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Speaker 1: Who you put your trust in matters. Investors have put

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Speaker 1: their trust and independent registered investment advisors to the two

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Speaker 1: and four trillion dollars. Why learn more at find your

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Speaker 1: Independent Advisor dot com. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keene with David Gura. Daily we bring you

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Speaker 1: insight from the best in economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and

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Speaker 1: of course on the Bloomberg. Tony Dwyer is here. He's

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Speaker 1: the chief market strategy that can accord continuity and joins

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Speaker 1: us now in studio. Good morning, Happy New Year. Good morning, David,

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Speaker 1: Happy New Year. Very good. You were staying in the

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Speaker 1: in the chill zone, as you put it. What is

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Speaker 1: keeping you neutral at this point in time. It's just

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Speaker 1: the enthusiasm that took place. When you have such a

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Speaker 1: significant ramp on a news item, sometimes it just gets

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Speaker 1: a little bit too extremes, and history shows that you

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Speaker 1: tend to pause and correct slightly, and we're we think that, um,

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Speaker 1: if you're a longer term investor, you don't want to

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Speaker 1: do anything, You just want to stay long. The fundamental

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Speaker 1: backdrop continues to be very strong for credit, for domestic growth,

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Speaker 1: for global growth. But I think if you want to

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Speaker 1: put new money too work, I do think you'll get

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Speaker 1: a better entry point coming in the next few weeks.

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Speaker 1: Going back to to the end of last year, I

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Speaker 1: was hearing two things. One that we had this Trump

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Speaker 1: rally that was driving a lot of what we were

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Speaker 1: seeing in the market. And there was another camp saying

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Speaker 1: that the rotation that was we were seeing there was

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Speaker 1: already underway, that that transition was happening beforehand. Where do

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Speaker 1: you fall on on that? I upgraded the market three

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Speaker 1: days before the election, not because I'm so smart, but

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Speaker 1: because the global growth rate was improving. If you look

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Speaker 1: at for the listeners benefit, when we talk about global

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Speaker 1: p m I s, those are purchasing managers indices. It

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Speaker 1: kind of as a gauge of measuring manufacturing overseas and domestically. Frankly,

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Speaker 1: they were all getting much much better. Our theme last

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Speaker 1: year was after that January and February collapses, what could

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Speaker 1: go right? If you let me take you back to

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Speaker 1: January February, energy was a mess. It was getting crushed.

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Speaker 1: Financials look like they were all going out of business.

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Speaker 1: Those are the two of the best sectors for the year,

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Speaker 1: and that's because the economic growth had already started to

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Speaker 1: improve and that ultimately, the fear going into the election

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Speaker 1: created an oversold opportunity, too much selling, so we upgraded

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Speaker 1: the market. The post Trump rally has brought in too

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Speaker 1: much optimism, so we just want to take a break.

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Speaker 1: We do think them on the fiscal stimulus of lowering taxes, repatriation,

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Speaker 1: lowering regularly improving the regulatory environment. I think that is

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Speaker 1: a very constructive thing going forward. But I just want

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Speaker 1: to take a chill. So hence the children, John Tucker,

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Speaker 1: have you ever heard such cool hip talk sporting the goatee? No,

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Speaker 1: for those of you that can observe the sand Bloomberg Radio,

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Speaker 1: Mr Dwyer is coming here in full beard. You're not

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Speaker 1: shaving till none of your children need money? Right? Is that?

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Speaker 1: The basis is that what this is to look like

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Speaker 1: Leland Sclard, the acclaimed bass player. Do you care about

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Speaker 1: pe how quaint price to earnings? Do I care you

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Speaker 1: care about the direction of it? Tom Um, We have

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Speaker 1: to be very careful to listen to people like me

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Speaker 1: that come on the radio or TV and say that

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Speaker 1: you know the market is fairly valued, overvalued, undervalued. Ultimately,

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Speaker 1: it doesn't matter because you can't pick the time. Valuation

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Speaker 1: or PE has never been a great timing tool, but

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Speaker 1: it moves in trends. So if you're in an up

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Speaker 1: trend for the price to earnings multiple, you have to

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Speaker 1: until it changes make the assumption that it's going higher.

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Speaker 1: The price to earnings multiple is in an up trend,

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Speaker 1: which means that before this cycle is over, you're going

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Speaker 1: to get higher valuations. And that ultimately is our call

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Speaker 1: where we're too conservative probably for our two thousand seventeen

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Speaker 1: target once we get this correction, and your target is

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Speaker 1: right now, it's twenty forty, which is based on a

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Speaker 1: hundred and thirty dollars in earnings, which is a little

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Speaker 1: bit below the street and uh an eighteen multiple, which

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Speaker 1: is too low. I know your chill, but can you

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Speaker 1: also give me a target on the Dow for those

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Speaker 1: fossils of us? I don't, but no, it's just I'm

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Speaker 1: not smart enough to create an earnings estimate. Okay, okay,

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Speaker 1: but but but ultimately, what people miss is they make

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Speaker 1: fun of the Dow. It's got a it's got a

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Speaker 1: greater than nine point nine five correlation coefficient to the

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Speaker 1: SMP five. In other words, it moves exactly with it

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Speaker 1: over time. So I think to try and break the

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Speaker 1: two up as if you think you're gonna go up

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Speaker 1: ten percent in the SMP, assume you're going to go

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Speaker 1: up ten percent in the down. So you're neutral. Now

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Speaker 1: what are you waiting for? What are the metrics that

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Speaker 1: you're looking at? What what could shake you from that

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Speaker 1: that position? There's six almost of investment newsletter writers are bullish,

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Speaker 1: and this cycle that is marked typically a high point

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Speaker 1: and also right before before correction. So I want to

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Speaker 1: see some of the bullishness fate that obviously comes with

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Speaker 1: some market weakness. You know, we're famous for getting bullish

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Speaker 1: when the market's going up, but barish when the markets

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Speaker 1: going down. I love to say to our investors that

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Speaker 1: corrections only feel natural, normal and healthy until you actually

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Speaker 1: get one right, and then when you get it, you

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Speaker 1: start to fear that there's something fundamentally different. So I

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Speaker 1: just want to see some of the optimism and uh

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Speaker 1: in the market come out. Use to cash. We You know,

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Speaker 1: you and I've been talking all morning, but we never

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Speaker 1: got to this other than a quick comment on Tim Cook.

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Speaker 1: Does the religion continue of use of cash? I mean,

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Speaker 1: Mario Gabelli says, it's not financial engineering. I want my

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Speaker 1: money back. Does that attitude continue? I think it is.

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Speaker 1: When you have such low interest rates. One of the

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Speaker 1: greatest uses of cash is to increase yourholder value, and

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Speaker 1: the shareholders are demanding it. I thought the four CEO

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Speaker 1: yesterday was very interesting. He was asked if Donald Trump

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Speaker 1: drove his decision, and that may have been part of it.

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Speaker 1: But ultimately, as shareholders, if you're a CEO, you have

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Speaker 1: to perform for the shareholders. Not necessarily you hope that

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Speaker 1: by doing so you performed for the employees and everybody else.

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Speaker 1: But ultimately you're responsible to the shareholders. And the best

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Speaker 1: used to cash with such low interest rates historically has

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Speaker 1: been buybacks. Now as rates go up, that's when your

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Speaker 1: capital um, your capital use goes more into spending and

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Speaker 1: trying to improve so productivity. Hence the second half of

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Speaker 1: the nineties. Frankly, you mentioned the repatriation holiday here that

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Speaker 1: we could see we could see some of these corporations

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Speaker 1: bringing their money back into the US. We heard Larry

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Speaker 1: Summers yesterday on surveillance UH saying very forceful. Would ah,

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Speaker 1: how good was that? I was incredible? It was there.

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Speaker 1: Whether you agree that we're not, it was fascinating, I know.

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Speaker 1: But either questioning the potential efficacy of a of a

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Speaker 1: holiday light that what do you think? I mean could that?

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Speaker 1: Do you do you anticipate that money would be used

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Speaker 1: for anything else other than buy backs? Well? Most of

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Speaker 1: it again, so much of it is held by information

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Speaker 1: technology companies and for healthcare companies, and those have been

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Speaker 1: there two greatest uses of cash. You've been stocked by backs.

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Speaker 1: So I'm not going to try and reinvent the wheel

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Speaker 1: and say it's going to be different. You know, wall

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Speaker 1: streets littered with people saying it's different this time. I

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Speaker 1: think they're going to continue to do what has worked

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Speaker 1: for them, which is by back stock. A lot of

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Speaker 1: people drawing this parallel. You wrote a note about this,

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Speaker 1: a lot of people saying, let's look back to let's

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Speaker 1: look back to when Reagan was elected, and we can

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Speaker 1: drop parallels between then and now. When you look at

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Speaker 1: the markets you pour some cold water on that, you

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Speaker 1: don't think it's napped. It's actually interesting, David, because I

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Speaker 1: looked actually also at the first Eisenhower administration, where you

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Speaker 1: had eight years of a Democrat. That was in the

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Speaker 1: first year of a Republican. In the first year of

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Speaker 1: the Reagan administration, in the first year of the Eisenight,

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Speaker 1: you had a recession. That recession wasn't because of the president.

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Speaker 1: I wish we would get over this. It's the president.

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Speaker 1: It's not the president. It's monetary policy. An inverted yield

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Speaker 1: curve before both of those two presidents took office, which

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Speaker 1: created a shutdown of credit, which created a recession. That

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Speaker 1: was the cause for the for the weakness and economic

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Speaker 1: activity and the markets. Now we could have a correction

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Speaker 1: in the U s agument, and that's that's I'm kind

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Speaker 1: of calling for it. But it has nothing to do

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Speaker 1: with an inversion of the yield curve, which means, for

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Speaker 1: the listeners, short term interest rates are higher than long

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Speaker 1: term interest rates. It's a it's a pretty rare event,

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Speaker 1: and it has always led to UH since nineteen the

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Speaker 1: early nineteen fifties has always led to a recession, right,

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Speaker 1: So without that, it's just a market correction. It's not

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Speaker 1: an economic event. And that is the difference between the

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Speaker 1: Reagan um early years and where we are now. We

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Speaker 1: see the transition period like this before. Then when we

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Speaker 1: see the enthusiasm, when we see that driving markets in

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Speaker 1: the way that it has over the last couple of months,

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Speaker 1: It's funny, you know, when we talk about this, we're

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Speaker 1: all kind of pundits, right, and you say, this is

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Speaker 1: the meanest election that I've had created that I've ever seen.

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Speaker 1: How come I hear that every four years it gets

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Speaker 1: meaner and meaner and meaner. And maybe it's social media,

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Speaker 1: and maybe it's maybe it's just overall media, and maybe

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Speaker 1: it's just that's what collects advertising dollars. But human nature

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Speaker 1: is never different. The one thing I know is that

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Speaker 1: human nature is not different. There was some pretty contested

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Speaker 1: elections before. Well, we're gonna come back with Tony. Were

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Speaker 1: going to chill out, chill wave and a mellow buzz,

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Speaker 1: you know, take a walk on the world side. I

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Speaker 1: don't surf and I don't buzz Like Ken Prud would

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Speaker 1: love this, Like this would be like Stan Freber moment.

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Speaker 1: You know who it would be. Beat that's gonna do

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Speaker 1: a little come back with Tony Tyre and get chill.

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Speaker 1: Tony Dwyer with his canical jenuity, I want to talk

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Speaker 1: about what Gartman calls things that when you drop them

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Speaker 1: on your foot, they hurt board Warner. Just as one

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Speaker 1: idea in the from the Lean and Lows was up

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Speaker 1: seven under thirty six percent, it's enjoyed a fifty five

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Speaker 1: bear market. It's plunged from six down to thirty and

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Speaker 1: it's head a bounce. Do you like industrial stocks? Are

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Speaker 1: they on fire sale? I think that they are, but

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Speaker 1: I think they're going to get a little bit worse

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Speaker 1: before they get better, similar to our Chills own correction call.

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Speaker 1: Right now, I think you're gonna just buy them better.

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Speaker 1: But ultimately, the global economy continues to improve. Now, what's

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Speaker 1: going to offset that global economic improvement, Tom, is that

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Speaker 1: monetary policy is going to continue to hut tighten again

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Speaker 1: to the for the listeners, that means when the FETE

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Speaker 1: is raising interest rates, you tend to pay a little

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Speaker 1: bit less for some of the sick, more cyclically oriented businesses. Um.

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Speaker 1: You know, we were talking with the Dougcast yesterday and

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Speaker 1: he said he expects when you think about timing here

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Speaker 1: when the market might turn, it might happen before inauguration.

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Speaker 1: In other words, this enthusiasm and some investors have about

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Speaker 1: Trump presidency might uh and or subside before the presidency

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Speaker 1: actually begins. What's your sense of timing here when you

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Speaker 1: talk about neutrality, how long that might last? You have

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Speaker 1: any sense of how long it might lost. We lowered

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Speaker 1: our opinion in December, and history showed that when you

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Speaker 1: have the kind of buying climax is that you have

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Speaker 1: with so many stocks, your your performance, your median performance

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Speaker 1: a month later is negative, which means I think it's

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Speaker 1: gonna be sometime between mid mid and end of January

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Speaker 1: that you started or you've already started to get a

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Speaker 1: little bit of a correction, that you get get a

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Speaker 1: little bit more meaningful correction. David, I am noted in

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Speaker 1: your your most recent note you said that that that

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Speaker 1: it's all about credit when we're talking with George boy

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Speaker 1: here in a little bit about bonds and corporate credit

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Speaker 1: as well. But explain your that facet of your thesis,

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Speaker 1: if you would. If credit is made available to people

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Speaker 1: in America, we will use it and we will buy stuff.

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Speaker 1: If you don't have any credit, or if your credit

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Speaker 1: is tightening up, you don't have the ability to buy

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Speaker 1: more stuff. That's the great mistake that we make, is

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Speaker 1: it that the Fed officials make is they think when

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Speaker 1: they lower interest rates and they lower interest expense, that

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Speaker 1: we're going to use that savings to pay off the debt. Well,

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Speaker 1: of course we're not. We're gonna use it to spend

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Speaker 1: more money. We're gonna take out more money. You know,

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Speaker 1: in the Dwyer family, you know, conglomerate that let's chum.

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Speaker 1: So you know that as interest rates go up, that

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Speaker 1: starts to lessen and you know you're in the second

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Speaker 1: half the economic cycle. So even though we're seven years

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Speaker 1: into this economic cycle, we've been early in the cycle

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Speaker 1: until the FED started to raise interest rates, thus raising

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Speaker 1: interest expense. What's your actual assumption or more importantly, as

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Speaker 1: you mentioned before, it's the first derivative. Have you changed

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Speaker 1: or lifted or raised your actual assumption that bogey that

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Speaker 1: we think we're going to make in the equity market.

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Speaker 1: I currently I'm looking I'm looking for kind of modestco

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Speaker 1: maybe seven. I do think I'm way too conservative now. Again,

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Speaker 1: even though interest rates are going up, which we just

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Speaker 1: talked about, Tom, I think one of the reasons that

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Speaker 1: you can not worry too much about it yet is

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Speaker 1: wages are still going up, in comes are still going up.

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Speaker 1: And they are historically undercounted. So I think that the

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Speaker 1: economic improvement and the earnings improvement that you're gonna get

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Speaker 1: out of the S and P is going to offset

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Speaker 1: some of this mementary tightening. Two to that moment, I'm

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Speaker 1: sure you remember it where they came out and they said, oops,

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Speaker 1: we got the profit estimates wrong. Remember they got they

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Speaker 1: got all wrong? Are we at risk of that again

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Speaker 1: where they go, oops, we got profit once you and

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Speaker 1: again for the listeners benefit. All of this is terrific stuff.

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Speaker 1: But what there's one indicator that you have to pay

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Speaker 1: attention to, and it's the yield curve, because that's what

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Speaker 1: what makes a bank lend to people or financial institution

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Speaker 1: lend to people is if they can make money on it.

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Speaker 1: If the money that they're being charged exceeds the money

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Speaker 1: that they can charge us, well, of course they're not

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Speaker 1: gonna lend, and that shuts down spending. That's the one

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Speaker 1: indicator you want to watch. We're still probably at least

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Speaker 1: a year, probably a year and a half to two

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Speaker 1: years away for that going negative, and once it goes negative,

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Speaker 1: it takes over a year to shut it down. So

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Speaker 1: we're probably two to three years away from any recession. Ultimately,

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Speaker 1: as you get closer to that time period, you're going

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Speaker 1: to start to get more defense and a little bit more.

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Speaker 1: Now these FED minutes today, we've talked a lot about

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Speaker 1: how they fed and a new FED could influence the

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Speaker 1: economy going for it? How about the markets hold on?

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Speaker 1: Is that like Lord Vader that was want to make

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Speaker 1: the job thought, thank you you are job of the hunt?

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Speaker 1: How is the middle kid? Leave me alone? So how

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Speaker 1: if we see a reconfigured FED, how does that affect

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Speaker 1: the markets in the new year. I think a reconfigured

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Speaker 1: FED again, I don't think it's a configuration of the FED.

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Speaker 1: I think it's inflation. And what you're getting is economic.

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Speaker 1: The monetary policy has been so easy because there's ben

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Speaker 1: youal fiscal stimulus. I think they're gonna not have historic

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Speaker 1: accommodation because some of the stars we gotta go, thank

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Speaker 1: you so much. We want to chill out with you

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Speaker 1: right now. And Louis take a welcome the wild side.

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Speaker 1: He said, hey, honey, go welcome the wild side. Yeah,

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Speaker 1: and piping in on the phone line, Evan materials of

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Speaker 1: your Asia group. That was great, David. Yesterday your Asia

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Speaker 1: group wasn't incredible a line of guest great hospitality. There

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Speaker 1: is well an incredible report to which is now available.

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Speaker 1: The Rasia Group has it out public consumption. Why don't

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Speaker 1: you bring in Evan here? On Korea, China and eight

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Speaker 1: other worries I don't remember. There are two of them

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Speaker 1: in specific focused one on China, one on the North.

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Speaker 1: Crea Madaris, Managing director for Asia at your Agia Group.

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Speaker 1: Great to speak with you here. Let's talk about this

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Speaker 1: nineteen Party Congress that's coming up. It's looming large here

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Speaker 1: in China. It is changing the way perhaps that the

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Speaker 1: President of China approaches his job here in the months

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Speaker 1: ahead of it. Explain the gravity of that congress and

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Speaker 1: what will be accomplished there. Thank you, good morning. So

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Speaker 1: the nineteenth Party Congress is the next big political transition

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Speaker 1: in China, and it's an opportunity for Shijin Ping to

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Speaker 1: replace a series of current leaders with his advocates. So

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Speaker 1: it's the next big turning point. It's sort of like

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Speaker 1: Shijun Ping's mid term election, but one of particular consequence.

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Speaker 1: So he's going to be spending most ofen uh in

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Speaker 1: back room negotiations jocking for position to make sure he

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Speaker 1: is able to fill the top leadership known as the

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Speaker 1: Standing Committee, as well as a larger body below known

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Speaker 1: as the Polite Bow with his key advocate. So, for

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Speaker 1: Shijun Ping, there's no more important priority in ten than

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Speaker 1: getting the politics engaging right, which means that when it

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Speaker 1: comes to potential external challenges to China, whether or not

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Speaker 1: that's from PROMP or Japan or in the South China City,

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Speaker 1: he's really going to be on edge, and the potential

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Speaker 1: for Chinese overreaction is substantial. Hijumping cannot look weak in

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Speaker 1: what have we learned from the way that he has

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Speaker 1: handled to uh flashpoints I'll call them, I won't call

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Speaker 1: them crises. But we have the capture or the taking

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Speaker 1: of this unmanned underwater vehicle in the South China see

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Speaker 1: and we had the phone call at the present elect

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Speaker 1: had with the President of Taiwan. What do you make

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Speaker 1: of of how President Shation being reacted to both of

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Speaker 1: those incidents. What does that tell you about how he's

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Speaker 1: going to approach that relationship going forward. Well, first and foremost,

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Speaker 1: it tells us that issues of sovereignty and territorial integrity

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Speaker 1: are of power amount importance to shijin pain. They directly

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Speaker 1: touch on his political credibility. They directly touch on the

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Speaker 1: legitimacy of the Communist Party, and so it comes when

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Speaker 1: it comes to questions like the Taiwan issue South China

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Speaker 1: see or even the East China see with Japan, there's

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Speaker 1: not going to be room for compromise now, hijim pings.

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Speaker 1: Actual reaction in those instances were relatively moderate. I don't

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Speaker 1: think the seizing of that drone was meant to be

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Speaker 1: some kind of grand strategic signal, But I think the

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Speaker 1: Chinese were clearly putting down a marker that in the

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Speaker 1: South China see they have right uh that they perceive

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Speaker 1: that they need to protect. Give us a clinic. When

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Speaker 1: you say the Communist Party in China, what percent of

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Speaker 1: Chinese adults are Chinese? However you measure it Evan madeiras

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Speaker 1: what percent are in the Communist Party, it's actually a

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Speaker 1: relatively small percent. So the total population of China is

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Speaker 1: about one point three billion people, but the actual membership

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Speaker 1: of the Communist Party is maybe about eighty million to

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Speaker 1: a hundred millions UM, so it's a very very small

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Speaker 1: percentage of the actual population. What's more important is the

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Speaker 1: fact that it's not a representative democracy. People can't vote

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Speaker 1: for their leaders. So those eighty million people in the

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Speaker 1: Communist Party have an enormous amount of influence on the

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Speaker 1: rest of the population. What keeps them in power simply

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Speaker 1: the military. Uh, well, it's two things. It's number one,

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Speaker 1: it's performance and the fact that the Chinese community has

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Speaker 1: been growing extraordinarily to the reform era began in the

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Speaker 1: late nineteen seventies. So it's performance based legitimacy. Uh. The

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Speaker 1: second key piller of keeping them in power is nationalism,

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Speaker 1: the sense that the Communist Party has been facilitating the

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Speaker 1: rise of China over the last several decades. And you know,

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Speaker 1: the Chinese have a very long sense of history. They're

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Speaker 1: aware of the fact that they have been a pre

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Speaker 1: eminent power before, such as during the early of late

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Speaker 1: seventeen hundreds, early eighteen hundreds, and they see this as

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Speaker 1: this current period as reclaiming a stature that was denied

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Speaker 1: to them by Western powers. There was talk again of

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Speaker 1: more sanctions being leveled against North Korea, and I know

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Speaker 1: that the conversation in the past has centered on China's

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Speaker 1: involvement in those sanctions. That you know, the tool kit

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Speaker 1: has pretty much been exhausted here. It needs China to

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Speaker 1: participate with what community needs trying to participate or what

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Speaker 1: do you see the likelihood of that happening increasing? I

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Speaker 1: think it's possible if their further North Korean provocations, nuclear

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Speaker 1: tests or missile tests, there may be sort of an

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Speaker 1: incremental effort on our incremental willingness on China's part to

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Speaker 1: ramp up sanctions. But the real fundamental problem here is

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Speaker 1: that the US and some of its allies want to

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Speaker 1: put in place regime threatening sanctions, sanctions that would that

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Speaker 1: would uh threaten the regime of Kim Jong un in

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Speaker 1: North Korea. The Chinese are unwilling to accept that. So

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Speaker 1: would the Chinese be willing to do a little bit

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Speaker 1: more on sanctions with North Korea? Possibly? But is it

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Speaker 1: ever enough that it could really make have some kind

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Speaker 1: of strategic effect on negotiations unlikely? Your advantage, Evan, As

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Speaker 1: you speak to tons of people about Greater Asia, how

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Speaker 1: do they question you about our president elect? Well, how

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Speaker 1: do they frame their curiosity there, enterest their criticism their

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Speaker 1: support of President elect Trump. It's a great question of

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Speaker 1: two issues come up when I speak with Asian policy

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Speaker 1: makers in Asian business with there's number one, does Trump

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Speaker 1: care about Asia? They really wonder whether or not Trump

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Speaker 1: is going to be as committed and involved in Asia

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Speaker 1: as President Obama was, regardless of whether and I think

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Speaker 1: the pivot strategy was successful. You know, Obama's track record

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Speaker 1: is substantial in his engagement in Asia. And they say

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Speaker 1: Trump looks very domestically focused to the extent that foreign

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Speaker 1: policy is an issue. They say, isn't He's going to

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Speaker 1: be focused on isis? So does Trump care about Asia?

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Speaker 1: Number two TPP. TPP for the rest of Asia is

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Speaker 1: a godsend. It's a critical trade agreement that brings America

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Speaker 1: and Asian economies closer. It uh, it's an external force

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Speaker 1: for critical structural economic reforms in Asia, and Trump seems

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Speaker 1: to be walking away from TPP. The third is alliances.

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Speaker 1: Trump since the late nineteen eighties has been very critical

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Speaker 1: of American alliances, whereas for most policymakers in Asia, they

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Speaker 1: see American commitment to alliances as a foundational piece of

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Speaker 1: regional prosperity and security. The region has flourished because America

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Speaker 1: has helped provide critical security guarantees. So they're very nervous

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Speaker 1: that Trump may take a step back from alliances and

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Speaker 1: the last pieces China, but no Asian policymaker or business

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Speaker 1: leader wants China to dominate Asia. But they all, none

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Speaker 1: of them want want to be drawn into a US

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Speaker 1: trying to conflict. They're nervous about Trump's approach to China.

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Speaker 1: They're nervous that he seems to be raising the Taiwan issue,

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Speaker 1: which is, you know, not something that any Asian leaders

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Speaker 1: think really deserves to be called in the question. That's

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Speaker 1: the predicate for US. Trya relationships, not a source of leverage.

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Speaker 1: So they're they're nervous and their skeptical. How robust is

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Speaker 1: the dialogue between the US and China? How robust has

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Speaker 1: it become here? And what does Donald Trump need to

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Speaker 1: do to preserve that? Well, it's become very robust. I

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Speaker 1: mean under President Obama he surpassed all of his predecessors

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Speaker 1: in terms of the degree of high level strategic engagement

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Speaker 1: with the Chinese leadership, and that was replicated among many

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Speaker 1: of his top cabinet Secretary, Secretary of Treasury, State national

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Speaker 1: Security Advisor. So the question for Trump really is will

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Speaker 1: he put in place a robust engagement strategy for the Chinese.

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Speaker 1: And this is not engagement for the sake of engagement.

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Speaker 1: This is engagement in order to serve American economic and

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Speaker 1: security interests. So will he devote the time and energy

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Speaker 1: necessary to manage the U. S. China relationship? It's sort

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Speaker 1: of like the U. S. Soviet relationship during the Cold War.

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Speaker 1: Would you ever have an American president that's going to

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00:23:37,000 --> 00:23:40,520
Speaker 1: devote the time and effort to manage this key strategic

431
00:23:40,600 --> 00:23:44,520
Speaker 1: of variable and international affairs. Unclear whether or not Trump

432
00:23:44,600 --> 00:23:48,760
Speaker 1: has the the time, the inclination, the temperament to do

433
00:23:48,800 --> 00:23:50,960
Speaker 1: that very quickly or thirty seconds left. You know, we

434
00:23:51,320 --> 00:23:53,320
Speaker 1: follow the economic news about the stress tests on the

435
00:23:53,400 --> 00:23:55,680
Speaker 1: Chinese currency and outflows and all of that. How big

436
00:23:55,680 --> 00:23:57,680
Speaker 1: an issue is the economy for China here in the

437
00:23:57,680 --> 00:24:01,200
Speaker 1: new year. Oh, it's a par amount importance. As I said,

438
00:24:01,480 --> 00:24:05,040
Speaker 1: politics is going to be hijin pins topic focus, but

439
00:24:05,160 --> 00:24:08,880
Speaker 1: economics is a very very close second because they're intimately related.

440
00:24:09,119 --> 00:24:11,760
Speaker 1: The Chinese government spaces a whole variety of economic and

441
00:24:11,800 --> 00:24:14,000
Speaker 1: balances that they haven't done a very good job in

442
00:24:14,119 --> 00:24:17,680
Speaker 1: managing uh and one of them, obviously the currency. There's

443
00:24:17,840 --> 00:24:20,160
Speaker 1: enormous downward pressures on the rem and b they're trying

444
00:24:20,200 --> 00:24:22,760
Speaker 1: to manage that by closing holes in the capital account.

445
00:24:23,760 --> 00:24:26,680
Speaker 1: But that's uh, that could be a strategy of just

446
00:24:26,800 --> 00:24:29,840
Speaker 1: putting singers in the so I think the Chinese the

447
00:24:29,880 --> 00:24:33,480
Speaker 1: downward pressures will evan. Thank you so much. As we

448
00:24:33,520 --> 00:24:36,080
Speaker 1: look at your Asia Group's top risks for two thousand

449
00:24:36,160 --> 00:24:49,399
Speaker 1: seventeen worldwide, this is Bloomberg. Who you put your trust in? Matters.

450
00:24:49,440 --> 00:24:54,080
Speaker 1: Investors have put their trust in independent registered investment advisors

451
00:24:54,359 --> 00:24:57,160
Speaker 1: to the two and of four trillion dollars. Why they

452
00:24:57,160 --> 00:25:00,440
Speaker 1: see their roles to serve, not sell. That's right. Charles

453
00:25:00,480 --> 00:25:05,000
Speaker 1: Schwab is committed to the success over seven thousand independent

454
00:25:05,000 --> 00:25:10,800
Speaker 1: financial advisors who passionately dedicate themselves to helping people achieve

455
00:25:11,119 --> 00:25:15,960
Speaker 1: their financial goals. Learn more and find your independent advisor

456
00:25:16,440 --> 00:25:26,000
Speaker 1: dot com. Michael Faroli, he's the chief US economist at

457
00:25:26,040 --> 00:25:29,720
Speaker 1: JP Morgating joins us now. Michael, Happy New Year, d

458
00:25:30,160 --> 00:25:33,160
Speaker 1: Were you among those surprised by the dot plot? Surprised

459
00:25:33,160 --> 00:25:35,400
Speaker 1: by the forecast every three rate hikes in the new year?

460
00:25:36,400 --> 00:25:39,840
Speaker 1: Oh yeah, a little bit um uh there. In hindsight,

461
00:25:40,000 --> 00:25:43,679
Speaker 1: I guess one could reconcile that move again with the

462
00:25:43,720 --> 00:25:46,160
Speaker 1: movie you saw in the unemployment rate in November. So

463
00:25:46,240 --> 00:25:48,560
Speaker 1: in hindsight, maybe it does make sense, But we thought

464
00:25:48,560 --> 00:25:50,080
Speaker 1: they were going to be a little more cautious. That's

465
00:25:50,119 --> 00:25:53,920
Speaker 1: given that the dollar hadn't moved up quite significantly going

466
00:25:53,960 --> 00:25:57,040
Speaker 1: into the December meeting, and we thought that might temper

467
00:25:57,119 --> 00:26:00,199
Speaker 1: any sort of inflationary concerns they may have in the

468
00:26:00,240 --> 00:26:02,480
Speaker 1: tightening in the labor market. I think we last spoke

469
00:26:02,520 --> 00:26:04,679
Speaker 1: it was it was fairly soon after the election, and

470
00:26:04,720 --> 00:26:06,440
Speaker 1: there was a lot of talk about what might happen

471
00:26:06,480 --> 00:26:10,000
Speaker 1: when Donald Trump becomes president and a lot of prospect

472
00:26:10,119 --> 00:26:12,560
Speaker 1: of commentary, what what you know, what what type of

473
00:26:12,600 --> 00:26:14,800
Speaker 1: infrastructure spending we might see, what kind of tax reform

474
00:26:14,840 --> 00:26:17,520
Speaker 1: we might see? Do you have more clarity now? Are

475
00:26:17,520 --> 00:26:19,679
Speaker 1: you more satisfied with where things are are headed? In

476
00:26:19,760 --> 00:26:21,440
Speaker 1: light of the fact that we have some at key

477
00:26:21,480 --> 00:26:24,760
Speaker 1: personnel named positions, not confirmed, but named to positions. Do

478
00:26:24,800 --> 00:26:26,600
Speaker 1: you do you do you enjoy more clarity than you

479
00:26:26,600 --> 00:26:30,200
Speaker 1: did back then? Not really, unfortunately. Uh. I think a

480
00:26:30,240 --> 00:26:32,040
Speaker 1: lot of us going to come down to the interplay

481
00:26:32,119 --> 00:26:36,399
Speaker 1: between the president and the Congress and both both chambers

482
00:26:36,400 --> 00:26:41,119
Speaker 1: of Congress, and there the difference between forecasting and guessing.

483
00:26:41,200 --> 00:26:46,439
Speaker 1: Right now it's pretty much miner So, uh, you know,

484
00:26:46,560 --> 00:26:48,680
Speaker 1: there's still a lot that's pretty unclear in our minds.

485
00:26:49,080 --> 00:26:52,080
Speaker 1: Your latest weekly and folks, again, we protect the copyright

486
00:26:52,119 --> 00:26:56,400
Speaker 1: of everyone, Michael Farolean, Daniel Silver, Jessie Editin and others

487
00:26:56,440 --> 00:26:58,760
Speaker 1: at JP, Morgan Chase putting out a must read every

488
00:26:58,760 --> 00:27:03,639
Speaker 1: Friday afternoon, and Michael very simply the charts are fascinating

489
00:27:04,320 --> 00:27:06,960
Speaker 1: and they migrate me to where you're not changing your

490
00:27:07,080 --> 00:27:11,480
Speaker 1: terminal rate. You made worldwide headlines two years ago by

491
00:27:11,520 --> 00:27:16,159
Speaker 1: predicting a migration to a new lower terminal level for

492
00:27:16,359 --> 00:27:19,760
Speaker 1: our economic might our g d P. Do you amend

493
00:27:19,800 --> 00:27:22,960
Speaker 1: that higher with a Trump victory or do you stay

494
00:27:23,040 --> 00:27:26,600
Speaker 1: with a more tempered view of where yields and growth

495
00:27:26,640 --> 00:27:29,960
Speaker 1: are going. Yeah, no, we haven't really changed our view

496
00:27:30,080 --> 00:27:34,040
Speaker 1: on long run potential GDP growth or long run neutral

497
00:27:34,080 --> 00:27:37,879
Speaker 1: interest rates. Um, there's gonna be a little bit. Uh

498
00:27:38,080 --> 00:27:41,439
Speaker 1: this already president can do to really change the demographic trends,

499
00:27:41,480 --> 00:27:43,560
Speaker 1: which is one part one of the two pieces of

500
00:27:43,600 --> 00:27:47,600
Speaker 1: the long run growth puzzle. So that's almost sentenced done.

501
00:27:47,800 --> 00:27:50,760
Speaker 1: And then on the productivity front, Uh, there is some

502
00:27:50,800 --> 00:27:54,359
Speaker 1: potential that some of the reforms to the tax code

503
00:27:54,400 --> 00:27:59,320
Speaker 1: for for example, could stimulate greater capital spending, but we

504
00:27:59,440 --> 00:28:04,040
Speaker 1: see that as um really pretty pretty modest in terms

505
00:28:04,040 --> 00:28:06,600
Speaker 1: of the impact. And you know, as we look, even

506
00:28:06,600 --> 00:28:08,919
Speaker 1: as we look at the fourth quarter, it looks like

507
00:28:08,920 --> 00:28:12,640
Speaker 1: we're gonna have another disappointing productivity quarter, and we we UM.

508
00:28:12,680 --> 00:28:15,919
Speaker 1: I'd like to say, I'm I'm revising things higher, but

509
00:28:16,960 --> 00:28:19,520
Speaker 1: I just don't think that's much. The most likely you

510
00:28:19,680 --> 00:28:25,960
Speaker 1: lead your weekly report with consumption, and it's just remarkable

511
00:28:25,960 --> 00:28:30,520
Speaker 1: where real consumption is just vaporized back to lower levels.

512
00:28:30,600 --> 00:28:33,840
Speaker 1: Do you stay with that? Is the American consumer flatten

513
00:28:33,920 --> 00:28:39,440
Speaker 1: their back? Um? Well, so what I would I guess

514
00:28:39,440 --> 00:28:41,240
Speaker 1: I would characterize a little bit differently, which is that

515
00:28:41,280 --> 00:28:44,960
Speaker 1: we had a kind of a surprising uh surgeon consumption

516
00:28:45,240 --> 00:28:49,000
Speaker 1: in the second and third quarters, and it looks like

517
00:28:49,080 --> 00:28:51,280
Speaker 1: some of that may have been a delayed response to

518
00:28:51,320 --> 00:28:54,480
Speaker 1: the decline and UH and energy prices that would experience

519
00:28:54,560 --> 00:28:58,040
Speaker 1: in prior quarters. So saving rate one up as energy

520
00:28:58,040 --> 00:29:01,000
Speaker 1: prices went down, and then as consumers started to I

521
00:29:01,040 --> 00:29:06,800
Speaker 1: think basically bake into their their their budgets these lower

522
00:29:07,080 --> 00:29:09,960
Speaker 1: energy prices, you saw sating rates go back down. But

523
00:29:10,400 --> 00:29:13,360
Speaker 1: you know, I think we're settling back into more um

524
00:29:13,360 --> 00:29:17,200
Speaker 1: more trend grow. David, I have, David Gura, I've just

525
00:29:17,320 --> 00:29:20,040
Speaker 1: gone and I've done something I should not do. For

526
00:29:20,120 --> 00:29:22,440
Speaker 1: the first time this year, I've looked at the dots chart.

527
00:29:23,400 --> 00:29:26,240
Speaker 1: Michael Feroli, What is it signal to you that instantly

528
00:29:26,880 --> 00:29:29,600
Speaker 1: the market, vigilantes and the Federal on the same page

529
00:29:30,200 --> 00:29:38,080
Speaker 1: essentially out. Oh, I'm gonna call it eighteen months. Um. Well,

530
00:29:38,120 --> 00:29:41,600
Speaker 1: you know there have been times in the brief history

531
00:29:41,600 --> 00:29:43,080
Speaker 1: of the dots where the market has been above or

532
00:29:43,080 --> 00:29:47,520
Speaker 1: below where the fat is. And um, you know, now

533
00:29:47,560 --> 00:29:50,840
Speaker 1: they happen to be aligned. We'll see how long that lasts. Uh.

534
00:29:50,920 --> 00:29:53,400
Speaker 1: You know I shouldn't They shouldn't always be perfectly aligned.

535
00:29:53,400 --> 00:29:56,840
Speaker 1: And definitely, David, I know we want to get to

536
00:29:56,880 --> 00:29:59,440
Speaker 1: Michael Faroli on jobs, but I really have to carry

537
00:29:59,480 --> 00:30:02,360
Speaker 1: this four. I was mentioning the wonderful Courts article a

538
00:30:02,440 --> 00:30:05,840
Speaker 1: chemical imbalance in the brain could be causing people to

539
00:30:05,920 --> 00:30:11,280
Speaker 1: exercise less. Great tweet in from Emelda in Manila. Agree,

540
00:30:11,360 --> 00:30:14,840
Speaker 1: you have too much Martini's, thus the imbalance. I like

541
00:30:14,920 --> 00:30:22,000
Speaker 1: to think it's like that observation this morning. Thank you

542
00:30:23,640 --> 00:30:27,040
Speaker 1: Rothy of Courts for a chemical ambalance in the brain

543
00:30:27,120 --> 00:30:30,320
Speaker 1: could be causing people to exercise. Let's we got a

544
00:30:30,360 --> 00:30:32,920
Speaker 1: chemical imbalance. We love Jobs Day, don't we have? Absolutely?

545
00:30:32,960 --> 00:30:36,120
Speaker 1: Michael Foley with his chief US economist at Shape Morgan.

546
00:30:36,160 --> 00:30:39,000
Speaker 1: Let's look ahead to Jobs Day here, Michael, and I

547
00:30:39,080 --> 00:30:41,440
Speaker 1: wonder how close we are in your estimation to to

548
00:30:41,520 --> 00:30:44,280
Speaker 1: full employment? Does the term retain the significance that it

549
00:30:44,320 --> 00:30:46,320
Speaker 1: did when we see unemployment here at four point four

550
00:30:46,360 --> 00:30:50,120
Speaker 1: point six? Um, I think we are at, if not

551
00:30:50,240 --> 00:30:53,320
Speaker 1: beyond full employment. Uh. You know, I think when when

552
00:30:53,360 --> 00:30:55,360
Speaker 1: we talk about NERU, we have to remember what the

553
00:30:56,080 --> 00:30:58,880
Speaker 1: d A is in NEHRU, which is accelerating, and wages

554
00:30:59,080 --> 00:31:01,840
Speaker 1: may be low, but they are accelerating. And so I

555
00:31:01,880 --> 00:31:04,480
Speaker 1: think there's a case to be made that we're we

556
00:31:04,600 --> 00:31:07,000
Speaker 1: may be below NEHRU in terms of the unemployment rate

557
00:31:07,040 --> 00:31:10,680
Speaker 1: because we have seen uh in many measures, uh you know,

558
00:31:10,800 --> 00:31:15,080
Speaker 1: some some decent acceleration in the last six months. You know,

559
00:31:15,080 --> 00:31:16,400
Speaker 1: I asked you what you're gonna be looking for in

560
00:31:16,400 --> 00:31:18,960
Speaker 1: the minutes today? How about when those reports come out

561
00:31:18,960 --> 00:31:21,320
Speaker 1: on on Freday? Are you're gonna be looking at principally

562
00:31:21,360 --> 00:31:24,120
Speaker 1: participation at wage growth? What's of most interest to you

563
00:31:24,600 --> 00:31:30,240
Speaker 1: right now? UM? I would probably say the unemployment rate overall. Yeah,

564
00:31:30,320 --> 00:31:33,200
Speaker 1: the unemployment rate, because that fell so much in in

565
00:31:33,480 --> 00:31:35,720
Speaker 1: UH in November from four point nine percent to four

566
00:31:35,760 --> 00:31:38,640
Speaker 1: point six p uh, so much so that we end

567
00:31:38,720 --> 00:31:40,920
Speaker 1: consensus are looking for a little bit of a retracement

568
00:31:41,440 --> 00:31:45,600
Speaker 1: to four point seven So that will be um whether

569
00:31:45,680 --> 00:31:47,640
Speaker 1: or not that actually occurs in the degree to which

570
00:31:47,680 --> 00:31:49,320
Speaker 1: I think is going to be pretty interesting for thinking

571
00:31:49,360 --> 00:31:52,680
Speaker 1: about the FED. Michael, you are esteemed for your market

572
00:31:52,760 --> 00:31:57,160
Speaker 1: and linkage academic economics through your Bruce Scholl Chicago. My

573
00:31:57,360 --> 00:32:00,520
Speaker 1: first paper to read this year, which should have read

574
00:32:00,600 --> 00:32:05,000
Speaker 1: last year, folks, is Lawrence Katz and Alan Krueger, The

575
00:32:05,160 --> 00:32:09,600
Speaker 1: Rise and Nature of Alternative Work Arrangements in the United States.

576
00:32:09,640 --> 00:32:13,160
Speaker 1: Many have quoted this paper, including great work by Zero Hedge.

577
00:32:13,320 --> 00:32:17,640
Speaker 1: Michael Faroli helped me with Alan Krueger's Gig Economy. Is

578
00:32:17,680 --> 00:32:21,200
Speaker 1: it really just a smoke screen for part time America?

579
00:32:22,840 --> 00:32:25,320
Speaker 1: Uh So? I think it depends on you know, which

580
00:32:25,360 --> 00:32:29,560
Speaker 1: measure UH in the and the jobs number we're looking at.

581
00:32:30,920 --> 00:32:33,720
Speaker 1: But I think ultimately, you know, when it comes to

582
00:32:33,800 --> 00:32:36,680
Speaker 1: kind of linking this back to things that your listeners

583
00:32:36,720 --> 00:32:38,680
Speaker 1: may be interested in, it, I think it really matters

584
00:32:38,760 --> 00:32:42,520
Speaker 1: for for wages, and so that's why I think a number,

585
00:32:42,520 --> 00:32:44,480
Speaker 1: another number we're gonna keep an eye on Friday is

586
00:32:44,480 --> 00:32:47,480
Speaker 1: at average hourly earnings number. We're disappointed quite a bit.

587
00:32:47,520 --> 00:32:49,560
Speaker 1: But where are benefits? I mean, come on the the

588
00:32:50,000 --> 00:32:53,280
Speaker 1: distinction here, Michael Feroli. The distinction between full time and

589
00:32:53,320 --> 00:32:55,760
Speaker 1: part time comes down to the plug in a benefit

590
00:32:55,840 --> 00:33:01,000
Speaker 1: cost right partly, yes, uh, And that's why you know,

591
00:33:01,040 --> 00:33:04,720
Speaker 1: I think we UH do not just want to focus

592
00:33:04,760 --> 00:33:07,440
Speaker 1: solely on one measure of wages. That's why I think

593
00:33:07,440 --> 00:33:09,720
Speaker 1: the E C I and the C C are also

594
00:33:10,600 --> 00:33:13,480
Speaker 1: things we got to keep an eye on, UM. But

595
00:33:13,600 --> 00:33:15,360
Speaker 1: you know, I think when we look at part time

596
00:33:15,760 --> 00:33:19,040
Speaker 1: UH employment, there are a number of issues here, UM,

597
00:33:19,080 --> 00:33:20,840
Speaker 1: one of which is the A C A and the

598
00:33:20,880 --> 00:33:25,080
Speaker 1: degree to which that may be incentivizing employers to limit

599
00:33:25,160 --> 00:33:29,080
Speaker 1: the hours of employees for reasons of benefits as you

600
00:33:29,120 --> 00:33:32,320
Speaker 1: mentioned so, and how that changes actually as we UH

601
00:33:32,440 --> 00:33:34,520
Speaker 1: as we look at the new year with possible changes

602
00:33:34,600 --> 00:33:36,840
Speaker 1: to the A C A. I think that's another one

603
00:33:36,880 --> 00:33:38,840
Speaker 1: of the wild cards we talked about earlier in the

604
00:33:39,000 --> 00:33:41,760
Speaker 1: in the program about thinking about the agenda this year.

605
00:33:41,880 --> 00:33:45,280
Speaker 1: But this is critical, folks. Alan Krueger, Larry cats Go

606
00:33:45,320 --> 00:33:48,960
Speaker 1: back to Ronald Coase, the esteem Nobel Laureate in n

607
00:33:49,680 --> 00:33:53,920
Speaker 1: thirties seven, talking about the dynamics of our labor economy.

608
00:33:54,000 --> 00:33:57,320
Speaker 1: Michael Feroli, the answer is all that economics, which you

609
00:33:57,360 --> 00:34:00,640
Speaker 1: and I learned in school, has been overwhelmed by technology.

610
00:34:01,680 --> 00:34:07,640
Speaker 1: Is technology driving us to a permanent part time America? Well?

611
00:34:07,680 --> 00:34:09,560
Speaker 1: You know? So. The interesting thing here is that if

612
00:34:09,600 --> 00:34:13,239
Speaker 1: you look at the overall share of part time a

613
00:34:13,280 --> 00:34:15,920
Speaker 1: part time employment as a share of overall employment, it

614
00:34:15,960 --> 00:34:19,959
Speaker 1: hasn't really changed. I agree, yes, And what's what's changed

615
00:34:20,000 --> 00:34:22,600
Speaker 1: here is the share that is part time for economic

616
00:34:22,640 --> 00:34:25,759
Speaker 1: reasons versus for non economic reasons, and even that is

617
00:34:25,800 --> 00:34:28,759
Speaker 1: actually not that large. So I think when we look

618
00:34:28,760 --> 00:34:31,920
Speaker 1: at the overall share of part time, uh, it's you know,

619
00:34:31,960 --> 00:34:34,840
Speaker 1: we haven't really seen a sea change. Is obviously something

620
00:34:35,320 --> 00:34:40,799
Speaker 1: very tangible examples with uh right, HILP services. But I

621
00:34:40,840 --> 00:34:43,399
Speaker 1: think when you look at the hard data, we don't

622
00:34:43,440 --> 00:34:45,840
Speaker 1: write this is critical, folks. This is gonna be a

623
00:34:45,880 --> 00:34:48,920
Speaker 1: theme David for us for two thousand seventeen, and and

624
00:34:49,080 --> 00:34:53,240
Speaker 1: Dr Farol is correct. The math shows it's actually pretty

625
00:34:53,239 --> 00:34:56,759
Speaker 1: good data. I don't hear that from our listeners. That's

626
00:34:56,840 --> 00:34:58,759
Speaker 1: my point David, Well, let's talk a bit more about

627
00:34:58,760 --> 00:35:00,560
Speaker 1: the data and in in the Robustness seven. We've had Alan

628
00:35:00,600 --> 00:35:02,440
Speaker 1: Krueger from Princeton on here before. Of course he's done

629
00:35:02,440 --> 00:35:04,960
Speaker 1: a lot of research on the gig economy and UH

630
00:35:05,040 --> 00:35:08,320
Speaker 1: and on part time is how good is the data

631
00:35:08,400 --> 00:35:10,040
Speaker 1: as you see it? Uh? And sort of what what

632
00:35:10,080 --> 00:35:11,920
Speaker 1: do we need to get a better read on on

633
00:35:12,239 --> 00:35:16,799
Speaker 1: the part time aspect of the economy? Well, Uh, you know,

634
00:35:16,800 --> 00:35:18,400
Speaker 1: I think the data is as as good as has

635
00:35:18,440 --> 00:35:20,799
Speaker 1: ever been UH. And I think, you know, most of

636
00:35:20,920 --> 00:35:22,680
Speaker 1: the data we look at is going to come from that.

637
00:35:23,320 --> 00:35:25,120
Speaker 1: As you know, on Friday, when we get the jobs report,

638
00:35:25,120 --> 00:35:27,319
Speaker 1: it's really two different reports. One is a survey of

639
00:35:27,320 --> 00:35:30,799
Speaker 1: businesses and wants a survey of individuals and households. And

640
00:35:30,840 --> 00:35:37,239
Speaker 1: that household survey UH does pretty thoroughly UH interrogate respondents

641
00:35:37,239 --> 00:35:41,520
Speaker 1: about part time and self employed status. And these aren't,

642
00:35:41,640 --> 00:35:44,120
Speaker 1: you know, figures that have been at least for the

643
00:35:44,160 --> 00:35:47,560
Speaker 1: self employed, consistently asked in a pretty rigorous manner going

644
00:35:47,560 --> 00:35:50,239
Speaker 1: back over decades. So I think these numbers are never

645
00:35:50,280 --> 00:35:51,919
Speaker 1: going to be perfect, but I think as far as

646
00:35:53,000 --> 00:35:55,400
Speaker 1: as far as they go, and by international comparisons and

647
00:35:55,440 --> 00:35:59,440
Speaker 1: by comparisons with more ad hoc private surveys. I think

648
00:35:59,440 --> 00:36:03,440
Speaker 1: these are actually a pretty decent data. We've had a U. S.

649
00:36:03,440 --> 00:36:06,879
Speaker 1: Trade Representative designate. We have someone named to that position now.

650
00:36:07,400 --> 00:36:09,040
Speaker 1: I think the last time we spoke, we were talking

651
00:36:09,080 --> 00:36:12,919
Speaker 1: about the potential uh X factor of trade policy under

652
00:36:12,960 --> 00:36:16,719
Speaker 1: President elect Donald at Trump. Uh, is that still your

653
00:36:16,760 --> 00:36:18,879
Speaker 1: biggest the biggest concern for you here when you look

654
00:36:18,880 --> 00:36:21,200
Speaker 1: at the potential Donald Trump's economic policy going forward, is

655
00:36:21,200 --> 00:36:25,200
Speaker 1: it's still trade in terms of downside US? Yes? Um.

656
00:36:25,320 --> 00:36:28,120
Speaker 1: And you know, just because the wild card is uh

657
00:36:28,360 --> 00:36:33,240
Speaker 1: is so unknowable. Um, we can't really look to recent

658
00:36:33,320 --> 00:36:37,840
Speaker 1: history for examples of uh, you know, large scale increases

659
00:36:37,840 --> 00:36:44,160
Speaker 1: in tariffs, retaliatory sort of trade wars, and so it's uh,

660
00:36:44,320 --> 00:36:47,240
Speaker 1: it is really something that that's that's uh. They remained

661
00:36:47,280 --> 00:36:49,560
Speaker 1: by far the biggest I think downside risk at least

662
00:36:49,640 --> 00:36:52,640
Speaker 1: when we think about the year to add Mica Frowley,

663
00:36:52,719 --> 00:36:55,439
Speaker 1: thank you so much and again congratulations on your work

664
00:36:55,480 --> 00:36:58,879
Speaker 1: on the terminal rate of our economic growth rate over

665
00:36:58,880 --> 00:37:02,319
Speaker 1: the last few years. Mr. Really with JP Morgan job

666
00:37:02,360 --> 00:37:06,279
Speaker 1: stay on Friday, David Girl right, You're going to be

667
00:37:06,760 --> 00:37:10,320
Speaker 1: it's upon us. Yes, I mean it's always sudden. The

668
00:37:10,360 --> 00:37:23,720
Speaker 1: first Friday of JA. Yeah, we are having a blast

669
00:37:23,760 --> 00:37:26,239
Speaker 1: year with David blanch Flower Dartmouth College. While we were

670
00:37:26,280 --> 00:37:30,239
Speaker 1: on break, really just talking up the raging debate that

671
00:37:30,280 --> 00:37:32,600
Speaker 1: I'm sure all of you are having about full time

672
00:37:32,600 --> 00:37:36,279
Speaker 1: and part time employment. Professor blanche Flower is truly one

673
00:37:36,320 --> 00:37:40,520
Speaker 1: of our leading labor economists linked in the monetary theory.

674
00:37:40,960 --> 00:37:44,480
Speaker 1: What to do, Professor blanch Flower. If I'm a crass

675
00:37:44,560 --> 00:37:46,839
Speaker 1: capitalist and I say I'm going to run everybody at

676
00:37:46,840 --> 00:37:50,160
Speaker 1: part time because I don't want to pay benefits, can

677
00:37:50,239 --> 00:37:55,839
Speaker 1: government create incentives to shift that rational behavior. Well, of

678
00:37:55,880 --> 00:37:58,320
Speaker 1: course they can. Um Obviously there are issues on the

679
00:37:58,440 --> 00:38:02,080
Speaker 1: supply side. If there is, if you like a cut point,

680
00:38:02,160 --> 00:38:05,040
Speaker 1: which says if if somebody works fifteen hours then you

681
00:38:05,080 --> 00:38:07,040
Speaker 1: don't have to pay health insurance, and if they went

682
00:38:07,080 --> 00:38:10,120
Speaker 1: to sixteen, you do. These kind of turn points are

683
00:38:10,160 --> 00:38:13,560
Speaker 1: not good. That's the kind of regulatory changes that can

684
00:38:13,719 --> 00:38:17,279
Speaker 1: can actually help. On the one hand, employers don't want

685
00:38:17,320 --> 00:38:20,000
Speaker 1: to offer more hours. But because of a lack of

686
00:38:20,040 --> 00:38:22,600
Speaker 1: demand here what I said, a lack of demand the

687
00:38:22,680 --> 00:38:26,279
Speaker 1: US economy well away from full employment, there's not enough

688
00:38:26,320 --> 00:38:32,680
Speaker 1: alternative rate. What's unemployment I mean, I'm a U six guys.

689
00:38:33,520 --> 00:38:35,319
Speaker 1: I mean you just had three number, John Tucker, do

690
00:38:35,360 --> 00:38:37,839
Speaker 1: you want to weigh in the number for the unemployment rate?

691
00:38:38,520 --> 00:38:41,840
Speaker 1: I have a job, and that's really had to go

692
00:38:41,920 --> 00:38:44,680
Speaker 1: with as the labor economist, it would perfect it would

693
00:38:44,719 --> 00:38:47,560
Speaker 1: be perfectly reasonable in the last hundred years to look

694
00:38:47,600 --> 00:38:50,000
Speaker 1: at the employment rate. So I'm going to look at

695
00:38:50,040 --> 00:38:54,000
Speaker 1: the employment rate, which is now about three percentage points

696
00:38:54,000 --> 00:38:56,799
Speaker 1: below where it was in two thousand and eight at

697
00:38:56,800 --> 00:38:59,560
Speaker 1: the start. If you just do the calculation, takes sixty

698
00:38:59,560 --> 00:39:02,440
Speaker 1: three again sixty you do sixty three over sixty times

699
00:39:02,440 --> 00:39:05,680
Speaker 1: the employment number, you get a number like nine million jobs.

700
00:39:05,800 --> 00:39:08,799
Speaker 1: We're nine million jobs down below where we would be

701
00:39:09,080 --> 00:39:11,440
Speaker 1: if we got the employment rate back to where it was.

702
00:39:12,000 --> 00:39:15,120
Speaker 1: That looks awfully to me, about to be cyclical. I mean,

703
00:39:15,160 --> 00:39:17,400
Speaker 1: the story in a way is the FED and everybody

704
00:39:17,440 --> 00:39:20,520
Speaker 1: says we're at full employment. Why were all these people hurting?

705
00:39:20,719 --> 00:39:23,200
Speaker 1: Why did they Why is everybody hurting in the in

706
00:39:23,239 --> 00:39:25,640
Speaker 1: the heartland. Why are we seeing all these people objecting?

707
00:39:25,680 --> 00:39:29,279
Speaker 1: I think completely misunderstanding the labor market. The U. S

708
00:39:29,320 --> 00:39:31,680
Speaker 1: economy is a long way from full employment. My guess

709
00:39:31,719 --> 00:39:33,960
Speaker 1: is about nine million jobs away. We were at Eurasia

710
00:39:33,960 --> 00:39:36,840
Speaker 1: Group yesterday talking about top risks for for the year ahead,

711
00:39:36,840 --> 00:39:39,800
Speaker 1: and one of them was about Silicon Valley, the relationship

712
00:39:39,800 --> 00:39:42,160
Speaker 1: between Watchington Silicon Valley. We saw the footage of of

713
00:39:42,760 --> 00:39:45,480
Speaker 1: various ceo sitting around the table with Donald Trump a

714
00:39:45,560 --> 00:39:47,680
Speaker 1: few weeks back, and yes, to focus there was on

715
00:39:47,760 --> 00:39:49,640
Speaker 1: security and privacy and all of that, but it was

716
00:39:49,719 --> 00:39:53,760
Speaker 1: also on jobs. What more can tech companies can Silicon

717
00:39:53,840 --> 00:39:56,759
Speaker 1: Valley do to improve the situation of those who are

718
00:39:56,800 --> 00:39:59,480
Speaker 1: out of the workforce? Now, well, do they bear responsibility

719
00:39:59,480 --> 00:40:01,120
Speaker 1: for training? Is that something that there has to be

720
00:40:01,120 --> 00:40:04,000
Speaker 1: done at the state of the federal level. Firms complain

721
00:40:04,080 --> 00:40:09,279
Speaker 1: often that they can't get adequate skilled train manpower. Well,

722
00:40:09,320 --> 00:40:11,560
Speaker 1: obviously some of the stories that they cut that in

723
00:40:11,600 --> 00:40:14,920
Speaker 1: two thousand and eight, so they're paying the price of

724
00:40:15,040 --> 00:40:18,960
Speaker 1: closing their training programs. Now, obviously I talk about a

725
00:40:19,000 --> 00:40:22,360
Speaker 1: lot of about the level of demand. But you're completely

726
00:40:22,480 --> 00:40:25,960
Speaker 1: right that government can give incentives to firms to hire

727
00:40:26,040 --> 00:40:30,160
Speaker 1: people and lower the relative price of labor. So obviously

728
00:40:30,160 --> 00:40:34,399
Speaker 1: there are capital incentives. Um, you know, if you can

729
00:40:34,520 --> 00:40:36,799
Speaker 1: you can put in technology. But if the if the

730
00:40:36,840 --> 00:40:39,720
Speaker 1: government was to make the relative price of labor lower

731
00:40:40,000 --> 00:40:43,120
Speaker 1: than the effect of technology would be less. I was

732
00:40:44,000 --> 00:40:46,400
Speaker 1: on a reporting trip a while back in Hickory, North Carolina,

733
00:40:46,480 --> 00:40:49,760
Speaker 1: form of furniture making a capital of the country. Google

734
00:40:49,800 --> 00:40:51,640
Speaker 1: has come in built a data center and is working

735
00:40:51,640 --> 00:40:54,319
Speaker 1: in concert with community colleges to train students who can

736
00:40:54,400 --> 00:40:57,920
Speaker 1: then go work at the facility they've built there. Uh,

737
00:40:58,120 --> 00:40:59,960
Speaker 1: you're at Dartmouth College. I'm sure many of your gradu

738
00:41:00,040 --> 00:41:02,000
Speaker 1: are going to work at Google. But what's the role

739
00:41:02,080 --> 00:41:05,239
Speaker 1: of community colleges a level beneath that in training? Now?

740
00:41:05,239 --> 00:41:07,160
Speaker 1: Are they being harnessed in the way they should be

741
00:41:07,320 --> 00:41:10,040
Speaker 1: to train people? Is this the model? The corporate critic

742
00:41:10,080 --> 00:41:12,000
Speaker 1: It's a great question, I mean, and I think if

743
00:41:12,000 --> 00:41:14,160
Speaker 1: you were to compare let's say a country that's very

744
00:41:14,160 --> 00:41:18,360
Speaker 1: good at training young people of Germany, essentially what Germany

745
00:41:18,360 --> 00:41:21,399
Speaker 1: has as an apprenticeship program, I mean a huge one

746
00:41:21,440 --> 00:41:23,600
Speaker 1: across all kinds of staff, and they make use of

747
00:41:23,640 --> 00:41:27,960
Speaker 1: this this community college equivalent. Um, it looks to me

748
00:41:28,000 --> 00:41:32,000
Speaker 1: that these places are under used compared to elsewhere. I mean,

749
00:41:32,040 --> 00:41:35,279
Speaker 1: it's it's it's about trying to create the transition from

750
00:41:35,320 --> 00:41:39,040
Speaker 1: school to work. And if you don't make that transition early,

751
00:41:39,320 --> 00:41:42,000
Speaker 1: you may never make it. So the idea of I mean,

752
00:41:42,120 --> 00:41:44,880
Speaker 1: we were just talking about UM Andrew Cuomo talked about

753
00:41:45,239 --> 00:41:48,440
Speaker 1: trying to get people coming into New York community colleges

754
00:41:48,760 --> 00:41:51,920
Speaker 1: if their parents earned less than that's the rule to

755
00:41:51,920 --> 00:41:54,440
Speaker 1: get financial aid to come to Dartmouth. So obviously I

756
00:41:54,480 --> 00:41:57,440
Speaker 1: think there's a huge place for these colleges UM and

757
00:41:57,440 --> 00:41:58,759
Speaker 1: and in in a way, what you have to do

758
00:41:58,800 --> 00:42:01,759
Speaker 1: is get a partnership with arms so that people can

759
00:42:01,880 --> 00:42:03,960
Speaker 1: go in and out of these places. But at the

760
00:42:04,040 --> 00:42:06,000
Speaker 1: end there's a promise of a good job. That's what

761
00:42:06,040 --> 00:42:09,959
Speaker 1: the Germans do long apprenticeship programs. People don't take much money,

762
00:42:09,960 --> 00:42:11,719
Speaker 1: but there's a promise at the end of a good job,

763
00:42:11,920 --> 00:42:14,239
Speaker 1: and that promise is think is something that people will

764
00:42:14,360 --> 00:42:20,799
Speaker 1: kind of partake of. I uh, you're writting a new book. Yeah,

765
00:42:21,120 --> 00:42:23,640
Speaker 1: focus here on the labor market. I've read your your

766
00:42:23,680 --> 00:42:27,080
Speaker 1: draft of the introduction here before the show. It breaks

767
00:42:27,080 --> 00:42:28,920
Speaker 1: on what you're talking about the last segment, that is,

768
00:42:29,040 --> 00:42:31,920
Speaker 1: you have a lot of people in places off the

769
00:42:31,920 --> 00:42:33,360
Speaker 1: east coast, the west coast here in the US, we

770
00:42:33,440 --> 00:42:35,040
Speaker 1: disatisfied with the way things that had to have been

771
00:42:35,080 --> 00:42:38,040
Speaker 1: disatisfied have been felt. They've been left out economically here.

772
00:42:38,320 --> 00:42:40,040
Speaker 1: As you've been thinking about this, as you've looked back

773
00:42:40,040 --> 00:42:42,600
Speaker 1: on the last ten years since the financial crisis, what's

774
00:42:42,640 --> 00:42:45,200
Speaker 1: the remedy there? We talked about broken promises or the

775
00:42:45,239 --> 00:42:48,440
Speaker 1: prospect for reform in the UK. You have a lot

776
00:42:48,480 --> 00:42:50,600
Speaker 1: of people here in the US who voted for Donald Trump,

777
00:42:50,600 --> 00:42:53,680
Speaker 1: perhaps who are pinning their hopes on the promises that

778
00:42:53,680 --> 00:42:56,799
Speaker 1: that he made here. How tenuous is that, do you think? Well?

779
00:42:56,840 --> 00:43:00,719
Speaker 1: I think I have a I call these folks the

780
00:43:00,880 --> 00:43:05,040
Speaker 1: left behind. Um, I think I think there's two parts

781
00:43:05,040 --> 00:43:08,280
Speaker 1: to it. In a deep crisis, everybody's in it together,

782
00:43:08,880 --> 00:43:11,359
Speaker 1: so people understand we're all we're all trying to fight

783
00:43:11,360 --> 00:43:14,239
Speaker 1: our way through, thinking it's a war mode. And then

784
00:43:14,280 --> 00:43:16,840
Speaker 1: as you come out, some people start to do well

785
00:43:17,280 --> 00:43:20,680
Speaker 1: and the others are left behind. Relative things matter, and

786
00:43:20,719 --> 00:43:23,080
Speaker 1: the problem is that how are we going to fix

787
00:43:23,400 --> 00:43:26,160
Speaker 1: the heartland? I mean, the big part of my story is, yes,

788
00:43:26,200 --> 00:43:28,279
Speaker 1: the labor market is a major issue, but now we

789
00:43:28,320 --> 00:43:31,600
Speaker 1: have this huge issue in the heartland of America where

790
00:43:31,600 --> 00:43:35,000
Speaker 1: we have the death rates of white non Hispanics between

791
00:43:35,000 --> 00:43:36,799
Speaker 1: the age of the thirty five and fifty four that

792
00:43:36,840 --> 00:43:39,359
Speaker 1: are rising. They're falling in every other country in the world.

793
00:43:39,560 --> 00:43:42,120
Speaker 1: We have a huge social crisis that's going on. They've

794
00:43:42,160 --> 00:43:46,279
Speaker 1: been left behind. The question is how are you going

795
00:43:46,320 --> 00:43:48,600
Speaker 1: to fix it? You're not going to fix it quick, David.

796
00:43:48,640 --> 00:43:52,560
Speaker 1: Ten seconds left have been called by the Trump transition team.

797
00:43:52,600 --> 00:43:56,520
Speaker 1: My phone's on, Danny. Thank you. So where are you?

798
00:43:56,560 --> 00:43:59,040
Speaker 1: Where are you writing in England? Now? The Independent? The Guardian?

799
00:43:59,040 --> 00:44:05,600
Speaker 1: I can't keep trying The Guardian, David, Guardian, it's the

800
00:44:05,640 --> 00:44:15,000
Speaker 1: great free newspapers. Well for now now from Cardiff Danny.

801
00:44:18,400 --> 00:44:22,719
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

802
00:44:22,840 --> 00:44:27,920
Speaker 1: listen to interviews on iTunes, SoundCloud, or whichever podcast platform

803
00:44:28,040 --> 00:44:31,600
Speaker 1: you prefer. I'm out on Twitter at Tom Keene. David

804
00:44:31,640 --> 00:44:35,279
Speaker 1: Gura is at David Gura. Before the podcast, you can

805
00:44:35,400 --> 00:44:51,520
Speaker 1: always catch us worldwide. I'm Bloomberg Radio. Who you put

806
00:44:51,560 --> 00:44:54,520
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807
00:44:54,719 --> 00:44:59,360
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808
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