WEBVTT - Radical Technological Transformation is Embedded in This Cycle, Fisher Says 0:00:09.720 --> 0:00:12.880 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with 0:00:13.560 --> 0:00:16.520 David Gura. Daily we bring you insight from the best 0:00:16.560 --> 0:00:22.279 of economics, finance, investment, and international relations. Find Bloomberg Surveillance 0:00:22.320 --> 0:00:27.000 on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, 0:00:27.320 --> 0:00:35.200 on the Bloomberg Good running everyone, Tom Keene, Bloomberg Surveillance 0:00:35.280 --> 0:00:39.480 thrilled you with this worldwide Coast to coast, Boston, Washington, 0:00:39.600 --> 0:00:43.240 San Francisco. Early morning there and in beautiful New York. 0:00:43.320 --> 0:00:46.000 Just a sort of a foggy day here in New York. 0:00:46.120 --> 0:00:48.840 Barry ridholets with me this morning. He was so good 0:00:49.040 --> 0:00:51.280 was it two days ago? Bury Tuesday? It seems like 0:00:51.360 --> 0:00:54.320 it's lifetime and lifetime ago. He's written like successes for 0:00:54.360 --> 0:00:59.240 Bloombergview since then caused the high yield tobacco yesterday came back. 0:00:59.280 --> 0:01:01.840 We'll talk to Barry Riddles about the at how you 0:01:01.880 --> 0:01:05.160 should respond when you see the new volatility. We've got 0:01:05.160 --> 0:01:08.000 a guest to lead this hour off whose expert in 0:01:08.040 --> 0:01:12.399 the perspective of what to do UH when there's um 0:01:13.040 --> 0:01:18.640 when there is UH a renewed volatility um our guests 0:01:18.640 --> 0:01:21.800 this morning to get us started is Canthy Fisher, She's 0:01:21.800 --> 0:01:27.319 will they be Bernstein providing wisdom and council in wealth management? Barry, 0:01:27.319 --> 0:01:29.440 why don't you bring in Cathy because I've beaten her 0:01:29.520 --> 0:01:33.200 to death on television on volatility, high yield and arrest. 0:01:33.319 --> 0:01:36.200 I think, sure you can do better, Berry, Sure, absolutely so. 0:01:36.959 --> 0:01:40.840 I've been hearing now for five years, Gee, we better 0:01:40.880 --> 0:01:44.840 get out of US equities because there's so much complacency, 0:01:44.959 --> 0:01:48.480 as evidenced by this low fix. And yet every year 0:01:48.760 --> 0:01:52.280 the market since the bear market lows in oh nine 0:01:52.760 --> 0:01:56.080 has grinded higher and volatility has continued to go lower. 0:01:56.160 --> 0:02:00.720 So two questions, A, is this a flashing red light? 0:02:00.840 --> 0:02:04.559 Everybody out of the pool? And be If not, why 0:02:04.600 --> 0:02:07.640 have we seen volatility come down as much as it 0:02:07.720 --> 0:02:10.919 has so on the flashing red light? I would say 0:02:10.960 --> 0:02:15.520 absolutely not. Um. The you know, the market has gone up, 0:02:15.520 --> 0:02:20.280 as we all know, incredibly calmly for the past several years. Um. 0:02:20.320 --> 0:02:24.160 This tiny pickup in volatility we've had recently is quite 0:02:24.200 --> 0:02:27.040 modest and UM, and I really think reflects just the 0:02:27.080 --> 0:02:29.639 fact that people are looking for bad news wherever they can, 0:02:30.240 --> 0:02:33.800 and whatever small signs we see, you see a little 0:02:33.800 --> 0:02:37.280 bit of a market reaction. But when we look broadly 0:02:37.919 --> 0:02:39.720 all the things we've been talking about for a while, 0:02:39.760 --> 0:02:43.400 I e. You know, good good, not exciting, but good 0:02:43.440 --> 0:02:46.120 growth around the world, no part of the no major 0:02:46.160 --> 0:02:51.560 economies and recession earnings continuing to plow ahead at very 0:02:51.600 --> 0:02:56.040 respectable rates. See even better than respectable. Earnings have been outstanding, haven't, 0:02:56.200 --> 0:03:02.239 especially overseas. And that's why this question with a overseas yeah, 0:03:02.240 --> 0:03:04.600 And I mean I think when you look the whole 0:03:04.639 --> 0:03:08.120 angle about why UH, diversifying outside the US is so 0:03:08.240 --> 0:03:11.919 powerful is that the non US markets are younger in 0:03:11.960 --> 0:03:16.840 their recovery, younger in there perhaps shareholder focus, particularly in 0:03:16.880 --> 0:03:20.480 places like Japan, but even Europe, and therefore, you know, 0:03:20.520 --> 0:03:23.120 I think a little more momentum there in in the 0:03:23.160 --> 0:03:27.079 potential trends in earnings growth and therefore stock price appreciation. 0:03:27.120 --> 0:03:31.480 So so let's stay with the US versus overseas um question. 0:03:31.520 --> 0:03:34.440 When we look at long periods of time, it seems 0:03:34.480 --> 0:03:38.640 like market leadership goes back and forth. Domestic does really 0:03:38.680 --> 0:03:41.360 well for a couple of years while overseas are soft, 0:03:41.800 --> 0:03:45.840 and then that reverses. Overseas catch up and domestic sort 0:03:45.880 --> 0:03:48.640 of legs. Is that a fair description and and what 0:03:48.720 --> 0:03:51.440 does that mean for a diversified portfolio. That is a 0:03:51.480 --> 0:03:54.840 fair description. And obviously part of it has been currency. 0:03:55.000 --> 0:04:00.560 Um and oftentimes the falling dollar means that you want 0:04:00.600 --> 0:04:03.640 to have non US stocks because when translated back to dollars, 0:04:03.680 --> 0:04:06.200 of course they're worth more. Um. So the currency can 0:04:06.240 --> 0:04:08.880 have an impact, but more in this cycle. In particular, 0:04:09.240 --> 0:04:11.640 if you look at the returns of non U s 0:04:11.640 --> 0:04:14.920 docks x the dollar impact, they are still better. And 0:04:14.960 --> 0:04:17.920 therefore we do think that's much more due to the fundamentals, 0:04:17.960 --> 0:04:20.360 not just the currency moves. Well, weent out to a 0:04:20.480 --> 0:04:23.720 record high, a true record high through too, through the 0:04:23.720 --> 0:04:26.719 peak that we saw in two thousand fourteen. They were 0:04:26.760 --> 0:04:28.479 all going to die and go away, and they're doing 0:04:28.520 --> 0:04:31.400 better than than good right now. Um, Kathy. What people 0:04:31.440 --> 0:04:33.320 don't know about you, as you were in the trenches 0:04:33.320 --> 0:04:36.400 of acquisition and m and A for years at JP Morgan, 0:04:36.600 --> 0:04:40.080 is not just wealth management that you've done defined for 0:04:40.120 --> 0:04:44.840 our audience a creative in delutive Emerson first line of 0:04:44.880 --> 0:04:47.720 their new effort to go after Rockwell, We've got to 0:04:47.760 --> 0:04:51.880 get Rockwell automation. It's an a creative deal. What does 0:04:51.920 --> 0:04:56.200 that exactly mean? It means that after all the acquisition 0:04:56.320 --> 0:05:00.279 costs are factored in, the company does expect that the 0:05:00.320 --> 0:05:03.880 opportunity from the acquisition will indeed add to their earnings 0:05:03.920 --> 0:05:07.279 per share growth going forward, as it should. You shouldn't 0:05:07.279 --> 0:05:09.400 do a deal unless it is. But obviously, in many 0:05:09.440 --> 0:05:13.320 cases deals can be temporarily dilutive to earnings per share 0:05:13.720 --> 0:05:16.960 if the acquisitions costs are high and the premium paid 0:05:17.040 --> 0:05:20.760 is high for the acquired company. Does that calculation have 0:05:20.839 --> 0:05:25.039 the same mystery of plugins is guessing our federal budget deficit? 0:05:25.480 --> 0:05:28.159 Or that I mean when when the dealmakers like you 0:05:28.200 --> 0:05:31.720 are sitting down with Company A, they're already by b. 0:05:31.960 --> 0:05:34.840 Let's go, let's go, let's go. Are the plugins of 0:05:34.920 --> 0:05:37.800 mystery one year out, three years out, five years out. 0:05:38.080 --> 0:05:40.280 They are a mystery, but nowhere near as much as 0:05:40.320 --> 0:05:43.320 mysterious as the dad obviously, because the biggest the biggest 0:05:43.360 --> 0:05:47.680 opportunity is usually in cost synergies, and those are fairly straightforward. 0:05:48.040 --> 0:05:51.600 Revenue synergies are often harder to determine, but on the 0:05:51.640 --> 0:05:55.120 cost side usually it's pretty clear cut. And what's interesting 0:05:55.120 --> 0:05:58.279 to me about the revenue I hate this phrase revenue 0:05:58.320 --> 0:06:07.560 synergies that John Tucker, they're great band. The revenue revenue, Yeah, 0:06:07.800 --> 0:06:12.520 they did revenue synergies. So revenue synergies often reflect the 0:06:12.520 --> 0:06:17.920 opportunity to cross sell to existing customers or to lever 0:06:18.720 --> 0:06:20.919 a product or service in a way that can be 0:06:21.040 --> 0:06:25.520 enhanced by the combination. That's yeah. So so you know, 0:06:25.760 --> 0:06:28.479 every every business is different. It depends. So they but 0:06:28.600 --> 0:06:33.479 that's why they're harder to estimate because they are a 0:06:33.480 --> 0:06:36.560 little bit on the come and they and therefore, you know, 0:06:36.680 --> 0:06:39.320 very people look at them with more skepticism than they 0:06:39.360 --> 0:06:44.400 do the cost control numbers. We are, I would argue, 0:06:44.400 --> 0:06:46.240 we're in a we're going to be in probably the 0:06:46.360 --> 0:06:50.440 longest recovery for both the economy and the markets we've 0:06:50.440 --> 0:06:54.480 probably ever seen in modern history because and I think 0:06:54.480 --> 0:06:58.240 it makes sense given how tepid the economic recovery has been, 0:06:58.760 --> 0:07:02.360 that it has longer to go, and they're the way 0:07:02.400 --> 0:07:06.919 companies are adapting to change also gives earnings longer to 0:07:07.000 --> 0:07:11.000 go as well, and therefore stock prices. So if this 0:07:11.080 --> 0:07:14.200 is a long, slow recovery, what does it tell us 0:07:14.280 --> 0:07:18.560 about what this secular cycle might look at look like 0:07:19.160 --> 0:07:22.240 eighty two to two thousand, Hey, that was almost two decades. 0:07:23.280 --> 0:07:28.120 You can you can date this market to where everybody 0:07:28.280 --> 0:07:31.440 broke out to new highs. Are we looking potentially at 0:07:31.480 --> 0:07:35.080 another ten plus years from here? It's hard, hard to 0:07:35.120 --> 0:07:37.200 know the time, but I think that I think you're 0:07:37.240 --> 0:07:40.280 hitting on something really important, which is that embedded in 0:07:40.360 --> 0:07:45.600 this cycle is a radical technological transformation. Right. We're all 0:07:45.600 --> 0:07:48.760 talking about the recovery from OH eight, and we're talking 0:07:48.760 --> 0:07:52.960 about geography, but but really more important is the opportunity 0:07:53.000 --> 0:07:58.040 for companies in every industry to transform their business with technology, 0:07:58.160 --> 0:08:02.080 and that will have a many, long long time to go, 0:08:02.400 --> 0:08:05.040 and how companies adapt is going to be quite interesting. 0:08:05.120 --> 0:08:08.360 Were talking business intelligent? Are we talking hardware? What? What 0:08:08.560 --> 0:08:14.160 is the focus of technology across you're describing across every field? 0:08:14.240 --> 0:08:17.080 All of the above, right, because just think of what 0:08:17.080 --> 0:08:19.760 what people can do now with any kind of handheld 0:08:19.760 --> 0:08:23.680 device for efficiencies, but then bringing an artificial intelligence, machine learning, 0:08:23.960 --> 0:08:26.840 all the things that we know are possible and can 0:08:26.960 --> 0:08:31.360 indeed enhance efficiency across the board. There's there's going to 0:08:31.400 --> 0:08:33.600 be lots of change as companies figure out what's right 0:08:33.679 --> 0:08:36.160 for them. Kathy, Thank you so much. Kathy Fisher with 0:08:36.200 --> 0:08:40.280 a beautiful premier, particularly valuable in today's calm futures. Up 0:08:40.280 --> 0:08:43.360 eight down, futures up fifty seven after uh, some of 0:08:43.400 --> 0:08:46.439 the uproar that we saw yesterday. Barry I really did 0:08:46.440 --> 0:08:49.080 try to do Barry ridholes one on one yesterday and 0:08:49.120 --> 0:08:50.920 that you know, the markets were moving and it was 0:08:51.000 --> 0:08:53.760 O MG, this that and the other thing. And yet 0:08:53.800 --> 0:08:57.440 in perspective, there was no breakage of support across any 0:08:57.520 --> 0:09:01.880 number of assets. It was just uh, somewhat normous, Kathy 0:09:01.920 --> 0:09:05.480 said earlier, somewhat normal volatility. You know, we're so used 0:09:05.520 --> 0:09:07.880 to a hundred point day on the DAW being a 0:09:07.920 --> 0:09:11.240 big deal. What we were down down yesterday almost a 0:09:11.280 --> 0:09:17.680 hundred and it's barely half a percent move, So you 0:09:17.800 --> 0:09:24.440 can't think of these market moves from your context of 0:09:22.679 --> 0:09:26.160 It's a lot to talk about with Barry Rid. Hilts 0:09:26.200 --> 0:09:28.599 will continue and do that. Gregg Val just publishes with 0:09:28.640 --> 0:09:32.320 the Horizon Investments. It's a simple headline. The tax bill 0:09:32.960 --> 0:09:34.959 is in trouble. We'll do much more on that through 0:09:35.000 --> 0:09:50.840 the morning as well. Every state is different. We have 0:09:50.880 --> 0:09:54.359 the advantage of Libby Cantrill of PIMCO that she understands 0:09:54.360 --> 0:09:58.079 in her Colorado, the Democrats have been ascended since time began, 0:09:58.120 --> 0:10:01.480 but they've never really done it. Called Rondo's election to 0:10:01.559 --> 0:10:04.520 election always a fractious state. You really never know what's 0:10:04.559 --> 0:10:08.560 gonna happen. You don't know it now, you don't. It's 0:10:07.280 --> 0:10:11.440 it's but it's good. It's actually because then folks who 0:10:11.440 --> 0:10:14.240 are sent to Washington actually are incentivized compromise. What does 0:10:14.280 --> 0:10:17.719 it mean within your policy area in Washington that it's 0:10:17.760 --> 0:10:21.600 a senior senator from Wisconsin, because Wisconsin is sort of 0:10:21.640 --> 0:10:25.800 to me, almost like Georgia or Virginia. It's a nuts 0:10:25.840 --> 0:10:30.880 every election, there is a battle. Yeah, it's all fifty stuff. Yeah, 0:10:30.960 --> 0:10:34.360 it's actually a little bit like Colorado. Different dynamics, but 0:10:34.360 --> 0:10:37.720 but but similar in that it's it's unpredictable. Um so so, 0:10:37.800 --> 0:10:41.199 Senator Johnson actually has been expressing concern about the small 0:10:41.240 --> 0:10:44.160 business issue, about this pass through rate issue actually for 0:10:44.200 --> 0:10:46.880 several months and even a couple of weeks ago, basically 0:10:46.920 --> 0:10:49.680 said this was going to be his red line. I 0:10:49.720 --> 0:10:52.600 think that the fact that he so vociferously came out 0:10:52.600 --> 0:10:55.200 against it yesterday, I mean today he's walking back a 0:10:55.200 --> 0:10:57.040 little bit, saying that he wants to get to yes. 0:10:57.559 --> 0:11:00.120 But as we know, any fundamental changes to this a 0:11:00.160 --> 0:11:02.959 bill might violate the Bird rule and might not be 0:11:03.000 --> 0:11:07.120 able to be passed. I've given up calling this tax reform. 0:11:07.440 --> 0:11:11.280 Do you disagree with me? Isn't it just blatant tax cut? 0:11:11.400 --> 0:11:13.800 It's it's so we've actually been sort of saying from 0:11:13.840 --> 0:11:16.000 the very beginning, this is probably gonna be tax reform 0:11:16.160 --> 0:11:18.720 light at best, and I think that's what you're getting. 0:11:18.720 --> 0:11:21.679 You're getting kind of tax cuts with a little bit 0:11:21.720 --> 0:11:25.040 of reform, so they can call it reform, but effectively 0:11:25.080 --> 0:11:28.079 this is a pretty big corporate tax cut with some 0:11:28.240 --> 0:11:33.280 individual tax relief that obviously will expire. Has anything to 0:11:33.320 --> 0:11:34.959 do with it. So let me push back on me, 0:11:35.120 --> 0:11:38.880 this isn't tax reform, just just to just to argue 0:11:38.920 --> 0:11:43.160 the of the side. So changes to the mortgage interest 0:11:43.200 --> 0:11:48.199 deduction have been floated and negotiated. This LLC passed through 0:11:48.840 --> 0:11:51.160 is a big deal, especially after the n f I 0:11:51.240 --> 0:11:54.320 B n f IB initially came out and said, hey, 0:11:54.320 --> 0:11:56.840 this exempts too many small businesses, we can't support it. 0:11:57.320 --> 0:12:01.880 Accelerated appreciation of capital spending is huge change. That's a 0:12:02.000 --> 0:12:07.520 very very significant change. Um. And there are other things 0:12:07.679 --> 0:12:10.520 in this tax code, certainly getting rid of the estate 0:12:10.600 --> 0:12:15.880 tax that are deep philosophical shifts from how the tax 0:12:15.920 --> 0:12:21.480 code uh was previously. Are those fair? Yeah? I think 0:12:21.520 --> 0:12:26.040 those are all, Um, you know, some elements of reform. However, 0:12:26.120 --> 0:12:29.480 if you really had true fundamental tax reform, this would 0:12:29.480 --> 0:12:31.520 be revenue neutral, right, I mean, this would not be 0:12:31.559 --> 0:12:37.000 adding anything to the deficit. And oyeah, what's what's the 0:12:37.000 --> 0:12:40.160 trillion and a half dollars? Um so? So sure, yeah, 0:12:40.200 --> 0:12:44.680 does this maybe move maybe a step in that direction, possibly, 0:12:45.040 --> 0:12:47.440 but this is not the sort of the big, comprehensive 0:12:47.600 --> 0:12:50.360 once in a generation. This is the literally cantral wheelhouse. 0:12:50.520 --> 0:12:53.760 Have you had a recent or new calculation of what 0:12:53.960 --> 0:12:57.880 that deficit ad will be like in the last twelve hours? Yeah? So, 0:12:58.240 --> 0:13:02.040 um you know this, well, we'll all it's obviously changing, 0:13:02.360 --> 0:13:05.600 um there is. So our view is that this will 0:13:05.640 --> 0:13:09.000 probably add around a trillion dollars to the deficit over 0:13:09.080 --> 0:13:13.360 ten years. Um the score is one point five trillion dollars. 0:13:13.640 --> 0:13:16.320 There's a baseline issue. This is getting very wonky between 0:13:16.320 --> 0:13:19.280 the current policy and current law base sign So basically 0:13:19.320 --> 0:13:21.679 that one and a half that's been scored includes art 0:13:21.679 --> 0:13:23.840 tax breaksets are that are already in the economy, that 0:13:23.840 --> 0:13:26.240 are I've already been factored in. Um So about a 0:13:26.240 --> 0:13:29.840 trillion dollars over over ten years. Um, but you know 0:13:29.960 --> 0:13:33.520 that we're still, you know, relatively early in terms of 0:13:33.559 --> 0:13:35.120 I mean kind of the fifth sixth inning of a 0:13:35.200 --> 0:13:37.920 nine inning game here. Um, there is still quite a 0:13:37.920 --> 0:13:40.880 long way to go, and I think Senator Johnson's opposition 0:13:41.000 --> 0:13:43.760 just shows that this thing is not fully baked yet 0:13:43.800 --> 0:13:45.520 and we may not, um, you know, we may not 0:13:45.559 --> 0:13:47.480 see anything. I think that that that there there, there 0:13:47.520 --> 0:13:49.679 is the potential for that even though there is extreme 0:13:49.720 --> 0:13:52.520 political will to get something done. So explain the thought 0:13:52.600 --> 0:13:57.760 process to me behind throwing a live bomb in the 0:13:57.800 --> 0:14:01.440 middle of this In terms of the appeal of the 0:14:01.480 --> 0:14:05.160 Obamacare mandate. I know that generates a little bit of revenue, 0:14:05.720 --> 0:14:08.760 but why would you want to waver red flag in 0:14:08.800 --> 0:14:12.880 front of all the pro A c A people on 0:14:12.920 --> 0:14:15.960 a political fight you just had and lost three times? 0:14:16.280 --> 0:14:18.720 That makes no sense, right, It's a It's a great point, 0:14:18.720 --> 0:14:21.160 and it's one of the reasons why. Um, you know, 0:14:21.240 --> 0:14:24.320 I think we thought that it would not be included. However, 0:14:24.720 --> 0:14:27.680 there's a real revenue issue here. Um. It's it raises 0:14:27.680 --> 0:14:31.520 three billion dollars and because they're going to be using 0:14:31.560 --> 0:14:34.360 something called reconciliation, which allows bills to be past the 0:14:34.360 --> 0:14:37.200 fifty votes, not sixty. They have to comply with what's 0:14:37.240 --> 0:14:40.240 called the Bird rule. The Bird war requires that that 0:14:40.320 --> 0:14:42.480 the bill does not add to the deficit in your 0:14:42.480 --> 0:14:45.440 eleven and beyond. So we'll just unset it like the 0:14:45.440 --> 0:14:47.360 Bush count. Well no, but so so. The Senate bill 0:14:47.440 --> 0:14:51.720 before the Obamacare repeal, before the individual mandate repeal, did 0:14:51.800 --> 0:14:53.680 add to the depths and out years, so would would 0:14:53.680 --> 0:14:56.720 not have complied reconciliation. Now it does. The revenue, it's 0:14:56.760 --> 0:14:59.000 a whole. It's revenue. You guys are in that side 0:14:59.000 --> 0:15:02.800 of the studio, Tucker and I are over here going 0:15:02.800 --> 0:15:06.760 to we'll get that. Wait, wait, wait, are my Texas 0:15:06.880 --> 0:15:10.040 going up? In the answers, yes, yeah, right for you 0:15:10.120 --> 0:15:12.240 and for me, yes, they absolutely are. If you're in 0:15:12.280 --> 0:15:15.800 New York, taxes aren't going up. My taxes are going 0:15:15.880 --> 0:15:19.840 down because I own an LLCRE and to me, this 0:15:19.960 --> 0:15:24.720 is just an enormous giveaway gifts, right, it's a toll giveaway. Yeah, 0:15:25.240 --> 0:15:27.400 that's get our wallets out now, in hand them. No, 0:15:27.560 --> 0:15:30.239 we should go to we should go to our accountants 0:15:30.280 --> 0:15:32.960 and say we'll make us into passed away. Well, that's 0:15:33.000 --> 0:15:35.960 the risk, isn't that the risk? With this LLC passed 0:15:35.960 --> 0:15:40.320 through that companies that are legitimately established as partnerships or 0:15:40.360 --> 0:15:44.080 limited liability companies, You're now gonna invite every other small 0:15:44.160 --> 0:15:46.440 business to becoming an ll Yes, and you're going to 0:15:46.480 --> 0:15:48.720 be inviting anybody who's in New York and New Jersey 0:15:48.720 --> 0:15:52.040 and Okay, then California. You've seen their songs for plum 0:15:53.640 --> 0:15:55.160 Wait wait wait, were gonna do a billboard here? We 0:15:55.240 --> 0:16:00.000 gotta do a message from our wonderful sponsors, Bloomberg Surveillance. 0:16:00.160 --> 0:16:02.200 Let me cantrol this morning. It's brought to you by 0:16:02.520 --> 0:16:08.440 those who will make you an LLC. We thank for 0:16:08.520 --> 0:16:12.880 their supports if you want to be an LLC, and 0:16:13.000 --> 0:16:16.960 we thank eisener Emperor, we think. So let me ask 0:16:17.000 --> 0:16:20.080 you this other question about what has just come up 0:16:20.600 --> 0:16:24.640 from some of the secretaries of Defense who are concerned 0:16:24.720 --> 0:16:29.440 that this huge deficit and and a trillion is fairly optimistic. 0:16:29.840 --> 0:16:32.440 Some of that's dynamically scored. But the numbers we've been 0:16:32.480 --> 0:16:37.440 looking at before us some anywhere from fifty higher. Is 0:16:37.440 --> 0:16:41.040 this potentially going to pull money away from the Defense Department. Yeah, 0:16:41.040 --> 0:16:43.800 I think that's what they're concerned about. Right. So, um, 0:16:43.800 --> 0:16:49.000 some former Secretary Secretaries of Defense came out overnight expressing 0:16:49.040 --> 0:16:53.000 opposition to this tax bill for fear that invariably Congress 0:16:53.000 --> 0:16:55.720 will be forced to cut, um make pretty deep cuts 0:16:55.760 --> 0:16:58.920 to to defense spending. And I think this is a 0:16:59.040 --> 0:17:02.400 really important development, especially as it relates to Senator McCain. 0:17:02.520 --> 0:17:04.960 You have to remember, first of all, the vote margin 0:17:05.000 --> 0:17:07.320 and Senate is very narrow, right, so they can only 0:17:07.359 --> 0:17:10.520 lose two votes and still pass this bill uh in 0:17:10.520 --> 0:17:12.879 the in the Senate, assuming no Democrats will support it. 0:17:13.240 --> 0:17:16.600 And Senator McCain voted against both two thousand one and 0:17:16.640 --> 0:17:19.119 the two thousand three Bush tax cuts for sort of 0:17:19.160 --> 0:17:21.439 similar reasons, right, he was concerned that this could have 0:17:21.480 --> 0:17:24.680 a deltarious impact on defense spending. And so I think 0:17:24.760 --> 0:17:27.360 this is a big development as it relates to his vote, 0:17:27.400 --> 0:17:29.800 and they can't afford to lose more votes. What does 0:17:30.080 --> 0:17:35.520 Ron Johnson and what he's the accountant from Wisconsin. How 0:17:35.560 --> 0:17:39.720 does Susan Collins is one example, react to that. Yeah, 0:17:39.720 --> 0:17:42.800 I think she, well, she's already expressed some real concern 0:17:42.920 --> 0:17:45.440 about the individual mandate being but I get they haven't 0:17:45.480 --> 0:17:48.439 committed and they're trying, right, I mean, this is that 0:17:48.560 --> 0:17:51.640 this is the thing about this is tricky because they're 0:17:51.680 --> 0:17:54.720 trying to go along kind of to get along, um 0:17:54.920 --> 0:17:58.480 to a point, but then your force a vote on 0:17:58.560 --> 0:18:02.400 something that's politically ski and you know, people are members 0:18:02.400 --> 0:18:04.920 of Congress are politically expedient. They're not gonna necessarily take 0:18:04.920 --> 0:18:07.240 about especially in the Senate, that's going to harm their 0:18:07.520 --> 0:18:10.000 re election. Brilliant. Let's come back with Libby Cantrall of 0:18:10.040 --> 0:18:13.000 Pimco and very ridholds it. It's a really good discussion here. 0:18:13.000 --> 0:18:15.479 We're really getting into the you know, the soup of it. 0:18:15.480 --> 0:18:19.120 It's not what's the today's day, November six, so we're 0:18:19.119 --> 0:18:23.200 like getting there. I haven't even begun my Thanksgiving shopping. Yeah, 0:18:23.200 --> 0:18:26.120 I gotta, I gotta, I gotta, you know, I gotta 0:18:26.160 --> 0:18:27.679 go get the turnips out of the ground in the 0:18:27.800 --> 0:18:31.359 garden in Central Park and the designer bird. Yeah no, no, 0:18:31.400 --> 0:18:37.280 we're not We're not ducking from Pimco. Um uh, we'll 0:18:37.320 --> 0:18:39.919 come back and talk about this. We're having A gentleman 0:18:39.920 --> 0:18:44.119 of Pimco recommended that I go to Greenberg's of Tyler, 0:18:44.240 --> 0:18:50.119 Texas really smoked turkey. That's interesting talking about this. My 0:18:50.200 --> 0:18:52.919 Thanksgiving planning is I buy tickets to Chicago, and I 0:18:52.960 --> 0:18:55.720 just eat my way across the city. That's brilliant. Can 0:18:55.520 --> 0:18:57.359 I can I come to the ridhole side? It's a 0:18:57.440 --> 0:19:09.439 ten pound weekend. I just have to warn you. Okay, 0:19:11.280 --> 0:19:13.159 we're gonna get to the Fed in the discussion of 0:19:13.200 --> 0:19:16.240 that with Mr Levy, Dr Levy, with barrenburg Bank, but 0:19:16.280 --> 0:19:18.600 make you leave it. I've got to ask about nine 0:19:18.680 --> 0:19:22.240 fifteen this morning, why did guys like you look at 0:19:22.320 --> 0:19:30.560 industrial production and capacity utilization if we're a service sector economy. Well, Tom, 0:19:30.560 --> 0:19:35.240 we the US does rely on services, but also relies 0:19:35.359 --> 0:19:42.399 on manufacturing, and industrial production is very important. We still 0:19:42.480 --> 0:19:47.240 produce a lot of things for domestic production and and 0:19:47.240 --> 0:19:50.480 and consumption and and for exports, so it's important. I 0:19:50.600 --> 0:19:53.320 tend to put more weight on the industrial production numbers 0:19:53.320 --> 0:19:57.639 than the capacity utilization numbers. UM. I find the ladder 0:19:57.840 --> 0:20:00.639 um um. The way they count reulate, the way the 0:20:00.720 --> 0:20:04.200 FED calculates them, I find a little questionable. Okay, let's 0:20:04.200 --> 0:20:07.160 go to our FED changer that Barry was talking about. 0:20:07.240 --> 0:20:11.720 We're gonna get Chairman Powell and all that. People have 0:20:11.840 --> 0:20:16.960 said that the concern of inflation has been overwrought and overdone. 0:20:18.000 --> 0:20:23.360 What's different now? How will a conservative economists, How will 0:20:23.400 --> 0:20:28.520 the shadow economists watching a more liberal, more devish FED, 0:20:28.840 --> 0:20:34.240 how will they react to the new Fed? Well, I don't. 0:20:34.320 --> 0:20:40.400 I do not think the concern about inflation is overstated. Um. 0:20:40.480 --> 0:20:45.960 We all benefit from stable low prices UM. And I 0:20:45.960 --> 0:20:50.040 would emphasize that the reason why inflation has been so 0:20:50.200 --> 0:20:56.600 low is nominal GDP growth has been growing very, very slowly, 0:20:56.600 --> 0:21:00.000 so there's very little excess demand in the economy relatives 0:21:00.119 --> 0:21:04.960 to productive capacity. Tom stated differently, if the FEDS policies 0:21:05.359 --> 0:21:09.840 had actually stimulated growth as they were UH forecasts to do, 0:21:10.560 --> 0:21:12.680 we would have had a much bigger inflation problem. And 0:21:12.720 --> 0:21:15.440 the final point I would make about inflation is even 0:21:15.520 --> 0:21:21.440 though it's below the FEDS two long run target, UM, 0:21:21.880 --> 0:21:24.600 it's very it shouldn't. It is not a concern. And 0:21:24.640 --> 0:21:28.639 the recent declines and inflation so far this year have 0:21:28.760 --> 0:21:32.600 been favorable for the economy, not unfavorable. So let's stick 0:21:32.640 --> 0:21:35.600 with the inflation issue for a minute. I have I 0:21:35.640 --> 0:21:40.200 have not quite a pushback, but two points to throw 0:21:40.240 --> 0:21:43.359 your way and get a response on. The first is 0:21:43.800 --> 0:21:47.639 we are still in a post credit crisis recovery. Those 0:21:47.840 --> 0:21:53.280 those tend to be primarily characterized by low growth, low inflation, 0:21:54.160 --> 0:21:59.560 and very UH low wage pressure. So so that's point one. 0:21:59.640 --> 0:22:04.879 Question one. How significant is this particular cycle to to 0:22:05.040 --> 0:22:08.480 the low inflation question? And as part of that we 0:22:08.560 --> 0:22:12.720 have seen almost no wage pressure for a decade. How 0:22:12.760 --> 0:22:18.080 significant is that to the inflation question? Very those are 0:22:18.160 --> 0:22:21.560 close are very valid points, UM. But here we are 0:22:21.640 --> 0:22:26.800 now UM in the ninth year of economic expansion and 0:22:26.920 --> 0:22:31.560 it's no longer recovery stage UM and and the economy 0:22:31.640 --> 0:22:36.240 is behaving very normally, even though, as you point out, 0:22:36.960 --> 0:22:40.920 wages are low despite the extremely low unemployment, right, and 0:22:40.960 --> 0:22:44.119 I think that the low wages have a lot to 0:22:44.200 --> 0:22:52.879 do with the disappointing growth in labor productivity. And in addition, UM, 0:22:53.000 --> 0:22:56.760 we really have a we call it a challenge or 0:22:56.800 --> 0:23:02.920 a structural problem in the United States in that, unfortunately 0:23:03.600 --> 0:23:08.000 we have tens of millions of semi skilled workers who 0:23:08.000 --> 0:23:13.119 are who are working in low productivity jobs and and UM, 0:23:13.160 --> 0:23:16.200 and their wages are not higher going up very much. 0:23:16.240 --> 0:23:19.359 So this is this is way beyond the scope of 0:23:19.440 --> 0:23:23.240 monetary policy. To correct it needs to be addressed through 0:23:23.760 --> 0:23:29.640 other UH policies like education policy and skills training. So 0:23:30.119 --> 0:23:36.159 so I agree with you. I'd love to have um 0:23:36.200 --> 0:23:39.520 accelerating wages here and I'd like to see them being 0:23:39.640 --> 0:23:43.879 regal wages to reflect improving productivity, but we just haven't 0:23:43.920 --> 0:23:48.040 had that. So I agree with your assessment. The issue 0:23:48.160 --> 0:23:54.000 is how to address it, and my unch, my read 0:23:54.160 --> 0:23:56.720 is that the FED over the last three or four 0:23:56.840 --> 0:24:00.359 years has extended the scope of monetary paul see to 0:24:00.440 --> 0:24:03.399 try to drive up wages, but it's just not the 0:24:03.480 --> 0:24:06.400 right policy tool to leave it there. Mickey Leavie, thank 0:24:06.400 --> 0:24:08.639 you so much. With baronburg Bank as we see a 0:24:08.720 --> 0:24:24.919 new FED into the next year, we are thrilled to 0:24:24.920 --> 0:24:27.639 bring you now across all of Bloomberg Radio, and I 0:24:27.720 --> 0:24:31.240 might point out our Apple podcasts as well. One of 0:24:31.240 --> 0:24:33.679 the great leaders of the art world, she's out of 0:24:33.720 --> 0:24:36.920 Harvard and of course he acclaimed Masters in Art program 0:24:36.920 --> 0:24:40.320 at Yale University, Brook Lampy. Lampley has had a storied 0:24:40.400 --> 0:24:44.600 career in art, including at Christie's working in their evening 0:24:44.600 --> 0:24:50.000 sales division. She has risen UH very much so in 0:24:50.080 --> 0:24:53.160 the art world, and we'll be vice chairman at Sotheby's 0:24:53.760 --> 0:24:56.600 beginning of the year, and we're thrilled at southobs Is 0:24:56.600 --> 0:24:59.880 allowed UH us to speak with her today. Brook there's 0:24:59.880 --> 0:25:03.400 an no other conversation, not an investment but in art, 0:25:04.040 --> 0:25:07.320 in the aesthetic than this. Leonardo to painting at four 0:25:07.400 --> 0:25:10.919 hundred and fifty million. You told me today that you 0:25:10.960 --> 0:25:14.520 were not in the room last night. It's your former employer. 0:25:15.400 --> 0:25:19.920