WEBVTT - Surveillance: Stocks Are A Little Overdone, Mann Says 0:00:05.720 --> 0:00:13.800 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.639 Bloomberg dot Com, and of course on the Bloomberg Pen. 0:00:33.720 --> 0:00:37.199 Why don't you bring in the esteemed economist from Oh? Yes, 0:00:37.280 --> 0:00:38.640 And in fact I had to say I was just 0:00:39.120 --> 0:00:42.280 watching it on watching you speak with Katherine Mann, h 0:00:42.560 --> 0:00:46.919 City Groups Global chief economist while you are on television. 0:00:46.960 --> 0:00:48.960 Katherine Man, It's always a pleasure. Thanks very much for 0:00:49.000 --> 0:00:52.280 being here. Can you explain what the real relationship is 0:00:52.320 --> 0:00:55.120 between the performance of the US economy and the performance 0:00:55.160 --> 0:00:58.200 of the U S stock market? Well, actually, the two 0:00:58.240 --> 0:00:59.880 of them makes sense right now. I mean the US 0:01:00.000 --> 0:01:03.600 economy is doing extremely well. I mean the unemployment raised 0:01:03.840 --> 0:01:07.480 is quite low. Uh, there's a tax cut. Um, profits 0:01:07.480 --> 0:01:11.640 are high. Uh, growth is strong. You know, it makes 0:01:11.680 --> 0:01:15.960 perfect sense that stocks should be very elevated. Now you 0:01:16.080 --> 0:01:19.039 got to ask the question though, Um, we knew that 0:01:19.400 --> 0:01:21.120 growth was going to be really strong, and we knew 0:01:21.160 --> 0:01:22.760 that unemployment was going to be really low, and we 0:01:22.800 --> 0:01:24.679 knew everybody was going to get a tax cut. So 0:01:25.080 --> 0:01:29.199 maybe it's a little overdone. When you say overdone, meaning 0:01:29.200 --> 0:01:33.240 the exuberance, the enthusiasm to buy stocks, Well, I you know, 0:01:33.360 --> 0:01:36.040 I think that there's quite a bit of enthusiasm. A 0:01:36.120 --> 0:01:39.040 lot of people are buying stocks. And uh, you've got 0:01:39.040 --> 0:01:43.000 to ask, what is the new information that UM is 0:01:43.040 --> 0:01:47.319 being incorporated in the stock valuations that we have today. 0:01:47.400 --> 0:01:49.480 I think that's really the question, because I'm not sure 0:01:49.480 --> 0:01:55.920 there's much new information that would warrant UM this much exuberance. Well, 0:01:55.920 --> 0:01:58.640 how about new information that looks at the U S 0:01:58.640 --> 0:02:01.160 stock market relative to what's happening in the rest of 0:02:01.160 --> 0:02:04.800 the world, whether it be Turkey or China, or continental 0:02:04.840 --> 0:02:09.160 Europe and Brexit, or indeed even Brazil and Argentina. And 0:02:09.240 --> 0:02:12.280 as a result, you take a second look and you 0:02:12.360 --> 0:02:15.440 think that decision to sell US equities and go someplace 0:02:15.480 --> 0:02:17.720 else is a decision that you're not going to make 0:02:17.800 --> 0:02:20.640 right now. Well again, I mean, my view is is 0:02:20.680 --> 0:02:25.760 that UM, there are a lot of UM emerging markets 0:02:25.840 --> 0:02:29.720 that actually are very good opportunities UM, and all of 0:02:29.720 --> 0:02:31.920 the emerging markets are sort of being tarred with the 0:02:31.960 --> 0:02:35.280 same brush and looking, you know, there are some definite 0:02:35.400 --> 0:02:37.440 places that you do not want to invest, but there 0:02:37.480 --> 0:02:40.240 are a lot that where you do want to invest. Uh, 0:02:40.360 --> 0:02:43.480 they do represent opportunities. And and where would you be 0:02:43.480 --> 0:02:48.720 booking a ticket to go and check out the companies um, Indonesia, Malaysia, 0:02:49.200 --> 0:02:51.600 I would. I would also look at some some Latin 0:02:51.639 --> 0:02:55.760 countries Peru, Chile, Colombia. These are countries that we don't 0:02:55.800 --> 0:02:58.399 hear about a whole lot, but in fact they have 0:02:58.440 --> 0:03:02.880 been extremely disciplined in terms of their policies and they 0:03:03.000 --> 0:03:06.160 represent good opportunities. Now you've got to wonder about the neighborhood. 0:03:06.160 --> 0:03:08.600 We always have to wonder about the neighborhood. UM. But 0:03:08.680 --> 0:03:10.600 you know, whether it's the Asia or whether it be 0:03:10.639 --> 0:03:12.640 Latin America or Europe. But you know they are a 0:03:12.639 --> 0:03:15.160 good opportunity. This is a really important insight because, as 0:03:15.200 --> 0:03:17.840 you say, nobody focuses on Peru except I had a 0:03:17.880 --> 0:03:21.520 wonderful conversation with the President Peru two years ago about 0:03:21.560 --> 0:03:27.760 that distinction of Peru. This goes back to Douglas UM. 0:03:27.800 --> 0:03:32.440 This goes back to Douglas North at Washington University in St. 0:03:32.440 --> 0:03:37.000 Louis about the strength in need of institutions and really 0:03:37.040 --> 0:03:40.480 what we're really talking about in this debate is country 0:03:40.600 --> 0:03:45.480 a doesn't have the institutional structured leadership and governance, and 0:03:45.560 --> 0:03:49.400 a country really can be adjacent, can be fine. I mean, 0:03:49.480 --> 0:03:52.080 it's really what we're talking about it all. This isn't 0:03:52.120 --> 0:03:55.160 it well? As I say, I think the neighborhood does matter. 0:03:55.320 --> 0:03:58.320 I mean there's no question that that if you're surrounded 0:03:58.320 --> 0:04:02.560 by challenging, challenging environment you don't get you're not you're 0:04:02.600 --> 0:04:05.360 not going to do as well as you know, a 0:04:05.400 --> 0:04:08.640 situation where you have, um, the opportunity to trade with 0:04:08.680 --> 0:04:12.120 your neighbors. Uh, and that's that's beneficial for both. So 0:04:12.400 --> 0:04:14.760 you know, you you do care about the neighborhood. But 0:04:14.800 --> 0:04:17.200 on the other hand, getting back to you know, the 0:04:17.279 --> 0:04:20.560 choices that investors have to make, Um, do you do 0:04:20.680 --> 0:04:24.520 which which place? Or you're going to get more value? Uh, 0:04:24.560 --> 0:04:26.839 you know the S and P or on a more 0:04:26.880 --> 0:04:31.640 disaggregated basis, individual companies. Uh, maybe some companies that we 0:04:31.800 --> 0:04:33.920 don't hear about so much in the United States and 0:04:33.960 --> 0:04:36.880 some companies and countries that we don't hear about so much, 0:04:36.960 --> 0:04:40.120 so that it's you know, we talked about activists versus 0:04:40.160 --> 0:04:43.120 passivist investing. UM, this is a time to be an 0:04:43.160 --> 0:04:46.240 activist investor and really, you know, do your homework and 0:04:46.279 --> 0:04:48.279 do your analysis and figure out what the good deals 0:04:48.279 --> 0:04:50.919 are point taken. And I'm wondering whether when you speak 0:04:50.920 --> 0:04:54.720 about countries such as Peru and Chile and Colombia, are 0:04:54.720 --> 0:04:59.200 you talking about commodity driven economies. Well, Peru's not. Well, 0:04:59.400 --> 0:05:02.440 Peru does have commodity, so there are commodity elements to it, 0:05:02.520 --> 0:05:06.000 for sure, But um, these are countries that actually have 0:05:06.000 --> 0:05:08.880 have been able to diversify. They also have been able, 0:05:09.000 --> 0:05:12.279 as I say, have disciplined policies, and that is something 0:05:12.320 --> 0:05:16.360 that that has been important for the stabilization of those 0:05:16.360 --> 0:05:19.160 economies and to put them on a growth path and 0:05:19.240 --> 0:05:24.200 to have the actual determination and I would say conviction 0:05:24.480 --> 0:05:27.599 to stay in if indeed there are any short term 0:05:27.680 --> 0:05:31.040 declines in the value of these companies or assets that 0:05:31.080 --> 0:05:35.800 you describe because of the mistakes or the headline reading 0:05:35.839 --> 0:05:39.240 that goes on around them, to take advantage of those opportunities, 0:05:40.360 --> 0:05:41.880 that means you've got to have the same kind of 0:05:41.880 --> 0:05:45.200 wherewithal let's say, with the United States, if stocks were 0:05:45.240 --> 0:05:47.760 to the client, do you see any possibility that we're 0:05:47.760 --> 0:05:51.000 going to have a correction and asset values well, I 0:05:51.040 --> 0:05:53.400 think there, you know, as we think about the sort 0:05:53.440 --> 0:05:57.640 of the pathway that the that the Federal Reserve is on, 0:05:58.400 --> 0:06:03.440 which is to in a measured pace, increase interest rates, 0:06:03.480 --> 0:06:06.159 increase the policy rate. Uh you know, we have to 0:06:06.200 --> 0:06:09.479 think about what does the you know that do for 0:06:10.279 --> 0:06:14.200 other financial assets? Um and I think there's a question 0:06:14.240 --> 0:06:16.960 as to whether or not, uh at we get another 0:06:17.200 --> 0:06:21.720 you know, basis points. What does the financial market look 0:06:21.760 --> 0:06:25.160 like at that point. Robert Angle, the Laureate of n 0:06:25.279 --> 0:06:30.479 y U, talks about guards and hugely fancy econometrics, but 0:06:30.560 --> 0:06:32.720 what it comes down to is at some point to 0:06:32.839 --> 0:06:38.320 see the system seizes up. PIM talks about asset prices 0:06:38.360 --> 0:06:41.120 and the fear that they'll going down. What do you 0:06:41.240 --> 0:06:44.960 what do you observe in hindsight that we should watch 0:06:45.279 --> 0:06:48.839 to determine if the system seizes up? Is it just 0:06:48.960 --> 0:06:52.560 simply foreign exchange? Is the global litmus paper? Or do 0:06:52.560 --> 0:06:55.240 you have to look at short term paper, full faith 0:06:55.320 --> 0:06:58.200 and credit two years? What's what's the thing you watch 0:06:58.360 --> 0:07:03.160 every day on your four terminals at your desk. Uh So, 0:07:03.680 --> 0:07:06.640 I do look at quite a variety of things. But 0:07:06.800 --> 0:07:10.000 what I look at right now is I'm looking at 0:07:10.040 --> 0:07:15.920 what I see are variety of risks across asset prices 0:07:15.960 --> 0:07:19.160 that seem to be a little bit underpriced. Let's talk 0:07:19.160 --> 0:07:22.960 about credit risk for example. Um, when you can have 0:07:23.120 --> 0:07:27.840 a high yield bond or covenant light loan and you're 0:07:27.840 --> 0:07:32.320 paying very very little for it, Uh, you're figuring out 0:07:32.440 --> 0:07:35.040 at some point that that's going to go bad. We 0:07:35.080 --> 0:07:37.480 can also look again, I think that the you know, 0:07:37.520 --> 0:07:40.760 the stock market is an interesting animal. I mean, we 0:07:40.800 --> 0:07:44.320 all know that that financial markets do heard and uh, 0:07:44.440 --> 0:07:47.240 you know again, I have to ask the question, what 0:07:47.440 --> 0:07:52.280 is the new news that warrants the degree of exuberance 0:07:52.400 --> 0:07:55.360 that is in the market today. Well, I want to 0:07:55.360 --> 0:07:58.080 get maybe just but not get to the whole question, 0:07:58.160 --> 0:08:00.400 because we're going to come back and spend more time 0:08:00.400 --> 0:08:02.920 with you, Catherine. But if people are buying at the 0:08:02.960 --> 0:08:05.600 short end of the curve, right that everyone's talking short 0:08:05.640 --> 0:08:08.360 and short and shorter, why are right? Why is the 0:08:08.960 --> 0:08:11.240 curve so flat? Wouldn't that make what does that make 0:08:11.280 --> 0:08:14.720 sense to you? We wouldn't prices just increase and increase? Well, 0:08:14.760 --> 0:08:18.320 there are I mean this is we spend many hours 0:08:18.840 --> 0:08:22.440 and talk with many people about this question about what's 0:08:22.440 --> 0:08:25.920 going on with the ten year yield at being an 0:08:26.000 --> 0:08:31.200 important factor, important anchor to too many financial decisions, and uh, 0:08:31.640 --> 0:08:34.559 we can go through a number of different arguments for 0:08:35.200 --> 0:08:37.280 what's going on with it, but you know, there are 0:08:37.320 --> 0:08:42.640 there are issues about the flows into ten year long 0:08:42.720 --> 0:08:47.840 duration bonds that come from other countries who currently have 0:08:48.040 --> 0:08:52.280 very low interest rates on their sovereign obligations sovereign debt. 0:08:52.440 --> 0:08:55.120 And so if you if sovereigns is really what you want, 0:08:55.600 --> 0:09:00.880 then the US is really your part than it's problem. 0:09:00.880 --> 0:09:03.960 Thank you so much. Wide discussion today with the chief 0:09:04.280 --> 0:09:22.839 Global Economists for a City Group, Katherine Man. Let's talk 0:09:22.880 --> 0:09:26.560 about what's going on in politics for just a second. Yeah, 0:09:26.600 --> 0:09:29.920 well budget as well. Uh, stand a calendar of course. 0:09:30.440 --> 0:09:34.360 He's an executive vice president and national director of financial 0:09:34.360 --> 0:09:40.440 communications for MSL Group in the United States, and Stan Collender, 0:09:40.440 --> 0:09:41.839 it's always a pleasure to hear what you've got to 0:09:41.880 --> 0:09:44.920 say about what's going on in Washington. My question is 0:09:44.960 --> 0:09:47.280 how long do you believe Attorney General Jeff Sessions is 0:09:47.280 --> 0:09:50.240 going to have that job. Let's the election day is 0:09:50.280 --> 0:09:55.880 November six, so maybe the seven really that that's what's 0:09:55.920 --> 0:09:59.320 gonna happen. Well, look, it's not like Donald Trump calls 0:09:59.320 --> 0:10:01.360 me and tells me what his plans are. But um, 0:10:01.480 --> 0:10:03.960 it looks as if he's been lobbying, and the reports 0:10:04.000 --> 0:10:07.160 are that he's been lobbying the Democratic Republican senators to 0:10:07.160 --> 0:10:08.880 say I want to get rid of this guy, and 0:10:08.960 --> 0:10:12.440 you've got to let me do it. Um So, right 0:10:12.480 --> 0:10:14.040 after that, why can't he do it? What is it? 0:10:14.120 --> 0:10:16.400 He doesn't need their approval, No, no, he doesn't need 0:10:16.440 --> 0:10:20.719 their approval, but he does need them to confirm a replacement. 0:10:21.040 --> 0:10:22.640 Number one. Number two, he doesn't want to do it 0:10:22.640 --> 0:10:24.680 before the elections where it might have some impact on 0:10:24.679 --> 0:10:28.800 the voting. Uh. And three he wants to the Mueller 0:10:28.840 --> 0:10:30.760 probe to move a little bit further along so it 0:10:30.800 --> 0:10:34.840 doesn't look like he's trying to obstruct justice. Um So, Uh, 0:10:35.320 --> 0:10:36.800 it doesn't make any sense for him to do it 0:10:36.840 --> 0:10:40.320 before the election, and all the reporting is that right afterwards. Look, 0:10:40.360 --> 0:10:43.000 it wouldn't be surprising if two years after an election 0:10:43.000 --> 0:10:46.440 the president replaces many people in this cabinet. The difference 0:10:46.520 --> 0:10:48.160 is that in this case a lot of people have 0:10:48.240 --> 0:10:51.280 been replaced already. Standy, you've got in one of your 0:10:51.320 --> 0:10:56.080 notes an alarming observation for at least for me. You 0:10:56.200 --> 0:10:58.800 put a chance of a government shut down at six 0:10:59.080 --> 0:11:04.520 zero six percent. I just didn't know that. Well. Normally 0:11:04.559 --> 0:11:07.240 you would say in a situation like that like we're 0:11:07.240 --> 0:11:09.920 in now, that it would be very local possibility. That is, 0:11:09.960 --> 0:11:12.720 the Republicans in the majority in both houses don't want 0:11:12.720 --> 0:11:15.920 it because it'll keep them in Washington and enable unable 0:11:15.960 --> 0:11:18.920 to go home and campaign and hold fundraisers. Um that 0:11:19.000 --> 0:11:21.240 they need to campaign because especially in the House, because 0:11:21.280 --> 0:11:24.400 there may be a democratic waiver, a democratic takeover. But 0:11:25.240 --> 0:11:28.959 that same situation is what gives Donald Trump the ability 0:11:29.320 --> 0:11:31.720 gives him an additional leverage to get money for his wall. 0:11:32.000 --> 0:11:34.280 That is, if if the Republicans want to go home 0:11:34.320 --> 0:11:36.640 and he has the ability to keep them here, he 0:11:36.679 --> 0:11:38.320 has some leverage to say, give me the money for 0:11:38.360 --> 0:11:41.400 the wall, You're not going anywhere. Also that Trump may 0:11:41.440 --> 0:11:44.120 need to use the wall, and the impact on the 0:11:44.120 --> 0:11:47.400 immigration is to help him with his his voters, his base, 0:11:48.040 --> 0:11:50.440 which is petition particularly important because of all the other 0:11:50.559 --> 0:11:53.720 legal stuff going on. I saw this tweet, and I 0:11:53.840 --> 0:11:55.680 and I'm sorry, Pam, I wasn't sure if it was 0:11:55.720 --> 0:11:58.920 from Donald J. Trump for Stanley Colander. Here it is 0:11:59.280 --> 0:12:01.960 Ivanka true Ump and Jared Kushner had nothing to do 0:12:02.320 --> 0:12:05.240 with the so called pushing out of Don McGann. The 0:12:05.280 --> 0:12:09.160 fake news media has it purposely so wrong. They love 0:12:09.200 --> 0:12:12.000 to portray chaos in the White House when they know 0:12:12.080 --> 0:12:15.600 that chaos doesn't exist. Just today, and this is colinder 0:12:15.679 --> 0:12:21.160 classic quote, just a smooth running machine with changing parts, 0:12:21.720 --> 0:12:25.120 is that our budget process stand in Washington? All right? 0:12:25.160 --> 0:12:29.560 First of all, I did not write that. I don't know. Um. Second, 0:12:29.640 --> 0:12:31.520 did you did you see the news this morning? Tom 0:12:31.520 --> 0:12:34.520 and Pinn that pin that another member the White House 0:12:34.559 --> 0:12:39.720 Council's Office who handles their ethics investigations is leaving Friday, 0:12:39.760 --> 0:12:43.640 that is tomorrow. So um, yeah, there, there, there, There 0:12:43.720 --> 0:12:45.400 is There is nothing here that's going on in the 0:12:45.400 --> 0:12:47.680 White House. It's smooth. But Tommy, you've got to say, 0:12:47.679 --> 0:12:50.199 the budget process to the extent that there is one 0:12:50.360 --> 0:12:52.880 is even worse. That is, there is no process. There 0:12:52.920 --> 0:12:55.360 was no budget resolution this year. We're way behind on 0:12:55.400 --> 0:12:58.920 all the appropriations. There's only eleven legislative days before the 0:12:58.960 --> 0:13:01.720 start of the fiscal year. Nothing has been enacted, nothing 0:13:01.720 --> 0:13:03.640 has even been sent to the White House for evaluation. 0:13:03.679 --> 0:13:08.880 So doesn't the majority have the power to do that? Oh? Absolutely, 0:13:08.920 --> 0:13:13.600 budget resolutions cannot be filibustered, but did. The reason they 0:13:13.640 --> 0:13:15.200 didn't do it this year is that they didn't want 0:13:15.200 --> 0:13:18.920 to take votes on trillion dollar deficits before the elections. So, 0:13:19.040 --> 0:13:21.320 I mean, it's legally required to do a budget, but 0:13:21.360 --> 0:13:24.440 they just there's there's no enforcement if Congress doesn't want 0:13:24.480 --> 0:13:28.920 to do it themselves. And yes, the Democrats could filibuster 0:13:29.679 --> 0:13:32.640 appropriations in the Senate, so the majority of the Republicans 0:13:32.640 --> 0:13:34.960 don't have full control. But has anyone heard the word 0:13:35.000 --> 0:13:38.679 compromised recently in Washington? Probably not that could get these 0:13:38.679 --> 0:13:41.000 bills done. If they had committed to them months ago, 0:13:41.040 --> 0:13:42.400 they could have got them done by the start of 0:13:42.400 --> 0:13:44.719 the fiscal year and taken away any chance of a 0:13:44.760 --> 0:13:50.440 government shutdown. Stan Colinder midterm elections handicaptam for us, Well, 0:13:50.559 --> 0:13:53.560 look I am I am not the elections forecaster that 0:13:54.080 --> 0:13:56.640 several other people are, but from every the people I 0:13:56.679 --> 0:13:59.640 trust and I go to for advice and information, it 0:13:59.640 --> 0:14:02.560 looks as if the Democrats as of today will take 0:14:02.600 --> 0:14:05.480 over the House by maybe twenty with maybe twenty seed margin. 0:14:06.040 --> 0:14:08.040 That's not enough to get anything done next year, but 0:14:08.040 --> 0:14:10.000 it's enough to stop a lot of things from happening. 0:14:10.320 --> 0:14:13.080 The Senate seems a little bit more problematic for the Democrats, 0:14:13.720 --> 0:14:17.040 only because the map is so difficult that the Republicans 0:14:17.120 --> 0:14:19.440 might even gain a couple of seats while the Democrats 0:14:19.480 --> 0:14:23.160 take over the House. Um. But look, we're we're only 0:14:23.520 --> 0:14:26.440 what two months away from the election, and anything could happen, 0:14:26.840 --> 0:14:30.960 especially given the the let's let's call it a craziness 0:14:30.960 --> 0:14:33.240 of the president a little bit. We just don't know 0:14:33.280 --> 0:14:37.760 where things are going. The popularity of the president connected 0:14:37.800 --> 0:14:40.200 to the strength of the US economy, and your thought 0:14:40.960 --> 0:14:44.840 only to a certain extent. Obviously, if the economy we're 0:14:44.920 --> 0:14:48.600 not doing as well as it's doing, the president's popularity 0:14:48.680 --> 0:14:51.760 would probably be down five points or so. But let's 0:14:51.800 --> 0:14:53.640 go back to something he said during the campaign. He 0:14:53.640 --> 0:14:55.920 could shoot somebody in Times Square and this his base 0:14:55.960 --> 0:14:59.000 would still stay with him. Um. I think you find 0:14:59.040 --> 0:15:01.000 the same thing here, That is that the economy is 0:15:01.000 --> 0:15:04.760 not the only issue. It's abortion, it's immigration, it's this magath, 0:15:05.000 --> 0:15:09.760 this magath feeling, you know, emotional issue. Um. So that 0:15:10.960 --> 0:15:12.800 you know, the economy would have to go bit down 0:15:12.880 --> 0:15:14.680 very far, very fast for him to lose a lot 0:15:14.680 --> 0:15:19.160 of his base support. What's your number right now. I mean, 0:15:19.240 --> 0:15:22.320 CBO I guess we're due for another renumber. But are 0:15:22.360 --> 0:15:24.720 we at one point three or one point four trillion 0:15:25.040 --> 0:15:29.400 out there at some point? You mean for a deficit? Um, Yeah, 0:15:29.480 --> 0:15:31.560 we'll look well, we're probably gonna hit we we'll hit 0:15:31.640 --> 0:15:35.080 one point one trillion in two thousand nineteen, maybe a 0:15:35.080 --> 0:15:36.920 little bit higher if we get a space force and 0:15:37.040 --> 0:15:39.840 a and a billion for the wall and god knows 0:15:39.840 --> 0:15:43.600 what else for infrastructure. UM. But CBO is saying that 0:15:43.640 --> 0:15:45.400 it's only going to go up from there, not down. 0:15:45.480 --> 0:15:48.760 And if there's a if there's an economic downturn, time 0:15:48.840 --> 0:15:51.120 even a mile downturn, we're talking about a deficit that 0:15:51.160 --> 0:15:55.280 will approach two trillion easily easily, and and and it'll 0:15:55.320 --> 0:15:58.080 be that'll be a combination of one point one one 0:15:58.120 --> 0:16:01.080 point to permanent deficits and in about eight hundred billion 0:16:01.120 --> 0:16:04.280 dollars in cyclical changes. So this is the first I've 0:16:04.280 --> 0:16:06.320 ever heard this, PIM. Are you willing to say the 0:16:06.400 --> 0:16:10.640 two trillion number, given some form of migration of g 0:16:10.760 --> 0:16:15.760 D P self, g D becomes it under two percent 0:16:15.840 --> 0:16:22.880 stand trillion? Well, yeah, tom it we're at four point 0:16:22.920 --> 0:16:27.080 two chillion, PIM, four point two percent last quarter. So 0:16:27.160 --> 0:16:29.600 it's not clear that it's going to be a effect. 0:16:29.680 --> 0:16:31.080 It's very clear that it's not going to be a 0:16:31.080 --> 0:16:34.120 long term trend um. But Tom, if you look at 0:16:34.120 --> 0:16:36.920 the CBO numbers, they have the economy growing at less 0:16:36.960 --> 0:16:39.680 than two percent. And and that's the point at which 0:16:39.720 --> 0:16:42.520 you start to get, you know, deficits of one point 0:16:42.520 --> 0:16:45.160 five one point six trillion. So to be clear here, 0:16:45.280 --> 0:16:48.520 when we get under two point what do we get 0:16:48.640 --> 0:16:52.040 begin to see that incremental deficit add on, Well, it 0:16:52.080 --> 0:16:54.760 depends on what you're assuming right now. Right now, we're 0:16:54.760 --> 0:16:57.200 assuming about a three percent growth rate, or the administration's 0:16:57.240 --> 0:17:00.000 assuming about a three percent growth rate. Once you start 0:17:00.240 --> 0:17:03.040 blow that, the deficit gets higher than you were projecting 0:17:03.640 --> 0:17:07.520 um and and you know, at a blow two you 0:17:07.600 --> 0:17:09.720 get the numbers that TV I was looking at. Stan, 0:17:09.840 --> 0:17:12.320 Thank you so much. Stan, Calendar the budget on Churse 0:17:12.400 --> 0:17:16.800 writing for Forbes, piercing short articles for Forbes that really 0:17:16.840 --> 0:17:34.320 cuts through all the the black Joining us now within 0:17:34.400 --> 0:17:38.040 the morning Chaos of moving to Canada And moving on 0:17:38.080 --> 0:17:40.560 to the tweets of the day is Andy Hunt with 0:17:40.600 --> 0:17:43.520 Wells Fargo. Andy, have you tweeted this morning if you 0:17:43.560 --> 0:17:46.479 had you know anything about cross said policy in your 0:17:46.520 --> 0:17:50.440 tweet stream this morning. I sadly, no, I'm not not active. 0:17:51.400 --> 0:17:56.200 You have an exceptionally sophisticated chart leading off your research 0:17:56.320 --> 0:18:01.000 note on Jensen's alpha, which I'm gonna guess is some 0:18:01.200 --> 0:18:05.399 form of relative performance. Where is the best value now 0:18:06.040 --> 0:18:11.399 on a relative basis within the markets? So we we 0:18:11.760 --> 0:18:15.240 still like US credit, though less maybe than we have 0:18:15.400 --> 0:18:20.000 in times recently passed, and the consumer. The state of 0:18:20.000 --> 0:18:23.760 the US economy, the fundamentals are very strong and technicals 0:18:23.800 --> 0:18:29.760 are are still positive with relatively little issues coming in 0:18:29.800 --> 0:18:33.080 some parts of the market. So we still seem still 0:18:33.200 --> 0:18:37.200 value in the US credit and credit sector. Within this 0:18:37.440 --> 0:18:40.960 is at some point it will end. Within fixed income, 0:18:41.400 --> 0:18:44.919 What signs do you look for where you say price 0:18:45.200 --> 0:18:48.239 up and yield lower is going to end? What are 0:18:48.240 --> 0:18:53.280 the signals that you look for? Mr? Hunt? The interesting 0:18:53.359 --> 0:18:57.640 question there is some signs of of late cycle behavior. 0:18:57.680 --> 0:18:59.240 I mean people ask you know, where are we at 0:18:59.280 --> 0:19:01.560 in the you can making credit cycling? And then what 0:19:01.640 --> 0:19:03.800 innings are we in? And I do kind of happily 0:19:03.840 --> 0:19:06.120 say we're in the eight or ninth innings, but happily 0:19:06.359 --> 0:19:08.479 to suggest it might be a ten or eleven innings 0:19:08.520 --> 0:19:10.959 match but we are getting there late in the cycle, 0:19:11.040 --> 0:19:14.119 and there is some late cycle behavior and appearing in 0:19:14.200 --> 0:19:19.080 some parts, particularly, I would say in the US loan market, 0:19:19.119 --> 0:19:22.760 where we see many of the protections and the indentures 0:19:22.760 --> 0:19:26.960 that are weakening the covenants of lightning. And you know 0:19:27.000 --> 0:19:29.080 that that's sort of number of fronts, but that that's 0:19:28.880 --> 0:19:31.760 that's maybe an early warning sign. Happily to say though 0:19:31.760 --> 0:19:34.040 that we think you know many of the signals, and 0:19:34.119 --> 0:19:38.680 some people are pointing to the suggests an imminent recession 0:19:38.720 --> 0:19:41.160 or imminent problem. We might be two or three years 0:19:41.160 --> 0:19:45.719 out from from a warried state, Andy Hunt. It is 0:19:45.760 --> 0:19:49.760 not a new Netflix original, It is not a new movie. 0:19:50.480 --> 0:19:56.199 What is Jensen's alpha and why is that something we 0:19:56.240 --> 0:19:59.359 need to learn about? So we've it's a measure of 0:19:59.440 --> 0:20:02.320 risk of just it's value add or risk adjustive return. 0:20:02.400 --> 0:20:05.399 So it's a way of adjusting for our portfolios beta 0:20:05.480 --> 0:20:07.680 and then seeing what alpha has left over. So it's 0:20:07.720 --> 0:20:10.120 it's kind of a fancy way of just saying out 0:20:10.119 --> 0:20:14.440 performance or genuine out performance after be to adjusting the 0:20:15.160 --> 0:20:20.720 performance stream and are people trying to outperform in a 0:20:20.880 --> 0:20:24.560 market that is just not going to help them when 0:20:24.560 --> 0:20:27.439 you've got the nastack up more than se and the 0:20:27.560 --> 0:20:29.840 S and P five hundred approaching a nine percent return 0:20:29.920 --> 0:20:36.680 this year. So, um, everyone's alwaysh to outperform. The question 0:20:36.720 --> 0:20:39.119 is where is it easier or harder to out perform? 0:20:39.119 --> 0:20:43.040 And my, my, my chart. You're referring to centers around 0:20:43.240 --> 0:20:46.800 the fixed income markets primarily, and it was a research 0:20:46.840 --> 0:20:50.480 piece we did which was just trying to ask ourselves 0:20:50.480 --> 0:20:54.840 the question whether passive mandates were going to make great 0:20:54.880 --> 0:20:59.480 inroads into the fixed income management landscape. As we've seen 0:21:00.040 --> 0:21:04.240 in the equity markets, percent of money is now invested 0:21:04.320 --> 0:21:07.680 passively in equity, and I saw a stat to say 0:21:07.720 --> 0:21:12.120 that around twenty of fixed income markets were parently invested. 0:21:13.080 --> 0:21:18.480 The question was connective managers justify their existence by continuing 0:21:18.520 --> 0:21:22.720 to provide risk adjusted out performance. Andy and a Pimp 0:21:22.800 --> 0:21:26.560 Fox asked a really, really sophisticated question about the three 0:21:26.560 --> 0:21:31.479 differentials of trainer, Jensen, and Sharp, and I thought your 0:21:31.520 --> 0:21:34.640 answer was great on Jensen Alpha. But what this really 0:21:34.680 --> 0:21:37.040 comes down to is a study of beta and the 0:21:37.080 --> 0:21:42.280 study of relative performance within the individual security or a portfolio. 0:21:42.640 --> 0:21:45.520 And here's the critical question for Global Wall Street and 0:21:45.560 --> 0:21:50.280 everybody else as well. Does that mathematics and dynamics still 0:21:50.280 --> 0:21:56.479 work in a time of ETFs bundled products in index funds. 0:21:59.000 --> 0:22:02.560 I think so because essentially, what you're get in with 0:22:02.640 --> 0:22:04.880 an e t F if you if it's a good one, 0:22:04.920 --> 0:22:06.800 and if it performs as you hope it does, that 0:22:07.040 --> 0:22:08.840 you kind of get what you buy, which is the 0:22:08.880 --> 0:22:12.840 market beta. And then the question is, well, what's left 0:22:12.920 --> 0:22:16.800 over You either allocate between ets and add value by 0:22:18.000 --> 0:22:21.680 sector selection as allocation, or you're trying to beat bts 0:22:21.720 --> 0:22:23.960 at their game, which is getting better access to the 0:22:24.000 --> 0:22:26.200 part of the market that you're trying to target. And 0:22:26.240 --> 0:22:29.639 so I think these measures and risk adjusted performance or 0:22:29.680 --> 0:22:33.320 alpha type scores are very relevant because alpha is an 0:22:33.320 --> 0:22:36.960 are uncorrelated form of return if it's done well, and 0:22:37.040 --> 0:22:39.840 it's almost like another premier to harness. If you can 0:22:39.880 --> 0:22:43.240 find parts of the market which are inefficient that you 0:22:43.280 --> 0:22:45.480 know you can find a better access point than a 0:22:45.680 --> 0:22:48.399 than a reactive ETF. And so that's the purpose of 0:22:48.440 --> 0:22:53.080 this this trainer ratio analysis was to substantiate that many 0:22:53.119 --> 0:22:55.680 parts of the fixed income market do show evidence of 0:22:55.720 --> 0:23:00.480 inefficiencies and therefore consistent opportunity for alpha. What does active 0:23:00.560 --> 0:23:04.320 management need to do in bonds to take the high 0:23:04.400 --> 0:23:07.280 ground back from index funds. Is there a is there 0:23:07.280 --> 0:23:10.359 an Andy Hunt due list? And what needs to be 0:23:10.400 --> 0:23:14.240 done besides simple security selection bunds? Is it like things 0:23:14.280 --> 0:23:17.240 like private debt Ian you got it, you got and 0:23:17.440 --> 0:23:22.000 you've gotta understand. Our sophistication on pim Fox's desk is 0:23:22.040 --> 0:23:25.760 the E. F. Hutton Blue SMP bond book from what 0:23:27.920 --> 0:23:32.640 sixty four something. I mean, that's the level of sophistication here. 0:23:32.760 --> 0:23:35.960 I'm sure you're selling yourself way short. The yes is 0:23:36.000 --> 0:23:41.159 the answer. I think the fixed and come into season. Therefore, 0:23:41.200 --> 0:23:44.200