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Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Pen.

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Speaker 1: Why don't you bring in the esteemed economist from Oh? Yes,

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Speaker 1: And in fact I had to say I was just

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Speaker 1: watching it on watching you speak with Katherine Mann, h

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Speaker 1: City Groups Global chief economist while you are on television.

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Speaker 1: Katherine Man, It's always a pleasure. Thanks very much for

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Speaker 1: being here. Can you explain what the real relationship is

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Speaker 1: between the performance of the US economy and the performance

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Speaker 1: of the U S stock market? Well, actually, the two

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Speaker 1: of them makes sense right now. I mean the US

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Speaker 1: economy is doing extremely well. I mean the unemployment raised

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Speaker 1: is quite low. Uh, there's a tax cut. Um, profits

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Speaker 1: are high. Uh, growth is strong. You know, it makes

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Speaker 1: perfect sense that stocks should be very elevated. Now you

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Speaker 1: got to ask the question though, Um, we knew that

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Speaker 1: growth was going to be really strong, and we knew

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Speaker 1: that unemployment was going to be really low, and we

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Speaker 1: knew everybody was going to get a tax cut. So

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Speaker 1: maybe it's a little overdone. When you say overdone, meaning

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Speaker 1: the exuberance, the enthusiasm to buy stocks, Well, I you know,

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Speaker 1: I think that there's quite a bit of enthusiasm. A

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Speaker 1: lot of people are buying stocks. And uh, you've got

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Speaker 1: to ask, what is the new information that UM is

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Speaker 1: being incorporated in the stock valuations that we have today.

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Speaker 1: I think that's really the question, because I'm not sure

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Speaker 1: there's much new information that would warrant UM this much exuberance. Well,

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Speaker 1: how about new information that looks at the U S

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Speaker 1: stock market relative to what's happening in the rest of

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Speaker 1: the world, whether it be Turkey or China, or continental

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Speaker 1: Europe and Brexit, or indeed even Brazil and Argentina. And

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Speaker 1: as a result, you take a second look and you

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Speaker 1: think that decision to sell US equities and go someplace

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Speaker 1: else is a decision that you're not going to make

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Speaker 1: right now. Well again, I mean, my view is is

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Speaker 1: that UM, there are a lot of UM emerging markets

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Speaker 1: that actually are very good opportunities UM, and all of

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Speaker 1: the emerging markets are sort of being tarred with the

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Speaker 1: same brush and looking, you know, there are some definite

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Speaker 1: places that you do not want to invest, but there

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Speaker 1: are a lot that where you do want to invest. Uh,

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Speaker 1: they do represent opportunities. And and where would you be

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Speaker 1: booking a ticket to go and check out the companies um, Indonesia, Malaysia,

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Speaker 1: I would. I would also look at some some Latin

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Speaker 1: countries Peru, Chile, Colombia. These are countries that we don't

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Speaker 1: hear about a whole lot, but in fact they have

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Speaker 1: been extremely disciplined in terms of their policies and they

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Speaker 1: represent good opportunities. Now you've got to wonder about the neighborhood.

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Speaker 1: We always have to wonder about the neighborhood. UM. But

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Speaker 1: you know, whether it's the Asia or whether it be

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Speaker 1: Latin America or Europe. But you know they are a

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Speaker 1: good opportunity. This is a really important insight because, as

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Speaker 1: you say, nobody focuses on Peru except I had a

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Speaker 1: wonderful conversation with the President Peru two years ago about

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Speaker 1: that distinction of Peru. This goes back to Douglas UM.

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Speaker 1: This goes back to Douglas North at Washington University in St.

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Speaker 1: Louis about the strength in need of institutions and really

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Speaker 1: what we're really talking about in this debate is country

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Speaker 1: a doesn't have the institutional structured leadership and governance, and

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Speaker 1: a country really can be adjacent, can be fine. I mean,

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Speaker 1: it's really what we're talking about it all. This isn't

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Speaker 1: it well? As I say, I think the neighborhood does matter.

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Speaker 1: I mean there's no question that that if you're surrounded

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Speaker 1: by challenging, challenging environment you don't get you're not you're

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Speaker 1: not going to do as well as you know, a

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Speaker 1: situation where you have, um, the opportunity to trade with

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Speaker 1: your neighbors. Uh, and that's that's beneficial for both. So

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Speaker 1: you know, you you do care about the neighborhood. But

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Speaker 1: on the other hand, getting back to you know, the

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Speaker 1: choices that investors have to make, Um, do you do

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Speaker 1: which which place? Or you're going to get more value? Uh,

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Speaker 1: you know the S and P or on a more

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Speaker 1: disaggregated basis, individual companies. Uh, maybe some companies that we

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Speaker 1: don't hear about so much in the United States and

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Speaker 1: some companies and countries that we don't hear about so much,

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Speaker 1: so that it's you know, we talked about activists versus

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Speaker 1: passivist investing. UM, this is a time to be an

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Speaker 1: activist investor and really, you know, do your homework and

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Speaker 1: do your analysis and figure out what the good deals

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Speaker 1: are point taken. And I'm wondering whether when you speak

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Speaker 1: about countries such as Peru and Chile and Colombia, are

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Speaker 1: you talking about commodity driven economies. Well, Peru's not. Well,

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Speaker 1: Peru does have commodity, so there are commodity elements to it,

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Speaker 1: for sure, But um, these are countries that actually have

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Speaker 1: have been able to diversify. They also have been able,

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Speaker 1: as I say, have disciplined policies, and that is something

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Speaker 1: that that has been important for the stabilization of those

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Speaker 1: economies and to put them on a growth path and

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Speaker 1: to have the actual determination and I would say conviction

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Speaker 1: to stay in if indeed there are any short term

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Speaker 1: declines in the value of these companies or assets that

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Speaker 1: you describe because of the mistakes or the headline reading

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Speaker 1: that goes on around them, to take advantage of those opportunities,

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Speaker 1: that means you've got to have the same kind of

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Speaker 1: wherewithal let's say, with the United States, if stocks were

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Speaker 1: to the client, do you see any possibility that we're

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Speaker 1: going to have a correction and asset values well, I

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Speaker 1: think there, you know, as we think about the sort

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Speaker 1: of the pathway that the that the Federal Reserve is on,

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Speaker 1: which is to in a measured pace, increase interest rates,

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Speaker 1: increase the policy rate. Uh you know, we have to

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Speaker 1: think about what does the you know that do for

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Speaker 1: other financial assets? Um and I think there's a question

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Speaker 1: as to whether or not, uh at we get another

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Speaker 1: you know, basis points. What does the financial market look

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Speaker 1: like at that point. Robert Angle, the Laureate of n

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Speaker 1: y U, talks about guards and hugely fancy econometrics, but

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Speaker 1: what it comes down to is at some point to

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Speaker 1: see the system seizes up. PIM talks about asset prices

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Speaker 1: and the fear that they'll going down. What do you

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Speaker 1: what do you observe in hindsight that we should watch

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Speaker 1: to determine if the system seizes up? Is it just

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Speaker 1: simply foreign exchange? Is the global litmus paper? Or do

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Speaker 1: you have to look at short term paper, full faith

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Speaker 1: and credit two years? What's what's the thing you watch

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Speaker 1: every day on your four terminals at your desk. Uh So,

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Speaker 1: I do look at quite a variety of things. But

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Speaker 1: what I look at right now is I'm looking at

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Speaker 1: what I see are variety of risks across asset prices

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Speaker 1: that seem to be a little bit underpriced. Let's talk

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Speaker 1: about credit risk for example. Um, when you can have

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Speaker 1: a high yield bond or covenant light loan and you're

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Speaker 1: paying very very little for it, Uh, you're figuring out

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Speaker 1: at some point that that's going to go bad. We

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Speaker 1: can also look again, I think that the you know,

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Speaker 1: the stock market is an interesting animal. I mean, we

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Speaker 1: all know that that financial markets do heard and uh,

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Speaker 1: you know again, I have to ask the question, what

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Speaker 1: is the new news that warrants the degree of exuberance

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Speaker 1: that is in the market today. Well, I want to

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Speaker 1: get maybe just but not get to the whole question,

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Speaker 1: because we're going to come back and spend more time

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Speaker 1: with you, Catherine. But if people are buying at the

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Speaker 1: short end of the curve, right that everyone's talking short

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Speaker 1: and short and shorter, why are right? Why is the

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Speaker 1: curve so flat? Wouldn't that make what does that make

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Speaker 1: sense to you? We wouldn't prices just increase and increase? Well,

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Speaker 1: there are I mean this is we spend many hours

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Speaker 1: and talk with many people about this question about what's

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Speaker 1: going on with the ten year yield at being an

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Speaker 1: important factor, important anchor to too many financial decisions, and uh,

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Speaker 1: we can go through a number of different arguments for

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Speaker 1: what's going on with it, but you know, there are

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Speaker 1: there are issues about the flows into ten year long

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Speaker 1: duration bonds that come from other countries who currently have

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Speaker 1: very low interest rates on their sovereign obligations sovereign debt.

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Speaker 1: And so if you if sovereigns is really what you want,

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Speaker 1: then the US is really your part than it's problem.

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Speaker 1: Thank you so much. Wide discussion today with the chief

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Speaker 1: Global Economists for a City Group, Katherine Man. Let's talk

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Speaker 1: about what's going on in politics for just a second. Yeah,

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Speaker 1: well budget as well. Uh, stand a calendar of course.

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Speaker 1: He's an executive vice president and national director of financial

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Speaker 1: communications for MSL Group in the United States, and Stan Collender,

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Speaker 1: it's always a pleasure to hear what you've got to

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Speaker 1: say about what's going on in Washington. My question is

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Speaker 1: how long do you believe Attorney General Jeff Sessions is

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Speaker 1: going to have that job. Let's the election day is

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Speaker 1: November six, so maybe the seven really that that's what's

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Speaker 1: gonna happen. Well, look, it's not like Donald Trump calls

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Speaker 1: me and tells me what his plans are. But um,

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Speaker 1: it looks as if he's been lobbying, and the reports

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Speaker 1: are that he's been lobbying the Democratic Republican senators to

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Speaker 1: say I want to get rid of this guy, and

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Speaker 1: you've got to let me do it. Um So, right

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Speaker 1: after that, why can't he do it? What is it?

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Speaker 1: He doesn't need their approval, No, no, he doesn't need

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Speaker 1: their approval, but he does need them to confirm a replacement.

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Speaker 1: Number one. Number two, he doesn't want to do it

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Speaker 1: before the elections where it might have some impact on

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Speaker 1: the voting. Uh. And three he wants to the Mueller

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Speaker 1: probe to move a little bit further along so it

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Speaker 1: doesn't look like he's trying to obstruct justice. Um So, Uh,

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Speaker 1: it doesn't make any sense for him to do it

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Speaker 1: before the election, and all the reporting is that right afterwards. Look,

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Speaker 1: it wouldn't be surprising if two years after an election

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Speaker 1: the president replaces many people in this cabinet. The difference

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Speaker 1: is that in this case a lot of people have

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Speaker 1: been replaced already. Standy, you've got in one of your

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Speaker 1: notes an alarming observation for at least for me. You

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Speaker 1: put a chance of a government shut down at six

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Speaker 1: zero six percent. I just didn't know that. Well. Normally

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Speaker 1: you would say in a situation like that like we're

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Speaker 1: in now, that it would be very local possibility. That is,

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Speaker 1: the Republicans in the majority in both houses don't want

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Speaker 1: it because it'll keep them in Washington and enable unable

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Speaker 1: to go home and campaign and hold fundraisers. Um that

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Speaker 1: they need to campaign because especially in the House, because

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Speaker 1: there may be a democratic waiver, a democratic takeover. But

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Speaker 1: that same situation is what gives Donald Trump the ability

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Speaker 1: gives him an additional leverage to get money for his wall.

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Speaker 1: That is, if if the Republicans want to go home

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Speaker 1: and he has the ability to keep them here, he

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Speaker 1: has some leverage to say, give me the money for

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Speaker 1: the wall, You're not going anywhere. Also that Trump may

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Speaker 1: need to use the wall, and the impact on the

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Speaker 1: immigration is to help him with his his voters, his base,

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Speaker 1: which is petition particularly important because of all the other

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Speaker 1: legal stuff going on. I saw this tweet, and I

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Speaker 1: and I'm sorry, Pam, I wasn't sure if it was

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Speaker 1: from Donald J. Trump for Stanley Colander. Here it is

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Speaker 1: Ivanka true Ump and Jared Kushner had nothing to do

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Speaker 1: with the so called pushing out of Don McGann. The

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Speaker 1: fake news media has it purposely so wrong. They love

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Speaker 1: to portray chaos in the White House when they know

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Speaker 1: that chaos doesn't exist. Just today, and this is colinder

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Speaker 1: classic quote, just a smooth running machine with changing parts,

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Speaker 1: is that our budget process stand in Washington? All right?

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Speaker 1: First of all, I did not write that. I don't know. Um. Second,

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Speaker 1: did you did you see the news this morning? Tom

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Speaker 1: and Pinn that pin that another member the White House

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Speaker 1: Council's Office who handles their ethics investigations is leaving Friday,

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Speaker 1: that is tomorrow. So um, yeah, there, there, there, There

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Speaker 1: is There is nothing here that's going on in the

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Speaker 1: White House. It's smooth. But Tommy, you've got to say,

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Speaker 1: the budget process to the extent that there is one

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Speaker 1: is even worse. That is, there is no process. There

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Speaker 1: was no budget resolution this year. We're way behind on

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Speaker 1: all the appropriations. There's only eleven legislative days before the

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Speaker 1: start of the fiscal year. Nothing has been enacted, nothing

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Speaker 1: has even been sent to the White House for evaluation.

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Speaker 1: So doesn't the majority have the power to do that? Oh? Absolutely,

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Speaker 1: budget resolutions cannot be filibustered, but did. The reason they

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Speaker 1: didn't do it this year is that they didn't want

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Speaker 1: to take votes on trillion dollar deficits before the elections. So,

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Speaker 1: I mean, it's legally required to do a budget, but

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Speaker 1: they just there's there's no enforcement if Congress doesn't want

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Speaker 1: to do it themselves. And yes, the Democrats could filibuster

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Speaker 1: appropriations in the Senate, so the majority of the Republicans

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Speaker 1: don't have full control. But has anyone heard the word

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Speaker 1: compromised recently in Washington? Probably not that could get these

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Speaker 1: bills done. If they had committed to them months ago,

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Speaker 1: they could have got them done by the start of

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Speaker 1: the fiscal year and taken away any chance of a

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Speaker 1: government shutdown. Stan Colinder midterm elections handicaptam for us, Well,

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Speaker 1: look I am I am not the elections forecaster that

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Speaker 1: several other people are, but from every the people I

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Speaker 1: trust and I go to for advice and information, it

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Speaker 1: looks as if the Democrats as of today will take

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Speaker 1: over the House by maybe twenty with maybe twenty seed margin.

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Speaker 1: That's not enough to get anything done next year, but

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Speaker 1: it's enough to stop a lot of things from happening.

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Speaker 1: The Senate seems a little bit more problematic for the Democrats,

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Speaker 1: only because the map is so difficult that the Republicans

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Speaker 1: might even gain a couple of seats while the Democrats

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Speaker 1: take over the House. Um. But look, we're we're only

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Speaker 1: what two months away from the election, and anything could happen,

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Speaker 1: especially given the the let's let's call it a craziness

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Speaker 1: of the president a little bit. We just don't know

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Speaker 1: where things are going. The popularity of the president connected

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Speaker 1: to the strength of the US economy, and your thought

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Speaker 1: only to a certain extent. Obviously, if the economy we're

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Speaker 1: not doing as well as it's doing, the president's popularity

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Speaker 1: would probably be down five points or so. But let's

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Speaker 1: go back to something he said during the campaign. He

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Speaker 1: could shoot somebody in Times Square and this his base

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Speaker 1: would still stay with him. Um. I think you find

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Speaker 1: the same thing here, That is that the economy is

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Speaker 1: not the only issue. It's abortion, it's immigration, it's this magath,

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Speaker 1: this magath feeling, you know, emotional issue. Um. So that

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Speaker 1: you know, the economy would have to go bit down

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Speaker 1: very far, very fast for him to lose a lot

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Speaker 1: of his base support. What's your number right now. I mean,

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Speaker 1: CBO I guess we're due for another renumber. But are

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Speaker 1: we at one point three or one point four trillion

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Speaker 1: out there at some point? You mean for a deficit? Um, Yeah,

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Speaker 1: we'll look well, we're probably gonna hit we we'll hit

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Speaker 1: one point one trillion in two thousand nineteen, maybe a

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Speaker 1: little bit higher if we get a space force and

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Speaker 1: a and a billion for the wall and god knows

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Speaker 1: what else for infrastructure. UM. But CBO is saying that

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Speaker 1: it's only going to go up from there, not down.

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Speaker 1: And if there's a if there's an economic downturn, time

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Speaker 1: even a mile downturn, we're talking about a deficit that

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Speaker 1: will approach two trillion easily easily, and and and it'll

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Speaker 1: be that'll be a combination of one point one one

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Speaker 1: point to permanent deficits and in about eight hundred billion

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Speaker 1: dollars in cyclical changes. So this is the first I've

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Speaker 1: ever heard this, PIM. Are you willing to say the

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Speaker 1: two trillion number, given some form of migration of g

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Speaker 1: D P self, g D becomes it under two percent

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Speaker 1: stand trillion? Well, yeah, tom it we're at four point

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Speaker 1: two chillion, PIM, four point two percent last quarter. So

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Speaker 1: it's not clear that it's going to be a effect.

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Speaker 1: It's very clear that it's not going to be a

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Speaker 1: long term trend um. But Tom, if you look at

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Speaker 1: the CBO numbers, they have the economy growing at less

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Speaker 1: than two percent. And and that's the point at which

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Speaker 1: you start to get, you know, deficits of one point

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Speaker 1: five one point six trillion. So to be clear here,

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Speaker 1: when we get under two point what do we get

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Speaker 1: begin to see that incremental deficit add on, Well, it

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Speaker 1: depends on what you're assuming right now. Right now, we're

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Speaker 1: assuming about a three percent growth rate, or the administration's

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Speaker 1: assuming about a three percent growth rate. Once you start

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Speaker 1: blow that, the deficit gets higher than you were projecting

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Speaker 1: um and and you know, at a blow two you

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Speaker 1: get the numbers that TV I was looking at. Stan,

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Speaker 1: Thank you so much. Stan, Calendar the budget on Churse

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Speaker 1: writing for Forbes, piercing short articles for Forbes that really

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Speaker 1: cuts through all the the black Joining us now within

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Speaker 1: the morning Chaos of moving to Canada And moving on

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Speaker 1: to the tweets of the day is Andy Hunt with

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Speaker 1: Wells Fargo. Andy, have you tweeted this morning if you

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Speaker 1: had you know anything about cross said policy in your

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Speaker 1: tweet stream this morning. I sadly, no, I'm not not active.

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Speaker 1: You have an exceptionally sophisticated chart leading off your research

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Speaker 1: note on Jensen's alpha, which I'm gonna guess is some

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Speaker 1: form of relative performance. Where is the best value now

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Speaker 1: on a relative basis within the markets? So we we

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Speaker 1: still like US credit, though less maybe than we have

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Speaker 1: in times recently passed, and the consumer. The state of

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Speaker 1: the US economy, the fundamentals are very strong and technicals

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Speaker 1: are are still positive with relatively little issues coming in

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Speaker 1: some parts of the market. So we still seem still

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Speaker 1: value in the US credit and credit sector. Within this

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Speaker 1: is at some point it will end. Within fixed income,

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Speaker 1: What signs do you look for where you say price

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Speaker 1: up and yield lower is going to end? What are

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Speaker 1: the signals that you look for? Mr? Hunt? The interesting

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Speaker 1: question there is some signs of of late cycle behavior.

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Speaker 1: I mean people ask you know, where are we at

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Speaker 1: in the you can making credit cycling? And then what

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Speaker 1: innings are we in? And I do kind of happily

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Speaker 1: say we're in the eight or ninth innings, but happily

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Speaker 1: to suggest it might be a ten or eleven innings

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Speaker 1: match but we are getting there late in the cycle,

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Speaker 1: and there is some late cycle behavior and appearing in

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Speaker 1: some parts, particularly, I would say in the US loan market,

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Speaker 1: where we see many of the protections and the indentures

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Speaker 1: that are weakening the covenants of lightning. And you know

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Speaker 1: that that's sort of number of fronts, but that that's

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Speaker 1: that's maybe an early warning sign. Happily to say though

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Speaker 1: that we think you know many of the signals, and

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Speaker 1: some people are pointing to the suggests an imminent recession

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Speaker 1: or imminent problem. We might be two or three years

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Speaker 1: out from from a warried state, Andy Hunt. It is

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Speaker 1: not a new Netflix original, It is not a new movie.

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Speaker 1: What is Jensen's alpha and why is that something we

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Speaker 1: need to learn about? So we've it's a measure of

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Speaker 1: risk of just it's value add or risk adjustive return.

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Speaker 1: So it's a way of adjusting for our portfolios beta

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Speaker 1: and then seeing what alpha has left over. So it's

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Speaker 1: it's kind of a fancy way of just saying out

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Speaker 1: performance or genuine out performance after be to adjusting the

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Speaker 1: performance stream and are people trying to outperform in a

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Speaker 1: market that is just not going to help them when

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Speaker 1: you've got the nastack up more than se and the

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Speaker 1: S and P five hundred approaching a nine percent return

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Speaker 1: this year. So, um, everyone's alwaysh to outperform. The question

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Speaker 1: is where is it easier or harder to out perform?

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Speaker 1: And my, my, my chart. You're referring to centers around

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Speaker 1: the fixed income markets primarily, and it was a research

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Speaker 1: piece we did which was just trying to ask ourselves

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Speaker 1: the question whether passive mandates were going to make great

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Speaker 1: inroads into the fixed income management landscape. As we've seen

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Speaker 1: in the equity markets, percent of money is now invested

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Speaker 1: passively in equity, and I saw a stat to say

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Speaker 1: that around twenty of fixed income markets were parently invested.

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Speaker 1: The question was connective managers justify their existence by continuing

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Speaker 1: to provide risk adjusted out performance. Andy and a Pimp

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Speaker 1: Fox asked a really, really sophisticated question about the three

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Speaker 1: differentials of trainer, Jensen, and Sharp, and I thought your

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Speaker 1: answer was great on Jensen Alpha. But what this really

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Speaker 1: comes down to is a study of beta and the

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Speaker 1: study of relative performance within the individual security or a portfolio.

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Speaker 1: And here's the critical question for Global Wall Street and

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Speaker 1: everybody else as well. Does that mathematics and dynamics still

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Speaker 1: work in a time of ETFs bundled products in index funds.

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Speaker 1: I think so because essentially, what you're get in with

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Speaker 1: an e t F if you if it's a good one,

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Speaker 1: and if it performs as you hope it does, that

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Speaker 1: you kind of get what you buy, which is the

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Speaker 1: market beta. And then the question is, well, what's left

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Speaker 1: over You either allocate between ets and add value by

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Speaker 1: sector selection as allocation, or you're trying to beat bts

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Speaker 1: at their game, which is getting better access to the

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Speaker 1: part of the market that you're trying to target. And

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Speaker 1: so I think these measures and risk adjusted performance or

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Speaker 1: alpha type scores are very relevant because alpha is an

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Speaker 1: are uncorrelated form of return if it's done well, and

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Speaker 1: it's almost like another premier to harness. If you can

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Speaker 1: find parts of the market which are inefficient that you

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Speaker 1: know you can find a better access point than a

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Speaker 1: than a reactive ETF. And so that's the purpose of

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Speaker 1: this this trainer ratio analysis was to substantiate that many

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Speaker 1: parts of the fixed income market do show evidence of

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Speaker 1: inefficiencies and therefore consistent opportunity for alpha. What does active

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Speaker 1: management need to do in bonds to take the high

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Speaker 1: ground back from index funds. Is there a is there

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Speaker 1: an Andy Hunt due list? And what needs to be

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Speaker 1: done besides simple security selection bunds? Is it like things

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Speaker 1: like private debt Ian you got it, you got and

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Speaker 1: you've gotta understand. Our sophistication on pim Fox's desk is

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Speaker 1: the E. F. Hutton Blue SMP bond book from what

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Speaker 1: sixty four something. I mean, that's the level of sophistication here.

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Speaker 1: I'm sure you're selling yourself way short. The yes is

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Speaker 1: the answer. I think the fixed and come into season. Therefore,

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Speaker 1: ets that center on the more passive managers that focus

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Speaker 1: on them are not that great. You know that's a

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Speaker 1: sweeping statement and I'm sure people are criticized before it,

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Speaker 1: but I think there's plenty of room for improvement. We've

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Speaker 1: seen a lot so as well as traditional active management

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Speaker 1: of fixed income, which I think is alive well and

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Speaker 1: has a very vibrant future. I think there's a middle

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Speaker 1: ground where we've seen in the equity space a lot

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Speaker 1: of so called smart beta initiatives and work done, a

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Speaker 1: lot of research around factors and rewarded risk factors within equity.

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Speaker 1: We've seen the inside momentum low boll Those types of

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Speaker 1: concepts need to watch across the fixed income and also

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Speaker 1: become embedded in the in the vernacular, in the in

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Speaker 1: the taxonomy of products that you have plain traditional passive

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Speaker 1: against standard market benchmarks, the market issuance, market cap style

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Speaker 1: benchmarks we all know and love and have kind of

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Speaker 1: blindly invested in for years. You've had active managers against them.

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Speaker 1: And then in between I think you'll you'll see this

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Speaker 1: growth of a smart BEATA future where we'll have the

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Speaker 1: rewarded risk factors are better benchmark constructions created to give

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Speaker 1: again more efficient access to what really you're trying to get,

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Speaker 1: which is efficient yield characteristics such as duration that you want,

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Speaker 1: but but broad based year from diverse income sources that

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Speaker 1: then generate that that that that reliable income stream that frankly,

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Speaker 1: bond investors wish Andy Hunt, if you have to choose

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Speaker 1: between purchasing loans in order to get the yield or

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Speaker 1: high yield bonds, where does Andy Hunt recommend you put

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Speaker 1: the money loans or high yeld bonds? We have have

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Speaker 1: two answers to that. I would say, in the States,

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Speaker 1: we go for bonds over loans, but out of Europe,

431
00:25:28,160 --> 00:25:30,520
Speaker 1: we might turn that around and say loans over bars.

432
00:25:30,560 --> 00:25:35,200
Speaker 1: Why is that the different the different players in the market,

433
00:25:35,240 --> 00:25:38,760
Speaker 1: a different recent history of the market, their oil energy market,

434
00:25:39,320 --> 00:25:42,040
Speaker 1: or crisis of a couple three years ago kind of

435
00:25:42,040 --> 00:25:44,840
Speaker 1: taught the bond market, kept the bond market honest and

436
00:25:45,119 --> 00:25:49,280
Speaker 1: gave it some discipline, and we see good issuance, good indentures,

437
00:25:48,960 --> 00:25:55,000
Speaker 1: good good behaviors, and without overage directors, supply coming in

438
00:25:55,040 --> 00:25:57,200
Speaker 1: the bond market, whereas in the States the loan market

439
00:25:57,280 --> 00:26:00,880
Speaker 1: is is being fed by a full lot of sort

440
00:26:00,880 --> 00:26:05,200
Speaker 1: of issuance for clo use, and we see weakening covenants

441
00:26:05,200 --> 00:26:09,440
Speaker 1: and we worry that that that that implies a problem

442
00:26:09,440 --> 00:26:14,439
Speaker 1: around the corner. The loans prepay at will and therefore

443
00:26:14,440 --> 00:26:16,920
Speaker 1: we don't get all the upside if things go well,

444
00:26:18,119 --> 00:26:21,560
Speaker 1: but if things go badly, us sit with a spread

445
00:26:21,600 --> 00:26:26,960
Speaker 1: widening instrument and it's um. In Europe, the nature of

446
00:26:27,000 --> 00:26:29,119
Speaker 1: the beast is a little different, and they didn't have

447
00:26:29,200 --> 00:26:32,680
Speaker 1: the oil energy problem. Therefore kind of the market didn't

448
00:26:32,720 --> 00:26:34,600
Speaker 1: sort of have that wake up call a couple three

449
00:26:34,680 --> 00:26:36,960
Speaker 1: years ago in the bond market and on the loan

450
00:26:37,000 --> 00:26:39,760
Speaker 1: market because of the nature of the beast. Again, you

451
00:26:39,800 --> 00:26:43,640
Speaker 1: don't have the rules around use it's funds, particularly which

452
00:26:43,680 --> 00:26:46,800
Speaker 1: is that's called the mutual fund equivalent. In Europe, they

453
00:26:46,800 --> 00:26:49,760
Speaker 1: don't permit loans, only use it's funds. It's just the

454
00:26:49,840 --> 00:26:52,960
Speaker 1: REGs don't allow it unless we kept the retail investor

455
00:26:53,040 --> 00:26:55,800
Speaker 1: out of the loans market and so it's more of

456
00:26:55,840 --> 00:26:59,760
Speaker 1: an institutional market and it's kept its US quality better.

457
00:27:00,119 --> 00:27:02,040
Speaker 1: This has been wonderful, Andy, don't thank you so much

458
00:27:02,040 --> 00:27:04,760
Speaker 1: with Wills Fargo, just Thrill davy on today he has

459
00:27:04,800 --> 00:27:07,800
Speaker 1: co had at their global fixed income and ahead of

460
00:27:07,880 --> 00:27:25,560
Speaker 1: loan and global credit. He went to Building Academy where

461
00:27:25,560 --> 00:27:28,560
Speaker 1: the entire hockey team was Canadian. Then he went to

462
00:27:28,680 --> 00:27:33,320
Speaker 1: Yale University where he aided every Mexican restaurant alternating with pizza.

463
00:27:33,760 --> 00:27:36,119
Speaker 1: We welcome Austin goals Be, the former chairman of the

464
00:27:36,119 --> 00:27:39,919
Speaker 1: President's Council of Economic Advisors. He holds court in the

465
00:27:40,000 --> 00:27:43,800
Speaker 1: land of the Chicago Cubs and the Chicago White Socks,

466
00:27:43,840 --> 00:27:47,919
Speaker 1: and we welcome him this morning. Austin on the complexities

467
00:27:47,960 --> 00:27:54,800
Speaker 1: of trade, which come down to political simplicity. What are

468
00:27:54,840 --> 00:27:59,320
Speaker 1: you listening for in this argument between Canada and the

469
00:27:59,400 --> 00:28:04,240
Speaker 1: United States, In this separate argument of Mexico in the

470
00:28:04,320 --> 00:28:08,880
Speaker 1: United States. What has your attention, Well, first of all,

471
00:28:08,920 --> 00:28:12,560
Speaker 1: thanks for having me back again. Um um. What has

472
00:28:12,680 --> 00:28:19,399
Speaker 1: my attention, I guess is whether it remains what it

473
00:28:19,560 --> 00:28:23,520
Speaker 1: is now, which I would characterize as a bunch of

474
00:28:23,600 --> 00:28:28,760
Speaker 1: minor small stuff, and that makes me feel better any as,

475
00:28:29,440 --> 00:28:32,280
Speaker 1: as I say, any day that we don't have a

476
00:28:32,320 --> 00:28:34,840
Speaker 1: trade war is a good day for the economy. And

477
00:28:34,920 --> 00:28:38,560
Speaker 1: so if we want to argue about should we put

478
00:28:38,640 --> 00:28:42,000
Speaker 1: in some little provision that applies to one sector or

479
00:28:42,040 --> 00:28:44,680
Speaker 1: one thing or something, and they can agree on that,

480
00:28:44,880 --> 00:28:47,440
Speaker 1: and by agreeing on that they don't engage in a

481
00:28:47,480 --> 00:28:51,080
Speaker 1: full blown trade war, than that's great. Um. So I

482
00:28:51,160 --> 00:28:56,280
Speaker 1: don't anticipate I guess my prediction is that Canada wouldn't

483
00:28:56,320 --> 00:29:00,200
Speaker 1: have too much problem with the things that the that

484
00:29:00,320 --> 00:29:02,960
Speaker 1: the US and Mexico agreed to, because they were they

485
00:29:02,960 --> 00:29:06,560
Speaker 1: were a bunch of small things that they seemed less

486
00:29:07,440 --> 00:29:13,840
Speaker 1: they seemed less significant than what Canada had already agreed

487
00:29:13,920 --> 00:29:16,680
Speaker 1: to for the t p P which which was thrown out.

488
00:29:16,760 --> 00:29:19,160
Speaker 1: So I would think that we could get to a

489
00:29:19,360 --> 00:29:22,120
Speaker 1: to a deal pretty correctly. Did you give President Obama

490
00:29:22,160 --> 00:29:25,400
Speaker 1: and President Trump credit? They're dealing in a different world

491
00:29:25,760 --> 00:29:28,200
Speaker 1: than the world of gat of Uruguay, of what we

492
00:29:28,280 --> 00:29:31,320
Speaker 1: did out of World War Two and onward. In trade,

493
00:29:31,800 --> 00:29:36,280
Speaker 1: in this modern trade debate, what does President Trump get right?

494
00:29:40,840 --> 00:29:43,920
Speaker 1: He looked I have made no secret. I don't think

495
00:29:43,960 --> 00:29:46,920
Speaker 1: he's getting much right. I think he has in President

496
00:29:46,960 --> 00:29:51,600
Speaker 1: Trump has in his mind a zero sum world in which,

497
00:29:52,480 --> 00:29:56,840
Speaker 1: uh nobody, there are only winners and losers. We can't

498
00:29:56,840 --> 00:30:00,920
Speaker 1: do anything that makes us both better off. Um And

499
00:30:01,480 --> 00:30:07,640
Speaker 1: I think the emphasis on bilateral deals rather than building

500
00:30:07,800 --> 00:30:13,760
Speaker 1: robust institutions for the whole world, I think that's a mistake. UM. So,

501
00:30:14,000 --> 00:30:17,480
Speaker 1: I don't know that on trade, Donald Trump is getting

502
00:30:17,480 --> 00:30:19,760
Speaker 1: a lot right. I guess I would say that was

503
00:30:19,960 --> 00:30:22,200
Speaker 1: one thing that he's getting right. He's not the first

504
00:30:22,240 --> 00:30:28,680
Speaker 1: to discover it is that there are non terroriff barriers

505
00:30:29,000 --> 00:30:32,440
Speaker 1: and non terroriff things going on in the world of

506
00:30:32,480 --> 00:30:37,240
Speaker 1: trade that do matter, Like that the Chinese take the

507
00:30:37,280 --> 00:30:40,240
Speaker 1: intellectual property, they force people that invest in China to

508
00:30:40,320 --> 00:30:44,959
Speaker 1: turn over their blueprints and hand over their technology. He's

509
00:30:45,040 --> 00:30:50,920
Speaker 1: getting that right. Um. I just disagree with how he's

510
00:30:51,080 --> 00:30:53,440
Speaker 1: trying to address that. But but I do think he's

511
00:30:53,520 --> 00:30:57,320
Speaker 1: diagnosed that problem right. Austin Coulsby is the World Trade

512
00:30:57,480 --> 00:31:04,880
Speaker 1: Organization and effective for for mitigating or remediating trade problems

513
00:31:04,960 --> 00:31:10,600
Speaker 1: between nations. Doesn't work. Yeah, mostly it has worked. Um,

514
00:31:10,640 --> 00:31:13,800
Speaker 1: if the United States tries to blow it up, it's

515
00:31:13,880 --> 00:31:17,600
Speaker 1: definitely not gonna work anymore because we're one of the

516
00:31:17,680 --> 00:31:22,480
Speaker 1: lynch pins of it. The I mean, I can I

517
00:31:22,520 --> 00:31:24,480
Speaker 1: can tell you my view of what's good and what's

518
00:31:24,520 --> 00:31:27,040
Speaker 1: bad about the w t L. What's is far more

519
00:31:27,080 --> 00:31:31,000
Speaker 1: important than what's bad and what's good is it's a

520
00:31:31,200 --> 00:31:36,200
Speaker 1: It's an institution that allows not objective but kind of

521
00:31:36,240 --> 00:31:42,080
Speaker 1: an objective view that all the countries that participate agree

522
00:31:42,720 --> 00:31:47,120
Speaker 1: we will treat each other with at least this much respect.

523
00:31:47,960 --> 00:31:52,280
Speaker 1: You can't put specific tariffs on a w t O country.

524
00:31:52,360 --> 00:31:54,120
Speaker 1: You have to they have to be treated as a

525
00:31:54,160 --> 00:31:57,560
Speaker 1: most favorite nation status. To sign up for w t O,

526
00:31:57,680 --> 00:32:01,400
Speaker 1: you have to agree to abide by certain conventions, and

527
00:32:01,480 --> 00:32:04,640
Speaker 1: if you don't, you can be called to account. You

528
00:32:04,680 --> 00:32:09,800
Speaker 1: can the and the US has benefited significantly filing w

529
00:32:10,000 --> 00:32:15,240
Speaker 1: t O grievances, receiving compensation, or forcing countries to stop

530
00:32:15,280 --> 00:32:19,400
Speaker 1: their protection and stuff against the United States. The what's

531
00:32:19,440 --> 00:32:23,040
Speaker 1: been wrong with the w t O or what's proved

532
00:32:23,160 --> 00:32:28,440
Speaker 1: hard as the decades have gone on. Is there are countries,

533
00:32:29,000 --> 00:32:35,160
Speaker 1: most especially China, which joined the w t O as

534
00:32:35,240 --> 00:32:40,840
Speaker 1: a small emerging market, which they kind of give small

535
00:32:41,000 --> 00:32:46,640
Speaker 1: poor countries more latitude than big developed economies. So China

536
00:32:46,720 --> 00:32:49,800
Speaker 1: got in and follows the rules of a small emerging

537
00:32:49,880 --> 00:32:53,480
Speaker 1: market and now they're the second biggest economy in the world.

538
00:32:53,560 --> 00:32:57,880
Speaker 1: So it's a it's a it's an uncomfortable fit of

539
00:32:57,960 --> 00:33:03,280
Speaker 1: how that um of how they're treated. But overall, the

540
00:33:03,520 --> 00:33:07,920
Speaker 1: w TL has been far, far more beneficial to the

541
00:33:08,040 --> 00:33:10,800
Speaker 1: US economy as well as to the world than than

542
00:33:10,960 --> 00:33:13,040
Speaker 1: what its problems have been. I mean, there's no doubt

543
00:33:13,080 --> 00:33:15,600
Speaker 1: about that. Professor Goolsby, thank you so much. This has

544
00:33:15,640 --> 00:33:19,320
Speaker 1: been incredibly from Austin goes Be, Thank you so much

545
00:33:19,320 --> 00:33:22,640
Speaker 1: with the BOOST School, Chicago, former Chairman of the President's

546
00:33:23,200 --> 00:33:34,000
Speaker 1: Council of Economic Advisers. Thanks for listening to the Bloomberg

547
00:33:34,040 --> 00:33:40,000
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

548
00:33:40,360 --> 00:33:44,560
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

549
00:33:44,600 --> 00:33:48,880
Speaker 1: Tom Keane before the podcast. You can always catch us worldwide.

550
00:33:49,320 --> 00:33:50,400
Speaker 1: I'm Bloomberg Radio