 149 00:07:58,000 --> 00:08:01,440 Speaker 1: I'm a bit self interested here, but you can't have 150 00:08:01,480 --> 00:08:05,160 Speaker 1: great productivity without having great universities. The tax bill we 151 00:08:05,280 --> 00:08:08,840 Speaker 1: just saw would tax our universities for the first time 152 00:08:09,440 --> 00:08:13,440 Speaker 1: and would cut state and local funding for our state schools. 153 00:08:13,480 --> 00:08:15,880 Speaker 1: So that's the type of thing where I think it 154 00:08:16,040 --> 00:08:21,200 Speaker 1: reflects a misplaced set of priorities and a misunderstanding about, 155 00:08:21,360 --> 00:08:23,640 Speaker 1: you know, part of what's important for fueling long run 156 00:08:23,720 --> 00:08:42,360 Speaker 1: economic growth. Jason Furman with us and for years we 157 00:08:42,400 --> 00:08:45,640 Speaker 1: would steal the Black Books from Sanford Bernstein to look 158 00:08:46,040 --> 00:08:49,319 Speaker 1: at the brilliant, lengthy work of one Sea Mott and 159 00:08:49,559 --> 00:08:52,040 Speaker 1: m Nathanson. They've been out on their own for a 160 00:08:52,040 --> 00:08:54,920 Speaker 1: few years here Mom at Nathanson. Craig does sort of 161 00:08:54,920 --> 00:08:59,920 Speaker 1: the the phony kind of digital networking stuff in Nathanson's 162 00:09:00,040 --> 00:09:02,800 Speaker 1: content is king. So let me ask you, Michael Nathanson 163 00:09:03,400 --> 00:09:07,880 Speaker 1: question to start up, Is content still king? Um? Content? Yeah? 164 00:09:07,920 --> 00:09:10,280 Speaker 1: Content could actually be ascended here. You know, if you 165 00:09:10,320 --> 00:09:13,640 Speaker 1: think about the problem with television and cord cutting right now, 166 00:09:13,679 --> 00:09:16,280 Speaker 1: it's has been getting worse and worse for the distributors. 167 00:09:16,280 --> 00:09:18,760 Speaker 1: It's actually getting a little better for the media companies now. 168 00:09:19,320 --> 00:09:22,000 Speaker 1: I think Michael would say the gap between the winners 169 00:09:22,040 --> 00:09:25,320 Speaker 1: and losers is getting wider, not narrower. And but the 170 00:09:25,360 --> 00:09:29,480 Speaker 1: ones that are must have and that have real programming advantage. 171 00:09:29,480 --> 00:09:33,040 Speaker 1: And Disney by making the play for Foxes betting on 172 00:09:33,080 --> 00:09:36,320 Speaker 1: that in a big way. Uh, seemed to be it 173 00:09:36,360 --> 00:09:38,800 Speaker 1: seemed to be doing actually pretty well in this environment 174 00:09:38,880 --> 00:09:43,360 Speaker 1: a year ago. Now, in a year from now, what 175 00:09:43,440 --> 00:09:46,240 Speaker 1: we are John and I hear from everybody we talked 176 00:09:46,280 --> 00:09:53,200 Speaker 1: to they hate commercials on TV. Where's that dynamic going. Well, 177 00:09:53,240 --> 00:09:56,679 Speaker 1: I'll give you my own editorial for for commercials. You know, 178 00:09:57,200 --> 00:10:02,040 Speaker 1: everybody is betting in a very big a on targeted 179 00:10:02,080 --> 00:10:06,120 Speaker 1: advertising as being the salvation of the advertising business. I'll 180 00:10:06,120 --> 00:10:07,880 Speaker 1: take the other side of that, and I'm speaking for 181 00:10:07,920 --> 00:10:09,960 Speaker 1: myself because Michael and I actually have a long running 182 00:10:10,000 --> 00:10:14,920 Speaker 1: debate on this issue. But personally, my guess is that 183 00:10:16,000 --> 00:10:19,240 Speaker 1: targeted advertising is going to turn out to be a very, 184 00:10:19,360 --> 00:10:23,400 Speaker 1: very deflationary thing for advertising. Um. And that's counterintuitive. Most 185 00:10:23,400 --> 00:10:27,880 Speaker 1: people assume that better targeting inevitably means higher CPMs or 186 00:10:27,840 --> 00:10:31,520 Speaker 1: a higher prices for advertising is less waste. The problem 187 00:10:31,600 --> 00:10:35,760 Speaker 1: is the same technologies that allow better advertising also allow arbitrage, 188 00:10:36,280 --> 00:10:39,320 Speaker 1: and the closer I can get to Tom Keane the 189 00:10:39,440 --> 00:10:42,240 Speaker 1: person as opposed to a demographic that looks sort of 190 00:10:42,280 --> 00:10:45,560 Speaker 1: like Tom Keane, the less I care about where I 191 00:10:45,600 --> 00:10:48,320 Speaker 1: find you. Um. And inevitably, if I can find you 192 00:10:48,400 --> 00:10:51,840 Speaker 1: personally and say I'm advertising directly to Tom, then I 193 00:10:51,840 --> 00:10:53,880 Speaker 1: will do so in the cheapest place I can find 194 00:10:53,880 --> 00:10:58,920 Speaker 1: that reaches you. And the arbitrage aspect of targeted advertising 195 00:10:58,920 --> 00:11:03,000 Speaker 1: almost always swam the better targeting aspect of targeted advertising, 196 00:11:03,160 --> 00:11:05,560 Speaker 1: and you end up with CPMs going down rather than up. 197 00:11:05,559 --> 00:11:07,280 Speaker 1: I think that's going to be one of the big 198 00:11:07,320 --> 00:11:11,520 Speaker 1: stories in advertising over the next five years, is CPMs 199 00:11:11,559 --> 00:11:14,000 Speaker 1: falling across the board. But again I don't want to 200 00:11:14,000 --> 00:11:16,040 Speaker 1: put words in Michael's mouth because Michael and I, as 201 00:11:16,080 --> 00:11:17,680 Speaker 1: I said, have had the long running debate on that 202 00:11:17,720 --> 00:11:21,840 Speaker 1: he disagrees, but Craig. This weekend, Tom's youngest will be 203 00:11:21,880 --> 00:11:25,360 Speaker 1: watching Netflix. She will not be watching linear TV, and 204 00:11:25,400 --> 00:11:27,800 Speaker 1: she won't be seeing ads. Yeah, I will be going 205 00:11:27,840 --> 00:11:30,640 Speaker 1: back and I will be watching Netflix and Amazon Prime 206 00:11:30,640 --> 00:11:34,439 Speaker 1: and Video on demand, et cetera. Who slays the Netflix 207 00:11:34,600 --> 00:11:38,040 Speaker 1: based in traditional media? Well, I guess the obvious question 208 00:11:38,120 --> 00:11:41,800 Speaker 1: is is Netflix really a beast? You know? Has Netflix? Well? 209 00:11:42,240 --> 00:11:46,480 Speaker 1: Netflix has turned into something different, right. And Netflix initially 210 00:11:47,120 --> 00:11:50,440 Speaker 1: had a what was a a brilliant play to try 211 00:11:50,480 --> 00:11:53,440 Speaker 1: to convince Wall Street that they were competing for what 212 00:11:53,520 --> 00:11:57,319 Speaker 1: I took try to call the the transport function um. 213 00:11:57,360 --> 00:11:59,280 Speaker 1: But they were never in the transport business. They were 214 00:11:59,280 --> 00:12:02,280 Speaker 1: simply an a regator and navigator of content and other 215 00:12:02,320 --> 00:12:05,839 Speaker 1: people's content. And I think, to read Hastings credit, I 216 00:12:05,880 --> 00:12:09,680 Speaker 1: think he understood way before anybody else did, that the 217 00:12:09,760 --> 00:12:14,480 Speaker 1: opportunity of navigation and an aggregation wasn't really all that 218 00:12:14,600 --> 00:12:16,680 Speaker 1: big and wasn't nearly as big as the market was 219 00:12:16,679 --> 00:12:18,559 Speaker 1: giving him credit for, and that he was going to 220 00:12:18,640 --> 00:12:22,240 Speaker 1: have to pivot to being a content producer instead. The 221 00:12:22,280 --> 00:12:24,640 Speaker 1: content that they produced is great content, and they've but 222 00:12:24,720 --> 00:12:27,559 Speaker 1: they've turned themselves now into something like an HBO. It's 223 00:12:27,600 --> 00:12:31,320 Speaker 1: a less to me anyway, it is a less compelling business. 224 00:12:31,320 --> 00:12:33,560 Speaker 1: And again it's a stock that Michael covers. But I 225 00:12:33,559 --> 00:12:36,679 Speaker 1: think Michael would say, as they start to lose more 226 00:12:36,720 --> 00:12:39,680 Speaker 1: of their Fox content, for example, it's going to be 227 00:12:39,760 --> 00:12:42,640 Speaker 1: harder for them just based on the content that they 228 00:12:42,679 --> 00:12:46,160 Speaker 1: produced themselves. Because the content creates as have dissided themselves, 229 00:12:46,160 --> 00:12:49,360 Speaker 1: they no longer need the content aggregators line Netflix. Disney 230 00:12:49,400 --> 00:12:52,240 Speaker 1: made that decision by ending the licensing agreement with Netflix, 231 00:12:52,520 --> 00:12:54,840 Speaker 1: and I want done. Osbal Biger himself the sea off 232 00:12:54,880 --> 00:12:56,720 Speaker 1: the Walt Disney Company, whether he would do the same 233 00:12:56,760 --> 00:13:00,280 Speaker 1: thing in the content he's just a quad from Century folks. 234 00:13:00,280 --> 00:13:02,920 Speaker 1: He said, yes, we'd consider it. We consider just taking 235 00:13:02,920 --> 00:13:05,280 Speaker 1: it in house. Is that going to be the future 236 00:13:05,320 --> 00:13:07,400 Speaker 1: that these content creators say, you know what, We're gonna 237 00:13:07,400 --> 00:13:10,000 Speaker 1: go out with the top on our own? Maybe? Um, 238 00:13:10,200 --> 00:13:12,719 Speaker 1: certainly Disney is going to do that to a degree, right, 239 00:13:12,760 --> 00:13:18,320 Speaker 1: I mean es what they're planning with espn UH is 240 00:13:18,080 --> 00:13:21,080 Speaker 1: it is a directed consumer service, but it's not a 241 00:13:21,120 --> 00:13:24,200 Speaker 1: substitute for the existing service. You're gonna see badminton and 242 00:13:24,280 --> 00:13:28,400 Speaker 1: bowling and and and water polo on on on the 243 00:13:28,480 --> 00:13:32,160 Speaker 1: directed consumer Internet business. You won't see football in basketball. 244 00:13:32,600 --> 00:13:37,160 Speaker 1: So and even with their their directed consumer for children's 245 00:13:37,200 --> 00:13:39,800 Speaker 1: programming and that sort of thing, they're not looking to 246 00:13:39,840 --> 00:13:43,120 Speaker 1: replace their existing ecosystem. They're looking to augment it. Let's 247 00:13:43,120 --> 00:13:45,080 Speaker 1: go over your house, You've been kind to talk about 248 00:13:45,160 --> 00:13:49,520 Speaker 1: Michael Nathan's world. Grandma has telephone with a five point 249 00:13:49,600 --> 00:13:53,360 Speaker 1: one percent dividend. Verizon is at four point five percent yield. 250 00:13:53,800 --> 00:13:56,680 Speaker 1: Is Grandma safe for those dividends? Are you by bye 251 00:13:56,720 --> 00:14:02,560 Speaker 1: bye on those dividend earners and modest weak growers or 252 00:14:02,600 --> 00:14:06,600 Speaker 1: are they the ultimate value trap? You know, before tax reform, 253 00:14:06,679 --> 00:14:08,800 Speaker 1: I would have said, especially A T and T was 254 00:14:08,880 --> 00:14:11,920 Speaker 1: a much riskier stock than people gave it credit for 255 00:14:12,200 --> 00:14:14,079 Speaker 1: UM and I've been quite negative about A T and 256 00:14:14,120 --> 00:14:16,680 Speaker 1: T for most of the past year. I upgraded it 257 00:14:16,760 --> 00:14:19,160 Speaker 1: about four or five months ago in anticipation of tax 258 00:14:19,160 --> 00:14:21,680 Speaker 1: reform because even though A T and T isn't the 259 00:14:21,680 --> 00:14:24,720 Speaker 1: biggest winner in tax reform on paper, they're not the 260 00:14:24,760 --> 00:14:28,200 Speaker 1: highest statutory rate payer for example, UM, they may be 261 00:14:28,280 --> 00:14:30,800 Speaker 1: the biggest winner as a stock in my coverage universe 262 00:14:30,880 --> 00:14:34,160 Speaker 1: because tax reform takes the issue and the risk of 263 00:14:34,160 --> 00:14:36,520 Speaker 1: a dividend cut almost entirely off the table. For the 264 00:14:36,560 --> 00:14:40,040 Speaker 1: time being, and that was emerging as the center of 265 00:14:40,080 --> 00:14:42,920 Speaker 1: the bear case for A T and T. You slay 266 00:14:42,960 --> 00:14:44,680 Speaker 1: that dragon, and A T and T now is a 267 00:14:44,800 --> 00:14:48,000 Speaker 1: much safer stock, and for a certain class of investors 268 00:14:48,600 --> 00:14:51,480 Speaker 1: it's a five plus yield is a hard thing to find. Okay, 269 00:14:51,520 --> 00:14:54,520 Speaker 1: So in December twenty eight, they're gonna have a meeting 270 00:14:54,640 --> 00:14:56,680 Speaker 1: or a launch or a dinner whatever on the twentie 271 00:14:56,760 --> 00:15:00,800 Speaker 1: floor of some skyscraper floor of some skysc April, New York. 272 00:15:01,200 --> 00:15:05,120 Speaker 1: What's their merger's acquisition plan for next year? I mean, 273 00:15:05,360 --> 00:15:07,840 Speaker 1: are they going to have a good holiday season where 274 00:15:07,840 --> 00:15:10,160 Speaker 1: they think strategically and say we're going to do this 275 00:15:10,240 --> 00:15:12,680 Speaker 1: next year, or are they sort of in a strategic 276 00:15:12,800 --> 00:15:15,440 Speaker 1: chaos Well at a at A T and T, they've 277 00:15:15,440 --> 00:15:17,800 Speaker 1: obviously got to wait to find out what happens with 278 00:15:17,920 --> 00:15:22,440 Speaker 1: Time Warner and and we're looking at probably April before 279 00:15:22,480 --> 00:15:26,440 Speaker 1: we get the answer to that. Realistically, that's going to 280 00:15:26,800 --> 00:15:29,840 Speaker 1: slow things down for a while. After that's done, they're 281 00:15:29,840 --> 00:15:32,800 Speaker 1: going to have a fair amount of digestion, now you 282 00:15:32,840 --> 00:15:36,360 Speaker 1: know it. Tax reform helps that deal as well, assuming 283 00:15:36,360 --> 00:15:39,680 Speaker 1: that it gets approved by the d o J before 284 00:15:39,720 --> 00:15:42,480 Speaker 1: tax reform. And remember they struck that deal back before 285 00:15:42,480 --> 00:15:46,640 Speaker 1: the election in you would have said they were paying 286 00:15:46,680 --> 00:15:50,640 Speaker 1: a very full price for Time Warner. With tax reform 287 00:15:50,680 --> 00:15:53,240 Speaker 1: now being priced into the market, and with the inflation 288 00:15:53,240 --> 00:15:57,120 Speaker 1: in all assets, and also with the the benefit that 289 00:15:57,120 --> 00:16:00,200 Speaker 1: that tax reform gives to the Time Warner assets for earnings, 290 00:16:00,680 --> 00:16:02,720 Speaker 1: the price that they're paying doesn't look so bad anymore. 291 00:16:02,800 --> 00:16:06,680 Speaker 1: And so um, so they went on a number of fronts. 292 00:16:07,200 --> 00:16:11,920 Speaker 1: If that deal gets gets approved, now the it's it's 293 00:16:11,920 --> 00:16:14,600 Speaker 1: always been a double edged sword, right. That deal I 294 00:16:14,640 --> 00:16:16,880 Speaker 1: think is good for a T and T S income statement, 295 00:16:16,920 --> 00:16:18,800 Speaker 1: bad for a T and T S balance sheet because 296 00:16:18,800 --> 00:16:21,520 Speaker 1: they emerge very heavily levered for a company that that 297 00:16:21,640 --> 00:16:24,320 Speaker 1: let's put you on the spot. Does the deal get done? Um? 298 00:16:24,600 --> 00:16:27,760 Speaker 1: I think more more likely than not. Yes, Why did 299 00:16:27,760 --> 00:16:29,960 Speaker 1: I get done? And what's going to be the hold up? Well, 300 00:16:29,840 --> 00:16:34,360 Speaker 1: the the the issue of of where are the potential 301 00:16:34,920 --> 00:16:38,040 Speaker 1: um issues around foreclosure is not a is not a 302 00:16:38,080 --> 00:16:42,360 Speaker 1: manufactured issue. Skip all of the politics nonsense about Donald 303 00:16:42,360 --> 00:16:45,880 Speaker 1: Trump and disliking CNN. I suspect that has nothing whatsoever 304 00:16:45,920 --> 00:16:49,040 Speaker 1: to do with this. This is about some very real 305 00:16:49,480 --> 00:16:54,520 Speaker 1: risks of vertical foreclosure. Um. The remember of the content 306 00:16:54,680 --> 00:16:57,280 Speaker 1: that Time Warner makes is sold to someone other than 307 00:16:57,320 --> 00:16:58,680 Speaker 1: A T and T, and it's sold to a T 308 00:16:58,760 --> 00:17:01,680 Speaker 1: and T s direct competitors, and so there are the 309 00:17:02,040 --> 00:17:04,760 Speaker 1: potential for mischief is real. The reason I think the 310 00:17:04,800 --> 00:17:07,879 Speaker 1: deal likely gets approved is because the conditions that A 311 00:17:07,960 --> 00:17:12,119 Speaker 1: T and T has voluntarily agreed to Baseball Baseball style 312 00:17:12,160 --> 00:17:17,200 Speaker 1: binding arbitration and agreeing not to black out programming during 313 00:17:17,240 --> 00:17:21,520 Speaker 1: programming disputes, which is their their single biggest weapon, UM 314 00:17:21,680 --> 00:17:25,720 Speaker 1: is likely to tip Judge Leon into UM saying it's 315 00:17:25,800 --> 00:17:28,240 Speaker 1: very hard for me to reject this deal if I 316 00:17:28,400 --> 00:17:31,560 Speaker 1: personally agreed to exactly that same condition as the basis 317 00:17:31,560 --> 00:17:34,679 Speaker 1: for approving Comcast and NBC back in two thousand and ten. 318 00:17:34,920 --> 00:17:37,440 Speaker 1: Thank you for your perspective. This year, we've greatly valued 319 00:17:37,480 --> 00:17:40,080 Speaker 1: it on Bloomberg Surveillance. It was a media year with 320 00:17:40,200 --> 00:17:43,800 Speaker 1: a shock of the Disney murderch Merger greatly appreciate when 321 00:17:43,840 --> 00:17:47,240 Speaker 1: you and Michael show up together as well Craig Moffatt 322 00:17:47,280 --> 00:17:49,520 Speaker 1: with Moffatt Nathanson on the media, and we really think 323 00:17:50,240 --> 00:17:52,199 Speaker 1: all of the people in Wall Street that help us 324 00:17:52,240 --> 00:17:56,040 Speaker 1: with media perspective, because yeah, that's what we do. I 325 00:17:56,080 --> 00:17:58,800 Speaker 1: get it. What's totally narcisstic. We're just curious what's going 326 00:17:58,840 --> 00:18:02,199 Speaker 1: to happen, but also the by Hold cell of it 327 00:18:02,280 --> 00:18:05,439 Speaker 1: can be interesting, not only in profit but trying to 328 00:18:05,520 --> 00:18:23,920 Speaker 1: avoid losses. Maffat Craig Moffett of Moffatt Nathanson as if, uh, 329 00:18:24,000 --> 00:18:26,880 Speaker 1: this is a joy on a retail day. And we've 330 00:18:26,880 --> 00:18:29,359 Speaker 1: been doing a lot in retail thanks to Oliver Chenne Cowen, 331 00:18:29,760 --> 00:18:33,119 Speaker 1: who I thought yesterday was brilliant and he's been really 332 00:18:33,160 --> 00:18:38,000 Speaker 1: an optimist on retail over the last eighteen months. And 333 00:18:38,040 --> 00:18:41,440 Speaker 1: of course he's doing that from Seal Side Equities, doing 334 00:18:41,480 --> 00:18:45,080 Speaker 1: that from the enthusiasm and by Hold Seal. Mr Storche 335 00:18:45,080 --> 00:18:48,000 Speaker 1: comes into this a little different with three shingles from Harvard. 336 00:18:48,440 --> 00:18:51,600 Speaker 1: He launched into retail and you know, the the whole 337 00:18:51,640 --> 00:18:54,600 Speaker 1: ballet of it, working at Hudson Bay and Lord and 338 00:18:54,720 --> 00:18:58,240 Speaker 1: Taylor and others. And I guess it would start when 339 00:18:58,320 --> 00:19:00,520 Speaker 1: you were in Cambridge to take the red line across 340 00:19:00,560 --> 00:19:03,640 Speaker 1: the Charles River and you take the green line out 341 00:19:03,680 --> 00:19:05,080 Speaker 1: and I don't know if you did this when you're 342 00:19:05,080 --> 00:19:09,960 Speaker 1: in school to the luxury nirvana of a Chestnut Hill mall, 343 00:19:10,080 --> 00:19:12,159 Speaker 1: which is sort of like on the D Line, but 344 00:19:12,280 --> 00:19:14,680 Speaker 1: maybe it's shorter on the Sea line. I can't remember. 345 00:19:15,440 --> 00:19:18,720 Speaker 1: Do the Chestnut Hill Malls of America? Do they make 346 00:19:18,760 --> 00:19:21,399 Speaker 1: it to the next decade that mall will show make it? 347 00:19:21,480 --> 00:19:23,560 Speaker 1: I think what you'll see is a segmentation, just like 348 00:19:23,720 --> 00:19:25,840 Speaker 1: a lot of things. The malls that are really well 349 00:19:25,920 --> 00:19:29,399 Speaker 1: located are incredibly valuable, valuable pieces of real estate. And 350 00:19:29,480 --> 00:19:33,560 Speaker 1: we saw that big acquisition where unibou Redempco bought. But 351 00:19:33,800 --> 00:19:36,440 Speaker 1: the Westfield malls, you know, if if they're great malls, 352 00:19:36,480 --> 00:19:39,760 Speaker 1: they're gonna stay great. The content might change, and so 353 00:19:40,240 --> 00:19:43,760 Speaker 1: the anchors may change, the restaurants might change, but there's 354 00:19:43,760 --> 00:19:45,760 Speaker 1: always gonna be a room for those A malls. It's 355 00:19:45,760 --> 00:19:48,040 Speaker 1: the it's the sea malls that will go away and 356 00:19:48,080 --> 00:19:50,040 Speaker 1: become doctor's offices, place to get an m R. I 357 00:19:50,040 --> 00:19:52,320 Speaker 1: when n hurts that kind of thing, well, John Farrell 358 00:19:52,359 --> 00:19:55,680 Speaker 1: and I notice the changing of retail and restaurants in 359 00:19:55,760 --> 00:19:57,760 Speaker 1: New York City. And good morning to all of your 360 00:19:57,760 --> 00:20:01,240 Speaker 1: coast to coast that I'll have your own empty store stories. 361 00:20:01,560 --> 00:20:03,120 Speaker 1: Let me ask the question I get all the time, 362 00:20:03,640 --> 00:20:07,880 Speaker 1: why can't the rents go down if the space is empty? Well, 363 00:20:07,880 --> 00:20:09,480 Speaker 1: some of the rents have come, didn't come down In 364 00:20:09,480 --> 00:20:12,800 Speaker 1: New York. They had escalated quite rapidly on the high 365 00:20:12,840 --> 00:20:15,280 Speaker 1: streets here, you know as Madison Avenue or down the 366 00:20:15,359 --> 00:20:17,879 Speaker 1: Chelsea area, and those rents have come down very sharply. 367 00:20:17,880 --> 00:20:19,560 Speaker 1: The only place that's held up pretty well is Fifth 368 00:20:19,600 --> 00:20:22,760 Speaker 1: Avenue itself. So this does reflect that's applied demand and balance, 369 00:20:22,800 --> 00:20:25,439 Speaker 1: and that's going to happen all over the country. Jerry, 370 00:20:25,440 --> 00:20:27,320 Speaker 1: give me an idea of the bricks and mortar store 371 00:20:27,320 --> 00:20:29,840 Speaker 1: that survives the next decade. What does it look like, 372 00:20:29,960 --> 00:20:32,760 Speaker 1: what does it do well? First of all, it's it's 373 00:20:32,800 --> 00:20:35,880 Speaker 1: obviously experiential. You go there because you get something you're 374 00:20:35,880 --> 00:20:38,280 Speaker 1: not gonna get sitting at home. And so whether that 375 00:20:38,320 --> 00:20:41,000 Speaker 1: means it doesn't mean that, uh that you know, you 376 00:20:41,000 --> 00:20:42,760 Speaker 1: get to screing a golf club and pretend like you're 377 00:20:42,800 --> 00:20:44,600 Speaker 1: you're playing golf. It has to relate to the content 378 00:20:44,640 --> 00:20:46,879 Speaker 1: of the store. One of my favorite stories is in 379 00:20:46,920 --> 00:20:49,440 Speaker 1: the grocery industry where someone set out and they built 380 00:20:49,480 --> 00:20:51,800 Speaker 1: the world's largest tower of oranges and people came from 381 00:20:51,840 --> 00:20:54,040 Speaker 1: far and wide to see this. That worked because it 382 00:20:54,880 --> 00:20:57,800 Speaker 1: was relevant to what they were selling doing. So it'll 383 00:20:57,960 --> 00:21:00,399 Speaker 1: be experiential, there'll be a service component so someone to 384 00:21:00,440 --> 00:21:02,160 Speaker 1: be there to be able to help you to match 385 00:21:02,280 --> 00:21:04,880 Speaker 1: every morning, much much to hurt your grin. I asked 386 00:21:04,880 --> 00:21:06,919 Speaker 1: my wife, you know, just tie the right tie for 387 00:21:06,960 --> 00:21:09,159 Speaker 1: this shirt or should I get put a different one on? 388 00:21:09,280 --> 00:21:11,399 Speaker 1: She goes, I don't know, but you know people in 389 00:21:11,440 --> 00:21:13,000 Speaker 1: the store do know, and so they can help you 390 00:21:13,040 --> 00:21:15,560 Speaker 1: do that. It'll be it'll be personalized based on data. 391 00:21:15,600 --> 00:21:17,280 Speaker 1: So it'll combine the data from what you buy in 392 00:21:17,320 --> 00:21:19,040 Speaker 1: line with what you buy in the store and able 393 00:21:19,119 --> 00:21:20,639 Speaker 1: to make good recommendations to you, says A love of 394 00:21:20,680 --> 00:21:23,639 Speaker 1: investment required to build that. It will not be the 395 00:21:23,680 --> 00:21:25,800 Speaker 1: store of yesterday. It won't be the store of today 396 00:21:26,320 --> 00:21:29,000 Speaker 1: that doesn't receive significant investment. I went to a clothing 397 00:21:29,040 --> 00:21:31,560 Speaker 1: store of the weekend where you tried on the genes 398 00:21:31,600 --> 00:21:33,200 Speaker 1: but could not buy them there. You had to buy 399 00:21:33,200 --> 00:21:35,760 Speaker 1: them online. Does it become a show room or is 400 00:21:35,800 --> 00:21:38,800 Speaker 1: that just christil So some degree, that's one of the possibilities, 401 00:21:38,800 --> 00:21:40,840 Speaker 1: but but I personally have never seen that work. I 402 00:21:40,880 --> 00:21:43,040 Speaker 1: know that's become kind of a a fad because of 403 00:21:43,080 --> 00:21:45,920 Speaker 1: the customer gets up and actually gets dressed, you know, 404 00:21:46,119 --> 00:21:48,439 Speaker 1: and and it looks good in shaves or puts makeup 405 00:21:48,480 --> 00:21:50,560 Speaker 1: on and heads on out. They expect to take it 406 00:21:50,640 --> 00:21:52,800 Speaker 1: the product home. You know, it's not much of a 407 00:21:52,800 --> 00:21:54,760 Speaker 1: customer service to say you can't buy that today, But 408 00:21:54,800 --> 00:21:57,040 Speaker 1: you did all the work to get over here, so 409 00:21:57,080 --> 00:21:59,120 Speaker 1: I don't expect that to But I do expect people 410 00:21:59,119 --> 00:22:01,480 Speaker 1: to buy replenishment orders that way though, So they try 411 00:22:01,520 --> 00:22:02,919 Speaker 1: it and they find out the size and they go 412 00:22:03,000 --> 00:22:05,320 Speaker 1: These shoes are perfect. For example, shoes are really hard 413 00:22:05,359 --> 00:22:07,679 Speaker 1: to buy online. You may have noticed. I think, you know, 414 00:22:07,720 --> 00:22:09,200 Speaker 1: most of them don't even fit me when they come. 415 00:22:09,320 --> 00:22:10,800 Speaker 1: But if I've tried on and I know the brand, 416 00:22:10,840 --> 00:22:13,000 Speaker 1: I know the size, that I can buy replenishment online. Jerry, 417 00:22:13,000 --> 00:22:16,359 Speaker 1: before we lose you getting ready for the holidays. You 418 00:22:16,440 --> 00:22:19,560 Speaker 1: used to run toys r US. Help me understand the 419 00:22:19,600 --> 00:22:22,240 Speaker 1: process for getting ready for the holidays to ensure that 420 00:22:22,280 --> 00:22:24,760 Speaker 1: in January you don't have a load of stuff that 421 00:22:24,800 --> 00:22:29,200 Speaker 1: you need to sell for fifty off. Well, the planning 422 00:22:29,240 --> 00:22:32,960 Speaker 1: of retail starts literally the first week of January, and 423 00:22:33,359 --> 00:22:35,760 Speaker 1: in the case of most industries toys electronics, the big 424 00:22:35,800 --> 00:22:38,439 Speaker 1: shows take place in January. Everyone in toys go to 425 00:22:38,480 --> 00:22:41,159 Speaker 1: Hong Kong the first week of of of the of 426 00:22:41,200 --> 00:22:43,680 Speaker 1: the new year. In the case of in the case 427 00:22:43,720 --> 00:22:45,840 Speaker 1: of electronics, as you know, the big electronic show in 428 00:22:45,880 --> 00:22:48,000 Speaker 1: Las Vegas happens very early in the year, so you 429 00:22:48,040 --> 00:22:50,520 Speaker 1: buy everything and planned very early in the year, and 430 00:22:50,720 --> 00:22:52,480 Speaker 1: most of the orders are placed far far in event. 431 00:22:52,600 --> 00:22:55,680 Speaker 1: You try to order lean and and I think, if 432 00:22:55,680 --> 00:22:57,520 Speaker 1: something's hot, you have to make up. Bet. There's a 433 00:22:57,520 --> 00:23:00,040 Speaker 1: gambler in you. Which tour did you go to on 434 00:23:00,119 --> 00:23:03,000 Speaker 1: the flame zone? Which is where you were going. I 435 00:23:03,040 --> 00:23:07,119 Speaker 1: don't care what you say, we're doing. We're didn't get 436 00:23:07,200 --> 00:23:09,480 Speaker 1: a faro. Which one did you go? You know, you 437 00:23:09,520 --> 00:23:11,359 Speaker 1: have to you have to be an optimist. So I 438 00:23:11,560 --> 00:23:13,320 Speaker 1: don't remember any of those. I remember the ones who 439 00:23:13,359 --> 00:23:16,800 Speaker 1: succeeded on and the interesting this toy that was a 440 00:23:16,800 --> 00:23:20,960 Speaker 1: little mechanical mechanical hamster. And we bought these juju pets. 441 00:23:21,000 --> 00:23:22,560 Speaker 1: We bought the world supply of them, and they were 442 00:23:22,560 --> 00:23:24,280 Speaker 1: the hit of the year. We had the greatest profitable 443 00:23:24,359 --> 00:23:26,600 Speaker 1: year in the history of the company. The next year, 444 00:23:26,600 --> 00:23:28,040 Speaker 1: I went to Hong Kong in that January and the 445 00:23:28,040 --> 00:23:30,639 Speaker 1: guy owned the company, nice guy, good friend. He goes like, 446 00:23:30,760 --> 00:23:32,199 Speaker 1: you know, we're gonna be as big as Lego, And 447 00:23:32,200 --> 00:23:34,400 Speaker 1: I go, what are you doing? He goes oh, look 448 00:23:34,440 --> 00:23:36,120 Speaker 1: like you're never going to be as big as Lego 449 00:23:36,280 --> 00:23:38,920 Speaker 1: mechanical hamsters. And he made too many. And the lower 450 00:23:39,040 --> 00:23:42,040 Speaker 1: is they buried a million mechanical hamsters and a landfill 451 00:23:42,080 --> 00:23:44,520 Speaker 1: somewhere in Hong Kong. He Jerry, that is a great story. 452 00:23:44,600 --> 00:23:47,240 Speaker 1: Jerry Stories, the CEO of Storch Advisors, Jerry, of course, 453 00:23:47,320 --> 00:23:49,359 Speaker 1: the former CEO and chairman of Toys r US. Has 454 00:23:49,400 --> 00:23:51,160 Speaker 1: been great to catch up with you, Jerry. Thank you. 455 00:24:05,960 --> 00:24:08,159 Speaker 1: Diane Swank has been looking at the abruptness of the 456 00:24:08,160 --> 00:24:11,480 Speaker 1: American economy. As I said, she was outstanding on this 457 00:24:11,600 --> 00:24:15,760 Speaker 1: important Janet Yelling Fellow Reserved day that we just had. 458 00:24:15,920 --> 00:24:17,840 Speaker 1: Diana's you're right. For the new year, what is your 459 00:24:17,880 --> 00:24:22,280 Speaker 1: number one observation on Chairman Paul Well? I think it 460 00:24:22,280 --> 00:24:25,320 Speaker 1: would be a most challenging year for Chairman Paul. We're 461 00:24:25,320 --> 00:24:27,640 Speaker 1: going to have as this divide in the FUD between 462 00:24:27,640 --> 00:24:30,160 Speaker 1: those who really don't want to raise rates at all 463 00:24:30,359 --> 00:24:32,680 Speaker 1: and those who are concerned that not only isn't place 464 00:24:32,840 --> 00:24:36,560 Speaker 1: going to come back, but the financial bubbles are emerging, 465 00:24:36,760 --> 00:24:40,760 Speaker 1: and that division. His ability to find a consensus, giving 466 00:24:40,800 --> 00:24:43,480 Speaker 1: the growing divide within the FED is going to be 467 00:24:43,520 --> 00:24:47,000 Speaker 1: as great as challenge within that is the new T word, 468 00:24:47,160 --> 00:24:49,160 Speaker 1: which is trillion. We had four years in a row. 469 00:24:49,359 --> 00:24:51,360 Speaker 1: I went back, folks, and I looked at the deficit, 470 00:24:51,960 --> 00:24:55,200 Speaker 1: back to the depression, and we've had deficits, and we've 471 00:24:55,200 --> 00:24:58,480 Speaker 1: had high deficence as percentage GDP blowing out in World 472 00:24:58,480 --> 00:25:02,080 Speaker 1: War Two, and that, Diana, you know, we had financial 473 00:25:02,160 --> 00:25:05,399 Speaker 1: crisis deficits four years in a row of over a 474 00:25:05,480 --> 00:25:08,520 Speaker 1: trillion dollars. Two years from now, if we get the 475 00:25:08,600 --> 00:25:13,400 Speaker 1: modeled trillion dollar deficit, that's a different trillion dollar deficit 476 00:25:13,760 --> 00:25:17,400 Speaker 1: and the previous four, isn't it. Yes, it's largely man made. 477 00:25:17,440 --> 00:25:19,640 Speaker 1: I say largely because all of Congress is not man 478 00:25:19,800 --> 00:25:22,600 Speaker 1: but a lot of it is. And it is largely 479 00:25:22,600 --> 00:25:25,560 Speaker 1: a man made deficit because we did not do tax reform. 480 00:25:25,640 --> 00:25:28,199 Speaker 1: We did tax cuts, and we haven't funded them. We 481 00:25:28,240 --> 00:25:31,720 Speaker 1: haven't done dealt with the ecosystem of what the government 482 00:25:31,760 --> 00:25:34,520 Speaker 1: budget is and what our priorities are as a nation, 483 00:25:34,600 --> 00:25:37,439 Speaker 1: which is disappointing to say the least. What I do 484 00:25:37,560 --> 00:25:40,680 Speaker 1: worry about is many people have talked about the flattening 485 00:25:40,680 --> 00:25:43,320 Speaker 1: of the Yelk curve, and you know, stud's inability to 486 00:25:43,400 --> 00:25:45,600 Speaker 1: raise rates. I actually think we're moving into a phase 487 00:25:45,880 --> 00:25:48,919 Speaker 1: that's very different one eight turn from that, where you're 488 00:25:48,920 --> 00:25:52,520 Speaker 1: going to get upward pressure from rising deficits, a little 489 00:25:52,520 --> 00:25:55,720 Speaker 1: bit of inflation. And remember the subtle reserve is also 490 00:25:55,880 --> 00:26:00,960 Speaker 1: finally shrinking it's behemous balance sheet, allowing things to mature 491 00:26:01,040 --> 00:26:04,399 Speaker 1: off that balance sheet at a more rapid pace every quarter. 492 00:26:04,800 --> 00:26:07,400 Speaker 1: And all of that suggests it will get a return 493 00:26:07,520 --> 00:26:10,640 Speaker 1: of the yokerve, which is welcome news, but it could 494 00:26:10,720 --> 00:26:12,920 Speaker 1: also mean we're gonna have to deal with even higher 495 00:26:13,000 --> 00:26:15,520 Speaker 1: rates than many people are expecting. If you're just joining 496 00:26:15,560 --> 00:26:18,760 Speaker 1: us with Swank Economics, Diane Swank of Chicago, Diane, I 497 00:26:18,800 --> 00:26:22,560 Speaker 1: think of the fiscal analysis of your University of Michigan there, 498 00:26:22,600 --> 00:26:25,840 Speaker 1: great professor Linda Tsar, and I think of Jason Furman 499 00:26:25,920 --> 00:26:28,560 Speaker 1: with us earlier this morning. And I want to frame 500 00:26:29,200 --> 00:26:32,520 Speaker 1: g d P D is in David and g n 501 00:26:32,640 --> 00:26:36,119 Speaker 1: P and as a Nancy And as you know, Diane Swank, 502 00:26:36,200 --> 00:26:38,840 Speaker 1: the model for this in the Western world is a 503 00:26:38,920 --> 00:26:42,600 Speaker 1: small country called Ireland, and that Ireland has a g 504 00:26:42,680 --> 00:26:45,280 Speaker 1: d P like we look at, but it's so much 505 00:26:45,400 --> 00:26:50,680 Speaker 1: foreign money that their g NP, their domestic work, is 506 00:26:50,720 --> 00:26:53,720 Speaker 1: a lot less than people would think given the brilliant 507 00:26:53,760 --> 00:26:57,359 Speaker 1: Irish economy, do we risk that with this tax reform 508 00:26:57,400 --> 00:27:00,440 Speaker 1: in these deficits. Um Well, that's something we don't want 509 00:27:00,520 --> 00:27:03,600 Speaker 1: to have happened. And Jason Furman is an excellent economist, 510 00:27:03,680 --> 00:27:06,399 Speaker 1: and I listened to him and think very highly of Jason. 511 00:27:06,800 --> 00:27:10,119 Speaker 1: You know what we really worry about is we don't 512 00:27:10,160 --> 00:27:12,160 Speaker 1: know because we didn't spend the time to really think 513 00:27:12,160 --> 00:27:16,040 Speaker 1: of all the unintended consequences of these tax cuts. And 514 00:27:16,240 --> 00:27:19,960 Speaker 1: we wanted reform, Corporate America needed reform, but we didn't 515 00:27:19,960 --> 00:27:23,360 Speaker 1: spend the time that's usually allocated to go through all 516 00:27:23,359 --> 00:27:27,000 Speaker 1: the unintended consequences, and there are any. And that's what 517 00:27:27,440 --> 00:27:33,080 Speaker 1: leaves me worrying about next year. This is where firms 518 00:27:33,080 --> 00:27:36,119 Speaker 1: need to have the yon well think about the next quarter. 519 00:27:36,160 --> 00:27:38,240 Speaker 1: I was in the car last night, folk getting off 520 00:27:38,240 --> 00:27:41,920 Speaker 1: the surveillance Sakorski to get home and and Diane, I 521 00:27:42,359 --> 00:27:44,440 Speaker 1: brought this up, and I brought you up. Where your 522 00:27:44,600 --> 00:27:48,520 Speaker 1: your Chicago Cubs tickets you take as a charitable contribution, 523 00:27:49,080 --> 00:27:52,960 Speaker 1: just as an unintended consequence, What does this tax bill 524 00:27:53,040 --> 00:27:58,440 Speaker 1: do to charitable contributions in charities? If Pim Fox, Tom King, 525 00:27:58,600 --> 00:28:03,120 Speaker 1: John Farrell, and Diane Swunk are taking the standard deduction. Yeah, 526 00:28:03,200 --> 00:28:06,800 Speaker 1: the standard deduction is really worrisome for charities because even 527 00:28:06,840 --> 00:28:09,600 Speaker 1: though the big you know, the big donations which I 528 00:28:09,680 --> 00:28:12,879 Speaker 1: try to make bigger ones, um, those big donations should 529 00:28:12,920 --> 00:28:16,080 Speaker 1: still continue to come in. It's really the masses that 530 00:28:16,160 --> 00:28:19,000 Speaker 1: we think about in terms of charitable deductions. And the 531 00:28:19,119 --> 00:28:21,480 Speaker 1: thing that's so important about charities in the United States 532 00:28:21,560 --> 00:28:24,199 Speaker 1: is because people would rather have their money attached to 533 00:28:24,240 --> 00:28:27,199 Speaker 1: what they know and not something just government. Much of 534 00:28:27,240 --> 00:28:29,879 Speaker 1: the charitable safety net in this country, much of the 535 00:28:29,880 --> 00:28:33,360 Speaker 1: safety net is fueled through charities, and to lose that 536 00:28:33,560 --> 00:28:37,960 Speaker 1: is very worrisome. How that respect charities, food banks, things 537 00:28:38,000 --> 00:28:42,000 Speaker 1: that even retraining programs, a lot of areas that really 538 00:28:42,080 --> 00:28:45,280 Speaker 1: need just small donations may not get down. Okay to 539 00:28:45,320 --> 00:28:47,240 Speaker 1: all of you worldwide, We're gonna rip up the scripture. 540 00:28:47,320 --> 00:28:50,160 Speaker 1: This is so important. I've got Diane Swunk, who's been 541 00:28:50,200 --> 00:28:53,320 Speaker 1: a leading line of Chicago, working with a guy named Diamond. 542 00:28:53,360 --> 00:28:55,640 Speaker 1: A few years ago before we wandered over to a 543 00:28:55,680 --> 00:28:58,520 Speaker 1: New York of the bank and I got one p 544 00:28:59,080 --> 00:29:03,400 Speaker 1: Fox in the studio. Pim Fox's family borders I I 545 00:29:03,840 --> 00:29:06,320 Speaker 1: he walks down Fifth Avenue and people you know, they 546 00:29:06,400 --> 00:29:08,640 Speaker 1: genuinely can they nod to him and all that he's 547 00:29:08,640 --> 00:29:11,840 Speaker 1: such a midtown I mean, Donald Trump wishes he was 548 00:29:11,880 --> 00:29:16,240 Speaker 1: a midtown bastion like your family. Well, what does this 549 00:29:16,400 --> 00:29:21,000 Speaker 1: tax bill due to the culture of New York City charity? Well, 550 00:29:21,040 --> 00:29:23,440 Speaker 1: I think it's gonna be strained. But on the other hand, 551 00:29:23,480 --> 00:29:25,520 Speaker 1: you know, if you're going to change the way you 552 00:29:25,640 --> 00:29:29,480 Speaker 1: give based on the tax laws in the country, then 553 00:29:29,560 --> 00:29:32,200 Speaker 1: I think that the charity or the four oh one 554 00:29:32,240 --> 00:29:36,040 Speaker 1: three c or whatever the particular nonprofit is has to 555 00:29:36,080 --> 00:29:38,400 Speaker 1: do some work and try to figure out exactly their 556 00:29:38,400 --> 00:29:40,400 Speaker 1: reason for being. And I think one of the biggest 557 00:29:40,400 --> 00:29:44,240 Speaker 1: trends you're seeing in nonprofit and charities is that younger 558 00:29:45,120 --> 00:29:49,640 Speaker 1: donors prefer to give to causes and things that make 559 00:29:49,720 --> 00:29:55,080 Speaker 1: a difference. They are less interested in supporting orchestra's cultural institutions, 560 00:29:55,360 --> 00:29:57,400 Speaker 1: and that's going to be I think probably one of 561 00:29:57,440 --> 00:30:00,360 Speaker 1: the biggest challenges is for those places that you to find. 562 00:30:00,400 --> 00:30:03,200 Speaker 1: Diane Swakase, she donates to the Chicago Cubs. But Diane, 563 00:30:03,240 --> 00:30:05,120 Speaker 1: what are you seeing. I mean, you've been a real 564 00:30:05,200 --> 00:30:08,760 Speaker 1: force in Chicago. Well it sounds good on radio, but 565 00:30:09,000 --> 00:30:10,960 Speaker 1: what Diane, go with me here? What does it mean 566 00:30:11,000 --> 00:30:15,440 Speaker 1: for Chicago if somebody forget about the rich people, somebody 567 00:30:15,440 --> 00:30:18,480 Speaker 1: wants to pony up eight hundred dollars. I'm sorry. In 568 00:30:18,560 --> 00:30:22,800 Speaker 1: their head, they're going, that's three I'm saving to my 569 00:30:22,920 --> 00:30:26,080 Speaker 1: tax bill, right, Diane, It is actually true, and I do. 570 00:30:26,160 --> 00:30:28,440 Speaker 1: I do think it does make us rethink what charities 571 00:30:28,480 --> 00:30:30,920 Speaker 1: and some of that is welcome news. There are charities 572 00:30:30,960 --> 00:30:34,040 Speaker 1: that are less deserving than others, I agree, but also 573 00:30:34,160 --> 00:30:36,640 Speaker 1: there's charities I believe in the arts as well. But 574 00:30:36,840 --> 00:30:39,720 Speaker 1: I think there really is something to be said about 575 00:30:39,920 --> 00:30:42,560 Speaker 1: how people, young people think. I'm working on charities that 576 00:30:42,640 --> 00:30:45,120 Speaker 1: actually a lot of young people are very involved in 577 00:30:45,600 --> 00:30:48,040 Speaker 1: and you want to see where your money goes, and 578 00:30:48,120 --> 00:30:51,760 Speaker 1: you want accountability. That said, it's still going to be harder, 579 00:30:51,880 --> 00:30:55,520 Speaker 1: even in the most accountable of charities to get those 580 00:30:55,560 --> 00:30:58,480 Speaker 1: smaller donations, and that's going to be a concern. And 581 00:30:58,800 --> 00:31:00,680 Speaker 1: thank you so much for being with us this year, 582 00:31:00,720 --> 00:31:03,760 Speaker 1: and particularly your yeoman's duty away from your clients on 583 00:31:03,800 --> 00:31:07,280 Speaker 1: the days of Federal Reserve press conferences and such. She's 584 00:31:07,360 --> 00:31:19,480 Speaker 1: Diane Swank Swank Economics in Chicago. Thanks for listening to 585 00:31:19,520 --> 00:31:24,080 Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on 586 00:31:24,120 --> 00:31:29,960 Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm 587 00:31:30,000 --> 00:31:33,320 Speaker 1: on Twitter at Tom Keane before the podcast. You can 588 00:31:33,360 --> 00:31:36,560 Speaker 1: always catch us worldwide. I'm Bloomberg Radio