1 00:00:00,320 --> 00:00:04,160 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:04,200 --> 00:00:07,640 Speaker 1: their trust in independent registered investment advisors to the tune 3 00:00:07,640 --> 00:00:12,240 Speaker 1: of four trillion dollars. Why learn more and find your 4 00:00:12,240 --> 00:00:27,240 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,320 --> 00:00:31,320 Speaker 1: I'm Tom Keene Always with Michael McKee Daily we bring 6 00:00:31,360 --> 00:00:35,280 Speaker 1: you insight from the best in economics, finance, investment, and 7 00:00:35,360 --> 00:00:41,519 Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, 8 00:00:41,560 --> 00:00:48,880 Speaker 1: and of course, on the Bloomberg Hi. Michael mckeel on 9 00:00:48,920 --> 00:00:52,720 Speaker 1: with Tom Keene on Bloomberg Surveillance. And it has been, 10 00:00:53,400 --> 00:00:55,720 Speaker 1: to say the least, an interesting week. It maybe I 11 00:00:55,760 --> 00:00:59,840 Speaker 1: guess the week described as when central banks agreed that 12 00:01:00,040 --> 00:01:03,640 Speaker 1: lower for longer cannot be rooted out from the lexicon. 13 00:01:04,160 --> 00:01:08,400 Speaker 1: Charles Calamaris is a an economics professor at Columbia Business School. 14 00:01:08,800 --> 00:01:12,920 Speaker 1: He is a movie star. You're in the movie next week, right, yes? 15 00:01:13,240 --> 00:01:17,479 Speaker 1: Uh I On Monday at the Hell of Mills Theater, 16 00:01:17,600 --> 00:01:20,360 Speaker 1: six thirty pm. If you want to avoid the presidential debate, 17 00:01:20,760 --> 00:01:23,319 Speaker 1: you can see a movie called The Money Changers. A 18 00:01:23,360 --> 00:01:24,760 Speaker 1: lot of my colleagues and I are going to be 19 00:01:24,800 --> 00:01:28,240 Speaker 1: appearing in it. It's a movie Chris Mortenson made. It's 20 00:01:28,360 --> 00:01:32,560 Speaker 1: about the history of the hypocrisy of hating bankers. That 21 00:01:32,600 --> 00:01:36,200 Speaker 1: would be my summary. Al Right, well, everybody, you probably 22 00:01:36,200 --> 00:01:38,400 Speaker 1: when you said you could avoid the presidential debate by 23 00:01:38,400 --> 00:01:41,080 Speaker 1: seeing it, you probably just sold and sold the theater out. 24 00:01:41,720 --> 00:01:44,400 Speaker 1: That's what I'm thinking. Let's let's bring banks and central 25 00:01:44,400 --> 00:01:48,360 Speaker 1: banks together. Obviously, the Bank of Japan worried about the 26 00:01:48,400 --> 00:01:52,000 Speaker 1: impact of negative interest rates. Uh. One thing that has 27 00:01:52,040 --> 00:01:55,080 Speaker 1: been pretty obvious throughout the whole recovery of central banks 28 00:01:55,120 --> 00:01:57,840 Speaker 1: poor money into the economy is that we're not seeing 29 00:01:59,160 --> 00:02:05,480 Speaker 1: demand for the liquidity that they're providing, excepting financial asset market, 30 00:02:05,520 --> 00:02:08,800 Speaker 1: So people aren't going out to take out loans to 31 00:02:08,840 --> 00:02:14,040 Speaker 1: expand businesses. U is are we at the end here? 32 00:02:14,200 --> 00:02:17,200 Speaker 1: This is the endgame for what central banks are able 33 00:02:17,240 --> 00:02:20,320 Speaker 1: to do. What's interesting is if you look at the 34 00:02:20,360 --> 00:02:24,200 Speaker 1: academic research on this, the answer is different. It's that 35 00:02:24,280 --> 00:02:28,080 Speaker 1: we're worse than at the end. We're actually contracting the 36 00:02:28,120 --> 00:02:31,000 Speaker 1: supply of liquidity right now with central bank policies like 37 00:02:31,080 --> 00:02:34,240 Speaker 1: negative interest rates. And the reason is two things. First, 38 00:02:34,639 --> 00:02:38,080 Speaker 1: banks of course aren't using the increase in the central 39 00:02:38,120 --> 00:02:40,400 Speaker 1: banks balance sheet in any way, So it's the central 40 00:02:40,400 --> 00:02:44,520 Speaker 1: banks not translating its liquidity its growth into anything the 41 00:02:44,520 --> 00:02:47,160 Speaker 1: banks are doing. And in fact, the negative interest rates 42 00:02:47,240 --> 00:02:50,079 Speaker 1: or low interest rates are contracting lending, so the banks 43 00:02:50,080 --> 00:02:53,480 Speaker 1: are providing less liquidity to the economy. And then finally 44 00:02:53,960 --> 00:02:56,960 Speaker 1: there's another effect, which is as central banks absorb more 45 00:02:57,400 --> 00:03:00,840 Speaker 1: assets onto their balance sheet, they remove lateral that the 46 00:03:00,880 --> 00:03:04,880 Speaker 1: financial system uses for repo transactions, which are the lifeblood 47 00:03:04,880 --> 00:03:09,280 Speaker 1: of liquidity. And so actually central banks, run by macroeconomists 48 00:03:09,280 --> 00:03:13,200 Speaker 1: who apparently don't understand much about the financial system, pretend 49 00:03:13,240 --> 00:03:17,359 Speaker 1: that they're increasing liquidity. They're not. They're actually decreasing liquidity. 50 00:03:17,400 --> 00:03:20,919 Speaker 1: Is that why then we are not seeing success that 51 00:03:21,040 --> 00:03:25,040 Speaker 1: their goals of reflation or is is it because they 52 00:03:25,080 --> 00:03:29,000 Speaker 1: don't have the ability to reflate anymore? Well, you know, 53 00:03:29,080 --> 00:03:31,520 Speaker 1: you're right that it's it's a mix. So part of 54 00:03:31,520 --> 00:03:34,200 Speaker 1: the reason they don't have the ability is that banks 55 00:03:34,200 --> 00:03:38,520 Speaker 1: are deciding based on regulatory criteria that they don't really 56 00:03:38,520 --> 00:03:41,080 Speaker 1: want to do as much deposit taking and lending as 57 00:03:41,080 --> 00:03:44,080 Speaker 1: they used to do. So there's independent of monetary policy, 58 00:03:44,120 --> 00:03:47,280 Speaker 1: there are other drags on loan supply. So I agree 59 00:03:47,280 --> 00:03:50,600 Speaker 1: with you, it's not all about the central banks monetary policy. 60 00:03:50,840 --> 00:03:53,600 Speaker 1: But insofar as monetary policy is having an effect, and 61 00:03:53,600 --> 00:03:57,800 Speaker 1: it is having one, it is having a negative effect. Sorry, 62 00:03:58,000 --> 00:03:59,600 Speaker 1: late this morning, Mike, I was up in the food 63 00:03:59,640 --> 00:04:04,080 Speaker 1: court adding my I believe Mets t shirt wow, ending 64 00:04:04,120 --> 00:04:05,520 Speaker 1: to the game last night for those of you who 65 00:04:05,520 --> 00:04:08,120 Speaker 1: missed it, walk off home run in the eleventh I 66 00:04:08,160 --> 00:04:11,880 Speaker 1: believe the New York Mets. You. Well, just we'll just 67 00:04:12,040 --> 00:04:16,360 Speaker 1: note that the Boston Red Sox are comfortably inconcomfortably of 68 00:04:16,400 --> 00:04:18,200 Speaker 1: their division, and we'll get back to that with this 69 00:04:18,320 --> 00:04:21,560 Speaker 1: calamearus of Columbia, Charlie. You know, I hate to say this, 70 00:04:21,880 --> 00:04:25,800 Speaker 1: but you predicted this when we look. Don't hate it, 71 00:04:25,880 --> 00:04:30,039 Speaker 1: you know, but the system that you and Mike were 72 00:04:30,080 --> 00:04:33,200 Speaker 1: just talking about, I've got Villain Powder at City Group 73 00:04:33,200 --> 00:04:35,560 Speaker 1: and Ken Rogoff with his wonderful new book, The Curse 74 00:04:35,600 --> 00:04:39,320 Speaker 1: of Cash, saying there can be a constructive negative rates. 75 00:04:39,480 --> 00:04:42,160 Speaker 1: Marvin good Friend at Cardie Mellon saying this as well. 76 00:04:42,640 --> 00:04:45,920 Speaker 1: But we're not getting there. May I suggest, professor, we're 77 00:04:45,960 --> 00:04:48,520 Speaker 1: doing a sort of kind of like negative rates. And 78 00:04:48,560 --> 00:04:53,080 Speaker 1: the issue here is simply courage. Well, you're saying that 79 00:04:53,120 --> 00:04:56,239 Speaker 1: the central banks need to double down. On the wrong idea, 80 00:04:56,440 --> 00:05:00,360 Speaker 1: or diffuse the diffuse the theory of negative rates more 81 00:05:00,520 --> 00:05:05,920 Speaker 1: through the system to clear markets. Well, look, they they 82 00:05:06,080 --> 00:05:09,680 Speaker 1: certainly if they want to push negative negative rates as 83 00:05:09,720 --> 00:05:12,840 Speaker 1: a policy, they could probably do it better and try 84 00:05:12,880 --> 00:05:15,599 Speaker 1: to create more of a sense of what they what 85 00:05:15,760 --> 00:05:19,000 Speaker 1: markets they think they might be affecting, try to manage expectations. 86 00:05:19,040 --> 00:05:21,280 Speaker 1: I can see that, but I don't really you know, 87 00:05:21,440 --> 00:05:24,200 Speaker 1: there's only so far you can go with a bad idea. Tom, 88 00:05:24,240 --> 00:05:27,480 Speaker 1: this is a bad idea. It is not stimulative, it's 89 00:05:27,520 --> 00:05:30,640 Speaker 1: the opposite. And know my own view is it's an 90 00:05:30,640 --> 00:05:33,479 Speaker 1: active desperation by central banks who want to appear to 91 00:05:33,520 --> 00:05:37,599 Speaker 1: be doing something for political reasons more than any other explanation. 92 00:05:38,320 --> 00:05:41,200 Speaker 1: So what's what should they be doing? Just reverse its 93 00:05:41,200 --> 00:05:45,000 Speaker 1: Should we be backing out, selling off assets and raising rates. Yes, 94 00:05:45,200 --> 00:05:47,479 Speaker 1: so they should be raising rates. That will help the 95 00:05:47,480 --> 00:05:50,440 Speaker 1: banking system to start to increase the supply of lending 96 00:05:50,480 --> 00:05:55,119 Speaker 1: in the economy. And they should be very concerned, as 97 00:05:55,240 --> 00:05:57,800 Speaker 1: Eric Rose and Grins pointed out, and Jeremy Stein and 98 00:05:57,880 --> 00:06:02,120 Speaker 1: other Fed bureaucrats who understand this, it should be very 99 00:06:02,160 --> 00:06:06,960 Speaker 1: concerned about asset bubbles. Whether you're talking about insurance annuities, 100 00:06:07,080 --> 00:06:10,320 Speaker 1: or agriculture, or real estate or other commercial real estate 101 00:06:10,360 --> 00:06:13,440 Speaker 1: in the U S or houses. This is a big problem. 102 00:06:13,520 --> 00:06:15,680 Speaker 1: And so you had one of the insights of the week, Mike. 103 00:06:15,720 --> 00:06:16,960 Speaker 1: I don't know if you heard it. Right at the 104 00:06:17,080 --> 00:06:21,880 Speaker 1: end of our broadcast on television, Professor Calamiris was showing 105 00:06:21,920 --> 00:06:26,440 Speaker 1: the immediacy of President Rose and Grin's knowledge of the 106 00:06:26,480 --> 00:06:32,960 Speaker 1: financial system and his concern over financial instability. Professor extend 107 00:06:33,040 --> 00:06:37,120 Speaker 1: that conversation, tell me about just a simple idea of 108 00:06:38,640 --> 00:06:41,880 Speaker 1: Ros and grins worry about the stability of banks, in 109 00:06:41,920 --> 00:06:45,840 Speaker 1: particularly European banks. Well, you know, I think what he's 110 00:06:45,920 --> 00:06:49,680 Speaker 1: most famous for his work is all about how the 111 00:06:50,040 --> 00:06:53,120 Speaker 1: level of capital of banks, their net worth, their stock price, 112 00:06:53,200 --> 00:06:56,239 Speaker 1: whatever you want to call it, affects their lending. In fact, 113 00:06:56,720 --> 00:06:59,640 Speaker 1: his most famous article published in the American Economic Review, 114 00:06:59,720 --> 00:07:03,800 Speaker 1: was owing that uh in the ninety nineties, And I 115 00:07:03,839 --> 00:07:07,239 Speaker 1: think that that is exactly the mechanism that you should 116 00:07:07,240 --> 00:07:09,840 Speaker 1: be focusing on right now. I asked my students at 117 00:07:09,880 --> 00:07:14,040 Speaker 1: Columbia Business School trick question, why is city banks market 118 00:07:14,120 --> 00:07:16,720 Speaker 1: value equity to book value equity less than one? And 119 00:07:16,720 --> 00:07:18,720 Speaker 1: why has it been less than one for so long. 120 00:07:19,080 --> 00:07:22,960 Speaker 1: It's not because of hidden assets losses that haven't been 121 00:07:23,000 --> 00:07:26,920 Speaker 1: marked down. It's mainly because of negative interest rates or 122 00:07:27,040 --> 00:07:32,160 Speaker 1: low interest rates that have made the bank's core retail operations. 123 00:07:32,200 --> 00:07:37,360 Speaker 1: It's it's deposit taking franchise unprofitable. Deutsche Banks assets and 124 00:07:37,480 --> 00:07:43,520 Speaker 1: dollars approach to trillion dollars. Their book value of equity 125 00:07:43,600 --> 00:07:47,040 Speaker 1: is sixty eight billion. Those are two big, big numbers. 126 00:07:47,040 --> 00:07:50,480 Speaker 1: But the answer is that gives pause to everybody in banking, 127 00:07:50,480 --> 00:07:54,920 Speaker 1: whether this Charles Calamiras and economics at Columbia, but linking 128 00:07:54,960 --> 00:07:58,440 Speaker 1: it into the financial system, Charlie, maybe more than anyone 129 00:07:58,480 --> 00:08:02,280 Speaker 1: we speak to. You actually go into central banks and 130 00:08:02,400 --> 00:08:05,840 Speaker 1: talk to them. There's a belief in the United States 131 00:08:05,840 --> 00:08:09,560 Speaker 1: and when banks get gnarly, we have institutions that go 132 00:08:09,760 --> 00:08:13,320 Speaker 1: into the banks, the adults walk through the door and say, Okay, 133 00:08:13,360 --> 00:08:15,840 Speaker 1: this is the way it's gonna be. Does that happen 134 00:08:15,840 --> 00:08:18,320 Speaker 1: in the rest of the world. Does it happen to Greece? 135 00:08:18,400 --> 00:08:22,000 Speaker 1: Does it happen in Portugal? Does that happen in Indonesia? 136 00:08:22,360 --> 00:08:26,720 Speaker 1: Does it happen in Germany? I think that what you're 137 00:08:26,760 --> 00:08:29,880 Speaker 1: seeing of the past few years is that when banks 138 00:08:29,920 --> 00:08:33,479 Speaker 1: get into trouble. The people who are charged with regulating 139 00:08:33,520 --> 00:08:37,520 Speaker 1: the banks in Europe simply make more excuses about why 140 00:08:37,840 --> 00:08:41,040 Speaker 1: no one should worry. So we're seeing, of course, every 141 00:08:41,040 --> 00:08:46,760 Speaker 1: country you mentioned, I would say France, especially Greece. Of course, 142 00:08:47,480 --> 00:08:49,880 Speaker 1: um what do you mean France especially? They don't have 143 00:08:49,960 --> 00:08:52,920 Speaker 1: the adults in the room of regulations. Definitely not I'm 144 00:08:52,960 --> 00:08:56,479 Speaker 1: sorry to say, no the UM. I had a conversation 145 00:08:56,559 --> 00:08:59,880 Speaker 1: with with senior bank regulator in France a few years 146 00:09:00,120 --> 00:09:02,800 Speaker 1: where I said, you know, your banks can't borrow in 147 00:09:02,840 --> 00:09:06,000 Speaker 1: the market's short term because everyone thinks they're insolvent. And 148 00:09:06,000 --> 00:09:07,720 Speaker 1: he says, but the markets are wrong. But I said, 149 00:09:07,720 --> 00:09:09,839 Speaker 1: the markets have thought that for a few years now. 150 00:09:10,240 --> 00:09:13,240 Speaker 1: Can the markets be wrong for years? And it's all 151 00:09:13,280 --> 00:09:17,240 Speaker 1: about pumping money into them and basically ignoring the market signals. 152 00:09:17,480 --> 00:09:19,439 Speaker 1: So if you if you look at what the markets 153 00:09:19,440 --> 00:09:22,400 Speaker 1: are saying about European banks, it's not a very pretty picture. Mike, 154 00:09:22,480 --> 00:09:24,360 Speaker 1: I don't mean to interrupt here, but this is critical. 155 00:09:24,480 --> 00:09:27,640 Speaker 1: Does John cry And have the same scrutiny that Mr 156 00:09:27,720 --> 00:09:31,160 Speaker 1: Moynihan had coming off the ed Lewis years at Bank 157 00:09:31,200 --> 00:09:33,480 Speaker 1: of America? You mean within the United States, within the 158 00:09:33,520 --> 00:09:35,720 Speaker 1: Bank does he have the adults coming in the door 159 00:09:36,120 --> 00:09:37,640 Speaker 1: to sit them down and say this is the way 160 00:09:37,640 --> 00:09:42,360 Speaker 1: it is. You know, I think actually Germany is uh 161 00:09:42,400 --> 00:09:46,439 Speaker 1: and the Netherlands are exceptional within continental Europe in terms 162 00:09:46,480 --> 00:09:50,680 Speaker 1: of in Switzerland for a high quality bank. Okay, but 163 00:09:50,800 --> 00:09:54,280 Speaker 1: that doesn't mean that the bank is adequately capitalized, especially 164 00:09:54,280 --> 00:09:56,720 Speaker 1: in light of all the negative shocks that it's dealing with, 165 00:09:56,920 --> 00:10:01,200 Speaker 1: monetary policy being one of them. So I think, you know, 166 00:10:01,320 --> 00:10:04,000 Speaker 1: the problem is that there's no good news, there's no 167 00:10:04,120 --> 00:10:07,480 Speaker 1: silver lining. Where is the European banking systems good news 168 00:10:07,480 --> 00:10:12,040 Speaker 1: coming from? Not the macroeconomy, not monetary policy, not regulatory policy. Well, 169 00:10:12,080 --> 00:10:16,280 Speaker 1: where is it coming from? Nowhere? Well, the Europeans have 170 00:10:17,000 --> 00:10:22,480 Speaker 1: been working on unified regulatory system for banks. Uh. Are 171 00:10:22,480 --> 00:10:26,160 Speaker 1: they going to get there soon enough to help? Well? 172 00:10:26,200 --> 00:10:28,600 Speaker 1: You know, I served for three years on the European 173 00:10:28,640 --> 00:10:31,440 Speaker 1: Systemic Risk BORT and helped write lots of the white 174 00:10:31,440 --> 00:10:34,040 Speaker 1: papers when I was serving there just a few years ago, 175 00:10:34,040 --> 00:10:37,280 Speaker 1: a couple of years ago on consolidation of regulation Europe. 176 00:10:37,679 --> 00:10:40,720 Speaker 1: And clearly the e c B is taking an important 177 00:10:40,840 --> 00:10:43,640 Speaker 1: leadership role in the last couple of years, and it's 178 00:10:43,640 --> 00:10:48,320 Speaker 1: still trying to figure that out um. However, national sovereignty 179 00:10:48,400 --> 00:10:51,640 Speaker 1: still rules the day in Europe. From a banking system standpoint, 180 00:10:51,880 --> 00:10:55,240 Speaker 1: you're seeing a balkanization of the European financial system, not 181 00:10:55,360 --> 00:10:58,920 Speaker 1: an integration of the system, and a balkanization of regulation, 182 00:10:59,320 --> 00:11:02,000 Speaker 1: despite the fact that the ECB is running stress tests, 183 00:11:02,000 --> 00:11:05,000 Speaker 1: despite the fact that the ECB appears to be a 184 00:11:05,040 --> 00:11:09,280 Speaker 1: consolidated regulator, in fact it lacks some crucial powers. So 185 00:11:09,520 --> 00:11:14,120 Speaker 1: I think that really this is a bit oversold. And 186 00:11:14,200 --> 00:11:16,640 Speaker 1: I think that we still see banks being run by 187 00:11:16,720 --> 00:11:20,800 Speaker 1: nation states. Well, banks being run by nation states to 188 00:11:20,880 --> 00:11:23,679 Speaker 1: the extent the nation states rules let them want to 189 00:11:24,000 --> 00:11:25,800 Speaker 1: sort of finish up by asking you here, if you 190 00:11:25,840 --> 00:11:28,760 Speaker 1: were running Italy, would you just tell the EU to 191 00:11:28,920 --> 00:11:31,560 Speaker 1: go jump out the window and go, uh, prop up 192 00:11:31,600 --> 00:11:35,480 Speaker 1: the Italian banks? I mean, are they important enough that 193 00:11:36,160 --> 00:11:40,880 Speaker 1: they trump the need to keep your budget deficit in 194 00:11:41,080 --> 00:11:45,199 Speaker 1: life with the EU rules? Well, from a short term perspective, 195 00:11:45,320 --> 00:11:50,040 Speaker 1: I could certainly see uh that attraction for the Italian politicians. 196 00:11:50,080 --> 00:11:52,160 Speaker 1: And I think you know you're raising an excellent point, 197 00:11:52,200 --> 00:11:56,560 Speaker 1: which is who's in charge? Is it the European rules 198 00:11:56,600 --> 00:12:00,160 Speaker 1: that keep getting broken, but selectively depending on who's out 199 00:12:00,160 --> 00:12:02,480 Speaker 1: the political power to break them or is it the 200 00:12:03,520 --> 00:12:07,920 Speaker 1: um the countries themselves? Uh? And where does bank regulation 201 00:12:08,000 --> 00:12:11,920 Speaker 1: come from? Can I answer the question? Please? Mr Gunlock's 202 00:12:11,960 --> 00:12:15,120 Speaker 1: in charge Jeff Goodlock months ago said the moment that 203 00:12:15,240 --> 00:12:18,439 Speaker 1: Deutsche Bank prints under ten euros per share, all of 204 00:12:18,480 --> 00:12:20,920 Speaker 1: a sudden there'll be an attitude adjustment. I have to 205 00:12:21,000 --> 00:12:24,800 Speaker 1: agree with the good luck the American economists good luck 206 00:12:26,559 --> 00:12:31,040 Speaker 1: eleven point four zero on Deutsche Bank. The daily low 207 00:12:31,200 --> 00:12:34,240 Speaker 1: is eleven point to zero early August. I mean we're 208 00:12:34,240 --> 00:12:36,840 Speaker 1: there a breakdown from here it would be something. This 209 00:12:36,880 --> 00:12:39,880 Speaker 1: has been great. Don't be a stranger, Charles Kellen uh Merris, 210 00:12:40,480 --> 00:12:42,559 Speaker 1: it's we need him back. But it's hard to get 211 00:12:42,559 --> 00:12:44,880 Speaker 1: a guy, you know, who's making so many movies. Should 212 00:12:44,880 --> 00:12:50,760 Speaker 1: we ask him about Brad and Angela? Yeah, you look, 213 00:12:50,800 --> 00:12:53,280 Speaker 1: I have nothing to do with with Angela. Brad and 214 00:12:53,280 --> 00:12:56,440 Speaker 1: I are very close. Okay, very good, professor, Thank you, 215 00:12:56,760 --> 00:13:13,880 Speaker 1: Professor Calamaris and Columbia Business School. We have such a 216 00:13:13,880 --> 00:13:20,319 Speaker 1: distinguished guest. We're going to if you did hired. Now 217 00:13:20,320 --> 00:13:23,880 Speaker 1: there's a question for Ed Connor. Uh. He is, of course, 218 00:13:24,000 --> 00:13:26,840 Speaker 1: uh the author of the new book. Well not of course, 219 00:13:26,880 --> 00:13:28,600 Speaker 1: because it's a new book so people don't know that 220 00:13:28,640 --> 00:13:34,080 Speaker 1: the upside of inequality, how good intentions undermine the middle class? Uh? 221 00:13:34,160 --> 00:13:37,920 Speaker 1: And um, yeah, obviously we've known you for years in 222 00:13:38,000 --> 00:13:43,080 Speaker 1: your in your markets iteration following commodities everywhere and somewhere. 223 00:13:43,080 --> 00:13:44,719 Speaker 1: We're going to slip in a question about oil. But 224 00:13:44,800 --> 00:13:47,679 Speaker 1: let's talk about the book. Uh. You make the interesting 225 00:13:47,760 --> 00:13:52,040 Speaker 1: argument that income inequality that we're seeing that everybody has 226 00:13:52,080 --> 00:13:56,640 Speaker 1: been moaning and wringing their hands over, isn't that bad deal? Yes? 227 00:13:56,840 --> 00:13:59,040 Speaker 1: I try to do a few things to spell a 228 00:13:59,040 --> 00:14:01,080 Speaker 1: lot of the myths about income in equality. One of 229 00:14:01,080 --> 00:14:03,120 Speaker 1: the chief ones is that the success of the one 230 00:14:03,120 --> 00:14:05,800 Speaker 1: percent is responsible over the slow growth of the middle 231 00:14:05,800 --> 00:14:09,240 Speaker 1: and working class. I try to explain why one has 232 00:14:09,280 --> 00:14:12,319 Speaker 1: grown fast the other has grown slow. I try to 233 00:14:12,360 --> 00:14:16,200 Speaker 1: explain how the economy has changed today relative to the past, 234 00:14:16,280 --> 00:14:19,800 Speaker 1: when it was a capital intensive, manufacturing based economy. Now 235 00:14:20,440 --> 00:14:25,680 Speaker 1: it's a very knowledge innovation driven economy. Uh. In the past, 236 00:14:25,960 --> 00:14:29,640 Speaker 1: savings constrained growth. Today I argued that properly trained talent 237 00:14:29,840 --> 00:14:34,080 Speaker 1: and our capacity and our willingness to take risk, entrepreneurial 238 00:14:34,160 --> 00:14:36,720 Speaker 1: risk is is really the limits to growth today? And 239 00:14:36,760 --> 00:14:42,840 Speaker 1: what what drives up wages? An employment. Why is it 240 00:14:43,480 --> 00:14:47,400 Speaker 1: not a bad thing? Not that we have income inequality because, 241 00:14:47,640 --> 00:14:50,720 Speaker 1: as you point out in the book, Uh, it helps 242 00:14:50,760 --> 00:14:54,440 Speaker 1: people strive. People want to get rich, so they work harder, etcetera. 243 00:14:55,040 --> 00:14:59,080 Speaker 1: But the percentage change in income inequality is what people 244 00:14:59,080 --> 00:15:02,239 Speaker 1: are really concerned, and about the fact that the incomes 245 00:15:02,360 --> 00:15:05,880 Speaker 1: of the one percent have gone up so much faster 246 00:15:06,360 --> 00:15:12,480 Speaker 1: than the incomes of even even median income people. Uh. Yes, 247 00:15:12,560 --> 00:15:15,040 Speaker 1: I think if you if you view the economy as 248 00:15:15,080 --> 00:15:17,640 Speaker 1: a pie to be divided, and you believe that the 249 00:15:17,640 --> 00:15:20,000 Speaker 1: one percent is getting a larger and larger share of 250 00:15:20,000 --> 00:15:23,160 Speaker 1: the pie at the expense of the middle and working class, 251 00:15:23,200 --> 00:15:25,160 Speaker 1: then I think you're going to be very concerned about 252 00:15:25,200 --> 00:15:28,040 Speaker 1: income in equality. If you believe that they can manipulate 253 00:15:28,080 --> 00:15:30,880 Speaker 1: the government successfully on their own behalf, and that they 254 00:15:30,880 --> 00:15:33,840 Speaker 1: really haven't provided value to customers in order to earn 255 00:15:34,280 --> 00:15:37,480 Speaker 1: their success, then you would worry about that. I think 256 00:15:37,520 --> 00:15:40,040 Speaker 1: when you step back and look at the evidence, it 257 00:15:40,120 --> 00:15:42,440 Speaker 1: doesn't really support the argument, which is not to say 258 00:15:42,440 --> 00:15:45,080 Speaker 1: there isn't plenty of chrony capitalism. There surely is. But 259 00:15:45,480 --> 00:15:48,760 Speaker 1: if you look at the Forbes, four hundred seventy are 260 00:15:49,600 --> 00:15:52,680 Speaker 1: founded businesses. If you look at the Fortune five hundred, 261 00:15:52,760 --> 00:15:55,800 Speaker 1: you see acceleration in the turnover of companies in the 262 00:15:55,800 --> 00:15:58,600 Speaker 1: Fortune five. If you look at the tech sector is 263 00:15:58,640 --> 00:16:01,520 Speaker 1: at the cutting edge, you see enormous turmoil in the 264 00:16:01,600 --> 00:16:06,760 Speaker 1: tech sector. Ed, your book is is incredibly important. And 265 00:16:07,040 --> 00:16:09,040 Speaker 1: to be honest, it reads like my book Flying on 266 00:16:09,040 --> 00:16:12,600 Speaker 1: one Engine, and it's incredibly dense with facts and charts 267 00:16:13,360 --> 00:16:21,760 Speaker 1: and statements. No, I'm serious, But but Ed, what's so 268 00:16:22,080 --> 00:16:26,880 Speaker 1: resoundingly important about your book? Arthur Brooks, Glenn Ubert of Columbia, 269 00:16:27,360 --> 00:16:30,440 Speaker 1: Julian Robertson, who will be speaking to next week, A 270 00:16:30,480 --> 00:16:35,360 Speaker 1: guy named Romney from Massachusetts. I get all that. Larry 271 00:16:35,560 --> 00:16:40,680 Speaker 1: Summers gives your book an exceptionally constructive blurb. How does 272 00:16:41,000 --> 00:16:48,400 Speaker 1: Ed connard um business like optimism fold into Professor Summer's 273 00:16:48,400 --> 00:16:53,760 Speaker 1: secular stagnation? How do you dovetail your world into Summer's 274 00:16:53,880 --> 00:16:58,040 Speaker 1: observation on a stagnant America? Yes, I think that what 275 00:16:58,400 --> 00:17:01,000 Speaker 1: he and I and others are all trying to deal 276 00:17:01,080 --> 00:17:04,360 Speaker 1: with a similar problem, trying to explain slow growth. Obviously, 277 00:17:04,359 --> 00:17:06,480 Speaker 1: at the at the core of it, his argument is 278 00:17:06,520 --> 00:17:09,399 Speaker 1: that we've run out of investment opportunities, and it's probably 279 00:17:09,400 --> 00:17:12,399 Speaker 1: the case that it's become harder to grow. Uh, you 280 00:17:12,600 --> 00:17:14,879 Speaker 1: invent a car, you grow quickly. Invent the Internet, you 281 00:17:14,880 --> 00:17:17,520 Speaker 1: grow quickly. Sort of fish out that pool, and you're 282 00:17:17,560 --> 00:17:20,240 Speaker 1: waiting for the next big innovation. So I think there's 283 00:17:20,320 --> 00:17:23,520 Speaker 1: some logic to his secular stagnation argument, which is we 284 00:17:23,680 --> 00:17:26,560 Speaker 1: run out investment opportunity. I think there's the ben Burnankee 285 00:17:26,720 --> 00:17:28,520 Speaker 1: version of that argument, which is, we just have a 286 00:17:28,600 --> 00:17:31,160 Speaker 1: surplus of risk averse savings. We don't have a lot 287 00:17:31,160 --> 00:17:33,600 Speaker 1: of use for that. We put it into subprime mortgagees, 288 00:17:33,640 --> 00:17:38,120 Speaker 1: subprime consumption. Germany, put it into Greek consumption. China put 289 00:17:38,119 --> 00:17:40,320 Speaker 1: it into building at the apartment buildings. Nobody in this 290 00:17:40,440 --> 00:17:44,000 Speaker 1: knowledge based economy really has much much need for these 291 00:17:44,119 --> 00:17:47,320 Speaker 1: risk averse savings. I make a third argument, which is 292 00:17:47,800 --> 00:17:50,880 Speaker 1: that we're banging up our willingness and capacity to take risk. 293 00:17:50,920 --> 00:17:53,240 Speaker 1: Think of that as equity that's willing to underwrite risk. 294 00:17:53,280 --> 00:17:55,320 Speaker 1: But it's a little more complicated than that. I did 295 00:17:55,359 --> 00:17:57,440 Speaker 1: want to call the book the equity constraint, by the way, 296 00:17:57,680 --> 00:17:59,680 Speaker 1: and that when you bang up against that, you're gonna 297 00:17:59,680 --> 00:18:02,280 Speaker 1: see lower productivity growth, You're gonna have less used for 298 00:18:02,359 --> 00:18:05,240 Speaker 1: risk of overse savings, because savings said on the sideline 299 00:18:05,320 --> 00:18:07,800 Speaker 1: unless somebody else bears the risk of putting them to work, 300 00:18:08,119 --> 00:18:10,800 Speaker 1: and they're using that risk taking capacity for other things. 301 00:18:11,000 --> 00:18:14,480 Speaker 1: We talked a little bit about how, uh, it's not 302 00:18:14,560 --> 00:18:16,919 Speaker 1: a bad thing to have income in quality of people strive. 303 00:18:17,560 --> 00:18:22,320 Speaker 1: Maybe there's the the whole percentage gain thing, maybe a 304 00:18:22,320 --> 00:18:24,239 Speaker 1: little out of line, but in general you're not as 305 00:18:24,240 --> 00:18:26,600 Speaker 1: concerned about it. But how does it hurt the middle class? 306 00:18:26,600 --> 00:18:29,359 Speaker 1: We haven't addressed the subtitle of the book yet. I 307 00:18:29,720 --> 00:18:32,960 Speaker 1: argue that good intentions undermine the middle class. I think 308 00:18:32,960 --> 00:18:35,880 Speaker 1: two things happen. They take for example, when Ford moves 309 00:18:35,880 --> 00:18:39,920 Speaker 1: its production to Mexico or Whirlpool, Uh, we tell those workers, 310 00:18:39,920 --> 00:18:42,159 Speaker 1: don't worry. The entrepreneurs are coming. They're gonna put you 311 00:18:42,200 --> 00:18:44,439 Speaker 1: back to work. They're gonna compete with each other, and 312 00:18:44,480 --> 00:18:47,960 Speaker 1: they're gonna drive your wages back up. Um. But there's 313 00:18:47,960 --> 00:18:50,720 Speaker 1: a shortage of entrepreneurial talent in the country. That's what's 314 00:18:50,760 --> 00:18:52,879 Speaker 1: limiting growth. And the worker looks and sees that that 315 00:18:53,359 --> 00:18:57,560 Speaker 1: guys moved to California. He's outsources blue collar jobs to China. Meanwhile, 316 00:18:57,600 --> 00:19:01,359 Speaker 1: the engineers, the talented engineers who are back his home 317 00:19:02,400 --> 00:19:07,840 Speaker 1: community are designing products and UH processes factories for Mexican workers, 318 00:19:07,840 --> 00:19:10,480 Speaker 1: and he says, where's the talented worker, Where's the entrepreneur 319 00:19:10,840 --> 00:19:14,040 Speaker 1: who's gonna put me back to work? And I think 320 00:19:14,040 --> 00:19:17,000 Speaker 1: that's a big problem that we have been tone deaf 321 00:19:17,040 --> 00:19:21,080 Speaker 1: to and we haven't really implemented the policies that we'll 322 00:19:21,080 --> 00:19:23,680 Speaker 1: put those workers back to work. And I do recommend 323 00:19:23,760 --> 00:19:26,320 Speaker 1: him in the book where where are the entrepreneurs? Then? 324 00:19:26,640 --> 00:19:28,720 Speaker 1: I mean, where did they go that? I think they 325 00:19:28,720 --> 00:19:33,800 Speaker 1: moved to California. They're working on information intensive opportunities and 326 00:19:34,080 --> 00:19:36,399 Speaker 1: to the extent it creates blue collar work, it's in 327 00:19:37,040 --> 00:19:39,720 Speaker 1: being outsourced to China. And like the case of Apple 328 00:19:39,720 --> 00:19:43,280 Speaker 1: Bernard Balen, the greatest Harvard historian, the de peopling of 329 00:19:43,320 --> 00:19:46,399 Speaker 1: North America, which was about the Indians and when and 330 00:19:46,440 --> 00:19:51,280 Speaker 1: then when the troops came over UH from Europe. There 331 00:19:51,400 --> 00:19:54,919 Speaker 1: is a d peopling of a lot of America. And 332 00:19:54,960 --> 00:19:58,959 Speaker 1: it's resonated with with Senator Sanders and with Mr Trump. 333 00:19:59,359 --> 00:20:03,679 Speaker 1: What your policy to put that group of the middle 334 00:20:03,760 --> 00:20:08,440 Speaker 1: class back to work? Is it a Canard industrial policy 335 00:20:08,720 --> 00:20:12,520 Speaker 1: not a japan policy. But I'm sorry, an American and 336 00:20:12,720 --> 00:20:15,960 Speaker 1: industrial policy is that what is needed. Well, I don't 337 00:20:16,000 --> 00:20:18,280 Speaker 1: think we're getting any manufacturing jobs back when you can 338 00:20:18,359 --> 00:20:20,040 Speaker 1: hire workers in the rest of the world for three 339 00:20:20,080 --> 00:20:22,439 Speaker 1: hours an hour in China, eight hours an hour in Mexico, 340 00:20:22,480 --> 00:20:25,560 Speaker 1: and you can so where the jobs for people voting 341 00:20:25,600 --> 00:20:29,080 Speaker 1: for Mr Trump or voting for Senator Sanders. So keep 342 00:20:29,119 --> 00:20:30,600 Speaker 1: in mind this. You know a lot of people say 343 00:20:30,680 --> 00:20:32,920 Speaker 1: we're not generating any jobs for people in the middle 344 00:20:32,960 --> 00:20:35,760 Speaker 1: and working class. We are. We have forty million four 345 00:20:35,880 --> 00:20:38,720 Speaker 1: born adults, twenty million native born adult children. Of those 346 00:20:38,800 --> 00:20:41,679 Speaker 1: of those people, that's sixty million jobs. We have created 347 00:20:41,680 --> 00:20:46,439 Speaker 1: an enormous jobs. But you are an eloquent spokesman for 348 00:20:46,720 --> 00:20:50,840 Speaker 1: certain a part of successful America who desperately want to 349 00:20:50,880 --> 00:20:56,080 Speaker 1: help these people. What's the policy of Governor Romney or 350 00:20:56,359 --> 00:21:01,160 Speaker 1: another moderate Democrat to get these bolt tour. I think 351 00:21:01,200 --> 00:21:03,600 Speaker 1: there's two things that we could do. One of them 352 00:21:03,760 --> 00:21:08,000 Speaker 1: is that we should be not allowing unbalanced trade. So 353 00:21:08,040 --> 00:21:10,280 Speaker 1: as I say, you can't make for twenty dours what 354 00:21:10,320 --> 00:21:12,200 Speaker 1: you can buy for two hours and be successful in 355 00:21:12,200 --> 00:21:14,840 Speaker 1: the long one, which you don't have to have perennial 356 00:21:14,880 --> 00:21:17,200 Speaker 1: trade deficits equal to they as high as five and 357 00:21:17,200 --> 00:21:20,120 Speaker 1: a half percent of GDP prior to the financial crisis. 358 00:21:20,160 --> 00:21:22,919 Speaker 1: You know they're running in the three percentage range today. 359 00:21:23,240 --> 00:21:25,840 Speaker 1: I make a proposal that we should issue a dollar 360 00:21:26,080 --> 00:21:30,199 Speaker 1: of import licenses for every dollar of exports. Some you know, 361 00:21:30,240 --> 00:21:33,720 Speaker 1: for the ardent free traders don't want any restrictions on 362 00:21:33,760 --> 00:21:36,520 Speaker 1: trade whatsoever. I believe we need free trade. We don't 363 00:21:36,560 --> 00:21:39,000 Speaker 1: want tariffs, we don't want quotas. We have to have 364 00:21:39,119 --> 00:21:41,600 Speaker 1: trade with low wage commies, but we don't let it 365 00:21:41,600 --> 00:21:44,479 Speaker 1: be on bad Prices are going to go up if 366 00:21:44,520 --> 00:21:46,320 Speaker 1: you limit trade, prices are gonna go They might go 367 00:21:46,400 --> 00:21:47,960 Speaker 1: up a little bit. But I would say this, we 368 00:21:48,040 --> 00:21:50,679 Speaker 1: don't want trade when the only reason for it is 369 00:21:50,760 --> 00:21:54,040 Speaker 1: to import of savings into our economy that we have 370 00:21:54,119 --> 00:21:57,960 Speaker 1: no use of. Go ahead, is there? Have you heard 371 00:21:57,960 --> 00:22:01,080 Speaker 1: a human cry from the blue Our workers who are 372 00:22:02,160 --> 00:22:05,360 Speaker 1: who are worried about their jobs, are unemployed or supporting 373 00:22:05,400 --> 00:22:10,120 Speaker 1: Donald Trump saying raise the prices at Walmart to help me. No. 374 00:22:10,280 --> 00:22:14,320 Speaker 1: But because don't get that connection there. There's possibility that 375 00:22:14,320 --> 00:22:16,840 Speaker 1: could be a small price increase. But I think when 376 00:22:16,840 --> 00:22:21,200 Speaker 1: you say a small price increase versus savings, sitting idol 377 00:22:21,280 --> 00:22:24,360 Speaker 1: as opposed to re employing the workers where the labor 378 00:22:24,520 --> 00:22:26,800 Speaker 1: was outsourced as a result of the deficit. I think 379 00:22:26,840 --> 00:22:29,119 Speaker 1: they prefer the job. I want to slow down and 380 00:22:29,200 --> 00:22:32,000 Speaker 1: get back to the definitions and microeconomics out of what 381 00:22:32,040 --> 00:22:37,480 Speaker 1: you're proposing. You're proposing that for every export that goes out, 382 00:22:37,760 --> 00:22:40,919 Speaker 1: we do what with imports? Plain that again, we issue 383 00:22:40,960 --> 00:22:45,240 Speaker 1: a dollar of import licenses. So that's Greek. We allow 384 00:22:45,280 --> 00:22:47,560 Speaker 1: a dollar of imports into the country, but we would 385 00:22:47,560 --> 00:22:49,960 Speaker 1: do it with a license. So if you if an 386 00:22:50,000 --> 00:22:52,960 Speaker 1: export would come with a license for a dollar of imports, 387 00:22:53,000 --> 00:22:56,840 Speaker 1: those licenses would be freely tradeable. This is Warren Buffett's proposal. 388 00:22:56,880 --> 00:22:59,040 Speaker 1: By the way, the dollar would be freely trade that 389 00:22:59,119 --> 00:23:02,160 Speaker 1: the license would be really tradeable. They probably trade close 390 00:23:02,240 --> 00:23:04,960 Speaker 1: to zero because trade would be balanced, so the two 391 00:23:04,960 --> 00:23:08,119 Speaker 1: would be coming. Into the extent somebody wants to unbalanced trade, 392 00:23:08,320 --> 00:23:10,440 Speaker 1: it would drive the price of that up a little bit. 393 00:23:10,480 --> 00:23:15,240 Speaker 1: But I think the club when we diminish consumer imports 394 00:23:15,280 --> 00:23:18,800 Speaker 1: through this policy of Ed Cannard and Warren Buffet, only 395 00:23:18,880 --> 00:23:23,199 Speaker 1: to the extent only so it won't affect true free trade, 396 00:23:23,520 --> 00:23:25,800 Speaker 1: and it says anybody wants to trade with us, we 397 00:23:25,880 --> 00:23:29,600 Speaker 1: have lots of competitive products to buy. Come buy our products, etcetera. 398 00:23:29,840 --> 00:23:33,040 Speaker 1: The only reason why trade is unbalanced, and it's unbalanced 399 00:23:33,040 --> 00:23:37,840 Speaker 1: with three countries previously for China, Germany, Japan, Mexico. The 400 00:23:37,880 --> 00:23:40,520 Speaker 1: heart of your thrust is if they want to sell 401 00:23:40,640 --> 00:23:47,720 Speaker 1: US T shirts, they gotta buy, yes, and they do. 402 00:23:47,800 --> 00:23:51,119 Speaker 1: But what ends up happening is these countries have excess savings. 403 00:23:51,320 --> 00:23:53,320 Speaker 1: They don't have any use for the savings. We don't 404 00:23:53,359 --> 00:23:56,080 Speaker 1: have use for our excess savings. And they say, I, 405 00:23:56,280 --> 00:23:59,560 Speaker 1: as a matter of strategy, can run a perennial trade 406 00:23:59,600 --> 00:24:03,399 Speaker 1: deficit with the United States. The Americans buy goods, we 407 00:24:03,520 --> 00:24:06,200 Speaker 1: have their dowers instead of buying goods and employee Americans, 408 00:24:06,440 --> 00:24:11,359 Speaker 1: we buy government debt. That pushes people that would about 409 00:24:11,359 --> 00:24:17,679 Speaker 1: government debt into the banking system their deposits. China sells 410 00:24:17,720 --> 00:24:20,720 Speaker 1: US T shirts. Those are imports. We import T shirts. 411 00:24:21,280 --> 00:24:24,560 Speaker 1: Are we demanding that they buy our nuclear technology instead 412 00:24:24,600 --> 00:24:26,880 Speaker 1: of francis. Well, keep in mind they buy a lot 413 00:24:26,920 --> 00:24:30,000 Speaker 1: of it. Right It's about thirteen percent exports and sixteen 414 00:24:30,000 --> 00:24:35,280 Speaker 1: percent imports, so you know we would have thirteen we think, Yeah, 415 00:24:35,680 --> 00:24:38,720 Speaker 1: the vast majority of trade is already balanced. So you 416 00:24:38,760 --> 00:24:42,080 Speaker 1: have a small piece with a number of countries like Germany, 417 00:24:42,280 --> 00:24:44,040 Speaker 1: where they have a lot of savings that don't have 418 00:24:44,040 --> 00:24:46,399 Speaker 1: any use for those savings, and as a matter of strategy, 419 00:24:46,800 --> 00:24:50,560 Speaker 1: they use those savings to they loan those savings to 420 00:24:50,600 --> 00:24:54,000 Speaker 1: the United States, and those savings that unused because we 421 00:24:54,040 --> 00:24:56,520 Speaker 1: don't have any use from at zero interest rates, and 422 00:24:56,600 --> 00:24:59,439 Speaker 1: so they end up exporting employment. Now we get a 423 00:24:59,440 --> 00:25:02,679 Speaker 1: little bit of consumer surplus from the lower cost goods 424 00:25:02,720 --> 00:25:04,720 Speaker 1: that we buy from them as a result of that, 425 00:25:05,000 --> 00:25:07,919 Speaker 1: but we lose employment. I would say the cost of 426 00:25:07,960 --> 00:25:11,560 Speaker 1: losing that employment is far greater than the incremental value 427 00:25:11,560 --> 00:25:15,119 Speaker 1: of a little additional trade. But don't forget the economies 428 00:25:15,920 --> 00:25:18,560 Speaker 1: trading balance. We're getting all the benefits of that. So 429 00:25:18,600 --> 00:25:21,960 Speaker 1: I don't want to conflate arguments for trade with arguments 430 00:25:21,960 --> 00:25:25,919 Speaker 1: for trade deficits. They're different. We'll explain there was a 431 00:25:25,920 --> 00:25:31,399 Speaker 1: lot of fancy microeconomics with Connard ambiguity there. If you 432 00:25:31,480 --> 00:25:33,800 Speaker 1: want an explanation, there's a great place to go to 433 00:25:33,840 --> 00:25:37,200 Speaker 1: get it. And then is the book The Upside of Inequality, 434 00:25:37,200 --> 00:25:40,760 Speaker 1: How good intentions undermine the middle class? Again, I can't 435 00:25:40,920 --> 00:25:43,320 Speaker 1: when you get Glenn Hubbard and Larry Summers on the 436 00:25:43,359 --> 00:25:47,160 Speaker 1: same page. That is at Kennard cool. Can't say enough 437 00:25:47,160 --> 00:25:51,199 Speaker 1: about the book, charts numbers things to argue about. We 438 00:25:51,320 --> 00:25:57,520 Speaker 1: like that on a Friday, I'm Bloomberg Surveillance. Who you 439 00:25:57,560 --> 00:26:01,399 Speaker 1: put your trust in matters. Investors have put their trust 440 00:26:01,480 --> 00:26:04,800 Speaker 1: in independent registered investment advisors to the tune of four 441 00:26:04,960 --> 00:26:09,439 Speaker 1: trillion dollars. Why they see their role is to serve, 442 00:26:09,920 --> 00:26:13,159 Speaker 1: not sell. That's why Charles Schwab is committed to the 443 00:26:13,200 --> 00:26:17,880 Speaker 1: success of over seven thousand independent financial advisors who passionately 444 00:26:17,920 --> 00:26:22,320 Speaker 1: dedicate themselves to helping people achieve their financial goals. Learn 445 00:26:22,359 --> 00:26:30,639 Speaker 1: more and find your independent advisor dot com. Can we 446 00:26:30,680 --> 00:26:39,359 Speaker 1: have some historical perspective, Michael? Can we go back to yeah, 447 00:26:39,760 --> 00:26:45,080 Speaker 1: I mean extraordinary. Luisia Mata is looking at this great 448 00:26:45,119 --> 00:26:49,960 Speaker 1: bull market and as we speak, people without the humility 449 00:26:50,000 --> 00:26:54,200 Speaker 1: of Missa Mata are writing articles saying the world's coming 450 00:26:54,200 --> 00:26:58,560 Speaker 1: to an end, that the market can't go up. Let 451 00:26:58,560 --> 00:27:02,879 Speaker 1: me get your attention, folks, is framing nineteen thousand potential. 452 00:27:03,760 --> 00:27:06,920 Speaker 1: One of our most popular guests, Luisia Motel Louise, good morning, 453 00:27:07,320 --> 00:27:10,920 Speaker 1: Good morning Tom. You have always had a humility about 454 00:27:10,920 --> 00:27:15,160 Speaker 1: getting on the trend and just observing what's happening. Helped 455 00:27:15,240 --> 00:27:18,520 Speaker 1: the bears right now, the doom and gloom crew. What's 456 00:27:18,560 --> 00:27:22,680 Speaker 1: happening in this great bull market? Well, we've turned more 457 00:27:22,720 --> 00:27:27,359 Speaker 1: positive in early July because the indicators were really quite 458 00:27:27,400 --> 00:27:31,199 Speaker 1: constructive and suggested that the markets could move to new highs. 459 00:27:31,280 --> 00:27:34,199 Speaker 1: And we certainly have seen that with the Dow, SMP, 460 00:27:34,440 --> 00:27:38,520 Speaker 1: the four hundred, six hundred, UM, the five hundred and 461 00:27:38,680 --> 00:27:42,960 Speaker 1: Nasdaq which is now really taking the lead. Um. We're 462 00:27:43,000 --> 00:27:47,440 Speaker 1: waiting and we're looking carefully for the monthly momentum by signals. 463 00:27:47,520 --> 00:27:50,720 Speaker 1: Some of the Dow has crossed over, but we'd like 464 00:27:50,840 --> 00:27:55,320 Speaker 1: to see a positive trend become a little bit more wide. 465 00:27:56,040 --> 00:27:59,600 Speaker 1: But we're not looking for a major down at the moment. 466 00:27:59,640 --> 00:28:03,800 Speaker 1: We know we're in a scene area. You um, you know. 467 00:28:03,840 --> 00:28:07,280 Speaker 1: And again this goes back a few years folks. Louise 468 00:28:07,320 --> 00:28:11,560 Speaker 1: started technical analysis was just four years old. UM Barons 469 00:28:11,720 --> 00:28:15,240 Speaker 1: a few years ago. Crystal ball gazing. What is the 470 00:28:15,320 --> 00:28:19,760 Speaker 1: difference now in the crystal ball gazing from that classic 471 00:28:20,040 --> 00:28:25,159 Speaker 1: article twenty years ago and the crystal ball gazing of 472 00:28:25,200 --> 00:28:32,359 Speaker 1: a super Matthew computer media now, Louise, it's a fascinating question. Tom. 473 00:28:32,560 --> 00:28:35,600 Speaker 1: There's too much, Louise, I can answer it. There's too 474 00:28:35,640 --> 00:28:39,239 Speaker 1: much information. Now people need a number two pencil, they 475 00:28:39,280 --> 00:28:42,600 Speaker 1: need to reach Chartcraft in Louisia, Mada. That would help 476 00:28:42,640 --> 00:28:46,040 Speaker 1: simplify things and just move up and let the market go. 477 00:28:46,760 --> 00:28:49,000 Speaker 1: I mean, I wouldn't be surprised if what we're seeing 478 00:28:49,000 --> 00:28:53,959 Speaker 1: here is the inflationary impact manifesting in the equity market, 479 00:28:54,760 --> 00:28:58,240 Speaker 1: because obviously with negative to very low interest rates, there's 480 00:28:58,280 --> 00:29:00,040 Speaker 1: no place else to go. But we're not going to 481 00:29:00,080 --> 00:29:05,240 Speaker 1: be without interim corrections, let's put it that way. Um. 482 00:29:05,360 --> 00:29:08,640 Speaker 1: And certainly with the interest rates you were talking about 483 00:29:08,720 --> 00:29:11,560 Speaker 1: nineteen to forty nine, we went back and looked at 484 00:29:11,560 --> 00:29:15,080 Speaker 1: the first interest rate rise in that period, and that 485 00:29:15,160 --> 00:29:18,120 Speaker 1: was the first time in nineteen forty six that they 486 00:29:18,120 --> 00:29:21,640 Speaker 1: could raise rates after the crash in ninety nine to 487 00:29:21,760 --> 00:29:24,800 Speaker 1: thirty two. Uh, And after that you had a very 488 00:29:25,080 --> 00:29:30,560 Speaker 1: wide trading range. It was the bear market down and 489 00:29:30,640 --> 00:29:33,560 Speaker 1: went sideways until nineteen forty nine. So whether or not 490 00:29:33,640 --> 00:29:37,080 Speaker 1: we see something similar as we move into a trading 491 00:29:37,200 --> 00:29:40,520 Speaker 1: range from these points, we'd like to get the confirmation 492 00:29:40,600 --> 00:29:44,000 Speaker 1: of the monthly momentum that that's for sure. Uh. And 493 00:29:44,040 --> 00:29:48,360 Speaker 1: there are some negative divergences creeping in as they can 494 00:29:49,200 --> 00:29:54,320 Speaker 1: when a trend inverges, but there everything is in positive territory, 495 00:29:54,480 --> 00:29:58,240 Speaker 1: and those negative divergences sometimes take three to four months 496 00:29:58,280 --> 00:30:02,680 Speaker 1: to manifest in any more serious market to fine. So 497 00:30:02,720 --> 00:30:06,640 Speaker 1: whether it happened September October, maybe after the election, we'll 498 00:30:06,680 --> 00:30:09,560 Speaker 1: see there are a lot of it. This was the week. 499 00:30:10,640 --> 00:30:13,000 Speaker 1: This was the week of a lot of central bank news, 500 00:30:13,240 --> 00:30:16,440 Speaker 1: and everybody was looking to see what happens to currencies 501 00:30:16,520 --> 00:30:19,600 Speaker 1: post central banks, particularly dollar yen. What are you seeing 502 00:30:19,640 --> 00:30:25,120 Speaker 1: in the charts for the for the ND itself, Um, well, 503 00:30:25,360 --> 00:30:28,720 Speaker 1: the N itself has been in the I'm just gonna 504 00:30:28,760 --> 00:30:31,960 Speaker 1: pull it up, has been in a downtrend. In other words, 505 00:30:32,000 --> 00:30:35,320 Speaker 1: it's been strengthening UH since the beginning of the year 506 00:30:35,600 --> 00:30:39,480 Speaker 1: and actually looks poised to break a hundred here. And 507 00:30:40,000 --> 00:30:44,080 Speaker 1: if it does, then that strengthening may have a very 508 00:30:44,120 --> 00:30:49,440 Speaker 1: negative effect on the on the Japanese economy. Where could 509 00:30:49,440 --> 00:30:51,600 Speaker 1: it go if it breaks a hundred? I mean, is 510 00:30:51,600 --> 00:30:54,320 Speaker 1: that a significant It's a psychological resistance point, I know, 511 00:30:54,400 --> 00:30:57,920 Speaker 1: but but um well, a hundred provided quite a bit 512 00:30:57,920 --> 00:31:00,720 Speaker 1: of support in two thousand and fourteen, from which the 513 00:31:00,960 --> 00:31:03,600 Speaker 1: end weakened UH, and that was a positive. If it 514 00:31:03,640 --> 00:31:06,880 Speaker 1: breaks a hundred now and starts down your next supportance 515 00:31:06,920 --> 00:31:10,760 Speaker 1: in around Louise very quickly. Here there continue to be 516 00:31:10,880 --> 00:31:16,400 Speaker 1: consistent mutual fund outflows. Billionaire investors, unlike Luisia Mata, have 517 00:31:16,480 --> 00:31:19,120 Speaker 1: been bragging about being out of the market in cash. 518 00:31:19,520 --> 00:31:23,240 Speaker 1: Is that the ultimate countrary indicator is seven and eight figure. 519 00:31:23,280 --> 00:31:27,320 Speaker 1: Guys aren't in the market. I find it hard to 520 00:31:27,360 --> 00:31:30,160 Speaker 1: believe that they're not in the market. Um, whether or 521 00:31:30,160 --> 00:31:32,560 Speaker 1: not they're telling the truth or not, I have no idea, 522 00:31:32,800 --> 00:31:36,360 Speaker 1: but um, certainly there have been outflows. A lot of 523 00:31:36,400 --> 00:31:39,560 Speaker 1: the mutual fund outflows have been coming into et F 524 00:31:39,840 --> 00:31:44,840 Speaker 1: interestingly enough. Um, sometimes it matches the outflows, sometimes it doesn't, 525 00:31:44,880 --> 00:31:47,800 Speaker 1: but there is there is a definite lack of volume 526 00:31:48,200 --> 00:32:02,520 Speaker 1: that's taking place here. Luisia Mata with It's in a 527 00:32:02,560 --> 00:32:05,120 Speaker 1: couple of years, folks, there's gonna be a charge card 528 00:32:05,280 --> 00:32:08,840 Speaker 1: where you will get a million miles if you spend 529 00:32:08,840 --> 00:32:14,080 Speaker 1: four thousand dollars in one week. That's gonna happen, and 530 00:32:14,080 --> 00:32:17,880 Speaker 1: it's Brian Kelly's fault. The points guy catches up with 531 00:32:17,960 --> 00:32:20,760 Speaker 1: us now on the madness of it all, Brian Mike 532 00:32:20,840 --> 00:32:23,920 Speaker 1: wants to get to the star Wood Uh Marriott Ballet 533 00:32:23,960 --> 00:32:26,640 Speaker 1: will do that in a moment, would you please explain 534 00:32:26,720 --> 00:32:30,640 Speaker 1: that the nuclear war that is Chase Sapphire Reserve. How 535 00:32:30,680 --> 00:32:34,880 Speaker 1: does the industry adapt to the frenzy over the Chase 536 00:32:35,240 --> 00:32:39,320 Speaker 1: hundred thousand bonus points card. Yeah, you know, Chase didn't 537 00:32:39,320 --> 00:32:41,760 Speaker 1: just come out swing and they came out punching hard 538 00:32:41,800 --> 00:32:44,040 Speaker 1: with this card, and it really is rattling the whole 539 00:32:44,360 --> 00:32:47,840 Speaker 1: credit card sphere, especially for those lucrative, you know, premium 540 00:32:47,880 --> 00:32:50,400 Speaker 1: customers that are that are charging tons and tons of money, 541 00:32:50,440 --> 00:32:51,920 Speaker 1: and Chase has them in the palm of their hand, 542 00:32:52,440 --> 00:32:55,200 Speaker 1: and it's it's kind of brilliant. Instead of spending millions 543 00:32:55,200 --> 00:32:58,880 Speaker 1: and millions in dumb TV ads with you know, actresses 544 00:32:58,880 --> 00:33:00,840 Speaker 1: that aren't going to really move, then they've invested in 545 00:33:00,880 --> 00:33:03,760 Speaker 1: the value product and it's really resonated. And yeah, the 546 00:33:03,800 --> 00:33:06,959 Speaker 1: other other card companies I know from Doctor are scrambling 547 00:33:07,080 --> 00:33:10,080 Speaker 1: and but I think that that boats well for consumers 548 00:33:10,120 --> 00:33:13,880 Speaker 1: because the offers are going to get better. And Mr Diamond, 549 00:33:13,880 --> 00:33:16,400 Speaker 1: if you're listening, it's okay, you don't have to do TV. 550 00:33:16,600 --> 00:33:19,680 Speaker 1: Is Brian just a bad mouth, but it's okay. Vote 551 00:33:19,680 --> 00:33:23,400 Speaker 1: ties and Mike McKee to Chase ads on radio. I 552 00:33:23,440 --> 00:33:27,320 Speaker 1: get the need to remember my audience. All right, today 553 00:33:27,400 --> 00:33:31,880 Speaker 1: is the big day Starwood and Marryott become one. Uh. 554 00:33:31,920 --> 00:33:34,560 Speaker 1: They're all excited and they've put on a press release, 555 00:33:34,560 --> 00:33:37,479 Speaker 1: sent me a notification that as a star would preferred 556 00:33:37,480 --> 00:33:40,000 Speaker 1: guest member, I can link my account at members dot 557 00:33:40,000 --> 00:33:43,120 Speaker 1: Marriott dot com. I seem to remember when this was 558 00:33:43,160 --> 00:33:46,360 Speaker 1: announced a guy named Brian Kelly saying you don't want 559 00:33:46,400 --> 00:33:49,680 Speaker 1: to do that, um, that this wasn't going to be 560 00:33:49,800 --> 00:33:53,760 Speaker 1: necessarily great for Starwood folks. Well, so, I think the 561 00:33:53,760 --> 00:33:57,320 Speaker 1: biggest concern for Starwood Elite was whether Marriott was gonna, 562 00:33:57,400 --> 00:34:00,160 Speaker 1: you know, basically overtake the program. And for example, if 563 00:34:00,200 --> 00:34:02,320 Speaker 1: it was a one to one takeover, it would have 564 00:34:02,360 --> 00:34:04,680 Speaker 1: been catastrophic. Right, But what they're actually saying is for 565 00:34:04,680 --> 00:34:08,359 Speaker 1: every Starward point, you get three Marriott, which can make 566 00:34:08,440 --> 00:34:11,840 Speaker 1: sense in in many circumstances. And also they're doing instant 567 00:34:12,360 --> 00:34:15,520 Speaker 1: status matches, so they're not saying Marriott's now the program, 568 00:34:15,719 --> 00:34:18,240 Speaker 1: but by Starwood that was kind of the doomsday scenario. 569 00:34:18,480 --> 00:34:20,560 Speaker 1: What they're saying is they actually just appointed a new 570 00:34:20,560 --> 00:34:23,720 Speaker 1: head of Starwoods, which kind of signals that the Starwood 571 00:34:23,719 --> 00:34:26,279 Speaker 1: program is not going to go away anytime soon. And 572 00:34:26,320 --> 00:34:28,560 Speaker 1: They even added a new transfer partner to Starwood two 573 00:34:28,600 --> 00:34:31,120 Speaker 1: days ago, which also signals they wouldn't be adding new 574 00:34:31,120 --> 00:34:33,520 Speaker 1: partners if they wanted to fold the program tomorrow. So 575 00:34:33,560 --> 00:34:36,640 Speaker 1: I think today is the best news possible for Starwood 576 00:34:36,680 --> 00:34:39,480 Speaker 1: members because frankly, it's business as usual and now we 577 00:34:39,480 --> 00:34:42,680 Speaker 1: can also earn and redeem at thousands and thousands more property, 578 00:34:42,760 --> 00:34:44,960 Speaker 1: So it's a net positive in my opinion. You don't 579 00:34:44,960 --> 00:34:47,359 Speaker 1: have a lot of things like that where they work 580 00:34:47,400 --> 00:34:50,400 Speaker 1: out in your favor, right you really don't. And you 581 00:34:50,440 --> 00:34:53,200 Speaker 1: know what the airline mergers, you know, they always heralded 582 00:34:53,360 --> 00:34:56,160 Speaker 1: the best of both programs and guess what, you know, 583 00:34:56,200 --> 00:34:58,720 Speaker 1: we've seen huge increases and the amount of miles needed. 584 00:34:59,080 --> 00:35:02,400 Speaker 1: So you know this, I've never seen a hotel merger 585 00:35:02,440 --> 00:35:06,040 Speaker 1: of this magnitude. Uh So you know, I'm I'm watching 586 00:35:06,160 --> 00:35:09,000 Speaker 1: with frossing mouth to see what exactly they're gonna do. 587 00:35:09,080 --> 00:35:11,279 Speaker 1: And you know, nothing is to say over time they're 588 00:35:11,280 --> 00:35:13,399 Speaker 1: not going to kind of make those devaluations. There's still 589 00:35:13,480 --> 00:35:16,359 Speaker 1: tons of question marks, Like you know, Starwood platinums are 590 00:35:16,440 --> 00:35:19,920 Speaker 1: right now accustomed to suite upgrades. Will that continue in 591 00:35:19,920 --> 00:35:22,640 Speaker 1: a larger program down the line? There there's still lots 592 00:35:22,640 --> 00:35:25,560 Speaker 1: of question marks, but once again today's news is pretty 593 00:35:25,640 --> 00:35:28,080 Speaker 1: darn good. You don't have to transferred to Mary. You 594 00:35:28,120 --> 00:35:29,680 Speaker 1: don't have to play with a different program if you 595 00:35:29,680 --> 00:35:32,200 Speaker 1: don't want to. But you have the option now to 596 00:35:32,360 --> 00:35:34,759 Speaker 1: merge Tom's question of my question. One of the things 597 00:35:34,840 --> 00:35:37,279 Speaker 1: we were always told is that one of the better 598 00:35:37,280 --> 00:35:40,160 Speaker 1: credit cards out there with star Wards. Um is that 599 00:35:40,360 --> 00:35:44,520 Speaker 1: going to remain the case or you want to just 600 00:35:44,560 --> 00:35:48,080 Speaker 1: get get the Sapphire and forget everything else. Well, you 601 00:35:48,080 --> 00:35:50,560 Speaker 1: know the Sapphire reserves a great product across the board, 602 00:35:50,560 --> 00:35:53,080 Speaker 1: for sure, But you know Sapphire points don't transfer to 603 00:35:53,080 --> 00:35:55,200 Speaker 1: American miles, and especially not out of the good ratio. 604 00:35:55,280 --> 00:35:57,440 Speaker 1: Star Ward points to Start points are the number one 605 00:35:57,480 --> 00:36:00,319 Speaker 1: most valuable points currency out their period. Full Stop points 606 00:36:00,360 --> 00:36:03,880 Speaker 1: are not far behind, but Star Wars points are incredible. Um, 607 00:36:03,920 --> 00:36:05,480 Speaker 1: you know it's much harder to earn them. They don't 608 00:36:05,480 --> 00:36:08,720 Speaker 1: give three X on travel. But um, you know, I 609 00:36:08,719 --> 00:36:10,920 Speaker 1: I say, just like stocks and bond, you want to diversify. 610 00:36:11,040 --> 00:36:13,719 Speaker 1: So I still spend heavily on my Star Wars cards 611 00:36:13,719 --> 00:36:17,319 Speaker 1: to build up those point balances. Whether this AMEX will 612 00:36:17,360 --> 00:36:19,239 Speaker 1: still have it, you know, we just saw recently with 613 00:36:19,280 --> 00:36:21,840 Speaker 1: American Airlines. They have both City and Barkley card issuing 614 00:36:21,840 --> 00:36:24,759 Speaker 1: two separate lines of cards for them. I could see 615 00:36:24,800 --> 00:36:26,920 Speaker 1: that happening as well. I mean, it's big business. I 616 00:36:26,920 --> 00:36:29,480 Speaker 1: don't think Maryot's gonna want to just dump the Star 617 00:36:29,560 --> 00:36:32,920 Speaker 1: with Amex loyalty. That's billions of dollars in value, uh, 618 00:36:33,000 --> 00:36:35,279 Speaker 1: to go with Chase. So I think once again, this 619 00:36:35,480 --> 00:36:38,520 Speaker 1: boads well for consumers because we're gonna see Chase, you know, 620 00:36:38,640 --> 00:36:41,879 Speaker 1: ramp up efforts on the on their marrioup product side. 621 00:36:41,880 --> 00:36:43,600 Speaker 1: And and Amex just came out with a new two 622 00:36:43,640 --> 00:36:46,680 Speaker 1: free night offer this week, so they're obviously throwing shots 623 00:36:46,680 --> 00:36:49,600 Speaker 1: across the bows. That's an interesting time. How will the 624 00:36:49,680 --> 00:36:54,040 Speaker 1: bank's responded Chase. There's a meeting happening now at City Group, 625 00:36:54,080 --> 00:36:56,600 Speaker 1: and they've got on the wall a dartboard Brian with 626 00:36:56,680 --> 00:37:02,560 Speaker 1: your and they got they gotta spawn to Chase. Does 627 00:37:02,640 --> 00:37:07,640 Speaker 1: the wardest engage. What happens? You know, I've heard lots 628 00:37:07,680 --> 00:37:12,400 Speaker 1: of rumblings from many issuers value probably lots of bonuses 629 00:37:12,400 --> 00:37:15,400 Speaker 1: are coming out, uh, lots of increased value props. I 630 00:37:15,400 --> 00:37:17,720 Speaker 1: think what's happened and what Chase this new Chase product 631 00:37:17,760 --> 00:37:21,440 Speaker 1: allows is the bean counters at at all these other banks. 632 00:37:21,520 --> 00:37:23,920 Speaker 1: I think we've seen death by a thousand cuts, right. 633 00:37:23,960 --> 00:37:26,440 Speaker 1: They try to save on costs by cutting away at 634 00:37:26,440 --> 00:37:27,880 Speaker 1: the perks on cards and a lot of the product 635 00:37:27,920 --> 00:37:29,640 Speaker 1: people at these credit card companies have been pulling their 636 00:37:29,640 --> 00:37:31,600 Speaker 1: hair out saying, look, we're losing the battle. We're losing 637 00:37:31,600 --> 00:37:34,840 Speaker 1: the battle. And now this, this, this Sapphire Reserve is 638 00:37:34,880 --> 00:37:39,040 Speaker 1: the prime example of consumers want value. Twenty seconds make 639 00:37:39,160 --> 00:37:45,319 Speaker 1: us sick. What's the next Brian Kelly worldwide travel for Well, 640 00:37:45,440 --> 00:37:47,799 Speaker 1: actually I'll give you this group, but I use my 641 00:37:47,840 --> 00:37:50,920 Speaker 1: hundred thousand points from Sapphire Reserve. I'm flying Korean Airlines 642 00:37:50,960 --> 00:37:53,880 Speaker 1: first class home. I'm going to Niawatchu, which is the 643 00:37:53,960 --> 00:37:55,920 Speaker 1: number one hotel in the world on an island off 644 00:37:55,960 --> 00:38:00,800 Speaker 1: of Bali. I'm flying home one way, nine miles first class, 645 00:38:00,840 --> 00:38:02,480 Speaker 1: and it was seven thousand bucks to buy it. So 646 00:38:02,520 --> 00:38:05,040 Speaker 1: I got seven thousand dollars for eighty dollars in taxes 647 00:38:05,040 --> 00:38:06,880 Speaker 1: and fees and from a single credit card sign up. 648 00:38:07,040 --> 00:38:10,080 Speaker 1: Brian Kelly, we hate you. Thank you. So you know 649 00:38:10,080 --> 00:38:12,960 Speaker 1: the points guy, I would imagine he hears that all 650 00:38:13,120 --> 00:38:20,040 Speaker 1: the absolutely thanks for listening to the Bloomberg Surveillance podcast. 651 00:38:20,400 --> 00:38:25,480 Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever 652 00:38:25,640 --> 00:38:29,560 Speaker 1: podcast platform you prefer. I'm on Twitter at Tom Keane. 653 00:38:29,960 --> 00:38:33,960 Speaker 1: Michael McKee is at Economy Before the Podcast. You can 654 00:38:33,960 --> 00:38:44,359 Speaker 1: always catch us worldwide. I'm Bloomberg Radio. Who you put 655 00:38:44,400 --> 00:38:48,120 Speaker 1: your trust in matters. Investors have put their trust in 656 00:38:48,280 --> 00:38:52,560 Speaker 1: independent registered investment advisors to the tune of four trillion dollars. 657 00:38:52,960 --> 00:38:59,640 Speaker 1: Why learn more and find your independent advisor dot com.