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Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in

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Speaker 1: local communities, economies and a sustainable future. That's a power

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Speaker 1: of global connections. Mary Lynch, Pierce Fenner and Smith Incorporated

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Speaker 1: Member s I p C. 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 Joseph and I Too Many

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Speaker 1: People is to find our international relations. His book Power

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Speaker 1: and Inner Dependence of Kaan is a classic, but far

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Speaker 1: more importantly is his new shorter effort. Is American Century

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Speaker 1: over Professor and I wonderful to have you with us,

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Speaker 1: uh this morning? Is it going to be well wonderful

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Speaker 1: to have you? Is it going to be a Trump century?

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Speaker 1: Or is Donald Trump a one off in our politics? Well,

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Speaker 1: that's one of the big questions. Is he going to

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Speaker 1: tear up seventy years of building a system that we've

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Speaker 1: seen since nine or is he going to wind up

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Speaker 1: reinforcing it? And at this stage it's it's it's an

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Speaker 1: open question two centers down. Tell me within your classic

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Speaker 1: textbook where the judicial branch fits in. Is there a

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Speaker 1: power and is there an independence of an American judicial branch? Well,

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Speaker 1: there is, and that's one of the reasons. It's some

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Speaker 1: people who are alarmists and say, oh, you know, Trump

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Speaker 1: is like Mussolini. By answer to that, it is no,

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Speaker 1: not at all. This because the United States is not

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Speaker 1: like Italy in nineteen two. We have separation of powers

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Speaker 1: in a strong independent judicial branch. And we just saw

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Speaker 1: this past weekend with the past week with the executive order.

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Speaker 1: So the United States has the benefit of a long

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Speaker 1: tradition of strong institutions. Professor, and I speak to Bloomberg's

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Speaker 1: global audience right now. Is they look at an America

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Speaker 1: in turmoil? Is it another part of our history, say

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Speaker 1: the election of eighteen hundred and Adams in Jefferson, Or

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Speaker 1: is there should there be real concern about the stability

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Speaker 1: of America? Is the dominant institution? I still think the

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Speaker 1: United States is a pretty robust society with pretty strong institutions. Uh.

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Speaker 1: Think back to the nineteen sixties when you had rioting

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Speaker 1: in the streets, a set of assassinations. Uh, deep bitterness

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Speaker 1: over both civil rights and the the non war. We're

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Speaker 1: not in that kind of a situation today. We're in

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Speaker 1: better shape despite our differences. But Professor, how much will

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Speaker 1: Donald Trump put your president actually test these institutions? You

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Speaker 1: talk about checks and balances. How far will he go

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Speaker 1: in trying to challenge them? Well, I think if Trump

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Speaker 1: were to challenge the institutions in a serious way, as

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Speaker 1: opposed to with tweets, which is what we've seen where

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Speaker 1: he tweeted against the judge who came down on a

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Speaker 1: decision against him. But if he were to do something

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Speaker 1: more serious than that, I think there'd be resistance, not

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Speaker 1: just in the Congress, but also in the rest of

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Speaker 1: the judiciary and in civil society. So I think that

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Speaker 1: he can indeed make life difficult for judges, but I

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Speaker 1: don't think that he's in a position to corrupt or

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Speaker 1: undermine the independence of the judiciary. Because there a lot

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Speaker 1: of people were surprised with the retro coming from President

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Speaker 1: Trump and lost a couple of weeks since his inauguration.

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Speaker 1: Do you believe that actually what you see is what

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Speaker 1: you get. He's so far just held very close to

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Speaker 1: what he said in the campaign truck he'll build a wall,

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Speaker 1: he's talking about a Well, he said he'll abandonmigration. That's

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Speaker 1: what he's done. And so can we actually take his

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Speaker 1: campaign and say that will be his first hundred days

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Speaker 1: in power. Well, certainly, President Donald Trump has tried to

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Speaker 1: demonstrate to his followers, that his base supporters, that he

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Speaker 1: is doing what he said. And that explains the executive orders,

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Speaker 1: some of which were hasty and poorly thought through, as

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Speaker 1: in the immigration order, uh, and a lot of others

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Speaker 1: which are primarily symbolic in the sense that we don't

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Speaker 1: know how they're going to work out. But he's wanted

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Speaker 1: to use executive orders and tweets to his base that

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Speaker 1: he is carrying out what he said. And that's important

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Speaker 1: to him because remember, he was elected by a minority.

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Speaker 1: He's and he's got to energize that minority. And so

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Speaker 1: rather than moving to the center, as let's say George W.

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Speaker 1: Bush did after a close election in two thousand, Trump

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Speaker 1: has re energized his base, or tried to do that,

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Speaker 1: Professor and I it was quite a moment last night

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Speaker 1: when we saw President George Herbert Walker Bush and Mrs

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Speaker 1: Bush come out at the Super Bowl to toss the

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Speaker 1: coin that was a different time and place. Help me

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Speaker 1: here with our less civilized discourses, clash that we have

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Speaker 1: to borrow from Huntington, this clash that we have of

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Speaker 1: less civilized discourse, how do we get back to nine normality? Well,

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Speaker 1: that's a that's a great question. I mean, certainly, Bush

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Speaker 1: forty one was a I think a period where we

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Speaker 1: had a very strong foreign policy and a very civil discourse.

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Speaker 1: And uh, I think that technology has hurt this somewhat

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Speaker 1: in the sense that and a hundred and forty characters.

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Speaker 1: People can be quite rude, and the rhetoric of the

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Speaker 1: campaign was pretty rough. The question is whether politicians will

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Speaker 1: find it in their advantage to keep that way or

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Speaker 1: whether the people will say, you know, we'd like to

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Speaker 1: hear a little bit more listening, a little bit more politeness.

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Speaker 1: Uh so we it's it's possible that the pendulum will

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Speaker 1: swing back. On the other hand, technology is not in

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Speaker 1: our favorite professor, What is your prescription for the new

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Speaker 1: newly minted Secretary of State, Mr? Tillerson? How should he

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Speaker 1: act given the executiveness of the White House in its

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Speaker 1: first two weeks. Well, as I said your program a

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Speaker 1: couple of months ago, Tom. I think the Tillerson appointment

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Speaker 1: is a good one. He knows what he's doing, he

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Speaker 1: knows the world. Uh. He is going to have to

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Speaker 1: deal with a White House which likes to act quickly,

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Speaker 1: sometimes without carefully worked out consultations. And there is a

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Speaker 1: long tradition of some tension between the State Department in

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Speaker 1: the White House National Security Staff member Ronald Reagan ran

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Speaker 1: through UH six NSC advisors, so I would expect we'll

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Speaker 1: see a bit of friction there. I think the key

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Speaker 1: for Tillerson is to keep a study course on his own.

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Speaker 1: What about the friction within the GOP. Will the party um,

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Speaker 1: you know, stay around and actually make sure that Donald

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Speaker 1: Trump is in check or will they rally behind him

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Speaker 1: no matter what happens. Well, I think in the short run,

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Speaker 1: facing re elections in the twenty eighteen, a lot of

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Speaker 1: the people who were critical of Donald Trump in sixteen

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Speaker 1: are reluctant to abandon and they think that they're going

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Speaker 1: to be better off in their re election if they

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Speaker 1: stick with him. On the other hand, if part of

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Speaker 1: what Donald Trump and Steve Bannon are doing is to

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Speaker 1: try to organize a new populist party by appealing to

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Speaker 1: the uh TEA Party Republicans and the so called Reagan Democrats.

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Speaker 1: Then a lot of the middle of the road Republicans

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Speaker 1: or moderate conservative Republicans are going to feel that pressure.

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Speaker 1: So the next two years going to see a good

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Speaker 1: deal of tension just under the surface. And Professor, one

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Speaker 1: of the chances of a real trade war between the U.

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Speaker 1: S And China this year, well, I hope that calm

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Speaker 1: voices will prevail. A trade war would be expensive for China,

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Speaker 1: but it would be expensive for the United States as well.

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Speaker 1: And if you're trying to provide jobs, it's worth remembering

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Speaker 1: that our exports also provide jobs. So I think that

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Speaker 1: it's a bad idea. But if you asked me to

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Speaker 1: place a vet on will there be some? I would

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Speaker 1: expect there will be some, Professor, and I the speed

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Speaker 1: of events right now is unthinkable for anybody of any generation.

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Speaker 1: But one feature here was a president's discussion with Mr

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Speaker 1: Oriley over at Fox News, where he showed a great

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Speaker 1: affection for Russia and for Mr Putin. Mr Oiley called

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Speaker 1: Mr Putin I believe a killer. But far more important

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Speaker 1: is this idea. Is America so innocent? Explained to us

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Speaker 1: how a president speaks of the innocent or guilt of

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Speaker 1: America and our history. Well, I was surprised by President

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Speaker 1: Trump's remarks. First of all, I think it uh Vice

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Speaker 1: President of Pence who said or somebody and the administration

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Speaker 1: said no. I guess it was Mitch McConnell who said

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Speaker 1: that that. Remember that Trump is ex KGB and this

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Speaker 1: guy is pretty much of a thug in terms of

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Speaker 1: what he's done to his neighbors in Ukraine, Georgia and elsewhere.

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Speaker 1: And yes, you can dredge up things from American history

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Speaker 1: where some of our behavior has not been exemplary. But

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Speaker 1: it's surprising to see a president talk that way, particularly

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Speaker 1: at a time when we're going to have to and

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Speaker 1: he is going to have to deal with Putin to

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Speaker 1: try to prevent Putin from doing what he did, which

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Speaker 1: was invade his neighbor Ukraine and interfere in the American elections.

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Speaker 1: It's great to have you with us. And there was

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Speaker 1: so much, indeed to talk about. Let me start with

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Speaker 1: Secretary Madison's trip to Asia, the first member of President

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Speaker 1: Trump's cabinet to embark on a trip to the region.

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Speaker 1: He went to South Korea and to Tokyo, talk a

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Speaker 1: bit about the important of that trip, what he set

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Speaker 1: out to do there, and what we've learned about the

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Speaker 1: contours of Donald Trump's foreign policy from that trip that

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Speaker 1: Secretary of Mattis made Well. I thought Mattis Uh did

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Speaker 1: the settled right things, did the right thing. He reassured

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Speaker 1: our allies Japan and South Korea that we were with

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Speaker 1: them through thick or thin, and that had been challenged

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Speaker 1: during the campaign by Candidate Trump. Uh. In that sense, Uh,

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Speaker 1: the stability of our alliances, that Japan and South Korea

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Speaker 1: are crucial to managing the rise of China and creating

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Speaker 1: stability in the region. So I'd say that Mattis's trip

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Speaker 1: was a home run. Professor I. There was a rather

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Speaker 1: robust dialogue I would say between the US and China.

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Speaker 1: Under President Obama, there were annual strategic and economic dialogues,

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Speaker 1: a lot of trips back and forth, good good connections

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Speaker 1: at the state level, at the in the Treasury Department level.

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Speaker 1: Do you expect that's going to continue here? What's the

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Speaker 1: argument for continuing that level of coordination and communication that

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Speaker 1: we saw during the last administration. Well, Uh, China is

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Speaker 1: the second largest economy in the world. They're also the

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Speaker 1: largest polluter of the of the climate, and what they

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Speaker 1: do as a rising power matters a lot to stability

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Speaker 1: in the region and in the world. So in that sense,

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Speaker 1: constant contact, the ability to talk to each other to

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Speaker 1: try to resolve issues is is important. And I think that, uh,

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Speaker 1: if President Trump is going to be successful in his

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Speaker 1: East Asia policy, He's not only going to have to

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Speaker 1: reaffirm the alliances that Matt has just did, He's also

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Speaker 1: going to figure out or has will have to figure

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Speaker 1: out how to discuss the chart problems with China. What

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Speaker 1: is the international relations tension between cabinet officers and White

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Speaker 1: House if I assume, and I don't mean back to

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Speaker 1: the nineteenth century, say Jefferson and how he figured out

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Speaker 1: to buy the Louisiana purchase. But post World War two

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Speaker 1: is Dallas and Truman and others developed our modern foreign

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Speaker 1: policy and our defense policy. Forcedall is one example there.

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Speaker 1: What's different now? And does Mr Trump? Does President Trump

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Speaker 1: have a case for a large amount of executive authority? Well,

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Speaker 1: executive authority, yes, but the question of how you distributed

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Speaker 1: between the White House and the other branches of the

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Speaker 1: executive department has varied. If you look at the situations

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Speaker 1: like Eisenhower's administration, UH there were good relations between the

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Speaker 1: White House and the State Department. UH. Carter's administration there

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Speaker 1: were tense relations between UH Secretary of State Sivants and

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Speaker 1: national security advisors Big Gruzinski in the Reagan administration who

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Speaker 1: had two Secretaries of Date and you know, and they

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Speaker 1: ran through six national security advisors. Probably one of the

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Speaker 1: best administrations was George H. W. Bush, where you had

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Speaker 1: quite good relations between the White House to the State Department.

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Speaker 1: The problem is that you have a tension between State

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Speaker 1: and UM the White House, and a successful president learns

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Speaker 1: how to manage that. UH. It's too early at this

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Speaker 1: stage to see whether UH National Security Advisor Mike Flynn

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Speaker 1: and new Secretary State Direc Tellerson are going to work

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Speaker 1: this out successfully or not. Are you all concerned about

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Speaker 1: the degree to which the NSC the National Security Advisor

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Speaker 1: has more power? And that's not just in this administration.

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Speaker 1: We certainly saw with Ambassador Susan Rice during the abid

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Speaker 1: administration as well. Has there been a greater consolidation of

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Speaker 1: security policy? Yes, and I think the National Security Council

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Speaker 1: has gotten a bit too large. UH. A group that

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Speaker 1: brents Croft and I co chair, called the Athmen Strategy Group,

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Speaker 1: brought out a report which said that the NSC, which

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Speaker 1: had grown to size of nearly four hundred personnel, ought

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Speaker 1: foreign ministry sitting in the White House, and that's a

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Speaker 1: bad way to run a government. There was so much

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Speaker 1: the Obama doctrine, uh, a sort of a summary of

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Speaker 1: his foreign policy. How long does it take before a

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Speaker 1: a foreign policy like a doctrine of his own. I

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Speaker 1: guess you would say, well, I because a danger that

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Speaker 1: we look for doctrines when uh, when in fact we're

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Speaker 1: super imposing of you on on an administration. I mean,

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Speaker 1: Obama did say he was going to pivot to Asia

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Speaker 1: away from at least but and I guess you can

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Speaker 1: call that an Obama doctrine. On the other hand, UH,

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Speaker 1: if you ask what really is an Obama doctrine, it's

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Speaker 1: pretty hard to pin it down. I think there's a

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Speaker 1: danger of looking too hard for a doctrine, as opposed

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Speaker 1: to saying, did you do a good job on having

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Speaker 1: a set of foreign policy decisions? Professor, I've been quoting

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Speaker 1: Vanda Agarol of Berkeley a lot recently, and what he's

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Speaker 1: done to me over the years is folded game theory

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Speaker 1: into our study of the complexities of international relations. What

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Speaker 1: is the game theory that President Trump needs to be

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Speaker 1: aware of he likes to speak. I think we can

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Speaker 1: all say incertitudes moving to a simple message that really

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Speaker 1: pushes against game theory, doesn't it well? Uh? One of

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Speaker 1: the problems with the Trump that tends to think almost

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Speaker 1: entirely in terms of zero sum games, in which my

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Speaker 1: loss is your gain and vice versa. But there's some

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Speaker 1: areas of international politics which can be positive. Some games.

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Speaker 1: For example, trade UH, if it's done correctly, can make

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Speaker 1: us both better off and climate change we benefit if

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Speaker 1: China gets better at controlling UH. The UH it's coal

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Speaker 1: industries and pollutants, because that the pollutants that they're spewing,

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Speaker 1: that CEO two they're spelling in the atmosphere hurts them,

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Speaker 1: but it hurts us too. So there's some positive some

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Speaker 1: aspects and Obama to his credit. I think on that

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Speaker 1: area placed a lot of this is on the positive

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Speaker 1: some game of things where we in China could both

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Speaker 1: be better off if we reached agreements rex dealers. In

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Speaker 1: the new secretary stages in his second week on the job,

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Speaker 1: what advice do you have for him as he begins

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Speaker 1: to sort of carve out his position within that department,

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Speaker 1: makes it makes the name for himself in the on

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Speaker 1: History of the States Party. What's your advice in these

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Speaker 1: early days. Well, he's got a good department, a lot

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Speaker 1: of good people. Uh, he's got to find a way

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Speaker 1: to uh set a course. I would argue that maintaining

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Speaker 1: alliances NATO in the in the European set a sense

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Speaker 1: and uh the U S. Japan alliance, particularly in Asia,

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Speaker 1: but also the alliances with Korea, Australia and others. This

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Speaker 1: gives a solid bedrock for American diplomacy. One of the

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Speaker 1: interesting things is if you compare the number of countries

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Speaker 1: allied to the United States and the number allied to China. Uh,

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Speaker 1: we're about sixty allies. China has about one or two,

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Speaker 1: and that gives us a lot of leverage for our diplomacy.

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Speaker 1: And he's got to remember that. We continue a discussion

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Speaker 1: with Professor Nye of Harvard, Joseph Knight. There is a

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Speaker 1: relationship hip of America in Russia. I think we all

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Speaker 1: know it is different. It odd now. An hour ago

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Speaker 1: or so on Bloomberg Television, you were kind enough to

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Speaker 1: identify Mr Putin is a thug. How does the United

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Speaker 1: States speak to a thug? Well, alas, you have to

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Speaker 1: do business with thugs and international relations. That's the way

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Speaker 1: the world is. Um. But do you speak to him carefully?

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Speaker 1: Carefully in the sense that you're very uh mistrustful of

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Speaker 1: what you're going to hear. Um the other hand, you

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Speaker 1: know you have to do business with him because there

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Speaker 1: are things where our interests intersect, including nuclear weapons and

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Speaker 1: uh as you know. I think Ronald Reagan had a

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Speaker 1: great phrase for how to deal with the with the

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Speaker 1: Soviets then the predecessors to the Russians, uh of today.

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Speaker 1: He said, uh, trust, but verify those You've got to

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Speaker 1: work with them, but don't don't take it just on trust.

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Speaker 1: What do you think that the approach is going to be?

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Speaker 1: What what's the next interaction going to be between this

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Speaker 1: administration and Vladimir Putin's Well, I hope that that Trump

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Speaker 1: will President Trump will uh say to President Putin, Uh,

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Speaker 1: you want relief on sanctions. You stop messing about in Ukraine,

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Speaker 1: pull back there, get a stable relationship, work with Angela

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Speaker 1: Merkel of Germany to get the minced process, as they

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Speaker 1: call it, UH going properly A and b uh. Part

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Speaker 1: of the sanctions against you are related to your messing

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Speaker 1: around in American elections, and we want to see some

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Speaker 1: evidence from you that you're not going to do that again.

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Speaker 1: So we have things discussed that could lead to reduction

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Speaker 1: in the intensity of the sanctions that are now apply

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Speaker 1: it against you, But you're gonna have to change your behavior.

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Speaker 1: There was a phone call between President Trump and Gen. Stoltenberg,

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Speaker 1: the NATO Secretary General, over the weekend, and I was

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Speaker 1: struck by a line in the redoubt from that that

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Speaker 1: the White House gave us that the parties discussed the

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Speaker 1: potential for a peaceful resolution to the conflict along the

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Speaker 1: Ukrainian border. A curious uh wording there, a curious uh

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Speaker 1: sense of of what that conflict is. What do you

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Speaker 1: make of that? Well? I think that Stoltenberg is trying

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Speaker 1: to keep the NATO alliance together which is understandable. But

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Speaker 1: I think the key is that Russia has got to

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Speaker 1: drop this idea that using covert proxies, the so called

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Speaker 1: Little Green Men or the the Ukrainian dissidents, that they

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Speaker 1: can continue to disrupt Ukraine to force Ukraine to do

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Speaker 1: what Russia wants. And I think that we've got to

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Speaker 1: make it clear to them that that's not gonna work.

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Speaker 1: There has been so much talk about reform the United Nations.

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Speaker 1: I think back to a couple of administrations ago, Ambassador

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Speaker 1: John Bolton said to New York he was going to

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Speaker 1: make big reforms. Now we have Nikki Haley, the new

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Speaker 1: Ambassador of the UN, saying the same thing, the President

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Speaker 1: saying that as well, how much reform has there actually

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Speaker 1: been of the United Nations? And and h are you

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Speaker 1: in agreement that something's about that that institution need to change. Well,

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Speaker 1: obviously there are large bureaucratic problems in the U n

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Speaker 1: and I think that's what uh some administrations, including the

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Speaker 1: Obama administration, tried to do something about at the Bush

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Speaker 1: administration before it. There's also a question of reforming the

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Speaker 1: Security Council, which now represents five states that were victors

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Speaker 1: at the end of World War Two, and there have

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Speaker 1: been various proposals to add another half a dozen states

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Speaker 1: or sometimes people say four states, Uh, like India, Brazil

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Speaker 1: and so forth, to make it more representative. I don't

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Speaker 1: think that's going to go anywhere. There are too many

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Speaker 1: rivalries to get the majority that you need for that.

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Speaker 1: What with your knowledge of our diplomacy and for that matter,

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Speaker 1: I guess one volume you could read at the Kennedy

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Speaker 1: School as Kissingers Diplomacy? How should the diplomatic prose respond

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Speaker 1: to President Trump? And to be direct, how do the

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Speaker 1: grizzled everyday bureaucrats at foggy bottom react to this unique president? Well,

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Speaker 1: I think their reaction so far has been wait and

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Speaker 1: see others. How much of what he is uh threatened

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Speaker 1: in the campaign and some of his early tweets? How

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Speaker 1: much of that is efforts to oppose and posture to

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Speaker 1: improve his bargaining power? For example, Uh, you know, we

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Speaker 1: will reduce our support for NATO unless the European countries

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Speaker 1: put in a higher portion of their GDP and their

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Speaker 1: defense budgets. Well, if that leads to a tough bargaining

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Speaker 1: on defense budgets, Uh, that's a good thing. If on

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Speaker 1: the other hand, it weakens confidence in NATA or thereby

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Speaker 1: encourages Putin to take greater risks. That's a bad thing,

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Speaker 1: I think the diplomats or when you see which of

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Speaker 1: those is the attitude of the real attitude of the administration.

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Speaker 1: And just about a week the Prime Minister Israel is

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Speaker 1: going to take a trip to the United States to

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Speaker 1: meet with the President Trump. Uh, and I wonder what

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Speaker 1: you make of their relationship thus far, especially with regard

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Speaker 1: to the matter of settlements. It seems like Donald Trump

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Speaker 1: has gone back and forth here on, has changed his

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Speaker 1: tune a bit, the White House saying it's not issued

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Speaker 1: an official statement. All they said that in an an

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Speaker 1: official statement from the White House Presbytery about settlements going forward.

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Speaker 1: How clear is administration policy towards Israel and what's going

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Speaker 1: to be at the top of the gentleman those two

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Speaker 1: men meet in Washington. Well, that's a that's a great question,

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Speaker 1: because this is one area where the Trump administration, in

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Speaker 1: its early days at least, seems to have parted from

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Speaker 1: the campaign. Um and uh, we won't know until Trump

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Speaker 1: and Metta Yahoo meet how serious this is. Certainly, if

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Speaker 1: Trump has aspirations as the press accounts of footage that

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Speaker 1: his son in law Jared Kushner will try to mediate

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Speaker 1: or make some progress on uh Palestinian Israeli UH peace process. Uh.

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Speaker 1: He's got to do something about the settlements or otherwise

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Speaker 1: they lock into concrete things that then make the negotiations impossible.

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Speaker 1: How urgent, and you know, I think of President Obama

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Speaker 1: his speech in Berlin and the claim that he got.

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Speaker 1: How urgent is it that President Trump get on Air

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Speaker 1: Force one and proverbially show the flag. I think the

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Speaker 1: president who visits other countries has a powerful effect, and

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Speaker 1: I think that we will see some of that travel

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Speaker 1: from from President Trump. It also gives the president a

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Speaker 1: better sense of reality if when you go out and

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Speaker 1: you look at the facts on the ground, so to speak.

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Speaker 1: So I hope that he will indeed realize that that

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Speaker 1: kind of travel is useful in both directions. Professor, thank

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Speaker 1: you so much for your generous time this morning. We

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Speaker 1: greatly appreciate it, Professor, and I with us on Bloomberg

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Speaker 1: Television in Bloomberg Radio, brought you by Bank of America.

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Speaker 1: Mary Lynch. Dedicated to bringing our clients insights and solutions

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Speaker 1: to meet the challenges of a transforming world. That's the

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Speaker 1: power of global connections. Mary Lynch, Pierce Federin Smith Incorporated,

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Speaker 1: Member s I PC, Masmar the President, Sekomar Global Strategy,

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Speaker 1: totoins us here in or did you make it up

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Speaker 1: for the whole game? Did you watch the entirety? Well?

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Speaker 1: I have to say, David that I stayed away through

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Speaker 1: halftime and I said, Oh, the Falcons are going to win,

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Speaker 1: and I'm going this is the end. But how wrong

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Speaker 1: I was? You know, Tom, I'm struck. There's there's something

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Speaker 1: in literary criticism called objective correlative uh, and it's when

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Speaker 1: the mood, when the when the environment mirrors the mood

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Speaker 1: of the game. I'm looking at these two front pages.

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Speaker 1: You're dueling front pages, and they have the weather at

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Speaker 1: the top. In Atlanta today, chance of showers. Uh. In

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Speaker 1: Boston they say so the win winning afterglow the weather today.

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Speaker 1: Let me start with the jobs numbers. I was off Friday,

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Speaker 1: of course, watched as those numbers came. And how did

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Speaker 1: you process what you saw on those those Labor Department

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Speaker 1: reports on Frida? What they tell you about the state

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Speaker 1: of the economy today? Street, Yeah, David, you have two

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Speaker 1: twenty seven thousand jobs, which is very positive. But I

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Speaker 1: think everything else gave you left you with a lot

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Speaker 1: of questions. One is the wage increase was much slower

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Speaker 1: than had been anticipated. They use six unemploy piment rate,

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Speaker 1: which I consider to be the proper measure of unemployment rate.

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Speaker 1: Not then more you often use you three that rose

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Speaker 1: by two point two percentage points. Then you have still

431
00:28:12,920 --> 00:28:15,480
Speaker 1: the participation rate, even though it went up, it is

432
00:28:15,520 --> 00:28:20,280
Speaker 1: still below And last night I was busy writing up

433
00:28:20,320 --> 00:28:23,200
Speaker 1: on the jobs report, and I said, if you think

434
00:28:23,440 --> 00:28:26,600
Speaker 1: that happened because of the growing of America, and the

435
00:28:26,720 --> 00:28:30,000
Speaker 1: participation rate is lower than it was before the financial

436
00:28:30,080 --> 00:28:33,879
Speaker 1: crisis because of the older population, take a look at

437
00:28:33,960 --> 00:28:36,680
Speaker 1: those who are twenty five to fifty four years old,

438
00:28:37,400 --> 00:28:41,120
Speaker 1: and that is also two percentage points lower than we

439
00:28:41,240 --> 00:28:45,280
Speaker 1: were before the recession. So if you look at all

440
00:28:45,360 --> 00:28:48,600
Speaker 1: those job numbers, David, you get an idea of what

441
00:28:49,080 --> 00:28:52,600
Speaker 1: led to the Donald Trump victory, why there was a

442
00:28:52,680 --> 00:28:57,360
Speaker 1: populous upsurge in terms of support, because you see that

443
00:28:57,600 --> 00:29:00,440
Speaker 1: as the elites think that the jobs now births are

444
00:29:00,560 --> 00:29:03,520
Speaker 1: very good and they are looking for as a benefit

445
00:29:04,080 --> 00:29:07,880
Speaker 1: of nine years of economic policy, that is not what

446
00:29:08,080 --> 00:29:10,800
Speaker 1: you get in terms of reality, and I think that

447
00:29:11,120 --> 00:29:14,120
Speaker 1: is where the messages from the job's report. So that's

448
00:29:14,160 --> 00:29:16,640
Speaker 1: the message looking back, telling you what happened, prep why

449
00:29:17,160 --> 00:29:19,720
Speaker 1: what happened did happen? How does it influence what you

450
00:29:19,800 --> 00:29:21,520
Speaker 1: do going forward? When you look at those numbers, what

451
00:29:21,560 --> 00:29:23,520
Speaker 1: does it tell you about ecoming going forward? That's a

452
00:29:23,600 --> 00:29:26,600
Speaker 1: great question. I think among the inferences you take are

453
00:29:26,760 --> 00:29:30,040
Speaker 1: number one, if you are going to have wage increases

454
00:29:30,400 --> 00:29:34,840
Speaker 1: not being significant on the first side, and that the

455
00:29:35,120 --> 00:29:38,240
Speaker 1: people are willing to accept a lower wage rate in

456
00:29:38,400 --> 00:29:42,400
Speaker 1: order to keep the job. And the average work week

457
00:29:42,760 --> 00:29:47,920
Speaker 1: in January twenti seventeen compared with January twenty sixteen is lower,

458
00:29:48,880 --> 00:29:52,720
Speaker 1: so you're working fewer hours per week, and even when

459
00:29:52,800 --> 00:29:56,200
Speaker 1: your average hourly earnings increase, you don't take home too

460
00:29:56,320 --> 00:29:59,360
Speaker 1: much of extra pay because you're working less. Putting it

461
00:29:59,440 --> 00:30:02,720
Speaker 1: all together, the first lesson I take is that inflation

462
00:30:03,000 --> 00:30:05,960
Speaker 1: is not on the up surge, and if that were

463
00:30:06,000 --> 00:30:09,280
Speaker 1: the case, I cannot see a case for the tenure

464
00:30:09,880 --> 00:30:13,320
Speaker 1: bond yield rising either. And everybody assumes that that is

465
00:30:13,360 --> 00:30:15,680
Speaker 1: going to be the case. That is not happening. So

466
00:30:15,800 --> 00:30:19,360
Speaker 1: that's the first one. Second, you have the Federal Reserve

467
00:30:19,800 --> 00:30:22,560
Speaker 1: again says they're going to raise interest rates three times

468
00:30:23,200 --> 00:30:26,120
Speaker 1: and inflation is going to rise to the two percent level.

469
00:30:26,600 --> 00:30:29,320
Speaker 1: I say, Hope, Springs E Turner, You keep talking about

470
00:30:29,400 --> 00:30:31,840
Speaker 1: it all the time. The friends forecasts have been wrong

471
00:30:31,960 --> 00:30:34,200
Speaker 1: since two thousand nine. They're going to be wrong again,

472
00:30:34,880 --> 00:30:38,000
Speaker 1: and there is no room for a three hike on

473
00:30:38,200 --> 00:30:40,320
Speaker 1: the interest rates this time. That would be the second

474
00:30:40,440 --> 00:30:44,920
Speaker 1: major one third one is that the administration needs to

475
00:30:45,000 --> 00:30:47,320
Speaker 1: be very careful in terms of the steps that it

476
00:30:47,480 --> 00:30:51,120
Speaker 1: is taking in twenties seventeen, because if you have trade

477
00:30:51,200 --> 00:30:56,280
Speaker 1: restrictions in a Trump administration and that slows global and

478
00:30:56,520 --> 00:31:00,280
Speaker 1: US economic growth significantly, we are looking at a very

479
00:31:00,320 --> 00:31:03,080
Speaker 1: difficult situation on the economy. Do you see the administration

480
00:31:03,120 --> 00:31:06,080
Speaker 1: that's reckoning with that? Now? An administration and a legislature

481
00:31:06,120 --> 00:31:08,680
Speaker 1: that's reckoning with both of those things when it comes

482
00:31:08,720 --> 00:31:10,640
Speaker 1: to trade policy, when it comes to the prospects for

483
00:31:11,120 --> 00:31:13,720
Speaker 1: a stimulus package, or things moving as fast as you

484
00:31:13,760 --> 00:31:15,760
Speaker 1: might have anticipated they would have moved after the election.

485
00:31:16,640 --> 00:31:21,480
Speaker 1: I think the steps are moving somewhat slowly. For instance,

486
00:31:21,560 --> 00:31:25,200
Speaker 1: I wrote for Bloomberg about ten days ago about how

487
00:31:25,320 --> 00:31:29,680
Speaker 1: the Trump measures taken and the challenge that President Trump

488
00:31:29,800 --> 00:31:33,480
Speaker 1: is facing and dealing with on the Mexican side, maybe

489
00:31:33,840 --> 00:31:36,280
Speaker 1: just a prellude to what he might do with China.

490
00:31:36,440 --> 00:31:39,520
Speaker 1: So the answer to your question is on the trade front,

491
00:31:40,160 --> 00:31:43,440
Speaker 1: the President is clearly going more slowly than you would

492
00:31:43,440 --> 00:31:47,040
Speaker 1: have thought based on the campaign rhetoric, which is probably

493
00:31:47,160 --> 00:31:49,480
Speaker 1: good because you do not want to take take on

494
00:31:49,720 --> 00:31:53,280
Speaker 1: China and your step one Mexico is a much easier

495
00:31:53,440 --> 00:31:56,239
Speaker 1: target to take up and if it doesn't work, then

496
00:31:56,280 --> 00:31:58,400
Speaker 1: you can go on to China. Sure, what would you

497
00:31:58,480 --> 00:32:02,360
Speaker 1: like to see from President Trump? Um? I think on

498
00:32:02,480 --> 00:32:06,200
Speaker 1: the on the trade side, we talked about going slow.

499
00:32:06,480 --> 00:32:09,560
Speaker 1: I would like to see the President go I think

500
00:32:09,840 --> 00:32:12,920
Speaker 1: explain the reasons for some of the measures, probably be

501
00:32:13,120 --> 00:32:16,920
Speaker 1: much more gradual in terms of the trade restrictions. And

502
00:32:17,200 --> 00:32:19,960
Speaker 1: the other part, Tom, is that you've been talking on

503
00:32:20,360 --> 00:32:24,400
Speaker 1: TV as well earlier today in terms of the supply chain,

504
00:32:24,680 --> 00:32:29,000
Speaker 1: and we are hearing about the supply chain again disruptions

505
00:32:29,080 --> 00:32:32,120
Speaker 1: that may happen to the UK in terms of Brexit.

506
00:32:32,320 --> 00:32:36,880
Speaker 1: You can have supply chain disruptions happened from trade restrictions.

507
00:32:37,600 --> 00:32:41,120
Speaker 1: You have effects which you did not anticipate because some

508
00:32:41,280 --> 00:32:45,160
Speaker 1: other part of the economy gets affected. This is again

509
00:32:45,280 --> 00:32:48,360
Speaker 1: Tom for you and me interested in economic theory, what

510
00:32:48,560 --> 00:32:51,680
Speaker 1: Vasily Leon Tiff used to do in the nineteen thirties

511
00:32:51,720 --> 00:32:55,880
Speaker 1: and forties writing about the input output models and various

512
00:32:55,960 --> 00:32:59,200
Speaker 1: parts interact. And I think I would I would have caution,

513
00:32:59,320 --> 00:33:02,720
Speaker 1: more care. Yeah, but this is brilliant. I mean, Leontief

514
00:33:03,320 --> 00:33:09,000
Speaker 1: was an era of harnessing complexity, of taking immense complexity

515
00:33:09,120 --> 00:33:12,480
Speaker 1: within a modern system and trying to distillt it down

516
00:33:12,600 --> 00:33:18,040
Speaker 1: to aggregate simple models. The President is starting from accept

517
00:33:18,160 --> 00:33:22,800
Speaker 1: you know, whatever anybody thinks about him, exceptionally simplistic beliefs.

518
00:33:23,680 --> 00:33:28,200
Speaker 1: How will they impinge upon the complexity of the American economy.

519
00:33:28,680 --> 00:33:30,480
Speaker 1: I think it is going to be a trial and

520
00:33:30,600 --> 00:33:34,080
Speaker 1: narrow process. You're absolutely right. I think the President starts

521
00:33:34,160 --> 00:33:37,920
Speaker 1: from a simplistic viewpoint, but I think next they are

522
00:33:37,960 --> 00:33:41,440
Speaker 1: going to face the more the complexities of the supply

523
00:33:41,600 --> 00:33:44,680
Speaker 1: chain and the disruptions. And you asked me what I

524
00:33:44,760 --> 00:33:47,640
Speaker 1: would advise, and my hope would be that as this

525
00:33:47,880 --> 00:33:51,520
Speaker 1: goes on, he is more careful in the next steps

526
00:33:51,640 --> 00:33:54,440
Speaker 1: that he takes, and that I think would benefit both

527
00:33:54,520 --> 00:33:57,280
Speaker 1: the US economy as well as the global markets. Let

528
00:33:57,360 --> 00:33:58,760
Speaker 1: me ask you about what we've seen over the last

529
00:33:58,840 --> 00:34:02,280
Speaker 1: week the Present signing an executive order on Dodd Frank,

530
00:34:02,280 --> 00:34:05,400
Speaker 1: another order on the fiduciary Rule, imposing some new sanctions

531
00:34:05,480 --> 00:34:07,000
Speaker 1: on on a run. What do those things tell you

532
00:34:07,080 --> 00:34:10,719
Speaker 1: about his approach to regulation and his approach to UH

533
00:34:11,320 --> 00:34:14,320
Speaker 1: sanction something that the Jack Lutriatory Department. A lot of

534
00:34:15,360 --> 00:34:20,680
Speaker 1: what you see is again talking about reducing regulations restrictions

535
00:34:20,719 --> 00:34:24,759
Speaker 1: on the domestic economy and at the same time increasing

536
00:34:24,960 --> 00:34:29,080
Speaker 1: regulations and restrictions on the international trade. So the thing

537
00:34:29,200 --> 00:34:32,279
Speaker 1: that is very striking about this David, for me is

538
00:34:32,400 --> 00:34:36,000
Speaker 1: that there is a different divergent path between the domestic

539
00:34:36,080 --> 00:34:39,319
Speaker 1: economy and the external economy that the President has been

540
00:34:39,400 --> 00:34:43,640
Speaker 1: taking and the administration has been taking. I think the

541
00:34:43,800 --> 00:34:47,520
Speaker 1: steps that he's taking with respect to the domestic economy

542
00:34:47,600 --> 00:34:51,319
Speaker 1: are well founded. Again, I'm not going to go into

543
00:34:51,440 --> 00:34:55,640
Speaker 1: dot Frank's very specifically, because you probably need some form

544
00:34:55,719 --> 00:35:01,959
Speaker 1: of restrictions. I am against financial institutions using insured bank

545
00:35:02,160 --> 00:35:06,239
Speaker 1: deposits in order to go gambled with it, if you would,

546
00:35:06,440 --> 00:35:08,719
Speaker 1: and that is what happened in two thousand six, two

547
00:35:08,800 --> 00:35:11,840
Speaker 1: thousand seven. You don't want to repeat of that. But

548
00:35:12,040 --> 00:35:15,120
Speaker 1: the banks clearly need fewer restrictions in terms of being

549
00:35:15,160 --> 00:35:20,000
Speaker 1: able to grow competitively. So having done that externally, also

550
00:35:20,480 --> 00:35:23,160
Speaker 1: you need to be more careful you cannot have restrictions.

551
00:35:23,200 --> 00:35:25,560
Speaker 1: So I'm much more of a free trader movement toward

552
00:35:25,640 --> 00:35:29,080
Speaker 1: free markets. Three commar with us with too many things

553
00:35:29,600 --> 00:35:32,640
Speaker 1: to talk about. Help me help me here. Three with

554
00:35:32,880 --> 00:35:36,160
Speaker 1: fly over America. So much of the mythology of the

555
00:35:36,280 --> 00:35:40,040
Speaker 1: Super Bowl and the tensions of the ads and just

556
00:35:40,239 --> 00:35:44,480
Speaker 1: the whole backdrop is his tension between urban America, the

557
00:35:44,600 --> 00:35:48,520
Speaker 1: coasts and fly over America. It's valid. How will that

558
00:35:48,719 --> 00:35:52,279
Speaker 1: play out within our economic growth in the next few years?

559
00:35:53,280 --> 00:35:57,800
Speaker 1: I think, Um, that's I think a very timely question, Tom,

560
00:35:58,160 --> 00:36:02,480
Speaker 1: because you see the some the three coastal states, if

561
00:36:02,520 --> 00:36:06,759
Speaker 1: you would, which voted the wrong side of the of

562
00:36:06,880 --> 00:36:12,280
Speaker 1: the two thousand sixteen elections, namely California and New York Massachusetts,

563
00:36:13,040 --> 00:36:16,200
Speaker 1: are all very important states. And the other thing is,

564
00:36:16,800 --> 00:36:20,680
Speaker 1: before coming on your program, I was looking at the contribution,

565
00:36:21,000 --> 00:36:25,160
Speaker 1: for instance, that a coastal state like California makes to

566
00:36:25,239 --> 00:36:29,040
Speaker 1: the federal budget. In the two thousand fourteen fiscal year,

567
00:36:29,680 --> 00:36:33,360
Speaker 1: the US government had a total I R. S tax

568
00:36:33,480 --> 00:36:37,839
Speaker 1: revenue of three point two trillion dollars, of which three

569
00:36:38,120 --> 00:36:42,239
Speaker 1: D sixty one billion, or more than ten percent, came

570
00:36:42,360 --> 00:36:45,879
Speaker 1: from just from the state of California. So in terms

571
00:36:45,960 --> 00:36:50,600
Speaker 1: of the new administration dealing with the states which did

572
00:36:50,719 --> 00:36:54,240
Speaker 1: not vote for them, one needs to be very careful.

573
00:36:54,400 --> 00:36:58,160
Speaker 1: So the flyover states, the Middle America, clearly the rust

574
00:36:58,280 --> 00:37:01,920
Speaker 1: belt went for the went for Donald Trump. But on

575
00:37:02,040 --> 00:37:04,800
Speaker 1: the other hand, you have these coastal states which did not,

576
00:37:05,080 --> 00:37:08,479
Speaker 1: which are economically more important. So you have I think Tom,

577
00:37:09,320 --> 00:37:11,440
Speaker 1: the reason I like your question is because you have

578
00:37:11,600 --> 00:37:15,520
Speaker 1: this big divergence between the political importance and the economic

579
00:37:15,640 --> 00:37:19,000
Speaker 1: importance of the two types of states. We're seeing this

580
00:37:19,160 --> 00:37:22,239
Speaker 1: this divergence here between French and German bond Yields had

581
00:37:22,239 --> 00:37:25,760
Speaker 1: the speech from Marina Panel over the weekend. You're monitoring

582
00:37:25,800 --> 00:37:27,960
Speaker 1: what's going on in Europe and France and the Netherlands.

583
00:37:28,000 --> 00:37:31,920
Speaker 1: I'm sure, uh, what do you do going forward from

584
00:37:31,960 --> 00:37:33,920
Speaker 1: all of that? In other words, how you you changing

585
00:37:33,920 --> 00:37:37,560
Speaker 1: your positioning? We're thinking about the markets in relation to

586
00:37:37,640 --> 00:37:39,880
Speaker 1: what we've heard from French politicians recently. Who can hear

587
00:37:39,920 --> 00:37:45,200
Speaker 1: more today, David, I'm very cautious on overall the European

588
00:37:45,280 --> 00:37:49,719
Speaker 1: outlook in twenties seventeen, you have elections coming up in

589
00:37:50,000 --> 00:37:54,319
Speaker 1: four major countries, three large ones and one somewhat smaller one.

590
00:37:55,040 --> 00:37:59,759
Speaker 1: We begin with Netherlands next month, Italy will probably have

591
00:38:00,000 --> 00:38:04,399
Speaker 1: and in April, and Francis April and May first round

592
00:38:04,480 --> 00:38:07,600
Speaker 1: in second round, and then you have Germany in September October.

593
00:38:08,719 --> 00:38:11,560
Speaker 1: So any one of them, or maybe more than one

594
00:38:11,640 --> 00:38:15,720
Speaker 1: of them could go with the far extreme party winning,

595
00:38:15,800 --> 00:38:19,759
Speaker 1: which means the non euro or the anti Europe party succeeding.

596
00:38:20,760 --> 00:38:25,080
Speaker 1: And Madrin Lepine is very significant to me for this

597
00:38:25,239 --> 00:38:29,719
Speaker 1: following reason. This is not two thousand two, when her

598
00:38:29,800 --> 00:38:36,880
Speaker 1: father uh Jamar Lupin lost to President Jacques Chirak in

599
00:38:36,960 --> 00:38:40,120
Speaker 1: the two thousand two elections, and it was very clear

600
00:38:40,200 --> 00:38:43,240
Speaker 1: that even people who did not like Mr Shirak voted

601
00:38:43,320 --> 00:38:46,080
Speaker 1: for him because they did not want to see the

602
00:38:46,200 --> 00:38:51,000
Speaker 1: National Front come to the office. But two thousand seventeen

603
00:38:51,120 --> 00:38:57,000
Speaker 1: is very different. What Mrs Lupin stands for is becoming

604
00:38:57,200 --> 00:39:00,640
Speaker 1: more closer to the mainstream in twenties seven team than

605
00:39:00,800 --> 00:39:03,520
Speaker 1: was the case in two thousand two, which is why

606
00:39:03,640 --> 00:39:06,600
Speaker 1: I think there is more of a risk. So if

607
00:39:06,680 --> 00:39:10,640
Speaker 1: you have the five star movements succeeding in Italy in

608
00:39:10,760 --> 00:39:17,040
Speaker 1: April or Marin Lupin winning in April May, then you're

609
00:39:17,080 --> 00:39:20,240
Speaker 1: going to see that effect. Also the thinking in Germany,

610
00:39:20,520 --> 00:39:22,160
Speaker 1: which is going to which is going to be the

611
00:39:22,239 --> 00:39:26,920
Speaker 1: last country to have elections in twenty sev And again

612
00:39:27,200 --> 00:39:29,719
Speaker 1: there is notes. There seems to be no give there

613
00:39:29,840 --> 00:39:32,080
Speaker 1: is no explanation of which way that is going to go.

614
00:39:32,760 --> 00:39:34,759
Speaker 1: So the answer to your question what would I do

615
00:39:35,280 --> 00:39:38,440
Speaker 1: is if you are looking purely at country risk, you

616
00:39:38,560 --> 00:39:42,720
Speaker 1: want to be very cautious until this wave passes, because

617
00:39:42,760 --> 00:39:44,920
Speaker 1: there is no forecasting which way it's going to go

618
00:39:46,080 --> 00:39:49,120
Speaker 1: as of now. We all thought a few months ago

619
00:39:49,920 --> 00:39:53,080
Speaker 1: that in Francois Fillon on the right was going to

620
00:39:53,200 --> 00:39:55,680
Speaker 1: be the winner in the first round and that he

621
00:39:55,719 --> 00:39:58,640
Speaker 1: would carry through to the second round. But again you

622
00:39:58,760 --> 00:40:02,719
Speaker 1: see that Marin the pen may come back. So's tough

623
00:40:02,800 --> 00:40:05,080
Speaker 1: to say. It's good to go, Street, thank you so much,

624
00:40:05,200 --> 00:40:07,080
Speaker 1: really wonderful on a Monday, he gets started with you.

625
00:40:07,160 --> 00:40:11,000
Speaker 1: And of course I'm gonna call it a more towards

626
00:40:11,040 --> 00:40:16,000
Speaker 1: an outlier call now of tepid GDP for the United States.

627
00:40:16,080 --> 00:40:18,880
Speaker 1: And very importantly it's three mentioned when we were in

628
00:40:18,960 --> 00:40:22,560
Speaker 1: a break, Mr Gross and we heard this David last

629
00:40:22,600 --> 00:40:26,720
Speaker 1: week from Bill Gross um really tilting towards a street

630
00:40:26,760 --> 00:40:31,000
Speaker 1: Comar like view. I mean Bill was solidly away from

631
00:40:31,520 --> 00:40:35,880
Speaker 1: the three percent or better Trump reflation economy. And you

632
00:40:35,960 --> 00:40:38,239
Speaker 1: see that in his his note this morning, No doubt,

633
00:40:38,280 --> 00:40:40,360
Speaker 1: his his monthly note doubt and um, what did he

634
00:40:40,360 --> 00:40:42,239
Speaker 1: say about the job supports? Remind us what his his

635
00:40:42,560 --> 00:40:45,040
Speaker 1: reaction to those was done. He like sreet looked at

636
00:40:45,080 --> 00:40:47,240
Speaker 1: wages and just said, look here it is. The numbers

637
00:40:47,239 --> 00:40:49,480
Speaker 1: are pretty good, but the wages aren't. Aren't there? And

638
00:40:49,560 --> 00:40:51,960
Speaker 1: you see that, you know, I guess you see it

639
00:40:52,719 --> 00:40:56,759
Speaker 1: in the struggling retail. The Trump the Tiffany ceo out

640
00:40:56,840 --> 00:41:00,360
Speaker 1: this morning as well, David Gerr and Tom Keene getting

641
00:41:00,440 --> 00:41:04,200
Speaker 1: your Monday started worldwide coast to coast. This is Bloomberg.

642
00:41:16,400 --> 00:41:18,640
Speaker 1: He was not surprised at Saint Thomas pulled it out

643
00:41:18,640 --> 00:41:23,360
Speaker 1: because he's been watching the Minnesota Vikings all season attempt miracles.

644
00:41:23,440 --> 00:41:27,080
Speaker 1: Jim Paulson joins us in Wells Capital. Was that a

645
00:41:27,120 --> 00:41:30,000
Speaker 1: good game or what? Jim Bolson, that's what it's about. Huh? Yeah,

646
00:41:30,160 --> 00:41:34,319
Speaker 1: that was That was a cliffhanger. That was kind of unbelievable,

647
00:41:34,480 --> 00:41:37,600
Speaker 1: but it was very entertaining. Some would say that about

648
00:41:37,680 --> 00:41:41,120
Speaker 1: this great bull market, how unloved is this bull market

649
00:41:41,280 --> 00:41:46,480
Speaker 1: right now? Well, that's been a mainstay of this entire

650
00:41:46,760 --> 00:41:49,000
Speaker 1: bull run. I think, you know, I think it's best

651
00:41:49,080 --> 00:41:51,239
Speaker 1: hill story. I think the stock markets up maybe close

652
00:41:51,320 --> 00:41:53,120
Speaker 1: to three and a half fold from its lows in

653
00:41:53,200 --> 00:41:56,160
Speaker 1: March of O nine. And yet if you would have

654
00:41:56,400 --> 00:42:01,960
Speaker 1: bought the most defensive sectors of the defensive investments at

655
00:42:02,000 --> 00:42:04,399
Speaker 1: the beginning of this bowl market, you would have just said,

656
00:42:04,400 --> 00:42:06,120
Speaker 1: I'm scared, but I'm gonna be in. I'm gonna buy

657
00:42:06,160 --> 00:42:10,040
Speaker 1: the largest cap companies, I'm gonna stay with American companies,

658
00:42:10,360 --> 00:42:13,000
Speaker 1: and I'm gonna buy just low vall consumer stocks and

659
00:42:13,440 --> 00:42:17,400
Speaker 1: bond surcuits like utilities. You would have dominated this bowl

660
00:42:17,760 --> 00:42:21,279
Speaker 1: with nothing but defensive investments. And that I think is

661
00:42:21,360 --> 00:42:24,600
Speaker 1: testament to what you're saying, is that normally, having a

662
00:42:24,719 --> 00:42:27,919
Speaker 1: three and a half time bowl market, you think would

663
00:42:27,920 --> 00:42:30,680
Speaker 1: be led by all the aggressive high baya octane stuff.

664
00:42:30,719 --> 00:42:32,840
Speaker 1: But it hasn't, and it reflects the fact that this

665
00:42:32,960 --> 00:42:35,759
Speaker 1: has been a fear based bowl. You've been looking at

666
00:42:35,760 --> 00:42:39,040
Speaker 1: the stock markets yield buffer. What does that tell you

667
00:42:39,120 --> 00:42:42,120
Speaker 1: right now? When you look at that, well, you know

668
00:42:42,280 --> 00:42:45,080
Speaker 1: rates rates are moving north. I I do think I

669
00:42:45,160 --> 00:42:48,680
Speaker 1: think the thirty year bull and bonds is has ended.

670
00:42:48,920 --> 00:42:52,359
Speaker 1: And uh you know, that's a that's a tough one,

671
00:42:52,440 --> 00:42:54,759
Speaker 1: just because you could say that several times in the

672
00:42:54,880 --> 00:42:58,200
Speaker 1: last thirty years. But um, I do think we've we're

673
00:42:58,280 --> 00:43:00,480
Speaker 1: kind of turned a corner that being at full employment,

674
00:43:01,280 --> 00:43:04,000
Speaker 1: uh you know, and continuing this recovery now and putting

675
00:43:04,400 --> 00:43:07,640
Speaker 1: pressure just globally, all rates are coming up, and I

676
00:43:07,719 --> 00:43:09,520
Speaker 1: think if you're infixed income, you've got to still be

677
00:43:09,600 --> 00:43:12,840
Speaker 1: in there. Everyone is diversified and got on some, but

678
00:43:13,080 --> 00:43:15,800
Speaker 1: I think you gotta look for yield buffers, whether that's

679
00:43:16,360 --> 00:43:20,000
Speaker 1: looking at credit spreads to put some additional yield on

680
00:43:20,120 --> 00:43:23,239
Speaker 1: your fixed income portfolio or a structure or how you

681
00:43:23,360 --> 00:43:26,320
Speaker 1: position on the curve. Um you may also want to

682
00:43:26,360 --> 00:43:29,839
Speaker 1: look at tip bonds that uh protect you a little

683
00:43:29,880 --> 00:43:33,840
Speaker 1: bit from inflation, which with inflation expectations continue to climb.

684
00:43:34,680 --> 00:43:37,480
Speaker 1: Tip bonds I think will continue to do well. But um,

685
00:43:38,000 --> 00:43:40,719
Speaker 1: one's going to have to put some protection in that

686
00:43:40,800 --> 00:43:43,160
Speaker 1: bond portfolio because I think there's still quite a bit

687
00:43:43,200 --> 00:43:46,840
Speaker 1: of risk there. Are we Jim Paulson at a point

688
00:43:47,080 --> 00:43:53,840
Speaker 1: of stability and were control of shorter term expectations, or

689
00:43:54,080 --> 00:43:56,560
Speaker 1: do you dovetail the politics of the moment, bring it

690
00:43:56,640 --> 00:43:59,920
Speaker 1: over to investment and say we are most susceptible to

691
00:44:00,680 --> 00:44:07,320
Speaker 1: some forms of disappointment. It's an awful volnerable political situation.

692
00:44:07,440 --> 00:44:10,960
Speaker 1: I sure I remember another one quite like this, but um,

693
00:44:11,560 --> 00:44:13,719
Speaker 1: I'm not sure Tim what you can do about that.

694
00:44:13,960 --> 00:44:17,600
Speaker 1: I think you ought to approach the political vix, if

695
00:44:17,680 --> 00:44:22,440
Speaker 1: you will, with diversification like you would any other Black

696
00:44:22,480 --> 00:44:24,800
Speaker 1: Salan event and the potential for an earthquake or the

697
00:44:24,800 --> 00:44:28,080
Speaker 1: potential things you can for dick and and keep your

698
00:44:28,400 --> 00:44:33,279
Speaker 1: portfolio focus on the economic and earnings fundamentals. And quite

699
00:44:33,360 --> 00:44:38,040
Speaker 1: frankly to me, that's the wind under the president. Trump's

700
00:44:38,080 --> 00:44:43,240
Speaker 1: magic carpet is as long as there's accelerating and broadening

701
00:44:43,360 --> 00:44:46,600
Speaker 1: economic and earnings momentum, I think he can do and

702
00:44:46,719 --> 00:44:49,400
Speaker 1: say whatever, and this market is going to be teflon

703
00:44:49,440 --> 00:44:53,920
Speaker 1: against it. If that economic and market or earnings momentum fades,

704
00:44:54,680 --> 00:44:57,520
Speaker 1: that's when the markets would would get into trouble. Right now,

705
00:44:58,040 --> 00:45:00,279
Speaker 1: the best thing he has going for him is, you know,

706
00:45:00,360 --> 00:45:02,719
Speaker 1: the GDP now number for the first quarter I think

707
00:45:02,920 --> 00:45:06,000
Speaker 1: here in the United States is three point four. We're

708
00:45:06,120 --> 00:45:10,040
Speaker 1: coming off another pretty good earnings quarter, the global UH

709
00:45:10,280 --> 00:45:13,440
Speaker 1: positive surprise indices or some of their highest levels of

710
00:45:13,480 --> 00:45:17,719
Speaker 1: the recovery, saying this is a broader participatory recovery than

711
00:45:17,760 --> 00:45:20,960
Speaker 1: ever before. That that's what's really driving these markets. I think.

712
00:45:21,719 --> 00:45:25,040
Speaker 1: I think it's less about Trump tweets than it is

713
00:45:25,080 --> 00:45:28,000
Speaker 1: about better fundamentals. Do you what are the signs that

714
00:45:28,080 --> 00:45:31,280
Speaker 1: you see that that economic earnings momentum is going to continue?

715
00:45:31,320 --> 00:45:34,600
Speaker 1: Here we are in earning season now, uh, does it

716
00:45:34,680 --> 00:45:36,320
Speaker 1: seem likely to you that it's going to continue, that

717
00:45:36,400 --> 00:45:37,880
Speaker 1: that wind is going to be beneath that carbon for

718
00:45:37,920 --> 00:45:41,120
Speaker 1: a while longer? Yet? I do, David. I guess the

719
00:45:41,520 --> 00:45:44,799
Speaker 1: thing that I've been UH writing about over the last year,

720
00:45:44,880 --> 00:45:47,319
Speaker 1: year and a half is, I think what we what's

721
00:45:47,400 --> 00:45:49,839
Speaker 1: really different is for the first time in the last

722
00:45:49,920 --> 00:45:53,600
Speaker 1: eighteen months or so, we we synchronize global economic policies.

723
00:45:54,400 --> 00:45:56,839
Speaker 1: Up until about eighteen months ago, we we never got

724
00:45:56,960 --> 00:46:00,920
Speaker 1: all policies from Europe and Japan and China and United

725
00:46:00,920 --> 00:46:03,480
Speaker 1: States on the same page. You know, you're a practice

726
00:46:03,520 --> 00:46:06,640
Speaker 1: fistal austerity and put them back into recession. China was

727
00:46:06,719 --> 00:46:09,680
Speaker 1: trying to slow themselves down. You know, now, what we

728
00:46:09,840 --> 00:46:13,160
Speaker 1: got is everyone has adopted ben Burn a key stimulus,

729
00:46:13,600 --> 00:46:15,759
Speaker 1: and when you think you've eased enough, East some more,

730
00:46:16,040 --> 00:46:20,120
Speaker 1: everyone's adopted you know, zero negative yields, massive central bank bounty.

731
00:46:20,239 --> 00:46:22,919
Speaker 1: And the result of that, from a legged point leg

732
00:46:23,000 --> 00:46:26,480
Speaker 1: standpoint is it's creating one of the first synchronized global

733
00:46:26,520 --> 00:46:29,800
Speaker 1: bounces of the recovery. And since no one's really turned

734
00:46:29,840 --> 00:46:32,399
Speaker 1: against that yet, I think it's going to continue. Jim

735
00:46:32,440 --> 00:46:35,280
Speaker 1: Paulson with us with a dose of optimism. They're interesting

736
00:46:35,360 --> 00:46:38,680
Speaker 1: after what we heard from three Jim, I'm looking at

737
00:46:38,719 --> 00:46:40,800
Speaker 1: the Bloomberg screen and I believe in the last twelve

738
00:46:40,840 --> 00:46:47,279
Speaker 1: months SB up twenty two, the grand canard of the

739
00:46:47,400 --> 00:46:51,400
Speaker 1: pro markets the last few years has been single digit

740
00:46:51,840 --> 00:46:56,120
Speaker 1: actual reial assumptions. How do you respond to someone who says, Okay,

741
00:46:56,239 --> 00:47:00,239
Speaker 1: we were wrong, We've had massive double digit returns. We're

742
00:47:00,280 --> 00:47:05,640
Speaker 1: gonna get killed. How do you respond to that? Well, Um,

743
00:47:06,080 --> 00:47:08,000
Speaker 1: those of us living in glass houses, you gotta be

744
00:47:08,000 --> 00:47:11,520
Speaker 1: careful throwing stones because uh um, you know I I've

745
00:47:11,600 --> 00:47:14,960
Speaker 1: had my share of those misses as well. Um. Yeah,

746
00:47:14,960 --> 00:47:18,400
Speaker 1: I just think I think the biggest thing, uh is

747
00:47:18,920 --> 00:47:21,920
Speaker 1: it can get into timing the year and year out moves.

748
00:47:22,040 --> 00:47:24,640
Speaker 1: But I think if I'm gonna investor, the biggest question

749
00:47:24,719 --> 00:47:27,800
Speaker 1: I got right now is when's the NEXTRA session? And

750
00:47:28,239 --> 00:47:31,600
Speaker 1: if you think the next sessions inside two years, that's

751
00:47:31,640 --> 00:47:33,200
Speaker 1: one thing. But if you think we might not have

752
00:47:33,440 --> 00:47:36,680
Speaker 1: one for you know, three to five years, then then

753
00:47:36,760 --> 00:47:39,239
Speaker 1: I think you ought not worried about exactly what the

754
00:47:39,360 --> 00:47:41,759
Speaker 1: number will be this year, but probably if if it's

755
00:47:41,760 --> 00:47:44,880
Speaker 1: gonna last that long, there's still some decent returns from

756
00:47:44,920 --> 00:47:48,000
Speaker 1: stocks over the balance of this recovery. And what's your

757
00:47:48,000 --> 00:47:49,400
Speaker 1: thinking there in terms of when we might see when

758
00:47:49,400 --> 00:47:51,720
Speaker 1: we do? For one, I guess if you look at cycles,

759
00:47:51,920 --> 00:47:54,560
Speaker 1: this is a Yeah, it's a calendar old recovery. There's

760
00:47:54,560 --> 00:47:56,880
Speaker 1: no doubt about it. We're gonna very quickly become the

761
00:47:56,960 --> 00:48:01,120
Speaker 1: second oldest recovery in US history here. But I just

762
00:48:01,200 --> 00:48:04,200
Speaker 1: still think it's very character young. We just started using

763
00:48:04,640 --> 00:48:07,719
Speaker 1: leverage debt a couple of years ago. Really in this

764
00:48:08,000 --> 00:48:12,239
Speaker 1: in this recovery, we've got really strong balance sheets uh eggerly,

765
00:48:12,320 --> 00:48:17,040
Speaker 1: at least in the corporate household and banking industry. Overall,

766
00:48:17,160 --> 00:48:22,600
Speaker 1: we just have never had the excessive uh confidence driven

767
00:48:22,760 --> 00:48:25,839
Speaker 1: sort of over the top behaviors. There has never been

768
00:48:25,880 --> 00:48:29,040
Speaker 1: a capital spending cycle. There's never been a real housing cycle.

769
00:48:29,120 --> 00:48:32,600
Speaker 1: There's never been a public rush into risk on equities

770
00:48:32,640 --> 00:48:35,560
Speaker 1: in a in a in a big way. Um, there

771
00:48:35,640 --> 00:48:39,440
Speaker 1: just hasn't been the confidence which typically leads to behaviors

772
00:48:39,960 --> 00:48:44,319
Speaker 1: that ultimately bring recession. I think that we're gonna have, Uh,

773
00:48:44,880 --> 00:48:47,680
Speaker 1: we're in the longest recovery in US history. It's gonna

774
00:48:47,719 --> 00:48:52,239
Speaker 1: go past the old record by multiple years. And I think, um,

775
00:48:52,640 --> 00:48:55,399
Speaker 1: we're going to be surprised of the third leg maybe

776
00:48:55,440 --> 00:48:59,560
Speaker 1: of this bull market. Yet the final leg may finally

777
00:48:59,680 --> 00:49:06,000
Speaker 1: be or confident driven, with confident investment and confident economic behaviors,

778
00:49:06,000 --> 00:49:08,680
Speaker 1: and we may just be getting into that. A little

779
00:49:08,680 --> 00:49:10,839
Speaker 1: while ago, we were talking about political volatil. You talked

780
00:49:10,840 --> 00:49:13,719
Speaker 1: about the political vix. How about the actual vix? What's

781
00:49:13,760 --> 00:49:15,040
Speaker 1: that telling you right now when you look at it,

782
00:49:15,239 --> 00:49:20,160
Speaker 1: you know, eleven point eight twelve, that's pretty low. It's

783
00:49:20,239 --> 00:49:22,480
Speaker 1: a there's no doubt about that. I mean, it wouldn't

784
00:49:22,480 --> 00:49:24,640
Speaker 1: surprise me at all to have a hiccup at some

785
00:49:24,760 --> 00:49:26,640
Speaker 1: point that jumps back up to twenty. You know, we

786
00:49:26,719 --> 00:49:28,960
Speaker 1: did that. You know we did in the November. We

787
00:49:29,040 --> 00:49:31,239
Speaker 1: did it last summer. You know that that's certainly is

788
00:49:31,280 --> 00:49:34,000
Speaker 1: probably gonna happen at some point. I don't think I'm

789
00:49:34,000 --> 00:49:36,920
Speaker 1: gonna be able to predict that, David, but I think it, Uh,

790
00:49:37,120 --> 00:49:40,480
Speaker 1: we don't. That's said, Um, you know, we've had some

791
00:49:40,719 --> 00:49:46,839
Speaker 1: marvelous historic market movements with very low VIX levels, So, uh,

792
00:49:47,160 --> 00:49:49,680
Speaker 1: certainly the risk of a spike and VIX and if

793
00:49:49,719 --> 00:49:51,759
Speaker 1: it does spike, that will probably be a pullback in

794
00:49:51,840 --> 00:49:54,680
Speaker 1: the markets. But you've also had prolonged courage where the

795
00:49:54,760 --> 00:49:56,960
Speaker 1: VIX remains pretty low and the market does very well.

796
00:49:57,160 --> 00:50:01,080
Speaker 1: So uh, I wouldn't necessarily get barish on that alone.

797
00:50:01,600 --> 00:50:04,640
Speaker 1: How about regulation? We have those executive orders last week?

798
00:50:05,480 --> 00:50:07,319
Speaker 1: Uh did you need to see those two to believe

799
00:50:07,320 --> 00:50:09,480
Speaker 1: that we're gonna see real regulatory reform? Where are we

800
00:50:09,520 --> 00:50:11,759
Speaker 1: in that process? Do you think of maybe scaling back

801
00:50:11,840 --> 00:50:14,360
Speaker 1: some of the regulations on financial institutions? You know, of

802
00:50:14,440 --> 00:50:17,799
Speaker 1: all the things that uh, you know, Donald Trump has

803
00:50:17,800 --> 00:50:20,800
Speaker 1: thrown out they're gonna do or the Republican Party in general,

804
00:50:21,440 --> 00:50:25,319
Speaker 1: I think regulations is probably the easiest one to get done,

805
00:50:26,080 --> 00:50:29,319
Speaker 1: and I think that's probably the one that will get done, uh,

806
00:50:29,880 --> 00:50:32,839
Speaker 1: the most broadly and the most Um. The second might

807
00:50:32,920 --> 00:50:35,719
Speaker 1: be you know, some tax relief of some form. I

808
00:50:35,840 --> 00:50:39,160
Speaker 1: think beyond that, I don't have high expectations that much

809
00:50:39,200 --> 00:50:42,520
Speaker 1: else is really going to be accomplished. And so you know,

810
00:50:42,640 --> 00:50:44,840
Speaker 1: I think a lot of the movement that we're seeing

811
00:50:45,080 --> 00:50:48,880
Speaker 1: is based primarily on the idea that regulatory relief is

812
00:50:49,000 --> 00:50:51,440
Speaker 1: already started and probably more of that's going to come.

813
00:50:52,640 --> 00:50:56,080
Speaker 1: When I when I look at Jim Bolson at the

814
00:50:56,160 --> 00:50:59,640
Speaker 1: place of bonds here, and there's one way, higher yields,

815
00:50:59,680 --> 00:51:03,080
Speaker 1: lower prices, lower yields higher prices. But what do you

816
00:51:03,120 --> 00:51:06,120
Speaker 1: do with your bond allocation within a retirement account? I mean,

817
00:51:06,200 --> 00:51:08,840
Speaker 1: are you on the efficient frontier? Or does that not

818
00:51:09,000 --> 00:51:13,960
Speaker 1: work given our great distortion? You don't. I think it's

819
00:51:14,000 --> 00:51:19,399
Speaker 1: a great question. Um. I think that investors uh need

820
00:51:19,520 --> 00:51:23,200
Speaker 1: to move away from sort of the yield rule. In

821
00:51:23,320 --> 00:51:25,560
Speaker 1: other words, you know, a lot of a lot of

822
00:51:25,719 --> 00:51:28,240
Speaker 1: retirees will set up, well, I need this much income,

823
00:51:28,320 --> 00:51:31,160
Speaker 1: so I'm gonna, you know, get a five percent yield

824
00:51:31,280 --> 00:51:34,120
Speaker 1: or whatever it is off my portfolio. And I think

825
00:51:34,160 --> 00:51:35,719
Speaker 1: you got to move away from that. With yields at

826
00:51:35,840 --> 00:51:40,600
Speaker 1: ridiculously low levels, probably unsustainably low, they've been artificially pegged

827
00:51:40,880 --> 00:51:44,320
Speaker 1: the world over, and that peg is coming off I

828
00:51:44,480 --> 00:51:46,960
Speaker 1: think you've got to move away from some kind of

829
00:51:47,040 --> 00:51:50,920
Speaker 1: yield expectation towards just more in line with what foundations

830
00:51:50,960 --> 00:51:54,200
Speaker 1: have done forever, have a spending rule, and and not

831
00:51:54,360 --> 00:51:57,360
Speaker 1: be forced to just buy yield the investments, because I

832
00:51:57,440 --> 00:52:00,080
Speaker 1: think if if you're looking just for yielded it's going

833
00:52:00,160 --> 00:52:02,279
Speaker 1: to take you into what might be one of the

834
00:52:02,400 --> 00:52:05,600
Speaker 1: greatest risk areas of the of the financial markets over

835
00:52:05,640 --> 00:52:08,640
Speaker 1: the next few years. If you stay away from that

836
00:52:08,800 --> 00:52:11,560
Speaker 1: and just say I need five percent spending rule, I

837
00:52:11,640 --> 00:52:14,919
Speaker 1: don't care if I get that from dividend flow, coupon flow,

838
00:52:15,120 --> 00:52:17,640
Speaker 1: or capital gain. I think that's a better way to

839
00:52:17,719 --> 00:52:20,600
Speaker 1: go to keep you more in a risk adverse position.

840
00:52:20,800 --> 00:52:24,000
Speaker 1: Jim Paulson, Thank you so much. Some caution there from

841
00:52:24,080 --> 00:52:28,400
Speaker 1: somebody who's really has a real belief in the investment

842
00:52:28,960 --> 00:52:33,880
Speaker 1: and capitalism of the nation. Uh. Jim Paulson, Wells Asset Management.

843
00:52:41,320 --> 00:52:45,560
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

844
00:52:45,760 --> 00:52:50,800
Speaker 1: listen to interviews on iTunes, SoundCloud, or whichever podcast platform

845
00:52:50,960 --> 00:52:54,480
Speaker 1: you prefer. I'm out on Twitter at Tom Keene. David

846
00:52:54,560 --> 00:52:58,160
Speaker 1: Gura is at David Gura. Before the podcast, you can

847
00:52:58,320 --> 00:53:14,520
Speaker 1: always catch us worldwide on Bloomberg Radio, brought you by

848
00:53:14,800 --> 00:53:18,480
Speaker 1: Bank of America. Mary Lynch dedicated to bringing our clients

849
00:53:18,600 --> 00:53:22,760
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850
00:53:23,239 --> 00:53:26,960
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851
00:53:27,080 --> 00:53:30,560
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