Speaker 1: Runch you by Bank of America Mary Lynch. With virtual reality,
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Speaker 1: Pierce Fenner, and Smith Incorporated. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best of economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg. Welcome Morning on Friday,
Speaker 1: the twenty one of July. Happy Friday, everybody. This is
Speaker 1: Bloomberg Surveillance on Bloomberg Radio. David Garrow with Tom Keene
Speaker 1: in New York, joining US now in our Bloomberg eleven
Speaker 1: three year studios here in New York as Chris Ferroni
Speaker 1: is the head of Technical now US as its fatiguous
Speaker 1: Research partners, and it's great to see. I want to
Speaker 1: start broad if I could hear talk about the markets.
Speaker 1: If I could. On Monday, you wrote it's difficult to
Speaker 1: get negative with all the major induscries at new highs.
Speaker 1: Let's start just with with your perspective on Uh, the
Speaker 1: induscries here in the U S and globally, I know
Speaker 1: you look at them all an aggregant. Yeah, exactly. When
Speaker 1: you look at when the big top formations typically take shape,
Speaker 1: it's when participation has gotten very very narrow, not when
Speaker 1: all the groups and all the industries and all the
Speaker 1: sectors are making new highs. I mean, just think about
Speaker 1: the last week or so, We've had everything from the
Speaker 1: Russell two thousand, to the SMP to the equal weighted SMP,
Speaker 1: the Value Line Index, most global induscries at or near
Speaker 1: new highs. That is a confirmed backdrop where we're not
Speaker 1: seeing the narrowness that typically accompanies a bigger problem. So
Speaker 1: I recognize where we are here in the calendar. I
Speaker 1: recognize the next twelve weeks are often the toughest stretch
Speaker 1: of the year. But we have to make a differentiation
Speaker 1: between a pause or a consolidation and a big top
Speaker 1: and we just do not think on the verge of
Speaker 1: a big problem here. You talk a bit about that,
Speaker 1: that calendar you mentioned it it is a short term risk.
Speaker 1: Why is that the case historically? Why is that? Why
Speaker 1: is August in September so problematic? You know, I think
Speaker 1: you come up with a lot of reasons. It's kind
Speaker 1: of a lull in the calendar as you get through
Speaker 1: July earnings that tends to mark the top and seasonality
Speaker 1: at least until late September early October. But what's important,
Speaker 1: what we've learned in our work is how the trend
Speaker 1: of the market can really influence seasonality, and when you're
Speaker 1: in an uptrend, the weakness in September and August is
Speaker 1: often less pervasive than when you're in a downtrend. Those
Speaker 1: months are worse when you're already in a bear market
Speaker 1: or in a downtrend. That's obviously not the case at
Speaker 1: the moment. Tom and I've been talking a lot about
Speaker 1: of volatility here over these last few weeks and needed
Speaker 1: a chart of corporate spread against the cbo E. Let
Speaker 1: me let me talk Chris. Never in girl's life did
Speaker 1: he think you'd be talking? No, I didn't, or did
Speaker 1: I You've got you've got corporate versus the CBO VIX.
Speaker 1: What do you what do you get when you chart
Speaker 1: those two against one another? I think you know, we
Speaker 1: hear a lot of how extraordinary volatility here is being
Speaker 1: as low as we've seen over recent months. When you
Speaker 1: look at it as a function of credit, and that's
Speaker 1: how we think about volatility. When credit conditions are stable,
Speaker 1: volatility should be low. So when we look at the
Speaker 1: relationship and when we regress b double a corporate spreads
Speaker 1: versus the vix, the vix is actually right where it
Speaker 1: should be. It's on that line of best fit. The
Speaker 1: VIX should be low when credit conditions are behaved, and
Speaker 1: that remains the case when you when you look at
Speaker 1: the credit markets generally, is there stress? What do you
Speaker 1: what do you see? Uh, we certainly don't see stress.
Speaker 1: I think the more important question as we kind of
Speaker 1: moved through the back after the year, is do we
Speaker 1: see signs of complacency. It's possible that may be starting
Speaker 1: to build here a little bit. Um we've certainly, you know,
Speaker 1: we watched stuff like put calls to get a cent
Speaker 1: the options market. Um, I would be a little bit
Speaker 1: reluctant saying that the environment is terribly complacent just yet,
Speaker 1: but will certainly watch that. I think the bigger messages
Speaker 1: if this market is going to meaningfully deteriorate, my guess
Speaker 1: is that credit would weaken as well. What's the bet
Speaker 1: of institutions? Everybody? You know, on the modern day loves
Speaker 1: to talk about hedge funds. What's long only by side
Speaker 1: doing boring mutual funds? Are they two percent in cash
Speaker 1: or they twelve percent in cash? Well? I think this
Speaker 1: is where some of the sentiment data can really be
Speaker 1: helpful in answering that question. And you know, there's two
Speaker 1: types of sentiment data. There's data that measures what people
Speaker 1: say they're doing surveys, and then there's data that measures
Speaker 1: what people are actually doing your money, And we prefer
Speaker 1: to look at the latter. We want to know what
Speaker 1: people are actually doing. I would describe the street as
Speaker 1: modestly net long. I don't think they are as aggressively
Speaker 1: long as they may like to be. Now, whether it's
Speaker 1: concerns out of Washington or concerns about earnings that maybe
Speaker 1: inhibiting that, But I would not say we're aggressively long.
Speaker 1: Look at a chart. Here, they're flipping through the chart
Speaker 1: book Tom in real time, looking at get On, saying
Speaker 1: what this is. We've got a liberal arts clown Cornell
Speaker 1: in a political economy guy from Villanova, and we're flipping
Speaker 1: through a chart book. I'm looking at your chart of
Speaker 1: t j X. Here, he sputter h tread break fade rallies.
Speaker 1: We've heard so many good things about t J t
Speaker 1: j X, t j X in contrast to other retailers.
Speaker 1: What are you seeing here when you compare these childings?
Speaker 1: And that's kind of what worries me about the chart
Speaker 1: about the stock is that it's been a place to
Speaker 1: hide for so many investors in a really bad sector
Speaker 1: for now so many years. And um, I have just
Speaker 1: never seen a bear market in a group where ultimately
Speaker 1: every stock doesn't go down and ultimately they hit the
Speaker 1: best ones last, and they fit all the bad ones,
Speaker 1: so they're onto the best one. And I think t
Speaker 1: j X ross Shore's h is an example of names
Speaker 1: that have been good that we need to be more
Speaker 1: careful with her. How do you technically synthesize the raging
Speaker 1: debate of bricks and mortar retail with Amazon? It makes
Speaker 1: every It's on the Bloomberg Business Week this week, folks,
Speaker 1: fabulous analysis of the big big tech companies. But technically,
Speaker 1: what do you see when somebody says bricks and mortar
Speaker 1: and Amazon, Well, we know where the weakness has certainly been.
Speaker 1: And you know, we could have said a year ago
Speaker 1: or two years ago that that relationship was so stretched
Speaker 1: with strength from Amazon and weakness from the retail names.
Speaker 1: My sense is that the traditional brick and mortar stocks,
Speaker 1: the consensus uh the view there has now gotten so negative. Well,
Speaker 1: we may want to start fishing around for some opportunities. Now.
Speaker 1: What strikes me is some of these probably will be zeros,
Speaker 1: others will not. I wonder if central bank policy, frankly,
Speaker 1: over the last seven or eight years, has probably prolonged
Speaker 1: this when we have lost some of these companies already. Exactly,
Speaker 1: David Gering, time me, David. I'm over here calculating how
Speaker 1: much more expensive and Martini is at Hemingway's bar in Paris.
Speaker 1: Since the first round of the elections, the dollars gotten weaker.
Speaker 1: It's gone from thirty five dollars to thirty seven dollars.
Speaker 1: Nine cents. Have you that's a week dollar. That's a
Speaker 1: week dollar. Let's have you? Do you have a dollar
Speaker 1: chart to save me? I do have all the calculation
Speaker 1: myself to save you. And I think we need to
Speaker 1: remember something. The dollar has been weakening here for fifteen months.
Speaker 1: This is not a new story. And if anything, the
Speaker 1: dollars responding precisely as it tends to respond in periods
Speaker 1: when the FED is raising rates. In five of the
Speaker 1: last six cycles where the FED has raised rates, we
Speaker 1: have seen the dollar go down, not up. I know
Speaker 1: that sounds counterintuitive, but that that is typically have a
Speaker 1: dollar reacts to a rising rate, uh environment, And I
Speaker 1: would just say one point further, looking at the d
Speaker 1: X why, I actually think it's a very poorly constructed
Speaker 1: in dept. It's about se euros. We prefer to look
Speaker 1: at an equally weighted dollar index. We put about twenty
Speaker 1: different pairs in there, and that deteriorated long before, uh say,
Speaker 1: you're a strengthened. This really important point. And I would
Speaker 1: point out, David gurl that the Bloomberg d X wise
Speaker 1: a lot better, different blend precisely much much just just equal.
Speaker 1: Weay to just like Chris talks about, but the d
Speaker 1: X wise would people quote but often pros use a
Speaker 1: different index, David, Chris, let me ask you about golden
Speaker 1: What you're seeing there is this a twelve fifty level
Speaker 1: when you look at the gold chart. What stands out
Speaker 1: to you, well, what stands out to me is what
Speaker 1: hasn't happened. We've had a week dollar and gold can't
Speaker 1: seem to respond, um. I think the most interesting things
Speaker 1: in our business are when something doesn't go up when
Speaker 1: it should, and this is an example of where gold
Speaker 1: probably could have rallied as the dollar has weakened, and
Speaker 1: its inability to do so really leaves me questioning the
Speaker 1: trend I think is ultimately a tough level. I'd say
Speaker 1: the same thing on the silver chart. I mean, these
Speaker 1: are uh, really two things that are in different trends
Speaker 1: at best, and I would be inclined to fade rallies
Speaker 1: in that environment with both gold and silver and copper
Speaker 1: continuing to break out. Yeah, copper is better here, I
Speaker 1: think personal stand out and we like to look at
Speaker 1: the ratio between copper and gold um, and that ratio
Speaker 1: has firmed here as well. Now interestingly, when coppers up,
Speaker 1: when iron ore is up, when they're outperforming gold, you
Speaker 1: tend to see rates go up in that environment as well.
Speaker 1: I know we're kind of stuck in this twenty to
Speaker 1: thirty range, but I wouldn't know that. The street is
Speaker 1: very very long bonds. I think there's an element of
Speaker 1: complacency there, whereas if something goes right, you can get
Speaker 1: a pretty quick move wire in yields that's the second
Speaker 1: time you've mentioned that today, and is you and I
Speaker 1: know bonds are generally out front of shocks than equities.
Speaker 1: So if I'm going to play bonds, which bonds do
Speaker 1: I play? If I'm going to get a reversal, well,
Speaker 1: I think where you've seen positioning get very crowded is
Speaker 1: more towards the longer end uh tens and thirties, where
Speaker 1: uh that's where I think the trade is most crowded.
Speaker 1: UM watch very closely this two level on yield. I
Speaker 1: think if we hold that and we get some surprise,
Speaker 1: you could see that squeeze play at very quickly. I
Speaker 1: would point out that someone Engross out on the West
Speaker 1: Coast agrees with Mr Bruins analysis bills out at too
Speaker 1: forty is being much more key and before that's a
Speaker 1: fair amount of noise as well. Christopher Ron, thank you
Speaker 1: so much greatly, really really value add not only in TV,
Speaker 1: and we'll send the charts out here for radio as well.
Speaker 1: As we get through the morning, you're gonna, you know,
Speaker 1: do our planning for them. Looking at this bar Hemingway
Speaker 1: in Paris, it says he drank fifty one dry martinis
Speaker 1: in a row. I didn't do that. He did that
Speaker 1: that you know did. It's it's you know, and it's
Speaker 1: one of one of the great things. This is the
Speaker 1: Riz Carlton Folks in Paris. And what's great about it
Speaker 1: is they just redid it and they didn't screw it up.
Speaker 1: So many famous hotels and all that when they redo them,
Speaker 1: they're never the same. And we went and its way
Speaker 1: in the back tuck to the corner. It's absolutely packed
Speaker 1: from the mom what they opened the door, it's packed,
Speaker 1: and it's got all of the Hemingway memorabilia. And it
Speaker 1: happens that the bartender takes great pride and you know,
Speaker 1: the squeaky clean glasses and all that. But for anybody
Speaker 1: jetting to Paris, UM, it's an extravagance. It's it's comically expensive,
Speaker 1: but I got to admit it's worth it, just for one.
Speaker 1: We'll go there sometimetime. We are so privileged here with
Speaker 1: the quality of our guests. UM. And then at I'm
Speaker 1: and uh, Nicholas Salman's give me, I'll get it right.
Speaker 1: Nicholas Salman with earlier and right now of equal quality.
Speaker 1: Jeffrey Sprague with US with Vertical Research Partners, legendary in
Speaker 1: Wall Street looking at industrials, any number of companies that
Speaker 1: particularly notice work could Cohen a number of years ago, Jeff,
Speaker 1: you've got a very on Jeff Sprague word in your
Speaker 1: research report. Please define for Mr. M L listening, what
Speaker 1: are disk synergies? Well, dis synergy is in a good
Speaker 1: morning Tom would really be the you know, the inverse
Speaker 1: of what we think about when we put companies together,
Speaker 1: and and it's you know, enjoy synergies from maybe removing
Speaker 1: redundancies and corporate costs or other things. And so I
Speaker 1: was addressing to the idea of dis synergies along the lines.
Speaker 1: If you really pulled ge apart entirely, you start getting
Speaker 1: a lot of leakage in terms of tax and the
Speaker 1: need to put in place re done to corporate costs. Now,
Speaker 1: obviously companies do spinoffs and things all the time, so
Speaker 1: these are things that would be overcome. The point I
Speaker 1: was trying to make though, is that to do some
Speaker 1: kind of wholesale break up into many pieces I think
Speaker 1: becomes very inefficient. Is there a risk here, I access earlier, Nick,
Speaker 1: Is there a risk here? Of finance ancial engineering? They
Speaker 1: bring out their report, they're all cash flow this return
Speaker 1: of shares, return to cash share buy back. That is
Speaker 1: there a risk that they're doing in IBM redux of
Speaker 1: financial engineering substituting for firm excellence. Well, that's part of
Speaker 1: what's gotten used to the you know, the concerns that
Speaker 1: we have. I think when I was on your show
Speaker 1: a few weeks ago, I talked about the weakness and
Speaker 1: the cash flow, and so we've we've had this disconnect
Speaker 1: materialized over the last couple of years where accounting earnings
Speaker 1: are better than the actual cash for the company. And uh,
Speaker 1: you know, I think that's still a very clear investor concern.
Speaker 1: And so you know here today the cash flow is
Speaker 1: better in the second quarter, but still worse than expected
Speaker 1: for the half. So they're you know, they're in a
Speaker 1: bit of a hole on cash flow. They maintain their
Speaker 1: guidance for the year on cash flow, but they've got
Speaker 1: a pretty big hill to climb now to to get
Speaker 1: to that target, and I think investors are going to
Speaker 1: be rightly concerned that there is some risk that they
Speaker 1: don't get there. Jeffson, certainly, June, we've learned a bit
Speaker 1: about John Flambery, who's coming in his CEO. You know,
Speaker 1: he likes the Almond Brothers. He wishes he knew how
Speaker 1: to play the blues guitar. He said that to employees
Speaker 1: in a in a Facebook life, what do we know
Speaker 1: about how he's going to run this this company? You
Speaker 1: have that merger of the oil and gas division and
Speaker 1: Baker Hughes now completed. What are you what are you
Speaker 1: looking for from this new CEO when he takes over
Speaker 1: in August. First, I think we're going to see a
Speaker 1: you know, obviously there's gonna be a reevaluation in the portfolio,
Speaker 1: and I do think things will get done with the portfolio,
Speaker 1: and notwithstanding by the synergy common I think there will
Speaker 1: be a mover too, perhaps with the oil and gas,
Speaker 1: perhaps with some other businesses. But I think he's really
Speaker 1: gonna dig in and buckle down on cost execution. You know,
Speaker 1: this is something that the company obviously as has done,
Speaker 1: but I think there needs to be a higher sense
Speaker 1: of urgency. I think it's notable that when he took
Speaker 1: over the healthcare business, he ended up replacing of his
Speaker 1: direct reports um and he tied this to the fact
Speaker 1: that people just weren't, you know, moving as quickly as
Speaker 1: he wanted or their behaviors really aren't what he was
Speaker 1: looking for. So I think it's going to be clear.
Speaker 1: There's a new sheriff in town. Obviously this is a
Speaker 1: you know, a very big ship to turn. But I
Speaker 1: think there's gonna be a you know, a very blunt
Speaker 1: message that the company needs to, you know, buckle down
Speaker 1: here and drive performance. Is there many billion dollar backlog
Speaker 1: a thing that's not going to go away anytime soon? Well,
Speaker 1: you have a very good backlog. I think the the
Speaker 1: question that we really have, like when you look at
Speaker 1: some of these margins is really uh, you know the
Speaker 1: margins in backlog. You know what was done to you know,
Speaker 1: capture those orders, right, Uh, you know, to to be extreme, right,
Speaker 1: you could if you want to give stuff away, it's
Speaker 1: easy to get in order. And I'm not suggesting they've
Speaker 1: given stuff away, but I think there's you know, when
Speaker 1: you look at the margin pressure that there's been and
Speaker 1: kind of a cash flow disconnect there, there is some
Speaker 1: concern that well, although the backlog is big and a
Speaker 1: nominal value sense, that the profitability invented in it perhaps
Speaker 1: is not that high. We gotta get you back. We
Speaker 1: got lots to talk about. Jeffrey Sprague, thank you so
Speaker 1: much this morning. Vertical Research Partners. Uh really truly legendary
Speaker 1: on General Electric. A lot of different stories here. I
Speaker 1: I hope, folks you heard the distinctive differences there between
Speaker 1: Mr Hayman more optimistic than Mr Sprague. But that's what
Speaker 1: makes for a market. We like that runt you by
Speaker 1: Bank of America Mary Lynch. With virtual reality, virtually everything
Speaker 1: will change, discover opportunities in a transforming world, be of
Speaker 1: a mL dot com, slash VR, Mary Lynch, Pierced Fenner
Speaker 1: and Smith Incorporated. Right now speaking of team coverage, UM
Speaker 1: a gentleman who drives the story for it. And what's
Speaker 1: so great about Tim O'Brien, folks, is he does and
Speaker 1: do like the star turn Trump essay once every four weeks.
Speaker 1: He's really grinding it every day. And there he was
Speaker 1: last night with Anderson Cooper and Mr Tuban grinding it up.
Speaker 1: How come you dress better for Anderson than you do
Speaker 1: for us on radio? What's that? I want to tell
Speaker 1: you have exactly the same clothes on as I did
Speaker 1: last night. That's how it tower. That's disgusting. I don't
Speaker 1: think you want to know that I have not changed
Speaker 1: my word we got next time, I think we should
Speaker 1: get Anderson in a bow tie and that would move
Speaker 1: things forward. Okay, So you know, it's been a fabulous
Speaker 1: forty eight hours for Bloomberg News and driving the story forward.
Speaker 1: And what's great about your work, Tim O'Brien at Bloomberg
Speaker 1: View is you've always gone back to the original Mr Trump.
Speaker 1: Does the last four to eight hours surprise you of
Speaker 1: the president knowing the original Mr Trump? No, it doesn't
Speaker 1: at all. I think this is a guy who under
Speaker 1: pressure lashes out. He's uh. At the end of the day,
Speaker 1: there are two things I think that drive the president's thinking, uh,
Speaker 1: self aggrandizement and self preservation. And I think what you
Speaker 1: have now in the midst of this investigation is pure
Speaker 1: self preservation. And now we know that they're looking at
Speaker 1: trying to pardon as many people in the administration as
Speaker 1: they can. He's, apparently, per the Washington Post, inquired about
Speaker 1: pardoning himself. And I would add our great Bloomberg News
Speaker 1: reporters yesterday broke a very significant director Stephen Dennis this morning. Uh, yeah,
Speaker 1: both and Christian yesterday on the scope of Mueller's investigation
Speaker 1: expanding in a direction, the President said he doesn't want
Speaker 1: to go all of Trump's business deals. Tim, You're right,
Speaker 1: as Mueller certainly knows by now, Trump's business history doesn't
Speaker 1: merely have a closet full of skeletons that has warehouses
Speaker 1: full them. What can you tell us about the bay
Speaker 1: Rock group at Felix Sater and how they might be
Speaker 1: the focus of Mr Mueller's investigation. Well, you know, the
Speaker 1: tricky thing with bay Rock and the compelling thing about
Speaker 1: it is they were development firm two floors beneath the
Speaker 1: Trump organization's own office is in Trump Tower. A principal
Speaker 1: at the firm, Felix Sader had longstanding ties to both
Speaker 1: Russian organized crime groups and American organized crime groups. UH.
Speaker 1: The Trump family, the eldest two children and the president.
Speaker 1: We're in business with bay Rock for several years, from
Speaker 1: about two thousand and three to two thousand and eleven.
Speaker 1: They ultimately built the Trump Soho hotel together. And there's
Speaker 1: an issue around how bay Rock was funded and where
Speaker 1: it's funding came from. A big chunk of its funding
Speaker 1: came from overseas. UH investigators have been concerned that it
Speaker 1: possibly involved money laundering and all in all these relationships,
Speaker 1: the issue is whether or not there were representatives of
Speaker 1: the Kremlin or other foreign interests using these guys your
Speaker 1: classic Trump Nation. You have City Group in the index.
Speaker 1: You've got Chase Manhattan in the index. You don't have
Speaker 1: Deutsche Bank in the index. Is Deutsche Bank interesting here?
Speaker 1: Deutsche Bank is very interesting. They post date my book
Speaker 1: basic because I published the book in two thousand and five,
Speaker 1: and Trump's relationship with Deutsche Bank as a major Lennard
Speaker 1: had just begune around that time that they financed his
Speaker 1: his hotel and condominium project in Chicago and have since
Speaker 1: then become a major I think presence in his financial life. Tim,
Speaker 1: what are you gonna be listening for? Next week? Two
Speaker 1: days of of big hearings? Of course, Jared Kushner testifying
Speaker 1: and closed session before the Intelligence committed them, before the
Speaker 1: Justice Committee. We've gone Paul Manaford and Donald Trump Junior?
Speaker 1: What are you gonna be listening for? I suppose on
Speaker 1: Wednesday you're gonna be listening for whatch on on Monday
Speaker 1: when those doors are closed. Well, I think everyone wants
Speaker 1: to know if other quid pro quos in any of
Speaker 1: these relationships, just to cut through all the noise, I
Speaker 1: think there's been a lot of conspiracy theorizing about Trump
Speaker 1: and Russia. I think there's been a lot of misguided
Speaker 1: focus on certain Russian related topics. At the end of
Speaker 1: the day, I think what people have to care about
Speaker 1: was issues like sanctions on Russia, where those traded off
Speaker 1: for financial favors in any way to ump Cushing or
Speaker 1: anyone else in the administration. Tim m'brian, thank you very much.
Speaker 1: Appreciated Timbrian graduations also executive editor of course if Bloomberg
Speaker 1: View and bloombergafly, I mean it's been reporting for Bloomberg
Speaker 1: has been extraordinary. What are you guys gonna do Monday?
Speaker 1: I think Monday, we're just going to get back at it,
Speaker 1: to get back at it. In years, the story here
Speaker 1: is the grind of reporting, getting back at it every day,
Speaker 1: like three thousand people or whatever working on this story.
Speaker 1: It's it's it's a good show. Tim O'Brien, thank you
Speaker 1: so much. Bloomberg View and he publishes today. I'll get
Speaker 1: that out on social media here in a moment right
Speaker 1: for Bloomberg View rights all over the street in worldwide
Speaker 1: with Alian's Muhammad Larian, Dr Larry and my read of
Speaker 1: the summer is Olivier Blanchard at a conference in Naples,
Speaker 1: who went right back to blench Chard Summers went back
Speaker 1: to Blanchard Fisher and really dug into the oddities of
Speaker 1: wage dynamics and labor supply. This is a whole a
Speaker 1: font of interesting academic wisdom, folks, over thirty years from
Speaker 1: Professor Blanchard. You wrote about this in the Only Game
Speaker 1: in Town. Help us with this absolutely new wage dynamic
Speaker 1: we're in right now. So let me just first say, Tom,
Speaker 1: thanks for having me. And Olivia Blanchar is incredible and
Speaker 1: things that he writes are always worth reading. We don't
Speaker 1: understand well three things today wage determination, inflation dynamics, and productivity.
Speaker 1: And when you put all three together, it shows you
Speaker 1: that we really don't comprehend the economy as well as
Speaker 1: we used to. Why. First, there are significant structural changes
Speaker 1: going on to to work place, to how the economy functions,
Speaker 1: and we may not be measuring well, let alone fully
Speaker 1: understanding that's the first reason. Second, we have distorted the
Speaker 1: way the economy functions through years of well intended experimentation,
Speaker 1: and and third, global relationships are changing. So Tom, this
Speaker 1: is a period of either incredible uncertainty and or excitement
Speaker 1: for economists as they try to understand these new diynamis
Speaker 1: within these mysteries is the idea, and you've always been
Speaker 1: wonderful about this, the idea that we want to aggregate
Speaker 1: our model together into one lovely model. Does Muhammad al
Speaker 1: Ayan or Professor Blanchard or Lawrence Summers with histories? As do?
Speaker 1: We want to finally say we're done with one model
Speaker 1: because of inequalities and because of the segmented nature of
Speaker 1: wages in our society, we're certainly done with one school
Speaker 1: of thought. I think this is a time for a
Speaker 1: more eclectic approach. You want, of course, traditional economics, but
Speaker 1: you also want a lot of behavioral economics. Um that's
Speaker 1: become more and more important, especially after the Great Recession.
Speaker 1: So yes to to a general idea, which is we
Speaker 1: can no longer rely on a single model, let alone
Speaker 1: a single school and economics. We need a much more
Speaker 1: eclectic approach. Let me ask you, on the subject of
Speaker 1: monetary policy about this movement toward or those agitating for
Speaker 1: a more rules based approached to it. We saw the
Speaker 1: formal tendering of a nomination for Randy Corals to become
Speaker 1: the vice chair, a vice chair rather for supervision at
Speaker 1: the Federal Reserve this week, as you look ahead to
Speaker 1: that to what the Federal Reserve might be, what is
Speaker 1: your counsel to investors about what could change if we do,
Speaker 1: in fact get a more rules based approach my council,
Speaker 1: David would would be be careful not to extrapolate too
Speaker 1: much what has been an except no period for central banks,
Speaker 1: including the FED. The FED felt morally and ethically obliged
Speaker 1: to step in because other policy making entities were paralyzed
Speaker 1: by he cannot buy political gridlock. Now the FED is
Speaker 1: coming to the point where it wants to exit, So
Speaker 1: you investors would be very careful not to extrapolate too
Speaker 1: much the Fed of the last seven years to the
Speaker 1: next seven years. We're going to get a different FED.
Speaker 1: Over the next seven years, We're going to get a
Speaker 1: different FED. We've heard a lot here from this FED,
Speaker 1: a lot relatively speaking about what this balance sheet unwind
Speaker 1: is going to be like, or what Fed your Janet
Speaker 1: Yellen would like it to be like, Mohammed. But given
Speaker 1: the fact that we're going to see such rearrangement of
Speaker 1: the personnel here over these next few months. How confident
Speaker 1: are you that whatever she sets up and sets into
Speaker 1: play is going to continue in perpetuity. So when it
Speaker 1: comes to the balance sheet, I think that what we're
Speaker 1: going to get is something very gradual and at the
Speaker 1: end of the day for investors is going to be
Speaker 1: like watching paint draw It's not gonna be very exciting.
Speaker 1: It's not going to be the basis of a major
Speaker 1: short term trade, but it is going to change the
Speaker 1: dynamics of the marketplace in terms of who owns securities,
Speaker 1: in terms of rates, it's much more interesting. And here, David,
Speaker 1: it comes down to whether you are just a traditionalist,
Speaker 1: which who believes that the FED will only look at
Speaker 1: employment and inflation is to mandate, or like me, you
Speaker 1: believe that the FED and other central banks are also
Speaker 1: going to pay a lot more attention to future financial stability.
Speaker 1: That is a fundamental difference, and I think that the
Speaker 1: FED and other central banks are going to worry more
Speaker 1: about future financial stability. You see the regulatory role, the
Speaker 1: regulatory responsibilities of the FED changing. Here. We're having a
Speaker 1: conversation earlier about where you do see action in Washington
Speaker 1: these days, and it seems like there is some movement
Speaker 1: on the issue of of regulation. Obviously, you know how
Speaker 1: Stephen Monution sharing the Financial Stability Oversight Council is the
Speaker 1: Fed's role visa v. Regulation set to change? Do you
Speaker 1: think I think it's going to evolve. I think we've
Speaker 1: entered a period of less regulation. It's going to be gradual. Um.
Speaker 1: I think we're going to see less economic regulation for sure.
Speaker 1: In terms of financial regulation, that's going to be a
Speaker 1: more cautious process, and for good reason, and that is
Speaker 1: because we still have the memory of the accident fresh
Speaker 1: in our minds. Do you can you link dollar weakness
Speaker 1: to the lower yields that we've seen. That's been the
Speaker 1: correlative moment of the week. We've seen lower yields and
Speaker 1: also a week dollar Are they attached or are they separate?
Speaker 1: So what we've seen tom in terms of yields, and
Speaker 1: it's something that I look at every single morning, the
Speaker 1: differential between US treasuries and German boons. And you've seen
Speaker 1: that narrow significantly to around a hundred and seventy basis point.
Speaker 1: It's not so long ago that that differential was two thirty.
Speaker 1: Why because markets are repricing growth expectations and in favor
Speaker 1: of Europe versus the US, and markets are also repricing
Speaker 1: relative monetary policy stances in favor of the ECB being
Speaker 1: tighter than they thought before. Add to that is significant
Speaker 1: portfolio flow into Europe and out of the US, and
Speaker 1: you get exactly what you've seen, lower yields, a shrinking
Speaker 1: yield differential, and a stronger euro, a weeker dollar, you
Speaker 1: got a weaker dollar as well. David, jumping around politics,
Speaker 1: politics and trade. We saw the the calendar get filled
Speaker 1: up here for later in August. We're going to have
Speaker 1: the US reopening these and after renegotiations. What have we
Speaker 1: learned about this administration's trade policy? What are you what
Speaker 1: are you looking at? What are you concerned about going
Speaker 1: forward here as we undertake a rewriting or a renegotiation
Speaker 1: of NAFTA, and as we hear more rhetoric about what's
Speaker 1: going to be the trading relationship between the US and
Speaker 1: other major economies, including China. Of course, we had this
Speaker 1: big meeting in DC this week of the leadership from
Speaker 1: the U, S and China. So as both of you know,
Speaker 1: from day one, I've been saying, don't expect a major
Speaker 1: protectionist phase that when push comes to shove. The administration
Speaker 1: will not dismantle nafter, will not impose huge tariffs on China,
Speaker 1: will not change in a major way bilateral trade agreements
Speaker 1: like with countries luck career. But what you will get
Speaker 1: is tweaking. And I suspect that over the next few
Speaker 1: weeks and months, that's what you're gonna see. You're gonna
Speaker 1: see the US tweaked naughter, and I think Canada and
Speaker 1: Mexico will be willing to do that. There was an
Speaker 1: argument to update it. A lot has happened since NAFTA
Speaker 1: was agreed to, and you're gonna see see see lots
Speaker 1: of little tweakings left and right. But this is not
Speaker 1: going to be a major protectionist war. It's not gonna
Speaker 1: be a trade war. It will be tweaking of bilateral
Speaker 1: and multilateral trade agreements to favor somewhat more the US.
Speaker 1: We've made it through this, I'll point out without a
Speaker 1: single New York Jets reference. Tom, You've been remarkably rest
Speaker 1: remarkably Yeah, and I'm worried more about reference right now.
Speaker 1: That's that's the one that worries anymore. I watched some
Speaker 1: Mets balls, I think it was last night against the cardinals,
Speaker 1: and you know why you yet our producer held my
Speaker 1: hand and said, don't go there, Momed, thank you so much, greatly,
Speaker 1: greatly appreciate it. Dark Larian there with really important comments
Speaker 1: on this great mystery of wages in American frankly and
Speaker 1: across all of Europe is what I really can't say
Speaker 1: enough about the intellectual challenges are central bankers have with
Speaker 1: where we are on wages. Thanks for listening to the
Speaker 1: Bloomberg Surveillance podcast. Subscut ribe and listen to interviews on
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: on Twitter at Tom Keene. David Gura is at David Gura.
Speaker 1: Before the podcast, you can always catch us worldwide. I'm
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