Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with
Speaker 1: David Gura. Daily we bring you insight from the best
Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance
Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course
Speaker 1: on the Bloomberg. Joining us now in our Bloomberg eleven
Speaker 1: three studios is Steve Iceman. He's a portfolio manager in
Speaker 1: New Burger Berman. Great to have you with us here
Speaker 1: once again. And I suppose we should start with the
Speaker 1: bank earnings. We had three major banks reporting last week.
Speaker 1: Two to come tomorrow. We have Goldman, sax and Morgan
Speaker 1: Stanley as well. Let's just take stock of what we've
Speaker 1: seen thus far. Earnings have come in line with the expectations.
Speaker 1: Of course, there's some quirkiness the third quarter earnings as well.
Speaker 1: What you've been watching is as the bank earnings have
Speaker 1: been coming in, Um, I've been ignoring them possible for what?
Speaker 1: For what reason? Do explain that? Completely irrelevant? How self?
Speaker 1: You know the bank artians will do whatever they'll be.
Speaker 1: They're very similar to the second quarter. Um, you know,
Speaker 1: the analysts will print what they print about who did
Speaker 1: a little better, who a little, a little little worse
Speaker 1: as completely meaningless. Because the big story is the deregulatory story,
Speaker 1: and that's that's going to be coming down the pike
Speaker 1: over the next six to nine months. Let's stick into
Speaker 1: that story a bit. A few months back, the Treasury
Speaker 1: Department released it's its first round of reports on on regulation,
Speaker 1: How it sees regulation, what what it intends or hopes
Speaker 1: to do with regard to to regulation. How clear a
Speaker 1: message on that front have we gotten from from this administration.
Speaker 1: We can talk a bit about what Gary Cone had
Speaker 1: to say over over the weekend, but is there clarity
Speaker 1: from this administration about how it would like to see
Speaker 1: that terrain change was It's as clear as day. Um.
Speaker 1: You know, I wear two hats. I wear the hat
Speaker 1: of American American citizen, and this is what I would
Speaker 1: do if I was God forbidden charge. Um. And then
Speaker 1: there's the hat of I'm not in charge. And it's
Speaker 1: very clear to me what the regulators are gonna do.
Speaker 1: What does that mean for bank stocks? I mean, if
Speaker 1: I was in charge, I would change very little. But
Speaker 1: I'm not in charge. And as as it is very obvious, um,
Speaker 1: And this is an administration that comes up with excuse
Speaker 1: after excuse about why Dodd Frank is bad, and they
Speaker 1: are not gonna be able to change, actually change Dodd
Speaker 1: Frank from a legislative perspective. So they're going to do
Speaker 1: it through the back door, through the regulatory process, because
Speaker 1: you know, Dodd Frank leaves a lot of them for interpretation. Um.
Speaker 1: You know, the prior regime under the OBAA administration was
Speaker 1: very very strict about the banks. They took leverage down enormously.
Speaker 1: They interpreted the vocal rule extremely strictly. Um, And you're
Speaker 1: going to see a partial reversal of what has happened.
Speaker 1: We're not gonna go anywhere close to where we were
Speaker 1: pre crisis. You know. Just to give you a couple
Speaker 1: of numbers, City Group used to be levered thirty three
Speaker 1: to one. Today it's levered ten to one. You know,
Speaker 1: my expectations over the next few years maybe it goes
Speaker 1: to thirteen fourteen to one, which would not be a calamity, um,
Speaker 1: but it would certainly make City Group a lot more profitable.
Speaker 1: And that's the direction we're gonna go in. It's going
Speaker 1: to happen in a very bureaucratese technocratic, complicated ways. So
Speaker 1: it's gonna be very hard for UM politicians to complain
Speaker 1: about it because they won't understand it. And that's intentional. Yeah,
Speaker 1: how how quickly can that happen? I look at the
Speaker 1: way that Dodd Frank came into being. Having lived in Washington,
Speaker 1: I for a time was noting the thousands and thousands
Speaker 1: of pages of comments letter implementing these rules, going from
Speaker 1: draft to draft to draft to final rule took a
Speaker 1: lot of time. If there is a lot of bureacrats,
Speaker 1: as you put it, does does that slow down the
Speaker 1: process at all? Help quickly in this come into play? Um,
Speaker 1: it will start to happen very quickly, but it's going
Speaker 1: to take about four years to actually happen. And what
Speaker 1: I mean by that is the FED regulates the banks
Speaker 1: to the annual stress test. Um, let's just say I
Speaker 1: think that's starting next year, they're going to grade on
Speaker 1: an easier curve, and so you will see a higher
Speaker 1: percentage of stock buy back and you'll see but but
Speaker 1: they're not going to let the banks buy back of
Speaker 1: them income. You know, this year, y, you're able to
Speaker 1: buy back a next year, I think there'll there'll be
Speaker 1: something like so leverls are gonna start to inch up,
Speaker 1: emphasis on inch, so you know it's going to take
Speaker 1: about a three or four years to to sort of
Speaker 1: move the leverage anywhere in any meaningful sense. Do we
Speaker 1: understand how big the banks are? One of the things
Speaker 1: I found over the years in the media is there's
Speaker 1: a complete misunderstanding of the scope and scale of these beasts.
Speaker 1: Revenue for JP Morgan Bill, revenue for City Group seventy billion,
Speaker 1: operating income twenty three plus thirty four. Between the two
Speaker 1: of them, they have something like fifty seven billion dollars
Speaker 1: of operating income down income statement, is that your advantage
Speaker 1: as an investor? Because we really don't understand the sheer
Speaker 1: mass of these beasts. I don't know if that's you know,
Speaker 1: people like to focus on that a lot um. You know,
Speaker 1: they're big because the economy is really big. I mean,
Speaker 1: so I don't pay all that much attention to it.
Speaker 1: You know. One of the reasons why the big banks
Speaker 1: are so big today is that during the height of
Speaker 1: the crisis um the regulators basically begged some of the
Speaker 1: larger banks to buy some of the other institutions. So
Speaker 1: Well's Fogleboat, Wacovia, um, you know, on and on and on.
Speaker 1: JP Morgan is bigger because of what bear Sterns and
Speaker 1: Carebuich other institution it boy, but it port something else. Um,
Speaker 1: so they were sort of stuck with it. But I
Speaker 1: don't focus all that much on the size issue. I
Speaker 1: focus much more on the leverage issue. Are we gonna
Speaker 1: see our regional bank mergers? I think if we do,
Speaker 1: you're gonna have to first. So the stress test starts
Speaker 1: at fifty billion in assets, So anybody in the stress
Speaker 1: test but meaning fifty billion up ain't merging. My expectation
Speaker 1: is that that level, that number will probably go up
Speaker 1: to something like two hundred billion, and when that happens,
Speaker 1: you'll begin to see some mergers or some some fairly
Speaker 1: significant size bags. But that's the first thing that has
Speaker 1: to happen. And to give you an idea of a
Speaker 1: fifty billion in the path, the two billion David City
Speaker 1: groups total assets are one thousand, eight hundred eight nine
Speaker 1: billion versus two. Again, the size issue is huge. I
Speaker 1: know that you and Tom we're talking on TV about
Speaker 1: these comments that Garry Cone made over the weekend at
Speaker 1: this Group of thirty confab in Washington, d C. He
Speaker 1: sounded declarion about clearing. He thought that that's particularly risky
Speaker 1: at this point. A couple of weeks back, we had
Speaker 1: the new chairman of the CFTC sitting in the seat
Speaker 1: you're sitting in now, and he painted a fairly rosy
Speaker 1: picture of his institution in the work that it's doing,
Speaker 1: while commenting on the size, the immense size of the
Speaker 1: derivatives marketplace. How at risk is that apparatus, that regulatory apparatus,
Speaker 1: and how far have we come from the financial crisis
Speaker 1: to now in terms of the power imbued into the CFTC.
Speaker 1: And it's it's ability to regulate that that massive space,
Speaker 1: you know, it's this is not my area of actorities. UM.
Speaker 1: You know, I think the derivative market is safer today
Speaker 1: than it was, you know, the derivatives that you know,
Speaker 1: lots of different kinds of derivatives. As there's interest rate swaps,
Speaker 1: which I don't think anybody really has a problem with. UM.
Speaker 1: The area that was that was the problems credit to
Speaker 1: fault swaps. That's a lot smaller to say than it was.
Speaker 1: I I gave an example UM in two thousand and sixteen,
Speaker 1: between the end of January and February, the credit to
Speaker 1: fould swap spreads on Deutsche Bank went from a hundred
Speaker 1: basis points to three hundred basis points and people started
Speaker 1: to freak out about that because that's an awfully big
Speaker 1: move and reminded people of the crisis a little bit.
Speaker 1: And what they didn't know at the time was that
Speaker 1: the volume that was traded on that huge move was
Speaker 1: seventy five million dollars now and during pre crisis on
Speaker 1: such a move, the amount that would have been traded
Speaker 1: would have been ten billion dollars. So it just gives
Speaker 1: you an idea of how much smaller than the credit
Speaker 1: to fuld s market is today. Stee, thanks for the visit,
Speaker 1: Steve icewand with this new today as we look at
Speaker 1: bond markets and make note of his optimism. Overall his optimism,
Speaker 1: he also did not mention when Selena Gomez will appear
Speaker 1: with us to speak about Richard Taylor. And to that
Speaker 1: reply on Twitter, Aty reached out talked to people. Effort
Speaker 1: was she's a busy touring schedule. I was looking up
Speaker 1: Oklahoma here David grew up and the presidential vote, Pama yes,
Speaker 1: and then I present Secretary Clinton got twenty nine percent
Speaker 1: of the vote, which the President got six of the
Speaker 1: vote and Mr Johnson of the l Party got six
Speaker 1: percent of the vote. But I find it interesting that
Speaker 1: Secretary Clinton got less than thirty percent of the vote.
Speaker 1: I did not know that he could bring in now
Speaker 1: the former U. S. Senator from Oklahoma. He's here to
Speaker 1: a decade in the U S. Senate, medical doctor turned congressman,
Speaker 1: then Senator Tom Coburan joining us now on our phone lines.
Speaker 1: Tom quickly before I bring in the senator. One of
Speaker 1: my favorite things about him was in two thousand and fifteen,
Speaker 1: as his retirement date approached, he could tick off how
Speaker 1: many days he had left until he was able to
Speaker 1: leave the capital. A complex. Great to speak you this morning,
Speaker 1: Senator Cobourn. And let me ask you, as you've observed
Speaker 1: Washington since you left, over these last two years, how
Speaker 1: much has has changed? How much is the story of
Speaker 1: dysfunction of government in action the same as it was
Speaker 1: when you left in two thousand fifteen. Oh, I think
Speaker 1: it's the same. The last two years that I was
Speaker 1: in the Senate, there were seven amendments that were considered
Speaker 1: on the floor. Uh, I mean, you know, and I
Speaker 1: had several of those. Actually that was the last year.
Speaker 1: The year before that, I think there were twelve. So
Speaker 1: the Senate had been shut down by Harry Reid because
Speaker 1: they didn't want to take hard votes. Uh. And so
Speaker 1: it's a disease that both Republicans and the Democrats have
Speaker 1: is the next election is more important than the future
Speaker 1: of our country. And there are exceptions to that in
Speaker 1: both parties, but by and large, the vast majority of
Speaker 1: career politicians are more interested in the next election than
Speaker 1: there are in terms of fixing problems. And the reason
Speaker 1: what you even know that is who's working on the
Speaker 1: medicure default that's coming, or the SOB security default that's coming,
Speaker 1: or the SOB security disabilities already defaulted and we're stealing
Speaker 1: from regular social security. Now, who's working on those things? Nobody?
Speaker 1: And so it means what they're doing is short term thinking, uh,
Speaker 1: that is politically beneficial to one party or the other,
Speaker 1: and in the long run, all the rest of America,
Speaker 1: no matter which party is, loses. And that's why I left.
Speaker 1: Nothing was happening there that was going to fix the
Speaker 1: real diseases, the real disease of our country, which is
Speaker 1: we're spending money we don't have. We promised benefits that
Speaker 1: we can't pay, and nobody wants to fess up and
Speaker 1: start addressing man. How much of this is the responsibility
Speaker 1: of leadership? You mentioned that Senator read there if you
Speaker 1: moments ago. Now, Mitch McConnell's in office, and in these
Speaker 1: recent days we fre from a number of conservative groups
Speaker 1: saying he needs to go. The Republican Party in the
Speaker 1: Senate shouldn't be led by by Senator Mitch McConnell. It's
Speaker 1: time for some some new blood, some new leadership. How
Speaker 1: confident are you that if he were to leave, if
Speaker 1: somebody knew where to lead the party in the Senate,
Speaker 1: we might see some of the changes you describe. I'm
Speaker 1: not I'm not confident of that. I'm not sure. You know.
Speaker 1: I would tell you that the vast majority of the
Speaker 1: Senate this career politicians. That's what they went into. I mean,
Speaker 1: they may have some limitsed work to experience very early
Speaker 1: in their careers, but most of them that's all I've
Speaker 1: ever done. So I'm not certain that will happen. I
Speaker 1: think you know, we're we're divided geographically, were divided, uh socially,
Speaker 1: were divided fiscally. Uh. People who pay a small amount
Speaker 1: of tax thinks their taxes are too high. People who
Speaker 1: pay a whole lot of tax I think their taxes
Speaker 1: are too high. But nobody's asking the question, what's the
Speaker 1: acts that's gonna come on our children and grandchildren by
Speaker 1: they're in action right now, so there's going to be
Speaker 1: It's amazing at the amount. You know, it's a hundred
Speaker 1: and twenty four threion dollars of unfunded liabilities it's going
Speaker 1: to be due over the next fifty years. Well, Senator,
Speaker 1: I think one of the great things about you, in
Speaker 1: an oddity and rarity among human conditions, including our lovelies
Speaker 1: on Capitol Hill, is the idea you went back and
Speaker 1: got a medical degree at age thirty five? Is that right? Yeah?
Speaker 1: I mean that's something I think a lot of people
Speaker 1: look at and are you kidding me? That's just outstanding.
Speaker 1: Where where do we go to get to compromise needed
Speaker 1: for these big pieces of legislation right now Monday morning,
Speaker 1: we're looking at the failure in AFTA, We're looking at
Speaker 1: some form of regurgitation of the Affordable Care Act, and
Speaker 1: the mystery attacks reform and and the nation all of
Speaker 1: our listeners of all political persuasions are begging, begging for
Speaker 1: doers like you are they left standing on Capitol Hill. No,
Speaker 1: I healthcare is going to fix itself, and that's because
Speaker 1: greed conquerors technologic difficulties. And what we know is one
Speaker 1: out every three dollars spent in healthcare today doesn't help anybody,
Speaker 1: doesn't prevent him from getting well then, but doesn't prevent
Speaker 1: him from getting sick, and doesn't cure him when once
Speaker 1: they are. So that's about one point three trillion dollars.
Speaker 1: And the one thing that's never happened since before World
Speaker 1: War Two is we've never had real market forces working
Speaker 1: because there's been no price discovery. And so one of
Speaker 1: the things I would suggest, if the Congress is gonna
Speaker 1: do anything, just mandate price transparency everywhere. And well, did
Speaker 1: you laud the President for pushing this Debate Act to
Speaker 1: people like you? Sure? Look, I travel around talking about
Speaker 1: this all the time. I know a company in Tulsa,
Speaker 1: Oklahoma is saving a quarter of a million dollars a
Speaker 1: month right now, just based on price transparency, based on
Speaker 1: an app that somebody developed to give them price transparency
Speaker 1: for their employees. And so so you know, that's that's
Speaker 1: three million bucks a year in their healthcare costs. And
Speaker 1: so what my experience, tom is I delivered about Oh,
Speaker 1: I don't know how many hundred Amish babies and took
Speaker 1: care of Amish families, and they always bought health care
Speaker 1: about thirty or five or less than everybody else because
Speaker 1: they went and found out prices before they bought. And
Speaker 1: so if we would just have price transparency all of
Speaker 1: a sudden, you know, Working's put out of an article
Speaker 1: in late April about the lack of competition of the
Speaker 1: large hospital chains and how they increased the cost and
Speaker 1: how we ought to have a significant antitrust activity going
Speaker 1: after the large both nonprofit and profit based hospitals and
Speaker 1: what that would do. The Federal Trade Commission has said
Speaker 1: the best care in the country at the lowest prices
Speaker 1: the position to owned hospitals. They've been banned under the
Speaker 1: Affordable CARA. I mean, let's let markets work, and if
Speaker 1: we would, then what we would start seeing as ways
Speaker 1: for people to figure out how to buy it cheaper.
Speaker 1: What do you and we need a safety that I'm
Speaker 1: not benign that we need safety that we can do that,
Speaker 1: but we don't you know. What we need is the
Speaker 1: prices to come down, and transparency in terms of price
Speaker 1: discovery will force a lot of that. What do you
Speaker 1: say to the individual who has been relying on those
Speaker 1: cost sharing steps these we see the President kicking this
Speaker 1: over to Congress. It's up to them now whether or
Speaker 1: not to appropriate that money. But there's some concern that's
Speaker 1: not going to happen. You describe the inaction on the
Speaker 1: Capitol Hill. Uh. Is that person not imperiled by what's
Speaker 1: happened here? Yes, they are. But here here's a couple
Speaker 1: of things that are happening. Number one is they can
Speaker 1: lower their cost by raising their deductible even further. And
Speaker 1: if you had price discovery, most of that expense isn't
Speaker 1: going to be paid. Uh. They'll give you example that
Speaker 1: the typical hospital based m r I for the spine
Speaker 1: is about four thousand bucks. In a free standing clinic
Speaker 1: that does imaging it's about five So you see in
Speaker 1: about seven to eightfold increasing costs. So if in fact
Speaker 1: they could actually see what things cost, they're out of pocket.
Speaker 1: The other thing that's happening is direct primary care UM
Speaker 1: and David. The direct primary care for a family of
Speaker 1: four is about twenty dollars a year. That's everything except
Speaker 1: your hospitalization. So let them buy it. Let them buy
Speaker 1: a hospitalization only policy, and that's about half of what
Speaker 1: the average deductible is today, and they're well on their
Speaker 1: way to getting the preventative care shots, immunizations, getting stitched up,
Speaker 1: getting broken arm thing. In other words, market will work
Speaker 1: if we will allow and then we can create a
Speaker 1: real safety for those that don't have the mean. But
Speaker 1: remember this promise on Medicaid didn't gonna last because we're
Speaker 1: not gonna have money to make it last. One final question,
Speaker 1: if we could, senor very quickly here, how is the
Speaker 1: support for the president and the President's Oklahoma? Is the
Speaker 1: support us? It's solid, No, I think it's what he's
Speaker 1: done is created a real division of between what he
Speaker 1: says and what the press says. And of course most
Speaker 1: of the time they don't believe the press. I'm not
Speaker 1: sure they all the time they believe him, but I
Speaker 1: would tell you kind of throughout the country, what you
Speaker 1: see is those people who voted for him, even though
Speaker 1: at times they're embarrassed, they're still like the things that
Speaker 1: the good Senator from Oklahoma heard Tom's talk of the
Speaker 1: sooner has agreed to stay with us here for another
Speaker 1: block on for surveillance. Senator Tom Coping before we send
Speaker 1: Tom Coping with us on our phone lines. And I
Speaker 1: know you're on the Homeland Security Committee, Senator when you're
Speaker 1: when you're in the in the Senate, and I wanted
Speaker 1: to ask you just how you've observed the fallout from
Speaker 1: these storms in the Caribbean and UH and and what
Speaker 1: you make of the government response so far the present.
Speaker 1: Now nominating somebody intending to nominate somebody to be the
Speaker 1: next Secretary of Homeland Security. Well, I think that you know,
Speaker 1: they learned from the large tragedy in the previous Houston
Speaker 1: and New Orleans UH hurricane. The problem in Puerto Rico
Speaker 1: really wasn't getting the stuff there, it was getting it
Speaker 1: distributed once it got there, UH. And they just weren't
Speaker 1: capable drivers evidently to do it. But I think overall
Speaker 1: I get Homeland Security a good writing on how they responded,
Speaker 1: how they pre staged things knowing that was coming, and
Speaker 1: how they how they've got it dispensed. There's a long
Speaker 1: time to go, a long way to go with both
Speaker 1: Houston and UH, the Southern Florida and uh Puerto Rico.
Speaker 1: But overall, I think you know, those aren't easy things.
Speaker 1: Government sometimes has tasked to do things that are very
Speaker 1: very difficult. Something that that appears to be very difficult
Speaker 1: has been the relationship with between the Congress and the
Speaker 1: president over these last a few months. And I know
Speaker 1: that you enjoyed a fairly good relationship with the previous
Speaker 1: sit president. What what advice would you give this current
Speaker 1: president about working how to work with Congress? How do
Speaker 1: you make that relationship better? Is it piecemeal? Let's it
Speaker 1: go into the golf course one by one with with
Speaker 1: members of the senatories. There are a better way to
Speaker 1: understand how each of these institutions works and should work together. Well,
Speaker 1: I you know, I first of all, Donald Trump is
Speaker 1: a very complex, complicated guy, and uh it doesn't look
Speaker 1: like he's gonna learning theory, doesn't appreciate appear to work
Speaker 1: with him in terms of he does something good and
Speaker 1: then steps on it, does something good and steps on it.
Speaker 1: Uh So I'm not sure. I think you just kind
Speaker 1: of got to take you Here's here's a guy that's
Speaker 1: gonna pop off and probably not smartly, but still does it.
Speaker 1: And it seems to recover from his base anyway. When
Speaker 1: he does it, you know, I look deference and keeping
Speaker 1: your mouth shut is oftentimes I had the feel a
Speaker 1: problem with that myself, by the way. Uh, but you know,
Speaker 1: the real question is what are people's motives? And when
Speaker 1: you get into question the motives, then what your assumption
Speaker 1: is is, uh, you're you don't have that same motive.
Speaker 1: And I'd say most people have well are well intentioned.
Speaker 1: In the Congress, sometimes their politics gets in the way
Speaker 1: of that, and I think you know what you do
Speaker 1: is you count to ten before you react. And we
Speaker 1: haven't seen that much either from the President or other
Speaker 1: people that he's talking to. Does Oklahoma? Does Oklahoma have
Speaker 1: a sanctuary city? Not that I'm aware of. Yeah, I
Speaker 1: was gonna say they don't. How do we get your
Speaker 1: part of the your neck of the woods back together
Speaker 1: with other necks of the woods identified by sanctuary cities.
Speaker 1: How do we tom That's a great question. Uh. There,
Speaker 1: But they're not looking at the real disease. They're looking
Speaker 1: at the symptoms. Uh. The disease is rule of the law.
Speaker 1: And what people in Oklahoma said, we're not anti Hispanic,
Speaker 1: we're not anti anybody. But if you have a law,
Speaker 1: either change it and don't enforce it to eliminate it,
Speaker 1: but if it's on the books, enforce it. And the
Speaker 1: former President Obama was really bad about that. He they
Speaker 1: deferred on a lot of things that were not legal,
Speaker 1: they just didn't enforce them. And so what happened was
Speaker 1: is you got this big upright. I'll never forget the
Speaker 1: first time I ran for the Senate, one of the
Speaker 1: things I've heard the most was why didn't the rule
Speaker 1: of law being enforced? Because here's what ultimately happens. When
Speaker 1: the average Americans sees that the federal government doesn't enforce
Speaker 1: the laws that are on the book, then all of
Speaker 1: a sudden they start applying that themselves. Well it doesn't
Speaker 1: apply to them, then then these laws don't apply to me,
Speaker 1: and you have this breakdown. And it's one of the
Speaker 1: key things that allows the republic to a vibe is
Speaker 1: competence and the rule of law. So it's it's not
Speaker 1: you know, it's not an issue of race. It's an
Speaker 1: issue I think that's the problem. Would you suggest that
Speaker 1: your competition, the Democratic Party, will come up with a
Speaker 1: new Democrat Party that will tilt back towards the center
Speaker 1: and so many suggests will happen. Well, I think both
Speaker 1: need to do that a little bit. I think they
Speaker 1: need to come back with the realization that, you know,
Speaker 1: the Bernie Sanders movement, who's going to pay for the
Speaker 1: student loans in medicare for everybody? But I mean, you know,
Speaker 1: it's a pipe drink. It's not out there. The capability
Speaker 1: to fund that in there. So you can think that, oh,
Speaker 1: this is wonderful, but the reality is, we can't do that,
Speaker 1: and the markets aren't going to let us do that.
Speaker 1: The markets are barely letting us do what we're doing now.
Speaker 1: And when we get back to normal interest rates on
Speaker 1: our dead you know, our desk, it's going to skyrocket.
Speaker 1: And you know what, three interest rates coming next year
Speaker 1: and one more this year. And we're so short term
Speaker 1: financed in terms of our our bar and as a country,
Speaker 1: ultimately we're gonna get bitten by the and so you know,
Speaker 1: the Kents also need to compromise. You know, the Senate
Speaker 1: was designed to force compromise. That's what the Philip was
Speaker 1: all about. Let's sleep with their Sunday. We're gonna have
Speaker 1: to cut you off, thank you so much. The former
Speaker 1: Senator of Oklahoma, Mr Coburn, he notes Sooner's twenty nine Longhorns.
Speaker 1: This is Bloomberg. I'm looking at Eco go on the
Speaker 1: Bloomberg time. I see the Empire Manufacturing Index out this
Speaker 1: morning coming and higher than expectations thirty point to survey
Speaker 1: twenty point four. Help me make some sense of this,
Speaker 1: and then we can get near Dwight. And it's really
Speaker 1: good to dearman Barbish this. Let me describe the chart
Speaker 1: and I will put this out on uh on on
Speaker 1: Twitter for all of you Bloomberg Radio seeing it first,
Speaker 1: and you know, I gotta say, folks, it's to me
Speaker 1: a tertiary data point. It's like me too, and every
Speaker 1: single bank has to do this. I believe they do
Speaker 1: it out of Buffalo for the New York FED. But
Speaker 1: the answer is it's got a lot of information to it.
Speaker 1: It is solid through two standard deviations going back fifteen years.
Speaker 1: It's the first time it's ever done that, which is
Speaker 1: a good reason to bring in Neriman Barbish, always an
Speaker 1: optimist with HS Global Insight. They did terrific uh work, Neriman.
Speaker 1: I mean I don't really I I don't say that often, no,
Speaker 1: but that I've got a series back fifteen years. That's
Speaker 1: two standard deviations optimistic. Is the FED behind I I
Speaker 1: don't think so, Tom. I think I mean, this is
Speaker 1: just sort of corroborates other data that we have that
Speaker 1: suggests that the economy is on very solid footing. So
Speaker 1: I think this is I don't you know, we can
Speaker 1: debate about the pluses and minuses of various indicators, but
Speaker 1: I think they're all pointing in the same direction, and
Speaker 1: I think that's where the Fed's coming from. In the end.
Speaker 1: Is it behind? You know, I don't think sup. Until recently, remember,
Speaker 1: we were all worried about, you know, the strength of
Speaker 1: its recovery, but all of a sudden, it's starting to
Speaker 1: look like it's it's doing fairly well. So no, I
Speaker 1: don't think that's a fair assessment of where that F is.
Speaker 1: I mean, we're not back to the high seen in
Speaker 1: two thousand four David Gura, but we're getting there rapidly.
Speaker 1: I mean, it's been on a diffusion index basis around zero.
Speaker 1: We've gone from minus eighteen to plus thirty, which is
Speaker 1: a whole move nearon. Let me ask you what you
Speaker 1: heard from the chorus of policymakers and bankers who were
Speaker 1: gathered in Washington last week, and over the weekend we
Speaker 1: had even as we've been discussing the IMF World Bank
Speaker 1: annual meetings, there the Group of thirty banking for room
Speaker 1: as well. What's the what are the themes that you
Speaker 1: pulled out of those meetings? Well, I read a very
Speaker 1: interesting piece on Bloomberg this morning that suggested there was
Speaker 1: a split in this conference that the US policy makers
Speaker 1: and US bankers were fairly optimistic, whereas European policy makers
Speaker 1: and bankers who are much more cautious. And I think
Speaker 1: that says something We've been We've been doing much better
Speaker 1: than Europe for a sustained period of time, although we've
Speaker 1: had our ups and downs, no question about it was
Speaker 1: Europe is still struggling to some extent. Their banks are
Speaker 1: not as good shape as US banks, and so so
Speaker 1: there is a sort of split, if you will. The
Speaker 1: Europeans worried as probably the way to say it, and
Speaker 1: some of it because of political developments in in in
Speaker 1: the past few days, having to do with Austrian the
Speaker 1: Austrian election and so on, Catalonia, whereas in the US,
Speaker 1: even though you know there has been a lot of
Speaker 1: political uncertainty the senses that the economy, the banking sector
Speaker 1: are all doing fairly well. This what's going on in Washington,
Speaker 1: So quite a difference in mood here. Yeah, David Gard
Speaker 1: mentioned Catherine Man, the O E c D. Said, yes,
Speaker 1: she understood the optimism, and it's something that they bring
Speaker 1: into their O E c D report in Paris. But
Speaker 1: she was very cautious about all, you know, all multizing
Speaker 1: and the idea of the cliche of an escape velocity
Speaker 1: has been had. She really pushed against the near and
Speaker 1: how much of of of that change in sentiment or
Speaker 1: bifurcation of Senate has to do with the regulatory landscape
Speaker 1: in each of these two places. Do do you think
Speaker 1: that there is a broadly speaking more optimism about the
Speaker 1: regulatory landscape here in the US then in Europe? You know, David,
Speaker 1: I think that is a factor, There's no question. And
Speaker 1: I think bankers and other industries in the US are
Speaker 1: feeling that the UH they will be facing a friendly
Speaker 1: or business friendly or regulatory environment in the next few
Speaker 1: years compared with the last few years, whereas in Europe,
Speaker 1: I think they set of the march towards greater regulation
Speaker 1: is with unrelenting um so I think that is definitely
Speaker 1: a factor. But I think, especially given that this was
Speaker 1: a gathering of financiers and bankers, the health of the
Speaker 1: US banking system is much better than the health of
Speaker 1: the European banking system. Near an update your view on
Speaker 1: investment in the next year, do we actually finally get
Speaker 1: a list in corporate investment? I think the answer is
Speaker 1: a cautious yes. And the reason is that global growth
Speaker 1: is strong now, stronger than it was a while ago.
Speaker 1: The dollar has lost some of its strength, It's come
Speaker 1: down a bit, although in just the last few days
Speaker 1: it's gone up a little bit. And so that combination
Speaker 1: will will provide a couple of things. One is it
Speaker 1: will make overseas profits of US companies UH greater value
Speaker 1: m but but that it also provides an incentive for
Speaker 1: companies to invest to meet foreign demand as well as
Speaker 1: domestic demands. So our view is those two alone, aside
Speaker 1: from the internal dynamics of the US, will help the
Speaker 1: capital spending picture brighten a little bit. Now. I don't
Speaker 1: want to get too carried away with the optimism, but um,
Speaker 1: but hey, as you said at the beginning, I'm a
Speaker 1: half glass of halfus. But but but I think there
Speaker 1: are a number of key factors that will drive a
Speaker 1: little better story on capitalist Let's do this. Let's come
Speaker 1: back and be totally gloomy with their parish of hs
Speaker 1: as we consider where we are in this economy, and
Speaker 1: of course all of this front and center for the
Speaker 1: FED calendar. Here on the middle of October, I should say,
Speaker 1: six weeks away November one. Basically, Uh, David, I'm going
Speaker 1: to say at this point in non event, I'd love
Speaker 1: for that to change December, as we're all eyes are
Speaker 1: directed as well, and so good. Two meetings to meetings.
Speaker 1: The next meeting is uh, what it's the It's Halloween,
Speaker 1: isn't it? I believe the next November, Lewyn, Yeah, I'm
Speaker 1: working on my William mac chesney Martin Halloween all sat
Speaker 1: Janet as we call that what I should say. What
Speaker 1: a joy to see Stan Fisher at the IMF meetings,
Speaker 1: his final weekend as vice Chairman of the Federal Reserve System.
Speaker 1: This is Bloomberg. It is good to speak to Neriman
Speaker 1: Bearish middle of October, setting up for the end of
Speaker 1: the year and in the next year. He's with I
Speaker 1: h S. What I love about I h S is
Speaker 1: they usually have three frameworks. Their center tendency they're optimistic Nerriman,
Speaker 1: bearish tendency, and then the gloom tendency wrought by those
Speaker 1: worried and worried. He is three percent run rate g
Speaker 1: d P and any of your three tendencies Nerriman, Well,
Speaker 1: the answer is yes in the sense that briefly, if
Speaker 1: there is a fair amount of stimulus that comes out
Speaker 1: of Washington. I don't only give that about probability, but
Speaker 1: if it comes out of Washington, and if it if
Speaker 1: it's signed in a way that helps infrastructure, it helps
Speaker 1: capital spending, uh, you know, grow at at a rapid pace,
Speaker 1: then we could get to three. Probably not on a
Speaker 1: sustained basis, but but for a few quarters. I think
Speaker 1: that's very much in the car. But there's a big
Speaker 1: provisor if we get the right kind of stimulus, if
Speaker 1: we get the right kind of tax cut. And what
Speaker 1: what does that look like to you? What is the
Speaker 1: right kind of stimulus, the right kind of of tax
Speaker 1: cut is it? Is it anything like what's being bandied
Speaker 1: about in Washington today. Well, as you well know, it
Speaker 1: quickly gets political. I think in the end, you know
Speaker 1: what's really required. You know, as we were talking about
Speaker 1: in the prior segment, what's really missing been missing in
Speaker 1: this recovery is capital spending. You know, the consumers doing
Speaker 1: isn't her part. The capital spending has been very disappointing
Speaker 1: in many respects, and in particular spending on all this
Speaker 1: new technology that's being developed. So, you know, my hope
Speaker 1: would be the kind of investment uh encouraging enhancing policies
Speaker 1: via the tax code and via other kinds of provisions
Speaker 1: that might uh in fact bring about this uh sort
Speaker 1: of unleashing of animal spirits, unleashing of the desire on
Speaker 1: the part of businesses to invest, an investment in particular
Speaker 1: in a lot of these new technologies. What we've been
Speaker 1: seeing is the tech sector is doing really well. I mean,
Speaker 1: the sense of productivity growth is good. They're you know,
Speaker 1: they're investing in all these new technologies. The rest of
Speaker 1: the economy, which is by far the biggest part in
Speaker 1: terms of businesses, has not been And that's really what
Speaker 1: we want to change here. And I'm detected here over
Speaker 1: these last few weeks, even maybe maybe a few months,
Speaker 1: last few weeks, more conversation about the role that technology
Speaker 1: is playing here are we are we seeing a seat
Speaker 1: change moment here when policymakers are beginning to wrestle with
Speaker 1: the kind of technological change you're describing, well, I think
Speaker 1: the answer is yes, some of it is positive, some
Speaker 1: of it is negative. I mean, I think there is
Speaker 1: a concern rising in many quarters that the technology is
Speaker 1: playing a bigger role but also has a bigger responsibility
Speaker 1: in terms of you know, the news aspects or faith
Speaker 1: news aspects, in terms of you know, making sure that
Speaker 1: we're not quash squashing competition. A lot of worries about
Speaker 1: the size of some of these companies. So I think,
Speaker 1: I mean, the technology plays a big role in the
Speaker 1: tech sector. I'm a big fan of the tech sector,
Speaker 1: and yet you know, we have to start to look
Speaker 1: at some of these issues because they are somewhat troubling. Yeah,
Speaker 1: and there, I mean, I look at productivity in the
Speaker 1: in the overlay of it and all arranging debates. It's
Speaker 1: something folks are really focusing on. As the beginner of
Speaker 1: coverage towards Davos in the World Economic Forum. What part
Speaker 1: of the productivity mix has your attention is ending at all?
Speaker 1: Including the new FED chairman. Hope The hope is the
Speaker 1: word I use hope that productivity lifts. Well, there's no
Speaker 1: question that we all hope productivity will lift, and it
Speaker 1: clearly plays a big role in terms of the overall
Speaker 1: growth and long term growth of the economy. And it
Speaker 1: matters to the FED a huge amount of the said,
Speaker 1: it's done a lot of studies on this very topic
Speaker 1: over the last ten twenty years, you know, while Greenspan
Speaker 1: was there after he left, and also on UM so
Speaker 1: this is crucial. Now. How much the Fed itself can
Speaker 1: do uh is really questionable in the sense that the
Speaker 1: interest rate policy alone will not do it. A lot
Speaker 1: depends on the economic environment, a lot depends on tax policy,
Speaker 1: a lot depends on uncertainty. And this is the uncertainty factor,
Speaker 1: which I think is a is a big deal. Policy uncertainty,
Speaker 1: especially fiscal policy uncertainty, I'm convinced, has had a very
Speaker 1: negative repect on capital spending. This is interesting you you
Speaker 1: you would wait policy uncertainty is businessmen wait to see
Speaker 1: what's going on in Washington, and you fold that right
Speaker 1: into the productivity calculation. I think it is definitely a
Speaker 1: part of it. I'm not saying it's the reason. I'm
Speaker 1: all I'm saying is right now. It is a factor
Speaker 1: because businesses, partly because of you know, the big recession
Speaker 1: we went through a few years ago, but also partly
Speaker 1: because of a lot of toing and throwing on fiscal policy,
Speaker 1: have been rather cautious in terms of what they do.
Speaker 1: They're not sure for examples environment that go with that.
Speaker 1: But isn't the CFO of a company a lot more
Speaker 1: concerned about the artificial construct known as a yield curve? Now,
Speaker 1: there's there's no question that financing is crucial here. But
Speaker 1: but but but bear with me, Tom is you know,
Speaker 1: the interest rates are very low right now, and even
Speaker 1: if they're going to go up a little bit next year,
Speaker 1: the financing environment is going to remain quite friendly for
Speaker 1: a lot of companies. So the question is, so why
Speaker 1: aren't they spending like Gangbus? And I have to believe
Speaker 1: there are other factors at play here, and I think
Speaker 1: I think the policy environment, fiscal policy environment is partly
Speaker 1: to blame. I don't I don't want to over emphasize
Speaker 1: that this thing is partly to blame. Let's look ahead
Speaker 1: of here to to do that is mentioned you're out
Speaker 1: with your your new outlook looking ahead to two thousand
Speaker 1: to eighteen. How does the consumer look at this point
Speaker 1: and how much of the health of the U. S.
Speaker 1: Economy is balanced on his shoulders at this point. Well,
Speaker 1: as we were saying earlier, the consumer is crucial here
Speaker 1: of the economy. Good news is things are going well. Uh.
Speaker 1: Income growth has been decent, Jobs growth has been decent.
Speaker 1: A lot of households have seen their net worth rise,
Speaker 1: not just because of the stock market, because the house
Speaker 1: price is rising. Uh. And if you look at the
Speaker 1: confidence surveys and consumers buy and large, yeah, it moves
Speaker 1: up and down month to month. The buy and large
Speaker 1: they're feeling pretty good about things. So this is good.
Speaker 1: And I don't see that changing radically in the next
Speaker 1: year or two unless inflation takes off or and the
Speaker 1: FET has to really step on the brakes very hard.
Speaker 1: So the good news is, I think the consumers. So
Speaker 1: there is the bedrock basically of the of the U. S. Economy,
Speaker 1: and and that foundation right now it's pretty solid. I'll
Speaker 1: ask you lastly here just about the dollar and dollar
Speaker 1: weakness and the role that's playing in your forecast as
Speaker 1: you look ahead to two thousand eight. Do you have
Speaker 1: a clear sense of what this administration's dollar policy is
Speaker 1: and do you think we're going to see sustain weakness
Speaker 1: in a In a word, no, I don't. I don't
Speaker 1: have a good sense of where this administration is coming from,
Speaker 1: because they've they've blown kind of hot and cold a
Speaker 1: little bit on this. I think in the end they
Speaker 1: wouldn't mind seeing the dollar a little bit weaker because
Speaker 1: it will serve help exports, it will help narrow the
Speaker 1: trade deficits in the United States. But again, there's not
Speaker 1: a lot that either the Fed or the Treasury can
Speaker 1: do about the dollars. The dollars very much market driven.
Speaker 1: Unlike other economies like China's, we don't control our currency,
Speaker 1: so we have to live with the the ups and
Speaker 1: downs in the market. And up until very recently, people
Speaker 1: were dollar bullish, but then they turned a little bit,
Speaker 1: partly because of the strong growth overseas. People started shoot
Speaker 1: their focus to other parts of the world, so the
Speaker 1: dollar weakens. That was a miscall the summer by so
Speaker 1: many people, and of course as we wander into a
Speaker 1: seventy or eighty degree autumn, we keep waiting for the
Speaker 1: turn dollars stronger. Here Over the recent days, the d
Speaker 1: X y one nine shows that one week two week
Speaker 1: dollar strengths we've seen Nerman BEARVERSH. Thank you so much, David.
Speaker 1: That was great. He's without HS. I should say that's great.
Speaker 1: I mean, just to pars Away. You can't do that enough, don't.
Speaker 1: You can do it all the time, but you gotta
Speaker 1: keep your eye on the basic economy dynamics. And I
Speaker 1: don't have a strong view three two point eight percent.
Speaker 1: We'll have to see that. The empire statistic that David
Speaker 1: Gura mentioned earlier was buoyant to say that least. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform
Speaker 1: you refer. I'm on Twitter at Tom Keene David Gura.
Speaker 1: Is that David Gura before the podcast? You can always
Speaker 1: catch us worldwide. I'm Bloomberg Radio.