1 00:00:00,320 --> 00:00:04,160 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:04,200 --> 00:00:07,640 Speaker 1: their trust in independent registered investment advisors to the tune 3 00:00:07,640 --> 00:00:12,240 Speaker 1: of four trillion dollars. Why learn more and find your 4 00:00:12,240 --> 00:00:27,240 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,280 --> 00:00:31,320 Speaker 1: I'm Tom Keane. Always with Michael McKee. Daily we bring 6 00:00:31,360 --> 00:00:35,280 Speaker 1: you insight from the best in economics, finance, investment and 7 00:00:35,360 --> 00:00:41,519 Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, 8 00:00:41,560 --> 00:00:48,879 Speaker 1: and of course on the Bloomberg A lot going on 9 00:00:49,120 --> 00:00:53,920 Speaker 1: here today in the markets, what exactly and why? Let's 10 00:00:53,920 --> 00:00:58,320 Speaker 1: ask Alberto Gallo heeds uh fund manager portfolio manager of 11 00:00:58,360 --> 00:01:04,120 Speaker 1: course with the Algebras Investments and Alberto, good morning. Is 12 00:01:04,120 --> 00:01:07,280 Speaker 1: there anything you can see that is We'll put it 13 00:01:07,280 --> 00:01:11,440 Speaker 1: this way. Have we seen a psychological change, some sort 14 00:01:11,560 --> 00:01:14,959 Speaker 1: of mood change in the markets or just maybe kind 15 00:01:15,000 --> 00:01:18,560 Speaker 1: of a one off thing today. I think there is 16 00:01:18,760 --> 00:01:23,240 Speaker 1: a an exit from the buy everything which was following 17 00:01:23,280 --> 00:01:26,800 Speaker 1: the Fat Whole decision that created a big euphoria. We're 18 00:01:26,800 --> 00:01:30,160 Speaker 1: coming back to fundamental problems. So in Europe we have 19 00:01:30,480 --> 00:01:34,119 Speaker 1: too many banks. Deutsche has got the wrong business model 20 00:01:34,240 --> 00:01:36,080 Speaker 1: and it's going to take a long, long time to adjust. 21 00:01:36,120 --> 00:01:39,039 Speaker 1: It's not insolvent, but they need to raise a lot 22 00:01:39,040 --> 00:01:42,200 Speaker 1: of capital. The US fine fourteen billions equal to their 23 00:01:42,240 --> 00:01:46,279 Speaker 1: market cap today. Um So there's a lot of capital 24 00:01:46,319 --> 00:01:49,400 Speaker 1: to be raised. Business models needs to be changed. Nothing 25 00:01:49,440 --> 00:01:52,760 Speaker 1: stops the stock from going lower until these things are done, 26 00:01:53,280 --> 00:01:57,520 Speaker 1: um so. European banks um. However, the rest of the 27 00:01:57,560 --> 00:02:00,360 Speaker 1: banking system has liquidity and has a ready done a 28 00:02:00,360 --> 00:02:03,920 Speaker 1: lot of adjustments in Spain and needily there happening. So 29 00:02:03,960 --> 00:02:08,120 Speaker 1: I don't think it's a systemic issue in the US. 30 00:02:08,160 --> 00:02:10,480 Speaker 1: I think, you know, tonight we're going to see a shift. 31 00:02:10,680 --> 00:02:13,480 Speaker 1: I think, um I've seen Brexit when I was in 32 00:02:13,480 --> 00:02:16,959 Speaker 1: the UK, and we've seen Berloscone in Italy. We've seen 33 00:02:17,000 --> 00:02:21,240 Speaker 1: a lot of similar stories. And people in New York, 34 00:02:21,360 --> 00:02:26,760 Speaker 1: people in San Francisco underestimate the impact of god politics, 35 00:02:26,880 --> 00:02:30,480 Speaker 1: of of politics that are not based on facts. So 36 00:02:30,720 --> 00:02:34,440 Speaker 1: I think that's gonna be that's going to create international volatility. 37 00:02:34,639 --> 00:02:38,399 Speaker 1: You think we're seeing some volatility based on the US 38 00:02:38,440 --> 00:02:41,960 Speaker 1: political debate tonight, I think that's gonna happen. It's going 39 00:02:42,040 --> 00:02:47,200 Speaker 1: to be potentially stronger dollar, but also bad for treasuries 40 00:02:47,320 --> 00:02:51,200 Speaker 1: because some of the policies are very stimulative, you know, 41 00:02:51,639 --> 00:02:56,880 Speaker 1: cuts and taxes, a lot of infrastructure spending and and 42 00:02:57,080 --> 00:03:00,200 Speaker 1: protection is against Mexico and China. So for m Ergy 43 00:03:00,320 --> 00:03:03,519 Speaker 1: markets it's not really good. What do you think that 44 00:03:03,720 --> 00:03:07,400 Speaker 1: if Donald Trump is perceived to win the debate tonight, 45 00:03:07,880 --> 00:03:11,720 Speaker 1: that has a major impact on trading tomorrow. I think 46 00:03:11,919 --> 00:03:13,960 Speaker 1: on currencies it's going to have an impact. I think 47 00:03:14,000 --> 00:03:17,680 Speaker 1: on the treasury yield curve. UM it's not going to 48 00:03:17,760 --> 00:03:21,919 Speaker 1: be a big negative for for everything. I think it's 49 00:03:21,960 --> 00:03:25,480 Speaker 1: it's an adjustment um. Markets have been looking at this 50 00:03:26,040 --> 00:03:29,480 Speaker 1: event in some areas the Mexican pays so mainly and 51 00:03:29,560 --> 00:03:32,679 Speaker 1: some of the U S stocks, but not everyone is 52 00:03:32,720 --> 00:03:36,119 Speaker 1: realized that the risk is there. So you have a 53 00:03:36,160 --> 00:03:39,280 Speaker 1: moment where you actually say, okay, this is actually real, 54 00:03:39,520 --> 00:03:42,640 Speaker 1: you know. And remember, you know, people who vote vote 55 00:03:42,680 --> 00:03:45,200 Speaker 1: from everywhere. But the traders live in New York on 56 00:03:45,240 --> 00:03:47,880 Speaker 1: the West coast, and they have a they leave it 57 00:03:47,880 --> 00:03:49,720 Speaker 1: a bit in a in a bubble. And the same 58 00:03:49,760 --> 00:03:52,400 Speaker 1: happened in London with Brexit. No one thought it would happen, 59 00:03:52,880 --> 00:03:54,920 Speaker 1: but then it actually happened, and now we have to 60 00:03:54,960 --> 00:03:56,640 Speaker 1: deal with it. I think tom we're going to have 61 00:03:56,680 --> 00:04:01,440 Speaker 1: to stay up and watch this thing. Nine o'clock. John Tucker, 62 00:04:01,520 --> 00:04:04,920 Speaker 1: who who were our coverage at seven pm and eight 63 00:04:04,960 --> 00:04:07,960 Speaker 1: thirty night? Why nine o'clock is it to sell Budweiser 64 00:04:09,120 --> 00:04:16,040 Speaker 1: beer commercials? You know, just proved Albertos Alberto's thesis. What 65 00:04:16,160 --> 00:04:19,279 Speaker 1: time is it in San Francisco and laws? It's true fair, 66 00:04:19,680 --> 00:04:21,600 Speaker 1: So you know they want people to be able to 67 00:04:21,600 --> 00:04:23,680 Speaker 1: watch out on the West Coast. We like, okay, little 68 00:04:23,760 --> 00:04:26,839 Speaker 1: New York bubble, good morning Bloomberg six, the Bay Area 69 00:04:27,000 --> 00:04:30,080 Speaker 1: and the real world, unlike the bubble that Michael McKee 70 00:04:30,080 --> 00:04:32,320 Speaker 1: and I live in Alberta. We look at the sum 71 00:04:32,360 --> 00:04:34,760 Speaker 1: of the parts of a Monday morning futures negative ten 72 00:04:35,240 --> 00:04:37,880 Speaker 1: down future is negative. One part of it is a 73 00:04:37,880 --> 00:04:42,880 Speaker 1: backdrop of financial Europe. That's your expertise, Spain, Italy and such. 74 00:04:43,240 --> 00:04:47,719 Speaker 1: What is the backdrop in Europe? Is there some stability? No, 75 00:04:47,960 --> 00:04:51,000 Speaker 1: there's instability and it's getting worse. I think it's global, 76 00:04:51,080 --> 00:04:54,120 Speaker 1: not only European. So there is there's a war of 77 00:04:54,320 --> 00:04:57,360 Speaker 1: negotiation between the UK and the EU. There's a war 78 00:04:57,440 --> 00:04:59,800 Speaker 1: of fines between the US and the EU. With dosh 79 00:04:59,880 --> 00:05:02,120 Speaker 1: by can Apple, you know that, let's not forget that. 80 00:05:02,600 --> 00:05:04,839 Speaker 1: And you know, macro data in Europe is getting a 81 00:05:04,839 --> 00:05:08,000 Speaker 1: little better. QUI is slowly working, but it's not enough. 82 00:05:08,360 --> 00:05:10,960 Speaker 1: You need infrastructure spending. You need the Uncar plan. They 83 00:05:11,000 --> 00:05:15,560 Speaker 1: spent around ten billions zero point one percent of Eurozone 84 00:05:15,640 --> 00:05:19,320 Speaker 1: gdp um. They say it's going to create ten times 85 00:05:19,320 --> 00:05:22,320 Speaker 1: more investment, but it's still extremely low. Remember the US 86 00:05:22,360 --> 00:05:25,239 Speaker 1: had over ten percent death sit where when QUI started. 87 00:05:25,279 --> 00:05:28,120 Speaker 1: So in Europe in particular, QUI remains the only game 88 00:05:28,160 --> 00:05:32,080 Speaker 1: in town. And you've got this political risk rising. Um, 89 00:05:32,200 --> 00:05:34,880 Speaker 1: We've got the Italian referendum later this year. It's a 90 00:05:34,880 --> 00:05:40,279 Speaker 1: fifty bed So a lot of uncertainty looming around markets. 91 00:05:40,279 --> 00:05:43,480 Speaker 1: Even though fundamentals are okay, people are afraid of taking 92 00:05:44,200 --> 00:05:47,520 Speaker 1: positive risk. The afraid is there, I mean, I mean 93 00:05:47,560 --> 00:05:52,400 Speaker 1: that's the perfect word for where we are. Is a tentativeness. 94 00:05:52,440 --> 00:05:55,520 Speaker 1: Almost what does the deut you bring price signal to 95 00:05:55,640 --> 00:05:58,960 Speaker 1: you ten point seven five now better than it was 96 00:05:59,000 --> 00:06:01,520 Speaker 1: an hour and a half ago. So the market cap 97 00:06:01,560 --> 00:06:03,760 Speaker 1: of the of Dodge Bank is similar to the to 98 00:06:03,880 --> 00:06:07,839 Speaker 1: the fine that the Department of Justice has asked. And 99 00:06:08,080 --> 00:06:11,680 Speaker 1: to me, there is nothing stopping the equity price from 100 00:06:11,720 --> 00:06:14,200 Speaker 1: going lower unless there's a big change in their business 101 00:06:14,240 --> 00:06:17,280 Speaker 1: model and obviously a capital raise. However, we need to 102 00:06:17,360 --> 00:06:19,840 Speaker 1: draw a line around solvency, and the market is also 103 00:06:19,880 --> 00:06:22,359 Speaker 1: telling you that solvency is not a big issue. You know, 104 00:06:22,400 --> 00:06:25,040 Speaker 1: if you look at bonds, senior bonds, you know they're 105 00:06:25,080 --> 00:06:28,080 Speaker 1: still doing okay. So we're not in a Bear Sterns 106 00:06:28,160 --> 00:06:31,240 Speaker 1: or in a Lehman situation. The problem is Dodge Bank 107 00:06:31,320 --> 00:06:34,480 Speaker 1: is very large. It's got no domestic market. German banks 108 00:06:34,520 --> 00:06:37,000 Speaker 1: are subsidized by the States, so you can't make money 109 00:06:37,040 --> 00:06:39,400 Speaker 1: out of normal lending um and so they need to 110 00:06:39,440 --> 00:06:43,440 Speaker 1: really reinvent themselves. We have learned from other experiences like 111 00:06:43,600 --> 00:06:46,400 Speaker 1: RBS for example, or other banks that it takes ten years. 112 00:06:46,400 --> 00:06:48,840 Speaker 1: It takes a very long time, and German indiend it's 113 00:06:48,839 --> 00:06:51,080 Speaker 1: gonna have to intervene. Can they risk I mean not 114 00:06:51,240 --> 00:06:53,640 Speaker 1: that you're doing an equity bank or thing, but the 115 00:06:53,720 --> 00:06:57,720 Speaker 1: stock is down sixty from spring of two thousand and 116 00:06:57,800 --> 00:07:01,559 Speaker 1: fifteen peaks. Can they go out and do a cash 117 00:07:01,640 --> 00:07:04,880 Speaker 1: call right now? I mean any price they can? Obviously 118 00:07:05,000 --> 00:07:09,520 Speaker 1: that's the answer, but the delution here has to be extraordinary. 119 00:07:09,960 --> 00:07:13,120 Speaker 1: They can. I think they can raise capital, but I 120 00:07:13,240 --> 00:07:16,000 Speaker 1: think it's better to change their business model. At the 121 00:07:16,040 --> 00:07:20,920 Speaker 1: same time, because having a bank that just that generates 122 00:07:20,960 --> 00:07:25,560 Speaker 1: a large part of their business through trading doesn't work anymore, 123 00:07:25,640 --> 00:07:27,960 Speaker 1: especially if you have a balance sheet that's larger than 124 00:07:28,040 --> 00:07:30,080 Speaker 1: your country. You've got to be smaller, you've got to 125 00:07:30,120 --> 00:07:32,080 Speaker 1: be leaner, and you've got to have more capital, and 126 00:07:32,200 --> 00:07:35,000 Speaker 1: the cost of capital is higher today, so you cannot 127 00:07:35,080 --> 00:07:38,160 Speaker 1: do a lot of low margin business. They used to 128 00:07:38,200 --> 00:07:40,400 Speaker 1: do a lot of low margin trading business, but now 129 00:07:40,480 --> 00:07:43,080 Speaker 1: you actually pay for balance sheet, so you can you 130 00:07:43,200 --> 00:07:46,920 Speaker 1: can only do high margin business. But Germany needs to 131 00:07:46,960 --> 00:07:50,040 Speaker 1: also restructure the land is banking the domestic you know, 132 00:07:50,200 --> 00:07:54,640 Speaker 1: local credit institution because those are subsidized. They land at 133 00:07:55,120 --> 00:07:57,840 Speaker 1: near zero and the state pays for it. And that's 134 00:07:57,880 --> 00:08:00,320 Speaker 1: why Dodge Bank cannot make money on their domestic market. 135 00:08:01,480 --> 00:08:04,800 Speaker 1: We should notice, note Tom, that Deutsche Bank is trading 136 00:08:04,840 --> 00:08:07,000 Speaker 1: at ten point seven four or five euros right now, 137 00:08:07,080 --> 00:08:10,120 Speaker 1: down another almost six percent this morning, and that is 138 00:08:10,560 --> 00:08:14,040 Speaker 1: a new low. And uh, they're caught in I don't 139 00:08:14,080 --> 00:08:15,760 Speaker 1: want to say a doom loop, but it's kind of 140 00:08:15,800 --> 00:08:18,840 Speaker 1: getting that way where people trade them down because they 141 00:08:18,880 --> 00:08:20,640 Speaker 1: think they need to do a capital raise. The more 142 00:08:20,640 --> 00:08:22,240 Speaker 1: they trade them down, the more they're going to need 143 00:08:22,320 --> 00:08:24,920 Speaker 1: to do a capital raise. So that's a stock we're 144 00:08:24,920 --> 00:08:27,000 Speaker 1: going to keep an eye on throughout the day here 145 00:08:27,160 --> 00:08:34,040 Speaker 1: on Bluebird guys. Deutsche Bank continues to struggle in the markets. Michaelmckey, 146 00:08:34,040 --> 00:08:35,760 Speaker 1: I want you to jump in here with Albert Ogallo 147 00:08:35,800 --> 00:08:39,800 Speaker 1: of Algebras because it's really fortunate, folks. We've got Michael 148 00:08:39,840 --> 00:08:44,480 Speaker 1: McKee's weekend reading which was on uh, covered interest parity. 149 00:08:44,880 --> 00:08:46,920 Speaker 1: I mean, Mike, Mike, this is I guess what you do. 150 00:08:47,240 --> 00:08:48,760 Speaker 1: I mean on the weekends is you have to read 151 00:08:48,800 --> 00:08:52,439 Speaker 1: it to papers B I S. And this is where 152 00:08:52,480 --> 00:08:55,559 Speaker 1: Albert Ogallo is on liquidity as well. Mike, review this 153 00:08:55,760 --> 00:08:59,640 Speaker 1: paper and why it's important for the new liquidity or 154 00:08:59,720 --> 00:09:03,360 Speaker 1: lack of liquidity we're living in. Well, the Bank for 155 00:09:03,440 --> 00:09:06,280 Speaker 1: International Settlements looked at something called covered interest parity, which 156 00:09:06,800 --> 00:09:09,840 Speaker 1: very few people are gonna understand. That it's a sort 157 00:09:09,880 --> 00:09:12,760 Speaker 1: of been thought of as an immutable law of the 158 00:09:12,880 --> 00:09:16,280 Speaker 1: markets that the forward price and the spot price in 159 00:09:16,400 --> 00:09:18,439 Speaker 1: any currency pair are going to be different and the 160 00:09:18,520 --> 00:09:22,400 Speaker 1: difference should equal the interest rate differential between the countries. 161 00:09:22,480 --> 00:09:26,480 Speaker 1: And it's not happening anymore ever since the financial crisis. 162 00:09:26,600 --> 00:09:29,400 Speaker 1: There it's broken down in a lot of currency pairs, 163 00:09:29,480 --> 00:09:32,560 Speaker 1: and Bank for International Settlements is suggesting it maybe because 164 00:09:32,640 --> 00:09:36,000 Speaker 1: people are trying to hedge more at a time when banks, 165 00:09:36,040 --> 00:09:40,560 Speaker 1: because of regular regulation, are less interested in arbitraging away 166 00:09:40,600 --> 00:09:45,079 Speaker 1: the differences. So you have this um strange situation that 167 00:09:45,320 --> 00:09:48,320 Speaker 1: suggests that there's a little bit less liquidity out there. 168 00:09:48,360 --> 00:09:51,640 Speaker 1: In Alberto, we were talking earlier about this um you 169 00:09:51,760 --> 00:09:57,400 Speaker 1: make a distinction between UH funding liquidity and market liquidity. Yeah, 170 00:09:57,440 --> 00:10:01,040 Speaker 1: so if you think about the funding dad, central banks 171 00:10:01,080 --> 00:10:04,320 Speaker 1: are finding the market with it, financial markets, not the economy. 172 00:10:04,720 --> 00:10:07,480 Speaker 1: So if you are a bank in Europe, you're not 173 00:10:07,559 --> 00:10:10,920 Speaker 1: actually getting paid to borrow. You get paid forty basis 174 00:10:11,000 --> 00:10:15,080 Speaker 1: points your point four. However, the problem is that credit risk, 175 00:10:15,679 --> 00:10:19,640 Speaker 1: the cost of capital, balance sheets are expensive, and so 176 00:10:19,760 --> 00:10:23,839 Speaker 1: the cost of making these currency arbitragures is higher. So 177 00:10:24,600 --> 00:10:27,599 Speaker 1: to one extent, the fact that current interst pirty is 178 00:10:27,679 --> 00:10:30,280 Speaker 1: not applying anymore is also a consequence of the fact 179 00:10:30,360 --> 00:10:33,840 Speaker 1: that people are again more afraid of putting their money 180 00:10:33,920 --> 00:10:36,559 Speaker 1: into an arbitraty relationship because there is some credit risk 181 00:10:36,640 --> 00:10:41,480 Speaker 1: they associate with other financial institutions, and also because there 182 00:10:41,640 --> 00:10:44,360 Speaker 1: is a higher cost of balance The higher costs of capital. 183 00:10:44,840 --> 00:10:48,440 Speaker 1: So all the businesses that were based on high volume, 184 00:10:48,720 --> 00:10:51,880 Speaker 1: low margin trades like these ones are now struggling. You know, 185 00:10:52,000 --> 00:10:54,920 Speaker 1: dB the DGE bank being one of them. Um, and 186 00:10:55,080 --> 00:10:57,120 Speaker 1: I don't think that's going to change until we have 187 00:10:57,360 --> 00:11:00,880 Speaker 1: a leaner and a stronger banking system. I think it's 188 00:11:00,880 --> 00:11:03,160 Speaker 1: a symptom of this. Well, how do you get to 189 00:11:03,240 --> 00:11:06,640 Speaker 1: a leaner and stronger banking system? I mean stronger I 190 00:11:06,760 --> 00:11:09,800 Speaker 1: presume is underpinned by the regulation that increases capital. But 191 00:11:09,920 --> 00:11:13,160 Speaker 1: what's leaner? I think you know, dragging talked about it. Um, 192 00:11:13,800 --> 00:11:18,160 Speaker 1: it's it's less banks, less costs, less branches. Uh. The 193 00:11:18,240 --> 00:11:21,040 Speaker 1: capital is already there. You know, banks have raised in 194 00:11:21,120 --> 00:11:25,640 Speaker 1: Europe over five billion UM capital since over the last 195 00:11:25,679 --> 00:11:29,000 Speaker 1: few years. So copitlal. Ratios are are good. There are 196 00:11:29,120 --> 00:11:32,120 Speaker 1: some banks that are still weak, but overall they're good. 197 00:11:32,200 --> 00:11:35,520 Speaker 1: The problem is business models profitability. If you have negative 198 00:11:35,600 --> 00:11:38,439 Speaker 1: interest rates, if the yield curve is very flat, banks 199 00:11:38,480 --> 00:11:41,679 Speaker 1: don't make money. Banks bore short term, lend medium term. 200 00:11:42,000 --> 00:11:44,760 Speaker 1: And if the yield curve is flat, the profitability is 201 00:11:44,840 --> 00:11:47,360 Speaker 1: not there. I mean you've I mean not to get 202 00:11:47,440 --> 00:11:50,000 Speaker 1: in the knitting Alberto, but you've lived this. It's selected 203 00:11:50,000 --> 00:11:54,040 Speaker 1: other banks as well. I understand banks challenging and I 204 00:11:54,120 --> 00:11:57,520 Speaker 1: don't have a lot of answers except Mr Crying can 205 00:11:57,679 --> 00:12:04,199 Speaker 1: observe seven other European models over the last nine years. 206 00:12:05,600 --> 00:12:09,240 Speaker 1: May I suggest after looking at those models, people would say, 207 00:12:09,360 --> 00:12:12,640 Speaker 1: what are you waiting for? Am I wrong? I think 208 00:12:12,679 --> 00:12:15,320 Speaker 1: he's doing it, But remember, like the people who are 209 00:12:15,360 --> 00:12:18,559 Speaker 1: there before, we're in denial for a long time. And 210 00:12:19,120 --> 00:12:22,079 Speaker 1: you know, I don't food Mr Crime personally, but I 211 00:12:22,120 --> 00:12:25,360 Speaker 1: mean the stock party speaks volumes about the experience of 212 00:12:25,440 --> 00:12:28,240 Speaker 1: Northern Rock, etcetera, etcetera. If you look at the top 213 00:12:28,800 --> 00:12:32,120 Speaker 1: twenty European banks, their market cap is similar to the 214 00:12:32,200 --> 00:12:35,560 Speaker 1: markup of JP Morgan. So there is a very very 215 00:12:35,640 --> 00:12:40,360 Speaker 1: strong fear in the market about profitability and business models 216 00:12:40,520 --> 00:12:43,679 Speaker 1: not SOLVEDNCY, but there needs to be a change. So 217 00:12:44,040 --> 00:12:47,480 Speaker 1: a lot of the banks are linked to political institutions. 218 00:12:47,679 --> 00:12:50,880 Speaker 1: In Germany, banks are political. There's all the local banks 219 00:12:51,440 --> 00:12:54,760 Speaker 1: that are connected to each state and they're subsidized, and 220 00:12:54,840 --> 00:12:58,360 Speaker 1: that's why change is very hard to to to be implemented. 221 00:12:58,400 --> 00:13:01,040 Speaker 1: It takes a long time to change bank business. You've 222 00:13:01,080 --> 00:13:04,040 Speaker 1: been very quickly here, You've been courageous about buying Spain 223 00:13:04,120 --> 00:13:06,880 Speaker 1: in the bottom, grease in the bottom, etcetera. Is this 224 00:13:07,000 --> 00:13:10,240 Speaker 1: a bottom for Deutsche Bank? Now? I think the equity 225 00:13:10,280 --> 00:13:12,280 Speaker 1: has a bit more donset until there is a clear 226 00:13:12,880 --> 00:13:16,320 Speaker 1: UH capital raising plan. I think also peri free spreads 227 00:13:16,480 --> 00:13:18,559 Speaker 1: are going to be volatile. You know, we've got the 228 00:13:18,600 --> 00:13:21,800 Speaker 1: Italian friend and we've got more uncertainty. Okay, never enough time, 229 00:13:21,840 --> 00:13:35,240 Speaker 1: elp rotagalo, Thank you so much. The market news of 230 00:13:35,320 --> 00:13:38,760 Speaker 1: the day is that there is some sort of unhappiness 231 00:13:38,840 --> 00:13:42,440 Speaker 1: out there over what's going on, but nobody really has 232 00:13:42,559 --> 00:13:46,400 Speaker 1: a definitive answer to what it is. We're watching SMP 233 00:13:46,520 --> 00:13:50,520 Speaker 1: features off by ten points, STOW futures in Europe, the 234 00:13:50,520 --> 00:13:54,959 Speaker 1: stock is off by five one four percent. It's kind 235 00:13:55,000 --> 00:13:58,720 Speaker 1: of market that tells you Gary Shillings in Town Gary 236 00:13:59,440 --> 00:14:06,040 Speaker 1: of Gary has been a realists. He calls it realistic. 237 00:14:06,080 --> 00:14:10,480 Speaker 1: Others would call it pessimistic. UM one day obviously doesn't 238 00:14:10,559 --> 00:14:16,520 Speaker 1: mean anything. But in general, are we seeing a turn 239 00:14:17,400 --> 00:14:23,160 Speaker 1: in the sentiment? Shall we say about global economies and 240 00:14:23,320 --> 00:14:28,240 Speaker 1: global markets and UH is this sort of the fall 241 00:14:28,400 --> 00:14:33,640 Speaker 1: bringing leaves and markets fault. There's certainly disappointment that it 242 00:14:33,720 --> 00:14:36,760 Speaker 1: doesn't look like the economy and corporate earnings are going 243 00:14:36,840 --> 00:14:39,120 Speaker 1: to pick up as we go into the end of 244 00:14:39,200 --> 00:14:42,760 Speaker 1: the year. But that's that's really been perennial. If you 245 00:14:42,840 --> 00:14:45,480 Speaker 1: look back in this whole expansion that started in the 246 00:14:45,560 --> 00:14:48,840 Speaker 1: middle of two thousand nine, there's been this constant drumbeat 247 00:14:48,920 --> 00:14:52,640 Speaker 1: that the economy is going to revive rapid growth. And 248 00:14:53,040 --> 00:14:54,960 Speaker 1: of course then that meant that the Fed was going 249 00:14:55,000 --> 00:14:58,360 Speaker 1: to raise interest rates and everything is, everything is UH 250 00:14:58,920 --> 00:15:01,160 Speaker 1: is going to be on the upside. But but the 251 00:15:01,200 --> 00:15:03,920 Speaker 1: reality is that, you know my view, we're still working 252 00:15:04,040 --> 00:15:06,880 Speaker 1: off a lot of the excess debt, the excesses of 253 00:15:06,920 --> 00:15:09,240 Speaker 1: the eighties and nineties at the age of the leveraging, 254 00:15:09,720 --> 00:15:12,880 Speaker 1: and this processes is still underway. And what's interesting about this, 255 00:15:13,520 --> 00:15:18,600 Speaker 1: this has really spawned this winner of discontent, this this 256 00:15:19,000 --> 00:15:23,960 Speaker 1: UH whole movement towards populism. We see that in Europe 257 00:15:24,480 --> 00:15:27,840 Speaker 1: Maria la Penn leading the National Front in France. We 258 00:15:27,920 --> 00:15:30,640 Speaker 1: saw it with Bernie Sanders here and with Trump. Of course, 259 00:15:31,240 --> 00:15:35,040 Speaker 1: UH people are mad as hell because most people in 260 00:15:35,160 --> 00:15:38,600 Speaker 1: Western Europe and North America have had no growth in 261 00:15:38,680 --> 00:15:42,200 Speaker 1: their purchasing power for over a decade, and they've rejected 262 00:15:42,240 --> 00:15:45,280 Speaker 1: mainstream politicians and turned to the fringes. Now, I think 263 00:15:45,360 --> 00:15:47,280 Speaker 1: ultimately this is going to result in a huge push 264 00:15:47,320 --> 00:15:51,800 Speaker 1: for fiscal fiscal stimulus because monetary policy is impotent. But 265 00:15:52,000 --> 00:15:54,960 Speaker 1: it is a continuation of a of a of a 266 00:15:55,080 --> 00:16:00,960 Speaker 1: situation which for many people is just unacceptable. The so 267 00:16:01,520 --> 00:16:04,800 Speaker 1: you you your debt, you would tie what's going on 268 00:16:05,120 --> 00:16:10,280 Speaker 1: here in the markets to the presidential race. Well, I 269 00:16:10,400 --> 00:16:12,640 Speaker 1: think it is. And and you know, one of the 270 00:16:12,680 --> 00:16:16,720 Speaker 1: possibilities here that you say, what's why if stocks held 271 00:16:16,800 --> 00:16:19,480 Speaker 1: up y rps as high as they are and so, 272 00:16:19,600 --> 00:16:23,120 Speaker 1: and it may be that that investors are beginning to 273 00:16:23,240 --> 00:16:27,320 Speaker 1: anticipate big pistical stimulus down the road. We won't know 274 00:16:27,520 --> 00:16:30,600 Speaker 1: that until the new president and Congress are installed in 275 00:16:30,760 --> 00:16:33,120 Speaker 1: January and they get their act together. But I think 276 00:16:33,160 --> 00:16:36,320 Speaker 1: whoever wins there probably is going to be a big movement. 277 00:16:36,640 --> 00:16:38,320 Speaker 1: The two areas that we'll be your marked on this 278 00:16:38,880 --> 00:16:43,400 Speaker 1: are one infrastructure spending, which both Democratic Republicans can agree on, 279 00:16:44,040 --> 00:16:45,960 Speaker 1: and the other one is a military which would be 280 00:16:46,120 --> 00:16:51,280 Speaker 1: much more favored if the Republicans controlled Washington. Once a year, 281 00:16:51,600 --> 00:16:54,000 Speaker 1: you know how on radio folks, once a year, like 282 00:16:54,120 --> 00:16:57,040 Speaker 1: you sip a cup of coffee and it goes down 283 00:16:57,200 --> 00:17:02,440 Speaker 1: round that that's it for two in sixteen. Well, in 284 00:17:02,560 --> 00:17:06,439 Speaker 1: case something happens to you, we've already lined up Gary's recommendations. 285 00:17:06,520 --> 00:17:09,400 Speaker 1: Howard Beale, that's good to replace you. Well, that's okay 286 00:17:09,400 --> 00:17:12,040 Speaker 1: because I got that. They got the surveillance casket right 287 00:17:12,080 --> 00:17:18,119 Speaker 1: out back line. We have Howard Beale standing by from 288 00:17:18,160 --> 00:17:21,160 Speaker 1: the movie network to uh, to fill in for Tom 289 00:17:21,200 --> 00:17:24,040 Speaker 1: while he recovers from swallowing some coffee the wrong way. 290 00:17:24,160 --> 00:17:26,440 Speaker 1: He's bad enough you small coffee, Gary, but you swallow 291 00:17:26,760 --> 00:17:29,200 Speaker 1: hot stuff the wrong way. It hurts. Gary Shilling is 292 00:17:29,280 --> 00:17:32,560 Speaker 1: with us um playing the role of Howard Beale right now. 293 00:17:33,160 --> 00:17:37,760 Speaker 1: He's You're never mad, You're always You're always cheerful, well, 294 00:17:38,040 --> 00:17:41,399 Speaker 1: cheerfully presenting. They say, don't get don't get mad, just 295 00:17:41,520 --> 00:17:46,879 Speaker 1: good even. Uh. We were talking earlier on Bloomberg's Fance 296 00:17:46,920 --> 00:17:49,640 Speaker 1: on television, the same thing we were talking with Alberto Gallowan. 297 00:17:49,840 --> 00:17:53,680 Speaker 1: But the changes in the way markets operate these days, 298 00:17:53,880 --> 00:17:57,400 Speaker 1: and the fact that computers drive so much and liquidity 299 00:17:57,520 --> 00:18:00,560 Speaker 1: is down in a lot of areas, how much does 300 00:18:00,640 --> 00:18:05,480 Speaker 1: that concern you and how much does that affect the 301 00:18:05,600 --> 00:18:10,440 Speaker 1: real price of assets? Well, it does affect the price 302 00:18:10,560 --> 00:18:14,360 Speaker 1: of assets, and there is a spill over of asset 303 00:18:14,440 --> 00:18:18,360 Speaker 1: prices to the real economy, the goods and services economy. 304 00:18:18,400 --> 00:18:21,080 Speaker 1: You're a real wealth effect, for example, the idea if 305 00:18:21,240 --> 00:18:25,040 Speaker 1: people have higher assets, then they are going to spend 306 00:18:25,119 --> 00:18:28,240 Speaker 1: more money on goods and services. But those those effects 307 00:18:28,280 --> 00:18:31,360 Speaker 1: are much weaker than they used to be. I think 308 00:18:31,400 --> 00:18:33,679 Speaker 1: a lot of that is because of the polarization of income. 309 00:18:33,720 --> 00:18:37,920 Speaker 1: Income is and assets have moved into the upper reaches. 310 00:18:38,119 --> 00:18:41,560 Speaker 1: And if somebody there has four cars in his driveway 311 00:18:41,680 --> 00:18:43,960 Speaker 1: is put portfolios up, He's probably not going to buy 312 00:18:44,000 --> 00:18:47,000 Speaker 1: a fifth. It doesn't make a lot of difference, but 313 00:18:47,119 --> 00:18:49,680 Speaker 1: I think you have to you have to realize that 314 00:18:50,280 --> 00:18:53,680 Speaker 1: in this whole expansion. Ever since stocks took off in 315 00:18:53,800 --> 00:18:57,000 Speaker 1: March of two thousand nine, and then the economy followed 316 00:18:57,080 --> 00:18:59,800 Speaker 1: the middle of the year, you've had two worlds there. 317 00:18:59,840 --> 00:19:01,840 Speaker 1: You had a financial world out there. I called it 318 00:19:01,920 --> 00:19:05,600 Speaker 1: the Grand Disconnect. You've had a financial world which has 319 00:19:05,680 --> 00:19:09,200 Speaker 1: really been driven by central bank money more than anything else, 320 00:19:09,600 --> 00:19:13,719 Speaker 1: affecting stocks, but other assets. And then and that's been 321 00:19:13,960 --> 00:19:17,000 Speaker 1: that's been very strong on balanced, and then the goods 322 00:19:17,040 --> 00:19:19,719 Speaker 1: and services economy. You're still in this what I call 323 00:19:19,800 --> 00:19:22,480 Speaker 1: the age of the leveraging and you say, are those 324 00:19:22,520 --> 00:19:26,680 Speaker 1: two worlds gonna come together? And and and I think 325 00:19:26,720 --> 00:19:29,639 Speaker 1: they will eventually. But in the meanwhile, all the turmoil, 326 00:19:29,680 --> 00:19:32,119 Speaker 1: the liquidity, all these other they are important to certainly 327 00:19:32,200 --> 00:19:35,960 Speaker 1: market participants, and there's a spillover effect, but I don't 328 00:19:36,000 --> 00:19:38,640 Speaker 1: think it really addresses the central issue. And again that's 329 00:19:38,720 --> 00:19:41,439 Speaker 1: the Howard deal issue. That's the people are mad as 330 00:19:41,480 --> 00:19:44,680 Speaker 1: hell because they have had no increase in real purchasing 331 00:19:44,760 --> 00:19:48,200 Speaker 1: power in over a decade. And for most people, hey, 332 00:19:48,440 --> 00:19:52,040 Speaker 1: the strength of socks doesn't mean much. Uh. Most people 333 00:19:52,080 --> 00:19:56,240 Speaker 1: own very very few stocks, either directly or through mutual funds. Gary, 334 00:19:56,560 --> 00:19:59,560 Speaker 1: one of the great terms of Gary showing is you've 335 00:19:59,600 --> 00:20:06,080 Speaker 1: been exceptionally able on deflation, disinflation, lower yields, but you've 336 00:20:06,160 --> 00:20:08,800 Speaker 1: always said be in the market. I have never ever 337 00:20:09,040 --> 00:20:12,760 Speaker 1: once heard you do the doom and gloom, go to cash. 338 00:20:13,760 --> 00:20:16,119 Speaker 1: And here we are with markets. You've been dead on 339 00:20:16,280 --> 00:20:20,200 Speaker 1: in that is, equities have elevated. So what do you 340 00:20:20,320 --> 00:20:23,600 Speaker 1: do now, I mean, is it finally where Gary Shilling says, 341 00:20:23,640 --> 00:20:26,320 Speaker 1: go to cash? Well, not entirely, Tom, but in the 342 00:20:26,400 --> 00:20:29,239 Speaker 1: portfolios remanage, we are heavier in cash, and we've ever 343 00:20:29,320 --> 00:20:36,240 Speaker 1: been uh, And it really is simply the the the 344 00:20:36,440 --> 00:20:39,600 Speaker 1: lack of movement in markets. The markets that at least 345 00:20:39,680 --> 00:20:42,119 Speaker 1: I find the most difficult to invest in our sideways. 346 00:20:42,640 --> 00:20:44,679 Speaker 1: If they're going in your favor, and I never invest 347 00:20:44,760 --> 00:20:48,360 Speaker 1: against my fundamental convictions. What I think is they're going 348 00:20:48,440 --> 00:20:51,800 Speaker 1: on any in terms of the economic themes and so on. 349 00:20:52,119 --> 00:20:54,359 Speaker 1: If they're going in your favorite, hey, that's wonderful. If 350 00:20:54,400 --> 00:20:57,040 Speaker 1: they're going against you, you say, I'm just not going 351 00:20:57,080 --> 00:21:01,000 Speaker 1: to participate. But if they're moving sideways, boy, that is treacherous, 352 00:21:01,000 --> 00:21:02,919 Speaker 1: because you're tempted to get in. You think things are 353 00:21:02,960 --> 00:21:05,000 Speaker 1: moving to get out. And I found the best thing 354 00:21:05,040 --> 00:21:07,639 Speaker 1: to do is if you don't have distinct movements, you 355 00:21:07,760 --> 00:21:10,800 Speaker 1: are to have a big pilot cat the Gary Shilling math. 356 00:21:11,240 --> 00:21:13,000 Speaker 1: And you can do this when your physics out of 357 00:21:13,040 --> 00:21:17,960 Speaker 1: amors is price up, yields lower. I get that. And 358 00:21:18,040 --> 00:21:22,720 Speaker 1: if yields continue to drive Gary Shilling lower, there's a 359 00:21:22,840 --> 00:21:25,080 Speaker 1: point where you, you know, you wonder, how much more 360 00:21:25,200 --> 00:21:28,440 Speaker 1: can there be a capital gain? Do you assume full 361 00:21:28,520 --> 00:21:31,080 Speaker 1: faith in credit bonds go to a premium pricing and 362 00:21:31,200 --> 00:21:34,240 Speaker 1: you still get your Gary Shilling total return? Well, I 363 00:21:34,520 --> 00:21:37,240 Speaker 1: don't think so. You know, I've I've over a year ago, 364 00:21:37,280 --> 00:21:39,480 Speaker 1: I said, I thought we were going to one percent 365 00:21:39,600 --> 00:21:41,960 Speaker 1: on the ten year treasury and two percent on the 366 00:21:42,359 --> 00:21:44,720 Speaker 1: on the thirty year and I still think that that's valid. 367 00:21:45,160 --> 00:21:48,200 Speaker 1: Now do we go into negative race in this country, 368 00:21:48,280 --> 00:21:51,440 Speaker 1: I don't think so. You know, the FED is basically, uh, 369 00:21:51,680 --> 00:21:55,159 Speaker 1: let the others run that grand experiment. They've let the 370 00:21:55,240 --> 00:21:59,000 Speaker 1: Bank of Japan, the e c B, the Swedish Rice Bank, etcetera, 371 00:21:59,640 --> 00:22:02,840 Speaker 1: Bank of Central Bank of Switzerland. These guys have gone 372 00:22:02,840 --> 00:22:05,639 Speaker 1: into negative race. Of negative race really haven't haven't worked. 373 00:22:06,000 --> 00:22:09,200 Speaker 1: If anything, they've encouraged people to save more and not 374 00:22:09,320 --> 00:22:11,200 Speaker 1: to and not to spend, not to borrow. And I 375 00:22:11,200 --> 00:22:12,879 Speaker 1: don't think a fet is just because shot back and 376 00:22:12,960 --> 00:22:14,920 Speaker 1: said we'll let them do it, and we're not and 377 00:22:15,040 --> 00:22:16,800 Speaker 1: and now they concluded it doesn't work. And I think 378 00:22:16,840 --> 00:22:19,000 Speaker 1: that's true in the Bank of Japan as well. So 379 00:22:19,480 --> 00:22:22,680 Speaker 1: I doubt that we're going there. And now it's Physics 380 00:22:22,800 --> 00:22:28,080 Speaker 1: Monday with Dr Shilling Gary macroeconomics, which some would suggest 381 00:22:28,160 --> 00:22:31,919 Speaker 1: you invented modern macro economics, that him and among others, 382 00:22:32,320 --> 00:22:34,399 Speaker 1: maybe Bob Farrell would be there in there too on 383 00:22:34,560 --> 00:22:38,480 Speaker 1: strategy um doctor showing the basic idea it's a one 384 00:22:38,600 --> 00:22:43,000 Speaker 1: mode American economy. It's a Gaussian economy. It's one over 385 00:22:43,080 --> 00:22:46,719 Speaker 1: the square to two pie. It's a simple formula everybody's 386 00:22:46,760 --> 00:22:50,400 Speaker 1: known since time began. Are we in a bimodal America? 387 00:22:50,720 --> 00:22:57,280 Speaker 1: Two America's in income, wages, education, technology, where the formulas 388 00:22:57,320 --> 00:23:00,719 Speaker 1: that you helped invent don't work anymore? Yeah, well they 389 00:23:00,760 --> 00:23:03,399 Speaker 1: don't work temporarily. And I think that the basic cause 390 00:23:03,560 --> 00:23:07,320 Speaker 1: Tom is globalization, which to me is the most important 391 00:23:07,600 --> 00:23:11,119 Speaker 1: global economic development in the last thirty years. And what 392 00:23:11,280 --> 00:23:14,080 Speaker 1: it has done is it is speeded up the what 393 00:23:14,320 --> 00:23:19,800 Speaker 1: is normally technological process. Uh. Technology usually creates more jobs 394 00:23:19,960 --> 00:23:24,800 Speaker 1: than it destroys. But when you transfer manufacturing largely from 395 00:23:25,119 --> 00:23:28,640 Speaker 1: Europe and North America to China and other developing countries, 396 00:23:29,040 --> 00:23:32,160 Speaker 1: you leave a huge, huge gap there. And I think 397 00:23:32,240 --> 00:23:36,320 Speaker 1: this is principally responsible for this polarization income and this 398 00:23:36,640 --> 00:23:40,479 Speaker 1: maddest hell reaction. In Larry Summers with a fabulous review 399 00:23:40,560 --> 00:23:45,440 Speaker 1: of Nickbor's death book at AI on the Men of America, 400 00:23:45,520 --> 00:23:49,080 Speaker 1: the male in America and the under employment Gary, can 401 00:23:49,160 --> 00:23:51,720 Speaker 1: we fix that by policy or do we just have 402 00:23:51,880 --> 00:23:55,280 Speaker 1: to give up and move those jobs? Well, Charles Murray, 403 00:23:55,680 --> 00:23:58,200 Speaker 1: I think as as you know, he's coming apart book 404 00:23:58,200 --> 00:24:00,520 Speaker 1: I know if he read that, but that there's some 405 00:24:00,800 --> 00:24:03,119 Speaker 1: marvelous studies of this. And of course one of the 406 00:24:03,200 --> 00:24:05,800 Speaker 1: things that we're seeing now is is UH use of 407 00:24:05,920 --> 00:24:10,480 Speaker 1: drugs of basically unemployed white males who who really just 408 00:24:10,600 --> 00:24:13,680 Speaker 1: don't have any purpose in life. Uh. I think it's 409 00:24:13,680 --> 00:24:16,479 Speaker 1: a transition period, and I'm not sure that there's an 410 00:24:16,480 --> 00:24:19,200 Speaker 1: awful lot that can be done with policy, retraining and 411 00:24:19,280 --> 00:24:21,879 Speaker 1: so on. But how many of these people really have 412 00:24:22,000 --> 00:24:24,040 Speaker 1: the incentive to get retrained and how many of them 413 00:24:24,080 --> 00:24:26,040 Speaker 1: have the capability? I mean, after all, there are a 414 00:24:26,080 --> 00:24:28,320 Speaker 1: lot of people who are twisting on bolts in Detroit 415 00:24:28,880 --> 00:24:32,920 Speaker 1: and and and autos who were way overpaid by by 416 00:24:33,280 --> 00:24:37,200 Speaker 1: global standards and the fact that that those incomes disappeared. 417 00:24:37,600 --> 00:24:41,760 Speaker 1: They don't understand it. You mentioned yields before you reaffirm 418 00:24:41,840 --> 00:24:45,720 Speaker 1: your one percent call UH interest rate on full faith 419 00:24:45,760 --> 00:24:49,760 Speaker 1: and credit tenure. What's the geary shilling calling gold? I'm 420 00:24:49,800 --> 00:24:52,800 Speaker 1: agnostic on gold. I've never really understood gold. The only 421 00:24:52,880 --> 00:24:55,760 Speaker 1: thing you can say is that, UH, if one basic 422 00:24:55,880 --> 00:24:59,440 Speaker 1: force pushes gold, it was inflation in the seventies. It 423 00:24:59,560 --> 00:25:03,120 Speaker 1: may have and UH distrust of paper currencies more recently. 424 00:25:03,880 --> 00:25:06,400 Speaker 1: But but you know, I don't think there's a clear 425 00:25:06,600 --> 00:25:08,480 Speaker 1: they're One thing you can't say, though, Tommy, is that 426 00:25:09,119 --> 00:25:13,240 Speaker 1: you have conditions here that ought to be ideal for gold, 427 00:25:13,440 --> 00:25:17,160 Speaker 1: tremendous political uncertainty and zero carring costs, and of course 428 00:25:17,280 --> 00:25:20,480 Speaker 1: gold doesn't return anything, so Karen, costs are very important. 429 00:25:20,520 --> 00:25:23,439 Speaker 1: And you say, if gold isn't taking off now, there 430 00:25:23,520 --> 00:25:25,800 Speaker 1: must be something else going on. And maybe it's the 431 00:25:25,960 --> 00:25:29,879 Speaker 1: deflation that I've been forecasting. See how John did you 432 00:25:29,920 --> 00:25:31,800 Speaker 1: see how in the last moment they're looking at the 433 00:25:31,880 --> 00:25:34,879 Speaker 1: clock showing out the shameless plug in there for his 434 00:25:34,960 --> 00:25:38,879 Speaker 1: classic book Deflation. See how he said he stuck that 435 00:25:39,240 --> 00:25:44,520 Speaker 1: it's the age of thest tom goes back to when 436 00:25:44,560 --> 00:25:51,159 Speaker 1: I wrote, let's mention both of them show that one. 437 00:25:51,200 --> 00:25:54,639 Speaker 1: I'm geving Gary Schilly with us this morning, folks, and 438 00:25:54,720 --> 00:25:57,600 Speaker 1: I really can't say enough if you want to explain 439 00:25:57,680 --> 00:26:02,600 Speaker 1: to your kids this word inflation. Gary wrote a book 440 00:26:02,600 --> 00:26:05,000 Speaker 1: twenty years ago. It's I called the Blue Book. It's 441 00:26:05,040 --> 00:26:07,920 Speaker 1: a paperback book. It's on all my lists, light blue, 442 00:26:08,000 --> 00:26:11,080 Speaker 1: dark blue, called deflation. I can't say enough about it. 443 00:26:11,840 --> 00:26:15,080 Speaker 1: Is the Primmer on price change. It is just absolutely 444 00:26:15,760 --> 00:26:19,240 Speaker 1: superb Gary showing a Gary showing against UH. And again 445 00:26:19,440 --> 00:26:21,879 Speaker 1: we protect the copyright of all of our guests. I 446 00:26:22,000 --> 00:26:26,760 Speaker 1: will not send out a Gary shilling in companies propaganda 447 00:26:26,840 --> 00:26:32,160 Speaker 1: that they put together. Who you put your trust in matters. 448 00:26:32,840 --> 00:26:36,679 Speaker 1: Investors have put their trust in independent registered investment advisors 449 00:26:36,720 --> 00:26:41,080 Speaker 1: to the tune of four trillion dollars. Why they see 450 00:26:41,080 --> 00:26:44,800 Speaker 1: their role is to serve, not sell. That's why Charles 451 00:26:44,840 --> 00:26:47,520 Speaker 1: Schwab is committed to the success of over seven thousand 452 00:26:47,640 --> 00:26:52,720 Speaker 1: independent financial advisors who passionately dedicate themselves to helping people 453 00:26:52,760 --> 00:26:56,920 Speaker 1: achieve their financial goals. Learn more and find your independent 454 00:26:57,000 --> 00:27:05,520 Speaker 1: advisor dot com. I've really been looking forward to this, 455 00:27:05,640 --> 00:27:09,960 Speaker 1: and Seltzer is in Iowa where she is a different 456 00:27:10,040 --> 00:27:13,639 Speaker 1: view and a more informed view on polling away from 457 00:27:13,680 --> 00:27:16,240 Speaker 1: the bubble of Washington and all of it. And of 458 00:27:16,320 --> 00:27:19,160 Speaker 1: course out with the Bloomberg poll this morning, and good morning, 459 00:27:19,359 --> 00:27:21,600 Speaker 1: good morning, Tom. Good to be with you. It's wonderful 460 00:27:21,680 --> 00:27:25,200 Speaker 1: to talk to you. Is the central limit theorem in 461 00:27:25,280 --> 00:27:29,160 Speaker 1: effect here? Or is polling so screwed up the mathematics 462 00:27:29,240 --> 00:27:33,680 Speaker 1: you learned that Kansas doesn't work, you know, I choose 463 00:27:33,720 --> 00:27:37,040 Speaker 1: to apply Newton's laws to this, which is for every action, 464 00:27:37,160 --> 00:27:40,040 Speaker 1: is there an equal and opposite reaction? And you know, 465 00:27:40,160 --> 00:27:42,520 Speaker 1: when people see the poll this morning, it will surprise 466 00:27:42,760 --> 00:27:46,320 Speaker 1: some of them because we're showing Hillary Clinton and Donald 467 00:27:46,359 --> 00:27:49,119 Speaker 1: Trump in a tie in our two way race, and 468 00:27:49,200 --> 00:27:52,680 Speaker 1: with Trump actually appear head in our four way race. 469 00:27:52,760 --> 00:27:56,200 Speaker 1: So will that have an impact on the electorate? Will 470 00:27:56,280 --> 00:27:59,000 Speaker 1: thinks spring back to the way they've been before or 471 00:27:59,119 --> 00:28:01,359 Speaker 1: is this the beginning? You have a Trump roll? What 472 00:28:01,800 --> 00:28:04,879 Speaker 1: is the margin of error in? How does it? Folks? 473 00:28:04,920 --> 00:28:07,320 Speaker 1: A margin of errors plus or minus? Blah blah blah. 474 00:28:07,600 --> 00:28:09,320 Speaker 1: It's always down at the bottom of the screen and 475 00:28:09,359 --> 00:28:12,440 Speaker 1: no one talks about it, and that drives me insane. 476 00:28:13,000 --> 00:28:17,400 Speaker 1: Give me the what what's the quality of margins of error? Well, 477 00:28:17,520 --> 00:28:20,560 Speaker 1: we we have done a sample, a random sample, probability 478 00:28:20,640 --> 00:28:24,760 Speaker 1: sample of one thousand and two likely voters for us. 479 00:28:24,840 --> 00:28:27,640 Speaker 1: That means they say they will definitely vote in two 480 00:28:27,720 --> 00:28:30,679 Speaker 1: thousand and sixteen. Where are they all stop? Are they 481 00:28:30,760 --> 00:28:35,400 Speaker 1: all at the wrestling match in Iowa State? Well, not yet. 482 00:28:35,560 --> 00:28:38,640 Speaker 1: The wrestling season hasn't started. They're just watching Iowa State 483 00:28:38,720 --> 00:28:42,440 Speaker 1: lose in football week after week after week. But our 484 00:28:42,520 --> 00:28:44,920 Speaker 1: margin of error, that means it's three point one plus 485 00:28:45,000 --> 00:28:46,920 Speaker 1: or minus percentage point. It means if we did the 486 00:28:46,960 --> 00:28:49,920 Speaker 1: same study twenty times, and believe me, we have asked 487 00:28:49,960 --> 00:28:53,320 Speaker 1: Bloomberg if they'd like to do that, nineteen out of 488 00:28:53,400 --> 00:28:56,360 Speaker 1: those times, the findings that we get would not vary 489 00:28:56,560 --> 00:28:59,720 Speaker 1: from the numbers were reporting by more than plus or 490 00:29:00,200 --> 00:29:02,920 Speaker 1: US three point one percentage points. And if you'll allow me, 491 00:29:03,560 --> 00:29:05,959 Speaker 1: people also want to make use the margin of air 492 00:29:06,040 --> 00:29:08,760 Speaker 1: to make a race closer, so they say, well, if 493 00:29:08,800 --> 00:29:10,960 Speaker 1: it's within three points, that means it's really a tie. 494 00:29:11,040 --> 00:29:15,080 Speaker 1: It is equally probable that the race could be wider 495 00:29:15,440 --> 00:29:17,480 Speaker 1: using that same margin of air. So thank you for 496 00:29:17,520 --> 00:29:20,960 Speaker 1: a little soapbox to say, don't overinterpret the marginal. No, 497 00:29:21,120 --> 00:29:23,360 Speaker 1: that's what we love having you on. Folks. This drives 498 00:29:23,440 --> 00:29:26,959 Speaker 1: me nuts. And for any of you math afflicted, I mean, 499 00:29:27,040 --> 00:29:32,360 Speaker 1: it's just incredible. The agnostic math agnostics. I don't know 500 00:29:32,400 --> 00:29:34,600 Speaker 1: what the right John Tucker, what's the right phrase? I mean, 501 00:29:34,680 --> 00:29:37,920 Speaker 1: Bob Moon does the STEM report for the New Jersey 502 00:29:38,000 --> 00:29:41,760 Speaker 1: Institute of Technology and Polling is like the anti STEM. 503 00:29:42,680 --> 00:29:45,520 Speaker 1: I mean today it's like you know, Trump this or 504 00:29:45,560 --> 00:29:48,840 Speaker 1: Clinton that forgot maths. Focus on and help me here 505 00:29:48,920 --> 00:29:52,600 Speaker 1: with a new trend, which is to aggregate everybody's work 506 00:29:52,720 --> 00:29:56,160 Speaker 1: into an uber pole. Do you do you like that math? Well, 507 00:29:56,560 --> 00:29:58,840 Speaker 1: you know it helps the math afflicted that as it 508 00:29:58,920 --> 00:30:01,480 Speaker 1: gives them one number to look at instead of seventeen. 509 00:30:02,040 --> 00:30:05,640 Speaker 1: The problem is tom that it represents as though that 510 00:30:05,960 --> 00:30:10,320 Speaker 1: average is what's true. And we did a little study 511 00:30:10,360 --> 00:30:13,040 Speaker 1: and after the Senate races in two thousand and fourteen 512 00:30:13,080 --> 00:30:15,880 Speaker 1: where we showed that final average in each of the 513 00:30:15,920 --> 00:30:18,840 Speaker 1: swing states Senate races that we were looking at, and 514 00:30:19,080 --> 00:30:22,320 Speaker 1: the margins were relatively narrow, that is, the expectation was 515 00:30:22,400 --> 00:30:25,040 Speaker 1: by two points, three points, four points maybe, and when 516 00:30:25,120 --> 00:30:29,480 Speaker 1: you look at the actual results typically they the actual 517 00:30:29,640 --> 00:30:33,080 Speaker 1: margins were eight to ten points. That is that that 518 00:30:33,320 --> 00:30:35,880 Speaker 1: average is always going to be, in our experience, more 519 00:30:36,080 --> 00:30:39,960 Speaker 1: conservative of what the race really is. So that's why 520 00:30:40,000 --> 00:30:42,000 Speaker 1: I don't like it is that it seems to present 521 00:30:42,120 --> 00:30:47,680 Speaker 1: truth right, not seemed tellub in quantitative finance is very 522 00:30:47,760 --> 00:30:49,840 Speaker 1: big and skin in the game. The skin in the 523 00:30:49,920 --> 00:30:53,520 Speaker 1: game for poles polsters is a visibility that if you 524 00:30:53,600 --> 00:30:55,480 Speaker 1: screw it up, particularly at the end of a race, 525 00:30:55,680 --> 00:30:58,840 Speaker 1: no one forgets it. A number of people have messed 526 00:30:58,960 --> 00:31:02,800 Speaker 1: up recent pole, whether Brexit or the previous election in 527 00:31:02,840 --> 00:31:07,680 Speaker 1: the US. Whatever, how are you practicing polling today different 528 00:31:08,440 --> 00:31:11,520 Speaker 1: than you did four years ago? Because of that arch 529 00:31:12,040 --> 00:31:15,600 Speaker 1: fear your skin in the game that you screw up. Well, 530 00:31:16,320 --> 00:31:19,160 Speaker 1: what I have done is to escalate my my amount 531 00:31:19,200 --> 00:31:23,800 Speaker 1: of worry time because everything has gotten harder in ways 532 00:31:23,880 --> 00:31:27,360 Speaker 1: that that play against the polster. Fewer people who are 533 00:31:27,400 --> 00:31:30,200 Speaker 1: willing to participate. Now. The Pew Research Center, which is 534 00:31:30,240 --> 00:31:33,920 Speaker 1: a national treasure, said to us, they'll do the study 535 00:31:34,080 --> 00:31:38,160 Speaker 1: that tells us all, don't worry yet for now. There 536 00:31:38,240 --> 00:31:40,400 Speaker 1: for every person who won't answer from they have a 537 00:31:40,480 --> 00:31:43,200 Speaker 1: double ganger who will answer just like they would answer 538 00:31:43,280 --> 00:31:46,400 Speaker 1: if we had reached the other person. So we worry 539 00:31:46,640 --> 00:31:49,120 Speaker 1: a lot about it. There are some that are moving 540 00:31:49,880 --> 00:31:54,040 Speaker 1: to voter lists instead of doing random digit dialing. Many 541 00:31:54,600 --> 00:31:58,800 Speaker 1: are playing experimenting really with online polling, which is not 542 00:31:58,960 --> 00:32:02,080 Speaker 1: a probability sample. And what that means is that each 543 00:32:02,240 --> 00:32:06,480 Speaker 1: person who is who will vote on election day has 544 00:32:06,600 --> 00:32:09,560 Speaker 1: the same chance of being contacted for your poll. Well, 545 00:32:09,640 --> 00:32:11,440 Speaker 1: if you have raised your hand and said yes, I'll 546 00:32:11,440 --> 00:32:15,240 Speaker 1: participate in your online panel, you've not been randomly selected. 547 00:32:15,920 --> 00:32:18,080 Speaker 1: And are you like, you know, do you have a 548 00:32:18,160 --> 00:32:22,240 Speaker 1: doppel game? You know? That whole thing starts to fall apart. So, um, 549 00:32:22,680 --> 00:32:25,800 Speaker 1: I like to base on science. I like a probability sample. 550 00:32:26,400 --> 00:32:29,760 Speaker 1: Just the way our world works, it's harder and harder. 551 00:32:29,920 --> 00:32:32,680 Speaker 1: For now, we think we're okay, okay, I mean, I 552 00:32:32,720 --> 00:32:34,760 Speaker 1: don't know when polling started. You're gonna tell me in 553 00:32:34,800 --> 00:32:37,920 Speaker 1: a moment. But you know you're with Jefferson and and 554 00:32:38,240 --> 00:32:40,200 Speaker 1: and Madison, and you're trying to get a poll on 555 00:32:40,280 --> 00:32:42,920 Speaker 1: what the Federalists are doing up in New England, and 556 00:32:43,200 --> 00:32:47,720 Speaker 1: you know sev eighteen two or whatever. You add technology 557 00:32:47,840 --> 00:32:52,120 Speaker 1: at hand. How has the modern technology affected you? Well, 558 00:32:52,320 --> 00:32:55,640 Speaker 1: you know what. It wasn't until night, says the Des 559 00:32:55,680 --> 00:32:58,520 Speaker 1: Moines Register, where I just start got started in a 560 00:32:58,600 --> 00:33:01,080 Speaker 1: lot of polling here in Iowa. They were going door 561 00:33:01,160 --> 00:33:03,960 Speaker 1: to door until nine and I'm sure that that's what 562 00:33:04,080 --> 00:33:06,560 Speaker 1: they were doing in New York City when they were 563 00:33:06,600 --> 00:33:09,440 Speaker 1: all worried about what was going to happen with creating 564 00:33:09,480 --> 00:33:12,600 Speaker 1: a new constitution. Um, they just do it the same way. 565 00:33:13,280 --> 00:33:15,720 Speaker 1: Uh So. The telephone is relatively simple. But keep in 566 00:33:15,800 --> 00:33:18,600 Speaker 1: mind when we first for working with telephones, if I 567 00:33:18,680 --> 00:33:21,840 Speaker 1: knew your phone number, I pretty much knew where you lived. 568 00:33:22,560 --> 00:33:25,280 Speaker 1: You only had one phone number for your whole household. 569 00:33:25,360 --> 00:33:27,920 Speaker 1: So I knew again I could I sort of had 570 00:33:28,000 --> 00:33:31,680 Speaker 1: access to you as a sampling unit in ways that 571 00:33:31,760 --> 00:33:34,200 Speaker 1: we just don't have. People have phone numbers living in 572 00:33:34,240 --> 00:33:37,400 Speaker 1: New York that they brought from California. We don't know 573 00:33:37,520 --> 00:33:39,680 Speaker 1: where you live when we look at your phone number. 574 00:33:40,240 --> 00:33:44,120 Speaker 1: Um there. There are just many other issues. Won't bore 575 00:33:44,200 --> 00:33:47,000 Speaker 1: your listenership, but get harder and harder, and I just 576 00:33:47,080 --> 00:33:51,000 Speaker 1: worry more. What is the distinction now between polling of 577 00:33:51,200 --> 00:33:55,680 Speaker 1: popular vote and polling of electoral vote or the calculus 578 00:33:55,800 --> 00:33:59,040 Speaker 1: of electoral vote math. That is such a great question. 579 00:33:59,120 --> 00:34:01,160 Speaker 1: It's my only good one to today. I am. I 580 00:34:01,280 --> 00:34:05,480 Speaker 1: am so done. I've allocated my good questions to Michael McKee. 581 00:34:05,920 --> 00:34:10,440 Speaker 1: What do you want like eighteen hours today? Okay, there 582 00:34:10,480 --> 00:34:13,680 Speaker 1: you go. Well, you know, we've just done a national poll. 583 00:34:13,760 --> 00:34:15,480 Speaker 1: Why do we do it? Because it gives you a 584 00:34:15,600 --> 00:34:18,840 Speaker 1: sense of the mood of the electorate overall. But we 585 00:34:19,040 --> 00:34:22,600 Speaker 1: don't elect a president with a national poll. So two 586 00:34:22,640 --> 00:34:25,640 Speaker 1: weeks ago, Bloomberg Politics released a poll of the state 587 00:34:25,719 --> 00:34:29,400 Speaker 1: of Ohio, which is one of the great battleground states, 588 00:34:29,960 --> 00:34:33,280 Speaker 1: and we showed a Trump lead there, which was again 589 00:34:34,160 --> 00:34:36,719 Speaker 1: we were the first poll to come out and say, look, 590 00:34:36,880 --> 00:34:39,160 Speaker 1: this looks like it's going for Trump. And I think 591 00:34:39,200 --> 00:34:41,040 Speaker 1: it was five or six points. I don't have that 592 00:34:41,160 --> 00:34:43,960 Speaker 1: right in front of me. But not a small lead, 593 00:34:44,160 --> 00:34:47,480 Speaker 1: not a tie. It looked like Ohio at that point 594 00:34:47,560 --> 00:34:52,320 Speaker 1: in time was going for Donald Trump. Well that changes, 595 00:34:52,520 --> 00:34:54,560 Speaker 1: but the ways the electoral votes are going to fall 596 00:34:54,640 --> 00:34:57,600 Speaker 1: so very important. We're talking with ant Selzer from and 597 00:34:57,800 --> 00:35:00,960 Speaker 1: Seller and Company and she is the poster who put 598 00:35:01,000 --> 00:35:04,719 Speaker 1: together the latest Bloomberg Politics survey that shows Donald Trump 599 00:35:04,800 --> 00:35:07,719 Speaker 1: and Hillary Clinton tied. I want to go, um, I 600 00:35:07,760 --> 00:35:09,440 Speaker 1: want to put this in terms of a poll. If 601 00:35:09,440 --> 00:35:11,799 Speaker 1: you've got a few moments to answer some questions. Uh, 602 00:35:12,400 --> 00:35:15,279 Speaker 1: I want to go deeper into some of the some 603 00:35:15,400 --> 00:35:18,359 Speaker 1: of the numbers down below. And my first question when 604 00:35:18,400 --> 00:35:21,080 Speaker 1: I look at these sorts of things is, uh, what 605 00:35:21,360 --> 00:35:24,080 Speaker 1: is the undecided vote? Or were you able to tease 606 00:35:24,160 --> 00:35:26,600 Speaker 1: that out? In other words, we have a debate tonight. 607 00:35:26,800 --> 00:35:29,000 Speaker 1: We're going to have another month and a half of 608 00:35:29,480 --> 00:35:33,520 Speaker 1: invective and uh and criticism and commercials and stuff like that. 609 00:35:33,880 --> 00:35:37,480 Speaker 1: But how many people are persuadable at this point? You know, 610 00:35:37,640 --> 00:35:41,280 Speaker 1: it's relatively low when we ask people who your first choices, 611 00:35:41,360 --> 00:35:43,799 Speaker 1: and then if they say they're undecided, we pushed them 612 00:35:43,840 --> 00:35:46,480 Speaker 1: a little bit and say, well which way do you lean? Um, 613 00:35:46,640 --> 00:35:49,719 Speaker 1: it's relatively low the number of people who say I 614 00:35:49,800 --> 00:35:52,840 Speaker 1: still haven't made up my mind. I think, what the 615 00:35:53,239 --> 00:35:56,280 Speaker 1: thing that is invisible in the poll, which is probably 616 00:35:56,440 --> 00:36:00,880 Speaker 1: changing more are people who are deciding today. Yeah, I 617 00:36:00,960 --> 00:36:02,960 Speaker 1: feel like I'm going to vote. I've always voted, I'm 618 00:36:02,960 --> 00:36:05,160 Speaker 1: going to vote. And then the next day they'll say, 619 00:36:05,200 --> 00:36:07,440 Speaker 1: you know what, I'm so turned off by this. I 620 00:36:07,560 --> 00:36:10,920 Speaker 1: just think I'll feel better if I stay home. So 621 00:36:11,120 --> 00:36:14,480 Speaker 1: you have a moving electorate, and that part is is 622 00:36:14,719 --> 00:36:18,640 Speaker 1: can be invisible in the poll. We we actually gather 623 00:36:18,840 --> 00:36:21,720 Speaker 1: some data on the people we talked to who don't 624 00:36:22,480 --> 00:36:25,680 Speaker 1: qualify to be as a likely voter in our screen, 625 00:36:26,239 --> 00:36:28,000 Speaker 1: but we get we get a little bit of more 626 00:36:28,080 --> 00:36:31,080 Speaker 1: information what are they demographically? And this time for the 627 00:36:31,120 --> 00:36:33,359 Speaker 1: first time, we said well, if you were going to vote, 628 00:36:33,400 --> 00:36:36,600 Speaker 1: who would you vote for? And Hillary Clinton led with 629 00:36:36,800 --> 00:36:40,200 Speaker 1: that group by about ten or eleven points. I think, well, 630 00:36:40,239 --> 00:36:43,680 Speaker 1: that gets to depth of support and turn out. Yeah, 631 00:36:44,120 --> 00:36:46,879 Speaker 1: is there any way that you can measure or get 632 00:36:46,920 --> 00:36:50,080 Speaker 1: an impression of how many people are going to voluntarily 633 00:36:50,160 --> 00:36:52,840 Speaker 1: go to the polls or whether Donald Trump has to 634 00:36:52,960 --> 00:36:55,960 Speaker 1: really drive his people to do more than say they 635 00:36:56,040 --> 00:36:58,399 Speaker 1: support him, which gets to the issue of who has 636 00:36:58,480 --> 00:37:01,600 Speaker 1: the ground game, etcetera. Well, we know that the ground 637 00:37:01,680 --> 00:37:05,760 Speaker 1: game is what made two thousand and twelve of victory 638 00:37:05,800 --> 00:37:09,400 Speaker 1: for Barack Obama. That they had such a an aggressive 639 00:37:09,480 --> 00:37:12,319 Speaker 1: machine that if they figured you were an Obama voter, 640 00:37:12,480 --> 00:37:16,279 Speaker 1: they worked diligently to get an absentee ballot in your 641 00:37:16,320 --> 00:37:19,240 Speaker 1: hand and drive you to early voting, and once you've voted, 642 00:37:19,320 --> 00:37:22,280 Speaker 1: get you recruit you to start working for the campaign 643 00:37:22,360 --> 00:37:24,879 Speaker 1: to go get more votes, um and all the way 644 00:37:24,960 --> 00:37:30,160 Speaker 1: through election day. Just a very detailed precision cut there 645 00:37:30,360 --> 00:37:33,800 Speaker 1: in terms of getting their voters out Of the two candidates, 646 00:37:33,880 --> 00:37:37,319 Speaker 1: Hillary Clinton would have invested more in that kind of thing. 647 00:37:37,920 --> 00:37:40,919 Speaker 1: It is to her advantage to have a big turn 648 00:37:41,000 --> 00:37:43,959 Speaker 1: out because the people who are kind of holding out 649 00:37:44,520 --> 00:37:47,839 Speaker 1: are tend to be more her supporters, younger people, UM, 650 00:37:48,360 --> 00:37:52,000 Speaker 1: minority populations that have been voting Democratic for a long time. 651 00:37:52,719 --> 00:37:56,320 Speaker 1: We just don't know what the Trump organization has in 652 00:37:56,440 --> 00:37:59,160 Speaker 1: mind for that, because they don't appear to be investing 653 00:37:59,560 --> 00:38:03,920 Speaker 1: them else in that kind of machinery. UM that the 654 00:38:04,280 --> 00:38:07,400 Speaker 1: Republican National Committee will of course be helpful. It's helpful 655 00:38:07,440 --> 00:38:10,800 Speaker 1: to Republican candidates across the country. I'm guessing one of 656 00:38:10,880 --> 00:38:13,560 Speaker 1: the reasons that Trump is doing well in Ohio, where 657 00:38:13,600 --> 00:38:16,040 Speaker 1: we pulled a couple of weeks ago, is because they 658 00:38:16,080 --> 00:38:21,000 Speaker 1: have a very popular Republican governor and the Republican candidate 659 00:38:21,080 --> 00:38:24,120 Speaker 1: for US Senate is doing very well, So that state 660 00:38:24,239 --> 00:38:28,719 Speaker 1: may already be organizing for a Republican turnout. Um that 661 00:38:28,800 --> 00:38:31,759 Speaker 1: the Democrats will have a hard time matching. The other 662 00:38:31,840 --> 00:38:35,160 Speaker 1: question I would have is, um, as you pull, we 663 00:38:35,360 --> 00:38:39,000 Speaker 1: have early voting nowadays and and spread to more and 664 00:38:39,040 --> 00:38:41,120 Speaker 1: more states. I know you've already got three percent of 665 00:38:41,239 --> 00:38:45,160 Speaker 1: people saying they voted already. At what point can you, 666 00:38:45,440 --> 00:38:48,360 Speaker 1: or can you ever in the lead up as you 667 00:38:48,480 --> 00:38:51,279 Speaker 1: pull to the actual election day get an idea of 668 00:38:51,400 --> 00:38:54,800 Speaker 1: how turnout is from early voting. Well, I don't know 669 00:38:54,960 --> 00:38:58,640 Speaker 1: that that early voting number by itself tells you. Um, 670 00:38:58,800 --> 00:39:02,400 Speaker 1: it certainly tells you this strength of the machine, again, 671 00:39:02,480 --> 00:39:06,080 Speaker 1: the turnout machine and getting people to show up. Here 672 00:39:06,120 --> 00:39:09,760 Speaker 1: in Iowa, it's not uncommon for early voting to account 673 00:39:09,840 --> 00:39:14,120 Speaker 1: for thirty, sometimes forty percent of the vote. It is 674 00:39:14,200 --> 00:39:18,359 Speaker 1: a much stronger tradition on the Democratic side to push 675 00:39:18,440 --> 00:39:21,560 Speaker 1: for early voting. Republicans tend to want to vote on 676 00:39:21,880 --> 00:39:25,840 Speaker 1: election day or they're not pushed to vote early. But 677 00:39:26,200 --> 00:39:28,440 Speaker 1: but when we separate out the people who have already 678 00:39:28,520 --> 00:39:30,759 Speaker 1: voted from the people who say they will vote in 679 00:39:30,800 --> 00:39:33,480 Speaker 1: the future, we always see a strong I mean, well, 680 00:39:33,560 --> 00:39:36,160 Speaker 1: we'll get a very good idea looking at that cross 681 00:39:36,239 --> 00:39:38,759 Speaker 1: tab as that group grows as to what's happening with 682 00:39:38,840 --> 00:39:41,480 Speaker 1: the rate. And Seltzer, thank you so much for coming 683 00:39:41,560 --> 00:39:43,800 Speaker 1: on with us, and thank you for the integrity of 684 00:39:43,920 --> 00:39:47,080 Speaker 1: your work. And Seltzer on pulling or she does the 685 00:39:47,120 --> 00:39:50,600 Speaker 1: Bloomberg poll, and we really take pride on trying to 686 00:39:50,680 --> 00:40:11,120 Speaker 1: make it mathematically better than good Jack Bogel with us 687 00:40:11,640 --> 00:40:15,839 Speaker 1: right now with Vanguard and of course all his work 688 00:40:16,360 --> 00:40:19,640 Speaker 1: over therese how are you, sir? I am well, thank you, Tom. 689 00:40:20,040 --> 00:40:24,120 Speaker 1: I look at the ascendance of passive funds and I 690 00:40:24,239 --> 00:40:27,360 Speaker 1: guess on a calculus basis, this is something you studied 691 00:40:27,400 --> 00:40:30,440 Speaker 1: a few years ago. There's a limit. There's a limit 692 00:40:30,560 --> 00:40:34,000 Speaker 1: to how much money can move this way or that way. 693 00:40:34,480 --> 00:40:41,000 Speaker 1: Have we reached the limit on money movement towards index funds? No, 694 00:40:41,400 --> 00:40:44,640 Speaker 1: that's actually a long way away. The I think the 695 00:40:44,760 --> 00:40:47,960 Speaker 1: relevant limit the limits the indexing. You know, could the 696 00:40:48,000 --> 00:40:53,880 Speaker 1: market work at indexing? I don't see why not. You know, 697 00:40:54,280 --> 00:40:57,320 Speaker 1: the market now turns over it. I think it's around 698 00:40:57,320 --> 00:41:00,160 Speaker 1: two a year. And when I came in of this 699 00:41:00,320 --> 00:41:04,680 Speaker 1: business some nineteen in the early nineteen fifties, the market 700 00:41:04,719 --> 00:41:09,920 Speaker 1: turner was so um. If half of that the market 701 00:41:09,960 --> 00:41:13,800 Speaker 1: that's turning over that was index it was just dropped 702 00:41:13,880 --> 00:41:18,880 Speaker 1: to that's plenty of volume. Trading is of course, of 703 00:41:18,880 --> 00:41:22,000 Speaker 1: the investor's enemy, because one side of the trade wins 704 00:41:22,000 --> 00:41:24,080 Speaker 1: and the other side loses. We never done which one, 705 00:41:24,520 --> 00:41:28,160 Speaker 1: but the man in the middle always takes money. So 706 00:41:28,920 --> 00:41:31,359 Speaker 1: the more you trade, the more you lose, the more 707 00:41:31,400 --> 00:41:33,239 Speaker 1: Main Street loss to Wall Street is the way I 708 00:41:33,239 --> 00:41:36,640 Speaker 1: would put it. If we are lower for longer, which 709 00:41:36,640 --> 00:41:40,640 Speaker 1: seems to be a consensus opinion, how do bond funds 710 00:41:41,000 --> 00:41:44,279 Speaker 1: make money? Don't they all have to migrate to the 711 00:41:44,440 --> 00:41:48,680 Speaker 1: Vanguard annual fee? I mean, just by definition, because the 712 00:41:48,760 --> 00:41:53,640 Speaker 1: coupon is so low. I think the role of low 713 00:41:53,760 --> 00:41:57,280 Speaker 1: costs in the markets. We face, both the stock market 714 00:41:57,360 --> 00:42:00,640 Speaker 1: and the bond market much lower returns, and we historically 715 00:42:01,040 --> 00:42:03,399 Speaker 1: I gotta put much more pressure on these high cost 716 00:42:03,560 --> 00:42:05,920 Speaker 1: mutual funds, which is of course most of the mutual 717 00:42:05,960 --> 00:42:10,200 Speaker 1: fund industry. The costs are just outrageous, really um and 718 00:42:10,600 --> 00:42:13,880 Speaker 1: uh not just the expense ratio, Tom, which you know 719 00:42:14,000 --> 00:42:16,440 Speaker 1: the it's around one percent to the average fund, a 720 00:42:16,480 --> 00:42:19,239 Speaker 1: little bit lower if you waited by assets, and a 721 00:42:19,280 --> 00:42:22,160 Speaker 1: little bit higher if you waited fund by fund, but 722 00:42:22,760 --> 00:42:26,080 Speaker 1: compared and then and then you add in the portfolio 723 00:42:26,239 --> 00:42:29,440 Speaker 1: turnover costs. The mutual funds turn over their their active 724 00:42:29,600 --> 00:42:32,560 Speaker 1: mutual funds turn over their portfolios at a very high rate, 725 00:42:32,960 --> 00:42:36,320 Speaker 1: and that's probably another fifty seventy five basis points, so 726 00:42:36,440 --> 00:42:40,600 Speaker 1: you're almost a two percent in sunk cost. That's too much. 727 00:42:41,400 --> 00:42:44,800 Speaker 1: And the index fund takes out the trading costs and 728 00:42:44,920 --> 00:42:48,439 Speaker 1: can operate for most investors. You've got more at least 729 00:42:48,480 --> 00:42:53,600 Speaker 1: here at Vanguard for five basis points. Find what happens, Mike. 730 00:42:53,680 --> 00:42:56,080 Speaker 1: I'm looking at the expense ratio of a Vanguard total 731 00:42:56,160 --> 00:43:00,759 Speaker 1: bond market fund versus another famous actively managed on and 732 00:43:00,880 --> 00:43:06,080 Speaker 1: on in a bond investment. It's exactly uh seventy basis 733 00:43:06,200 --> 00:43:09,920 Speaker 1: points seven tenths of a percentage point. So if your 734 00:43:09,960 --> 00:43:13,080 Speaker 1: gross coupon, I mean when your gross coupon was five percent, 735 00:43:13,200 --> 00:43:16,040 Speaker 1: you didn't care, But now your gross coupon is two 736 00:43:16,120 --> 00:43:19,640 Speaker 1: or three percent, and you care. That is exactly correct. 737 00:43:19,760 --> 00:43:26,799 Speaker 1: I do the math, Okay, I guess I well, uh, well, 738 00:43:27,120 --> 00:43:30,239 Speaker 1: we're no Dunce capped for him. I didn't realize Jack 739 00:43:30,320 --> 00:43:35,200 Speaker 1: that it's basically been fifty years here since or forty 740 00:43:35,280 --> 00:43:38,880 Speaker 1: years since, um you started this whole thing. It was 741 00:43:38,920 --> 00:43:44,240 Speaker 1: August ninety six you launched the Vanguard five index funds. Correct, 742 00:43:44,719 --> 00:43:48,600 Speaker 1: we missed the actual anniversary, but Washington Post wrote it 743 00:43:48,680 --> 00:43:52,279 Speaker 1: up recently, noting that one of the innovations was you 744 00:43:52,440 --> 00:43:55,840 Speaker 1: could lower costs because you weren't trying to make a 745 00:43:56,040 --> 00:43:59,360 Speaker 1: big profit on it. The we don't make any returns 746 00:43:59,440 --> 00:44:02,680 Speaker 1: go back in to the funds themselves. It's just just 747 00:44:02,840 --> 00:44:05,560 Speaker 1: what it is. Is we operate at costs and other 748 00:44:05,640 --> 00:44:08,120 Speaker 1: people do not. So if you take that presume profit 749 00:44:08,200 --> 00:44:11,160 Speaker 1: margin that they have are at fifty basis points, you're 750 00:44:11,160 --> 00:44:13,360 Speaker 1: going to be at least fifty basis points ahead with us, 751 00:44:13,920 --> 00:44:17,520 Speaker 1: and turns out to be more like seventy five. And 752 00:44:17,960 --> 00:44:20,880 Speaker 1: why has it? I mean, it's catching on now, obviously 753 00:44:21,200 --> 00:44:23,480 Speaker 1: become a big deal, But why why was it slow. 754 00:44:24,239 --> 00:44:27,600 Speaker 1: What's the myth of the myth of the the active 755 00:44:28,360 --> 00:44:32,759 Speaker 1: investor that you have trouble fighting? Well that what you 756 00:44:32,840 --> 00:44:35,520 Speaker 1: have is this this giant marketing system. That's the mutual 757 00:44:35,560 --> 00:44:38,320 Speaker 1: fund industry works through with sometimes our I A. S, 758 00:44:38,600 --> 00:44:43,560 Speaker 1: sometimes stockbrokers, and they can always find a large number 759 00:44:43,640 --> 00:44:46,759 Speaker 1: of funds that have done better than the S and 760 00:44:46,840 --> 00:44:51,080 Speaker 1: P five large number of stock funds, and they don't 761 00:44:51,120 --> 00:44:54,560 Speaker 1: necessarily tell the client that that we have. If you've 762 00:44:54,600 --> 00:44:57,719 Speaker 1: been if you've been number one this year, you're not 763 00:44:57,760 --> 00:44:59,719 Speaker 1: gonna be number one next year. If you've been number 764 00:44:59,760 --> 00:45:02,200 Speaker 1: one of the last ten years, you're certainly not going 765 00:45:02,239 --> 00:45:05,759 Speaker 1: to be number one maybe maybe more like number uh 766 00:45:06,000 --> 00:45:09,520 Speaker 1: say a hundred out of in the next ten years. 767 00:45:09,640 --> 00:45:12,040 Speaker 1: Is there's this thing we've talked about before, Tom, the 768 00:45:12,120 --> 00:45:16,480 Speaker 1: reversion of the main and that's that's what happens to 769 00:45:16,800 --> 00:45:19,319 Speaker 1: mutual funds, that's what happens to stocks in a large way. 770 00:45:19,960 --> 00:45:23,080 Speaker 1: And the first, she'll be last, No, I shall be first. 771 00:45:23,360 --> 00:45:25,680 Speaker 1: To give you a little biblical quote there, John Bogel 772 00:45:25,719 --> 00:45:28,560 Speaker 1: with us, of course, Jack Bogel, uh with the as 773 00:45:28,600 --> 00:45:33,680 Speaker 1: Mike Mcki mentions the fifty year anniversary of Vanguard, thanks 774 00:45:33,719 --> 00:45:37,800 Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen 775 00:45:38,160 --> 00:45:43,480 Speaker 1: to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. 776 00:45:44,120 --> 00:45:47,560 Speaker 1: I'm on Twitter at Tom Keane, Michael McKee is at 777 00:45:47,719 --> 00:45:51,920 Speaker 1: Economy Before the podcast. You can always catch us worldwide. 778 00:45:52,320 --> 00:46:02,120 Speaker 1: I'm Bloomberg Radio. Who you put your trust in matters. 779 00:46:02,800 --> 00:46:06,600 Speaker 1: Investors have put their trust in independent registered investment advisors 780 00:46:06,680 --> 00:46:10,680 Speaker 1: to the tune of four trillion dollars. Why learn more 781 00:46:11,160 --> 00:46:13,279 Speaker 1: and find your independent advisor dot com.