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Speaker 1: Runch you by Bank of America Mary Lynch. With virtual reality,

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Speaker 1: virtually everything will change. Discover opportunities in a transforming world

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Speaker 1: be of a, mL dot Com, slash VR, Mary Lynch,

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Speaker 1: Pierce Fenner, and Smith Incorporated. Welcome to the Bloomberg Surveillance Podcast.

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

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

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Speaker 1: Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg. Welcome Morning on Friday,

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Speaker 1: the twenty one of July. Happy Friday, everybody. This is

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Speaker 1: Bloomberg Surveillance on Bloomberg Radio. David Garrow with Tom Keene

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Speaker 1: in New York, joining US now in our Bloomberg eleven

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Speaker 1: three year studios here in New York as Chris Ferroni

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Speaker 1: is the head of Technical now US as its fatiguous

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Speaker 1: Research partners, and it's great to see. I want to

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Speaker 1: start broad if I could hear talk about the markets.

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Speaker 1: If I could. On Monday, you wrote it's difficult to

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Speaker 1: get negative with all the major induscries at new highs.

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Speaker 1: Let's start just with with your perspective on Uh, the

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Speaker 1: induscries here in the U S and globally, I know

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Speaker 1: you look at them all an aggregant. Yeah, exactly. When

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Speaker 1: you look at when the big top formations typically take shape,

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Speaker 1: it's when participation has gotten very very narrow, not when

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Speaker 1: all the groups and all the industries and all the

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Speaker 1: sectors are making new highs. I mean, just think about

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Speaker 1: the last week or so, We've had everything from the

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Speaker 1: Russell two thousand, to the SMP to the equal weighted SMP,

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Speaker 1: the Value Line Index, most global induscries at or near

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Speaker 1: new highs. That is a confirmed backdrop where we're not

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Speaker 1: seeing the narrowness that typically accompanies a bigger problem. So

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Speaker 1: I recognize where we are here in the calendar. I

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Speaker 1: recognize the next twelve weeks are often the toughest stretch

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Speaker 1: of the year. But we have to make a differentiation

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Speaker 1: between a pause or a consolidation and a big top

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Speaker 1: and we just do not think on the verge of

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Speaker 1: a big problem here. You talk a bit about that,

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Speaker 1: that calendar you mentioned it it is a short term risk.

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Speaker 1: Why is that the case historically? Why is that? Why

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Speaker 1: is August in September so problematic? You know, I think

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Speaker 1: you come up with a lot of reasons. It's kind

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Speaker 1: of a lull in the calendar as you get through

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Speaker 1: July earnings that tends to mark the top and seasonality

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Speaker 1: at least until late September early October. But what's important,

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Speaker 1: what we've learned in our work is how the trend

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Speaker 1: of the market can really influence seasonality, and when you're

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Speaker 1: in an uptrend, the weakness in September and August is

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Speaker 1: often less pervasive than when you're in a downtrend. Those

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Speaker 1: months are worse when you're already in a bear market

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Speaker 1: or in a downtrend. That's obviously not the case at

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Speaker 1: the moment. Tom and I've been talking a lot about

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Speaker 1: of volatility here over these last few weeks and needed

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Speaker 1: a chart of corporate spread against the cbo E. Let

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Speaker 1: me let me talk Chris. Never in girl's life did

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Speaker 1: he think you'd be talking? No, I didn't, or did

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Speaker 1: I You've got you've got corporate versus the CBO VIX.

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Speaker 1: What do you what do you get when you chart

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Speaker 1: those two against one another? I think you know, we

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Speaker 1: hear a lot of how extraordinary volatility here is being

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Speaker 1: as low as we've seen over recent months. When you

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Speaker 1: look at it as a function of credit, and that's

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Speaker 1: how we think about volatility. When credit conditions are stable,

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Speaker 1: volatility should be low. So when we look at the

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Speaker 1: relationship and when we regress b double a corporate spreads

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Speaker 1: versus the vix, the vix is actually right where it

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Speaker 1: should be. It's on that line of best fit. The

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Speaker 1: VIX should be low when credit conditions are behaved, and

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Speaker 1: that remains the case when you when you look at

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Speaker 1: the credit markets generally, is there stress? What do you

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Speaker 1: what do you see? Uh, we certainly don't see stress.

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Speaker 1: I think the more important question as we kind of

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Speaker 1: moved through the back after the year, is do we

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Speaker 1: see signs of complacency. It's possible that may be starting

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Speaker 1: to build here a little bit. Um we've certainly, you know,

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Speaker 1: we watched stuff like put calls to get a cent

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Speaker 1: the options market. Um, I would be a little bit

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Speaker 1: reluctant saying that the environment is terribly complacent just yet,

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Speaker 1: but will certainly watch that. I think the bigger messages

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Speaker 1: if this market is going to meaningfully deteriorate, my guess

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Speaker 1: is that credit would weaken as well. What's the bet

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Speaker 1: of institutions? Everybody? You know, on the modern day loves

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Speaker 1: to talk about hedge funds. What's long only by side

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Speaker 1: doing boring mutual funds? Are they two percent in cash

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Speaker 1: or they twelve percent in cash? Well? I think this

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Speaker 1: is where some of the sentiment data can really be

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Speaker 1: helpful in answering that question. And you know, there's two

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Speaker 1: types of sentiment data. There's data that measures what people

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Speaker 1: say they're doing surveys, and then there's data that measures

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Speaker 1: what people are actually doing your money, And we prefer

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Speaker 1: to look at the latter. We want to know what

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Speaker 1: people are actually doing. I would describe the street as

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Speaker 1: modestly net long. I don't think they are as aggressively

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Speaker 1: long as they may like to be. Now, whether it's

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Speaker 1: concerns out of Washington or concerns about earnings that maybe

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Speaker 1: inhibiting that, But I would not say we're aggressively long.

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Speaker 1: Look at a chart. Here, they're flipping through the chart

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Speaker 1: book Tom in real time, looking at get On, saying

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Speaker 1: what this is. We've got a liberal arts clown Cornell

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Speaker 1: in a political economy guy from Villanova, and we're flipping

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Speaker 1: through a chart book. I'm looking at your chart of

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Speaker 1: t j X. Here, he sputter h tread break fade rallies.

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Speaker 1: We've heard so many good things about t J t

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Speaker 1: j X, t j X in contrast to other retailers.

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Speaker 1: What are you seeing here when you compare these childings?

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Speaker 1: And that's kind of what worries me about the chart

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Speaker 1: about the stock is that it's been a place to

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Speaker 1: hide for so many investors in a really bad sector

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Speaker 1: for now so many years. And um, I have just

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Speaker 1: never seen a bear market in a group where ultimately

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Speaker 1: every stock doesn't go down and ultimately they hit the

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Speaker 1: best ones last, and they fit all the bad ones,

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Speaker 1: so they're onto the best one. And I think t

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Speaker 1: j X ross Shore's h is an example of names

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Speaker 1: that have been good that we need to be more

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Speaker 1: careful with her. How do you technically synthesize the raging

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Speaker 1: debate of bricks and mortar retail with Amazon? It makes

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Speaker 1: every It's on the Bloomberg Business Week this week, folks,

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Speaker 1: fabulous analysis of the big big tech companies. But technically,

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Speaker 1: what do you see when somebody says bricks and mortar

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Speaker 1: and Amazon, Well, we know where the weakness has certainly been.

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Speaker 1: And you know, we could have said a year ago

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Speaker 1: or two years ago that that relationship was so stretched

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Speaker 1: with strength from Amazon and weakness from the retail names.

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Speaker 1: My sense is that the traditional brick and mortar stocks,

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Speaker 1: the consensus uh the view there has now gotten so negative. Well,

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Speaker 1: we may want to start fishing around for some opportunities. Now.

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Speaker 1: What strikes me is some of these probably will be zeros,

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Speaker 1: others will not. I wonder if central bank policy, frankly,

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Speaker 1: over the last seven or eight years, has probably prolonged

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Speaker 1: this when we have lost some of these companies already. Exactly,

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Speaker 1: David Gering, time me, David. I'm over here calculating how

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Speaker 1: much more expensive and Martini is at Hemingway's bar in Paris.

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Speaker 1: Since the first round of the elections, the dollars gotten weaker.

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Speaker 1: It's gone from thirty five dollars to thirty seven dollars.

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Speaker 1: Nine cents. Have you that's a week dollar. That's a

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Speaker 1: week dollar. Let's have you? Do you have a dollar

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Speaker 1: chart to save me? I do have all the calculation

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Speaker 1: myself to save you. And I think we need to

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Speaker 1: remember something. The dollar has been weakening here for fifteen months.

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Speaker 1: This is not a new story. And if anything, the

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Speaker 1: dollars responding precisely as it tends to respond in periods

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Speaker 1: when the FED is raising rates. In five of the

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Speaker 1: last six cycles where the FED has raised rates, we

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Speaker 1: have seen the dollar go down, not up. I know

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Speaker 1: that sounds counterintuitive, but that that is typically have a

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Speaker 1: dollar reacts to a rising rate, uh environment, And I

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Speaker 1: would just say one point further, looking at the d

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Speaker 1: X why, I actually think it's a very poorly constructed

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Speaker 1: in dept. It's about se euros. We prefer to look

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Speaker 1: at an equally weighted dollar index. We put about twenty

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Speaker 1: different pairs in there, and that deteriorated long before, uh say,

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Speaker 1: you're a strengthened. This really important point. And I would

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Speaker 1: point out, David gurl that the Bloomberg d X wise

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Speaker 1: a lot better, different blend precisely much much just just equal.

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Speaker 1: Weay to just like Chris talks about, but the d

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Speaker 1: X wise would people quote but often pros use a

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Speaker 1: different index, David, Chris, let me ask you about golden

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Speaker 1: What you're seeing there is this a twelve fifty level

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Speaker 1: when you look at the gold chart. What stands out

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Speaker 1: to you, well, what stands out to me is what

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Speaker 1: hasn't happened. We've had a week dollar and gold can't

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Speaker 1: seem to respond, um. I think the most interesting things

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Speaker 1: in our business are when something doesn't go up when

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Speaker 1: it should, and this is an example of where gold

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Speaker 1: probably could have rallied as the dollar has weakened, and

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Speaker 1: its inability to do so really leaves me questioning the

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Speaker 1: trend I think is ultimately a tough level. I'd say

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Speaker 1: the same thing on the silver chart. I mean, these

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Speaker 1: are uh, really two things that are in different trends

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Speaker 1: at best, and I would be inclined to fade rallies

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Speaker 1: in that environment with both gold and silver and copper

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Speaker 1: continuing to break out. Yeah, copper is better here, I

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Speaker 1: think personal stand out and we like to look at

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Speaker 1: the ratio between copper and gold um, and that ratio

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Speaker 1: has firmed here as well. Now interestingly, when coppers up,

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Speaker 1: when iron ore is up, when they're outperforming gold, you

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Speaker 1: tend to see rates go up in that environment as well.

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Speaker 1: I know we're kind of stuck in this twenty to

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Speaker 1: thirty range, but I wouldn't know that. The street is

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Speaker 1: very very long bonds. I think there's an element of

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Speaker 1: complacency there, whereas if something goes right, you can get

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Speaker 1: a pretty quick move wire in yields that's the second

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Speaker 1: time you've mentioned that today, and is you and I

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Speaker 1: know bonds are generally out front of shocks than equities.

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Speaker 1: So if I'm going to play bonds, which bonds do

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Speaker 1: I play? If I'm going to get a reversal, well,

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Speaker 1: I think where you've seen positioning get very crowded is

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Speaker 1: more towards the longer end uh tens and thirties, where

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Speaker 1: uh that's where I think the trade is most crowded.

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Speaker 1: UM watch very closely this two level on yield. I

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Speaker 1: think if we hold that and we get some surprise,

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Speaker 1: you could see that squeeze play at very quickly. I

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Speaker 1: would point out that someone Engross out on the West

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Speaker 1: Coast agrees with Mr Bruins analysis bills out at too

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Speaker 1: forty is being much more key and before that's a

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Speaker 1: fair amount of noise as well. Christopher Ron, thank you

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Speaker 1: so much greatly, really really value add not only in TV,

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Speaker 1: and we'll send the charts out here for radio as well.

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Speaker 1: As we get through the morning, you're gonna, you know,

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Speaker 1: do our planning for them. Looking at this bar Hemingway

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Speaker 1: in Paris, it says he drank fifty one dry martinis

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Speaker 1: in a row. I didn't do that. He did that

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Speaker 1: that you know did. It's it's you know, and it's

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Speaker 1: one of one of the great things. This is the

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Speaker 1: Riz Carlton Folks in Paris. And what's great about it

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Speaker 1: is they just redid it and they didn't screw it up.

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Speaker 1: So many famous hotels and all that when they redo them,

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Speaker 1: they're never the same. And we went and its way

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Speaker 1: in the back tuck to the corner. It's absolutely packed

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Speaker 1: from the mom what they opened the door, it's packed,

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Speaker 1: and it's got all of the Hemingway memorabilia. And it

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Speaker 1: happens that the bartender takes great pride and you know,

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Speaker 1: the squeaky clean glasses and all that. But for anybody

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Speaker 1: jetting to Paris, UM, it's an extravagance. It's it's comically expensive,

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Speaker 1: but I got to admit it's worth it, just for one.

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Speaker 1: We'll go there sometimetime. We are so privileged here with

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Speaker 1: the quality of our guests. UM. And then at I'm

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Speaker 1: and uh, Nicholas Salman's give me, I'll get it right.

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Speaker 1: Nicholas Salman with earlier and right now of equal quality.

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Speaker 1: Jeffrey Sprague with US with Vertical Research Partners, legendary in

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Speaker 1: Wall Street looking at industrials, any number of companies that

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Speaker 1: particularly notice work could Cohen a number of years ago, Jeff,

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Speaker 1: you've got a very on Jeff Sprague word in your

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Speaker 1: research report. Please define for Mr. M L listening, what

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Speaker 1: are disk synergies? Well, dis synergy is in a good

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Speaker 1: morning Tom would really be the you know, the inverse

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Speaker 1: of what we think about when we put companies together,

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Speaker 1: and and it's you know, enjoy synergies from maybe removing

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Speaker 1: redundancies and corporate costs or other things. And so I

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Speaker 1: was addressing to the idea of dis synergies along the lines.

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Speaker 1: If you really pulled ge apart entirely, you start getting

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Speaker 1: a lot of leakage in terms of tax and the

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Speaker 1: need to put in place re done to corporate costs. Now,

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Speaker 1: obviously companies do spinoffs and things all the time, so

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Speaker 1: these are things that would be overcome. The point I

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Speaker 1: kind of wholesale break up into many pieces I think

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Speaker 1: becomes very inefficient. Is there a risk here, I access earlier, Nick,

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Speaker 1: Is there a risk here? Of finance ancial engineering? They

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Speaker 1: bring out their report, they're all cash flow this return

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Speaker 1: of shares, return to cash share buy back. That is

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Speaker 1: there a risk that they're doing in IBM redux of

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Speaker 1: financial engineering substituting for firm excellence. Well, that's part of

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Speaker 1: what's gotten used to the you know, the concerns that

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Speaker 1: we have. I think when I was on your show

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Speaker 1: a few weeks ago, I talked about the weakness and

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Speaker 1: the cash flow, and so we've we've had this disconnect

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Speaker 1: materialized over the last couple of years where accounting earnings

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Speaker 1: are better than the actual cash for the company. And uh,

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Speaker 1: you know, I think that's still a very clear investor concern.

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Speaker 1: And so you know here today the cash flow is

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Speaker 1: better in the second quarter, but still worse than expected

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Speaker 1: for the half. So they're you know, they're in a

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Speaker 1: bit of a hole on cash flow. They maintain their

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Speaker 1: guidance for the year on cash flow, but they've got

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Speaker 1: a pretty big hill to climb now to to get

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Speaker 1: to that target, and I think investors are going to

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Speaker 1: be rightly concerned that there is some risk that they

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Speaker 1: don't get there. Jeffson, certainly, June, we've learned a bit

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Speaker 1: about John Flambery, who's coming in his CEO. You know,

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Speaker 1: he likes the Almond Brothers. He wishes he knew how

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Speaker 1: to play the blues guitar. He said that to employees

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Speaker 1: in a in a Facebook life, what do we know

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Speaker 1: about how he's going to run this this company? You

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Speaker 1: have that merger of the oil and gas division and

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Speaker 1: Baker Hughes now completed. What are you what are you

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Speaker 1: looking for from this new CEO when he takes over

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Speaker 1: in August. First, I think we're going to see a

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Speaker 1: you know, obviously there's gonna be a reevaluation in the portfolio,

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Speaker 1: and I do think things will get done with the portfolio,

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Speaker 1: and notwithstanding by the synergy common I think there will

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Speaker 1: be a mover too, perhaps with the oil and gas,

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Speaker 1: perhaps with some other businesses. But I think he's really

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Speaker 1: gonna dig in and buckle down on cost execution. You know,

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Speaker 1: this is something that the company obviously as has done,

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Speaker 1: but I think there needs to be a higher sense

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Speaker 1: of urgency. I think it's notable that when he took

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Speaker 1: over the healthcare business, he ended up replacing of his

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Speaker 1: direct reports um and he tied this to the fact

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Speaker 1: that people just weren't, you know, moving as quickly as

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Speaker 1: he wanted or their behaviors really aren't what he was

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Speaker 1: looking for. So I think it's going to be clear.

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Speaker 1: There's a new sheriff in town. Obviously this is a

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Speaker 1: you know, a very big ship to turn. But I

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Speaker 1: think there's gonna be a you know, a very blunt

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Speaker 1: message that the company needs to, you know, buckle down

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Speaker 1: here and drive performance. Is there many billion dollar backlog

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Speaker 1: a thing that's not going to go away anytime soon? Well,

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Speaker 1: you have a very good backlog. I think the the

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Speaker 1: question that we really have, like when you look at

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Speaker 1: some of these margins is really uh, you know the

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Speaker 1: margins in backlog. You know what was done to you know,

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Speaker 1: capture those orders, right, Uh, you know, to to be extreme, right,

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Speaker 1: you could if you want to give stuff away, it's

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Speaker 1: easy to get in order. And I'm not suggesting they've

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Speaker 1: given stuff away, but I think there's you know, when

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Speaker 1: you look at the margin pressure that there's been and

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Speaker 1: kind of a cash flow disconnect there, there is some

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Speaker 1: concern that well, although the backlog is big and a

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Speaker 1: nominal value sense, that the profitability invented in it perhaps

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Speaker 1: is not that high. We gotta get you back. We

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Speaker 1: got lots to talk about. Jeffrey Sprague, thank you so

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Speaker 1: much this morning. Vertical Research Partners. Uh really truly legendary

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Speaker 1: on General Electric. A lot of different stories here. I

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Speaker 1: I hope, folks you heard the distinctive differences there between

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Speaker 1: Mr Hayman more optimistic than Mr Sprague. But that's what

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Speaker 1: makes for a market. We like that runt you by

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Speaker 1: Bank of America Mary Lynch. With virtual reality, virtually everything

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Speaker 1: will change, discover opportunities in a transforming world, be of

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Speaker 1: a mL dot com, slash VR, Mary Lynch, Pierced Fenner

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Speaker 1: and Smith Incorporated. Right now speaking of team coverage, UM

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Speaker 1: a gentleman who drives the story for it. And what's

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Speaker 1: so great about Tim O'Brien, folks, is he does and

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Speaker 1: do like the star turn Trump essay once every four weeks.

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Speaker 1: He's really grinding it every day. And there he was

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Speaker 1: last night with Anderson Cooper and Mr Tuban grinding it up.

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Speaker 1: How come you dress better for Anderson than you do

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Speaker 1: for us on radio? What's that? I want to tell

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Speaker 1: you have exactly the same clothes on as I did

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Speaker 1: last night. That's how it tower. That's disgusting. I don't

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Speaker 1: think you want to know that I have not changed

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Speaker 1: my word we got next time, I think we should

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Speaker 1: get Anderson in a bow tie and that would move

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Speaker 1: things forward. Okay, So you know, it's been a fabulous

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Speaker 1: forty eight hours for Bloomberg News and driving the story forward.

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Speaker 1: And what's great about your work, Tim O'Brien at Bloomberg

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Speaker 1: View is you've always gone back to the original Mr Trump.

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Speaker 1: Does the last four to eight hours surprise you of

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Speaker 1: the president knowing the original Mr Trump? No, it doesn't

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Speaker 1: at all. I think this is a guy who under

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Speaker 1: pressure lashes out. He's uh. At the end of the day,

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Speaker 1: there are two things I think that drive the president's thinking, uh,

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Speaker 1: self aggrandizement and self preservation. And I think what you

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Speaker 1: have now in the midst of this investigation is pure

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Speaker 1: self preservation. And now we know that they're looking at

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Speaker 1: trying to pardon as many people in the administration as

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Speaker 1: they can. He's, apparently, per the Washington Post, inquired about

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Speaker 1: pardoning himself. And I would add our great Bloomberg News

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Speaker 1: reporters yesterday broke a very significant director Stephen Dennis this morning. Uh, yeah,

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Speaker 1: both and Christian yesterday on the scope of Mueller's investigation

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Speaker 1: expanding in a direction, the President said he doesn't want

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Speaker 1: to go all of Trump's business deals. Tim, You're right,

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Speaker 1: as Mueller certainly knows by now, Trump's business history doesn't

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Speaker 1: merely have a closet full of skeletons that has warehouses

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Speaker 1: full them. What can you tell us about the bay

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Speaker 1: Rock group at Felix Sater and how they might be

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Speaker 1: the focus of Mr Mueller's investigation. Well, you know, the

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Speaker 1: tricky thing with bay Rock and the compelling thing about

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Speaker 1: it is they were development firm two floors beneath the

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Speaker 1: Trump organization's own office is in Trump Tower. A principal

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Speaker 1: at the firm, Felix Sader had longstanding ties to both

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Speaker 1: Russian organized crime groups and American organized crime groups. UH.

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Speaker 1: The Trump family, the eldest two children and the president.

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Speaker 1: We're in business with bay Rock for several years, from

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Speaker 1: about two thousand and three to two thousand and eleven.

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Speaker 1: They ultimately built the Trump Soho hotel together. And there's

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Speaker 1: an issue around how bay Rock was funded and where

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Speaker 1: it's funding came from. A big chunk of its funding

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Speaker 1: came from overseas. UH investigators have been concerned that it

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Speaker 1: possibly involved money laundering and all in all these relationships,

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Speaker 1: the issue is whether or not there were representatives of

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Speaker 1: the Kremlin or other foreign interests using these guys your

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Speaker 1: classic Trump Nation. You have City Group in the index.

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Speaker 1: You've got Chase Manhattan in the index. You don't have

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Speaker 1: Deutsche Bank in the index. Is Deutsche Bank interesting here?

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Speaker 1: Deutsche Bank is very interesting. They post date my book

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Speaker 1: basic because I published the book in two thousand and five,

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Speaker 1: and Trump's relationship with Deutsche Bank as a major Lennard

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Speaker 1: had just begune around that time that they financed his

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Speaker 1: his hotel and condominium project in Chicago and have since

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Speaker 1: then become a major I think presence in his financial life. Tim,

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Speaker 1: what are you gonna be listening for? Next week? Two

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Speaker 1: days of of big hearings? Of course, Jared Kushner testifying

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Speaker 1: and closed session before the Intelligence committed them, before the

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Speaker 1: Justice Committee. We've gone Paul Manaford and Donald Trump Junior?

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Speaker 1: What are you gonna be listening for? I suppose on

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Speaker 1: Wednesday you're gonna be listening for whatch on on Monday

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Speaker 1: when those doors are closed. Well, I think everyone wants

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Speaker 1: to know if other quid pro quos in any of

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Speaker 1: these relationships, just to cut through all the noise, I

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Speaker 1: think there's been a lot of conspiracy theorizing about Trump

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Speaker 1: and Russia. I think there's been a lot of misguided

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Speaker 1: focus on certain Russian related topics. At the end of

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Speaker 1: the day, I think what people have to care about

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Speaker 1: was issues like sanctions on Russia, where those traded off

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Speaker 1: for financial favors in any way to ump Cushing or

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Speaker 1: anyone else in the administration. Tim m'brian, thank you very much.

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Speaker 1: Appreciated Timbrian graduations also executive editor of course if Bloomberg

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Speaker 1: View and bloombergafly, I mean it's been reporting for Bloomberg

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Speaker 1: has been extraordinary. What are you guys gonna do Monday?

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Speaker 1: I think Monday, we're just going to get back at it,

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Speaker 1: to get back at it. In years, the story here

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Speaker 1: is the grind of reporting, getting back at it every day,

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Speaker 1: like three thousand people or whatever working on this story.

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Speaker 1: It's it's it's a good show. Tim O'Brien, thank you

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Speaker 1: so much. Bloomberg View and he publishes today. I'll get

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Speaker 1: that out on social media here in a moment right

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Speaker 1: for Bloomberg View rights all over the street in worldwide

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Speaker 1: with Alian's Muhammad Larian, Dr Larry and my read of

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Speaker 1: the summer is Olivier Blanchard at a conference in Naples,

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Speaker 1: who went right back to blench Chard Summers went back

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Speaker 1: to Blanchard Fisher and really dug into the oddities of

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Speaker 1: wage dynamics and labor supply. This is a whole a

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Speaker 1: font of interesting academic wisdom, folks, over thirty years from

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Speaker 1: Professor Blanchard. You wrote about this in the Only Game

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Speaker 1: in Town. Help us with this absolutely new wage dynamic

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Speaker 1: we're in right now. So let me just first say, Tom,

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Speaker 1: thanks for having me. And Olivia Blanchar is incredible and

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Speaker 1: things that he writes are always worth reading. We don't

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Speaker 1: understand well three things today wage determination, inflation dynamics, and productivity.

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Speaker 1: And when you put all three together, it shows you

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Speaker 1: that we really don't comprehend the economy as well as

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Speaker 1: we used to. Why. First, there are significant structural changes

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Speaker 1: going on to to work place, to how the economy functions,

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Speaker 1: and we may not be measuring well, let alone fully

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Speaker 1: understanding that's the first reason. Second, we have distorted the

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Speaker 1: way the economy functions through years of well intended experimentation,

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Speaker 1: and and third, global relationships are changing. So Tom, this

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Speaker 1: is a period of either incredible uncertainty and or excitement

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Speaker 1: for economists as they try to understand these new diynamis

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Speaker 1: within these mysteries is the idea, and you've always been

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Speaker 1: wonderful about this, the idea that we want to aggregate

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Speaker 1: our model together into one lovely model. Does Muhammad al

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Speaker 1: Ayan or Professor Blanchard or Lawrence Summers with histories? As do?

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Speaker 1: We want to finally say we're done with one model

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Speaker 1: because of inequalities and because of the segmented nature of

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Speaker 1: wages in our society, we're certainly done with one school

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Speaker 1: of thought. I think this is a time for a

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Speaker 1: more eclectic approach. You want, of course, traditional economics, but

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00:24:08,600 --> 00:24:11,960
Speaker 1: you also want a lot of behavioral economics. Um that's

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00:24:12,000 --> 00:24:15,840
Speaker 1: become more and more important, especially after the Great Recession.

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00:24:16,440 --> 00:24:19,879
Speaker 1: So yes to to a general idea, which is we

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00:24:19,920 --> 00:24:22,639
Speaker 1: can no longer rely on a single model, let alone

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Speaker 1: a single school and economics. We need a much more

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00:24:25,160 --> 00:24:28,080
Speaker 1: eclectic approach. Let me ask you, on the subject of

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00:24:28,320 --> 00:24:31,560
Speaker 1: monetary policy about this movement toward or those agitating for

435
00:24:31,640 --> 00:24:34,359
Speaker 1: a more rules based approached to it. We saw the

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00:24:34,920 --> 00:24:37,560
Speaker 1: formal tendering of a nomination for Randy Corals to become

437
00:24:37,560 --> 00:24:41,119
Speaker 1: the vice chair, a vice chair rather for supervision at

438
00:24:41,119 --> 00:24:43,920
Speaker 1: the Federal Reserve this week, as you look ahead to

439
00:24:44,000 --> 00:24:46,919
Speaker 1: that to what the Federal Reserve might be, what is

440
00:24:46,960 --> 00:24:49,919
Speaker 1: your counsel to investors about what could change if we do,

441
00:24:50,000 --> 00:24:53,879
Speaker 1: in fact get a more rules based approach my council,

442
00:24:53,960 --> 00:24:58,080
Speaker 1: David would would be be careful not to extrapolate too

443
00:24:58,200 --> 00:25:01,639
Speaker 1: much what has been an except no period for central banks,

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00:25:01,760 --> 00:25:06,640
Speaker 1: including the FED. The FED felt morally and ethically obliged

445
00:25:07,080 --> 00:25:11,080
Speaker 1: to step in because other policy making entities were paralyzed

446
00:25:11,160 --> 00:25:15,840
Speaker 1: by he cannot buy political gridlock. Now the FED is

447
00:25:15,840 --> 00:25:18,200
Speaker 1: coming to the point where it wants to exit, So

448
00:25:18,320 --> 00:25:21,920
Speaker 1: you investors would be very careful not to extrapolate too

449
00:25:22,040 --> 00:25:25,800
Speaker 1: much the Fed of the last seven years to the

450
00:25:25,840 --> 00:25:27,640
Speaker 1: next seven years. We're going to get a different FED.

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00:25:27,800 --> 00:25:29,439
Speaker 1: Over the next seven years, We're going to get a

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00:25:29,440 --> 00:25:31,360
Speaker 1: different FED. We've heard a lot here from this FED,

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00:25:31,400 --> 00:25:34,240
Speaker 1: a lot relatively speaking about what this balance sheet unwind

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00:25:34,359 --> 00:25:36,560
Speaker 1: is going to be like, or what Fed your Janet

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00:25:36,640 --> 00:25:39,240
Speaker 1: Yellen would like it to be like, Mohammed. But given

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00:25:39,280 --> 00:25:41,919
Speaker 1: the fact that we're going to see such rearrangement of

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00:25:42,000 --> 00:25:44,480
Speaker 1: the personnel here over these next few months. How confident

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00:25:44,520 --> 00:25:46,560
Speaker 1: are you that whatever she sets up and sets into

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00:25:46,560 --> 00:25:50,320
Speaker 1: play is going to continue in perpetuity. So when it

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00:25:50,359 --> 00:25:53,160
Speaker 1: comes to the balance sheet, I think that what we're

461
00:25:53,200 --> 00:25:56,520
Speaker 1: going to get is something very gradual and at the

462
00:25:56,560 --> 00:25:58,560
Speaker 1: end of the day for investors is going to be

463
00:25:58,600 --> 00:26:01,600
Speaker 1: like watching paint draw It's not gonna be very exciting.

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00:26:01,960 --> 00:26:03,879
Speaker 1: It's not going to be the basis of a major

465
00:26:03,960 --> 00:26:06,080
Speaker 1: short term trade, but it is going to change the

466
00:26:06,160 --> 00:26:10,800
Speaker 1: dynamics of the marketplace in terms of who owns securities,

467
00:26:11,240 --> 00:26:15,639
Speaker 1: in terms of rates, it's much more interesting. And here, David,

468
00:26:15,640 --> 00:26:18,320
Speaker 1: it comes down to whether you are just a traditionalist,

469
00:26:18,760 --> 00:26:21,959
Speaker 1: which who believes that the FED will only look at

470
00:26:22,040 --> 00:26:26,320
Speaker 1: employment and inflation is to mandate, or like me, you

471
00:26:26,359 --> 00:26:28,879
Speaker 1: believe that the FED and other central banks are also

472
00:26:28,920 --> 00:26:33,119
Speaker 1: going to pay a lot more attention to future financial stability.

473
00:26:33,200 --> 00:26:35,800
Speaker 1: That is a fundamental difference, and I think that the

474
00:26:35,880 --> 00:26:38,120
Speaker 1: FED and other central banks are going to worry more

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00:26:38,160 --> 00:26:42,520
Speaker 1: about future financial stability. You see the regulatory role, the

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00:26:42,560 --> 00:26:45,600
Speaker 1: regulatory responsibilities of the FED changing. Here. We're having a

477
00:26:45,600 --> 00:26:48,440
Speaker 1: conversation earlier about where you do see action in Washington

478
00:26:48,480 --> 00:26:51,479
Speaker 1: these days, and it seems like there is some movement

479
00:26:51,840 --> 00:26:54,439
Speaker 1: on the issue of of regulation. Obviously, you know how

480
00:26:54,480 --> 00:26:57,800
Speaker 1: Stephen Monution sharing the Financial Stability Oversight Council is the

481
00:26:57,840 --> 00:27:00,399
Speaker 1: Fed's role visa v. Regulation set to change? Do you

482
00:27:00,400 --> 00:27:03,320
Speaker 1: think I think it's going to evolve. I think we've

483
00:27:03,440 --> 00:27:08,240
Speaker 1: entered a period of less regulation. It's going to be gradual. Um.

484
00:27:08,280 --> 00:27:11,280
Speaker 1: I think we're going to see less economic regulation for sure.

485
00:27:11,960 --> 00:27:15,239
Speaker 1: In terms of financial regulation, that's going to be a

486
00:27:15,240 --> 00:27:18,520
Speaker 1: more cautious process, and for good reason, and that is

487
00:27:18,560 --> 00:27:22,280
Speaker 1: because we still have the memory of the accident fresh

488
00:27:22,280 --> 00:27:27,159
Speaker 1: in our minds. Do you can you link dollar weakness

489
00:27:27,200 --> 00:27:30,480
Speaker 1: to the lower yields that we've seen. That's been the

490
00:27:30,560 --> 00:27:34,160
Speaker 1: correlative moment of the week. We've seen lower yields and

491
00:27:34,240 --> 00:27:38,400
Speaker 1: also a week dollar Are they attached or are they separate?

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00:27:39,760 --> 00:27:41,960
Speaker 1: So what we've seen tom in terms of yields, and

493
00:27:41,960 --> 00:27:45,040
Speaker 1: it's something that I look at every single morning, the

494
00:27:45,119 --> 00:27:50,359
Speaker 1: differential between US treasuries and German boons. And you've seen

495
00:27:50,440 --> 00:27:53,680
Speaker 1: that narrow significantly to around a hundred and seventy basis point.

496
00:27:53,720 --> 00:27:56,919
Speaker 1: It's not so long ago that that differential was two thirty.

497
00:27:56,920 --> 00:28:02,640
Speaker 1: Why because markets are repricing growth expectations and in favor

498
00:28:02,680 --> 00:28:05,520
Speaker 1: of Europe versus the US, and markets are also repricing

499
00:28:05,680 --> 00:28:10,960
Speaker 1: relative monetary policy stances in favor of the ECB being

500
00:28:11,119 --> 00:28:15,840
Speaker 1: tighter than they thought before. Add to that is significant

501
00:28:15,880 --> 00:28:20,240
Speaker 1: portfolio flow into Europe and out of the US, and

502
00:28:20,400 --> 00:28:25,560
Speaker 1: you get exactly what you've seen, lower yields, a shrinking

503
00:28:26,119 --> 00:28:29,480
Speaker 1: yield differential, and a stronger euro, a weeker dollar, you

504
00:28:29,560 --> 00:28:32,720
Speaker 1: got a weaker dollar as well. David, jumping around politics,

505
00:28:33,200 --> 00:28:37,760
Speaker 1: politics and trade. We saw the the calendar get filled

506
00:28:37,800 --> 00:28:39,320
Speaker 1: up here for later in August. We're going to have

507
00:28:39,320 --> 00:28:41,960
Speaker 1: the US reopening these and after renegotiations. What have we

508
00:28:42,080 --> 00:28:45,160
Speaker 1: learned about this administration's trade policy? What are you what

509
00:28:45,200 --> 00:28:47,720
Speaker 1: are you looking at? What are you concerned about going

510
00:28:47,760 --> 00:28:51,080
Speaker 1: forward here as we undertake a rewriting or a renegotiation

511
00:28:51,120 --> 00:28:54,000
Speaker 1: of NAFTA, and as we hear more rhetoric about what's

512
00:28:54,000 --> 00:28:56,440
Speaker 1: going to be the trading relationship between the US and

513
00:28:56,600 --> 00:28:58,760
Speaker 1: other major economies, including China. Of course, we had this

514
00:28:58,760 --> 00:29:01,160
Speaker 1: big meeting in DC this week of the leadership from

515
00:29:01,160 --> 00:29:03,800
Speaker 1: the U, S and China. So as both of you know,

516
00:29:04,080 --> 00:29:08,640
Speaker 1: from day one, I've been saying, don't expect a major

517
00:29:09,400 --> 00:29:14,840
Speaker 1: protectionist phase that when push comes to shove. The administration

518
00:29:14,960 --> 00:29:19,880
Speaker 1: will not dismantle nafter, will not impose huge tariffs on China,

519
00:29:20,440 --> 00:29:25,640
Speaker 1: will not change in a major way bilateral trade agreements

520
00:29:25,680 --> 00:29:27,960
Speaker 1: like with countries luck career. But what you will get

521
00:29:28,200 --> 00:29:31,200
Speaker 1: is tweaking. And I suspect that over the next few

522
00:29:31,240 --> 00:29:33,240
Speaker 1: weeks and months, that's what you're gonna see. You're gonna

523
00:29:33,240 --> 00:29:36,960
Speaker 1: see the US tweaked naughter, and I think Canada and

524
00:29:37,040 --> 00:29:40,320
Speaker 1: Mexico will be willing to do that. There was an

525
00:29:40,360 --> 00:29:43,080
Speaker 1: argument to update it. A lot has happened since NAFTA

526
00:29:43,200 --> 00:29:45,600
Speaker 1: was agreed to, and you're gonna see see see lots

527
00:29:45,640 --> 00:29:47,760
Speaker 1: of little tweakings left and right. But this is not

528
00:29:47,840 --> 00:29:51,440
Speaker 1: going to be a major protectionist war. It's not gonna

529
00:29:51,440 --> 00:29:54,920
Speaker 1: be a trade war. It will be tweaking of bilateral

530
00:29:54,920 --> 00:29:58,960
Speaker 1: and multilateral trade agreements to favor somewhat more the US.

531
00:30:00,160 --> 00:30:02,120
Speaker 1: We've made it through this, I'll point out without a

532
00:30:02,280 --> 00:30:06,040
Speaker 1: single New York Jets reference. Tom, You've been remarkably rest

533
00:30:06,120 --> 00:30:11,440
Speaker 1: remarkably Yeah, and I'm worried more about reference right now.

534
00:30:11,480 --> 00:30:14,800
Speaker 1: That's that's the one that worries anymore. I watched some

535
00:30:14,920 --> 00:30:18,120
Speaker 1: Mets balls, I think it was last night against the cardinals,

536
00:30:19,160 --> 00:30:22,880
Speaker 1: and you know why you yet our producer held my

537
00:30:22,960 --> 00:30:28,600
Speaker 1: hand and said, don't go there, Momed, thank you so much, greatly,

538
00:30:28,640 --> 00:30:33,320
Speaker 1: greatly appreciate it. Dark Larian there with really important comments

539
00:30:33,880 --> 00:30:37,960
Speaker 1: on this great mystery of wages in American frankly and

540
00:30:38,040 --> 00:30:40,960
Speaker 1: across all of Europe is what I really can't say

541
00:30:41,040 --> 00:30:45,200
Speaker 1: enough about the intellectual challenges are central bankers have with

542
00:30:45,240 --> 00:30:57,600
Speaker 1: where we are on wages. Thanks for listening to the

543
00:30:57,600 --> 00:31:02,200
Speaker 1: Bloomberg Surveillance podcast. Subscut ribe and listen to interviews on

544
00:31:02,400 --> 00:31:07,960
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm

545
00:31:08,000 --> 00:31:11,840
Speaker 1: on Twitter at Tom Keene. David Gura is at David Gura.

546
00:31:12,240 --> 00:31:16,120
Speaker 1: Before the podcast, you can always catch us worldwide. I'm

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00:31:16,160 --> 00:31:30,320
Speaker 1: Bloomberg Radio runt you by Bank of America Mary Lynch.

548
00:31:30,600 --> 00:31:36,080
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